Bloomberg News

Malaysia Opposition Seeks Petronas Policy Shift: Southeast Asia

December 23, 2012

Malaysia's Prime Minister Razak

Najib Razak, Malaysia's prime minister. Photographer: Goh Seng Chong/Bloomberg

Malaysian opposition leader Anwar Ibrahim, set to challenge Prime Minister Najib Razak in polls early next year, will press the state energy company to boost investments in overseas oilfields while easing local exploration.

Anwar would probably reduce the 30 billion ringgit ($9.8 billion) of dividend Petroliam Nasional Bhd. pays the government every year to free up funds for energy assets abroad, Rafizi Ramli, strategic director at Anwar’s People’s Justice Party, said in an interview. Petronas, as the company is known, paid C$5.2 billion ($5.2 billion) for Canadian shale-gas producer Progress Energy Resources Corp. this month.

“There’s a higher probability you’ll strike bigger reserves should those resources be deployed to discover oil blocks overseas,” Rafizi said in the Dec. 18 interview in Kuala Lumpur. “We’ll lose out in the long-term from opportunity lost, especially when the Chinese are particularly aggressive in acquiring blocks around the world.”

The opposition said a policy change may help Malaysia gain better returns from the record 300 billion ringgit Petronas plans to invest over five years to replenish the nation’s shrinking reserves. Since 2010, Southeast Asia’s second-largest oil and gas producer has offered global oil explorers tax breaks and production-sharing accords to cushion the risk of surveying offshore sites.

Explore, Acquire

“They should be both exploring marginal fields and buying blocks abroad,” IHS Consulting Managing Director Victor Shum said in a phone interview from Singapore. “It’s about which opportunities are likely to be more successful and cost- efficient. They need to explore the fields to find out.”

London-based Petrofac Ltd. (PFC), Canada’s Coastal Energy Co. and Australia’s Roc Oil Co. (ROC) are among companies that have agreed to help exploit these so-called marginal fields. Exploring the fields could potentially lead to additional oil revenue of more than 50 billion ringgit over the next 20 years, Najib said, when announcing incentives in November 2010.

“It’s very short-term,” said Rafizi, who used to work in the business planning unit of Petronas, which manages all the nation’s energy reserves. “It’s not just a question of finance, it’s about the time and manpower resources. The potential for huge discovery is actually quite limited.”

Petronas spokesman Azman Ibrahim declined to comment when reached by phone on Dec. 21.

Push Boundaries

“It makes sense for the national oil company to be pushing the boundaries of exploration,” Andrew Harwood, an analyst at consulting group Wood Mackenzie Ltd. in Singapore, said in a phone interview. “It’s using its resources to go after the substantial plays, while leaving the small and understood areas to other companies.”

Najib, who must dissolve parliament for elections by April 28, is fighting to hold on to power after five decades of unbroken rule. His National Front coalition survived the last election four years ago by its narrowest margin since independence in 1957.

To fund the 300 billion ringgit investment, Kuala Lumpur- based Petronas, the biggest single contributor to state revenue, should switch to a dividend payout ratio of 30 percent of profit rather than pay the government 30 billion ringgit annually, irrespective of financial performance, Chief Executive Officer Shamsul Azhar Abbas said in September.

Dividend Peg

An Anwar administration would peg dividends to an unspecified percentage of profit, Rafizi said. A senate committee would probably be formed to boost transparency and oversee the state energy company, which reports directly to the prime minister.

“Petronas should be left to run purely on a commercial basis,” he said.

Malaysia extended the anticipated lifespan of its oil reserves by 1.5 percent to 5.95 billion barrels as of Jan. 1, enough to last 29 years, the finance ministry said Sept. 28. Although reserves grew 3.6 percent to 92.1 trillion cubic feet, underground gas holdings should last 37 years, two years less than previously forecast, the government said.

Anwar’s opposition coalition, which controls four of Malaysia’s 13 states, is debating whether it would continue with the current government’s plans to develop a $20 billion oil storage, refining and petrochemicals hub at Pengerang in Johor, bordering Singapore. Should it proceed, it would review the environmental impact and land compensation, Rafizi said.

Full Transparency

Royal Vopak NV (VPK), the world’s biggest chemical and oil storage company, agreed in September to partner with Malaysia’s Dialog Group Bhd. (DLG) to develop a 4.1 billion ringgit-liquefied natural gas terminal in the area. Other global investors at Pengerang include BASF SE (BAS), the world’s largest chemicals maker.

The Johor energy hub is a key initiative under an Economic Transformation Program announced by Najib two years ago to attain developed nation status by 2020 by boosting investment and moving up the value chain. An Anwar government would review and shrink the program, scrapping projects it considers unviable.

“We don’t know enough,” Rafizi said. “Concerns have to be addressed in full transparency. If everything is taken care of, we have no issues with Pengerang.”

To contact the reporter on this story: Barry Porter in Kuala Lumpur at bporter10@bloomberg.net

To contact the editor responsible for this story: Jason Rogers in Singapore at jrogers73@bloomberg.net


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