Petronas-ExxonMobil Sign PSC Pact
Yesterday, Petronas signed a production sharing agreement with ExxonMobil to develop 7
existing oil fields off Peninsular Malaysia which include Seligi, Guntong, Tapis, Semangkok,
Irong Barat, Tabu and Palas fields. These fields are mostly off the coast of Terengganu. Both
parties agreed to spend a minimum of US$2.1bn on major enhanced oil recovery (EOR)
activities, rejuvenation of facilities and further development and drilling activities in the fields.
Yesterday, Petronas signed a production sharing agreement with ExxonMobil to develop 7
existing oil fields off Peninsular Malaysia which include Seligi, Guntong, Tapis, Semangkok,
Irong Barat, Tabu and Palas fields. These fields are mostly off the coast of Terengganu. Both
parties agreed to spend a minimum of US$2.1bn on major enhanced oil recovery (EOR)
activities, rejuvenation of facilities and further development and drilling activities in the fields.
COMMENTS
Positive to Malaysia’s O&G industry. This shows Petronas’ continuous commitment and its long
established PSC contractor, ExxonMobil, to develop the O&G industry in Malaysia. To recap,
ExxonMobil has invested more than US$15bn in Malaysia over the last 40 years. To date, it has 43 platforms in 17 fields offshore Terengganu, with an estimated daily production of 150k barrels of oil and 1.2bn cu ft of natural gas. It also has 6 PSC contracts with Petronas. Hence, with oil price stabilising above US$50/barrel and trading close to US$70/barrel, more and more O&G projects (both shallow water and deepwater) are becoming more feasible. Also, we believe deepwater production cost has fallen to US$40-50/barrel following the drop in raw material costs, especially steel. This has made these projects even more attractive, especially with oil price on the uptrend coupled with signs of recovery in the global economy, resulting in higher demand for O&G. Shallow water O&G extraction started making money when oil price was trading below US$40/barrel. Local O&G support services providers to gain. With Petronas’ continued support to help the local O&G supporting companies to move up, preference has always been given to them through the requirement of a valid Petronas licence, unless none of them have the particular skills set. Hence, we believe the vessels of Alam, Petra Group and Tanjung Offshore would be in demand. This development probably relates to the earlier scouting of vessels by Petronas for 36 vessels in 4Q08 and another 12 vessels in 1Q09. Going forward, we believe their new vessels (Alam – 11 new vessels, Petra Group (15 new vessels) and Tanjung Offshore (5) would have a higher probability of working in Malaysian waters, which will result in lower risk of cost overruns. Also, charter rates should be sustainable going forward due to market demand (with 5k bhp AHTS at US$2.00/bhp and 10-12k bhp AHTS at US$3.00/bhp). Kencana should also benefit since it owns tender rigs through its JV with Mermaid. Wah Seong would have more pipes to coat if there are have new fields to connect while Dialog and KNM products would be in demand when new petroleum terminals and refineries are needed to cater to the higher O&G output. Finally, the rejuvenation of facilities to improve production output should benefit Petra Energy, who specialises in the production of brownfield services. Maintain Overweight on the sector. Our top picks are Alam (Buy, TP: RM1.95), Petra Perdana (Buy, TP: RM3.50), Wah Seong (Buy, TP: RM2.58) and Kencana (Buy, TP: RM2.14). We believe these 4 companies would be the main beneficiaries when new projects come back in a big way.
Positive to Malaysia’s O&G industry. This shows Petronas’ continuous commitment and its long
established PSC contractor, ExxonMobil, to develop the O&G industry in Malaysia. To recap,
ExxonMobil has invested more than US$15bn in Malaysia over the last 40 years. To date, it has 43 platforms in 17 fields offshore Terengganu, with an estimated daily production of 150k barrels of oil and 1.2bn cu ft of natural gas. It also has 6 PSC contracts with Petronas. Hence, with oil price stabilising above US$50/barrel and trading close to US$70/barrel, more and more O&G projects (both shallow water and deepwater) are becoming more feasible. Also, we believe deepwater production cost has fallen to US$40-50/barrel following the drop in raw material costs, especially steel. This has made these projects even more attractive, especially with oil price on the uptrend coupled with signs of recovery in the global economy, resulting in higher demand for O&G. Shallow water O&G extraction started making money when oil price was trading below US$40/barrel. Local O&G support services providers to gain. With Petronas’ continued support to help the local O&G supporting companies to move up, preference has always been given to them through the requirement of a valid Petronas licence, unless none of them have the particular skills set. Hence, we believe the vessels of Alam, Petra Group and Tanjung Offshore would be in demand. This development probably relates to the earlier scouting of vessels by Petronas for 36 vessels in 4Q08 and another 12 vessels in 1Q09. Going forward, we believe their new vessels (Alam – 11 new vessels, Petra Group (15 new vessels) and Tanjung Offshore (5) would have a higher probability of working in Malaysian waters, which will result in lower risk of cost overruns. Also, charter rates should be sustainable going forward due to market demand (with 5k bhp AHTS at US$2.00/bhp and 10-12k bhp AHTS at US$3.00/bhp). Kencana should also benefit since it owns tender rigs through its JV with Mermaid. Wah Seong would have more pipes to coat if there are have new fields to connect while Dialog and KNM products would be in demand when new petroleum terminals and refineries are needed to cater to the higher O&G output. Finally, the rejuvenation of facilities to improve production output should benefit Petra Energy, who specialises in the production of brownfield services. Maintain Overweight on the sector. Our top picks are Alam (Buy, TP: RM1.95), Petra Perdana (Buy, TP: RM3.50), Wah Seong (Buy, TP: RM2.58) and Kencana (Buy, TP: RM2.14). We believe these 4 companies would be the main beneficiaries when new projects come back in a big way.