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Last Updated: August 26, 2017
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Kuala Lumpur, 25 August 2017 - PETRONAS today announced strong earnings for the first half of 2017, contributed by higher average realised prices, better margins and boosted by the on-going transformation initiatives to reduce cost and increase efficiency.

The Group's revenue grew to RM108.1 billion, up 15 per cent from RM93.7 billion in the first half of 2016, benefitting from the upward trend of key benchmark prices and foreign exchange rate, but was partially offset by lower sales volume.

Profit after tax (PAT) rose more than a 100 per cent to RM17.3 billion from RM6.4 billion in the corresponding period last year, notably due to higher average realised prices as well as lower net impairment on assets and well costs.

The increase however was partially offset by higher amortisation of oil and gas properties, tax expenses, net foreign exchange losses and costs related to the non-Final Investment Decision (FID) for the Pacific NorthWest LNG (PNW LNG) Project in Canada.

Earnings before interest, tax, depreciation and amortisation (EBITDA) was RM45.2 billion, a 35 per cent increase compared to RM33.6 billion recorded during the same period last year.

The Group's cash flows from operating activities also increased by 55 per cent to RM39.8 billion compared to RM25.6 billion in the same corresponding period in 2016.

Capital investments totalled at RM21.3 billion, mainly attributable to the Refinery and Petrochemical Integrated Development (RAPID) project in Pengerang, Johor.

Meanwhile year-to-date crude oil, condensate and natural gas entitlement volume was 1,778 thousand barrels of oil equivalent (BOE) per day while total production volume was 2,342 thousand BOE per day.

Total assets decreased to RM596.6 billion as at 30 June 2017 from RM603.4 billion as at 31 December 2016 primarily due to the impact of the strengthening of the Ringgit against the US Dollar.

Shareholders' equity of RM375.8 billion decreased by RM4.6 billion mainly due to the approved dividend of RM13.0 billion for the financial year ended 31 December 2016 and the foreign exchange rate impact, partially offset by profit generated during the period.

Gearing ratio decreased to 17.1 per cent as at 30 June 2017 from 17.4 per cent as at 31 December 2016.

Quarter on quarter, PETRONAS' performance for Q2 of 2017 also improved, largely driven by the upward trend of key benchmark prices and better margins.

PAT was registered at RM7.0 billion compared to RM1.7 billion in Q2 of 2016, a significant improvement mainly due to lower net impairment on assets and well costs, coupled with higher average realised prices recorded across all products. This was partially offset by higher net foreign exchange losses, amortisation of oil and gas properties and non-FID costs for PNW LNG in Canada.

The PAT was posted on the back of a RM 51.6 billion revenue, a 10 per cent increase from RM46.9 billion from the corresponding quarter last year as a result of higher average realised prices and foreign exchange rate impact.

EBITDA increased by 16 per cent to RM20.6 billion from RM17.8 billion in the corresponding quarter last year.

The Group's cash flows from operations also grew by 37 per cent to RM21.8 billion from RM15.9 billion in the corresponding quarter last year due to higher average realised prices.

Outlook

Despite higher prices compared to a year ago, the industry remains volatile tempering the company's optimism. PETRONAS continues to focus on internal transformation initiatives, effective cash management and cost optimisation.

The Board expects the overall year-end performance of PETRONAS Group to be fair.

Datuk Wan Zulkiflee Wan Ariffin, President and Group CEO PETRONAS

'We have closed out the first half of the year with stronger financials compared to the same period in 2016. While the price of oil was a significant factor, I also view this as tangible results of PETRONAS' transformation measures taken in response to the industry downturn. And I attribute this to the employees of PETRONAS. They continue to drive impactful changes, which create ripple effects that, as you can see, have positively improved the bottom-line.'

Operational Highlights

Upstream

• PETRONAS has made significant progress in re-basing its cost in the Upstream business. In 2017, PETRONAS expects further reduction in unit production cost to an average of US$6.8 per barrel through efficiency across its value chain.

