Oily deal Saturday, 15 November 2014 By: CECILIA KOK, RISEN JAYASEELAN

by **Cals** Sun 16 Nov 2014, 23:48

Oily deal

Saturday, 15 November 2014
By: CECILIA KOK, RISEN JAYASEELAN

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WHAT was once seen as a lucrative oil and gas exploration project off the coast of Terengganu has now been delayed for almost a year.
But what is more telling about Block PM9, a cluster of fields which still holds reserves of some 3 billion cu ft of gas, is the twin challenges that national oil company Petronas is increasingly facing – declining oil prices and pressure from various groups for the award of projects.
While PM9 was first explored back in 1978, it today has become a candidate for “enhanced oil recovery” (EOR), an initiative championed by Tan Sri Shamsul Azhar Abbas since he assumed the role of president and CEO of Petronas in 2008.
EOR is essentially where new technology and methods are used to extract more oil and gas out of the deeper crevices of oil and gas fields.
Notably, Shamsul has also been credited with pushing through plans that sought to raise the level of expertise among local oil and gas players by requiring the foreign companies who are awarded production sharing contracts (PSCs) and risk service contracts (RSCs) to bring a local partner into the project.
In the case of PM9, what seems to have transpired is this: more than six months ago, Petronas had issued a letter of intent for this EOR project to Canadian giant Talisman and its partner for the project, a little-known firm called Loyz Energy Ltd, which is listed on Singapore’s Catalist market, meant for small companies. Since then, sources say, everything has gone silent.
Speculation has it that Petronas’ board has decided to defer the award of PM9 because other parties were being considered.
Among them is Petra Energy Bhd and Canada’s Coastal Energy, a company that has been taken over by Spain-based oil and gas (O&G) company Compañía Española de Petróleos and Jynwel Capital. Jynwel Capital is a boutique advisory firm owned by businessman Low Taek Jho, or better known as Jho Low.
Petronas and Petra Energy declined to comment while Jynwel Capital had said (two weeks ago) that it was only a minority shareholder in Coastal Energy and was in no position to comment.
“Second generation Low family investor Low Hock Peng was purely a minority passive investor (in Coastal Energy) and thus wouldn’t be in a position to comment. In addition, Low (Hock Peng) is not on the board of Coastal Energy,” says a Jynwel spokesperson via email.
Petronas has come under pressure from various groups wanting a share of the pie from its huge capital expenditure bill that runs into billions every year, irrespective of the economic climate.
“Only the margins change for the prospective award winners. When oil price is lower, the rates are squeezed,” says an official in the oil and gas industry.
Shamsul’s merit-driven leadership of Petronas has drawn admirers and detractors.
The supporters applaud his stance for running the organisation well and being brave to appoint the most qualified of people to the key positions. His critics feel that Petronas was not doing enough for the industry and certain segments of the business class.

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But the seasoned Shamsul, who is a old hand in Petronas, has been able to withstand the pressures so far, especially from the Malay Economic Action Council.
Oil price and viability
The reason for the delay in awarding the PSC for PM9 may not just be the lobbying. It could very well have to do with the viability of the entire EOR project due to the drop in the price of oil.
One industry source with knowledge of the operations of PM9 reckons that any EOR work on that cluster of fields will only be viable with oil prices around US$100 per barrel.
To recap, since mid June, the price of Brent crude oil has started declining and currently hovers below US$80 per barrel. The price of gas moves in tandem with that of oil.
PM9 is one of the oldest oil fields in the country, located at 220km off the coast of Terengganu and is made up of five cluster fields.
It was first explored by ExxonMobil in 1978, which then had a 100% equity ownership over it under a PSC with Petronas.
At its peak, the field produced some 80,000 barrels of oil per day, making it one of the prolific in the country.
In 1995, the PSC with ExxonMobil ended. A new set of negotiations resulted in the field coming under the ownership of Petronas Carigali (PETRONAS’ exploration arm) and ExxonMobil on a 60:40 equity ratio.
Then in 2012, ExxonMobil exited the field entirely, with Petronas Carigali taking full ownership.
But by then, production had dipped to a mere 3,000 barrels per day.
It was then identified as an ideal candidate for the EOR initiative.
Perisai was front-runner
Back in November 2013, a report by Upstream, an online industry magazine, reported that Perisai Petroleum Teknologi Bhd was a front-runner to be part of the PSC for PM9.
Perisai since then has been on the buy call list of many analysts, and its share price rose from RM1.40 per share to RM1.72 from November 2013 to January 2014.
For example, in April, Hong Leong Investment Bank wrote: “A near-term potential kicker for the (Perisai’s) stock comes from the successful bid for a PSC with partner Talisman to develop a brown-field project called Block PM9 located offshore Terengganu”. The brokerage noted that Perisai would benefit by providing a mobile offshore production unit (MOPU), drilling and pipelaying if Talisman won the bid.
But it was subsequently reported that a delay in the award of the contract, which was previously expected to happen in the last quarter of 2013, was taking a toll on Perisai, whose MOPU Rubicone has been sitting idle off Terengganu.
Notably, Loyz, the company together with Talisman which was speculated to have been issued with the letter of intent for the PM9 PSC, is controlled by Lionel Lee Chye Teck. Lee is also the largest shareholder of Ezra Holdings Ltd. Ezra in turn, is the major shareholder of Perisai.
Perisai’s share price has suffered a heavy sell down in the last week alone, shedding around RM472mil of its market capitalistion to close at 71.5 sen on Friday.
It isn’t clear if Loyz’s rumoured removal from the PM9 PSC has anything to do with this. Perisai also posted a 90% drop in its net profit for its third quarter ended Sept 30, 2014.
Perisai’s share price decline is also in line with the overall market rout on locally listed oil and gas service providers.
A source close to Perisai, however, notes that it is still confident of securing a contract from the PM9 operators, as it is the only local company that operates a gas MOPU. It has been reported that Perisai’s MOPU is suitable for development work in PM9 and is ready to be mobilised for any near-term development work off the Terengganu coast.
PM9, which has reserves of three billion cu ft of gas and 70 million barrels of oil, had been hotly contested for. Aside from Talisman and its partners, other bidders included a consortium comprising Petra Energy and Ping Petroleum (a new firm made up of some former employees of Newfield) and another group made up of UK’s Petrofac and US-based Schlumberger Ltd, according to Upstream.
SapuraKencana Petroleum Bhd was also said to be involved in the Petrofac-Schlumberger partnership.
Upstream noted that Talisman had the advantage over other competing bids as the company was more familiar with the geological conditions in PM9. This is because Talisman already has operating interests in several blocks near PM9.
But with the award of the PM9 PSC now hanging in the balance, and Petronas not saying much about its progress, industry players can only be left wondering what would transpire next.
Will the project still be viable amid declining oil prices? Or will there be new winners superceding the original front-runners of the PM9 PSC – and for valid reasons?
Until the award comes up it will be something that will be left for guessing. The award of the PM9 job oil field, or its abortation, will send a message on the state of affairs of Petronas.