KUALA LUMPUR (March 12): The Edge weekly in its latest edition reported that late last month at a closed-door press briefing to discuss Petroliam Nasional Bhd’s (Petronas) financials, president and CEO Datuk Wan Zulkiflee Wan Ariffin talked about the need for consolidation in the oil and gas (O&G) sector.

“We want to help develop local companies [but] there are more than 3,000 service and equipment players in Malaysia, in contrast to Norway where there are only 700,” the magazine quoted him as saying.

In its cover story, the Edge’s Jose Barrock and Kamazrul Azhar wrote that Norway is often used as a yardstick because oil was first struck there in 1969, just five years before Petronas was established in 1974.

In an email response to The Edge, Petronas says, “In light of the persistent low oil price environment with no immediate signs of a recovery, it has become necessary for the Malaysian O&G service providers to lower their cost structure by being more cost-efficient and competitive.

“As such, Petronas views the consolidation of Malaysian oil and gas service providers as one of the key measures to enable the industry players to urgently step up their efforts towards addressing the issues and challenges today.

“Petronas will continue to engage with industry players and encourage them to consolidate, as dictated by the current market forces. Consolidation of the highly fragmented industry is becoming even more crucial now to elevate its capacity, resilience and competitiveness.”

While some agree that consolidation is the way forward, with opportunities lurking, especially for those with deep pockets, others say it is not as simple as it seems, the magazine said.

It reported Uzma Bhd managing director Datuk Kamarul Redzuan Muhamed had been there before.

Citing him, it said:“This is our third cycle or downturn in the oil and gas industry [and] it’s a lot tougher than it used to be.”

“When we started Uzma, it was the year 2000 [and] oil prices were US$20 per barrel. So, we feel there is an opportunity, there is money to be made, but you must be prudent,” he was quoted as saying.

Uzma provides services to the upstream sector across the exploration, development and production phases, and to the downstream sector for facilities construction, operation and maintenance.

In 2008, West Texas Intermediate crude hit a record high of more than US$145 per barrel, and was trading at US$110 in September 2013. Last Friday, however, it fetched only US$38.63 per barrel.

Meanwhile, the Edge said Tan Sri Mokhzani Mahathir, an investor with a 10.26% stake in SapuraKencana Petroleum Bhd and 18.55% equity interest in Yinson Holdings Bhd, explained that the sudden plunge in oil prices is the cause of the bleak outlook.

“What is bad this time is the difference between the peak and trough — it is huge. If you look at two years ago, it was US$100, then it went down to US$27. The gap was huge [and] that was what people could not adjust to.

“But now, people are realistic. They know they have to plan for the long term, they have to consolidate to survive. It’s the small companies that are going to go belly up ... that’s the reality of it,” he says.

Along with Kamarul and Mokhzani, the Edge also reported the views of other major industry players.

For a detailed outlook of the oil and gas industry going forward, read the Edge weekly edition for the week of March 14-March 20 available at newsstands now.

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