KUALA LUMPUR: Cost-cutting measures have helped lift Petroliam Nasional Bhd’s (Petronas) earnings last year but the state-owned oil and gas company is not about to embrace an optimistic stance, stating it remained cautious in its outlook for the industry this year.
According to Petronas president and group CEO Datuk Wan Zulkiflee Wan Ariffin, the group would continue to maintain a “conservative” outlook for 2017, pursuing cost optimisation and efficiency improvement, given the uncertainty of global crude oil prices.
“I don’t know whether the worst is over or not. We still feel the outlook is uncertain,” Wan Zulkiflee said.
“We are preparing ourselves for a ‘very uncertain’ second half of this year,” he said at a briefing on Petronas’ financial results.
Wan Zulkiflee said Petronas’ projection of oil price for this year was similar to that of the government as announced for Budget 2017, that is US$45 per barrel.
Benchmark Brent traded near its three-month low at around US$51.50 per barrel yesterday. Last year, Brent prices averaged at US$44 per barrel for Petronas, down from US$52 per barrel in 2015.
But thanks to its cost-cutting measures amid a challenging market environment, Petronas posted a 12% growth in profit after tax at RM23.5bil for the financial year ended Dec 31, 2016, compared with RM20.9bil in 2015.
It attributed its earnings growth last year mainly to lower operating expenditure and tax expenses, which were partially offset by lower average prices in line with the downtrend of global crude oil prices.
As a result of reduced average selling prices, as well as lower sale volume, Petronas last year saw its revenue fall 17% to RM204.9bil from RM247.7bil in 2015.
“In response to a deteriorating market environment, Petronas introduced a series of sequential steps to face this difficult period and established the prerequisites of our group’s long-term sustainability in what is a major industry downcycle.
“These steps included a restructuring of our organisation to increase its effectiveness, optimisation of our manpower to eliminate redundancy and slashing capital expenditure (capex) and operating expenditure (opex) by RM50bil from 2016 to 2019,” Wan Zulkiflee said.
He said the group managed to slash its capex and opex by between RM15bil and RM20bil last year, with a primary focus on re-examining and optimising all costs.
“In particular, we managed to reduce our controllable costs by 8% as compared to costs in 2015,” he said, noting that Petronas’ controllable costs had declined to RM49.1bil last year from RM53.2bil in 2015.
He said capital investments for the year was reduced by 22% to RM50.4bil, following project deferment and rephasing as well as cost optimisation efforts.
Meanwhile, Petronas’ cumulative earnings before interest, tax, depreciation and amortisation (EBITDA) fell to RM70.4bil in 2016 from RM75.5bil in 2015.
Its operating cashflow decreased to RM53.8bil last year from RM69.6bil in 2015.
On a positive note, Wan Zulkiflee said Petronas ended the year maintaining its strong credit rating, low gearing of 17% and a healthy cash balance.
He noted that the group took a RM12.9bil impairment on assets to ensure the robustness of its balance sheet throughout the prolonged low oil price environment.
Wan Zulkiflee reiterated that Petronas had allocated RM60bil as capex for 2017 while dividend commitment to the government would be RM13bil, down from RM16bil in 2016.
For the fourth quarter ended Dec 31, 2016, Petronas saw its profit after tax jump 85% to RM11.3bil from RM6.1bil in the previous quarter.
The increase was primarily driven by higher average realised product prices and sales volume mainly from liquefied natural gas (LNG) and processed gas as well as the impact of favourable exchange rate.
Revenue during the quarter in review rose 20% to RM58.6bil from RM48.7bil in the preceding quarter, while EBITDA grew 44% to RM21.9bil in line with the group’s higher profits.