Petronas set for strong profit growth
New Straits Times
3 May 2005

PETROLIAM Nasional Bhd (Petronas) is expected to post strong earnings and profit growth for the year ended March 31 2005 on the unrelenting rise in crude oil prices, analysts and industry observers said.

Most major oil companies have already reported a significant surge in profits, including an 80 per cent quarterly jump by Conoco-Phillips, a 44 per cent quarterly rise by ExxonMobil, and 28 per cent and 29 per cent increases by Royal Dutch/Shell and BP respectively.

"Given such a scenario, I would not be surprised if Petronas displays the same feat," G.K. Goh Holdings regional economist Song Seng Wun told Business Times.

Petronas reported a RM18.9 billion profit for the first half ended September 30 2004 compared with RM10.1 billion in the corresponding period. The national oil company registered a profit of RM26.3 billion for its 2004 financial year.

With the current escalating price of oil, Song said, Malaysia should seek more oil discoveries and raise production to capitalise on the situation.

"It cuts both ways in Malaysia when the oil price surges. Its revenues are up, and at the same time payment is also up. Malaysia is trying to lessen the burden (of payment) by cutting down on subsidies," he said.

Song said he expects the oil price to slowly increase, "but not as high as US$100 (US$1 = RM3.80) per barrel. I think it would hover around US$50 a barrel".

Global oil prices have jumped from about US$30 per barrel before the Iraq war to the new high of US$58 a barrel as at April 5.

There are projections that prices will climb further to US$70 per barrel given the growth in global demand and decline in production by the Organisation of Petroleum Exporting Countries.

Ramunia Holdings Bhd managing director Arshad Ahmad agreed that Malaysia needs to develop more oil fields and increase production to capitalise on the soaring price of oil.

However, he said, the attention now is on deepwater, which is costly and takes time to develop, usually between three and four years.

"As the price shoots up, major oil players will try to find more oil. Thus they would need to build rigs or platforms. This is where companies like us come in," he said.

As for financial institutions, the rise in oil prices provides them with the opportunity to seek more clients in the industry.

"Oil companies would need more capital investment to find oil. We would be able to offer them the financial assistance," Maybank group executive vice- president Muhamed Umar Swift said.