Monday, 28 February 2011
Petrofac says that the Berantai partners' investment and services will be repaid and remunerated from the production revenues by way of a fixed entitlement, subject to ongoing variation based on KPIs.
“The level of the entitlement will be based on certain agreed KPIs as at first gas and finally determined at project completion. The signing of this first RSC where such risks are significantly mitigated for the contractor, thereby enabling delivery of a lower cost solution, is an important achievement for Petronas and the Malaysian oil and gas industry.”
The partners will begin recovery of their investment from first gas and remuneration from project completion within a year from first gas.
“The partners' entitlement is to be satisfied by an agreed share of the field's production revenue and the remuneration element will be determined according to the delivery against four KPIs up to project completion and one ongoing KPI based on performance.”
As at project completion, the remuneration will be determined based on actual capital expenditure spent against control budget, timing of first gas, actual project completion date and sustained gas delivery measured at a point after project completion.
“These KPIs will result in an aggregate positive or negative variation to the expected base case return. Thereafter, our performance against an agreed operational efficiency factor will either enhance or reduce our annual financial entitlement.”
The company says the first RSC to be signed in Malaysia marks a major milestone for all parties involved and its skills include subsurface, drilling, engineering, project delivery, operations and overall our commercial and asset management expertise.
“Our intention is to repeat this commercial model within and outside of Malaysia for other development opportunities. The Berantai field, in addition to the recent award of the Sepat early production system, will enable us to grow our offshore engineering capability in the Far East, leveraging our existing knowledge on the Cendor field and furthering our relationship with Petronas.”
Petrofac says Malaysia is a very interesting market for it due to the country's many undeveloped fields, which require relatively low-cost/fast-track solutions in order to be developed.
“These represent important reserves for Malaysia and we see an opportunity to unlock their reserve potential using low-cost, innovative development solutions. Together with Petronas, we have enjoyed the benefits of the successful Cendor field development, where we executed an unconventional fast-track oil field development in 16 months, and continue to operate the field to the highest standards.”
Sunday, 27 February 2011
THE recent US$800mil risk-service contract (RSC) awarded by Petroliam Nasional Bhd (Petronas) to a consortium formed by two local parties and a foreign player for the development and production of the Berantai marginal oil field, located 150km offshore Terengganu, has drawn enormous interest for more than one reason.
Firstly, it marks the adoption of a new contract, RSC, for development and production of local marginal oilfields (as oppose to the production-sharing contract used for exploration and production works).
As the bidding for many more local marginal oilfields are to be carried out, local oil and gas service providers stand to reap benefits either by way of being a bidder or as a beneficiary of sub-contracts.
But this also gives rise to questions on how local contractors are chosen, why Petronas has not chosen to undertake development of these fields through its own unit, and will local oil and gas service providers learn quickly enough to go it alone in marginal oil field development in the coming years?
The art of the field
National oil company Petronas president and chief executive officer Datuk Shamsul Azhar Abbas says Malaysia has 106 marginal oil fields containing 580 million barrels of oil, with Petronas having firm plans to develop 25% of the total marginal oil fields to replenish its oil reserves and generate new revenue.
A marginal oil field is defined as a field that can produce 30 million barrels of oil equivalent (BOE) or less.
“For the remaining 75% of marginal oil fields, we don't have plans yet as they require further assessment. We have been working with the Government to come up with another method as the PSC (arrangement) does not encourage the development of marginal oil fields,” Shamsul told a media briefing held late last month.
Shamsul says that two more marginal field contracts will be awarded by April.
The first RSC was awarded to a consortium formed by Kencana Petroleum Bhd, SapuraCrest Petroleum Bhd and Petrofac Energy Developments Sdn Bhd (PED) in January to develop and produce petroleum resources in Berantai over a nine-year period starting from Jan 31 this year.
The joint operating agreement will be 50% owned and led by PED, part of the London-listed Petrofac Ltd group of companies, while Kencana's wholly-owned Kencana Energy Sdn Bhd and SapuraCrest's wholly-owned Sapura Energy Ventures Sdn Bhd would each hold a 25% interest.
Bids for marginal oil fields are called roughly every quarter, with the bid for the Berantai oil field having taken place last October and the next bidding expected to take place in March. As Petronas will cluster four to five marginal oil fields to make it more attractive in drawing bidders, the 26-odd marginal fields earmarked for development will likely be awarded in the next one to two years, says an industry source.
While the estimated cost of development for the Berantai marginal field is pegged at US$800mil, an industry player projects that development cost for the other marginal fields could vary between US$500mil and US$1bil, with the RSCs tenure ranging from three to nine years accordingly.
Although there is certainty that these marginal fields will have petroleum resources, there is no certainty how much can eventually be exploited from these fields.
“For any field under the ground, you are using probability from high up utilising the seismic (method). The chances of misjudgement are high for marginal oil fields, which are smaller in nature compared with bigger (developed) oil fields,” says Dialog Group Bhd executive chairman Ngau Boon Keat. Dialog is an engineering company in the oil, gas, petrochemical and chemical industries and is widely speculated by research houses as one of the front-runners for the RSC job to be awarded down the road.
The seismic method is used for exploration of oil and gas, involving field acquisition, data processing and geologic interpretation.
Kencana Petroleum chief executive officer Datuk Mokhzani Mahathir says each marginal field is unique as its geology and geophysics would vary, thus the business model for each field may differ.
Simply put, if a field is estimated to produce say, 30 million barrels, then development cost would be derived based on that. However, if the field eventually only produces 15 million barrels, the higher development cost will have to be absorbed by the contractor. Therein lies the risk.
“A marginal field needs to be studied very carefully before anybody submits a bid. It is not as simple as people think it is,” says Mokhzani.
However, sceptics point out that the risks faced by the consortium partners are limited and that the players are more likely to recoup their investments, hence make a guaranteed profit as the discovery of petroleum resources is a sure bet in marginal fields, which are essentially discovered fields. Noteworthy is that Petronas will own all the oil and gas extracted and produced from these marginal fields.
There is a concern that the fee structure of the RSC may result in less net income for the national oil company as opposed to if Petronas were to develop these marginal oil fields on its own or together with a niche foreign player.
The foreign player, in the consortium, will act as the main contractor to develop and operate the marginal oil fields. Given that the foreign player will not want to see its margin squeezed through the presence of a local partner (which it is required to tie up with under the RSC), there is concern that Petronas may end up paying out more than it really needs to under these contracts.
