{"id":2099,"date":"2015-12-06T21:50:47","date_gmt":"2015-12-07T02:50:47","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/petronas-managing-volatility-through-forward-integration\/"},"modified":"2015-12-09T22:26:13","modified_gmt":"2015-12-10T03:26:13","slug":"petronas-managing-volatility-through-forward-integration","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/petronas-managing-volatility-through-forward-integration\/","title":{"rendered":"PETRONAS: Managing Volatility Through Forward Integration"},"content":{"rendered":"

OPEC\u2019s no ceiling rule throws world\u2019s oil trade into chaos<\/em><\/strong><\/p>\n

OPEC on Friday, Dec 04 2015 decided that it will no longer impose a production ceiling to its members to control global crude oil prices. The current oversupply has sent the prices of global oil benchmark such as Brent and WTI tumbling, severely cutting the profits of oil majors and plunging the currencies of crude-dependent countries such as Mexico and Russia. PETRONAS, the oil giant of Malaysia, faces similar challenges. [1]<\/sup><\/p>\n

Steering the rough sea<\/em><\/strong><\/p>\n

\u201cWhen 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.\u201d \u2013 Wan Zulkiflee Wan Ariffin, CEO & President of PETRONAS<\/em> [2]<\/sup><\/p>\n

PETRONAS is a fully integrated oil & gas company engaged in broad spectrum of upstream and downstream activities, from exploration, development, and production of oil & gas, to liquefaction and sales & marketing of natural gas, refinery and petrochemical operations, and marketing, sales and trading of refined petroleum products.<\/p>\n

Maximizing people\u2019s resource for the people<\/em><\/strong><\/p>\n

As a fully integrated oil & gas company, PETRONAS creates value through value add processes along the hydrocarbon value chain. Its business model is best summarized by its vision and mission:<\/p>\n

Vision: To be a leading multinational oil & gas of choice<\/em><\/p>\n

Mission: We are a business entity, petroleum is our core business, our primary responsibility is to develop and add value to this national resource, and our objective is to contribute to the well-being of the people and the nation.<\/em> [3]<\/sup><\/p>\n

Driving operational synergies through forward integration<\/em><\/strong><\/p>\n

In order to better respond to the high volatility surround global crude prices circa end of 2014, PETRONAS undertook a Corporate Enhancement Program (CEP) to realign its operating strategy and business model. CEP aimed to improve PETRONAS\u2019 operations through (i) the demarcation of its international and regional upstream operations; (ii) integration of exploration and production operations and its sales of natural gas and LNG into single Upstream Business unit; and (iii) streamlining and optimization of Downstream Business unit. [4]<\/sup><\/p>\n

Upstream:<\/em> PETRONAS\u2019 upstream business includes exploration, development, and production of crude and natural gas in its country of operations. Recently, with acquisition of Progress Energy in Canada, it had also ventured into Unconventional Hydrocarbon. It is also the third biggest Liquefied Natural Gas (LNG) producer in the world, with LNG operations located both in Malaysia and selected international operations.<\/p>\n

Downstream:<\/em> PETRONAS\u2019 downstream business includes refining and marketing of petroleum products, manufacturing and selling of petrochemical products, and trading crude oil, petroleum and petrochemical products. The downstream segment also includes management of infrastructure such as that used in the processing and transmission of natural gas and LNG regasification, power production and other utilities and technical and engineering services for PETRONAS\u2019 own operations.<\/p>\n

\"PO\"<\/a><\/p>\n

[click to enlarge] PETRONAS’ Integrated Business Model<\/em><\/p>\n

Managing global footprint and profitability<\/em><\/strong><\/p>\n

Since its inception in 1974, PETRONAS has grown to become a multinational oil major with operations in over 65 countries. [5]<\/sup><\/p>\n

Its success over 40 years of operation can be attributed to the following strategic choices that PETRONAS has made to align its mission, strategies, and operating model:<\/p>\n