Petronas may need to raise funds

KUALA LUMPUR: Petroliam Nasional Bhd (Petronas), which posted a net loss in the fourth quarter of 2015, may consider raising funds following its inability to meet its capital expenditure (capex) and dividend commitment through cash flow from operations.
“The outlook is challenging, we see continued challenges in two years, we may need to raise some borrowings,” president and CEO Datuk Wan Zulkiflee Wan Ariffin told a press briefing here yesterday.
He reiterated Petronas’ commitment to pay a RM16 billion dividend to the government this year.
The oil major has started to draw on its cash reserves of RM136.7 billion to meet its capital investments due to the weakened oil prices.
“We’ve healthy cash balance that we can draw on, those are just savings and can be used as well,” executive vice-president and group CFO Datuk George Ratilal said.
As at end-December, Petronas’ borrowings stood at RM57.9 billion, with a gross gearing of 16%.
Ratilal said the group is comfortable with its current gearing level, but can gear up to 25% if it were to borrow.
However, he stressed that the group will not simply go for borrowings, but only if it finds a good investment. “Unless there is a pretty good reason, if not we would rather manage the capex,”
Petronas’ net loss came in at RM2.96 billion for the fourth quarter (Q4) ended Dec 31, 2015, compared with a net loss of RM7.28 billion in the previous corresponding period, mainly due to net impairments on assets of RM12.9 bilion.
Excluding the impairments, it would have reported a net profit of RM9.9 billion, a 21% drop from RM12.5 billion in the same quarter a year ago.
Revenue for the quarter under review tumbled 24% from RM79.4 billion to RM60.1 billion.
Wan Zulkiflee said Petronas has set a lower oil price assumption of US$30 (RM126) per barrel for 2016. Brent crude averaged US$52 per barrel for 2015.
For the whole of 2015, Petronas’ net earnings fell 56% from RM47.6 billion to RM20.8 billion on the back of a 25% drop in revenue from RM329.1 billion to RM247.7 billion.
Meanwhile, Wan Zulkiflee said Petronas has undertaken six measures to mitigate the current challenging market environment.
Three measures, namely cash management and generation, cost efficiency and simplification as well as focused execution on projects, are aimed at ensuring the group’s immediate survival and to remain competitive.
“These have led to tangible cash generation and cost savings of up to RM1.4 billion, which has cushioned further impact to our bottom line,” he said, noting that these initiatives are expected to generate additional RM6 billion to RM7 billion in the next three years.
Wan Zulkiflee said the other three meaaures are focused on long-term sustainability, including talent development, technological agenda and internal work culture.
The sharp decline in oil prices resulted in a 64% drop in upstream business’ net profit to RM19.6 billion. However, non-cash impairments of RM18 billion brought it down further to RM1.6 billion.
Wan Zulkiflee expects oil production to remain stable this year following a 3% growth last year.
“We think we can at least maintain this level with our production enhancement initiatives,” he said.
On the other hand, the downstream business saw a 50% increase in profit margin to RM8.9 billion, thanks to the realisation of post-acquisition synergies at Petronas Malacca Refinery and other cost savings initiatives.