ANNUAL REPORT 2005 - مركز اطلاع رساني و ... Annual Rep… · ANNUAL REPORT 2005...

PETROLIAM NASIONAL BERHAD (PETRONAS) COMPANY NO. 20076-K REGISTERED OFFICE TOWER 1, PETRONAS TWIN TOWERS KUALA LUMPUR CITY CENTRE, 50088 KUALA LUMPUR, MALAYSIA T +603 2051 5000 F +603 2026 5050 www.petronas.com.my

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01 Corporate Statements

02 Company Profile

04 In Remembrance of the late Chairman

08 Board of Directors

10 Management Committee

12 Five-Year Financial Highlights

18 The Year in Review

58 Main Events

C O N T E N T S

M I S S I O N S TAT E M E N T

We are a business entity

Petroleum is our core business

Our primary responsibility is to develop and add value tothis national resource

Our objective is to contribute to the well being of thepeople and the nation

V I S I O N S TAT E M E N T

To be a leading oil and gas multinational of choice

S H A R E D VA L U E S

Loyalty – Loyal to nation and corporation

Professionalism – Committed, innovative and proactiveand always striving for excellence

Integrity – Honest and upright

Cohesiveness – United in purpose and fellowship

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C O R P O R AT E S TAT E M E N T S

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Petronas AR05_review 7 7/9/05 4:36 PM Page 1

C O M PA N Y P R O F I L E

2 PETRONAS, the acronym for Petroliam Nasional Berhad, is Malaysia’s national petroleumcorporation. Incorporated on 17 August 1974 under the Companies Act, 1965, it is wholly ownedby the Malaysian Government.The Petroleum Development Act, 1974 vests in PETRONAS theentire ownership and control of the petroleum resources in Malaysia. PETRONAS is an integratedinternational oil and gas company with business interests in more than 30 countries and foursubsidiaries listed on the Bursa Malaysia. It is ranked among the Fortune Global 500 largestcorporations in the world.

The Group is engaged in the exploration and production of oil and gas; oil refining; marketing anddistribution of petroleum products; trading; gas processing and liquefaction; gas transmissionpipeline network operations; marketing of liquefied natural gas; petrochemical manufacturing andmarketing; shipping; and property investment.


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“He was a unique man and was ever-willing to give everybody a chance.”

“Some men must be measured by the scale of their contribution, some bythe content of their character.Tan Sri Azizan must be measured by both.”

“His contributions to the country are priceless.”


T H E L AT E TA N S R I DATO ’ S E R I A Z I Z A N Z A I N U L A B I D I N

On 14 July 2004, we mourned the loss of our Chairman, the late Tan Sri Dato' Seri Azizan Zainul Abidin. The late Tan Sri Azizan,who joined PETRONAS as our second President and Chief Executive in 1988, was regarded as a far-sighted leader with a noblevision – to see the national oil corporation of Malaysia become a major global player to be reckoned with.

It was during his tenure that PETRONAS underwent several major developments, one of the most notable being the corporation’sembarkation on our globalisation journey in the early 1990s.

He was also instrumental in bringing about the rapid expansion and diversification of PETRONAS’ operations, as part of our value adding business integration strategy.

On a personal level, the late Tan Sri Azizan was a gentleman who personified honesty, integrity and professionalism, the verysame values that he had in fact launched and introduced into the organisation as PETRONAS Shared Values. More than the well-earned reputation as a distinguished corporate figure and nationalistic civil servant, the late Tan Sri was distinctively knownfor his humility and soft-spoken ways.

Indeed, he was a source of inspiration for many, and his selfless contributions to both our corporation and country have becomea lasting legacy for generations to come.

I N R E M E M B R A N C E O F T H E L AT E C H A I R M A N

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“A man like Azizan isn’t born every day.The hallmark of Azizan’s character was absolute honesty and integrity.He was the quintessential public servant of the highest rank.”

“He was loyal to his country, his career and the nation.”

“Tan Sri Azizan had left behind legacies that we would remember for a long time...his most significant legacy to PETRONAS was its shared values.”


Our relationships with thecommunities we serve are built ontrust.


C U LT I VAT I N G R E L AT I O N S H I P S


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B O A R D O F D I R E C T O R S

Acting Chairman and President &Chief Executive Officer

Tan Sri Dato Sri Mohd HassanMarican

Members

Tan Sri Dato’ Zaki Tun Azmi

Dato’ Izzuddin Dali

Dato’ Seri Khalid Ramli

Raja Dato’ Zaharaton Raja ZainalAbidin

Datuk Ishak Imam Abas

Datuk Anuar Ahmad

Nasarudin Md Idris

Company Secretary

Mohammed Azhar OsmanKhairuddin


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Nasarudin Md IdrisDatuk Anuar AhmadDato’ Seri Khalid RamliRaja Dato’ Zaharaton Raja Zainal AbidinDato’ Izzuddin DaliTan Sri Dato Sri Mohd Hassan MaricanTan Sri Dato’ Zaki Tun AzmiDatuk Ishak Imam AbasMohammed Azhar Osman Khairuddin


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M A N A G E M E N T C O M M I T T E E

Tan Sri Dato Sri Mohd HassanMaricanActing Chairman, President & ChiefExecutive Officer

Datuk Ishak Imam AbasSenior Vice President

Abdullah KarimVice President, Exploration &Production Business

Datuk Anuar AhmadVice President, Oil Business

Datuk Abdul Rahim Hj HashimVice President, Gas Business

Yeow Kian ChaiVice President, PetrochemicalBusiness

Nasarudin Md IdrisVice President, Corporate Planning &Development Division

Datuk Ainon Marziah WahiVice President, Human ResourceManagement Division

George RatilalVice President, Finance Division

Dr Rosti SaruwonoVice President, Education Division

Dato’ Shamsul Azhar AbbasPresident & Chief Executive Officer,Malaysia International ShippingCorporation Berhad

Mohamad Johari DasriManaging Director & Chief ExecutiveOfficer, PETRONAS Carigali Sdn Bhd

Ahmad Nizam SallehManaging Director & Chief ExecutiveOfficer, Malaysia LNG Sdn Bhd

Wan Zulkiflee Wan AriffinManaging Director & Chief ExecutiveOfficer, PETRONAS Gas Berhad

Mohammed Azhar OsmanKhairuddinSenior General Manager, Legal &Corporate Affairs Division

Faridah Haris HamidSecretary


F R O M L E F T

Wan Zulkiflee Wan AriffinYeow Kian ChaiDato’ Shamsul Azhar AbbasDatuk Ainon Marziah WahiGeorge RatilalDatuk Abdul Rahim Hj HashimAhmad Nizam SallehDatuk Anuar AhmadTan Sri Dato Sri Mohd Hassan MaricanDatuk Ishak Imam AbasNasarudin Md IdrisAbdullah KarimDr Rosti SaruwonoMohamad Johari DasriMohammed Azhar Osman KhairuddinFaridah Haris Hamid

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F I V E - Y E A R F I N A N C I A L H I G H L I G H T S

55,000

50,000

45,000

40,000

35,000

30,000

25,000

20,000

01 02 03 04 05

P R O F I T B E F O R ETA X AT I O N

34,500

31,000

27,500

24,000

20,500

17,000

13,500

10,000

01 02 03 04 05

N E T P R O F I T

14,5

68

23,6

59

35,5

56

15,1

05

16,4

8829,0

29

26,8

72

58,0

30

24,3

18

37,4

42

130,000

120,000

110,000

100,000

90,000

80,000

70,000

60,000

01 02 03 04 05

R E V E N U E

73,3

51

67,1

81

97,5

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137,

046

81,4

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G R O U P A S AT 3 1 M A R C H( M I L L I O N R M )


222,500

205,000

187,500

170,000

152,500

135,000

117,500

100,000

01 02 03 04 05

T O TA L A S S E T S

120,000

110,000

100,000

90,000

80,000

70,000

60,000

50,000

01 02 03 04 05

S H A R E H O L D E R S ’F U N D S

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144,

216

203,

205

239,

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178,

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139,

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698

129,

383

83,4

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58,0

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GROUP HIGHLIGHTS

2005 2004 2003 2002 2001

Revenue (RM billion) 137.0 97.5 81.4 67.2 73.4

Profit Before Tax (RM billion) 58.0 37.4 26.9 24.3 29.0

EBITDA (RM billion) 68.1 47.8 36.0 32.2 36.2

Net Profit (RM billion) 35.6 23.7 15.1 14.6 16.5

Total Assets (RM billion) 239.1 203.2 178.0 144.2 139.0

Shareholders’ Funds (RM billion) 129.4 102.7 83.5 68.9 58.0

Cash & Fund Investment Balance (RM billion) 75.2 53.8 55.4 42.8 44.3

Total Borrowings (RM billion) 52.8 57.7 58.1 40.4 40.6

Return on Revenue 42.3% 38.4% 33.0% 36.2% 39.6%

Return on Total Assets 24.3% 18.4% 15.1% 16.9% 20.9%

Return on Capital Employed 37.4% 28.7% 25.6% 27.5% 36.1%

Total Debt / Total Assets Ratio 0.22x 0.28x 0.33x 0.28x 0.29x

Reserves Replacement Ratio 0.7x 2.6x 2.1x 4.0x 2.0x

Number of Employees 33,944 30,634 28,378 25,733 23,441


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F I V E - Y E A R F I N A N C I A L H I G H L I G H T S

