Petronas Pre-Tax Profit Surges To RM28.1 Billion In Q2 2014

KUALA LUMPUR, Aug 13 (Bernama) -- Petronas' pre-tax profit for the second quarter ended June 30, 2014 rose 28 per cent to RM28.1 billion from RM22 billion in the corresponding period last year on the back of higher revenue.

Its revenue increased 15 per cent to RM85.4 billion from RM74.4 billion previously, driven by improved production, higher gas sales and favourable exchange rate.

Production volume improved following production enhancement efforts and new production streams from Malaysia and Iraq, production resumption in South Sudan and additional production from Canada, Petronas Executive Vice-President and Group Chief Financial Officer Datuk George Ratilal told a media briefing here Wednesday.

For the first half ended June 30, 2014, Petronas' pre-tax profit went up nine per cent to RM55.3 billion from RM50.8 billion in the corresponding period last year.

The revenue advanced 12 per cent to RM169.41 billion from RM151.10 billion previously.

Petronas President and Group Chief Executive Officer Tan Sri Shamsul Azhar Abbas anticipated the second half of the year to be challenging amid robust supply but modest demand growth that could pressure crude oil prices and the company' earning.

He said Petronas could be lucky to record a pre-tax profit of RM94.6 billion for the year 2014 as the current crude oil prices could go down below between US$95 and US$100 per barrel from US$108 per barrel in the first half.

"Things are not going to be easy moving forward. It's getting harder to develop oil and gas, and the cost continues to increase," he said.

Petronas' total assets grew to RM544.1 billion as at June 30, 2014 from Dec 31, 2014's RM528.7 billion.

Its capital investment to date amounted to RM26.3 billion, of which 64 per cent at home while 36 per cent overseas.

On Petronas' international operations, Shamsul said the company aimed at growing its net profit contribution to 20 per cent from 11 per cent in the next five years.

He also announced that the Chinese government on July 17 approved its state-owned, Sinopec-Huadian joint venture to acquire a 15 per cent stake in Petronas' integrated LNG export facility in Canada.

The joint venture became Petronas' fourth strategic partner in the project, apart from Japex Montney Ltd (10 per cent), Brunei Petroleum (three per cent) and Indian Oil Corp Ltd (10 per cent).

Currently, Petronas, which holds a 62 per cent stake in the project, is in negotiations with three or four partners from Japan and West Asia but not in a hurry to pare down its stakes.

Shamsul said Petronas' operations in Russia continued unabated despite economic sanctions on Russia and US military operations in Iraq to flush out insurgents.

On the refinery and petrochemical integrated development in Johor, Shamsul said Petronas has awarded 11 contracts worth RM30 billion, mainly for infrastructure development.

Is Petronas giving too little to bumis?

KINIBIZ Is one of the founding objectives of national oil company Petronas to aid the bumiputera community and improve its participation in business?

To get the answer to the question, Tiger scrutinised the Petroleum Development Act 1974 (PDA) closely but the legislation under which Petronas was formed reveals no such thing; no, nothing at all.

It reminds Tiger of that other piece of agreement, the elusive social contract under which this nation was formed which no one has seen but presumably exists somewhere, perhaps in the minds of those who imagined it. But that's a topic for another time.

So where did our former prime minister and current Petronas adviser Dr Mahathir Mohamad get the idea that Petronas is "caught" between championing its founding objective of uplifting the bumiputera business community and opening up its business for foreign participation in line with its business globalisation plan?

Go to KiniBiz for the complete article.

This article was written by P Gunasegaram.

Help bumiputera companies more, Petronas urged

National oil company Petronas is still failing in its mandate to help bumiputera companies, which receive only five percent of its expenditure budget, the Malay Economic Action Council (MTEM) said today.

MTEM, which consists of 42 Malay business groups, said of the RM200 billion total Petronas expenditure budget, only RM10 billion were received by bumiputera businesses and mostly under its vendor development programme (VDP).

MTEM said many major Petronas jobs, such as its billion ringgit upstream oil and gas drilling activities and plant engineering, design and construction contracts, were still reserved for foreign companies.

"The involvement of Malay and bumiputera vendors performing work for Petronas should be doubled in order to be able to achieve empowerment of the bumiputera agenda and Vision 2020, which is the dream of the past and present leaders of the country," MTEM said in a press statement.

It called on Petronas to strive to allocate at least half, or RM100 billion of its yearly expenditure to bumiputera companies.

Demands being made since February

It also wants Petronas to double the VDP programme time-frame from five to 10 years, so that the bumiputera companies will have a better chance to grow and succeed.

"This is to give a company the opportunity to implement effective, comprehensive business modules, including investment, development and training," MTEM said.

