AnnualReport_FinancialStatement_PE2011

PETRONAS ANNUAL REPORT PE 2011 1reimagining energy

2 PETRONAS ANNUAL REPORT PE 2011

OUR BUSINESS

Crude Oil Natural Gas

A

C
BD

E

F GH IJ

A Exploration, F Petroleum • Transportation Sector - Diesel,
Development and Products Gasoline, Jet Fuel and Lubricants
Production
G Petrochemical Plant • Industrial Sector - Ethylene, Methanol, MTBE,
B Refining
Polyethylene, Propylene, Urea and VCM
C Processing
H Liquefied Petroleum • Residential and Commercial Sectors
D Liquefaction Gas (LPG)

E Liquefied Natural I Processed Gas/ • Power Sector
Gas (LNG) Peninsular Gas • Industrial Sector
Utilisation (PGU)
System • Export Sector

J Regasification
Terminal

PETRONAS ANNUAL REPORT PE 2011 3reimagining energy

OUR PRESENCE

E&P
Gas & Power
Downstream

Exploration & Production (E&P)

Africa • Algeria – Development • Cameroon – Exploration & Development • Chad – Development & Production
• Egypt – Exploration, Development & Production • Mauritania – Exploration & Production • Mozambique – Exploration
• Republic of South Sudan – Exploration, Development & Production • Republic of Sudan – Exploration, Development & Production
Asia Pacific • Australia – Exploration, Development & Production • Brunei – Exploration • Indonesia – Exploration, Development & Production
• Malaysia – Exploration, Development & Production • Malaysia-Thailand Joint Development Area – Exploration, Development & Production
• Myanmar – Exploration, Development & Production • Vietnam – Exploration, Development & Production
Central Asia • Turkmenistan – Exploration, Development & Production • Uzbekistan – Exploration, Development & Production
Latin America • Cuba – Exploration • Venezuela – Development
Middle East • Iraq – Exploration, Development & Production • Oman – Exploration & Development
North America • Canada – Development & Production

Gas & Power

Africa • Egypt – LNG
Asia Pacific • Australia – LNG & Infrastructure • Indonesia – Infrastructure • Malaysia – LNG, Infrastructure, Utilities & Power, Trading
• Singapore – Power • Thailand – Infrastructure
Central Asia • Uzbekistan – Gas-to-Liquid
Europe • Ireland – Infrastructure • United Kingdom – Infrastructure, Utilities & Trading
North America • Canada – LNG

Downstream*
Africa • Botswana – Oil Business • Burundi – Oil Business • Democratic Republic of the Congo – Oil Business • Gabon – Oil Business
• Ghana – Oil Business • Guinea Bissau – Oil Business • Kenya – Oil Business • Lesotho – Oil Business • Malawi – Oil Business
• Mauritius – Oil Business • Mozambique – Oil Business • Namibia – Oil Business • Nigeria – Oil Business • Réunion – Oil Business
• Rwanda – Oil Business • Swaziland – Oil Business • South Africa – Oil Business • Republic of South Sudan – Oil Business
• Tanzania – Oil Business • Uganda – Oil Business • Zambia – Oil Business • Zimbabwe – Oil Business
Asia Pacific • China – Oil & Petrochemical Businesses • India – Oil & Petrochemical Businesses • Indonesia – Oil & Petrochemical Businesses
• Malaysia – Oil & Petrochemical Businesses • Philippines – Oil & Petrochemical Businesses
• Thailand – Oil & Petrochemical Businesses • Vietnam – Oil & Petrochemical Businesses
Europe • Austria – Oil Business • Belgium – Oil Business • Denmark – Oil Business • France – Oil Business • Germany – Oil Business
• Italy – Oil Business • Netherlands – Oil Business • Poland – Oil Business • Portugal – Oil Business • Spain – Oil Business
• Turkey – Oil Business • United Kingdom – Oil Business
Latin America • Argentina – Oil Business • Brazil – Oil Business
North America • United States of America – Oil Business

*Includes Engen subsidiaries and marketing and trading offices.

©2012 PETROLIAM NASIONAL BERHAD (PETRONAS)
All rights reserved. No part of this document may be reproduced, stored in a retrieval system or transmitted in any form or by any means (electronic, mechanical, photocopying,
recording or otherwise) without the permission of the copyright owner. PETRONAS makes no representation or warranty, whether expressed or implied, as to the accuracy or
completeness of the facts presented. PETRONAS disclaims responsibility from any liability arising out of reliance on the contents of this publication.

4 PETRONAS ANNUAL REPORT PE 2011

TABLE OF
CONTENTS

The Group and the Our Business 40 Exploration & Production
Company have changed the 3 Our Presence
financial year end from 31 5 Corporate Statements
March to 31 December. The
financial statements under 50 Gas & Power
review are for a transition
period of 9 months from 1
April 2011 to 31 December
2011 (PE2011) whilst the
comparative figures are
the corresponding period
from 1 April 2010 to 31
December 2010.

6 Corporate Profile 58 Downstream

8 Board of Directors 66 Maritime & Logistics
70 Technology & Engineering
14 Executive Committee 76 Our People
82 Health, Safety &
15 Management Committee
Environment (HSE)
16 Vice Presidents 88 Awards & Recognitions
94 Corporate Social
19 President & CEO and Acting
Chairman’s Message Responsibility

24 Statement of Corporate 100 Main Events
Governance
112 Glossary
27 Statement of Anti-
Corruption 117 Financial Statements

28 Statement on Internal
Control

32 Financial Results

PETRONAS ANNUAL REPORT PE 2011 5reimagining energy

VISION

TO BE A LEADING
OIL AND GAS
MULTINATIONAL OF CHOICE

Mission Shared Values

We are a business entity Loyalty
Loyal to nation and corporation
Petroleum is our core business
Integrity
Our primary responsibility is to develop and Honest and upright
add value to this national resource
Professionalism
Our objective is to contribute to the well-being Committed, innovative and proactive and
of the people and the nation always striving for excellence

Cohesiveness
United in purpose and fellowship

6 PETRONAS ANNUAL REPORT PE 2011

CORPORATE
PROFILE

Petroliam Nasional Berhad is Malaysia’s National
Petroleum Corporation wholly-owned by the Malaysian
Government. Established in 1974, PETRONAS is now
ranked among the largest companies in the world
with a proven track record in integrated oil and gas
operations spanning the entire hydrocarbon value chain.

PETRONAS’ business activities include (i) products; (vi) the trading of crude oil,
the exploration, development and production petroleum, gas and LNG products and
of crude oil and natural gas in Malaysia petrochemical products; and (vii) shipping
and overseas; (ii) the liquefaction, sale and and logistics relating to LNG, crude oil
transportation of Liquefied Natural Gas (LNG); and petroleum products. Committed to
(iii) the processing and transmission of natural ensuring business sustainability, PETRONAS
gas, including power generation, and the also strives to responsibly manage natural
sale of natural gas products; (iv) the refining resources in a way that contributes
and marketing of petroleum products; (v) the holistically to the well-being of the people
manufacturing and selling of petrochemical and nations wherever it operates.

Exploration & Its E&P subsidiary, PETRONAS Carigali Sdn
Production Bhd (PCSB) is a hands-on operator with an
established track record of successful oil and
PETRONAS Exploration & Production (E&P) gas developments. Actively strengthening
aims for Safe and Profitable Growth through the nation’s upstream resource base and
effective domestic resource management and production, PCSB works alongside a
highgrading and acquiring assets/ventures number of petroleum multinationals through
across the exploration, development and Production Sharing Contracts (PSCs) to
production value chain. explore, develop and produce oil and gas
in Malaysia. Abroad, PETRONAS continues
The Petroleum Management Unit (PMU) of to build on its E&P portfolio, securing
PETRONAS manages domestic oil and gas new acreages while undertaking various
assets, by pioneering innovative solutions to development projects. These include
drive business growth in the Malaysian oil deepwater and unconventional resources.
and gas industry. This includes Enhanced Oil
Recovery (EOR), small field development and PETRONAS continues to harness and
intensifying exploration activities. implement new technologies to reap the
benefits of every hydrocarbon molecule
recovered in its vision to become a leading
global E&P player.

PETRONAS ANNUAL REPORT PE 2011 7reimagining energy

Gas & Power venture in northeastern British
Columbia, Canada.
PETRONAS aspires to be a leading
integrated gas, LNG and power player Its Infrastructure, Utilities & Power
through two major portfolios under its business is focused on ensuring
Gas and Power business; Global LNG long-term security and sustainability
business and Infrastructure, Utilities & of the gas market in Malaysia while
Power business. continuing to expand its portfolio
of infrastructure and power in high
At present, its Global LNG business growth markets. PETRONAS Gas
commands a sizeable LNG market Berhad (PGB) owns and operates
share in the Far East. It aims to sustain the Peninsular Gas Utilisation (PGU)
its market position and preserve its system, that delivers gas to the
reputation as a reliable supplier of power and non-power sectors in
LNG. PETRONAS is involved in LNG Peninsular Malaysia as well as the
trading and is currently establishing power industry in Singapore. The
its foothold in the European energy business has been operating the
trading, which includes gas and PGU system exceeding world class
electricity. Apart from conventional standards. PETRONAS is committed
plays, the Group also expanded to further grow in the power and
into unconventional plays such as renewable business, leveraging on
Australia’s Gladstone Coal Bed existing capabilities and capturing
Methane (CBM) to LNG project in opportunities in key focus markets in
2009, as well as shale gas to LNG Asia and the Middle East.

Downstream also operates service stations in PETRONAS’ robust development of its
various international markets including downstream portfolio is expected to
PETRONAS’ ambitious downstream Indonesia, Thailand, South Africa further enhance Malaysia’s economic,
expansion through its integrated and Sudan. PETRONAS Lubricants industrial and knowledge base. In the
operations in refining & trading, International Sdn Bhd (PLI) is the long-term, this augurs well to support
marketing & retailing as well as in global lubricants manufacturing Malaysia’s growth agenda and the
the petrochemicals sector plays a and marketing arm of PETRONAS. Company’s integrated plan to become
strategic role to increase the value of With a strong presence in more a key downstream player in the region.
every molecule extracted through its than 20 countries globally, the PLI
exploration activities. product range includes lubricants
and functional fluids for both the
PETRONAS owns and operates automotive and industrial markets as
three refineries in Malaysia, two in well as a range of car care products.
Melaka and another in Kertih. The
PETRONAS refining portfolio is The integrated development
also complemented by its refining of Malaysia’s petrochemical
presence in Africa through its 80% industry is expected to promote
owned subsidiary, Engen Petroleum the development of the country’s
Limited (Engen), a leading African industrial base, especially the
refining and marketing company plastics and chemical based
which owns and operates a refinery component manufacturing industry.
in Durban, South Africa. The Company’s consolidated
petrochemical business under the
In the Malaysian market, PETRONAS PETRONAS Chemicals Group
Dagangan Berhad (PDB) manages Berhad (PCG) is the largest integrated
all domestic marketing and retailing petrochemicals producer in Malaysia
activities for a wide range of and among the largest in South East
petroleum products. PETRONAS Asia.

