Letter from the Chairman – PETRONAS Annual Report 2017

Dear Stakeholders,

2017 unfolded many extraordinary strides and I would like to first and foremost pay tribute to the formidable force that has enabled PETRONAS to conclude the year strongly. A force made up of solid foundations laid by our founding fathers, the vision steered by our leaders, the commitment of our people, and the trust given by our stakeholders. The journey was far from easy but we have proven once again that together, we are able to persevere and emerged stronger!

2017 IN REFLECTION

PETRONAS undertook various transformative initiatives groupwide since 2015 to address the reality of prolonged low oil price in order to ensure its resilience and long-term sustainability. This shift in paradigm presents with it a stream of possibilities, risks as well as potential growth. Through transformation of the mind and action, both individually and collectively, one is open to a vast horizon of opportunities that will definitely disrupt the status quo. The overall momentum of the transformative journey has placed us in a better position today amidst the oil and gas crisis, but also fortified us in embracing the future with ardour.

We pursued the journey of finding solutions to the questions that we ourselves posed. The Board of Directors and the Executive Leadership Team (ELT), have asked questions from “how do we transform what doesn’t work?” to the even harder question, “how do we transform what has worked perfectly well in the past?”

With the already disruptive nature of Industrial Revolution 4.0 impacting various brick and mortar industries, it is clear that the tone from the top requires the vigour from each and every one in PETRONAS to reassess our own gold standards and migrate into unfamiliar territories of differing and “business unusual” viewpoints, operating models and culture. It rekindled in us the pioneering spirit, vision and profound intuition that have always been in PETRONAS’ DNA.

We have tapped on the power of digitalisation which through hacking down of silo walls across PETRONAS, has opened new possibilities within our operations that will further push the transformation agenda. The year saw the best of kindred spirit at work – collaboration among entities, groups and individuals, within as well as external to PETRONAS, that brought different parties with differing views and expertise into a common platform of purpose – to create a sustainable future, a legacy, for generations to come. Moving forward, we must ‘switch’ to digital technology with a sense urgency that will afford PETRONAS the possibility of new business models, new revenues and value-creation streams.

As you flip through the pages of this Report, you will notice that optimisation, cost effectiveness and efficiency are not merely seen in numbers, but on the actions demonstrated and the impact that PETRONAS continues to make – an impact that goes well beyond pure business. Including a more heightened Corporate Social Responsibility (CSR) activities in the areas of Education, Community well-being and developments, and Environment. In remembering our roots, by giving back to society.

PROGRESSING FOR LONG TERM SUSTAINABILITY

We are conscious that energy resources are prerequisites for progress, and that a flourishing global economy requires leading solutions in how this commodity is made accessible. One that calls for various stakeholders to work together in advancing sustainable growth across the energy sector.

Sustainability is synonymous with PETRONAS’ relentless efforts to responsibly conduct our business practices. Amidst the changing externalities and evolving dynamics of the energy industry, we had accelerated efforts to integrate the core elements constituting PETRONAS’ Corporate Sustainability Framework which, in essence, spans across the Environmental, Social and Governance aspects.

Our growth strategies requires us to adapt to market vulnerabilities, continuing with the foray into unchartered frontiers and in different continents. Through all these we are unwavering in our focus on sustainability, in such areas as Climate Change; Human Rights and Diversity & Inclusion; and Health, Safety, Security and Environment. Collectively overseeing its implementation is the PETRONAS Corporate Sustainability Council and PETRONAS HSSE ELT members, comprising a suite of personnel with diverse experience.

I am pleased to share that in 2017, we fortified our foothold in the area of renewable energy and enhanced our carbon commitments in driving towards a low carbon economy.

BALANCING OPPORTUNITY AND RISK

As opportunities and risks continue to be more fluid and dynamic, our risk management system has evolved from the perspective of viewing and assessing risk and opportunities and its impact from individual/stand alone towards portfolio and enterprise lens. This has assisted the Board and Management in achieving the Group’s strategic objectives in a fair, informed and transparent manner.

