Malaysia’s Oil Giant Petronas Looks Abroad to Help Cut Production Costs
(Bloomberg) -- Petroliam Nasional Bhd., 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 $50 per barrel, from $60 to $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 Southeast Asian nations. Still, Petronas doesn’t 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 June 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% of its workforce to reduce costs. While crude prices recovered some of the lost ground on Friday after Israel’s air strikes on Iran fueled concerns of a wider conflict in the Middle East, the supply-demand outlook for oil points to more pressure longer term.
“Any capital deployment for our international asset has got to provide 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 dollars in income. The national oil company has pledged 32 billion ringgit ($7.5 billion) in dividends this year, down from 50 billion ringgit in 2022. The firm said in September that over the 50 years since its inception in 1974, it had injected 1.4 trillion ringgit 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% within the next five to 10 years, from about 40% to 50% now, said Jukris, who started his career at the firm in 1990.
Petronas produces the equivalent of about 2 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’ve been saying that our reserves will last only 15 years,” Jukris said. “So today, we will also last another 15, 20 years.”
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