PETRONAS ANNUAL REPOR A N N U A L R E P O R T T 2005 DESIGN BY CHIMERA SDN BHD. CONCEPT PETROLIAM NASIONAL BERHAD (PETRONAS) COMPANY NO

Transcription

1 ANNUAL REPORT 2005

2 CONTENTS 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

3 CORPORATE STATEMENTS MISSION STATEMENT We are a business entity Petroleum is our core business Our primary responsibility is to develop and add value to this national resource Our objective is to contribute to the well being of the people and the nation VISION STATEMENT To be a leading oil and gas multinational of choice 1 CORPORATE STATEMENTS SHARED VALUES Loyalty Loyal to nation and corporation Professionalism Committed, innovative and proactive and always striving for excellence Integrity Honest and upright Cohesiveness United in purpose and fellowship

4 COMPANY PROFILE 2 PETRONAS, the acronym for Petroliam Nasional Berhad, is Malaysia s national petroleum corporation. Incorporated on 17 August 1974 under the Companies Act, 1965, it is wholly owned by the Malaysian Government.The Petroleum Development Act, 1974 vests in PETRONAS the entire ownership and control of the petroleum resources in Malaysia. PETRONAS is an integrated international oil and gas company with business interests in more than 30 countries and four subsidiaries listed on the Bursa Malaysia. It is ranked among the Fortune Global 500 largest corporations in the world. The Group is engaged in the exploration and production of oil and gas; oil refining; marketing and distribution of petroleum products; trading; gas processing and liquefaction; gas transmission pipeline network operations; marketing of liquefied natural gas; petrochemical manufacturing and marketing; shipping; and property investment.

5 3 COMPANY PROFILE

6 4 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 by the content of their character.tan Sri Azizan must be measured by both. His contributions to the country are priceless.

7 IN REMEMBRANCE OF THE LATE CHAIRMAN 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. THE LATE TAN SRI DATO SERI AZIZAN ZAINUL ABIDIN 5 IN REMEMBRANCE OF THE LATE CHAIRMAN 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 noble vision 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 s embarkation 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 very same 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 known for 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 become a lasting legacy for generations to come.

8 Our relationships with the communities we serve are built on trust.

9 CULTIVATING RELATIONSHIPS

10 BOARD OF DIRECTORS Acting Chairman and President & Chief Executive Officer Tan Sri Dato Sri Mohd Hassan Marican Members Tan Sri Dato Zaki Tun Azmi Dato Izzuddin Dali Dato Seri Khalid Ramli Raja Dato Zaharaton Raja Zainal Abidin Datuk Ishak Imam Abas Datuk Anuar Ahmad Nasarudin Md Idris Company Secretary Mohammed Azhar Osman Khairuddin 8

11 FROM LEFT Nasarudin Md Idris Datuk Anuar Ahmad Dato Seri Khalid Ramli Raja Dato Zaharaton Raja Zainal Abidin Dato Izzuddin Dali Tan Sri Dato Sri Mohd Hassan Marican Tan Sri Dato Zaki Tun Azmi Datuk Ishak Imam Abas Mohammed Azhar Osman Khairuddin 9 BOARD OF DIREECTORS

12 MANAGEMENT COMMITTEE 10 Tan Sri Dato Sri Mohd Hassan Marican Acting Chairman, President & Chief Executive Officer Datuk Ishak Imam Abas Senior Vice President Abdullah Karim Vice President, Exploration & Production Business Datuk Anuar Ahmad Vice President, Oil Business Datuk Abdul Rahim Hj Hashim Vice President, Gas Business Yeow Kian Chai Vice President, Petrochemical Business Nasarudin Md Idris Vice President, Corporate Planning & Development Division Datuk Ainon Marziah Wahi Vice President, Human Resource Management Division George Ratilal Vice President, Finance Division Dr Rosti Saruwono Vice President, Education Division Dato Shamsul Azhar Abbas President & Chief Executive Officer, Malaysia International Shipping Corporation Berhad Mohamad Johari Dasri Managing Director & Chief Executive Officer, PETRONAS Carigali Sdn Bhd Ahmad Nizam Salleh Managing Director & Chief Executive Officer, Malaysia LNG Sdn Bhd Wan Zulkiflee Wan Ariffin Managing Director & Chief Executive Officer, PETRONAS Gas Berhad Mohammed Azhar Osman Khairuddin Senior General Manager, Legal & Corporate Affairs Division Faridah Haris Hamid Secretary

13 11 MANAGEMENT COMMITTEE FROM LEFT Wan Zulkiflee Wan Ariffin Yeow Kian Chai Dato Shamsul Azhar Abbas Datuk Ainon Marziah Wahi George Ratilal Datuk Abdul Rahim Hj Hashim Ahmad Nizam Salleh Datuk Anuar Ahmad Tan Sri Dato Sri Mohd Hassan Marican Datuk Ishak Imam Abas Nasarudin Md Idris Abdullah Karim Dr Rosti Saruwono Mohamad Johari Dasri Mohammed Azhar Osman Khairuddin Faridah Haris Hamid

14 FIVE-YEAR FINANCIAL HIGHLIGHTS GROUP AS AT 31 MARCH (MILLION RM) REVENUE 137, , , , ,000 90,000 80,000 70,000 73,351 67,181 81,434 97,512 60, PROFIT BEFORE TAXATION 58,030 NET PROFIT 35,556 55,000 34,500 50,000 31,000 45,000 27,500 40,000 37,442 24,000 23,659 35,000 20,500 30,000 25,000 29,029 24,318 26,872 17,000 13,500 16,488 14,568 15,105 20,000 10,

15 GROUP HIGHLIGHTS Revenue (RM billion) Profit Before Tax (RM billion) EBITDA (RM billion) Net Profit (RM billion) Total Assets (RM billion) Shareholders Funds (RM billion) Cash & Fund Investment Balance (RM billion) Total Borrowings (RM billion) 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, FIVE-YEAR FINANCIAL HIGHLIGHTS TOTAL ASSETS 239,077 SHAREHOLDERS FUNDS 129, , , , , , , , , , , , , , ,216 90,000 80,000 70,000 68,884 83, ,500 60,000 58, ,000 50,

16 FIVE-YEAR FINANCIAL HIGHLIGHTS COMPANY AS AT 31 MARCH (MILLION RM) REVENUE 56,918 54,500 51,000 47,500 44,000 43,657 40, ,000 36,965 37,988 33,500 31,963 30, PROFIT BEFORE TAXATION 29,522 NET PROFIT 19,792 29,000 19,100 27,000 17,800 25,000 16,500 23,000 22,937 15,200 15,074 21,000 20,238 13,900 14,018 19,000 17,000 15,000 17,992 16,322 12,600 11,300 10,000 11,244 10,

17 15 FIVE-YEAR FINANCIAL HIGHLIGHTS TOTAL ASSETS SHAREHOLDERS FUNDS 129, ,190 79,000 82, , , , , , ,177 72,000 65,000 58,000 51,000 50,835 61,800 71,774 94,000 44,000 43,714 87,000 84,111 86,233 37,000 80,000 30,

