Petroliam Nasional Bhd (Petronas) - Q2 2013

Petroliam Nasional Bhd (Petronas) - Q2 2013

SWOT Analysis


  • Biggest domestic oil producer.

  • Unrivalled access to exploration acreage.

  • Operates national refining system.

  • Substantial share of fuels distribution segment.

  • Well-established partnerships with IOCs.


  • Limited financial or operational freedom.

  • Some cost and efficiency disadvantages.

  • Medium-term decline in crude production.

  • Rising investment requirement.


  • Considerable untapped gas export potential.

  • Rising domestic energy consumption.

  • Large areas of under-explored territory.


  • Long-term fall in domestic oil production.

  • Competition in regional LNG supply.

  • Changes in national energy policy.

Company Overview

State-owned Petronas not only dominates the Malaysian energy sector, but has become one of the most successful national oil companies in terms of geographical diversification. It has fully integrated oil and gas operations, beginning with the exploration for and development and production of crude oil and natural gas, both in Malaysia and overseas. It is a significant player in LNG processing, transport and sale, and has extensive gas pipeline interests. The Petronas refining and marketing arm is the key player in the domestic market, with diversification into petrochemicals.


Petronas has long been planning a major strategic review of its extensive asset portfolio and is expected to place greater emphasis on developing domestic oil and gas prospects. This could result in a reduction in international exploration and production (E&P) investment and a consequent downsizing of the global upstream portfolio. Malaysia would like to see a higher level of domestic E&P activity to boost energy self-sufficiency. Petronas may eventually limit its global presence to large stakes in key hydrocarbons plays.

Local fuels distributor Petronas Dagangan is to continue pursuing a growth strategy to increase its market share in petroleum products and improve profitability, while also investing in higher yielding businesses. Investment is going towards its fast-growing and profitable retail business to build and upgrade its service stations, while the remainder is for added investments in its commercial, LNG and lubricants businesses.

Shell and Petronas have signed two new PSCs for enhanced oil recovery (EOR) projects offshore Sarawak and Sabah, Malaysia. The companies are planning to jointly spend US$12bn over the next 30 years and are targeting a near 14% increase in recovery factors. The Sarawak project includes the Bokor, Bakau, Baram, Baronia, Betty, Fairley Baram, Siwa, Tukau and West Lutong oil fields in the Baram Delta. The North Sabah project involves the St Joseph, South Furious, SF30 and Barton fields.

Petronas will be the operator of the Baram Delta EOR PSC with a 60% stake, working alongside partner Shell with the remaining 40%. Meanwhile, Shell will be the operator of the North Sabah EOR PSC with a 50% stake, working alongside partner Petronas with the remaining 50%.

On March 5 2012, Petronas and Germany's BASF signed a heads of agreement for the development of the refinery and petrochemical integrated development complex in Pengerang. Petronas had been seeking an international partner for the project since it was first proposed on May 13 2011. Under the terms of the agreement, the two companies will form a new joint venture to develop, build and operate the plant. BASF will be the main stakeholder with a 60% interest, leaving Petronas with the remaining 40%. The integrated petrochemicals complex will include a 300,000b/d crude oil refinery, a naphtha cracker that will produce 3mn tpa of ethylene, C4 and C5 olefins, plus facilities for isononanol, highly reactive polyisobutylene, non-ionic surfactants, methanesulfonic acid, as well as a gas-fired power plant to supply the site.

In July 2012, Petronas agreed to buy Canadian natural gas producer Progress Energy Resources for CAD5.5bn, marking the latest foray into the North American energy patch by an Asian company. Petronas also said it plans to build an LNG export terminal in Prince Rupert, British Columbia, off Canada's western coast.

For Petronas, the deal represents its biggest foreign acquisition attempt so far, surpassing its US$2.5bn purchase in 2008 of 40% the Gladstone LNG project in Australia. The deal has received approval from the Canadian government, which rules on big foreign takeovers based on whether they will have a 'net benefit' for the country. The deal gives Petronas control over Progress Energy's fields in the Montney shale-gas basin in north-east British Columbia. Thought to be one of the richest shale-gas basins in North America, the basin also is one of the farthest from major markets, making it ideal for LNG.

Petronas and its PSC partners are aiming to increase their capital expenditures (capex) to US$59bn over the next five years, as part of an effort to increase E&P in the hope of raising output. Petronas' vice president, Datuk Wee Yiam Hin, said in October 2012 that 'capex has never been this high', adding that the company will bear 'about 70%' of this investment and 'the bulk of it will be for [E&P]'.

