Petronas’ higher dividend could hamper recovery

PETALING JAYA: The higher dividend payout by Petroliam Nasional Bhd (Petronas) to the government could hamper its ability to recover from the current downturn in the oil and gas industry, according to Maybank IB Research.

The national oil company, which posted losses in the second quarter of this year, has approved an additional RM10bil as dividend on top of its RM24bil earlier commitment to the government to help with the coronavirus (Covid-19) fallout.

Earlier this week, Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed had said Petronas would pay the government a total of RM34bil this year. Last year, Petronas paid RM54bil to the government, its sole shareholder, and had said that additional funds for 2020 would depend on its affordability.

Maybank IB pointed out that Petronas has raised its dividend commitment by 42% for this year, at a time when many global oil majors such as Shell and BP were cutting their dividends.

“This move is not entirely surprising, given its role as a national oil company. That said, the higher cash outflows will drain its financials and at the same time, impede its ability to recover from the current cyclical downturn, ” it said in a report yesterday.

It is noteworthy that Petronas has slashed its capital expenditure (capex) and operating expenditure (opex) in light of the plunge in the global crude oil price as Covid-19 has reduced economic and travel activities.

While crude oil prices have clawed back from their lowest level earlier this year, the price volatility is expected to remain as the market responds to the oversupply and declining demand for oil.

Yesterday, Brent crude oil recovered to US$40.75 per barrel after it slipped below US$40 on Monday amid worries about the coronavirus and potential increase in Opec output.

In May, Petronas announced that it was cutting 21% of its capex from its initial estimate of around RM50bil, as well as a 12% cut in opex.

This was in line with the capex cuts by the other global oil majors. In April, Reuters reported that cuts announced by Saudi Aramco, ExxonMobil and Royal Dutch Shell came to a combined US$38bil (RM168bil), or a drop of 22% from their initial spending plans of US$175bil to cope with the disruption in demand due to the Covid-19 crisis.

Analysts earlier estimated that the capex cut by Petronas would lower offshore activities, especially for fabrication and drilling services, as well as deferment in projects.

In the first half of this year, Petronas posted a net loss of RM16.5bil due to impairments and weaker oil prices. Its revenue fell 23% to RM93.6bil from RM121.1bil a year ago, mainly due to lower average realised prices for major products and lower sales volume mainly from petroleum products, liquified natural gas (LNG) and processed gas.

For the first half of the year, the Brent crude average was US$39.73 per barrel compared with US$66.02 a year earlier.

Maybank IB said the additional RM10bil dividend by Petronas was “an unexpected development”. “Petronas is, after all, financially cash-rich (albeit on a sliding scale since June 2019), with net cash of RM64.4bil as at June 2020. Notwithstanding that, Petronas also paid RM2bil in SST payment to the Sarawak state, ” it said.