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08 January 2017

Malaysia and OPEC

What is OPEC?

OPEC stands for the Organization of Petroleum Exporting Countries. It is an intergovernmental organization, created in 1960 at the behest of Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. These five countries are commonly called the Founding Countries of OPEC.

If you stare hard enough at the OPEC logo, you might see four barrels of oil.

Other countries which are members of OPEC include:

  1. Qatar (joined 1961), 
  2. Indonesia (joined 1962), 
  3. Libya (joined 1962), 
  4. the United Arab Emirates (joined 1967), 
  5. Algeria (joined 1969), 
  6. Nigeria (joined 1971), 
  7. Ecuador (joined 1973), 
  8. Gabon (joined 1975) and 
  9. Angola (joined 2007).

02 September 2016

Upstream, Midstream, Downstream.

What are the differences?

In the oil and gas industry, there are various sectors which may be conveniently be described as upstream, midstream, and downstream. 

"Upstream" refers to the exploration and production of oil.

"Midstream" refers to the transporting, processing, and storing of oil.

"Downstream" refers to the manufacturing, refining, petro-chemicals, marketing, and retailing of oil.

This is how the upstream river looks like.

10 August 2016

How to survive a lay-off in the oil and gas industry.

Oil prices are down.

It's no secret. Oil prices are down and today's newspaper featured experts who estimated that USD40 to USD50 per barrel will be the new "normal" for the next five to six years. The days of multi-month bonuses are gone. The days of oil and gas being the lucrative sector are a distant memory. 

The oil companies are now facing the reality of cheap oil: Hurrah say the developing nations! Hurrah say the advanced nations! And in the quiet corner of the room, the oil-producing countries shed their tears quietly.

If you feel bad about being laid off, don't. It wasn't your fault. At least, if you were laid off along with a few hundred other folks. If you were laid off by yourself then it's probably you.

10 July 2016

RM40 billion oil revenue loss this year

Malaysian Prime Minister Najib Tun Razak shared a moment with US President Barack Obama. He was in Southern California for a working visit. Source: The Star

The Prime Minister's Speech

Sometime in February this year, the Malaysian Prime Minister, Dato Seri Najib Tun Razak, stood before a crowd of Malaysian students in Southern California. He was there for a six day working visit, to meet 16 fund managers from 11 US firms in San Francisco.

The Prime Minister was quoted in New Straits Times as saying:
If you look at the oil price today and what it was one year ago, it means we would lose RM40 billion. Can you imagine, without GST, what kind of adverse impact it would have on not only the economy, but also the people’s welfare?

It was his way of addressing the recalibration of the Malaysian 2016 Budget, in response to a projected revenue loss due to the dropping price of oil per barrel. It is not clear whether it also took into consideration the drop of the Ringgit.

Where did the RM40 billion figure come from?

Analysts had compared the price of oil (in February 2016) with the price of oil a year before. In 2014 (yes, more than a year before?) the average price of oil was USD100 (RM415) per barrel. The 2016 Budget was drafted with the assumption that the price of oil would be about USD48 per barrel. It worked out to about RM30 billion in revenue losses. The government's revision of its assumed oil prices to USD35 per barrel meant a further drop of RM9 billion.

All of this is projected, of course. But why include the GST in the report? I guess, in touching on the Budget, the PM could not avoid touching on the GST.

Datuk Chua Tee Yong was the Deputy Finance Minister of Malaysia in April 2016. Source: The Star (see link below)

But the GST is not to offset oil revenue loss!

On 1st April 2016, the Star reported that the Deputy Finance Minister had said that the GST is merely a taxation system to replace the existing tax system. In short, it is a type of "upgrading" of the existing tax system. It was never meant to offset the loss in oil revenue.

Here is an excerpt from the said report (link below):
“GST is a tax system to replace the former Sales and Services Tax (SST),” Chua told The Star in an interview.

Attempting to clear the misconception, he said the RM39mil tax revenue collected from GST could not cover the drop in revenue due to plunging oil prices.

“In 2014, when crude oil price was at US$100 per barrel, the revenue from Petronas, crude oil tax and royalties was RM66bil.

“But in 2016, the expected revenue from crude oil is between RM20bil and RM30bil. If we take the ceiling of RM30bil, that is a minimum loss of RM36bil,” Chua said.

As the additional revenue in the change from SST to GST was ­expected to be only RM22bil this year (RM39bil – RM17bil), it was not enough to cushion the revenue loss from the drop in crude oil prices, he said.

