All eyes on Wan Zul

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Wan-Zul_15_1054COME April, Petroliam Nasional Bhd (Petronas) will see its seventh CEO Datuk Wan Zulkiflee Wan Ariffin take office.

Better known as Wan Zul, he has been given a three-year contract to helm the national oil company. Those close to the 54-year-old describe him as a doer and a man of few words.

It must be said that his appointment has boost morale at Petronas — there is a sense of relief that a man thought of as the CEO-in-waiting, instead of an outsider, will take on the task of safeguarding the country’s hydrocarbon assets.

“Basically, Wan Zul has very strong support within Petronas itself,” says an insider.

“He has been the COO (chief operating officer) for about three years, so he is ready. He was the chosen one from three years ago to succeed Tan Sri Shamsul [Azhar Abbas, who will step down on March 31],” the insider adds.

Wan Zul, who started his career at Petronas in 1983, will be the first Petronas CEO to be an oil and gas engineer by training.

While most laud the appointment, the helming of the national oil company has never been a walk in the park, especially now that crude oil prices have fallen sharply. Furthermore, many domestic oil and gas companies are relying on Petronas for jobs and an increasing number of local oilfields are maturing.

The Petronas insider says Wan Zul will have his hands full managing pro-Malay rights groups who prefer an allocation system for jobs as opposed to open bidding — a thorny issue that needs to be handled tactfully while protecting the company’s interests and achieving the bumiputera agenda.

His predecessor, Shamsul, has had a difficult time grappling with issues related to the groups.

An oil and gas industry veteran says, with the current volatility in oil prices, Wan Zul will also face the challenge of resetting prices with partners, contractors and, ultimately, stakeholders.

“He (Wan Zul) needs to be able to convince the stakeholders that Petronas rides with them through the good and bad times, hence the need to reset and review the cost of doing business now — efficiencies need to be found, margin expectations reduced and sustainability over the longer term ensured. He also needs to ensure that companies in Malaysia survive this period of adjustment or else he will face political pressure, besides commercial ones,” the veteran says.

There is also the issue of the government’s revenue, where Petronas in 2011 set a 30% cap on the dividend it pays the government. While Shamsul has had difficulties implementing this, pundits say it is a step in the right direction.

Will the new chief be able to strike a balance between dividend payments and conserving its financial resources to cultivate future growth?

Petronas has dished out record dividends over the past few years thanks to the strong crude oil prices. In 2013, Petronas paid RM63 billion to the government, comprising RM36 billion in tax income and royalties and RM27 billion in dividend, which accounted for 29.5% of government revenue.

Replenishing Petronas’ oil and natural gas reserves is another critical task that Wan Zul will have to shoulder. Hydrocarbon reserves are the lifeblood of an oil firm.

A check on Petronas’ website reveals that its total hydrocarbon reserves stand at 27.12 billion boe, with an average production of 1.1 million boe per day.

The oil company’s international reserves in Africa, Southeast Asia, the Middle East and Central Asia stand at 6.56 billion boe, comprising nearly a quarter of its reserves.

According to the website, Petronas achieves a reserves replacement ratio of 1.1 times in Malaysia and 4.1 times internationally, which is comparable with the industry average.

The question now is, whether Wan Zul will continue with the development of marginal oilfields, as well as ventures in unconventional energy, for instance shale gas — something that Shamsul started but which had its doubters, particularly when crude oil prices were low.

petronas_15_1054An executive with an offshore support service company says Petronas’ enhanced oil recovery projects were meant to increase brownfield production. “However, with the current [low] oil prices, these may be difficult to implement. New finds are in deep water and thus costly … in some, cost of production is said to be US$65 plus per barrel,” he says.

Also, many eyes are on Petronas’ RM80 billion Pengerang Integrated Petroleum Complex — a massive downstream project that has attracted the attention of the global petrochemical industry.

Wan Zul’s forte is in downstream activities. The mega project may be another feather in his cap should it succeed. And with that, Malaysia may stand a chance of becoming a net exporter of petroleum products — it is now a net importer because it still lacks downstream operations to refine and add value to the crude obtained in its backyard.

For the near term at least, Wan Zul will likely have his hands full with the low oil price environment.

However, the Petronas insider says he should be up to the mark. “Wan Zul has been with Petronas for 30 years … he’s seen it all, I’m pretty sure he can rise to the challenge.”

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This article first appeared in The Edge Malaysia Weekly, on February 16 - 22, 2015.