Petronas continues to support the growth of the local energy sector, with the group highlighting that it works with Sabah and Sarawak to make its LNG a lot more sustainable.
SUSTAINABILITY has long been a key consideration for oil and gas companies, as adherence to health, safety and environmental regulations – as well as increasing contributions to the societies in which they operate – form the core of existing sustainability strategies.
This is why national oil and gas (O&G) operator Petroliam Nasional Bhd (Petronas) continues to support the growth of the local energy sector, with the group highlighting that it works with Sabah and Sarawak to make its liquefied natural gas (LNG) a lot more sustainable.
Datuk Tengku Muhammad Taufik
Petronas president and group chief executive officer (CEO) Datuk Tengku Muhammad Taufik in replying to a question from BizHive said that with regards to Sarawak, it has been well documented that the group is working far more closely with the state.
“We have very recently announced a heads of agreement (HOA) with an entity called Bintulu Prilled Urea Sdn Bhd (BPUSB) for supply of natural gas,” he said during a group interview with the media.
“Just to emphasise here, the work with Sarawak is not new. Even as of the first half of 2021, almost 600 Sarawakian companies are licensed with Petronas. We have also worked with them, even before the commercial settlement agreement (CSA), on the Sarawak Petchem venture.
“Our technical solutions team was collaborating with the state government to provide technical support for this. Even as the CFA was signed, we have a lot more undertaken in Sarawak.
“If you look at the Malaysia Bid Round, we had an issuance of invitations for foreign players to come into Malaysia upstream – usually for the PSC of the blocks, six blocks were offered within Sarawak waters.
“And I think insofar as the uptake, we have seen Petros being very active in this space. We are looking at them participating even more.”
In certain instances, Tengku Muhammad Taufik noted that Petronas Carigali is willing to do a carried interest arrangement where they are brought in with Carigali bearing the exploration burden.
“And with this, you will see that Petros will have a far more pronounced upstream presence,” he added.
“Already under the post-CSA, we had two PSCs, the MLNG PSC and the Kumang PSC where we have Petros in participation, but there’s new ones, SK437 coming through, and there are others already under contemplation.
“And Sarawak is not only just participating in upstream – it is also helping us in making our LNG a lot more sustainable and acceptable to those looking for lower emissions.”
Tengku Muhammad Taufik noted that stakeholders were getting more nervous about using fossil fuels in certain markets, and that Petronas “needS to make sure we get this out to the markets as fast as possible in a most efficient and emissions responsible way.”
In terms of commitment to work with both the state of Sarawak and Sabah, Tengku Muhammad said that Petronas has not waned from doing this.
“We realised where the molecules are, how value accretive developments are in Sabah and Sarawak.
“We want to continue and we are committed to continue working with the state and we welcome participation of state vehicles to enlarge and make the activities within the oil and gas space more vibrant.”
This was hot on the heels of a gas discovery from its Nangka-1 wildcat exploration well in Block SK417, located in the shallow waters of Baram province, about 180 kilometres off the coast of Sarawak
The Nangka-1 well was drilled to a total depth of 3,758 metres in September 2021.
The sweet gas was discovered in the Middle to Late Miocene Cycle VI clastic reservoirs, further validating the hydrocarbon potential in the surrounding areas.
PTTEP HK Offshore Ltd is the operator for Block SK417 with 80 per cent participating interest, while Petronas Carigali Sdn Bhd holds the remaining 20 per cent.
The block was awarded in March 2018 following the Malaysia Bid Round (MBR) 2017. In February this year, Petronas announced a new gas discovery in the Dokong-1 wildcat exploration well in the same block in Baram.
Petronas is also working with Sarawak Energy, which has provided 90 megawatts of power to electrify its LNG facilities in Bintulu.
Viable ventures with Sabah and Sarawak
PETRONAS is also working with Sarawak Energy Bhd (Sarawak Energy), which has provided the group 90 megawatts of power to electrify its LNG facilities in Bintulu.
Additionally, Petronas is tied up with Sarawak via its various agencies and vehicles to pursue green hydrogen production.
“Sarawak has abundant hydroelectricity, which makes green hydrogen a lot more viable,” he opined.
“That’s in early stages, of course, but all of these works are already being triggered.”
For Sabah, Petronas has about 230 companies, licensed and registered.
“We envisage that once the agreement in whatever form it is called, gets sanctioned by both federal government and Sabah government and when we enter into an agreement with the state of Sabah, we expect that it will have a similar vehicle or some sort of vehicle to participate more in oil and gas activities, potentially upstream.
“We will continue to support the growth of the energy sector, not least of all, you know that both of our floating LNG facilities are already deployed offshore Sabah, one is in the Kebabangan field and the other in the Rotan field.
“We will have potentially, subject to commercial evaluation and we already alerted the Cabinet Ministry of Sabah, that we will have another and this I have to clarify, some press reported this as another floating LNG – it is not.
