annual report 2011 petr on as

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2011Annual Report


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Our Business

Exploraon,Development and

Producon

LiquefaconProcessing

Processed Gas/

PGU System

PetrochemicalPlant

PetrochemicalProducts

Liqueed NaturalGas (LNG)

Liqueed PetroleumGas (LPG)

Rening

PetroleumProducts

CrudeOil

NaturalGas

ExportSectorResidentialand

CommercialSectors

PowerSector

IndustrialSector

IndustrialSector-

Ethylene,Methanol,

MTBE,Polyethylene,

Propylene,UreaandVCM

TransportationSector-

Diesel,Gasoline,JetFuel

andLubricants

Non-exhaustve


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PETRONAS Annual Report 2011 3

Arica AlgeriaDevelopmentCameroonExploration&DevelopmentChad Development & Production

EgyptExploration,Development&ProductionMauritania Exploration & Production

MozambiqueExplorationSudan Exploration, Development & Production

Asia Pacic AustraliaExplorationBruneiExplorationIndonesia Exploration, Development & Production

Malaysia Exploration,Development&ProductionMalaysia-Thailand Joint Development Area Exploration, Development & Production

MyanmarExploration,Development&ProductionVietnam Exploration, Development & Production

Central Asia TurkmenistanExploration,Development&ProductionUzbekistan Exploration, Development & Production

Latin America CubaExplorationVenezuela Development

Middle East IraqDevelopmentOman Exploration

North America Greenland Exploration

Exploration & Production (E&P)

Arica BotswanaOilBusinessBurundiOilBusinessCameroonOilBusinessChad Oil Business

Democratic Republic o the CongoOilBusinessGabonOilBusinessGhanaOilBusinessGuinea Bissau Oil Business

KenyaOilBusinessMalawiOilBusinessMauritiusOilBusinessMozambique Oil Business

NamibiaOilBusinessRunionOilBusinessRwandaOilBusinessSouth AricaOilBusinessSudan Oil Business

TanzaniaOilBusinessUgandaOilBusinessZambiaOilBusinessZimbabwe Oil Business

Asia Pacic ChinaOil&PetrochemicalBusinessesIndiaOil&PetrochemicalBusinessesIndonesia Oil & Petrochemical Businesses

JapanOil&PetrochemicalBusinessesMalaysiaOil&PetrochemicalBusinessesPhilippines Oil & Petrochemical Businesses

ThailandOil&PetrochemicalBusinessesVietnam Oil & Petrochemical Businesses

Europe AustriaOilBusinessBelgiumOilBusinessDenmarkOilBusinessFranceOilBusinessGermany Oil Business

ItalyOilBusinessNetherlandsOilBusinessPolandOilBusinessPortugalOilBusinessSpain Oil Business

TurkeyOilBusinessUnited Kingdom Oil Business

Latin America ArgentinaOilBusinessBrazil Oil Business

Middle East United Arab Emirates Oil & Petrochemical Businesses

North America United States o America Oil Business

Downstream*

Arica Egypt LNG

Asia Pacic AustraliaLNG&InfrastructureIndonesiaInfrastructureMalaysia LNG, Inrastructure, Utilities & Power

Thailand Inrastructure

Europe IrelandInfrastructureUnited Kingdom Inrastructure, Utilities & Trading

Latin America Argentina Inrastructure

Gas & Power

Our Presence

*Includes Engen subsidiaries and marketing and trading ofces.

2011 PETROLIAM NASIONAL BERHAD (PETRONAS)All rights reserved. No part o this document may be reproduced, stored in a retrieval sys tem or transmitted in any orm or by any means (electronic, mechanical, photocopying, recording ootherwise) without the permission o the copyright owner. PETRONAS makes no representation or warranty, whether expressed or implied, as to the accuracy or completeness o the actspresented. PETRONAS disclaims responsibility rom any liability arising out o reliance on the contents o this publication.

E&P

Gas & Power

Downstream


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4 PETRONAS Annual Report 2011

30 Financial Results

38 Exploration & Production Business

46 Gas & Power Business

52 Downstream Business

60 Maritime & Logistics Business

62 Our People

64 Technology & Engineering

68 Health, Saety & Environment (HSE)

72 Awards & Recognitions

78 Corporate Social Responsibility

82 Main Events

90 Glossary

Our Business

3 Our Presence

5 Corporate Statements

6 Corporate Prole

10 Corporate Enhancement Programme- A Year On

14 Board o Directors

16 Board Committees

18 Executive Committee

19 Management Committee

20 President & CEO and Acting ChairmansMessage

26 Statement o Corporate Governance

27 Statement o Anti-Corruption

28 Statement on Internal Control

Table o Contents


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Corporate

Statements

VISION

To be a Leading Oil and Gas Multinational o Choice

MISSION

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 o the people and the nation

SHARED VALUES

Loyalty

Loyal to nation and corporation

Integrity

Honest and upright

Proessionalism

Committed, innovative and proactive and always striving or excellence

Cohesiveness

United in purpose and ellowship


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PETRONASat a GlancePETRONAS, the acronym or Petroliam

Nasional Berhad, was incorporated on 17

August 1974 under the Companies Act,

1965. It is wholly-owned by the Malaysian

Government and is vested with the entireownership and control o the petroleum

resources in Malaysia through the Petroleum

Development Act, 1974. Over the years,

PETRONAS has grown to become a ully

integrated oil and gas corporation and is

ranked among the FORTUNE Global 500

largest corporations in the world.

Exploration& ProductionBusiness

As custodian o Malays ias oil and gas

resources, PETRONAS is entrusted with

the responsibility to develop and add value

to the nations hydrocarbon resources. In

the early years, PETRONAS ocused its

eorts on managing the production sharing

contractors who were exploring Malaysianacreages, but PETRONAS soon saw the

need to take on a bigger and more proactive

role in augmenting the nations oil and gas

reserves. PETRONAS has also reintensied

eorts to strengthen Malaysias upstream

industry through the enhancement o scal

terms and the introduction o new petroleum

solutions, leveraging on the Governments

new tax incentives.

Through its Exploration & Production (E&P

subsidiary, PETRONAS Carigali Sdn Bhd

(PETRONAS Carigali), PETRONAS has

developed capability as a hands-on operato

with a track record o successul oil and

gas developments. PETRONAS Cariga

works alongside a number o petroleum

multinational corporations through Production

Sharing Contracts (PSCs) to explore, develop

and produce oil and gas in Malaysia. AbroadPETRONAS continues to strengthen its

position by securing new acreages while

undertaking various development projects.

The Pe tr ol eu m Ma na ge me nt Un it o

PETRONAS acts as resource owner and

manager o Malaysias domestic oil and gas

assets. It manages the optimal exploitation

o hydrocarbon resources and enhances

the prospectivity o domestic acreages to

attract investment and protect the nationa

interest. One o the key drivers o its businessgrowth is deepwater E&P, with many positive

prospects emerging in Malaysian acreages

PETRONAS continues to harness and

develop new technologies to maximise

opportunities and urther strengthen its

capabilities as part o its ongoing eorts to

become a leading global E&P player.

Corporate Prole


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Gas & PowerBusinessPETRONAS Gas & Power Business aspires

to be a leading integrated gas, liqueied

natural gas (LNG) and power player. To

create greater ocus in these core areas ogrowth, the business has been restructured

and streamlined into two major portolios;

Global LNG business and Inrastructure,

Utilities & Power business.

Global LNG

PETRONAS global LNG business comprises

the production and sale o LNG through its

domestic operations in Bintulu, Sarawak

(PETRONAS LNG Complex) and overseas

operations in Egypt (Egyptian LNG).

PETRONAS operates one o the worlds

largest LNG acilities in Bintulu, Sarawak,

which consists o three plants, MLNG, MLNG

Dua and MLNG Tiga, with a combined

capacity o 24 million tonnes per annum.

PETRONAS is also involved in LNG and

energy trading activities through its marketing

arms in Malaysia and Europe (PETRONAS

LNG Ltd and PETRONAS Energy Trading

Ltd).

operates the Peninsular Gas Utilisation (PGU

system, comprising six processing plants

and approximately 2,505 km o pipelines

to process and transmit gas to end-users

in the power, industrial and commercia

sectors in Peninsular Malaysia. PETRONAS

also exports gas or power generation to

Singapore.

The PGU system is the principal catalyst o

the development o Peninsular Malaysias

oshore gas ields, the use o natura

gas products or power generation and

utilities, and the expansion o Malaysias

petrochemical industry through the use o

gas derivative products, such as ethane

propane, butane and condensates.

PGB is also developing Malaysias irs

LNG Regasiication Terminal in Melakawhich is due or completion in July 2012

This will acil itate the importation o LNG

by PETRONAS and third parties towards

ensuring security o gas supply or the nation

in the uture.

