Malaysia’s Petronas still assessing Iran Pars project

Petroliam Nasional Bhd (Petronas), which contributed about 44% to total government revenues in 2007/08, on Tuesday also posted a record net profit, buoyed by rising crude oil prices. Petronas reiterated its long-held view that it remained interested in Iranian gas but shied away from pushing ahead with an investment.

Yet, it said spiraling costs made an immediate decision impossible, not directly linking its decision to political tensions, like France’s Total had done last week, only saying: “We also understand that given the present geopolitical situation, that there will be constraints in the sourcing of equipment that will be required for the project.” Total said it would not invest due to political tensions, making the French company the latest in a slew of European firms that have shelved immediate plans for multi-billion dollar Iranian LNG export projects.

European and Asian energy firms had been keen to invest in Iran’s vast gas industry, but have faced pressure from the United States. The tensions increased this month after Iran tested long-range missiles, sending jitters through financial markets and prompting a stern response from Washington.

“We continue to be interested in operating in Iran. I have read the announcement by Total, but as Petronas we continue to be interested in Iran,” CEO Hassan Marican told a news conference for the results of Malaysia’s largest firm. “But on the LNG project specifically, where we are in a consortium with Total, I have said previously that we cannot come to a final decision on that particular project because of the increase in cost and because we have not completed our discussion with the Iranians,” he added. Analysts said they did not know of any other gas projects in Iran that Petronas was involved in.

GO IT ALONE?

Iran has repeatedly extended a deadline for Total, which holds 40% of the South Pars project, and Petronas, with 10%, to make a final investment decision. Asked if Petronas was ready to go ahead with the project alone and without Total, he said: “We are capable and able to undertake LNG projects, but there are other factors. So we have to make an assessment.” Analysts said it would be tough for Petronas to go it alone. “To try to do them both (Iran and Gladstone) in tandem, that’s a lot... That would really be a stretch of their capabilities,” said Noel Tomnay, an LNG consultant at Wood MacKenzie.

In May, Petronas said it would buy a 40% stake in Australian energy firm Santos Ltd’s Gladstone liquefied natural gas project for up to $2.51 billion, to reinforce its position as Asia’s largest LNG producer. And Thailand’s PTT, which has a preliminary agreement with Pars LNG to buy 3 million tons of LNG a year for 20 years, said it was still waiting to see if the deal would go ahead. “We’re still waiting to see but that doesn’t mean that the deal is completely dead,” a PTT spokesman said. “As for us, the 3 million tons per year LNG contract is still there. We still talk about it but it’s just that we don’t know when they’ll be able to start producing.”

 
SURGING CRUDE

Benefiting from rising crude, the net profit at Malaysia’s biggest company rose to $18.1 billion for the year ended March 31, up from $12.9 billion a year ago, the company said. Revenues climbed 29.8% to $66.2 billion during the financial year, when the average official price of Malaysia’s Tapis crude rose 27.3% to a record of $87.62 a barrel. Booming crude oil prices in recent years have not only resulted in higher profits for Petronas, but have boosted government coffers and supported the economy at a time of a global slowdown.

Malaysia uses some of its huge oil and natural gas export revenues to subsidize some of the cheapest fuel prices in Asia, but had to raise petrol prices by 41% and diesel by 63% last month to temper demand. Hassan had also spoken about the rising costs of investing overseas, as well as in acquiring new technology and manpower.

Petronas paid a total of 67.6 billion ringgit ($21 billion) to the government in 2007/08, up from 52.3 billion ringgit in the 2006/2007 year. That included dividends of 30 billion ringgit, up from 20 billion the previous year, mostly due to a 6 billion ringgit special dividend. The firm produced 1.77 million barrels of oil and gas a day, up 3.7% from the 2006/07 year, with 1.16 million barrels coming from Malaysia.

Petronas’ total reserves stood at 26.4 billion barrels of oil equivalent at the start of 2008, down from 26.5 billion a year ago as Asian reserves fell. (Reuters)