PETROS: Transforming Sarawak Oil & Gas

Dear friends,

How was your week? I hope it is good. The blog post this time is dedicated to the future of Sarawak’s oil and gas, since I believe every Sarawakian deserves to know about it. On Sunday, during the second day of inaugural Sarawak Oil and Gas Seminar and Exhibition 2019, I managed to find my way in to hear PETROS (Petroleum Sarawak) Berhad’s senior managers sit down for a forum entitled “Transforming Sarawak Oil and Gas”. As expected, the session was one of the highlight during the seminar and attracted the attention of many of oil and gas-related personnel, be it the working level or the managerial level despite the session was done in early Sunday morning. This high interest is partly because PETROS was given the mandate by Sarawak government to manage oil and gas resources originating from Sarawak, both onshore and offshore.

Disclaimer: All the information written here were based on the presentation done to public during Sarawak Oil & Gas Seminar and Exhibition on 14 April 2019, Sunday, 8am – 9.30am. Claudius Weson Photography will not be responsible nor liable to any damages should there is any information taken out of context, decision in whatever field of expertise made based on or any changes in information regarding the subject thereafter. The intention of this blog post is merely for information sharing, such that Sarawakians that were unable to attend or hear the session will be able to know the latest news on PETROS.

Back to the presentation, speakers for the session are as follows:

1. Sauu Kakok, CEO of PETROS
2. Momas Modon, Vice President (VP) Upstream
3. Peter Wong, Head of Supply Chain
4. Kiddney Enau, GM of Regulatory & Compliance

Starting the session was PETROS’ CEO, Sauu Kakok. As explained by him, structure of PETROS is driven by Sarawak’s government aspiration to achieve:

1. greater Sarawak share of revenue from oil and gas
2. greater participation of Sarawakians in Sarawak oil and gas industry

How they will achieve it?

1. Regulatory unit in Upstream and Domestic Gas. – to ensure that state law is complied with (namely Domestic Gas Ordinance 2016 (DGO) and Oil Mining Ordinance 1958 (OMO)).
2. Business & Investment Units: PETROS EP (Upstream), PETROS Gas (Domestic Gas) and PETROS Niaga (Downstream retail businesses). Currently Upstream is the biggest part of the value chain. 

As mentioned above, the two governing ordinances are Oil Mining Ordinance (OMO) and Distribution of Gas Ordinance (DGO). Right under OMO is Majlis Mesyuarat Kerajaan Negeri, which under it is State Minerals Management Authority. As for DGO, under it is Majlis Mesyarat Kerajaan Negeri, to which the Director of Gas from Ministry of Utilities reports to.  

In terms of the hierarchy, PETROS currently sits under Ministry of Utilities and State Minerals Management Authority. OMO governs all of the activity Upstream, while DGO governs the Domestic Gas-related activities.

State Minerals Management Authority will decide what the state wants to do with the resources. In this case, PETROS will be the delegated authority, and there will be continuous engagement between PETROS and State Minerals Management Authority as well as Director of Gas to decide what to do next.  The challenge now is for PETROS to align with OMO, DGO as well as MA63 timeline as the outcome of MA63 discussion will also impacts the role that PETROS will play for the benefit of Sarawak. From the forum, it was revealed that October 2019 is the time where the Cabinet will sit for MA63 once again.  

After Sauu’s presentation, it was Momas Modon’s turn to talk about PETROS Upstream business. As the Vice President (VP) Upstream of PETROS, he presented on how PETROS Upstream would look like. He divides his presentation in three key thoughts, namely:

1. Key features of Sarawak oil and gas industry today.
2. Landscape of Oil and Gas at Sarawak today and how PETROS is going to contribute to State’s aspiration.
3. Key characteristics of PETROS EP would be. 

