June 25 (Bloomberg) -- Petroliam Nasional Bhd., Malaysia’s state oil company, posted its first annual profit decline in seven years as the global recession sapped energy demand and production costs remained high.

Net income in the year ended March 31 dropped 14 percent to 52.5 billion ringgit ($15 billion), Petronas, as the company is known, said in a statement in Kuala Lumpur today. Sales rose 18 percent to 264.2 billion ringgit.

“From a high-price, high-cost environment, today we’re in one of low price but yet high-cost,” Chief Executive Officer Hassan Marican, whose contract at the company will expire in February, told reporters. “It has been a very difficult, volatile financial year.”

Total SA, Europe’s third-largest oil producer, and bigger rivals including Royal Dutch Shell Plc posted double-digit- percentage declines in first-quarter earnings as the world recession eroded oil and gas use. Crude in New York reached a record $147.27 a barrel on July 11 before dropping to about $32 in December as consumers cut air travel and car purchases.

“In the last six months, the reduction in hydrocarbon prices has been faster than a drop in production costs,” said Andrew Wong, a Singapore-based analyst at Standard & Poor’s. “Petronas has to invest to arrest declining production, especially in Malaysia. A lot of existing hydrocarbon areas in the region are depleting and resources are harder to find.”

New Findings

Tapis crude oil, Malaysia’s benchmark grade, reached a record $153.12 a barrel on July 15, according to data compiled by Bloomberg. Prices have fallen more than 50 percent since then to close at $70.54 a barrel yesterday.

Petronas’s total reserves grew 2.5 percent to the equivalent of 27.02 billion barrels of oil in the year to Jan. 1, and the company replaced its reserves at 1.8 times, up from 0.9 times a year earlier.

The increase in reserves came from discoveries in Turkmenistan and Mozambique, Hassan said. Petronas has operations in countries including Sudan, Vietnam, Australia, Indonesia and Uzbekistan.

Petronas paid a dividend of 30 billion ringgit during the year. The company’s payments including royalty, dividends and taxes accounted for 45 percent of Malaysian revenue in 2008, making Petronas the single biggest contributor. The share of contributions had risen from 37 percent of federal government revenue in 2007, as the nation’s budget deficit widens.

Government Deficit

The deficit in 2009 will swell in the biggest overspend since 1987 as the government implements a 60 billion-ringgit stimulus package, Finance Minister Najib Razak said in March.

Petronas also subsidized 19.5 billion ringgit in natural gas for use by power producers and manufacturers in Malaysia.

Total oil and gas output for the group rose 1.3 percent to the equivalent of 1.8 million barrels a day. Crude oil and condensate production declined 3 percent to 761,300 barrels a day while gas output climbed 4.8 percent to the equivalent of 1.03 million barrels of oil a day.

Petronas has been stepping up drillings in areas off Malaysia’s Borneo Island in the past few years to reverse a decline in production. The company and operator Murphy Oil Corp. began production from the Kikeh deepwater field in 2007.

Domestic Output

Petronas’s oil and gas production in Malaysia rose to 1.17 million barrels a day of oil equivalent in the year to March 31. That accounted for 70 percent of Malaysia’s daily output.

The three refineries owned by Petronas in Malaysia ran at 97.3 percent of their capacity. The three plants were built with a capacity of 323,300 barrels a day. The Southeast Asian nation’s oil demand fell 6.4 percent because of the economic slowdown.

Petronas produced 22.3 million tons of liquefied natural gas from its Bintulu plant on Borneo Island, and 1.8 million tons from its Egyptian unit. Higher LNG prices were the biggest contributor to the year’s revenue gain, Hassan said.

Japan purchased 60 percent of Malaysia’s LNG exports, South Korea bought 27 percent and Taiwan took 12 percent.

To contact the reporter on this story: Jane Lee in Kuala Lumpur at jalee@bloomberg.net;

Last Updated: June 25, 2009 02:23 EDT