Earnings risks for local O&G firms


Icon Offshore managing director Datuk Seri Hadian Hashim said the lockdowns and MCO have made it hard for executives and vendors to manage new projects and even some ongoing production activities.

PETALING JAYA: A delay in projects by Petroliam Nasional Bhd (Petronas) may pose earnings risks for local oil and gas (O&G) companies.

The plunge in global crude oil prices is also putting pressure on its dividends to the government which the national oil company said would be based on its performance.

Market observers said the movement control order (MCO) in Malaysia and the lockdowns in other countries could see a delay in complex upstream projects such as enhanced oil recovery, marginal oil fields and some exploration and development activities.

“New fields development could face delay in productions as it involves a lot of technical manpower, ” they said.

Icon Offshore managing director Datuk Seri Hadian Hashim said the lockdowns and MCO have made it hard for executives and vendors to manage new projects and even some ongoing production activities.

“There are disruptions in manpower, services and the supply chain, ” he told StarBiz.

He said Icon Offshore’s operation have been affected by the MCO because of closure at some yards and limited capacity.

Hadian hoped the banks would extend the moratorium of loan deferment to O&G players to alleviate the financial burden resulting from the slowdown in activity as a direct impact from the Covid-19 outbreak and the MCO.

“The O&G industry was just about to recover from the last oil price crunch which started in 2014, ” he added.

Nonetheless, Hadian reckoned that there would be a rush for manpower, services and delivery after the MCO is lifted.

“We expect there will be acceleration in activities, ” he said.

An analyst noted that while Petronas had said it would maintain its capital expenditure (capex) for this year, a delay in some of its projects would translate into increased operating costs for the local service providers as well as their cashflow.

In a statement issued Monday night, Petronas said it is maintaining its capex for this year despite the low oil price environment.

However, the national oil company warned that there is an increasing risk of some projects being delayed due to the prolonged lockdowns implemented globally and in Malaysia to curb the coronavirus (Covid-19) outbreak.

“The ongoing global spread of the Covid-19 outbreak and the collapse in oil prices continue to impact financial markets as well as many economies and industries around the world, ” Petronas said.

“At this point, we will also strive to maintain our domestic capex programme. However, there are increasing risks of some projects being delayed due to the prolonged lockdowns implemented globally and in Malaysia, and further disruptions anticipated to the global supply chain and service providers.”

Earlier, Petronas said it had allocated about RM26bil to RM28bil in capex for its activities in the Malaysian waters for this year, which is higher than last year.

In total, Petronas, which has operations in more than 20 countries, has allocated about RM50bil capex for both local and overseas markets.

According to Petronas’ report on Activity Outlook 2020 to 2022, the firm planned 16 new greenfield projects for O&G fields and another 26 brownfield projects.

Petronas is not alone in the steps it is taking. Many oil majors around the world have already cut their capex for this year, which in turn would lead to slow order-book replenishment among the service providers.

For instance, Royal Dutch Shell has reduced 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.

This came after oil prices hit its 18-year low at US$22 per barrel for Brent crude oil due to shrinking in demand as countries went into lockdown to curb the spread of Covid-19 and a price war between Russia and Saudi Arabia.

Global oil prices have since recovered over the past one week with Brent trading at US$32 per barrel following both Russia and Saudi calling a ceasefire to end their price war by agreeing to cut their production.

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