Written by Nuremy Mohd Khairi
Background
Petronas is one of the leading GLC companies, it is Malaysia’s fully integrated oil and gas multinational company. Petronas is the custodian for Malaysia’s oil and gas resources and was established in 1974. They apply innovative approaches and technology which helps to unlock the most remote and difficult environments. While expanding their business and network all over the world Petronas has consistently and successfully implemented various social, environmental and community programmes guided by its larger corporate sustainability framework in carrying out business in a socially responsible manner to benefit both the present and future generation. In accomplishing their vision Petronas has dealt with various countries when it comes to Foreign Direct Investment (FDI). Thus an in depth interview was done with one of the Head of Corporate and Government Relations in Petronas to understand and analyze whether the types of FDI that Petronas deals with.
Foreign Direct Investment
PETRONAS is actively involved in strategic foreign direct investment namely in the development of oil and gas. One of the strategic FDI that was undertaken was the acquisition of Progress Energy in Canada. PETRONAS, through wholly-owned subsidiary PETRONAS International Corporation Ltd (PICL), has reached an agreement to form a strategic partnership with Canada-based Progress Energy Resources Corporation to develop the Altares, Lily and Kahta shale gas assets in northeastern British Columbia.
Under the agreement signed on 2 June 2011, PICL will acquire 50 per cent of Progress’ interest in the three areas for a total consideration of CDN$1.07 billion (RM3.32 billion). The assets included in the transaction cover approximately 150,000 gross working-interest acres of land with an estimated contingent gas resource of more than 15 trillion cubic feet. The assets will be operated by Progress.
The proposed acquisition will mark PETRONAS’ maiden entry into Canada and will allow for accelerated upstream growth that could potentially advance a liquefied natural gas (LNG) export value proposition in that country. PETRONAS views the acquisition as a highly attractive opportunity, paving its entry into the North American shale gas industry while at the same time further strengthening its position as a leading global LNG player.
As part of the acquisition, PETRONAS and Progress have agreed to establish an LNG Export joint venture to conduct a feasibility study on the economic viability of an integrated LNG Export facility in Western Canada. This could provide a strategic alternative to the traditional North American pipeline gas market.
The next FDI that is key to PETRONAS is the acquisition of Engen Holdings (Pty) Ltd, where PETRONAS is a majority shareholder with 74% market share. The acquisition took place in 1998 in a deal that valued the company at about US$700 million. Recently PETRONAS market strategy took a giant step where it will be expanding its footprint to nine new countries via its wholly-owned South African unit Engen Holdings (Pty) Ltd.
This followed a deal worth US$256 million (RM1 billion) between Engen and Vivo Energy Holding BV, jointly-owned by Geneva-based Vitol SA and Africa-focused private investment firm Helios Investment Partners, to combine some of their African fuel-retail assets. This deal will provide the opportunity to PETRONAS to have access to 2,100 service stations in 24 African markets therefore putting an important stamp on PETRONAS presence in controlling the fuel market retail in targeted African countries.
As much as PETRONAS focuses on strategic FDI’s by ensuring business profitability and sustainability, the process of PETRONAS getting involved in strategic acquisition namely on FDI will have to go through a stringent decision making process where the Executive Leadership Team of PETRONAS which is led by the President and Group CEO of PETRONAS will congregate and evaluate the strategic return of investment before decision is made on the FDI’s targeted.