Kuala Lumpur - / BERNAMA-AsiaNet/ - The financial year ended 31 March 2008 was yet another highly challenging year for the PETRONAS Group as it continues to strive to generate value amidst an increasingly volatile and uncertain global oil and gas industry environment beleaguered with escalating cost and an acute shortage of experienced personnel as well as equipment.
The year saw sustained growth in demand for oil on the back of strong global economic expansion particularly in China and India. Global demand, which grew at an average of 86.1 million barrels per day, outstripped supply during the period. The higher demand over supply, coupled with recurring supply disruptions in some producing countries and continuing geopolitical uncertainties particularly in the Middle East, escalated concerns over security of supply.
All these developments, compounded by speculative activities, drove crude oil prices to historic highs during the year with the average price of West Texas Intermediate (WTI) and Brent crude oils increasing by 26.7% and 26.5% to USD82.24 per barrel and USD82.31 per barrel respectively. The weighted average price of Malaysian Crude Oil (MCO) also rose in tandem to USD86.81 per barrel, an increase of 26.7%. Strong demand from the transportation sector drove prices of gasoline up by 37.7% to an average of USD102.50 per barrel and diesel by 22.6% to an average of USD94.97 per barrel.
The sustained high oil price environment and strong demand growth over the last few years have resulted in intensification of industry activities. This has driven up costs, in most cases, higher than the increase of crude prices. For example, over the past five years, WTI crude prices recorded a cumulative increase of 182%. In comparison, the daily charter rates for drilling rigs (a significant component of upstream costs) increased by almost 300% and the average price of steel (a significant component of both upstream and downstream costs) increased by 225%. In general, the increase in cost has resulted in oil and gas companies incurring higher capital expenditures to sustain operations.
The cost escalation was compounded by the scarcity of and harder-to-find new hydrocarbon reserves located mainly in deeper waters, harsher climatic conditions and environmentally sensitive regions, making access to the reserves more difficult, riskier and technologically more challenging.
Worsened by the lack of engineering and construction capacity as well as the acute shortage of experienced personnel, the cost escalation had also led to many projects being delayed and deferred during the year.
In short, the year saw oil and gas companies globally continuing to operate in a highly challenging environment where escalating costs have eclipsed gains from high prices. More significantly, the combined effects of high prices and high costs have had a more negative than positive impact on the industry and the global economy, particularly for developing economies.
Against this scenario, the PETRONAS Group recorded a revenue of RM223.1 billion, an increase of 21.2%, primarily due to higher prices and higher sales volume. The Group successfully contained the impact of high costs and posted a 25.2% increase in profit before tax from RM76.3 billion to RM95.5 billion. Profit after tax and minority interests increased by 31.5% from RM46.4 billion to RM61.0 billion. Apart from the Group's ability to contain costs, this achievement was also largely due to the improved operational efficiency and higher plant reliability achieved across the Group's businesses.
The higher profit has enabled PETRONAS to provide higher payment to governments. For the year, PETRONAS Group paid out RM67.6 billion to governments, bringing the Group's total payments to governments to RM403.3 billion since its incorporation in 1974.
Of the RM67.6 billion payment for the year, RM62.8 billion was paid to the Federal Government comprising RM30 billion dividend which includes a RM6 billon special dividend, RM20.6 billion in the form of petroleum income tax, RM5.4 billion in corporate income tax, RM2.1 billion in export duties and RM4.7 billion of royalty payment. A total of RM4.8 billion was paid as royalty payments to the state governments of Terengganu, Sarawak and Sabah.
PETRONAS Group's payment to the Federal Government for the year represents 44% of the Federal Government's revenue.
The RM67.6 billion total payment to governments for the year represents 63.1% of the PETRONAS Group profits for the same period. PETRONAS Group retained only 29.2% of its profits during the year for reinvestments and the balance 7.7% was used to pay foreign taxes and minority interests. The reinvestment is necessary to ensure the Group's sustainable operations and growth in order to be able to continue to generate value for its stakeholders.