29,000

27,000

25,000

23,000

21,000

19,000

17,000

15,000

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P R O F I T B E F O R ETA X AT I O N

19,100

17,800

16,500

15,200

13,900

12,600

11,300

10,000

01 02 03 04 05

N E T P R O F I T

16,3

22

22,9

37

29,5

22

20,2

38

17,9

92

10,4

73

15,0

74

19,7

92

14,0

18

11,2

44

54,500

51,000

47,500

44,000

40,500

37,000

33,500

30,000

01 02 03 04 05

R E V E N U E

36,9

65

31,9

63

43,6

57

56,9

18

37,9

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C O M PA N Y A S AT 3 1 M A R C H( M I L L I O N R M )

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129,000

122,000

115,000

108,000

101,000

94,000

87,000

80,000

01 02 03 04 05

T O TA L A S S E T S

79,000

72,000

65,000

58,000

51,000

44,000

37,000

30,000

01 02 03 04 05

S H A R E H O L D E R S ’F U N D S

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86,2

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115,

177

129,

190

112,

009

84,1

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50,8

35

71,7

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82,4

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43,7

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Our most important asset is our people.


N U R T U R I N G H U M A N C A P I TA L


18 Tan Sri Dato Sri Mohd Hassan MaricanActing Chairman and President & Chief Executive Officer

T H E Y E A R I N R E V I E W


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Building on the sound foundation anchored on our integration, value adding and globalisation strategy, PETRONASturned in an outstanding performance for the financial year ended 31 March 2005. The strongest ever performancewas a fitting gift for PETRONAS’ 30-year Anniversary and placed the Group on a firmer footing to successfullycompete in the increasingly challenging, complex and volatile global oil and gas industry. The successfulimplementation of operational efficiency and reliability initiatives enabled the Group to capitalise on the favourablemarket environment during the review period, and to optimise the synergistic benefits of its fully integrated businessto deliver remarkable results. Revenue surpassed the RM100 billion mark to a staggering RM137.5 billion. Profitbefore tax rose by 55% to a record RM58.0 billion, notably higher than the average increase in WTI and Brent crudeoil prices during the period under review. The Group’s Return on Average Capital Employed stood at a commanding37.4%, a testimony to the Group’s ability to efficiently generate returns and profits on par if not better than the moreestablished major players in the industry.

It takes team effort to build the foundation instrumental to the Group’s sustained growth and success. One mannevertheless provided key contribution to the building of the foundation through his leadership, vision andstewardship. We lost the visionary leader and an impeccable steward on 14 July 2004. Our beloved chairman TanSri Dato’ Seri Azizan Zainul Abidin’s sudden and untimely demise is a great loss to this organisation and to thenation. On behalf of PETRONAS, I would like to pay tribute to our late Chairman, for his invaluable contributions andsacrifices. While we mourn his passing, his legacy will continue to live as we continue to move forward. May Allahbless his soul.

The year under review proved to be a good year for the integrated oil and gas companies on the back of a sustained period ofstrong crude oil prices as the world continued to be subjected to uncertainties and volatility which affected global oil demand andsupply. Sustained global economic growth driven by China and the United States contributed to the upward pressure on oildemand. On the other hand, continued volatility in the Middle East, concerns over supply disruptions in Nigeria, Venezuela andNorway, weather disruptions brought about by Hurricane Ivan and uncertainties in Russia heightened concerns over security ofsupply. Higher demand and threat of supply disruptions, coupled with increased speculative oil trading and stock buildingactivities provided the impetus for oil prices to remain high throughout the year.

The average price of West Texas Intermediate (WTI) and Brent crudes increased by about 40% during the review period toUSD45.05 and USD42.10 per barrel respectively. The weighted average price of Malaysian Crude Oil (MCO) rose in tandem toUSD45.00 per barrel from USD30.90 per barrel in the previous financial year, an increase of 45.6%.

The successful implementation of operational efficiency and reliability initiatives enabled the Group to capitalise on the favourablemarket environment during the financial year, and to optimise the synergistic benefits of its fully integrated business. Theoperational improvement efforts, anchored around the Group’s integration, value adding and globalisation strategy, resulted insustained growth and a record-breaking best ever performance for the Group.

O V E R V I E W


HIGHLIGHTS

• Over 40% increase in revenue to RM137.0 billionfrom RM97.5 billion in the previous year, with higher realised prices and higher sales volume achieved.

Nearly 80% of revenue was generated outside Malaysia. This comprised revenue from international operations and exports from Malaysia.

Exports accounted for over 40% or RM57.5 billion of revenue, representing nearly 12% of Malaysian exports over the same period.

Manufacturing activities contributed 57% or RM78.2 billion of revenue as the Group continued to create and add value to its oil and gas resources.

• Profit before tax rose by 55% and net profit rose by 50% to RM58.0 billion and RM35.6 billion respectively. Operational efficiency across all business sectors successfully contained costs and improved margins.

• Stronger balance sheet with total assets increasingto RM239.1 billion.

• Net cash position of RM22.4 billion with higher cash and fund investment balance compared to total borrowings.

• Improved Return on Revenue and Return on Total Assets at 42.3% and 24.3% respectively, on par or exceeding industry average.

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G R O U P F I N A N C I A L R E V I E W

Export revenue amounted to RM57.5 billion, representingabout 12% of Malaysia’s exports over the same period,earning valuable foreign exchange revenue for the nation, whileat the same time, providing positive contribution towards thecountry’s balance of payment.

Revenue from the Group’s manufacturing activities, comprisingthe manufacture of petroleum products, liquefied natural gas,processed gas and petrochemicals, have increased fromRM57.5 billion to RM78.2 billion this year. The Group remainsfocused on value-adding activities to maximise the value of itsoil and gas resources.

Record earnings and profits, driven both by prices andvolume increasesThe Group turned in a record revenue of RM137.0 billion, a40.5% increase compared to RM97.5 billion registered lastyear. While higher prices were a factor, the Group also realisedhigher sales volume of between 10% and 30% for nearly allbusiness sectors.

The Group continued to reap increasing benefit from itsglobalisation strategy as reflected in significant revenuecontribution from its international business. Internationalbusiness revenue, which comprises revenue from internationaloperations and exports from Malaysia, grew by RM30.1 billionto RM106.0 billion, accounting for 77.3% of Group revenue.

PRODUCT SALES AT A GLANCE – BY VOLUME 5-YEAR TREND

2005 2004 2003 2002 2001

Crude Oil (‘000 barrels) 207,089 194,203 181,540 164,545 162,349

Natural Gas (‘000 mmbtu) 212,840 164,247 126,749 90,489 57,713

Processed Gas (‘000 mmbtu) 622,000 560,789 587,117 553,686 603,802

LNG (million MT) 22.4 18.4 15.2 15.3 15.2

Petroleum Products (‘000 barrels) 218,472 225,403 200,285 186,475 164,592

LPG (million MT) 2.6 2.3 2.3 2.2 2.0

Petrochemicals (million MT) 6.4 7.3 5.5 4.0 3.2


Strengthening business integration hasenabled PETRONAS to sustain growth inthe face of increasing global challenges.

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Remarkably, the Group’s profit before tax and net profit haveincreased by 55.0% and 50.3% respectively, substantiallyhigher compared to the growth in revenue. Profit before taxamounted to RM58.0 billion, up by RM20.6 billion from the lastfinancial year and profit after tax and minority interests wasRM35.6 billion, an increase of RM11.9 billion. Operationalefficiency achieved across all business sectors has enabledthe Group to realise cost savings and enhance profitability. Thisefficiency was further reflected in the higher Return onRevenue (profit before tax over revenue) this year that rose to42.3% compared to 38.4% last year.

Strong growth in asset base and shareholders’ funds,with enhanced liquidityThe Group’s balance sheet continued to strengthen. Totalassets grew to RM239.1 billion, up 17.7% from RM203.2billion last year. Shareholders’ funds also increased toRM129.4 billion from RM102.7 billion last year, acommendable achievement for a company that started withRM10 million in equity 30 years ago.

