Oil & Gas Sector - Japanese-led JVs leading contenders for Rotan FLNG OVERWEIGHT

- Upstream reported that two groups of Japanese-led consortiums have been shortlisted to compete in a front-end engineering and design (FEED) contest for Malaysia’s second floating liquefied natural gas (FLNG) vessel for the Rotan field off Sarawak.

- The companies are JGC and Toyo Engineering, who are leading separate groups that have emerged as low bidders in a tender called by Petronas for the FEED studies on the 1.5-million tonne-per-annum FLNG vessel. JGC has joined forces with Samsung Heavy Industries, while Toyo has teamed up with CB&I, Modec and IHI Shipbuilding. The other bidders were Technip with Hyundai Heavy Industries, Chiyoda with Saipem, and Daewoo Shipbuilding & Marine Engineering.

- Petronas is expected to finalise the JGC and Toyo-led groups as its shortlisted bidders at the end of this month. The two teams will then be expected to carry out FEED work over the next 10 months before the submission of final engineering, procurement and construction proposals. 

- Petronas has not stipulated any local content requirement, although participants are granted the option to work with Malaysia Marine & Heavy Engineering Holdings (MMHE) for the fabrication of the FLNG vessel. As indicated in our earlier reports, MMHE is naturally not interested in the FEED segment as this is not its core expertise, but would wish to participate in the engineering, procurement and construction phase.

- The Rotan FLNG vessel will develop the Rotan and Biris fields operated by Murphy Oil of the US off Sarawak. The ship is likely to be moored using an external turret. Murphy said recently that FEED would be awarded in the third quarter this year, and that a final investment decision will be made on the project in 2013 while first gas is planned for 2016. 

- Murphy has openly expressed its excitement about the FLNG project, and about the continued potential of Block H, which hosts the Rotan field. Murphy’s recent exploration success in the permit has de-risked the area, and so far it has proved to hold reserves of between 1.5 and 2 trillion cubic feet of gas.

- Recall that the engineering, procurement and construction contract for the first FLNG for the Kanowit field, off the Kumang cluster in Sarawak shallow waters, has been awarded to Technip and Daewoo. The vessel, which will have a capacity of 1.2 million tonnes annually, will cost US$2bil but the larger capacity Rotan FLNG will likely cost more.

- As we have mentioned in our earlier reports, MMHE is still angling for the topside construction contract for the Kanowit FLNG, while the hull and basic ship structure will likely be fabricated by Daewoo. Likewise, we expect a similar arrangement could arise from the Rotan project.

- Against the backdrop of escalating requirements for more specialised and higher scale engineering capabilities, we maintain MMHE as our top pick in the sector as it is the only domestic yard which has a proven track record in complex engineering platforms with deepwater capabilities.  We also retain our OVERWEIGHT view on the sector with our other BUY calls being Petronas Gas, SapuraKencana, Bumi Armada and Dialog Group.

Source: AmeSecurities