Petronas to best peers in 2018

Absence of costly provisions to boost the firm’s financial result, which is expected to be released this week

By MARK RAO

Petroliam Nasional Bhd (Petronas) is expected to outperform its peers last year as the state-owned energy firm emerged from the 2014 crude oil price rout with stronger fundamentals.

The national oil company, which is among the top 20 oil companies in the world based on revenue, posted a substantial rise in its third quarter ended Sept 30 last year (3Q18).

Profit for the July through September period jumped 44% year-on-year (YoY) at RM14.34 billion, while turn- over rose 19.1% to RM63.91 billion.

Earnings for the oil company, which have about RM155 billion in cash reserve at the end of September 2018, improved to RM41 billion, while revenue was recorded at RM181.07 billion over the first nine months of 2018 (9M18) — up 50.1% and 11.9% YoY respectively.

The higher crude oil prices for the period, after including levels before the 2014 rout, had helped Petronas boost its profits.

Absence of costly provisions, which had erased billions from the calculations of profit, would further boost the company’s financial result, which is expected to be released this week.

The national oil company, which recently agreed to pay RM30 billion in dividend to the government, is anticipated to surpass its 2017 fiscal performance (FY17). Petronas’ profit for FY17 was RM45.5 billion, while revenue came in at RM223.6 billion.

The market is speculating that Petronas could match or exceed the RM47.6 billion profit after tax (PAT) achieved pre-oil crisis in FY14. Without the final-quarter result, the company is only 14% short of matching the 2014’s earnings.

An analyst tracking the oil and gas sector expects Petronas to best its market peers as it is supported by sound fundamentals and prudent spending.

“I expect Petronas to outperform many of its global exploration and production peers as they (Petronas) are more resilient, produce good quality oil, have long-dated liquefied natural gas (LNG) contracts and are prudent with their expenses,” an industry source told The Malaysian Reserve.

“Crude oil prices also performed well in 4Q18 which will support the performance of its upstream business — the biggest portfolio for the group,” said the analyst.

But a stronger ringgit and lower LNG sales may dent a clear rise.

In 9M18, Petronas recognised an average dated Brent crude oil price of US$72.13 (RM293.57) per barrel against US$51.90 in the corresponding period in 2017.

Production over the nine-month period was also higher at 2.31 million barrels of oil equivalent per day, though entitlement fell 6.9% YoY to 1.62 million barrels of oil equivalent per day.

Besides the additional RM30 billion special dividend, the company has committed RM24 billion to the government in respect to FY18, indicating that 2018 could be bumper year for the group.

Worries heightened that Petronas high-dividend commitment would dampen its investments, a key component in the profitable but capital-intensive sector.

“Petronas’ balance sheet is quite strong and they will continue to invest in ongoing programmes,” said the industry analyst.

“At the same time, they are expected to prioritise some projects over the other. Projects deemed low-priority for the group will likely be deferred and revisited at a later date as a result.”

The company’s capital expenditure (capex) in 9M18 was already 21.6% lower YoY at RM26.5 billion, with the bulk of spending directed towards upstream projects.

However, the company said capex is anticipated to increase in 4Q18 due to requirements for its downstream projects, namely the multi-billion Pengerang Integrated Complex (PIC) and LNG Canada projects, and increased drilling activities.

“Big production numbers are expected from PIC which will increase downstream contribution to the group,” the industry analyst said.

“This is part of the company’s plan to shift to a more balanced portfolio, in line with the direction of other oil majors such as Saudi Arabian Oil Co.”

Upstream PAT contributed RM27.22 billion or 66.4% of total PAT in 9M18, but this could change once the Southern Johor-based PIC commences production sometime this year