KUALA LUMPUR: National oil company Petroliam Nasional Bhd (Petronas) sees no prospect of its business picking up for the financial year ending Dec 31, 2015 (FY15) as it anticipates low crude oil prices to continue to negatively affect its profitability and production levels.

“If you look at the way oil prices have behaved this year, this (January to March) quarter has traditionally been the strongest quarter for the group. Despite it [traditionally] being the best quarter, we are looking at [oil prices trading] between US$55 (RM199) and US$63 a barrel,” said its outgoing president and chief executive officer Tan Sri Shamsul Azhar Abbas (pic) at the group’s full-year and quarterly financial results briefing last Friday. 

The briefing was Shamsul’s last before he hands over the reins of the company to Datuk Wan Zulkiflee Wan Ariffin on April 1.

“As we move forward into the summer, it is going to be the start of the low season. What is going to be the oil price during that quarter? Your guess is as good as mine,” said Shamsul, who is widely credited for his merit-driven leadership.

He also foresees Petronas’ oil production levels affected as the group further reduces its capital expenditure (capex) and operating expenditure (opex) for the next two years to brace for depressed crude oil prices.

“As we cut our capex, our oil production forecast moving forward will also decrease. We are not aborting any projects, but only deferring them.

“So over the next few years there may be some tapering off in our production, but it will pick up again,” he said, adding that its new budget will be based on an oil price of US$55 a barrel.

Among the first projects to be deferred is its Sepat gas-processing project located off Terengganu.

Shamsul confirmed that it has already made plans to cut its initial five-year capex (2015 to 2019) by 10% this year and another 15% next year, representing approximately RM20 billion to RM30 billion. Meanwhile, opex will be cut by 30% this year.

Nevertheless, Shamsul has assured that there will not be any job cuts at Petronas.

Shamsul also reiterated that Petronas will not be granting any new risk service contracts (RSC) to contractors until crude oil prices reach US$80 per barrel. Petronas’ own unit called Vestigo Petroleum Sdn Bhd will be called on to develop marginal and mature fields.

“Petronas Carigali Sdn Bhd has formed Vestigo. They have learnt a lot from the existing RSC players, both local and international. We reckoned that the time has come to say that we are capable of doing that rather than awarding new RSCs to others,” said Shamsul.

The Edge Financial Daily on Feb 25, 2015 reported that Petronas will likely postpone its Balai Cluster marginal oilfield project’s second phase until crude oil prices return to US$80 per barrel.

On this matter, Shamsul said all existing RSCs will be reviewed based on crude oil prices and profitability of the oilfields. As a guide, a marginal oilfield is only viable if oil prices are at US$80 per barrel.

Meanwhile, Shamsul assured that the Refinery and Petrochemical Integrated Development project in Pengerang, Johor will proceed as scheduled.

He said that Petronas’ US$32 billion project to build a liquefied natural gas terminal in Canada is not at risk of being deferred, but it is looking to “farm out” another 12% of its equity interest to a suitable partner. It is currently in talks with a Chinese entity for this purpose.

“The delay in making the final investment decision (FID) is because of the pending environmental impact assessment report, which comes under the Canadian federal authorities. This will only be made known in April 2015 and we cannot have an FID until we have that,” said Shamsul.

Last Friday, Petronas reported its first quarterly loss in the fourth quarter ended Dec 31, 2014 (4QFY14), mainly due to declines in global oil prices and significant asset impairment losses of RM20 billion.

The poor quarterly results pulled down its net profit for the 12-month period ended Dec 31, 2014 (FY14), which declined 27% to RM47.6 billion from RM65.6 billion in FY13. Revenue for FY14, however, improved 4% to RM329.1 billion from RM317.3 billion.

It declared a dividend of RM2 billion for 4QFY14, bringing the total payout for the year to RM26 billion.

This article first appeared in The Edge Financial Daily, on March 2, 2015.