Conservative M’sian upstream spend


Petroliam Nasional Bhd (Petronas) plans to increase its upstream domestic spending to capitalise on higher oil prices, but will look to avoid straining current supply to avoid incurring additional costs.

Its upstream executive VP and CEO Datuk Mohd Anuar Taib said the national oil firm’s upstream capital expenditure (capex) in Malaysia could increase to about RM14 billion to RM15 billion next year, from RM12 billion in 2018.

He said this is to take advantage of higher crude oil prices and the expected uptick in domestic upstream activity in 2019, but he noted that the spending will be prudent.

“While we take advantage of this, we also have to be cognisant of the fact that any sudden influx in activities will stretch the supply chain raise costs such as day rates,” he told the press at a media briefing last Thursday. “We will add a little bit more activities, but in a very measured way.”

This comes after Petronas turned in a strong second quarter ended June 30, 2018 (2Q18), with profit close to doubling on higher revenue generated and lower impairment costs.

The company’s profit after tax (PAT) in the 2Q18 jumped 94% year-on-year (YoY) to RM13.6 billion, while its group revenue rose 5% to RM59.2 billion on higher average realised prices.

This brings group PAT and turnover to RM26.6 billion and RM117.2 billion respectively for the first half of 2018 (1H18).

Upstream revenue for 1H18 was up 11.2% YoY at RM74.6 billion, due to the higher average realised prices noted for all products, while the sector produced 2.38 million barrels of oil equivalent per day against the 2.34 million barrels managed in 1H17.

The conservative capex allocation for Malaysian upstream activities will likely come at the expense of O&G service and equipment companies who are dependent on Petronas for work.

The industry struggled with prolonged low levels of capital activity, the bulk of which is driven by oil majors, following the 2014 oil crisis which saw oil prices halving to US$50 (RM205.54) per barrel levels. Crude prices have, over the past month, recovered to chart between US$70 and US$77, but Petronas remains conservative in its budgeting.

Petronas president and group CEO Tan Sri Wan Zulkiflee Wan Ariffin  (picture) said this is due to “fragile” supply and demand dynamics in the oil market.

“Consultants can change their (oil price) projections every three months, but companies like us can’t as we invest in projects over the long term,” he said at the same briefing. “We are a conservative company, so we take a level that we feel comfortable with.”

Petronas is budgeting its 2018 and 2019 expenditure based on oil price projections of slightly below US$73 per barrel and US$66 per barrel respectively.

Wan Zulkiflee said despite this, the company will pay RM24 billion in dividends to the government in 2018, significantly higher than the RM19 billion initially announced earlier this year. In 2017, RM16 billion in dividends were paid.

As for the group’s assets in Canada, following the acquisition of a 25% stake in the LNG Canada project located in Kitimat, British Columbia, Wan Zulkiflee said it stands to be a huge driver for the company.

“This can potentially be another heartland for Petronas, we are exploring all opportunities on how to monetise our big reserves in Canada.”

On the LNG Canada project, he said all partners are working towards securing a final in vestment decision in the coming months to build a liquefied natural gas (LNG) plant. Petronas secured the 25% stake in the LNG project via its wholly owned unit North Montney LNG Ltd Partnership.

The company also owns assets in the country via its unit Progress Energy Canada Ltd.