Economists say pro-growth policies will offset decreasing contribution
PETALING JAYA: An expanding economy supported by pro-growth and and pro-business policies will help offset the lower contribution in dividend from Petroliam Nasional Bhd (Petronas) to the Government.
Economists who spoke to StarBiz said as long as the Government continued with pro-growth policies that would expand the economy, lure private sector investments and rationalise the subsidy for fuel and other basic staples, the lower dividend from Petronas would not be a major worry.
Petronas president and chief executive office Datuk Shamsul Azhar Abbas had indicated on Wednesday that the national oil company would cut dividend contributions to the Government as there was a need to raise capital expenditure substantially.
Affin Investment Bank Bhd economist Alan Tan said healthy growth and consequently higher contributions from corporate and personal taxes would help offset the lower dividend, which annually averaged RM30bil.
This did not include corporate taxes, which would depend on how much profit Petronas made. Petronas paid RM53.5bil to the Government for the financial year ended March 31, 2010 (FY10), including RM18.7bil in taxes.
This was on top of RM18.9bil in gas subsidy for FY10.
The taxes and dividends paid by Petronas account for over 40% of the Government's revenue. Among other sources of revenue, taxes collected from businesses and individuals amounted to RM86.4bil last year.
“Its important to have pro-growth and pro-business policies which can then lead to more taxes from corporate and personal sources as the economy expands,” Tan said.
He added that to reduce the budget deficit, which the Government had targeted to lower to 5.4% of gross domestic product from 5.6% last year, further fiscal consolidation would have to be pursued.
“This can be done by cutting down on the operating expenditure,” Tan said.
MIDF Research chief economist Anthony Dass said besides direct taxes, the much-debated goods and services tax, which has been postponed indefinitely, could be another avenue, especially since private sector consumption has risen.
“There's also the rationalisation of the subsidy although that will be something that can only happen gradually,” he said.
Meawhile, observers said the reduction in revenue, which would come at a time when the Government was embarking on infrastructure building programmes, might impact Malaysia's sovereign ratings.
However, RAM Ratings Services deputy CEO Chong Kwee Siong said although a major portion of sovereign ratings depended on the ability of governments to finance their budgets and service debt, this would also depend on agency view and benchmark.
“The question to ask is if reduction in government revenue is just temporary,” he said.
Chong said rating agencies would also take into consideration what governments spend on. “It depends on what the budget is spent on, if its investment on infrastructure to boost the economy, then its positive,” he said.
Tuesday, 8 March 2011
Monday, 7 March 2011
Hydrogen Diffusion Demonstration
In our never-ending pursuit to educate the world about hydrogen cracking, DNV Columbus have produced a video that shows the diffusion of hydrogen from welds made using different types of electrodes. It also shows the beneficial effect of preheating and slow cooling and the importance of proper care of low-hydrogen electrodes.
Saturday, 5 March 2011
KNM sees debt falling
CEO says recovering unit Borsig helping to bring down debt level
Process equipment manufacturer to the oil and gas industry KNM Group Bhd expects the company's debt levels to fall further as unit Borsig GmbH is doing better now.
KNM chief executive officer and executive chairman Lee Swee Eng said the company's overall debt levels (at RM1bil) were coming down now as Borsig was doing well.
The company's plans to use Berlin-based Borsig, which was acquired in early 2008 for RM1.7bil, to expand business was somewhat derailed following the global economic recession, which saw oil prices drop as low as US$33 a barrel from over US$147.
Since then analysts and fund managers have been concerned about KNM's ability to pare down debt.
This was made obvious when KNM's share price fell to a nine-week low of RM2.43 last Thursday after the company's net profit for the fourth quarter ended Dec 31, 2010 tumbled 63.99% to RM20.63mil from a year ago while revenue was 7.75% lower at RM384.23mil.
For the full year, the company posted a net profit that was 49.64% down at RM131.20mil from revenue that fell 15.24% to RM1.55bil on lower job orders, lower contribution margins and higher operating costs.
“I don't understand the concern really,” Lee told reporters yesterday following a road show by Germany Trade & Invest to showcase the soon-to-be-completed Berlin Brandenburg International Airport, which would serve as a catalyst to draw more investments and business travellers from Asia to Germany's eastern states.
He said the high fixed costs were related to the business but that the company's finances would see ups and downs due to falls in margins.
“Nevertheless, the industry we're in is always strong and sustainable,” Lee said, adding that the company's orderbook now stood at RM4.5bil versus the pre-Borsig acquisition high of RM3.5bil, and a net cash in hand of RM296mil.
Lee declined to comment on whether there were any renewed plans to take the company private after a deal by Mettiz Capital and GS Capital Partners VI Fund LP, a Goldman Sachs unit, at 90 sen a share fell through.
