Petronas, which is announcing for the first time its results on a quarterly basis today, is expected to show a strong increase in earnings in US dollar terms for 1QFY11 (quarter ended June 30, 2010), buoyed by a strong recovery in crude oil prices.
Nonetheless, the rate of increase in its earnings in ringgit terms may be smaller due to the sharp appreciation of the local currency against the US dollar compared to a year ago.
Petronas announces its results in both US dollar and ringgit.
The price of Tapis crude, the premium crude that is extracted locally, was traded below US$50 (RM154) per barrel in April last year. The price rebounded to reach a high of US$88.76 in November 2009 and has since been hovering in the range of US$70 to US$80.
For 1QFY11, the average price of Tapis crude was US$77.35 per barrel, up 34% from US$57.78 in the previous corresponding quarter. Such a big jump in Tapis crude prices would have presumably lifted the national oil company’s results, which suffered a setback a year ago due to the financial crisis that battered energy prices.
Other than an anticipated sharp increase in earnings, it is hard to gauge what Petronas’ 1QFY11 profit will be like since the national oil company has never revealed quarterly numbers in the past.
In 1HFY10 (April to September 2009), Petronas’ earnings were badly hit by the meltdown in energy prices, including Tapis crude. Its net profit plunged 47% to RM20.3 billion for the six-month period in 2009, from RM38.6 billion in the previous year. Revenue dipped 37% to RM98.2 billion from RM157.2 billion.
With a low base of revenue and earnings last year, it is obvious that Petronas’ 1QFY11 earnings will enjoy a huge jump on a year-on-year basis.
Nonetheless, the ringgit’s strong appreciation against the US dollar from a year ago would have potentially moderated the increase in the national oil company’s earnings in the local currency.
The management of Petronas once said every 10 sen gain in the ringgit against the greenback will trim the company’s profit by about RM2.5 billion, and vice versa.
The ringgit has strengthened substantially against the US dollar so far this year. The local unit was hovering between RM3.20 and RM3.30 against the greenback in 1QFY11, a substantial rise compared with the band of RM3.50 to RM3.60 in the previous corresponding quarter.
But overall, Petronas is very likely to see an impressive rise in earnings, taking into account much higher crude prices, although the ringgit’s strength will eat into its earnings when translated to the local unit.
The increase in Petronas’ earnings will also mean it could afford to at least sustain the generous dividend payment to its shareholder, namely the federal government.
This will be a blessing to the federal government which relies heavily on dividends from Petronas to fund its expenditure while narrowing the yawning budget deficit.
FY10 ended March 31 wasn’t a good year for Petronas which recorded a 23% drop in net profit to RM40.3 billion amidst an 18% fall in revenue to RM216.4 billion from RM264.2 billion previously.
However, the national oil company maintained its dividend payment of RM30 billion to the federal government for FY10. The hefty dividends in FY10 raised its payout ratio to 74% — probably the highest in history. The payout ratio was 39% in FY06 to FY08, and 57% in FY08.
The taxes and dividends paid by Petronas account for over 40% of government revenue.
In total, Petronas contributed RM53.5 billion in dividends and taxes (RM18.7 billion) to the federal government in FY10. On top of that, the oil major also bore RM18.9 billion in gas subsidy during the year.