18 Our most important asset is our people.

19 NURTURING HUMAN CAPITAL

20 THE YEAR IN REVIEW 18 Tan Sri Dato Sri Mohd Hassan Marican Acting Chairman and President & Chief Executive Officer

21 OVERVIEW Building on the sound foundation anchored on our integration, value adding and globalisation strategy, PETRONAS turned in an outstanding performance for the financial year ended 31 March The strongest ever performance was a fitting gift for PETRONAS 30-year Anniversary and placed the Group on a firmer footing to successfully compete in the increasingly challenging, complex and volatile global oil and gas industry. The successful implementation of operational efficiency and reliability initiatives enabled the Group to capitalise on the favourable market environment during the review period, and to optimise the synergistic benefits of its fully integrated business to deliver remarkable results. Revenue surpassed the RM100 billion mark to a staggering RM137.5 billion. Profit before tax rose by 55% to a record RM58.0 billion, notably higher than the average increase in WTI and Brent crude oil prices during the period under review. The Group s Return on Average Capital Employed stood at a commanding 37.4%, a testimony to the Group s ability to efficiently generate returns and profits on par if not better than the more established major players in the industry. 19 THE YEAR IN REVIEW It takes team effort to build the foundation instrumental to the Group s sustained growth and success. One man nevertheless provided key contribution to the building of the foundation through his leadership, vision and stewardship. We lost the visionary leader and an impeccable steward on 14 July Our beloved chairman Tan Sri Dato Seri Azizan Zainul Abidin s sudden and untimely demise is a great loss to this organisation and to the nation. On behalf of PETRONAS, I would like to pay tribute to our late Chairman, for his invaluable contributions and sacrifices. While we mourn his passing, his legacy will continue to live as we continue to move forward. May Allah bless 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 of strong crude oil prices as the world continued to be subjected to uncertainties and volatility which affected global oil demand and supply. Sustained global economic growth driven by China and the United States contributed to the upward pressure on oil demand. On the other hand, continued volatility in the Middle East, concerns over supply disruptions in Nigeria, Venezuela and Norway, weather disruptions brought about by Hurricane Ivan and uncertainties in Russia heightened concerns over security of supply. Higher demand and threat of supply disruptions, coupled with increased speculative oil trading and stock building activities 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 to USD45.05 and USD42.10 per barrel respectively. The weighted average price of Malaysian Crude Oil (MCO) rose in tandem to USD45.00 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 favourable market environment during the financial year, and to optimise the synergistic benefits of its fully integrated business. The operational improvement efforts, anchored around the Group s integration, value adding and globalisation strategy, resulted in sustained growth and a record-breaking best ever performance for the Group.

22 GROUP FINANCIAL REVIEW HIGHLIGHTS Over 40% increase in revenue to RM137.0 billion from 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 increasing to 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. 20 PRODUCT SALES AT A GLANCE BY VOLUME 5-YEAR TREND Crude Oil ( 000 barrels) 207, , , , ,349 Natural Gas ( 000 mmbtu) 212, , ,749 90,489 57,713 Processed Gas ( 000 mmbtu) 622, , , , ,802 LNG (million MT) Petroleum Products ( 000 barrels) 218, , , , ,592 LPG (million MT) Petrochemicals (million MT) Record earnings and profits, driven both by prices and volume increases The Group turned in a record revenue of RM137.0 billion, a 40.5% increase compared to RM97.5 billion registered last year. While higher prices were a factor, the Group also realised higher sales volume of between 10% and 30% for nearly all business sectors. The Group continued to reap increasing benefit from its globalisation strategy as reflected in significant revenue contribution from its international business. International business revenue, which comprises revenue from international operations and exports from Malaysia, grew by RM30.1 billion to RM106.0 billion, accounting for 77.3% of Group revenue. Export revenue amounted to RM57.5 billion, representing about 12% of Malaysia s exports over the same period, earning valuable foreign exchange revenue for the nation, while at the same time, providing positive contribution towards the country s balance of payment. Revenue from the Group s manufacturing activities, comprising the manufacture of petroleum products, liquefied natural gas, processed gas and petrochemicals, have increased from RM57.5 billion to RM78.2 billion this year. The Group remains focused on value-adding activities to maximise the value of its oil and gas resources.

23 Strengthening business integration has enabled PETRONAS to sustain growth in the face of increasing global challenges. 21 THE YEAR IN REVIEW

24 GROUP FINANCIAL REVIEW Remarkably, the Group s profit before tax and net profit have increased by 55.0% and 50.3% respectively, substantially higher compared to the growth in revenue. Profit before tax amounted to RM58.0 billion, up by RM20.6 billion from the last financial year and profit after tax and minority interests was RM35.6 billion, an increase of RM11.9 billion. Operational efficiency achieved across all business sectors has enabled the Group to realise cost savings and enhance profitability. This efficiency was further reflected in the higher Return on Revenue (profit before tax over revenue) this year that rose to 42.3% compared to 38.4% last year. 22 Strong growth in asset base and shareholders funds, with enhanced liquidity The Group s balance sheet continued to strengthen. Total assets grew to RM239.1 billion, up 17.7% from RM203.2 billion last year. Shareholders funds also increased to RM129.4 billion from RM102.7 billion last year, a commendable achievement for a company that started with RM10 million in equity 30 years ago. Return on Total Assets (profit before tax over total assets) rose to 24.3% compared to 18.4% in the previous financial year, while Return on Average Capital Employed (ROACE) improved to 37.4% compared to 28.7% in the previous year, underlining the Group s ability to efficiently generate returns and profits, on par, if not better, than other comparable integrated oil and gas companies. The Group generated strong cashflow from operations this year. Notably, cash generated from operations during the year was more than sufficient to cover the Group s investing and financing requirements. With the surplus, the Group s cash and fund investment balance as at 31 March 2005 rose to RM75.2 billion, a substantial increase from RM53.8 billion in Cash-wise, the Group has nearly doubled the amount required to 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 more importantly enables the Group to quickly capitalise on sound and strategic business opportunities that may arise. In comparison, total borrowings was reduced to RM52.9 billion as at 31 March 2005 compared to RM57.7 billion a year ago, following scheduled payments of Notes and Term Loans made throughout the year. Correspondingly, the Group s financial leverage position has improved with total debt to total asset ratio 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 fund investments surpassing total borrowings, the Group is in a net cash position of RM22.4 billion.

25 PETRONAS remains focused on value-adding activities to optimise its oil and gas resources. 23 THE YEAR IN REVIEW

26 24 The Group s exploration and production capabilities are continuously enhanced to realise our aspiration to be a leading global player.

