Petronas in recovery mode, says AmResearch

PETALING JAYA: Petroliam Nasional Bhd (Petronas) is in recovery mode, suggested AmInvestment Bank Research (AmResearch), given its core profit after tax (PAT) improved to RM2.6 billion in 3Q’20 from a loss of RM0.9 billion reported in 2Q’20, excluding the assets impairments of RM5.7 billion.

The research house pointed out that in the third quarter of this year, the national oil company’s crude oil production increased slightly by 0.7% qoq to 2 million barrels of oil equivalent (BOE).

“However, output, which is still below pre-Covid-19 levels, declined 4% year-on-year (yoy) largely due to lower demand during the global lockdown. This likewise dragged 9M’20 output by 6% yoy to 2.2 million BOE,” it said in a report.

Geographically, AmResearch pointed out the cut was more pronounced domestically as the proportion of Petronas’ domestic spending for the quarter fell to 49% from 54% reported in 3Q’19.

It has previously announced a cut of 21% for capital and 12% operating expenditure this year with potentially higher savings generated towards the end of the year.

In addition to such measures, the group has reaffirmed a portfolio shift in line with its net zero carbon emissions target by 2050 which could mean reduced upstream interest in greenfield projects with low prospective returns.

“Even though a measure of optimism has returned for crude oil prices, we expect oil producers to proceed with their planned production cuts for this year given that demand globally remains depressed amid the prolonged Covid-19 movement restrictions and social distancing measures which could mean potentially long-term changes in energy usage,” said the research house.

So far in 2020, Exxon Mobil, Royal Dutch Shell, Saudi Aramco and Petrobras have announced 20% to 30% capex reductions.

In 2020, the national oil company has declared a dividend of RM10 billion with RM2 billion paid out so far. In 2019, it has declared a dividend of RM24 billion with no interim dividend declared in that year.

However, the research house stated that given Petronas’ strong balance sheet which boasts net cash of RM61 billion and reserves of RM337 billion, it expect Petronas to declare additional dividends for 2020 even though the group’s 9M’20 core net profit fell 69% yoy to RM10.3 billion.

Year-to-date, Brent crude oil prices have averaged US$42 pb with spot price is at US$48 pb currently from the year-low of US$14/barrel on April 22, which is supported by a 10% decline in the US crude oil inventories of 489 million barrels from a previous all time high of 541 million barrels in June.

With that it maintains its crude oil price forecast at US$40–US$45 pb for 2020 and US$45–US$50 pb for 2021. For comparison, the EIA’s Short-Term Energy Outlook projects crude oil price at US$41 pb for 2020 and US$47 pb for 2021.

Source: The Sun Daily