It noted that out of 77 companies that were under its VDP programme, only 11 have survived.

MTEM has been making the same demands on Petronas since February this year, even calling for Petronas president and chief executive officer Shamsul Azhar Abbas to take the responsibility for the failure and to step down.

In response, Petronas has often reiterated that it has not neglected Malay businesses at all.

 In a Sinar Harian report today, a Petronas officer said that the company was strict with its VDP handouts as it wanted to discipline bumiputera businesses and prepare them to compete.

The officer said Petronas often could not give local companies the bigger jobs as they were not qualified and lacked the experience.

The company said that bumiputera companies already get at least 70 percent of its VDP business and that Petronas has spent RM7.5 billion since the programme began.

For petrol retail stations for example, Petronas revealed that it gave out total contracts worth RM242 billion between 1980 and 2012. Out of these, some 61 percent were given to bumiputera-owned companies.

Be transparent with Petronas money first

'My biggest beef with the BN federal government is this: Why is there no oil-based sovereign wealth fund (SWF) for Malaysia?'
COMMENT

By Chua Jui Meng

Malaysia’s non-commodity Khazanah Nasional, founded in 1993, is ranked 23 with US$34 billion in assets and a Linaburg-Maduell Transparency Index (LM-TI) of 5.

The world’s largest sovereign wealth fund (SWF) is Norway’s oil-based Government Pension Fund-Global. It was set up in 1990 and is currently registered with assets worth US$664.3 billion with a perfect 10 LM-TI.

UAE-Abu Dhabi’s oil-based Abu Dhabi Investment Authority, established in 1976, is ranked second with US$627 billion with a 5 LM-TI.

At third ranking China’s non-commodity SAFE Investment Company which was founded in 1997 and now manages assets worth US$567.9 billion with a 4 LM-TI.

That’s the top three SWFs in the world. Now, let’s focus on our neighbours.

Singapore’s non-commodity Government of Singapore Investment Corporation that was set up in 1981 is ranked 8th with assets at US$247.5 billion and a 6 LM-TI.

Following at 9th rank is another Singapore non-commodity SWF, Temasek Holdings which was established in 1974. It has US$157.5 billion in assets and a perfect 10 LM-TI.

Even countries like Kuwait, which was severely damaged by Iraq’s bombing and brief occupation, Libya, Kazakhstan, Algeria and South Korea which was far poorer than Malaysia in the 60s, 70s and 80s.

Malaysia Boleh is thus really Malaysia Tak Boleh under BN-Umno’s 55-year rule.

My biggest beef with the BN federal government is this: Why is there no oil-based SWF for Malaysia?

Malaysia is the 27th largest oil producer in the world, rolling out 693,700 bbl/day. Only 114 countries are listed as at 2009 and 2010.

Compare Malaysia with the above mentioned countries that are doing better in SWF asset management: Kuwait (10th at 2,494,000 bbl/day), Libya (17th at 1,790,000 bbl/day), Kazakhstan (18th at 1,540,000 bbl/day), Algeria (15th at 2,125,000 bbl/day), South Korea (64th at 48,180 bbl/day) and Singapore (82nd at 10,910 bbl/day).

Petronas, founded in 1974, is today a global player in oil and gas exploration.

A debt is a debt!

Why is the government just satisfied with an annual RM100 million contribution to National Trust Fund, or KWAN, since 1988? Are you treating Malaysians as monkeys and giving out peanuts?

Where has Petronas’ trillions of ringgit in revenue over the past 38 years gone to? Did Petronas’ oil and gas exploration presence in 32 countries outside Malaysia contribute or help facilitate the bulk of RM1.08 trillion in capital flight in the last decade?

Why avoid establishing an oil-based sovereign fund for the people and country? Is it because financial transparency and accountability would be a pain?

Petronas’ Q3 2012 profits are down 22%. That is a significant drop in financial performance.

But all these beg the question: With such wealth over 38 years, why is Malaysia’s national debt, as reflected by Budget 2013, at RM502 billion or 1.3% short of the 55% legislated debt ceiling?

But Deputy International Trade and Industry Mukhriz Mahathir had let the cat out in an interview with The Edge last year, claiming that Malaysia’s debts were well managed as the bulk of the RM800 billion borrowings were domestic!

A debt is a debt! You have to repay all, whether domestic or foreign. Also, which is the true figure for our federal debt? RM502 billion or RM800 billion?

Chua Jui Meng is PKR vice-president and Johor state chief. He is also a former MCA vice-president and an ex-Cabinet member.

Petronas removes ‘Do the Dappan’ ad

The national oil company said that its complementary series of television and print greetings, as well as its Deepavalli exhibition at Galeri Petronas, will continue as planned.

