The Star Malaysia - StarBiz - - Focus - In­tan­zainul@thes­

STRIK­ING huge amounts of com­mer­cially vi­able oil has of­ten not meant au­to­matic riches for a coun­try. Many na­tions have fallen by the way­side to the re­source curse where the abun­dance of oil and gas (O&G) re­sources has never trans­lated into long-term eco­nomic pros­per­ity.

Malaysia’s han­dling of those pre­cious and fi­nite re­source has, how­ever, been an ex­am­ple of how to do things right as its in­dus­try has be­come one of the more prom­i­nent ones across the globe and has spawned a thriv­ing up­stream and down­stream business in­volv­ing hun­dreds of lo­cal com­pa­nies and cre­at­ing tens of thou­sands of jobs lo­cally.

But suc­cess for Malaysia was not overnight. Care­ful plan­ning from the on­set cou­pled with ef­fec­tive leg­is­la­ture has led to the ef­fi­cient man­age­ment of the coun­try’s O&G re­sources.

Per­haps one of the most sig­nif­i­cant mile­stones in the growth of the in­dus­try was the pass­ing of the Pe­tro­leum De­vel­op­ment Act of 1974 (PDA).

Prior to the PDA, oil ma­jors such as Shell and Exxon had the rights to ex­plore and ex­tract O&G in Malaysia un­der a con­ces­sion pro­gramme. In re­turn, the Malaysian Gov­ern­ment re­ceived roy­al­ties and tax pay­ments.

To en­sure the coun­try and its peo­ple ben­e­fit the most from these re­sources, the Gov­ern­ment re­alised that hav­ing a big­ger say in its O&G re­sources was the way for­ward.

Backed by the PDA, Petro­liam Na­sional Bhd (Petronas) was es­tab­lished to man­age all of Malaysia’s O&G re­sources and since then, the Gov­ern­ment and Petronas have worked to­gether to de­velop the coun­try’s O&G in­dus­try.

The suc­cess of its en­deav­ours has been ap­par­ent. Petronas is the only Malaysian For­tune 500 com­pany and one of the largest gas pro­duc­ers in the world.

Un­der the Act, Petronas is the re­spon­si­ble author­ity for li­cens­ing third-party con­trac­tors to par­tic­i­pate in the ex­plo­ration and pro­duc­tion of pe­tro­leum in the coun­try.

This has led to the birth of pro­duc­tion shar­ing con­tract (PSC), the for­mat Petronas has cho­sen to fol­low in the ex­plo­ration and pro­duc­tion of O&G with the oil ma­jors in­stead of award­ing con­ces­sions projects.

The PSC is a joint ven­ture be­tween Petronas and oil ma­jors, where both share the prof­its and costs in the ex­plo­ration and pro­duc­tion of O&G.

To date there are over 100 awarded con­tract ar­eas, op­er­ated by 26 op­er­a­tors such as Petronas Cari­gali, Shell, ExxonMo­bil, Mur­phy Oil and Rep­sol.

Sup­ply of ser­vices

It’s with the PSC that Petronas has been able to play a role in the coun­try’s (O&G) business and grow over the decades since its in­cor­po­ra­tion.

Monies re­ceived have al­lowed the na­tional oil com­pany to cre­ate off­shoots in the in­dus­try, spawn­ing lo­cal busi­nesses that have ben­e­fited from the mul­ti­plier ef­fect of Petronas’ cap­i­tal ex­pen­di­ture (capex) for the Malaysian O&G in­dus­try.

The na­tional com­pany also over­saw the li­cens­ing of ser­vices and equip­ment providers op­er­at­ing in the in­dus­try, from the ped­dling of nuts and bolts to the higher-end ser­vices such as fab­ri­ca­tion, char­ter­ing and en­gi­neer­ing.

To­wards this end, Petronas’ growth has been matched by the over­all O&G in­dus­try, hav­ing more than 4,000 reg­is­tered ser­vice providers com­pris­ing in­ter­na­tional oil com­pa­nies, in­de­pen­dents, ser­vices and man­u­fac­tur­ing com­pa­nies that sup­port the needs of the O&G value chain.

That num­ber is five times larger than that of Nor­way, which has only around 700 O&G ser­vices and equip­ment (OGSE) play­ers.

The de­vel­op­ment of the O&G value chain sup­ports the coun­try’s as­pi­ra­tion to be­come a re­gional O&G hub by 2020.