Globally, PETRONAS has investments in

pipeline operations in Argentina, Australia

Indonesia and Thailand, as well as gas

storage and LNG regasication acilities in

Europe.

PETRONAS is also committed to urthe

grow in the power and renewable energy

business, leveraging on existing capabilities

and venturing into opportunities in key

ocus markets in Asia and the Middle East

Entry into the power business will suppor

PETRONAS vision to be an integrated energy

company.

At present, PETRONAS commands a sizeable

LNG market share in the Far East. Over the

years, PETRONAS has sustained its market

position and preserved its reputation as a

reliable supplier o LNG, having sold more

than 7,000 cargoes since the establishment

o its rst LNG plant in 1983.

As a global LNG player , PETRONAS is

determined to deend its signicant traditional

Far East market and seize opportunities on

the growing spot market, while continuing

to grow its LNG presence in the Atlantic

basin.

PETRONAS is also establishing its oothold

in European energy trading, which includes

electricity and carbon trading.

Inrastructure, Utilities &Power

PETRONAS Inrastructure, Utilities & Power

business ocuses its eorts towards ensuringlong term security and sustainability o the gas

market in Malaysia and expanding its portolio

o inrastructure and power positions in high

growth markets. The business is leveraging

on its widely respected operational excellence

and sustainable energy developments.

PETRONAS, through its majority-owned

subsidiary, PETRONAS Gas Berhad (PGB),


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DownstreamBusinessPETRONAS Downstream Business plays

a strategic role in adding urther value to

petroleum resources through its integrated

operations in rening & trading, marketing,

and petrochemicals.

Refning & Trading

PETRONAS owns and operates three

reineries in Malaysia, two in Melaka

(collectively known as the Melaka Renery

Complex) and another in Kertih (the KertihReinery). The irst reinery in Melaka is

100% owned by PETRONAS while the

second renery is 53% owned by the Group.

PETRONAS also operates a Group III base

oil rening (MG3) plant in the Melaka Renery

Complex.

PETRONAS also has an oil rening presence

in Arica through its 80% owned subsidiary,

Engen Petroleum Limited (Engen), a leading

South Arican rening and marketing company

that owns and operates a renery in Durban,South Arica.

To carry out trading activities in crude oil and

petroleum products in the Malaysian and

international markets (including Asia, Arica

and the Indian subcontinent), PETRONAS

ormed a whol ly-owned subsidiary,

PETRONAS Trading Corporation Sdn Bhd

(PETCO). PETCO also trades in crude oil and

petroleum products produced by aliates

and third parties, and has trading operations

in Dubai and London via its wholly-owned

subsidiaries PETCO Trading DMCC and

PETCO Trading UK Limited, respectively.

Downstream Marketing

PETRONAS is engaged in domest ic

marketing and retailing activities through

PETRONAS Dagangan Berhad (PDB), a

majority-owned subsidiary, which markets a

wide range o petroleum products, including

gasoline, Liqueed Petroleum Gas (LPG), jet

uel, kerosene, diesel, uel oil, asphalt and

lubricants. Natural Gas or Vehicles (NGV)

is marketed through PDBs wholly-ownedsubsidiary PETRONAS NGV Sdn Bhd. PDB

also has interest in Malaysias Multi-Product

Pipeline and the Klang Valley Distribution

Terminal that transports gasoline, jet uel

and diesel oil rom the reneries to major

demand centres in the Klang Valley. Besides

marketing activities, PDB also jointly operates

a jet uel storage acility and hydrant line

system at the Kuala Lumpur International

Airport.

PETRONAS has also established itsdownstream marketing presence in key Asian

markets. PT PETRONAS Niaga Indonesia,

a wholly-owned subsidiary, operates retail

stations as well as markets petroleum

products to industrial and commercial

customers, and manages a network o

local lubricant distributors in Indonesia. In

Thailand similar activ ities are undertaken

by PETRONAS Retail (Thailand) Co Ltd

that also supplies jet uel to the Don Muang

International Airport and the Suvarnabhum

International Airport, Bangkok. In China and

India, the Groups lubricant products are

sold through PETRONAS wholly-owned

subsidiary, PETRONAS Marketing China

Company Ltd and PETRONAS Marketing

India Private Ltd (PMIPL), respectively. PMIPL

also has exclusive supply arrangements and

collaborations with major Original Equipmen

Manuacturer (OEM) partners and ca

manuacturers.

In Arica, PETRONAS subsidiary Engen has

the largest retail network o service stations in

South Arica as well as a strong retail presence

in the Sub-Saharan region in countries

including Botswana, Burundi, Kenya, Lesotho

Malawi, Mauritius, Mozambique, Namibia

Runion, Swaziland, Tanzania, Zambia

and Zimbabwe. In the Sudan, PETRONAS

Marketing Sudan Limited (PMSL), a wholly

owned subsidiary is engaged in the marketing

and retailing o petroleum products and

lubricants, as well as owns and operatesretail stations. PMSL also provides into-plane

service at the Khartoum International Airpor

and El-Obeid International Airport, which

is the main base or the UN World Food

Programmes operations in the Sudan. PMSL

also supplies uel to the UN-Arican Union

Mission peacekeeping orce in Darur and

operates reueling stations and depots.

With a presence in more than 20 countries

wor ldwide, PETRONAS Lubr icants

International Sdn Bhd (PLISB) is the lubricantsarm o PETRONAS. PLISB has established a

manuacturing base and distribution channe

to sell its products in the European market by

virtue o acquiring the FL Selenia Group, (re

named PL Italy Group) and oers lubricants

transmission, anti-reeze and unctional fuids

or automobiles, trucks, agricultural tractors

and earth moving machinery as well as o

other industrial equipment to the market


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Leveraging on PL Italy Groups strong OEM

relationships and world-class research and

development capabilities, PLISB currently has

a long-term supply, technical, collaborative

and commercial agreement or the exclusive

right to supply lubricants to Fiat Italy via PL

Italy Group.

Also in the lubricants marketing sector,

PETRONAS Base Oil (M) Sdn Bhd, a wholly-

owned subsidiary o PETRONAS, undertakes

the marketing o MG3 base oil in Malaysia and

the Asia Pacic region whereas marketing in

Europe is handled by PETRONAS Marketing

Netherlands BV. PETRONAS markets its base

oil products under the brand ETRO.

Apart rom eight LPG bottling plants in

Malaysia, PETRONAS also has LPG acilities

in selected Asian countries namely in India,

the Philippines and Vietnam, either through a

joint venture or wholly-owned subsidiary.

PETRONAS Aviation Sdn Bhd, a wholly-

owned subsidiary o PETRONAS, marketsPETRONAS aviation uel in the global

market, including to Malaysia Airlines, as well

as to Shell, Ceylon Petroleum Corporation

and Repsol YPF or locations in Buenos Aires,

Colombo and Hong Kong.

Petrochemicals

PETRONAS rst ventured into the production

o basic petrochemical products in the mid-

1980s and later embarked on several large

scale petrochemical projects with multinational

joint venture partners. PETRONAS joint

venture partners have included The Dow

Chemical Company, BASF Netherlands

BV, BP Chemicals, Idemitsu Petrochemical

Co Ltd, Mitsubishi Corporation, and Sasol

Polymers International Investments (Pty)

Ltd.

With a view to strengthening integration and

improving economies o scale, PETRONAS

recently consolidated its petrochemical

business under the PETRONAS Chemicals

Group Berhad (PCG). The leading integrated

petrochemical producer in Malaysia and oneo the largest in South East Asia, PCG is the

listed holding entity or all o PETRONAS

petrochemical production, marketing and

trading subsidiaries and has a total combined

production capacity o over 11 million tonnes

per annum.

The petrochemical business which has been

consolidated under PCG, through joint

ventures with multinational petrochemical

companies, developed two Integrated

Petrochemical Complexes (IPCs) at Kertihand Gebeng, along the eastern corridor o

Peninsular Malaysia. The concept underlying

the development o these IPCs is to achieve

a competitive edge through the integration

o petrochemical projects using common

or related eedstock and common acilities

within a sel-contained complex.

PETRONAS Kertih IPC consists principally o

ethylene-based petrochemical projects, which

include two ethylene crackers, a polyethylene

plant, an ethylene oxide/ethylene glycol plant,a multi-unit derivatives plant, vinyl chloride

monomer (VCM) and polyvinyl chloride (PVC)

plants, ammonia/synthesis gas plants, an

acetic acid plant, an aromatics complex

and a low-density polyethylene plant. The

petrochemical projects are ully integrated

with the surrounding inrastructure acilities

and other process plants in Kertih, including

PGBs six gas processing plants and the

Kertih Reinery, all o which are located

within the IPC. A joint venture comprising

PETRONAS (40%), Dialog Equity Group Sdn

Bhd (30%) and Vopak Terminals Penjuru

(Jurong) Pte Ltd (30%) owns and operates

the storage and distribution terminal, which

has a throughput o approximately 2.7 million

tonnes per annum. The Kertih marine acilities

include six berths that can accommodate

chemical tankers up to 40,000 dead-weigh

metric tonnes.

