Petronas profit slides

Petroliam Nasional Bhd’s (Petronas) profit for the third quarter fell almost by half, dragged down by lower crude oil prices and net impairment losses.

In a statement yesterday, the national oil company said its profit after tax and profit before tax for the third quarter ended Sept 30 had dropped by 48% and 52% to RM7.42bil and RM9.01bil, respectively, compared to RM14.33bil and RM18.87bil a year earlier.

The impact of these was partly offset by lower net product and production costs, as well as lower tax expenses, the group said. Its revenue for the quarter declined 14% to RM55.11bil from RM63.91bil previously due to lower average realised prices for major products and the lower sales volume of crude oil.

Petronas expects the outlook for the oil and gas industry to remain challenging amid the slowing global economy, geopolitical tensions and ongoing global trade issues, resulting in demand disruption.

“The board expects the overall year-end performance of the Petronas group to be affected by these factors, ” it added.

Petronas president and group chief executive officer Tan Sri Wan Zulkiflee Wan Ariffin expects that Petronas’ financial position will remain robust despite the challenging environment.

“Despite persistent market volatility, Petronas’ performance in this quarter demonstrates its resilience and ability as an integrated energy player in sustaining strong and reliable operations throughout the period.

“We will remain focused on driving operational efficiency and commercial excellence across the group in resolute execution of our three-pronged strategy, ” he said in the same statement.

Its earnings before interest, tax, depreciation and amortisation (Ebitda) for the third quarter fell 30% to RM18.79bil from RM26.91bil.

For the third quarter, Petronas’ capital expenditure (capex) amounted to RM12bil mainly for its upstream projects, bringing its total capex for the first nine months ended Sept 30 to RM28.9bil.

In comparison, Petronas said it had spent RM6.68bil on capex in the third quarter of financial year 2018 (FY18) and RM26.5bil in the first nine months of FY18.

Cumulatively, for the first nine months, Petronas’ profit after tax fell 11% to RM36.36bil from RM40.99bil a year earlier.

Its revenue for the period slipped 3% to RM176.23bil from RM181.07bil previously.

Petronas attributed the decline in revenue to lower average realised prices for major products, but was partly offset by a higher sales volume, particularly for liquefied natural gas and petroleum products, as well as the effect of the weakening ringgit against the US dollar.

During the period, Petronas said the average Brent crude oil price was at US$64.66 per barrel, lower compared to US$72.13 per barrel in the same period last year. The International Energy Agency forecasts Brent crude oil prices to average at US$64 per barrel in 2019 and lower in 2020 at US$60 per barrel due to rising global oil inventories.

Meanwhile, according to Goldman Sachs, Brent crude oil is expected to trade at around US$60 per barrel in 2020 due to slowing economic growth and geopolitical concerns failing to create large waves in the market. It said that ongoing Organisation of the Petroleum Exporting Countries (Opec) cuts and slowing shale activity will offset rising other non-Opec supply and moderate demand growth next year. Brent crude was traded at US$63.66 per barrel yesterday, rising more than 4.3% in the last three months.

Rakuten Trade Sdn Bhd vice-president of research Vincent Lau told StarBiz that the crude oil prices are expected to remain steady in view of progress on the trade tension between the United States and China.

He said the US and China holding a phone call to discuss core concerns over the trade deal would be a boon to the oil market.

However, some major news especially related to geopolitical tensions would trigger the sustained momentum in the oil prices, Lau pointed out.

Despite the decline in profits, Petronas said its cash flow from operating activities had improved 35% to RM19.67bil in the third quarter from RM14.54bil a year earlier.

On a year-to-date basis, Petronas saw a 15% improvement in cash flows from operating activities to RM64.56bil from RM56.23bil previously, mainly due to positive working capital changes, partially offset by lower cash operating profit. Its gearing ratio improved to 18.9% from 19.7% as at end-December, amid lower borrowings following the repayment of a loan.

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