FUELLING DOMESTIC INVESTMENTS
Petronas can now use funds for local downstream developments such as Rapid, says BMI Research
PETROLIAM Nasional Bhd’s exit from a liquefied natural gas venture in Canada will allow it to channel funding to higher-priority projects closer to home, such as the US$27 billion (RM114 billion) Pengerang Integrated Petroleum Complex in Johor.
PETROLIAM Nasional Bhd (Petronas) is expected to channel capital spending from its negative Final Investment Decision in a Canadian liquefied natural gas (LNG) venture into higher-priority projects closer to home, such as the US$27 billion (RM114 billion) Pengerang Integrated Petroleum Complex (PIPC) in Johor.
However, the state oil and gas (O&G) giant has repeatedly said it will remain in Canada for a long time, monetising other assets there as well as reinvesting in developing gas resources while taking advantage of its LNG reserves.
Business Monitor International Research (BMI Research) said in a report Petronas’ latest sale of its O&G assets in the onshore Deep Basin, northwest Alberta, would enable it to put more focus on the PIPC project, which is slated to be completed in 2019.
“Stepping back from the Canadian LNG venture will allow Petronas to focus its capital spending on higher-priority downstream projects in the domestic market, notably the US$27 billion PIPC.
“The project consists of the 300,000 barrels-a-day-capacity Refinery and Petrochemical Integrated Development (Rapid), slated for completion by 20192020,” said BMI Research.
These projects were closely aligned with Petronas’ long-term strategy to move up the downstream value-chain and would significantly improve Malaysia’s self-sufficiency in refined fuels and petrochemicals over the coming years, it said.
However, the Fitch research firm said Petronas’ appetite for overseas investments would remain subdued over the coming years due to weak oil prices, continued focus on spending cuts and the need to advance higher-priority projects at home.
“Petronas is looking to offload its O&G assets in the onshore Deep basin as the state-owned group continues to trim its exposure to the Canada upstream sector.
“The assets to be sold include fields held by subsidiary Progress Energy, which combine to produce 5,500 barrels a day of oil equivalents, as well as ownership in three gas plants and an accompanying pipeline network,” said BMI Research.
The move would mark a further pullback from Canada for Petronas as it had earlier scrapped plans to construct a US$36 billion Pacific Northwest LNG (PNW LNG) project in British Columbia, due to low oil prices and considerable regulatory hurdles, it said.
However, despite the planned asset sales, BMI Research highlighted Petronas’ intention not to exit from the Canadian upstream.
“Petronas has repeatedly stated that it still remains keen to monetise gas resources in Canada’s western coast, in the form of LNG exports, capitalising on shorter shipping routes to several key Asian markets.
“However, this renders its Alberta assets expendable due to their oil-heavy nature and long distance from the coastline that made them unsuitable for LNG export ventures in the future.”
The money raised from the sales would be re-invested to developing Progress Energy’s drilling works in North Montney, British Columbia, where it had already drilled more than 215 wells targeting gas, it added.
Foreseeing subdued further investments in Canada, BMI Research said Petronas would likely continue to focus on spending cuts and investment obligations at home.
“The firm has saved about US$1.6 billion since 2016 due to early commitment to various cost-optimisation efforts, and plans to further cut spending by about US$11 billion over the next two years.
“As for overseas projects, Petronas will continue to be conservative in its project selection and adhere to strict capital discipline, with priority given to a select group of projects.
“One such project will be its activities in Iraq, where it holds stakes in three fields (Garraf, Halfaya and Badra) and is working to more than double production,” it added.
MIDF research O&G analyst Aaron Tan said the immediate focus for Petronas now was to ensure that Rapid would be completed and operational by 2019.
“For the past two years, the bulk of Petronas’ capex (capital expenditure) has been channelled towards the downstream segment, particularly Rapid. By focusing on Malaysia, Petronas will be able to further develop the Rapid project and also other portions of Pengerang (PIPC).
“As for future plans in Canada, we believe that Petronas will be on a continuous path of trying to monetise its remaining assets there,” said Tan.
When asked on the Canada Deep Basin sale, Petronas said in a statement yesterday: “Progress regularly reviews its assets to ensure alignment with the company’s strategy.
“Following the most recent evaluation, Progress determined that selling the Deep Basin assets would allow the company to focus investment on its vast resource in the North Montney in British Columbia, which represents significant growth opportunity for the company.
“Progress anticipates that the high-quality Deep Basin assets, which have been a big part of the company’s success since 2004, will be of interest to companies specialising in this resource type,” said the group.