The Gebeng IPC comprises main ly o

propylene-based petrochemical projects

The anchor project at the Gebeng lPC is a

joint venture between PETRONAS and BASF

which owns and operates an acrylic acid/

acrylic esters plant, an oxo-alcohols complex

and a butanediol plant. PETRONAS, through

PCG owns and operates an MTBE/propylene

plant, a propane dehydrogenation plant and a

polypropylene plant. The Gebeng IPC is also

host to a number o multinational chemica

companies, such as BP Chemicals, which

owns and operates a puried terephthalicacid plant, and Eastman Chemicals, which

owns and operates a copolyester plastic

resin plant.

Both the Kertih and Gebeng IPCs are a majo

step towards establishing Malaysia as a

regional petrochemical production hub.

The integrated development o Malaysias

petrochemical industry is expected to

promote the development o the countrys

industrial base, especially the plastics andchemical based component manuacturing

industry.


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As an oil and gas corporation, PETRONAS

continues to evolve and re-invent itsel,

changing the way it carries out its business

in order to match the challenging realities o

the world around it.

Todays world is characterised by greater

economic and social volatil ity, stier

competition or dwindling resources andgreater scrutiny o corporate conduct and

behaviour. Clearly, the changing milieu

presents a compelling case or PETRONAS

to initiate real and meaningul change.

Given the imperative to raise the perormance

bar or the organisation and elevate its

strategic and operational robustness to

international standards, PETRONAS in

early 2010 embarked on a Corporate

Enhancement Programme (CEP).

The CEP was implemented to transorm the

Groups structure and supporting elements,

to help drive PETRONAS through the

challenges or the next phase o growth. The

CEP was conceptualised to:

E n su r e g r ea te r O wn er s hi p &

Accountability

ElevateGovernance&Transparencyto

international standards

Focusresources toCoreBusiness

activities EstablishclearandvisibleSuccession

Planning & Leadership Development

Realising the direct link between behaviours

and structures that govern its actions

and motivations in the corporate setting,

PETRONAS management had set out to

introduce key structural changes rom the

very pinnacle o the organisation downwards

which include:

There-constitutionoftheBoardtoconsist

o independent industry proessionals

and eminent personalities, selected or

their experience and credibility to guide

PETRONAS through the next phase o

growth. TheestablishmentofBoardCommittees

including the Governance and Risk and

Remuneration Committees, in addition

to the existing Board Audit Committee

to elevate standards o corporate

governance.

ThecreationoftheExecutiveCommittee

(EXCO) as a guiding coalition allowing or

collective decision making, a leadership

bench and a platorm or clear succession

planning.

The r e fi n ement o f PETRONAS organisational structure aimed at aligning

our core businesses along its integrated

core activities.

PETRONAS has been able to elevate the

Groups levels o openness and transparency,

driven by other sel-imposed initiatives

including regular and consistent disclosure

o its nancial perormance, as well as timely

public announcements o its initiatives

and its uture plans and goals. This allows

stakeholders including the public-at-largeto assess the health o the Corporation and

take an inormed position in response to

its business perormance and pipeline o

ventures moving orward. At the same time,

the announcement o its perormance on a

quarterly basis allows the management and

sta o PETRONAS to track and measure its

business perormance and increase eorts

towards meeting or exceeding planned

targets.

Positive changes have occurred during the

last year resulting in more dynamic and

impactul decisions and initiatives. The

growth momentum has been intensiied

driven by strategic stewardship rom the

Board on PETRONAS direction, with

elevated standards o corporate governance

mindul o balancing returns with risks.

In its own capacity, the EXCO has successully

driven strategic execution expediently

integrating relevant portions o the PETRONAS

value chain to achieve optimal returns or the

Group. Stringent risk parameters govern

all decision making processes cascaded

throughout the organisation, rom the Board

The eectiveness o the newly established

EXCO structure, in achieving impactuintegrated solutions was acknowledged and

replicated by the Executive Vice Presidents

(EVPs) or their respective core businesses

The mirroring o unctions in driving strategic

growth and operational eciency is done in

an integrated manner.

The EXCO is at the oreront o the CEP, leading

by example and instituting wide-ranging

changes in their respective businesses, in

driving desired high perormance behaviou

to be eventually embedded in the DNA andculture o PETRONAS.

The renement o PETRONAS organisationa

structure to support its core businesses has

helped prioritise its allocation o capital, energy

and time on investments that will contribute

better to its growth. There is greater discipline

in controlling costs and stronger ocus on the

Corporate EnhancementProgramme A Year On


11/93


to reward the high perormers, develop those

with potential and ensure consequence

management where necessary. To support

the successul realisation o PETRONAS

hard and sot targets, a premium is placed

on greater ownership and accountability, that

brings with it a corresponding responsibility

to initiate decision making, so long as this

contributes positively towards the attainment

o PETRONAS key goals.

The all encompassing CEP includes dynamic

human resource management policies and

strategies, incorporating key improvements

to meet the changing needs o PETRONAS

globally diverse workorce. With a strong

emphasis on meritocracy, recognising

and rewarding perormance and rigorous

consequence management, PETRONAS is

reinvigorating its Human Resource practices

designed to retain critical proessionals and

attract experienced and capable talents to

inuse the Group with the industrys best, who

will bring with them value-adding knowledge

practices and new vitality.

Clearly, the CEP aims to strengthen

PETRONAS while providing nimbleness to

capitalise on opportunities and reinorce

its oundations to weather external shocks

in a ast-changing, volatile and oten

unpredictable industry environment. This

allows the Corporation to move decisively

in initiating key eorts in avour o business

growth and strengthen a culture o high

perormance and excellence among sta.

bottom line. Similarly, the new way o thinking

has guided PETRONAS to objectively divest

non-perorming ventures. All o this has made

PETRONAS operations better geared to

achieve hard business targets.

To reinorce the urgency or change and to

cascade this to the individual level, the Key

Perormance Indicators (KPIs) o PETRONAS

top management are cascaded down to the

KPIs o the individual sta. In this way, the

success o achieving the larger scorecard

targets will be the result o the cumulative

eort o each and every one within the

organisation.

As such, in dr iv ing accountabi li ty , the

perormance o each individual, at all levels, will

be subjected to a rigorous appraisal process

BOARD OF DIRECTORS

EVPEXPLORATION &

PRODUCTION

Dato Wee Yiaw Hin

VPCORPORATESTRATEGICPLANNING

Md Arif Mahmood

EVPGAS & POWER

Datuk Anuar Ahmad

EVPDOWNSTREAM

Datuk Wan ZulkifleeWan Ariffin

EVPFINANCE

Datuk Manharlal Ratilal

VPTECHNOLOGY &ENGINEERING

Dr Colin WongHee Huing

VPHUMAN RESOURCE

MANAGEMENT

JuniwatiRahmat Hussin

SGMGROUP CORPORATE

AFFAIRS

Mohammad MedanAbdullah

VPLEGAL

Dato Mohammed AzharOsman Khairuddin

PRESIDENT &CHIEF EXECUTIVE OFFICER

Dato Shamsul Azhar Abbas

EVP - Executive Vice President

VP - Vice President

SGM - Senior General Manager

*Executive Committee comprises the President & Chief Executive Officer and the four Executive Vice Presidents

PRESIDENT/CEOMISC BERHAD

Datuk NasarudinMd Idris

GROUP CEOKLCC (H) SB

Hashim Wahir

PETRONAS Corporate Structure


12/93


VP & CEO

PETRONAS

Exploration

Effendy Cheng Abdullah

EVP

Exploration &

Production

Dato Wee Yiaw Hin

VP & CEO

PETRONAS

Development & Production

Datuk Abdullah Karim

VP

Petroleum

Management

Ramlan A Malek

VP

Global LNG

Adnan Zainol Abidin

EVP

Gas & Power

Datuk Anuar Ahmad

VP

Infrastructure &

Utilities

Pramod KumarKarunakaran

Exploration & Production Business Leadership Team

Gas & Power Business Leadership Team


13/93


EVP

Downstream

Datuk Wan ZulkifleeWan Ariffin

VP

Downstream Marketing

Amir Hamzah Azizan

VP

Refining & Trading

M Farid Adnan

VP

Downstream Operations

Ir Kamarudin Zakaria

President/CEO

PCG

Dr Abd Hapiz Abdullah

EVP

Finance


VP

Treasury

Nuraini Ismail

SGM

Finance & AccountsServices

Rashidah Alias

VP

Supply Chain &Risk Management

M Rashid Yusof

Head

Tax

Bhupinder Singh

Downstream Business Leadership Team

Finance Division Leadership Team


14/93


Tan Sri Dr Wan Abdul Aziz Wan Abdullah

Independent Director

Tan Sri Dr Wan Abdul Aziz is a member o the PETRONAS Board and currently serves as the

Secretary-General o Treasury in the Ministry o Finance. He also sits on the Board o various

organisations including Malaysian Airline System Berhad, Bintulu Port Holdings Berhad, Bank

Negara Malaysia, Retirement Fund Incorporated and the Federal Land Development Authority

(FELDA).