He pointed out that as such, the Government saw the need to recalibrate Budget 2016.
Datuk Chua was then the Deputy Finance Minister, but his portfolio has been reassigned to the Ministry of International Trade and Industry. The guy has an MBA and a background in finance. I guess he must have approached it from the numbers perspective.

What he said makes sense (in its own context). But we won't really know the numbers until the end of the year.

Soft landing bags help to cushion a fall, and may save a life. Source: THXUK.

Even So, GST Does Help Cushion Fall of Oil Revenue

Towards the end of 2015, there was an Economic Report issued that discussed the merits of the GST. Among its benefits was the fact that it "reduced reliance on oil-related revenue and cushions the impact of lower crude oil prices." (Source: Daily Express. See link below.) Here is an excerpt:
It said the introduction of GST was an important tax reform as it was a fair and efficient tax system, and broadened the tax base, and added that the GST was implemented with minimal disruption due to close cooperation between the government and businesses, as well as wider public acceptance.


  1. New Straits Times, 15th February 2016. 'RM40b in oil revenue loss in 2016'
  2. The Star, 1st April 2016. Chua: GST not to offset loss in oil revenue
  3. Daily Express, 24th October 2015. GST cut reliance on oil revenue

06 July 2016

The Origin of the Burning Platform Metaphor

The Piper Alpha Incident

167 lives were lost in the Piper Alpha Incident

On 6th July 1988, 167 lives were lost in the Piper Alpha disaster. From Wikipedia:
Piper Alpha was a North Sea oil production platform operated by Occidental Petroleum (Caledonia) Ltd. The platform began production in 1976, first as an oil-only platform and later converted to add gas production. An explosion, and the resulting oil and gas fires, destroyed it on 6 July 1988, killing 167, including two crewmen of a rescue vessel; 61 survived. The total insured loss was about £1.7 billion (US$3.4 billion). At the time of the disaster, the platform accounted for approximately ten percent of North Sea oil and gas production, and the accident was the worst offshore oil disaster in terms of lives lost and industry impact.
The Kirk of St Nicholas in Union Street, Aberdeen has dedicated a chapel in memory of those who perished and there is a memorial sculpture in the Rose Garden of Hazlehead Park in Aberdeen. Thirty bodies were never recovered.
A number of Scottish people tweeted about it. Here are some:

From Daryl Conner, the author of Managing at the Speed of Change:
At nine-thirty on a July evening in 1988, a disastrous explosion and fire occurred on the Piper Alpha oil-drilling platform in the North Sea off the coast of Scotland. One hundred and sixty-six crew members and two rescuers lost their lives in what was (and still is) the worst catastrophe in the fifty-year history of North Sea oil exportation. One of the sixty-three crew members who survived was Andy Mochan, a superintendent on the rig. 

From the hospital, he told of being awakened by the explosion and alarms. Badly injured, he escaped from his quarters to the platform edge. Beneath him, oil had surfaced and ignited. Twisted steel and other debris littered the surface of the water. Because of the water’s temperature, he knew that he could live a maximum of only twenty minutes if not rescued. Despite all that, Andy jumped fifteen stories from the platform to the water.

When asked why he took that potentially fatal leap, he did not hesitate. He said, “It was either jump or fry.” He chose possible death over certain death. Andy jumped because he felt he had no choice—the price of staying on the platform was too high. (Source: Conner Partners blog, The Real Story of the Burning Platform.)

