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38 I 2020 ANNUAL REPORT I mANAgEmENT DISCUSSION & ANALYSIS

RISKS &

OPPORTUNITIES

STRATEgIC RISKS AND OPPORTUNITIES COmPANY-RELATED RISKS AND OPPORTUNITIES
hRC has risks and opportunities related to the hRC has in place a robust risk assessment
oil refining business itself, the current state matrix that captures all significant risks and
of the oil markets and our geographical opportunities which is reviewed on a quarterly
location within malaysia and Southeast Asia. basis by the Leadership Team and the Board
of Directors. This enables hRC to identify
and assess the Company’s risks and prepare
mitigation plans in advance to manage any
risk which arises.

Oil Price Dynamics, and Supply / Demand movements Asset Integrity
HRC is impacted by crude oil price volatility, the oversupply of The oil refining business has several inherent risks associated
products in the region due to new competitor refineries, and with personal and process safety and asset integrity, among
weak global demand. The COVID-19 pandemic resulted in others. HRC applies and continues to enhance best practices to
significant impacts that caused a decrease in the demand for manage all these risks.
oil refinery products. Prolongation of the pandemic situation
can influence oil prices and oil refining margin. However, Project Risks
oil pricing volatility creates both risks and opportunities which All HRC on-going projects include risk assessments and
can be harnessed with hedging tools. HRC has been successful technical and construction risk mitigations. HRC expects to
in turning this volatility into an opportunity through its active complete and commission all major key projects: Euro 4M
use of hedging mechanisms. and H2GEN in 2021.
Industry Trends margin and Commercial Risks
As the future outlook for oil and gas indicates a general As an independent refinery, HRC is exposed to oil refining
long-term decline in petrol consumption and moving away from margin and oil price fluctuations which are beyond its control.
hydrocarbon fuels, HRC is preparing itself to adapt and evolve To mitigate such risks, HRC has taken initiatives to selectively
into new areas of growth that include capturing opportunities hedge against crude price and refining margin fluctuations
in petrochemicals and new energy solutions. together with inventory hedging to reduce any exposure to
sudden oil price changes. HRC also understands that to remain
in business and to reduce reliance on a single customer is key
for the refinery’s survival. Therefore, HRC has actively
developed sales to various oil and gas players in the market,
both domestically and internationally in recent years. Such
moves have already borne fruit as HRC has diversified its sales to
new customers gradually and will continue to reduce the
dependency on a single customer.
Cleaner Energy Opportunities
HRC noted the general trends towards higher demand for
cleaner energy and a potential slowdown in demand
for hydrocarbon transport fuels. Strategic planning was
formulated by looking into options for future investment into
petrochemicals and new energy solutions to add on to our
Note: Photo taken prior to MCO which started on 18 March 2020. existing product offerings.