8 PETRONAS ANNUAL REPORT PE 2011

BOARD
OF DIRECTORS

Tan Sri Dato’ Shamsul Azhar Abbas
Acting Chairman of the PETRONAS Board,
President & Chief Executive Officer

Tan Sri Dr Wan Abdul Aziz Tan Sri Dato’ Seri Hj Datin Yap Siew Bee Dato’ Mohammed Azhar
Wan Abdullah Megat Najmuddin Independent Non Executive Director, Osman Khairuddin
Non Independent Datuk Seri Dr Hj Megat Khas Chairperson of the PETRONAS
Independent Non Executive Director, Remuneration Committee Company Secretary
Non Executive Director
Chairman of the PETRONAS Board

Governance & Risk Committee

Datuk Muhammad Ibrahim Datuk Anuar Ahmad Dato’ Wee Yiaw Hin
Non Independent Executive Director Executive Director
Non Executive Director

PETRONAS ANNUAL REPORT PE 2011 9reimagining energy

Datuk Wan Zulkiflee Tan Sri Amirsham A Aziz Dato’ Mohamad Idris Mansor
Wan Ariffin Independent Non Executive Director Independent Non Executive Director

Executive Director

Datuk Mohd Omar Mustapha Krishnan CK Menon, FCA Datuk Manharlal Ratilal Faridah Haris Hamid
Independent Non Executive Director Independent Non Executive Director, Executive Director Joint Company Secretary
Chairman of the PETRONAS Board
Audit Committee

10 PETRONAS ANNUAL REPORT PE 2011

BOARD
OF DIRECTORS

Tan Sri Dato’ Shamsul Azhar Abbas

Acting Chairman of the PETRONAS Board, President & Chief Executive Officer
Tan Sri Dato’ Shamsul Azhar Abbas was appointed to the PETRONAS Board as Acting
Chairman and as President & Chief Executive Officer of PETRONAS on 10 February
2010. He began his career with PETRONAS in 1975 and prior to his current appointment
held numerous senior management positions within the Group. Tan Sri Dato’ Shamsul is
also Chairman of the Board of PETRONAS Carigali Sdn Bhd, the Group’s wholly-owned
exploration and production arm. He also serves as Chairman of the National Trust Fund

» of Malaysia. On 2 June 2012, he was conferred the Darjah Panglima Setia Mahkota
(PSM) which carries the title Tan Sri by His Majesty the Yang Di-Pertuan Agong.

Tan Sri Dr Wan Abdul Aziz Wan Abdullah

Non Independent Non Executive Director,
Member of the PETRONAS Board Audit Committee
Tan Sri Dr Wan Abdul Aziz is a member of the PETRONAS Board and currently
serves as the Secretary-General of Treasury in the Ministry of Finance. He also sits on
the Board of various organisations including Malaysian Airline System Berhad, Bintulu
Port Holdings Berhad, Bank Negara Malaysia, MISC Berhad, Retirement Fund
Incorporated and the Federal Land Development Authority (FELDA).

«

Datuk Muhammad Ibrahim

Non Independent Non Executive Director,
Member of the PETRONAS Board Audit Committee and Board Governance & Risk Committee
Datuk Muhammad Ibrahim was appointed to the PETRONAS Board in April 2010. He is
currently the Deputy Governor of Bank Negara Malaysia. His areas of expertise include
finance, banking, supervision and regulation, strategic planning, insurance and financial
markets. He is a trustee of the Tun Ismail Ali Chair Council, a former commissioner of
the Securities Commission of Malaysia and Senior Associate of the Institute of Bankers

» Malaysia. He sits on the Board of the Retirement Fund Incorporated and is a member of
the Malaysian Institute of Accountants and member of the Investment Panel of National
Trust Fund. On 2 June 2012, he was conferred the Darjah Panglima Jasa Negara (PJN)
which carries the title Datuk by His Majesty the Yang Di-Pertuan Agong.

Tan Sri Amirsham A Aziz «
Independent Non Executive Director,
Member of the PETRONAS Board Governance & Risk Committee
Tan Sri Amirsham A Aziz was appointed to the PETRONAS Board in October 2011.
He joined the Maybank Group in 1977 and has held various senior positions within
the Group. He served as President and Chief Executive Officer of Maybank for a
period of 14 years from 1994 to 2008. He was Chairman of the National Economic
Advisory Council (NEAC) and served as the Minister in the Prime Minister’s Department
in charge of the Economic Planning Unit and the Department of Statistics in 2008
to 2009. He is a member of the Malaysian Institute of Certified Public Accountants
(MICPA) and is a non-executive director on the Boards of international companies such
as Lingui Developments Berhad, Samling Global Limited, and CapitaMall Asia Limited.

PETRONAS ANNUAL REPORT PE 2011 11reimagining energy

Tan Sri Dato’ Seri Hj Megat Najmuddin «
Datuk Seri Dr Hj Megat Khas

Independent Non Executive Director,
Chairman of the PETRONAS Board Governance & Risk Committee
Tan Sri Megat Najmuddin was appointed to the PETRONAS Board in April 2010. He
is currently the President of both the Federation of Public Listed Companies Berhad
(FPLC) and the Malaysian Institute of Corporate Governance (MICG). He currently
serves as the Non-Executive Chairman of several public listed companies and is

active in non-governmental organisations (NGOs).

Krishnan CK Menon, FCA

Independent Non Executive Director,
Chairman of the PETRONAS Board Audit Committee and Member of the PETRONAS Board
Governance & Risk Committee
Krishnan CK Menon was appointed to the PETRONAS Board in April 2010. He is a
Fellow of the Institute of Chartered Accountants in England and Wales, a member of
the Malaysian Institute of Accountants and the Malaysian Institute of Certified Public
Accountants. He is currently Chairman of Putrajaya Perdana Berhad, SCICOM (MSC)

» Berhad, KLCC Property Holdings Berhad and KLCC (Holdings) Sdn Bhd. He is a
non-executive director of MISC Berhad and is also the Chairman of the Board Audit
Committee in MISC Berhad.

Datin Yap Siew Bee «

Independent Non Executive Director,
Chairperson of the PETRONAS Remuneration Committee
Datin Yap Siew Bee was appointed to the PETRONAS Board in April 2010. She is
currently Consultant to the firm of Mah-Kamariyah & Phillip Koh. She has advised
as legal counsel on significant oil and petrochemical projects in Malaysia and has
extensive oil and gas advisory experience including negotiation of international oil and
gas ventures on behalf of PETRONAS. Her areas of expertise include mergers and
acquisitions, corporate finance, corporate restructuring and commercial ventures.

Dato’ Mohamad Idris Mansor

Independent Non Executive Director,
Member of the PETRONAS Board Audit Committee and the PETRONAS Remuneration Committee
Dato’ Mohamad Idris Mansor was appointed to the PETRONAS Board in April
2010. He has extensive experience in the oil and gas industry, having held various
senior management positions within the Group including as Senior Vice President,
Exploration & Production Business. He is a Board member of PETRONAS Carigali
Sdn Bhd. He was also the International Business Advisor to PTT Exploration and

» Production Company of Thailand prior to his current appointment.

12 PETRONAS ANNUAL REPORT PE 2011

BOARD OF DIRECTORS

Datuk Mohd Omar Mustapha

Independent Non Executive Director,
Member of the PETRONAS Remuneration Committee
Datuk Mohd Omar Mustapha was appointed to the PETRONAS Board in September
2009. He is the Founder and Chairman of Ethos & Company, a leading Malaysian-
based management consulting firm and a General Partner of Ethos Capital, a
regional private equity fund. He is an independent director of Air Asia Berhad and
Symphony House Berhad, an Eisenhower Fellow, a founding member of the World

» Islamic Economic Forum’s Young Leaders Roundtable and a YGL member of the
World Economic Forum in Davos.

Datuk Wan Zulkiflee Wan Ariffin «
Executive Director

Datuk Wan Zulkiflee Wan Ariffin is a member of the PETRONAS Board, the
Executive Committee, Management Committee and serves on various Boards of
several Joint Ventures and subsidiary companies in the PETRONAS Group. He is
the Executive Vice President of Downstream Business and is the Chairman of two

of PETRONAS’ public listed subsidiaries namely PETRONAS Chemicals Group
Berhad and PETRONAS Dagangan Berhad. He was also a member of the Board of

Directors of MISC Berhad until end of November 2011 and is the Industry Advisor
to the Engineering Faculty of Universiti Putra Malaysia. Datuk Wan Zulkiflee is also

PETRONAS’ Chief Operating Officer effective 1 April 2012.

Datuk Anuar Ahmad
Executive Director
Datuk Anuar Ahmad is a member of the PETRONAS Board, Executive Committee
and Management Committee. He is the Executive Vice President of Gas & Power
Business. Prior to this appointment, he served as Vice President of Human Resource
Management Division and, earlier, as Vice President of Oil Business. He also sits on
the Board of several companies within the PETRONAS Group.

»

Dato’ Wee Yiaw Hin
Executive Director

Dato’ Wee Yiaw Hin was appointed to the PETRONAS Board in May 2010. He is the
Executive Vice President of Exploration & Production Business. He is also a member
of the Executive Committee, Management Committee and serves on various Boards
of subsidiary companies in the PETRONAS Group. Previously, he worked in Talisman

and Shell where he held various senior management positions.

PETRONAS ANNUAL REPORT PE 2011 13reimagining energy

Datuk Manharlal Ratilal
Executive Director

Datuk Manharlal Ratilal is a member of the PETRONAS Board, Executive Committee
and Management Committee. He is the Executive Vice President of Finance. He also

sits on the Board of several subsidiaries of PETRONAS. He joined PETRONAS in
2003. He previously served as Managing Director of an investment bank involved in

corporate finance, mergers and acquisitions, and the capital markets.

«

Dato’ Mohammed Azhar Osman Khairuddin
Company Secretary
Dato’ Mohammed Azhar Osman Khairuddin has been the Company Secretary of
PETRONAS since 1 April 2000. He joined PETRONAS in 1979 as a Legal Officer
and currently holds the position of Vice President, Legal. He is a member of the
PETRONAS Management Committee and serves on the Board of Directors of several
companies within the PETRONAS Group. He is also a member of the International
Bar Association and Inter Pacific Bar Association.

»

Faridah Haris Hamid
Joint Company Secretary
Faridah Haris Hamid is the Head of Legal Finance & Corporate Secretariat, Legal
Division. She spent 10 years in the banking sector before joining PETRONAS in
1992. She is the Joint Secretary to the PETRONAS Board of Directors and Secretary
to the Executive Committee of PETRONAS. Her areas of legal expertise include
corporate finance, capital markets and corporate governance and international

compliance.

«

14 PETRONAS ANNUAL REPORT PE 2011

EXECUTIVE
COMMITTEE

Tan Sri Dato’ Shamsul Azhar Abbas
President & Chief Executive Officer

Dato’ Wee Yiaw Hin Datuk Anuar Ahmad Datuk Wan Zulkiflee Datuk Manharlal Faridah
Executive Vice President Executive Vice President Wan Ariffin Ratilal Haris Hamid
Exploration & Production Gas & Power Business Executive Vice President Executive Vice President
Business Secretary
Downstream Business Finance

PETRONAS ANNUAL REPORT PE 2011 15reimagining energy

MANAGEMENT
COMMITTEE

» Tan Sri Dato’ Shamsul Azhar Abbas
President & Chief Executive Officer

«Datuk Wan Zulkiflee Wan Ariffin
Executive Vice President
Downstream

» Datuk Anuar Ahmad
Executive Vice President
Gas & Power

«Dato’ Wee Yiaw Hin

Executive Vice President
Exploration & Production

» Datuk Manharlal Ratilal

Executive Vice President
Finance

«Ramlan Abdul Malek
Vice President
Petroleum Management

» Dr Colin Wong Hee Huing
Vice President
Technology & Engineering

16 PETRONAS ANNUAL REPORT PE 2011

«Datuk Nasarudin Md Idris
President & CEO
MISC Berhad

» Juniwati Rahmat Hussin
Vice President
Human Resource Management

«Md Arif Mahmood
Vice President
Corporate Strategic Planning

» Dato’ Mohammed Azhar Osman Khairuddin
Vice President
Legal

«Dato Mohammad Medan Abdullah
Senior General Manager
Group Corporate Affairs Division

» Hazleena Hamzah
Secretary

PETRONAS ANNUAL REPORT PE 2011 17reimagining energy

VICE PRESIDENTS

» Effendy Cheng Abdullah
Vice President & Chief Executive Officer
Exploration

«Datuk Abdullah Karim

Vice President & Chief Executive Officer
Development & Production

» Ramlan A Malek
Vice President
Petroleum Management

«Adnan Zainol Abidin
Vice President
Global LNG

» Pramod Kumar Karunakaran

Vice President
Infrastructure & Utilities

«Amir Hamzah Azizan
Vice President
Downstream Marketing

» M Farid Adnan
Vice President
Refining & Trading

18 PETRONAS ANNUAL REPORT PE 2011

«Ir Kamarudin Zakaria
Vice President
Downstream Operations

» Nuraini Ismail
Vice President
Treasury

«M Rashid Yusof
Vice President
Supply Chain & Risk Management

» Dr Colin Wong Hee Huing
Vice President
Technology & Engineering

«Juniwati Rahmat Hussin
Vice President
Human Resource Management

» Md Arif Mahmood
Vice President
Corporate Strategic Planning

«Dato’ Mohammed Azhar Osman Khairuddin
Vice President
Legal

MESSAGE FROM THE CEO | PETRONAS ANNUAL REPORT PE 2011 19reimagining energy

PRESIDENT
& CEO

AND ACTING CHAIRMAN’S
MESSAGE

TAN SRI DATO’ SHAMSUL AZHAR ABBAS Financial Period Ended 2011
President & CEO and Acting Chairman (PE2011) was a watershed for
PETRONAS — a pivotal nine-
month period in which the Group
delivered strong operating results
and made substantial progress
in bringing key objectives of the
Corporate Enhancement Programme
(CEP), critical for the long-term
sustainability of its business, closer
to realisation.