Higher prices during the year also resulted in PETRONAS incurring a higher subsidy to the nation's gas sector. PETRONAS' subsidy to the gas sector rose to RM19.7 billion, up by 26.2% from RM15.6 billion previously. This brought the cumulative gas subsidy to RM77.9 billion since 1997.
Gas subsidy to the power sector grew to RM13.8 billion, an increase of 17.9%, of which RM8.1 billion or 58.7% went to the Independent Power Producers. The higher prices have also driven the non-power sector to switch more of their fuel source to subsidised gas, resulting in a 51.3% increase in subsidy to the non-power sector to RM5.9 billion.
The year saw the Group's capital expenditure increase by 33.3% to RM37.6 billion, largely as a result of the escalation in cost. Of this, RM20 billion was spent in Malaysia, an increase of 36% compared to RM14.7 billion the year before.
About 55% of the Group's total capital expenditure was spent in the Exploration and Production (E&P) sector.
The Group's balance sheet continued to strengthen with total assets rising by 15.2% to RM339.3 billion while shareholder's funds grew to RM201 billion, an increase of 17.6%.
Return on Total Assets (Pre-tax Profit over Total Assets) rose to 28.1% compared to 25.9% in the previous year, while Return on Average Capital Employed (ROACE) remained strong at 45.5%.
The Group's performance despite the challenges is a reflection of its resilience and ability to efficiently generate returns and profits that compare favourably with the more established major players in the industry. It was also a testimony to the success of the Group's overall strategy of integration, value adding and globalisation. Had PETRONAS not embarked on this strategy and remained as a manager and regulator of Malaysia's hydrocarbon resources, it would have only been able to generate cumulative profits of RM175 billion, less than half the cumulative amount of RM403 billion paid to governments.
The Group's continuous emphasis on operational efficiency and reliability, as well as the integrated nature of its operations has successfully cushioned the impact of cost escalation and enabled the Group to optimise the benefits of higher prices. Indeed, higher prices would not yield much benefit to the Group if was not able to operate efficiently and reliably.
ISSUED BY PETRONAS
FOR MORE INFORMATION CONTACT:
NAME:MR. AZMAN
TEL: +603-2331-2140
The year saw sustained growth in demand for oil on the back of strong global economic expansion particularly in China and India. Global demand, which grew at an average of 86.1 million barrels per day, outstripped supply during the period. The higher demand over supply, coupled with recurring supply disruptions in some producing countries and continuing geopolitical uncertainties particularly in the Middle East, escalated concerns over security of supply.
All these developments, compounded by speculative activities, drove crude oil prices to historic highs during the year with the average price of West Texas Intermediate (WTI) and Brent crude oils increasing by 26.7% and 26.5% to USD82.24 per barrel and USD82.31 per barrel respectively. The weighted average price of Malaysian Crude Oil (MCO) also rose in tandem to USD86.81 per barrel, an increase of 26.7%. Strong demand from the transportation sector drove prices of gasoline up by 37.7% to an average of USD102.50 per barrel and diesel by 22.6% to an average of USD94.97 per barrel.
The sustained high oil price environment and strong demand growth over the last few years have resulted in intensification of industry activities. This has driven up costs, in most cases, higher than the increase of crude prices. For example, over the past five years, WTI crude prices recorded a cumulative increase of 182%. In comparison, the daily charter rates for drilling rigs (a significant component of upstream costs) increased by almost 300% and the average price of steel (a significant component of both upstream and downstream costs) increased by 225%. In general, the increase in cost has resulted in oil and gas companies incurring higher capital expenditures to sustain operations.
The cost escalation was compounded by the scarcity of and harder-to-find new hydrocarbon reserves located mainly in deeper waters, harsher climatic conditions and environmentally sensitive regions, making access to the reserves more difficult, riskier and technologically more challenging.
Worsened by the lack of engineering and construction capacity as well as the acute shortage of experienced personnel, the cost escalation had also led to many projects being delayed and deferred during the year.
