Are we happy if this happen to PETRONAS

PDVSA: An example not to follow....

In spite of PETRONAS’s contribution to the nation, recent calls from many quarters are demanding that PETRONAS do more. Maybe the plight of PDVSA can serve as a warning for “killing the goose that lay the golden eggs”.


The Perils of PDVSA

Venezuelan state-run oil company Petroleos de Venezuela (PDVSA) is up to four months behind in payments to a host of energy industry contractors, El Universal reported June 10. Although the delays officially have been blamed on technical malfunctions, there is some evidence that PDVSA may be at serious risk of financial ruin, spelling grave implications for Venezuelan President Hugo Chavez's regime.

PDVSA is the main source of income for the Venezuelan government and the principal financial foundation for Chavez's populist policies. Chavez's reliance on PDVSA to fund his policies is increasing even as inflationary pressures in the Venezuelan economy mount, local elections approach and the government struggles to compensate for system-wide food shortages. If PDVSA's late payments are an indication that the company is faltering, it could seriously shake the country and put the government at risk of losing control.

While PDVSA has been late in paying contractors before, the delays have never been quite this protracted. The official reason is that PDVSA's SAP computer systems program is experiencing unspecified technical difficulties. There is, however, speculation that corruption is exacerbating the situation. PDVSA is also reportedly experiencing very high employee turnover, which has slowed all of the company's processes.

The compromised employee situation began in 2002, when a significant portion of PDVSA's skilled staff was laid off after the company's participation in a coup attempt against Chavez. The move left the company without technically skilled personnel or an accounting department.

Oil production took an immediate hit after the coup attempt. With the company organizationally scrambled, daily production of crude oil fell from an all-time peak of 3.15 million barrels per day (bpd) in 2000 to 2.34 million bpd in 2003, according to estimates by the U.S. Energy Information Administration (EIA). Although PDVSA claims to have raised oil output to pre-coup levels, there is serious doubt as to whether this is true. The EIA, the Organization of Petroleum Exporting Countries and the International Energy Agency all estimate that Venezuela's actual output of crude oil hovers somewhere around 2.4 million bpd. PDVSA's crude upgrading output also dropped by about 200,000 bpd in 2007.

A spike in imports of refined products and inputs is also cause for concern, as the value of purchases spiked from $759 million in the second quarter of 2007 to $1.6 billion in the first quarter of 2008. Part of the increase is most likely due to the rise in global oil prices and is not necessarily an indication of dramatically increased imports of refined products. However, it is yet another sign of weakness and a burden on PDVSA. If PDVSA is rapidly losing the capacity to produce these refined products (necessitating increased imports), it is in trouble.

In the face of declining production, PDVSA is able to invest only a small amount of funds into new exploration and production. The EIA estimates that in order for the company to maintain its level of production, an investment of $3 billion per year is necessary to compensate for lowered production in mature fields. But in the first half of 2007, PDVSA invested only 4.8 percent of revenues, or $2.09 billion, into exploration and production - hardly enough to increase revenue.

Many of the company's capital expenditures have been focused on acquiring stakes in other companies and projects following Chavez's 2007 nationalization campaign, which required PDVSA to hold a majority stake in all Venezuelan energy operations. Such deals give PDVSA a higher percentage of revenues, but also a higher burden of responsibility.

In spite of its reduced production capacity and increased financial burden, PDVSA is largely responsible for the fiscal solvency of the Venezuelan government. PDVSA's financial statements from the first half of 2007 indicate that the company contributed 37.8 percent of total revenues to the state. After taxes and expenses, PDVSA had only 2.1 percent of its revenue left. With such a small surplus, PDVSA has very little wiggle room for adapting to new demands.

Furthermore, PDVSA will not be able to take advantage of spiking global oil prices. A recent change in tax law will increase the tax PDVSA pays per barrel of oil sold. Oil prices had been estimated at $35 a barrel, but actual oil prices averaged $95.84 a barrel; hence, there is an excess of $60.84 a barrel. These additional earnings were used to calculate higher income tax. Some analysts have predicted that unless the global price of oil is at or above $150 per barrel, PDVSA will be in the red.

This is not to say that Venezuela is not taking action to counteract PDVSA's financial difficulties and declining production. A series of deals with foreign governments and companies has brought further investment into Venezuela's energy industry, and several blocks are currently up for auction. However, the flow of investment is gradual , and the demands on PDVSA are increasing.

In addition to covering its own costs and debts, PDVSA is also responsible for a host of social and economic programs that are the basis for many of Chavez's policies, and upon which he relies for public support. These include farming, food production, food distribution and oil industry equipment production. (PDVSA is also in the process of acquiring control of Venezuelan electric utility Corporacion Electrica Nacional.) These policies extend abroad to include foreign oil and general assistance programs in Latin America that have been key to Chavez's foreign diplomatic strategy.

