Petronas: Survival in Question?

Since the enactment of the Petroleum Development Act 1974 (PDA), Malaysia's petroleum revenues have been a significant contributor to the country's economy. The PDA established Petronas (Petroliam Nasional Berhad) as the national oil company, granting it exclusive rights to explore, develop, and manage Malaysia's petroleum resources. Over the decades, petroleum revenues have played a crucial role in Malaysia's economic development, funding infrastructure projects, government expenditures, and national savings.

Petronas has been one of the largest contributors to Malaysia's federal revenue. On average, it has contributed 20-30% of total federal revenue annually, though this figure fluctuates depending on global oil prices and production levels. In recent years, Petronas’ contributions have ranged from RM50 billion to RM80 billion per year, depending on oil prices and production volumes. 

Source: https://en.wikipedia.org

Since its establishment in 1974, Petronas has generated trillions of ringgit in revenue from oil and gas production, exports, and related activities. For example, between 2010 and 2020 alone, Petronas contributed over RM800 billion to the federal government in the form of dividends, taxes, and royalties.

Malaysia's petroleum revenues are heavily influenced by global oil prices. For instance, during periods of high oil prices (e.g., the 2000s and early 2010s), revenues surged, while periods of low oil prices (e.g., 2014-2016 and 2020) led to significant declines. The COVID-19 pandemic in 2020 caused a sharp drop in oil prices, reducing Petronas’ revenues and contributions to the federal government.

Under the PDA, oil-producing states like Sarawak, Sabah, and Terengganu receive a 5% royalty on oil and gas production. This has been a point of contention, as states argue that the royalty is insufficient. The federal government retains the majority of petroleum revenues, which are used for national development, subsidies, and other expenditures.

In 2022, Petronas reported a record profit of RM101.3 billion, driven by high global oil prices following the Russia-Ukraine conflict. This resulted in a significant increase in contributions to the federal government. However, the long-term sustainability of petroleum revenues is a concern, as Malaysia's oil reserves are gradually depleting, and the global shift toward renewable energy could reduce demand for fossil fuels.

While exact figures are not publicly available, conservative estimates suggest that Petronas has contributed over RM2 trillion to Malaysia's federal revenue since 1974. This includes:

(i)              Dividends

Petronas has paid substantial dividends to the federal government, often exceeding RM20 billion annually in recent years.

 

(ii)            Taxes and Royalties

The company also pays corporate taxes, petroleum income tax, and royalties to the federal and state governments.

(iii)     Export Earnings

Malaysia is a major exporter of liquefied natural gas (LNG) and crude oil, generating significant foreign exchange earnings.

 

Meanwhile, Petronas intends to right size its workforce in view of an evolving and increasingly challenging global operating environment, according to its president and group CEO Tan Sri Tengku Muhammad Taufik. 

The number of jobs affected is not known yet, as the new structure will only be out in the second half of the year. Once the structure is out, certain employees will be redeployed to new roles while some will be displaced. The exercise is expected to be completed by end 2025. 

The exercise mainly aims to reduce the number of “enablers” — meaning those in administrative roles — whose ratio relative to the group’s workforce is above the industry average. There are currently 15,000 to 16,000 enablers in Petronas, as opposed to its global workforce of 52,000 to 53,000 people. 

Petronas is not the only oil company that is trimming its staff. International oil giants such as Shell and ExxonMobil have also implemented job cuts recently, hit by rising volatility and the long-term decline of oil prices, amid a global push for decarbonisation and green energy. (Petronas is facing the cessation of its gas aggregator role in Sarawak). 

Shell’s job cuts, announced in September 2024, involved 20% of its workforce in two subdivisions responsible for exploration. ExxonMobil expects to reduce nearly 400 jobs by 2026 as part of its operation integration. 

Petronas’ average cost per barrel is about US$50. Brent crude was trading at US$74 per barrel recently. On top of the long-term downward trend in oil price, market uncertainties include the possibility of lower-cost producer Russia supplying hydrocarbon to its allies, including Petronas’ clients, as well as the chance of a drilling bonanza in the US. 

For the six months ended June 30, 2024, Petronas booked a net profit of RM32.38 billion on revenue of RM156.9 bil­lion. Capital expenditure totalled RM25.72 billion. Its cash balance stood at RM217.44 billion as at end-June, against borrowings of RM114.59 billion, giving it a net cash position of RM102.85 billion. 

Unlike Norway, we don’t have a good sovereign wealth fund. Khazanah supposedly acts like one! And 1MDB was a joke! So, unless we save and invest in “safe” assets we will be like the U.K. or Nigeria – wasted opportunities! 

Reference:

Petronas rightsizing workforce to “ensure survival”, says group CEO, Adam Aziz and Kathy Fong, The Edge Malaysia, 18 February 2025