• The total production volume for the first half of 2017 was 2,342 thousand BOE per day compared to 2,391 thousand BOE per day in the corresponding period last year. This was mainly due to lower Iraq production entitlement, lower activities in Canada and higher decline rate in the Malaysia-Thai Joint Development AREA and Egypt, partially offset by the increase in production in the MLNG supply system. Five new and infill projects were brought on-stream in the second quarter of 2017, contributing to 44,000 barrels equivalent per day of production. Total production entitlement improved to 1,778 thousand BOE from 1,731 thousand BOE in the corresponding period.

• LNG sales recorded a two per cent increase in volume compared to the corresponding period last year, mainly attributable to the higher volume from Train 9 and Egyptian LNG. In addition, the PFLNG Satu has delivered two cargoes to India and Taiwan, respectively.

• Despite the decision not to proceed with the PNW LNG project, PETRONAS remains committed to monetise the natural gas resources in the North Montney area in Canada. At 22.3 trillion cubic feet of proven resources, Canada holds the second largest gas resources in PETRONAS' portfolio after Malaysia. To-date, Progress Energy Canada Ltd, a wholly owned subsidiary of PETRONAS, is producing around 540 million standard cubic feet of gas per day to the domestic market, generating revenue of CA$261 million (approximately RM861 million) for the first two quarters in 2017.

• As part of the company's portfolio high-grading efforts, PETRONAS has decided to divest its position in Algeria and not to proceed with the extension of the Block 1 and 2 Production Sharing Contract in Vietnam. In addition, PETRONAS has secured a third exploration block in Mexico, namely Block 6, in the recently concluded bid round. To-date, PETRONAS has accumulated a total of 5,491 sq kms of exploration acreages in the highly prospective Mexico offshore blocks.

Downstream

• For the first half of 2017, Downstream business recorded an increase in PAT attributable to better petrochemical product spreads as well as higher trading and marketing margins.

• Higher volume recorded from petrochemicals was 4.0 MMT for the first half of 2017 compared to 3.5 MMT in the corresponding period last year, following the commissioning of PETRONAS Chemical Fertiliser Sabah Sdn Bhd (also known as SAMUR) further supported Petrochemical business in capturing favourable products spreads.

• Healthy trading and marketing margin for Crude and Petroleum products mainly driven by focused trading strategies towards high-value activities.

• PETRONAS' key downstream project continues to progress well with the Pengerang Integrated Complex (PIC) project achieving 70 per cent completion at 30 June 2017 with seven per cent progress during the second quarter of 2017.

• PETRONAS, through its lubricants business unit, the PETRONAS Lubricants Marketing (Malaysia) Sdn Bhd has successfully secured a four-year Supply Contract Renewal from Mercedes Benz through Cycle and Carriage Bintang Berhad.

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Venezuelan crude oil production falls to lowest level since January 2003

monthly venezueal crude oil production

Source: U.S. Energy Information Administration, Short-Term Energy Outlook

In April 2019, Venezuela's crude oil production averaged 830,000 barrels per day (b/d), down from 1.2 million b/d at the beginning of the year, according to EIA’s May 2019 Short-Term Energy Outlook. This average is the lowest level since January 2003, when a nationwide strike and civil unrest largely brought the operations of Venezuela's state oil company, Petróleos de Venezuela, S.A. (PdVSA), to a halt. Widespread power outages, mismanagement of the country's oil industry, and U.S. sanctions directed at Venezuela's energy sector and PdVSA have all contributed to the recent declines.

monthly venezuela crude oil rig count

Source: U.S. Energy Information Administration, based on Baker Hughes

Venezuela’s oil production has decreased significantly over the last three years. Production declines accelerated in 2018, decreasing by an average of 33,000 b/d each month in 2018, and the rate of decline increased to an average of over 135,000 b/d per month in the first quarter of 2019. The number of active oil rigs—an indicator of future oil production—also fell from nearly 70 rigs in the first quarter of 2016 to 24 rigs in the first quarter of 2019. The declines in Venezuelan crude oil production will have limited effects on the United States, as U.S. imports of Venezuelan crude oil have decreased over the last several years. EIA estimates that U.S. crude oil imports from Venezuela in 2018 averaged 505,000 b/d and were the lowest since 1989.

