This article first appeared in Forum, The Edge Malaysia Weekly, on March 7 - 14, 2016.

It was a rude awakening for those oil and gas players who have not seen the low point of a business cycle or who refuse to believe that there is one. When the price of crude was consistently above US$100 a barrel — peaking at US$147 — new players jumped on the bandwagon as if the boom would last forever. Get this — if there is a boom, there will be a bust.

At US$30 to US$40 per barrel or even lower, the winners at the tail end of a bad cycle will always be the big oil and gas companies — call them the majors or super majors if you like. For example ExxonMobil and Shell, which have been in the business for more than 100 years, will continue to survive and grow. Having seen the extent to which the pendulum has swung in the past, they will be the ones that usually emerge stronger when the dust finally settles. These are the companies that can pick up many good assets put up for sale in a distressed market.

Notwithstanding this, the majors are not immune to the vagaries of a weak market. The current glut is expected to persist until next year. Shell saw its profit dropping 87% to US$1.94 billion last year and is making adjustments by cutting capex by 25% this year and shedding more than 10,000 jobs worldwide.

ExxonMobil, the world’s most profitable oil company in the Fortune 500 list last year, saw its profit shrink 50% to US$16.2 billion, and will also be spending less and cutting capex by 25% this year. Losses were registered too by the likes of BP, ConocoPhillips and Repsol, with all of them announcing a reduction in capex and job cuts.

The big oil companies will survive and the losers will be those who entered the supply chain without expertise of their own and whose core businesses are not in oil and gas. Some went into exploration and production, while others acquired various types of vessels required by the industry, or ventured into fabrication and rig production.

Without strong financials, it will be tough for them to survive in an environment in which crude is going for US$30 to US$40 per barrel, let alone dipping below US$30.

The difference this time is that this cycle, compared with previous ones, is long and deep, with no V-shaped recovery in sight. Expect casualties to be high, including on the domestic scene.

The local players will be forced into consolidation mode with national oil corporation Petronas announcing a capex and opex cut of up to RM20 billion this year, and perhaps as much as RM50 billion over the next few years. It is a timely move because there are too many Petronas-licensed contractors around — about 3,000 — of which only about 300 are active, according to industry insiders. And even among the 300 firms, those that solely rely on Petronas for contracts are not expected to survive this time around, unless they merge.

Besides capex, Petronas is shedding 1,000 jobs or about 2% of its staff as it bids to become a leaner organisation. Under its industry-led cost saving and efficiency programme — Coral 2.0 — it managed to realise savings of RM2.4 billion last year.

But can it do more? Some of its critics often point to its involvement in sponsoring the Formula 1 team and in the running of the Malaysian Philharmonic Orchestra (MPO) as wastages it can do without during these difficult times. Why continue to sponsor a glamorous sporting event associated with the rich and famous and pay high wages for expatriate musicians at a time when it has to retrench 1,000 employees, many of whom are locals?

I’ll tackle F1 first. Here, the main criticism is that its investment in F1 lacks transparency. How much is spent annually, notably the sponsorship of the Mercedes AMG Petronas team? Press reports of an earlier deal put the sponsorship alone at US$42 million annually but in 2014, Petronas entered into a new 10-year agreement — at a substantially higher price, say some.

My view is that it is not the time — although crude could still dip to US$20 to US$30 a barrel — to quibble about Petronas’ involvement in F1. First, it has a contract to honour and it would be extremely foolish to walk away from a team that won both the constructor (car) and driver titles in 2014 and 2015.

The Mercedes team — known as the Silver Arrows in racing history — won in commanding fashion, chalking up the most 1-2 finishes ever in F1 history, with Lewis Hamilton and Nico Rosberg as the drivers. It is a team other oil majors would eagerly want to sponsor.

For Petronas, the return on its investments in F1 is something it should quantify in monetary terms to show that it is worthwhile. In terms of brand visibility, few sporting events can match F1, which attracts a global TV audience of 450 million per race.

Expect tougher competition from teams like Ferrari, but this year, the Silver Arrows are likely to dominate again. For Petronas, even in a weak oil market, it needs to continue branding itself as a top-notch integrated oil company.

Petronas’ F1 investment was never made in isolation. While branding exposure works, especially if it is a winning team, over the years it has used F1 as a learning, testing, and eventually, an export platform for its fuel and lubricant products. Today, its Primax fuel and Syntium engine oil are powered by the victorious F1 Mercedes AMG team, and branding-wise, there is no better endorsement.

Since it was set in 1974, Petronas has had a long-term view of being an integrated oil company — one with upstream operations in exploration and production and downstream in refining, retail and marketing, petrochemicals and liquefied natural gas (LNG) business. It operates one of the largest LNG fleets in the world.

From its involvement in F1 and its continued evolution as an integrated oil company, it has added fuel, engine oil and lubricants to its product portfolio. For lubricants, it is now the 14th largest player in the world, and aims to be the eighth largest by 2019.

In weathering the current storm, integrated oil companies are the ones that can better manoeuvre their ships.

As for the MPO, let’s talk about that in another article.

Azam Aris is senior managing editor at The Edge

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.