Petronas to see dividend payout rate of less than 100% for FY21

With crude oil price expected to maintain above the RM251 a barrel level, it will improve the profitability of the NOC 

by SHAHEERA AZNAM SHAH / pic by MUHD AMIN NAHARUL

PETROLIAM Nasional Bhd’s (Petronas) foresees a healthy dividend payout to the government for financial year 2021 (FY21) as energy prices are expected to remain at a favourable level. 

An industry analyst said with crude oil price expected to maintain above the US$60 (RM251.45) a barrel level for the remainder of the year, that would improve the profitability of the national oil company (NOC). 

“With regards to added dividend payment, we think the amount is appropriate and is within Petronas’ capacity to pay. 

“Assuming commodities prices remain at the current level, we expect the dividend payout ratio to be less than 100% for FY21. 

“This is in contrast to FY20 which is an exceptional year where Petronas has forked out more than what it earned. It is a good thing that last year’s overpayment will not recur this year because it’s just not sustainable,” he told The Malaysian Reserve. 

The government has requested an additional RM7 billion in dividend payout from the state-owned firm, totalling the overall payout to date to RM25 billion. 

In a virtual media briefing last Friday, Petronas president and group CEO Tengku Muhammad Taufik Tengku Aziz said the group received the request in July and the energy group has been undertaking internal analysis on the company’s ability to serve its obligations. 

“We are under scrutiny by external financiers and credit rating agencies on the way we spend and if returns are always within the intentions of our bondholders. 

“The request letter for the extra dividend came last month. Once the letter came, we did the analysis. We are a company and under the company act, we have to consider the solvency requirements, the board members have a fiduciary duty to ensure this doesn’t threaten the ability of the company to remain liquid,” he said. 

It was announced previously during the budget tabling that Petronas will be paying RM18 billion in dividends to the government. 

IDEAS senior fellow and Asia School of Business assistant professor of business and society Dr Renato Lima de Oliveira said Petronas must find a balance between the needs of its shareholder and investment requirements as a continuous high dividend payout rate could compromise the NOC’s financial soundness. 

“The positive short-term outlook for oil prices will help Petronas to afford this extra commitment. 

“However, since 2018, we have seen the company constantly providing additional dividends to the government, despite challenging conditions for oil companies given the lower oil price environment and the need to invest more in renewables. 

“This trend, if continued, is unsustainable and has happened before to other state oil companies leading to negative results. 

“It is important to balance the needs of the shareholder with the oil company in terms of its investment requirements and debt payment in order to have a financially sound business,” he said. 

De Oliveira added that Petronas, along with other leading oil companies, need to generate new revenue streams beyond fossil fuels and develop new capabilities despite the recovery made in energy prices this year. 

The anticipation of a global economic recovery has seen crude oil prices average above the US$60 a barrel level this year while liquefied natural gas (LNG) has seen strong demand and very favourable prices for producers, among the highest in the past few years. 

“All of that points to a very favourable outlook for oil and gas companies like Petronas for the entirety of 2021. 

“The spread of the Delta variant may still dent prices a bit, however, with the wider rollout of vaccines and fatigue with lockdowns, it is likely countries will avoid imposing harsher restrictions going forward,” de Oliveira said. 

Petronas has invested RM12.7 billion in the first six months of this year, mainly for projects in the upstream segments. Last year, it spent RM14.8 billion for the same period. 

In the latest second quarter of this year (2Q21), Petronas made a profit of RM9.6 billion against the RM21 billion loss it made last year. 

The performance is aligned with its higher Ebitda and lower impairment loss recorded in the current period. 

Revenue for the period surged 68% to RM57.1 billion from RM34 billion in 2Q20, mainly driven by the favourable impact on prices for major products as well as higher sales volume of LNG and petroleum products. 

For the first half of 2021 (1H21), Petronas recorded a profit of RM18.9 billion compared to the RM16.5 billion loss it suffered last year. 

Revenue for 1H21 stood at RM109.6 billion, up 17% from RM93.6 billion in 1H20, mainly attributed to the favourable average realised prices for major products and higher sales volume for LNG and gas sales.