No job and pay cuts at Petronas, but challenges remain

The shift towards RE worldwide will pose more challenges to Petronas in the future

by AZREEN HANI / pic by BLOOMBERG

PETROLIAM Nasional Bhd (Petronas) is not expected to reduce the number of its workforce at the moment, despite the layoffs reported in the oil and gas (O&G) industry globally due to weaker energy prices and demand.

In its response to The Malaysian Reserve’s (TMR) query, Petronas stated in an email that “there is no such plan at this juncture” for the company to impose any pay cut or freeze in new hiring.

It was reported that more than 400,000 O&G-related jobs have been axed worldwide this year, and they include major players such as Exxon Mobil Corp and Royal Dutch Shell plc.

According to a source close to the development, there had been a proposal for Petronas to trim its pay, but it was rejected as the quantum would have little effects to the firm’s financial performance.

It is also learned that there were also discussions for a voluntary separation scheme (VSS) to be offered for employees aged 50 and above, as well as standard VSS for non-performing employees.

For the third quarter this year, Petronas reduced its net loss to RM3.37 billion from RM21.04 bilion net loss in the previous quarter.

Its revenue for the current quarter stood at RM41.1 billion, lower by 25% from RM55.1 billion in the corresponding quarter last year, mainly due to lower average realised prices for major products.

However, industry experts believe the shift towards renewable energy (RE) worldwide will pose more challenges to Petronas in the future.

AxiCorp Financial Services Pte Ltd chief global market strategist Stephen Innes said the writing is on the wall for the O&G industry, if weaker demand persists.

“I think job loss will be an industry-wide phenomena, not just Petronas. Performance will be very much dependent on cost cutting rather than revenue generated, with oil prices so low,” Innes told TMR in an email reply.

He added that the biggest challenge for Petronas right now would be to play catch-up with the bigger oil companies that are divesting into green energy.

“This needs to speed up transformation as the market is turning sour on fossil fuel,” Innes said, adding that the world is going to see a much faster conversion to green energy than anyone had even imagined pre-Covid-19.

Another industry expert, Renato Lima de Olivera of the Asia School of Business, said this year has been unprecedented for the industry because it had both a supply and a demand shock, putting more challenges for national oil companies like Petronas or Saudi Aramco.

He said for a state oil firm, one additional challenge is its role as the custodian of the nation’s O&G and an important provider of fiscal resources to the government.

“As the world transitions to renewables, it will impact not only the direct operation of these national oil companies, but also the finances of their main shareholder — the governments.

“And, under fiscal pressure, governments will want to increase dividends from their oil companies, but the companies themselves will be generating lower revenues and will also need to invest in new capabilities to try to thrive in renewables. This is a big challenge,” de Oliveira told TMR.

He added that big international oil companies like Shell, Total SE and BP plc have made tough cuts to their O&G capital investments and accelerated their plans to become greener.

“But this will not be easy. In renewables, there are many small and agile players, so with high competition, the margins are lower than what big oil companies are used to get,” he added.


Read our earlier report

 

Petronas focused on reshaping portfolio