Petronas in December 2012 awarded a PSC for Block SB311 offshore Sabah to a partnership of ConocoPhillips, Sabah Gas, Shell Energy Asia and Petronas Carigali. The block, measuring 1,046 sq km, is located in the central part of the Sabah Basin in water depths ranging from 50 to 100 metres. The area is located within a proven hydrocarbon fairway with key discoveries such as Kebabangan, Kinarut, and Erb West. Under the terms of the PSC, ConocoPhillips will operate the block with a participating interest of 40%. Petronas Carigali and Shell Energy Asia will each own a 30% interest in the block. For the SB311 PSC, the partners are committed to drill two wildcat wells, acquire 400 line km of new 2D seismic data and re-process existing 3D seismic data on the block.

Market Position

Owned entirely by the Government of Malaysia, Petronas not only dominates the Malaysian energy sector, it has become one of the most successful national oil companies in terms of geographical diversification. It has fully integrated oil and gas operations, beginning with the exploration for and development and production of crude oil and natural gas, both in Malaysia and overseas. It is a significant player in LNG processing, transport and sale, and has extensive gas pipeline interests. The Petronas refining and marketing arm is the key player in the domestic market, with diversification into petrochemicals.

Petronas Carigali is the principal upstream unit and works alongside a number of international oil companies and independent oil companies through production sharing contracts (PSCs) to exploit Malaysia's not inconsiderable hydrocarbons resources. The unit is highly active internationally, taking operatorship positions as well as junior partner roles in key exploration provinces. Petronas' Petroleum Management Unit acts as resource owner and manager of Malaysia's domestic oil and gas assets, managing the effective exploitation of hydrocarbon resources.

The Petronas Gas & Power business aims to be a leading integrated gas, LNG and power player. The unit has been restructured and streamlined into two major portfolios, namely a Global LNG business and an Infrastructure, Utilities & Power division.

Currently, the LNG unit comprises the production and sale of LNG through domestic operations in Bintulu, Sarawak and overseas operations in Egypt. Petronas operates one of the world's largest LNG facilities in Bintulu, which consists of three plants, MLNG, LNG Dua and MLNG Tiga, with a combined capacity of 24mn tonnes per annum (tpa).

Petronas is also involved in LNG and energy trading activities through its marketing arms in Malaysia and Europe. The group commands a sizeable LNG market share in the Far East, having sold more than 7,000 cargoes since the establishment of its first LNG plant in 1983.

The group's Infrastructure, Utilities & Power business focuses on ensuring long-term security and sustainability of the gas market in Malaysia, while expanding its portfolio in other high growth markets. Through its majority-owned subsidiary, Petronas Gas Berhad (PGB), the croup operates the peninsular gas utilisation (PGU) system, comprising six processing plants and approximately 2,505km of pipelines to process and transmit gas to end-users in the power, industrial and commercial sectors in peninsular Malaysia. Petronas also exports gas for power generation to Singapore.

The PGU system is the basis for the development of Malaysia's offshore gas fields, the use of natural gas products for power generation and utilities, and the expansion of the country's petrochemical industry through the use of gas derivative products, such as ethane, propane, butane and condensates. PGB is also developing Malaysia's first LNG re-gasification terminal in Melaka, which was completed in June 2012. This will facilitate the import of LNG by Petronas and third parties.

Globally, Petronas has investments in pipeline operations in Argentina, Australia, Indonesia and Thailand, as well as gas storage and LNG re-gasification facilities in Europe.

In the downstream oil segment, Petronas attempts to add value to its upstream production activities through refining, marketing and trading activities, as well as in the production of petrochemicals. Petronas owns and operates three refineries in Malaysia, two in Melaka (collectively known as the Melaka Refinery Complex) and another in Kertih (the Kertih Refinery). The first plant in Melaka is 100% owned while the second facility is 53% owned by the group.

Petronas also has an oil refining presence in Africa through its 80% owned subsidiary, Engen Petroleum Limited (Engen), a leading South African refining and marketing company that owns and operates a refinery in Durban, South Africa.

Through Petronas Dagangan Berhad (PDB), a majority-owned subsidiary, the group markets a wide range of petroleum products, including gasoline, liquefied petroleum gas, jet fuel, kerosene, diesel, fuel oil, asphalt and lubricants. PDB also has interest in Malaysia's multi-product pipeline and the Klang Valley Distribution Terminal that transports gasoline, jet fuel and diesel oil from the refineries to major demand centres in the Klang Valley. Besides marketing activities, PDB also jointly operates a jet fuel storage facility and hydrant line system at the Kuala Lumpur International Airport.

Outside of Malaysia, Petronas is active in the fuels segment. PT Petronas Niaga Indonesia operates retail stations as well as markets petroleum products to industrial and commercial customers, and manages a network of local lubricant distributors in Indonesia. In Thailand similar activities are undertaken by Petronas Retail (Thailand) Co Ltd, which also supplies jet fuel to the Don Muang International Airport and the Suvarnabhumi International Airport, Bangkok. In China and India, the Group's lubricant products are sold through Petronas Marketing China Company and Petronas Marketing India, respectively.

