Petronas to pay $9.5 billion dividend as oil output declines
KUALA LUMPUR: Malaysian state oil company Petroliam Nasional Bhd. will pay the government a dividend of about 30 billion ringgit ($9.5 billion) this fiscal year and focus investment on extending the life of the nation's reserves, Chief Executive Officer Shamsul Azhar Abbas said.
The dividend-approaching the $10.5 billion payout by Royal Dutch Shell Plc, a company with sales almost four times larger-will be unchanged from the past two years. After net income fell 23 percent in the 12 months ended March 31 because of declining energy prices, Shamsul said the company needs to invest more to boost domestic oil and gas production.
"We expect to maintain the dividend at the same amount for the current financial year ending March 2011," Shamsul, 58, said on Nov. 8 in an e-mailed reply to questions from Bloomberg News. "Over the years, we have been able to uphold our obligations to return value to our shareholders while at the same time maintaining healthy capital expenditure levels."
Petroliam Nasional, known as Petronas, manages all the petroleum resources in the country, Southeast Asia's biggest oil and gas producer after Indonesia. Shamsul said on July 1 he plans to increase capital spending 7.8 percent this year to 40 billion ringgit, following two years of falling production.
Malaysia's government, which had a budget deficit at a 22-year high of 7 percent of gross domestic product last year, depends on oil and gas revenue for 40 percent of its income, according to a finance ministry report on Oct. 15.
Shell, based in The Hague, paid its 2009 dividend on sales of $278.2 billion. Kuala Lumpur-based Petronas reported 12-month sales equal to about $70 billion.
If it can't cover its dividends and investment spending from its cash-flow this financial year and next, "then we'll take this as an indication that the government may strip Petronas's cash reserves in the event of a sovereign crisis," Arnon Musiker, a Sydneybased Fitch Ratings analyst, said in a telephone interview. "We could reduce Petronas's foreign currency rating by one notch to the Malaysian sovereign." Malaysia has crude oil reserves to last 24 years and natural gas for 38 years, the finance ministry said on Oct 15. Production fell to the equivalent of 1.63 million barrels of oil a day in the year to March 31 from 1.66 million a year earlier, according to Petronas's 2010 annual report.
"Our domestic investments are primarily aimed at boosting the country's maturing reserves, maintaining our production rate and prolonging our reserves life," said Shamsul. Shamsul became CEO in February, replacing Hassan Marican, who led the company for 15 years. He joined Petronas in 1975 and holds a master's degree in energy management from the University of Pennsylvania in Philadelphia. Shamsul stepped down in January 2009 as chief executive of subsidiary MISC Bhd., the world's biggest owner of liquefied natural gas tankers. MISC shares rose 44 percent on the Kuala Lumpur stock exchange during Shamsul's tenure, seven times faster than the benchmark KLCI index. Investors regard Petronas's debt to be a riskier bet than similarly-rated ConocoPhillips, the thirdlargest U.S. oil producer, the spreads on the state-owned explorer's bonds and creditdefault swaps show. Petronas and ConocoPhillips are rated A by Fitch, the sixth-highest rank, and one level above the Malaysian govt itself.
S&P ranks Petronas's debt A-, the same as Malaysia and its seventh-highest investment grade.
The company's stand-alone credit profile, or its rating independent of the sovereign, is three notches higher. -Bloomberg