PETRONAS into the big league – a reminisce

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PETRONAS into the big league – a reminisce

IT is readily acknowledged that the Malaysian state oil company Petroliam Nasional Berhad or better known by its acronym PETRONAS has succeeded in ca

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IT is readily acknowledged that the Malaysian state oil company Petroliam Nasional Berhad or better known by its acronym PETRONAS has succeeded in carving out a significant place on the international oil and gas scene for itself as one of the oil companies with a global influence in the industry. At one time, PETRONAS has even been described as the role model others would like to follow.

PETRONAS was even placed in the list of ‘the new Seven Sisters’, by the Financial Times in 2007, signifying the drastic change in the ranking of the biggest oil companies in the world where the members of the sisterhood of the original cartel of mainly Anglo-Saxon companies which controlled the Middle East’s oil, especially Iran, after the Second World War, were displaced from their throne.

The other companies which made it to the new listing of “the Pleiades Sisters” were Saudi Aramco, Russia’s Gazprom, CNPC of China, NIOC of Iran, Venezuela’s PDVSA, and Brazil’s Petrobras — all companies from emerging economies in the world. Testimony to a geopolitical tectonic shift following the seismic wave of natural resources nationalism that swept the world in the 1960s-1970s.

Not many however know the early stories and background of the Malaysian NOC’s meteoric rise onto the global stage. An impressive outward journey never staged before by a Malaysian corporation but one which did not start with a big bang as in a birth of a constellation.

Having started as a mere industry regulator and a tax collector for the oil industry in Malaysia on its establishment in 1974, PETRONAS learnt fast and quickly adapted to the demands and intricacies of the industry. They understood the essence of the operations and the need to lay a strong foundation of knowledge and experience in the industry, as the launch pad for the next move. Led by men of vision and manned by motivated and empowered cadre of men and women, it was a matter of time before success will emerge as the deserving reward.

Within just over a decade of its establishment, the “can do spirit” that permeated the young organisation bubbled to the surface when PETRONAS boldly made it known to the world in the late 1980s of its intention to internationalise its operations. The announcement of her ambition “to go global” raised more than a few eyebrows.

Sceptics and doomsayers had a field day and never gave PETRONAS a chance or even half a chance. It didn’t remove their doubts, and maybe their misgivings were even strengthened, after the PETRONAS’ first foray into the overseas market was seen as a failure. I should know, because I was part of the 1990 deal to undertake the maiden exploration works in Myanmar, the starting point of numerous deals done over the years.

That venture into Myanmar was the first foray into international exploration arena taken by PETRONAS. I was the one tasked to come up with that first ever farm-in agreement to be entered into by PETRONAS. This first deal came in the form of a “farm-in” arrangement entered into with the Japanese company Idemitsu Oil Ltd, which had earlier secured the concession. The venture covered a concession area of 12,384-square kilometres and was known as ‘onshore Block D’, located some 150 kilometres west of Mandalay. It should be noted that, contrary to popular belief, between offshore and onshore operations, it can be even more difficult to operate onshore. In Myanmar, that was especially the case, since the countryside was dotted with temples and other sensitive cultural artifacts which needed to be protected against unintended interference and possible damage due to the exploration activities.

For the uninitiated, the term ‘farm-in” is an industry terminology to signify an arrangement whereby a company (in this case, Idemitsu) legally assigns, or ‘farms-out’ some of its participating interests or ‘equity’ in an oil and gas concession to another company (in this case Petronas Carigali Myanmar Ltd) based on some negotiated, mutually agreed terms. Typically, the terms include the ‘carrying’ of or paying for, all the forward going costs by the party who is farming in, for the next well or wells to be drilled or paying the costs of the acquisition of some new seismic lines or the processing of some existing ones, as the case may be. The total monetary value of the commitment is usually stated in the farm-in agreement as a ‘minimum financial commitment’ obligation.

As it turned out, the wells drilled in the Myanmar Block D turned out to be dry, meaning there were no oil or gas resources discovered. Three years later, Petronas made the decision to relinquish its interest in the venture after further tests failed to yield any positive results. But by then, PETRONAS has moved on to Vietnam, the next country of focus.

