Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on August 2, 2021 - August 8, 2021

Petroleum Sarawak Bhd’s (Petros) maiden venture into an oil and gas exploration project off the shores of Sarawak marks its dive into the more risky, but lucrative, segment of the industry.

Launched in March 2018, Petros has a 7.5% participating interest in the exploration of a block called SK437. The other partners in the exploration block are Petronas, which also has 7.5% participating interest, and Sarawak Shell Bhd (SSB), which is the lead operator and has an 85% interest.

Petros has participating interest in two other oil-and-gas fields — MLNG and the Kumang Cluster. As both are producing fields, they are less risky. Oil is already being produced and it is only a matter of how many more barrels are left for lifting.

On the other hand, SK437 — which is 2,015 sq km and located in water depths of up to 50m — is an exploration block. Exploration work is risky and can be costly if drilling activities hit a dry hole.

A dry well is a situation in which the exploration works finds oil but it is not viable for production. If that happens, the consortium has to incur the cost of exploration with no returns.

The risk on Petros is largely mitigated, as it has partners that are well established in the field of oil and gas. Also, historically, Petronas’ exploration activities offshore Sarawak have yielded good results.

This is because it generally tends to undertake a thorough geological analysis on the terrain of the block before deciding to undertake exploration works.

Sarawak challenged Petronas’ authority over the oil and gas resources in the state, which subsequently resulted in the establishment of Petros. Now, Petronas and Petros are working together.

Working together means sharing the risk and not only the returns. This is something the Sarawak state entity must understand.

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