EIA expects Venezuela's crude oil production to continue decreasing in 2019, and declines may accelerate as sanctions-related deadlines pass. These deadlines include provisions that third-party entities using the U.S. financial system stop transactions with PdVSA by April 28 and that U.S. companies, including oil service companies, involved in the oil sector must cease operations in Venezuela by July 27. Venezuela's chronic shortage of workers across the industry and the departure of U.S. oilfield service companies, among other factors, will contribute to a further decrease in production.

Additionally, U.S. sanctions, as outlined in the January 25, 2019 Executive Order 13857, immediately banned U.S. exports of petroleum products—including unfinished oils that are blended with Venezuela's heavy crude oil for processing—to Venezuela. The Executive Order also required payments for PdVSA-owned petroleum and petroleum products to be placed into an escrow account inaccessible by the company. Preliminary weekly estimates indicate a significant decline in U.S. crude oil imports from Venezuela in February and March, as without direct access to cash payments, PdVSA had little reason to export crude oil to the United States.

India, China, and some European countries continued to receive Venezuela's crude oil, according to data published by ClipperData Inc. Venezuela is likely keeping some crude oil cargoes intended for exports in floating storageuntil it finds buyers for the cargoes.

monthly venezuela crude oil exports by destinatoin

Source: U.S. Energy Information Administration, Short-Term Energy Outlook, and Clipper Data Inc.

A series of ongoing nationwide power outages in Venezuela that began on March 7 cut electricity to the country's oil-producing areas, likely damaging the reservoirs and associated infrastructure. In the Orinoco Oil Belt area, Venezuela produces extra-heavy crude oil that requires dilution with condensate or other light oils before the oil is sent by pipeline to domestic refineries or export terminals. Venezuela’s upgraders, complex processing units that upgrade the extra-heavy crude oil to help facilitate transport, were shut down in March during the power outages.

If Venezuelan crude or upgraded oil cannot flow as a result of a lack of power to the pumping infrastructure, heavier molecules sink and form a tar-like layer in the pipelines that can hinder the flow from resuming even after the power outages are resolved. However, according to tanker tracking data, Venezuela's main export terminal at Puerto José was apparently able to load crude oil onto vessels between power outages, possibly indicating that the loaded crude oil was taken from onshore storage. For this reason, EIA estimates that Venezuela's production fell at a faster rate than its exports.

EIA forecasts that Venezuela's crude oil production will continue to fall through at least the end of 2020, reflecting further declines in crude oil production capacity. Although EIA does not publish forecasts for individual OPEC countries, it does publish total OPEC crude oil and other liquids production. Further disruptions to Venezuela's production beyond what EIA currently assumes would change this forecast.

May, 21 2019
Your Weekly Update: 13 - 17 May 2019

Market Watch

Headline crude prices for the week beginning 13 May 2019 – Brent: US$70/b; WTI: US$61/b

  • Crude oil prices are holding their ground, despite the markets showing nervousness over the escalating trade dispute between the USA and China, as well as brewing tensions in the Middle East over the Iranian situation
  • China retaliated against President Trump’s decision to raise tariffs from 10% to 25% on US$200 billion worth of Chinese imports by raising its own tariffs; crucially, China has also slapped taxes on US LNG imports at a time when American export LNG projects banking on Chinese demand are coming online
  • In the Middle East, Saudi Arabia reported that two of its oil tankers were attacked in the Persian Gulf, with the ‘sabotage attack’ near the UAE speculated to be related to Iran; with the US increasing its military presence in the area, the risk of military action has escalated
  • The non-extension of US waiver on Iranian crude is biting hard on Iran, with its leaders calling it ‘unprecedented pressure’, setting the stage for a contentious OPEC meeting in Vienna
  • In a move that is sure to be opposed by Iran, Saudi Arabia has said it is willing to meet ‘all orders’ from former Iranian buyers through June at least; Saudi Aramco is also responding to requests by Asian buyers to provide extra oil
  • The see-saw trend in US drilling activity continues; after a huge gain two weeks ago, the active US rig count declined for a second consecutive rig, with the loss of two oil rigs bringing the total site count to 988, below the equivalent number of 1,045 last year
  • There is considerably more upside to crude prices at the moment, with jitters over the health of the global economy and a delicate situation in the Middle East likely to keep Brent higher at US$71-73/b and WTI at US$62-64/b


