Drastic cost-cutting steps

PETALING JAYA: In a rather frank note to employees, the head of the national oil company Petroliam Nasional Bhd raised the need for another round of cost cutting and for it to undertake some difficult and drastic decisions.

Petronas president and CEO Datuk Wan Zulkiflee Wan Ariffin (pic) said in the note to staff that the organisation – Malaysia’s only company in the Fortune 500 list – would be undertaking a rationalisation of manpower and a change in business model to tackle the impact from falling crude oil prices.

The company, which has been slashing its operating expenditure (opex) and capital expenditure (capex) since early last year and has a staff strength of reportedly 51,000, will further review its spending as it targets to cut up to RM50bil over the next four years and defer some of its projects.

In the note sent out to staff on Monday evening and widely circulated in social media, Wan Zulkiflee noted the general concern and anxiety among them on job security.

Wan Zulkiflee, 55, who assumed the top post in April last year, said the company had already started to review contract positions not critical to its core business activities as an initial step in reducing manpower costs.

“Friends, colleagues. At a time like this, I know that there are a lot of questions – and anxiety. I cannot in good conscience give you assurance that everything will be fine but you have my commitment that my leadership team and I will keep you informed of these developments on an ongoing basis,” he said.

“I believe that honest, open communication is key to keeping us united as a team and trudging forward together. For now, I sincerely ask for your understanding, cooperation and support in this difficult time. We need to keep on going, keep on striving. There is still much to fight for and as long as we don’t stop, we will move forward.”

The price of Brent Crude, the benchmark for Malaysia, has dropped from a high of US$115 (RM503) per barrel in June 2014 to US$28 (RM122) last Friday.

As the price fell, global oil companies such as Shell, BP and Exxon Mobil have cut down on their manpower and investments. Shell, for instance, cut 7,500 jobs last year and is planning to chop another 2,800.

Last year, Petronas cut its capex by 30% and opex by 20%. It generally allocates more than RM350bil in capex over five years.

Besides cutting down on expenditure, Wan Zulkiflee touched on a change in Petronas’ business model to enhance efficiency and to respond to the low price environment.

“We have also made a strategic decision to begin a review of Petronas’ business operating model for better efficiency in response to the external environment.

“This review will result in a change to our existing organisation structure, the details of which I hope to be able to share with you in March.

“At this time, we have yet to determine how the review and structure change will affect our workforce but rest assured, we will be studying all possible options to ensure that we strike the right balance between the welfare of our employees and the best interest of the business,” he said.

He pointed out to the price of Brent Crude and its continued slide with no signs of recovery in describing the reality of the present situation.

He said Petronas had reacted quickly at the first signs of trouble, cutting capex and opex and kicking-off measures to expedite cash generation and cost-efficiency initiatives among other focus areas.

However, these actions were not enough to counter the impact brought on by rapidly declining oil prices.

Wan Zulkiflee said it would mean that the organisation had to now seriously consider some difficult and drastic decisions.

“This is something that occupies me and my executive leadership team intensively at this time,” he said.