WHILE a cautious outlook is being projected for the upstream oil and gas (O&G) sector this year, national oil company Petroliam Nasional Bhd (Petronas) is confident that the challenges facing the industry can be overcome with the proper strategies in place.
Petronas executive vice-president and upstream chief executive officer Datuk Mohd Anuar Taib says the company already has a growth plan outlined for it.
“When people ask me about the outlook, you have to be positive in this business.
“We will work towards a plan that we have, which is capital and operational discipline,” he said during a briefing in conjunction with the Offshore Technology Conference Asia 2018 earlier this week.
“This discipline must be maintained throughout ... because at the end of the day, if I were to see what’s the role of this industry, it is actually to deliver energy in the most reliable, affordable and sustainable manner to the users.”
Anuar is adamant that Petronas maintains a tight fiscal discipline throughout, assuring that there will be no “sudden spikes” in expenditure.
“It needs to be cost efficient and we also have to make sure it’s a reliable supply. We continue to invest in the upstream because to be able to continue supplying for the long term, we have to continue finding new resources.”
Anuar says Petronas has been reworking its cost strategies, emphasising that the group has been “very disciplined” in the way it has been does things over the past couple of years.
“I think we are in a healthier footing that we were before.
“So this is a good time for Petronas to embark on growth strategies.
“We are guided by our three-pronged strategy. The first is that we must continue to strengthen our cash generators, which are our existing assets.
“Secondly, is expanding our core business which is O&G.
“This is about growing the integrated model that we have.
‘We look at opportunities of whether we can extend it outside. Finally, we look at expanding our business into adjacencies to what we have today.”
In a research note earlier this week, TA Securities said it expects earnings for O&G upstream contractors to remain weak.
It says this is in anticipation that tenders for greenfield developments will remain scarce amid compressed project margins due to intense competition and sustained cost controls by oil majors.
The research house adds that weak fleet utilisation and charter rates due to asset oversupply, coupled with low demand, will also affect earnings for upstream players.
On the flipside, TA Securities says the nascent recovery in oil price is expected to result in higher cash profits for exploration and production players.
“Additionally, the stronger oil price is also an impetus to ramp up production rates and monetise O&G reserves.”
The research house says other beneficiaries of firmer oil price include petrochemical producers and refineries, due to subdued feedstock cost and higher product prices, as well as petroleum retailers.
“On the back of the mixed outlook, we maintain our neutral stance on the sector with 2018 and 2019 average oil price assumptions of US$60/US$65 (RM234/ RM254) per barrel.”
In spite of the “neutral” outlook, Anuar says Malaysia is still competitive and attractive for others to invest in the upstream industry - especially from a global perspective.
“We think we are - and we have been getting quite a good response from the upstream investments.
“For instance, Mubadala has just announced their final investment decision in the Pegaga field.”
Earlier this week, Mubadala Petroleum and partners Petronas and Royal Dutch Shell announced that they would spend more than US$1bil (RM3.9bil) to develop Malaysia’s Pegaga gas field, aiming to produce gas by the third quarter of 2021.
Anuar adds that he expects more investments into Malaysia going forward.
“We recently awarded an ultra deepwater exploration block to ExxonMobil in Sabah. ExxonMobil is coming back.
The last time they did exploration in Malaysia was in the early 2,000s.”
For its fourth quarter to Dec 31, 2017, Petronas’ net profit increased by 61% to RM18.2bil from RM11.3bil in the corresponding quarter last year due to higher revenue and lower net impairment on assets and well costs.
As a result, earnings before interest, taxation, depreciation and amortisation (EBITDA) was also higher by 15%, at RM25.3bil compared to RM21.9bil in the corresponding quarter last year.
The group’s revenue rose to RM61.8bil, 14% higher compared with the corresponding quarter last year.
This was contributed by improved average realised prices recorded for major products and higher sales volume mainly from liquefied natural gas (LNG) and petroleum products, partially offset by the effect of the firmer ringgit against the US dollar.
For the full year, Petronas’ net profit jumped by 91% to RM45.5bil in 2017, compared with RM23.8bil recorded in 2016.
The increase was achieved on the back of higher revenue, lower net impairment on assets and well costs and continuous efforts to optimise costs in 2017.
The group’s revenue rose by 15% to RM223.6bil compared with RM195.1bil recorded in 2016.
The increase was mainly due to higher average realised prices recorded for major products.
This was partially offset by lower sales volume for crude oil and condensate as well as petroleum products.
Cumulative 2017 EBITDA rose to RM92bil compared with RM70.7bil recorded in 2016, in line with higher profits.
Cashflow from operating activities improved to RM75.7bil, an increase of 41% from RM53.8bil in 2016.
Total assets as at Dec 31, 2017 was slightly lower at RM599.8bil compared with RM603.4bil as at Dec 31, 2016, primarily due to the impact of the firmer ringgit against the US dollar.
Kenanga Research says it is projecting a better outlook for the O&G sector, underpinned by stronger crude demand leading to larger inventory drawdown; as well as sustained production cuts by Organisation of the Petroleum Exporting Countries (Opec) and non-Opec members throughout 2018 and beyond.
“Reading through Petronas’ results, it seems like the local oil giant is coping well in the challenging environment largely attributable to its successful cost cutting measures,” it says.