KUALA LUMPUR (Aug 30): Petroliam Nasional Bhd (Petronas) posted a 29% drop in profit after tax (PAT) for its second quarter ended June 30, 2023 (2QFY2023) to RM16.4 billion from RM23 billion in the corresponding quarter a year ago, as average realised prices for all products fell amid lower crude oil prices, which are down 26% year-on-year.
Quarterly revenue shrank 13% to RM79.9 billion from RM92.3 billion, which Petronas said was due to lower average realised prices for all products, partially offset by improved sales volume — mainly from petroleum and petrochemical products and favourable foreign exchange impact.
Petronas chief financial officer Liza Mustapha told a media briefing on Wednesday that the company’s performance was in line with the results of other oil and gas (O&G) majors, which in recent quarters saw weaker earnings compared to the bumper year in 2022, tracking the normalisation of crude oil prices.
In 2QFY2023, the group spent RM10.9 billion for capital expenditure, 5.5% less than the RM11.5 billion it spent in the same quarter last year.
Operation-wise, Petronas’ upstream and gas segments reported year-on-year declines in revenue contributions, partly offset by higher contributions from its downstream, and corporate and others segments.
The upstream segment was dragged by lower average realised prices and sales volume for crude oil and condensates as well as natural gas, resulting in a 20% drop in revenue to RM33.4 billion from RM41.92 billion
Its gas business saw a lower topline of RM25.57 million, down 22% from RM32.85 million previously, mainly due to lower average realised prices for liquefied natural gas (LNG) and processed gas, coupled with lower sales.
Its downstream segment, meanwhile, saw revenue rise a marginal 3% to RM44.73 billion from RM43.62 billion, underpinned by higher sales volume and favourable foreign exchange rates.
Revenue from its corporate and others' segment grew 34% to RM6.61 billion from RM4.92 billion, thanks mainly to higher fund investment income following a higher average rate of return in tandem with higher market rates.
For the six months ended June 30, 2023 (1HFY2023), Petronas logged a 13% drop in PAT to RM40.2 billion from RM46.4 billion in the same period last year, while revenue was little changed at RM170.3 billion versus RM170.4 previously.
Besides the 26% y-o-y fall in oil prices — crude is trading at about US$79.66 (RM369.51) per barrel, down from the average US$107.94 seen last year — Petronas president and group chief executive officer Tan Sri Tengku Muhammad Taufik said gas prices fell to a two-year low and chemical prices fell to a three-year low, while refining margins have halved since last year.
Oil prices expected to stay around US$70-80 per barrel
This bearish environment is expected to continue, Muhammad Taufik told reporters, as he noted that oil and gas prices are expected to remain volatile with persistent economic headwinds and energy security concerns firmly on the horizon.
He sees oil prices in the next 12 months hovering around the US$70-80 per barrel (/bbl) mark, taking cues from the intervention of the Organization of the Petroleum Exporting Countries (Opec) to minimise the volatility.
“We have upheld the view that we will always be guided by fundamentals, but even today reading fundamentals has proven to be extremely clouded by noise. If I speak to our trading counterparts, we will have planning scenarios where you will see a range of Brent at US$70-80/bbl, so we need to make sure in the near-term that our projects remain robust not only over the near term but also over the long-term.
“Over and above that, we stress test it to see what happens to our assets, and we apply those tests at anywhere between US$40-50/bbl — depending on the asset we are looking at,” he added.
He was more optimistic on gas, saying it is the one fuel that continues to see demand growth regardless of near-term noise and newsflow from certain markets.
“There is always that structural need as people switch away from coal [so] the demand for gas steps up. And even though we’ve enjoyed maybe US$11 [per million British thermal units (mmBtu)] within this period (1HFY2023), already [prices of] some cargoes going towards the backend of this year are creeping up.
“I know some of you have even asked me whether I can predict whether gas markets are tight or not. I cannot tell you. Unfortunately, I'm not a witch doctor, I don't know how badly it is going to turn out, but we have to be prepared for it,” he said.
“The only message I can give you in the context of gas prices is there is always a need to plan for the capacity to service these outages. As certain geographies choose to diversify away from Russian gas... If we look at the world as one unified market, we don’t want to scramble from one region to unnecessarily escalate or distort prices in another region — that is what we saw in 2021 and 2022.
“The people who sold, sold at market [price], and the industry was then accused of making exorbitant profits. This is why we cannot plan energy markets this way. We need to plan for the capacity required to push through these cycles,” he added.
Amid these challenges, Muhammad Taufik said Petronas remains resolute in delivering energy responsibly in support of its growth and sustainability agenda.