By Khairul Khalid
State petroleum corporation Petroliam Nasional (Petronas) posted a steep fall in second-quarter earnings today amid expectations that it will have to tap into cash reserves to meet commitments.
At a briefing today, Petronas posted RM11.1 billion in profit after tax for the second quarter of 2015 (2Q15), down 47% year-on-year (y-o-y), as revenue for the quarter fell 28% y-o-y to RM61.3 billion.
While the weaker performance is largely due to lower liquefied natural gas (LNG) volumes and prices, Petronas said the dragdown was offset by higher Brent crude prices, stronger refining margins and better operational efficiencies.
Brent crude prices showed a net increase in the second quarter, rising to US$63.59 per barrel by June 30 compared to US$55.11 per barrel on March 31. However, the low oil price environment is likely to remain in the near future, it said.
“I do not expect our cash flow from operations this year to meet our capital expenditure and dividend commitments,” said Petronas chief executive officer Wan Zulkiflee. “This means we will have to persevere through with more austerity measures and will have to draw on our cash reserves.
Wan Zulkiflee Wan Ariffin
“Cost management and efficiency will continue to be a key focus across the organisation,” added Wan Zulkiflee. “Petronas continues to struggle due to the lagging effects of low oil prices but we are sticking to our business strategy.”
“On the other hand, a stronger US dollar worked in Petronas’ favour to cushion the drops,” said Wan Zulkiflee.
The sharp increase in 2Q profits followed a 39% year-on-year decline in 1Q15 profit after tax, clocked in at RM11.4 billion, on the back of a global oil price rout since June 2014.
“Brent has been below US$50 in the past few weeks. Petronas has kept afloat in the past because of prudent cash management,” said Wan Zulkiflee, cautioning, however, “we will no longer have this luxury looking forward.”
Nevertheless, despite the pessimistic outlook, Wan Zulkiflee is encouraged by how the industry has responded. “There are more collaborations between players.”
Wan Zulkiflee also added that Petronas has made good progress on cost-reduction initiatives, noting some RM640 million in savings as of June 2015.
Petronas is bracing for tougher times ahead but remains resilient, said Wan Zulkiflee, “the next phases will really test the organisation’s stamina and endurance.”
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