02


Acting Chairman o the PETRONAS Board,

President & Chie Executive Ofcer

Dato Shamsul Azhar Abbas was appointed to the PETRONAS Board as Acting Chairman

and as President and Chie Executive Ocer o PETRONAS on 10 February 2010. He also

serves as Chairman o the Board o several o the Groups subsidiaries, including wholly-owned

exploration and production arm PETRONAS Carigali Sdn Bhd, South Arica-based petroleum

rening and marketing company Engen Petroleum Limited and public-listed MISC Berhad. Prior

to his current appointment, Dato Shamsul, who began his career with PETRONAS in 1975,

held various senior management positions within the Group.

01

Dato Muhammad Ibrahim


Dato Muhammad Ibrahim was appointed to the PETRONAS Board in April 2010. He is currently

the Deputy Governor o Bank Negara Malaysia. His areas o expertise include nance, banking,

supervision and regulation, strategic planning, insurance and nancial markets. He is a trustee o

the Tun Ismail Ali Chair Council, a ormer commissioner o the Securities Commission o Malaysia

and Senior Associate o the Institute o Bankers Malaysia. He sits on the Board o the Retirement

Fund Incorporated and is a member o the Malaysian Institute o Accountants.

03

Krishnan CK Menon, FCA

Independent Director,

Chairman o the PETRONAS

Board Audit Committee

Krishnan CK Menon was appointed to the PETRONAS Board in April 2010. He is a

Fellow o the Institute o Chartered Accountants in England and Wales, a member o

the Malaysian Institute o Accountants and the Malaysian Institute o Certied Public

Accountants. He is currently Chairman o Putrajaya Perdana Berhad, SCICOM (MSC)

Berhad, KLCC Property Holdings Berhad and KLCC (Holdings) Sdn Bhd. He is a

non-executive director o MISC Berhad and is also the Chairman o the Board Audit

Committee in MISC Berhad.

04

Tan Sri Dato Seri Hj Megat Najmuddin

Datuk Seri Dr Hj Megat Khas


Chairman o the PETRONAS

Governance & Risk Committee

Tan Sri Megat Najmuddin was appointed to the PETRONAS Board in April 2010. He

is currently the President o both the Federation o Public Listed Companies Berhad

(FPLC) and the Malaysian Institute o Corporate Governance (MICG). He currently

serves as the Non-Executive Chairman o several public listed companies and is active

in Non-Governmental Organisations (NGOs).

05

Datin Yap Siew Bee


Chairperson o the PETRONAS

Remuneration Committee

Datin Yap Siew Bee was appointed to the PETRONAS Board in April 2010. She is

currently Consultant to the rm o Mah-Kamariyah & Phillip Koh. She has advised as

legal counsel on signicant oil and petrochemical projects in Malaysia and has extensive

oil and gas advisory experience including negotiation o international oil and gas ventures

on behal o PETRONAS. Her areas o expertise include mergers and acquisitions,

corporate nance, corporate restructuring and commercial ventures.

06

Dato Mohamad Idris Mansor


Dato Mohamad Idris Mansor was appointed to the PETRONAS Board in April 2010.

He has extensive experience in the oil and gas industry, having held various senior

management positions within the Group including as Senior Vice President. He is a

Board member o PETRONAS Carigali Sdn Bhd. He was also the International Business

Advisor to PTT Exploration and Production Company o Thailand prior to his current

appointment.

07

01 02 03 04 05 06 07

Board o Directors


15/93


Dato Wee Yiaw Hin

Executive Director

Dato Wee Yiaw Hin was appointed to the PETRONAS Board in May 2010. He is a

member o the Executive Committee, Management Committee and serves on various

Boards o subsidiary companies in the PETRONAS Group. He is the Executive Vice

President o Exploration & Production Business. Previously, he worked in Talisman and

Shell where he held various senior management positions.

11

Datuk Anuar Ahmad

Executive Director

Datuk Anuar Ahmad is a member o the PETRONAS Board, Executive Committee and

Management Committee. He is the Executive Vice President o Gas & Power Business.

Prior to this appointment, he served as Vice President o Human Resource Management

Division and, earlier, as Vice President o Oil Business. He also sits on the Board o

several companies within the PETRONAS Group.

10

Datuk Mohd Omar Mustapha


Datuk Mohd Omar Mustapha was appointed to the PETRONAS Board in September

2009. He is the Founder and Chairman o Ethos & Company, a boutique Malaysian-based

management consulting rm and a General Partner o Ethos Capital, a leading regional

private equity und. He is a member o the Economic Council chaired by the Prime

Minister, an independent director o Symphony House Berhad and Air Asia Berhad, an

Eisenhower Fellow, a ounding member o the World Islamic Economic Forums Young

Leaders Roundtable and a YGL member o the World Economic Forum in Davos.

08

Datuk Wan Zulkifee Wan Arin

Executive Director

Datuk Wan Zulkifee Wan Arin is a member o the PETRONAS Board, the Executive

Committee, Management Committee and serves on various Boards o several Joint

Ventures and subsidiary companies in the PETRONAS Group. He is the Executive Vice

President o Downstream Business. He is the Chairman o two o PETRONAS public

listed subsidiaries namely PETRONAS Chemicals Group Berhad and PETRONAS

Dagangan Berhad. He is also a member o the Board o Directors o MISC Berhad and

is the Industry Advisor to the Engineering Faculty o Universiti Putra Malaysia.

09


Executive Director

Datuk Manharlal Ratilal is a member o the PETRONAS Board, Executive Committee

and Management Committee. He is the Executive Vice President o Finance. He also

sits on the Board o several subsidiaries o PETRONAS. His areas o expertise include

corporate nance, mergers and acquisitions, and the capital markets.

12

Dato Mohammed Azhar Osman Khairuddin

Company Secretary

Dato Mohammed Azhar Osman Khairuddin is the Company Secretary o PETRONAS

since 1 April 2000. He joined PETRONAS in 1979 as a Legal Ocer and currently holds

the position o Vice President, Legal. He is a member o the PETRONAS Management

Committee and serves on the Board o Directors o several companies within the

PETRONAS Group. He is also a member o the International Bar Association.

13

Faridah Haris HamidJoint Company Secretary

Faridah Haris Hamid is the Head o Legal Finance & Corporate Secretariat, Legal

Division. She spent 10 years in the banking sector beore joining PETRONAS in 1992.

She is the Joint Secretary to the PETRONAS Board o Directors and Secretary to the

Executive Committee o PETRONAS. Her areas o legal expertise include corporate

nance, capital markets and corporate governance.

14

08 09 10 11 12 13 14


16/93


Audit Committee


Chairman

Dato Mohamad Idris

Mansor

Tan Sri Dr Wan Abdul Aziz

Wan Abdullah

Dato Muhammad

Ibrahim

Board Committees


17/93



Tan Sri Dato Seri Hj Megat Najmuddin

Datuk Seri Dr Hj Megat Khas

Chairman

Dato Muhammad

Ibrahim



Datin Yap Siew Bee

Chairperson

Datuk Mohd Omar

Mustapha

Datuk Anuar Ahmad


18/93


Faridah Haris Hamid

Secretary



Datuk Wan Zulkifee Wan Arin

Executive Vice President

Downstream

Datuk Anuar Ahmad


Gas & Power



Finance

Dato Wee Yiaw Hin


Exploration & Production

Executive Committee


19/93


Management Committee

Datuk Wan Zulkifee

Wan Arin


Downstream

Dato Wee Yiaw Hin





Finance

Dr Colin Wong Hee Huing

Vice President

Technology & Engineering



Datuk Anuar Ahmad


Gas & Power

Ramlan Abdul Malek

Vice President

Petroleum Management

Datuk Nasarudin Md Idris

President/CEO

MISC Berhad

Md Ari Mahmood

Vice President

Corporate Strategic Planning

Juniwati Rahmat Hussin

Vice President

Human Resource Management

Dato Mohammed Azhar

Osman Khairuddin

Vice President

Legal

Mohammad Medan Abdullah

Senior General Manager

Group Corporate Aairs

Hazleena Hamzah

Secretary


20/93


President & CEO andActing Chairmans Message

In discharging its responsibilities as a

custodian to the people and the nation, the

PETRONAS Group o Companies delivered

a solid nancial and operational perormance

or the Financial Year Ended 31 March 2011that refects the enduring strength o its

proven strategy o integration, adding value

and globalisation, as well as the gains that

have accrued rom urther progress in the

Groupwide implementation o its Corporate

Enhancement Programme (CEP), rearming

once again PETRONAS ability to return

greater value to its stakeholders.



