CRUDE OIL, FUEL PRICES, etc…

From: Addie Norazlie B Adnan (COM_PETT/EPEMSB)
Subject: PETRONAS STRIKES BACK II (PETRONAS, Crude Oil, Fuel Prices,
etc)
Importance: High

Friends n colleagues,

the excerpt below has been confirmed and verified coming from reliable
source ( thus, you may forward the mail as you like) and please bear in
mind that this is the personal view of the writer . So, to the
naysayers, politician and politician wannabe...please drop the idea that
PETRONAS is not helping the RAKYAT...

rgds

________________________________

From: Zuhaida Bt Yusoff (COM_PETT/EPEMSB)
Sent: Tuesday, 17 June, 2008 8:20 AM
Subject: FW: PETRONAS, Crude Oil, Fuel Prices, etc
Importance: High

Dear Team ,

This is written by one of my Bakti friend. He has gone into a lot of
trouble getting all the facts and figures which might help us to counter
the current most popular question " what is petronas doing for the
rakyat".

The facts would actually enlighten a lot of us too...

________________________________

From: Wilson Lee Gain Loon (CAU_MEDIARELATIONS/PETH)
Sent: 16 June 2008 17:47
To: Wilson Lee Gain Loon (CAU_MEDIARELATIONS/PETH); Lai Kar Wei
(PMU/PETH); Fariz Shahfizal B Jamean (PMU/PETH); Sh Zarinah Bt Sy
Ibrahim (PMU/PETH); Nurul Huda Bt A Mutalib (DD/PCSB); Wong Lee Jean
(DD/PCSB); Kalaichelvi R (FNA/PETH); Heah Chia Yee (DD/PCSB); Jeannie
Lee Siew Mooi (GCA_Stakeholders Mgmt/PETH); Wong Eng Yao (PMU/PETH);
Alifah Luthfia Bt Ya'cof (HRM/PETH); Anushiya Subramaniam (FNA/PETH);
Chin Hui Lin (MD/MLNG); Connie Lum Yooi Sin (XD/PCSB); Hasnih Bt
Jamaluddin (HRM/PETH); Intan Nahariah Bt Yaacob (BTD/PDB); Jacinta
Christine Roslan (HRM/PETH); Khairul Faizi B Omar (HRM/AMSB); Koi Swee
Ling (R&T/PETH); Lee Chang Quan (TFDD/PGB); Low Yeok Chin (RBD/PDB); M
Subhinor B Hassim (CPDD/PRSS); Norazlina Bt Norzuki (HRM/PETH); Nur
Atikah Bt Abu Bakar (MD/PCSB); Saifuddin B Hilmi (PMU/PETH); Sakinah Bt
M Alhabshi (MD/MLNG); Sanjeev Kumar Nanta Kumar (PMU/PETH); Shahrina Bt
A Raman (HRM/PETH); Soon Boon Hooi (BPD/MJSB); Syahril B Azmi
(TREASURY/PETH); Tung Swee Ling (FAD/PDB); Wan Wai Khen (R&T/PETH);
Zakirah Mastura Bt Ahmad Marzuki (FNA/PETH); Zuhaida Bt Yusoff
(COM_PETT/EPEMSB); Zuhairah Bt Zainalabidin (COM/MLNG)
Subject: PETRONAS, Crude Oil, Fuel Prices, etc
Importance: High

Dear all,

After reading all the chain mails and blogs, I feel called to reply,
because of the relentless attacks and allegations -- most of which are
inaccurate or baseless -- against PETRONAS.

PETRONAS' STAFF SALARY & BONUS

1) The salaries paid to PETRONAS' employees are not as high as people
think. At best, they are just industry average. And these are not
attractive enough for some who left PETRONAS to find work at other
companies (mainly from the Middle East) which are willing to pay more.
Why do they pay more? The oil and gas industry worldwide has been facing
acute shortage of qualified or experienced personnel, so most companies
are willing to pay lots of money to entice and pinch staff from their
competitors.