27 EXPLORATION AND PRODUCTION BUSINESS 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 Total Reserves (million boe) 25,413 25,633 24,140 22,529 21,493 New Discoveries (million boe) 1,132 1,191 1, Total Production (million boe) Crude Oil and Condensate (million boe) Natural Gas (million boe) Reserve Replacement Ratio 0.7x 2.6x 2.1x 4.0x 2.0x Capital Expenditure (RM billion) THE YEAR IN REVIEW Our exploration and production (E&P) activity is driven by the need to augment Malaysia s reserves and ensure growth in line with the Group s strategy of integration, adding value and globalisation. The domestic upstream sector saw intensified efforts to enhance the nation s reserves while meeting production targets to cope with higher demand. On the international front, the Group continued to consolidate its portfolio with emphasis on development projects this year. The Group remained focused on strategic growth in South East Asia and select opportunities in Africa, the Middle East and the Caspian region. We continued to enhance our E&P capabilities, emphasising on technology and development of human capital in line with our aspiration to be a leading global E&P player. TOTAL PRODUCTION In 000 boe per day Domestic Exploration and Production Sustaining the nation s reserves and production As at 1 January 2005, Malaysia s total reserves stood at billion barrels of oil equivalent (boe) compared to billion boe in the preceding year. Our continuous efforts to replenish the nation s hydrocarbon resources have resulted in a fairly constant reserve life for Malaysia an average of 19 years and 33 years for crude oil and natural gas reserves respectively, at current rate of production. Crude oil and condensate reserves rose from 4.84 billion barrels to 5.29 billion barrels. Higher gas production during the year led to a marginal decline in gas reserves from trillion standard cubic feet (tscf) to tscf. Natural gas, however, still constituted about 73% of Malaysia s total reserves. Malaysia produced a total of million boe of crude oil and natural gas during the year. PETRONAS share of this production was 71.7% or million boe, up from million boe last year. Natural gas production, in particular, rose during the year as a result of greater demand for processed gas especially from the power sector and higher feedstock requirement for our downstream LNG and petrochemical plants. Financial Year Ended 31 March * CAGR: Cumulative Annual Growth Rate

28 26 The year under review saw a significant increase of activities in Malaysia s exploration & production (E&P) sector. While existing acreages continued to offer good prospects to investors, the deepwater and ultra-deepwater areas have created a new era in the E&P sector of the country. Five new Production Sharing Contracts (PSCs) were signed during the year, bringing the total number of PSCs to 53, the highest ever. Two of the PSCs were for ultra-deepwater blocks covering water depths of up to 4,000 metres. Approximately RM12 billion was spent in the Malaysian E&P sector last year, nearly half of which was in the form of foreign direct investment (FDI) brought in by our PSC partners. The vibrancy of Malaysia s E&P sector has benefited not only oil and gas players but has also generated valuable economic activity for the country s oil and gas support industries. This has enabled these companies to build their capacity and capability in this specialised sector and contribute towards establishing 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 of 2D and 15,221 square kilometres of 3D seismic data acquired. The intensified exploration activity has resulted in the discovery of 1,084.7 million boe of oil and natural gas reserves. Notably, deepwater discoveries accounted for nearly 70% of reserve additions during the year. Significant oil and natural gas discoveries were made in the deepwater Gumusut-Kakap and Malikai fields offshore Sabah; NC4 and F2 Attic fields offshore Sarawak, and Anding Utara oilfield offshore Peninsular Malaysia. The Anding Utara discovery introduces further exploration prospects for the Malay 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, of which 53 are oil fields and 22 are gas fields. Nearly half of the fields are operated by our E&P arm, PETRONAS Carigali Sdn Bhd. Notably, two of the new fields that came onstream marked the success of our small field development efforts, a niche area identified as a means to sustain the nation s oil and gas production. We continue to chart progress with our Enhanced Oil Recovery (EOR) effort, another initiative to sustain the nation s oil and gas production. The Water Alternating Gas (WAG) Method in the Dulang Field, one of our ongoing EOR projects, is close to fullfield implementation. A significant milestone was achieved in Malaysian E&P activity during the year when PETRONAS Carigali successfully drilled the longest development well ever at the Angsi oil and gas field 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 kilometres away from the Angsi platform. The ERD has enabled the recovery of oil and gas located a distance away from the existing platform without having to install another structure, thus significantly reducing costs. To further enhance our E&P capabilities, we have set up a state-of-the-art immersive visualisation centre, the first of its kind in the region. Known as PETRONAS Visualisation Centre (PviC), the centre enhances our ability to interpret and evaluate upstream data. This puts us in the league of the larger oil and gas companies that are already leveraging on this technology in their E&P activities. MALAYSIA S RESERVES In million boe As at 1 January DOMESTIC PRODUCTION In 000 boe per day Financial Year Ended 31 March

29 Continuous efforts are made to replenish the nation s hydrocarbon resources to sustain Malaysia s reserves and production. 27 THE YEAR IN REVIEW

30 28 International Exploration and Production Consolidating our portfolio, with particular focus on development activity Total international reserves as at 1 January 2005 amounted to 5.93 billion boe, representing nearly a quarter of the Group s total reserves. A significant portion of our reserves are located in Egypt, Sudan, Turkmenistan, Chad and the Malaysia- Thailand Joint Development Area (JDA). PETRONAS international production rose to million boe from million boe last year, an increase of 11.8%. Production from our Chad operations doubled during the year with full production from the existing Doba fields following the completion of upstream facilities. We also achieved higher production from our Sudan, Indonesia and Myanmar operations. The Group expended about RM7.5 billion in international E&P activity during the review period. A significant portion of this was spent on development projects, particularly in Sudan and Egypt. In Sudan, the development of Blocks 3 and 7 is on track with first production expected later this year. Further development works are being undertaken in the already producing Blocks 1, 2 and 4. In Egypt, we have embarked on an extensive development phase in our already producing West Delta Deep Marine Block to supply gas to our Egyptian LNG project, which will be fully onstream later this year. Five new ventures were acquired during the financial year, bringing our international E&P portfolio to 59 ventures in 26 countries. We are the operator for 29 of the ventures, joint operator for seven and active partner in the remaining 23 ventures. In Indonesia, PETRONAS was awarded the PSC for the North East Madura Offshore Block IV and acquired interest in two development blocks, namely Madura and Muriah. Long term Gas Sales Agreements have been finalised for both blocks. These new blocks brought the total number of our ventures in Indonesia to nine, enhancing our presence in that country. PETRONAS together with PTT Exploration and Production Public Company Limited was awarded the PSC and joint operatorship for JDA Block B by the Malaysia-Thailand Joint Authority during the year. Meanwhile, Block A-18 in the JDA commenced production with 117 million standard cubic feet per day (mmscfd) of natural gas flowing into the Trans Thailand-Malaysia gas pipeline. The Group made a return into the Philippines upstream sector when it was awarded a Service Contract together with the Philippines National Oil Company for the Mindoro Block, offshore Philippines in January INTERNATIONAL RESERVES In million boe As at 1 January INTERNATIONAL PRODUCTION In 000 boe per day Financial Year Ended 31 March

31 Intensified upstream development activities overseas led to increasing share of PETRONAS international oil and gas production. 29 THE YEAR IN REVIEW

32 30 Expansion of PETRONAS downstream operations created greater value for the Group.

