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Office space blues from oil and gas companies

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 Cost-cutting measure: The 29-storey Menara ExxonMobil has been leased to the company since 1997 and the O&G giant is looking at occupying up to only half of the building.

Cost-cutting measure: The 29-storey Menara ExxonMobil has been leased to the company since 1997 and the O&G giant is looking at occupying up to only half of the building.

PETALING JAYA: The bleak long-term outlook of oil prices has gotten companies with operations in the Kuala Lumpur city centre readjusting their priorities in line with the situation.

ExxonMobil Exploration and Production Malaysia Inc is likely to join the list of companies that have embarked on cost cutting measures particularly in terms of office space.

Sources said the company may return several floors of a building it currently occupied in the city centre to KLCC Property Holdings Bhd (KLCCP) once its tenancy agreement expires in January 2017.

The 29-storey Menara ExxonMobil, which is next to the Petronas Twin Tower, has been leased to the company since 1997 and the oil and gas (O&G) giant is looking at occupying up to only half of the building.

“ExxonMobil is looking at ways to maximise its office space requirements from 2017 and may need up to half of what it is currently occupying by adopting new strategies such as an open office concept to maximise space usage,” sources said.

It is not known if ExxonMobil and KLCCP have signed a new tenancy agreement. KLCCP has not replied to queries from StarBiz on the matter.

“The whole building is occupied by ExxonMobil. The O&G company is also exploring to share the building with other companies,” a source said.

KLCCP and KLCC Real Estate Investment Trust (Reit) chairman Krishnan C. K. Menon was reported to have said in April that the firm was in talks with ExxonMobil on a long-term tenancy beyond 2017.

According to KLCCP’s 2014 annual report, the lease agreement with ExxonMobil was for a five-year term, expiring on Jan 31, 2017.

It is believed that ExxonMobil had moved its business support centre to India that would support the company globally.

It planned to downsize its Malaysia operation due to the current low oil prices.

ExxonMobil is not the only O&G company to cut cost. Technip and other service providers have also reduced cost to tide over the low oil prices situation that is expected to last for a few more years.

One of the measures by the companies is to reduce headcount and office space in the Kuala Lumpur city centre area.

According to statistics, between January and June this year 6,547 people were retrenched, of which 30% were from the O&G sector.

A property consultant said that several O&G companies had been advising their tenants that they would not be renewing leases or were reducing their office space. There are expectations that there would be space available in the ExxonMobil building,” said the consultant.

The ExxonMobil building contributed about 7% or RM43.3mil of KLCCP’s revenue in 2014.

The building has a net lettable area of 395,851.2 sq ft, valued at RM465mil as of Dec 31, 2014.

KLCCP is part of the KLCCP Stapled Group, which is also part of KLCC Reit.

KLCCP Stapled Group has assets worth more than RM15bil. The Reit portion portfolio includes the Petronas Twin Towers, Menara ExxonMobil and Menara 3 Petronas, with a combined net lettable area of over 4.54 million sq ft valued at RM8.9bil.

As for KLCCP it has Suria KLCC, Mandarin Oriental, Menara Dayabumi and Lot D1 under its stable.

KLCCP has plans to add 35,000 sq ft more of office space at Menara Dayabumi, which would see the building’s atrium transform into three levels of office space.

KLCCP net profit for its second quarter ended June 30, 2015, grew 19% to RM179.86mil from RM150.90mil, mainly driven by the retail division, which saw higher rental rates.

Revenue, however, dropped to RM329.01mil from RM332.81mil a year earlier, due to the closure of City Point Kompleks Dayabumi for redevelopment and lower revenue from Mandarin Oriental.

For the six-month ended June 30, the company posted a net profit of RM358.37mil compared with RM335.86mil in the corresponding period, despite lower revenue of RM655.90mil compared with RM673.70mil previously.

source by:http://www.thestar.com.my/business/business-news/2015/12/29/office-space-blues-from-oil-and-gas-companies/?style=biz