Petronas plans cuts and review to counter oil price slump

Tue Jan 19, 2016 9:47am EST
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By A. Ananthalakshmi and Rozanna Latiff

KUALA LUMPUR (Reuters) - Petroliam Nasional Bhd (Petronas) plans to cut spending by up to 50 billion ringgit ($11.4 billion) over the next four years and review its business structure in response to the profit-sapping slump in oil prices.

The state-owned Malaysian company brings in nearly half of the Southeast Asian country's oil revenue and its woes are bound to add pressure to an economy already reeling from a slide in the ringgit and political uncertainty after a scandal surrounding state investor 1Malaysia Development Bhd (1MDB).

Petronas said in November that it would cut its 2016 dividend to the government by nearly 40 percent after a 91 percent drop in profit, with analysts suggesting the payout could be trimmed back again in future.

Petronas made its announcement on spending cuts in an internal memo, a copy of which was seen by Reuters.

"We will go through another round of CAPEX (capital expenditure) and OPEX (operating expenditure) review to target cuts up to RM50 billion over the next four years. This means that we are going to have to defer some of our projects," CEO Wan Zulkiflee Wan Ariffin said in the memo dated Monday.

In February last year Petronas said it planned to cut capital spending by 10 percent and operating expenses by up to 30 percent in 2015. It also said at the time that it would cut 2016 capital spending by 15 percent. Its 2014 capital expenditure was about 65 billion ringgit.

"We have also made a strategic decision to begin a review of Petronas' business operating model for better efficiency in response to the external environment," Wan Zulkiflee said in the memo. The review will result in a change to the organization's structure, details of which will be disclosed in March.

Contract jobs in the company's non-core businesses will be affected, he said.   Continued...

A motorist pumps petrol at a Petronas gas station in Putrajaya outside Kuala Lumpur August 26, 2013.  REUTERS/Bazuki Muhammad