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PUBLISHED: Mar 14, 2017 9:45pm

Petronas remains cautious despite higher profit

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Source:
Reuters

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KUALA LUMPUR, 14 March 2017: 

Petroliam Nasional Bhd (Petronas) today warned of a cautious outlook for 2017, although sharp cutbacks in expenses by the state-run oil major allowed it to swing to a fourth-quarter profit from a loss in the year-ago period.

Petronas maintained what it called a “conservative” outlook for this year – despite also posting a higher profit for 2016 – saying it expects oil prices to remain uncertain and that it will continue to pursue lower costs.

Petronas is relying on lower operating expenses, job cuts and project rollbacks to help it navigate through a low oil price environment.

Malaysia’s only Fortune 500 company is one of the country’s largest employers with a workforce of over 50,000.

“I don’t know whether the worst is over or not. We are preparing ourselves for a very uncertain second half of this year,” said president and group chief executive officer Datuk Wan Zulkiflee Wan Ariffin.

He said Petronas was budgeting for an oil price of US$45 a barrel for 2017. Benchmark Brent crude was trading today around US$51.50 a barrel, still at less than half the levels of mid-2014.

“We are not deferring any of the sanctioned projects … But at the same time projects will be held to more stringent hurdle rates,” Wan Zulkiflee said.

Petronas’ capital investments tumbled 22% in 2016 due to project deferment and other cost-cutting steps, while “controllable” costs fell by 8%.

The cuts helped the state oil firm post a net profit after tax of RM23.5 billion for 2016, higher from RM20.9 billion in 2015.

For October-December last year, it reported profit after tax of RM11.3 billion – compared with a RM2.96 billion net loss for the same quarter a year ago, primarily due to a drop in operating expenses and impairment costs. Revenue dropped 2% to RM58.6 billion.

Peter Lee, Asia oil and gas analyst at BMI Research, said Petronas won’t have to implement drastic cost cuts this year.

“The one advantage Petronas has is they resorted to cost cutting much earlier compared to their (national oil company) peers in the region.”

As oil prices traded near 12-year lows in early 2016, Petronas said it would slash spending by RM50 billion over the next four years. The company also cut about 2,300 jobs last year, the CEO said today.

Petronas said it expected to pay a RM13 billion dividend to the government this year, unchanged from a figure announced earlier by the government. That’s lower than a RM16 billion dividend Petronas has said it would pay for 2016 and the RM26 billion it paid in the year before that.

Petronas is involved in two major projects, one at home and one in Canada, even amid its aggressive spending cuts.

Petronas’ finances got a boost last month when Saudi Aramco agreed to invest US$7 billion in its Refinery and Petrochemical Integrated Development (RAPID) project that is slated to cost US$27 billion.

Wan Zulkiflee said Petronas has still not made a decision on the future of its other big project, a liquefied natural gas (LNG) export terminal in western Canada, and that it was studying conditions set forth by regulators.

Canada approved the US$27 billion Pacific NorthWest LNG project in September after a three-year wait, but included conditions to limit its environmental impact.

“We are looking at all options how to develop an LNG plant that will be very competitive among other North American LNG plants … We will take our time,” Wan Zulkiflee said.

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