Return on Total Assets (profit before tax over total assets) roseto 24.3% compared to 18.4% in the previous financial year,while Return on Average Capital Employed (ROACE) improvedto 37.4% compared to 28.7% in the previous year, underliningthe Group’s ability to efficiently generate returns and profits, onpar, if not better, than other comparable integrated oil and gascompanies.

The Group generated strong cashflow from operations thisyear. Notably, cash generated from operations during the yearwas more than sufficient to cover the Group’s investing andfinancing requirements. With the surplus, the Group’s cash andfund investment balance as at 31 March 2005 rose to RM75.2billion, a substantial increase from RM53.8 billion in 2004.Cash-wise, the Group has nearly doubled the amount requiredto meet all of its obligations due within the next twelve months.This places the Group in a highly liquid and cash rich position,able to fund its future operational cash needs and moreimportantly enables the Group to quickly capitalise on soundand strategic business opportunities that may arise.

In comparison, total borrowings was reduced to RM52.9 billionas at 31 March 2005 compared to RM57.7 billion a year ago,following scheduled payments of Notes and Term Loans madethroughout the year. Correspondingly, the Group’s financialleverage position has improved with total debt to total assetratio reduced to 0.22 times compared to 0.28 times last year.This is well below our target of 0.30 times. With cash and fundinvestments surpassing total borrowings, the Group is in a netcash position of RM22.4 billion.


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PETRONAS remains focused on value-adding activities to optimise its oil and gas resources.


The Group’s exploration and productioncapabilities are continuously enhancedto realise our aspiration to be a leadingglobal player.

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Domestic Exploration and Production

Sustaining the nation’s reserves and production As at 1 January 2005, Malaysia’s total reserves stood at 19.49billion barrels of oil equivalent (boe) compared to 19.35 billionboe in the preceding year. Our continuous efforts to replenishthe nation’s hydrocarbon resources have resulted in a fairlyconstant reserve life for Malaysia – an average of 19 years and33 years for crude oil and natural gas reserves respectively, atcurrent rate of production.

Crude oil and condensate reserves rose from 4.84 billionbarrels to 5.29 billion barrels. Higher gas production during theyear led to a marginal decline in gas reserves from 87.02 trillionstandard cubic feet (tscf) to 85.20 tscf. Natural gas, however,still constituted about 73% of Malaysia’s total reserves.

Malaysia produced a total of 617.1 million boe of crude oil andnatural gas during the year. PETRONAS’ share of thisproduction was 71.7% or 442.7 million boe, up from 426.9million boe last year. Natural gas production, in particular, roseduring the year as a result of greater demand for processedgas especially from the power sector and higher feedstockrequirement for our downstream LNG and petrochemicalplants.

Our exploration and production (E&P) activity is driven by theneed to augment Malaysia’s reserves and ensure growth in linewith the Group’s strategy of integration, adding value andglobalisation. The domestic upstream sector saw intensifiedefforts to enhance the nation’s reserves while meetingproduction targets to cope with higher demand. On theinternational front, the Group continued to consolidate itsportfolio with emphasis on development projects this year. TheGroup remained focused on strategic growth in South EastAsia and select opportunities in Africa, the Middle East and theCaspian region. We continued to enhance our E&P capabilities,emphasising on technology and development of human capitalin line with our aspiration to be a leading global E&P player.

HIGHLIGHTS

• Strong total reserves at 25,413 million boe, with new discoveries of 1,132 million boe. International reserves account for 23.3%.

• Higher total production by 30.5 million boe due to higher domestic gas production and increased international oil production.

• Sustained Reserve Replacement Ratio of 0.7 times, within range of industry average and continuing positive trend of successfully replenishing reserves produced.

• Robust upstream capital expenditure amounting to over 60% of total Group expenditure. Spending was driven mainly by international development projects.

• Awarded five new domestic PSCs, bringing the number of PSCs to 53, the highest ever.

• Internationally, secured five new PSCs, bringing the number of ventures to 59 in 26 countries.

EXPLORATION AND PRODUCTION BUSINESS AT A GLANCE

2005 2004 2003 2002 2001

Total Reserves (million boe) 25,413 25,633 24,140 22,529 21,493

New Discoveries (million boe) 1,132 1,191 1,181 515 680

Total Production (million boe) 583.3 552.8 486.8 417.8 424.5

Crude Oil and Condensate (million boe) 275.9 267.4 237.8 219.2 224.8

Natural Gas (million boe) 307.4 285.4 249.0 198.6 199.7

Reserve Replacement Ratio 0.7x 2.6x 2.1x 4.0x 2.0x

Capital Expenditure (RM billion) 10.7 13.7 7.8 6.0 4.3

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E X P L O R AT I O N A N D P RO D U C T I O N B U S I N E S S

Financial Year Ended 31 March* CAGR: Cumulative Annual Growth Rate

TOTAL PRODUCTIONIn ‘000 boe per day


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A significant milestone was achieved in Malaysian E&P activityduring the year when PETRONAS Carigali successfully drilledthe ‘longest’ development well ever at the Angsi oil and gasfield offshore Peninsular Malaysia. In August 2004, an 80-degree extended reach drilling (ERD) well, Angsi A-28ST-1,successfully penetrated an oil reservoir nearly six kilometresaway from the Angsi platform. The ERD has enabled therecovery of oil and gas located a distance away from theexisting platform without having to install another structure,thus significantly reducing costs.

To further enhance our E&P capabilities, we have set up astate-of-the-art immersive visualisation centre, the first of itskind in the region. Known as PETRONAS Visualisation Centre(PviC), the centre enhances our ability to interpret and evaluateupstream data. This puts us in the league of the larger oil andgas companies that are already leveraging on this technologyin their E&P activities.

The year under review saw a significant increase of activities inMalaysia’s exploration & production (E&P) sector. Whileexisting acreages continued to offer good prospects toinvestors, the deepwater and ultra-deepwater areas havecreated a new era in the E&P sector of the country. Five newProduction Sharing Contracts (PSCs) were signed during theyear, bringing the total number of PSCs to 53, the highest ever.Two of the PSCs were for ultra-deepwater blocks coveringwater depths of up to 4,000 metres.

Approximately RM12 billion was spent in the Malaysian E&Psector last year, nearly half of which was in the form of foreigndirect investment (FDI) brought in by our PSC partners. Thevibrancy of Malaysia’s E&P sector has benefited not only oiland gas players but has also generated valuable economicactivity for the country’s oil and gas support industries. Thishas enabled these companies to build their capacity andcapability in this specialised sector and contribute towardsestablishing Malaysia as a key oil and gas player in the region.

A total of 47 exploration wells, including 11 deepwater wells,were drilled during the year with some 17,623 line kilometres of2D and 15,221 square kilometres of 3D seismic data acquired.The intensified exploration activity has resulted in the discoveryof 1,084.7 million boe of oil and natural gas reserves. Notably,deepwater discoveries accounted for nearly 70% of reserveadditions during the year.

Significant oil and natural gas discoveries were made in thedeepwater Gumusut-Kakap and Malikai fields offshore Sabah;NC4 and F2 Attic fields offshore Sarawak, and Anding Utaraoilfield offshore Peninsular Malaysia. The Anding Utaradiscovery introduces further exploration prospects for theMalay basin, previously regarded as a mature area.

Four new oil and gas fields came onstream during the year,bringing the number of Malaysia’s producing fields to 75, ofwhich 53 are oil fields and 22 are gas fields. Nearly half of thefields are operated by our E&P arm, PETRONAS Carigali SdnBhd. Notably, two of the new fields that came onstreammarked the success of our small field development efforts, aniche area identified as a means to sustain the nation’s oil andgas production.

We continue to chart progress with our Enhanced Oil Recovery(EOR) effort, another initiative to sustain the nation’s oil and gasproduction. The Water Alternating Gas (WAG) Method in theDulang Field, one of our ongoing EOR projects, is close to full-field implementation.

MALAYSIA’S RESERVESIn million boe

As at 1 January

Financial Year Ended 31 March

DOMESTIC PRODUCTIONIn ‘000 boe per day


Continuous efforts are made to replenishthe nation’s hydrocarbon resources tosustain Malaysia’s reserves andproduction.

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PETRONAS together with PTT Exploration and ProductionPublic Company Limited was awarded the PSC and jointoperatorship for JDA Block B-17-01 by the Malaysia-ThailandJoint Authority during the year. Meanwhile, Block A-18 in theJDA commenced production with 117 million standard cubicfeet per day (mmscfd) of natural gas flowing into the TransThailand-Malaysia gas pipeline.

