PETALING JAYA: Petronas-linked stocks were among the top gainers on Bursa Malaysia yesterday following the surge in global oil price by 50% in just one week on the prospect of Russia and Saudi Arabia cutting their production.
Other oil and gas stocks on Bursa Malaysia namely HIBISCUS PETROLEUM BHD, Carimin Petroleum Bhd and SAPURA ENERGY BHD had jumped more than 50% over the last seven days as the market anticipated a positive outcome from the upcoming Opec and Russia meeting.
The announcement by Petronas on its oil discovery in the Monument exploration well in the US Gulf of Mexico has added a fresh boost to the local O&G stocks, indicating that the national oil company is not slowing down its activities despite the volatility in global oil price.
Petronas has committed about RM28bil in capital expenditure for its activities in Malaysia and has yet to announce any cut although many global oil majors have already done it.
For instance, Royal Dutch Shell has cut its capex for 2020 to US$20bil from US$25bil previously, Saudi Aramco slashed to US$25bil-US$30bil from US$35-US$40bil and Petrobras cut to US$8.5bil from US$12bil previously.
Rating agency Moody’s said the current low oil price environment is credit negative for Petronas and will result in significant earnings decline.
In a statement yesterday, Moody’s expected Brent crude oil to average at US$43 per barrel for 2020 and estimated Petronas’ EBITDA to decline by 30% in 2020 compared to 2019.
“In a downside case, where we expect the Brent crude prices to average US$30 per barrel in 2020, the decline in EBITDA will be 53%, ” Moody’s said.
Under both scenario, Moody’s expected Petronas to generate negative free cash flow of RM20bil to RM30bil this year, assuming it maintains its capital spending at the same level as 2019.
Additionally, Moody’s said that the Malaysian government has requested its state-owned companies including Petronas to consider making a higher dividend payment in 2020, as compared to its previously announced RM24bil to support a portion of its economic stimulus package.
The economic stimulus package was in response to the weakening economic conditions due to the coronavirus (Covid-19) pandemic.
Moody’s pointed out the amount and timing of Petronas’ dividends are subject to the approval of its board members.
Despite lower earnings expectation and higher dividend payout, the rating agency has maintained its “stable” outlook on the national oil company due to its cash position, which provides protection to its credit profile during periods with heightened oil price volatility or when there is an increase in government payments in the form of dividends, royalty and taxes. As of Dec 31, Petronas has a net cash position of RM62bil.
“The rating affirmation reflects our expectation that the credit metrics of Petronas will continue to support its baseline credit assessment and ratings despite the current low oil price environment.
“The stable outlook also incorporates our expectation that the company will maintain its net cash position by limiting the negative free cash flows despite the likelihood of an increase in dividend payment, ” says Vikas Halan, a Moody’s senior vice-president.
Moody’s has affirmed the A2 domestic currency issuer and foreign currency senior unsecured ratings of Petronas.
Moody’s has also assigned the A2 rating to the proposed US dollar-denominated senior unsecured notes to be issued by Petronas Capital Ltd and guaranteed by Petronas drawn down from its US$15bil medium-term note programme.
“The proceeds will be used for general corporate purposes including but not limited to capital expenditure and refinancing, ” it said.
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