PETALING JAYA: Petronas had decided to remove its Deepavali advertisement for this year titled “Do the Dappan” after a public outcry.

In a statement, the national oil company said that its complementary series of television and print greetings, plus its Deepavalli exhibition at Galeri Petronas, will continue as planned.

“It has always been Petronas’ intention to help promote the common underlying values from our diverse heritage, tradition and cultures to bring multi-ethnic Malaysians together,” read the statement.

The advertisement on YouTube runs for over three minutes, and it shows a youth named Raj doing the Dappan Kuthu dance and getting unlikely people to join his dance routine.

Petronas defines the Dappan Kuthu dance as an energetic dance routine which is prominent in Tamil cinema.

However, the video received brickbats from Internet users, who claimed that the advertisement did not reflect the spirit of Deepavali.

MIC secretary-general S Murugesan welcomed Petronas’ decision to heed public feedback on the matter.

“I would also like to encourage Petronas to continue making effort in promoting Malaysia’s multi-cultural diversity. Just do thorough research before putting up anything,” he said.

Angkatan Warga Aman Malaysia (WargaAman) secretary-general S Bharatidasan also thanked Petronas for removing the advertisement out of respect to the Hindu community.

“Just be more careful next time around,” he said.

Dr M: I told Petronas to enrich my son

The former premier mocks a reporter who asked an embarrassing question.

KUALA LUMPUR: Dr Mahathir Mohamad today mocked a Malaysiakini reporter for questioning him on lucrative multimillion ringgit petroleum contracts involving Petronas and SapuraKencana Petroleum Bhd, of which his son Mokhzani is vice-president.

The visibly annoyed former prime minister, who is adviser to the national oil company, said he had used his influence with Petronas to ensure that SapuraKencana win the business.

“Yes, of course, he is given it because I instructed Petronas,” he told the reporter. “You can put that in your paper.

“I presided over everything. I told them, ‘Please give to my son and not to anybody else.’”

The reporter’s question came during a press conference that followed the presentation of a patron award to Mahathir from the Malaysian Institute of Planners (MIP).

The reporter raised the question in defiance of a plea by the event organisers that the media confine the session to town planning and other issues related to the function.

The reporter asked if Mahathir thought there was a conflict of interest in the award of two contracts, worth RM836 million in total.

Mahathir replied: “That is what I’ve been doing all the time. Even the time when I was prime minister, everything goes to my children.

“But when everything goes to the children of other PMs, you don’t want to mention because he is a nice man.”

Mahathir left shortly afterwards, cutting the press conference short.

An event official later told FMT the reporter should have “been more respectful”.

“We wanted the press conference to be confined to the event,” he said. “It’s okay that he wanted to ask the question, but he could have framed it in a more tactful way.”

Reuters reported last week that Allied Marine & Equipment Sdn Bhd, a wholly-owned unit of SapuraKencana, was awarded a RM700 million underwater services contract for three and a half years by Petronas Carigali Sdn Bhd.

Another wholly-owned unit, Kencana HL Sdn Bhd, was awarded a RM135.8 million engineering, procurement, construction and commissioning contract from HESS Exploration and Production Malaysia BV for an integrated gas project in the Kamelia Field in the North Malay Basin.

The contracts were announced in two stock exchange filings last Thursday.

‘Do the Dappan’ not in Deepavali spirit

The Deepavali advertisement by Petronas for this year drew ire from YouTube viewers, who said the dance routine in the clip does not reflect the spirit of the festival of light.
VIDEO INSIDE

PETALING JAYA: The Deepavali advertisement by Petronas for this year has drawn flak from viewers, merely two days after being posted on YouTube.

Titled “Do the Dappan”, the clip that runs for over three minutes shows a youth named Raj doing the Dappan Kuthu dance and getting unlikely people joining in the fun due to the catchy tune.

Petronas defines the Dappan Kuthu dance as an energetic dance routine which is prominent in Tamil cinema.

“Deepavali is a celebration of the inner light within us — the positive energy that brings happiness to the world. So this year, Petronas reassures us that no gesture is too small to bring a little happiness to the lives of others,” posted Petronas on the clip.

The video had since drew 237 comments but most viewers did not feel the “light” from the clip.

Commentator Ravin Daran posted yesterday saying,” Stupid concept!! It’s like disgracing the Indian community. They shouldn’t advertise it. There is no creative and innovative thinking. There is nothing showing Indian norms and culture. This video is piece of *&^%.”

His comment received 20 likes on the web portal.

Another commentator named Navanivashini Nadarajah said that Deepavali is a day to celebrate an occasion when evil was vanquished by the forces of good.