Headlines of the week

Upstream

  • Occidental Petroleum and Warren Buffet have triumphed, as Chevron bowed out of a bidding war for Anadarko Petroleum; Occidental will now acquire Anadarko for US$57 billion, up significantly from Chevron’s US$33 billion bid
  • The deal means that Occidental’s agreement to sell Anadarko’s African assets to Total for US$8.8 billion will also go through, covering the Hassi Berkine, Ourhoud and El Merk fields in Algeria, the Jubilee and TEN fields in Ghana, the Area 1 LNG project in Mozambiuqe and E&P licences in South Africa
  • BP has sanctioned the Thunder Horse South Expansion Phase 2 deepwater project in the US Gulf of Mexico, which is expected to add 50,000 boe/d of production at the Thunder Horse platform beginning 2021
  • Africa is proving to be very fruitful for Eni, as it announced a new gas and condensate discovery offshore Ghana; the CTP-Block 4 in the Akoma prospect is estimated to hold some 550-650 bcf of gas and 18-20 mmbl of condensate
  • In an atypical development, South Africa has signed a deal for the B2 oil block in South Sudan, as part of efforts to boost output there to 350,000 b/d
  • Shell expects to drill its first deepwater well in Mexico by December 2019 after walking away with nine Mexican deepwater blocks last year

Midstream & Downstream

  • China’s domestic crude imports surged to a record 10.64 mmb/d in April, as refiners stocked up on an Iranian crude bonanza due to uncertainty over US policy, which has been confirmed as crude waivers were not renewed
  • Having had to close the Druzhba pipeline and Ust-Luga port for contaminated crude, Russia says it will fully restore compliant crude by end May shipments, including cargoes to Poland and the Czech Republic
  • Mexico’s attempt to open up its refining sector has seemingly failed, with Pemex taking over the new 340 kb/d refinery as private players balked at the US$8 billion price tag and 3-year construction deadline
  • Ahead of India’s move to Euro VI fuels in April 2020, CPCL is partially shutting down its 210 kb/d Manali refinery for a desulfurisation revamp
  • China’s Hengli Petrochemical is reportedly now stocking up on Saudi Arabian crude imports as it prepares to ramp up production at its new 400 kb/d Dalian refinery alongside its 175 kb/d site in Brunei
  • South Korea’s Lotte Chemical Corp expects its ethane cracker in Louisiana to start up by end May, adding 1 mtpa of ethylene capacity to its portfolio
  • Due to water shortage, India’s MRPL will be operating its 300 kb/d refinery in Katipalla at 50% as drought causes a severe water shortage in the area

Natural Gas/LNG

  • Partners in the US$30 billion Rovuma LNG project in Mozambique now expect to sanction FID by July, even after a recent devastating cyclone
  • Also in Mozambioque, Anadarko is set to announce FID on its Mozambique LNG project on June 18, calling it a ‘historic day’
  • After talks of a joint LNG export complex to develop gas resources in Tanzania, Shell and Equinor now appear to be planning separate projects
  • Gazprom has abandoned plans to build an LNG plant in West Siberia to compete with Novatek, focusing instead on an LNG complex is Ust-Luga
  • First LNG has begun to flow at Sempra Energy’s 13.5 mtpa Cameron LNG project in Louisiana, with exports expected to begin by Q319
May, 17 2019
Shell Eclipses ExxonMobil Once Again

The world’s largest oil & gas companies have generally reported a mixed set of results in Q1 2019. Industry turmoil over new US sanctions on Venezuela, production woes in Canada and the ebb-and-flow between OPEC+’s supply deal and rising American production have created a shaky environment at the start of the year, with more ongoing as the oil world grapples with the removal of waivers on Iranian crude and Iran’s retaliation.