These accomplishments, the result of the Group’s
determination to explore new solutions and push performance
boundaries, reflect its continuing resolve to uphold its duties
as custodian of the Nation’s hydrocarbon resources and to
honour the trust of its stakeholders, even in the face of today’s
volatile and fundamentally-changing industry environment.

Financially, the Group’s performance for PE2011 was strong.
Notwithstanding the shorter transitional nine-month financial
period to a 31 December year-end, the results are comparable
to what would normally have required a full 12-month period
to achieve. Group Revenue strengthened to RM222.8 billion,
27% higher than the previous corresponding period, while
Net Profit attributable to Shareholders rose 10% to reach
RM48.9 billion. This enabled the Group to meet its demanding
dividend obligations, fund its ambitious CAPEX programme
and achieve a RM24.6 billion increase in Shareholder’s Funds,

20 PETRONAS ANNUAL REPORT PE 2011

which strengthened to RM288.3 billion. Reflecting this an additional 380 million barrels of oil equivalent to count
more robust performance, the Group’s Return on Average towards future development and production. A second Risk
Capital Employed (ROACE) climbed to 21.8%. Higher sales Service Contract (RSC) for the Balai Cluster of fields was
volumes in selected segments of the Group’s value-chain, also successfully awarded, the granting of which continues
particularly in LNG, as well as a favourable price environment to underscore the necessity of pushing for innovative
were key drivers behind these improved results. commercial arrangement solutions in providing the right
commercial framework to unleash the potential of our
What proved more encouraging, however, were the domestic marginal fields.
operational and strategic milestones achieved during the
Financial Period which will now enable PETRONAS to at Through a more aggressive exploration campaign,
last address numerous long-standing growth challenges PETRONAS has also succeeded in proving up new play
and transcend the confines of its legacy assets. In the types once dismissed by some as holding little promise,
Exploration & Production Business, the prospect of which will potentially enhance the future prospects of
mitigating the decline in domestic upstream production is in Malaysia’s upstream sector even further. In an effort to
sight, even if not yet at hand, thanks to the three-pronged shorten lead time-to-monetisation, we continued to explore
domestic upstream sector strategy we adopted two years new solutions and methods — reconceptualising workflows,
ago now beginning to produce the desired results. A processes, as well as field development design and
more determined push to optimise recovery from currently- planning. The results were evident from our ability to bring
producing fields through Enhanced Oil Recovery (EOR) the Tangga Barat cluster onstream five months faster than
and Improved Oil Recovery (IOR) techniques has yielded planned and the Sepat Field, more than one year ahead of
the original schedule.

At the same time, we are confident that the Internationally, through further highgrading efforts, our
successful development of our integrated gas upstream portfolio continued to rebalance in favour of quality
project in Turkmenistan will pave the way for assets which we expect will provide us better risk-adjusted
returns moving forward. At the same time, we are confident
that the successful development of our integrated gas
project in Turkmenistan will pave the way for other initiatives
in the Caspian Area to potentially allow us to grow a new
“heartland” in the Central Asian region.

other initiatives in the Caspian Area to potentially In this same spirit of progress, our Gas & Power and
allow us to grow a new “heartland” in the Downstream Businesses are also on the move. Previously
Central Asian region. stable, mature operations whose performance were tied
to legacy assets, each can now speak of an ambitious
multi-billion dollar growth agenda. In Gas & Power, work
on Malaysia’s first LNG Regasification terminal (RGT1) in
Melaka continued to progress. At press time, RGT1 has
already achieved mechanical completion and remains on
track to be commissioned during the later half of 2012.

PETRONAS ANNUAL REPORT PE 2011 21reimagining energy

Together with numerous upstream gas developments such We are also confident of being on track to
as Tangga Barat, Berantai and the North Malay Basin — and deliver the world’s first Floating LNG (FLNG)
coupled with the potential construction of a second LNG facility by that year and at the time of writing,
Regasification terminal (RGT2) in Pengerang, Johor — the subsequent to the close of the Financial
additional gas supplies made available from the import of Period, Final Investment Decision (FID) on the
LNG through RGT1 will go a long way towards enhancing facility has already been taken.
the security of gas supply in the Peninsular and also allow
for growth in premium gas demand. A third Regasification
terminal, currently being pursued as an integrated gas-
to-power development project in Lahad Datu, Sabah, is
now being targeted for commissioning in 2015. We are
also confident of being on track to deliver the world’s first
Floating LNG (FLNG) facility by that year and at the time of
writing, subsequent to the close of the Financial Period, Final
Investment Decision (FID) on the facility has already been
taken.

Abroad, further progress was made to develop new LNG Ammonia and Urea (SAMUR) project and the contract for
supply positions to complement our existing facilities in its Basic & Detailed Engineering, Procurement, Construction
driving forward our Global LNG aspirations. During the and Commissioning (BEPCC) has been awarded.
Financial Period, we entered into a strategic partnership with
Progress Energy Resources Corporation to develop shale When completed, both projects will not only strengthen
gas assets in northeastern British Columbia, Canada — a PETRONAS’ ability to capitalise on the growing inputs of
venture that will not only allow us to position ourselves to energy and chemicals Asia requires to support its rapid
capitalise on the emergence of a trans-Pacific energy trade economic expansion and industrialisation, but will also
into Asia, but is also consistent with the aim of shifting our enable the Group to diversify its product offerings into higher
global gas presence in favour of geopolitically more stable value-added and specialty petrochemicals.
regions in a bid to better serve our customers’ needs for
safe, secure and reliable supplies of energy. This venture Viewed in their totality, I believe what these milestone
will also complement our involvement in the GLNG project in achievements signify is that the pillars of PETRONAS’
Queensland, Australia, as we seek to grow our presence in next growth phase are now at last beginning to take
the unconventional gas business further. shape. To this end, I am confident that they will not only
enable the Group to address long-standing structural
Key growth projects in our Downstream Business also challenges and push for growth, but will also create the
achieved their respective major progress milestones during distinctive foundations to uphold its aspiration of being a
the Financial Period. We completed the Detailed Feasibility “Global Energy Champion known for its Resilience and
Study (DFS) of our RM60 billion Refinery and Petrochemical Distinctiveness”.
Integrated Development (RAPID) and Front-End Engineering
Design (FEED) works have been commissioned. We
also took a Final Investment Decision (FID) on the Sabah

22 PETRONAS ANNUAL REPORT PE 2011

Equally important, the accomplishments None of these accomplishments would have been possible
also reflect the determination as well as without the improvements and changes the CEP has
commitment of our people, particularly ushered in. A more determined, conscious effort to focus
those men and women who proved on our core businesses helped concentrate vital resources
themselves worthy by embracing and energies to where they were most critical. The adoption
change and living up to the spirit of of measures enhancing governance and transparency
“Reimagining Energy” — continuously created a stronger impetus to outperform. Better talent
challenging accepted norms, exploring and performance management practices, including an
new solutions and driving breakthrough infusion of external talent, also generated a stronger drive of
execution; exemplifying, in the process, business performance. At the same time, a greater sense
that level of performance PETRONAS of ownership and accountability also propelled our people to
will need to consistently demonstrate give their best.
across the entire Group in confronting
future challenges. Equally important, the accomplishments also reflect the
determination as well as commitment of our people,
particularly those men and women who proved themselves
worthy by embracing change and living up to the spirit
of “Reimagining Energy” — continuously challenging
accepted norms, exploring new solutions and driving
breakthrough execution; exemplifying, in the process, that
level of performance PETRONAS will need to consistently
demonstrate across the entire Group in confronting future
challenges.

Indeed, looking ahead, the industry environment looks set
to remain extremely challenging. The recent resurgence
of downside risks appears to be unfolding in line with
those projections forecasting an extended period of
macroeconomic volatility. In the near term, global growth
momentum looks set to slow, with growth prospects
expected to remain subdued and fragile. In tandem with
these circumstances, both energy demand and prices are
expected to soften.

At the same time, rising industry costs, an intensifying
competition for talent and major structural changes within
the industry unleashed by the growing mainstreaming of

PETRONAS ANNUAL REPORT PE 2011 23reimagining energy

unconventional hydrocarbons and the advent of new we are able to improve our delivery momentum and
exploration frontiers - the precise nature, extent and present ground breaking achievements through the
speed of whose implications remains as yet highly implementation of innovative ideas.
uncertain - will severely test the agility, resilience and Finally, to our numerous customers, partners,
resourcefulness of all industry players, favouring those stakeholder, regulators, as well as the host
that prove themselves distinctive on all fronts. governments in our various countries of operations,
our sincere appreciation for your continued support
To this end, PETRONAS resolves to remain vigilant and association with the PETRONAS Group. May we
and will seek to enhance its resilience to weather continue to reimagine the endless possibilities we can
these risks while seeking to be at the forefront of achieve together.
efforts to capitalise on the emerging trends. In so
doing and guided by the CEP, we will continue to be TAN SRI DATO’ SHAMSUL AZHAR ABBAS
driven by our long-standing commitment to uphold the President & CEO and Acting Chairman
trust our stakeholders have accorded us - the people
and the Nation, foreign host governments, partners
and customers alike - to be a partner they all know
will consistently return greater value and contribute to
the meaningful development of nations and peoples
wherever it operates.

Lastly, I would like to take this opportunity to put on
record my appreciation to the Government of Malaysia
for its continued support, allowing us to remain
a strong international competitor and Malaysia’s
corporate flagship. I would also like to put on record
my appreciation to our Board of Directors, whose
stewardship and guidance ensured that PETRONAS
remains focused in delivering results in an extremely
competitive environment.

To the PETRONAS Executive and Management
Committees, as well as the broader senior leadership
team, thank you for exhibiting the spirit of change
and renewal, as well as driving and constantly
communicating these precepts in your respective
areas of responsibility. Thanks to the collective
leadership of the Board and the leadership team,

24 PETRONAS ANNUAL REPORT PE 2011

STATEMENT OF
CORPORATE
GOVERNANCE

Corporate Governance
& Transparency

PETRONAS believes that good Corporate Since its inception in 2011, the newly
Governance is fundamental to ensuring the established Corporate Governance &
organisation’s competitiveness, growth and International Compliance Unit, Legal Division
sustainability. Implementing best practices has launched a series of governance
in Corporate Governance is important to programmes to further enhance the
PETRONAS given the Group’s strong global application of governance standards across
orientation and the growing expectations of the Group in line with best global practices.
stakeholders worldwide for good corporate These efforts include the revision of the
citizenship. PETRONAS Code of Conduct and Discipline
(renamed as PETRONAS Code of Conduct
Enhanced standards of governance and and Business Ethics) and the adoption of a
transparency serves to strengthen the Whistle-blowing Policy, together with training
Group’s organisational effectiveness and on competition law compliance in light
drive a high-performance culture within of the coming into force of the Malaysian
the organisation, and are both essential Competition Act 2010.
for PETRONAS to compete successfully in
today’s challenging industry environment.

