Published June 26, 2009

Petronas profit dips 14% to RM52.5b

Dividend to be paid to federal govt rises 25%, despite fall in earnings

By S JAYASANKARAN
IN KUALA LUMPUR

	Email this article
	Print article
	Feedback

MALAYSIA'S national oil corporation Petroliam Nasional, or Petronas, registered a 13.9 per cent decline in net profit to RM52.5 billion (S$21.7 billion) for the year to March 31, 2009 on the back of RM264.2 billion in sales largely due to lower global prices for oil and high operating costs.

Challenging times: Petronas reinvested only 21% of its profits during its financial year - significantly lower than the average 57% for the oil majors

'It's been a hugely challenging year,' Petronas chief executive Hassan Merican told reporters yesterday. 'The industry has moved from a 'high price-high cost' environment to one that is 'low price-high cost' and it has tested the resilience of all its players.'

Despite the lower bottom line, however, Petronas declared a RM30 billion dividend to the federal government, 25 per cent higher than the previous year. Indeed, total payments to the government - including royalties, taxes and dividends - rose 20 per cent to RM74 billion.

The heroic figures illustrate the disproportionate importance of Petronas on government revenues and the economy at large. By its own calculations Petronas's payments contributed 45 per cent of the federal government's revenues in 2008.

Indeed, much of the oil firm's fees to the government seemed to have come during the tenure of former prime minister Abdullah Ahmad Badawi. Between 2003 and 2008, Petronas contributed RM268 billion to Kuala Lumpur, or 57 per cent of whatever the oil firm paid the government since its inception 35 years ago.

All that money given back to the government also works against the oil firm as it reinvested only 21 per cent of its profits during its financial year - significantly lower than the average 57 per cent for the oil majors and the 72 per cent that other national oil corporations ploughed back into the industry.

Pressed on whether he was under pressure from the government to continue delivering high dividends to plug Kuala Lumpur's budget deficit, Mr Hassan replied that he was under 'no pressure at all' and clarified that there had been times 'especially in the 1990s' when the government allowed the firm to reinvest locally and abroad in a big way.

But he also conceded that the firm would be in a 'better position of comfort' if it could reinvest up to 35 per cent of its profits.

There is no doubt that it has been reinvestment, especially overseas, that has enabled Petronas to become a major global player and Malaysia's only Fortune 500 company.

During the period under review, the firm's international operations contributed 42 per cent of revenue. A further 37 per cent came from exports while only 21 per cent came from domestic operations.

Reinvestment of the firm's profits has also boosted its oil reserves. During the period under review, Petronas boosted its reserves marginally to 20.18 billion barrels of oil equivalent with new finds in increasingly complex geological areas: almost 15 per cent of reserves exist in very deep waters. Meanwhile, the firm's international reserves rose almost 10 per cent to 6.84 billion barrels of oil equivalent.

Mr Hassan said he did not expect oil prices, currently close to US$70 a barrel, to improve any time soon. 'The fundamentals do not justify the prospect of high prices,' he said. 'The demand is down and spare capacity has increased. My own opinion is that the current prices are due to speculative trading and the depreciation of the US dollar.'