ANALYST: 2020 WAS CHALLENGING FOR PETRONAS

By Siti Radziah Hamzah

KUALA LUMPUR, March 1 -- The year 2020 was an agony for Petroliam Nasional Bhd (Petronas) as demand from crude oil unexpectedly fell off the cliff when the COVID-19 pandemic started ravaging the world, said an analyst.

The torment did not stop there as the weaker oil and gas (O&G) industry was weighed down by the energy market imbalance resulting from the fragile dynamics of the OPEC+ alliance.

Axi chief global market strategist Stephen Innes said O&G companies globally took a hit, and Petronas was not spared, making an impairment of RM20.78 billion in the second quarter of 2020.

He noted that large impairments, which stood at RM31.5 billion for the financial year ended Dec 31, 2020 (FY20), was hard to monetise under any circumstances, let alone with depressed energy prices. 

Petronas posted its first-ever annual loss of RM21 billion for the financial year ended Dec 31, 2020 (FY20), dragged down by the RM31.5 billion impairment charge on assets.

In comparison, it recorded a profit after tax of RM40.5 billion in FY19.

Excluding the impairment, Petronas posted a net profit of RM10.5 billion, a 78 per cent decline from RM48.8 million in FY19. It is worth noting that the group's earnings before interest, tax, depreciation and amortisation remained strong at RM55.3 billion. 

Fortunately, oil prices recovered very well from November 2020 onwards, which helped assuage concerns somewhat, said Innes. 

"But I think the writing is on the wall for the regional oil giants who will need to play a significant catch-up role in the industry. transforms from fossil fuel energy to green energy," he told Bernama in an email interview recently.   

With that in mind, Innes said 2021 is expected to be a banner year for the industry, with some market calling for crude prices of US$80 per barrel. 

"The windfall from more petro-dollar per barrel than forecast will offset some of the 2020 hardships and will provide significant financial wiggle room to allow for the transformation into renewable energy," he pointed out. 

At the time of writing, crude benchmark Brent rose 1.83 per cent to US$65.60 per barrel, ahead of a keenly anticipated OPEC+ production-setting meeting this week. 

Earlier this month, Brent oil prices shot past US$60 a barrel for the first time in more than a year  with investors growing increasingly optimistic about demand as the global economy recovers from the COVID-19 pandemic.

The commodity climbed 1.26 per cent in Feb 8 to hit US$60.19 a barrel – its highest since January last year – as asset markets rallied on the back of vaccine rollouts, slowing virus infections and hopes that US President Joe Biden’s huge stimulus proposal will be passed by the United States' lawmakers.

Meanwhile with profits in the O&G industry in Malaysia expected to take a massive hit for the financial year 2020, on the back of a global slump in world energy prices, including a 60 per cent drop in the price of oil over the last two years, jobs are being shed at a rapid rate. 

This is only set to be exacerbated as major O&G companies scale back or even halt projects. 

On whether this trend would continue to this as oil majors also decided to scale down its presence geographically, Innes said belt tightening was going to be a consequence of, not only the bottom line loss but also, the need to redeploy capital into green energy.

"There are some challenging transitional years ahead that will require sharp pencils in the boardroom," he pointed out, adding that it was very difficult to say Petronas' venture into renewable energy came at the right time as the O&G industry is not out of the woods yet. 

"I am looking forward to guidance from the group chief executive officer (of Petronas) and he thinks 2021 is challenging but ominously he suggests the industry is in for a great reset due to green energy," said Innes.  

Last October, Oslo-based O&G consultancy Rystad Energy had reportedly said the United States and European oil majors have either announced or are thought to be in talks to shed US$5.7 billion of O&G assets in Southeast Asia.

Oil major ExxonMobil has a shortlist of buyers for its US$3 billion stake in Malaysian offshore oil assets, Bloomberg News said late last month.

In 2020, Petronas made the commitment to achieve net zero carbon emissions by 2050.

The world’s energy transition bodes well with Petronas’ position as the largest liquified natural gas exporter in Southeast Asia and the third largest in the world.

-- BERNAMA