PETRONAS’ financial year results that ended 31 December 2016 have shown improvements despite the challenging market environment. This was the result of the deliberate sequential measures undertaken by the Group in response to the low oil prices which included the Group’s transformation efforts and its continuous pursuit to optimise cost and improve efficiency.
PETRONAS’ profit grew by 12 per cent to record higher Profit After Tax (PAT) of RM23.5 billion, from RM20.9 billion recorded in 2015. This was mainly due to lower operating expenditures and tax expenses partially offset by lower average prices.
The Group’s revenue for the year dipped by 17 per cent to RM204.9 billion from RM247.7 billion in 2015. The decrease reflected the lower average prices in line with the downward trend of key benchmark prices (Dated Brent and Japan Customs Cleared Crude) coupled with the impact of lower sales volume.
Cumulative 2016 Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) was RM70.4 billion compared to RM75.5 billion recorded in 2015.
Cash flows from the Group’s operating activities also decreased from RM69.6 billion in 2015 to RM53.8 billion due to lower average prices, partially offset by lower tax paid.
The Group’s continuous efforts to reduce cost had contributed in 8 per cent or RM4.1 billion decrease in controllable costs to RM49.1 billion compared to RM53.2 billion in 2015.
Total assets and shareholders’ equity increased to RM603.3 billion and RM380.3 billion respectively, contributed by the impact of weakening of Ringgit against US Dollar exchange rate and favourable movement on fair value of available-for-sale financial assets.
Gearing ratio increased to 17.4 per cent compared to 16.0 per cent recorded last year. This was due to higher borrowings following additional drawdown made during the year. Return on Average Capital Employed (ROACE) increased to 5.3 per cent compared to 5.1 per cent in 2015 in line with the Group’s higher profits.
Capital investments for the year was reduced by 22 per cent to RM50.4 billion following project deferment and rephasing as well as cost optimisation efforts.
Meanwhile, PETRONAS’ quarter four profits recorded a strong 85 per cent jump in PAT to RM11.3 billion from RM6.1 billion recorded in the previous quarter. The RM5.2 billion increase was primarily driven by higher average realised product prices and sales volume mainly from LNG and processed gas as well as impact of favourable exchange rate partially offset by higher taxation.
Revenue rose by 20 per cent to RM58.6 billion from RM48.7 billion in the preceding quarter.
EBITDA for the quarter also grew by 44 per cent to RM21.9 billion in line with the Group’s higher profits.
Upstream continued to focus on delivering its commitments across the oil and gas value chain while putting in measures to increase cash generation and optimise cost.
Malaysia and PETRONAS Group’s international total upstream production was 2,363 thousand boe per day in 2016, a three per cent increase compared to 2,290 thousand boe per day in 2015. This was mainly driven by the resumption of operations of the Sabah-Sarawak Gas Pipeline, higher facilities uptime in Malaysia and Canada, and higher production from Malaysia, Indonesia and Australia.
PETRONAS Group’s total Liquefied Natural Gas (LNG) third party sales volume for the year was 29.01 million tonnes, marginally higher compared to 28.49 million tonnes in 2015 mainly contributed by higher volumes from Train 9 in Bintulu and GLNG in Australia, partially offset by lower trading volume.
Average sales gas volume for Malaysia in 2016 was higher as compared to 2015 in line with higher demand.
Among notable achievements in Upstream for 2016 include acquisition of four international blocks which include two recently acquired blocks in Mexico and two in Myanmar, the commissioning and delivery of first LNG cargo from Train 9, and successful commissioning of PFLNG Satu.
Downstream Business managed the impact of depressed market growth, lower product prices and spreads to record only a slight decline in the Downstream’s PAT from RM8.4 billion in 2015 to RM8.3 billion in 2016.
The collaborative efforts undertaken across the value chain led to higher utilisation of the Group’s manufacturing units in 2016. PETRONAS’ refineries in Malaysia and South Africa recorded strong refinery utilisation at 90.5 per cent and 89.9 per cent respectively.
Meanwhile, its petrochemical plants set a new record in utilisation since incorporation of 95.7 per cent, an improvement from the previous record of 85.3 per cent in 2015. This led to an increase in petrochemical products sales volume by 14 per cent from 6.4 million metric tonnes to 7.3 million metric tonnes.
Rationalisation of marketing and trading strategies to drive value focused activities, resulted in higher margins despite lower sales volume. Total petroleum products sales volume was 268.1 million barrels, 14.5 million barrels lower compared to 2015, while crude oil sales volume was 189.3 million barrels, 24.6 million barrels lower compared to the previous year.
