THREE oil and gas companies — South Korea’s Hyundai Heavy Industries Co Ltd; a joint venture between Italy-based Saipem SpA and SapuraKencana Petroleum Bhd; and a partnership between Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) and France’s Technip SA — have been prequalified for the US$1.5 billion Kasawari central processing platform (CPP) contract put out to tender by Petronas, sources say.

Among the parties that did not make it past the prequalification stage is the joint venture between TH Heavy Engineering Bhd and Houston-based McDermott International Inc.

“Prequalification has been concluded and bidding is in progress and being evaluated now. [The contract] could be [awarded] sometime in April this year,” a source says.

All three companies are said to be neck and neck and considering that Petronas’ main criterion now is price, it is likely to be an open race.

Kasawari will be the fourth of five CPP contracts to be awarded by Petronas. The contract for the SK-316 field went to Technip and MMHE while those for Bergading and Baronia were secured by Hyundai. The fifth CPP contract for the Sepat field is likely to be awarded late this year.

Some local companies have suggested that they be allowed to at least match the bids of the foreign companies. However, there is no indication to date of Petronas bowing to political pressure. 

With the price of oil falling, Petronas intends to cut its capital expenditure by between 15% and 20%. According to recent news reports, the national oil company may even slash its operational expenditure by 25% to 30%.

Brent crude price has plunged more than 55% over the past year and it dipped below US$50 a barrel last week after hitting a high of US$115.71 in June last year. Last Friday, prices stood at just above US$50 per barrel.

As both Technip-MMHE and Hyundai have already been awarded contracts by Petronas, Saipem-SapuraKencana could be the next to benefit.

Meanwhile, even MMHE, which is indirectly controlled by Petronas, has been struggling and has offered its staff severance packages. The company is 66.5%-controlled by MISC Bhd, which in turn is 62.7%-owned by Petronas.

The national oil company has in the past come under fire for awarding jobs to foreign companies such as Hyundai. These awards are said to have resulted in Malaysian companies that did not win the contracts labouring to make ends meet. However Petronas has stood firm, looking at improving its cost efficiency.

Payments by Petronas to the government in the form of dividends, taxes and royalties could drop as much as 37% to RM43 billion this year if oil prices remain at around US$75 a barrel.

In 2013, Petronas paid the government some RM63 billion, contributing 29.5% to its revenue. The sum comprised RM36 billion in tax income and royalties, and RM27 billion in dividends.

However, The Edge understands that Malaysian oil and gas companies are planning to collectively lobby the Ministry of Finance (MoF) to ensure that Petronas contracts are not awarded to foreign companies.

The two main oil and gas associations are the Malaysian Offshore Contractors Association and Malaysian Oil & Gas Services Council.

Late last year, the MoF had asked government-linked companies (GLCs) to refrain from acquiring assets in foreign countries in order to stem capital outflow.

The GLCs were “requested to give priority to domestic investment activity and postpone or put on hold [the] purchase of assets or investments abroad”.

In this vein, the local oil and gas companies argue that Petronas too should not award jobs to foreign companies.

Until late last week, the letter from the oil and gas associations had yet to be delivered to the MoF or other government bodies.

Those supporting the local oil and gas companies include former prime minister Tun Dr Mahathir Mohamad, Malay rights groups such as Perkasa and a host of companies previously employed by Petronas that had benefitted from the allocation system.

Rumours are rife that Petronas’ current president and CEO Tan Sri Shamsul Azhar Abbas, who has borne the brunt of the criticism directed at the oil company, will have his contract extended when it expires next month.

But whether he will stay on in such tough circumstances remains to be seen.

This article first appeared in The Edge Malaysia Weekly, on January 12 - 18 , 2015.

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