Petronas may slash domestic investment 30% as crude slumps: sources

[KUALA LUMPUR] Malaysian state oil firm Petronas may slash capital expenditure even more than it has signalled because the continuing rout in oil prices has hurt revenue, with domestic spending facing cuts of about 30 per cent, sources said on Wednesday.

Some domestic and international projects that may become unprofitable due to the continued decline in oil prices could be shelved by Petronas, or Petroliam Nasional Bhd, three sources with knowledge of the matter said.

"When oil prices drop too low below our threshold, we will evaluate everything from scratch. But it is all weighed out, it's not just about monetary value," said one source.

"There's a series of projects over the next few years, some of which they will defer, some they will cut," the source added, without naming specific projects.

Petronas did not immediately respond to requests for comment.

Chief Executive Shamsul Azhar Abbas had warned in late November that capital expenditure could be cut by 15 to 20 per cent this year because of the drop in oil prices.

Brent crude was trading around US$71.30 per barrel at that time but has since slumped below US$50 for the first time since May 2009 because of a global supply glut.

In all, crude prices have plunged more than 55 per cent since last June, when benchmark Brent traded above US$115 a barrel and US crude above US$107. Analysts say growing supplies mean more price falls are in sight.

Two sources said the cost cuts could also curb operations abroad. Petronas has foreign operations in Africa, Asia, the Americas and the Middle East.

In December high costs caused it to delay giving the go-ahead for a planned US$11 billion liquefied natural gas export terminal in British Columbia.

Petronas, Malaysia's only Fortune 500 company, reported its worst showing in three quarters in July-September with net profit falling to RM15.07 billion (US$4.22 billion) from 17.2 billion a year before.

Every US$1 change in oil prices has a 1 billion ringgit impact on pre-tax profit, according to Shamsul.

Petronas gets about a fifth of its earnings from domestic operations.

It provides most of the Malaysian government's revenue from oil and gas, but last month it said it would have to cut dividends to the government by more than 37 per cent if oil prices stayed below US$75 a barrel.

Projects put on ice could be reactivated once financial conditions made them feasible again.

"In a way we're just saving money because the oil is there," a second source familiar with investment matters said, adding several expansion projects under his watch had already been cut and some of them would have to be redesigned to tighten costs.

The oil price slump is having other ramifications.

The Malaysian ringgit was Asia's weakest currency in 2014, vulnerable to falling crude prices because of the Southeast Asian country's position as an oil exporter. On Wednesday it touched its lowest level against the dollar in 5-1/2 years.

Adding to investor concern about Malaysia, its heavily indebted state investment fund, 1 Malaysia Development Bhd (1MDB), missed the repayment of a RM2 billion bridge loan at the end of December, sources said.

REUTERS