The Board maintains and requires the
Management to uphold the high standards
of governance, transparency and ethical
conduct. Today, with a well-established global
footprint, PETRONAS continues to pave
the way towards ensuring the sustainability
of good corporate governance based on
international standards.

PETRONAS ANNUAL REPORT PE 2011 25reimagining energy

Business Ethics PETRONAS Board
Governance Framework
PETRONAS is committed to complying with
high ethical standards and applicable anti- The Board directs the Company’s strategic investments and cross-business issues of
corruption laws. This is in line with PETRONAS’ planning, financial, operational and resource the Group. It also serves as a platform for
core values, business principles and various management, risk assessment and the structured succession planning for the
internal policies which reflect the continuous provides effective oversight of the executive President & CEO in the Company.
focus on making ethics and anti-corruption management. Certain functions are delegated
an integral part of PETRONAS’ business to Board Committees consisting of Non- The Management Committee continues to
operations. Such focus has helped to promote Executive Directors as detailed in later act as the advisory and deliberative body
strong ownership in relation to compliance sections. that supports the President & CEO and the
and ethics at all levels. In keeping with this Executive Committee and implements all
initiative, PETRONAS has adopted new policies The Chairman leads the Board, and the the Board resolutions and policies, as well
on gifts and entertainment and has made President & Chief Executive Officer (CEO) as supervise all management levels in the
enhancements to its Code of Conduct and leads the executive management of the PETRONAS Group.
Discipline to accommodate the development of Company and provides direction for the
local and international laws and customs. implementation of the strategies and
business plans as approved by the Board
and the overall management of the business
operations Groupwide.

In this regard, the President & CEO has the
support of the Executive Committee and
Management Committee which he chairs.
The Executive Committee’s role is to assist
the President & CEO in his management of
the business and affairs of the Company
particularly in relation to strategic business
development, high impact and high value

26 PETRONAS ANNUAL REPORT PE 2011

The Board informative environment for the Independent Board
Non-Executive Directors to understand the Committees
For the period ended (PE) 2011, the Board business more closely.
was made up of the Acting Chairman and There are three Board
President & CEO, four Executive Directors In July 2011, a Special Board meeting was Committees made up
and eight Non-Executive Directors. A list of held in Turkmenistan in conjunction with the primarily of Non-Executive
the current Directors, with their biographies, is First Gas Celebration. The Board was given Directors, namely the
provided on pages 8 to 13. the opportunity to gain a better understanding Audit Committee, the
and appreciation of the business challenges Governance and Risk
Currently, the position of the Chairman is and issues faced in Turkmenistan as well as Committee and the
vacant, and the President & CEO is assuming to foster greater collaboration and networking Remuneration Committee.
the responsibility until such time as the with the management and staff of our
shareholder makes an official appointment. Turkmenistan office. Audit Committee
The Chairman’s role is to provide leadership
to the Board, facilitate the meeting process Board Established in 1985, the PETRONAS Board
and ensure that the Board and its committees Balance and Audit Committee assists the Board in fulfilling
function effectively. Together with the Independence its oversight functions in relation to internal
Company Secretary, he ensures that the controls, risk management and financial
Board members receive regular and timely The current Board composition reflects a reporting of the Company. The Committee
information regarding the Company prior to good mix of experience, backgrounds, skills provides the Board with the assurance of
Board meetings. The Board members also and qualifications and is considered to be of the quality and reliability of the financial
have access to the Company Secretary for an appropriate size. This diversity is identified information issued by the Company whilst
any further information they may require. by the members as one of the strengths of ensuring the integrity of the Company’s
the Board. assets.
The Board met a total of eight times (which
included three Special Board Meetings) The Non-Executive Directors combine broad Governance & Risk
during the period with a formal schedule business and commercial experience with Committee
of matters reserved to the Board. These independent and objective judgment. The
include the consideration of the Company’s balance between the Non-Executive and The Committee continues to be responsible
long term strategy, plan and budget, Executive Directors enables the Board to in assessing the performance of the Board,
monitoring of Management Performance, provide clear and effective leadership and reviewing management succession planning
introduction of CEO’s and Executive Vice maintain the highest standards of integrity as well as identifying, nominating and
Presidents’ (EVPs) Performance Scorecards, across the Company’s business activities. orientating new Directors. With the recent
Talent Management and the Company’s The Company recently welcomed another enhancement of the scope of the Committee,
Performance Review. In addition to managing Non-Executive member bringing the total to it also reviews the Group’s Enterprise Risk
the Company’s financial reporting, the eight Non-Executive Directors for the period Management, Country Risk Profile as well as
Board monitors and identifies material risks ended 2011. Financial Risk Management Development &
to PETRONAS and ensures that internal Updates.
systems of risk management and control are In accordance with the provisions of the
in place to mitigate such risks. Company’s Articles of Association, at least The Committee also continues to review and
one-third of the Directors shall retire from recommend to the Board the appropriate
The Special Board Meetings, which were office once every subsequent year but shall
held three times during the period, had also be eligible for re-election. This retirement by
given the directors the opportunity to engage rotation shall only be applicable to Non-
in intensive deliberation on PETRONAS’ Executive Directors.
long term strategy, plan and budget and
talent management. These meetings
were used as a platform for the induction
and orientation of the Independent Non-
Executive Directors. Such induction and
orientation practice is crucial as it provides an

PETRONAS ANNUAL REPORT PE 2011 27reimagining energy

corporate governance policies and Remuneration Committee
procedures in accordance with international
governance and best practices. Among the The Remuneration Committee was
programmes which were reviewed by the established to assist the Board in discharging
Committee include the Code of Conduct its responsibilities in the determination
and Business Ethics and the new Whistle- of the remuneration and compensation
Blowing Policy. The Committee has direct of the Executive Directors and certain
access to the Corporate Governance & Senior Management of the Company. The
International Compliance Unit, Legal Division, Committee determines and agrees with the
which promotes a structured, consistent Board on the remuneration policy for the
and centrally-driven integrated approach to President & CEO, the Executive Directors and
global governance and compliance for the certain Senior Management of the Company.
PETRONAS Group. The Committee also determines and agrees
with the Board on the matter of the President
& CEO’s Performance Scorecard.

STATEMENT
OF ANTI-
CORRUPTION

PETRONAS is committed This is in line with PETRONAS’ core values,
to complying with business principles and various internal
high ethical standards policies which reflect its focus on making
and applicable anti- ethics and anti-corruption an integral part of
corruption laws of the PETRONAS’ business operations.
relevant jurisdictions.
The PETRONAS Code of PETRONAS’ management is committed
Conduct and Business to communicating the vital importance of
Ethics expressly prohibits strong ethics and anti-corruption practices
the giving and acceptance to all levels of the organisation. The signing
of bribes by PETRONAS of the Corporate Integrity Pledge further
employees. underpins PETRONAS’ commitment towards
addressing and prohibiting bribery and
corruption.

28 PETRONAS ANNUAL REPORT PE 2011

STATEMENT
ON INTERNAL
CONTROL

The Board is pleased to provide the following statement
which outlines the nature and scope of internal control
of Petroliam Nasional Berhad and its subsidiaries
(PETRONAS Group) during the period in review.

Board’s
Responsibilities

The Board recognises the importance of throughout the period, which includes
sound internal control and risk management identifying, evaluating, managing and
practices to good corporate governance monitoring these risks that has been in
with the objective of safeguarding the place for the period and up to the date of
shareholders’ investment and the Group’s approval of the Annual Report and Financial
assets. The Board affirms its overall Statements.
responsibility for the Group’s system of
internal controls and for reviewing the The Group’s system of internal control seeks
adequacy and integrity of those systems to manage and control risks appropriately,
including financial and operational controls, rather than eliminate the risk of failure to
compliance with relevant laws and regulations achieve business objectives. Because
and risk management. of the inherent limitations in all control
systems, these internal control systems can
The Group has in place an ongoing process only provide reasonable and not absolute
for managing significant risks affecting the assurance against material misstatement
achievement of its business objectives or loss or the occurrence of unforeseeable
circumstances.

PETRONAS ANNUAL REPORT PE 2011 29reimagining energy

Risk Internal Audit
Management Function

Having regard to managing risk as an The Board recognises that the internal
inherent part of the Group’s activities, risk audit function is an integral component of
management and the ongoing improvement the governance process. One of the key
in corresponding control structures in all functions of PETRONAS’ Group Internal
significant risk areas including among others, Audit (GIA) Division is to assist the Group
financial, health, safety and environment, in accomplishing its goals by bringing a
operations, geopolitics, trading and logistics, systematic and disciplined approach to
remain a key focus of the Board in building a evaluate and improve the effectiveness of
successful and sustainable business. risk management, control and governance
processes within the Group. GIA maintains its
A Risk Management Committee (RMC) is in impartiality, proficiency and due professional
place to serve as a central platform of the care, as outlined in its Internal Audit Charter,
Group to assist the Management in identifying by having its plans and reports directly under
principal risks at the Group level and providing the purview of the Board Audit Committee
assurance on effective implementation of (BAC).
risk management on a Groupwide basis. The
RMC also promotes sound risk management The internal audit function performs
practices through sharing of information and independent audits in diverse areas within the
best practices to enhance the risk culture Group including management, accounting,
across the Group. The RMC seeks advice financial and operational activities, in
and direction from the Executive Committee accordance with the annual internal audit plan
and Board Governance and Risk Committee. which is presented to the BAC for approval.

Group risks are being managed on an The BAC receives and reviews reports on
integrated basis and their evaluation is all internal audits performed including the
incorporated into the Group’s decision- agreed corrective actions to be carried out
making process such as strategic planning by the Management. GIA monitors the status
and project feasibility studies. Separate risk of agreed corrective actions through the
management units or functions also exist Quarterly Audit Status Report in which they
within the Group at various operating unit are recorded and assessed. The consolidated
levels, particularly for its listed subsidiaries, reports are submitted and presented to the
to assess and evaluate the risk management BAC for deliberations.
processes for reporting to their respective
Board and Management levels. GIA adopts the principles of the Institute of
Internal Auditor’s International Standards for
the Professional Practice of Internal Auditing.

30 PETRONAS ANNUAL REPORT PE 2011



Other Elements
Of Internal
Control

The other elements of the Group’s system of Limits of Authority
internal control are as follows: On a semi-annual basis, each key process
The Limits of Authority (LOA) defines owner at various management levels is
Organisational Structure expenditure spending limits for each level of required to complete and submit a Letter of
management within the Group. These limits Assurance which provides confirmation of
The internal control of the Group is supported cover among others, authority for payments, compliance to key controls for the areas of
by a formal organisation structure with capital and revenue expenditure spending the business for which they are accountable.
delineated lines of authority, responsibility limits and budget approvals. This LOA
and accountability. The Board has put in manual provides a framework of authority
place suitably qualified and experienced and accountability within the organisation and Corporate Financial Policy
management personnel to head the Group’s facilitates decision making at the appropriate
diverse operating units into delivering results level in the organisation’s hierarchy. The Corporate Financial Policy prescribes
and their performance are measured against the Group’s governing policies in effecting
approved performance indicators. the practice of financial risk management.
Procurement The policy stipulates a consistent framework
in which financial risk exposures of entities
Budget Approval The Group has clearly defined authorisation within the Group are identified and strategies
procedures and authority limits set for developed to mitigate such risks. The policies
Budgets are an important control mechanism awarding tenders and all procurement contained in the Corporate Financial Policy
used by the Group to ensure an agreed transactions covering both capital and are intended to provide clear communication
allocation of Group resources and that revenue expenditure items. Tender of the policy stance governing financial and
the operational managers are sufficiently committees with cross functional risk management throughout the PETRONAS
guided in making business decisions. The representation have been established to Group of Companies and consequently seeks
Group performs a comprehensive annual provide the oversight functions on tendering to provide a foundation upon which financial
planning and budgeting exercise including matters prior to approval by the approving risk management is practised across the
the development and validation of business authorities as set out in the LOA approved by Group.
strategies for a rolling five-year period and the Board.
establishment of performance indicators
against which business units and subsidiary Financial Control Group Health, Safety and
companies are evaluated. Framework Environment

Variances against the budgets are analysed The Group has developed a Financial Control The Group Health, Safety and Environment
and reported to the Board on a quarterly Framework (FCF) with the principal objective (GHSE) Division drives various HSE
basis. The Group’s strategic directions are of enhancing the quality of the Company’s sustainable initiatives and defines the
also reviewed at reasonable intervals taking financial reports through a structured process framework that exemplifies the Group’s
into account changes in market conditions of ensuring the adequacy and effectiveness effort to continuously meet legal compliance
and significant business risks. of key internal controls operating at various and industry best practices. GHSE also
levels within the Company at all times. FCF drives strategies and monitors and reports
requires among others, documentation of performance to the Executive Committee to
key controls, remediation of control gaps as ensure HSE risks are reduced to as low as
well as a regular conduct of testing of control reasonably practicable.
operating effectiveness.

