With production diminishing from maturing oil fields, domestic consumption on the rise and an increasing amount of lucrative natural gas destined for the export market, Malaysia is stepping up efforts to stem the tide of increasing energy demand by significantly boosting capital expenditures in the upstream sector. If successful, this ambitious strategy could boost crude and condensate output by more than 600,000 barrels per day (bpd) over the next five years, with large new oil and gas plays coming on-line, as well as via efforts to make the most of legacy fields nearing the end of their productive lifespan through the utilisation of enhanced oil recovery (EOR) techniques. Natural gas production is also projected to achieve an all-time high of 7bn standard cu feet per day (scfd) at its peak in 2018 compared to current output of around 6bn scfd, according to energy consultancy Wood Mackenzie.
State-owned energy giant Petronas announced it would funnel RM300bn ($93.63bn) in capital expenditures (65% earmarked for exploration and production) into the sector in 2011-15, while other oil and gas majors like BP, ExxonMobil, Chevron, Royal Dutch Shell and Total annually contribute billions more dollars into the sector. However, in the first years of the commitment phase Petronas has fallen short of its investment targets, with RM45.6bn ($14.23bn) and RM41.2bn ($12.86bn) in capital expenditures in 2012 and 2011. However, it had planned to spend RM60bn ($18.73bn) annually from 2011 to 2015. In 2013 Petronas spent RM56.6bn ($17.66bn), with 44% of that sum (RM24.24bn, $7.57bn) spent domestically, according to Petronas.
Big Game Hunting
Much of these expenditures are being focused on developing large offshore plays in the Sabah and Sarawak provinces of Borneo, as well as off the east coast of Peninsular Malaysia’s Terengganu state in the South China Sea. In Sarawak four blocks in particular – SK 307, SK 310, SK 316 and SK 333 – are showing promise. The first of these is the Tukau Timur field in which at least 12 separate gas reservoirs were discovered containing some 2.1trn standard cu feet (scf) of natural gas at the Tukau Timur Deep-1 well operated by the 50:50 joint venture between Petronas and Shell. The next block, SK 310, is being developed by a joint venture of New-field Exploration Company, Mitsubishi and Petronas to monetise an estimated 1.5trn-3trn scf of natural gas, according to results from the field’s B-14 well.
A similar-sized resource was also discovered in the Kuang North field (SK 316), with the Kuang North-1 and 2 exploratory wells yielding results estimating the field’s gas in place at 2.3trn scf. The sole onshore discovery of the bunch is the Kecil West-1 well located in SK 333. A drill-stem test of the first onshore discovery by Petronas in Sarawak in 24 years achieved flow rates of approximately 440 bpd of crude oil and 11.5m scfd, according to Petronas. The project is a joint venture between JX Nippon Oil and Gas Exploration and Petronas.
In Peninsular Malaysia, the Cendor Graben-2 appraisal well in block PM 304 was upgraded in 2012 after some 200m stock tank barrels of recoverable resources were discovered, making it one of the country’s largest oil fields. The project is a joint venture between Petrofac, Petronas Carigali, Kuwait Foreign Petroleum Exploration and PetroVietnam Exploration Production. Lastly, the Telok gas field, also located 124 miles offshore Terengganu, began producing natural gas in March 2013 with production eventually expected to peak at 360m scfd. The 50:50 partnership between Petronas and ExxonMobil entails the implementation of a total of 14 developmental wells in the Telok A and B fields, which will connect to the existing Guntong E platform for processing via a 16-mile pipeline.
These efforts will supplement the ongoing North Malay Basin project in the same area where a 50:50 partnership of Petronas and the local subsidiary of US-based Hess will develop and commercialise nine stranded offshore gas fields in blocks PM 302, PM 325 and PM 326b holding an estimated 1.7trn scfd of natural gas. Following early production from the Kamelia field during the first phase of the $5.2bn project, the full field development phase will start in the larger Bergarding field. Operations are to begin in the first half of 2015 when output is expected to reach production of 300,000 cu feet per day.