“Dressing up like that and dancing is never our culture. Dappan dance is performed among certain community in India but it is never our culture. Yasmin’s ideas captured the essence of our culture. Not only our Indian culture but also the Asian culture,” she said.

Commentator Gopi Kupuchity said that although he enjoyed watching the peppy music, he felt that the advertisement failed to depict the true meaning of Deepavali.

“It is totally based on the mentality of idolising Indian movie songs until failing to deliver the message of celebrating Deepavali,” said Gopi.

The advertisement is scheduled to be released on television this weekend.

FMT failed to get comments from Petronas on the matter despite numerous attempts.

Oil Trading: Dark Side of PETRONAS

By Koon Yew Yin
Last week, the international financial media carried the story that Canada intended to block the planned $5.3bn acquisition of Calgary-based Progress Energy Resources by Petronas. According to these reports, the country’s industry minister, Christian Paradis had issued a statement saying he had written to Petronas saying he was “not satisfied that the proposed investment is likely to be of net benefit to Canada”.
Much of the subsequent analysis has focused on questions related to Canada’s policy on foreign takeovers and its investment policy especially with regard to foreign state-owned entities. This should be of little interest to us.
Of greater interest to Malaysians should be how the Petronas takeover of Progress will benefit our country. Is it in our best interests? What are the pros and cons of this very expensive takeover? Let us always remember that the company belongs to all Malaysians, and not simply to the government of the day or a group of company directors.
Petronas has done well. Since its incorporation, Petronas has grown to be an integrated international oil and gas company with business interests in many countries. The group is engaged in a wide spectrum of petroleum activities, including upstream exploration and production of oil and gas to downstream oil refining. Oil trading is one of the key activities of the group.

As everyone knows, Petronas provides a substantial source of income with 45% of the government’s budget dependent on Petronas’ dividend. Is this focus on one single indicator of success – providing funds to run government – perhaps the reason why we are blinded to possible darker aspects of the company’s overall track record?
Oil Trading: Facts and Figures Needed
Any trading business – which Petronas partially is – has to observe some key principles to be successful. These include

1. Don’t try to predict the future
   
2. Flexibility in forward contracts as no one knows when the market will move
   
3. Having trading relationships that maximize your options
   

In recent years, questions have been raised as to whether our state owned oil business executes these or some other principles when it engages in trading. In addition, allegations have been made with regard to possible cronyism in some of its deals.
Perhaps the most serious allegation was the disclosure made by Jeffrey Kittingan in June 2008 that 80% of Petronas oil is not sold directly to the world market but is funneled through six option holders. Apparently these option holders or selling agents have obtained their supply from Petronas at well below market price for the next 20 to 30 years.

If this allegation proves to be correct then these profits would be much less than what could have been realized had the sales been conducted through open and more transparent forward sales.
When he initially made these allegations more than 4 years ago, Jeffrey Kittingan asked for a white paper or royal commission of enquiry to investigate this scandal. He also asked for a review of the Petronas agreements and to make Petronas open and transparent.
As far as I am aware, there has been no response from Petronas or the government on these concerns. If what amounts to a leakage from giving contracts without open tenders is taking place, then it is necessary that the issue be taken up during this coming election. What makes the trading strategy of Petronas inexplicable is that oil is a strategic and diminishing resource. Surely any oil trader is aware that the price trend in view of scarcity and lack of substitution can only be upwards, with the degree of price increase the only major risk. Also, it does not make business sense to tie up so much of forward sales with long term contracts since a mix of short, medium and long term contracts is clearly the superior strategy.
Malaysia’s Transparency Record in 2010 scored below average in a study on transparency of revenue management of extractive industries that covered 41 countries. The country obtained 48.4 points compared with the study average of 51.8 out of the maximum of 100 points in a joint study by Revenue Watch Institute and Transparency International.
Malaysia sits in the group of countries with “partial revenue transparency”, that is countries which provide citizens with information about extractive sectors, yet show important transparency gaps in one or more specific categories of (the Revenue Watch Index).
Malaysia in fact falls below the average 50.1 points obtained by other Asia Pacific countries.
Malaysia is behind Indonesia, which scored an average 50 points, and also is behind Papua New Guinea, Trinidad and Tobago, Kazakhstan and even Timor Leste.
According to the study which rates countries on accessibility of information on contracts, licensing and government payments, as well as institutional structure compelling transparency, Malaysia drew a poor mark for access to information on contracts and licensing procedures.
Petronas Needs to be Accountable to the Country
According to the Petroleum Development Act 1974, Petronas is only accountable to the prime minister of the day, not even to Parliament.  This is wrong.
In a recent speech Woo Wing Thye, a distinguished Professor of Economics who presently heads the Penang think tank, Penang Institute, pointed out the hazard that exists in the key role that Petronas plays in the country’s finances. According to Professor Woo, the world’s experience with state oil companies is that they would fail in the middle of a boom. Indonesia’s Pertamina failed in 1974 in the middle of the Opec boom and PetroMexico collapsed in the midst of the second Opec shock.
“These state oil companies were overextended and not very transparent”, Woo said. “They were basically the cash registers of their governments. It is a good thing to have more transparency because the balance sheet of Petronas links directly to the government budget. If Petronas is in trouble, the government budget is in trouble.”
We need to take these cautionary words seriously. The first step to reform is to open up the account books of the company especially related to oil trading and to investigate the allegations of Mr. Jeffrey Kittingan.
Petronas belongs to all Malaysians and the majority of them are Bumiputeras who are better educated than before. They can see all these misuse of power, corruption and mismanagement and I believe they will know how to vote in the coming general election.

