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Malaysia's Petronas to cut $11.4 Billion in Expenses amidst oil rout

January 20
1:30 AM 2016

Malaysia's state-oil firm Petronas plans to cut 50 billion ringgit, or $11.4 billion, from its spending for the next four years. This plan comes amidst rout in oil prices, with Brent crude price dropping to $28 per barrel last Friday.

Petroliam Nasional Bhd will cut spending on capital and operating expenditure, according to a report by The Wall Street Journal. The declining oil prices affected major oil firms in the world, and it could lead to further decline on Petronas' profit both international and domestic. Petronas is the biggest source of income for the Malaysian government, contributing a third of the country's annual budget.

According to Reuters, Petronas announced in November that it plans to slash its 2016 dividend to the Malaysian government by almost 40 percent. This plan follows the company's 91 percent decline in profit. Analysts expect the company might continue to reduce its contribution to the government.

Petronas CEO Wan Zulkiflee Wan Ariffin said, "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." 

Meanwhile, Up Stream wrote that Malaysia's Prime Minister Najib Razak announced in October that revenues from oil and gas will constitute 14.1 percent of the budget for this year, which is a decrease from 2015's 19.7 percent. Najib will change the 2016 budget to keep up with the dwindling oil prices. The initial budget made was based on a $48 per barrel oil price, now Brent went down lower than $30.

Malaysia second-biggest oil producer in Southeast Asia. It is also the second-largest liquefied natural gas exporter in the world. Besides the slump in oil prices, which adversely affects the government, the controversy surrounding the state-investment fund 1Malaysia Development Bhd. has also troubled the country.

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