In Africa, the Engen subsidiary has the largest retail network in South Africa as well as a strong retail presence in the sub-Saharan region in countries including Botswana, Burundi, Kenya, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Réunion, Swaziland, Tanzania, Zambia and Zimbabwe. Petronas Marketing Sudan Limited is engaged in the marketing and retailing of petroleum products and lubricants, as well as owning and operating retail stations. It also provides into-plane service at the Khartoum International Airport and El-Obeid International Airport.

Petronas first ventured into the production of basic petrochemical products in the mid-1980s and later embarked on several large scale petrochemical projects with multinational joint venture partners. These have included Dow Chemical, BASF, BP Chemicals, Idemitsu Petrochemical Co Ltd, Mitsubishi Corporation and Sasol Polymers International.

The parent group has now consolidated its petrochemical business under Petronas Chemicals Group Berhad (PCG). The leading integrated petrochemical producer in Malaysia and one of the largest in South East Asia, PCG is the listed holding entity for all of the group's petrochemical production, marketing and trading subsidiaries and has a total combined production capacity of over 11mn tonnes per annum (tpa).

In the second quarter of 2012, Petronas recorded a decline in revenue of MYR70.7bn compared with the corresponding quarter a year earlier. Profit for the quarter was MYR15.2bn compared with MYR21.7bn in the corresponding quarter a year earlier. Second quarter 2012 revenue declined on the back of lower prices of crude oil and other energy products. Revenue was also affected by lower volume sold for petroleum products, crude oil and condensates and LNG on the back of limited trading opportunities, upstream operational challenges and scheduled plant turnaround. Profit and EBITDA for the quarter decreased by MYR6.5bn and MYR6.6bn respectively as compared to the same quarter of 2011, which reflected lower revenue and lower margins.

Malaysia has started production from its Gumusut deepwater oilfield in Block J of the Sabah basins. Commercial production was delayed from its original start date in 2011 and will now reach full production of 135,000b/d by 2013-2014. The field is operated by Shell, with ConocoPhillips, state-owned Petronas and Murphy Oil each holding stakes. Output began at 10,000b/d in 2012 following several years of construction-related delays.

The Kuang North field, located in Block SK316 was drilled by Petronas in October 2012 via two exploration wells, Kuang North-1 and Kuang North-2. The Kuang North-2 well, which was drilled to a total depth of 3,223 metres, penetrated 636 metres of gas column. Preliminary assessments indicated that gas-in-place for the Kuang North field is about 2.3trn standard cubic feet of net hydrocarbon (65bcm). Other notable recent discoveries in Block SK316 are the Kasawari and NC8 gas fields.

Unlike other previous carbonate gas discoveries, the gas at Kuang North was found in the older carbonate section, opening up a new exploration play-type with substantial hydrocarbon potential in the older carbonate reservoirs offshore Sarawak.

Tukau Timur Deep-1 is the first completed high pressure high temperature (HPHT) well in Sarawak and is also the deepest vertical well to be drilled by Petronas. The well was drilled to a depth of 4,830 metres and discovered 12 gas bearing reservoirs with total net gas sand of 183 metres. Preliminary assessments indicate the total gas-in-place for Tukau Timur Field to be about 59bcm. Subsequent work will commence to estimate the range of recoverable resource volumes. Tukau Timur Deep-1 is located in Block SK307 which is operated by Petronas Carigali (50%) with Sarawak Shell Berhad (50%) as partner. The well was spudded in May 2012 and was completed in November 2012.

Financial Data


  • MYR241.2bn (2011)

  • MYR210.8bn (FY10)

  • MYR264.2bn (FY09)

  • MYR223.1bn (FY08)

  • MYR184.1bn (FY07)

Net profit

  • MYR54.8bn (2011)

  • MYR40.3bn (FY10)

  • MYR52.5bn (FY09)

  • MYR61.0bn (FY08)

  • MYR46.4bn(FY07)

Operational Data

Year established: 1974

  • No. of employees: 23,000

  • Proven reserves: 28.3bn boe (2011)

  • Oil/gas production: 2.14mn boe/d (2011)

  • Oil and Condensate production: 512,000b/d (FY11)

  • Gas production: 41.1bcm (FY10)

Company Details

  • Petroliam Nasional-Bhd (Petronas)

  • PetronasTower 1

    Petronas Twin Towers

    Kuala Lumpur City Centre

    Kuala Lumpur



    Tel: +60 (3) 2026 5000

  • Fax: +60 (3) 2026 5050



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