PETRONAS ANNUAL REPORT PE 2011 31reimagining energy

Crisis Management Employees CONCLUSION

The Group has in place a Contingency Senior Management sets the tone for a The Board is of the view that the system
Planning Standard which is designed to nurturing culture in the organisation through of internal control instituted throughout
provide guidelines for responding to any the Group’s Shared Values, developed to the Group is sound and provides a level of
major emergency or crisis by defining the focus on the importance of these four key confidence on which the Board relies for
framework and delineation of roles and values – loyalty, integrity, professionalism and assurance. In the period under review, there
responsibilities which enable support and cohesiveness. The importance of the Shared is no significant control failure or weakness
assistance where required. The Group Values is manifested in the Code of Conduct that would have resulted in material losses,
has implemented a three-tier response and Discipline. Employees are required to contingencies or uncertainties requiring
system which seeks to provide a clear strictly adhere to the Code in performing their separate disclosure in the Annual Report.
demarcation of roles and responsibilities duties.
between emergency site management, The Board provides for a continuous review
operating unit management, corporate and Employees undergo structured training of the internal control system of the Group to
authorities. In the event of major emergency and development programmes and ensure ongoing adequacy and effectiveness
or crisis, the response system will be potential entrants or candidates are subject of the system of internal control and risk
activated and the Group’s priority is the to a structured recruitment process. A management practices to meet the changing
protection of people, environment, asset performance management system is in place, and challenging operating environment.
and reputation. with established performance indicators
to measure employee performance and This statement is made in accordance with
Business Continuity the performance review is conducted on a the resolution of the Board of Directors dated
Management semi-annual basis. Action plans to address 29 February 2012.
employee developmental requirements are in
The Group is currently enhancing its place. The Group believes that this will enable
Business Continuity Management for employees to deliver their performance
implementation across the Group. These indicators so that the Group can meet its
integrated business continuity strategies business requirements.
shall provide comprehensive and clear
plans and procedures to enhance the
Group’s preparedness in managing
disasters that may disrupt business
operations.

The main objective is to respond and
reduce impact of crisis as well as recover
and restore the Group’s critical functions
within a reasonable period of time towards
sustaining the Group’s operational survival
thus protecting businesses, partners and
customers during crisis or disaster.

32 PETRONAS ANNUAL REPORT PE 2011

FINANCIAL
RESULTS

DATUK MANHARLAL RATILAL During the period, we also divested REVIEW OF FINANCIAL RESULTS
our interest in Cairn India Limited and PETRONAS Group delivered strong financial
As announced, we changed our financial recorded a gain of RM2.6 billion. performance in PE2011 compared to the
year end from 31 March to 31 December Closing balance of our Cash, Fund and previous corresponding period. Revenue
to synchronise our corporate planning Other investments was RM164.3 billion, increased by 27% and net profit attributable to
cycle with our ongoing transformation a 5% growth from the balance as at 31 shareholders of the company increased by 10%.
efforts and to realign systems and March 2011. The increase in revenue, from RM175.6 billion
processes to support PETRONAS’ to RM222.8 billion, was mainly driven by higher
enhanced blue print and strategies. At the Our strong overall performance was realised prices and higher LNG sales volume.
same time, this change also facilitated reflected in the improvement of our
alignment of the Group’s financial year Return on Average Capital Employed of On average, realised prices in PE2011 were
end with the statutory filing requirements 22% compared to 18% in FY2011. significantly higher compared to the same period
of the various countries in which we last year. Benchmark crude prices remained
operate. HIGHLIGHTS elevated due to supply concerns arising from
continuing geopolitical tensions in the Middle
Led by better prices and LNG sales 27% increase in Revenue East and North Africa Region. Average Dated
volume, our financial results for this nine Brent for PE2011 was USD113 per barrel
month transition period from 1 April 2011 Revenue of RM222.8 billion for the period, up compared to USD81 per barrel in the previous
to 31 December 2011 were much better by 27% on the back of stronger prices for all period, an increase of 40%.
than the previous corresponding period. products
LNG sales volume in PE2011 was 20.6 million
We recorded net profit attributable to 10% increase in Profit metric tonnes, led by the highest ever production
shareholders of the Company of RM48.9 from the PETRONAS LNG Complex (PLC) in
billion, representing approximately 90% of Net profit attributable to shareholders of the Sarawak, Malaysia over a nine month period.
that achieved in the full 12 month period Company of RM48.9 billion increased by
ended 31 March 2011. Excluding gains 10% on the back of higher prices and better Revenue was however offset by a weaker US
from the IPO recorded in 2010, results in Liquefied Natural Gas (LNG) sales volume Dollar against the Ringgit Malaysia and, to some
the nine month period under review was extent, crude oil production challenges faced
7% higher than that achieved for the full 22% ROACE by the Group. The US Dollar weakened from an
12 month period ended 31 March 2011. average of RM3.17 to an average of RM3.06, a
Return on Average Capital Employed drop of 11 sen during the period.
(ROACE) of 22%, an improvement from 18%
in FY2011 Group Earnings Before Interest, Tax,
Depreciation and Amortisation (EBITDA) and
Profit Before Taxation (PBT) were both higher by
19%.

The Group recorded a gain of RM2.6 billion
arising from the divestment of our interest in
Cairn India Ltd during the period. Excluding
this gain and Initial Public Offerings (IPO) gains
recorded in the previous corresponding period,
EBITDA and PBT improved significantly by 30%
and 33%, respectively.

PETRONAS ANNUAL REPORT PE 2011 33reimagining energy

The Group’s total assets increased by RM38.6 the current period capital investments and billion as at 31 December 2011 from RM156.4
billion or 9% from 31 March 2011. Property, Plant dividends. Capital investments spent in PE2011 billion as at 31 March 2011.
and Equipment increased by 8% as a result of was RM30.8 billion with most of it allocated to
further investments in major growth projects and our Exploration & Production (E&P) business to In line with higher profits, the Group’s Return on
improvements to maintain the integrity of our support exploration as well as to intensify efforts Total Assets (ROTA) and ROACE increased to
existing assets. to develop new fields and enhance recovery from 23% and 22% respectively. The Gearing Ratio
maturing existing fields. Out of the RM30.8 billion, was relatively unchanged at about 15%.
The Group generated RM72.0 billion in cash close to 60% was spent in Malaysia. Cash, Fund
from operations. This was sufficient to sustain and Other Investments ended higher at RM164.3

PETRONAS’ Key Financial Indicators PE2011 +/- (%) 9M* FY2011 FY2010 FY2009 FY2008
In RM billion
222.8 26.9 175.6 241.2 210.8 264.2 223.1
Revenue 95.5 18.5 80.6 107.9 83.3 105.7 105.9
EBITDA 82.7 18.7 69.7 90.5 67.3 89.1 95.5
Profit Before Taxation 48.9 10.4 44.3 54.8 40.3 52.5 61.0
Net Profit Attributable to PETRONAS Shareholders 477.6 8.8** 439.0 410.9 389.8 339.3
Total Assets
Shareholders’ Funds 288.3 9.3** 263.8 242.9 232.1 201.7

PETRONAS’ Key Financial Ratios

Return on Revenue PE2011 FY2011 FY2010 FY2009 FY2008
Return on Total Assets 37.1% 37.5% 31.9% 33.7% 42.8%
Return on Average Capital Employed 22.9%*** 20.6% 16.4% 23.0% 28.1%
Debt/Assets Ratio 21.8%*** 17.5% 15.9% 22.0% 28.0%
Gearing Ratio 0.11x 0.11x 0.13x 0.11x 0.11x
Dividend Payout Ratio 15.4% 15.3% 17.6% 15.9% 15.8%
Overall Resource Replenishment Ratio 61.3% 54.7% 74.4% 57.1% 39.3%
2.5x 1.1x 1.8x 0.9x
1.7x

* 9M - unaudited nine month 1 April 2010 to 31 December 2010. Included for comparative purposes with audited PE2011 result
** % change from 31 March 2011 to 31 December 2011
*** calculated based on annualised figures
Note: See Glossary on page 112

In RM billion EBITDA Profit Before Taxation
Revenue
241.2 105.9 105.7 107.9 95.5 90.5
264.2
210.8 222.8 83.3 95.5 89.1 82.7
223.1

175.6 80.6 67.3 69.7

08 09 10 11 9M PE11 08 09 10 11 9M PE11 08 09 10 11 9M PE11

Net Profit Attributable to Total Assets Shareholders’ Funds
PETRONAS Shareholders

61.0 439.0 477.6 288.3

52.5 54.8 48.9 389.8 410.9 242.9 263.8

44.3 339.3 232.1

40.3 201.7

08 09 10 11 9M PE11 08 09 10 11 PE11 08 09 10 11 PE11

34 PETRONAS ANNUAL REPORT PE 2011

Revenue by Products
In percentage (%)

52 6 Petroleum Products
7 Crude Oil &
Condensates
38 LNG
Natural & Sales Gas
20 Petrochemical

22 Maritime & Logistics

Property & Others

Year-On-Year and Period REVENUE BY PRODUCTS production challenges. Production
Percentage Change In the period under review, revenue challenges were due to natural field
In percentage (%) increased from all our core depletion, reservoir performance
products in tandem with higher as well as operational challenges,
35 crude prices. However, the effect of including security issues in some
higher prices was partially offset by international operations.
25 27 the weaker US Dollar, operational
19 challenges and demand weakness Stronger plant performance at
21 in some markets. PLC in Bintulu, Sarawak and
18 PE11 higher realised LNG prices pushed
Revenue from petroleum products revenue from the sales of LNG
14 remained the largest revenue higher from RM32.5 billion to
contributor for the Group at 38%. RM45.2 billion, an increase of 39%,
-7 -20 Compared to the same period the largest increase recorded for
-25 last year, revenue for petroleum the nine month period.
products increased by 25% on the
08 09 10 11 back of higher realised prices and Petrochemical sales volume
Revenue sustained volume of about 233 reduced to 4.7 million metric
Profit Before Taxation million barrels. tonnes mainly due to plant
maintenance activities and
Key Profitability Ratios 23 Revenue from sale of crude oil and weakening demand in some
In percentage (%) 22 condensates which accounted markets. However, overall
for 22% of the Group’s revenue, favourable product prices
28 increased by 28% to RM49.8 cushioned the impact of lower
billion, supported by the higher sales volume. As a result, revenue
28 23 oil price environment. This was from the sales of petrochemical
in spite of the weakening of products rose by 6% to RM11.4
21 the US Dollar and upstream billion.
22

