September 3, 2013

PETRONAS May Defer Projects, Weak Oil Prices Squeeze Margins

Malaysia's state energy firm Petronas may defer some existing projects, including a $19 billion petrochemicals complex, as it seeks to keep a lid on costs after lower crude oil prices crimped profit growth, its CEO said on Monday.

Petronas gains 65 percent of its income from its oil and gas exploration business, but the weaker oil prices offset most of the gains from a 12 percent increase in overall production during the quarter, CEO Shamsul Azhar Abbas said.

Rising costs are also a concern, and this may prompt the company to review some strategic projects, Shamsul added, without giving any details.

Petronas would even scrap the $19 billion petrochemicals project in southern Malaysia, the country's largest infrastructure investment, if costs sky-rocket and make the complex unfeasible, he said.

"We have suffered from lower oil prices. But if you look at the costs, they have increased further. If there is a need to defer some of projects, we will do that," Shamsul told reporters after the company reported a 0.9 percent drop in second-quarter earnings.

The proposed petrochemicals plant is a cornerstone of a government-led, $444 billion economic makeover that aims to boost incomes and lift the country to developed status by 2020.

Petronas will make a final investment decision on the project in March 2014, and if it is approved, the refinery in the petrochemicals complex will be ready to start up in the fourth quarter of 2017. The rest of the plants will be commissioned the year after, the company has previously said.

Benchmark Brent crude prices fell 7 percent in the second quarter, touching their lowest level since July 2012, on worries about slowing demand from China, the global driver for growth in oil consumption for most of the past decade.

Rising oil production in the United States and Europe's long-prolonged debt crisis meant that global markets were amply supplied, overshadowing concerns about supply disruptions from the Middle East.

Source: Reuters