“It’s called a near shore LNG facility, potentially an identified location is around Sipitang, Sipitang Oil and Gas Industrial Park, potentially up to two million tons per annum of LNG production, once completed, will be again housed in Sabah.
“It is to actually facilitate faster construction and we envisage being able to leverage on the existing infrastructure on Sipitang. The key uptake is that once we do this FEED, we need to move the FEED, the Front End Engineering and Design, we need to move very quickly, because as the challenge of energy transition emerges, there may be a runway for us to bring all the supply to market.”
Petronas is tied up with Sarawak via its various agencies and vehicles to pursue green hydrogen production.
3Q results: A qualifying quarter
TIMES are improving for the O&G mogul. Petronas registered a profit after tax of RM16.3 billion in the third quarter ended Sept 30, 2021 (Q3FY21) from a loss after tax of RM3.4 billion in the same period last year, in tandem with higher earnings before interest, taxes, depreciation, and amortisation (EBITDA) and lower net impairment losses on assets.
The national oil firm also recorded revenue of RM61.8 billion, an increase of 50 per cent from RM41.1 billion recorded in the corresponding quarter last year, mainly due to higher average realised prices for major products but was partially offset by lower sales volume mainly from crude oil and condensates.
“Petronas’ third quarter financial performance demonstrates our relentless focus on the group’s operational and commercial excellence.
“We continue to ensure the reliability of our operations to leverage the recovery in global energy demand with the safety of our people and assets as our highest priority,” said Tengku Muhammad Taufik in a statement accompanying the results release.
In the third quarter, Petronas’s cash flows from operating activities (CFFO) more than tripled to RM21.8 billion from RM6.3 billion, in line with higher cash operating profit and a positive working capital movement.
For the first nine months of the year, the group recorded a profit after tax of RM35.2 billion, more than a 100 per cent increase from the loss after tax of RM19.9 billion in the corresponding period last year, in tandem with higher EBITDA, coupled with lower net impairment losses on assets.
Revenue for the period increased 27 per cent to RM171.4 billion from RM134.7 billion in the corresponding period last year, mainly due to favourable average realised prices for major products, coupled with higher sales volume for liquefied natural gas (LNG) and sales of gas.
Its capital investments amounted to RM20.4 billion, mainly due to upstream projects.
The national oil company’s upstream operations recorded a total daily production average of 2.27 million barrels of oil equivalent (boe) per day for the first nine months of 2021, an increase from 2.19 million boe per day in the same period in 2020, mainly due to higher natural gas production contributed by higher demand for both Malaysia and international operations.
However, this was partially offset by lower crude oil production, said Petronas.
Moving forward, the group said the current trajectory of the oil and gas industry is expected to continue, given the modest recovery in demand underpinned by improvements in economic activities globally.
Petronas said it would remain steadfast in driving operational and commercial excellence to improve its liquidity and profitability, in pursuit of its growth strategy.
“As we look ahead, Petronas will continue to pursue its three-pronged growth strategy and net-zero carbon emissions by 2050 aspiration to contribute towards a responsible and just energy transition,” said Tengku Muhammad Taufik.
Petronas announced an additional RM7 billion dividend to the government, bringing a total contribution of RM25 billion for the financial year ending December 31, 2021.
Moving to divest, clean up portfolio
ON why Petronas is divesting and cleaning up part of its portfolio, Tengku Muhammad Taufik explained that he is continuing the practice that has always been within Petronas, with regards to portfolio management.
“From time to time you are looking at assets with prospect and outlook for returns,” he said.
“Now we have to add one more filter – can we deal with the emissions? Can we think about the runway to getting the cash?
“Now if some of the assets do not meet the board’s approved and set out targets, we have to make some hard decisions.
“We cannot keep everything and hope to be able to refresh into new investments and that’s part of a normal business conduct by any oil and gas player, let alone any energy players.”
“We have a three-pronged growth strategy, we want to maximise what’s core, typically that is upstream, mostly domestic, but some core upstream assets internationally.”
However, he noted that some assets will fall out, as these have not passed the test of generating returns and did not give the group the kind of payback period within a horizon that is accepted and applied by the board.
“So we have to make a call – and if there are interested parties who believe that they can create better value with those assets, and given the current market conditions, allows us to carry out transactions, we will carry out transactions, because that’s part of normal commercial operations.”
On that note, he stressed that they was never guided by any pressure to pay dividends.
“You will see that our cash flow, on the back of good prices and continued resilience of operations as well as commercial excellence, we have generated sufficient cash flow, no problems to contend with our working capital, no problems with servicing debt, clearly when we tested for dividends, it was well within our affordability parameters.
“Even before we contemplated any divestment decision, we were already healthy. So there is no issue (where this was a thing that was done under pressure by the government).”