These concerns have arisen in the absence of furher details on the RSC. Petronas declined to response to queries by StarBizWeek, specifically on the RSCs, as they are deemed confidential.
But this much, Petronas has made known. The project cost will be forked out by the contractors based on their equity portion and that contractors will receive payment only upon first production, which involves a reasonable return with limited upside.
The contractors also have to meet key performance indicators such as the development cost, production rate and time-frame that have been agreed upon by both Petronas and the consortium, with incentives or penalties triggered depending on the consortium's performance.
The local players are quick to defend their role in the consortium, stressing that they have been chosen solely on the merits of their technical and financial capabilities.
“These are very credible and serious players getting together to provide a service to the client (Petronas). There are (also) other companies in Malaysia which can chip in to do different things. The client will have to vet these companies based on their criteria, which are extremely high, such as technical expertise, competencies, the track record of having delivered projects on time within cost and the balance sheet to take on such big projects,” says Mokhzani.
Sapura Group president and chief executive officer Datuk Shahril Shamsuddin says that one way of ensuring the local partners carry their weight in the consortium is the investment that will be pumped in according to their equity portions.
“To ensure that the locals can execute the job, Petronas has asked us to put in our own money so that if we make a mistake, we'll get burnt. US$200mil is like half of our cash reserve, so the motivation to do things right is very high!” says Shahril.
Both Mokhzani and Shahril emphasise that Petrofac chose them as its partners due to their respective long-standing working relationships.
“This is a fast-track project, so they need someone with competencies and in our case it was in laying the pipes to do subsea infrastructure installation to manufacturing subsea equipment. They wanted to look for a partner that will not drop the ball it is about risk mitigation as well as sharing of risk,” says Shahril.
While the foreign player is at liberty to choose its local partner, the buck does not stop there. According to an industry source, Petronas would also need to sign off on the local partners selected by the foreign companies.
“There are some people who just want to be agents ... they want to get the job and then outsource the work. But Petronas will not allow these agents to be bidders. The bidders will have to be real oil and gas service providers that are listed,” the source adds.
Although there may be some 15 local companies involved in the oil service presently, only half may have the financial muscle to pull off the financing involved as a partner in marginal oil field development.
Thus, it can be expected that the remaining local companies to be awarded the RSCs will continue to draw much attention and scrutiny from the public.
A sweet deal
If an average marginal oil field produces 30 million BOE and is sold at an average crude oil price of US$80 per barrel minus the development cost of US$800mil, Petronas would make US$1.6bil without taking into account the “reasonable return” paid to the consortium partners.
An industry source says that potential return on marginal oil field development for the contractors can be as high as 15%, in line with returns seen for upstream works.
For illustration, a 15% return on the Berantai field development works out to be US$120mil (RM360mil). This means that local players Kencana and SapuraCrest could see gross profits of up to RM90mil respectively based on their equity portion, which breaks down further to RM10mil yearly per company over the contract period.
OSK Research Sdn Bhd says it expects potential revenue and earnings for Kencana to comprise a combination of fabrication of oil and gas structures as well as some installation revenue.
“We understand that the net fabrication margin for this project is about 15%. Going forward, margins are expected to improve, especially when the company starts to manage the oilfield in 2012, by which time margins could well exceed 50%,” its report on Kencana last month said.
However, both Kencana's Mokhzani and Sapura's Shahril remain mum when asked on their expected returns from the Berantai project.
Industry observers have also wondered why Petronas has not formed its own unit for the development and production of marginal oil fields, especially since it is the custodian of the country's oil and gas reserves.
While it is a question best left answered by Petronas, chiefs of the local oil and gas companies offer a few possibilities.
Shahril says that it makes more sense for Petronas to deploy larger investments and its human capital for larger exploration and production projects that bring in higher returns.
“Take two companies Company A with RM10bil assets invests RM300mil to make annual returns of RM1bil while Company B with RM100bil assets invests RM3bil to make RM10bil annually. Company B, which has a larger asset base, would represent Petronas,” he explains.
Ngau says that Petronas would typically focus its manpower to develop larger fields as opposed to operating marginal oil fields.
Another corporate head agrees, saying that Petronas has to focus its limited manpower, especially with many of its engineers being sought after by Middle Eastern oil and gas companies.
“Many Petronas engineers were offered salaries that were four to eight times higher by the Arabs, several years ago. So the manpower now has to be used for bigger projects,” he adds.
Big boys don't try
Petronas' Shamsul had mentioned that oil majors, such as Shell and ExxonMobil, are not keen to develop marginal fields as they are considered “sub-economic”. While marginal fields may be part of their local PSCs, some of these foreign majors have chosen to relinquish them, passing them back to Petronas largely owing to lack of interest.
Shamsul adds that a key motivation in getting the foreign players to tie up with the locals is to allow the latter to broaden their technical expertise and knowledge.
Acknowledging that local oil and gas service providers cannot become exploration and production players, Shamsul says that local service providers could become development and production players.
“The local guys can't do it themselves, so we need to bring in the teachers and upgrade the capability of local players,” says Shamsul.
There are many foreign oil companies in the world which focus largely on marginal oilfields. They include London-based Petrofac, US-based Newfield Exploration Co, UK-based Salamander Energy Plc, Abu Dhabi's Mubadala Oil & Gas, Australia's Roc Oil Co Ltd, French-founded Perenco Group and Swedish Lundin Petroleum AB.
If these projects take off as planned, it will have a multiplier effect on the economy such as job creation while retaining the wealth within the economy (as opposed to awarding all of it to foreign players who are likely to expatriate their profits to their respective home base).
In addition, it could also increase the possibility of local companies, one day, venturing into the development of marginal oil fields overseas.
While industry players hope to acquire the relevant skills to become the main contractor of marginal oil fields in the next five to seven years, Shahril is gunning for his company to do it within three to four years.
“We need to learn to complete our value chain now. What happens to the local oil and gas industry when all the oil here runs out? So we've gotta start developing our capabilities now to get the jobs out there in future,” he says.
All of that, of course, will depend on whether the plan to award local players a stab at developing marginal oil fields in the country and its aim to allow them to tap the skills and know-how of foreign oil companies to better compete for jobs abroad, will work out as planned. Until then, the process will be closely scrutinised by market watchers.