This is strongly supported by having in place an effective risk management framework focusing on three areas of business resilience namely Enterprise Risk Management, Crisis Management and Business Continuity Management. A holistic risk approach is enabled through aggregation of risk and opportunities identified, assessed and evaluated from business value chain perspective.

With the Board’s oversight on risk, supplemented by the establishment of the Board Governance and Risk Committee (BGRC) since 2010, these have set the tone from the top towards embedding risk management culture across the Group. This is further amplified through continuous monitoring of our principal risks and conducting various assurance activities across PETRONAS.

IMMERSED IN INTEGRITY

Since PETRONAS launched the COBE (Code of Conduct and Business Ethics) back in 2012, we have never looked back on our pledge of zero tolerance for bribery and unethical business conduct. PETRONAS was the trailblazer in implementing the No Gift Policy in corporate Malaysia and was recognised by Transparency International as the most transparent company of the emerging market’s oil, gas and energy sector.

We continue to immerse and empower employees to do their professional best in business operations with rigorous advocacy guided by the PETRONAS Integrity Compliance Framework.

Our Integrity Compliance Framework is inclusive and also binds external parties who represent and/or act for the Group with the same Code, and making accessible a whistleblowing channel to the general public to report any act that goes against it. This year, PETRONAS’ comprehensive Anti-Bribery Management System for Corporate Services received the ISO 37001 certification, another feather in the cap in our continuous pursuit of world-class integrity practices.

I must congratulate the PETRONAS Executive Leadership Team for pro-actively collaborating with the Malaysian Anti-Corruption Commission (MACC) in undertaking the Corruption-Free Pledge in June 2017. This will definitely further strengthen our commitment in upholding the highest level of integrity.

NURTURING DIVERSITY AND IMPORTANCE OF CAPABILITY DEVELOPMENT

While merit remains our true north for talents in the organisation, we must continuously build an eco-system for a diverse pool of talents to grow and thrive. With the convergence of different industries and verticals, diversity is highly imperative for us to remain ahead of the curve in our thought process, decision making, customer orientation and talent development for a sustainable business growth. PETRONAS has made significant headstart in building a robust and diverse talent pipeline, be it for leadership as well as technical expertise.

It is enlightening to note that women participation at board level across PETRONAS has jumped from 15.4 per cent in 2016 to 31.4 per cent as at 2017. In sustaining this upward trend, the PETRONAS Leading Women Network (PLWN) was established with regional hub leaders and champions appointed to connect and garner a collective voice from PETRONAS’ women across the Group’s value chain, in the quest to ensure a continuous pipeline of ready women talent at all levels, leading up to the Board.

The PETRONAS Scientist Development Programme is another of our conscious effort to develop the capability of a diverse group of niche’ expertise – with our scientists and technology management personnel comprising 20 nationalities, with 50 per cent of them aged 35 years and below.

We will continue to focus our investment and energy to ensure our diverse talents are equipped with a holistic development programme and conducive working environment. One that respects and values diversity, unified by PETRONAS’ Shared Values.

EXCITING TIMES AHEAD

All of the components in PETRONAS are now set in motion for us to continuously challenge and nurture our capability to manage risks, champion governance, embrace diversity and grow talents in an effective and sustainable manner.

PETRONAS is entrusted to manage the country’s oil and gas resources. We remain humbled as well as encouraged by the strong support from our Shareholder, the Government of Malaysia. This Amanah and operational freedom to excel is the epitome of a life-long pursuit, coming to 44 years now, that pushed PETRONAS to grow from being a domestic regulator into a reputable and respected global Organisation. I am forever grateful to be part of the legacy that continues to uphold this Amanah zealously.

Last but not least, my utmost appreciation to Tan Sri Wan Zul, the ELT and the over 50 thousand PETRONAS Group employees who have withstood the challenging tides of world and industry events with great tenacity and Focused Execution. I would also like to record my thanks to the bigger family of PETRONAS – our customers, partners and communities who have continued to render unwavering support to PETRONAS for us to continue delivering value to the world. Thanks to you, our broad network of Shared Success is now stronger and better than ever.

Thank you.

TAN SRI SIDEK HASSAN

Full edition of PETRONAS Annual Report 2017