33 OIL BUSINESS HIGHLIGHTS Total sales volume increased by 6.6% at million barrels. Expanded MCO export market beyond Asia to 26.5% from 17.0% during previous year. Excellent operational efficiency of Group s refineries resulted 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. 31 OIL BUSINESS AT A GLANCE Volume Sold (million barrels, except LPG in million tonnes) Malaysian Crude Oil (MCO) of which, exports Foreign Equity Crude Crude Oil Trading Petroleum Products Liquefied Petroleum Gas (LPG) THE YEAR IN REVIEW Realised Crude Prices (USD / barrel) MCO Nile Blend Net Refining Capacity (barrels per day) 356, , , , ,500 The Oil Business Sector continues to realise and add value to the Group s crude oil resources through its marketing, trading, refining and retailing activities. Capitalising on higher crude oil and petroleum product prices, the sector optimised output from the Group s upstream business and stepped up its refining and retail operations to turn in a solid performance for the year. Commendably, most of our refineries operated reliably above nameplate capacity. The year also saw us expanding our reach in the global market, diversifying our crude export destinations and entering new international markets in the retail and marketing business. Crude Oil Marketing and Trading Realising the value of our exploration and production activities During the year, the Oil Business Sector successfully marketed and traded million barrels of crude oil. This comprised million barrels of MCO, 46.3 million barrels of the Group s Foreign Equity Crude (FEC) and 29.7 million barrels of trading volume.

34 32 PETRONAS exported million barrels or 57% of its share of MCO, processed about 84.3 million barrels at the Group s refineries in Melaka and Terengganu and supplied the balance to other domestic refineries. Whilst Asia remained the key export destination, we have successfully expanded and diversified our MCO markets, disposing a larger proportion, or 26.5%, beyond Asia (Australia 20.4%, USA 5.2%, New Zealand 0.4% and Chile 0.5%) compared to 17% previously. In line with higher global crude oil prices, the Group was able to realise a higher average price of MCO at USD45.00 per barrel compared to USD30.90 per barrel last year. The Group also achieved higher sales volume for FEC oil. FEC sales volume rose by 30% from 35.6 million barrels last year to 46.3 million barrels. This is attributed to the first full-year production of our operations in Chad. PETRONAS operations in Chad produces the Doba Blend crude, which has joined the growing portfolio of PETRONAS FECs successfully marketed and traded in the world oil market. Refining Operational excellence to capitalise on favourable margins Supported by strong demand for transportation fuel worldwide, petroleum product prices continued on an upward trend during the year. This has translated into high refining margins for the Group s refineries. The Group has successfully capitalised on this high price environment, as we were able to operate our refineries at high utilisation rates without compromising safety and reliability. Most of our refineries operated above their nameplate capacities. The Group s share of production from our refineries in Malaysia and South Africa was 369,000 barrels per day, higher than our net refining capacity of 356,500 barrels per day. Our refineries continued to play a key role within the Group s integrated business structure. All our refineries successfully generated higher refining margins, led by the PSR-2 refinery in Melaka. PSR-2 processes relatively heavier and sour crude to produce a wide range of high-priced petroleum products. Refined petroleum products remained the largest contributor to the Group s revenue. Downstream Retail and Marketing Market leadership at home and in South Africa, continued expansion abroad In the domestic retail and marketing sector, subsidiary PETRONAS Dagangan Berhad (PDB) strengthened its leadership position with a 40% market share and expanded its retail network to 729 service stations. PDB sold a total 73.2 million 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 retain its leadership position in South Africa with a 24.8% market share. During the year, we signed a definitive agreement with Sasol Limited and two South African Black Empowerment Consortia to merge Sasol's Liquid Fuels Business and Engen Limited and its subsidiaries in a new liquid fuels joint venture. The proposed merger has been approved by the European Union Commission and is awaiting final approval from the South African Competition Tribunal. The Group s Oil Business Sector made further progress in the international front during the year. In Sudan, PETRONAS retail business achieved high sales growth, where petroleum products sales volume increased by 26.5% from 1.7 million barrels to 2.2 million barrels. A new subsidiary was launched in June 2004 to spearhead the Group s lubricants and petroleum products marketing in China. An encouraging growth was also made in the Indonesian lubricant market with sales volume close to 14,000 barrels. The year also saw PETRONAS entry into the lubricant markets in Switzerland and Liechtenstein. Through an agreement with Switzerland-based Bucher AG (also known as Motorex), PETRONAS Syntium premium grade lubricants, including the synthetic Syntium 5000 FS, Syntium 3000S and Syntium 1000S, are now marketed in the two countries through selected gas stations and Coop supermarket outlets, Switzerland's second largest consumer products retailer. In Thailand, the Group further expanded its presence in the country s retail and marketing sector through the acquisition of Kuwait Petroleum (Thailand) Ltd s entire network of 117 Q8 service stations and lubricant business from Kuwait Petroleum International Limited during the year. These stations are currently being re-branded and upgraded and are expected to be completed by July 2005.

35 PETRONAS continues to strengthen its leadership position in the domestic market while expanding its retail and marketing business abroad. 33 THE YEAR IN REVIEW

36 GAS BUSINESS 34 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 market with the signing of Gas Sales Agreement with British Gas Trading Ltd for supply of natural gas beginning Operational improvements by LNG and Gas Processing Plants with higher utilisation and reliability rates. GAS BUSINESS AT A GLANCE LNG Production Capacity (million MT per annum) Production Volume (million MT) Trading Volume (million MT) Sales Volume (million MT) Realised LNG Price (USD / MT) 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% PETRONAS Gas Business activities span the entire natural gas chain. This includes gas processing, liquefaction, pipeline transmission, marketing and trading of LNG, gas district cooling and supply of industrial utilities. We are the world s largest LNG producer from a single location, the world s largest owner of LNG production capacity and have interests in more than 10,000 km of natural gas pipelines worldwide. Our LNG business is undergoing a period of transformation and growth. The Group is strengthening its global presence through international LNG projects and trading activities. Meanwhile, the PGU system in Malaysia continues to support the nation s industrial activities, ensuring reliable supply of gas for power generation.

