PETALING JAYA: Petroliam Nasional Bhd’s (Petronas) decision to put up 13 offshore exploration blocks for bidding in the 2021 Malaysia Bid Round (MBR), an improvement compared with the nine and six blocks that were offered in the 2018 and 2019 rounds respectively, implies that the country remains keen to attract more foreign direct investment into the upstream sector to spur new exploration and stem declines in its proven reserves base.
In a note, Fitch Solutions pointed out that international oil companies’ interest in traditional oil and gas plays risks cooling off as cost reduction, improving shareholder returns and decarbonisation efforts take on greater precedence.
“Petronas is expected to maintain its focus on domestic activities, although the growing investment burden on the state-owned entity (SOE) looks unhealthy, while the SOE itself has sought to diversify into new business areas in recent quarters,” it said.
It acknowledged that MBR 2021 came at an opportune time, as this year is set to see muted upstream appetite return as Covid-19-related headwinds lift and global oil prices strengthen.
Moreover, Petronas has introduced three new production sharing contract (PSC) terms, each carrying strengthened incentives for specific project types in an attempt to attract investors.
For the latest bid round, of the 13 blocks, nine are situated in shallow waters near proven producing zones and at water depths of no more than 200 metres, while the rest are in deep waters, offshore Sabah and Sarawak. The round also attracted some 250 attendees from across Europe, North America and within Asia-Pacific.
Interested firms have until August to submit their bids, while the evaluation and award of the PSC to successful bidders will take place before the end of 2021 according to Petronas’ current timeline.
Fitch Solutions highlighted that the SOE has introduced “enhanced profitability terms” (EPT) for shallow water blocks, which feature a 70% ceiling for cost recovery compared with 50% in regular PSCs, as well as a higher range set for contractor-take of profits to 30%-90% depending on profitability of an underlying asset, from 20%-70%.
It said Petronas also improved incentives for the developments of small field assets and late-life assets, by allowing bidders to set their own desired production splits in their applications.
However, the contract terms for the four deepwater blocks will continue to abide by existing 2018 revenue over cost (ROC) terms whereby permitted cost recovery ranges from 30% to 80% and the contractor-take of profits is calculated using the ratio between cumulative income and cost.
Apart from that, the round will have other non-fiscal incentives, which include the ability to bid for more than one block under a single PSC scheme, the ability to transfer work commitments from one block to another and simplified administrative processes during evaluation, milestone review and audit phases.
In addition, Petronas Carigali will no longer be entitled to a mandatory equity stake and itwill be subject to the bidding process if it wishes to partake in a PSC.
On the whole, the research unit sees the stronger PSC terms and potential for new block awards provide upside risks to forecasts for future reserves and output growth in Malaysia.
“However, it remains to be seen whether the set of incentives outlined above will be enough to coax global IOCs to invest,” it said.
“For instance, the shallow water blocks may not have the size or the scope to attract larger oil majors, although smaller domestic firms or oilfield services companies may find the scale sufficient to be profitable.”
Fitch Solutions reasoned that the anticipated cooling off of IOC interest is as much a reflection of an ongoing shift in long-term corporate strategies than a mere reaction to uncompetitive licensing terms, as fossil fuel developments are increasingly shunned in favour of renewables and decarbonisation efforts.
“This is already affecting other oil and gas markets across emerging Asia where IOCs have begun to slow investments and divest upstream stakes, although Malaysia is a much lower risk market than similar sized regional peers and so may appeal to firms that are risk-averse.”
Petronas has introduced ‘enhanced profitability terms’ for shallow water blocks and improved incentives for the development of small-field assets and late-life assets, notes Fitch Solutions. – Petronas website pix
Source: The Sun Daily
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