PETALING JAYA: Petroliam Nasional Bhd (PETRONAS), which is maintaining a guarded outlook for the rest of the year, expects to face a bearish energy market on the back of slowing global economic activity.
The cautious perspective is underpinned by the anticipation that energy prices would remain volatile, influenced by persistent economic hurdles and worldwide energy security concerns.
President and group chief executive officer Tan Sri Tengku Muhammad Taufik said Brent crude prices could be hovering between US$70 and US$80 per barrel in the next 12 months compared with the US$107.94 average price for Brent during the first half of last year.
According to PETRONAS, its financial results for the second quarter ended June 30 (2Q23) have been commendable, especially given the near-term challenges which saw its profit after tax (PAT) contracting by 28.7% year-on-year (y-o-y) over the corresponding three months of last year.
This was in tandem with the 13.4% y-o-y decrease in revenue to RM79.9bil for the three months in review, which the energy group attributed to lower average realised prices for all its products.
The decrease was partially offset by improved sales volumes mainly from petroleum and petrochemical products and favourable foreign exchange impact.
Cumulatively, for the first six months of the year (1H23), the group posted a PAT of RM40.2bil, which was also a 13.4% slide compared with the same period of 2022 on lower realised prices despite turnover staying relatively stable at RM170.3bil against the RM170.4bil achieved in the first two quarters of last year.
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PETRONAS group chief financial officer Liza Mustapha said, at its results briefing, that the effect of lower average realised prices for its major products – in line with the lower benchmark prices – had been partially mitigated by improved sales volumes mainly from the group’s petroleum and petrochemical products and favourable foreign exchange impact, leading to the steady turnover.
Notably, she pointed out that amid the testing macroeconomic conditions, most international oil and gas operators as well as national oil companies had registered favourable performances, albeit with reduced margins, which is in line with PETRONAS’ results.
“Similar to other energy companies, we are also susceptible to market conditions, but we are remaining resilient, and our profitability is in line with those of our peers,” she said.
Meanwhile, cash flows from operating activities for 1H23 stood at RM57.8bil, which is 7% lower y-o-y compared with RM62.4bil previously, in line with profits generated during the period.
At the same time, capital expenditure (capex) has inched lower y-o-y for 2Q23 to RM10.9bil, but has increased by 13.2% over 1H23 to RM21.4bil, mainly attributable to upstream open and gas business projects.
“Domestic capex increased by 48% against the same period last year mainly for investments in the Nearshore Floating LNG Project in Sabah and the Kasawari Gas Field Development in Sarawak,” PETRONAS said.
The increased domestic activity has also added to the group’s overall costs, going up by 6% y-o-y to RM134.3bil for 1H23 compared with the RM126.5bil a year earlier, with PETRONAS noting that domestic group costs has surged by 11% predominantly due to higher product costs, production expenses, purchased services and exploration costs.
Furthermore, it highlighted that the lower revenue and elevated product expenses during 2Q23 have also affected profitability in its upstream and gas business segments, while the downstream division has been pulled back by reduced refining and petrochemical margins.
On the other hand, favourable impact from foreign exchange has led to better profit margins for its corporate segment.
As total assets for the group strengthened to RM742bil as at June 30 compared with RM710.6bil as at Dec 31, 2022, PETRONAS would be paying a dividend of RM40bil to the government this year, which includes an additional RM5bil payout approved in June.
Tengku Muhammad Taufik said that despite near-term challenges, the group would continue to focus on future-proofing the organisation for the long term, primarily involving scaling up investments in its core business.
He noted that this would be carried out even as PETRONAS is lowering emissions while investing in cleaner energy to ensure the robustness of the group’s portfolio, aligned to its Energy Transition Strategy.
“PETRONAS believes the right thing to do is to double down on building resilience in order to deliver long-term sustainable value as a national oil company and grow as a global energy player,” he added.
On a separate note, he remarked that it is “evidently clear” that the group would require more funds and liquidity to invest in energy transition technologies without hampering its financial performance.
“We have to set aside buffers aside from our cash balance so we can continue business as usual,” he said.