Momas begins with a bit of history. Malaysian oil and gas industry was pioneered onshore by Sarawak in 1910, where the first oil well was called Grand Old Lady, located on top of the majestic Canada Hill, Miri. Now, there is no more onshore oil production at Malaysia except for Asampaya field, bordering Brunei. Exploration works onshore was done but has not led to significant onshore prospects. The industry moves to offshore around mid-1970s. For info, Baram delta platforms are visible from the coast of Miri. At Sarawak, offshore oil platforms are very mature, some are more than 40 years old and some has been decommissioned. Report by Woodmack on 2017, 2500 million barrels was produced from Sarawak. 80% of discovered reserve was produced, and what remains are high water cut oil wells, which requires secondary and tertiary recovery methods should we want to produce from it. As for Baram delta, EOR is the next step. In essence, offshore oil of Sarawak is very matured, combined with aging facilities and is not cheap to produce. Furthermore, the remaining reserves are not that big and continue production will require not small investment.

As for gas, he continued that gas began since mid-1980s. We are proud that not long ago, we are the largest LNG producer in the world. In terms of volumes, more than 30TCF (trillion standard cubic feet) has been produced. Remaining from it is around 20~35% of reserves that has not been produced, which is not easy to reach, small pockets of gas, has high contaminant and more costly to produce.  He mentioned that if PETROS was started 10 years ago, they would have captured more value, but Sarawak has to start somewhere. Heart of Sarawak gas is at Bintulu, where the famous MLNG, SMDS and petrochemical is there. Everyday, 4.5 BCF (billion standard cubic feet) of gas is channelled to Bintulu. However, this would pose a sustainability challenge because supply offshore cannot cope with the ever-growing demand of Bintulu. More downstream hubs are being created. Therefore, the key challenge is for PETROS and Sarawak oil and gas players to find new reserves to keep the demand being filled up.

In terms of the key part that PETROS play to meet the challenges, there are three strategic theme for the business.

1. Integrated gas. Gas business is the largest revenue generator. 
2. Oil businesss – smaller portion.
3. Onshore EP 

It is known that oil business has a smaller portion compared to gas in terms of revenue capture. He explained that with EOR and high water cut, they have to be mindful of the investment that they want to put in place with state’s fund. Therefore, the strategy is to target profitable oil business prospect as well as good revenue-generating asset.

Since onshore was left in the 1960s, utilising the latest know-hows and tools available globally today, they will look into oil space once again, probably the last chance to have a real look at it as they do not intend to leave money on the table, if it means greater benefit to Sarawak. However, with this three themes – Integrated Gas, Oil Business, Onshore EP, their participation is constrained by the organisation. Therefore, it is their utmost priority to build the capacity of their organisation since they are a startup company. Self-sustaining company is also has to be ensured whilst driving technical and operational excellence, hence the need to find the right people for the organisation.

Momas also explained how PETROS EP would look like. One question that he throws to the crowd on oil price is – “Is it lower forever or lower for ever?”. It is quite known that oil price issue has created a level of resilience of the oil and gas players that has survived through the 2015 oil price drop. Secondly, the effect of new technology and digitisation. It is common to see that company’s embrace those to drive down cost. PETROS has the opportunity to embrace this in the very beggining because they are a new company, thus positioning it to compete straightaway.

The third part of Momas’ presentation is the societal expectation, where good governance and culture of care towards the workers and protection of the environment. Many company has committed to the Kyoto Protocol and Paris Agreement, but in this day and age, it requires more than that. The next generation is quite vocal and demands that companies, especially oil and gas, energy industru demonstrate transparency in good governance and top notch safety performance and minimise impact to the environment. With that in mind, Momas explains that PETROS has been busy for the last few months to build PETROS’ organisation, putting in place key government processes, to put their systems and procedures and pulling in the right talent to help building the company and to be fit for the future (sounds familiar).

The third speaker of the forum is Peter Wong, Head of Supply Chain. His starts his talk by mentioning that the 25 booths during Sarawak Oil and Gas Seminar and Exhibition was fully booked, despite some of the companies in Sarawak are not aware of it. He briefly mentioned about many of the vendors at Sarawak does not know each other, thus the importance of get-together like this. For Sarawak, there is only abour 400 plus vendors, out of 4000 of registered vendors under PETRONAS register. That only accounts for 10% from the total of vendor at Malaysia. He encouraged vendors from Sarawak to be more proactive and to find more opportunities outside Sarawak, and even Malaysia. Also, he encourages greater participations from Sarawak vendors, especially Sarawak-based participations to create more job opportunities to Sarawakians. The most important thing is to continue to be better in what you are doing, which PETROS and vendors will work together to unlock more remaining hydrocarbon in Sarawak. He ends with “Sarawak Boleh!”.

