Petronas May Have To Borrow Or Tap Into Reserves After RM2.96 Bil 4th Quarter Loss

Petrochemicals
In view of plummeting oil prices in recent months, it comes as no surprise that Petronas posted a net loss in the fourth quarter of 2015 but due to its sizeable commitment to meeting dividend commitments, the company announced it is considering borrowing and even tapping into its reserves.

“Our cash flow from our operations this year will not be able to cover the remaining capex and 16 billion ringgit dividend. Not only will we need to utilize our cash reserves, but we may need to raise some borrowings.

“We are planning our projections based on Brent price at $30 for this year, and must brace ourselves for the corresponding impact to our financial performance. 2016 and 2017 will continue to be challenging for Petronas,” Petronas President and Group CEO Wan Zulkiflee Wan Ariffin said at a press conference

Wan Zulkiflee said Petronas has set a lower oil price assumption of US$30 (RM126) per barrel for 2016. Brent crude averaged US$52 per barrel for 2015.

Petronas’ net earnings fell 56% from RM47.6 billion to RM20.8 billion on the back of a 25% drop in revenue from RM329.1 billion to RM247.7 billion for 2015.

The 70 percent slump in crude oil prices since mid-2014 has been squeezing the finances of Petronas, which accounts for about a third of the Malaysian government’s oil and gas revenue, Reuters reports.

Petronas also announced plans to cut spending by 50 billion ringgit over the next four years, as earlier announced in an internal memo to its staff. Of that, 15-20 billion ringgit would come in 2016.

Wan Zukliflee had highlighted that the company has undertaken six measures to mitigate the current challenging market environment.

Three of those measures, namely cash management and generation, cost efficiency and simplification as well as focused execution on projects, are projected to lead to tangible cash generation and cost savings of up to RM1.4 billion, Wan Zukliflee told reporters, noting that these initiatives are expected to generate additional RM6 billion to RM7 billion in the next three years.

Wan Zulkiflee said the other three measures are focused on long-term sustainability, including talent development, technological agenda and internal work culture.

Petronas’ capital expenditure (capex) for 2015 was 64.7 billion ringgit, down 9% compared with the previous year but severe action to reduce capex is necessary as cash flows from operations had dwindled by a third to 69.6 billion ringgit last year, and were not sufficient to fund capital expenditures or the 16 billion ringgit dividend for the government.

 

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