This article first appeared in The Edge Financial Daily, on March 1, 2016.

KUALA LUMPUR: Petroliam Nasional Bhd (Petronas), which hundreds of domestic oil and gas companies are counting on for jobs and contracts, is cutting its capital expenditure (capex) and operating expenditure (opex) by RM15 billion to RM20 billion in 2016 to weather the tougher year ahead.

Petronas president and group chief executive officer (CEO) Datuk Wan Zulkiflee Wan Ariffin said the move is in line with the national oil firm’s target of cutting capex and opex by RM50 billion over the next four years, after he announced that the national oil firm posted a net loss of RM4.69 billion for the fourth quarter ended Dec 31, 2015 (4QFY15).

“The RM50 billion cut is based on the [existing investment] plans that we have. We look at the opportunities for us to cut both our capex and opex over the next four years,” he told the media after the national oil firm released its fourth-quarter financial results.

Moreover, Wan Zulkiflee, also known as Wan Zul in the industry, said the group’s current cash flow is inadequate to cover its capex and dividend commitment of RM16 billion to the government this year.

Wan Zulkiflee, who took over office last year, said Petronas had to raise debt in order to meet these obligations, adding that the amount to be raised will depend on the movement of crude oil prices in 2016.

Petronas executive vice-president Datuk George Ratilal said Petronas had taken the opportunity of the crude oil rout to re-examine its investment plans.

“These are all purely for economic reasons. If they don’t meet certain economic returns, they will fall down the list. It all depends on the price of oil that we think is sustainable going forward. Where we stand today, yes, capex has to be cut,” he said.

Besides that, the group underwent a review of its operations to ensure that it remains competitive amid the low oil price environment, while also ensuring long-term sustainability.

“As oil prices continue to decline and we begin to see a long drawn-out period of low oil prices, my leadership team and I have decided to launch a deliberate and concerted effort to counter any further impact on the business,” said Wan Zulkiflee.

Through these efforts, Wan Zulkiflee said the group saw cost savings of up to RM1.4 billion in FY15, cushioning the impact of the headwinds on its bottom line. He added that these initiatives are expected to generate an additional RM6 billion to RM7 billion over the next three years.

He said the group will also be undergoing an organisational restructuring, effective April 1. However, he declined to reveal details of the exercise, and said Petronas will issue a media announcement at a later date.

Petronas has decided to delay the commissioning of the Petronas Floating Liquefied Natural Gas 2 project to at a later date than originally planned, according to Wan Zulkiflee.

For the latest financial results, the group’s net loss narrowed substantially to RM4.69 billion in 4QFY15, down 52% from RM9.87 billion a year earlier, due to a decrease in production costs, stronger US dollar and sharply lower net impairment on assets.

However, revenue for the quarter fell 24% to RM60.1 billion from RM79.37 billion in the previous year, as the group realised lower average realised prices for all major products, in line with the lower oil prices.

Petronas also saw lower sales volumes of petroleum products, crude oil, and condensate and processed gas during the quarter, which contributed to the decline in revenue.

For FY15 ended Dec 31, 2015, its unaudited net profit plunged 64% to RM13.16 billion, from RM47.04 billion, on an annual revenue of RM247.66 billion, down 25% from RM329.15 billion in FY14.

Wan Zulkiflee said 2015 was “an extremely difficult year” for the group, as Brent crude continued its decline, averaging at US$52 per barrel for the year.

“Despite the daunting challenges faced by the industry, Petronas has weathered 2015 intact. The group remained profitable and was able to fulfil our dividend commitments to our shareholder. Moving forward, however, we are facing an even tougher year ahead.

“I am confident of our internal initiatives laid out to strategically respond to the external challenges. These will navigate Petronas securely through the current downturn, and position us in a more resilient and competitive stead for future growth,” he said.