Petronas Carigali discovers more oil reserves in Bertam, says PM

(Bernama) - Prime Minister Datuk Seri Najib Razak today announced that Petronas Carigali Sdn Bhd and Lundin Oil have jointly discovered additional oil reserves, under a production-sharing contract (PSC), at Block PM 307 of the Bertam oilfield.

He said the oil field, located 160 kilometres offshore Peninsula Malaysia, is opposite the state of Pahang at the depth of 76 metres.

PM 307 PSC is operated by Lundin Malaysia which holds a 75 per cent interest and Petronas holds the remaining equity.

“This is very significant because we never discovered oil in commercial quantity at Penyu Basin and this is a major breakthrough.

“Based on the findings of commercial and technical feasibility studies, crude oil production will begin at the oil field in the third quarter of 2014 with a projected output of between 17,500 and 20,000 barrels per day,” Najib (picture) told reporters after chairing the Biotechnology Implementation Council meeting here today.

The prime minister said with the additional discovery, the Bertam oilfield is estimated to have oil reserves of 64 million barrels.

Najib, who also is Finance Minister, said Pahang was expected to receive a special payment of RM100 million a year, once production begins in the third quarter of 2014.

“This discovery proved there is oil and gas at the Southern region of the Malay Basin towards the Penyu Basin.

“The oilfield is located on the continent shelf which is under the jurisdiction of the Federal government.

“This is our policy to distribute oil wealth with five per cent cash payment to Pahang,” he added.

Meanwhile, Ramlan A Malek, Vice-President, Petronas Nasional Bhd, Exploration & Production Business, Petroleum Management said the commercial and technical feasibility studies were expected to be completed in the second quarter of next year.
He also said this was the first oil discovery in the Pahang state.

Is Petronas an ungrateful child of Malaysia?

From Anas Alam Faizli, via e-mail

In early June Petronas hinted publicly at the World Gas Conference that they are tired of being the Malaysian government’s cash cow. They said no to fuel subsidy and last year they said they wanted to pay less dividends! Is Petronas ungrateful? The money belongs to the rakyat anyway and hence the government.

While many have attempted to comment on the sustainability of Petronas’ payouts, this article aims to give some insights into the realities of the local oil & gas industry, and why returning all oil harvests back to Malaysians may not benefit them in the longer run.

In 1974, Petronas, fully owned by the government of Malaysia, was established and given full ownership and control of our Petroleum reserves. Today, it has evolved into a fully integrated oil and gas multinational corporation, ranked among FORTUNE 500’s largest and most profitable oil and gas corporations with a total workforce of more than 30,000.

Many will credit Tun Abdul Razak and Tengku Razaleigh Hamzah as the founding fathers of Petronas. They have established solid foundations and values with which, the successive leadership and managements such as Tan Sri Azizan, Tan Sri Hassan Marican, and now, CEO Shamsul Azhar, were able to continue to uphold and flourish the corporation to its current stature.

These foundations have also made Petronas’ presence visible in more than 30 countries worldwide, that it is now dubbed the new “seven sisters”, a term originally coined by Italian businessmen Enrico Mattei, to refer to the likes of Exxon Mobil, Chevron, BP and Royal Dutch Shell.

Question 1: Is Malaysia too dependent on Petronas and its petroleum reserves for its economic survival?

Naturally, Petronas’ disbursements contribute a lion’s share to the growth and development of Malaysia. Let’s see the numbers. Since Petronas’ inception in 1974, it has been paying the Malaysian government a total of RM 529 .0 billion in dividends, taxes, petroleum proceeds and export duties. On top of that it has also been paying subsidies to TNB, IPPs and non-power parties a total of RM 136.5 billion since 1997. (Source: Petronas Annual Report 2011)

For the past five years since its Financial Year (FY) 2007, Petronas has been paying the Malaysian government about RM 61.0 billion each year, on average. Dividends alone, averaged 53.0% of Petronas’ annual profits, and are higher than the average of 38.0% paid by national oil companies around the world to their respective governments. Total monies disbursed to the government constitute an average of 41.0% of the Malaysian government’s total revenues.

