O&G sector’s future growth likely via M&As, says analyst

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HIGHER OUTPUT TARGET: Marginal O&G fields and EOR projects are expected to help it to meet Petronas’ higher O&G output objective in the shortest possible time; and also at a lower production cost when compared with the ‘greenfields’ or more sophisticated fields, according to Yap. — Reuters photo

KUCHING: The oil and gas (O&G) sector can attain growth potential via possible mergers and acquisitions (M&As) within the stable of industry players, with continued emphasis on cost effective enhanced oil recovery (EOR) and marginal oilfields.

“Building on this outlook, we think that growth through acquisitions or mergers is more likely versus organic growth as the O&G industry is becoming more dynamic and companies are required to provide a complete range of services as well as deliver those services reliably and in a timely manner,” said OSK Research Sdn Bhd (OSK Research) analyst Jason Yap.

The analyst added that Petronas and its production sharing contract (PSC) parties would rather place the main project responsibility on a single O&G contractor to get the entire job done, rather than awarding smaller portions to multiple contractors, which might give rise to risk of delivery delays and cost overruns.

“As such, we believe there may be a consolidation among the vessel players and brownfield services providers.”

Yap also reckoned that the national oil corporation was the engine of local O&G industry as over the past 12 months, it had been busy boosting O&G production not only to catch up with the previous year’s higher production but also to do so more efficiently.

Petronas’ total O&G production had dropped to 2.1 million barrels of oil equivalent (boe) per day in financial year 2011 (FY11) from 2.3 million boe per day in FY10.

Petronas, together with its PSC parties, had been progressively pouring capital expenditure into the development of marginal O&G fields or EOR projects.

Both types of projects were expected to help it to meet its higher O&G output objective in the shortest possible time; and also at a lower production cost when compared with the ‘greenfields’ or more sophisticated fields.

Two clusters of marginal O&G fields, namely the Berantai clusters and the and Balai cluster were fast-track projects that are expected to commence O&G production in one or two years versus the more sophisticated deepwater fields, which might take three to five years to kick start.

Going forward, there would be numerous new development opportunities since Petronas had intended to develop about 25 per cent of the 100 remaining marginal O&G fields identified.

With regards to future projects in the pipepine, Yap noted that recently, Petronas and Shell signed a heads of agreement for two 30-year PSCs involving EOR projects off the shores of Sarawak and Sabah.

“As such, we should expect Shell to dish out some EOR jobs in 2012. In fact, we note that there is a five-year brownfield services job from Shell due for re-tendering soon,” he said.