From a commercial perspective, it looks like that first venture in Myanmar was a failure. After all, the objective of drilling a well is to make a discovery. But such is the nature of oil exploration. Sometimes you strike oil and sometimes you come up dry. The success rate varies from country to country or even between different geological areas or provinces in the same country. At one time, the success rate in Malaysia was one in ten, meaning if one were to drill ten exploration wells, there is a good chance that one of them will be a strike. Just that one discovery could pay for all the costs sunk to date, plus more.

However, from a technical and operations perspective, that first Myanmar well was seen as a success, being drilled without any technical problems and within the anticipated budget. In addition, it was an onshore well, compared to the offshore ones in Malaysia which PETRONAS was more familiar with. It was just that the oil and gas deposits were ‘not discovered’ in this particular well as was first thought or interpreted, based on the seismic data available to the geologists.

That project however provided invaluable experience on operations in a foreign country and useful insights in how to manage oil and gas operations in frontier regions away from the comfort and certainty of home. Such experiences proved to be useful in the years ahead as PETRONAS expanded to other parts of the world to places such as Africa, Middle East, Central Asia and South America. The money spent was useful ‘tuition fees’ to acquire valuable knowledge and experience.

In parallel to Myanmar, PETRONAS also extended its overseas exploration activities to Vietnam starting in 1990. After persistent efforts, with more than 50 trips made between Kuala Lumpur via Bangkok to Hanoi and back the same way, the Production Sharing Contract for Blocks 01 & 02, offshore South Vietnam was signed with Petrovietnam on September 9, 1991. I should know because I was one of the nine people in the PETRONAS delegation for the signing ceremony of the PSC in Hanoi that September day. Again, I was in my role as project lawyer in this case. And the team quartermaster as well.

I vividly recall at breakfast time that day, on the morning of the signing ceremony, where I pointed out the coincidence of the date (9/9/91) with the number of people (9) in the delegation. We joked about it being a good sign for the venture saying we would certainly ‘strike oil’ this time around. Sure enough, after an anxious length of period that it took for the drilling of two dry wells in the Blocks, PETRONAS struck paydirt on the third well with the discovery of the prolific Ruby Field, offshore Vietnam. The rest, as they say is history.

The 26-year PSC for blocks 01 and 02 in Vietnam was PETRONAS’ first successful international venture. Following the natural expiry of the PSC, on September 9, 2017, PETRONAS’ subsidiary Petronas Carigali Vietnam Limited (PCVL) ceased its operations in the PSC as stipulated by the contract terms and successfully handed over Blocks 01 and 02, located at the Cuu Long basin, offshore Vietnam, to the host authority.

In his message following the handing over of the Concession back to Petrovietnam, the then PETRONAS President and Group Chief Executive Officer, Datuk Wan Zulkiflee Wan Ariffin said the following:

“We have come a long way since our entry into Vietnam in 1991, which was an important first step at the beginning of our globalisation journey. As a pioneer investor in the oil and gas industry of Vietnam, we are proud to have been given the opportunity by the host government to play a significant role in the development of the country’s oil and gas and petrochemical industries.”

Actually, Vietnam was technically the second step after Myanmar in the globalisation of PETRONAS’ operations, but it was the first overseas venture where PETRONAS became the operator of the venture. The first step was rather tentative but the second and subsequent ones were certainly more confident and certain.

I remember asking the PETRONAS Chairman, the late Tun Azizan at a big townhall event in Bangi, the question: “How serious are we, Sir, in this ambition to go global? In this journey, we are bound to see failures before the first success.” I was trying to gauge the level of commitment of the top most level in the organisation. His reply was loud and clear, and heard by all the staff who were in that big gathering that day: “We have no choice! We have to go out there into the world if we are to grow.” He elaborated that to provide continued employment for the thousands that have been hired, failure was not an option. Going international was an imperative. To me, that was a strong message of commitment and sense of confidence. That was the fire that kept everyone going over the years and was very well captured in the book “Vision Realised” written by none other but the man with the vision himself. The man who headed our delegation for the signing of the Production Sharing Contract for Blocks 01 and 02, Offshore South Vietnam in 1991.

NOTE: The writer joined PETRONAS as a trainee legal officer in 1982, fresh out of law school which coincidentally was under a scholarship sponsored the company. He served the corporation for 31 years in various roles before being headhunted by Gazprom, the largest gas company in the world, to head their Asia-Pacific regional office in Singapore in 2013. By the time he left the organisation in 2013, PETRONAS was already in more than 30 countries all over the world.

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