A RM31.5 billion impairment pushed Petroliam Nasional Bhd (Petronas) into the red in the financial year ending December 31, 2020, with the national oil company reporting a net loss of RM21 billion against a net profit of RM40.5 billion in 2019.

The downward revision in commodity price outlook has resulted in most oil and gas companies, including Petronas, taking a significant impairment loss on their assets in the past year.

Excluding the impairment cost, the group registered a net profit of RM10.5billion, which was 78% lower than the RM48.8billion of the year before.

The group also posted lower full year revenue of RM178.7 billion against the RM240.3 billion in the previous financial year, which was largely due to the effects of plummeting oil prices which in turn led to lower average realised prices for all products.

Demand disruption which resulted in lower sales volume from processed gas, petroleum products and liquefied natural gas, also contributed to the decline in revenue.

However, the group reported a strong earnings before interest, tax, depreciation and amortisation (Ebitda) of RM55.3 billion in the year under review.
 
Petronas president and group chief executive officer Tengku Muhammad Taufik Tengku Aziz described the past financial year as the toughest  on record for the group.

“Petronas has weathered the toughest period in the Group’s history. As we go forward, we anticipate the oil and gas industry to still be impacted by uncertainties shaped by significant events of 2020,” he said today while reporting the group’s financial results.

“Notwithstanding this, the group remains committed to undertake all the necessary measures in our path to recovery while ensuring the safety of our people and minimal disruption to our business. We are focused on our tactical interventions towards preserving value and continue to pursue customer-centric solutions.

As an immediate response to the reduced demand and lower oil prices, the group has taken several decisive and prudent measures to ensure the resiliency and sustainability of its operational and financial positions, with increased focus on cost compression, fiscal discipline and higher productivity.

This has helped in cushioning the adverse macroeconomic impact on its financials, as the group incurred a lower cost of RM172.7 billion compared to RM197.3 billion in the previous financial year. 

It has also reduced its operating expenditure and capital expenditure (Capex) by 12% and 21% respectively.

Cost compression efforts coupled with continued tight fiscal disciplines resulted in cash flow from operating activities (CFFO) of RM40.7 billion, albeit 55% lower than the RM90.8 billion in 2019.

The CFFO provided the group comfortable liquidity cover to meet its capex of RM33.4 billion.

Petronas regarded this as a commendable performance given the challenging situation, adding that it reflects the group’s effective management of its integrated business in generating healthy CFFO.

For the fourth quarter of 2020, the group registered a net loss of RM1.1billion against a net profit of RM4.1billion in the corresponding quarter of the preceding year after taking an impairment of RM1.3billion.

In the quarter under review Petronas generated a CFFO of RM8.1 billion which was mainly attributed to the modest demand recovery coupled with improved prices largely from LNG.

It also registered an Ebitda of RM11.9 billion in the quarter ended December 31,2020.

Tengku Taufik said the outlook of the industry remains uncertain and challenging with modest recovery in demand and prices as the Covid-19 impact lingers. 

“The outlook of the industry remains uncertain and challenging with modest recovery in demand and prices as the Covid-19 impact continues. The emergence of fresh cases and repeated lockdowns to contain the pandemic, will continue to pose a challenge to the industry.

“Petronas remains cautiously optimistic and is looking to future-proof its portfolio by venturing into new energy spaces and pursuing innovation with focused execution.”

Tengku Taufik said the group remains confident that its efforts and continued focus on commercial and operational excellence while preserving healthy levels of liquidity will ensure its business sustainability.

“We are also charting the growth pathway to secure new opportunities amidst the acceleration in energy transition, especially from new and non-traditional areas.

Although gas remains a crucial and cleaner source of fuel, diversification into renewable energy is imperative, with having the right skills and capabilities in place as part of the Group’s retooling human capital effort.” – February 26, 2021.