The last speaker of the session is Kiddney Enau, General Manager of Regulatory and Compliance, the “youngest” one out of the four, because he just joined on 7th Jan 2019. Prior to that, he was the first Director of Gas under Ministry of Utility. He explaines that OMO applies to Upstream, offshore and gas processing plant, and DGO applies to downstream. It is divided into two part; firstly Economic Regulations that includes LNG Import to RGT Terminal, Power Sector, Export Large Industries, and secondly, Economic, Technical & Safety Regulations, which covers Small and Medium Industry, Commercial as well as Residential.

Now, PETROS is in the transition period and undergoing regulatory adjustment. The main focus now is to embed both OMO and DGO to applicable provision and into the relevant petroleum activities in Sarawak. That transition period, however, will end on 31st Dec 2019

OMO – on the upstream bit, is similar into other ordinance, general in nature. Therefore, when they have the engagement with the lawmaker, all of them is engineer by technical background, so the interpretation is different and they have very interesting discussion when they were discussing it. DGO only applies to the gas distrubution. Fuel is not part of DGO 2016. When they talk about DGO – they put up public notice in July 2018, when the ordinance was effective. Gas distribution part is quite small and not many people know about DGO 2016 is anyway.

His successor started on 1st April 2019, new Director of Gas Distribution. He will work closely of the new director of Gas and how they can collaborate to smoothen the process.

What follows after the presentations is the Q&A session, which many participants were waiting for, as can be seen from the peoples queueing up behind the microphones. It is quite evident that the interest on PETROS is rather high, to Sarawakians and non-Sarawakians.

First Question: Data is lifeblood of any organisation, but it was not mentioned. We have amassed 109 years of data in Sarawak oil and gas industry. We don’t seem to talk about it. So could you comment?

Momas answers it by saying data is very important, sometimes it is more important than the physical asset itself. Since PETROS is a new company, he did alluded to it when he mentioned that PETROS is going to embrace digitisation.

Previously, creating the project in digital platform is a means to and end. However, the trend the last few decade is the original digital twin with the power of digitalisation creates its own significant value. So, the question  now is how PETROS/State have or acquire the decades of centuries of worth of data from Sarawak, under purview of Petronas at the moment. PETROS want to have the direct access to those data so that PETROS can have better long term planning.

Sauu Kakok adds that it is part and parcel of the ongoing discussion, where data drives everything else. PETROS is still discussing it at the moment. What they want to do is to have access of those data and the discussion is how and to what extent will be underpin by the data. Sarawak government has the right to it, and it is part of the the big umbrella discussion where the outcome will be known within the next couple of months.

Second question touches on the PETROS’ plan with the existing license requirements in Sarawak, and does PETROS plans to add additional requirement, or plan to replace the existing PETRONAS license?

The answer from Sauu is no plan to replace the existing PETRONAS license. Two guiding law that PETROS need to adhere to, i.e. OMO and DGO. PDA (Petroleum Development Act 1974) is still there as well. Therefore the aim is for PETROS to not to overcomplicate the processes, but to make it simpler while putting compliance to state and federal law in mind.

Added by Peter is also that this also applies to vendor as well. A lot have asked them whether to register with PETROS or not. To ensure business continuity, vendors will continue to use the existing process, but to make it much more simpler as they do not want to add further cost point to the vendors.

Third question is asking what does PETROS wants to be? Do they want to be like PETRONAS or being PETRONAS Operating Arms? Second part to the question is inquiring on the compliance of the State and Federal Law, where does PETROS divide the line?

