STATE oil company Petroliam Nasional Bhd (Petronas) will not intervene in the consolidation of the fragmented oil and gas industry.

“We will leave it to market forces. I think that should be the way. How they (oil and gas players) want to consolidate and how they want to react, we’ve got to leave it to the market forces,” Petronas president and group CEO Datuk Wan Zulkiflee Wan Ariffin tells The Edge in an exclusive interview.

However, he is quick to add that Petronas — for the first time in its history — is sharing its five-year work programme.

“What we are telling the industry is that on the work front, it will not be the same as five or six years ago. The work will be a lot less and we want the industry to be ready for this,” says Wan Zul.

“It is up to them how they want to react to the realities. I believe it is important that this information is being shared so that the services industry will be prepared for this,” he adds.

In January, UMW Oil & Gas Corp Bhd (UMWOG) and Ekuiti Nasional Bhd (Ekuinas) started the ball rolling, consolidating their oil and gas businesses under the UMWOG banner.

Despite attempts by many parties to take credit for the deal, most view the initiative as one led by government agencies. UMWOG is a unit of UMW Holdings Bhd, which is, in turn, controlled by Permodalan Nasional Bhd (PNB). Meanwhile, Ekuinas is also a government fund.

Ekuinas will divest its 42.3% stake in Icon Offshore Bhd to UMWOG at 50 sen per share for new UMWOG shares at 80 sen apiece. Ekuinas will have a 12.6% stake in UMWOG while PNB will have 40%.

Apart from the stake in Icon, UMWOG is also acquiring Ekuinas’ 95.5% equity interest in Orkim Sdn Bhd for RM472.7 million cash.

The merged entity will have seven jack-up rigs, five hydraulic workover units, one semi-submersible rig, 37 offshore support vessels, 14 clean petroleum product marine transport vessels and two liquefied petroleum gas transport vessels. To put things in perspective, Icon has the largest fleet of offshore support vessels while Orkim controls the largest number of marine transport vessels in the country.

When asked if any of Petronas’ subsidiaries, namely MISC Bhd or Malaysia Marine and Heavy Engineering Holdings Bhd, would be taking the lead to consolidate the industry, Wan Zul reiterates that market forces will determine it.

“These are listed companies, so I have to be careful what I say, but the fact is, it’s how they survive. We will leave it to market forces,” he adds.

In November 2015, there was talk that MISC would inject assets into Bumi Armada Bhd and take control of the company. When initially queried, both MISC and Bumi Armada gave standard replies on Nov 9, saying that they were continuously exploring and assessing opportunities and growth prospects to increase shareholder value and the like.

However, MISC, in another announcement to the local bourse on Nov 11, said, “MISC wishes to state that the company is not in any discussions with Bumi Armada on any potential transaction.”

Since then, there have been rumours of talks between the two but nothing has materialised.

Petronas’ capital expenditure this year is pegged at RM60 billion, which will be divided almost equally between upstream and downstream segments.

“The basic plan is, we are going to load Malaysian companies [with] as much as we can, knowing that the work will be a lot less. And not all Malaysian companies will be loaded. The capable ones, the competitive ones … reality bites.

“You can see over the past two years what we’ve been doing … we’ve been doing without saying anything out loud,” says Wan Zul.

This should come as good news for local players as many were still unclear about Petronas’ stand on awarding jobs.

In the past, Petronas had come under fire for awarding large-scale contracts to foreigners. For example, Hyundai Heavy Industries pipped local companies in securing the US$1 billion central processing platform (CPP) and associated infrastructure for the Baram Delta Gas Gathering Project 2 (Bardegg-2) and Baronia field development in 2015. It also won a contract worth over US$1 billion for the Bergading CPP in the North Malay basin in 2014.

Back then, Petronas president and CEO Tan Sri Shamsul Azhar Abbas had wanted local players to improve and match foreign companies in terms of capability and pricing.

Wan Zul explains, “We went out to non-Malaysian companies in the past when we felt that Malaysian companies’ costing was out of whack. That was the driver where we went out just to have a reality check.”

When asked how bad the disparity was between the Malaysian companies and the South Koreans, Wan Zul dismissed the question, saying, “It’s history, [why talk about it now?]”

On whether Malaysian companies’ cost structure has come down to more acceptable levels, he says, “It’s difficult to say anything as there’s a wide range [of businesses] in oil and gas.”

He adds that the company’s vendor development programme is ongoing and there is no change in terms of the bumiputera agenda.

“I don’t think there will be much change. I think we are still aligned to the government’s agenda … in terms of shaping them (oil and gas entrepreneurs), in terms of true bumiputera entrepreneurs who will take risks and invest, and develop capability.

“The work is limited, [but] in terms of the overall agenda, nothing has changed.”

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