Petronas joins firms such as ExxonMobil in planning to raise capital expenditure, spurred by high crude prices and energy demand recovering with the global economy, even as it warned about volatile oil that could stay above $100 on the Middle East turmoil and its impact on inflation.
Annual capital spending of the company, which manages Malaysia’s energy reserves, will range from 50 billion ringgit to 55 billion ringgit over the next five years, up from 40 billion ringgit in the current fiscal year, Petronas Chief Executive Shamsul Azhar said.
“If we do not grow, we will become irrelevant,” Shamsul said after announcing the firm’s strong third-quarter results. “For the next five years, our capital expenditure is going to be higher. All those ageing assets need to replaced.”
As a result, the firm’s dividend payouts to the government may not increase from the 30 billion ringgit level despite higher oil prices, Shamsul said, signalling Petronas was racing to keep up with other oil majors in terms of capital outlays.
In the year to March 2010 it kicked in 57.6 billion ringgit to federal revenues in terms of dividends and taxes. It’s debt is more highly rated than the sovereign state, leading analysts to dub Malaysia as a “subsidiary of Petronas”.
Shamsul said Petronas would channel a large chunk of its capital expenditure to Malaysia, a net oil exporter that is trying to boost flagging output.
Last month Petronas discovered new oil and gas fields in offshore Sarawak state, its first major discovery in four year.
Malaysia has 106 marginal oil fields, with 580 million barrels of oil and the government recently announced plans to tap into the wells.
Petronas said for the third quarter of 2010/2011, Malaysia produced 1.61 million barrels of oil equivalent per day (boepd), a touch lower from year ago output of 1.64 million boepd.
The firm signalled it has cautiously joined the global hunt for “unconventional oil and gas assets” — or those requiring technology like hydraulic fracturing to drill.
“We need to upgrade the portfolio toward higher-yielding asset quality but we are not going to enter into risk based on the herd mentality,” Shamsul said.
“We have ongoing studies for unconventional oil in China, Myanmar, Indonesia and Australia.”
Petronas reported a 74 percent jump in third-quarter net profit on strong demand and one-off gains from the listings of its units, but Shamsul cautioned oil prices will stay volatile in view of the Middle East unrest.
“Crude prices are likely to remain volatile with the combination of political turmoil in oil-producing countries coupled with... rising inflationary concerns,” he said.
Crude oil prices could stay above $100 a barrel for the next two months but the Middle East turmoil had insignificant impact on Petronas’ operations as the firm had few assets in the region, Shamsul said.
His concerns mirror those of the International Energy Agency, which said if oil remained at $100 for rest of the year, economic recovery will be difficult for Europe and developing countries.
“With oil price increase, there is no excitement. What is more exciting is when we squeeze our assets to perform better. That is our aim,” Shamsul said.