21/93


Group revenue or the year stood at

RM241.2 billion, an increase o 14.4% rom

last year achieved despite signicant

headwinds posed by the strengthening o

the Ringgit against the US dollar. Prot

Beore Tax (PBT) rose 34.5% to RM90.5

billion and enabled the Group to more than

comortably meet its dividend obligations

as well as sustain its capital expenditure

(CAPEX) requirements or the year;

Shareholders Funds meanwhile having

increased urther by 8.6% to RM263.8

billion. Return on Average Capital

Employed (ROACE) was higher at 17.5%

against last years 15.9%, comparable to

those o its peers namely, oil majors and

other national oil companies.

A marked turnaround in industry conditions

provided the backdrop against which thisperormance was attained. During the

year, world oil and gas demand staged

an exceptionally vigorous rebound as

momentum in the global economic

recovery, led primarily by the emerging

economies, continued to strengthen.

Stronger demand, coupled with the

eects o a steadily weakening US dollar

and rising geopolitical risks in the Middle

East and North Arica as the year drew

to a close, helped propel crude oil prices

higher. Average key crude benchmark

prices or the year increased 23% relative

to the previous years; Malaysias Tapis

averaging USD89.38 per barrel against last

years USD72.69 per barrel.

However, equally important were the

concerted eorts expended by the Group

to grow and improve the ecient conduct

o its business that had strengthened

its ability to capture the opportunitiesaorded by the industry upswing, both

immediate and longer-term. In Malaysia,

eleven new PSCs were awarded, ten

new discoveries were made and three

new elds were brought onstream

Abroad, ve Petroleum Arrangements

were secured, including the Groups rs

upstream venture in South America the

Carabobo 1 Project in Venezuelas Orinoco

Region. Combined eorts in exploration

intensied and enhanced recovery, as

well as acquisitions, succeeded in adding

two-and-a-hal barrels o oil equivalent to

Total Group Petroleum Resources or every

barrel that was produced during the year

Managements resolve to highgrade the

Groups international upstream portolio

was brought to bear with PETRONAS

exiting Ethiopia and Timor Lest, as well as

divesting its interests in Pakistan moves

that pave the way or the redeployment o

vital resources in avour o ventures thawill bring greater ocus and synergy to the

Groups broader strategic goals.

World Oil Demand

World Crude Oil Production Capacity *

77

79

81

83

85.286.4

84.984.4

87.2

86.386.7

87.0

89.4

91.1

85

87

89

91

* includes non-OPEC production, OPEC crude oil production capacity and OPEC natural gas liquids** as a percentage o demand

Million barrels per day

FY2010 FY2011FY2009FY2008FY2007

Crude Oil Production

Surplus Capacity **

Source: EIA

45

60

80

50

65

85

55

75

70

90

95

68.99

87.5790.74

72.69

89.38

60.28

78.58 82.88

68.71

84.15

FY2010 FY2011FY2009FY2008FY2007

USD per barrel

Crude Oil Prices

Tapis (Platts) WTI OPEC Basket

4.5%5.9%

2.5%0.3%1.3%


22/93


Developments in other areas o operations

similarly refected eorts to expand and

enhance the eciency o the business.

Improved plant perormance during the

year was a key contributing actor in having

enabled the PETRONAS LNG Complex(PLC) in Bintulu achieve its highest-

ever levels o production and exports

o LNG. Similarly, improved utilisation

rates sustained higher volumes o crude

processing at the Groups Malaysia

reneries. PETRONAS maiden venture

in the unconventional gas business the

Gladstone LNG (GLNG) in Queensland,

Australia also took a major step orward

towards commercialisation, with all project

partners having committed to a Fina

Investment Decision (FID). GLNG, whose

commissioning cargo is expected by 2015

will not only seal the Groups presence

in a dynamic and increasingly importan

segment o the global gas value-chain, bu

also make a proound contribution towards

enhancing the security o supply o natura

gas to Peninsular Malaysia in the years

ahead.

The year also saw PETRONAS embarking

on numerous key initiatives aimed a

revitalising growth in the Malaysian oil and

gas industry, as well as support eorts in

nation-building. Leveraging on new tax

incentives provided by the Government o

Malaysia, PETRONAS introduced a new

petroleum arrangement solution the

Risk Service Contract (RSC) designed

to unleash the potential o Malaysiassmall and marginal elds on a ast-track

development basis. The rst RSC was

awarded in January 2011 or the Beranta

Field, oshore Peninsular Malaysia and

First Gas is expected to be achieved by

end-2011.

Work on the countrys rst LNG

Regasication Terminal in the state o

Melaka also commenced during the year and

The year also saw PETRONAS embarking on

numerous key initiatives aimed at revitalising

growth in the Malaysian oil and gas industry,

as well as support eorts in nation-building.


23/93


is achieving satisactory progress towards

its targeted completion date o July 2012.

The import o LNG into Peninsular Malaysia

promises not only to unlock latent high-

value gas demand in helping to support

the growth o the countrys manuacturing

sector, but also potentially allow signicant

reductions in its total annual energy costs

by expanding the uel options available to

Malaysian manuacturers.

PETRONAS also initiated the Renery and

Petrochemical Integrated Development

(RAPID) project, a major downstream

investment to be located in Pengerang,

Johor aimed at strengthening the Groups

ability to ride the expected robust growth

in energy and chemicals demand in East

Asia, particularly in the specialty chemicals

segment. The project is a signicant

contribution by the Group that will supportwider eorts to position southern Johor

as an oil and gas hub or the region,

leveraging on the pre-existing strengths o,

and mutually complementing Singapore.

Furthermore, it will provide the impetus

to spur the areas economic development

in the same manner PETRONAS

investments in Kertih 20 years ago had had

a transormational impact on the locality,

help diversiy Malaysias export capabilities

and contribute to building a critical mass

o human talent in the country through

the creation o up to 4,000 employment

opportunities o highly-skilled oil and gas

proessionals.

PETRONAS also listed two o its subsidiaries

on Bursa Malaysias main market during

the year namely, Malaysia Marine and

Heavy Engineering Holdings Berhad (MHB),

a subsidiary o the Groups shipping arm

MISC Berhad and PETRONAS Chemicals

Group Berhad (PCG). Both listings have

not only helped broaden and deepen

Malaysias capital market indeed, PCGs

Initial Public Oering (IPO) was the largest-

ever in Southeast Asia but also provided

avenues through which the investing public

can now participate directly in the growth

o the various PETRONAS businesses.

Financial Highlights

Group Revenue improved in

tandem with higher oil prices and

volumes sold.

EBITDA margin increased to

44.7% despite rising costs and

the negative impact o the Ringgits

strengthening against the US

dollar.

Achieveda higherROACE of

17.5%, comparable to those othe oil majors and other national

oil companies a refection o

improved overall perormance.

Operational

Highlights

Secured17newupstreamventures

in Malaysia and abroad, including

the Carabobo 1 Project in Venezuela

and also the award o the countrys

rst Risk Service Contract (RSC).

AttainedahigherGroupResource

Replenishment Ratio (Triple-R) o

2.5 times or combined oil and gas

resources.

Achievedthehighest-everlevelof

production and exports o LNG

rom the PETRONAS Liqueied

Natural Gas Complex (PLC).

A n n ou n c ed t h e R e f in e r y

and Petrochemical Integrated

Development (RAPID) project,a major integrated reinery and

petrochemicals complex to be

located in southern Johor.

Listedtwosubsidiaries onBursa

Malaysia Malaysia Marine and

Heavy Engineering Holdings Berhad

(MHB) and PETRONAS Chemicals

Group Berhad (PCG).


24/93


Looking ahead, the Groups business

priorities and key areas o ocus will

continue to be shaped by an all-out push

or growth, consistent with eorts tourther secure the long-term sustainability

o its business. To this end, PETRONAS

will be guided by the strategic imperatives

o its Corporate Agenda, which have

been conceived explicitly to support its

aspiration o becoming a Global Energy

Champion Known or its Resilience and

Distinctiveness, and will continue to

leverage on the transormational objectives

o the CEP to create a high-perormance

culture throughout the Group. PETRONAS

will also seek to distinguish itsel as an

organisation that dares-to-be-dierent

possessing both the will and energy to drive

fawless execution even under challenging

circumstances a resolve neatly embodied

by its new corporate positioning statement

Reimagining Energy.