The Group made a return into the Philippines upstream sectorwhen it was awarded a Service Contract together with thePhilippines National Oil Company for the Mindoro Block,offshore Philippines in January 2005.

International Exploration and Production

Consolidating our portfolio, with particular focus ondevelopment activityTotal international reserves as at 1 January 2005 amounted to5.93 billion boe, representing nearly a quarter of the Group’stotal reserves. A significant portion of our reserves are locatedin Egypt, Sudan, Turkmenistan, Chad and the Malaysia-Thailand Joint Development Area (JDA).

PETRONAS’ international production rose to 140.6 million boefrom 125.9 million boe last year, an increase of 11.8%.Production from our Chad operations doubled during the yearwith full production from the existing Doba fields following thecompletion of upstream facilities. We also achieved higherproduction from our Sudan, Indonesia and Myanmaroperations.

The Group expended about RM7.5 billion in international E&Pactivity during the review period. A significant portion of thiswas spent on development projects, particularly in Sudan andEgypt.

In Sudan, the development of Blocks 3 and 7 is on track withfirst production expected later this year. Further developmentworks are being undertaken in the already producing Blocks 1,2 and 4.

In Egypt, we have embarked on an extensive developmentphase in our already producing West Delta Deep Marine Blockto supply gas to our Egyptian LNG project, which will be fullyonstream later this year.

Five new ventures were acquired during the financial year,bringing our international E&P portfolio to 59 ventures in 26countries. We are the operator for 29 of the ventures, jointoperator for seven and active partner in the remaining 23ventures.

In Indonesia, PETRONAS was awarded the PSC for the NorthEast Madura Offshore Block IV and acquired interest in twodevelopment blocks, namely Madura and Muriah. Long termGas Sales Agreements have been finalised for both blocks.These new blocks brought the total number of our ventures inIndonesia to nine, enhancing our presence in that country.

INTERNATIONAL RESERVESIn million boe

As at 1 January

INTERNATIONAL PRODUCTIONIn ‘000 boe per day



Intensified upstream developmentactivities overseas led to increasingshare of PETRONAS’ international oil andgas production.

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Expansion of PETRONAS’ downstreamoperations created greater value for theGroup.

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Crude Oil Marketing and Trading

Realising the value of our exploration and productionactivitiesDuring the year, the Oil Business Sector successfully marketedand traded 207.1 million barrels of crude oil. This comprised 131.1 million barrels of MCO, 46.3 million barrels of theGroup’s Foreign Equity Crude (FEC) and 29.7 million barrels of trading volume.

The Oil Business Sector continues to realise and add value tothe Group’s crude oil resources through its marketing, trading,refining and retailing activities. Capitalising on higher crude oiland petroleum product prices, the sector optimised outputfrom the Group’s upstream business and stepped up itsrefining and retail operations to turn in a solid performance forthe year. Commendably, most of our refineries operatedreliably above nameplate capacity. The year also saw usexpanding our reach in the global market, diversifying ourcrude export destinations and entering new internationalmarkets in the retail and marketing business.

HIGHLIGHTS

• Total sales volume increased by 6.6% at 207.1 million barrels.

• Expanded MCO export market beyond Asia to 26.5% from 17.0% during previous year.

• Excellent operational efficiency of Group’s refineriesresulted in overall refinery utilisation rate exceeding total nameplate capacities and higher refining margins.

• Retained market leadership in Malaysia and South Africa with overall market share of 40.0% and 24.8% respectively.

• Acquired Kuwait Petroleum International Limited retail network and lubricant business in Thailand,expanding the Group’s presence in the regional petroleum products retail market.

• Expanded lubricants market to China, Switzerland and Liechtenstein.

OIL BUSINESS AT A GLANCE

2005 2004 2003 2002 2001

Volume Sold (million barrels, except LPG in million tonnes)

Malaysian Crude Oil (MCO) 131.1 130.5 121.1 109.5 116.5

of which, exports 123.7 125.7 112.1 102.7 111.3

Foreign Equity Crude 46.3 35.6 31.7 29.8 25.1

Crude Oil Trading 29.7 28.1 24.7 25.3 20.8

Petroleum Products 218.5 225.4 200.3 186.5 164.6

Liquefied Petroleum Gas (LPG) 2.6 2.3 2.3 2.2 2.0

Realised Crude Prices (USD / barrel)

MCO 45.00 30.90 28.60 23.24 29.86

Nile Blend 38.93 28.03 25.93 20.12 25.88

Net Refining Capacity (barrels per day) 356,500 356,500 340,500 340,500 340,500

O I L B U S I N E S S


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Downstream Retail and Marketing

Market leadership at home and in South Africa,continued expansion abroad In the domestic retail and marketing sector, subsidiaryPETRONAS Dagangan Berhad (PDB) strengthened itsleadership position with a 40% market share and expanded itsretail network to 729 service stations. PDB sold a total 73.2million barrels of petroleum products, LPG and lubricants,higher than last year's sales volume of 68.9 million barrels.

Our South African subsidiary Engen Limited continued to retainits leadership position in South Africa with a 24.8% marketshare. During the year, we signed a definitive agreement withSasol Limited and two South African Black EmpowermentConsortia to merge Sasol's Liquid Fuels Business and EngenLimited and its subsidiaries in a new liquid fuels joint venture.The proposed merger has been approved by the EuropeanUnion Commission and is awaiting final approval from theSouth African Competition Tribunal.

The Group’s Oil Business Sector made further progress in theinternational front during the year. In Sudan, PETRONAS’ retailbusiness achieved high sales growth, where petroleumproducts sales volume increased by 26.5% from 1.7 millionbarrels to 2.2 million barrels. A new subsidiary was launched inJune 2004 to spearhead the Group’s lubricants and petroleumproducts marketing in China. An encouraging growth was alsomade in the Indonesian lubricant market with sales volumeclose to 14,000 barrels.

The year also saw PETRONAS’ entry into the lubricant marketsin Switzerland and Liechtenstein. Through an agreement withSwitzerland-based Bucher AG (also known as Motorex),PETRONAS Syntium premium grade lubricants, including thesynthetic Syntium 5000 FS, Syntium 3000S and Syntium1000S, are now marketed in the two countries throughselected gas stations and Coop supermarket outlets,Switzerland's second largest consumer products retailer.

In Thailand, the Group further expanded its presence in thecountry’s retail and marketing sector through the acquisition ofKuwait Petroleum (Thailand) Ltd’s entire network of 117 Q8service stations and lubricant business from Kuwait PetroleumInternational Limited during the year. These stations arecurrently being re-branded and upgraded and are expected tobe completed by July 2005.

PETRONAS exported 123.7 million barrels or 57% of its shareof MCO, processed about 84.3 million barrels at the Group’srefineries in Melaka and Terengganu and supplied the balanceto other domestic refineries. Whilst Asia remained the keyexport destination, we have successfully expanded anddiversified our MCO markets, disposing a larger proportion, or26.5%, beyond Asia (Australia 20.4%, USA 5.2%, NewZealand 0.4% and Chile 0.5%) compared to 17% previously.In line with higher global crude oil prices, the Group was ableto realise a higher average price of MCO at USD45.00 perbarrel compared to USD30.90 per barrel last year.

The Group also achieved higher sales volume for FEC oil. FECsales volume rose by 30% from 35.6 million barrels last year to46.3 million barrels. This is attributed to the first full-yearproduction of our operations in Chad. PETRONAS’ operationsin Chad produces the Doba Blend crude, which has joined thegrowing portfolio of PETRONAS FECs successfully marketedand traded in the world oil market.

Refining

Operational excellence to capitalise on favourablemarginsSupported by strong demand for transportation fuelworldwide, petroleum product prices continued on an upwardtrend during the year. This has translated into high refiningmargins for the Group’s refineries. The Group has successfullycapitalised on this high price environment, as we were able tooperate our refineries at high utilisation rates withoutcompromising safety and reliability.

Most of our refineries operated above their nameplatecapacities. The Group’s share of production from our refineriesin Malaysia and South Africa was 369,000 barrels per day,higher than our net refining capacity of 356,500 barrels perday.

Our refineries continued to play a key role within the Group’sintegrated business structure. All our refineries successfullygenerated higher refining margins, led by the PSR-2 refinery inMelaka. PSR-2 processes relatively heavier and sour crude toproduce a wide range of high-priced petroleum products.Refined petroleum products remained the largest contributorto the Group’s revenue.


PETRONAS continues to strengthen itsleadership position in the domesticmarket while expanding its retail andmarketing business abroad.

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HIGHLIGHTS

• Over 20% increase in LNG volume sold at 22.4 million MT due to full operation of MLNG Tiga and higher contribution from spot LNG trading.

• Over 4.4% increase in gas supplied by the PGU system on the back of higher demand from the power sector.

