ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintSite TitleTitle ChevronIcon Twitter
Companies

Petronas to ramp up spending to boost output this year

Bets on LNG to fuel growth, analysts tip company to retain overseas focus

Amid dwindling reserves and as oil extraction gets increasingly difficult back home, Petronas has expanded abroad, including into far-flung conflict-hit areas like Iraq.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- Malaysia's national oil and gas company Petroliam Nasional, or Petronas, said Friday it will spend more this year to boost production as well as explore new energy sources amid volatile oil prices.

The company may spend "slightly above" 50 billion ringgit ($12.22 billion) this year, Chief Executive Wan Zulkiflee Wan Ariffin said at earnings news conference. Petronas is starting work at its liquefied natural gas project in Canada, betting its long-term fortune on demand for natural gas, he said.

"We're very bullish about LNG," said Wan Zulkiflee, noting a rising demand for the commodity that is expected to exceed 350 million tons this year. "This is a long-term play for us."

Petronas, the sole Malaysian company in Fortune 500, is the single-largest contributor to the government coffers, making its finances closely-tied to the sovereign fiscal health. In addition, several local oil and gas-linked suppliers and service providers also depend on Petronas for contracts.

Amid dwindling reserves and as oil extraction gets increasingly difficult back home, the company has expanded abroad, including into far-flung conflict-hit areas like Iraq. The LNG export project in Canada is the company's highest-profile project overseas, requiring some $30 billion in investments.

In addition to spending about 30 billion ringgit on upstream projects, the company also plans to focus on specialty chemicals and look for new energy sources, Wan Zulkiflee said. "We're exploring, reviewing and assessing opportunities specifically on renewables, solar and wind."

Analysts also said Petronas will likely continue to focus on international projects, while pushing further into downstream businesses that command higher profit margin.

Petronas' entry into LNG Canada and Khazzan Oman last year partly address the international growth gap left behind by the cancellation of Pacific NorthWest LNG and underscores its commitment to big gas projects, said energy research consultancy Wood Mackenzie's analyst Maxim Petrov.

"With many buyers looking to diversify supply," said Petrov, "the company will increasingly widen its marketing net to include not just established Northeast Asian buyers but also emerging buyers in China, Southeast Asia and South Asia."

The comments come on a day when Petronas reported a 24% drop in net profit in the final quarter of 2018. Net profit in October-to-December totaled 12.41 billion ringgit compared with 16.39 billion ringgit a year ago following costlier products at its downstream business, higher depreciation and amortization charges. Quarterly revenue gained 13.1% year-on-year to 69.90 billion ringgit.

Petronas has budgeted its annual estimates at $66 a barrel crude price, said Wan Zulkiflee. "Oil price is expected to remain volatile in 2019, and uncertainty in various fronts will have a significant impact on prices," he said.

For the whole of 2018, Petronas reported a 27.1% increase in its net profit to 47.87 billion ringgit from 37.66 billion ringgit a year earlier. Revenue in the last year rose 12.2% to 250.98 billion ringgit from 223.62 billion ringgit.

While crude oil output rose 8.6% to 950,000 barrels a day in 2018, production of natural gas fell 2.8% to 1.41 million barrels of oil equivalent per day, the company said. Dated Brent crude oil rose to $71.04 per barrel last year from $54.27 a barrel in 2017.

--Jason Ng

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends July 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media