Page 6 - AsiaElec Week 22

AsiaElec COMMENTARY AsiaElec
Petronas cuts spending amid collapsing profits
The Malaysian major intends to cut spending across the board after low energy prices more than halved the company’s bottom line in the first quarter
MALAYSIA
WHAT:
Petronas will cut its capex and opex budgets by 21% and 12% respectively.
WHY:
The oil price collapse saw the company’s firstquarter profits tumble 68% year on year
WHAT NEXT:
Malaysia’s oil and gas service providers will feel the pinch as Petronas seeks greater efficiencies
THE last of Southeast Asia’s state-owned upstream heavyweights has finally bowed to the pressure of depressed oil prices, announcing plans to slash its spending while warning that its production would fall in the short term.
Malaysian national oil company (NOC) Pet- ronas announced on May 22 that it would cut its 2020 capital expenditure budget by 21% from an initial estimate of MYR50bn ($11.46bn).
The company said it would shave 12% from its operating expenditure, which amounted to MYR20.2bn ($4.64bm) in 2019.
The announcement comes around two and a half months after the state major insisted that the oil price crash would not derail its upstream spending plans. It was a stance Indonesia’s state- owned Pertamina shared until it too was forced to rethink its upstream position in light of mul- ti-year oil and gas price lows.
Performance hit
Petronas revealed the spending cuts at the same time that it reported its first-quarter net profit had collapsed by 68% year on year to MYR4.5bn ($1.03bn) in the three months, from MYR14.2bn ($3.25bn) in the same period of 2019.
The company blamed the result on net asset impairments as well as a 4% slide in revenue, which shrank from MYR62bn ($14.21bn) in January-March 2019 to RM59.6bn ($13.66bn) this year.
The company’s upstream division was the worst hit, posting a 63.1% decline in first-quar- ter net profit to MYR1.93bn ($442.3mn) from MYR5.22bn (1.2bn), despite revenue climb- ing 6.22% to MYR9.7bn ($2.22bn) from MYR9.13bn ($2.09bn).
Petronas president and CEO Wan Zulkiflee Wan Ariffin warned of a “very challenging” year ahead and said the company would focus on pre- serving its liquidity and cutting costs.
“We anticipate a very challenging outlook for the rest of 2020, with economic activities expected to only gradually recover in the second half of the year. Industry players, including Pet- ronas, will be adversely impacted if the current market situation persists and oil prices remain low.” The company produced 2.46mn barrels of oil equivalent per day (boepd) in the first three
months, slightly above the 2.44mn boepd pro- duced in 2019. Despite the production uptick, thanks to stronger performance from its Brazil- ian assets, Petronas warned that it would have to trim its output in order to meet both its OPEC+ commitment as well as reduced demand in the wake of prolonged international and domestic lockdowns.
Petronas’ downstream division recorded a MYR1.17bn ($268.5mn) loss in the segment after posting a MYR1.43bn ($328.1mn) profit a year earlier, owing to inventory losses and lower margins. Revenue shrank 1.77% to MYR26.71bn ($6.13bn) from RM27.2bn ($6.24bn). Overall sales edged down to 6bn in the first quarter from 6.2bn litres in same period of 2019.
The company’s gas sales for the quarter fell by 13% to 2.57bn cubic feet (72.78mn cubic metres) per day compared with 2.96 bcf (83.83 mcm) in the same period of 2019, owing to lower offtake from the power sector in Peninsular Malaysia.
Petronas said diminished demand was expected to persist in the coming months, owing to the weaker global economy.
The company joins Indonesia’s Pertamina, Thailand’s PTT Exploration and Production (PTTEP) and PetroVietnam in embracing cost rationalistion, after harbouring hopes of being able to ride out the storm whilst keep drilling programmes in place.
Cost cutting
In the immediate wake of the oil price crash in early March, which saw international bench- mark Brent crude tumble to the $20-30 per barrel range, Pertamina said it was unfazed by the market volatility. Upstream director Dhar- mawan Samsu said the company’s recently announced drilling expansion planned for 2020 would proceed regardless.
On April 20, however, the company was forced to backtrack and reduced its production target for the year by 3% to 894,000 boepd. The company said it would lower its capex by 23% from a targeted $7.8bn, while operational costs would be trimmed by 30%.
The decision to scale back upstream oper- ations was driven by steep declines in domes- tic demand for fuel. Indonesian demand for
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w w w . N E W S B A S E . c o m Week 22 03•June•2020