Iraqi oil deal: A testimony of Hassan’s Petronas

Recently, Petronas announced its success as a part of the group which won the bid to explore and extract oil from Majnoon, Halfaya, Garraf and Badra oil fields, Iraq. By far, it is one of the largest crude oil reserve with 17.65 billion barrels and extraction could be in the amount of 2.7 million barrels per day (bpd).

The success is credited on the stewardship of Tan Sri Hassan Merican. He led a team formidable business development ‘drivers’ of a state-owned oil company which is now able to compete with the oil majors and other similar strategic partnerships in the bid.

Singapore Business Times has the story: 

 

Published December 14, 2009

MALAYSIA INSIGHT

Don’t blood new talent without smooth transition at Petronas

It will be a pity if Hassan Merican is made to pay the price for board’s earlier action

 

By S JAYASANKARAN
KL CORRESPONDENT

Email this article
Print article
Feedback
 

 

YOU HAVE to doff your hat to Petronas.

Some credit must be given to (Petronas) chief executive Hassan Merican, 56, who has built up the oil firm into an international major in his 15 years at the helm.
 
 

 

 

Petronas is the acronym for Petroliam Nasional, Malaysia’s national oil corporation, which began venturing abroad in the 1990s because of gradually depleting oil reserves at home. On Friday, however, it vaulted into the seriously big league.

It was reported then that Petronas, in separate consortia with foreign partners, had won the rights to develop two enormous oilfields in Iraq under a second round of oil contracts since the 2003 US invasion.

First, Shell (60 per cent) and Petronas (40 per cent) won the rights to develop the Majnoon oilfields.  

The oilfields in southern Iraq are estimated to have 12.6 billion barrels of oil reserve, making it one of the largest untapped oilfields left on the planet.  

The Shell-Petronas consortium beat off another consortium – France’s Total and China’s CNPC – in a global tender conducted by Iraq’s Oil Ministry.  

In yet another consortium, this time comprising China National Petroleum Company and Total, the Malaysian oil major won a contract to develop the Halfaya oilfields in southern Iraq which has an estimated 4.1 billion barrels of oil reserve. 

 

The new fields have major significance for Iraq. 

Indeed, the deals have the potential to make Iraqi oil output rival that of top producers Saudi Arabia and Russia and, according to analysts, could shift the power balance in the Middle East. 

The new fields being offered hold as much oil as all that held by Libya.  

That Petronas got into both deals that were on offer speaks volumes about its international experience. 

And some credit must be given to its chief executive, Hassan Merican, 56, who has built up the oil firm into an international major in his 15 years at the helm. 

We bring this up only because there is some uncertainty about Mr Hassan’s future.  

He is also the acting non-executive chairman of Petronas which, for corporate governance reasons, isn’t the best arrangement for any firm, let alone Malaysia’s single-largest firm in terms of revenue and profits. 

Mr Hassan’s contracts for both posts expire in February and there is some uncertainty about whether they would be renewed. 

That would be inexplicable in any other country given his track record but it can, occasionally, be the nature of the beast in Malaysia. 

The problem goes back a couple of months when a senior aide of Prime Minister Najib Razak, one Omar Mustapha, was denied a board seat on the oil firm despite explicit instructions to the contrary by Mr Najib. 

Under the Petroleum Development Act, the oil firm is answerable only to the Prime Minister and no one else, which meant that the board may have been insubordinate in its actions, 

In any case, a second request by Mr Najib led to the board ‘deferring’ the decision. Mr Najib then put his foot down and Mr Omar has since joined the board. 

But the question in the minds of oil industry executives in Malaysia and elsewhere is this: will Mr Hassan pay the price for the board’s actions?  

We will only know in February but it would be a great pity if he did. 

Petronas is too important to the country to blood new management talent without a sufficiently smooth transition. 

That was what happened previously when its former chief executive Azizan Zainal became chairman to allow Mr Hassan to take over his current post over a decade ago.  

Perhaps, a similar transition might be considered this February.

**********

It is a very useful reminder, especially from the Singaporeans. Undoubtably, Hassan did very well. Petronas being a state oil corporation is now regarded as one of the new ‘Seven Sisters’. Despite the suspiscion of ‘not up to mark’ in corporate governance, a lot could be desired from the company.

