PETRONAS in the news- Part 3

I have delayed the posting of the 3rd part of the PETRONAS in the news because I wanted to see the drift of the comments. Overall, there is concern about how PETRONAS conducts its business. This is as it should be because PETRONAS is custodian of our national asset. We, the people collective own the government and through efforts of public spirited citizens, own PETRONAS.

Though it is set up by the government, it cannot do as it pleases with the money nor can it conduct its business recklessly or dubiously. It cannot be managed imperviously nor is it a black box operations. Our laws and constitution are there precisely to rein in the government and by the same laws, those institutions deriving power from the government. That includes PETRONAS. So in answer to the petulant commentator who says, it's the government's money and so it can do what it pleases, I feel sorry. I don't know how to label you as you have a warped sense of whats a government. That's a scary thought too.

The other type of commentator, which I am happy to note appears to be a minority, is the one who views a criticism on PETRONAS as an attack of the Malay. So, because PETRONAS is Malay, it can be excused for doing what it does even if giving out money making scheme to kenchana and SapuraCrest. If I were to extend to the logic of this fellow, then whatever a Malay does, he can be excused. So if he rapes another, it's ok because he is Malay. If he steals money or hijacks a government project, it's ok because he is Malay. He is even more excusable if he is an important Malay. It's ok for Malay leaders to loot and plunder, to earn RM 500 million commission, to hijack a RM 17 billion river of life project, to push for a RM 46 billion MRT project because all those involved are Malays?

The view on the other side- that is on the people's side is this:- If he is Malay he should be hung upside down because he has violated an invisible covenant with his fellow Malays- which is to lead them to progress in an honorable way. If he is Malay, he must be made to suffer a thousand deaths because he has betrayed the cause.

What's happening to PETRONAS? The way PETRONAS is sidelining Carigali for instance reminds me as to how PASDEC (a wholly owned subsidiary of Pahang's PKNP) conducts its business. PASDEC which once owned a granite quarry DOES NOT buy the granite aggregates from its own quarry but instead buys from other quarry operators. A closer look at this anomaly reveals that the only reason for this strange practice, is that you can't milk from your own source but can do so from 3rd parties. You can do side deals with 3rd parties but can't do so within your own organization.

This sounds preposterous but you can't absolutely discount baser motives in this deal marginal field too.

Here are some pointed comments from one HabibRak.

1. Yes, Kencana and Sapura's role in this RSC is simply to cream off the top. A self-enriching scheme.

2. No, you can't get the same deal coz you are not in the loop.

3. Rightfully, Carigali should be entrusted to be the prime mover just like Esso, Shell, Nippon, Murphy, etc.

4. Carigali could easily benefit from the CIP concept to mitigate risk. CIP = Carried Interest Period

4. FYI, for upstream business, the tax rate is 38% (PITA 1967), there is export duty, research cess, royalty for state and federal.

5. Cost Oil has built-in concept for price movements. Higher crude price will mean, less barrels needed to recover cost.

6. Once cost current, the remaining will become Profit Oil

7. Our boys n girls in Esso, Shell, Murphy, etc can easily be top team members to make Carigali one of the leading oil n gas company in the world.

8. Unfortunately, the political will is not there to empower Carigali.

9. There is only political will for looting, plundering and crony contract dishing.

10. Had worked in an international Oil n Gas company for over 12years in Malaysia and I know this 1st hand.

So Carigali in effect becomes a stepson.

The other thing is, with an investment of this magnitude and the players chosen are plucked from a very restricted pool, behind the scene news are difficult to contain. We hear disturbing news that the whole outlay of US 800 million will be underwritten by Petrofac. This means both Kencana Petroleum and SapuraCrest are given free berths. They are there to window dress the agenda of having local players participate but in reality they are just glorified rent seekers. It's even talked in the market that the PETRONAS adviser himself was on hand leading the talks with Petrofac. Predictably therefore, Kencana is one of the beneficiaries.

Sime Darby asked to buy over Kenchana?

Even more disturbing are the rumors going around the attempts are being made to ask Sime Darby to buy over Kencana Petroleum. This would be an outlandish piece of proposal in the wake of Sime Darby losing billions of Ringgit in its utility and energy business. Sime Darby got into that mess precisely because years ago it was asked to take over the Bakun Project. I think if ever there are any attempts to force Sime Darby to take on further burden, the PM should nip this in the bud. Why should Kencana be sold off to Sime Darby if it has just gotten a sweetener from Petrofac, courtesy of PETRONAS?

PETRONAS must be conscious that it is the guardian and keeper of the nation's oil and gas wealth and it needs to guard that position jealously against both foreign as well as local companies so that maximum benefit is obtained by the Malaysian public from its oil and gas wealth.

One way to do that is for PETRONAS to participate directly through another subsidiary to perhaps undertake production from marginal oil fields in partnership with foreign players not necessarily Petrofac. Then this subsidiary can enter into joint ventures with the various world-renowned names who are engaged in exploiting oil from marginal wells and after many years, it would have gained enough expertise and size to venture out into the world much the way that PETRONAS itself has for oil exploration.

In this first deal, PETRONAS announced that its farming out is Berantai Oil and Gas Field located some 150 nautical miles from the Terengganu coast. That will mean additional royalty to the state of Terengganu. The exploitation of the field will be done in 2 stages. In the First Phase, gas will be sent from Berantai through a pipeline tied to an Existing Gas Facility located at the Angsi Field and subsequently transported to shore via the Angsi gas pipeline. This first Phase is straightforward and pipeline linking Berantai to Angsi is also straightforward.

In the second phase, we can only assume that Oil will be lifted from the Berantai Field on to an FPSO and loaded on to a Shuttle Tanker which will be transported to PETRONAS Refinery.

As one expert in the field said it aptly:- All the above is fine except for the vague nature of the Commercial Deal and whether the Field itself is a "Marginal" Field.

1. Who proposed that the Budget for this project should be US$800 million? Was it decided by PETRONAS or the Consortium?

A Project of this nature requires a lot of front end work and may have been carried out many months before the deal is announced. Who carried out the survey work?

1. The First Phase (2011-2012) Appears to Concentrate on Well Completions for Gas Delivery. How much gas is there at Berantai? Is Gas the main hydrocarbons at Berantai? Why the rush for Gas?

2. How much of the Project Cost can be recovered back by the Consortium? (as per incentive...i.e. cost recovery....including project cost). Based on the project cost, one can only surmise that the FPSO for Oil will be owned by PETRONAS or Consortium? Will the FPSO and shuttle tanker then be leased by the consortium to PETRONAS? If this is the case, then the consortium stands to make a lot of money as lease charges are very hefty!

3. The local partners can only provide for modification work of specialized vessels, some installation work and the two small platform fabrications. Petrofac will ensure that the costs will be in line with market costs if not lower.

If the 106 fields are too fragmented in size as to be economical, why don't we just auction them off to players in the market and apply the principles of PSC on them? The players can either be local with partnership with foreign players who shall undertake the extraction of the oil or gas under the terms of a PSC. The agenda of fast-tracking the capabilities of local players not only Kencana and SapuraCrest can still be achieved by insisting that foreign partners take local partners to participate in the auctions.