Petronas urges caution despite strong profit

There are no clear indications oil prices will remain at current levels, says president


Petroliam Nasional Bhd (Petronas) has no plans to change its current strategy and and will continue to maximise utility of current assets, dispose of non-core entities and manage expenditure.

President and group CEO Tan Sri Wan Zulkiflee Wan Ariffin said despite the rise in oil prices, there are no clear indications they would remain at current levels.

Wan Zulkiflee said industry players have started to show “premature exuberance” which is pushing the cost.

“A concern here is that with the oil price recovery, costs are showing signs of increasing at a worrying rate,” Wan Zulkiflee said when announcing the financial results last Friday in Kuala Lumpur.

“If we do not keep these escalating costs in check, the industry as a whole runs the risk of negating the value we have gained from intensive cost efficiency efforts over the last three years,” he said.

The state-owned oil firm wants industry players to keep cost in check, increase efficiency, drive value and consolidate.

Mismatched valuations, reluctant lenders and unattractive assets are among the factors slowing down consolidation in the industry.

Petronas posted RM45.52 billion in profit for 2017, up 91.6% against 2016, the highest profit since RM47.6 billion in its 2014 financial year (FY14).

The jump was primarily due less net impairment on assets and lower expenses.

Revenue in 2017 grew 14.6% year-on-year to RM223.62 billion, helped by the higher averaged realised product prices. Petronas recognised an average dated Brent oil price of US$54.27 (RM211.65) per barrel in FY17 compared to US$43.69 per barrel in FY16.

Despite capital expenditure rising 23.6% this year to RM55 billion, Wan Zulkiflee said Petronas will “sweat” its assets and derive higher returns.

“We want to utilise our assets to the maximum. We sometimes have plants that are not fully utilised,” he said.

Petronas managed to raise the utilisation rates at its domestic and international refineries from 89.3% to 91% and from 89.9% to 96.2% respectively in FY17.

The company will also continue to divest non-core assets. “We will look at our portfolio and the assets that don’t meet our commercial returns,

either due to the environment or the integrity of the asset itself is not as good as previously,” Wan Zulkiflee said.

“If the asset does not meet our returns and if we don’t see an upside for the future, these will be the candidates for divestments.”

In FY17, the group’s total assets stood at RM599.8 billion — slightly lower than RM603.4 billion in FY16.

Meanwhile, energy markets have seen greater near-term demand for liquefied natural gas (LNG) on the back of recent supply disruptions and stronger demand from key markets such as China.

Asian spot LNG prices were at US$8.80 per million British thermal units last week.

Despite pulling out of the large-scale Pacific NorthWest LNG project in Canada, setting the company back by RM1.5 billion in net tax alone, Petronas reaffirmed its stance to monetise its remaining assets in the country.

“We have world-class gas assets in Canada with proven resources of 23 trillion standard cu ft today, which is nearly one-quarter of what we have in Malaysia,” Wan Zulkiflee said.

“We will definitely continue to explore all options that we have to monetise these reserves.”

Via its wholly owned subsidiary Progress Energy Canada Ltd, Petronas is producing approximately 600 million cu ft of gas in Canada.

Going forward, the company will run about 12 to 15 projects annually, but will be nowhere near the scale of its Refinery and Petrochemical Integrated Development downstream project in southern Johor.

The project is part of the US$27 billion Petronas-led Pengerang Integrated Complex. It has achieved 87% overall progress and is due for start-up in the first quarter of 2019.