Petronas striving for balanced upstream-downstream portfolio

KUALA LUMPUR: Petroliam Nasional Bhd (Petronas), whose net profit leaped fourfold to RM7 billion in the second quarter ended June 30, 2017 compared with RM1.7 billion a year ago, is striving to achieve a balanced portfolio between its upstream and downstream businesses.

Petronas president and group CEO Datuk Wan Zulkiflee Wan Ariffin said it saw a good improvement in its upstream business in the first half of 2017 (1H17) compared to the corresponding period last year.

He said Petronas will be in Canada for the long term as it weighs the options to monetise its gas resources there, as well as in North America. Canada holds the second largest gas resources in Petronas’ portfolio after Malaysia.

The upstream business posted a net profit of RM11.1 billion in 1H17 compared with a net loss of RM1.2 billion in 1H16; while the downstream business saw a net profit of RM5.1 billion compared with RM3.5 billion a year ago.

“Maybe in the next few years after the completion of Rapid (Refinery and Petrochemical Integrated Development), the contribution from downstream will be larger compared to five to 10 years ago. We may also be looking at other businesses other than oil and gas, such as renewables and new energy, which can also be in our portfolio,” Wan Zulkiflee told a press conference after announcing Petronas’ financial results last Friday.

“We must have a robust group portfolio. This is part of future-proofing our business. We have have a long term view. Now we’re building on our downstream portfolio, we will have a more robust portfolio and many of our peers are doing the same.”

Wan Zulkiflee said Petronas has a conservative stance on the forecast for oil prices, expecting Brent crude to trade at US$45 per barrel this year and in the similar range of the high 40s next year. And it will stick to its capital expenditure of RM60 billion.

On dividend, he said the board, which previously approved RM13 billion, and with the group’s strong financial performance recently, has approved an interim dividend of RM3 billion to the government, bringing the total dividend payout to RM16 billion this year.

“We’re still deciding on next year’s dividend, which will depend on the performance at the end of the year,” said Wan Zulkiflee.

Despite higher prices compared to a year ago and overall stronger financial and operational performance, the industry remains volatile, tempering the group’s optimism.

“We’re tempering our optimism as far as industry outlook is concerned, but are focused on making our integrated oil and gas value chain work for us in this volatile time. For 2H17, we expect this volatility to continue but it will be range-bound,” said Wan Zulkiflee.

The national oil company’s fourfold leap in net profit for the second quarter was mainly due to lower net impairment on assets and well costs, coupled with higher average realised prices across all products.

This was on the back of revenue of RM51.6 billion, a 10% increase from RM46.9 billion from the corresponding quarter last year as a result of higher average realised prices and foreign exchange rate impact.

For 1H17, its net profit rose more than doubled to RM17.3 billion from RM6.4 billion in the corresponding period last year, due notably to higher average realised prices, as well as lower net impairment on assets and well costs. Revenue grew to RM108.1 billion, up 15% from RM93.7 billion in the first half of 2016, benefiting from the higher key benchmark prices and foreign exchange rate.