Analysis: Malaysia’s Petronas gears up for new investment cycle
Malaysia’s national oil company Petronas is poised for its next wave of investments, in line with the recent final investment decision on the LNG Canada project, as the completion of its RAPID refinery frees capex and higher oil prices boost cash flows. With the 300,000 b/d RAPID project starting in early 2019, not only is MYR15-20 billion ($3.6-4.8 billion) in annual capex freed up, but Petronas has also received nearly MYR29.5 billion following the transaction with Saudi Aramco earlier this year, when the Middle Eastern oil producer joined the downstream project. The additional cash gives Petronas further financial flexibility to either increase reserves or undertake longer-term projects like LNG Canada, according to Xavier Jean, senior director of corporate ratings at S&P Global Ratings. This is a big shift from mid-2017, when oil prices were hovering around $50/b and the company was forced to shelve its Pacific NorthWest LNG project at Port Edward in British Columbia, Canada, citing “changes in market conditions.” At the time, Petronas’ capex commitments were spread thin between maintaining the size of its petroleum reserves, downstream investments at the Pengerang RAPID refinery, dividend payments to the government and potentially high capex LNG projects in North America. Petronas was in fact digging into its cash pile in order to finance an elevated capital spending plan and steady dividend distributions. S&P Global Ratings estimated that Petronas’ spending on investments (mostly on its RAPID project and reserve replacement) and dividends exceeded the cash generated from its operations by nearly MYR27 billion ($6.5 billion) for the fiscal year ended December 31, 2015, and by almost MYR17 billion for the year to December 31, 2016. The state-run oil company needs to spend approximately MYR30 billion annually just to maintain its reserve life, Jean said. Given its conservative financial policies and balance sheet management strategy, it’s no surprise why Petronas decided to call off the Pacific NorthWest LNG project that would have been difficult to finance without depleting cash reserves further. But by the end of 2017, Brent crude prices had bounced back to $67/b and along with it, Petronas’ cash flows had strengthened. Petronas’ annual capital spending is estimated to average MYR50 billion-MYR55 billion in 2018, 2019, and 2020, with spending geared toward completing downstream projects in 2018, and focused on growing reserves in 2019 and 2020, according to S&P Global Ratings. Petronas didn’t respond to queries seeking comment on its capex spending. Pakistan to start work on TAPI by December Pakistan will start working on mega gas line TAPI (Turkeministan, Afghanistan, Pakistan and India) project by December 2018. This was stated by Brigadier Abdul Rahman Bilal Sitara-e -Jurat, Director of the Measac Research Center, while talking to the correspondent here after the seminar titled “Strategic Significant of TAPI Project in the Region”here on Tuesday. He added that TAPI project will take two years to be completed. A German company would soon signed MoU with the government for the execution and installment of the project in Pakistan he said. Speakers on at a seminar “received a detailed briefing by Brigadier Abdul Rahman Bilal who describe the details of TAPI gas line project. In opening remarks Turkmenistan Deputy Head of Mission Begench Gurbanov said his country is rich in hydrocarbons and gas reserves and will complete its share of this project by this year. The Ambassador expressed the confidence that all other stakeholders of the project will take keen interest to complete their part earliest. TAPI is a key project, it will get peace in of the region” said Turkmen Ambassador in Pakistan. Federal Minister for Parliamentary Affairs Ali Mohammad Khan while addressing the ceremony said that it is the time to promote bilateral peace and harmony in the region. The Minister added that Pakistan want peace in the region that is connected to the peace of Afghanistan. “We should try to establish peace in Afghanistan that is imperative for the peace of the whole region. Ali Mohammad added that due to mutual hatred in past, we have made a difficulty of each other but now it is time to create and promote peace and harmony for the better development and mutual prosperity of the region. “Prime Minister Imran Khan also wants peaceful relations neighboring counties especially with India and Afghanistan” said the Minister for Parliamentary Affairs. He said TAPI project would be proven as a milestone for bringing peace in the region. It may also be recalled that Memorandum of Understanding between Turkmenistan and Pakistan for further cooperation in the fields of fuel and energy was signed on March 16, 2017 and this agreement U is valid for five years. The TAPI project is a multiple areas of mutual cooperation including LPG, oil and gas. The mega cooperation is including exchange of experience and participation in establishment of oil and gas installations as well as the import of Liquefied Natural Gas (LNG) from Turkmenistan. Turkmenistan Afghanistan, Pakistan and India are the main stakeholders in the project. Indian High Commissioner in Pakistan Ajay Bisaria addressing the seminar has said that this project is significantly important for the energy and regional cooperation and said “this pipeline is peace line” for the partner counties. He added that the project would not only bring harmony but may call “incentive for peace”. TAPI project would help to boost regional connectivity and trade said Ajay Bisaria. Referring to the Pakistan India Relations he said that the project can help establishing peace between two counties. TAPI project would boost security cooperation among member countries. H.E. Mr. Zardasht Shams, Deputy Head of Mission of Afghanistan to Pakistan, speaking on the occasion said that the pipeline project will bring harmony, peace and regional security in the region. He stated that it would help to overcome the differences between the counties could be used to facilitate each other to overcome the challenges.