More capex to fuel O&G sector in 2012

The aggressive inflow of capital expenditure (Capex) into the
development of marginal oil and gas (O&G) fields or enhanced oil
recovery projects by Malaysian O&G players, is set to continue in
2012.

Over the past 12 months, national O&G entity, Petronas
Bhd, has been busy boosting production not only to catch up with the
previous year's higher output, but also achieve this more efficiently,
said OSK Research.

The firm added that the national oil
corporation's total O&G production had dropped to 2.1m boe/day in
financial year 2011 from 2.3m boe/day previously,

"Hence,
Petronas together with its production sharing contract (PSC) parties,
has been progressively pouring Capex into the development of marginal
O&G fields or enhanced oil recovery (EOR) projects.





"Both types of projects are expected to help it meet its higher O&G
output objective in the shortest possible time and also at a lower
production cost vis-a-vis the greenfields or more sophisticated fields,"
OSK Research said.

The research firm also predicts that more marginal oilfields will be awarded in 2012.

In 2011, Petronas awarded two clusters of marginal O&G fields,
namely the Berantai cluster to Kencana and SapuraCrest, and the Balai
cluster to Dialog Bhd.

These fields are fast-track projects that
are expected to commence O&G production in one or two years,
against the more sophisticated deepwater fields, which may take between
three-five years to kickstart.

"Going forward, there are
numerous new development opportunities, since Petronas intends to
develop about 25 per cent of the 100 remaining marginal O&G fields
identified," OSK Research said.

It added that given the exposure
and experience, it will not be surprising if once again, Kencana,
SapuraCrest and Dialog, are awarded the projects.

Also, next year, the focus on enhanced oil recovery (EOR) projects are slated to continue.

This is because the additional Capex needed to extract the remaining O&G is far less than that for a greenfield.

Recently, Petronas and Shell signed a Heads of Agreement for two
30-year production sharing contracts, involving EOR projects offshore
Sabah and Sarawak.

OSK Research said the future growth of the sector is more likely to be via mergers and acquisitions.

"We think that growth through acquisitions or mergers is more likely
compared to organic growth, as the O&G industry is becoming more
dynamic.

"Companies are required to provide a complete range of services as well as deliver them reliably and in a timely manner.

"Petronas and its production sharing contract parties would
rather place the main project responsibility on a single O&G
contractor to get the entire job done, than award smaller portions to
multiple contractors, which may give rise
to a risk of delivery delays and cost overruns.

"As
such, we believe there may be a consolidation among the vessel players
and brownfield services providers," the research house said. -- Bernama