16
18

16

08 09 10 11 PE11

Return on Total Assets (ROTA)
Return on Average Capital Employed (ROACE)

Gearing Ratio 15
In percentage (%)

18

16 16

15

08 09 10 11 PE11

PETRONAS ANNUAL REPORT PE 2011 35reimagining energy

Gross NOPAT by Business Segment
In RM billion

Exploration and Production Gas and Power Downstream Corporate and Others

36.0 53% 12.6 24% 4.4 -14% -0.6
23.5 10.2 5.1 > -100%

1.5

9M PE2011

REVENUE BY GEOGRAPHICAL SEGMENT EARNINGS The Corporate & Others (C&O)
TRADE During PE2011, E&P business segment comprising mainly
PETRONAS recorded higher recorded Net Operating Profit After Maritime & Logistics and the
revenue in all of its geographical Tax (NOPAT) of RM36.0 billion Property business, recorded a
segments. Increases were recorded compared to RM23.5 billion in the loss of RM0.6 billion. The shipping
in both international and export corresponding period last year, an industry’s oversupply conditions
segments where realised prices increase of 53%. The increase was exerted further downward
moved in tandem with the market. mainly due to higher realised prices pressure on shipping rates, which
of crude oil and condensates and necessitated our shipping arm,
International Operations recorded lower operating costs. MISC Berhad, to exit the liner
an increase of 32% in its revenue business. The move resulted in
to RM90.6 billion supported by Gas & Power business also an accelerated provision of losses
higher prices realised for the sale of recorded higher NOPAT of RM12.6 resulting in an overall loss for the
crude oil and petroleum products. billion compared to RM10.2 billion C&O segment.
This translated to a 41% share of in the corresponding period last
Group total revenue, an increase year, an increase of 24%. The Revenue by Geographical Trade
of 2% compared to the previous increase was driven by improved In RM billion
corresponding period. LNG sales volume and LNG trading
margins but was partially offset 264.2
Our exports also recorded a by losses incurred from sales gas
significant increase of 31% in delivered in Peninsular Malaysia 223.1 98.3 54.7 241.2 222.8
revenue to RM87.1 billion, mainly due to regulated gas pricing, not
due to higher revenue earned from keeping up with costs. 86.8 46.4 210.8 92.5 49.6 87.1 45.1
export of LNG and crude oil and
condensates. This translated to a Collectively, E&P and Gas & Power 92.3 75.8 42.7 175.6
39% share of Group total revenue. businesses contributed 93% to the
Group’s gross NOPAT. 89.9 111.2 99.1 68.5 66.7 40.4 90.6
In domestic operations where
prices of petroleum products Downstream business recorded 08 09 10 11 9M PE11
and sales gas are subjected to lower NOPAT of RM4.4 billion, a Domestic Exports
government regulated pricing, drop of 14% from RM5.1 billion. International
revenue increased by a relatively This was due to lower realised
modest RM4.7 billion or 12% refining margins despite recording
compared to the previous higher revenue for the period and
corresponding period. improved product spreads in the
petrochemical business.

36 PETRONAS ANNUAL REPORT PE 2011

SEGMENT CAPEX acquisition of equity in the C&O segment spent Domestic and International
During PE2011, the Group Montney Shale Gas Asset RM3.5 billion during CAPEX Breakdown
spent RM30.8 billion on in Canada, from Progress the period with MISC In RM billion
capital investments, an Energy Resources accounting for 66% of the
increase of 26% from the Corporation. total spending. The bulk 44.0
corresponding period last of capital investments for
year. Gas & Power business MISC were spent on new 37.6 17.8 37.1
investments increased by petroleum tankers and
E&P business accounted almost twofold to RM4.5 offshore floating facilities. 17.6 26.8 10.3 34.9
for 68% of the total billion in PE2011. Key The remainder was spent
investment to sustain and projects included the mostly by KLCC Group 23.4 11.5 30.8
grow production both in GLNG project in Australia which undertook significant
Malaysia and internationally. and the Melaka LNG investments in the 24.5
RM12.1 billion was spent Regasification Terminal commercial development of 26.2 7.6
in Malaysia to reverse project. Both projects are PETRONAS Tower 3 and 13.0
declining production important to meet the government buildings in
by focusing more on nation’s growing energy Putrajaya. 20.0 16.9
increasing the recovery needs. 17.8
rate of producing fields
and developing new fields. Similarly, Downstream 08 09 10 11 9M PE11
Among the key projects in business also recorded Domestic International
Malaysia are the Gumusut- an increase in its capital
Kakap and Kinabalu Non- investments by RM0.5 CAPEX Allocation for PE2011
Associated Gas projects billion to RM1.8 billion. In percentage (%)
in Sabah and the Tangga Most of the spending was
Barat project in Peninsular made by PETRONAS 11 68 58 42
Malaysia. In terms of Chemicals Group Berhad 6
capital investments and Engen Limited on
made internationally, key plant facilities and asset 15
countries included Iraq, acquisitions respectively,
Egypt and Turkmenistan. during the period under Exploration and Production Domestic E&P
This also included the review. Gas and Power International E&P
Downstream
Corporate and Others

PETRONAS ANNUAL REPORT PE 2011 37reimagining energy

PAYMENTS TO GOVERNMENTS per mmBtu in the sales price Dividend Payout Ratio 61
AND SUBSIDIES announced by the Government In percentage (%)
During PE2011, PETRONAS paid commencing 1 June 2011.
RM58.4 billion to the Federal and 74
State Governments in Malaysia Since its inception, PETRONAS has 57 55
which comprised dividend paid a total of RM653 billion to both 39
payments of RM30 billion, taxes of Federal and State Governments
RM21.9 billion, petroleum proceeds and foregone potential revenue of 08 09 10 11 PE11
of RM5.4 billion and export duties RM154.9 billion since regulated
of RM1.1 billion. Dividend at RM30 gas prices came into effect in May
billion translated to a dividend 1997.
payout ratio of 61%.

Potential revenue foregone as Payments to the Malaysian Government
a result of the regulated pricing In RM billion
imposed on the supply of gas to
customers in Peninsular Malaysia’s 61.6 2.1 74.02.2 65.7
power and non-power sectors was 29.4 12.4 57.630.0 18.7 8.3
RM18.4 billion with the power and 0.6 1.3 58.4
non-power sectors accounting for 25.1 9.3
RM10.3 billion and RM8.1 billion 26.0 9.5 30.0 21.9 5.4 1.1
respectively. This was after taking
into account the increase of RM3 24.0 30.0 30.0

08 09 10 11 PE11
Dividend Petroleum Proceeds
Taxes Export Duty

Potential revenue foregone (Subsidies) PE2011 +/- (%) FY2011 Cumulative total since 1997

In RM billion 10.3 -11.2 11.6 108.5
POWER SECTOR 3.9 -20.4 4.9 46.1
- Tenaga Nasional Berhad 6.4 -4.5 6.7 62.4
- Independent Power Producers 8.1 -4.7
NON-POWER SECTOR - including industrial, 8.5 46.4
commercial, residential users and NGV 18.4 -8.5
20.1 154.9
Total

38 PETRONAS ANNUAL REPORT PE 2011

28.4 billion
boe

Group Total Discovered Resources
of 28.4 billion boe and contribution of
over 25% from international assets.

1.7x

oRRR of 1.7 times for the
Group, for total oil and gas
resources.

2,047 thousand
boe
per day

Total production of 2,047 thousand boe
per day with contribution from international
production of 519 thousand boe per day,
equivalent of 25% of the Group’s total
production.

PETRONAS ANNUAL REPORT PE 2011 39reimagining energy

grmerasoxowiumtrhicseinsgfor

40 PETRONAS ANNUAL REPORT PE 2011

EXPLORATION
& PRODUCTION

DATO’ WEE YIAW HIN Our international position was strengthened HIGHLIGHTS
with portfolio highgrading efforts and
E&P Business has set clear and challenging focus on delivering high quality assets. The Innovative,
goals with strategies in place which are being disciplined portfolio management system Out of the Box
executed and are progressing as planned. that has been put in place for all projects in Approach
These imperatives have helped drive the Malaysia and abroad helped strengthen the
transformation of the E&P Business through business fundamentals of PETRONAS E&P Sepat fast track development - record of 12
enhanced Structure, Process & Systems as Business. months project execution to first production
well as embed a Culture of Accountability, and Tangga Barat smart options in gas
Delivery and Performance. With these in As the number of activities grow and risk production to support national gas supply
place, the period under review was an levels elevate, safety management will needs
eventful one for us. My leadership team and become a priority. Nevertheless, we remain
I are very pleased that the organisation was committed to the challenging goals we have Intensified
able to focus on delivery and performance, set for ourselves on our operational and Exploration
including venturing into new and innovative financial fronts. As expected, the challenges Efforts
methods to achieve notable results. In many are daunting especially in the initial years of
ways, these are the results of the aggressive driving towards achieving these aggressive Successful exploration programme with 19
transformation being pursued. goals. However, we are confident that the discoveries and proved-up new play in shallow
business and organisation fundamentals as oil Sarawak and Vietnam basement
Testimony to this transformation, a number well as the transformation efforts we have
of records were attained including the embarked on will continue to propel us to our Aggressive
number of project start ups within record aspired goals. Delivery and Performance will Investment in
time, exploration discoveries in Malaysia, be the critical success factors going forward. Malaysia
including in areas disregarded by others
for many years, record high number of Concluded 10 new exploration Production
PSCs concluded and rigorous production Sharing Contracts (PSCs) and awarded the
enhancement with notable volumes achieved. second Risk Service Contract (RSC) for the
Over the next year or two, we aim to arrest Balai Cluster fields
the decline in domestic production due to
depleting fields with production enhancement Growing
and new aggressive developments. International
Ventures

Achieved first gas production in Turkmenistan
and successful acquisition of shale gas asset
in Canada

PETRONAS ANNUAL REPORT PE 2011 41reimagining energy

OVERVIEW In line with its first strategy to maximise the
recovery of producing fields through EOR and
PETRONAS’ Exploration and Production (E&P) Improved Oil Recovery (IOR), PETRONAS
business is focused on enhancing the value approved more than 380 million barrels of
and growing PETRONAS’ oil and gas resource oil equivalent (mmboe) additional oil and
base. This is done by driving and carrying out gas resources to be developed. Through its
exploration, development and production of oil second strategy to unlock the monetisation
and natural gas resources within the country potential of marginal fields through innovative
and overseas, leveraging on both the resource solutions, the development of Balai Cluster
owner role in Malaysia and as a reputable fields was awarded under a RSC arrangement,
operator globally. the second of its kind, following Berantai RSC
which was awarded last year. This innovative
PETRONAS Group continues to play an commercial solution continues to enable the
enabler role as the host authority for the oil development of challenging marginal fields.
and gas industry in Malaysia to maximise In its efforts to support long term growth by
upstream value, sustain production and intensifying exploration activities, proving
enhance prospectivity of the nation’s acreages. up new play types and exploiting remaining
PETRONAS also carries out upstream efforts potential, more than 530 mmboe of new
through partnerships with leading international resources was discovered. PETRONAS’ future
oil and gas companies and its wholly-owned positioning was further strengthened through
E&P subsidiary, PETRONAS Carigali Sdn Bhd new investments, with 10 new exploration
(PCSB). PSCs concluded by the period end. These
conscious efforts will revitalise the domestic oil
As Malaysian basins become more mature, & gas industry by helping to attract and sustain
PETRONAS faces considerable challenges upstream investments, which will in turn help
in sustaining production. To address this, Malaysia to sustain its production and grow its
three key strategies were adopted namely resource base.
rejuvenation of existing fields through
Enhanced Oil Recovery (EOR), development In the international arena, the key areas of
of marginal fields through innovative solutions focus was in highgrading the E&P portfolio,
and intensified exploration activities, all of as well as to ensure successful delivery
which complement the Malaysian Economic of development and exploration business
Transformation Programme (ETP). This involves objectives. Achieving first gas production,
extending the lifecycle of existing resources together with the signing of a Gas Sales
by optimising exploration, development and Agreement (GSA) for Block 1 in Turkmenistan
production activities. were key highlights of delivery success. This
signifies PETRONAS’ perseverance to operate
Significant efforts were made in the period in challenging international operations as
under review, not only by PETRONAS, but also well as provide confidence for future major
by the PSC and RSC contractors, as well as a commitments in Iraq, Venezuela and Canada.
multitude of Malaysian service industries with Divestment and dilution of six existing assets
the Government’s support. were undertaken driven by profitability and

