Petronas is under pressure to cut capex, opex and RSCs (Risk Sharing Contracts) and this will only lead to retrenchments and even resignations in the lesser companies. It will take years for the oil and gas industries to regain its former glory and some players seem unwilling to sit out the unprofitable years.
MARCH 5, 2015 12:25 PM
Petronas’ crashing profits – blip or crisis?
'Petronas’ (Petroliam Nasional Bhd) spectacular crash in the fourth quarter of the financial year 2014 (4Q14), posting RM7.3 billion losses, was into uncharted waters.
It was the state oil company’s first ever quarterly loss. Quarter-on-quarter, Petronas’ 3Q14 RM12.8 billion profit had abruptly turned into 4Q14’s RM7.3 billion losses.
Malaysia’s only Fortune 500 company and perennially named in the upper echelons of the most profitable companies in the world, had never registered a losing quarter since the company started filing financial results on a quarterly basis five years ago.'
'In June last year, barely eight months ago, the price of Brent crude oil was up to about US$115 per barrel.
Brent is one of the major benchmarks for purchases of oil worldwide. Prices had hovered around the US$100 levels since 2010 mainly due to China’s explosive economic growth spurring demand and political strife in oil-producing countries such as Iraq curbing production.
In an extraordinary collapse, by Jan 23 this year, Brent crude oil price had fallen by more than 50% to US$49 per barrel. Supply of oil, due to a combination of economic and political factors, had finally overtaken demand. There was a glut of oil supply, causing the steep drop of prices.'
'Double whammy – capex cuts & RSCs
What lies in store for Petronas amid such turmoil in the O&G industry?
It has already been forced to slash capital expenditure (capex) for its current financial year 2015 (FY15) by 10% and operating expenditure (opex) by 30%. Capex cuts, at least for the next two years, is estimated to be between RM25 billion to RM30 billion.
It has also declared a halt to awarding domestic risk sharing contracts (RSCs) – local joint ventures with local partners to extract more oil from marginal and mature oilfields using enhanced oil recovery (EOR) – unless the oil price returns at least to US$80 per barrel.
This double whammy – Petronas’ capex cuts and halt to RSCs – will further compound troubles for local O&G players already reeling from the shock of the oil price crisis.
Medium- to small-sized O&G players, especially those that rely on Petronas for a significant chunk of their businesses, will feel the immediate financial squeeze from Petronas’ capex cuts.
"It is the new reality. We have to be more prudent and conservative," said outgoing Petronas chief executive officer (CEO) Shamsul Azhar Abbas.'
Meanwhile, as reported in The Star:
Mokhzani, Yeow resign from SapuraKencana Petroleum
Wednesday, 4 March 2015
'Tan Sri Mokhzani Mahathir and Yeow Kheng Chew have both resigned from the board of SapuraKencana Petroleum Bhd, with both citing personal reasons.
The company announced their resignations took effect on Wednesday.
Mokhzani resigned from his post as vice chairman of the oil and gas service company while Yeow resigned from his post as a non-executive director.
Mokhzani was appointed to the board of SapuraKencana on Dec 9, 2011 as the executive vice chairman and a non-independent executive director.
On Feb 1, 2014, he was redesignated as a non-independent non-executive vice chairman.
He was appointed to the board of Kencana Petroleum Bhd on Nov 25, 2004 and was the non-independent executive director and CEO prior to the merger of businesses between SapuraCrest Petroleum Group and Kencana Petroleum Group.
Yeow was appointed to the board of SapuraKencana on Dec 9, 2011 as a non-independent executive director.
On Feb 1, 2014, he was redesignated as a non-independent non-executive director.
He was appointed to the board of Kencana Petroleum on Sept 15, 2005 and was a non-independent executive director of Kencana Petroleum prior to the merger of businesses between SapuraCrest Petroleum Group and Kencana Petroleum Group.'