With so many demands on PDVSA, it is perhaps no wonder that the company might be having difficulties making its payments to contractors.

And the political and economic strain Chavez is feeling is ratcheting up the pressure on PDVSA even further. Chavez's recent reversal on two key policies - an authoritarian intelligence law and support for the Revolutionary Armed Forces of Colombia - shows that the president is feeling threatened. With skyrocketing inflation, periodic food shortages and the approach of November local and state elections that will test the United Socialist Party of Venezuela's mandate, Chavez is leaning ever more on PDVSA for financial support for his populist policies.

Chavez's populism is intended to maintain public support and the survival of his regime. But the more he leans on PDVSA to fund his policies, the more Chavez risks shattering the very foundation upon which his kingdom rests.

Stratfor Analysis 12 Jun 2008

from Hishamuddin

Isu minyak naik dan PETRONAS

Nilaaa..isu minyak naik dan petronas...

my personal point of view, its x ada kaitan langsung dengan PETRONAS esp..
bukan sebab skrng kija dengan PETRONAS... tp..

isu ini ia lebih kepada jumlah subsidi yang diberikan oleh kerajaan kepada operator-2 (Shell, Exxon Mobil, Caltex etc) minyak di Malaysia.. contohnya harga pasaran minyak seliter sekarang adalah RM 4.00/ seliter...harga jual di negara kita contohnya RM 2.70..so, kerajaan kena bayaq kat operator-2 nie the balance..meaning RM 1.30...

kat mana-mana pun, depend pada PEMERINTAH..kat oman ke, qatar ke..the same...
tuulah Kerajaan kena lah mesra rakyat...

sambung lagi lain kali..nak kena gi meeting...

PETRONAS, Crude Oil, Fuel Prices, etc

PETRONAS' STAFF SALARY & BONUS
1) The salaries paid to PETRONAS' employees are not as high as people think. At best, they are just industry average. And these are not attractive enough for some who left PETRONAS to find work at other companies (mainly from the Middle East) which are willing to pay more. Why do they pay more? The oil and gas industry worldwide has been facing acute shortage of qualified or experienced personnel, so most companies are willing to pay lots of money to entice and pinch staff from their competitors.

Bonus? There has NEVER been a bonus amounting to 6 months or 12 months throughout the 33 years. On average, it is 2 months. But don't ever think we don't deserve it. We more than deserve it. A lot of us work really hard, some in the most extreme of conditions. Those who have been to and worked in northern Sudan, for example, would testify that it's like working in a huge blower oven. Southern Sudan, on the other hand, is almost all swamps and mud. Imagine having to go through that kind of heat, or waddling in muddy swamps, day in and day out.


QUALITY OF CRUDE & REFINED PRODUCTS
2) Malaysia produces about 600,000 barrels of crude oil per day (and about 100,000 barrels condensate). Of this crude volume, 339,000 barrels are refined locally for local consumption. The rest is exported (and yes, because it has lower sulphur content it fetches higher prices).

Malaysia also imports about 230,000 barrels of crude oil per day, mainly from the Middle East, to be refined here. This crude oil contains higher sulphur and is less expensive (so the country gains more by exporting our crudes). In Malaysia, this crude is processed by PETRONAS at its second refinery in Melaka, and also by Shell at its Port Dickson refinery.

Different refineries are built and configurated to refine different types of crude. And each crude type yields different percentage of products (diesel, gasoline, kerosene, cooking gas etc) per barrel.

But most importantly, products that come out at the end of the refining process have the same good quality regardless of the crude types. That's why PETRONAS, Shell and Exxon Mobil share the same pipeline to transport the finished products from their refineries to a distribution centre in the Klang Valley. The three companies collect the products at this centre accordingly to be distributed to their respective distribution networks. What makes PETRONAS' petrol different from Shell's, for example, is the additive that each company adds.


PETRONAS' ROLE, FUNCTION & CONTRIBUTION
3) A lot of people also do not understand the role and function of PETRONAS, which is essentially a company, a business entity, which operates on a commercial manner, to mainly generate income and value for its shareholder. In this case, PETRONAS' shareholder is the Government.

In 1974, when PETRONAS was set up, the Government gave PETRONAS RM10 million (peanuts, right?) as seed capital. From 1974 to 2007, PETRONAS made RM570 billion in accumulated profits, and returned to the Government a total of RM335.7 billion. That is about 65% of the profits. That means for every RM1 that PETRONAS makes, 65 sen goes back to the Government.