42 PETRONAS ANNUAL REPORT PE 2011

PETRONAS’ Group Oil
and Gas Production
‘000 boe per day

2,288 2,288 2,271 2,137
2,119
1,673 615 2,047
1,659 629
1,631 640
1,614 523
1,602 517
1,528 519

08 09 10 11 9M PE11
Malaysia International

PETRONAS’ Group
Resource Addition
MMboe

1,877

1,593 1,044 833 1,646 1,705

679 914 1,246 400 1,007

1,200

698 864 336

prudent risk management. In driving growth, both Malaysia and international operations. 08 09 10 11 PE11
a successful major acquisition of a shale gas This brings the Group’s hydrocarbon resource Malaysia International
asset in Canada increased the resource and base for 2P and 2C to 13.5 and 14.9 billon
production potential in the portfolio. This has boe respectively. Liquids resources stand at PETRONAS’ Group
provided PETRONAS with a foothold in a 4.9 billion barrels, and 3.9 billion barrels for Resource Addition
new country and continent, and also signifies 2P and 2C respectively, while natural gas By Source
PETRONAS taking the first major step in for 2P and 2C stands at 8.4 and 10.8 billion
venturing into shale gas opportunities. boe, respectively. Unconventional resources 68%
stand at 0.2 and 0.1 billion boe for 2P and 2C
Overall, total production for PETRONAS respectively. In total, the Group’s oil and gas 32%
was lower at 2,047 thousand barrels of oil resources remained relatively stable with close
equivalent (kboe) per day compared to 2,119 to 75% residing in Malaysia. Exploration EOR/IOR/IGR
kboe per day in the previous corresponding
period, despite aggressive production efforts. PETRONAS’ Group Petroleum Resources
The difference was largely due to continued Bboe (billion barrels of oil equivalent)
natural field depletion in maturing fields, major
reservoir issues and operational uncertainties
in international ventures. Of this, PETRONAS
Group’s share of total production amounted to
1,424 kboe per day.

In terms of its resource base, PETRONAS Crude Oil & Condensates Reserves (2P) 1 January % 1 January
successfully maintained a healthy three-year Contingent Resources (2C) 2012 2011
rolling average Overall Resource Replenishment Entitlement 3.5%
Ratio (oRRR) of 1.7x for the Group with 4.853 0.0% 4.689
domestic oRRR at 1.6x and international at Natural Gas Reserves (2P) 3.878 8.1% 3.879
1.97x. New resource addition was recorded Contingent Resources (2C) 3.125 -1.3% 2.89
at 1.2 billion boe which was contributed by Entitlement 0.5%
exploration discoveries, accounting for 70%, 8.396 18.0% 8.508
with the balance resulting from EOR, IOR and Reserves (2P) 10.844 2.6% 10.789
Improved Gas Recovery (IGR) efforts from 6.465 -22.9% 5.479
Unconventional Contingent Resources (2C) 14.1
0.239 0.2% 0.233
Entitlement 0.145 14.6% 0.188
0.235 0.206
Total Discovered Resources 28.355 28.286
9.825 8.575
PETRONAS Entitlement 1.7x 2.5x

Overall Resource Replenishment Ratio (3 yrs ave)

PETRONAS ANNUAL REPORT PE 2011 43reimagining energy

IN FOCUS

RISK SERVICE CONTRACTS
Is a new petroleum
arrangement by PETRONAS
for the development of
marginal fields. Instead of
trying to improve the PSC
terms, this model strikes a
balance in the sharing of risks
with fair returns. Under this
arrangement, PETRONAS is the
project owner while contractors
are service providers with
equity share in the RSC.
Upfront investment of the
capital is contributed by the
contractors according to their
equity share. Contractors will
receive payment only upon first
production

MALAYSIA’S The production of crude oil and period under review. This increased
EXPLORATION condensates amounted to an the total number of producing fields
AND PRODUCTION average of 557 thousand barrels in Malaysia to 124, comprising 76
per day. This is 12% lower than the oil fields and 48 gas fields.
As a resource owner, PETRONAS previous corresponding period of
is responsible for managing and 630 thousand barrels per day. An inventive and novel approach
sustaining the production of oil to field development is integral in
and gas in Malaysia. For the Natural gas production remained efforts to sustain business delivery
period under review, Malaysia’s stable averaging at 5.826 billion in PETRONAS. Two Malaysian
total production decreased by cubic feet per day (equivalent to projects that merit recognition
5% to 1,528 kboe per day from 971 kboe per day), compared are the Tangga Barat cluster and
1,602 kboe per day in the previous to 5.832 billion cubic feet per Sepat field developments. Fields
corresponding period. day (972 kboe per day) in the in the Tangga Barat cluster were
corresponding period last year. brought onstream five months
The challenge to sustain oil Nevertheless, fulfilling domestic gas earlier than planned, through
production levels is expected demand remains a major upstream ‘smart’ recognition of opportunities
to persist for the next one to challenge. from the reservoir potential and
two years. This is mainly due to modification of the design facilities.
maturing fields and is compounded On the back of higher average oil This was instrumental in alleviating
by reservoir issues from both prices, PETRONAS’ share of total the challenging situation of the gas
deepwater and shallow water average domestic production, supply requirements for Peninsular
fields. Additionally, major scheduled inclusive of PCSB, accounted Malaysia. In the Sepat oil project,
maintenance and shutdown for 1,069 kboe per day or 72% leveraging on innovative workflow
programmes were carried out of Malaysia’s total average and processes, as well as effective
during this period, involving production, which is comparable to framing in the development design
over 70 fields and 10 pipelines. the previous year’s share of 69%. and planning, enabled faster
These shutdowns were planned procurement and project execution.
to coincide with tie-in work for Overall production was maintained This resulted in significant cost and
new field development facilities by the addition of three new gas schedule benefits, leading to the
expected to come onstream in the fields (Cilipadi, F9 and Melor & achievement of first oil production
next few years. Concerted efforts Laho) and three new oil fields more than one year ahead of the
to ensure the integrity of assets and (Dana, East Piatu and Sepat) that original schedule.
safe operations remain the highest were brought onstream during the
priority.

44 PETRONAS ANNUAL REPORT PE 2011

Malaysia’s Petroleum Resources Malaysia’s Average Oil
Bboe (billion barrels of oil equivalent) and Gas Production
‘000 boe per day
1 January 1 January
2012 % 2011 563 128 9821,673 1,631 1,6141,602
1,659
3.739 4.7% 3.572
Crude Oil & Condensates Reserves (2P) 2.215 -3.1% 2.286 554 125 980 535 122 974 987 1,528
Contingent Resources (2C) 2.3% 972
6.815 2.4% 6.660 971
Reserves (2P) 8.539 2.2% 8.337
Natural Gas Contingent Resources (2C) 21.308 20.855

Total Discovered Resources 1.6x 1.5x 512 115
518 112
Overall Resource Replenishment Ratio (3 yrs ave) 451 106

08 09 10 11 9M PE11
Crude Oil Condensates Natural Gas

Enabling technical and commercial Centre (EPTC) in September 2011, that the targeted number of wells were
development for marginal fields was also which focuses on the development and drilled. Exploration activities were also
a focus for PETRONAS. In the period deployment of EOR and high carbon supported by the drive to prove-up new
under review, the RSC for Balai Cluster dioxide (CO2) management technologies, plays for resource growth, which in some
was signed on 16 August 2011 with Roc and provides a “One Stop Shop” to cases involved initiatives to overcome
Oil Malaysia (Holdings) Sdn Bhd, Dialog institutionalise these core capabilities previous skepticism of exploration
D&P Sdn Bhd and PCSB. The underlying within the PETRONAS Group. The targets.
principle for this arrangement was the seamless integration of R&D, field
sharing of commercial and technical development planning and deployment Additionally, two exploration PSCs were
risks between the host authority and in the monetisation of EOR and high awarded while eight were finalised, giving
contractors which was viable and CO2 gas fields leverages on technical promise that exploration investments
mutually acceptable by both parties. collaboration and sharing of resources and activities will be sustained. The
The commercial arrangement caters with PSCs undertaking these projects exploration PSCs awarded included
for the appraisal of the reserves, thus in Malaysia. PETRONAS aspires to deepwater Blocks R & S. Block R was
managing the technical risks involved. position EOR and CO2 management as awarded to JX-Nippon-Inpex Consortium
In recognition of the evolving landscape value propositions in its partnerships and (75% equity) and PCSB (25% equity).
of upstream opportunities in Malaysia, international operations in the future. Block S was awarded to Inpex (75%
PETRONAS’ future direction continues equity) and PCSB (25% equity).
to encourage attractive arrangements As at 1 January 2012, Malaysia’s total
of mutual risk-sharing and innovative discovered resources increased by over Overall, a total of RM30.1 billion was
development approaches. 2% to 21.3 billion boe from 20.9 billion spent in Malaysia’s upstream sector
boe last year. The oRRR for the year during the period. Of this, RM16.4 billion
For longer term production, harnessing was 1.6x for total oil and gas in Malaysia. or 54% was for development activities,
EOR potential is a key strategy. Two Exploration discoveries contributed to RM2.4 billion or 8% for exploration and
EOR projects were approved, affirming over 60% of the new resources added in RM11.3 billion or 38% for operational
141 millon stock tank barrels (mmstb) Malaysia with the remaining added from expenditure.
of oil to be developed under recovery efforts in IOR and EOR.
maximising efforts. Additionally, the
Heads of Agreement for two new EOR For the period, exploration efforts
and further reserve development PSCs, continued to be encouraging with 14 out
for Baram Delta and North Sabah, of 22 exploration wells drilled showing
were signed in November 2011. With positive results. In the drive to intensify
this, the total reserves to be developed exploration activity, key efforts include
under EOR grew by 750 mmstb, ensuring the availability of a complete
with investments of USD12 billion inventory of technically-ready prospects
over the next 20 to 30 years. These for drilling, fast drilling execution
milestones are timely with PETRONAS’ and close integration in common rig
establishment of the E&P Technology utilisation. This practical initiative ensured

PETRONAS ANNUAL REPORT PE 2011 45reimagining energy

Breakdown of IN FOCUS
International Production
by Region THE THREE STAGES OF OIL
FIELD DEVELOPMENT
58%
Primary Recovery — Oil is forced
out by pressure generated from
gas present in the oil reservoir

36% Secondary Recovery — The
6% reservoir is subjected to water
flooding or gas injection to
Africa South East Asia maintain a pressure that
and Oceania continues to move oil to the
surface
PETRONAS International Oil Middle East and Asia
and Gas Production Tertiary Recovery — Also known
‘000 boe per day Note: South East Asia excludes as Enhanced Oil Recovery
Malaysia (EOR), introduces fluids that
reduce viscosity and improve
615 629 640 flow. These fluids could consist
of gases that are miscible with
287 328 276 353 265 375 252 271523 519 Breakdown of oil (typically carbon dioxide),
517 International Resources steam, air or oxygen, polymer
by Region solutions, gels, surfactant-
264 polymer formulations,
270 24% alkaline-surfactant-polymer
formulations, or microorganism
253 formulations
249