Answer from Sauu Kakok is that since all of them engineers by background, they takes advise from the state government on the interpretation and implementation of OMO and DGO. Discussion that is ongoing, and they have the top two Legal mind in the team, as well as the state legal advisor. Thus, they advise is taken from them. PETROS is really there to implement the Sarawak’s mandate to them to implement. Again, he emphasised that state aspiration is greater revenue and greater participation of Sarawakians in Oil and Gas business.

Fourth question, first part, from putting on a date of 31st Dec 2019, what will happen next? Investors would really like to know  what is next. Second part of the question is, with the current situation, word “disruptor” is the best word to describe the key management and PETROS as they are disrupting the current oil and gas industry (though not really specified where by the speaker). For the past one year also, there has been so much secret by PETROS. As for the investors and vendors, it is good to have this kind of session from time to time.

That bold question was answered by Sauu, saying that they fully recognised the silence, which is deliberate since they have a lot of moving parts, which includes engagement with the right authorities to move forward. The intent of the 31st Dec 2019 grace period is to accelerate the process and to allow the implementation of what is being done by state and federal in timely manner. He said that PETROS will communicate ahead of time to which the time and changes. Thy will not flip over to new processes once the 31st Dec 2019 is met and their commitment is to ensure smooth transition moving to 2020.

The fifth question from the crowd is on the licensing method, where it is not really clearly stated whether to embrace the PETROS license or PETRONAS license? Also, who actually owns Sarawak oil and gas resources.

Answer from Sauu is PETROS is not to decide who owns Sarawak oil and gas resources. However, as mentioned earlier, they do take guidances and advises (from State legal advisor) and implement it to achieve state’s aspiration within the framework, which is greater revenue to the state and more involvement of Sarawakians in the Sarawak oil and gas industry. With the current setup, the one strong differences is that state has a role in approving the decisions moving forward. Peter Wong added that in terms of vendor registration, the main thing is to ensure business continuity. Process will remain the same to not to burden the vendors, and this is to ensure that more Sarawak contractors involved in the higher value contract.

One final question from the crowd inquires about effort to put in place organisations’ move to sustainability? Employee creativity is important, and should be put in place to positively impact oil and gas sector.

This question was taken up by Momas, which explains that roughnecks and “cowboy approach” might have worked in the past, but those talents today will not survive. It is a challenge in the oil and gas industry, where the most of the players are the tail end of their careers, and the new generation graduates are less inclined to join oil and gas industry. Therefore, PETROS need to create a diversed team that is dynamic for the future. Since they are just beginning, it is a golden opportunity to start it right. Sarawak has no lack of talents to run a company, and we have talents all over the world, working in oil and gas industry. The trick is to bring them back and entice them to contribute back to Sarawak. Also, it is one of PETROS’ agenda to reach out to the local space in terms of the local university and institute to groom innovative talents for sustainability for the future of Sarawak oil and gas.

Adding to the point, Sauu also jokingly explained that they are “dinosaurs”, because their approach is different in the past, as the future will employ artificial intelligence (AI) that requires different mindset to work. Also, PETROS would need more time to ensure that local universities’ in Sarawak expectation aligns with them and the industry’s evolving needs in the longer term, the skillset required and thus ensuring it is fully align in how we will run the business safely in the future.

With those words from Sauu, that marks the end of the session with PETROS for the seminar. With the arrival of PETROS, it marks a more exciting part of the Sarawak oil and gas industry. Who knows what might come next for Sarawak?

The general impression after the session is that many were quite happy with the session with PETROS top management because this gave them more understanding on what PETROS is going to do next, even though there are still many works required, particularly building up a solid team to really benefit Sarawakians.

As a parting words for now, it is crucial for the younger generations to learn and equip themselves for the growing needs of the future. One thing that I always see as a shortcoming is the ability to communicate fluently in English. This is not just for the sake of showing off, but to ensure marketability. Combined with solid technical skills in engineering, legal, marketing, one can easily become deehto for the future. Most importantly, one needs to have the desire to learn more and improve to be more competent.

Being there, I also took the opportunity to capture few images of the interesting peoples there. Until next time, take care!

Your tukang rantek,

Claudius

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