- Upstream reported that US-based independent Newfield Exploration has made a giant gas discovery in Block SK 310 off Sarawak, Malaysia, and is already planning for its joint development with an earlier find on the same block. The B-14 well on Block SK 310 (See Chart 4 for location map), which was targeting a pinnacle reef structure, hit 1,585 feet of net gas pay, and drill stem testing confirmed the reservoir’s commerciality.

- Compared to deepwater Kebabangan field’s 2 trillion cubic feet (tcf) of gas, Newfield reckons B-14 holds between 1.5 tcf to 3 tcf. This is the largest conventional hydrocarbon discovery in Newfield’s 25-year history. The B-14 gas giant lies less than five kilometres from the operator’s first pinnacle reef discovery B-15, and the duo will be developed together. B-15 lies in about 250 feet and holds estimated recoverable reserves of 265 billion cubic feet of gas. One potential development scenario would be a central processing platform (CPP) on B-14 with a smaller platform or platforms on B-15 and a pipeline to carry the gas to shore.

- The SK 310 production-sharing contract (PSC) covers around 1.1 million acres and is 80 kilometres off Sarawak. Newfield has multiple reef prospects to test along trend and exploration drilling is expected to resume in 3Q2013 with the drilling of the B-17 commitment exploration well on SK 310.The company believes the other prospects identified on the block have multi-tcf gas resource potential.

- Partners in the SK 310 PSC are operator Newfield with 30%, Petronas Carigali 40% and Mitsubishi’s wholly-owned Diamond Energy Sarawak with 30%. In December last year, Newfield signed a new PSC for Block SK 408 and completed its farm-in to Block SK 319, both off Sarawak. Block SK 408 boasts 16 discoveries, while existing production hubs and infrastructure lie within 16 kilometres of dozens of potential prospects identified by Newfield. The 3-year initial exploration term for Block SK 408 requires 10 commitment wells to be drilled. The partners are Shell and Petronas Carigali.

- There are also several other exploration prospects identified on Block SK 319, where Newfield has a 5-well commitment over the initial 36 months. Shell operates this block with a half share while Newfield and Petronas Carigali hold 25% each. These developments underpin our expectations that there will be multiple capex announcements over the next 2-3 years, with up to 10 CPPs, which would cost at least US$1bil each, up for grabs in Malaysia.

- By June this year, we expect the award of the Semarang CPP engineering, procurement, construction and commissioning contract as well as 3 blocks of the RM8bil-RM10bil umbrella tender for hook-up, construction and commissioning works, delayed from 4Q2012. In 2H2013, the rollout of the second phase of the North Malay basin gas cluster project, which will involve a large CPP at the Bergading field and multiple satellite well-head platforms, should sustain the re-rating momentum.

- The newsflow momentum will be further supported by contract awards emanating from the RM60bil RAPID project in Pengerang and tank terminal projects in Southern Johor, together with the massive gas cluster projects off Sabah and Sarawak, which are tied in to the completion of the Bintulu LNG complex expansion in 2015.

- In view of the multiple flows of contracts this year, we maintain our OVERWEIGHT call on the sector with BUY calls for SapuraKencana Petroleum, Bumi Armada, Dialog Group and Alam Maritim.

Source: AmeSecurities