FARAH ADILLA
KUALA LUMPUR: Operational efficiency may help Petroliam Nasional Bhd post better results in the fourth quarter (Q4) ended December 31, 2019 but low oil and natural gas prices could yet jeopardise it, analysts said.
In the third quarter, Petronas’ net profit was slashed by half to RM7.42 billion against RM14.62 billion the year before, mainly due to oil price downturn and net impairment on assets.
However, it was partially offset by lower net product and production costs, as well as lower tax expenses.
Petronas is expected to release its Q4 results this week.
“We expect Petronas’ cost-saving initiatives to materialise in the fourth quarter,” Rakuten Trade research vice president Vincent Lau told the New Straits Times.
Brent crude oil price averaged at about US$64 (RM262.40) per barrel last year, with its highest in May at US$72 per barrel and its lowest at US$58 per barrel in October.
Petronas derived the bulk of its income from petroleum products at 38 per cent, followed by liquefied natural gas (21 per cent) and crude oil and condensates (16 per cent), according to its annual report.
AxiTrader Ltd chief Asia market strategist Stephen Innes thinks Petronas’ Q4 results were binary to lower oil prices that had been caused by global oversupply.
“The only respite for prices has been the unexpected rises in geopolitical risk. Production cost is falling, but not enough to offset the slide in price.
“I do not think this is a huge surprise given the outlook for oil and gas (O&G) has remained challenging for some time as investment flows continue to wane in O&G as investors are moving into environmental, social and governance investing,” he said.
Innes said oil price was likely to remain uncertain given the demand devastation from the coronavirus virus outbreak.
He said the rising death toll from the coronavirus outbreak continued to exert downward pressure on oil prices, with OPEC considering to push its meeting to February to mitigate its effect.
“Still, when prices eventually rise, the operation efficiencies made over the last few years should subsequently take hold.
“The broader impact is to the Malaysia budget coffers as Petronas’ revenues are expected to fund the Malaysia budget deficit,” he said.
In its Activity Outlook 2019-2021 report, Petronas said as part of its focus on improving cost, productivity and efficiency, maturing assets would need continuous support and enhancement to maintain their optimum productivity and cost-efficiency. Mass deployment and rapid replication of in-house and off-the-shelf technologies are applied to improve productivity, efficiency and cost.
“Petronas is actively seeking ways to deploy technology in terms of digital, data analytics, automation, and robotic solutions in our assets such as Facilities of the Future (FOF) programme, which will address brownfield assets with 50 per cent operational expenditure reduction target by 2026, specifically in surface operations, maintenance, and logistics.
“This will change the way we operate our assets and technical requirements,” it added.