OSK Research analyst Jason Yap said in a report dated Feb 25 said the tax incentive the company has been enjoying for the past two years would continue to play a big role in the future.
He said the company's fourth quarter earnings were lifted by a tax incentive (which was supposed to enable the company to price its products more competitively and make gross margins that were one to three percentage points lower) of RM14mil.
Yap said KNM's current orderbook “should keep the company busy for the next two years”. The company's tenderbook on the other hand, stood at more than RM16bil.
Process equipment manufacturer to the oil and gas industry KNM Group Bhd expects the company's debt levels to fall further as unit Borsig GmbH is doing better now.
KNM chief executive officer and executive chairman Lee Swee Eng said the company's overall debt levels (at RM1bil) were coming down now as Borsig was doing well.
The company's plans to use Berlin-based Borsig, which was acquired in early 2008 for RM1.7bil, to expand business was somewhat derailed following the global economic recession, which saw oil prices drop as low as US$33 a barrel from over US$147.
Since then analysts and fund managers have been concerned about KNM's ability to pare down debt.
This was made obvious when KNM's share price fell to a nine-week low of RM2.43 last Thursday after the company's net profit for the fourth quarter ended Dec 31, 2010 tumbled 63.99% to RM20.63mil from a year ago while revenue was 7.75% lower at RM384.23mil.
For the full year, the company posted a net profit that was 49.64% down at RM131.20mil from revenue that fell 15.24% to RM1.55bil on lower job orders, lower contribution margins and higher operating costs.
“I don't understand the concern really,” Lee told reporters yesterday following a road show by Germany Trade & Invest to showcase the soon-to-be-completed Berlin Brandenburg International Airport, which would serve as a catalyst to draw more investments and business travellers from Asia to Germany's eastern states.
He said the high fixed costs were related to the business but that the company's finances would see ups and downs due to falls in margins.
“Nevertheless, the industry we're in is always strong and sustainable,” Lee said, adding that the company's orderbook now stood at RM4.5bil versus the pre-Borsig acquisition high of RM3.5bil, and a net cash in hand of RM296mil.
Lee declined to comment on whether there were any renewed plans to take the company private after a deal by Mettiz Capital and GS Capital Partners VI Fund LP, a Goldman Sachs unit, at 90 sen a share fell through.
OSK Research analyst Jason Yap said in a report dated Feb 25 said the tax incentive the company has been enjoying for the past two years would continue to play a big role in the future.
He said the company's fourth quarter earnings were lifted by a tax incentive (which was supposed to enable the company to price its products more competitively and make gross margins that were one to three percentage points lower) of RM14mil.
Yap said KNM's current orderbook “should keep the company busy for the next two years”. The company's tenderbook on the other hand, stood at more than RM16bil.
Wednesday, 2 March 2011
Kencana’s committed to the project
Datuk Mokhzani Mahathir bowed out of the corporate sector in 1998, only to nine years later stage a comeback. But this time, he did so with his “first love”, through oil and gas company Kencana Petroleum Bhd. A petroleum engineer by profession, Mokhzani's first job stint was at Shell in Kuala Lumpur.
Mokhzani's corporate career has been patchy. His once-controlled Pantai Holdings Bhd and Tongkah Holdings Bhd buckled under severe pressure following the Asian Financial Crisis in 1998 on huge borrowings, which had forced him to relinquish his investments. His business involvements had also come under intense scrutiny, not least because he is the son of the former prime minister Tun Dr Mahathir Mohamad.
Having learnt the stick-to-your-knitting lesson is probably the best thing that has happened to Mokhzani. Four years after he listed Kencana and just recently, the company a US$800mil contract from national oil company Petronas involving a marginal oil field.
In an interview with StarBizWeek, Mokhzani elaborates on the recent development and his take on the risk-service contract (RSC) awarded by Petronas. Below, excerpts of the interview:
SBW: What expertise will Kencana bring to the consortium?
The consortium partners got together because of the expertise we have in-house. Kencana's portion of the work will include fabrication, engineering for the fabrication, hook-up and commissioning. Together, the consortium will provide end-to-end solutions, which is why this project was awarded to us. Also between the three, we have the financial capacity to take on this size of job we are actually putting money on the table, which shows that we have the financial capability to finance the project first before the client pays us.
What are the key performance indicators (KPIs) under the RSC?
We have been given KPIs by the clients, which include deliverability, production and (project) cost. All three KPIs have to be achieved before we get the returns we are hoping for. The original production targets are 10,000 barrels per day and 90 million cubic ft of gas per day. We will ramp that up once we start actual production by next year. Another target is to produce first gas by the end of this year, which is an extremely tight schedule. As for project cost, we have given the client an estimated cost and the client has agreed on what is going to be the overall cost of the project.
While Petronas will own all the oil produced from the marginal oil field, the consortium will be paid a fee. How is this fee structured? And what's the project's estimated return on investments?