The results were particularly disappointing for ExxonMobil and Chevron, the two US supermajors. Both firms cited weak downstream performance as a drag on their financial performance, with ExxonMobil posting its first loss in its refining business since 2009. Chevron, too, reported a 65% drop in the refining and chemicals profit. Weak refining margins, particularly on gasoline, were blamed for the underperformance, exacerbating a set of weaker upstream numbers impaired by lower crude pricing even though production climbed. ExxonMobil was hit particularly hard, as its net profit fell below Chevron’s for the first time in nine years. Both supermajors did highlight growing output in the American Permian Basin as a future highlight, with ExxonMobil saying it was on track to produce 1 million barrels per day in the Permian by 2024. The Permian is also the focus of Chevron, which agreed to a US$33 billion takeover of Anadarko Petroleum (and its Permian Basin assets), only for the deal to be derailed by a rival bid from Occidental Petroleum with the backing of billionaire investor guru Warren Buffet. Chevron has now decided to opt out of the deal – a development that would put paid to Chevron’s ambitions to match or exceed ExxonMobil in shale.

Performance was better across the pond. Much better, in fact, for Royal Dutch Shell, which provided a positive end to a variable earnings season. Net profit for the Anglo-Dutch firm may have been down 2% y-o-y to US$5.3 billion, but that was still well ahead of even the highest analyst estimates of US$4.52 billion. Weaker refining margins and lower crude prices were cited as a slight drag on performance, but Shell’s acquisition of BG Group is paying dividends as strong natural gas performance contributed to the strong profits. Unlike ExxonMobil and Chevron, Shell has only dipped its toes in the Permian, preferring to maintain a strong global portfolio mixed between oil, gas and shale assets.

For the other European supermajors, BP and Total largely matched earning estimates. BP’s net profits of US$2.36 billion hit the target of analyst estimates. The addition of BHP Group’s US shale oil assets contributed to increased performance, while BP’s downstream performance was surprisingly resilient as its in-house supply and trading arm showed a strong performance – a business division that ExxonMobil lacks. France’s Total also hit the mark of expectations, with US$2.8 billion in net profit as lower crude prices offset the group’s record oil and gas output. Total’s upstream performance has been particularly notable – with start-ups in Angola, Brazil, the UK and Norway – with growth expected at 9% for the year.

All in all, the volatile environment over the first quarter of 2019 has seen some shift among the supermajors. Shell has eclipsed ExxonMobil once again – in both revenue and earnings – while Chevron’s failed bid for Anadarko won’t vault it up the rankings. Almost ten years after the Deepwater Horizon oil spill, BP is now reclaiming its place after being overtaken by Total over the past few years. With Q219 looking to be quite volatile as well, brace yourselves for an interesting earnings season.

Supermajor Financials: Q1 2019

  • ExxonMobil – Revenue (US$63.6 million, down 6.7% y-o-y), Net profit (US$2.35 billion, down 49.5% y-o-y)
  • Shell - Revenue (US$85.66 billion, down 5.9% y-o-y), Net profit (US$5.3 billion, down 2% y-o-y)
  • Chevron – Revenue (US$35.19 billion, down 5% y-o-y), Net profit (US$2.65 billion, down 27.2% y-o-y)
  • BP - Revenue (US$67.4 billion, down 2.51% y-o-y), Net profit (US$2.36 billion, down 9.2% y-o-y)
  • Total - Revenue (US$51.2billion, up 3.2% y-o-y), Net profit (US$2.8 billion, down 4.0% y-o-y)
May, 15 2019