Solid strategy for Petronas portfolio adjustments
KUALA LUMPUR: Petroliam Nasional Bhd (Petronas) remains committed to developing its liquefied natural gas (LNG) business and growing its international businesses in a longer run amidst an unexciting oil price environment.
Kenanga Investment Bank Bhd (Kenanga Research) said this follows he abandonment of the Pacific NorthWest LNG project at Port Edward in British Columbia, Canada.
Petronas is also exiting blocks 01 and 02 in the Cuu Long basin, Vietnam upon the expiry of PSC next month as well as Algeria, which are deemed to be less profitable ventures.
Petronas has recently expanded its exploration portfolio with the award of shallow water Block 6 in the Gulf of Mexico’s Salina Basin in a 50:50 partnership with Ecopetrol, Colombia’s national oil company.
“We view this as a positive strategy for the oil major to continue its growth trajectory, but it may not be seen benefiting the local upstream space as not much attention is given as far as the local services players are concerned,” Kenanga Research said in a ntoe yesterday.
“This could be due to the pull-back in capital expenditure and operating expenditure spending that was disrupted by the volatility of oil prices in 2Q17, further delaying some of the contracts awards which was initially anticipated in the second quarter of 2017.”
This comes back to improvements seen in both Petronas’ upstream and downstream segments in the first half of 2017.
“Operationally, both upstream and downstream segments fared better in 1H17.
“Downstream earnings improved 46 per cent underpinned by higher petrochemical sales despite lower crude and petroleum products sales while upstream segments returned to the black thanks to cost re-basing and increase in production in MLNG supply system offsetting lower Iraq production entitlement, lower activitiesin Canada and higher decline rate in Malaysia-Thai Joint Development area and Egypt,” it said.
“Moving forward, Petronas expects production cost per unit of US$6.8 per barrel in FY17.
Thus, Kenanga Research believed the potential disruption leading to refineries, platforms and terminals shutdown in US caused by Hurricane Harvey is temporary and thus is unable to sustain the run-up in oil prices.
“We are still maintaining our FY17E Brent crude forecast of US$51 per barrel in view of limited re-rating catalyst to fundamentally lift oil prices to US$60 per barrel level,” it said.
“Likewise, the support for oil prices is buoyed by higher magnitude of inventory draw-down on healthy oil demand and consumption. All in, our preference is still on counters with resilient earnings backed by firm contracts.”