KUALA LUMPUR, 4 September 2020 - PETRONAS' financial performance for the first half of the year 2020 reflects the uncertainties faced by the oil and gas industry as it was further compounded with the effect of weak demand caused by global lockdowns and movement restrictions, excess capacity, and a fragile outlook for oil prices. The accelerated energy transition which sees the push towards a lower carbon economy is also expected to further impact the demand for natural resources.
Brent prices continued to slide in the second quarter of 2020, with the dated Brent averaging US$29.20/bbl compared to US$68.83/bbl in the second quarter of 2019. For the first half of this year the dated Brent average was US$39.73/bbl, compared to US$66.02/bbl in the previous corresponding period.
Despite the uncertain and challenging market condition in which we operate, the Group is committed to remain agile and resolute in responding to these uncertainties and volatilities in its pursuit of long-term growth strategies towards a sustainable future.
In response to the strong headwinds from reduced demand and lower oil prices, PETRONAS is taking deliberate steps to manage the uncertain outlook to strengthen our resilience and ensure long-term sustainability.
Tengku Muhammad Taufik, President and Group Chief Executive Officer, PETRONAS
'PETRONAS has endured a very challenging first half of the year, and we expect our performance to be affected by the volatility of oil prices which continues to be exacerbated by the uncertainties brought about by the ongoing COVID-19 pandemic. We are committed to undertake all necessary measures in our path to recovery which will involve reshaping our portfolio mix, retooling our human capital equation and emphasising on focused execution with pace.
Anchored on our three-pronged growth strategy, PETRONAS will continue to strengthen its resilience and long-term sustainability as a progressive energy and solutions partner enriching lives for a sustainable future.'
First Half 2020 Results
For the first half of 2020, the Group recorded a revenue of RM93.6 billion, a decline of 23 per cent from RM121.1 billion in the corresponding period last year. This is largely driven by lower average realised prices for all products and lower sales volume mainly from processed gas and LNG.
The industry is also challenged by the downward revision of price outlook at the back of the current macroeconomic landscape combined with the growing pace of energy transition. This has led to sizeable impairments recognised during the period.
Given the lower revenue coupled with the impairment loss, the Group experienced a Loss After Tax (LAT) of RM16.5 billion for the period as compared to Profit After Tax (PAT) of RM28.9 billion in the same period last year. Excluding impairment loss, the Group would record PAT of RM7.7 billion.
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) stood at RM29.4 billion, a 46 per cent drop from RM54.7 billion, in line with lower profit.
The Group was able to sustain positive levels of Cash Flows From Operations (CFFO) at RM26.3 billion despite the softer result during the period. Capital Investments (CAPEX) for the first half of 2020 of RM14.8 billion were mainly attributed to Upstream projects.
Total assets decreased to RM613.0 billion as at 30 June 2020 as compared to RM622.4 billion as at 31 December 2019, mainly due to net impairment losses on assets.
Shareholders' equity decreased to RM351.5 billion as at 30 June 2020 as compared to RM389.1 billion as at 31 December 2019, primarily due to loss recorded during the period and the final dividend in respect of financial year ended 31 December 2019.
Gearing ratio increased to 24.8 per cent as at 30 June 2020 from 19.4 per cent as at 31 December 2019, mainly due to reduction in equity associated with the first half of 2020 loss and increase in borrowings following the successful issuance of a US$6 billion multi-tranche senior bond offering in April 2020. The bond proceeds are to be used for capital investment, working capital, refinancing and general corporate purposes.
Second Quarter 2020 Results
For the quarter ended 30 June 2020, the Group recorded a revenue of RM34.0 billion, lower by 42 per cent from the RM59.1 billion recorded in the second quarter of 2019, predominantly due to lower average realised prices for major products, and lower sales volume mainly from petroleum products, LNG and processed gas.
The Group recorded LAT of RM21.0 billion as compared to PAT of RM14.7 billion in the corresponding quarter last year, primarily due to lower revenue coupled with net impairment losses on assets.
EBITDA decreased by 66 per cent to RM9.1 billion from RM26.9 billion, in line with lower profit.
CFFO for the quarter stood at RM8.6 billion, in line with lower cash operating profit which was partially offset by net positive working capital changes and lower taxation paid due to lower profit estimates.
The industry continues to operate in a challenging and unprecedented market environment arising from a combination of severe demand destructions due to the COVID-19 pandemic and global oil market glut.
PETRONAS will continue to intensify its efforts to protect revenue together with cost optimisation to mitigate the negative impact on its profitability and liquidity. The Board expects its 2020 performance to be severely affected by the low oil price and weak demand environment.
Update on PETRONAS' Response to COVID-19
As the current COVID-19 pandemic situation evolves, PETRONAS continues to strengthen the precautionary and preventive measures it has in place in alignment with the guidelines of the Malaysian Government as well as host authorities, as the safety of our people remains our top priority.
