Saturday, 29 November 2014

No more marginal oil field awards for now

PETRONAS will not proceed with the awarding of new marginal oil fields unless the price of Brent crude settles above US$80 per barrel.

According to Petronas president and chief executive, although the breakeven for marginal oil fields is US$65 per barrel, they will not look into any such proposals until the global price situation stabilises.

“We would be comfortable to embark on marginal oil fields only when the price settles down at more than US$80 per barrel,” he said.

Marginal oil fields were once a hot topic for the investment community. In fact, these projects were touted as a re-rating catalyst for some listed oil and gas players seeking to venture into the upstream segment.

These oil fields are essentially small and old oil fields belonging to Petronas, for which the oil giant sought to partner with international players together with a local partner, to enter into ‘risk service contracts’ (RSC) that would expose the local players into the world of oil exploration. Under the terms, the joint venture between the local and foreign oil and gas companies are responsible for producing the oil.

For meeting the production targets, the joint venture gets paid. However the RSC contractror does not enjoy any upside from the oil prices nor carry any risk should there be a slide in oil prices.

So far among the companies awarded RSC contracts to develop marginal oil fields are SapuraKencana Petroleum Bhd, Dialog Group Bhd and Petra Energy Bhd.

Petronas had in the past identified more than 100 marginal oil fields to pursue RSCs. It was a strategy to grow its reserves.

That was when oil prices were much higher. These contracts were awarded when oil prices were above US$100 per barrel.

In today’s environment of plunging oil prices, RSCs are hardly viable.

According to Shamsul, the breakeven production for marginal oil fields is US$65 per barrel.

If Brent crude is below this level,it is left to be seen if the operations of the existing fields will continue.