Led by Petronas, a Fortune Global 500 company with nearly $100 billion in annual revenues, Malaysia’s oil and gas industry generates one-fifth of the country’s economic output and has made immeasurable contributions to its socioeconomic development. Here, President and CEO Tan Sri Dato’ Shamsul Azhar Abbas talks about what has been achieved so far, and what the future holds.
Malaysia occupies a strategic geographical position on the Strait of Malacca. What is the potential for Malaysia to become the regional hub for oil and gas?
We have worked hard to ensure that the domestic oil and gas industry is buzzing with activity and excitement has returned, as there are a lot of growth and opportunities.
So the ambition for Malaysia to be an oil and gas hub is not empty and blind. In fact, it is only natural that we expand our value chain further to include oil and gas services as well.
Given the proximity to oil fields and a cost-competitive skilled workforce in this industry, as well as the ready infrastructure available, there is a strong foundation for us to cater and service oil and gas activities in this region.
The idea is for Malaysia to be the operation centre that is the regional champion. In doing so, we attract top oil and gas service companies such as GE and Aker Solutions to partner with local companies and set up their service centres in Malaysia to cater for
the region.
At the same time, establishing a hub would also build local capabilities. Once they develop the necessary skills, expertise and experience, they can then expand to offer their services internationally.
Could you please describe the evolution of the sector in the past decade? And what is the prospective growth for the next years?
Petronas was established to bear the heavy responsibility to safeguard and develop the country’s hydrocarbon resources.
For the past few decades, the industry, which is mainly driven by Petronas, has been consistently contributing an average of 40 per cent of the country’s GDP.
Not only has Petronas carried out its responsibility within the industry well, but also we can safely say that we are the largest contributor to the socio-economic development of the nation.
Other than the revenue we contribute to the government, we have also been the sole contributor to the National Trust Fund (NTF), which was established in 1988, and is managed by the Central Bank of Malaysia. The NTF is vital as it sets aside funds to be used for the development of future generations. To this year, Petronas has contributed £1.46 billion into the fund.
But, we must remember that these hydrocarbon resources are finite in nature. I sound like a broken record when I say this – for Malaysia – the days of easy oil are over. Most Malaysian fields are already mature and the notion of ‘abundant untapped reserves’ is a concept of the past.
This is not an unexpected scenario for us; we have anticipated this inevitable decline and as you can see, we have undertaken measures to deal with it.
| ”We are the sole Malaysian company to be listed in the Global Fortune 500 and we ensure that our governance and business conduct are at global standards” |
Together with our PSCs (production sharing contracts) like Shell and ExxonMobil, we also embarked on EOR (enhanced oil recovery) activities to ensure that existing fields continue to produce for longer. We also focus on new play types like deep-water and HPHT (high pressure, high temperature).
Additionally we have introduced the RCSs (risk sharing contracts) to supplement the traditional PSCs, so that small marginal fields would also be deemed attractive to develop.
It is not easy to sustain the production level and these are parts of our effort to do so. I am extremely encouraged when my team continues to surprise me; not only that we have managed to tackle the decline, we have addressed the plateau head on and our production rose from 2.01 million barrels of oil equivalent (MMBoe) in 2012 to 2.13 MMBoe in 2013. That is an impressive 5.8 per cent growth. And what’s even better is that 2013 had already marked a 3 per cent increase from 2012.
We currently have 100 active PSCs and four active RSCs in Malaysia – three of which are already producing.
Oil and gas is one of the most competitive sectors worldwide. How would you describe the role of Petronas in setting a benchmark in terms of business practices in Malaysia?
Oil and gas is a global industry, and we have been ‘exposed’ since the 90s, since we made the decision to venture overseas. We are the sole Malaysian company to be listed in the Global Fortune 500 and we have continuously made every effort to ensure that our governance and business conduct are at global standards – because let’s face it, we operate in 36 countries with multinational human resources and we have to compete with the IOCs (international oil companies) of the world; we have no other choice than to be at par with them just to get onto a level playing field.
Our evolution over the past few years is in line with the economic transformation driven by increased efficiency and meritocracy. We no longer identify ourselves as an NOC (national oil company) but rather as an IOC (international oil company). We are now global and as such we go for the best in order to be competitive.
Speaking for the industry within Malaysia in particular, what we want is to elevate the local players to global standards too. It is heartening to see the local oil and gas service providers – the likes of SapuraKencana, Scomi, and Bumi Armada to name a few – to be independently venturing overseas after gaining experience and competition in domestic oil and gas. Because of natural depletion it is essential that other players are able to operate outside the domestic market.
How could technology and strategic partnerships be a game changer in the sector considering the increasing complexity of the operations?
One of the keys of Petronas’ success is based on our willingness to accept partnerships with foreign companies. To me, global exposure pushes people to think outside the box, and in turn this will drive costs down and pushes for projects to be delivered in a timely manner.
The development of marginal fields, for instance, is part of our strategy for the years to come.
However, we need to open up because we need foreign expertise in order to reach our goals and be efficient.
Therefore, in order to nurture our local talent and meet our requirements we invite foreign niche players with the necessary expertise and competency to send their proposals.
The only requirement they have to comply with is that there has to be a 30 per cent local participation. They also have, of course, the opportunity to identify who are going to be the local service providers that best match the kind of skills required.
How would like Petronas to be perceived globally?
I want Petronas to be a global partner of choice. We act as the custodian of strategic assets for Malaysia. We have never been a government agency, and we have high standards of corporate governance.
By the same token, integrity is essential to us, so much so that it is one of Petronas’ shared values (others being cohesiveness, loyalty and professionalism). And now thanks to the emphasis we put in place in terms of meritocracy and gaining exposure, we are globally recognised; we have reached that stage.
Malaysia is immediately associated with Petronas all around the world and I hope we continue to make the country proud with a strong brand name.
Over the past two decades or so, the name Petronas is even more established thanks to our sponsorship of Formula 1, as well as the distinctive twin towers of our headquarters, which has turned Kuala Lumpur’s skyline into one that is globally recognised.
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