Malaysia’s oil giant Petronas looks abroad to help cut production costs

[KUALA LUMPUR] Petroliam Nasional (Petronas), Malaysia’s state-owned oil and gas company, is looking to expand output from more affordable assets abroad in an effort to cut production costs and rein in declining profits.

Petronas, as the company is known, is seeking to produce oil at a break-even level of US$50 per barrel, from US$60 to US$70 in the past five years, said Mohd Jukris Abdul Wahab, the chief executive officer of Petronas’ upstream business, which includes exploring, developing and extracting oil and gas.

The firm will focus more on countries where it already has a presence, including Canada, Suriname, Brazil, Turkmenistan and several South-east Asian nations. Still, Petronas does not rule out going into a new country if it provided “headroom for us to grow,” he said.

“We want to reshape the entire portfolio,” Jukris said in an interview on Jun 13 on the 79th floor of the steel-clad Petronas Twin Towers in Kuala Lumpur. “We are preparing ourselves, moving into a more volatile environment in the future.”

Petronas is shifting its strategy as a drop in crude prices from a recent peak in 2022 slashed profits and forced the company to lower dividends. The state-owned company said earlier this month that it will cut about 10 per cent of its workforce to reduce costs. While crude prices recovered some of the lost ground on Friday (Jun 13) after Israel’s air strikes on Iran fuelled concerns of a wider conflict in the Middle East, the supply-demand outlook for oil points to more pressure in the longer term.

“Any capital deployment for our international asset has got to provide a healthy return,” Jukris said. “We are dealing with a lot more risk in some of the geographies that we are present.”

Petronas’ woes pose a challenge for Malaysia’s government, which relies on the company for billions of US dollars in income. The national oil company has pledged RM32 billion (S$9.7 billion) in dividends this year, down from RM50 billion in 2022. The firm said in September that over the 50 years since its inception in 1974, it had injected RM1.4 trillion into the nation’s economy through dividends, taxes and cash payments.

The company plans to increase the net present value of its international upstream contributions to about 60 per cent within the next five to 10 years, from about 40 to 50 per cent now, said Jukris, who started his career at the firm in 1990.

Petronas produces the equivalent of about two million barrels of oil per day in Malaysia and around 700,000 barrels abroad, Jukris said. To maintain this level of production in the face of declining output from older assets the company needs to bring in new fields, he said.

Even as Petronas looks for new assets abroad, Jukris is optimistic that Malaysia’s reserves will last for “years to come”, because investors keep making new discoveries.

He said there is still untapped potential in the country, including off the coast of Peninsular Malaysia where international oil companies have shown interest to explore.

“For the last 10, 15 years, we have been saying that our reserves will last only 15 years,” Jukris said. “So today, we will also last another 15, 20 years.” BLOOMBERG