KUALA LUMPUR: The golden days of oil refining profits are likely over, Petroliam Nasional Bhd's (Petronas) top executive said, and stressed that the national oil company's financial performance this year will not match 2022's.
Petronas president and group chief executive officer Tengku Tan Sri Muhammad Taufik said the oil and gas sector was facing challenges on all fronts as the players invest more in clean energy.
The days when the sector had posted mid-teen margins were gone and replaced by single-digit margins, he said at a briefing on Tuesday ahead of Petronas announcing its first quarter of financial year 2023 results today (Wednesday).
"Returns wise, it is not going to be mid-teen (margins) anymore. It's still profitable but it's not going to be the kind of ultra healthy margins (that we had seen before)," Tengku Muhammad Taufik said.
He added that the operating environment had become more complex in the last six months.
"For the rest of 2023, the outlook is going to be challenging," he remarked.
The refining industry's "golden age" reportedly began in 2004 when margins started rising due to global demand growth and the shortfall in refining production capacity.
But overtime, the margins had come down as more capacity from new plants and higher costs due to record crude prices.
Tengku Muhammad Taufik also said Petronas would keep investing in its traditional hydrocarbon-related ventures as well as new clean energy.
He reiterated that the company would spend RM50 billion-RM60 billion in capital expenditure (capex) annually, with a fair portion going to new clean energy including specialty products.
Still, the bulk of the capex of about 70 per cent will be invested in Petronas' traditional oil and gas ventures.
In 2021, Petronas reportedly set aside RM30.5 billion capex before raising this to RM60 billion for 2022 as it prepared for the resumption of business activities, which were earlier disrupted by Covid-19-driven movement restrictions.
Petronas announced a net profit of RM23.8 billion for the first quarter ended March 31 2023(Q1 FY2023), a two per cent improvement from the same quarter in FY2022.
This was despite 16 per cent higher revenue of RM90.4 billion reported in the first quarter of FY2023 largely due to improved sales volumes and favourable impact from foreign exchange, which was partially offset by lower average realised prices from major products.
For the quarter under review, Petronas said the group's cash flows from operating activities (CFFO) stood at RM25.5 billion lower compared with the RM27.9 billion recorded in the corresponding quarter, in line with lower cash from operations.
It said the group's capital investments (Capex) amounted to RM10.5 billion, mainly contributed by upstream and gas projects.
Domestic capex increased by 44 per cent compared with the same period last year mainly for investments in the Petronas Nearshore Floating LNG Project in Sabah and the Kasawari Gas Field Development in Sarawak.
Meanwhile, total assets strengthened to RM713.6 billion as at March 31, 2023.