Press statement – 28 January 2015, Penang
Dr Lim Kim Hwa, Chief Executive Officer and Head of Economics
Mr Tim Niklas Schoepp, Senior Executive Officer and Visiting Analyst (Economics)
Recent crude oil price dynamics, PETRONAS and Malaysia
- In 2013, PETRONAS, contributed RM73.4 billion to the Federal and State Governments of Malaysia – compromising RM27 billion in dividend, RM33.3 billion in taxes, RM12 billion in cash payments and RM1.1 billion in Export Duty (PETRONAS, Annual Report, 2013).
- This was equivalent to 30% of the government’s expenditures then.
- The average selling price for crude oil between 2011 and 2014 was USD109 per barrel; however the average price in the first 20 days of 2015 was USD49.66 per barrel.
Crude price is unlikely to recover to USD100 per barrel in the near term and is likely to trade between USD40-70 per barrel because:
- The International Energy Agency (IEA) projects 2 million barrels per day of oil surplus by the second quarter of 2015.
- OECD commercial oil stock is above the 5-year average in October 2014 and 2013 levels.
- Due to cost structure, lower crude oil price does not reduce supply. Production level of shale oil is expected to increase in first half of 2015 although OPEC crude oil production has stabilized.
- The International Monetary Fund and World Bank have cut global growth forecast for 2015 and 2016, thus reducing demand. Slower growth and a stronger US Dollar will put a cap on any rise in the crude oil price.
- Hence, potential price recovery is likely to be delayed to 2016, as current oil inventory level is higher than the seasonally adjusted level.
Weak crude oil price will reduce PETRONAS’ profitability and dividend payments but a depreciating USDMYR will cushion the impact. We investigated different cases of crude oil between USD40-70 per barrel and USDMYR between 3.5 and 4.
- The 2014 results are forecasted to hold up, but 2015 will be affected.
- Using data between 2011 and 2013 and assuming that the composition of PETRONAS’ business remains relatively similar, we calculated that:
- The bad case scenario occurs when crude oil price drops further to USD40 per barrel and USDMYR strengthens slightly to 3.5. In this case, PETRONAS might yield Revenue of RM120 billion, EBITDA of RM49 billion and Dividend of RM13 billion (about half of 2013 Dividend).
- Likewise, the rosy case scenario occurs when a crude oil price recovers to USD70 per barrel but USDMYR depreciates to 4. In this case, Revenue, EBITDA and Dividends are forecasted to be RM241 billion, RM98 billion and RM26 billion respectively.
- Using the case of USD55 per barrel, Dividend is likely to fall to RM19 billion if USDMYR depreciates slightly more to 3.75.
- Therefore, unless crude oil prices recover strongly and USDMYR depreciates further, there is strong likelihood of lower tax payment and Dividend distribution to the government in 2015.
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