KUALA LUMPUR: Petroliam Nasional Bhd (Petronas) will review all existing projects for its upstream and downstream businesses, including those in the pipeline, in a bid to cut costs amid what is shaping out to be a prolonged period of much cheaper oil prices.
“We are going to review all the projects that we have. Each division will have to start looking at its portfolios to see what project makes sense because there are projects that don’t make sense at this price level,” Petronas senior vice-president for upstream Malaysia, Datuk Mohd Anuar Taib, told The Edge Financial Daily at the International Petroleum Technology Conference yesterday.
Last month, president and chief executive officer Tan Sri Shamsul Azhar Abbas said Petronas was looking at cutting 15% to 20% of its RM60 billion capital expenditure (capex) for new projects next year, given the current backdrop of low oil prices.
Mohd Anuar said Petronas will have to start prioritising its projects moving forward and decide on those that are affordable and sensible.
With the current low oil prices, he said the challenge is not so much in the oil price, but rather the costs of doing business, which have escalated tremendously in recent years, affecting profitability.
“The revenue stream is going to be much lower, so we’ve got to think of how to take care of the costs.
“We have to be profitable at whatever price range. We are no different than any other company in the world,” Mohd Anuar said, adding that Petronas too is answerable to its shareholders and has an obligation to ensure good returns.
However, he did not want to reveal whether Petronas’ downstream sector would see the highest casualty in project cuts. Still, it should be noted that the biggest money maker for Petronas is its upstream division, which looks for oil and gas.
What is clear at this point in time, said Mohd Anuar, is that “all industry players will have to go back and look at their books”.
Earlier, Petronas vice-president for upstream international Sharbini Suhaili told reporters that the group is looking to divest its stakes in Mauritania and Cameroon as part of its international growth plan to upgrade its portfolio.
“We will continue to look at opportunities that have growth value. We will divest those that have no value,” he said at a briefing on the sidelines of the same conference.
However, Sharbini said Petronas will continue to look for suitable sites that will bring value to the group despite the ongoing unfavourable market conditions.
One such site is in Argentina, for which Petronas signed a US$550 million (RM1.92 billion) deal with Argentinia state-controlled company YPF SA on Wednesday to drill fields at the world’s fourth largest shale oil deposit in Patagonia’s Vaca Muerta. Under the arrangement, Petronas will invest US$475 million in an initial phase of 35 wells to be operated by YPF.
Sharbini said Petronas is optimistic about maintaining its production growth of 1% to 2% next year.
It is currently producing about 2.2 million barrels of oil equivalent (boe) a day, while its international ventures portfolio produces 550,000 boe per day.
This article first appeared in The Edge Financial Daily, on December 12, 2014.