• Egytian LNG project coming onstream six months ahead of schedule, heralding the Group’s first LNG production outside Malaysia and will further increase the Group’s total LNG production capacity.

• Made major breakthrough into British gas marketwith the signing of Gas Sales Agreement with British Gas Trading Ltd for supply of natural gas beginning 2008.

• Operational improvements by LNG and Gas Processing Plants with higher utilisation and reliability rates.

GAS BUSINESS AT A GLANCE

2005 2004 2003 2002 2001

LNG

Production Capacity (million MT per annum) 22.7 22.7 15.9 15.9 15.9

Production Volume (million MT) 21.2 18.4 15.2 15.3 15.2

Trading Volume (million MT) 1.2 - - - -

Sales Volume (million MT) 22.4 18.4 15.2 15.3 15.2

Realised LNG Price (USD / MT) 256.07 240.72 225.45 219.89 248.62

Average Plant Utilisation Rate 95.3% 91.8% 93.5% 94.1% 94.8%

Average Plant Reliability Rate 97.9% 95.6% 98.5% 97.9% 96.2%

Gas Processing and Transmission

Processed Gas Volume (mmscfd) 1,869 1,789 1,849 1,731 1,672

Gas Processing Plants Utilisation Rate

Processed Gas 92.3% 83.3% 89.9% 85.2% 79.8%

Ethane 94.7% 76.3% 68.7% 48.4% 35.4%

Gas Processing Plant Reliability Rate

Processed Gas 99.8% 98.7% 98.3% 98.7% 93.1%

Ethane 95.2% 91.4% 87.7% 85.7% 77.8%

G A S B U S I N E S S

The Group is strengthening its global presence throughinternational LNG projects and trading activities. Meanwhile,the PGU system in Malaysia continues to support the nation’sindustrial activities, ensuring reliable supply of gas for powergeneration.

PETRONAS Gas Business activities span the entire natural gaschain. This includes gas processing, liquefaction, pipelinetransmission, marketing and trading of LNG, gas districtcooling and supply of industrial utilities. We are the world’slargest LNG producer from a single location, the world’s largestowner of LNG production capacity and have interests in morethan 10,000 km of natural gas pipelines worldwide. Our LNGbusiness is undergoing a period of transformation and growth.


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PETRONAS’ gas processing plantcomplex – an integral part of thePeninsular Gas Utilisation system in Malaysia.


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LNG import terminal: The engineering, procurement andconstruction contract for the Dragon LNG project in MilfordHaven, Wales was awarded in September 2004 and theterminal is slated to be operational in the fourth quarter of2007. PETRONAS has a 30% equity interest and 50%capacity rights in Dragon LNG. The project completes theGroup’s fully integrated LNG business model with activitiesspanning the whole spectrum of upstream feedstock supply,liquefaction, trading, transportation right down to the receivingand re-gasification terminal.

In August 2004, the Group made a major breakthrough intothe British gas market with the signing of a Gas SalesAgreement with British Gas Trading Ltd, a subsidiary ofCentrica Plc to supply 2.2 mmtpa of natural gas for a period of 15 years commencing in 2008. Under the agreement,PETRONAS will supply LNG to the receiving terminal where it will be re-gasified.

LNG

Strengthening our position as a global integrated LNGplayerLNG production & export: LNG continues to be a focussector in the Group’s business expansion. The PETRONASLNG Complex in Bintulu, with a capacity of approximately 23million tonnes per annum remains the world’s largest LNGproducer at a single location. A total of 21.2 million tonnes ofLNG was produced and exported from Bintulu during the yearcompared to 18.4 million tonnes in the previous year. Thehigher volume was due to MLNG Tiga’s first full-year ofoperation as well as higher utilisation and reliability ratesrecorded by all three LNG plants at the Complex during theyear.

Japan continues to be our largest LNG customer, taking up61.0% of LNG exported, followed by South Korea with 22.9%,Taiwan at 11.8% and the rest of the world at 4.3%.PETRONAS continues to have significant market share inJapan, South Korea and Taiwan amounting to 22%, 21% and40% respectively.

The Group continues to build global reach in the LNGbusiness, beyond Asia Pacific. Our Egyptian LNG project isprogressing ahead of schedule. The first train with a capacityof 3.6 million tonnes per annum (mmtpa) produced its firstcargo in May 2005, a good four months ahead of schedule.With only six years between the first exploration well and thefirst cargo, the project became one of the fastest LNG projectsever executed. The second train also with 3.6 mmtpa capacityis scheduled to produce its first cargo in September 2005,seven months ahead of schedule. The entire output from Train1 and Train 2 have been committed on long-term contractswith Gaz de France and BG Gas Marketing respectively.

LNG trading: The year saw the Group establishing a firmfoothold in the emerging global LNG trading market. Our LNGtrading arm, Asean LNG Trading Company Ltd (ALTCO) sold20 spot cargoes amounting to 1.2 million tonnes of LNGduring the year, compared to only one spot cargo in theprevious year. Eleven spot cargoes were delivered tocustomers in the USA, six to South Korea and three to Spain.

LNG SALES VOLUME


milliontonnes


LNG continues to be a focus sector inthe Group’s global business expansion.

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Moving forward, the Group will continue to strengthen itsposition as an integrated gas player in ASEAN, expand ourglobal LNG portfolio by capturing markets in the fast growingAtlantic Basin and capture more value out of Malaysia’s gaschain. With the ongoing efforts in Malaysia and abroad,PETRONAS is poised to play a more significant role in theglobal gas industry.

Gas Processing and Transmission

Fuelling the nation’s power needs The favourable expansion of the Malaysian economy duringthe year led to higher demand for processed gas across thepower, industrial and petrochemical sectors. The escalation incoal prices during the year, resulting in a switch from coal tonatural gas as a fuel source for power generation, alsocontributed to higher demand from the power sector. To meetthe increased demand, additional supply had to be securedfrom gas fields offshore Terengganu as well as through importsfrom Vietnam, Indonesia and the Malaysia-Thailand JDA.

During the year in review, an average of 1,869 mmscfd ofprocessed gas was supplied by the Peninsular Gas Utilisation(PGU) system compared to 1,789 mmscfd in the previous year,a 4.5% increase. The power sector remained the largest gasconsumer accounting for 67.9% of total processed gas sold.The Independent Power Producers (IPPs) consumed nearlytwo-thirds of the total gas supplied to the power sector. Theremaining 32.1% was supplied to industrial and petrochemicalcustomers as well as exported to Singapore.

During the year, we managed to operate all our gas processingplants above the design capacity to cater for the increase ingas demand. We were also able to improve our plants’reliability with a record achievement of 99.5%. The ability tooperate above design capacity at close to perfect reliabilitylevels speaks volumes of the integrity and high operationalstandards of our plants.

Overseas, the Trans Thailand-Malaysia (TTM) project wascompleted during the year under review. Malaysia’s share ofnatural gas from the Malaysia-Thailand JDA entered the PGUsystem in February 2005. The TTM pipeline is the latestaddition to the growing interconnection of cross-border gasinfrastructure in ASEAN and charts another important steptowards the realisation of the Trans-ASEAN Gas Pipelinenetwork.

1,731 1,789

1,8691,849

PROCESSED GAS VOLUME


mmscfd


PETRONAS’ continuous drive foroperational excellence has led to furtherimprovement in its gas processing plantreliability.

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Improved plant integrity and efficiencyhave translated into better performanceof our Petrochemical Business.

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Improved integrity and efficiency translated into betteroverall performance The Group (including its associates) produced a total of 7.8million tonnes of petrochemical products during the year underreview, slightly lower compared to 8.3 million tonnes producedin the previous year. The marginal production decline was dueto several scheduled plant shutdowns throughout the year tocater for turnaround and revamp works. The Group remainscommitted towards maintaining our world-scale petrochemicalplants at world-class standards, and these turnaround andrevamping activities are vital in order to ensure plant integrityand efficiency. Some of the notable projects undertaken duringthe year included the Revamp Project at ASEAN BintuluFertilizer Sdn Bhd (ABF) and Phase One of the PlantRejuvenation Project at our methanol plant in Labuan.

The Group’s Petrochemical Business continued to reap thebenefits of integration on the back of the buoyantpetrochemical market with higher products prices. The readyavailability of gas-based feedstock from the PGU systemcoupled with interdependency of feedstock supply betweenour integrated plants have enabled our petrochemicaloperations to realise significant operational synergy andachieve cost advantage over naphta-based plants, translatinginto higher margins. Combined with enhanced reliability andutilisation rates achieved by most of our plants, ourPetrochemical Business successfully turned in an exceptionalyear, making even greater contribution towards Group revenueand profits. The sector’s strong performance this year lendsproof that our investments in petrochemical ventures had beenperfectly timed, allowing us to successfully ride the industry’scyclical nature.