Saturday, 26 February 2011
Revenue rose to RM2.633 billion from RM2.419 billion, the company said in a filing to Bursa Malaysia Tuesday.
"The increase in profit was mainly due to higher revenue and lower cost of revenue," it said.
Commenting on the company's prospects, it said revenue from the new fee structure under the Gas Processing and Transmission Agreement (GPTA) was dependent on the volume of the gas processed at the gas processing plants as well as volume of gas delivered directly into the pipeline network.
"The performance based structure will continue to provide Petronas Gas with additional earnings potential which is dependent on the level of production of by-products and their prices.
"As internal gas consumption is provided by PETRONAS, Petronas Gas's exposure to fuel gas price fluctuation is eliminated," it said.
It added that the revised terms under the GPTA do not introduce new operating risks to Petronas Gas. It better defines the obligations of the parties to the GPTA, it said.
Meanwhile, it said prospects for the utilities business would depend on the pace of economic recovery and any variation in gas price would be reflected in the pricing to customers.
Friday, 25 February 2011
Reflecting the change in direction, the company said that its Petgas Trading (UK) unit has changed its name to Petronas Energy Trading.
Klaus Reinisch, CEO of Petronas Energy Trading, said in a statement: "With its new corporate identity and strategic vision, Petronas Energy Trading will continue to invest in a growing portfolio of energy trading positions in Europe's liberalized energy markets to create a successful sustainable asset-backed trading business in Europe."
Petronas is one of the owners of the UK's 6 billion cubic meter/year Dragon LNG import terminal in southwest Wales, which started operations in 2009. Petronas owns 30% of the terminal, while Dutch operator 4Gas has 20% and the UK's BG Group 50%.
In addition to being part-owner of the facility, Petronas has right to 50% of the throughput capacity, with BG Group holding the other 50%.
Reinisch said: "Leveraging the strength of Petronas and its leading global position in LNG and energy infrastructure, we will focus on optimizing our existing Dragon LNG terminal send-out capacity in the UK, and invest in natural gas storage, transportation, and gas-to-power tolling capacity in combination with a growing physical gas and power as well as carbon credit portfolio to generate growth and enhanced capability for the Petronas Group." Gas-to-power tolling deals normally involve a supplier providing the gas to a power plant belonging to another company, then offtaking the electricity that is produced from the fuel.
Petronas is also the owner of the UK's Star Energy, a gas storage developer that operates the Humbly Grove gas storage facility in Hampshire, and has other projects proposed including Albury gas storage in Surrey.
Thursday, 24 February 2011
ENGINEERING and construction group Ranhill Bhd says the RM1.08 billion contract it won recently for a regasification project in Malacca will help sustain its involvement in the oil and gas sector.
"Winning the job means our core business of engineering and expertise are being recognised. It speaks well of us.
"Locally we are back in the (oil and gas) game and we expect more projects from Petronas," Ranhill executive director Datuk Chandrasekar Suppiah told Business Times in an interview.
A consortium led by Ranhill was recently awarded the construction of the liquefied natural gas (LNG) regasification unit, together with island berth and subsea pipeline, by Petronas Gas Bhd.
The two-member consortium comprises Ranhil's unit, Ranhill WorleyParsons Sdn Bhd with a 70 per cent stake, and Muhibbah Engineering Bhd (30 per cent).
Chandrasekar said Ranhill WorleyParsons is on the right footing to secure more jobs, with marginal fields currently in the play and Petronas expanding its global reach.
Ranhill president and chief executive Tan Sri Hamdan Mohamad said the RM1.08 Petronas job will contribute positively to its earnings as early as this year.
"This is a big win for us and it will showcase our expertise and capabilities in engineering," Hamdan said.
The consortium is expected to start construction in April and complete the job by the end of July 2012.
The facilities, which will be located near Sungai Udang Port in Malacca, will have a maximum send-out gas capacity of 3.8 million tonnes per year.
Hamdan said central to the facilities is the regasification plant that will regasify LNG, after which the gas will be transmitted into the Peninsular Gas Utilisation pipeline.
Meanwhile, Chandrasekar said he expects Ranhill to do better this year and going forward due to better prospects, driven by its strategic planning.
For the first quarter ended September 30 2010, Ranhill posted a net profit of RM15.6 million on the back of RM443 million revenue.
Ranhill currently has RM7 billion worth of jobs in hand, with a healthy 58.3 per cent being international contracts and 41.7 per cent local.
Chandrasekar said Ranhill is bidding for bigger projects in Malaysia under the Economic Transformation Programme, and in the Middle East, India and Southeast Asia, worth over RM2 billion.
The projects are mainly in areas of power, water, oil and gas, as well as infrastructure involving highways, railways, bridges, ports, airports, hospitals and academic facilities.
"Ranhill is in the game for most of the projects as we have expertise in four core areas. That has always been our winning point," Chandrasekar said.
Wednesday, 23 February 2011
Briefing on the coming five-year plan of the Ministry to employees, Sinkinesh Ejigu, Minister of Mines, noted that the government of Ethiopia has concluded negotiations with Petronas officials with mutual understanding and retained back all the five blocks that the company was exploring.
In October 2010, it was reported that Petronas has decided to transfer its exploration activity in Ethiopia to a US based company, SouthWest. “We have agreed with Petronas officials amicably that there will be no transfer and based on our agreement all the five blocks are now in the hands of Ethiopian government,” the Minister said, responding to newbusinessethiopia.com reporter at the press briefing session following her meeting with the employees last Thursday (February 17, 2011).
“Now we are planning to auction the blocks for other international oil exploration companies,” said, Sinkinesh refused to go into the details on how the deal was concluded with Petronas. According to the minister, government is very much strict and will do all the due diligence on the potentials of the companies before awarding the exploration sites-
Her ministry makes sure that the companies to who it will award the sites, ‘are not brokers who plan to transfer the explorations sites to a third party’, according to the minister who commends Petronas for the infrastructures it has built in Ethiopia over the past years investing hundreds of millions of US dollars.
“We are very much grateful for what Petronas have done in Ethiopia and we respect their decision. We hope to see the company investing in other business streams in Ethiopia in the future,” she said.
Petronas, which decided to quit its oil exploration activity in Ethiopia after spending over 350 million US dollars in the past seven years did not mentioned why it has decided to quit exploration.