If we achieve all our targets, we will be paid a fee above the cost of the project. I'm not at liberty to tell you what sort of percentages that would be or the internal rate of return. The onus on us is to deliver on all the targets the client and us have agreed on. If we achieve or better that, then we are compensated accordingly.
The reverse is also true which is what the risk is all about. If we do not perform or achieve end of the year targets (i.e. lower production rates or cost overruns), it will be at our cost, which means our margins will be eroded.
Based on estimates, how much oil and gas can be extracted from the Berantai field?
I don't think I can disclose that for a simple reason a unique feature of the RSC is that the consortium does not own the reserves; the client does. The client tells us how much oil and gas they think is available in the field, the timeline needed for it to be developed at a given production rate and how much they will be able to pay us from the oil and gas that are produced.
On top of that, if we do it all according to the plan, they will pay us a better margin than we would normally get from a usual contract. But the condition remains we will have to hit all of those targets and put in our own money.
We are risking our ability to provide the solutions on time and according to the productions that they (Petronas) are looking for and at the cost that they are looking at. If we do all of that, they will use what we have produced for them to pay us ... that could be two years down the road.
Why the emphasis on “risk” in the RSC?
Because people forget that all the time. This is not just like any other contract from a client. Yes, like other contracts, it has penalty clauses for certain eventualities but in this particular case, the risk is also our own equity. We've raised RM800mil so that we can put US$200mil plus on the table. That is at risk. In this RSC, if we fail catastrophically, the client is not exposed at all.
Do you think you've raised sufficient funds to undertake this project, risk and all?
We have raised RM400mil plus through a private placement and we will raise another RM400mil through (ringgit denominated) bonds and warrants that will come in the next couple of months. This money will be put on the table to proceed with the project as we've committed that we will have unencumbered cash associated to this project. This is to ensure that we have enough money to pay ourselves initially for the work until the production kicks in and the client pays us back. Hopefully, if we are successful and meet the satisfaction of the client and the shareholders of this project, we can roll the money into the next project, whether it is in Malaysia or the region.
How long will it take before (the consortium) is able to extract all the oil and gas from the marginal fields?
We are planning for about seven years.
What do you hope to learn from the consortium?
We hope to learn how to handle RSCs. The Kencana Group is essentially a service provider, we are a group of contractors.
We've been trying to integrate all the companies within the group to perform as one entity. From this RSC, we will learn how to provide end-to-end solution. Of course we are learning some of those skills from partners and it is my hope that we do not need everything in-house. We would like to be partners in joint ventures (JVs) or in incorporated JVs to provide solutions to clients in Malaysia or the region. This is why it is important to team up with those who already have experience, in this case, Petrofac.
Have you made a bid for other marginal oilfields?
If I'm not mistaken, the bid is made to foreign companies, who will then have to find local partners to form a consortium, so there is a transfer of technology in the process. There is a huge learning opportunity for the local companies but they have to be serious players.
The foreign players will look for local partners that can fulfil the needs of a particular project, which includes required expertise and capabilities, track record and financial abilities. Then, they will go out and talk to these companies and this is exactly how we ended up with Petrofac, as they have been our client.
So, have any other foreign players approached you?
Yes they have, but we are comfortable with the partnership that we've got right now.
Mokhzani's corporate career has been patchy. His once-controlled Pantai Holdings Bhd and Tongkah Holdings Bhd buckled under severe pressure following the Asian Financial Crisis in 1998 on huge borrowings, which had forced him to relinquish his investments. His business involvements had also come under intense scrutiny, not least because he is the son of the former prime minister Tun Dr Mahathir Mohamad.
Having learnt the stick-to-your-knitting lesson is probably the best thing that has happened to Mokhzani. Four years after he listed Kencana and just recently, the company a US$800mil contract from national oil company Petronas involving a marginal oil field.
In an interview with StarBizWeek, Mokhzani elaborates on the recent development and his take on the risk-service contract (RSC) awarded by Petronas. Below, excerpts of the interview:
SBW: What expertise will Kencana bring to the consortium?
The consortium partners got together because of the expertise we have in-house. Kencana's portion of the work will include fabrication, engineering for the fabrication, hook-up and commissioning. Together, the consortium will provide end-to-end solutions, which is why this project was awarded to us. Also between the three, we have the financial capacity to take on this size of job we are actually putting money on the table, which shows that we have the financial capability to finance the project first before the client pays us.
What are the key performance indicators (KPIs) under the RSC?
We have been given KPIs by the clients, which include deliverability, production and (project) cost. All three KPIs have to be achieved before we get the returns we are hoping for. The original production targets are 10,000 barrels per day and 90 million cubic ft of gas per day. We will ramp that up once we start actual production by next year. Another target is to produce first gas by the end of this year, which is an extremely tight schedule. As for project cost, we have given the client an estimated cost and the client has agreed on what is going to be the overall cost of the project.
