MISC Integrated Annual Report 2020

///// Sustainability / Financial Review / Business Review / Leadership / Governance /// MISC Berhad / Integrated Annual Report 2020 7 156 MISC Berhad / Integrated Annual Report 2020 7 157 /// Governance / Leadership / Business Review / Financial Review / Sustainability ///// Section Section OFFSHORE BUSINESS VICE PRESIDENT’S REMARKS 2020 has been an extremely challenging year on all fronts, as the impacts of the COVID-19 pandemic extended beyond public health and safety concerns to affect the global economy. Reflecting the interconnectedness of today’s world, the pandemic led to massive uncertainties that resulted in volatilities in the financial and commodities markets, including price volatilities in the crude oil market. As the Offshore Business segment is dependent on contracts from oil and gas players, we were not sheltered from these fallouts. Despite this, we recorded key wins during the year, the result of our employees’ unwavering focus, resilience and passion, as they continued to perform at their best levels in very trying circumstances. They adapted well to changes in work methodologies and were able to work around the constraints that the pandemic caused to deliver on our business goals. We were able to meet our financial targets, despite having to contend with requests for discounts from our oil and gas clients who were undergoing their own difficulties as a result of a drastic drop in demand for oil. An achievement we are particularly proud of is being awarded a project by Petróleo Brasileiro S.A. (Petrobras) for an FPSO to be installed in the Mero field belonging to the Libra block in Brazil’s Santos Basin (the Mero 3 FPSO project), as well as its corresponding operations and maintenance services in August 2020. The project signifies our maiden venture into the Brazilian premium FPSO market and marks our acceptance as a player to contend with on the global stage. This award is extremely meaningful for us, forming part of our large-scale capability building initiative which we commenced in 2018 to transform the Offshore Business segment into an international player by focusing our investments on people, processes, partners and technology. Since then, we have been steadily growing our capabilities and capacities, and were able to submit a technically competent proposal to the client that offered them the best value. Despite travel restrictions that prevented us from meeting our clients face to face, we were able to leverage on digital platforms to successfully negotiate and conclude the signing of the contract. While the pandemic had caused many projects that we had set our sights on to either be deferred or cancelled, we were able to successfully negotiate contract extensions for our existing operational works, most notably for five years in Brazil on our joint venture FPSO Espirito Santo . As a result of the lockdowns, closures of borders, and heightened health and safety requirements, we encountered some challenges in terms of contract deliveries. Nevertheless, we did our best to deliver on our projects according to our clients’ expectations. Our FSO Golden Star , successfully received the first condensate for the Sao Vang and Dai Nguyet (SVDN) Project offshore Vietnam in December 2020. We maintained progress on all our existing FPSO and FSO assets, which continued to perform well. As well as that, we have been working closely with all our clients to improve their commercial returns on our operations and maintenance contracts. The business has remained on our upward growth trajectory, as demonstrated by the expansion of our workforce which increased from 100 a few years ago, to close to 400 today. In 2020, whilst many companies halted their new hire programmes in what has been the worst recession since the Great Depression in the 1930s, we continued to bring on board new talent, as we maintained our focus on talent management, training and knowledge transfer. HSSE was our utmost priority, and we received several awards in 2020 from the Malaysian Society for Occupational Safety and Health (MSOSH) validating our efforts to build an excellent safety culture. In particular, our MAMPU 1 asset received the Gold Merit Award, while the FSO Orkid received the Gold Class 1 Award. While the pandemic did affect various aspects of our business, I believe we were able to manage the impacts and mitigate the risks well. It was challenging to continue with business as usual with movement controls and quarantines in place. There was some slowdown in terms of planned work schedules, but for the most part our employees were able to quickly adapt to the new normal and employ innovative and new ways of getting their job done. Having already embedded digital and online tools within the Offshore Business segment, we accelerated our adoption of these applications and used them almost seamlessly as the pandemic evolved. We had carefully structured plans in place to manage our employees’ work schedules whilst safeguarding their health. The greatest impacts were felt by our site-based employees, operations and logistics as a result of uncertainties in travel, visas, quarantine and associated protocols. However, by working closely with our clients, we were able to successfully navigate the difficult operational environment. We stepped up on our engagements with our employees, shifting to virtual communication platforms to allay their fears and keep them motivated. Our leaders showed tremendous resolve to capably and empathetically manage their teams. A significant focus area for the year ahead is to embed Environmental, Social and Governance (ESG) pillars we have identified within the MISC Sustainability Strategy 2021-2025 into our own sustainability strategy. These will be delivered progressively by project owners within the Offshore Business segment. As well as that, we have established a dedicated project team that shall be examining new business opportunities and sustainability projects centred on through the environmentally friendly sources of energy and other new technologies that will further enhance our future outcomes, in line with the transition to decarbonisation. As we move into the year ahead, we are keenly focused on delivering on the best health, safety and environmental outcomes, as we continue to invest in our employees and growing our teams’ capabilities and support systems. Since conducting a gap analysis of our organisation two years ago to identify areas that required improvements, we have been steadily progressing on not just closing up these gaps, but also strengthening our capabilities. Having successfully obtained and invested significantly in the Mero 3 FPSO project, failure is not an option. Our primary focus for the year ahead is to progress with the project on time and on budget. We will continue to maintain and enhance our existing contracts’ operational performance, whilst working towards contract renewals and securing new awards from targeted opportunities. We will leverage on our strengths to drive the globalisation of our business as we meet the challenges of new client demands and market shifts in these challenging and evolving times. As we move into the next phase of our growth journey in the post-COVID-19 era, we have fine-tuned our strategy by taking into account market shifts that we expect in these unprecedented times. In the medium term, as the world slowly recovers from the pandemic, we expect FPSO and FSO project opportunities to increase particularly in South America. Bearing this in mind, in addition to our core markets of Malaysia and Southeast Asia, we will continue to selectively pursue opportunities farther afield in South America, especially in Brazil and around the Gulf of Mexico, with Africa remaining an area of interest for us. We will also be looking towards effecting inorganic growth by acquiring key assets that will complement our strategic expansion within the next one to two years. With the Group’s robust financial position and strong cash flow, we believe that we are well placed to do so. Fuelled by our diverse and skilled workforce from around the world, and with the strong support of the MISC Board and leadership, we will maintain our journey of continuous improvement and growth. We are optimistic that our focused approach will continue to engender new opportunities for us in the years to come. SYED HASHIM SYED ABDULLAH Vice President, Offshore Business MARKET REVIEW In the recent past, the average production capacity of FPSO units have been steadily increasing for both leased and owned units, of which the latter tend to possess larger processing capabilities compared to the former. Growth has mainly been driven by projects located in Brazil with processing capacities of over 200,000 barrels of oil equivalent (boe) per day. As of January 2021, there are 296 FPS in service. The top five regions for installed FPS are Southeast Asia (93 units), Africa (73 units), South America (72 units, majority which are located in Brazil (67 units)), Gulf of Mexico (54 units) and Northern Europe (47 units). FPSO units comprises 56% of the installed FPS. Over the next five years, it has been forecasted that between 35 to 70 FPSO orders will be awarded. Assuming oil prices remain steady at around USD50 per barrel, these awards should follow through, arising mainly from Brazil, followed by Southeast Asia and Africa. As a result of the COVID-19 pandemic, many energy majors have committed to accelerating their energy transition strategies, and are emphasising on the sustainability agenda as a key element to drive their future growth. This in turn will impact MISC in terms of FPS solutions that are innovative and eco-friendly. SYED HASHIM SYED ABDULLAH Vice President, Offshore Business