Egypt turmoil may push oil past US$110, says Kuwait official

Global oil prices could exceed US$110 (RM341) a barrel if political unrest in Egypt continues, a member of Kuwait’s Supreme Petroleum Council said today.

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

Fuel price hikes not yet decided, says minister

The government has no plan yet to raise petrol and diesel prices despite global crude oil prices going over US$100 (RM304.45) a barrel due to Egypt turmoil.
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

Ernst & Young's: Oil demand, prices expected to rise further in 2011

strong global economic growth at the close of 2010 created the second biggest demand spike in the past 30 years, according to Ernst & Young's Oil & Gas quarterly report.

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

Oil
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.

Gas
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.

Downstream
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.

Oilfield services
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.

SapuraCrest a contender for upcoming contracts

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.

Petronas denies linkage to illegal outflows of capital from Malaysia

National petroleum company Petroleum Nasional Bhd (Petronas) has announced no linkage with regards to a recent press articles that repeated a false statement made in a report by a Washington-based policy group that purported to link Petronas to illegal outflows of capital from Malaysia.

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.

BP posts US$4.9b loss

BP yesterday posted a loss of US$4.914 billion (US$1 = RM3.06) for 2010, the group's first annual shortfall since 1992, and raised its estimate of costs arising from the Gulf of Mexico oil spill to US$40.9 billion.

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

Petronas awards US$800mil first ever risk service contract

Kencana Petroleum Bhd and SapuraCrest Petroleum Bhd, together with Petrofac Energy Developments Sdn Bhd (PED), have bagged an estimated US$800mil contract from Petroliam Nasional Bhd to jointly develop and operate an oil and gas field in Berantai.

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.

Datuk Shahril Shamsuddin ... ‘The risks are real and it’s a serious project.’

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.”

Datuk Mokhzani Mahathir ... ‘We are proud Petronas has given Malaysian companies a chance to participate.’

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.

Shell, Transocean Shut Egyptian Offices, Evacuate

Royal Dutch Shell Plc and Transocean Ltd. were among companies shutting offices or evacuating workers from Egypt as the effects of protests against President Hosni Mubarak rippled through the oil industry.

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.

Cairo Closings

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.

Five Rigs

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.

Petronas to award two contracts soon

Two more marginal field cluster contracts to be awarded by April

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.

Ranhill, Muhibbah get Petronas Gas job

Muhibbah Engineering (M) Bhd and its consortium partner Perunding Ranhill Worley Sdn Bhd have secured a RM1.07 billion contract from PETRONAS GAS BHD [] under the LNG Regasification Project.

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.