Through this single-minded pursuit o

growth and perormance excellencePETRONAS is orging ahead as an entity

with a clear strategic ocus, enhanced

organisational robustness and a more

distinctive perormance-oriented, capability

driven culture all o which will enhance

its ability to continue creating and returning

greater value to its stakeholders.

By way o a nal note, I would like to take

this opportunity to place on record my

sincere appreciation to all PETRONASemployees whose dedication, sacrice and

steadast adherence to the Companys

Shared Values o Loyalty, Integrity

Proessionalism and Cohesiveness was

instrumental in having made this years

achievements possible. I would also like to

thank members o the PETRONAS Board

o Directors or their wise counsel, guidance

and stewardship o the Corporation. A

heartelt tribute goes out to my colleagues

in the Executive Committee (EXCO)

Looking ahead, the Groups business

priorities and key areas o ocus will continue

to be shaped by an all-out push or growth,

consistent with eorts to urther secure the

long-term sustainability o its business.


25/93


whose resolve, vision and commitment to

PETRONAS were instrumental in driving

the solid perormance the Group achieved

within such a brie period o time, and

also to the members o the Management

Committee each o whom played a vital

enabling role to this end.

I would also like to express my deepest

gratitude to the Government o Malaysiaor the continued trust and support

granted to PETRONAS, and likewise

to our host governments and various

communities as well as stakeholders that

play host to our operations. My sincere

thanks also goes to our business partners

or their understanding and co-operation,

as well as our clients and customers or

their continued loyalty and condence

in us. Indeed, your continued support,

partnership and riendship lies at the hearto PETRONAS success an honour that

PETRONAS deeply appreciates and will

seek always to uphold.

DATO SHAMSUL AZHAR ABBAS

President & CEO and Acting Chairman

Key Strategies

and Plans


Pursuea3.5%CAGRproduction

growth over 5 years

ResourceReplenishmentRatio>1

on a 3-year rolling average basis

Maximise valuecreat ionand

growth within Malaysia

Highgradeportfolioofinternational

assets

AnchorcapabilitybuildingonEOR

& CO2

developments

Explorenewplaytypes

Gas & Power

Securesupplyandmaximisevalue

o gas within Malaysia

StrengthenandgrowLNGposition

in Asia Pacic and Atlantic

Establishandgrowenergytrading

in Europe

Downstream

Strengthenpresence inselected

markets and pursue opportunistic

growth in attractive markets

Rat ional ise non-valueadding

assets

Grow reningandpetrochemical

capacity and product range Buildglobaltradingandmarketing

portolio


26/93


Corporate Governance &

Transparency

PETRONAS believes that good Corporate

Governance is undamental to ensuring the

organisations competitiveness, growth and

sustainability. Implementing best practices

in Corporate Governance is important to

PETRONAS given the Groups strong global

orientation and the growing expectations ostakeholders worldwide or good corporate

citizenship.

Furthermore, enhanced standards o

governance and transparency will serve

to strengthen the Groups organisational

eectiveness and drive a high-perormance

culture within the organisation, and are

both essential or PETRONAS to compete

successully in todays challenging industry

environment.

In cognisance o this, the Board maintains and

requires the Management to uphold the highest

standards o governance, transparency and

ethical conduct. PETRONAS has adhered to

the highest standards in governance throughout

its corporate history, and indeed responsible

business has always been a central tenet, as

inscribed in our Mission Statement. Today, with

a well-established global ootprint, PETRONAS

continues to pave the way towards ensuring

the sustainability o good corporate governance

based on international standards.

Following the Corporate Transormation exercise

o 2010 and to urther elevate the importance o

governance and transparency or the Group,

the Management o PETRONAS established

a Corporate Governance & International

Compliance Unit, under the purview o the Legal

Division. This unit assists the Management

and the Board via the Governance & Risk

Committee on a range o current issues relating

to Corporate Governance.

As part o PETRONAS on-going eorts

to enhance the application o the highest

standards o governance across the Group in

line with best global practices, the Company

has a Board Education Programme or all

Board members under the PETRONAS

Group. The programme is designed to keep

the Companys directors appraised o critical

developments relating to 21st Centuryboardroom and global governance issues

such as corruption, ethics & integrity and

governance in emerging markets.

Business Ethics

PETRONAS is committed to complying with

the highest ethical standards and applicable

anti-corruption laws. This is in line with

PETRONAS core values, business principles

and various internal policies which refect the

continuous ocus on making ethics and anti-corruption an integral part o PETRONAS

business operations. Such ocus has helped

to promote strong ownership in relation to

compliance and ethics at all levels.

PETRONAS Board

Governance Framework

The Board governance ramework was

redesigned ollowing the corporate

enhancement measures adopted in April

2010.

The Board directs the Companys strategic

planning, nancial, operational and resource

management, risk assessment and

provides eective oversight o the executive

management. Certain unctions are delegated

to Board Committees consisting o Non-

Executive Directors as detailed in later

sections.

The Chairman leads the Board, and the

President & Chie Executive Ocer (CEO) leads

the executive management o the Companyand provides direction or the implementation o

the strategies and business plans as approved

by the Board and the overall management o

the business operations Group-wide.

In this regard, the President & CEO has the

support o the Executive Committee and

Management Committee which he chairs.

The Executive Committees role is to assis

the President & CEO in his management o

the business and aairs o the Company

particularly in relation to strategic business

development, high impact and high value

investments and cross-business issues o

the Group. It also serves as a platorm o

the structured succession planning or the

President & CEO in the Company.

The Management Committee continues to

act as the advisory and deliberative body

that supports the President & CEO and the

Executive Committee and implements a

the Board resolutions and policies, as we

as supervise all management levels in the

PETRONAS Group.

The Board

For the period up to FY 2010/11, the Boardwas made up o the Acting Chairman and

President & CEO, ve Executive Directors

including the CEO and seven Non-Executive

Directors. A list o the current Directors, with

their biographies, is provided on pages 14 to

15.

Currently, the position o the Chairman is

vacant, and the President & CEO is assuming

the responsibility until such time as the

shareholder makes an ocial appointment.

The Chairmans role is to provide leadershipto the Board, acilitate the meeting process

and ensure that the Board and its Committees

unction eectively. Together with the Company

Secretary, he ensures that the Board members

receive regular and timely inormation regarding

the Company prior to Board meetings. The

Board members also have access to the

Company Secretary or any urther inormation

they may require.

During the review period, the Board met a

total o 18 times (which include ve Specia

Board Meetings) with a ormal schedule

o matters reserved to it. These include

the consideration o the Companys long

term strategy, plan & budget, monitoring o

Management Perormance, introduction o

CEOs and Executive Vice Presidents (EVP

Perormance Scorecards, Talent Managemen

and the Companys Perormance Review. In

addition to managing the Companys nancia

reporting, the Board needed to monitor and

Statement oCorporateGovernance


27/93


identiy material risks to PETRONAS and ensure

that internal systems o risk management and

control are in place to mitigate such risks.

The Special Board Meetings, which were held

ve times in the FY 2010/11, have also given the

directors the opportunity to engage in intensive

deliberation on PETRONAS long term strategy,

plan & budget and talent management. Thesemeetings have also been used as a platorm

or the induction and orientation o the

Independent Non-Executive Directors. Such

induction and orientation practice is crucial

as it provides an inormative environment or

the Independent Non-Executive Directors

to understand the business more closely. In

act, two out o the ve meetings were held

in the vicinity o business operations to allow

the Independent Non-Executive Directors

to witness or themselves PETRONAS

commercial and perormance scales.

Through these Special Board meetings,

the Board o Directors had gained a better

understanding and appreciation o the

challenges and issues aced by the Company

and the Group and also a greater understanding

o PETRONAS business, plans, strategies

and nancial perormances. These special

meetings were also designed to oster greater

collaboration and networking amongst the

directors and the management as well as all

sta at all levels.

Echoing the 2010 Corporate Transormation

imperatives o Greater Ownership &

Accountability, the Board has also sanctioned

the introduction o the CEOs and EVPs

Perormance Scorecards with a view to

enhancing the perormance o the top

management o the Company.

Board Balance and

Independence

The current Board composition refects a goodmix o experience, backgrounds, skills and

qualications and is considered to be o an

appropriate size. This diversity is identied by

the members as one o the strengths o the

Board.

The Non-Executive Directors combine broad

business and commercial experience with

independent and objective judgment. The

balance between the Non-Executive and

Executive Directors enables the Board to

provide clear and eective leadership and

maintain the highest standards o integrity

across the Companys business activities.

