How much more cost can Petronas cut?

TUMBLING oil prices in 2014 drove many out of a job and forced oil companies to work harder to lower cost to survive.

In that year, oil prices fell from over US$112 a barrel in June to US$58 a barrel by December.

The emergence of shale gas continues to be a threat to major oil companies and after years of furious expansion, the one thing many oil companies did not pay attention to is cost.

That all changed with the new reality of global crude oil and gas (O&G) prices, and the industry since then has worked religiously to cut cost to help their companies stay afloat.

Petroliam Nasional Bhd (Petronas) was not spared, and in 2015, it took bold steps to embark on the Coral 2.0 (cost reduction alliance 2.0) programme.

The aim was to inculcate a cost-conscious mindset across its business. Coral 2.0 is a five-year programme from 2015 until 2019 and is an extension of Coral 1.0 implemented from 1994 to 2005.

Its effort is now bearing fruit, in a windfall way.

For the first half of this year, cost savings reported by Petronas is RM1bil. The amount is similar to what it achieved for the same period in 2016.

All that was achieved through industry-wide cost optimisation, improved efficiencies and innovation in the O&G industry in Malaysia.

Of that, it managed to reduce controllable costs of RM600mil due to internal cost-management efforts. It defines controllable costs as recurring costs in running the business operation deemed controllable by the management.

Yesterday, Petronas said its internal transformation initiatives had yielded substantial results of over RM7bil cumulative cash improvements since 2015. This came from pushing the envelope and creatively looking at revenue generation, cost reduction, tax optimisation and working capital improvements.

In May this year, Petronas president and chief executive Datuk Wan Zulkiflee Wan Ariffin said, “We don’t think inefficiencies will creep back into the system when oil prices recover. We’ve tried to make it part and parcel of the Malaysian O&G industry, regardless of the oil price.”

Petronas has cut 2,300 jobs, mostly contract employees, since last year.

But one question remains: How much more can it do to bring cost down so that it remains competitive, as experts are saying that US$50 a barrel for oil is here to stay for a while?