37 PETRONAS gas processing plant complex an integral part of the Peninsular Gas Utilisation system in Malaysia. 35 THE YEAR IN REVIEW

38 36 LNG Strengthening our position as a global integrated LNG player LNG production & export: LNG continues to be a focus sector in the Group s business expansion. The PETRONAS LNG Complex in Bintulu, with a capacity of approximately 23 million tonnes per annum remains the world s largest LNG producer at a single location. A total of 21.2 million tonnes of LNG was produced and exported from Bintulu during the year compared to 18.4 million tonnes in the previous year. The higher volume was due to MLNG Tiga s first full-year of operation as well as higher utilisation and reliability rates recorded by all three LNG plants at the Complex during the year. Japan continues to be our largest LNG customer, taking up 61.0% 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 in Japan, South Korea and Taiwan amounting to 22%, 21% and 40% respectively. LNG import terminal: The engineering, procurement and construction contract for the Dragon LNG project in Milford Haven, Wales was awarded in September 2004 and the terminal is slated to be operational in the fourth quarter of PETRONAS has a 30% equity interest and 50% capacity rights in Dragon LNG. The project completes the Group s fully integrated LNG business model with activities spanning the whole spectrum of upstream feedstock supply, liquefaction, trading, transportation right down to the receiving and re-gasification terminal. In August 2004, the Group made a major breakthrough into the British gas market with the signing of a Gas Sales Agreement with British Gas Trading Ltd, a subsidiary of Centrica Plc to supply 2.2 mmtpa of natural gas for a period of 15 years commencing in Under the agreement, PETRONAS will supply LNG to the receiving terminal where it will be re-gasified. LNG SALES VOLUME The Group continues to build global reach in the LNG business, beyond Asia Pacific. Our Egyptian LNG project is progressing ahead of schedule. The first train with a capacity of 3.6 million tonnes per annum (mmtpa) produced its first cargo in May 2005, a good four months ahead of schedule. With only six years between the first exploration well and the first cargo, the project became one of the fastest LNG projects ever executed. The second train also with 3.6 mmtpa capacity is scheduled to produce its first cargo in September 2005, seven months ahead of schedule. The entire output from Train 1 and Train 2 have been committed on long-term contracts with Gaz de France and BG Gas Marketing respectively. LNG trading: The year saw the Group establishing a firm foothold in the emerging global LNG trading market. Our LNG trading arm, Asean LNG Trading Company Ltd (ALTCO) sold 20 spot cargoes amounting to 1.2 million tonnes of LNG during the year, compared to only one spot cargo in the previous year. Eleven spot cargoes were delivered to customers in the USA, six to South Korea and three to Spain. Financial Year Ended 31 March million tonnes

39 LNG continues to be a focus sector in the Group s global business expansion. 37 THE YEAR IN REVIEW

40 Gas Processing and Transmission Fuelling the nation s power needs The favourable expansion of the Malaysian economy during the year led to higher demand for processed gas across the power, industrial and petrochemical sectors. The escalation in coal prices during the year, resulting in a switch from coal to natural gas as a fuel source for power generation, also contributed to higher demand from the power sector. To meet the increased demand, additional supply had to be secured from gas fields offshore Terengganu as well as through imports from Vietnam, Indonesia and the Malaysia-Thailand JDA. Moving forward, the Group will continue to strengthen its position as an integrated gas player in ASEAN, expand our global LNG portfolio by capturing markets in the fast growing Atlantic Basin and capture more value out of Malaysia s gas chain. With the ongoing efforts in Malaysia and abroad, PETRONAS is poised to play a more significant role in the global gas industry. PROCESSED GAS VOLUME 38 During the year in review, an average of 1,869 mmscfd of processed 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 gas consumer accounting for 67.9% of total processed gas sold. The Independent Power Producers (IPPs) consumed nearly two-thirds of the total gas supplied to the power sector. The remaining 32.1% was supplied to industrial and petrochemical customers as well as exported to Singapore. mmscfd 1,731 1,849 1,789 1,869 During the year, we managed to operate all our gas processing plants above the design capacity to cater for the increase in gas demand. We were also able to improve our plants reliability with a record achievement of 99.5%. The ability to operate above design capacity at close to perfect reliability levels speaks volumes of the integrity and high operational standards of our plants. Financial Year Ended 31 March Overseas, the Trans Thailand-Malaysia (TTM) project was completed during the year under review. Malaysia s share of natural gas from the Malaysia-Thailand JDA entered the PGU system in February The TTM pipeline is the latest addition to the growing interconnection of cross-border gas infrastructure in ASEAN and charts another important step towards the realisation of the Trans-ASEAN Gas Pipeline network.

41 PETRONAS continuous drive for operational excellence has led to further improvement in its gas processing plant reliability. 39 THE YEAR IN REVIEW

42 40 Improved plant integrity and efficiency have translated into better performance of our Petrochemical Business.

43 PETROCHEMICAL BUSINESS 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 businesses with plans for new melamine plant and new methanol plant in Malaysia for the future. PETROCHEMICAL BUSINESS AT A GLANCE Production Volume (million tonnes) Volume Sold (million tonnes) Main Petrochemical Product Prices (USD/MT) Ethylene Urea Paraxylene Methanol THE YEAR IN REVIEW 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% The Group s Petrochemical Business continued to reap the benefits of integration on the back of the buoyant petrochemical market with higher products prices. The ready availability of gas-based feedstock from the PGU system coupled with interdependency of feedstock supply between our integrated plants have enabled our petrochemical operations to realise significant operational synergy and achieve cost advantage over naphta-based plants, translating into higher margins. Combined with enhanced reliability and utilisation rates achieved by most of our plants, our Petrochemical Business successfully turned in an exceptional year, making even greater contribution towards Group revenue and profits. The sector s strong performance this year lends proof that our investments in petrochemical ventures had been perfectly timed, allowing us to successfully ride the industry s cyclical nature. Improved integrity and efficiency translated into better overall performance The Group (including its associates) produced a total of 7.8 million tonnes of petrochemical products during the year under review, slightly lower compared to 8.3 million tonnes produced in the previous year. The marginal production decline was due to several scheduled plant shutdowns throughout the year to cater for turnaround and revamp works. The Group remains committed towards maintaining our world-scale petrochemical plants at world-class standards, and these turnaround and revamping activities are vital in order to ensure plant integrity and efficiency. Some of the notable projects undertaken during the year included the Revamp Project at ASEAN Bintulu Fertilizer Sdn Bhd (ABF) and Phase One of the Plant Rejuvenation Project at our methanol plant in Labuan.

44 42 Value-adding activities and further diversification of PETRONAS Petrochemical Business have contributed to Malaysia s industrial development and creation of employment opportunities for the local community.

45 The Group s strong emphasis on plant integrity and efficiency has clearly yielded results, as seen by a significant improvement in our plants' reliability. During the year, the Group s overall plant reliability rate rose from 85.2% to 90.2%, enabling the petrochemical business sector to turn in a significantly better overall performance on the back of higher products prices. The year also saw the Group s Petrochemical Business continuing to expand its value adding activities and strengthen the integration of operations. In January 2005, subsidiary ABF signed a Shareholders Agreement with Namhae Chemical Corporation of Korea to set up a 50:50 joint venture to be called ABF Namhae Melamine Sdn Bhd. The joint venture will set up a 15,000 tonne per annum melamine production plant in Bintulu, Sarawak, marking ABF s maiden diversification into further downstream, value adding products. The facility will be Malaysia s first melamine plant and is scheduled to be completed and commissioned in early ABF will supply urea as feedstock to the melamine plant and will operate the plant on behalf of the joint venture company. In another significant development, PETRONAS during the year embarked on the expansion of its methanol plant in Labuan with a capacity of 1.7 million tonnes per annum, scheduled to commence operations by the end of The plant s feedstock of about 150 mmscfd of gas will be supplied from gas fields offshore Sabah. Methanol from the plant, will be marketed to the growing domestic and regional markets. 43 THE YEAR IN REVIEW PETRONAS Petrochemical Business has indeed played a major role in Malaysia's industrial development. The approach taken by PETRONAS to develop the petrochemical business in an integrated manner to enhance synergistic benefits and competitiveness by capitalising on the availability of natural gas as feedstock, coupled with the combined advantages of Malaysia s strategic location and conducive environment has been proven to be successful in attracting renowned joint venture partners to set up world-scale plants involving sizeable inflows of FDIs. The firm foundation that has been established places the Petrochemical Business in good stead to make an even greater contribution to the Group.