All Non-Executive Directors are considered by

the Board to be wholly independent.

In accordance with the provisions o the

Companys Articles o Association, at least

one-third o the Directors shall retire rom oce

once every subsequent year but shall be eligible

or re-election. This retirement by rotation shall

only be applicable to Non-Executive Directors.

Board Committees

There are three Board Committees made up

primarily o Non-Executive Directors, namely

the Audit Committee, the Governance and RiskCommittee and the Remuneration Committee.

Audit Committee

Established in 1985, the PETRONAS Board

Audit Committee assists the Board in ullling

its oversight unctions in relation to internal

controls, risk management and nancial

reporting o the Company. The Committee

provides the Board with the assurance o the

quality and reliability o the nancial inormation

issued by the Company whilst ensuring the

integrity o the Companys assets.

The Board Audit Committee is comprised

entirely o Non-Executive Directors. The

members are as shown on page 16.


Refecting the greater emphasis by the

Board on risk management, the Nomination

and Corporate Governance Committee

was recently renamed Governance & Risk

Committee. It now undertakes the oversight

o this unction or the Board.

The Committee continues to be responsible inthe assessing o the perormance o the Board,

reviewing management succession planning as

well as identiying, nominating and orientating

new Directors.

The Committee also reviews and recommends

to the Board the appropriate corporate

governance policies and procedures in

accordance with international governance and

best practices. The Committee will have access

to the Corporate Governance & Internationa

Compliance Unit, recently established by the

Management under the purview o the Lega

Division, to ensure a structured, consisten

and centrally-driven integrated approach to

global governance and compliance or the

PETRONAS Group.

The members o the Governance & Risk

Committee are as shown on page 17.


The Remuneration Committee was

established to assist the Board in discharging

its responsibilities in the determination o

the remuneration and compensation o

the Executive Directors and certain Senio

Management o the Company. The Committee

determines and agrees with the Board on

the remuneration policy or the President &

CEO, the Executive Directors and certain

Senior Management o the Company. The

Committee also determines and agrees with

the Board on the matter o the President &

CEOs Perormance Scorecard.

The members o the Remuneration Committee

are as shown on page 17.

Statemento Anti-CorruptionPETRONAS is committed to complying with

the highest ethical standards and applicable

anti-corruption laws. The PETRONAS Code o

Conduct and Discipline expressly prohibits the

giving and acceptance o bribes by PETRONAS

employees. This is in line with PETRONAScore values, business principles and various

internal policies which refect its ocus on

making ethics and anti-corruption an integra

part o PETRONAS business operations

PETRONAS management is committed to

communicating the vital importance o strong

ethics and anti-corruption practices to all levels

o the organisation.


28/93


Statementon InternalControl

The Board is pleased to provide the ollowing

statement which outlines the nature and scope

o internal control o Petroliam Nasional Berhad

and its subsidiaries (PETRONAS Group) during

the year in review.

Boards Responsibilities

The Board recognises the importance osound internal control and risk management

practices to good corporate governance with

the objective o saeguarding the shareholders

investment and the Groups assets. The Board

arms its overall responsibility or the Groups

system o internal controls and or reviewing

the adequacy and integrity o those systems

including nancial and operational controls,

compliance with relevant laws and regulations

and risk management.

The Group has in place an ongoing processor managing the signiicant risks aecting

the achievement o its business objectives

throughout the period, which includes

identiying, evaluating, managing and monitoring

these risks that has been in place or the year

and up to the date o approval o the Annual

Report and Financial Statements.

The Groups system o internal control seeks to

manage and control risks appropriately, rather

than eliminate the risk o ailure to achieve

business objectives. Because o the inherentlimitations in all control systems, these internal

control systems can only provide reasonable

and not absolute assurance against material

misstatement or loss or the occurrence o

unoreseeable circumstances.

Risk Management

Having regard to managing risk as an inherent

part o the Groups activities, risk management

and the ongoing improvement in corresponding

control structures in all signicant risk areas

including among others, nancial, health, saety

and environment, operations, geopolitics,

trading and logistics, remain a key ocus o the

Board in building a successul and sustainable

business.

A Risk Management Committee (RMC) has been

established to serve as a central platorm o the

Group to assist the Management in identiying

principal risks at the Group level and providing

assurance on eective implementation o risk

management on a Group-wide basis. The

RMC also promotes sound risk management

practices through sharing o inormation and

best practices to enhance the risk culture

across the Group. The RMC seeks advice and

direction rom the Board Governance and Risk

Committee.

Group risks are being managed on an integrated

basis and their evaluation is incorporated into

the Groups decision-making process such as

the strategic planning and project easibility

studies. Separate risk management units or

unctions also exist within the Group at various

operating unit levels, particularly or its listed

subsidiaries, to assess and evaluate the risk

management processes or reporting to their

respective Board and Management level.

Internal Audit Function

The Board recognises that the internal audit

unction is an integral component o the

governance process. One o the key unctions

o PETRONAS Group Internal Audit (GIA)

Division is to assist the Group in accomplishing

its goals by bringing a systematic and

disciplined approach to evaluate and improve

the eectiveness o risk management, control

and governance processes within the Group.

GIA maintains its impartiality, prociency and

due proessional care by having its plans and

reports directly under the purview o the Board

Audit Committee (BAC).

The internal audit unction perorms independent

audits in diverse areas within the Group

including management, accounting, nancial

and operational activities, in accordance

with the annual internal audit plan which was

presented to the BAC or approval.

The BAC receives and reviews reports on

all internal audits perormed including the

agreed corrective actions to be carried ou

by the Management. GIA monitors the status

o agreed corrective actions through the

Quarterly Audit Status Report in which they

are recorded and assessed. The consolidated

reports are submitted and presented to the

BAC or deliberations.

GIA adopts the principles o the Institute o

Internal Auditors International Standards or the

Proessional Practice o Internal Auditing.

Other Elements O Internal

Control

The other elements o the Groups system o

internal control are as ollows:

Organisational Structure

The internal control o the Group is supported

by a ormal organisation structure with

delineated lines o authority, responsibility

and accountability. The Board has put in

place suitably qualiied and experienced

management personnel to head the Groups

diverse operating units into delivering results

and their perormance are measured agains

approved perormance indicators.

Budget Approval

Budgets are an important control mechanism

used by the Group to ensure an agreed

allocation o Group resources and that the

operational managers are suciently guided

in making business decisions. The Group

perorms a comprehensive annual planning and

budgeting exercise including the developmen

and validation o business strategies or a rolling

5-year period and establishment o perormance

indicators against which business units and

subsidiary companies are evaluated.

Variances against the budgets are analysed and

reported to the Board on a quarterly basis. The

Groups strategic directions are also reviewed

at reasonable intervals taking into accoun

changes in market conditions and signican

business risks.


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Limits o Authority

The Limits o Authority (LOA) denes revenue

and capital expenditure spending limits or

each level o management within the Group.

These limits cover among others, authority or

payments, capital and revenue expenditure

spending limits and budget approvals. This

LOA manual provides a ramework o authority

and accountability within the organisation and

acilitates decision making at the appropriate

level in the organisations hierarchy.

Procurement

The Group has clearly dened authorisation

procedures and authority limits set or awarding

tenders and all procurement transactions

covering both capital and revenue expenditure

items. Tender committees with cross unctional

representation have been established to

provide the oversight unctions on tendering

matters prior to approval by the approving

authorities as set out in the LOA approved by

the Board.

Financial Control Framework

The Group has developed a Financial Control

Framework (FCF) with the principal objective

o enhancing the quality o the Companys

nancial reports through a structured process

o ensuring the adequacy and eectiveness

o key internal controls operating at various

levels within the Company at all times. FCFrequires among others, documentation o key

controls, remediation o control gaps as well as

a regular conduct o testing o control operating

eectiveness.

On a semi-annual basis, each key process

owner at various management level is required

to complete and submit a Letter o Assurance

which provides conrmation o compliance to

key controls or the areas o the business or

which they are accountable. FCF implementation

is currently ongoing throughout the Group.

Corporate Financial Policy

The Group has establ ished a Corporate

Financial Policy and Guidelines or adoption

and implementation by companies across the

Group. This attempts to prescribe a consistent

ramework in which nancial risk exposures

o entities within the Group are identiied

and strategies developed to mitigate such

risks. The policies contained in the Corporate

Financial Policy are intended to provide clear

communication o the policy stance governing

inancial and risk management throughout

the PETRONAS Group o Companies, and

consequently seeks to provide a oundation

upon which inancial risk management is

practised across the Group.