HIGHLIGHTS

• Highest ever volume transacted with 6.4 million MT of petrochemical products sold.

• Improved operational integrity of petrochemical plants reflected in higher plant reliability rates.

• Selective expansion into value-adding businesseswith plans for new melamine plant and new methanol plant in Malaysia for the future.

PETROCHEMICAL BUSINESS AT A GLANCE

2005 2004 2003 2002 2001

Production Volume (million tonnes) 7.8 8.3 7.6 6.4 4.3

Volume Sold (million tonnes) 6.4 6.1 5.5 4.0 3.2

Main Petrochemical Product Prices (USD/MT)

Ethylene 842.27 459.27 363.38 342.31 479.25

Urea 201.82 155.88 122.50 112.08 125.75

Paraxylene 823.85 574.06 466.00 357.48 414.53

Methanol 251.66 231.60 173.01 127.58 166.35

Overall Plant Reliability Rate 90.2% 85.2% 88.0% 86.5% 83.9%

Overall Plant Utilisation Rate 77.4% 78.8% 76.0% 73.8% 67.2%

P E T RO C H E M I C A L B U S I N E S S


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Value-adding activities and furtherdiversification of PETRONAS’Petrochemical Business have contributedto Malaysia’s industrial development andcreation of employment opportunities forthe local community.


The Group’s strong emphasis on plant integrity and efficiencyhas clearly yielded results, as seen by a significantimprovement in our plants' reliability. During the year, theGroup’s overall plant reliability rate rose from 85.2% to 90.2%,enabling the petrochemical business sector to turn in asignificantly better overall performance on the back of higherproducts prices.

The year also saw the Group’s Petrochemical Businesscontinuing to expand its value adding activities and strengthenthe integration of operations. In January 2005, subsidiary ABFsigned a Shareholders Agreement with Namhae ChemicalCorporation of Korea to set up a 50:50 joint venture to becalled ABF Namhae Melamine Sdn Bhd. The joint venture willset up a 15,000 tonne per annum melamine production plantin Bintulu, Sarawak, marking ABF’s maiden diversification intofurther downstream, value adding products. The facility will beMalaysia’s first melamine plant and is scheduled to becompleted and commissioned in early 2007. ABF will supplyurea as feedstock to the melamine plant and will operate theplant on behalf of the joint venture company.

In another significant development, PETRONAS during theyear embarked on the expansion of its methanol plant inLabuan with a capacity of 1.7 million tonnes per annum,scheduled to commence operations by the end of 2007. Theplant’s feedstock of about 150 mmscfd of gas will be suppliedfrom gas fields offshore Sabah. Methanol from the plant, will bemarketed to the growing domestic and regional markets.

PETRONAS’ Petrochemical Business has indeed played amajor role in Malaysia's industrial development. The approachtaken by PETRONAS to develop the petrochemical business inan integrated manner to enhance synergistic benefits andcompetitiveness by capitalising on the availability of natural gasas feedstock, coupled with the combined advantages ofMalaysia’s strategic location and conducive environment hasbeen proven to be successful in attracting renowned jointventure partners to set up world-scale plants involving sizeableinflows of FDIs.

The firm foundation that has been established places thePetrochemical Business in good stead to make an evengreater contribution to the Group.

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HIGHLIGHTS

• Improved performance as a result of continued energy fleet expansion and business rationalisation efforts, strengthening our position as the world’s largest owner/operator of LNG vessels and the world’s second largest owner/operator of Aframax tankers.

• Creating value in offshore business to support growth in exploration and production activities.

• Building in-house capabilities through heavy engineering activities, as we venture into deepwater support services, LNG dry-docking and repair, and ship conversion.

LOGISTICS & MARITIME BUSINESS AT A GLANCE

2005 2004 2003 2002 2001

Fleet Numbers (by Vessel Type)

LNG 18 17 15 13 13

Petroleum 51 46 16 17 14

Chemical 13 15 15 15 15

FPSO 1 1 - - -

Liner 20 27 27 27 27

Bulk 6 51 51 52 52

Total 109 157 124 124 121

L O G I S T I C S A N D M A R I T I M E B U S I N E S S

Against this favourable backdrop, the Group’s Logistics andMaritime Business, spearheaded by subsidiary MalaysiaInternational Shipping Corporation (MISC) Berhad, achievedyet another record year. MISC was able to capitalise on thebullish environment through its continued business expansionand rationalisation initiatives, higher operational efficiency,improved cost management and timely execution of well-planned strategies.

During the year under review, MISC expanded its fleet with theaddition of one LNG tanker, two Aframax tankers and threeVery Large Crude Carriers (VLCC). MISC’s fleet currentlystands at 109 vessels, with more than two thirds servicing thecore business area of energy transportation.

The Logistics and Maritime Business continued to providevaluable support and value-adding services to the Group withits strong focus on energy transportation and logistics. Thesector registered excellent performance during the year underreview. Operating in a favourable market environment, ourstrategy of carefully planned expansion and diversification intorelated businesses has clearly paid off as the sector generatedrecord revenue and profits. With an enlarged LNG andpetroleum fleet and through ventures into offshore businessand heavy engineering, the sector is well poised to bettercomplement the Group’s business activities and at the sametime realise other business opportunities beyond the Group.

Striding ahead as a major player in the global energytransportation businessThe year under review proved to be a robust period for theGroup’s Logistics and Maritime Business. Demand formaritime and logistic services grew during the year, spurred byhigher worldwide merchandise trade levels and strong globaleconomic growth. This higher demand, coupled with limitedsupply of ships, resulted in stronger freight rates throughoutmost shipping segments.


The Group’s Logistics and MaritimeBusiness has been reinforced throughproactive growth strategies and timelystrategic rationalisation initiatives.

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MISC’s energy transportation business will be furtherexpanded with the delivery of an additional 11 LNG tankers,two Aframax tankers and five VLCCs between 2005 and 2008.These new vessels will not only reaffirm MISC as the world’slargest owner and operator of LNG tankers and the world’ssecond largest owner and operator of Aframax tankers, but willalso provide MISC with the critical mass it requires to betterserve its customers globally. The LNG fleet expansion, inparticular, will complement the Group’s LNG business growthand at the same time allow MISC to capitalise on otheropportunities provided by the rapidly growing global LNGmarket.

As part of its business rationalisation effort, MISC disposed off54 vessels from various businesses during the year tostreamline its overall business.

The year also saw growth in MISC’s offshore business. Its firstFloating Production Storage and Offloading (FPSO) “BungaKertas” delivered to PETRONAS Carigali in the last financialyear, received its first oil in April 2004. MISC also secured acontract with Murphy Sabah Oil Co Ltd during the year toprovide and operate one FPSO for the Kikeh field. A contractwas also secured with Talisman Malaysia Ltd to provide andoperate a Floating Storage and Offloading (FSO) unit for theSouth Angsi A oil field development. This involvement inoffshore business is timely, serving to support the highly activeMalaysian exploration and production sector. The conversionand construction works for the FPSO and FSO will beundertaken at MISC’s subsidiary, Malaysia ShipyardEngineering Sdn Bhd (MSE).

MSE was re-named Malaysia Marine and Heavy EngineeringSdn Bhd (MMHE) shortly after the end of the financial year.MMHE will focus on the development of the Group’s technicalcapabilities and technological base and help position Malaysiaas the region’s hub for deepwater support services andmaritime repairs.

During the year under review, MMHE completed a full scaledry-docking and repair for the Group’s “Puteri Firus” and“Puteri Delima” LNG vessels. The ability to perform LNG tankerdry-docking in Malaysia will not only benefit the Group in termsof time and cost savings but should also generate valuebeyond the Group, given the fast increasing number of LNGvessels worldwide.


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MISC continues to provide valuablesupport and value adding services to thePETRONAS Group through its energytransportation and offshore businesses.


PETRONAS continues to harnesstechnology and develop capabilities todeliver superior performing assets andcreate competitive advantage for theGroup.

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T E C H N O L O G Y D E V E L O P M E N T

Technology is a key success factor in the highly competitive oiland gas industry. PETRONAS remains committed tocontinuously improve the development and application oftechnology to sustain and enhance its competitive positionand financial performance.

Research and Development

Our research and development (R&D) arm, PETRONASResearch & Scientific Services Sdn Bhd (PRSS), continues toserve the R&D and technological needs of the Group as well asexternal parties, both in Malaysia and abroad.

