Fall in oil price becomes opportunity for Malaysia's Petronas

In the driver's seat: Datuk Wan Zulkiflee Wan Ariffin, president and CEO of Petronas

The chief executive of Malaysian energy giant Petronas is using the sliding oil price to push the boundaries on innovation while reining in costs.

This article is from the December 2015 issue of INTHEBLACK

Datuk Wan Zulkiflee Wan Ariffin took stewardship of Malaysian state-owned oil and gas giant Petronas on 1 April 2015, a day known in many parts of the world as April Fools’ Day. The irony is not lost on the company veteran, given the tough trading conditions Petronas is battling on the back of a sustained slump in the price of crude oil.

It has made his role of president and chief executive an even greater challenge. Wan Zulkiflee is shepherding the company’s 51,000 employees in 75 countries through a thorough and very public cost-cutting drive. He’s also responsible for contributing a large chunk to the Malaysian Government’s coffers – 30 per cent of government revenue came from Petronas in 2014, down from 40 per cent in 2009. 

Against this, the crude oil price has dropped by about 50 per cent since mid-2014, largely due to an over-supplied market. Prices spent much of 2015 below US$50 a barrel and, while they’ve recovered at times over the past 12 months, analysts believe it will be many years before oil again fetches US$100 a barrel.

As a full-service oil and gas company, Petronas’s operations cover exploration, production and delivery of energy. It is one of the most profitable enterprises in Asia, with 2015 revenue of US$100 billion and a 2014 ranking by Fortune as the world’s 75th largest company.

Lewis Hamilton, right, and Nico Rosberg celebrate their success in the 2015 Formula One Australian Grand Prix

Lewis Hamilton, right, and Nico Rosberg celebrate their success in the 2015 Formula One Australian Grand Prix

Twenty years ago, Petronas began an association with Formula One (F1) motorsport, a branding exercise that has grown into a significant opportunity to innovate in a real-time, high-octane environment. F1 demands precision products and excellence in delivery – a good fit for Petronas’s reputation as an industry leader in innovative lubricants.

The company is also bolstering its maxim of “Reimagining Energy” by repurposing trackside intelligence for use in passenger vehicles. Its partnership with the Mercedes AMG team and sponsorship of the Malaysian Grand Prix have cemented its name in F1 for many years to come.

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So, what is the outlook for the oil and gas sector? Wan Zulkiflee says that, given that many innovative energy products are still being fine-tuned and overall demand for energy remains high, fossil fuels will be part of the energy mix for many years to come. He adds that technology is enabling companies like Petronas to dig deeper and more efficiently to meet continued consumer demand.

Wan Zulkiflee spoke with former CPA Australia chief executive Alex Malley during CPA Congress in Kuala Lumpur.

Alex Malley: I’d like to take you back to your younger days when you came to Australia to study. Was engineering something you were always interested in studying and how did you find living in Australia?

Datuk Wan Zulkiflee Wan Ariffin: I was under a Malaysian Government scholarship, so I did my matriculation in Adelaide. My parents encouraged me to do medicine but I thought six years was too long! So I opted for chemical engineering.

Language wasn’t a problem and I thought the society was very interesting. My first observation would be how sports take centre stage in Australia as compared to here. It’s a very open and outdoor society, more than what we have back home. 

The teaching is also very different – back here, it’s more exams-oriented. Over there [in Australia], it’s still exams-oriented but the engagement in class is a lot different than
what we are used to here in Malaysia.

Malley: You’ve been CEO of Petronas for nearly nine months now – what have been your earliest observations?

Wan Zulkiflee: I took on the role at a very interesting time. I assumed the position on the first of April ... April Fools’ Day. That was the very same day when Malaysia introduced the GST. It’s also the same day 32 years ago that I joined the company.

Managing costs and innovation

Malley:
When you took on this role, crude prices had been dropping and it was a difficult time for the sector. You’ve been looking at cost cutting to become more effective. How’s that been going?

Wan Zulkiflee: It’s been a very challenging few months and we are the same as any other oil company. So we are using this opportunity to cut out many of the inefficiencies that we unfortunately have in the organisation and also in the oil and gas industry in Malaysia in general. We’ve got a compelling reason now; we’ve got a rallying call to look at the way we do things, to look at our cost structure and where we are spending our time. 

It’s public knowledge also that we have called in our service providers to say, “Look, we are here for the long term so it’s for everybody’s mutual benefit that we stay long term.”

Essentially, we got very good revisions [on Petronas’s contracts with those service providers]. It’s not only us; I think it’s across the board in the oil and gas industry everywhere.

Internally, we also looked at many things that we do differently. When you really push and stretch, you come up with innovative ways of doing things and I very much encourage that.

Malley: Anyone can manage success. It’s at the end of the success curve where we can get lax and fall, and when we fall is the opportunity to be innovative. Where have you seen opportunities for innovation? 

Wan Zulkiflee: When people talk about innovation, they think about our technology etc, but I think we stretch the definition. Innovation is also in the way that we manage our talent, our planning and budgeting. These are not so obvious but they are culturally important.

As an organisation, you need to provide the platform and you need to tolerate some mistakes along the way.

Talent management and teamwork

Malley:
You have been at Petronas for more than 32 years, and when you became CEO you knew so many of the staff. How did you find that culturally – to be working within a team and then to be ultimately in charge of the team?

Wan Zulkiflee: At Petronas, succession planning comes from within. Essentially, most of the management team grew up together; we know our weaknesses and we know our strengths, and I think that gives us a lot of advantage. The teamwork we have is excellent and that is a strength, actually.

