Problem with Petronas is lack of disclosure

Problem with Petronas is lack of disclosure

P Gunasegaram
Published: Feb 14, 2025 8:00 AM
Updated: 11:00 AM


COMMENT | Despite the extensive reportage of its activities and segmental breakdown, the problem with the national oil corporation Petroliam Nasional Bhd or Petronas is its lack of disclosure in terms of its profits according to geographical location.

Without that disclosure, it is impossible to determine how badly it is doing internationally and where. Under open competition, Petronas is unlikely to be doing well in the international arena because it simply does not have the scale that oil majors such as Shell, ExxonMobil, and BP have.

A multitude of ills, misfortunes, misreadings, and mistakes can be hidden from the public eye, making it impossible to determine which of its operations geographically are very profitable, which are less so, and which are making losses.

Its problem is not, or to be more precise, not yet Sarawak and eventually Sabah, which account for most of its Malaysian petroleum and gas assets and profits. Both states are angling for a bigger share of that pie. That’s a topic for another day.

The government’s position remains that under the Petroleum Development Act (PDA) of 1974 which established Petronas, all petroleum-based assets in the country are vested with Petronas.

Any change to that will require an amendment to the PDA. So far, there’s no sign it's being done.

Staff cuts

Last week, its president and CEO Tengku Muhammad Taufik said Petronas is looking to cut staff to ensure it can continuously contribute to nation-building. But really, he should explain what is causing Petronas’ troubles first in clearer terms.

“Petronas is a national oil company but it has always operated as an international oil company. And our competitors have made such tough decisions as well,” he said at an editors’ briefing in Kuala Lumpur.

He added that margins (after-tax profit as a percentage of revenue) were as high as 40-45 percent before but now they are as low as 20 percent. “The current margin projections could even go down to 16-18 percent,” he said.

This is illustrated in the diagram obtained from a Petronas announcement. It shows that Petronas’ margins were at or below its peer group, which included BP, Shell, and ExxonMobil.

However, Petronas’ so-called peer group is not a good comparison because, in Malaysia, Petronas’ petroleum and gas assets are owned by it - the other so-called peers typically don’t own assets, they are contractors.

Thus, Petronas’ Malaysian margins should be as much as two or more times the peer groups. But they are not. Why?

International losses?

The only possible explanation is that their international operations have very low margins and may even be making losses in some areas. This is not an outlandish assumption; it’s a fact that Petronas lost billions in its Canadian LNG operations as explained in this series titled Petronas in Canadian Conundrum by Kinibiz nearly 10 years ago.

Sadly, the situation still prevails with insufficient information making analysis difficult. Petronas needs to be more forthcoming with these if it wants to be a truly transparent and accountable organisation. Right now, it is not.

Petronas’ international operations have expanded over the years since then-prime minister Dr Mahathir Mohamad allowed it to go overseas under his grandiose plans from the eighties and nineties onwards.

Now, they are substantial, as indicated by Petronas’ overseas capital expenditures or capex. (See chart from Petronas below).

International capex matched domestic capex, but we don't know exactly how much profit each is making - the revenue and profit breakdowns are not available publicly.

Their geographical breakdown only lists revenues according to customer locations, crucially not according to the areas which generate them - a clear attempt to fudge figures.

Need to be forthcoming

So, until Petronas is more forthcoming with their figures we need to guess as to how well they are doing overseas and domestically. Our bet is on great domestic profits and poor international performance.

Petronas is the only Fortune 500 Malaysian company, ranked 167 in terms of revenue. In 2023, it made a net profit of RM80.7 billion, a fifth down from 2022’s RM101.6 billion. In the first half of last year, it made RM32.4 billion, down a fourth from the previous half’s figure of RM40.2 billion.

It is yet to report its full-year results for 2024.

Since its inception, it has contributed RM1.5 trillion to government coffers, a huge figure. It is a major government company and it needs to be run well. For that, it must be more forthright, open and honest with its disclosures.

Otherwise, the public will rightly start asking questions. Better to disclose everything now rather than be caught with its pants down later.



P GUNASEGARAM holds the Chartered Financial Analyst designation issued by the CFA Institute. He was previously head of equity research at brokerages in Malaysia.