KUALA LUMPUR: Petroliam Nasional Bhd (Petronas) is bracing itself for more challenges ahead and expects to persevere through greater “austerity measures”, given the persistently low crude oil price environment, said its president and group chief executive officer Datuk Wan Zulkiflee Wan Ariffin.

“I do not expect our cash flow from operations this year to meet our capital expenditure (capex) and dividend commitments because we simply do not foresee a reprieve from the low oil prices in the near future,” Wan Zulkiflee told a press conference last Friday.

He said Petronas had a “very healthy” level of reserves which it had built up over the decades, which it would draw from to meet the capex and dividend commitments.

“This means that we will have to persevere through with more austerity measures and will have to draw on our cash reserves. Cost management and efficiency will continue to be a key focus across the organisation,” he said.

Brent crude fell to US$49.35 (RM201) per barrel of oil last Friday, halving from US$102.01 a year ago.

Wan Zulkiflee pointed out that Petronas remains committed to its RM26 billion full-year allocation of dividend to the government, and assured that there will be no changes to its existing commitments for capex on projects such as Johor’s Pengerang Integrated Petroleum Complex.

“We have operational cash flows as well as external financing to run the business, and sukuk and bonds raised is a long-term plan that we have for capex.

“Once we’ve committed on capex, things like the refinery and petrochemical integrated development project, for instance, is firm. We can’t adjust that along the way because we’ve matched that with long-term financing,” he said.

For the second quarter ended June 30, 2015 (2QFY15), Petronas saw its net profit nearly halved to RM11.1 billion from RM21.1 billion for 2QFY14, due to the impact of weaker crude oil and liquefied natural gas (LNG) prices.

Revenue was 28.6% lower at RM61 billion, compared with RM85.4 billion a year ago.

“The three-month average Japan Crude Cocktail reported a decrease of 14% in LNG prices, where the average price for LNG in 2QFY15 was at US$57 per barrel, compared with US$66 per barrel in 1QFY15,” said Wan Zulkiflee.

On Petronas’ LNG project in Canada’s Pacific Coast, he noted that the group had resolved with its partners to move forward with a conditional final investment decision in June, subject to two conditions.

“As of today, we have successfully satisfied the first condition — we chased the legislative approval of the project development agreement or PDA from the British Columbia government,” he said, adding that Petronas is currently working closely with its partners to obtain the second approval.

As for the lifting of the sanctions in Iran, Wan Zulkiflee said the group is monitoring the developments in the country closely and will do “whatever is necessary that is best for us”.

This article first appeared in digitaledge Daily, on August 17, 2015.