Bonus? There has NEVER been a bonus amounting to 6 months or 12 months
throughout the 33 years. On average, it is 2 months. But don't ever
think we don't deserve it. We more than deserve it. A lot of us work
really hard, some in the most extreme of conditions. Those who have been
to and worked in northern Sudan, for example, would testify that it's
like working in a huge blower oven. Southern Sudan, on the other hand,
is almost all swamps and mud. Imagine having to go through that kind of
heat, or waddling in muddy swamps, day in and day out.

QUALITY OF CRUDE & REFINED PRODUCTS

2) Malaysia produces about 600,000 barrels of crude oil per day (and
about 100,000 barrels condensate). Of this crude volume, 339,000 barrels
are refined locally for local consumption. The rest is exported (and
yes, because it has lower sulphur content it fetches higher prices).

Malaysia also imports about 230,000 barrels of crude oil per day, mainly
from the Middle East, to be refined here. This crude oil contains higher
sulphur and is less expensive (so the country gains more by exporting
our crudes). In Malaysia, this crude is processed by PETRONAS at its
second refinery in Melaka, and also by Shell at its Port Dickson
refinery.

Different refineries are built and configurated to refine different
types of crude. And each crude type yields different percentage of
products (diesel, gasoline, kerosene, cooking gas etc) per barrel.

But most importantly, products that come out at the end of the refining
process have the same good quality regardless of the crude types. That's
why PETRONAS, Shell and Exxon Mobil share the same pipeline to transport
the finished products from their refineries to a distribution centre in
the Klang Valley. The three companies collect the products at this
centre accordingly to be distributed to their respective distribution
networks. What makes PETRONAS' petrol different from Shell's, for
example, is the additive that each company adds.

PETRONAS' ROLE, FUNCTION & CONTRIBUTION

3) A lot of people also do not understand the role and function of
PETRONAS, which is essentially a company, a business entity, which
operates on a commercial manner, to mainly generate income and value for
its shareholder. In this case, PETRONAS' shareholder is the Government.

In 1974, when PETRONAS was set up, the Government gave PETRONAS RM10
million (peanuts, right?) as seed capital. From 1974 to 2007, PETRONAS
made RM570 billion in accumulated profits, and returned to the
Government a total of RM335.7 billion. That is about 65% of the profits.
That means for every RM1 that PETRONAS makes, 65 sen goes back to the
Government.

Last year, PETRONAS made a pre-tax profit of RM86.8 billion. The amount
given back to the Government (in royalty, dividends, corporate income
tax, petroleum products income tax and export duty) was RM52.3 billion.
The rest of the profit was used to pay off minority interests and taxes
in foreign countries (about RM7.8 billion - PETRONAS now operates in
more than 30 countries), and the remaining RM26.7 billion was
reinvested. The amount reinvested seems a lot, but the oil and gas
industry is technology- and capital-intensive. Costs have gone up
exponentially in the last couple of years. Previously, to drill a well,
it cost about US$3 million; now it costs US$7 million. The use of rigs
was US$200,000 a day a couple of years ago; now it costs US$600,000 a
day.  

A lot of people also do not realise that the amount returned by PETRONAS
to the Government makes up 35% of the Government's total annual income,
to be used by the Government for expenditures, development, operations,
and yes, for the various subsidies. That means for every RM1 the
Government makes, 35 sen is contributed by PETRONAS.

So, instead of asking what happens to PETRIONAS' money or profits,
people should be questioning how the money paid by PETRONAS to the
Government is allocated.

CRUDE EXPORTS & FUEL PRICES

4) A lot of people also ask, why Malaysia exports its crude oil.
Shouldn't we just stop exporting and sell at cheaper prices to local
refiners? If Malaysia is an oil exporting country, why can't we sell
petrol or diesel at cheaper prices like other oil producing countries in
the Middle East?

