Tuesday, July 15, 2008

Petronas Profit Jumps to Record as Oil, Gas Increase

By Jane Lee and Katherine Espina

July 15 (Bloomberg) -- Petroliam Nasional Bhd., Malaysia's state oil company, said profit jumped to a record because of increased overseas production and higher prices for crude, petrochemical and liquefied natural gas.

Net income in the year ended March 31 climbed 31 percent to 61 billion ringgit ($19 billion) from 46.4 billion ringgit a year earlier, Petronas, as the company is known, said in a statement in Kuala Lumpur today. The company wasn't able to replace all the oil and gas it pumped last year with new discoveries as fields at home mature and competition for exploration areas increase.

Oil prices in New York almost doubled in the past year, reaching a record $147.27 a barrel on July 11, amid output disruptions in Nigeria and a weaker dollar that increased the appeal of commodities as a hedge. Petronas's reserves fell 0.5 percent to the equivalent of 26.37 billion barrels of oil and the company replaced its reserves at 0.9 times during the year to Jan. 1, 2008, down from 1.8 times a year earlier.

``It's getting more and more challenging, more and more difficult to discover hydrocarbons, even internationally,'' Chief Executive Officer Hassan Marican told reporters. ``Demand is very strong and continues to be very strong.''

Royal Dutch Shell Plc and BP Plc, Europe's two largest oil companies, reported in April record profit that beat analyst estimates after crude surged above $100 a barrel and gas prices rose. Shell's first-quarter net income jumped 25 percent to $9.08 billion and BP's profit soared 63 percent to $7.62 billion.

Shell replaced 1.24 times of the oil and gas it pumped last year, down from 1.5 times in 2006.

Costs Increase

``We are watchful about how companies like Petronas are replenishing their resources because in this environment, not only prices have gone up but even operating costs have gone up very substantially,'' said Anshukant Taneja, a Singapore-based credit analyst at Standard & Poor's Ratings Services.

Petronas's total oil and gas output rose 3.7 percent to the equivalent of 1.77 million barrels a day. Crude oil and condensate production gained 4.2 percent to 784,800 barrels a day while gas output climbed 3.2 percent to the equivalent of 987.9 million barrels of oil a day.

Revenue gained 21 percent to 223.1 billion ringgit.

Petronas is extending its assessments on investing in a LNG project linked to Iran's South Pars gas field because of rising steel and construction costs, and mounting political pressure on the country, which may delay the sourcing of equipment for any project, Hassan said.

Iran Project

``Because of an increase in costs, the viability of the project'' is at stake, he said. ``With the geopolitical situation, there would be constraints in sourcing equipment.''

Total SA, Europe's third-largest oil company, said on July 10 that it postponed plans to invest in a project linked to the South Pars gas field as the country faces opposition from the U.S. and Europe over its nuclear program.

Petronas has operations in more than 33 countries including Iran, Sudan, Myanmar, Vietnam and South Africa.

Petronas will pay the Malaysian government a special dividend of 6 billion ringgit for the year ended March 31, bringing its total dividend for the period to 30 billion ringgit, the company said. That compares with 20 billion ringgit a year earlier.

Malaysian opposition leader Anwar Ibrahim has said revenue from the oil company is being channeled as subsidies to independent power producers and companies instead of payments to cap retail fuel prices for the people. The government raised retail gasoline and diesel prices by as much as 41 percent in June, the steepest increase, after holding prices steady for more than a year.

Production Share

Petronas's share of Malaysian oil and gas production rose 3.4 percent to 744,000 barrels a day of oil equivalent in the year to March 31. That accounted for 45 percent of Malaysia's daily output of 1.67 million barrels.

International operations, bringing in sales of 90 billion ringgit, overtook exports for the first time to become the biggest contributor to company revenue.

Capital expenditure climbed 33 percent to 37.6 billion ringgit. In U.S. dollar terms, Petronas profit rose 40 percent to $18.1 billion. The weaker dollar eroded gains when earnings were converted into the ringgit.

The yield on Petronas's 7.875 percent dollar-denominated bonds due in May 2022 was little changed at 5.657 percent as of 1 p.m. in Singapore, according to Credit Suisse. The additional yield investors demand to hold the debt over U.S. Treasuries due in 2031 narrowed to 116 basis points, versus 121 a week ago. The bonds were priced to yield 218 basis points above the 2031 Treasury yield when oil company sold the securities in 2002.

The price of Tapis oil, Malaysia's benchmark grade, rose 27 percent to $87.57 a barrel in the year to March 31, Petronas said.

Petronas's three refineries in Malaysia ran at 91.6 percent of their capacity. The three plants were built with a capacity of 323,300 barrels a day. The Southeast Asian nation's oil-product demand rose 6 percent.

To contact the reporter on this story: Jane Lee in Kuala Lumpur at jalee@bloomberg.net; Katherine Espina in Kuala Lumpur at kespina@bloomberg.net.
Last Updated: July 15, 2008 04:05 EDT

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