March 14, 2017 9:50 pm JST

Petronas prioritizes investment over dividend to state

Group banks on partnership with Saudi Aramco for long-term growth

CK TAN, Nikkei staff writer

Wan Zulkiflee Wan Ariffin, Petronas president and group CEO, center, said the company will continue to invest in future growth despite the prolonged downturn in oil prices.

KUALA LUMPUR -- State-owned oil and gas operator Petronas said Tuesday it will allocate 60 billion ringgit ($13.5 billion) as capital expenditure in 2017 or 19% more than last year. Half of it is meant for upstream operations, as Petronas expects a "rebalancing" in the global oil market with "new opportunities" in liquefied natural gas.

The announcement follows the return to profitability in the final quarter of 2016. Net profit improved to 9.4 billion ringgit compared with a net loss of 4.7 billion ringgit in the same quarter of 2015, thanks to lower asset write-offs and production costs.

Petronas has implemented measures since last year to weather the commodities price rout, "one of the most challenging years in recent history." The group said though the outlook remains uncertain, measures including cost-cutting and headcount reduction have raised efficiency and delivered results.

Net profit grew 29% year-on-year to 16.95 billion ringgit in fiscal 2016, even though revenue declined 17% to 204.9 billion ringgit on a lower average realized price for all products.

"In 2017, we aim to continue this momentum and ensure that the mindset change that focuses on doing more with less will continue to be an integral part of [the] Petronas work culture," said President and group CEO Wan Zulkiflee Wan Ariffin.

The benchmark price for crude Dated Brent fell to an average of $43.69 per barrel in 2016 compared with $52.46 in 2015. Non-listed Petronas has budgeted $45 per barrel for its operations in 2017, allocating 60 billion ringgit as capital spending.

"In our role as custodians of Malaysia's oil and gas resources, we continue to encourage the development of more technological challenging resources within the country," said Wan Zulkiflee.

Group total production increased 3% to 2.36 million barrels of oil equivalent per day, driven by resumption of a domestic pipeline and higher production from Indonesia and Australia. Petronas has four listed units under the group: Petronas Dagangan, Petronas Chemicals Group, Petronas Gas and MISC.

Petronas, the world's third largest LNG operator said global LNG supply is expected to grow by 10% in 2017, presenting new opportunities as customers lock in future purchases.

In its downstream business, Petronas will continue to focus on developing its Refinery and Petrochemical Integrated Development, or RAPID, project. The group recently secured a $7 billion investment from Saudi Aramco for a 50% stake in RAPID, which is expected to be commissioned by 2019. Once completed, RAPID will boast a refinery capacity of 300,000 barrels of crude a day into gasoline and diesel for exports. 

The focus to sustain production and profitability however will result in lower dividend contribution to the state. Petronas pledged to return 13 billion ringgit in dividend this year compared with 16 billion ringgit last year.

"We have a very understanding shareholder," said Wan Zulkiflee, implying that the ministry of finance did not press for more when Petronas was queried about its dividend projected for 2018.

Income from Petronas and other oil-related revenues accounted for nearly 40% of state coffers a few years ago.

Asia300

PETRONAS Chemicals Group Bhd.

Malaysia

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