This article first appeared in The Edge Financial Daily, on April 25, 2016.

KUALA LUMPUR: “Consolidation” is the trending topic in today’s gloomy oil and gas (O&G) sector, but a thorny one given the complications involved. Not for one industry veteran though, who says he is “pumped up” by this idea because it enables the local O&G industry to venture into international markets.

Cekap Technical Services Sdn Bhd executive chairman Sofiyan Yahya said that while he commended Petroliam Nasional Bhd’s (Petronas) efforts to develop local players, breaking up the entry sectors to benefit as many local players as possible over the years has caused the majority of O&G service providers to possess too narrow a range of services.

“Maybe they don’t have to acquire each other but find alternate business platforms where they can collaborate to provide a wider range of services and also offer more protection when going overseas, because you can share the risk and information by going together with a partner,” he said.

Sofiyan, who is former president of the Malaysian Oil & Gas Services Council, elaborates on his point by providing an analogy.

“Imagine that an oil company overseas wants to drink coffee. In Malaysia’s O&G industry, many service providers will be needed to serve that hot cup of coffee. One will provide the cup, another has the spoon. And we need one provider each to supply the oil company with coffee beans, hot water, and sugar,” he said.

And finally the oil company has to project manage and put all those things together so that the cup of coffee is delivered.

“Our business environment has allowed the situation to exist. But if you go to the Middle East for example — and I have experienced it myself — when you register your business, they want you alone to provide a hot steaming cup of coffee, with sugar on the side,

“To us, that’s an integrated service, but to them it’s normal from their service providers. A wake-up call is necessary among Malaysians to offer a wider range of services to go global,” Sofiyan told The Edge Financial Daily.

He said Malaysian O&G players have the skills to perform on the global platform, a sentiment repeated by other industry executives interviewed. However, it is the lack of diversity in skills that has hindered many local companies to bid for international jobs.

And now, with shrinking opportunities in Malaysia due to Petronas’ budget cuts of up to RM50 billion, Sofiyan said it is high time to venture abroad to look for jobs.

On paper, consolidating the local O&G industry seems indispensable. As Petronas president and chief executive officer (CEO) Datuk Wan Zulkiflee Wan Ariffin notes, there are more than 3,000 service and equipment players available in Malaysia, against just 700 in Norway. “Is it sustainable to have over 3,000 licensed players in a country like Malaysia? It’s impossible even during good times to expect Petronas to give out contracts to everyone. And also we need to have a competitive environment too. If we don’t compete, then we will never be global,” Sofiyan said.

However, pulling it off is difficult for many local players, executives argued. One industry executive, while agreeing with Sofiyan’s assessment of Malaysian talents, said one impediment that many local companies have in venturing overseas is capital deficiency.

“A lot of them cannot even survive if their clients do not give payment in just a few months. Their cash flows tend to be really weak, as many of them are really small companies,” said the executive.

“It is actually normal for O&G companies to have arrears owed by clients because of the long and detailed process of verifying the job progress.”

Bureau Veritas (M) Sdn Bhd CEO Othman Abdul Kadir meanwhile argued that consolidation “is an option, where it must be mutually agreed by the parties involved that it will bring benefit to both”. For his firm, which provides classification, certification, inspection and asset integrity services, Othman said it would be difficult to consolidate with other firms when there are so few players in this subsector.

Bureau Veritas acquired local consultancy company Scientige Sdn Bhd in the earlier part of this decade to widen its range of asset integrity management services. Othman understood the predicament Petronas is going through, thus decided his firm should further broaden its range of services and be more budget-conscious. “The important thing is we just cannot lie back and complain about the cuts without doing anything.”

For Sofiyan, though, he said Cekap Technical has been talking with other companies to work on proposals together. With many local players suffering financially because of lower contract values and fewer jobs, he said venturing into overseas markets is now a necessity.

“During this challenging period, we must stay afloat to survive. How can we help people when at the end of this troubled time, we’ve closed down? I don’t believe in shooting yourself in the foot, but if you have to cut your arm off to survive, you have to cut your arm off to survive,” said Sofiyan.