Interest brewing in Limbayong FSPO charter

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AmInvestment Bank expects all these players to bid for the engineering, procurement, construction, installation and commissioning (EPCIC) contract.

KUCHING: Times are exciting in the oil and gas sector following reports that MISC, Yinson, M3Nergy and MTC are preparing to bid for a floating production, storage and offloading (FPSO) vessel charter for Petronas Carigali’s Limbayong oil and gas field development off Sabah.

To note, the Limbayong tender opened in November last year on a fast-track procurement with fabrication work to be carried out over 26 months after the award.

The FPSO is expected to have a nameplate storage capacity of 600,000 barrels of crude and inject 75,000 bpd of water.

AmInvestment Bank Bhd (AmInvestment Bank) saw that there would likely be content restrictions on international bidders for this development, with technical and commercial offers possibly being submitted next month.

“International floating, production, storage and offloading (FPSO) operators such as Modec and SBM Offshore are not expected to bid even though they have received tenders last year for the project due to strict local content standards with the topside fabrication to be undertaken domestically,” it said in a report yesterday.

The module fabrication and engineering work will have to be carried out in Malaysia with a requirement for up to 90 per cent local manpower.

This benefits local bidders, including Sapura Energy Bhd, Malaysia Marine & Heavy Engineering Holdings Bhd (MMHE), Kuching-headquartered Brooke Dockyard, Klang-based Muhibbah Marine Engineering Bhd and KKB Engineering’s Ocean Might Sdn Bhd, which has a yard in Kuching.

AmInvestment Bank expects all these players to bid for the engineering, procurement, construction, installation and commissioning (EPCIC) contract.

“However, foreign yards may also be planning to tie up with a local player,” it disclosed.

“Initially, the operator needs the FPSO to handle 60,000 barrels per day of liquids, including 40,000 bpd of oil, as well as about 17 million cubic feet per day of associated gas,” AmInvestment Bank said.

“The charter comes in two options: a firm period of 12 years, followed by likely extensions of 3, 3 and 2 years; or a firm period of 5 years with 3 likely extensions of 5 years each.”

Given the local content requirement,AmInvestment Bank said the likely winner for the FPSO charter could be MISC Bhd (MISC), while its 66.5 per cent-owned fabrication provider, MMHE, could secure the EPCIC ob to convert the vessel.

“For MISC, the earnings impact is likely to be minimal given the group’s huge asset base while the conversion job for MMHE could have a more substantive impact to its depleted order book of RM932 million currently.”

Meanwhile, the research firm still expects moderate recovery in Petronas’ upstream capex rollout.

As Brent crude oil prices for now are still above Petronas’ 2018 internal crude oil assumption of US$52 per barrel for project feasibility studies, the research firm did not expect any substantive changes to its field development activities.

“With Petronas’ 9M2018 upstream capex declining seven per cent year on year (y-o-y) to RM7 billion, we expect a moderate recovery in domestic rollouts as the group has introduced new fiscal term enhancements involving self-adjusted cost recovery and a profit-sharing mechanism based on revenue over cost index for new deepwater production sharing contracts to attract new exploration investments and to open new fields in Malaysia,” it said.

“They are available for new deep-water acreage from nine open blocks — two off Peninsular Malaysia, four offshore and onshore Sarawak and three off Sabah.

“As the oil price dropped recently, we have not seen any impact yet on the upward contract award trajectory with Malaysia’s 2018 contract awards rising 54 per cent y-o-y to RM11.6 billion due to the award of Pan Malaysia umbrella contract renewals, Sapura Energy securing the EPCIC work for the Pegaga CPP and Serba Dinamik’s EPC and O&M jobs.”

Offshore projects in Brazil, Mexico, the Middle East and West Africa may be still poised to gain traction with Sapura and MMHE recently being selected for Saudi Aramco’s Long Term Agreement programme, AmInvestment Bank said, which allows them to bid for the kingdom’s massive offshore projects that could reach US$150 billion over the next 10 years.

“We are neutral on the sector given the volatility in oil price direction over the next six months, unresolved US-China trade dispute, deteriorating global economic growth outlook and easing of US pipeline constraints.”