Some of the significant successes achieved by PRSS duringthe year include the development of a new method to identifyhydrocarbon prone zones in deepwater basins and thedevelopment of a new product to treat solid deposit in wells.Notably, PRSS has successfully designed and created arevolutionary simulation software for process design and plantoptimisation. Another major achievement made by PRSSduring the year was the successful development ofPETRONAS Sprinta 4T 5000, a fully synthetic four-strokemotorcycle engine oil. Formulated for the PETRONAS FP1race bike, the product has been successfully tested in theWorld Superbike Championship.

The year also saw PRSS providing technical consultancyservices beyond Malaysia, particularly in the E&P sector inVietnam, Iran, Sudan and Turkmenistan.

Technical Services

Our project management and engineering services subsidiary,OGP Technical Services Sdn Bhd (OGP), continued to thriveboth at home and abroad. During the year, OGP successfullycompleted 22 projects, including three international projects.

OGP’s major ongoing projects include the MG3 lube base oilplant project for PETRONAS Penapisan Melaka Sdn Bhd andSudan’s Blocks 3 & 7 and 5A development projects forPetrodar and White Nile Petroleum Operating Companyrespectively. OGP has also formed a joint venture with SudapetCo Ltd to provide engineering and project managementconsultancy services to further strengthen its presence inSudan.

HIGHLIGHTS

• Launched the PETRONAS Steady State Simulation Software, a revolutionary engineering tool for process design and plant optimisation.

• Successfully formulated the PETRONAS Sprinta 4T 5000, a fully synthetic four-stroke motorcycle engine oil for the PETRONAS FP1 race bike.

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PETRONAS is committed to inculcatingand maintaining HSE excellence.

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C O R P O R AT E S U S TA I N A B I L I T Y

In undertaking our business activities, we are alwaysconscious of the need to maintain the trust and confidence ofour stakeholders in order to ensure sustained growth andsuccess. We conduct our business in a consistent manner,guided by the PETRONAS Guidelines for Business Conductand Corporate Sustainability Framework based on our SharedValues and corporate mission.

Our Corporate Sustainability Framework covers seven keyresult areas to facilitate effective and systematicimplementation, measurement and reporting of our triplebottom-line performance. The triple bottom-line meansmanaging our petroleum resources responsibly by balancingbetween commercial, environmental and social performanceunder which the seven key result areas of our CorporateSustainability Framework are categorised. The seven key resultareas are: Shareholder Value; Energy Use; Health, Safety andEnvironment; Product Stewardship; Societal Needs; ClimateChange; and Biodiversity.

Health, Safety and Environment

PETRONAS is committed to inculcating and maintaining awork culture of HSE excellence. We adopt responsible HSEmanagement practices in every aspect of our operations byimplementing the HSE Management System group wide,integrating business controls, quality and risk managementprinciples.

Execution of internal and external assurances, interventionsand continuous improvement activities have all helped upholdour high HSE standards. During the year, we achieved anindustry-leading safety and health record and earnedcommendable recognition. Our Group Lost Time InjuryFrequency per million man hours continued to reduce to 0.77times for the year from 0.92 times previously, well withinindustry standards and comparatively better than mostindustry players.

The year also saw a number of our subsidiaries and jointventure companies continue to be recognised with annualnational and international industry excellence awards. BothPETRONAS Carigali Sdn Bhd and Optimal Chemicals SdnBhd received the Gold Medal Award 2004 from the MalaysianSociety for Occupational Safety and Health (MSOSH), whilePETRONAS Gas Berhad (PGB), the National & InternationalAwards for Occupational Safety & Health Excellence 2004 alsofrom MSOSH. PGB’s Transmission Operations Division and theCentralised Utility Facility also received the Royal Society of thePrevention of Accident (RoSPA) Gold Medal Awards. The yearalso witnessed our joint venture company, BP PETRONASAcetyls (BPPA), accredited as the Overall Winner (PlatinumAward) for the Chemical Industries Council of Malaysia’s(CICM) Responsible Care Awards 2004.

During the year, PETRONAS Disaster Management Unit andCorporate Security Division organised a national levelemergency and disaster exercise held at PETRONAS Carigali’sfacilities. The large-scale exercise, with included participationfrom government authorities, allowed us to assess, enhanceand further improve our Emergency Response Plan.

We continue to contribute to the preservation andconservation of the environment wherever we operate. Duringthe year, we handed over a decommissioned rig to Sarawak'sMarine Fisheries Department to be converted into an artificialreef, marking the implementation of Malaysia’s first rig-to-reefproject. The project, jointly implemented with Sarawak ShellBerhad, Sarawak's Marine Fisheries Department and theSarawak Tourism Board, will enhance the existing coral reefsoffshore Miri, preserving its natural beauty.

With the Kyoto Protocol in effect as of 16 February 2005, wehave set up a Greenhouse Gas (GHG) Inventory WorkingGroup to establish PETRONAS GHG’s inventory. The GHGinventory will be included in Malaysia’s Second NationalCommunication report to the United Nations FrameworkConvention on Climate Change. The inventory will also providea reference point for potential project development andinvestment opportunities in the future.

HIGHLIGHTS

• Various PETRONAS operating units and joint venture companies won prestigious national and international awards in recognition of their HSE excellence.

• Led the implementation of a rig-to-reef projectoffshore Sarawak, the first of its kind in Malaysia.


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Education and Human Capital Development

The success of any well-thought out strategy lies in itsexecution. We are fully aware of the crucial role played by ouremployees in translating strategies into tangible results.Indeed, the Group’s continued growth and accomplishmentshave much to do with our competent and capable workforce.

PETRONAS is committed to developing high-performingemployees. With a growing workforce of 33,944 employees asat 31 March 2005, the Group places great importance inhuman capital development. Capability building and leadershipdevelopment remain top priorities. We continually seek toattract, develop, enrich and retain talents to sustain theGroup’s success.

During the year, various development programmes continuedto be pursued to strengthen capabilities, develop leaders andencourage positive mindset and behaviour change among ouremployees. These programmes include leadershipdevelopment, succession management, intensifiedperformance management, mentoring and coaching.

To further promote staff development and cultivate a stronglearning culture, we are finalising the implementation ofeLearning courseware to our employees worldwide. The onlineeLearning programme will allow employees to undertakedevelopment courses at their own initiative and time, byproviding convenient and ready resources at their disposal.PETRONAS eLearning Solutions Sdn Bhd, the provider of theservice and a subsidiary of PETRONAS, was accredited as aMultimedia Status Company (MSC) during the year.

Our Universiti Teknologi PETRONAS (UTP) in Tronoh, Perakexpanded its enrolment to 4,655 students during the yearcompared to 4,350 students a year ago. In addition toMalaysians, we continue to sponsor an increasing number ofdeserving international students from the host countries inwhich we operate to study at UTP. Until the end of the financialyear, we have sponsored 321 international students from 17countries to study at our university.

HIGHLIGHTS

• Leadership Development, Succession Management, Staff Assessment & Progression, Intensified Performance Management and Mentoring & Coaching programmes progressed smoothly to support the Group’s business strategies.


Human capital development remains atop priority of PETRONAS’ commitmentto attract, nurture and retain talents tosustain the Group’s success.

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Capability building, leadershipdevelopment and the right mindset – thekey focus of PETRONAS’ CorporateAgenda – will transform the Group into ahigh-performing organisation known forits resilience and distinctiveness.

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C O N C L U S I O N

The financial year ended 31 March 2005 was indeed amonumental year for PETRONAS. The outstanding financialresults and operational performance delivered have enabledthe Group to be an efficient value generator, as we continue tohold our own amongst the larger players in the industry.

Driving this superior all-round performance is our strategy ofintegration, adding value and globalisation. The Group remainscommitted to this strategy, which has enabled us to evolve andgrow into what we are today and has served us well inaddressing the challenges and uncertainties faced by thevolatile oil and gas industry. The industry is still undergoing aperiod of change with supply dynamics changing more rapidlythan ever. The general feeling is that this state of play is likely toremain in the foreseeable future with oil price levels likely toremain firm. We are confident that the Group has enough in-built resilience to weather this volatile industry environment.

The Group recognises that having the right strategies, the rightleaders and the right mindset and attitude is critical in settingthe path ahead. We firmly believe that integrity must never becompromised. We have long recognised the importance andvalue of maintaining high standards of ethics and businessintegrity. We believe that both results and the manner in whichthose results are achieved matter. These fundamental beliefsand values form the backbone of our business approach andwe are fully committed to excellence in everything we do.These values are subscribed by all in the organisation and areembedded in our culture.

As we move a step closer to realising our Vision “To Be ALeading Oil and Gas Multinational of Choice”, the Groupcontinues to be guided by our Shared Values. Herein lies thereason for the Group’s success. The Group is made up ofpeople who share the same vision and apply the same valuesin pursuing that vision.

