New reality

WHAT happens when you are told that you won’t need to do as much as before. If you are an employee, it means less work. If you are a company, then the situation is a lot different.

When Petroliam Nasional Bhd told service providers that there will be big cuts in what they will need for the next few years, that message alone will be enough to cause a number of sleepless nights for bosses of those companies.

The reason is that Petronas is basically the end buyer of the services they provide. If Petronas says that it will require fewer barges and service vessels to ply the routes between the rigs they own and onshore, or the fact that not as many rigs will be needed in the next few years, then that will have serious repercussions on the industry in Malaysia.

One of the reasons for the muted demand for services by Petronas is that Malaysia is a signatory to the oil cuts that will see oil producing nations pull back on the reigns on exploration. Petronas says it will produce 100,000 barrels less to 1.7 million barrels of oil equivalent per day in the next five years.

It basically means that whatever oil production and exploration activity that will be conducted wil be to replace depletion that happens in the industry.

That will not be great news for the many service providers that rely on Petronas for their livelihood.

But it also sends a strong message and impetus to the thousands of service providers that things need to change. Petronas has been talking about consolidation among service providers for a long time but nothing substantial has taken place in the intervening years since the collapse in global crude oil prices.

The new reality is that oil and gas service providers need to merge and consolidate to survive in the future of the industry that has become apparent that the days of US$100 oil prices is going to be tales the current generation will tell their children.