This article first appeared in The Edge Malaysia Weekly on June 15, 2020 - June 21, 2020

IN a couple of weeks or so, 46-year-old Tengku Muhammad Taufik Tengku Aziz will take over the leadership of national oil company Petroliam Nasional Bhd (Petronas).

What seems clear is that he is likely to face many challenges, similar to what his predecessor Tan Sri Wan Zulkiflee Wan ­Ariffin, better known as Wan Zul, experienced.

Wan Zulkiflee had a baptism of fire when he took the helm of Petronas as president and CEO on April 1, 2015. In 2014, Brent Crude averaged almost US$93 a barrel. After reaching a high of US$107.26 per barrel in June the same year, it tapered off to below US$70 at end-November. By 2015, Brent Crude was averaging US$48.82 per barrel.

Considering Brent Crude is currently at US$38 per barrel, Muhammad Taufik is likely to face the same pressure Wan Zulkiflee did at the start of his tenure.

However, the Organization of the Petroleum Exporting Countries (Opec), in its Monthly Oil Market Report for May, says, “The contango structure of the forward curves of all crude futures benchmarks steepened further in April on further worsening of global oil market fundamentals and a rapid rise in global oil stocks.

“The collapse of oil demand, refinery run cuts and rising global oil supply resulted in a large surplus in the oil market along with massive oil stock builds, both onshore and offshore. However, the contango structure flattened in late April and early May on signs of a tender recovery in market fundamentals.”

Thus, if Opec is accurate, there seems to be light at the end of the tunnel for those in the oil and gas sector, which could ease some of Muhamad Taufik’s worries.

Nevertheless, while oil prices may pick up, he is in charge of the national oil company in an uncertain political climate, with the ruling Perikatan Nasional hanging on to power by the skin of its teeth.

So, if there is a change in government, will Muhammad Taufik’s position be secure?

Thus far, Petronas seems to have been insulated from the political wrangling and horse trading, but the CEO and president will likely have to be aligned with the government.

One oil and gas source says of Muhammad Taufik: “He is very nice, very affable, principled and I dare say he will make a good CEO. He has traits that would make him a good leader of the national oil company.”

She adds that his age could be a disadvantage as many of the politicians and corporate CEOS he may have to deal with will be more experienced.

However, the source is quick to point out that former president and CEO Tan Sri Hassan Marican took charge of Petronas in 1995 when he was 43 and held the reins for 15 years.

“Perhaps that is the thinking ... have a younger CEO who can guide the company for a long spell,” the source says.

A political source familiar with Muhammad Taufik’s appointment says while other candidates were lobbying intensely, Muhamad Taufik was viewed positively, partly because he did not push for the job and was hesitant to accept the appointment.

“He actually made it clear [that he was not keen on the job], but what he didn’t know is that this reluctance bagged him the top post at Petronas as the others were seen as being too hungry for position and power,” he says.

Another source believes that Muhammad Taufik could be a good fit as he is a numbers person, and with oil prices so low, there is a need for tight cost control measures. “As a former CFO, he is a good numbers man, [which is] what Petronas needs now,” he remarks.

Muhammad Taufik has worked at KLCC Properties Holding Bhd as its finance general manager, and was the head of finance for the gas and power business and head of strategic planning for Petronas. He subsequently left to join other oil and gas outfits, including as CFO of Sapura Energy Bhd and deputy CFO of Tanjung plc, before joining PriceWaterhouseCoopers Advisory.

Petronas’ earnings have been hit by lower oil prices and impairments. For the first quarter of 2020, it chalked up an after-tax profit of RM4.5 billion on the back of RM59.6 billion in revenue. Compared with the corresponding quarter in FY2019, after-tax profits dropped by a whopping 68% despite revenue only declining by 4%.

Challenges the new CEO may face include those that involve Petronas’ sole shareholder — the government. First, if market talk about why his predecessor is leaving is accurate, he could have his hands full handling the likely amendment to the Petroleum Development Act 1974 (PDA), which governs Petronas, and stipulates the 5% quantum of royalties given to Sabah and Sarawak.

The PDA 1974 vests in Petronas the entire ownership of, and exclusive rights to exploit, Malaysia’s petroleum resources. And as a corporation wholly owned by the government, the company is directly answerable to the prime minister.

Wan Zulkiflee, in a recent interview with The Edge, had explained that there was no room for royalties of more than 5% for the oil-producing states — Sabah, Sarawak, Terengganu and Kelantan — because if the states were to receive higher royalties, Petronas’ bottom line would have to take a hit, assuming the federal government’s royalty share, and profit terms and cost recovery of foreign production-sharing contractors, remained unchanged.

Less profit would also translate to less capital expenditure and a reduced ability to look for new investments, and of course, less dividends and corporate tax to the federal government, which in turn would affect its revenue generation.

So, how Muhamad Taufik balances the interests of the federal government and that of the oil-producing states will be key to his performance at Petronas.

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