Petronas Carigali Overseas Operations (PCOSB) has been in operation in Ethiopia since 2003. Six Petroleum Production Sharing Agreements (PPSA) - five explorations and one development were signed between the Malaysian company and the Government of Ethiopia.
The PPSA covers two distinct regions namely Gambella, which is located in the western part of the country Sudan border and Ogaden Basins. Meanwhile a few years ago, the company has concluded its exploration in Gambella region indicating that there is no oil.
In the eastern part of the country, Ogaden, the company has been working on eight exploration blocks and two development fields until the management finally decided to stop exploration and withdraw from the country.
Now all exploration blocks found in the Ogaden Basin: the Ethiopian government takes 3 & 4, 11 & 15, 12 & 16, 17 & 20 and the Calub & Hilala contract area back. The blocks are proven hydrocarbon bearing sedimentary basin in Ethiopia, with proven gas reserves of 2-4 trillion cubic feet.
Monday, 21 February 2011
Chief Minister Datuk Seri Musa Aman said this was to address the critical shortage of power supply in the east coast, especially since the proposed coal-fired power plant project was recently scrapped.
“I know that we have a critical problem in terms of providing stable electricity to the people in the east coast, and not many know that TNB was subsidising RM2 million a day for diesel used in the various independent power plants there,” he said at Gerakan’s Chinese New Year and Chap Goh Mei celebrations here today.
Musa said the venture between Petronas and TNB was a directive by Prime Minister Datuk Seri Najib Razak during the recent National Economic Action Council (NEAC) meeting, which came prior to his meeting with the premier, together with Deputy Chief Minister Tan Sri Joseph Pairin Kitingan and state Industrial Development Minister Datuk Raymond Tan on the proposed coal-fired power plant.
During that meeting, Musa told Najib of the Sabah people’s unhappiness over the project.
Meanwhile, Gerakan president Tan Sri Dr Koh Tsu Koon said the party fully supported the decision by the government to scrap the proposed coal-fired power plant project, that was in line with the sustainability concept under the New Economic Model.
“This (decision) reflects the commitment of the chief minister and the BN (Barisan Nasional) to continue to make environment as its main agenda. So, this is most welcome,” he said.
Koh, who is also minister in the Prime Minister’s Department, said the scrapping of the project was one of three reasons for BN to smile in the Chinese New Year of the Rabbit.
The other two, he said, were the victory in the Batu Sapi parliamentary by-election and Gerakan receiving many new members. — Bernama
Saturday, 19 February 2011
Sabah Progressive Party (SAPP) urged the government to speed up construction of the alternative gas-fired power plant without much delay.
Assistance Secretary General, Suaib Mutalib said that already three years had been wasted due to the government’s indecision on the coal-fired power plant that saw its proposed location being changed three times.
“If the government made a firm decision during the first time it received objection from the people, an alternative power plant would have already been decided.
“Perhaps, the project could have started by now,” he said in a statement here Wednesday.
Suaib who is also SAPP Tungku CLC Chairman said people in the East Coast are yearning for a reliable electricity supply, hence urged the government to really speed up the construction of alternative power plant.
Chief Minister Datuk Seri Musa Aman announced on Wednesday that the project had been scrapped as the Prime Minister was concerned about the wellbeing of Sabah’s environment and the people’s sensitivity.
Friday, 18 February 2011
Some 100 million barrels of oil and 2.8 trillion standard cubic feet (tscf) of natural gas were discovered from two exploration blocks there.
Spurred by the success, Petronas plans to drill more than 50 exploration wells off Malaysia over the next three years.
“These activities, especially if they result in discoveries, are expected to boost business opportunities in the oil and gas industry and will promote upstream investment in the country,” it said in a press statement yesterday.
A research report said the new oil and gas finds represent 2% of oil reserves and 3% of natural gas reserves.
“These new discoveries underpin our optimism for the industry, as (they) prolong the lifespan of Malaysian reserves – 24 years for crude oil and 38 years for natural gas,” said the report by AmResearch yesterday.
Commenting on the latest find, Petronas said 2.6 tscf of natural gas was struck after drilling almost 4km below sea level at the NC3 well at the SK316 block.
Over at another block called SK306, some 100 million barrels of oil reserves and 0.2 tscf of gas were found after drilling extended beyond 3km.
The well at SK306 block, called Spaoh-1, is currently being prepared for production testing.
Production test results had shown that the deposits were technically recoverable, added the statement.
The decision to concentrate on exploration activities in Malaysia rather than overseas was made recently, with Petronas deciding to engage Malaysian companies to help drill for oil at marginal oilfields offshore.
Petronas had found 106 marginal fields containing 580 million barrels of oil, and believed the high price of crude today makes such drilling activity viable.
Thursday, 17 February 2011
Early estimates showed a total 2.8 trillion cubic feet of natural gas and 100mil barrels of crude at two wells off the coast of Sarawak, it said in a statement yesterday.
“These discoveries are expected to further enhance exploration potential offshore Sarawak. In the next three years, over 50 exploration wells are expected to be drilled offshore Malaysia by Petronas and its production-sharing contractors,” it added.
The nation’s crude and natural gas production has fallen for two straight years, declining to the equivalent of 1.63mil barrels of oil a day in the year ended March 31 from 1.66mil a day a year earlier, according to Petronas’ 2010 annual report.
The country has responded by offering companies incentives to explore deeper and less-profitable fields in a bid to increase reserves as energy demand rises.
Wednesday, 16 February 2011
“We are optimistic of a positive outcome with regard to matters relating to the oil industry, which is critical for the socio-economic sustainability in north and south Sudan,” a Petronas official said in response to queries from StarBiz.
“As a responsible business entity, Petronas has in place steps and measures to protect and safeguard its people, assets and resources, wherever it operates,” the official said.
The anxiety over the future of Petronas' operations in Sudan arose after the south voted to split from the north in a referendum conducted in January.
The official results of the vote, released earlier this week and confirmed early reports of overwhelming support for the split, showed nearly 99% of the people in the south wanted independence from the north.
The secession of south Sudan is expected to be formalised in July and a number of issues are yet to be sorted out, chief among them the petroleum revenue rights of the north to the oil fields in the south.
Petronas has been in Sudan since 1997 after being invited by the country to pursue exploration and development works in two concession areas.
The national oil firm said that part of its success as a long-term investor in Sudan could be attributed to its “long-term view and commitment, values and professionalism”.
