Fighting Off Trouble at Home, Petronas Tries to Beef Up Oil & Gas Production

Fighting Off Trouble at Home, Petronas Tries to Beef Up Oil & Gas Production

By Tim Daiss

Malaysia’s oil and gas major Petronas has seen better days. The state-owned company is vested with the entire oil and gas resources in the country as well as its exploration and production (E&P) and is subject only to the prime minister who controls appointments to the company’s board.

Until recently, Fortune listed Petrtonas as one of the largest and most profitable companies in the world and the most profitable in Asia. However the company’s size hasn’t help it ward off recent problems.

Net profit decline

Petronas’ net profit after tax for the year ending December 31, 2012 declined 14 percent from 68.7 billion ringget (MYR) ($22.2 billion) in 2011 to MYR 59.1 billion ($19.1 billion). Revenue rose slightly to MYR 291 billion in 2012 from MYR 288.5 billion in 2011. Profits dipped due to oil production stoppages in Sudan and impairment charges taken on the company’s oil and gas assets in Egypt.

However, the real blood bath for Petronas came in the fourth quarter of last year. For Q4 ending December 2012, profit after tax declined 45 percent year on year to MYR 8.7 billion from MYR 15.8 billion for the same period a year earlier. Fourth quarter net profit dropped because of lower crude oil production. Q4 revenue fell 1.6 percent to MYR 76.77 from MYR 78.05 billion for the same period last year.

Petronas President and CEO, Tan Sri Shamsul Azhar Abbas, said last month that in terms of profit 2013 will not be much different than 2012. He said that the energy industry is suffering from “demand destruction” and that the average crude oil price is likely to fall.

Since Abbas’ statement, the price of crude has mostly plunged, confirming his predictions. On April 16 Brent crude oil futures fell below $100 a barrel for the first time in nine months as data from China and the US indicated weak growth in global oil demand. Brent crude, a global benchmark, has dropped 7.2 percent this year, according to an April 13 Barron’s report.

Many analysts believe that oil prices will continue to be weak throughout the second quarter of the year. Earlier this month the Organization of Petroleum Exporting Countries (OPEC), the International Energy Agency (IEA), and the US Energy Information Agency (EIA) all reduced their forecast for 2013 global oil demand.

Domestic problems

Another problem for Petronas is domestic and comes from Sabah; one of 13 Malaysian states. It is located on the northern portion of Borneo Island. It is the second largest state in the country after Sarawak.

On Tuesday April 16, the Borneo Post reported that oil and gas operators in Sabah want Abbas to resign. They accuse the Petronas president of failing to effectively manage the national oil conglomerate in addition to failing to give Sabah a fair return from the natural resources extracted from its waters.

Though Malaysia was the world’s largest LNG exporter in 2010 after Qatar and Indonesia according to EIA data, Petronas has its hands full trying to beef up the country’s oil and gas production.

But the problem for Malaysia, like many developing Southeast Asian countries, is mostly one of domestic gas consumption. Though gross natural gas production has been rising steadily, reaching 2.7 trillion cubic feet (Tcf) in 2010, domestic natural gas consumption has also increased steadily, reaching 1.1 Tcf in 2010, 42 percent of production.

To help ward off any impending gas supply problems; Petronas is planning to invest approximately MYR 15 billion in Sarawak state over the next five years to increase LNG, said Zakaria Kasah, managing director and CEO of Malaysia LNG Group of Companies (MLNG). MLNG is a Petronas subsidiary.

According to Kasah part of the investment includes the Train 9 project, a new LNG processing plant with a capacity of 3.6 million tons per annum (MTPA). He said that the new processing train would be able to increase Petronas’ LNG Complex (PLC) production capacity to 29.3 MTPA by 2016 from 25.7 MTPA currently.

Petronas will also get help from the Malaysia-Thailand Joint Development Area (JDA), located in the lower part of the Gulf of Thailand, which holds around 9.5 Tcf of proven and probable natural gas reserves, and is one of the most active areas for natural gas exploration and production for Malaysia.

The Sudanese factor

While Petronas’ gas production is holding it own for now, its oil production took a major hit last year when South Sudan stopped oil production due to political fall out with Sudan, resulting in a loss of net profits for Petronas.

However, when news broke last month that South Sudan and Sudan forged a deal to allow South Sudanese oil to flow again through Sudan’s pipes, Malaysian media hailed it as a breakthrough, quoting Moody’s Investor Service which said that Petronas would be the biggest beneficiary in terms of boosting oil production following the resumption of oil exports in Sudan.

Though the agreement is being hailed as a significant breakthrough (Sudan’s oil ministry said on April 14 that the first crude from South Sudan reached its territory) many experts, citing a history of failed agreements between the two Sudans, don’t think the deal will be honored for long.

Before the oil production shutdown, South Sudan produced 350,000 barrels a day (bbl/d), which provided 98 percent of the government’s revenue.

Petronas jointly owns a production facility in South Sudan, which accounted for 7 percent of the company’s total hydrocarbon production in 2011. The successful resumption of South Sudanese oil production could increase Petronas’ production by 120,000 barrels per day (bbl/d).

Hopefully for Petronas oil will keep flowing in Sudan for the foreseeable future. Yet the company is trying to also increase its domestic oil production as well.

In March, Abbas said that production had been “beefed up” domestically after recent major oil finds totaling 24 new discoveries, up from 19 in 2011. He said that production from these discoveries is expected to kick in from the fourth quarter of 2013.

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