46 LOGISTICS AND MARITIME BUSINESS 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. Building in-house capabilities through heavy engineering activities, as we venture into deepwater support services, LNG dry-docking and repair, and ship conversion. Creating value in offshore business to support growth in exploration and production activities. 44 LOGISTICS & MARITIME BUSINESS AT A GLANCE Fleet Numbers (by Vessel Type) LNG Petroleum Chemical FPSO Liner Bulk Total The Logistics and Maritime Business continued to provide valuable support and value-adding services to the Group with its strong focus on energy transportation and logistics. The sector registered excellent performance during the year under review. Operating in a favourable market environment, our strategy of carefully planned expansion and diversification into related businesses has clearly paid off as the sector generated record revenue and profits. With an enlarged LNG and petroleum fleet and through ventures into offshore business and heavy engineering, the sector is well poised to better complement the Group s business activities and at the same time realise other business opportunities beyond the Group. Striding ahead as a major player in the global energy transportation business The year under review proved to be a robust period for the Group s Logistics and Maritime Business. Demand for maritime and logistic services grew during the year, spurred by higher worldwide merchandise trade levels and strong global economic growth. This higher demand, coupled with limited supply of ships, resulted in stronger freight rates throughout most shipping segments. Against this favourable backdrop, the Group s Logistics and Maritime Business, spearheaded by subsidiary Malaysia International Shipping Corporation (MISC) Berhad, achieved yet another record year. MISC was able to capitalise on the bullish environment through its continued business expansion and rationalisation initiatives, higher operational efficiency, improved cost management and timely execution of wellplanned strategies. During the year under review, MISC expanded its fleet with the addition of one LNG tanker, two Aframax tankers and three Very Large Crude Carriers (VLCC). MISC s fleet currently stands at 109 vessels, with more than two thirds servicing the core business area of energy transportation.

47 The Group s Logistics and Maritime Business has been reinforced through proactive growth strategies and timely strategic rationalisation initiatives. 45 THE YEAR IN REVIEW

48 MISC s energy transportation business will be further expanded with the delivery of an additional 11 LNG tankers, two Aframax tankers and five VLCCs between 2005 and These new vessels will not only reaffirm MISC as the world s largest owner and operator of LNG tankers and the world s second largest owner and operator of Aframax tankers, but will also provide MISC with the critical mass it requires to better serve its customers globally. The LNG fleet expansion, in particular, will complement the Group s LNG business growth and at the same time allow MISC to capitalise on other opportunities provided by the rapidly growing global LNG market. 46 As part of its business rationalisation effort, MISC disposed off 54 vessels from various businesses during the year to streamline its overall business. The year also saw growth in MISC s offshore business. Its first Floating Production Storage and Offloading (FPSO) Bunga Kertas delivered to PETRONAS Carigali in the last financial year, received its first oil in April MISC also secured a contract with Murphy Sabah Oil Co Ltd during the year to provide and operate one FPSO for the Kikeh field. A contract was also secured with Talisman Malaysia Ltd to provide and operate a Floating Storage and Offloading (FSO) unit for the South Angsi A oil field development. This involvement in offshore business is timely, serving to support the highly active Malaysian exploration and production sector. The conversion and construction works for the FPSO and FSO will be undertaken at MISC s subsidiary, Malaysia Shipyard Engineering Sdn Bhd (MSE). MSE was re-named Malaysia Marine and Heavy Engineering Sdn Bhd (MMHE) shortly after the end of the financial year. MMHE will focus on the development of the Group s technical capabilities and technological base and help position Malaysia as the region s hub for deepwater support services and maritime repairs. During the year under review, MMHE completed a full scale dry-docking and repair for the Group s Puteri Firus and Puteri Delima LNG vessels. The ability to perform LNG tanker dry-docking in Malaysia will not only benefit the Group in terms of time and cost savings but should also generate value beyond the Group, given the fast increasing number of LNG vessels worldwide.

49 MISC continues to provide valuable support and value adding services to the PETRONAS Group through its energy transportation and offshore businesses. 47 THE YEAR IN REVIEW

50 48 PETRONAS continues to harness technology and develop capabilities to deliver superior performing assets and create competitive advantage for the Group.

51 TECHNOLOGY DEVELOPMENT 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. Technology is a key success factor in the highly competitive oil and gas industry. PETRONAS remains committed to continuously improve the development and application of technology to sustain and enhance its competitive position and financial performance. Research and Development Our research and development (R&D) arm, PETRONAS Research & Scientific Services Sdn Bhd (PRSS), continues to serve the R&D and technological needs of the Group as well as external parties, both in Malaysia and abroad. 49 THE YEAR IN REVIEW Some of the significant successes achieved by PRSS during the year include the development of a new method to identify hydrocarbon prone zones in deepwater basins and the development of a new product to treat solid deposit in wells. Notably, PRSS has successfully designed and created a revolutionary simulation software for process design and plant optimisation. Another major achievement made by PRSS during the year was the successful development of PETRONAS Sprinta 4T 5000, a fully synthetic four-stroke motorcycle engine oil. Formulated for the PETRONAS FP1 race bike, the product has been successfully tested in the World Superbike Championship. The year also saw PRSS providing technical consultancy services beyond Malaysia, particularly in the E&P sector in Vietnam, Iran, Sudan and Turkmenistan. Technical Services Our project management and engineering services subsidiary, OGP Technical Services Sdn Bhd (OGP), continued to thrive both at home and abroad. During the year, OGP successfully completed 22 projects, including three international projects. OGP s major ongoing projects include the MG3 lube base oil plant project for PETRONAS Penapisan Melaka Sdn Bhd and Sudan s Blocks 3 & 7 and 5A development projects for Petrodar and White Nile Petroleum Operating Company respectively. OGP has also formed a joint venture with Sudapet Co Ltd to provide engineering and project management consultancy services to further strengthen its presence in Sudan.

52 50 PETRONAS is committed to inculcating and maintaining HSE excellence.

