This article first appeared in The Edge Financial Daily, on May 19, 2016.

KUALA LUMPUR: Petroliam Nasional Bhd (Petronas) saw its first quarter (1Q) after-tax profit slump 60% — its seventh consecutive quarter of dwindled profits — as the prolonged downtrend in crude oil prices and global supply glut continued to hurt its earnings.

The national oil company said profit after tax (PAT) for 1Q ended March 31, 2016 (1QFY16) totalled RM4.57 billion, down 60% compared with RM11.4 billion for 1QFY15.

Revenue declined 25.77% to RM49.13 billion from RM66.19 billion, it said in a statement yesterday.

The group attributed the lower profit to lower prices across all products and higher net impairment on assets, which was partially offset by lower product and production costs,  and the impact of favourable US dollar exchange rates against the ringgit.

The ringgit had weakened to 4.2 against the greenback in 1QFY16, while Dated Brent price dropped 37% to US$33.89 per barrel from US$53.97 in 1QFY15, Petronas said.

Petronas also attributed its lower revenue to lower average realised product prices following the protracted downtrend of key benchmark prices (Dated Brent and Japan customs-cleared), coupled with the impact of lower crude oil and condensate, processed gas and petroleum products sales volume.

“Lower prices across all products and higher net impairment on assets reduced profitability, which was partially offset by lower product and production costs and the impact of favourable exchange rate against the ringgit,” it said.

Petronas said its total assets fell to RM567.6 billion as at March 31, from RM591.9 billion as at Dec 31, 2015, due to the weakening US dollar exchange rate against the ringgit at March 31.

Similarly, shareholders’ equity decreased to RM364.7 billion from RM374.9 billion as at Dec 31, 2015.

Capital investments declined 7% to RM11.3 billion in 1QFY16 from RM12.1 billion in 1QFY15, while cash flow from operating activities dropped 44% to RM9.7 billion from RM17.3 billion.

Gearing ratio decreased to 15.8% as at March 31 compared with 16% as at Dec 31, 2015 due to lower borrowings on the back of weakening US dollar exchange rates against the ringgit, while return on average capital employed fell 3.5% as at March 31, compared with 5.1% as at Dec 31, 2015, in line with the lower profit during the period.

Petronas said the upstream production volume in Malaysia and the group’s international equity production volume rose to 2.45 million barrels of oil equivalent (BoE) per day from 2.39 million BoE per day in 2015 as a result of higher Iraq production entitlement and new production stream from Indonesia, offset by natural decline.

However, the upstream segment’s PAT dropped 71% to RM2.3 billion in 1QFY16 from RM7.87 billion in 1QFY15, while revenue fell to RM29.3 billion from RM40.99 billion.

Production entitlements to Petronas were up 9% to 1.82 million BoE per day while liquefied natural gas (LNG) sales volume decreased 9% to 7.35 million tonnes. This was due to lower production from the Petronas LNG Complex in Bintulu, Sarawak.

Petronas said limited trading opportunities hindered the sales volume of petroleum products and crude oil by 3.4 million barrels and three million barrels, to 69 million barrels and 55.3 million barrels respectively.

The downstream segment saw its PAT drop 42% to RM1.1 billion from RM1.91 billion, while revenue decreased to RM22.03 billion from RM28.93 billion. Petrochemical products sales volume grew by 0.1 million tonnes due to higher production.

On prospects, Petronas said concerns on moderate demand outlook and persistent oversupply will continue to pressure crude oil prices.

The company said it expects its performance to be affected by the volatility of oil prices and foreign exchange (forex) rate.

“Petronas will continue with its cost rationalisation efforts to remain competitive while pursuing efforts to drive operational efficiencies and effective delivery of growth projects that bring value,” it added.

Its Pengerang integrated complex project is on track at 28%, while its Sabah ammonia and urea (Samur) project has achieved 99% completion and is expected to commence in June 2016.