Downstream projects continued to progress well. The Pengerang Integrated Complex as at February 2017 is close to 60 per cent completion and is on track to commence operations by 2019. Recently, PETRONAS signed a Share Purchase Agreement with Saudi Aramco for a 50 per cent equity in selected ventures and assets of the RAPID project. Meanwhile SAMUR is expected to begin commercial operations within the first half of 2017.
The Group continues to maintain a conservative outlook for 2017 and expects prices to remain uncertain. PETRONAS will continue to focus on its group-wide efforts to reduce costs and further improve efficiency and sustain world-class operational efficiencies through collaborations within and outside the industry.
Datuk Wan Zulkiflee Wan Ariffin, President and Group CEO PETRONAS
"I am encouraged that PETRONAS has emerged from 2016 as a more resilient Corporation with strong underlying performance driven by our new structure, significant cost reductions and improved performance. We are in a stronger position heading into 2017."
Media Relations Department
Group Strategic Communications
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Headline crude prices for the week beginning 10 December 2018 – Brent: US$62/b; WTI: US$52/b
Headlines of the week
The Permian is in desperate need of pipelines. That much is true. There is so much shale liquids sloshing underneath the Permian formation in Texas and New Mexico, that even though it has already upended global crude market and turned the USA into the world’s largest crude producer, there is still so much of it trapped inland, unable to make the 800km journey to the Gulf Coast that would take them to the big wider world.
The stakes are high. Even though the US is poised to reach some 12 mmb/d of crude oil production next year – more than half of that coming from shale oil formations – it could be producing a lot more. This has already caused the Brent-WTI spread to widen to a constant US$10/b since mid-2018 – when the Permian’s pipeline bottlenecks first became critical – from an average of US$4/b prior to that. It is even more dramatic in the Permian itself, where crude is selling at a US$10-16/b discount to Houston WTI, with trends pointing to the spread going as wide as US$20/b soon. Estimates suggest that a record 3,722 wells were drilled in the Permian this year but never opened because the oil could not be brought to market. This is part of the reason why the US active rig count hasn’t increased as much as would have been expected when crude prices were trending towards US$80/b – there’s no point in drilling if you can’t sell.
Assistance is on the way. Between now and 2020, estimates suggest that some 2.6 mmb/d of pipeline capacity across several projects will come onstream, with an additional 1 mmb/d in the planning stages. Add this to the existing 3.1 mmb/d of takeaway capacity (and 300,000 b/d of local refining) and Permian shale oil output currently dammed away by a wall of fixed capacity could double in size when freed to make it to market.
And more pipelines keep getting announced. In the last two weeks, Jupiter Energy Group announced a 90-day open season seeking binding commitments for a planned 1 mmb/d, 1050km long Jupiter Pipeline – which could connect the Permian to all three of Texas’ deepwater ports, Houston, Corpus Christi and Brownsville. Plains All American is launching its 500,000 b/d Sunrise Pipeline, connecting the Permian to Cushing, Oklahoma. Wolf Midstream has also launched an open season, seeking interest for its 120,000 b/d Red Wolf Crude Connector branch, connecting to its existing terminal and infrastructure in Colorado City.
Current estimates suggest that Permian output numbered around 3.5 mmb/d in October. At maximum capacity, that’s still about 100,000 b/d of shale oil trapped inland. As planned pipelines come online over the next two years, that trickle could turn into a flood. Consider this. Even at the current maxing out of Permian infrastructure, the US is already on the cusp on 12 mmb/d crude production. By 2021, it could go as high as 15 mmb/d – crude prices, permitting, of course.
As recently reported in the WSJ; “For years, the companies behind the U.S. oil-and-gas boom, including Noble Energy Inc. and Whiting Petroleum Corp. have promised shareholders they have thousands of prospective wells they can drill profitably even at $40 a barrel. Some have even said they can generate returns on investment of 30%. But most shale drillers haven’t made much, if any, money at those prices. From 2012 to 2017, the 30 biggest shale producers lost more than $50 billion. Last year, when oil prices averaged about $50 a barrel, the group as a whole was barely in the black, with profits of about $1.7 billion, or roughly 1.3% of revenue, according to FactSet.”
The immense growth experienced in the Permian has consequences for the entire oil supply chain, from refining balances – shale oil is more suitable for lighter ends like gasoline, but the world is heading for a gasoline glut and is more interested in cracking gasoil for the IMO’s strict marine fuels sulphur levels coming up in 2020 – to geopolitics, by diminishing OPEC’s power and particularly Saudi Arabia’s role as a swing producer. For now, the walls keeping a Permian flood in are still standing. In two years, they won’t, with new pipeline infrastructure in place. And so the oil world has two years to prepare for the coming tsunami, but only if crude prices stay on course.
Recent Announced Permian Pipeline Projects
Headline crude prices for the week beginning 3 December 2018 – Brent: US$61/b; WTI: US$52/b
Headlines of the week