In short, the year saw oil and gas companies globally continuing to operate in a highly challenging environment where escalating costs have eclipsed gains from high prices. More significantly, the combined effects of high prices and high costs have had a more negative than positive impact on the industry and the global economy, particularly for developing economies.
Against this scenario, the PETRONAS Group recorded a revenue of RM223.1 billion, an increase of 21.2%, primarily due to higher prices and higher sales volume. The Group successfully contained the impact of high costs and posted a 25.2% increase in profit before tax from RM76.3 billion to RM95.5 billion. Profit after tax and minority interests increased by 31.5% from RM46.4 billion to RM61.0 billion. Apart from the Group's ability to contain costs, this achievement was also largely due to the improved operational efficiency and higher plant reliability achieved across the Group's businesses.
The higher profit has enabled PETRONAS to provide higher payment to governments. For the year, PETRONAS Group paid out RM67.6 billion to governments, bringing the Group's total payments to governments to RM403.3 billion since its incorporation in 1974.
Of the RM67.6 billion payment for the year, RM62.8 billion was paid to the Federal Government comprising RM30 billion dividend which includes a RM6 billon special dividend, RM20.6 billion in the form of petroleum income tax, RM5.4 billion in corporate income tax, RM2.1 billion in export duties and RM4.7 billion of royalty payment. A total of RM4.8 billion was paid as royalty payments to the state governments of Terengganu, Sarawak and Sabah.
PETRONAS Group's payment to the Federal Government for the year represents 44% of the Federal Government's revenue.
The RM67.6 billion total payment to governments for the year represents 63.1% of the PETRONAS Group profits for the same period. PETRONAS Group retained only 29.2% of its profits during the year for reinvestments and the balance 7.7% was used to pay foreign taxes and minority interests. The reinvestment is necessary to ensure the Group's sustainable operations and growth in order to be able to continue to generate value for its stakeholders.
Higher prices during the year also resulted in PETRONAS incurring a higher subsidy to the nation's gas sector. PETRONAS' subsidy to the gas sector rose to RM19.7 billion, up by 26.2% from RM15.6 billion previously. This brought the cumulative gas subsidy to RM77.9 billion since 1997.
Gas subsidy to the power sector grew to RM13.8 billion, an increase of 17.9%, of which RM8.1 billion or 58.7% went to the Independent Power Producers. The higher prices have also driven the non-power sector to switch more of their fuel source to subsidised gas, resulting in a 51.3% increase in subsidy to the non-power sector to RM5.9 billion.
The year saw the Group's capital expenditure increase by 33.3% to RM37.6 billion, largely as a result of the escalation in cost. Of this, RM20 billion was spent in Malaysia, an increase of 36% compared to RM14.7 billion the year before.
About 55% of the Group's total capital expenditure was spent in the Exploration and Production (E&P) sector.
The Group's balance sheet continued to strengthen with total assets rising by 15.2% to RM339.3 billion while shareholder's funds grew to RM201 billion, an increase of 17.6%.
Return on Total Assets (Pre-tax Profit over Total Assets) rose to 28.1% compared to 25.9% in the previous year, while Return on Average Capital Employed (ROACE) remained strong at 45.5%.
The Group's performance despite the challenges is a reflection of its resilience and ability to efficiently generate returns and profits that compare favourably with the more established major players in the industry. It was also a testimony to the success of the Group's overall strategy of integration, value adding and globalisation. Had PETRONAS not embarked on this strategy and remained as a manager and regulator of Malaysia's hydrocarbon resources, it would have only been able to generate cumulative profits of RM175 billion, less than half the cumulative amount of RM403 billion paid to governments.
The Group's continuous emphasis on operational efficiency and reliability, as well as the integrated nature of its operations has successfully cushioned the impact of cost escalation and enabled the Group to optimise the benefits of higher prices. Indeed, higher prices would not yield much benefit to the Group if was not able to operate efficiently and reliably.
ISSUED BY PETRONAS
FOR MORE INFORMATION CONTACT:
NAME:MR. AZMAN
TEL: +603-2331-2140
