Malaysian state energy giant Petronas announced a flip to a second-quarter profit on Friday on the back of a recovery in prices and demand, but said it will be a “long, drawn out process” before the industry returns to pre-pandemic levels.

Petronas, or Petroliam Nasional Berhad, posted a post-tax profit of 9.6 billion ringgit ($2.29 billion) for the April to June period, against a loss of 21 billion ringgit in the same quarter last year.

“This recovery in oil and gas sector remains very fragile amid brewing uncertainties in the macro-environment,” Chief Executive Officer Tengku Muhammad Taufik said at a media briefing.

The oil market and prices are dependent on OPEC+ to stabilize the market but there is a risk of non-members of the Organization of the Petroleum Exporting Countries flooding the market with inventory, he said.

“Exploration spending remains subdued due to uncertainties as stakeholders demand lower cost and lower carbon resources,” he added.

The world’s fourth-biggest LNG exporter said it expects its 2021 financial performance to be affected by an anticipated rise in oil supply and as new coronavirus variants trigger fresh lockdowns, which may impact the price and demand recovery.

Petronas, a significant source of government income, said it has approved an additional 7 billion ringgit ($1.67 billion) in dividends to the government after requests from its sole shareholder.

This brings its total dividend contribution for 2021 to 25 billion ringgit ($5.97 billion), Tengku Muhammad said.

Second quarter revenue rose 68% to 57.1 billion ringgit.

“Petronas will remain cautious and adopts prudent outlook in navigating the rest of this year and 2022,” he said.

Petronas has allocated 39-40 billion ringgit in capital expenditure for 2021, said Liza Mustapha, its chief financial officer.

Tengku Muhammad said the firm needs to ramp up its capital expenditure by 9% to 10% to catch up to the renewable energy and new businesses that it intends to pursue to become a more sustainable entity. ($1 = 4.1880 ringgit)

 (Reporting by Mei Mei Chu Editing by Ed Davies, Martin Petty)

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