This article first appeared in The Edge Financial Daily on November 28, 2018

KUALA LUMPUR: Petroliam Nasional Bhd’s (Petronas) net profit leaped 43% to RM14.3 billion for the third financial quarter ended Sept 30, 2018 (3QFY18) from RM10 billion for 3QFY17, thanks to high oil prices.

Quarterly revenue grew 19% to RM63.9 billion from RM53.7 billion a year ago.

While noting that the national oil firm’s 3Q earnings were another strong quarterly performance, which has further strengthened its financial position, Petronas president and group chief executive officer Tan Sri Wan Zulkiflee Wan Ariffin warned of the volatile oil prices and cyclical nature of the industry.

“The improved results are driven by ongoing operational improvement efforts throughout the group and supported by improved oil prices during the period.

“The recent drop in oil prices demonstrates the volatile and cyclical nature of the industry, and we will continue to maintain our prudent outlook amid this landscape while remaining steadfast in pursuing our growth strategies to ensure the long-term sustainability and progress of the company,” said Wan Zulkiflee in a statement yesterday.

The Petronas board expects the group’s performance to show an improvement compared with the previous financial year. Even as the group contends with more volatile prices, continuous efforts will be pursued to deliver operational excellence.

The average oil price for the nine-month period ended Sept 30 (9MFY18) was at US$72.13 (RM302.10), up nearly 39% from US$51.90 a year ago.

Brent crude oil prices had fallen below the US$60 level recently from the peak of US$88 per barrel early last month. The reverse of the upward trend reinforced the view of the oil bears that low oil prices are the new norm moving forward.

Petronas’ capital investment  for the quarter was RM6.7 billion, mainly attributed to upstream projects.

For the cumulative 9MFY18, Petronas’ revenue increased 12% to RM181.1 billion from RM161.8 billion.

PAT for 9MFY18 soared 50% to RM41 billion from the same period a year ago. The improved performance was primarily due to higher revenue, lower net impairment on assets as well as other expenses.

These were partially offset by higher product costs in tandem with higher prices, coupled with increased depreciation and amortisation as well as tax expenses.

Capital investment for the period was RM26.5 billion, mainly attributed to upstream projects in support of the group’s operational excellence and growth strategies.

Total assets increased to RM623.1 billion as at Sept 30, compared with RM599.8 billion as at end-2017.

Shareholders’ equity rose to RM402.1 billion as at Sept 30 compared with RM389.8 billion as at end-2017, mainly contributed by profit generated during the period on the back of ongoing operational improvements and better commodity prices.

As at Sept 30, 2018, the gearing ratio remained at 16.1%, while the return on average capital employed increased to 12.6% from 9.8% as at end-2017, in tandem with higher profit.

Cash flows from operating activities for the period dropped 3% to RM56.23 billion for 9MFY18 from RM57.73 billion a year ago due to higher working capital and taxes paid, partially offset by higher average realised prices.