PM Najib’s insistence of bringing in Ethos Consulting Supremo Omar Ong in as a independent non-executive director last September did not go well with some of the directors, who personally present themselves to the Prime Minister on the opposition of the appointment.

 The productivity of Hassan is still very encouraging. The rumour of the workoholic CEO being prematurely replaced, with names speculated such as FELDA CEO Dato’ Mohd. Bakke Salleh, Tabung Haji CEO Dato’ Ismee Ismail or Omar Ong taking over the helm of the RM 250 billion turnover state oil corporation, looms in the lips of the market punters.

Petronas is inarguably the best example of a Malay corporate success. PM Najib should portray all these success stories that Petronas and her executives are famed for as a corporate icon for ‘1 Malaysia’. The 254 billion dished out in the form of taxes, royalties, dividends, goodwill and grants to the Federal Government and some of the state governments within the last six years are testimonies that ‘People first, performance improves’. That is despite that Petronas has been allowed to be managed purely as a business entity by the BOD and management team, without intervention of the Federal Government.

Since Hassan’s stewardship as the Group CFO and eventually CEO since the 1990s, the growth of Petronas has been phenomenal. His gambit to venture into new markets, strategic partnerships and capital expenditures really paid off. Petronas also diversified into other non-oil related businesses and did well too. From the writing, it is obvious that the Singaporeans are envious of the Pertonas successes.

Hassan is known to be able to directly appoach Heads of Government of several oil producing and high-oil-reserves states, without much protocol. His mild mannered and straight-talk is very much acceptable. In fact, in diplomatic terms, he is even better than all Foreign Ministers that have served the country during his tenure as Petronas President/CEO.

Recently, Prime Minister Dato’ Seri Mohd. Najib Tun Razak expressed his pleasure of the recent Petronas success, considering that the strategic partnership really was really productive against other bids.

Bernama.com reported:

December 12, 2009 19:42 PM

Najib Proud Of Petronas’ Success In Securing Iraq Contracts

 

PEKAN, Dec 12 (Bernama) — Prime Minister Datuk Seri Najib Tun Razak has expressed satisfaction over Petronas’ success in securing two contracts in Iraq, including to develop the giant Majnoon oilfield.

He said the achievement showed that Petronas had gained international trust in oil exploration.

“I had yet to be informed officially by Petronas, I only learned about it from newspaper reports.

“It is an encouraging development as the areas are proven to have huge oil deposit. Generally, when we get exploration areas we do not know whether we will succeed or not until we carry out drilling works.

“We do not know whether we will find oil or gas. But now, it seemed there are no risks at all if the report is anything to go by,” he told reporters after opening the Pekan Resource Centre here Saturday.

Najib, who is also Finance Minister, said the achievement would not only generate revenue for the company but also for the government.

“Petronas is always looking for new opportunities and only when they succeed the announcement is made. So efforts to find new oilfields is a continuing process,” he said.

It was reported yesterday that Shell and Petronas won the rights to develop the Majnoon oilfields as Iraq staged its second auction of oil contracts since the 2003 United Stares invasion.

Shell has a 60 per cent stake in the consortium while Petronas holds the remaining 40 per cent. The Majnoon oilfields in southern Iraq are estimated to have 12.6 billion barrels of reserves, making it one of the largest untapped oilfields left on earth.

Petronas in another consortium comprising China National Petroleum Company of China and French oil major Total won a contract at the second auction to develop the Halfaya oilfields in southern Iraq with an estimated 4.1 billion barrels of reserves.

— BERNAMA

***********************

MITI Minister Dato’ Mustapha Mohamad recently wanted service providers to emulate and deliver Petronas’s quality of service. The Federal Government investment arm Khazanah Holdings Bhd., which also managed by chartered accountants should emulate Petronas’s success story and productivity, especially in the context of protecting the nation’s prized treasure and ‘goose that lay the golden egg’.

It has been said that many of her executives still remain with the company because of Hassan. The strict one-time partner of a ‘big six’ has inspired the top management to strive harder and made what Petronas it is today.  It is ashamed that when the ‘horse is changed midstream’, the momentum of these great successes will erode. Malaysians will be where ‘the buck stops’.

As they say, “If its not broken, don’t fix it”.

*Updated 830am

 

 
 
Published in: on December 15, 2009 at 01:18  Comments (14)