Tengku Muhammad again emphasised that when Petronas deals with a request by the government, it goes through the rigor: a letter arrives requesting the board ask management to analyse, the board deliberates and carefully contends with its requirements under Companies Act, under its requirements under servicing of debts and under its requirements to make sure Petronas can pay for not only existing operational capex but also growth capex.
“And I think in this latest instance, I want to emphasise again, the additional ask happened after oil price outlook had improved in the second half of the year and continues to remain between US$75 to US$83.
“We are looking at a situation where indeed the analysis and projections applied shows that we have the capacity to pay the additional dividend so please don’t link divestment to any so called pressure for dividends.”
To recap in August, Bernama reported that the national oil and gas firm announced an additional RM7 billion dividend to the government, bringing a total contribution of RM25 billion for the financial year ending December 31, 2021. It previously approved RM18 billion for FY21.
Both of Petronas’ floating LNG facilities are already deployed offshore Sabah and one is in the Kebabangan field while the other is in the Rotan field.
Petronas aims to be progressive energy solutions partner
IN linne with its aim to be a progressive energy solutions partner, Petronass will see its refineries moving more from crude to chemicals, rather than crude to petroleum products, as the world moves towards hydrogen.
In reply to the media’s question on which areas of renewable energy Petronas will be putting serious spending on next year, Tengku Muhammad Taufik stated that as a national oil company, the group look at core and growth areas.
He highlighted that there are core areas in line with Petronas’ three prong growth strategy where the group needs to make sure the cash gets churned, and that is still within its core activity of producing oil and gas.
“We look at core and growth areas. There are core areas in line with our three prong growth strategy where we need to make sure the cash gets churned and that is still within our core activity of producing oil and gas,” Tengku Muhammad said.
“Insofar as maintaining what we have seen, there’s a commitment by the management, gross production is about 2.3 million barrels of oil equivalent per day.
“We are trying to make sure that runway lasts at least a good five to 10 years, so that the cash gets generated, it will then be redirected, part of it will be used to preserve the runway for production.”
However, he noted that a significant proportion will need to be put into areas such as renewable energy.
“And I think if you look at the reality you are seeing in the market today in Europe and in Far East, where there has been underinvestment, that’s where the prices have gone crazy.
“We do need to make sure that the world responsibly shifts to energy transition.
“When we look at what potential new areas to prepare ourselves to fulfill our purpose, we want to become an energy and solutions partner, we are a progressive energy solutions partner, that’s our purpose.
Petronas has identified previously, solar, and with regards to the investment in India, through AmPlus, where the group has now, starting from 300 megawatts of capacity, is now approaching 900 megawatts.
It has already tripled the size in the space of two and a bit years, from 300 megawatts of capacity.
“We will look prospectively for other solar.”
He highlighted that one clear adjacency having been debated at the board is in fact hydrogen.
“Why hydrogen? A lot of the natural gas buyers are also transitioning towards hydrogen.
“Hydrogen can readily be made by Petronas but you know that there are many colours to hydrogen right now.
“Whether it is brown, gray, blue, green, we are able to step out into blue hydrogen very, very quickly. Green hydrogen is where it’s entirely powered by renewables.
“Now you can go to ways here, you can go and do this via electrolysis, where you split water and you get hydrogen.
“The other one is a process called methane reform where you deal with the natural gas and store the carbon somewhere else.
“Both pathways are very viable for Petronas. We have an ability to tap potentially, very cost-efficient electricity, this is why we are partnering with Sarawak.
“Also we have ready facilities that can convert into hydrogen being sent across to target markets as ammonia.
“All of this chemistry is known to Petronas which is why it’s a natural adjacency for Petronas to pursue.
“And I think with hydrogen, the world seems to have reached some sort of, well, the world of the oil and gas players seems to have reached some sort of consensus, this will be our evolution.”
Over and above that, Petronas has to also make sure that it is positioned to remove the commodity shocks, fuel, oil and gas, hydrocarbons, which are very exposed to commodity cycles, therefore, pursuing more of speciality chemicals.
“Speciality chemicals will include anything from coatings, we have even gone into butadiene and nitrile, the stuff that you use for gloves.
“I think you want to move away from just being exposed to commodity like urea or ethylene because the margins are better, the further downstream, but this will take a series of investments going forward.
“Eventually, you will see a lot of our refineries, and we have to prepare for this as the world moves to hydrogen and eventually EV, a lot of our refineries moving more from crude to chemicals, rather than crude to petroleum products.
“All of these, just to recount, we have to make sure that we are already in solar, foundations for hydrogen, speciality chemicals and I think over and above that, we are already embedding technology seeds into energy storage, we’re looking at that as well, along with maybe some advanced materials. Those three are the mainstays.
“As we do this, you will hear a term that I will probably be announcing more, it’s called CCS.
“In order to do this, when we produce our hydrocarbons, we have to deal with the carbon, therefore carbon capture and storage (CCS) will be part of our activities going forward.”