November 2014

Oil and gas in the capitals

Malaysia’s flurry of activity may slow down a bit
Jeff Moore / Contributing Editor


Through decades of diligence, Malaysia has risen to be Southeast Asia’s second-largest oil and gas producer, just behind Indonesia. Wood Mackenzie says Malaysia is on track to be one of the world’s biggest gas producers. Moreover, it’s been a long-time, regional, deepwater pioneer. But with major market shifts in global production, as well as demand and prices, what’s on the horizon for Malaysia? How will it cope?

Upstream activity. Regarding recent discoveries, Malaysia seems positioned to cope fairly well—so far, at least. It’s seen five notable discoveries as of late. In March, Petronas and Shell announced that they had encountered 136 m of oil sands at the Limbayong-2 well while conducting an appraisal of Limbayong gas field, offshore Sabah. Shell sees this as a sign of potentially high oil reserves, and testing for commercial viability there continues.

Last April, Shell announced yet another discovery offshore Sarawkak. It found more than 450 m of gas pay in the Rosmari-1 deepwater well, in Block SK318. As with Limbayong-2, testing is underway to ascertain commercial viability.

Between March and September, SapuraKencana hit gas discoveries in five shallow-water wells in the SK408 PSC, offshore Sarawak: Teja-1, Gorek-1, Legundi-1, Larak-1 and Bakong-1. These finds are part of SapuraKencana’s “fast track, low-cost development” E&P program. Total reserves among all five wells are estimated to be more than 3 Tcf of gas-in-place.

In June, Mubadala Petroleum struck a gas discovery in its Pegaga-2 appraisal, in Block SK320, offshore Sarawak. Company officials say Pegaga-2 can produce 30-50 MMcfd of quality gas with condensate, and the commercial potential looks excellent. Finally, in August, Shell—yes, Shell again—announced that it discovered gas in the deepwater Marjoram-1 well, Block SK318, offshore Sarawak. The company gave no other details about the find.

Aside from these discoveries, Malaysia has four projects that have just come online. They will further help the country cope with changing market dynamics. In July, production at Petronas’ Banang oil field commenced. Benang can produce 6,000 bopd via a MOPU connected to a storage tanker with a 600,000-bbl capacity. Banang is in shallow-water Block PM316, off peninsular Malaysia. It is part of Malaysia’s Small Field Risk Service Contract program. When combined with production from two other small fields nearby, maximum output will be 13,000 bopd.

In September, Exxon Mobil announced the start-up of Malaysia’s first, large-scale EOR project at Tapis field, offshore Terengganu. It uses the immiscible, water-alternating-gas injection process to sweep the field. Tapis is one of seven mature fields that Exxon Mobil is contracted to apply EOR to over a 25-year period. All seven fields are expected to add 25,000 bopd to national production rates.

Talisman announced in late September that it had begun production at six small oil wells offshore Kinabalu, which collectively produce 12,000 bpd. This has nearly doubled Talisman’s total production at Kinabalu to 20,000 bopd. Lastly, Shell began production at Gumusut-Kakap field in October, the company’s first producing deepwater project in Malaysia. Water depths there extend to over a half-mile. Estimated production is 135,000 bopd.

Sales & acquisitions. A few interesting sales and acquisitions have occurred in Malaysia during recent months. It’s not clear what impact they will have on E&P just yet.

First, Texas-based Newfield Exploration sold all of its Malaysian assets to SapuraKencana in early 2014 for $898 million. It consolidated operations back to the States, to take advantage of plays in the U.S. market. In June, UK-based EnQuest bought Exxon Mobil’s portion of Seligi offshore oil field and the PM8 PSC (also oil) for $67 million. The move is part of EnQuest’s plan to expand into Malaysia. Its main projects, to date, have been in the North Sea and Tunisia.

In September—and this is the most interesting deal—long-time Malaysian operator Murphy Oil announced that it was selling 30% of its Malaysian assets for $2 billion to Indonesia’s Pertamina, so it could focus on projects in the U.S. Pertamina is likely hoping that Murphy’s assets will counteract its domestic oil decline. Just how well the sometimes-troubled Pertamina will operate, in Petronas’ typically effective E&P sector, will be interesting to watch.

Looking ahead. So, with all the recent discoveries and new production coming online, what is the outlook for Malaysia’s E&P against globally slackening oil and gas prices, falling demand, and increased global output? Petronas CEO Tan Sri Shamsul Azhar Abbas suggests caution. He said, in August, that earnings would drop, and costs would increase. “Even if we ramp up production,” said Abbas, “that won’t compensate for the downtrend in prices.”

Kenanga Investment Bank Bhd warns that new Malaysian projects might be slow in coming onstream. It says that Petronas might use existing fields to satisfy production goals, especially since EOR is being used increasingly. In estimating future Petronas activity, and, therefore, possible foreign E&P investment in Malaysia, CIMB Research says that Petronas’ capital expenditures on new projects would not be impacted too negatively, unless oil falls below $60/bbl. But $80/bbl oil certainly won’t cause a flood of investment, either.

While there’s no significant Malaysian downturn expected—that would be entirely too dramatic—things won’t be ramping up, either. Under the circumstances, a flat-lined E&P environment, as regards new projects, is expected for 2015, with production possibly staying the same or even increasing. If market conditions change, however, or if ISIS, which has been highly active in Malaysia, stages a major attack on the energy sector, then all bets are off. wo-box_blue.gif 

About the Authors
Jeff Moore
Contributing Editor
Jeff Moore runs Muir Analytics, a risk consulting firm specializing in deciphering threats in conflict zones. He is author of the book, Spies for Nimitz, which depicts America’s first modern intelligence agency. He holds a PhD from the University of Exeter in the UK.
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