This doesn’t end here, the Malaysian government has also utilised Petronas for various bail- outs, such was the case for Bank Bumiputera, RM 2.5 billion in 1985 and another billion in 1991. Through MISC in 1997, Petronas also bailed out Konsortium Perkapalan Berhad (KPB), which was facing losses to the tune of RM 2.0 billion at the time.

Not surprisingly, Petronas footed a few infrastructure bills too, including the RM 6.0 billion to construct the Petronas Twin Towers and RM 22.0 billion to complete the majestic Putrajaya.

Question 2: Is Malaysia drying Up?

We all know fossil fuel is non-renewable and finite. Malaysian oil production registered the highest output at about 650,000 barrels per day (bpd) in 1994, persistently declining thereafter. 2002 saw a slight uptick but production trends have been back in the decline for the past three years, currently registering only about 600,000 barrels per day. For gas, based on projects already online, Malaysia’s domestic current gas production stands at 6.1 billion scfd. This is forecasted to decline to 1.5 billion scfd by 2025.

This is consistent with the world oil production growth trend, which was flat from 2005 to 2009. Journal of Energy Security (2008) has frighteningly concluded that there is limited potential to increase production of both gas and especially oil.

Saudi Aramco, the biggest oil and gas operator in Saudi, admitted that its mature fields are now declining at a distressing rate of 8.0% per year. According to an International Energy Agency (IEA) report (2007), based on 800 oilfields surveyed, global supply sees production decline to 6.7% a year.

Remaining untapped Malaysian oil and gas reserves are also not as abundant as before. What previously were just parcels of marginal oil fields are now “opportunities” we scurry to put our foot onto. If I haven’t painted a gloomy enough picture, productions from the existing oilfields in Malaysia are either near its peak, or are already declining.

The oil and gas reserves left available for development are more difficult to be developed as the reserves are either marginal, (typically less attractive economically) or are located deepwater, representing more technological challenges. Studies have also shown that in Malaysia, not even vastly increased investment in exploration and production can ensure increased output, especially in mature petroleum regions.

Between 1974 and 1978, a total of 40 exploration wells were drilled, resulting in the discovery of 1,580 million barrels of oil equivalent (mmboe), adding to our oil and gas reserves. However, between 2004 and 2008, a total of 140 wells were drilled (that is 3.5 times more wells), but this only resulted in the discovery of 1,050 mmboe!

The current average recovery factor from producing fields in Malaysia is at 33.0%. This number can be improved, and we can get more from the ground, but it will require expensive technology.

What does this mean? Well, for one thing, more complex and expensive technology will be required to increase production of oil and gas from marginal fields and deepwater offshore areas, i.e. Petronas needs to have deeper pockets.

Question 3: How much cash do we need to sustain the business?

It is estimated that in 2012, the global oil and gas industry will register a total capital expenditure of more than RM3.0 trillion. According to Pemandu, future growth in upstream Malaysian oil and gas will come from initiatives such as Enhanced Oil Recovery (EOR) methods, “innovative” approaches to the development of marginal fields and intensification of exploration activities undertaken by oil and gas operators in Malaysia and also the exploration of deepwater discoveries.

As nice and dandy as this may sound, this is extremely costly and operators like Petronas Carigali will need the cash to finance these initiatives. Petronas has largely attempted to mitigate this by emerging on the international scene, expanding its operations into 30 other countries. This is a strategic move; a result of foresight on the part of management, and possibly the government, in addressing concerns over the “mortality” of Malaysian oil wells.

At the same conference, CEO and MD, Datuk Shamsul also argued that now is the time to acquire cheap overseas stakes to supplement the depleting production. This too, needs cash. In fact, Petronas needs about RM 300 billion in the next five years in capital investment, as it has announced last year. Some might argue that this cash can easily be borrowed through sukuk and bonds issuances but building a sturdy cash reserve should be priority too.

Question 4: Is our local oil and gas services industry at its full potential?

A rough estimate would show that at least RM 1.0 trillion has been spent for the Malaysian oil and gas industry, as capital expenditure for development over the past 38 years. How much of this capital has cascaded down the value chain locally? One indicator is that there are about 25 oil and gas companies listed (based on the Industrial Classification Benchmark) on Bursa Malaysia with total revenues of RM73.0 billion.

As a comparison, Singapore, which is not an oil and gas producing nation, domiciles 31 oil and gas companies with revenues of RM 149.0 billion! Indeed, there have been visible, local oil and gas industry players like the Malaysian Marine Heavy Engineering (RM 9.0 billion market cap), and the recently merged SapuraKencana Petroleum (RM 11.0 billion market cap) who have emerged as regionally competitive fabrication and marine players.

