‘We have to build an energy superstore'

The Star

a day ago

PETROLIAM Nasional Bhd (PETRONAS) has swiftly denied talk that its upstream arm in Canada will be sold, emphasising the importance of such an asset as the group navigates its journey as PETRONAS 2.0.
PETRONAS Energy Canada Ltd (PECL) is the operator and majority stakeholder (72%) in the North Montney Joint Venture (NMJV) project, one of Canada's largest shale gas plays – or what an industry expert describes as 'crown jewel'.
The 800,000-acre NMJV in British Columbia sits atop a massive 53 trillion cubic feet (Tcf) of natural gas reserves and contingent resources. That's more than 1.6 times Malaysia's entire proven gas reserves, which stood at 32 Tcf in 2023, according to the US Energy Information Administration – though reserves have been shrinking.
Its direct link to the US$40bil LNG Canada project, in which PETRONAS holds a 25% stake, makes NMJV even more valuable.
A 40-year export licence will allow the Kitimat facility to export its first cargo within 'weeks'.
PETRONAS CEO speaks
PETRONAS president Tan Sri Tengku Muhammad Taufik Tengku Aziz announced on Thursday that the company is undergoing a major transformation to become a more agile and commercially driven energy company, addressing challenges such as cost pressures, structural changes in global energy demand and geopolitical tensions.
'We are looking at a 10-year defining period for PETRONAS,' he says.
The internal restructuring, dubbed PETRONAS 2.0, aims to ensure the national oil company remains relevant in the long term.
'We need to operate differently and accept some harsh truths around productivity, our bloated structure and the lack of agility,' he adds.
While reaffirming the group's commitment to upstream and liquefied natural gas (LNG), Tengku Muhammad Taufik stresses that PETRONAS must become a fully integrated energy company.
'There is no longer just a need for molecules from hydrocarbons, but also for electrons. We are committed to delivering safe, reliable and sustainable solutions.'
Portfolio recalibration
Tengku Muhammad Taufik says portfolio 'correction' will be a constant feature as the group seeks to balance risk, return and capital outlay.
On Canada, he clarifies that PETRONAS is not exiting the market.
'We are constantly entertaining overtures and proposals. That is going to be the natural course of business and it is a very, very resource-endowed geography. It is clearly positioned,' he notes.
'We see it as crucial to our ambitions to preserve our position in market share in the LNG space.'
He adds that the group's central hypothesis is 'we want to build a gas position there'.
'If we are talking of proposals to take the position or take part of that, we will evaluate it.
'But exiting is not on our mind,' he confirms.
In March, PETRONAS sold its 50% stake in the La Amarga Chica shale oil block to Vista Energy for around US$1.5bil.
Tengku Muhammad Taufik says the decision was driven by mounting costs and tightening margins across the oil and gas sector.
'It is increasingly risky and ridiculously cost-intensive to be in oil and gas. When the fields were easier, our profit before tax margin was 35% to 40%.
'Today it's 25% to 30%. These margins are just going to keep shrinking. The fields are going to get smaller and smaller.
'So, PETRONAS 2.0 has to change this to an organisation that monetises molecules commercially and competitively. We will still have a very competitive upstream.
'This will still mean we want to preserve our leadership position in LNG. But over and above that, we have to build an energy superstore.'
Yet, Tengku Muhammad Taufik acknowledges that the energy giant company is simply 'not agile enough'.
'Over the long run, not only asset correction or business portfolio optimisation is going to be required, we've got to take a look at the workforce,' he says.
This means 10% – or more than 5,000 – employees will be laid off.
'We've got to start deleting positions because the work we carry out will no longer be relevant or value-adding as we move to PETRONAS 2.0,' he notes. Returning PETRONAS scholars will still have a job upon completing their studies.
Even if oil prices were at US$100 per barrel today, he says the company must change.
It is estimated that for every dollar drop in the price of Brent crude oil, PETRONAS' profit will fall by about RM1bil. Brent crude oil was US$63.68 per barrel at the time of writing.
The company has a RM32bil dividend target for financial year 2025 to the federal government based on an assumed oil price range of US$75 to US$80.
PETRONAS feels it can still afford this although it's a large chunk of profit.
Should crude oil hover around US$50 to US$60 a barrel, many players will fall off – especially those in shale and deepwater – as they struggle to break even.
And as competition for market share intensifies and prices head south, global growth forecasts may need to be revised downwards – particularly if the trade war drags on.
To adapt, PETRONAS is prioritising 'advantaged barrels' – low-cost, low-carbon, fast-monetising resources – as the foundation of its upstream strategy.
In this, the importance of a responsive domestic oil and gas services and equipment (OGSE) ecosystem is not to be understated. Just to maintain what PETRONAS produces, it will invest RM15bil to RM20bil per year.
Including other production sharing contractor, total upstream spending could reach RM60bil to RM70bil annually. The OGSE players will also need to adapt to oil companies which will seek out the best bang for the buck.
Tengku Muhammad Taufik says the joint declaration (JD) signed a couple of weeks ago between the federal government and Sarawak marks an encouraging step, spelling out how federal and state laws will co-exist under a proposed framework.
'The JD reflects that there is an acknowledgement by both state and federal that PETRONAS upholds its role under Petroleum Development Act 1974 (PDA 1974),' he says, adding that it also recognises PETRONAS' existing obligations in the LNG space – including upstream operations and third-party sales and purchase agreements.
'It acknowledges that PETRONAS has been accorded the right under PDA 1974 to carry out activities in the full chain of oil and gas undertakings,' he notes.
'And while there is now mention of Petros as an aggregator – not the sole aggregator – we will work together to support the aspirations of the state.'
Specifically, the JD outlines a target to deliver 1.2 billion cubic ft per day to the state and positions Sarawak as a potential energy hub for Asean.
'There is also language that prescribes that Petros and PETRONAS shall collaborate in these undertakings,' Tengku Muhammad Taufik adds.
The state has also agreed to exempt PETRONAS and its subsidiaries from licensing requirements. However, he points out that the next step is translating the JD principles into a workable framework.
He emphasises that PETRONAS will continue to promote Sarawak as a key investment destination.
'We will not shirk from this. In fact, if anything, we'll be drawing in more players.'
Tengku Muhammad Taufik also underlines the importance of preserving the LNG value chain, citing the location advantage of Bintulu and PETRONAS' long-standing record as a trusted supplier.
'It takes only about a week to ship to some of our core markets from Bintulu,' he says.
'We've served some customers since 1983... helped them through blackouts, through Fukushima, through energy crises, through Covid-19.'
He cautions that PETRONAS' reputation – decades in the making – must not be put at risk.
'While the reputation of a trusted partner takes decades to build, it'll take one bad deal to just unwind.'