Petronas not leaving Vietnam or Canada, says CEO

The proposed US$29 billion gas facility on Canada’s Lelu Island has been postponed

We are very prudent and I think that it is very important for us to go into projects that we are really confident of making money.” — Wan Zulkiflee. Photo by Patrick Goh/The Edge

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KUALA LUMPUR (July 29): Petroliam Nasional Bhd (Petronas) president and CEO Datuk Wan Zulkiflee Wan Ariffin has come out to say in an exclusive interview that Petronas is not leaving either Vietnam or Canada, and that it is still business as usual in both countries.

In the interview with The Edge Malaysia executive editor Jenny Ng and senior editor Jose Barrock last week, Wan Zulkiflee said the decision to abort the plan to build a US$27 billion gas facility in British Columbia, Canada, was due to "purely commercial reasons".

And the same is true for Petronas' announcement that it will be returning Blocks 1 and 2 at the Cuu Long basin in offshore Vietnam to the host authority, Vietnam Oil and Gas Group, when the 26-year production sharing contract for the blocks expires in September, he said. Signed in 1991, the PSC was one of Petronas' earliest international ventures.

“Even here [in Malaysia], we give up blocks when PSCs come to an end,” he said, adding that there were discussions on extending the PSCs but the terms were not favourable enough. 

His interview, following the two significant announcements regarding Petronas' investments in both countries last week, is published in The Edge's cover story titled 'Petronas weighing its options' for the week of July 31-Aug 6.

“We are definitely not exiting Canada. [It’s] just this monetisation option is not being sanctioned because of challenging market conditions. We really want to dispel any notion that we are leaving Canada.

"This is just one option that is not pursued because of economic reasons. Our commitment to Canada remains, we still hold a world-class gas resource that is the second largest to our domestic market — our Malaysian resources,” he said.

On the issue of impairment, Wan Zulkiflee only said "I will have to check on the PNW side," referring to Petronas' subsidiary Pacific Northwest LNG Ltd, based in Vancouver. 

Meanwhile, though Petronas have halted its plans to build an export terminal and a 900km pipeline, among others, domestic operations under Nova Gas Transmission Ltd, which produces 500 million standard cubic feet per day (mmscfd), are still proceeding.

“The domestic market doesn’t change. It’s ongoing. For the first half of this year, we got just under RM900 million in revenue. We are generating cash flow from our sales in the domestic market in Canada, [so] we will continue to supply to the domestic market.” Wan Zulkiflee said.

The weekly noted that in its financial year ended December 2016, Petronas registered an after-tax profit of RM23.5 billion on revenue of RM204.9 billion. While Canada may be a small contributor to Petronas earnings at present, it is likely to play a bigger role in the future, it wrote.

“It’s just that the market and our project costs for the LNG project don’t match. But we are confident we will monetise at the right price at the right time and make money,” Wan Zulkiflee told the publication. "[Meanwhile,] we will look at investing in other pipelines with better reach.” 

Well, one option is to sell the gas to neighbouring US -- a much bigger market than Canada -- using existing pipeline grids. 

“You know, it is close to the American market. The US is a 70 bcf (billion cubic feet per day) market and Canada is a 14 bcf a day market, and they are already gas links to these markets,” Wan Zulkiflee said.

For Petronas, holding back on the Canadian investment could be a good move, considering its other large investments. AmInvestment Bank Bhd oil and gas analyst Alex Goh notes that Petronas’ total investment of C$6 billion (RM20.47 billion) accounts for half of Petronas’ FY2016 core net profit of RM40 billion.

Pick up a copy of The Edge today to read more about what Wan Zulkiflee has to say, in his own words, and why the 'Uncertainty with LNG' now and its expected recovery.   

Also check out The Edge editor-in-chief Azam Aris' thoughts on how Petronas has fared in terms of increasing its proven reserves and managing its oil and gas resources -- and some of its options moving forward -- in the story 'Proven reserves a lifeblood of oil majors'.