I guess I don't have to answer the first couple of questions. It's
simple economics, and crude oil is a global commodity.

Why can't we sell petrol and diesel at lower prices like in the Middle
East? Well, comparing Saudi Arabia and other big producers to Malaysia
is like comparing kurma to durian, because these Middle Eastern
countries have much, much, much bigger oil and gas reserves.

Malaysia has only 5.4 billion barrels of oil reserves, and about 89
trillion cubic feet of gas. Compare that to Saudi Arabia's 260 billion
barrels of oil and 240 trillion cubic feet of gas.

Malaysia only produces 600,000 barrels per day of oil. Saudi Arabia
produces 9 million barrels per day. At this rate, Saudi Arabia's crude
oil sales revenue could amount to US$1.2 billion per day! At this rate,
it can practically afford almost everything -- free education,
healthcare, etc, and subsidies -- for its people.

But if we look at these countries closely, they have in the past few
years started to come up with policies and strategies designed to
prolong their reserves and diversify their income bases. In this sense,
Malaysia (and PETRONAS) has had a good head start, as we have been doing
this a long time.

Fuel prices in Malaysia is controlled by the Government based on a
formula under the Automatic Pricing Mechanism introduced more than a
couple of decades ago. It is under this mechanism that the complex
calculation of prices is made, based on the actual cost of petrol or
diesel, the operating costs, margin for dealers, margin for retail oil
companies (including PETRONAS Dagangan Bhd) and the balancing number of
duty or subsidy. No retail oil companies or dealers actually make money
from the hike of the fuel prices. Oil companies pay for the products at
market prices, but have to sell low, so the Government reimburses the
difference -- thus subsidy.

Subsidy as a concept is OK as long as it benefits the really deserving
segment of the population. But there has to be a limit to how much and
how long the Government should bear and sustain subsidy. An environment
where prices are kept artificially low indefinitely will not do anyone
any good. That's why countries like Indonesia are more pro-active in
removing subsidies. Even Vietnam (which is a socialist country, by the
way) is selling fuel at market prices.

PETRONAS & TRANSPARENCY

5) I feel I also need to say something on the allegation that PETRONAS
is not transparent in terms of its accounts, business transactions etc.

PETRONAS is first and foremost a company, operating under the rules and
regulations of the authorities including the Registrar of Companies, and
the Securities Commission and Bursa Malaysia for its listed four
subsidiaries (PETRONAS Dagangan Bhd, PETRONAS Gas Bhd, MISC Bhd and KLCC
Property Holdings Bhd.

PETRONAS the holding company produces annual reports which are made to
whomever wants them, and are distributed to many parties and places;
including to the library at the Parliament House for perusal and reading
pleasure of all Yang Berhormat MPs (if they care to read). PETRONAS also
makes the annual report available on its website, for those who bother
to look. The accounts are duly audited.

The website also contains a lot of useful information, if people really
care to find out. Although PETRONAS is not listed on Bursa Malaysia, for
all intents and purposes, it could be considered a listed entity as its
bonds and financial papers are traded overseas. This requires scrutiny
from investors, and from rating agencies such as Standard & Poor and
Moody's.

BOYCOTT PETRONAS?

6) The last time I checked, this is still a democratic country, where
people are free to spend their money wherever they like.

For those who like to see more of the money that they spend go back to
the local economy and benefiting their fellow Malaysians, perhaps they
should consider sticking to local products or companies.

For those who like to see that the money they spend go back to foreign
shareholders of the foreign companies overseas, they should continue
buying foreign products.

FINAL WORD (FOR TODAY)

I'm sorry this is rather long, but I just have to convey it. I hope this
would help some of you out there understand something. The oil and gas
industry, apart from being very capital intensive, is also very complex
and volatile. I'm learning new things almost every single day.

Appreciate if you could help to forward this response to as many
contacts as possible to counter the subversive proposal out there.

Thank you.