Last year, PETRONAS made a pre-tax profit of RM86.8 billion. The amount given back to the Government (in royalty, dividends, corporate income tax, petroleum products income tax and export duty) was RM52.3 billion. The rest of the profit was used to pay off minority interests and taxes in foreign countries (about RM7.8 billion - PETRONAS now operates in more than 30 countries), and the remaining RM26.7 billion was reinvested. The amount reinvested seems a lot, but the oil and gas industry is technology- and capital-intensive. Costs have gone up exponentially in the last couple of years. Previously, to drill a well, it cost about US$3 million; now it costs US$7 million. The use of rigs was US$200,000 a day a couple of years ago; now it costs US$600,000 a day.

A lot of people also do not realise that the amount returned by PETRONAS to the Government makes up 35% of the Government's total annual income, to be used by the Government for expenditures, development, operations, and yes, for the various subsidies. That means for every RM1 the Government makes, 35 sen is contributed by PETRONAS.

So, instead of asking what happens to PETRIONAS' money or profits, people should be questioning how the money paid by PETRONAS to the Government is allocated.


CRUDE EXPORTS & FUEL PRICES
4) A lot of people also ask, why Malaysia exports its crude oil. Shouldn't we just stop exporting and sell at cheaper prices to local refiners? If Malaysia is an oil exporting country, why can't we sell petrol or diesel at cheaper prices like other oil producing countries in the Middle East?

I guess I don't have to answer the first couple of questions. It's simple economics, and crude oil is a global commodity.

Why can't we sell petrol and diesel at lower prices like in the Middle East? Well, comparing Saudi Arabia and other big producers to Malaysia is like comparing kurma to durian, because these Middle Eastern countries have much, much, much bigger oil and gas reserves.

Malaysia has only 5.4 billion barrels of oil reserves, and about 89 trillion cubic feet of gas. Compare that to Saudi Arabia's 260 billion barrels of oil and 240 trillion cubic feet of gas.

Malaysia only produces 600,000 barrels per day of oil. Saudi Arabia produces 9 million barrels per day. At this rate, Saudi Arabia's crude oil sales revenue could amount to US$1.2 billion per day! At this rate, it can practically afford almost everything -- free education, healthcare, etc, and subsidies -- for its people.

But if we look at these countries closely, they have in the past few years started to come up with policies and strategies designed to prolong their reserves and diversify their income bases. In this sense, Malaysia (and PETRONAS) has had a good head start, as we have been doing this a long time.

Fuel prices in Malaysia is controlled by the Government based on a formula under the Automatic Pricing Mechanism introduced more than a couple of decades ago. It is under this mechanism that the complex calculation of prices is made, based on the actual cost of petrol or diesel, the operating costs, margin for dealers, margin for retail oil companies (including PETRONAS Dagangan Bhd) and the balancing number of duty or subsidy. No retail oil companies or dealers actually make money from the hike of the fuel prices. Oil companies pay for the products at market prices, but have to sell low, so the Government reimburses the difference -- thus subsidy.

Subsidy as a concept is OK as long as it benefits the really deserving segment of the population. But there has to be a limit to how much and how long the Government should bear and sustain subsidy. An environment where prices are kept artificially low indefinitely will not do anyone any good. That's why countries like Indonesia are more pro-active in removing subsidies. Even Vietnam (which is a socialist country, by the way) is selling fuel at market prices.


PETRONAS & TRANSPARENCY
5) I feel I also need to say something on the allegation that PETRONAS is not transparent in terms of its accounts, business transactions etc.

PETRONAS is first and foremost a company, operating under the rules and regulations of the authorities including the Registrar of Companies, and the Securities Commission and Bursa Malaysia for its listed four subsidiaries (PETRONAS Dagangan Bhd, PETRONAS Gas Bhd, MISC Bhd and KLCC Property Holdings Bhd.

PETRONAS the holding company produces annual reports which are made to whomever wants them, and are distributed to many parties and places; including to the library at the Parliament House for perusal and reading pleasure of all Yang Berhormat MPs (if they care to read). PETRONAS also makes the annual report available on its website, for those who bother to look. The accounts are duly audited.

The website also contains a lot of useful information, if people really care to find out. Although PETRONAS is not listed on Bursa Malaysia, for all intents and purposes, it could be considered a listed entity as its bonds and financial papers are traded overseas. This requires scrutiny from investors, and from rating agencies such as Standard & Poor and Moody's.


BOYCOTT PETRONAS?
6) The last time I checked, this is still a democratic country, where people are free to spend their money wherever they like.

For those who like to see more of the money that they spend go back to the local economy and benefiting their fellow Malaysians, perhaps they should consider sticking to local products or companies.

For those who like to see that the money they spend go back to foreign shareholders of the foreign companies overseas, they should continue buying foreign products.


FINAL WORD (FOR TODAY)
I'm sorry this is rather long, but I just have to convey it. I hope this would help some of you out there understand something. The oil and gas industry, apart from being very capital intensive, is also very complex and volatile. I'm learning new things almost every single day.

Wilson Lee Gain Loon(CAU_MEDIARELATIONS/PETH)