Mr Cleland's Speech

From the Internet, I found a speech by a guy called Gavin Cleland. His son had been killed in the disaster. Mr Cleland said in his speech,
I have spent the last 15 years of my life fighting against a brick wall, that is the Scottish Criminal Justice System. The British State. Despite one of the worst disasters in British history and the death of 167 men, the company that owned Piper Alpha - Occidental Petroleum (Caledonia) Ltd and its senior directors have not been brought to justice and prosecuted for any offences relating to the death of the workers. The failure to bring those who are responsible to account is nothing more than a national scandal and a damning indictment of the criminal justice system. (See link below)
Mr Cleland's speech described the explosion in terms which are much simpler than the Wikipedia article. Here is the relevant extract (quoted without permission -- my apologies).
I found out that a small explosion had occurred shortly before the first big explosion, which happened at about 10pm. The disaster began with a routine maintenance procedure. A pump in the processing area needed to have its pressure safety valve checked every 18 months. It was due for a check. The valve was removed for maintenance, leaving the pipe open. The worker who had taken the valve off the pipe, had replaced it with a blank flange and secured it to the pipe opening. That was stated at the public inquiry by this workers supervisor. Because the workers could not get all the equipment they needed by 6 p.m., they asked for and received permission to leave the rest of the work until the next day.
But later in the evening during the next work shift, a little before 10 p.m., the primary condensate pump failed. The people in the control room, who were in charge of operating the platform, decided to start the backup pump, not knowing that it was under maintenance. Gas products escaped from the hole left by the valve, which ignited and exploded. The firewalls were not explosion proof. The force of the explosion blew down the firewall separating different parts of the processing facility. Heavy oil equipment was damaged and before long large quantities of stored oil was burning out of control.
The automatic deluge system, which was designed to spray water on such a fire in order to contain it or put it out, was never activated because it had been turned off. The water out lets had been blocked off for over 2 years.
About twenty minutes after the initial explosion, the heat from the fire ruptured the gas line, resulting in a catastrophic gas explosion. The jet of fuel dramatically increased the size of the fire from a billowing fireball to a towering inferno. At the fire’s peak, the flames reached three hundred to four hundred feet in the air and could be felt from over a mile away and seen from eighty-five.
The crew began to congregate in the living accommodation area, the part of the platform that was the farthest from the blaze and seemed the least dangerous, awaiting helicopters to take them to safety. There was no sign of a rescue helicopter for 1 hour and 35 minutes. The first helicopter was an RAF rescue helicopter. At no stage was there a systematic attempt to lead men to escape from the accommodation area.
Those who tried to find a means of escape found that smoke and flames blocked all routes to the lifeboats. Many therefore headed back towards the accommodation area. There they were mostly protected from the heat and flame for a while, but not the choking smoke. Men began to lie on the ground with wet rags over their mouths and faces. Some of them realised that they might die. Eventually like the other platforms on the Piper Alpha the accommodation platform slowly collapsed and slipped into the sea.
There were 229 men on the platform at the time. 62 were on night shift duty while the remainder were in the accommodation. It is difficult to imagine what it must have been like for these men. Some people realized that the only way to safety was to jump into the sea. Men ran to the railing, only to see a daunting drop of over a 150 feet to the surface of the water, lit by the patches of flaming oil floating around the platform. Those who jumped had to alternate between staying underwater and freezing in the North Sea and keeping their heads in the air to cook. Those who stayed behind died of carbon monoxide poisoning and some also died of burns.
Stories from survivors illustrate how horrible the situation was. One man had just come to the platform that day and had no idea where he was or how to get around. All he could see was that he was on a walkway high up in a cloud of smoke. He made the decision that it would be better to die from jumping and hitting the deck than from burning alive. He jumped, fell into the ocean, and was one of the lucky ones who survived. Another man – who survived - was heard to call out a repeated request for anyone who worked for the same company as he did. When asked afterwards why he would do such a thing in such a situation, he replied, "I didn’t want to die alone."
62 persons survived and 167 were killed.

Other Write Ups

The Offshore Post (link below) has a detailed timeline of the incidents in the Piper Alpha disaster.

The Guardian (link below) also wrote up about it. Here is a quote:
The controversy around it was heightened when a report into the disaster by Lord Cullen judged that the operator Occidental Petroleum had used inadequate maintenance and safety procedures. He made more than 100 recommendations about how safety should be improved in the North Sea.
Along with other oil companies, Occidental had massively scaled back spending as the price of oil had plunged from more than $30 per barrel to $8 in the 1980s compared to today's level of more than $100.
Rather sad, is the story of how 18 year old Shane Gorman lost his father, who was working on the rig on that day. His father Dave Gorman was a health and safety officer who died keeping the door open, so that others could escape to safety. (Energy Voice, link below.)

And here is a video on the disaster.

And here is another.

The Burning Platform Today

Today, the "burning platform" is used as a metaphor in change management. As Daryl Conner has explained, the Piper Alpha survivors who jumped "chose possible death over certain death". Those who stayed on the platform were certain to die. Those who jumped from 15 storeys high could hit the platform and die, but it was possible that they would survive.

When companies feel threatened by the changing circumstances around them, they know that they have no choice but to change. The "burning platform" metaphor is a convenient way for them to understand that they have no choice but to leap off the platform, or die. 

Today, the burning platform metaphor is widely accepted and used in sparking change management initiatives. But we should always remember the context from which it was derived. We owe ourselves a duty to remember the Piper Alpha disaster so that they appreciate the metaphor in full. It's not just some management consulting stuff.