All The More
Eight new fields began producing in 2012, with among the most notable being Petronas’ second deepwater field, Gumusut-Kakap Kanowit field offshore Sabah operated by Shell and the Berantai field in Peninsular Malaysia. This trend continued in 2013, with the first hydrocarbons produced from 12 greenfield plays. Some of the significant projects include the first oil produced in December 2013 from the Kapal field in the KBM Cluster operated by Coastal Energy KBM and developed with joint venture partner Petra Energy under a risk service contract (RSC) since June 2012. Located offshore Peninsular Malaysia, initial production rates from the cluster were over 10,000 bpd, with peak production reaching 13,000 bpd, according to Petronas. This production came shortly after the first oil began flowing from the Balai field in the Balai Cluster RSC area in November 2013. Operated by BC Petroleum, a partnership between Roc Oil (Malaysia), Dialog D & P and Petronas, the development area is located approximately 100-130 km north-east of Bintulu. These and other exploration and production projects have boosted Petronas’ estimated domestic reserves from 22.2bn barrels of oil equivalent (boe) on January 1, 2013 to 22.6bn boe in January 2014, according to company reports.
EOR: Complementing the exploration and development of new oil and gas plays, the second component of the country’s push to boost energy output involves maximising the value of existing maturing fields through the use of EOR as well as improved gas recovery (IGR) and improved oil recovery (IOR). As of 2013 there were 24 active EOR, IGR and IOR projects in the country according to Petronas, up from 21 the previous year, which accounted for 16% of Malaysia’s total resource addition on the year. Petronas has also estimated that the application of EOR technology could boost the recovery factor of 80% of domestic oil fields to more than 40% (the global average oil recovery rate is 25%) and extend the fields’ life to beyond 2040.
Two of the most promising EOR developments are for exploiting Tapis crude and are being carried out by an ExxonMobil and a Royal Dutch Shell venture to extend the life of offshore fields in Borneo. Under a 25-year production sharing contract (PSC) signed in 2009 by ExxonMobil and Petronas for development of seven ageing offshore fields producing Tapis crude (Tapis, Seligi, Guntong, Semangkok, Irong Barat, Tabu and Palas fields) the two equal partners have committed to invest $2.1bn into the project. Output from the Tapis fields, which have been producing since 1978, is projected to increase from the current estimated output of less than 5000 bpd to a maximum output of 25,000-35,000 bpd by 2017, according to ExxonMobil.
Petronas and Shell Malaysia have also signed two PSCs for EOR projects offshore Sarawak and Sabah that entail investing $12bn over 30 years to boost recovery rates from the current 35% level to at least 50%. Signed in 2012, the contracts are essentially extensions of existing Shell PSCs with the new deals combining the remaining periods of the earlier PSCs, which would have expired in 2018 (Baram Delta Operations) and 2019 (North Sabah), and extending the licence life to 2040. The new deal covers nine oilfields in the Baram Delta off Sarawak in which Petronas acts as operator with a 60% stake, leaving Shell with the remaining 40% under its subsidiary Sarawak Shell. The four fields in the North Sabah development area are jointly operated under an equal partnership. The Baram Delta EOR project encompasses the Bokor, Bakau, Baram, Baronia, Betty, Fairley Baram, Siwa, Tukau and West Lutong oil fields, while the North Sabah EOR development includes the St Joseph, South Furious, SF30 and Barton fields. The offshore projects are expected to unlock in excess of 750m barrels of oil, equalling 90,000-100,000 bpd in added output over the lifespan of the contract, according to Petronas.
Looking over the horizon for the next wave of new oil and gas sources, Petronas continues to focus on exploration, which yielded 10 new hydrocarbons discoveries domestically in 2013, along with five more internationally, according to company reports. This puts Malaysia far ahead of its regional competitors, accounting for 72% of upstream oil discoveries in the region. In total, Petronas awarded nine new PSCs in 2012 along with two new RSCs with major global oil companies including Conoco Phillips, Inpex, Coastal Energy, PEXCO and RH PetroGas, and in 2013 the country exceeded the 100 active PSC mark for the first time.
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