Petronas spending not affected by weaker oil prices

Kenanga Research says oil giant pegs capex at US$45 per barrel

PETALING JAYA: The recent oil prices pullback will not affect Petroliam Nasional Bhd’s (Petronas) spending, given that the local oil major has pegged its capital expenditure (capex) budget at an average US$45 per barrel, according to Kenanga Research.

The research house said this was conservative compared with the US government’s Energy Information Administration forecast of US$54 per barrel.

“However, capex and operating expenditure allocations will remain rather selective as Petronas will continue to prioritise on managing its cash flow amid tight capex spending,” Kenanga said in its report yesterday.

Oil prices have weakened by 9% to US$51.4 per barrel within a week after a few months of stabilisation, largely due to reignited concerns on building oil stocks and revival of rigs count in the United States coupled with the moderation of oil demand growth.

Kenanga said this was not surprising as US shale producers were the biggest beneficiaries, evident by a 10% growth since the production cut announcement last December.

Kenanga retained its in-house Brent oil forecast of US$55 per barrel for 2017.

Commenting on Petronas’ fourth quarter 2016 results, Kenanga noted that the company posted higher earnings before interest, tax, depreciation and amortisation (Ebitda) during the period with the absence of one-off payment for the floating production storage and offloading vessel facility for the early termination of risk sharing contract recorded in the third quarter of 2016.

“The company’s operating cash flow (OCF) in the fourth quarter of 2016 strengthened by 69% quarter-on-quarter, in tandem with higher Ebitda.

“However, cumulatively, financial year 2016 (FY16) OCF still declined by 23% year-onyear due to weaker performance in the previous quarters,” Kenanga said.

Meanwhile, Petronas spent RM14.9bil on capex in 4Q16, bringing its year-to-date capex to RM50.4bil.

Kenanga reckoned the increase in capex was attributable to the ramping up in Pengerang Integrated Complex project. It is 60% completed as of Feb 2017.

In the meantime, Petronas is looking to commit capex of about RM60bil (up 17% yearon-year) this year with Brent crude oil prices pegged at US$45 per barrel.

In FY17, Kenanga believed that Petronas’ OCF will be enough to cover the RM60bil capex it has committed earlier. But, this is not sufficient to fully-fund its dividend commitment of RM13bil.

“This is not alarming, in our view, given that Petronas’ balance sheet remains healthy with net cash position of RM53.9bil as of the fourth quarter of 2016,” noted Kenanga, expecting more contracts to be rolled out in the next few months such as maintenance, construction and modification jobs.

The research house kept its “neutral” call on the oil and gas sector, with top picks being SapuraKencana Petroleum Bhd and Yinson Holdings Bhd.

Petronas’ balance sheet remains healthy with net cash position of RM53.9bil as of the fourth quarter of 2016.