Un­til the eight­ies, Malaysia’s OGSE sec­tor ini­tially started out as agents or the mid­dle­man.

To de­velop na­tional cham­pi­ons, the gov­ern­ment and Petronas worked to­gether to fa­cil­i­tate the growth of the OGSE sec­tor.

Dur­ing the pe­riod be­tween 1987 and 1997, Malaysia en­joyed an­nual eco­nomic growth rates of around 8% to 9% and stun­ning broad­based eco­nomic de­vel­op­ment. It was a golden era for the econ­omy which was im­por­tant in es­cap­ing the re­sources curse.

To cap­i­talise on this eco­nomic boom, ef­forts were de­signed to cater to the grow­ing O&G in­dus­try but also to de­velop sec­tors such as man­u­fac­tur­ing, con­struc­tion, ser­vices and agri­cul­ture.

As growth broad­ened, Petronas’ role was fo­cused on the de­vel­op­ment of lo­cal play­ers, even to the ex­tent of sup­port­ing them over­seas.

The suc­cess Petronas achieved dur­ing the 1980s and 1990s al­lowed it to emerge as one of the largest gas pro­duc­ers and ex­porters of O&G.

To en­sure the coun­try’s fu­ture en­ergy sup­ply and cater to grow­ing do­mes­tic en­ergy de­mand, Petronas em­barked on in­ter­na­tional business ex­pan­sion in the 1990s.

That strat­egy has put Malaysian com­pa­nies in the in­ter­na­tional arena through the en­cour­age­ment of Petronas to have lo­cal OGSE com­pa­nies par­take in var­i­ous in­ter­na­tional ven­tures.

To­day, Malaysian OGSE com­pa­nies not only com­pete in the con­ven­tional up­stream O&G ac­tiv­i­ties, they have honed the ca­pa­bil­i­ties and ac­quired the nec­es­sary tech­nolo­gies to ven­ture into more com- plex and chal­leng­ing works such as deep wa­ter, high car­bon diox­ide, mar­ginal fields and en­hanced oil re­cov­ery (EOR).

The am­bi­tious pro­gramme to take on mar­ginal fields and EOR projects for ex­am­ple, will not only ex­tend the eco­nomic life and max­imise long-term value of the coun­try’s ma­tur­ing and smaller fields, it will also in­crease the com­pet­i­tive­ness of lo­cal O&G ser­vice providers by hon­ing niche ca­pa­bil­i­ties and tech­nolo­gies.

To de­velop mar­ginal oil fields, in­ter­na­tional play­ers were re­quired to work with lo­cal part­ners for the lat­ter to learn new and in­no­va­tive ap­proaches to eco­nom­i­cally and ef­fi­ciently ex­tract O&G from these fields.

Petronas has in­tro­duced the risk ser­vice con­tracts (RSC) for de­vel­op­ment of mar­ginal oil fields.

Petronas’ capex over the decade has re­sulted not only in en­rich­ing the com­pa­nies but also in cre­at­ing global com­pa­nies, such as Sa­pura En­ergy Bhd, Scomi Group Bhd and Uzma Group Bhd.

None­the­less, de­spite the de­lib­er­ate strat­egy to add value in lo­cal O&G in­dus­try, the main chal­lenges at that time was in­vest­ment, tech­nol­ogy and tal­ent.

To over­come those ob­sta­cles, Petronas in­tro­duced a slew of ini­tia­tives in­clud­ing cre­at­ing a size­able work scope that made projects more palat­able and af­ford­able, as well as an in­cu­ba­tion pro­gramme called Ven­dor De­vel­op­ment Pro­gramme (VDP).

The pro­gramme, which was in­tro­duced in 1993, was de­signed to boost lo­cal par­tic­i­pa­tion in the in­dus­try, es­pe­cially by the small and medium en­ter­prises (SMEs) to be­come more com­pet­i­tive and to en­cour­age the de­vel­op­ment of lo­cally man­u­fac­tured tech­nolo­gies.

The goals were to de­velop SMEs to be more com­pet­i­tive and progress from ba­sic jobs to com­plex ones and even­tu­ally grad­u­ate to un­der­take jobs in the open mar­ket lo­cally and re­gion­ally.

Un­der the pro­gramme, Petronas guided and set up re­quire­ments needed for the SMEs to skill-up their ca­pa­bil­i­ties to meet the in­dus­try re­quire­ments.

Since its in­cep­tion, 99 com­pa­nies have been ap­pointed as Petronas VDP ven­dors.


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