“We believe the same would carry us through moving forward post-referendum,” the Petronas official said.
Petronas has long-term ties with Sudan President Omar Hassan al-Bashir and now it has to build a similar relationship with authorities in the south ahead of the secession.
“In Sudan, we are closely monitoring the development with regard to the referendum, and we have been taking adequate steps and actions to best serve our rights and interests,'' the Petronas official said.
“At the same time, we have had and are in continuous discussions and high-level engagements with all relevant officials and parties, including with the government of south Sudan, on our intention and way forward in growing our business,” the official said.
Sudan is an important cog in Petronas' international operations. Last year, Sudan's production of crude oil accounted for 26% of the total international output in barrels of oil equivalent.
In 2010, international operations were the largest contributor to Petronas' revenue at RM98.1bil or 45.3% of total revenue. Petronas' total revenue for its 2010 financial year was RM216.4bil.
Tuesday, 15 February 2011
Hong Kong-based SouthWest announced on Oct. 6 that it purchased the oil and gas fields in the arid region where rebels have been fighting the government for more than three decades. In April 2007, the Ogaden National Liberation Front attacked an exploration site operated by China’s Zhongyuan Petroleum Exploration Bureau, killing nine Chinese workers and 65 Ethiopians.
Monday, 14 February 2011
Dayang is also likely to emerge as one of the companies with the strongest earnings growth in the oil and gas sector.
“The latest win puts Dayang's order book at RM1.8bil, giving it five years of earnings visibility. The contract would be on a call-up' basis, and we believe the overall contract value is likely to be higher than the original value because there is almost always additional work required,” said Hwang DBS.
“It was a widely anticipated development. We believe that news on contract flow has been pretty much priced into Dayang but other catalysts have now emerged,” said ECM Libra Investment, adding that the group's recent fund-raising exercise of RM245mil indicated that it was out shopping.
“Whether they are buying new assets (in the form of workboats or barges) or buying out competitors remains to be seen,” ECM Libra said.
The group's wholly-owned subsidiary Dayang Enterprise Sdn Bhd received the contract from Petronas Carigali. It involves the provision of topside structural maintenance services in Sarawak, Sabah and Peninsular Malaysia.
It said the contract was from Feb 2, 2011 until Feb 1, 2016.
Besides the latest job, Dayang has a topside maintainence contract from Shell until 2016, while other contracts include hook-up commissioning projects.
The group said the new project would “contribute positively'' to its earnings and net assets for the financial year ending Dec 31, 2011, and the subsequent financial periods within the duration of the contract.
Managing director Tengku Datuk Yusof Tengku Ahmad Shahruddin, when contacted by StarBizWeek yesterday, declined to reveal the amount of contributions expected. However, analysts have estimated that the contract would contribute between 10% and 15% to the group's 2011 earnings.
Tengku Yusof said the new contract would require two workboats, and that Dayang was expected to take delivery of a new workboat at the end of this year.
The 80m x 22m workboat, costing nearly RM70mil with the capacity for up to 200 people, is being built by Shin Yang Shipping Corp Bhd in Miri, Sarawak.
“If Petronas Carigali requires a third workboat, we may have to charter it from a third party,'' Tengku Yusof added.
Dayang currently owns four workboats, which are on long-term charter to clients, including those in Brunei, and a supply vessel.
Tengku Yusof said the group had tendered for several offshore fabrication and maintenance projects, the outcome of which was expected in the second quarter of this year. “Most of these projects are in Peninsula Malaysia.'' he said.
Saturday, 12 February 2011
The move is aimed at meeting rising natural gas demand in Thailand and reducing dependence on oil imports after a surge in crude oil prices, Chief Executive Anon Sirisaengtaksin told reporters.
"PTTEP is planning to produce petroleum in the Gulf of Thailand as long as we can. Some may expect natural gas to be exhausted in the next 20 years. With new technology, we expect to extend the production period to be longer than that," he said.
PTTEP, a subsidiary of top energy firm PTT Pcl), has joined with Petronas Carigali, the exploration and production arm of the national oil firm, to explore and produce gas at two blocks at JDA, B-17 and C-19, Anon said.
Last year, the JDA field produced about 335 million cubic feet per day, accounting for 10 percent of Thailand's domestic consumption, he said.
PTTEP has set budget of up to 20 billion baht ($649.6 million) to explore gas at its developing oil and gas fields, including JDA, but had not concluded the talks or agreed details on the proposal with Petronas, he said.
Friday, 11 February 2011
Technip said in a statement issued via its website that the contract involved front-end engineering and design (FEED) for a FLNG unit with annual capacity of one million tonnes.
The contract is scheduled to be completed by the second half of this year.
“This strategic project combines technologies and know-how from Technip's three business segments onshore process of natural gas liquefaction, offshore floating facilities and subsea infrastructures,” Technip said.
The statement did not provide any contract value.
Both Petronas and MISC officials could not be reached for comment as yesterday was a public holiday in Kuala Lumpur while Technip did not respond to e-mailed questions.
Technip, which provides solutions and technology for project management, engineering and construction in the oil and gas industry, has previously been awarded FEED contracts for FLNG units by other oil majors.
In December 2009, it won a FEED contract for a proposed FLNG by Brazilian federal energy company Petrobras and was also part of a consortium awarded a FEED contract for a FLNG by Shell Gas & Power Developments BV in mid 2009.
Last August, Technip entered into an agreement with MISC and its subsidiary, Malaysia Marine and Heavy Engineering Holdings Bhd (MHB), to form a long-term strategic collaboration.
The collaborative areas include working jointly on onshore and offshore projects, designing and building offshore platforms, exchanging expertise and developing technology.
To cement the collaboration, Technip became a cornerstone investor with a 8% stake in MHB when the latter undertook an initial public offering late last year before its listing on the Main Market of Bursa Malaysia.
Technip has worked with the MISC group previously and is currently co-contractors with a MHB unit for Petronas' onshore and offshore facilities in Asia.
With presence in 48 countries, Technip has operating centres and industrial assets (manufacturing plants, spoolbases and construction yard) on five continents, and operates its own fleet of specialised vessels for pipeline installation and subsea construction.
The company has integrated capabilities and expertise in underwater infrastructures, offshore facilities and large processing units and plants on land.
Thursday, 10 February 2011
Oil prices have spiked due to tension in Egypt. Brent crude hit US$100 per barrel for the first time since 2008 on fears instability could spread through the Middle East, which together with North Africa pumps over a third of the world’s oil.
