- Upstream reported today that Petroliam Nasional (Petronas) will be undertaking a 3-way parallel front-end engineering and design (FEED) contest as early as this month for the US$1.5bil (RM4.5bil) multi-platform Sepat gas processing project off Peninsular Malaysia. Petronas had opened up a pre-qualification exercise in March this year for international oilfield services providers, with plans to shortlist at least three contenders, made up of yard owners and engineering outfits, to complete parallel FEED studies for the project.

- The FEED competition is scheduled to begin late this month and will lead to the award of an engineering, procurement, construction, installation and commissioning contract to the winning team. Sepat gas is said to contain over 40% carbon dioxide in the gas leg of this producing oilfield. The planned Sepat platform is also being considered as a hub for neighbouring greenfield and brownfield developments, according to sources.

- The first phase of the project will involve a central processing platform (CPP), equipped with an acid gas removal unit, weighing over 27,000 tonnes. The platform will come with a flare tower and will be bridge-linked to a wellhead platform under Sepat’s first development phase. A second wellhead platform will also be tied in to the hub platform via a 12-kilometre flowline.

- Gas will be exported via two 200-kilometre pipelines, 10 inches and 24 inches in diameter, to an existing gas terminal in Terengganu, which will undergo modification to receive the output from Sepat. While the stage was initially set up for an international contest, Local content preference remains a key consideration for the Sepat tender. Upstream indicated that an alliance between Italy-based Saipam and SapuraKencana Petroleum has emerged as the favourite bidder. But the other 2 contestants are joint-ventures – (1) France’s Technip and its yard partner, Malaysian Marine Heavy Engineering, and (2) USbased McDermott and TH Heavy Engineering, which has a yard in Pulau Indah, Klang.

- This development is not a surprise, as we had highlighted in past reports that there are up to 10 central processing platforms, such as the Semarang, Bergading, Baronia, Bokor and Dulang, which are open for competition in Malaysia over the next 1-2 years. We expect the Semarang CPP to be awarded soon to SapuraKencana.

- Contract rollouts have accelerated after the recent 13th general election, with 2Q2013 orders thus far, reaching RM7.8bil from RM4.2bil in 1Q2013. By 1Q2014, the final investment decision for the RM60bil RAPID project in Pengerang will be made but Petronas is already calling for a tender for Package 8 involving the construction of cumene, phenol and bis-phenol A production units. This looks set to catalyse multiple tank terminal projects in Southern Johor. In the short- to medium-term, excitement in the sector will still largely stem from the larger field projects in Malaysia such as the enhanced oil recovery projects; gas cluster developments for the North Malay basin; as well as in Sabah and Sarawak which are tied to the completion of the Bintulu LNG complex expansion in 2015.

- In view of the multiple flows of contract this year, we maintain our OVERWEIGHT call on the O&G sector with BUY calls for SapuraKencana Petroleum, Alam Maritim, Dialog Group and Petronas Gas.

Source: AmeSecurities