Industry-wide cost reduction alliance to yield RM2b cash generation: Petronas

MALAYSIA'S national oil company Petronas aims to achieve up to RM2 billion (S$684 million) in cash generation this year from its Coral 2.0 (cost reduction alliance 2.0) industry-wide initiative implemented to ensure the sustainability of the cost structure of the country's oil and gas sector, not just through the current downturn, but also in preparation for the next upswing.

Petronas' vice-president of Malaysia Petroleum Management, Zamri Jusoh, noted at an OTC Asia 2016 press conference that Coral 2.0 - which counts 25 petroleum arrangement contractors such as Royal Dutch Shell, Total and ExxonMobil, and other oilfield services providers in Malaysia as collaborators - has already yielded some RM2.4 billion in industry-wide cost savings across the upstream value chain.

But Mr Zamri clarified Coral 2.0 goes beyond cutting cost to meet the demand of a lower oil price environment. The goals of the industry-wide collaboration go beyond "re-basing cost to a sustainable level".

Petronas intends to next look at cash generation of RM1.5 billion to RM2 billion in 2016 from new initiatives including, among others, the activation of idle wells and minimising unplanned deferments from shut-ins and equipment failures, according to Mr Zamri.

Eleven initiatives have already been identified under Coral 2.0 across three main cost brackets: engineering and construction, drilling and completion and operations and maintenance.

Mr Zamri acknowledged the largest cost savings so far are from drilling and completion, which amount to RM1.5 billion.

The rig count in Malaysian waters is about seven to eight operating rigs, with an estimated another five currently stacked, or put on standby.

The unit per barrel operating cost has fallen to US$8-US$9, but Petronas is still reviewing other elements of the upstream value chain, including procurement and vendor management, for further reductions.