While Petronas will own all the oil produced from the marginal oil field, the consortium will be paid a fee. How is this fee structured? And what's the project's estimated return on investments?
If we achieve all our targets, we will be paid a fee above the cost of the project. I'm not at liberty to tell you what sort of percentages that would be or the internal rate of return. The onus on us is to deliver on all the targets the client and us have agreed on. If we achieve or better that, then we are compensated accordingly.
The reverse is also true which is what the risk is all about. If we do not perform or achieve end of the year targets (i.e. lower production rates or cost overruns), it will be at our cost, which means our margins will be eroded.
Based on estimates, how much oil and gas can be extracted from the Berantai field?
I don't think I can disclose that for a simple reason a unique feature of the RSC is that the consortium does not own the reserves; the client does. The client tells us how much oil and gas they think is available in the field, the timeline needed for it to be developed at a given production rate and how much they will be able to pay us from the oil and gas that are produced.
On top of that, if we do it all according to the plan, they will pay us a better margin than we would normally get from a usual contract. But the condition remains we will have to hit all of those targets and put in our own money.
We are risking our ability to provide the solutions on time and according to the productions that they (Petronas) are looking for and at the cost that they are looking at. If we do all of that, they will use what we have produced for them to pay us ... that could be two years down the road.
Why the emphasis on “risk” in the RSC?
Because people forget that all the time. This is not just like any other contract from a client. Yes, like other contracts, it has penalty clauses for certain eventualities but in this particular case, the risk is also our own equity. We've raised RM800mil so that we can put US$200mil plus on the table. That is at risk. In this RSC, if we fail catastrophically, the client is not exposed at all.
Do you think you've raised sufficient funds to undertake this project, risk and all?
We have raised RM400mil plus through a private placement and we will raise another RM400mil through (ringgit denominated) bonds and warrants that will come in the next couple of months. This money will be put on the table to proceed with the project as we've committed that we will have unencumbered cash associated to this project. This is to ensure that we have enough money to pay ourselves initially for the work until the production kicks in and the client pays us back. Hopefully, if we are successful and meet the satisfaction of the client and the shareholders of this project, we can roll the money into the next project, whether it is in Malaysia or the region.
How long will it take before (the consortium) is able to extract all the oil and gas from the marginal fields?
We are planning for about seven years.
What do you hope to learn from the consortium?
We hope to learn how to handle RSCs. The Kencana Group is essentially a service provider, we are a group of contractors.
We've been trying to integrate all the companies within the group to perform as one entity. From this RSC, we will learn how to provide end-to-end solution. Of course we are learning some of those skills from partners and it is my hope that we do not need everything in-house. We would like to be partners in joint ventures (JVs) or in incorporated JVs to provide solutions to clients in Malaysia or the region. This is why it is important to team up with those who already have experience, in this case, Petrofac.
Have you made a bid for other marginal oilfields?
If I'm not mistaken, the bid is made to foreign companies, who will then have to find local partners to form a consortium, so there is a transfer of technology in the process. There is a huge learning opportunity for the local companies but they have to be serious players.
The foreign players will look for local partners that can fulfil the needs of a particular project, which includes required expertise and capabilities, track record and financial abilities. Then, they will go out and talk to these companies and this is exactly how we ended up with Petrofac, as they have been our client.
So, have any other foreign players approached you?
Yes they have, but we are comfortable with the partnership that we've got right now.
Tuesday, 1 March 2011
SapuraCrest willing to take the risk
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.
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.
Monday, 28 February 2011
Petrofac explains key performance indicators
IN an e-mail response to StarBizWeek, London-listed Petrofac Ltd group of companies elaborates on the key performance indicators (KPIs) used under the risk-service contract (RSC) for the Berantai marginal oil field development.
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.”
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
Drilling for future opportunities
For the first time local oil and gas players have a chance to play a major role in the production and development of marginal oil fields. However there are risks involved. Will the local companies step up to the challenge?
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.
In defence
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.
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.
In defence
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
Petronas Gas Tops RM1 Billion In Profit For Nine Months
Petronas Gas Bhd has reported a jump in pre-tax profit for first nine months ended Dec 31, 2010 to RM1.549 billion from RM966.287 million in the previous corresponding period.
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.
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
Malaysia's Petronas aims to grow European gas, power trading
Malaysian oil and gas producer Petronas plans to step up its energy trading activities in the UK and Continental Europe, hiring new staff in London and expanding from natural gas into power and carbon markets, the company said.
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.
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
RM1.08b Petronas job to keep Ranhill's O&G segment busy
The company is back in the oil and gas game in Malaysia and it expects more projects from Petronas, says Ranhill executive director
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.
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.
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