KUALA LUMPUR (Feb 7): Petroliam Nasional Bhd (Petronas) intends to right-size its workforce in view of an evolving and increasingly challenging global operating environment, said its president and group chief executive officer Tan Sri Tengku Muhammad Taufik.

"This is not a retrenchment; it is a right-sizing workforce exercise," Muhammad Taufik told a media briefing on the planned exercise. “This is to ensure the survival of Petronas in the coming decades. If we don't do it now, there will be no Petronas in 10 years." The national oil firm just celebrated its 50th anniversary last year.

The number of jobs affected is not known yet, as the new structure will only be out in the second half of the year, he said. 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 year end.

The exercise mainly aims to reduce “enablers” — meaning those in administrative roles — whose ratio relative to the group’s workforce stands at above 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.

The national oil firm had a town hall meeting on Wednesday (Feb 5) to announce the workforce right-sizing exercise.

Muhammad Taufik stressed that the right-sizing is not a result of the Sarawak government’s request to take over the gas aggregator role in the gas producing state from Petronas.

He said it is better to make such a move when the company is financially sound, instead of waiting until Petronas is forced to cut jobs due to shrinking business, when it will not have room to manoeuvre.

Muhammad Taufik, who has been at the helm of the national oil company since July 2020, said this is a hard and bitter pill that Petronas has to swallow in view of the fast evolving and challenging operating environment globally.

Upstream development projects will be more risky and difficult due to geological factors, which will eat into Petronas’ share in its production sharing contracts (PSCs) as its partners will require a bigger share for the high risks they need to bear.

Subsequently, the lucrative margins Petronas enjoys now will shrink over the years, to low double digits from above 20% currently, he added.

Moving forward, he said Petronas cannot be confined to only a few products. The trend is to provide a complex web of products to clients, Muhammad Taufik said, citing blue ammonia as an example. It is clean gas produced from hydrocarbons, whose carbon dioxide component is separated and stored using carbon capture, utilisation and storage (CCUS) technology.

Hence, Petronas has to be cost-efficient and nimble to respond to new market dynamics, Muhammad Taufik said. For the Fortune 500 company to remain viable, it must “go sharp and fast”, and operate in a cost-effective manner, he said.

The right-sizing will be transparent, Muhammad Taufik said, adding a task force will be formed to undertake the exercise.

An accountant by training, he stressed that the right-sizing is not to cut costs to achieve certain profit targets.

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

Shell’s job cuts, announced in September last year, involved 20% of its workforce in two subdivisions responsible for exploration. ExxonMobil expects to slash nearly 400 jobs by 2026 as part of its operation integration, following the acquisition of a shale producer in Texas.

Petronas' last such review was in 2016, at the peak of a downturn, when it announced 1,000 job cuts that represented less than 2% of its over 50,000 workforce then.

As its oil and gas sale and distribution exposure narrows, Petronas’ long-term role could focus on upstream exploration, as well as processing products from hydrocarbons, in line with its petrochemical segment’s expansion into specialty chemicals. The group is also looking at commercialising technology, best practices, and renewable energy.

In its growth journey, Petronas has incurred high consultancy costs and could do more in centralising its applications and processes, its staff heard during the town hall meeting on Wednesday. There was red tape, including too many committees, that slowed the decision-making process.

Petronas’ average cost per barrel is around US$50 (RM222). Brent crude was trading at US$74 per barrel at the time of writing on Friday.

On top of the long-term oil price downtrend, market uncertainties include the potential for lower-cost producer Russia to supply hydrocarbon to its allies, including Petronas’ clients, as well as the possibility of a drilling bonanza in the US as endorsed by President Donald Trump, the staff were told.

The national oil company, which has channelled RM1.2 trillion to the government since its inception and RM235 billion worth of dividends in just the last five years, has been weathering multiple headwinds over the past decade.

Besides oil price volatility and rising scrutiny towards carbon emissions, which led to higher operating costs and tighter financing conditions, Petronas has had to contend with volatility in petrochemical demand, higher dividends to the federal government, and higher oil revenue and sales tax paid to Sabah and Sarawak in response to demands for a fairer share of resource revenue under the Malaysia Agreement 1963.

It is also facing depleting hydrocarbon resources in Malaysia, and is competing with other energy giants in green energy. It is spearheading one of the largest offshore deepwater carbon capture projects in the world in Sarawak, to prepare for the global energy transition.

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.

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