We are now well into the implementation stage of ourCorporate Agenda towards becoming a Global Champion.The agenda has enabled us to significantly raise ourperformance across all businesses and create truedistinctiveness to achieve sustainable value creation in ourgrowth.

PETRONAS has certainly come a long way since itsincorporation over 30 years ago. While the Group continues toexpand and redefine its boundaries, we have remained true tothe legacy of trust that brought about our existence in the firstplace. We remain steadfast in achieving a balance betweenbusiness results and ensuring that we execute ourresponsibilities as stewards wherever we operate. We areproud to have contributed positively towards nation building,economic development and social improvements in thecountries where we operate.

On a final note, I would like to take this opportunity to expressmy sincere appreciation to the PETRONAS family of more than30,000 employees around the world who have individually andcollectively, through excellent teamwork, contributed to thesuccess we have achieved thus far. I would also like to expressmy gratitude to the Government of Malaysia and theGovernments of PETRONAS’ host countries for their support,as well as to the members of the Board of Directors for theircontinued support, counsel and guidance.

Tan Sri Dato Sri Mohd Hassan MaricanActing Chairman and President & Chief Executive Officer30 June 2005


Globalisation makes us neighbours.Respect makes us friends.


E X T E N D I N G O U R R E A C H


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14 AprilPETRONAS Research and ScientificServices Sdn Bhd (PRSS) launchedthe PETRONAS Steady StateSimulation Software orPETRONASsim, a technologyinnovation using the VMG Thermophysical calculation method that can be customised to meetusers’ requirements in optimisingplant operations.

17 MayPETRONAS became the title sponsorof the 2004 Shanghai InternationalRace Festival, further boosting thecorporation’s brand presence andawareness in China.

25 MayPETRONAS signed two ProductionSharing Contracts (PSCs) withNewfield Exploration Company of theUnited States and PETRONASCarigali Sdn Bhd for Block PM318offshore Peninsular Malaysia andDeepwater Block 2C offshoreSarawak.

15 JuneOGP signed a Shareholders’Agreement with Sudapet Co Ltd forthe incorporation of a technicalservices company in Khartoum,Sudan.

25 JunePETRONAS launched a newsubsidiary company in Shenzhen,China, known as PETRONASMarketing China Company Ltd tooversee the expansion of itspetroleum products retail andmarketing activities in selectedmarkets in China as well as its futureforay into other related businesses inthe country.

M A I N E V E N T S

2 0 0 4

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29 JuneAll PETRONAS port facilities werecertified to be compliant with theInternational Ships and Port FacilitiesSecurity Code under the requirementof the International MaritimeOrganisation.

14 JulyPETRONAS launched its range ofpremium grade automotive andmotorcycle engine oils under thebrand names SYNTIUM andSPRINTA respectively in China,officially entering the country’slubricants market.

25 JulyThe PETRODAR Joint OperatingCommittee, in which PETRONAS,CNPC, Sudapet, Sinopec and Al-Thani are shareholders, signedcontracts for the development ofMelut Basin in Blocks 3 & 7, Sudan.

29 JUNE 14 JULY


11 AugustPETRONAS, through its subsidiaryAsean LNG Trading Co Ltd, signed aGas Sales Agreement with BritishGas Trading Ltd, a subsidiary ofCentrica plc of the United Kingdom,to supply up to 3.0 billion cubicmeters a year of natural gas for 15years beginning 2007.

11 AugustPETRONAS Carigali drilled Malaysia’slongest development well, the Angsi A-28ST-1, reaching a totaldepth of 6,339 meters just 44 daysafter it was spudded on 29 June.

18 AugustThe PETRONAS Visualisation Centre,a state-of-the-art facility equippedwith the latest 3-D immersivevisualisation technology and the firstof its kind to be set up and owned bya national oil company in SoutheastAsia, was officially launched.

22 AugustMalaysian Prime Minister, Datuk SeriAbdullah Hj Ahmad Badawi officiallyopened Universiti TeknologiPETRONAS. The ceremony was heldin conjunction with the university’sfourth convocation, which also sawthe graduation of the first batch ofinternational students.

31 AugustPETRONAS’ mobile library waslaunched and introduced to primaryschoolchildren around Khartoum, toencourage good reading habitsamong them and to provide them anavenue to pursue and acquireinformation and knowledge.

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30 SeptemberPETRONAS and Petroleum Authorityof Thailand (PTT), signed a PSC forBlock B-17-01 with the Malaysia-Thailand Joint Authority. PETRONASand PTT will each hold 50% of theparticipation interest in the PSC.

2 NovemberPETRONAS signed definitiveagreements with South Africa’s listedenergy and chemical company, SasolLimited, Worldwide AfricanInvestment Holdings (Pty) Limited anda Sasol black economicempowerment entity, TshwarisanoLFB Investment (Pty) Limited tocombine Sasol’s Liquid FuelsBusiness and Engen Limited and itssubsidiaries in a new liquid fuels jointventure, Uhambo Oil Limited, creatingSouth Africa’s largest liquid fuelbusiness.

24 NovemberMalaysia LNG Tiga Sdn Bhd, asubsidiary of PETRONAS, signed anagreement with Korea GasCorporation (KOGAS) to supply up to2.82 million tonnes of LNG to KOGAScommencing from October 2004 toApril 2008.

2 NOVEMBER 24 NOVEMBER


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M A I N E V E N T S

12 DecemberPETRONAS added another newblock into its upstream businessportfolio in Indonesia with its award ofa PSC for the North East MaduraOffshore Block IV by BPMIGAS.

24 DecemberPETRONAS signed a Sales &Purchase agreement to acquireKuwait Petroleum (Thailand) Ltd(KPTL) from Kuwait PetroleumInternational Ltd whereby PETRONASwill take over KPTL’s 117 operationalpetrol stations located in major citiesin Thailand, as well as KPTL’slubricant sales business conductedvia the service stations and throughdealerships and direct customers.

7 JanuaryThe decommissioned Baram 8structure which was converted intoan artificial reef, Malaysia’s first rig-to-reef project led by PETRONAS, wasofficially handed over to the FisheriesDepartment of Sarawak.

10 JanuaryPETRONAS, together with thePhilippines National Oil Company wasawarded a service Contract by thePhilippines Government to explore foroil and gas in the offshore Mindoroblock in the Philippines.

20 JanuaryASEAN Bintulu Fertilizer Sdn Bhd, asubsidiary of PETRONAS, signed aShareholders’ Agreement withNamhae Chemical Corporation ofKorea to set up a joint venturemelamine production facility inBintulu, Sarawak.

20 JanuaryPETRONAS officially introduced itsrange of premium grade automotiveengine oils under the brand nameSYNTIUM in Switzerland andLiechtenstein.


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12 MARCH

16 FebruaryPETRONAS awarded two PSCs toShell and PETRONAS Carigali for theultra-deepwater Blocks ND6 and ND7off the east coast of Sabah.

1 MarchPETRONAS extended its sponsorshipagreement with the MalaysianBasketball Association for another fiveyears to develop and promotebasketball into a national game underthe Rakan Sukan scheme, apartnership which began in 1995.

2 MarchPETRONAS signed a PSC withPETRONAS Carigali andConocoPhillips for the KebabanganOil Field offshore Sabah.

7 MarchAsean LNG Trading Company Ltd(ALTCO) took delivery of its firstliquefied natural gas (LNG) cargo fromthe Damietta LNG Complex in Egypt.The feed gas to the LNG plant issupplied by the West Delta DeepMarine Concession Area in whichPETRONAS has a 50% workinginterest.

12 MarchPETRONAS commemorated its 10years of involvement in Formula 1,reflecting on a decade marked withsignificant value-addingdevelopments and achievementsresulting from its participation in theprestigious motor sport.

24 MarchPETRONAS sponsored theResponsible Care Awards 2005organised by the Chemical IndustriesCouncil of Malaysia reinforcing itscommitment towards continuousimprovement in all aspects of health,safety and environment protection.

1 MARCH


PETRONAS’ most important legacy is itsinvestment in the generations to come.


I N V E S T I N G I N T H E F U T U R E


01 Corporate Statements

02 Company Profile

04 In Remembrance of the late Chairman

08 Board of Directors

10 Management Committee

12 Five-Year Financial Highlights

18 The Year in Review

58 Main Events

66 Financial and Legal Information

C O N T E N T S

PETROLIAM NASIONAL BERHAD (PETRONAS) COMPANY NO. 20076-K REGISTERED OFFICE TOWER 1, PETRONAS TWIN TOWERS KUALA LUMPUR CITY CENTRE, 50088 KUALA LUMPUR, MALAYSIA T +603 2051 5000 F +603 2026 5050 www.petronas.com.my

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