53 CORPORATE SUSTAINABILITY In undertaking our business activities, we are always conscious of the need to maintain the trust and confidence of our stakeholders in order to ensure sustained growth and success. We conduct our business in a consistent manner, guided by the PETRONAS Guidelines for Business Conduct and Corporate Sustainability Framework based on our Shared Values and corporate mission. Our Corporate Sustainability Framework covers seven key result areas to facilitate effective and systematic implementation, measurement and reporting of our triple bottom-line performance. The triple bottom-line means managing our petroleum resources responsibly by balancing between commercial, environmental and social performance under which the seven key result areas of our Corporate Sustainability Framework are categorised. The seven key result areas are: Shareholder Value; Energy Use; Health, Safety and Environment; Product Stewardship; Societal Needs; Climate Change; and Biodiversity. Health, Safety and Environment 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 project offshore Sarawak, the first of its kind in Malaysia. PETRONAS is committed to inculcating and maintaining a work culture of HSE excellence. We adopt responsible HSE management practices in every aspect of our operations by implementing the HSE Management System group wide, integrating business controls, quality and risk management principles. Execution of internal and external assurances, interventions and continuous improvement activities have all helped uphold our high HSE standards. During the year, we achieved an industry-leading safety and health record and earned commendable recognition. Our Group Lost Time Injury Frequency per million man hours continued to reduce to 0.77 times for the year from 0.92 times previously, well within industry standards and comparatively better than most industry players. The year also saw a number of our subsidiaries and joint venture companies continue to be recognised with annual national and international industry excellence awards. Both PETRONAS Carigali Sdn Bhd and Optimal Chemicals Sdn Bhd received the Gold Medal Award 2004 from the Malaysian Society for Occupational Safety and Health (MSOSH), while PETRONAS Gas Berhad (PGB), the National & International Awards for Occupational Safety & Health Excellence 2004 also from MSOSH. PGB s Transmission Operations Division and the Centralised Utility Facility also received the Royal Society of the Prevention of Accident (RoSPA) Gold Medal Awards. The year also witnessed our joint venture company, BP PETRONAS Acetyls (BPPA), accredited as the Overall Winner (Platinum Award) for the Chemical Industries Council of Malaysia s (CICM) Responsible Care Awards During the year, PETRONAS Disaster Management Unit and Corporate Security Division organised a national level emergency and disaster exercise held at PETRONAS Carigali s facilities. The large-scale exercise, with included participation from government authorities, allowed us to assess, enhance and further improve our Emergency Response Plan. We continue to contribute to the preservation and conservation of the environment wherever we operate. During the year, we handed over a decommissioned rig to Sarawak's Marine Fisheries Department to be converted into an artificial reef, marking the implementation of Malaysia s first rig-to-reef project. The project, jointly implemented with Sarawak Shell Berhad, Sarawak's Marine Fisheries Department and the Sarawak Tourism Board, will enhance the existing coral reefs offshore Miri, preserving its natural beauty. With the Kyoto Protocol in effect as of 16 February 2005, we have set up a Greenhouse Gas (GHG) Inventory Working Group to establish PETRONAS GHG s inventory. The GHG inventory will be included in Malaysia s Second National Communication report to the United Nations Framework Convention on Climate Change. The inventory will also provide a reference point for potential project development and investment opportunities in the future. 51 THE YEAR IN REVIEW

54 Education and Human Capital Development HIGHLIGHTS Leadership Development, Succession Management, Staff Assessment & Progression, Intensified Performance Management and Mentoring & Coaching programmes progressed smoothly to support the Group s business strategies. 52 The success of any well-thought out strategy lies in its execution. We are fully aware of the crucial role played by our employees in translating strategies into tangible results. Indeed, the Group s continued growth and accomplishments have much to do with our competent and capable workforce. PETRONAS is committed to developing high-performing employees. With a growing workforce of 33,944 employees as at 31 March 2005, the Group places great importance in human capital development. Capability building and leadership development remain top priorities. We continually seek to attract, develop, enrich and retain talents to sustain the Group s success. During the year, various development programmes continued to be pursued to strengthen capabilities, develop leaders and encourage positive mindset and behaviour change among our employees. These programmes include leadership development, succession management, intensified performance management, mentoring and coaching. To further promote staff development and cultivate a strong learning culture, we are finalising the implementation of elearning courseware to our employees worldwide. The online elearning programme will allow employees to undertake development courses at their own initiative and time, by providing convenient and ready resources at their disposal. PETRONAS elearning Solutions Sdn Bhd, the provider of the service and a subsidiary of PETRONAS, was accredited as a Multimedia Status Company (MSC) during the year. Our Universiti Teknologi PETRONAS (UTP) in Tronoh, Perak expanded its enrolment to 4,655 students during the year compared to 4,350 students a year ago. In addition to Malaysians, we continue to sponsor an increasing number of deserving international students from the host countries in which we operate to study at UTP. Until the end of the financial year, we have sponsored 321 international students from 17 countries to study at our university.

55 Human capital development remains a top priority of PETRONAS commitment to attract, nurture and retain talents to sustain the Group s success. 53 THE YEAR IN REVIEW

56 54 Capability building, leadership development and the right mindset the key focus of PETRONAS Corporate Agenda will transform the Group into a high-performing organisation known for its resilience and distinctiveness.

57 CONCLUSION The financial year ended 31 March 2005 was indeed a monumental year for PETRONAS. The outstanding financial results and operational performance delivered have enabled the Group to be an efficient value generator, as we continue to hold our own amongst the larger players in the industry. Driving this superior all-round performance is our strategy of integration, adding value and globalisation. The Group remains committed to this strategy, which has enabled us to evolve and grow into what we are today and has served us well in addressing the challenges and uncertainties faced by the volatile oil and gas industry. The industry is still undergoing a period of change with supply dynamics changing more rapidly than ever. The general feeling is that this state of play is likely to remain in the foreseeable future with oil price levels likely to remain 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 right leaders and the right mindset and attitude is critical in setting the path ahead. We firmly believe that integrity must never be compromised. We have long recognised the importance and value of maintaining high standards of ethics and business integrity. We believe that both results and the manner in which those results are achieved matter. These fundamental beliefs and values form the backbone of our business approach and we are fully committed to excellence in everything we do. These values are subscribed by all in the organisation and are embedded in our culture. As we move a step closer to realising our Vision To Be A Leading Oil and Gas Multinational of Choice, the Group continues to be guided by our Shared Values. Herein lies the reason for the Group s success. The Group is made up of people who share the same vision and apply the same values in pursuing that vision. We are now well into the implementation stage of our Corporate Agenda towards becoming a Global Champion. The agenda has enabled us to significantly raise our performance across all businesses and create true distinctiveness to achieve sustainable value creation in our growth. PETRONAS has certainly come a long way since its incorporation over 30 years ago. While the Group continues to expand and redefine its boundaries, we have remained true to the legacy of trust that brought about our existence in the first place. We remain steadfast in achieving a balance between business results and ensuring that we execute our responsibilities as stewards wherever we operate. We are proud to have contributed positively towards nation building, economic development and social improvements in the countries where we operate. On a final note, I would like to take this opportunity to express my sincere appreciation to the PETRONAS family of more than 30,000 employees around the world who have individually and collectively, through excellent teamwork, contributed to the success we have achieved thus far. I would also like to express my gratitude to the Government of Malaysia and the Governments of PETRONAS host countries for their support, as well as to the members of the Board of Directors for their continued support, counsel and guidance. Tan Sri Dato Sri Mohd Hassan Marican Acting Chairman and President & Chief Executive Officer 30 June THE YEAR IN REVIEW