Having said that, from time to time we’ve taken in seasoned players from other organisations; they bring new blood, new thinking to the organisation. We also make a point of moving people around the company. We spend a lot of resources on talent management – we have a good leadership pool.

Having good talent will really differentiate the company.

Malley: What sorts of things are you doing that enhance talent management?

Wan Zulkiflee: Last year alone, we spent 500 million ringgit  [A$166 million] on training and leadership development. That’s a fairly sizeable investment; it’s a serious undertaking.
My ex-co [executive committee] spends at least half a day every month discussing talent; what are their development plans and who do we think can take over our positions? We have a very low attrition rate.

Opportunities in the region

Alex Malley and Datuk Zulkiflee

Alex Malley and Datuk Zulkiflee

Alex Malley and Datuk Zulkiflee

Malley: You’ve said publicly in recent times that Malaysia’s oil and gas companies need to be more collaborative to navigate these tough trading conditions. What would that look like in a perfect world?

Wan Zulkiflee: We are in a period now where inefficiencies that are not so obvious when times are good start to show up. If we take five or seven years ago, the cost of doing business really went up in tandem with the price of crude. But when the crude price came down, the cost was very sticky.

So this is the time where, as a whole industry, there are a lot of opportunities. We look at the Malaysian oil and gas industry and it is just too fragmented; you’ve got too many small companies. Essentially, this will be an opportune time to conglomerate and have the critical mass to be competitive, not only in Malaysia but also probably the region.

Leadership and integrity

Malley: When you look back at your career and you think about being a young leader, what have you learnt about leadership over those years? 

Wan Zulkiflee: I had the opportunity of working with many of the leadership team in Petronas over the years. But what I’m  really convinced about is that the management style today has to be different. 

The demographics of the organisation really pushes the management gap. Today, 55 per cent of the Petronas population is under 35 years old. The style that worked for us 25 or 30 years ago will not work today. We were very dictatorial or authoritarian during the early years; that was the kind of management that was required at that time.

When you first started, there was no strategy, no plans. Today, I believe a different kind of management is required. People are better qualified. A big thrust with my leadership team is to accept that, as a group, we must change our style, so we place a lot of time in changing the culture of the organisation. That’s very important.

As for my style, I don’t really micromanage; the teams are empowered. I have a few conditions that I’ve set for them – I need line of sight and I need them to justify the decisions they make. 

There are very few occasions where I deep dive. It’s important to know when to deep dive and when to step back. Same with my ex-co – we agree, we disagree, but we must commit when we go out. The messaging is so key.

Malley: Petronas was created through legislation with specific guiding principles. Tell me how they fit into the organisation’s culture.

Wan Zulkiflee: The Petroleum Development Act in 1974 gave birth to Petronas. Through that Act, we were vested the rights to exploit, explore and manage all the country’s resources and to be the responsible manager of those resources. When you are given such a position of trust, integrity is very important.

The chief integrity officer reports in to me; she is a secondee from the Malaysian Anti-Corruption Commission. Messaging and creating the environment in which we have zero tolerance of corruption and bribery are very important.

Future of the industry

Malley: If you look into your crystal ball what do you see for the future of the oil and gas sector, especially if you consider the likes of [electric car company] Tesla and other innovative technology providers? 

Wan Zulkiflee: Fossil fuels will still play a very big role. If the Teslas of the world achieve real development in terms of storage, that could change; but I think fossil fuels will still play a big role.

Malley: What does the world supply of fossil fuels look like?

Wan Zulkiflee: When I joined the company, we had an ROP [Reserves Over Production] figure in Malaysia of 17 years.

I’ve been in the company for 32 years now and we still have an ROP in the double-digits. It all depends on the market – on the affordability in the market – because there will be high costs with all the inefficiencies.

There is still a lot of oil the deeper you go and we have deep waters here. In Malaysia, we have got close to two kilometres of water depth and that’s to the seabed, and then we go down further.

Technology plays an important role. Of course, it’s a finite resource; it’s a depleting resource. But I think the market will adjust itself to that.

Leveraging off Formula One

Petronas has been involved in Formula One (F1) for 20 years and is the most visible energy company associated with the sport.

In 2010, it teamed up with Mercedes AMG and in October won the 2015 Constructors’ Championship. Drivers Lewis Hamilton and Nico Rosberg are rarely far from the podium. 

The association with F1 has been the driving force behind the technical advances Petronas has made, particularly in its lubricants business.

That technical relationship has recently extended to a business alliance with Mercedes-Benz. The cutting-edge technology developed trackside for the F1 cars has been transferred into creating class-leading lubricants for passenger cars.

Says Wan Zulkiflee of Petronas’s involvement in F1: “It is part of our corporate branding. I don’t think we would be able to get that kind of exposure across the world.

“Not only that, there are some business propositions we leverage a lot – we supply all the fuels and lubricants and we do a lot of research. We’ve got a mobile institute lab for the testing of the lubricants at every race; we do real-time testing. We get a lot of data and what we learn is also transferred back for the consumers to experience.”

Looking after the locals

Wan Zulkiflee: Part of our mission statement is to contribute to the wellbeing of society. This is not only for Malaysia; we contribute to any location that we operate in. We give education sponsorships to an average 300 students per year. Some we send to our own university – the Universiti Teknologi Petronas [in Malaysia] – some are for overseas. We also provide scholarships to the locals where we operate.

This article is from the December 2015 issue of INTHEBLACK

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