Page 7 - AsianOil Week 21

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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 opera- tions was driven by steep declines in domestic demand for fuel. Indonesian demand for trans- port fuels has plummeted following govern- ment-ordered social quarantine measures amid the coronavirus (COVID-19) pandemic.
“We are trying to cap production from exist- ing fields and [are] reducing capital and opera- tional expenditures for new drilling,” CEO Nicke Widyawati told a parliamentary committee.
State-owned PTTEP announced sim- ilar plans on April 30, with 15-20% of its planned 2020 capex budget of $4.61bn on the chopping block.
PTTEP was also forced into the cuts after revealing that first-quarter net profits had tanked by 28% quarter on quarter to $275mn, while
revenue slid by 4% to $1.77bn. PTTEP president and CEO Phongsthorn Thavisin said the com- pany would have to be agile and adaptable rather than simply focusing on lowering unit costs if it was to see growth.
PetroVietnam has said it aims to cut costs by 15-30%, though it has stopped short of say- ing where savings will be made other than sal- ary cuts. The company warned in April that its first-quarter net profit likely fell 50.8% to VND4.44 trillion ($188.8mn).
What next
Petronas has said it will strive “as far as prac- tically possible” to minimise the impact of the cuts to its Malaysian capex programme, previ- ously planned at MYR26-28bn ($5.97-6.42bn) for this year.
“While the group continues to invest domes- tically, it anticipates that there will be constraints in the supply chain as a result of the pandemic. The board expects the overall financial year per- formance to be significantly affected by these factors,” Petronas said.
In the longer term, the company has said it remains committed to growth through the max- imisation of cash generators, the expansion of its core business and investing in future-proof- ing the organisation. These are all only terms, however, and will do little to reassure Malaysia’s myriad of oil service providers.
The Southeast Asian country’s service pro- viders were hit hard in the wake of the 2014 oil price crash, with listed companies left struggling for years to recover their footing. These compa- nies had leaned on Petronas for the majority of their contracts and felt the pain as the state major launched a relentless hunt to improve opera- tional efficiencies and reduce its unit costs.
Kenanga Research warned this week that Petronas’ opex cuts would likely put new pressure on local services providers such as Dayang and Uzma, while a smaller capex budget meant fabricators such as Sapura Energy and Malaysia Marine and Heavy Engi- neering would feel the pinch.
“With Petronas announcing cuts in both capex and opex in its efforts for cost compression and cash preservation, we expect the effects to cascade down all value chains across the sector, especially on local-centric players,” the research service said.™
Week 21 28•May•2020 w w w . N E W S B A S E . c o m P7