FOREIGN oil and gas companies have been selling their assets in Asia, including Malaysia, in a change of strategy that shifts their focus to their home markets. This has led to questions as to whether local players can fill the vacuum as they are seen to lack the capability to enter into Petroliam Nasional Bhd’s (Petronas) production sharing contracts (PSCs).
In the past two years, foreign O&G players have been mapping out the sale of their Asian assets, some of which comprise the bulk of Malaysian PSCs and assets.
Recently, Petronas executive vice-president and CEO Datuk Wee Yiaw Hin confirmed Murphy Oil Corp’s intention to sell its Malaysian assets.
Of Murphy’s assets spread across Malaysia, Vietnam, Indonesia, Brunei and Australia, its portfolio in this country is its largest contributor, accounting for 40% of its total 2013 net production.
Murphy’s intention to withdraw from the Asian O&G market follows the pullout of other O&G companies in the past two years.
There has been a successful asset sale by Newfield Exploration Co while Canada’s Talisman Energy Inc and New York-based Hess Corp are also in talks to sell their assets in the region.
With Newfield, Talisman and Murphy leaving the Malaysian O&G market, the sale of the assets could be a ticket for local players to have a share in the PSCs.
While telling The Edge that it is good news for local companies that foreign players are selling their lucrative Asian assets, an industry observer points out that there are not many of the former that can take on projects previously held by the latter.
“These foreign players are paving the way for the locals to move up the value chain and have a share in these prime assets, which include several PSCs,” he says.
“Typically, all PSCs in Malaysia have seen the participation of foreign O&G companies and this, to some extent, instils confidence and reliability in the project.
“As these independent O&G outfits cash out, this provides an opportunity for local players, which have grown extensively in the past years, to fill the vacuum caused by foreign players.”
An example is Newfield’s sale of its Malaysian assets to SapuraKencana Petroleum Bhd, making it the first local O&G company to have an operating share in PSCs.
In February, Newfield sold its eight PSC blocks and one alliance contract in Peninsular Malaysia, Sabah and Sarawak to SapuraKencana for US$898 million. Its Malaysian portfolio comprises 3.3 million net acres.
Apart from SapuraKencana, tycoon Ananda Krishnan’s Pexco Exploration is another local O&G company to own an exploration share in a PSC.
“A few years ago, local players would never have imagined getting a share in a PSC. But this has changed. Foreign players are returning to their own markets and the locals now have the opportunity to bid for such projects,” says an industry player.
However, he points out, not all local companies can do it, as many do not have the capability. “It would be interesting to see which Malaysian O&G company takes up assets previously owned by the foreign players. The opportunity is priceless but, sadly, there aren’t many of us that have the capability,” says another industry player.
Currently, several assets and PSCs are up for sale in Peninsular Malaysia, Sabah and Sarawak.
These include Murphy’s seven PSCs covering about 2.79 million gross acres as at Dec 31, 2012. The Arkansas-based O&G company holds majority interests in Blocks K, H, P, SK 309, SK 311 and SK 314A as well as three gas-holding agreements in Block PM311.
Last year, the assets produced some 86,000 barrels of oil equivalent per day. Murphy booked total proved reserves of 125 million barrels of oil and 406 billion cu ft of gas as at the end of last year.
Although it is unclear which local O&G companies are bidding for Murphy’s Malaysian assets, there have been bids from PetroVietnam Oil Corp, Mitsubishi Corp and Indian state oil companies.
Talisman, which is also in talks to sell its Asian assets — including those in Peninsular Malaysia and Sabah — holds a 41% working interest (WI) in PM-3 CAA, 60% WI in PM305 and PM314, 60% WI in SB1 Kinabalu and 70% WI in SB309 and SB310.
The gradual exit of foreign O&G companies points to the lucrativeness of shale gas production in the US.
“There is nothing wrong with Malaysian assets as all foreign companies have classified these as prime,” says an industry player.
“There is a change in the global landscape of O&G. Independent oil companies are leaving because shale gas has rejuvenated the natural gas industry in the US and these players want in.”
Previously, shale gas, a form of natural gas trapped within shale formations, was seen as uneconomical to produce. However, recently, O&G companies have found that a combination of horizontal drilling and hydraulic fracturing allows access to large volumes of shale gas.
“Foreign players need capital to fund their shale gas projects. The focus has now shifted to the US, prompting the foreign companies to sell their Asian assets. Some even expect shale gas to expand worldwide energy supply,” says the industry player.
Previously, the US saw a decline in production at conventional gas reservoirs, pushing players to expand internationally. The development of new sources of shale gas has changed the US energy landscape and led to major increases in its reserves of natural gas.
The Energy Information Administration predicts that by 2035, 46% of the US’ natural gas supply will come from shale gas, up from 20% in 2010 and 1% in 2000.
This article first appeared in The Edge Malaysia Weekly, on September 29 - October 5, 2014.