KUALA LUMPUR: Acknowledging that the current global oil price doldrums could be prolonged, Petronas hasmapped out a six-point strategy to help the oil giant tide over the trying times and to stay profitable.
Outlining his game plan, Petronas president and group chief executive officer Datuk Wan Zulkiflee Wan Ariffin said it would weed out inefficiencies, manage costs, cut back some capital expenditure and seek more revenue.
In an exclusive interview with the New Straits Times, his first with the media since assuming his job on April 1, Wan Zul said his set of challenges were markedly different from his predecessors.
The low oil price environment comes at an unfortunate time when the country’s biggest company has committed to three huge oil and gas projects that are unprecedented in its 41-year history.
“What we anticipate is that this will be a prolonged environment of low oil price. It is not a sudden dip in a cycle or anything,”Wan Zul,the54-year-old chemical engineer by training, said in his office on the 81st floor of the Petronas Twin Towers.
“But for us also, this is the period where we commit to very big projects,” he said. “Never before in the history of Petronas have we undertaken this size of capital projects.”
The three projects are the RM60 billion Refinery and Petrochemical Integrated Development (RAPID) project in Pengerang, Johor; the US$1.9 billion (RM7.8 billion) (PFLNG1) and US$2.6 billion (PFLNG2) floating liquefied natural gas facilities and the US$36 billion Pacific NorthWest LNG project in Canada,whichis pending one more approval before it can proceed.
Wan Zul, a 32-year veteran of Petronas, said not unlike other oil and gas companies, Petronas would have to recalibrate its expectations in terms of returns it used to enjoy in the past when market prices were at record highs.
He said he would not attempt to predict when the industry would recover. “We are all afraid to use our crystal balls now. We really plan our budgets to be conservative.” “For Petronas, these few years are about cash management.
It so happens that when prices dropped, cash flows from our operations also dropped.” The drop in the financials was staggering. Petronas’ profit fell 43 per cent in the first half of this year from a year ago while cash flow from operations fell 30 per cent.
“Now the demand for capex is high and at the same time, prices dropped, so I think for us to remain profitable is something that we are really focused on. “I’m confident we can remain profitable during this cycle. Just that there are many measures that we have to take.
“This is a good window of opportunity for us to address all the inefficiencies that we have, with in the organisation and also the Malaysian oil and gas and industry.” Petronas will cut back some capex programmes, he said, adding that it has already cut 23 per cent in operating expenditure.
Wan Zul said his six-point strategy is as follows: Cash generation. “What I mean by cash generation is our plants must be running tip-top, running all the time, we must sell our products at the best value we can get, so it has to be all across the value chain.” Delivering on growth projects.
“These include RAPID, floating LNG, more projects in Sabah and hopefully very soon the project in Canada. We need to deliver these projects well, no cost overruns and on time and with good health and safety levels.” Striking down costs and simplification.
“We are reviewing some of the processes that hit across the group.” These include HR, procurement and planning processes. Investing in technology. Talent management.
“We are not cutting back on talent management spending but I just want to be sure that the money is well spent and we spend in areas that we really need to spend. We are looking at how we can do this better.” Improving work culture.
“We are teaching the group starting with the senior staff on ways to improve our working culture.”
Wan Zul said oil and gas projects that have already been sanctioned will goahead.But the company would also ask for rebidding for some of the packages in the RAPID project to reflect lower prices of raw materials.
He said the cutback in Petronas capex would have an impact on service providers.
“I think there has been retrenchment and downsizing within the service providers.”
“Today, if I look at the number of companies, I think the latest number is around 3,700 oil and gas service providers. But Norway has only about 700, which means many of our companies are small and the industry is very fragmented.
“We are encouraging consolidation. I know it is painful but I think this is the way to go since by doing so the industry will be more efficient once we get over this challenging period.
Wan Zul said Petronas, with a 51,000-strong workforce, has no immediate plans to lay off its staff. He said some have been redeployed to RAPID. He said Petronas would continue to hire new staff but at a slower pace.
“The hiring will continue but maybe at a slower pace. We still need to bring in new people. We have not come to a point where we have to rightsize.”