Group Health, Saety and

Environment

Ther e is a Group Heal th, Saety an d

Environment (GHSE) Division which drives

various HSE sustainable initiatives and denes

the ramework that exemplies the Groups

eort to continuously meet legal compliance

and industry best practices. GHSE also

drives strategies and monitors and reports

perormance to the Executive Committee to

ensure HSE risks are reduced to as low as

reasonably practicable.

Crisis Management

The Group Contingency Planning Standard

(GCPS) is designed to provide guidelines or

responding to any major emergency or crisis

by dening the ramework and delineation o

roles and responsibilities which enable support

and assistance where required. The Group has

implemented a three-tier response system

which seeks to provide a clear demarcation o

roles and responsibilities between emergency

site management, operating unit management,corporate and authorities. In the event o major

emergency or crisis, the response system will

be activated and the Groups priority is the

protection o people, environment, asset and

reputation.

Business Continuity Plan

The Group is currently enhancing its Business

Continuity Plans or both plant and non-plant

operations. These plans seek to provide

clear procedures to enhance the Groups

preparedness in managing the impact o crisis.The main objective is to minimise impact, avoid

disruption as well as recover and restore the

Groups critical unctions within a short period o

time towards sustaining the Groups operational

survival thus protecting businesses, partners

and customers during crisis or disaster.

Employees

Senior Management sets the tone or a

nurturing culture in the organisation through

the Groups Shared Values, developed to

ocus on the importance o these our key

values loyalty, integrity, proessionalism and

cohesiveness. The importance o the Shared

Values is maniested in the Corporations Code

o Conduct or Ocers and Sta which is issued

to all employees upon joining. Employees

are required to strictly adhere to the Code in

perorming their duties.

Employees undergo structured training and

development programmes and potentia

entrants or candidates are subject to a

structured recruitment process. A perormance

management system is in place, with established

perormance indicators to measure employee

perormance and the perormance review isconducted on a semi-annual basis. Action

plans to address employee developmenta

requirements are in place. The Group believes

that this will enable employees to deliver thei

perormance indicators so that the Group can

meet its uture management requirements.

Conclusion

The Board is o the view that the system o

internal control instituted throughout the Group

is sound and provides a level o condence onwhich the Board relies or assurance. In the

year under review, there was no signican

control ailure or weakness that would have

resulted in material losses, contingencies o

uncertainties requiring separate disclosure in

the Annual Report.

The Board provides or a continuous review

o the internal control system o the Group to

ensure ongoing adequacy and eectiveness

o the system o internal control and risk

management practices to meet the changingand challenging operating environment.

This statement is made in accordance with

the resolution o the Board o Directors dated

30 May 2011.


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The Groups results or the year under review reect better underlying

perormance in all segments aided by higher crude oil and gas prices.

Earnings or the year ater minority interests, though aected by a 9%

strengthening o the Ringgit, increased by 36.0% to RM54.8 billion.

Cash ow rom operations increased to RM70.8 billion, an increase

o 26.2% rom the previous year. During the year, capital expenditure

amounted to RM34.9 billion. Our fnancial position remained robust

and we returned RM30 billion in dividends to our shareholder.

With eect rom the irst quarter o the year under review, wecommenced quarterly reporting o our results (unaudited) under FRS

134 Interim Financial Reporting and core operating segments under

FRS 8 Operating Segments.

Recognising increased challenges in our industry with regard to volatility

and investment risks, we have elevated oversight o risk management

to a Board Committee - the Governance & Risk Committee.

Financial Results

Financial Results

Highlights or FY2011



Finance

Revenue of RM241.2 billion for the year, up by

14.4% on the back of stronger prices and demand

RM241.2billion in Revenue

Return on Total Assets of 20.6% in line with the

trends shown by major players in the industry.

20.6%Return on Total Assets

Earnings Before Interest, Taxes, Depreciaon and

Amorsaon increased by 29.5% to RM107.9 billion

aer accounng for IPO gains of RM9.2 billion.

RM107.9billion in EBITDA

ROACE of 17.5% - an improvement from 15.9%

recorded in FY2010.

17.5%Return on Average Capital Employed (ROAC

Total Assets increased by 6.8% to RM439.0 billion

reecng a stronger balance sheet.

RM439.0billion in Total Assets

Shareholders Funds expanded by 8.6% to RM263.8

billion.

RM263.8billion in Shareholders Funds

Review o Financial ResultsThe Group recorded improved results beneting

rom higher crude oil and gas prices anddemand as a result o continuing regional

growth and to some extent the uncertainty

o supply driven by the political unrest in the

Middle-East and North Arica region.

In spite o a 9% strengthening o the Ringgit,

Group revenue increased by 14.4% to RM241.2

billion aided by higher realised prices in major

product categories and higher sales volume.

Earnings Beore Interest, Taxes, Depreciation

and Amortisation (EBITDA) or the year increasedto RM107.9 billion which included a net gain

o RM9.2 billion arising rom the Initial Public

Oerings (IPOs) o Malaysia Marine and Heavy

Engineering Holdings Berhad (MHB) and

PETRONAS Chemicals Group Berhad (PCG)

on Bursa Malaysia.

Prot beore taxation was RM90.5 billion, an

increase o 34.5% over the previous year.


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Five-Year GroupFinancial Highlights

In RM billion FY2011 +/- (%) FY2010 FY2009 FY2008 FY2007

Revenue* 241.2 14.4% 210.8 264.2 223.1 184.1

EBITDA* 107.9 29.5% 83.3 105.7 105.9 84.8

Prot Beore Taxation (PBT) 90.5 34.5% 67.3 89.1 95.5 76.3

Net Prot ater Minority Interests 54.8 36.0% 40.3 52.5 61.0 46.4

Total Assets 439.0 6.8% 410.9 389.8 339.3 294.6

Shareholders Funds 263.8 8.6% 242.9 232.1 201.7 171.7

Ratios FY2011 FY2010 FY2009 FY2008 FY2007

Return on Revenue (PBT/Revenue) 37.5% 31.9% 33.7% 42.8% 41.4%

Return on Total Assets (PBT/Total Assets) 20.6% 16.4% 23.0% 28.1% 25.9%

Return on Average Capital Employed (ROACE)* 17.5% 15.9% 22.0% 28.0% 24.0%

Debt/Assets Ratio 0.11x 0.13x 0.11x 0.11x 0.12x

Debt/Equity Ratio 15.3% 17.6% 15.9% 15.8% 17.4%

Dividend Payout Ratio 54.7% 74.4% 57.1% 39.3% 38.8%

Resource Replenishment Ratio (Triple-R) 2.5x 1.1x 1.8x 0.9x 1.8x

*Revenue or FY2010 and EBITDA and ROACE or FY2007 to FY2010 have been

restated to ensure consistency with the current years presentation basis.

In RM billion

EBITDA Prot Beore TaxationRevenue

210.8241.2

264.2223.1

184.1

FY2010 FY2011FY2009FY2008FY2007

83.3

107.9105.7105.9

84.8

FY2010 FY2011FY2009FY2008FY2007

67.3

90.589.195.5

76.3

FY2010 FY2011FY2009FY2008FY2007

Net Prot ater Minority Interests Shareholders Funds

40.3

54.852.561.0

46.4

FY2010 FY2011FY2009FY2008FY2007

Total Assets

410.9439.0

389.8339.3

294.6

FY2010 FY2011FY2009FY2008FY2007

242.9263.8

232.1201.7

171.7

FY2010 FY2011FY2009FY2008FY2007


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Ringgit which had lowered the translated value

o US Dollar denominated debts.

The Groups capital expenditure (CAPEX) or

the year under review was RM34.9 billion. As in

previous years, Exploration & Production (E&P)

business accounted or the bulk o our CAPEX

at 64% which refects the Groups eorts to

replenish the nations maturing resources

and sustaining petroleum production to meet

growing domestic and commercial needs. Apart

rom E&P CAPEX, the bulk o our spending was

in Malaysia in line with our ocus on expansion

o the Groups value chain and carrying out

improvements to maintain the integrity o our

assets.

Revenue byProducts

The increase in the Groups revenue or the year

under review was supported by higher revenue

streams rom our core products. Prices o our

products moved higher in tandem with higher

crude prices coupled with improved demand or

our products as a result o increased economicactivities across the globe.

Average NAverage OilMajors

PETRONAS

Prot Beore Taxation

FY2010 FY2011FY2009FY2008FY2007

20%

11%10%

25%

-7%-6%

3%

-15%-15%

-22%

32%

-35%

48%

-25%

35%

Pre-tax Return on Revenue

AverageNOCs

Average OilMajors

PETRONAS

41%43%

34% 38%

32%

16%14%

12% 13%

17%

27%31%

23%22% 21%

FY2010 FY2011FY2009FY2008FY2007

annual report 2011 petr on as

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