AS the earnings reporting season begins, the largest oil and gas companies in the United States and Europe are looking at profit dropping by between 19% and up to 57% in the fourth quarter of last year.
Nearer home, the situation will not be any different for Petronas that will announce its fourth-quarter results in February. In tandem with the significant fall in oil prices during the last three months, Petronas’ results will be significantly lower than the RM15.1bil in pre-tax profit it chalked up in the third quarter of 2014.
Up to the third quarter, the average price of Brent crude for Petronas was US$106.57 per barrel and the exchange rate was RM3.24 against the US dollar.
Since then, the price has spiralled down and is now less than US$50 per barrel.
In this column last week, I stated that Petronas’ contribution to the Government’s coffers had been on the rise for the last five years. Rightly, it has been pointed out that in the last three years, Petronas’ total contribution to the Government has been trending down.
Well, yes, it has been coming down since the high of RM80bil that Petronas gave the Government in the form of dividends, taxes, cash payments and export duty in 2012.
In 2013, the amount came down to RM73.4bil, according to Petronas’ annual report. For 2014, the official numbers are not out. But total dividend, taxes and royalties alone is estimated at RM68bil.
Although it has been trending down, if one takes a look back to 2010, Petronas’ contribution to the Government in the form of dividends, taxes, cash payment and export duty was just RM57.6bil.
So, although the amount has been coming down in the last three years, it is significantly much more than what it was in 2010. Anyway, those are historic numbers.
Going forward, what the nation would be watching closely is the kind of numbers that Petronas would be forecasting to churn out this year.
Considering that Brent crude has come down by more than 50% since it hit a high of US$115 per barrel on June 19 last year, Petronas’ earnings would be impacted.
The impact would be felt not only in the pockets of the Treasury but also the 4,000-odd oil and gas companies operating in Malaysia.
Petronas, however, had said that it would not reduce its planned expenditure for the integrated oil and gas hub in Pengerang where it would be spending RM60bil over several phases. This amount would multiply many times over if investments from other oil and gas majors to set up downstream oil and gas related ventures in Pengerang are included.
It is a decision in the right direction because it enhances Petronas’ position as an integrated oil and gas company. During times of oil price crash, like what the world is experiencing now, integrated players such as Shell feel the minimum impact because of its downstream activities.
However, the oil and gas hub in Pengerang is not the only one coming up in Johor.
Earlier this week, Benalec Holdings Bhd received approval to reclaim some 1,400ha in the Straits of Johor that will be developed into an oil and gas hub.
Benalec is essentially a company that made its fortune by reclaiming sea-fronting land in Malacca and selling or jointly developing it. Its expertise is to reclaim land.
But the business plan that it has mapped out for its 1,400ha of proposed development in Johor is similar to the Petronas-led Pengerang development, albeit on a smaller scale.
Benalec has influential partners in the form of the Johor royalty and businessman Daing A. Malek Rahman. So although it seems like a Herculean effort for Benalec, there is no reason to doubt that the project is here to stay.
Apart from Benalec’s proposed oil and gas project in Tanjung Piai, there are two more oil and gas hubs in Johor already in operations – in Tanjung Langsat and Tanjong Bin.
Johor Corp owns the Tanjung Langsat oil and gas terminal and it operates the oil and gas hub together with its partners Trafigura, Technip and MISC.
As for Tanjung Bin, there is a petrochemical and maritime industrial park there that is owned by MMC Corp Bhd and its partners are Vitol and MISC.
Not to be forgotten is the yet to be completed Asia Petroleum Hub (APH) bunkering and storage facility that is saddled by financial difficulties and is now under the control of banks.
CIMB Banking group announced in September that it was selling its rights on the APH project that is to build oil storage and bunkering facilities, to a group of investors from Dubai.
Since the announcement, there has not been any progress.
Because of its proximity to Singapore, Johor is fertile ground for developing oil and gas hubs. But the business is capital intensive and has a long gestation period. More importantly, it has to be driven by promoters that have strong partners and linkages in the oil and gas industry.
Dialog’s deepwater petroleum terminal in Pengerang that involve an investment of RM5bil is a prime example. With Vopak as a partner, it has started operations and is looking good for further expansion.
We don’t hear of other existing oil and gas hubs in Johor looking to expand. Why is that so?
There is nothing wrong in the creation of oil and gas hubs. But too many hubs lead to over-crowding and eventually forces price-cutting. The end result is there will be casualties.
It is already happening in the Johor property sector where prices are dropping. The Iskandar dream is in jeopardy because of several unplanned projects on reclaimed land.
Do we want to see the oil and gas industry in Johor face the same fate?