Petronas cuts annual capex to RM40b-RM45b

The company will move in the direction based on its portfolio while giving focus on specialty chemicals, RE and hydrogen


PETROLIAM Nasional Bhd (Petronas) has further reduced its capital expenditure (capex) to between RM40 billion and RM45 billion per annum for the next five years in anticipation of the projected global oil prices and industry outlook in the coming years.

Petronas president and group CEO Tengku Muhammad Taufik Tengku Aziz said the company would move in the direction based on its portfolio while giving focus on specialty chemicals, renewable energy (RE) and hydrogen.

“We will increase the capex for RE to 9% of the total financial year ending 2021 (FY21) capex from 5%. But it doesn’t mean we are taking our foot off completely from exploration because production continues to be prepared for.

The national oil company had previously earmarked RM50 billion to RM60 billion annually for its capex.

Petronas senior VP and group CFO Liza Mustapha said the group is expected to allocate a higher capex for domestic activities compared to its international programmes.

“We will increase domestic spending to 55% of capex, while international programmes will be at 45%. In the previous allocation, spending for the domestic segment was at 52% and 48% international,” she said.

Petronas recorded RM1.1 billion net loss for the fourth quarter ended Dec 31, 2020, compared to profit after tax of RM4.1 billion in the corresponding quarter last year.

For FY20, Petronas registered a RM31.5 billion impairment charge on assets, resulting in RM21 billion net loss compared to RM40.5 billion net profit in 2019.

Petronas’ annual revenue shrank nearly 26% to RM178.7 billion from RM240.3 billion in FY19, due to the effects of plummeting oil prices, along with demand disruptions resulting in lower sales volume from processed gas, petroleum products and liquefied natural gas.

The group delivered strong operational performance during the year through the implementation of risk mitigation efforts as immediate responses to unfavourable market conditions and deliberate steps to strengthen its resiliency.

Petronas remains focused on operational efficiencies, commercial excellence and fiscal discipline across its value chain.

The oil and gas giant is cautiously optimistic and is looking to future-proof its portfolio by venturing into new energy spaces and pursuing innovation with focused execution.

Tengku Muhammad Taufik said efforts and focus on commercial and operational excellence, while preserving healthy levels of liquidity, will ensure the company’s business sustainability.

“We are also charting the growth pathway to secure new opportunities amid the acceleration in energy transition, especially from new and non-traditional areas.

“Although gas remains a crucial and cleaner source of fuel, diversification into RE is imperative, with having the right skills and capabilities in place as part of the group’s retooling human capital effort,” he added.

As for the Pengerang Integrated Complex, Petronas executive VP and CEO (Downstream) Datuk Md Arif Mahmood said the facility’s commercial operation is expected to begin early in the second half of 2021 (2H21) after it was pushed back from March due to certain delays in 2019 and with further complications in 2020 caused by the recent surge in Covid-19 cases.

“We were putting in a lot of mitigation, in terms of managing the workers at the site. There are still about 4,000 workers and contractors on site, plus our own personnel about more than 2,000 people,” he said.

Md Arif said the company is striving to manage the situation and get back on track, and with completion scheduled for the early part of 2H21.

Tengku Muhammad Taufik said Petronas and Saudi Aramco have remained committed to the partnership and delivering the successful and reliable start-up of the signature 300,000 barrels per day at the petrochemical facility.

“Saudi Aramco has deployed the best resources to complement our own team. I think I should address this head on at this juncture, that I do not want to entertain any speculation around the partnership,” he said.

Saudi Aramco will supply 50% of the refinery’s crude feedstock requirements with the option of increasing to 70%.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said Petronas’ performance is very much in line with what is happening to the global economy, with demand for oil declining significantly following the Covid-19 pandemic.

“While the Brent crude oil prices have been hovering around more than US$60 (RM243.27) per barrel, the excess capacity in the industries especially the upstream sector is quite prevalent.

“Therefore, the capex among the oil majors including Petronas would be quite timid. In this respect, job flows to the service provider may not pick up its pace aggressively as the outlook for the sector remains fairly neutral,” he told The Malaysian Reserve.

Read our previous report here

Petronas posts RM21 billion net loss for FY20