Experts: Petronas’ bull run likely to continue in FY18


Petroliam Nasional Bhd (Petronas) looks set to maintain its stellar performance this year, helped by stronger energy prices and sustained gains from its cost controlling measures.

Following a record 91% year-on-year (YoY) growth in net earnings of RM45.5 billion for its financial year 2017 (FY17), the national oil company pledged to increase its dividend payout and capital spending for the upcoming year — pointing to a more optimistic outlook for the industry, observers said.

An analyst who spoke to The Malaysian Reserve (TMR) under condition of anonymity said while passive sentiment would continue to dominate the industry, the recent stability in global oil prices has helped oil majors to post higher profits and margins.

“Between January and now, the Brent contract averaged at about US$67 (RM262) per barrel, and the average price that Petronas has given for the year is US$52 — so I don’t think there is any reason to think they cannot continue with their current performance,” the analyst said.

Energy prices are expected to be steady this year, but remain susceptible to a tug-of-war between US shale output growth and OPEC supply restraint.

A Reuters poll of 37 economists and analysts forecast Brent crude will average at US$63 per barrel in 2018.

The analyst expects Petronas’ ongoing cost optimisation efforts would continue to see its margins expand further.

In FY17, the company recorded a 6% reduction in controllable costs — defined as recurring costs in running the

business operation — of RM3 billion on continuous cost management efforts.

“This cost optimisation initiative has been going on for three to four years now, so it should take effect. If you look at Petronas subsidiaries, all of them reported extremely good earnings and that would contribute positively to the group,” the analyst said.

Its listed downstream subsidiaries — Petronas Dagangan Bhd, Petronas Gas Bhd and Petronas Chemicals Group Bhd — posted higher earnings for FY17, with net profit rising by 69%, 2.8% and 42.6% YoY respectively on improved product prices.

Despite the positive run, Petronas president and group CEO Tan Sri Wan Zulkiflee Wan Ariffin remained cautious of increasing costs due to a perceived recovery of the industry.

Wan Zulkiflee said if the trend is left unchecked, the oil and gas sector as a whole would run the risk of negating the value it has gained over the last three years from various intensive cost efficiency efforts.

Another industry expert who spoke to TMR said the inclination for service providers to raise their costs on higher Brent prices is great.

However, the analyst said if services providers opted to raise their levy, they would have to strongly justify the implications onto their bottom line.

“It cannot be simply raised. The increase has to be in tandem with real crude oil prices,” he said.

The analyst added that Petronas could also see higher operational costs if the government pushed for the national oil company to take up some additional public service projects to aid support service firms.