KUALA LUMPUR: When Wan Zulkiflee Wan Ariffin took over as chief executive officer of state energy firm Petronas in April 2015, the price of a barrel of Brent crude oil had tumbled to around US$55, half the level of the previous year.
Over the following months prices fell further, forcing Wan Zul, as he is better known, to lop US$12 billion from costs and cut thousands of jobs for the first time at Petronas – a major contributor to Malaysia’s budget and one of the country’s biggest employers.
As he enters the final year of his three-year contract, he says Petronas is leaner and better placed to handle a volatile oil market, focusing on costs, high-margin businesses and possibly new growth streams such as renewables.
“The lower prices gave us an opportunity, a compelling reason to do many things differently,” Wan Zul, 57, told Reuters in an interview.
“We’ve got to change according to the times… I wouldn’t discount a different (product) portfolio moving forward, maybe look at renewables. We’ve got to adapt.”
He gave no details of what kind of renewable investments Petronas was looking at, but for now the focus – and much of the capex budget – is on the downstream business.
That means the Refinery and Petrochemical Integrated Development (Rapid) complex in the southern state of Johor, an ambitious US$27 billion project in an area strategically located between the Melaka Strait and the South China Sea, conduits for Middle East oil and gas bound for China, Japan and South Korea.
“Rapid will provide us a bigger downstream portfolio. So it will be more balanced,” Wan Zul said.
“Downstream gives us the bottom-line contribution. It gives us a natural hedge.”
Rapid contains a 300,000 barrel-per-day oil refinery and a petrochemical complex that will be able to produce 7.7 million metric tonnes a year. Earlier this year, Saudi Aramco agreed to buy a US$7 billion stake in it.
While the project has had some delays as lower oil prices kept investors away, Wan Zul said the refinery is on track for start-up in 2019, with petrochemical operations to follow six to 12 months afterwards.
The downstream focus comes as analysts predict Petronas will produce less oil in future. Malaysia’s oil production has declined over the past decade and Petronas has scaled back its ‘ international plans.
“Petronas would be ok (until) the end of the decade, but afterwards (oil) production is set to decline,” said Maxim Petrov, senior analyst at Wood Mackenzie.
“That’s what we identify as the biggest gap in their portfolio, oil. They are very gas focused.”
Petronas recently won three oil and gas blocks in Mexico, and is studying oilfields in Iran.
Wan Zul, who joined Petronas in 1983 as a process engineer, and worked his way up through the ranks to CEO – a prime ministerial appointment – including a three-year stint as head of the downstream business.
He would not be drawn on what he does next, and whether he might seek to stay on when his term ends in March.
“Time flies when you’re having fun,” he said.
It was probably less fun when he took over.
Besides cutting jobs and the capex budget, Wan Zul pruned back the dividends Petronas pays to its sole shareholder, the Malaysian government. This year’s expected payout of around RM13 billion (US$3.03 billion) will be around half what it paid in 2015.
“In a tough environment that would be the logical course of action he had to take,” said Subbu Bettadapura, senior director for energy and environment, Asia Pacific, at Frost and Sullivan, adding that with oil prices still below US$60 a barrel, Petronas and others still have to keep costs in check in order to be profitable.
“(They should) increase efficiency and control the capex (and) opex, then they should be in a good position,” he added, referring to capital and operating expenditure.
Wan Zul says a cost optimisation effort he launched – known as Project Cactus after that plant’s resilient nature – has already saved Petronas RM7 billion, on top of the capex cuts.
“Whether crude is at US$80 or US$40, every dollar counts. That’s the mindset I want the organisation to have,” he said.