58 Globalisation makes us neighbours. Respect makes us friends.

59 EXTENDING OUR REACH

60 MAIN EVENTS APRIL 25 MAY April PETRONAS Research and Scientific Services Sdn Bhd (PRSS) launched the PETRONAS Steady State Simulation Software or PETRONASsim, a technology innovation using the VMG Thermo physical calculation method that can be customised to meet users requirements in optimising plant operations. 17 May PETRONAS became the title sponsor of the 2004 Shanghai International Race Festival, further boosting the corporation s brand presence and awareness in China. 25 May PETRONAS signed two Production Sharing Contracts (PSCs) with Newfield Exploration Company of the United States and PETRONAS Carigali Sdn Bhd for Block PM318 offshore Peninsular Malaysia and Deepwater Block 2C offshore Sarawak. 15 June OGP signed a Shareholders Agreement with Sudapet Co Ltd for the incorporation of a technical services company in Khartoum, Sudan. 25 June PETRONAS launched a new subsidiary company in Shenzhen, China, known as PETRONAS Marketing China Company Ltd to oversee the expansion of its petroleum products retail and marketing activities in selected markets in China as well as its future foray into other related businesses in the country.

61 29 JUNE 14 JULY 59 MAIN EVENTS 29 June All PETRONAS port facilities were certified to be compliant with the International Ships and Port Facilities Security Code under the requirement of the International Maritime Organisation. 14 July PETRONAS launched its range of premium grade automotive and motorcycle engine oils under the brand names SYNTIUM and SPRINTA respectively in China, officially entering the country s lubricants market. 25 July The PETRODAR Joint Operating Committee, in which PETRONAS, CNPC, Sudapet, Sinopec and Al- Thani are shareholders, signed contracts for the development of Melut Basin in Blocks 3 & 7, Sudan.

62 MAIN EVENTS 22 AUGUST 31 AUGUST August PETRONAS, through its subsidiary Asean LNG Trading Co Ltd, signed a Gas Sales Agreement with British Gas Trading Ltd, a subsidiary of Centrica plc of the United Kingdom, to supply up to 3.0 billion cubic meters a year of natural gas for 15 years beginning August PETRONAS Carigali drilled Malaysia s longest development well, the Angsi A-28ST-1, reaching a total depth of 6,339 meters just 44 days after it was spudded on 29 June. 18 August The PETRONAS Visualisation Centre, a state-of-the-art facility equipped with the latest 3-D immersive visualisation technology and the first of its kind to be set up and owned by a national oil company in Southeast Asia, was officially launched. 22 August Malaysian Prime Minister, Datuk Seri Abdullah Hj Ahmad Badawi officially opened Universiti Teknologi PETRONAS. The ceremony was held in conjunction with the university s fourth convocation, which also saw the graduation of the first batch of international students. 31 August PETRONAS mobile library was launched and introduced to primary schoolchildren around Khartoum, to encourage good reading habits among them and to provide them an avenue to pursue and acquire information and knowledge.

63 2 NOVEMBER 24 NOVEMBER 61 MAIN EVENTS 30 September PETRONAS and Petroleum Authority of Thailand (PTT), signed a PSC for Block B with the Malaysia- Thailand Joint Authority. PETRONAS and PTT will each hold 50% of the participation interest in the PSC. 2 November PETRONAS signed definitive agreements with South Africa s listed energy and chemical company, Sasol Limited, Worldwide African Investment Holdings (Pty) Limited and a Sasol black economic empowerment entity, Tshwarisano LFB Investment (Pty) Limited to combine Sasol s Liquid Fuels Business and Engen Limited and its subsidiaries in a new liquid fuels joint venture, Uhambo Oil Limited, creating South Africa s largest liquid fuel business. 24 November Malaysia LNG Tiga Sdn Bhd, a subsidiary of PETRONAS, signed an agreement with Korea Gas Corporation (KOGAS) to supply up to 2.82 million tonnes of LNG to KOGAS commencing from October 2004 to April 2008.

64 MAIN EVENTS FEBRUARY 20 JANUARY December PETRONAS added another new block into its upstream business portfolio in Indonesia with its award of a PSC for the North East Madura Offshore Block IV by BPMIGAS. 24 December PETRONAS signed a Sales & Purchase agreement to acquire Kuwait Petroleum (Thailand) Ltd (KPTL) from Kuwait Petroleum International Ltd whereby PETRONAS will take over KPTL s 117 operational petrol stations located in major cities in Thailand, as well as KPTL s lubricant sales business conducted via the service stations and through dealerships and direct customers. 7 January The decommissioned Baram 8 structure which was converted into an artificial reef, Malaysia s first rig-toreef project led by PETRONAS, was officially handed over to the Fisheries Department of Sarawak. 10 January PETRONAS, together with the Philippines National Oil Company was awarded a service Contract by the Philippines Government to explore for oil and gas in the offshore Mindoro block in the Philippines. 20 January ASEAN Bintulu Fertilizer Sdn Bhd, a subsidiary of PETRONAS, signed a Shareholders Agreement with Namhae Chemical Corporation of Korea to set up a joint venture melamine production facility in Bintulu, Sarawak. 20 January PETRONAS officially introduced its range of premium grade automotive engine oils under the brand name SYNTIUM in Switzerland and Liechtenstein.

65 1 MARCH 12 MARCH 63 MAIN EVENTS 16 February PETRONAS awarded two PSCs to Shell and PETRONAS Carigali for the ultra-deepwater Blocks ND6 and ND7 off the east coast of Sabah. 1 March PETRONAS extended its sponsorship agreement with the Malaysian Basketball Association for another five years to develop and promote basketball into a national game under the Rakan Sukan scheme, a partnership which began in March PETRONAS signed a PSC with PETRONAS Carigali and ConocoPhillips for the Kebabangan Oil Field offshore Sabah. 7 March Asean LNG Trading Company Ltd (ALTCO) took delivery of its first liquefied natural gas (LNG) cargo from the Damietta LNG Complex in Egypt. The feed gas to the LNG plant is supplied by the West Delta Deep Marine Concession Area in which PETRONAS has a 50% working interest. 12 March PETRONAS commemorated its 10 years of involvement in Formula 1, reflecting on a decade marked with significant value-adding developments and achievements resulting from its participation in the prestigious motor sport. 24 March PETRONAS sponsored the Responsible Care Awards 2005 organised by the Chemical Industries Council of Malaysia reinforcing its commitment towards continuous improvement in all aspects of health, safety and environment protection.

66 PETRONAS most important legacy is its investment in the generations to come.

67 INVESTING IN THE FUTURE