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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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Malaysian Petronas Sees Profits Rise By 91%

Malaysian state-owned oil and gas giant Petronas is back in the game. After a series of steps or rather missteps, including being involved in high profile corruption scandals and after receiving a bloody nose from an overbearing and cumbersome approval process in Canada for its now cancelled $36 bn Pacific Northwest LNG export project, the company will ramp up its growth and spending plans this year following a sharp rise in profits.

Due to deep spending cuts and higher oil prices, Petronas said net profit for the fourth quarter (Q4) ending in December increased to 18.2 billion ringgit (US$4.65 billion) from 11.3 billion ringgit in the same quarter last year. Q4 revenue rose 13.8 percent to 61.8 billion ringgit. 

Moreover, the biggest take-away from the Petronas disclosure is yearly profits, up some 91 percent in 2017 from the previous year. This marks the second consecutive year of profitability for the company, following a two-year profit slump – largely coming amid then plunging global oil and gas prices that set the global oil and gas industry on a downward spiral from which is now still recovering from.

However, Petronas’ 2016 profit growth of 12 percent pales in comparison to this year’s impressive growth. The company’s Profit After Tax (PAT) for 2017 jumped to 45.5 billion ringgit, compared to 23.8 billion ringgit recorded in 2016. The increase was achieved on the back of higher revenue, lower net impairment on assets and well costs and continuous efforts to optimise costs in 2017, Petronas said in a release on March 2.

More profits equal more projects

Amid its improved financials, Petronas is now “in a stronger position to execute its long-term growth strategy,” the company said.

Related: Oil Prices Rebound After EIA Reports Build In Crude Inventories

The significance of the Petronas’ disclosure is at least two-fold. First, though the company has made a comeback, global oil and gas prices need to remain near current levels or higher to sustain positive financial results.

While it appears that in the near-term, according to most projections, that global oil prices should remain in the high $50s to low $60s range for the balance of the year and into next year, in the now increasingly changing world of oil and gas markets, particularly with US shale oil and gas changing both fundamental and structural market dynamics, nothing can be taken for granted.

Petronas President and CEO Wan Zulkiflee also alluded to this when he said that industry wide costs are showing signs of increasing, driven by what he called “premature exuberance” over the oil price recovery. “It is imperative we do not drop the austerity mindset, and continue to ensure we keep costs under control, increase efficiency and drive up value,” he said.

Another take-away from the uptick in Petronas profitability is that it could try to go long (again) on gas development in Canada - despite the fact that the firm pulled up stakes there in early 2017.

Though Petronas and its project partners cited lower global energy prices as the reason for cancelling its massive CAPEX project, regulatory, environmental and aboriginal resistance in British Columbia, the site of the proposed project, was likely just as much of a determining factor. Media in the western Canadian province at the time said that Petronas’ cancellation was “a tragedy for Canada.”

Now, Petronas could choose an easier point of entry into Canada. On Monday, US-oil major Chevron said that it was exploring options including the sale of a minority stake in its Canadian LNG project as it pushes ahead. People familiar with the matter told Reuters that Chevron might sell a stake in its Kitimat LNG project. Petronas is one of the interested parties.

If Petronas did indeed secure a stake in the project, which is a 50/50 joint venture with Australia’s Woodside Petroleum, it could help the company’s goal of furthering its LNG footprint away from its own market and region.

Related: Shell Outsmarts Competition In The Gulf Of Mexico

The Asia-Pacific region represents around two-thirds of all LNG demand, while that figure will increase as China’s ramps up its usage to at least 10 percent of its energy mix needed for power generation by 2020, per a government mandate. Further increases are earmarked for 2030 and beyond.

Second chance at redemption

Until recently, it seemed that Canada’s LNG export plans had died an untimely death due to governmental red tape, while the upstart U.S.-LNG industry, with less CAPEX intensive projects and an easier approval process, passed it by without even bothering to check its rear view mirror.

While, granted, it’s too late for Canada to even come close to matching the U.S.’ impressive LNG run, as the country positions itself to have five major LNG export projects in operation by the end of the decade, and soon after that even challenging top LNG exporters Qatar and Australia, a window is now opening again for Canadian LNG exports. The question remains as before, can Canada step up the plate and deliver?

That answer is up to Canadian politicians and officials that need to carefully weigh their regulatory policies and decisions. A second chance like this, albeit in global energy markets, doesn’t often come, while there is a slim chance that if missed again, a third opportunity will present itself.

By Tim Daiss for Oilprice.com

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