08 09 10 11 9M PE11 8%
31%

Crude Oil & Condensates Gas

INTERNATIONAL EXPLORATION 37% South East Asia
AND PRODUCTION and Oceania
Africa
The Group’s international E&P business performance Americas
remains healthy. Total average production from the Middle East
Group’s international operations stood at 519 kboe per and Asia
day, a slight increase from 517 kboe per day for the
same period last year. Liquids production remained PETRONAS’ International Petroleum Resources
at 249 kboe per day, marginally lower than the same Bboe (billion barrels of oil equivalent)
period in the previous year of 253 kboe per day, while
gas production increased to 270 kboe per day from Crude Oil & Condensates Reserves (2P) 1 January % 1 January
264 kboe per day for the corresponding period in the Contingent Resources (2C) 2012 2011
previous year, mainly due to the Turkmenistan gas Entitlement -0.3% 1.117
project coming onstream. 1.114 4.4% 1.593
Natural Gas Reserves (2P) 1.663 24.6% 0.471
The achievement of first gas and the conclusion of the Contingent Resources (2C) 0.587 -14.4% 1.848
GSA for Turkmenistan’s Block 1 in July 2011 were Entitlement -6.0% 2.452
significant milestones for PETRONAS E&P due to its 1.581 61.7% 0.766
considerable reserves and production potential. With Unconventional Reserves (2P) 2.305 2.6% 0.233
these achievements, the Onshore Gas Terminal (OGT) Contingent Resources (2C) 1.005 -22.9% 0.188
in Kiyanly is now commissioned and fully operational to Entitlement 0.0% 0.206
support the future gas production increase from Block 0.239 -5.2% 7.431
1 at the capacity of 500 mmscfd. This period also saw Total Discovered Resources 0.145
first production from two fields in Sudan (Blocks 3&7 and 0.235 40.8% 1.443
Blocks 1,2,4) and one field in Indonesia (Gajah Baru). 7.047
Additionally, international operations were strengthened 5.6x
PETRONAS’ Entitlement 1.827

Overall Resource Replenishment Ratio (3 yrs ave) 1.97x

46 PETRONAS ANNUAL REPORT PE 2011

with the opening of a new PETRONAS in Canada, from Progress Energy three-year rolling average oRRR
office in Juba, the capital of the Resources Corporation. This was achieved for the review period for
Republic of South Sudan. This concluded in August 2011, which international was 1.97x. On the whole,
supported production operations while gives PETRONAS rights to exploit the the resource base continued to be
facilitating stakeholder management shale gas potential, in collaboration heavy in gas which are mainly located
in the newly formed country post the with the existing operator, Progress. in Turkmenistan, Malaysia-Thailand
Sudan Referendum and the country’s It also signifies a critical milestone Joint Development Area, Australia and
independence. In Iraq, both the Garraf in PETRONAS’ intent to pursue and Egypt. More than 80% of the oil and
Base Camp and the PETRONAS grow in unconventional plays, while gas resources are located in Middle
representative office in Baghdad were complementing its existing portfolio East and Asia, Africa and South East
successfully operationalised. with the Gladstone CBM and LNG Asia region.
integrated development in Australia.
PETRONAS’ international resource Meanwhile, dilutions and divestments A total of RM11.8 billion was invested
base continued to grow with new were concluded for six assets, in international E&P ventures, of which
resource additions from both driven by profitability, prudent risk 52% was for development, 12% for
exploration and improved recovery management and the greater objective exploration and the rest for operations
efforts. Notable discoveries were of enhancing portfolio value return of existing assets.
made in Vietnam and Turkmenistan. and strategic alignment. Farm-outs
Vietnam’s Diamond-4X well made oil included assets in Cuba, Mauritania
discovery, extending PETRONAS’ and Uzbekistan while relinquished
success in exploiting the country’s assets included exploration blocks in
basement potential in Block 01/02. Sudan and Uzbekistan.
Turkmenistan’s Garagyol Deniz
West-1 discovery in Turkmenistan This brings PETRONAS’ international
Block 1 assures the promise of further resource total to 7.0 billion boe, a
oil resource potential of over 80 decrease of 5% compared to the
mmboe. previous year; with 2.9 billion boe
of 2P and 4.1 billion boe of 2C
In continuing efforts to high grade resources as at 1 January 2012.
the E&P portfolio, a notable The decrease reflects the result of
milestone was achieved through the de-booking resources for relinquished
successful acquisition of 50% equity assets in 2010 and 2011 namely in
in the Montney Shale Gas Asset Ethiopia, Pakistan and Sudan. The

IN FOCUS

THE MONTNEY SHALE GAS ASSET
play is in east-central British Columbia. The Montney
Formation has sandy facies in Western Alberta, where
oil is produced in the Sturgeon Lakes and Saddle Hills
areas. Major facies include fine-grained shoreface
sandstones, shelf siltstones and shales, fine-grained
turbidites and organic-rich phosphatic shale. Natural gas
is extracted from siltstone reservoir in the Dawson Creek
and Pouce Coupe areas and gas rich silty shales occur in
the northern and western fringes of the deposit.

PETRONAS ANNUAL REPORT PE 2011 47reimagining energy

» EXPLORATION
AND PRODUCTION
OPERATIONS
PETRONAS continues
to place strong
emphasis on HSE
in all aspects of our
operations through
integrating essential
practices into our
business activities in
line with international
standards and
practices.

OUTLOOK especially with the dramatic shift of acquisition of new assets to enhance
importance to unconventional gas the portfolio for long term asset quality
The global upstream sector is seen in North America. This will and sustainable profitability.
expected to remain exciting in 2012, surely drive capability development
driven by dynamic business drivers and required services regionally and The over arching priority will continue
such as oil price, energy demand globally for unconventional activities. to be in sustaining and realising
outlook, global economic recovery and production. Nevertheless, operating
geopolitical uncertainties. PETRONAS’ strategies are on track in countries with geopolitical
for Malaysia, having reaffirmed its uncertainties like Sudan and Iraq may
While many parties are reaping the marginal field development strategy affect achievement of production
benefits from current oil prices, the through the two awarded RSCs, targets. This will be an area of great
question remains, whether the high with new RSCs expected to be challenge for the Group in the future.
price levels can be sustained. The signed in 2012. Both efforts in IOR
volatile nature of oil prices further and exploration are expected to PETRONAS is fully committed to HSE
emphasises the need for rigorous be sustained with the recent deals, excellence. Internal transformation in
risk considerations and robust securing future activities for exploration the E&P organisation continues to be
business decisions. Nevertheless, drilling and EOR implementation. Key implemented to elevate and enhance
it is expected that investments institutional capability development HSE leadership drive, which focuses
will continue to be seen from E&P with the establishment of the EPTC on operational HSE and structural
companies. PETRONAS anticipates promises results for future EOR and needs to ensure systems robustness.
that international oil companies and high CO2 gas projects. Process Safety Management and
national oil companies will continue Behavioural Safety practices will be
to pursue business expansion and In the international arena, focus the key for seamless integration in
growth while financial results will be on project delivery and operational work culture, to support the journey of
highly dependent on hydrocarbon excellence will continue in major achieving HSE excellence.
demand. countries namely Iraq, Turkmenistan
and Venezuela. Simultaneously,
The competition for resources is PETRONAS will continue to
anticipated to heighten interest in relentlessly pursue growth through
unconventional resource opportunities,

Disclaimer on forward-looking statements: Forward-looking statements involve inherent risks and uncertainties. Should one or more of these or other uncertainties or risks materialise, actual
results may vary materially from those estimated, anticipated or projected. Specifically, but without limitation, capital costs could increase, projects could be delayed, and anticipated improvements
in capacity, performance or profit levels might not be fully realised. Although PETRONAS believes that the expectations of its management as reflected by such forward-looking statements are
reasonable based on information currently available to it, no assurances can be given that such expectations will prove to have been correct. Accordingly, you are cautioned not to place undue
reliance on the forward-looking statements, which speak only as of the date they are made. PETRONAS undertakes no obligation to update or revise any of them, whether as a result of new
information, future developments or otherwise.

48 PETRONAS ANNUAL REPORT PE 2011

24%

Higher NOPAT by 24% compared to
the previous corresponding period on
the back of higher LNG sales volume
and price, which contributed 21% to
the overall Group profit for the period
under review.

20.6 million
tonnes

Higher LNG sales volume on the back of
higher PLC production and PLL trading
volume during the period under review.

99.98 %

PGB achieved a reliability rate of 99.98% for the
PGU system exceeding the world class standard of
99.90% during the period under review.

PETRONAS ANNUAL REPORT PE 2011 49reimagining energy

expanding
the horizon

50 PETRONAS ANNUAL REPORT PE 2011

GAS
& POWER

DATUK ANUAR AHMAD HIGHLIGHTS OVERVIEW

Last year, Gas and Power Business was GLNG A strong year driven by the LNG segment
challenged to meet the domestic gas despite continued challenges in domestic
demand especially to the Malaysian The GLNG project ground breaking gas supply
power sector. Fortunately, through close ceremony in May 2011 which was attended The year continued to see strong performance
cooperation amongst all parties, the nation by the Australian Prime Minister Julia Gillard, from the Gas & Power Business, which
did not experience any untoward incident. marked the official commencement of its maintained its position as the second largest
The gas supply constraint will ease construction. The Coal Bed Methane (CBM) contributor to the Group’s Net Operating Profit
with the completion of the Melaka LNG to Liquefied Natural Gas (LNG) project in After Tax (NOPAT) at 24%, supported mainly
Regasification Terminal in the third quarter Australia is expected to produce a total of by higher realised LNG sales volume and price.
of 2012. 7.8 million tonnes per annum (mtpa).
During the period, PETRONAS LNG Complex
It was nevertheless an exciting year on Shale Gas (PLC) continued to achieve record production
all other fronts for us. We increased our Venture for the nine month period on the back of
equity in Dragon LNG terminal, aligning improved plant performance and completion of
ownership with capacity off-take. A review PETRONAS International Corporation Ltd (PICL) the MLNG Dua debottlenecking.
of our European gas business resulted formed a strategic partnership with Canada-
in PETRONAS divesting the Star Energy based Progress Energy Resources Corporation On the domestic front, meeting sales gas
Group. The year also saw PETRONAS in June 2011 to develop the shale gas assets demand from customers in Peninsular
taking the first step into the international in northeastern British Columbia, Canada. The Malaysia remained a challenge due to feedgas
power business scene by acquiring a 30% venture will allow for accelerated upstream supply shortage from offshore Terengganu.
equity in GMR Energy (Singapore) Pte Ltd. growth and monetisation via LNG exports. Nevertheless, measures were put in place to
We secured 10.02MW of Feed-in-Tariff address the nation’s growing energy needs.
allowing PETRONAS to participate in the Network Code
Malaysian solar power business. Short-term gas supply arrangements were
In December 2011, PETRONAS Gas Berhad made with the Malaysia-Thailand Joint
In the LNG business, we reorganised the (PGB) announced the Network Code under Development Area (MTJDA) for additional
marketing and trading functions to optimise a Third Party Access (TPA) scheme to volumes in 2012. With the expected completion
our LNG portfolio and to enhance the Bursa Malaysia. The code provides access of the country’s first LNG Regasification
PETRONAS brand. The MLNG Companies to all parties subscribing to the Peninsular Terminal in Melaka, the nation’s long-term gas
performed extremely well and recorded the Gas Utilisation (PGU) system through wide, requirements will be addressed through LNG
highest level of production ever for the nine transparent and uniform principles. importation at market prices. Development
month period. works of regasification terminals in Pengerang,
Power Business Johor and Lahad Datu, Sabah are also in
progress.
In December 2011, PICL acquired a 30%
stake in GMR Energy Singapore Pte Ltd’s With the Bursa Malaysia’s Network Code
(GESPL) 800 megawatt (MW) Combined Cycle announcement, PGB introduced third party
Gas Turbine Power Plant on Jurong Island, access to the PGU system. This will provide
Singapore. This represents PETRONAS’ transparent and uniform principles for the
maiden foray into the international power PGU system subscribers thus facilitating LNG
business. importation by third parties.