RM63.0 B Rapid Project Axed - A Petronas Fumble ?

There is some not very good news from Petronas. I hope this is not a precursor to a more worrying trend.  I know you will say that this is Syed Akbar being pessimistic again (Club of Doom). But it is all really happening.

First there was a delay in the RM63.0 Billion project in Pengerang.

• Petronas to delay RM61.3bil refinery project to 2018
• start up refinery within RM61.3bil petrochemicals complex at end 2017
• a further delay in the country's largest-ever infrastructure project
• potential blow to economy 
• project complicated by need to secure water supplies 
• final investment decision (FID) to the first quarter next year
• citing state government problems in relocating villages and graves 

That was old news. Now the latest news says Petronas is going to kill the RM63.0 Billion Rapid Project altogether. 

This is going to cause disaster for many in Pengerang as well as slow down the bumiputra and non bumiputra economy throughout the country. 

The question is what is the problem with Petronas' project planning that they had to delay (already) and now want to cancel a RM63.0 Billion project?  This is not good planning.

This is not a 200 unit condo project in Old Klang Road that may not change the colour of the sunset if it is postponed or cancelled. 

The Rapid Project is an RM63.0 Billion project that can create tens of thousands of jobs, create billion Ringgit spinoff industries and redefine the petrochemical industry in South East Asia.  It puts Pengerang on an equal or even better footing than Singapore as the refining and petro-chemical hub.

Is there any element of "meddling" to cancel this project in favour of Singapore? There is plenty kiasu across the causeway over projects like these. And will anyone get paid compensation for the cancellation?

This is from Star Biz here 

• Petronas will review costs, delay or differ implementation 
• Petronas (said) cost remained a major concern
• especially in light of downtrend in crude oil prices
• final investment decision on Rapid will be made in March
• We would not embark on projects that would not be feasible..
• upstream costs a worry, oil & gas infra, support services rates rising

Shamsul (left) and chairman Sidek Hassan 

• “costs are creeping up
• ".bulk of expenditure for upstream activities, 65% of total portfolio
• scrap the project if the numbers are not right
• silly to proceed if there’s no economic return
• take into consideration agreements with foreign investors
• signed four heads of agreements
• based on US$100 - 110 per barrel, pre tax of RM91bil to RM92bil for year 
• dividend to Government RM27bil this year compared to RM30bil last year
• nothing definitive 
• marginal drop in net profit to RM15.26bil for 2nd qtr ended June 30 
• lower margins, higher operating expenses, lower gain on disposal 
• Revenue 5.17% higher RM74.42bil driven by higher crude & gas trading volume
• increased trading opportunities and stronger customer demand
• total production rose 11.89% to 2.07 million barrels per day (in the qtr)
• gas production was 154,000 boe per day 
• cash and equivalents of RM122.1bil June 30, gearing fallen by 0.6% to 11.1%.

I have been hearing things about Petronas since about two years ago. The Prime Minister has appointed this particular punahsihat as a Board Member of Petronas. Undoubtedly he is the most powerful Board member.

Among the more inexplicable things that Petronas has done recently under his watch is make undetectable changes to their logo. 

While the change in the logo does not make any difference to the seagulls who aim at them, it has certainly cost Petronas tons of money to rebadge all their facilities, ship tankers and other assets.  And the CEO now says 'costs are creeping up'.

Actually there appears to be more to the CEO's one liner. Lets relook what he said :

• upstream costs a worry, oil & gas infra, support services rates rising

Is Petronas being bullied by oil and gas support services vendors? 

Oil and gas support services have now become big business in Malaysia. Contracts run into hundreds of millions and billions of Ringgit.  Towing the ships and supply barges requires 'heavy cables'.

Just like Malaysia Airlines, Petronas business is actually booming. The CEO says :

• Revenue 5.17% higher (RM74.42bil) 
• higher crude & gas trading volume
• increased trading opportunities 
• stronger customer demand
• production rose 11.89% to 2.07 million barrels 
• gas production 154,000 boe per day 

Petronas is a roaring business. Yet 

• marginal drop in net profit to RM15.26bil
• dividend to Government RM27bil this year, RM30bil last year

Profit is slowing. Macam MAS juga. All the Gomen's spending in this country depends on the dividends plus corporate taxes paid by Petronas to the Gomen. This also means the bumiputra economy.  No Petronas no Khazanah Nasional, no PNB, no NEP, no nothing. Even when MAS gets into trouble, Petronas bails them out. So jaga Petronas baik-baik ok.

If Petronas gets into trouble or they cannot pay as much dividends to the Gomen, then we will become like Indonesia. Indonesia has plenty of oil resources but because of ketirisan and korupsi, their oil wealth does not benefit the people as much.

Why will Petronas get into trouble? I can think of three factors :

1. Oil prices can crash. But that will affect all the fish in the sea evenly so that is not a major issue. It will be an industry issue and Petronas should be able to overcome low oil prices. 

2. The CEO has said that 'support services rates' are increasing. Petronas can get buggered by its suppliers and vendors. If the cables are too heavy, they can pull the tug under.

Are profits that should accrue to the taxpayers (thats you and me lah folks - we own Petronas) being siphoned away to 'support service providers'? Just asking an obvious question.

3.  The company may lose its professionalism - postponing or cancelling an RM63.0 Billion project is poor project management. Rule No. 1 for any Project Management is project scheduling. 

Please familiarise yourselves with Harold R Kirzner, maybe the No. 1 guru of Project Management in the world today. I have read his book and even took an exam on it ha ha  - semua boleh planning lah, step by step. You can hire people to do this.  

You cannot blame cancelling an RM63.0 Billion project on oil prices alone. 

Surely there must be various scenarios and contingencies that must have been computed already to pre-empt the vagaries of oil prices. This is not the first multi-billion Ringgit project by Petronas either. 

I can imagine the mobilisation costs and start up expenses of those other investors who were riding on this RM63.0 Billion Rapid Project in Pengerang. One very big casualty will be the Dialog Group. (I hope that PR guy from Dialog will contact me again. Bro, what is going on on your side?)

There is more. Oil industry friends say that prime exploration blocks (which have better potential) in the South China Sea are given away by Petronas to foreign companies (or companies with foreign registrations - gotcha !!).  

Yet Petronas itself goes exploring for oil to higher risk Kazakhstan, Sudan, Tajikistan and other Doomistans.   

Diversification is good but why give up plum real estate to foreign registered companies? 

I hope we can hear from the oil people.  I know there are many of you out there with plenty to say.  Do say something.