FOR SapuraCrest Petroleum Bhd executive vice-chairman Datuk Shahril Shamsuddin, who turns 50 this year, he has an added reason to celebrate his company, together with Kencana Petroleum Bhd and foreign partner Petrofac have recently bagged a US$800mil contract by Petronas to develop a marginal oil field, the first of its kind ever awarded in Malaysia.
This would be the final piece in the puzzle to lift SapuraCrest's status from a service provider in the oil and gas industry, which it has been involved in for 15 years, to one that is involved in the whole value chain in the development of oil fields, that is, if the partnership with the foreign party works out as envisaged.
For starters, the group will be involved in the installation engineering, lift engineering, design of the pipelines and hook-up of the floating production, storage and off-loading vessel that will be jointly-managed over nine years.
In an interview, Shahril talks about the significance of the latest milestone the company has reached and its plans ahead. Below, excerpts of the interview:
SBW: What would compel Petronas, at this point, to want to involve local players in the development of its marginal oil fields?
Compared to 30 years ago, local players today have acquired the expertise to execute 60%-70% of works in the life cycle of an oil field, thanks to Petronas that has done well in developing the locals to execute work in the oil and gas industry.
For SapuraCrest, since we started this journey in 1997, we have learnt a huge portion of this value chain such as survey works, engineering and pipeline construction. Our company now holds the record for the deepest subsea installation in Asia of about 1,400m deep in the Murphy deepwater project.
And from the development of Berantai, we will learn from our foreign partner (Petrofac) the other aspects in the value chain like the subsurface, front-end engineering and field development.
It's a natural progression for us to master the whole value chain.
As for Malaysia, we have to develop local capabilities now so that they can go out and manage other oil fields. If oil runs out in Malaysia, what will happen to the local oil and gas industry if they do not have the expertise?
Furthermore, by involving the locals, some of the value that is expected to be raised from the projects will be retained in the country given the locals can execute the jobs. Petronas ensures this by having us fork out our own capital in the development.
SapuraCrest's investment of US$200mil in Berantai represents about half of our cash reserves so the motivation for us to do things right is very high.
Why wouldn't the production-sharing contract (PSC) work for the development of marginal fields?
The capital base is too small. If one oil company has a huge capital like US$40bil, it has to do a sizeable investment in order to grow the value. If you put it in too many small fields, it will be too complex to manage. Small projects like this would have very little impact in growing the value of their capital.
Via a risk-service contract (RSC), Petronas still owns the fields at the end of the day while ensuring development of the marginal fields are managed well by the consortium of local and foreign partners, which takes on the construction risks.
Petronas can also deploy its own staff to manage bigger fields. PSCs have its role in the development of bigger oil fields.
What is the certainty that Petrofac will impart the necessary knowledge in managing oilfields to its local partners?
There is a clause in the agreement that we will have a joint-team where each company (in the consortium) has to participate. This will enable us to master the full value chain in developing an oil field.
We have been building infrastructure for oil companies including Petrofac for nearly 20 years. In this consortium, where Berantai is a fast-track project, our competence is needed to lay the pipes and for sub-sea installation.
We are chosen by Petrofac because they need a company with execution assets, that can absorb the technologies and has the capital to share the risks.
There will always be risk-sharing in the development of any oil field and now we've become part of that fraternity. In the future, we could also tie up with Petrofac for developments outside the country.
We want to build our competency. If there isn't any technology transfer that we can leverage on, we would not go into the venture.
What happens if there is no hydocarbon found in Berantai? Will SapuraCrest be compensated?
That is not an issue because there is hydrocarbon there. We have already done our own assessment using a third-party consultant. What's more important is the design and build of the system and how much gas that can be produced, at what rate. It will all depend on how well the system has been configured and designed. These are technical risks and they are not trivial.
Then, what are the risks involved in developing these marginal oil fields?
If the system doesn't work, we do not get paid. It is as simple as that because the key performance indicators (KPIs) set by Petronas are very clear. Production rate, production capacity, when we hit the first gas and cost management are important.