The company's business operating units are also working closely with the National Security Council of Malaysia and the relevant authorities, particularly for plant and on-site workforce to establish stricter HSSE standards and standard operating procedures whilst ensuring minimal disruption to our business and operations.
During this extremely trying period for the country, PETRONAS also demonstrated its support towards the Malaysian Government's efforts in mitigating the spread of COVID-19, including extending assistance to our healthcare front-liners. As at 30 June 2020, the Group's total contribution towards these efforts and initiatives stands at just below RM40 million, including contribution from PETRONAS' employees amounting to RM6.4 million.
Throughout the Movement Control Order (MCO) period until the present, the Group has coordinated efforts in ensuring business continuity and sustainability, while at all times prioritising the safety and health of all PETRONAS employees, customers and partners, both in Malaysia as well as in the countries we operate. Our focus remains in ensuring an uninterrupted supply of energy to support the daily requirements of communities, businesses and governments worldwide.
Operational Highlights - 1H FY2020
Upstream continues to accomplish operational delivery despite the challenging business landscape. In the first half of 2020, on the back of the low oil price and reduced demand brought about by the prolonged impact of the COVID-19 pandemic, Upstream recorded total daily production average of 2,255 thousand barrels of oil equivalent (boe) per day, lower than the 2,418 thousand boe per day recorded in 2019. This was partially offset by higher liquid production from Brazil. In addition, PETRONAS continues to strive to conform to the voluntary production adjustment as agreed collectively in the OPEC+ Ministerial Meetings in line with the Government of Malaysia's aspiration, being part of the OPEC+'s Declaration of Cooperation.
In mitigating the effects of these challenges, Upstream undertook cost optimisation efforts, including a comprehensive review of our operational expenditure, together with a robust review of its business portfolio against the backdrop of anticipated volatile long-term oil prices while enhancing its strategies to adapt. Upstream continued to perform operations with minimal disruption, through agile Standard Operating Procedures and implementation of digital tools and platforms while ensuring the safety and well-being of its staff and personnel. There were minimal disruptions to our operations in Malaysia, allowing us to, amongst others, ensure continued supply of gas to meet the daily requirements in both Peninsular and East Malaysia. Internationally, operations were largely uninterrupted, except for the Garraf field in Iraq, which has since resumed operations as of 21 July 2020. This is a testimony to our resilience and agile operations.
During this challenging period, Upstream successfully achieved the following:
A total of 10 projects achieved first hydrocarbon, adding 50 kboe per day of new production, comprising five Brownfields in Peninsular Malaysia, Sarawak and Indonesia, as well as five Greenfields in Peninsular Malaysia and Sarawak.
A total of four exploration discoveries - one in Sarawak, one offshore United States Gulf of Mexico and two in the Salina Basin, offshore Mexico -- in April and May 2020, respectively.
A total of eight projects of which seven are in Malaysia and one international achieved Final Investment Decision (FID). PETRONAS continues to prioritise projects that are robust and provide the best value to its portfolio.
PETRONAS continued to expand its global portfolio with the acquisition of a 40 per cent participating interest in Indonesia's Aru Production Sharing Contract on 29 June 2020. This follows on the back of its first entry into oil and gas operations in the US Gulf of Mexico through its subsidiary, Progress Resources USA Ltd. (PRUL) when it entered into a participation agreement with Equinor Gulf of Mexico LLC for a 30 per cent working interest in the Monument Prospect earlier this year. PRUL and its partners then made a successful oil discovery for the exploration well of the Monument Prospect.
PETRONAS through its subsidiary, PETRONAS E&P Argentina S.A. (PEPASA) made its first export deal for the La Amarga Chica equity crude to Trafigura Pte Ltd on 30 June 2020. This achievement, in collaboration with its partner, Yacimientos Petroliferos Fiscales (YPF) is the first crude export for PEPASA. PETRONAS was among the first international companies to tap into the international market to monetise its unconventional production from the country.
Gas & New Energy
GNE continues to persevere as a reliable provider of cleaner energy solutions while growing its presence in the renewable space. In the first half of 2020, Gas & New Energy recorded reductions in production and sales, mainly attributed to a weakened market demand and lowered energy consumption brought about by the COVID-19 pandemic as countries went into lockdown:
Total liquefied natural gas (LNG) production for the first half of 2020 decreased by 7.0 per cent to 13.2 million metric tonnes as compared to 14.2 million metric tonnes achieved in the first half of 2019.
As for LNG sales volume, gross sales for the first half of 2020 was 3.0 per cent lower at 16.7 million metric tonnes as compared to 17.2 million metric tonnes achieved in the first half of 2019.
Malaysia's average sales gas volume for the first half of 2020 decreased by 17 per cent to 2,425 mmscfd, as compared to 2,928 mmscfd achieved in the first half of 2019.
