Petronas Delivers Record Results

The Petronas Group delivered another record performance for the financial year ended 31 March, 2007, amidst a more complex and increasingly challenging global oil and gas industry environment.

The year saw crude oil prices remaining high as global demand, particularly from the transportation sector, continued to increase on the back of strong economic growth, especially in China and India. In the meantime, supply disruptions in Alaska and Nigeria, coupled with continuing geopolitical tensions in the Middle East, escalated concerns over security of supply.

Stronger demand amidst heightened threats of supply disruptions, as well as a lack of refining capacity globally and OPEC crude production curtailment, pushed oil prices higher during the year under review. The average price of West Texas Intermediate (WTI) and Brent crudes increased by 8.5% and 12.2% during the review period to USD64.92 per barrel and USD65.08 per barrel, respectively. The weighted average price of Malaysian Crude Oil (MCO) rose in tandem to USD68.50 per barrel, an increase of 11.2%. Prices of petroleum products also rose, with gasoline and diesel, used mainly by the transport sector, reaching an average price of USD74.44 (USD66.87 previous year) and USD77.47 (USD68.59 previous year) per barrel respectively.

Spurred by high oil prices and demand, intensified industry activities had also driven up costs, often out of proportion with the crude price increase. For example, upstream capital costs had increased by approximately 21% during the year - more than double the rate of increase in crude prices over the same period.

Cost escalation and lack of engineering and construction capacity, coupled with shortage of experienced personnel, had led to project delays and adversely impacted safety, efficiency and quality of operations. The continuing cost escalation had also negatively affected the economic viability of ongoing and planned projects, resulting in many projects being deferred. In summary, the review period saw oil and gas companies globally operate in a highly challenging environment as escalating costs overshadowed gains from high energy prices.

Against this industry environment, the Petronas Group recorded an all-time high revenue of RM184.1 billion and profit before tax of RM76.3 billion, both increasing by approximately 10% from the previous year. The Group's balance sheet continued to strengthen with total assets rising 7.9% to RM294.6 billion. Shareholders' funds expanded 16.3% to RM170.9 billion while Return on Average Capital Employed (ROACE) remained high at 40.9%. The Group's performance is on par or superior to that of more established players in the industry.

The year's outstanding financial and operational performance was a testimony to the success of the Group's overall strategy of integration, value adding and globalization. This strategy, coupled with the Group's effective management policies and operational excellence, has served and continues to serve Petronas well in addressing the challenges encountered by the volatile and unpredictable oil and gas industry. Notably, Petronas' continuous emphasis on operational efficiency and reliability, as well as the integrated nature of the Group's operations played a key role in cushioning the impact of the disproportionate increase in operating cost, enabling the Group to continue to achieve improved results.