Petronas will cut capex by 15% to 20% next year (Update1)

KUALA LUMPUR: Petroliam Nasional Bhd said on Friday it would its cut capital expenditure by 15% to 20% next year, in line with the other oil companies due to the weak crude oil prices.

Brent crude fell to a fresh four-year low on Friday, sending oil-related shares and currencies lower, after OPEC decided to refrain from cutting output despite a supply glut.

Brent crude touched a low of $71.12 a barrel after settling at a four-year closing low on Thursday. US crude fell US$4.91 to US$68.78,

The national oil company said revenue for the third quarter ended Sept 30, 2014 fell 1% to RM80.37bil compared to RM81.41bil a year ago mainly due to lower average realised prices for most major products coupled with the effect of the unfavourabvle US dollar exchange rate movement against the ringgit.

This was partially offset by higher crude oil production mainly from Iraq and domestic fields.

Petronas said profit before tax, profit after tax and earnings before interest, tax, depreciation and amortisation (EBITDA) fell on-year due to lower revenue, higher net loss on forex, partially off sent by higher gain on disposal of property, plant and equipment in Q3, 2014.

Profit before tax was down 12% to RM22.78bil from RM25.87bil. EBITDA declined to RM29.21bil from RM32.94bil. Its capital investments were marginally higher at RM16.34bil compared with RM16.10bil.

During the Q3, it recorded crude oil, condensate and natural gas production of 2.078 million barrels equivalent per day, up from 2.064 million per day a year ago.

For the nine-months, its revenue increased by 7% to RM249.78bil mainly due to higher crude oil production volume from Iraq’s new producing fields and South Sudan.

It also benefited from higher processed gas sales volume driven by higher gas supply from the importation of LNG via the regasification terminal in Melaka.

Profit before tax increased by 2% to RM78.049bil from RM76.691bil while profit after tax rose 4% to RM54.888bil from RM52.823bil. EBITDA increased by 6%from RM38.369bil to RM47.053bil.

Meanwhile, Reuters reported Petronas Chief Financial Officer George Ratila as saying that excess oil and gas supplies, sluggish energy demand and slowing global growth will mean earnings in the fourth quarter will be even lower..

Unlisted Petronas, which accounts for more than half of Malaysia's government revenue, is working to secure larger overseas oil and gas reserves to stay profitable at a time of declining domestic output and global oil prices.

Chief Executive Tan Sri Shamsul Azhar Abbas told reporters that payments to the government in the form of dividends, tax and royalties could be 37 percent lower next year if oil stays around $75 a barrel.

Brent crude fell 1.8 percent to $71.30 a barrel on Friday after the Organization of Petroleum Exporting Countries opted not to reduce production to stem a slide in prices. Every dollar change has a 1 billion ringgit impact on Petronas' pretax profit, Shamsul said.

The price decline is likely to have a short-term impact on oil and gas projects, and could necessitate a 15 percent to 20 percent cut in the company's 2015 capital expenditure, Shamsul said.

"We need to channel income as capex. We have to be disciplined in our cash management and adhere strictly to our dividend policy," he said. "If oil prices remain, we have to cut dividends to the government next year."

The CEO also said Petronas' decision to invest in the Pacific Northwest LNG project in Canada is 75 percent complete, and that the company is now in the process of negotiating with bidders of related contracts.

"The numbers (value of the contracts) are still not as good as we expected but we hope to come to a conclusion within the next couple of weeks," Shamsul said.

He dismissed any impact on the investment from declining oil prices, saying economics of the project are still favourable.

Petronas also said total oil and gas production in the third quarter reached 2,078 thousand barrels a day of oil equivalent from 2,064 thousand a year earlier.