KUALA LUMPUR (Reuters) - Malaysia’s Petroliam Nasional Bhd warned on Tuesday of a cautious outlook for 2017, although sharp cutbacks in expenses by the state-run oil major allowed it to swing to a fourth-quarter profit from a loss in the year-ago period.
Petronas maintained what it called a “conservative” outlook for this year - despite also posting a higher profit for 2016 - saying it expects oil prices to remain uncertain and that it will continue to pursue lower costs.
Petronas, as the company is known, is relying on lower operating expenses, job cuts and project rollbacks to help it navigate through a low oil price environment.
Malaysia relies on its only Fortune 500 company for nearly a third of its oil and gas-related revenue. Petronas is one of the country’s largest employers with a workforce of over 50,000.
“I don’t know whether the worst is over or not. We are preparing ourselves for a very uncertain second half of this year,” Petronas group CEO Wan Zulkiflee Wan Ariffin told reporters.
He said Petronas was budgeting for an oil price of $45 a barrel for 2017. Benchmark Brent crude on Tuesday was trading around $51.50 a barrel, still at less than half the levels of mid-2014.
“We are not deferring any of the sanctioned projects ... But at the same time projects will be held to more stringent hurdle rates,” Wan Zulkiflee said.
Petronas’ capital investments tumbled 22 percent in 2016 due to project deferment and other cost-cutting steps, while “controllable” costs fell by 8 percent.
The cuts helped the state oil firm post a net profit after tax of 23.5 billion ringgit for 2016, higher from 20.9 billion ringgit in 2015.
For October-December last year, it reported profit after tax of 11.3 billion ringgit ($2.54 billion), compared with a 2.96 billion ringgit net loss for the same quarter a year ago, primarily due to a drop in operating expenses and impairment costs. Revenue dropped 2 percent to 58.6 billion ringgit.
Peter Lee, Asia oil and gas analyst at BMI Research, said Petronas won’t have to implement drastic cost cuts this year.
“The one advantage Petronas has is they resorted to cost cutting much earlier compared to their (national oil company) peers in the region,” Lee said.
As oil prices traded near 12-year lows in early 2016, Petronas said it would slash spending by 50 billion ringgit over the next four years. The company also cut about 2,300 jobs last year, the CEO said on Tuesday.
Petronas said it expected to pay a 13 billion ringgit dividend to the government this year, unchanged from a figure announced earlier by the government. That’s lower than a 16 billion ringgit dividend Petronas has said it would pay for 2016 and the 26 billion ringgit it paid in the year before that.
Petronas is involved in two major projects, one at home and one in Canada, even amid its aggressive spending cuts.
Petronas’ finances got a boost last month when Saudi Aramco agreed to invest $7 billion in its Refinery and Petrochemical Integrated Development (RAPID) project that is slated to cost $27 billion.
CEO Wan Zulkiflee said Petronas has still not made a decision on the future of its other big project, a liquefied natural gas (LNG) export terminal in western Canada, and that it was studying conditions set forth by regulators.
Canada approved the $27 billion Pacific NorthWest LNG project in September after a three-year wait, but included conditions to limit its environmental impact.
“We are looking at all options how to develop an LNG plant that will be very competitive among other North American LNG plants ... We will take our time,” Wan Zulkiflee said.
($1 = 4.4460 ringgit)
Reporting by Emily Chow; Writing by A. Ananthalakshmi; Editing by Tom Hogue