“I expect oil prices to reach US$110 during the first half of 2011, however, it could go above that level if Egypt’s current crisis continues,” Imad al-Atiqi, a member of the Opec member’s highest oil policy body, told Reuters in a telephone interview.
“A huge amount of oil passes through the Suez Canal and the country’s stability is essential for the Middle East’s stability, particularly Israel,” he said.
Egypt is a small oil and gas exporter and the main danger of the unrest is seen as the closure of the Suez Canal or the Suez-Mediterranean (SUMED) oil pipeline which passes near Cairo.
The canal ships 1.5 million barrels per day (bpd) of crude and the pipeline carries one million bpd. Together they account for nearly three per cent of daily global oil demand.
On Thursday, Egypt’s Prime Minister Ahmed Shafiq said the Suez Canal was operating normally despite the unrest.
Some oil-focused bankers and fund managers say that even if unrest in Egypt cuts flows along the strategic pipeline and the Suez Canal, the oil price spike would likely be short-lived and flows would resume quickly, regardless of whoever is in power.
Opec members are comfortable with an oil price ranging between US$90 to US$100 a barrel, Atiqi said, adding the group could meet before their scheduled meeting in June if prices continued rising quickly above US$110 a barrel.
Opec ministers and consumers will discuss oil output policy on the sidelines of an international energy conference in Saudi Arabia on February 22, but a formal decision there was unlikely, the Opec secretary general had said.
Opec says it has spare capacity of 6 million barrels to meet lost output but would do it only when it sees a shortage in the market rather than speculator-driven rallies. — Reuters
Wednesday, 9 February 2011
Domestic Trade, Cooperative and Consumerism Minister Datuk Seri Ismail Sabri Yaakob said the Cabinet had not discussed the fuel price hike.
“The government does not raise fuel prices at its whim and fancy as a thorough study had to be conducted first before a decision is made,” he told reporters at the Bera parliamentary constituency’s Chinese New Year open house in Triang near here today.
Ismail Sabri, who is also MP for Bera, said based on prevailing situation, crude oil prices would continue to escalate, thereby putting undue pressure on government subsidies.
“Egypt turmoil pushes crude oil price over US$100 a barrel as Egypt is also an oil producer, thus affecting the world’s oil production,” he added.
He said the government provided subsidies amounting to RM6.3 billion for petrol and diesel last year. — Bernama
Monday, 7 February 2011
Demand is expected to continue to increase, though less dramatically, in 2011 and there is a possibility oil prices may top US$100 per barrel in the first quarter of 2011.
Dale Nijoka, Ernst & Young's Global Leader for Oil & Gas, says: "Spare production and new refining capacity should be ample to absorb short-term demand growth. However, if developed markets really start moving forward this year, there will be oil demand implications. With oil prices likely to tip over US$100 per barrel, we're continuing to see a big disconnect between oil and gas prices."
Below is the statement issued on Tuesday, Jan 25
The last quarter of 2010 saw the greatest spike in demand the world has experienced since 2004, and the second greatest since 1980. While demand is anticipated to continue growing as the market improves, the rate of increase is not likely to be as dramatic as year-end 2010. Unknowns, including economic improvement in Europe and demand from China and India, will significantly impact the demand picture.
Continued increasing energy demand and higher oil prices would create an opportunity for alternatives to oil and thus a ripe environment for marked increases in natural gas use and the development of alternative and renewable energy sources.
Strong growth in shale gas production, oversupply in the market and low prices continue to plague natural gas producers. In order to capitalize on higher oil prices, there has been a marked shift in shale production from gas to liquids. This could somewhat ease the flood of natural gas in the market. Additionally, growth in demand could come if we see support build for natural gas as a transportation fuel or if carbon emissions are further regulated. And, until the price of gas goes up, alternative energy providers are not able to compete without significant subsidies.
Following 2009, a year characterized by record-low margins, the first half of 2010 was a marked improvement for the downstream sector. However, margins fell very quickly for refiners in the summer, after the spring peak and by the third quarter, margins were making gains once again. The segment finished strong last year, indicating that it may have rebounded from the bottom. With ample capacity and more expansions and re-openings coming online in the near future, the downstream industry is well positioned to respond to demand increases.
With spending increases pushing 20% in 2010, the oilfield services sector had a good year, and 2011 is shaping up to be even busier. Recent spending plans announced by major integrated companies, including ExxonMobil, Shell and Chevron, indicate the industry is eager to ramp up investment in an effort to meet demand. However, regulatory uncertainty surrounding offshore production in certain geographies and hydraulic fracturing in relation to shale gas will continue to impact operators' long-term planning abilities.
The announcement by SapuraCrest Petroleum Bhd (SapuraCrest) of a RM98 million contract to provide transportation and installation of offshore facilities for Yetagun Phase 4 development offshore Myanmar was seen by analysts as the beginning of more contracts for the group.
According to ECM Libra Capital Sdn Bhd’s (ECM Libra) head analyst Bernard Ching, SapuraCrest was also likely to secure the Kebabangan-Malikai pipelay job this year worth some RM3 billion, similar to the Gemusut-Kakap pipelay job.
“Also, we understand that the group is in talks to acquire a new heavy lift derrick pipe lay barge through its Sapura-Acergy joint venture,” Ching highlighted.
The Yetagun development contract which was slated for October-November 2011 represented the monsoon season job that SapuraCrest would take on since the group would then have available capacity. It secured the contract from Petronas’ PC Myanmar (Hong Kong) Ltd.
AmResearch Sdn Bhd (AmResearch) in a separate report expected SapuraCrest to employ either of its two pipe lay construction
vessels – the LTS3000 or the QP2000 – to be used for this project.
The research firm added that this represented the first contract which SapuraCrest had secured this year, after the US$160 million (about RM504 million) Montara job in November last year.
“While this project will add a slight one per cent to the group’s outstanding gross order book of RM9 billion, we believe that this is just a foretaste of the pipeline of massive new orders given SapuraCrest’s established capacity in securing new jobs domestically and overseas,” quoted AmResearch.
The Yetagun project would take only 40 days long and AmResearch revealed that this contract would add to the group’s financial year 2012 forecasts (FY12F) by two per cent.
