- Marginal field developments in Malaysia may be getting a second wind from the findings that their reserves may be much larger than earlier estimated. Petroliam Nasional (Petronas) has announced that the Cendor field development, the first marginal field development in the country, has performed above expectations and has significantly increased the recoverable reserves in block PM304, off Terengganu (See Chart 3).

- The group confirmed the presence of oil and some gas-bearing reservoirs after drilling to a depth of over 1,000 metres. Recall that drilling was undertaken by Petrofac (Malaysia PM304) Ltd, the operator for Block PM304, together with joint-venture partners PETRONAS Carigali Sdn Bhd, Kuwait Foreign Petroleum Exploration Company and PetroVietnam Exploration Production Corporation Ltd. The Cendor field was first discovered by Amerada Hess in 2001. However, the discovery was initially regarded as marginal with estimated recoverable resources of only 12 million barrels of oil and was therefore deemed too risky and uneconomical for development. In May 2004, Petrofac acquired Amerada Hess’ interest and assumed operatorship of Block PM304.

- According to Petronas’ announcement yesterday, the efforts undertaken successfully transformed Cendor from a field deemed marginal, which means reserves of below 30 million barrels, to one of the biggest oilfields in Malaysia. Cendor was developed using leased Mobile Operating Production Unit (MOPU) and first oil was achieved in September 2006. This culminated in Cendor Phase 2 development and other new developments in PM304 which increased the estimated recoverable resource to over 200 million barrels, 16.7x from its original estimate.

- These other developments in PM304, through fast-tracked efforts in the last two years, are expected to commence production in stages throughout 2013 which will propel production to 30,000 barrels per day by end of the year. This significant increase in reserves from marginal fields augurs well for prospective marginal field developments in the country. The Berantai field, which commenced production in 2012, has raised its estimated recoverable gas resources by 15% from the estimates of around 30 million barrels in 2011. Additionally, the pre-development work of the Balai Cluster has also given early indication of increase in resources estimates. Petronas had earlier indicated that there are 106 marginal fields with estimated reserves of 580 million barrels of oil.

- We understand that the Tembikai marginal field risk-service contract (RSC) is currently under review after the bid by the jointventure between Scomi Group-Cue Energy Resources fell through. But unlike the earlier RSCs for Berantai, Balai-Bentara and Kapal, Banang and Meranti clusters were awarded to SapuraKencana-Petrofac, Dialog-Roc Oil-Petronas Carigali and Coastal Energy-Petra Energy, respectively, we believe further studies are required before other operators are willing to venture into new marginal field developments. Hence, news flow on this front may only materialise in the longer term.

- Nevertheless, excitement in this sector 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. Hence, we maintain our OVERWEIGHT call on the sector with BUY calls for SapuraKencana Petroleum, Bumi Armada, Dialog Group and Alam Maritim.

Source: AmeSecurities