SapuraKencana Petroleum Berhad has emerged as one of the world’s largest integrated oil and gas services and solutions provider after the merger of top Malaysian oil and gas companies Kencana and SapuraCrest. Inside Investor met Dato’ Mokhzani Mahathir, the Executive Vice Chairman, to discuss the challenges ahead for company.
Q: The oil and gas industry in Malaysia is expected to grow this year with the development of some marginal oilfields and the continuous attention paid to enhanced oil recovery programmes. What are your projections for the oil service market in this environment?
A: The number of contractors which can take on this kind of jobs is limited. Either they have to form consortiums or combine their capabilities by forming joint ventures with foreign companies. For us, overall prospects are very good. Petronas will probably announce two or three marginal oilfields this year, and the enhanced recovery oil programme is definitely running. There’s a lot of work coming up in the sector in Malaysia in the next three or four years. Interesting for us is that Petronas is now engaging contractors in a smart partnership, where we will do a lot of work on a turnkey basis for them.
Q: Are you impacted by the restructuring that underwent at Petronas in any way?
A: So far, the new management of Petronas – which actually has been in office since two years – does things in a different way. They are more interactive and give more credit to capabilities of local contractors, and companies like us and a few others of that size are able to take over more responsibilities. In general, the new management at Petronas has given more opportunities to local contractors. You know, oil and gas has been explored in Malaysia since 1900, but local companies have come to the fore only in the past 15 to 20 years. Some have been able to ride through the ups and downs of the cycles of the oil and gas industry and the economy in general, and today there are quite a few that are resilient, professionally managed, and able to put all of their capabilities on the table on top of a strong balance sheet.
Q: The use of renewable energy is rapidly increasing in Malaysia, and demand will be significant in the near future. How can SapuraKencana benefit from this development?
A: Well, there is a lot of talk about renewable energy, whether it’s solar, hydro power, biomass or else. I agree that we need to have diverse sources for energy in Malaysia. But the country is blessed with sufficient oil and gas reserves for the foreseeable future, and the role of our company will remain focused on their exploitation. At SapuraKencana, we have looked at investing in or supporting some of the solar power projects in Malaysia, as they are strongly promoted by the government, but we are not looking at it as a business per se, rather as a corporate social responsibility initiative until the time when we will have only a certain amount of oil left in the ground, and when the technology is ripe for all those other energy sources to be really competitive against fossil fuels. But technology in the oil industry is also evolving, and this allows taking more and more oil out of the ground compared to earlier times. There are still lot of reserves left, and we need to invest in technology to get the most out of it. There is still a long way to go until we finally will have to say the oil reserves are depleted.
Q: It is projected that SepuraKencana will secure 2 billion ringgit in new contracts in 2012, many of them awarded by Petronas. Is this in line with your business plans?
A: We’ve got quite a healthy order book list as it stands now, with a contract value of about 13 billion ringgit over the next three years. However, there are also contracts worth 7 billion ringgit we are currently bidding for, and that bid list will go up by another 4 billion ringgit by the end of the year. Usually, our success rate is around 35 per cent, in some cases half, of what we bid for.
Q: Do you see the need for better infrastructure development in the oil and gas sector in Malaysia? How about the availability of skilled workers and expertise?
A: Infrastructure improvement is a continuous process. There are a lot of deep water projects coming up in East Malaysia, and these will need heavy investment in infrastructure. Also, new downstream projects will require a lot of work for a lot of people to set them up. And yes, this brings up the question if we have enough people for that. Actually, we will have to import workers from everywhere. According to government figures, we will need about 40,000 people by the end of 2013, and this cannot be filled with local staff alone. There are many new jobs being created in the industry, but to meet the demand of all of these new projects, there is no way to use only local manpower. That is the bottleneck for the oil and gas industry, actually for any industry in Malaysia. There is definitely a shortage of skilled manpower. The Ministry of Manpower has been working with us and listening to our views and issues, and they are very proactive to address the gap in manpower resources. We have invested in training facilities to train local workers, but there still remains a gap that has to be plugged very quickly. I think there has been a mismatch between education and manpower planning in the past.
Q: There is a number of Malaysians venturing abroad to work in the international oil and gas industry. What can be done to make those workers return to Malaysia and pick up jobs here?
A: There are quite a few people getting pitched not only by companies from abroad, but also within the country. However, with the new big and internationally meaningful projects coming up presently in Malaysia, they are increasingly coming back. But we will have to address the issue of salary packages and benefits. Wages in Malaysia are one of the lowest in the region. Even if quality of life is high, and this includes healthcare and other amenities, we still have to compete with the multinationals. With projects at an international level and backed by international investors, we need to bring in the best manpower we can find and need to pay them accordingly.
Q: The merger of Kencana and SapuraCrest has created the largest oil service provider by assets in Malaysia. What are the plans and prospects after consolidation?
A: We have a clear idea of all the assets, the capabilities, the market position and the balance sheet. But we have to make sure that people think as one. This will be a challenge for the next 6 to 12 months. In the operational business, we will offer clients a full solution package, which I think is what most of them want. We can take over any project, we have enough assets to juggle around and to put on the table, at any price point. In terms of public relations, we have communicated the merger well, we have a big presence at important industry conferences as a new company, where we engage our international clients and where we are able to promote ourselves. But we are not doing much promotion directly to the public. We are mainly talking directly to our clients.
Q: Do you have any ties to GCC countries in the oil and gas business? Are you actively looking for partnerships, as the region has a strong foothold in the international oil and gas industry?
A: We are working with companies from there. It is interesting that in the GCC, which is so heavily invested in the oil and gas industry, the opportunities for foreign players are very challenging and the market is very competitive. To start projects there, one has to have a very established name, a certain size and a certain track record. That’s one of the reasons why we merged. It’s ok to be a big company in Malaysia, but once we step offshore, it’s a different story. We are not shy to say we are number four or five in the oil and gas industry as per market capitalisation, but if we look at number one or two, they are seven or eight times larger than us, and we will have to go a long way to reach them. Regarding the GCC, we have been talking to a couple of newly established local companies to establish partnerships. As a new name, we need to market ourselves more aggressively in the GCC, but at the same time is an opportunity for us to partner with a new wave of local contractors coming up.
Q: What is your stance on the discussion about liberalisation and privatisation of the Malaysian energy sector and the opening of the industry to foreign investors and shareholders?
A: I think the sector should be opened up more. The government can still stay in the sector, but the current low level of foreign investment is not the right way of boosting the market. Cost of technology development as well as research and development is very high, and we need investors to come in, such investors with links to other international companies.
Q: What would you like to have accomplished for SapuraKencana in a year from now?
A: I’d like to have strengthened the big group within our company that handles the energy sector apart from the marginal oil fields, which will be a huge market in the future not only in Malaysia, but in Southeast Asia as a whole. This sector will be a key focus for us.