Sunday, 6 February 2011
Washington-based Global Financial Integrity (GFI), in its report entitled ‘Illicit Financial Flows from Developing Countries: 2000-2009’ released on January 18, reported that Malaysia was one of top five Asian countries that continued to produce the largest portion of illicit flows between 2000 and 2008. In 2008 alone, the total amount of outflow from these five nations almost reached US$500 billion.
On an average, these five countries accounted for 96.5 per cent of total illicit flows from Asia, and 44.9 per cent of flows out of all developing countries. Malaysia recorded a total of US$291 billion in illicit outflow throughout the eight-year period.
“This statement is completely false,” said Petronas in a released statement from Kuala Lumpur.
“Indeed, on its face, it is based upon a misquotation of a prior news article that the report cites as support for this statement. Petronas is pursuing its legal remedies against those responsible for this report, and intends to take all other appropriate steps to protect itself against any further publication of this false statement,” the group added.
Saturday, 5 February 2011
The loss, equivalent to ?3.579 billion (?1 = RM4.16), compared with a profit of US$13.955 billion in 2009, while the costs estimate was lifted from the previous forecast of US$40 billion.
"For the full year, the reported result was a loss of US$4.9 billion, including a total pre-tax charge related to the Gulf of Mexico oil spill of US$40.9 billion," BP said in an official results statement.
The group also announced that it will resume payment of its quarterly shareholder dividend, which was suspended in the wake of last year's devastating Gulf of Mexico oil spill.
Last year's Gulf oil disaster was triggered by a blast on the Deepwater Horizon rig - leased by BP - that killed 11 workers on April 20.
The broken well was eventually plugged but not before it gushed about 4.9 million barrels of oil into the Gulf waters.
The spill ruined hundreds of miles of coastlines and caused BP's share price to collapse as its reputation took a hammering.
The catastrophe sparked the resignation of chief executive Tony Hayward and led BP to announce that it was selling assets worth up to US$30 billion.
BP also revealed that it will seek to sell two major refineries, including its Texas City facility, as the company seeks to halve its refining capacity in the US following the catastrophe.
Back in 2005, 15 workers were killed in a deadly explosion at the Texas City refinery.
BP's results statement was published one day after world oil prices rocketed past US$100 per barrel for the first time since 2008, boosted by fears about the impact of the Egypt crisis on global crude supplies. - AFP
Friday, 4 February 2011
This would mark the first time the national oil company has awarded a risk-service contract (RSC) (as opposed to a production-sharing contract) for the development and production of petroleum resources in the country.
The joint operating agreement (JOA) will be 50% owned and led by PED, part of London-listed Petrofac Ltd Group of Companies, while Kencana's wholly-owned Kencana Energy Sdn Bhd and SapuraCrest's wholly-owned Sapura Energy Ventures Sdn Bhd would each hold a 25% interest, said both companies in an announcement to Bursa Malaysia.
The operating parties will be jointly responsible to provide field development plan, execute and complete the plan including its funding and carry out production of petroleum resources from the Berantai field over the course of the RSC, which is for a nine-year period starting from Jan 31. The project is targeting first gas by end of December 2011 with the first development phase of 18 wells expected to be completed by end-2012.
“This is a very fast-track project to be delivered by year-end (for the first gas production). It's not a normal timeline but with the concerted effort of all the three parties ... (we are quite confident of meeting the timeline).
“We do not own the concession but we are proud Petronas has given Malaysian companies a chance to participate and take on more risks. We estimate the development cost to be a minimum US$800mil. It all depends on the first phase of production ... there may be a second phase, so the expenditure could go up,” Kencana's group chief executive officer Datuk Mokhzani Mahathir told StarBiz.
SapuraCrest executive vice-chairman Datuk Shahril Shamsuddin said: “We need to work very fast as the timeframe is tight. But it's not unachievable. We have allocated resources to ensure this project is completed on time. The whole idea is to bring local companies into the value chain.
“There are no freebies in this. The risks are real and it's a serious project.”
The rights and liabilities of each party will be in proportion to their respective interest in the JOA. Kencana Energy and Sapura Energy's contribution into the development cost would be approximately US$200mil each. Kencana Petroleum said it will fund this via internal funds, borrowings and proceeds from equity/debt fund raising exercise.
As at end-July 2010, Kencana Petroleum Group's borrowings stood at RM225.9mil. Assuming that 50% of Kencana Energy's cost to develop the project is funded through borrowings, the total borrowing of Kencana Petroleum Group will increase by RM310mil to RM535.9mil.
Accordingly, the company said its gearing, after adjusting for the private placement of 166.70 million new shares, would increase from 0.30 times to 0.47 times.
Sapura, for its part, said it would fund the job through a combination of internal funds and external borrowings.
The operating team undertaking the project shall comprise personnel from each of the operating parties.
“Overall supervision and direction of the operations are vested in a management committee consisting of representatives from each of the operating parties. Each of the operating parties shall have the right to deploy works and services to the project,” said the companies.
Kencana said the contract presented the opportunity to expand its service offering within the upstream oil and gas services and move up the value chain as a field developer and operator while extending the group's earning visibility.
For SapuraCrest, it said the contract would mark a “step change in ascending the oil and gas value chain and developing new competencies in new areas of the oil and gas industry.”
The project is expected to improve both companies' net asset, net asset per share and earnings per share over the duration of the contract.
The companies pointed out that the risk factors included execution risks such as availability of technical expertise, skilled manpower, materials, changes in prices of materials, and changes in political, economic and regulatory conditions.
The Berantai field is located about 150 km offshore Terengganu. The development of the Berantai field will involve the provision of one well-head platform with 18 wells together with related pipeline linking it to another existing platform and a provision of a floating production, storage and off-loading vessel. A second well-head platform is expected to be installed in a subsequent phase.
Thursday, 3 February 2011
Brent futures traded in London, the benchmark price for two-thirds of the world’s oil, surged above $100 a barrel today for the first time in 28 months on concern anti-government demonstrations would close the Suez Canal and adjacent Sumed pipeline, which together can haul more than 4 million barrels of oil a day.
For Egypt, home to Africa’s sixth-biggest oil reserves, crude and natural gas are the biggest source of export income, accounting for about 12 percent of gross domestic product. Refiners in the U.S., the world’s biggest gasoline market, would have difficulty replacing Persian Gulf oil shipments, said Louis Gagliardi, managing director of energy at Hedgeye Risk Management in New Haven, Connecticut.
