Oil & Gas Sector - Early studies for maiden Pahang project to Technip NEUTRAL

- Upstream reported that Sweden-based Lundin Petroleum has awarded a conceptual studies contract for the Bertam oilfield development off Malaysia to Technip’s early engineering services unit Genesis. Recall that the Prime Minister recently announced the development of the first offshore oil project in Pahang with production scheduled for 4Q2014. The state’s 5% oil royalty is expected to amount to RM100mil annually with production of between 17,500 and 20,000 barrels per day (bpd).

- Work is understood to have started on the two-month conceptual studies project aimed at short-listing two proposed field development options for the small oilfield. The field lies in a water depth of about 80 metres in Block PM 307 off Peninsular Malaysia. The preferred development option is understood to involve an Aframax-sized floating production, storage and offloading (FPSO) vessel and a wellhead platform. 

- As we had highlighted earlier, local companies which are likely to bid for the FPSO charter contract are MISC, BumiArmada, TH Heavy Engineering and M3Nergy. For the fabrication of the wellhead platform, which is likely to be tendered by mid-2013, we believe Malaysia Marine and Heavy Engineering Holdings (MMHE) is the likely candidate given its collaboration in past projects with Technip, which currently has an 8% equity stake in MMHE, while its current managing director was formerly employed by the French-based engineering provider. The other the usual players in fabrication,  SapuraKencana Petroleum, TH Heavy Engineering and Boustead Heavy Industries Corp, may also enter the fray.

- However, the Bertam conceptual study work will also evaluate two other options — a production platform tied either to a floating storage offloading vessel or an existing crude export pipeline. The Bertam oil field at Block PM 307, at the shallow water depth of 76 metres and 160km off the shore of Kuantan in Peninsular Malaysia, has reserves of 64mil barrels (See location map in Chart 1). 

- Lundin has a 75% stake in the production-sharing contract, while Petronas holds the balance 25%. Lundin is believed to have bought out its 40%-owned Ikdam FPSO from the vessel co-owners Teekay Petrojarl and Gezina, with the intent of positioning the unit as a prime candidate for Bertam in 2014. The vessel proposal — as with the selected development concept after Genesis completes the engineering studies — is subject to approval from Malaysian state company Petronas.

- These developments are positive for the industry in the longer term. But while the capex upward trend is still intact in the immediate term, fabrication contracts for new offshore platform projects are temporarily slowing down  due to project complexities, re-tendering exercises, re-engineering and deferrals. But the hook-up, commissioning and maintenance works, which include the replacement of expiring long-term contracts, are likely to materialise towards the end of this year. Petronas and its production-sharing contractors are currently holding an open Pan-Malaysian tender for hook-up, construction and commissioning (HUCC) works potentially worth RM8bil-RM10bil, with interested bidders including SapuraKencana Petroleum, Dayang Enterprise, Petra Energy, and possibly, Shapadu. We maintain our Neutral stance on the sector with our top BUYs being Dialog Group and Petronas Gas, which are expected to be re-rated from the multiple tank terminal and LNG regassification projects in the pipeline.   

Source: AmeSecurities