Overall Equipment Effectiveness (OEE) for GNE business stood at 96.8 per cent across all business segments in the first half of 2020, recording a decrease of 1.2 per cent as compared to 98.0 per cent achieved in the first half of 2019.
As of the first half of 2020, PETRONAS has successfully delivered over 11,316 LNG cargoes from the PETRONAS LNG Complex (PLC) in Bintulu. This marks over 37 years of world-class asset performance since operations began in 1983.
PETRONAS' second floating LNG vessel, PFLNG Dua, is currently moored at the Rotan gas field, located 140 km offshore Kota Kinabalu, Sabah, with commissioning work progressing as planned. Once ready for commercial operations, PFLNG Dua will be able to monetise deep-water gas fields in depths of up to 1,500 metres with a production capacity of 1.5 MTPA.
PETRONAS concluded a total of 3.7 MTPA in LNG deals in the first half of 2020. These included deals with major portfolio LNG players and end-users such as Tiger Clean Energy Limited (TCEL). In the deal with TCEL, PETRONAS will supply LNG that will be distributed by TCEL using ISO tanks in China.
In the first half of 2020, PETRONAS secured 345 MMscfd of new natural gas supply deals with customers across Peninsular Malaysia which will be transported starting 2021 via the Peninsular Gas Utilisation (PGU) transmission grid, the national trunk line system spanning over 2,623km across Peninsular Malaysia.
In Malaysia, PETRONAS New Energy business has more than 50MWp of solar solutions under development focusing on commercial and industrial customers. These include projects using PETRONAS flagship rooftop solar solution that was launched at end-2019, known as M+ by PETRONAS. Recent commercial ventures involve powering 15 TESCO stores across Malaysia with solar, the largest solar commercial Power Purchase Agreement (PPA) of its kind in the nation. Internationally, PETRONAS New Energy's 100 per cent owned distributed energy company, Amplus Energy Solutions, has 660MWp of solar capacity under operation and development in India and South East Asia, with 448MWp total capacity commissioned with a balance of 212 MWp of projects under development.
Downstream maintains its operational performance with continued focus on customer- centricity. For the first half of the year, the market continues to be pressured due to the global lockdown and Movement Control Order (MCO) implemented in Malaysia. The overall business saw a significant decline due to the weak market and slow demand for overall value chain and this trend will continue in the next few months. Overall financial performance is still expected to be challenged for the rest of the year even as business remains focused on maintaining operational performance while exploring other revenue streams during this period.
Overall Equipment Effectiveness (OEE) was recorded at 89.2 per cent across all businesses, with domestic refineries recording stable plant operations at 96.3 per cent compared to the same period last year, whereas, the international refinery in Durban, South Africa, registered an OEE of 81.2 per cent.
The Refining and Petrochemical facilities at the PETRONAS' Pengerang Integrated Complex ('PIC') have commenced start-up and proceeded with Performance Test Runs ('PTR') beginning September 2019. However, following the Diesel Hydro Treating ('DHT') unit fire incident on 15 March 2020, the Refining and Petrochemical operation was stopped pending further readiness, integrity assessment, and rectification of defects to ensure safe and reliable operation. The restart-up is currently planned for Q1 2021.
For petrochemicals business, PETRONAS Chemicals Group Berhad (PCG) sustained its Plant Utilisation of 96.8 per cent with an overall production volume of 5.5 million metric tonnes. Despite market challenges, the petrochemicals sales volume was recorded at 4.1 million metric tonnes, a slight decrease compared to 4.2 million metric tonnes in the same period last year, due to lower production. The overall product prices remain pressured, while the market is expected to gradually recover towards the end of the year. PCG will continue to operate at an optimum rate, focusing on plant reliability and operational strategies.
Following the global restricted movement order, the overall marketing business experienced a significant decline of 19 per cent, recording sales volume of 10.1 billion litres compared to 12.4 billion litres in the same period last year. While the lubricants business experienced slow recovery in China due to early lifting of movement restriction and improved sales of base oil, the retail arm in South Africa under the Engen brand recorded a volume drop of 13 per cent. Our domestic operations under PETRONAS Dagangan Berhad (PDB) also suffered sales volume decline of 22 per cent for the first half of 2020, however, the non-fuel business saw a significant improvement of 11 per cent contributed by sales from Kedai Mesra compared to the same period last year.
Throughout the MCO period, Setel, Malaysia's first e-payment solution for fuel purchases directly from mobile devices was recognised as a new solution to minimise physical interactions while refueling at more than 700 PETRONAS stations nationwide. Setel currently has over 1.3 million users, an increase of 21 per cent when MCO was first declared by the Government of Malaysia. In February 2020, Setel announced its nationwide expansion, making it one of the fastest-growing mobile application in Malaysia.
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Group Strategic Communications