Is Petronas on a selling spree of its assets?

Analysts say the national oil company is expected to undertake many disposal exercises, especially for risky and unprofitable assets

By MARK RAO / Pic By MUHD AMIN NAHARUL

Is Petroliam Nasional Bhd (Petronas) on a divestment spree?

The national energy company has for decades been scouring the globe to seek for oil and gas (O&G) reserves. From Africa and North America to the Middle East and South America, Malaysia’s only Fortune 500 firm has been active in its exploration activities.

Worries over the county’s thinning reserves, ambitions to be a global oil company and ensuring sustainable profit have seen the state-owned firm operating in 50 countries.

But two years after the oil price rout with few indications of a return to the good old days prior to 2014, Petronas has been more active in the selling market. The national oil company is cutting expenses, reducing staff and disposing of non-strategic assets.

Global crude price uncertainties continue to cast a dark cloud about the future. But analysts said Petronas is expected to undertake many disposal exercises, especially for risky and unprofitable assets, or to share the cost for expensive ventures.

Early this month, foreign media reported that Petronas plans to dispose of some O&G assets owned by its Canadian unit Progress Energy Resources Corp.

This came after the state energy company announced in July it was abandoning the US$29 billion (RM122.38 billion) liquefied natural gas (LNG) export project in British Columbia.

Petronas had also disposed of a 10% stake in its subsidiary, Petronas LNG 9 Sdn Bhd, to Thailand’s state- owned oil company, PTT Public Co Ltd, for US$500 million.

Last week, reports emerged that Petronas is planning to exit from the Majnoon oilfield in Iraq.

According to Bloomberg, Petronas intends to sell its entire 30% stake in the 200,000 barrels per day oilfield in Iraq, citing low returns as the reason behind the decision.

Petronas’ decision came after Royal Dutch Shell plc — which owns a 45% stake in one of Iraq’s largest oilfields — had decided to exit the project due to its perceived commercial unviability.

“It is a logical decision taken by Petronas, especially after majority shareholder Shell announced its intention to pull out of the project,” an industry analyst, who declined to benamed, told The Malaysian Reserve.

The analyst said Petronas may not have much experience in this part of the Middle East and the oilfield “is a risky venture to undertake”.

“Petronas will continue to identify assets deemed risky or commercially unviable and act to divest those assets,” said the industry analyst.

An agreement to develop the Majnoon oilfield was reached back in January 2010, when Shell took the lead of the project where it was paid a fee for each barrel of oil produced at a certain level up to 2030.

Under the joint venture, Petronas and the Iraqi state-owned Missan Oil Co held 30% and 25% interest respectively.

Petronas has been present in Iraq since 2009 when it won the rights to develop crude deposits at the Garraf oilfield alongside Japan Petroleum Exploration Co Ltd. The company is also currently involved in the Badra and Halfaya projects in the country.

Rolling Back on Expenses

Despite oil prices returning to about US$50 a barrel, Petronas is expected to defer some projects and cut down on expenses by as much as RM50 billion over the next four years.

The decisions to abandon its LNG project in British Columbia and the asset sales in Alberta, would be key to the energy company’s strategic expenses’ control effort.

An O&G research analyst said the national energy company will reduce its exposure to risky assets and will only enter profitable projects.

“Petronas has always looked to the commercial viability of its international projects and made decisions accordingly. It will continue to acquire more assets abroad if they are commercially feasible,” the source said.

“On the home front, the company is likely to focus on downstream projects, but will not neglect international upstream projects. The scope of the latter is not too clear at present.”

The analyst added that the Majnoon oilfield’s production capacity of 200,000 barrels a day is relatively small.

“Petronas likely decided to exit the project due to the cost of production being higher than the returns,” said the source.

For now, the state energy company will make book balancing the key objective, as the outlook of the sector remains murky.