But how do these look, compared to the amount of CAPEX that we have spent in developing our local oil and gas industry? Furthermore, how are they compared to other global players like Hyundai Heavy Engineering, Samsung Heavy Industries, Keppel Shipyard, Sembcorp Marine and McDermott to name a few?

To be fair, we have successfully groomed and developed local expertise in all sectors of oil and gas. This ranges from engineering, fabrication, offshore installation and commissioning, specialised equipments, skill labourers and the list goes on. Our local talent pool is also competitive globally and is working everywhere across the globe. Local engineering design houses like Ranhill Worley, RNZ Engineering and MMC O&G are also of international standards.

Another strategic parallel that deserves credit are attempts to grow our domestic oil and gas sector to transform Malaysia into an oil and gas hub. This means regionally and globally, players will come to Malaysia for their A to Z oil and gas needs. A project like RAPID is a good start to becoming that “hub”. Let us make Malaysia the Houston of Asia Pacific!

But, there are also other sectors within the industry which we can further develop our capabilities in; namely (1) equipments manufacturing and (2) oil & gas services. Local operators have always had to depend on imports of specialized equipments like turbo machineries (heavy generators and compressors), pumps, multiphase meters, electrical and instrument control equipments, super sized valves.

This is one area of opportunity for local manufacturers. From the oil & gas services perspective, we should also nurture and grow our local players to an extent that they can provide world class and value-added services at competitive rates; at par with the Schlumbergers and the Halliburtons of the world. When these are achieved, we can depend less on actual oil, and still have an oil & gas industry, even when our motherland herself has run dry.

Food for thought

Since last year, Petronas has been mulling over the idea to lower its annual dividends paid to the government through a new proposed dividend calculation format; using a percentage of profit instead of an absolute amount. This means Petronas pay less, if they make less that year. This idea has actually been supported by Former Prime Minister Tun Mahathir (one cannot help but think it is because the spending had been done in his days).

And recently, discussions at the World Gas Conference have openly questioned the legitimacy of subsidising gas. Fact remains that if we continue to depend heavily on Petronas, there is risk of stunting its full potential growth, as we reduce Petronas’ cash reserve. For the past five years, Petronas has been spending on average 28.5% as CAPEX from its free cash flow (FCF). In contrast, Royal Dutch Shell, with among the highest reinvestment ratios in the world, reinvests a whopping 75.0% of its FCF, dwarfing that of Petronas’!

We depend on oil and gas income very much and it has become an indispensable instrument of the state, so much so that we cannot begin to imagine living without it. It goes without saying that efforts to reduce this dependency on this “ungrateful” child should be made. This is to not weigh him down to much at the expense of its growth, and more importantly to ensure Malaysia does not end up without a “retirement plan.”

So is Petronas ungrateful? Or are they simply trying to be the obedient child that is politely proposing a counter offer, for the betterment of this nation that it belongs to?

Anas Alam Faizli is currently serving an international oil and gas operator. He holds a Master’s degree in Project Management and is currently pursuing a doctorate in business administration. His research is in capital investment evaluation practices and decision making.

Petronas Reports Higher Profit, Revenue For FY2011

KUALA LUMPUR, June 8 (Bernama) -- Petronas saw higher revenue and profit for its financial year ended March 31, 2011, driven by increased prices for all products and higher volume for major products amid improved economic growth despite the strengthening of the ringgit against the US dollar.

Its president and chief executive officer Datuk Shamsul Azhar Abbas said revenue rose 14.4 per cent to RM241.2 billion from RM210.8 billion.

Pre-tax profit increased 34.5 per cent to RM90.496 billion from RM67.3 billion previously.

The national oil company declared a dividend of RM30 billion to the government.

Earnings before interest, taxes, depreciation and amortisation (EBITDA) for the year included a net gain of RM9.2 billion arising from the initial public offering of Petronas Chemicals Group Bhd (PCGB) and Malaysia Marine and Heavy Engineering Holdings Bhd (MHB).

Excluding the said gain, EBITDA increased by 18.5 per cent, in line with higher revenue, Shamsul Azhar told a press conference here today.

Return on revenue for the year was 37.5 per cent despite rising cost which reflected stronger prices and the group's continuous drive for operational efficiencies.

Higher prices and robust demand resulted in improved performance for all core businesses, said Petronas executive vice-president of finance Datuk George Ratilal.

"Petronas' own performance was also in trend with our competitors, indicating another year of resilient performance by the group," he said.

