THE oil and gas (O&G) industry has been stuck in the doldrums for years and many service providers are now burdened with massive debts following the oil price rout that took place from 2014 to 2016.
Since that price collapse, the sector has never been the same.
Last year’s Covid-19 pandemic crushed whatever recovery hope that remained in the industry.
But that is about to change. Local O&G activities are expected to pick up this year as Petroliam Nasional Bhd (Petronas) is planning to allocate more money for domestic activities.
The national oil company’s chairman Tan Sri Ahmad Nizam Salleh says “the bulk” of Petronas’ capital expenditure would be invested in Malaysia for the next five years to boost the country’s economy and rejuvenate the local O&G sector.
“Petronas is committed to ensuring the steady state of the domestic oil and gas ecosystem. In our five-year plan, the bulk of our capex will be invested domestically.
“With this move, we hope to rejuvenate the domestic O&G sector, to stimulate the recovery of the economy and generate growth for the longer term, ” he said in his opening speech at Petronas’ fourth quarter and fiscal year 2020 results briefing yesterday.
Petronas president and group chief executive officer Tengku Muhammad Taufik (pic) says the group has allocated a higher capex of between RM22bil and RM25bil to its Malaysia’s operations, which is higher than RM17bil it spent last year.
“In the next five years, Petronas is allocating 55% of its total capex into Malaysia, and 45% for its international projects, ” he told reporters after the group’s results briefing.
In total, Petronas is allocating a higher annual capex of RM40bil to RM45bil compared to the RM33.4bil it spent last year.
The lower capex in 2020 was in line with the spending cut by other global oil majors.
Tengku Muhammad Taufik says that for the global upstream sector, exploration activities and merger and acquisition dealings had been subdued, with capital expenditure falling to a 15-year record low, amounting to US$300bil.
Interestingly, he says there is “much value yet to be extracted” from Malaysia’s O&G industry.
“About 20 billion barrels of oil equivalent are yet to be discovered in Malaysia. Indeed, Malaysia presents a sizable runway of potential reserves, ” he points out.
To further enhance its effort, Petronas introduced “Malaysia Bid Round 2021 (MBR 2021)” yesterday as part of its drive to revitalise the country’s exploration and production landscape.
MBR is an annual bid exercise organised by Petronas which offers potential investors different opportunities ranging from exploration blocks, discovered resources to late-life assets to grow their energy portfolio and create value.
Petronas says MBR 2021 will focus on exploration blocks, opportunities around late-life assets and small fields, which will be made available progressively throughout the year.
A total of 13 offshore exploration blocks in Malaysia are being offered at MBR 2021, including six discovered fields and four deepwater blocks adjacent to the coast of Sarawak and Sabah.
For the financial year ended Dec 31,2020 (FY20), Petronas posted its first-ever annual loss of RM21bil due to a massive RM31.5bil impairment charge on its assets.
Tengku Muhammad Taufik says the impairment was the biggest taken by the oil major to date.
In its press release, Petronas explained the reason for this huge impairment. “The downward revision in commodity price outlook is further compounded given the accelerated pace of energy transition. This has resulted in most O&G companies, including Petronas, taking significant impairment loss provisions on their assets during the year, ” it said.
Excluding the impairments, the group recorded a profit after tax (PAT) of RM10.5bil for FY20, which was 78% lower compared to RM48.8bil in FY19. This came about as the global oil industry was impacted by the plunge in oil prices last year as more than half of the world’s population was in lockdown to curb the spread of Covid-19 pandemic.
Petronas’ revenue dropped nearly 26% to RM178.7bil from RM240.3bil in FY19.
For the fourth quarter ended Dec 31,2020, Petronas reported a net loss of RM1.1bil due to RM1.3bil impairment loss on assets, compared with a PAT of RM4.1bil a year earlier.
Petronas’ net cash position dipped to RM52.1bil from RM81.6bil a year ago.
Tengku Muhammad Taufik says 2020 was the toughest period in Petronas’ history, and he anticipates that the O&G industry to remain uncertain due to the Covid-19.
“Notwithstanding this, the group remains committed to undertaking all the necessary measures in our path to recovery while ensuring the safety of our people and minimal disruption to our business.
“We are focused on our tactical interventions towards preserving value and continue to pursue customer-centric solutions, ” he says.
On the recent spike in crude oil prices, Tengku Muhammad Taufik expects the price would remain volatile and that there won’t be prolonged elevated oil prices.
He points out that the price is currently being supported by production cuts by the Organisation of Petroleum Exporting Countries and its allies (Opec+) as well as the severe winter. As such, Petronas has benchmarked its capex based on oil price of US$40 per barrel, he adds.
Earlier this week, Goldman Sachs Group Inc predicted that crude oil prices will rally soon as demand recovery outpaces supply from Opec+.
The bank raised its forecast on Brent crude oil by US$10 a barrel (RM40.43) to US$70 in the second quarter and US$75 in the following quarter as it expected that consumption will return to pre-Covid levels by July.
“We now forecast that oil prices will rally sooner and higher, driven by lower expected inventories and higher marginal costs – at least in the short run – to restart upstream activity, ” Goldman says.
The international benchmark Brent crude oil was last traded at US$66 per barrel, the highest since November 2018.
Next week, Saudi Arabia and Russia will meet again at the Opec+ that will decide the fate of the oil market.