“The Persian Gulf sends 1.7 million barrels a day to the U.S., and if that ever got interrupted, it would be hard to replace,” Gagliardi said today in a telephone interview. “Go around the world and there’s no way to make up those barrels.”
BP Plc, the largest foreign investor in Egypt, made plans to evacuate the families of expatriate workers as Schlumberger Ltd. and Diamond Offshore Drilling Inc. began relocating staff.
Transocean, owner of the world’s biggest offshore drilling fleet, and Apache Corp. closed their Cairo offices. Apache, a Houston-based company that derived about a third of its 2009 production revenue from Egypt, has lost as much as $5.58 billion in market value since the close of regular trading on Jan. 21.
“The operations remain online and we continue to monitor the situation,” said Patrick Cassidy, a company spokesman. The company operates in a remote area of the western desert, he said.
BG Group Plc and Statoil ASA said they halted drilling in Egypt.
“Due to the uncertainty tied to the current situation and how long it will last, we’ve chosen to reduce activity offshore to a minimum,” said Baard Glad Pedersen, a spokesman for Statoil, Norway’s largest oil company.
Offshore crew changes aboard Transocean drilling rigs have been suspended because helicopter service from the shore has been halted, Guy Cantwell, a spokesman for the Vernier, Switzerland-based company, said in a telephone interview.
Transocean has five rigs operating in Egyptian waters, including the Discoverer Americas, which is under lease to Statoil for $486,000 a day. Transocean has five vessels idle in Egyptian shipyards undergoing repairs or waiting for new customers.
Egypt pumped 742,000 barrels of crude a day and 62.7 billion cubic meters of gas in 2009, according to BP data. By comparison, Saudi Arabia, the world’s largest crude exporter, produced 8.4 million barrels of oil a day in January, according to Bloomberg estimates.
“The real concern from an oil and gas perspective is the risk of political unrest extending to other parts of North Africa,” Bank of America Merrill Lynch said in a report.
Opposition leaders have rallied around Mohamed ElBaradei, the former head of the United Nations’ nuclear watchdog agency, as protesters defied a curfew and stepped up demonstrations against Mubarak.
Eni SpA, Italy’s biggest oil company, is repatriating 250 workers and their families from Cairo, Ansa news agency reported, without saying where it got the information.
Shell said in a statement that a number of its senior and key personnel remain in Egypt.
“We are in touch with all our staff in Egypt, who have been advised to stay at home,” the company said. BG Group, OAO Novatek and OAO Lukoil also began pulling staff out of the country.
Wednesday, 2 February 2011
Petronas, which will award the Sepat and Berantai marginal oil field contracts soon, plans to award two more marginal field cluster contracts by April.
“We are closing the deal now for Sepat and Berantai and will announce the contracts soon. The bidding process for another two marginal oil field clusters is currently ongoing,” Petronas president and chief executive officer Datuk Shamsul Azhar Abbas said at a media briefing yesterday.
Malaysia has 106 marginal oil fields containing 580 million barrels of oil with Petronas having firmed plans to develop 25% of the total marginal oil fields to replenish its oil reserves and generate new revenue streams. A marginal oil field is defined as a field that can produce 30 million barrels of oil equivalent or less.
With oil price currently trading above US$87 per barrel, 580 million barrels of oil can be valued at US$50.46bil.
Petronas will cluster four to five marginal oil fields to make it more attractive for development.
“For the remaining 75% of marginal oil fields, we don't have plans yet as they require further assessment. We have been working with the Government to come up with another method as the product sharing contract (PSC) (arrangement) does not encourage the development of marginal oil fields,” said Shamsul.
Petronas will adopt a risk service contract arrangement for the development of marginal oil fields. The plan is to build up the local oil and gas services industry by getting foreign players to tie up with local service providers.
Shamsul said the new method for marginal oil field development must be an improvement from existing methods, otherwise it would be akin to “Petronas just giving away the assets”.
Petronas is looking for niche development and production (D&P) foreign players with the capability and technology to tie up with local players and become service contractors to Petronas, by forming a local consortia on a full equity partnership.
Typically, the big boys such as Shell and ExxonMobil are not keen to develop these marginal fields. Even though some of them have marginal fields under their local PSCs, some have chosen to relinquish these marginal oil fields deemed sub-economic back to Petronas.
Among the niche D&P foreign players are London-based Petrofac, Newfield Exploration Co, Salamander Energy Plc and Abu Dhabi's Mubadala Oil & Gas.
While Shamsul acknowledged that local oil and gas service providers cannot become exploration and production (E&P) players, he said that local service providers could become D&P players.
“The local guys can't do it themselves so we need to bring in the teachers and upgrade the capability of local players,” said Shamsul.
Petronas hopes that the sharing of know-how with local players will help the latter venture into development of marginal oil fields overseas.
Shamsul added that Petronas was also undertaking a “design competition” among the service contractors, whereby the aim is to try and reduce the development costs and time taken to see the first production from marginal oil fields.
It was earlier reported that the five new incentives announced under the Economic Transformation Programme would help unlock some 1.7 billion barrels of oil equivalent, with investments up to RM75bil over the next 15 to 20 years.
Shamsul said Petronas aimed to boost domestic oil recovery to 40% from the current 26% over the next five years under its enhanced oil recovery programme.
StarBiz reported last week that Petronas was expected to award multi-billion ringgit contracts for the development of marginal oil fields by the end of this month to several consortia comprising local and foreign companies.
It is believed that Kencana Petroleum Bhd and SapuraCrest Petroleum Bhd might form an alliance together with a foreign oil and gas major, as both these local parties had been busy raising capital to fund their expansion plans and were widely speculated to be one of the front runners for these oilfield deals.
Tuesday, 1 February 2011
Muhibbah said on Wednesday, Jan 26 that the contract was for the engineering, procurement, construction, installation and commissioning (EPCIC) alliance for the LNG Regasification Unit, Island Berth and Subsea Pipeline of the LNG Regasification Project.
Under the contract, the consortium will undertake the construction of the LNG Regasification Unit, Island Berth and Subsea Pipeline within the vicinity of the Sungai Udang Port in Melaka.
Muhibbah said the construction works will commence in April 2011 and were expected to be completed at the end of July 2012.
“The contract is expected to contribute positively to the earnings and net assets of Muhibbah Group for the current and future financial years,” it said.