He said gross revenue increased by 12.9 per cent with the downstream business being the biggest revenue contributor at 42.4 per cent of total gross revenue.

Cash from operations was RM70.8 billion compared to RM56.1 billion in the previous year, representing an increase of 26.2 per cent mainly due to better earnings.

A total of RM34.9 billion in capital expenditure was mainly spent towards intensifying exploration and production activities and continuing other efforts.

RON97 petrol up 20 sen from tomorrow

KUALA LUMPUR, April 1 — The pump price for RON97 petrol will go up 20 sen a litre to RM2.70/litre effective midnight, a source said today.

It is the highest jump this year as world oil prices have spiked due to unrest in oil-rich North Africa.

“We received the confirmation notice this evening about the 20 sen rise,” a source told The Malaysian Insider.

The price of the higher-grade RON97 rose 10 sen effective January 31 after a similar hike in early January 2011. It had earlier spiked to RM2.30 last December 1.

It is understood prices of other fuel grades will remain unchanged as only RON97 prices are determined by a market float.

The government had said it would review all options to ensure that it can maintain the price of the RON95 grade, used by most motorists, despite rising global prices.

Oil royalty: Kelantan files suit against Petronas

By Rahmah Ghazali
FULL REPORT KUALA LUMPUR: With the abundance of oil it possesses, Petronas could burn in the hereafter for a long time. To avoid such a fiery fate, Kelantan Menteri Besar Nik Abdul Aziz Nik Mat said it should pay his state the royalty it deserved.
The PAS spiritual leader issued the dire warning after filing a suit against the national oil and gas company over its refusal to pay oil royalty despite operating an oil platform off the state’s shores.

“We don’t want our rights to be taken away. If they do not pay now, they will need to pay in the hereafter. But before they get punished in the hereafter, it is better for them to pay now,” he said.

Nik Aziz filed the suit through his lawyer Tommy Thomas at the High Court here this morning. However, it did not state the amount being claimed.

About 100 supporters waited the court since 8am. The suit was filed at 9.25am.

Kelantan Deputy Menteri Besar Ahmad Yaakob, state exco Husam Musa and PAS vice-president Mahfuz Omar were also present.

Following this, the leaders went to Masjid Wilayah Perseketuan for solat hajat (a special prayer to ask for God’s forgiveness, guidance and assistance).

Although the federal government had given “compassionate fund” in lieu of oil royalty, the state government refused to recognise it, arguing that it was entitled to oil royalty as stated in the Petroleum Development Act 1974.

In the 47-page suit, it claimed that Petronas had wrongfully, in total failure of consideration and in breach of the Act, the Kelantan Petroleum Agreement and Kelantan Grant, failed and/or refused to make cash payments to the Kelantan state government for petroleum won and obtained off-shore Kelantan.

It also said that despite failing to make the said cash payments, Petronas wrongfully continued to win and obtain petroleum offshore Kelantan, that was, without paying for them.

'We could be entitled to RM1.7 bil per year'
At a press conference later, Husam, who is also chairman of the oil royalty claim committee, said that the state was entitled to 5% of oil royalty per year.

In calculation, for example, Husam said that one of the four compartments offshore of Kelantan which overlaps with Thailand, produces 10 million barrels of oil a month.

This, he said, would amount to US$8.5 billion per year and Kelantan was entitled to RM1.7 billion if the 5% royalty was taken into account.

“This is such a huge amount because oil production began in 2005. Petronas paid oil royalty to (neighbouring)Terengganu for 18 years, (but not to us),” he said.

Husam also said that the suit was the “last resort”.
“We tried to arrange meetings (with Prime Minister Najib Tun Razak and Petronas), and we came out with strong statements that Kelantan is entitled to oil royalty in accordance with the Act (but to no avail).

“This was even supported by (Umno veteran leader and former finance minister) Tengku Razaleigh Hamzah as the first Petronas chairman who had signed the agreement,” he said.

Meanwhile, Nik Aziz said the state government’s entitlement (harta) must be upheld and respected.

In the suit, the Kelantan government also sought the following relief against Petronas:

1. Specific performance of the Kelantan Petroleum Agreement

2. An account be taken or an inquiry be ordered requiring Petronas to make full and truthful disclosure of all relevant facts relating to the cash payments payable to Kelantan, including:

• The period which petroleum has been produced, won or obtained off-shore Kelantan.
• The areas/blocks from which petroleum was won and obtained; and
• The amounts of cash payments so payable to Kelantan.

3. An order that all arrears of cash payments so accounted, be paid to Kelantan within one month of an order of court.

4. An order that all future cash payments be paid to Kelantan by Petronas for petroleum produced off-shore Kelantan in accordance with the terms of the PDA and the Kelantan Petroleum Agreement.