- The Edgereported over the weekend that several oil and gas (O&G) companies are looking to bid with international players for the Malaysian assets of US-based Newfield Exploration Co. Newfield, which is shifting its production focus from its international segments back to North America, has appointed Sachs & Co to advise on the disposal of its O&G blocks, located in Malaysia and China. These assets being considered for disposal are estimated to be worth US$2bil-US$2.5bil.

- The financial newspaper indicated that SapuraKencana Petroleum and Dialog Group as amongst the Malaysian players who are actively looking to bid for these blocks together with larger international companies. Note that SapuraKencana and Dialog are currently involved in risk-service contracts for the Berantai and Balai marginal fields. According to The Edge, Newfield will remain as the operator even after the disposal of its stakes in the blocks, given the company’s commendable track record over the past 3 years.

- As at end-2012, Newfield’s Malaysian blocks have net reserves of 35 million of barrels of oil equivalent (boe), of which 67% are in liquids and have a daily current production of 75,000 boe. It has 4 producing blocks off Peninsular Malaysia and another four under development - including a deepwater field as well as block SK310 off Sarawak, which Newfield said was the largest conventional discovery in its 25-year history with 1.5-3 trillion cubit feet of gas in April this year. Newfield’s equity stakes in the fields range from 25% to 70%, in which it is the operator of 5 of the 8 blocks.

- Newfield also has development blocks with net reserves of 22 million boe in the Bohai Bay field near Beijing in the Pearl River mouth basin. The Bohai field is operated by China National Offshore Oil Corp while Newfield is the operator for the Pearl River basin. We do not expect Malaysian service providers to be interested in overseas production blocks at this stage given their stillearly learning curve in domestic marginal fields and enhanced oil recovery (EOR) activities.

- But these new opportunities in Malaysia are exciting for the industry given that the potential for local players to become concessionaires of larger production fields. Thus far, only Dialog Group is actively having a stake together with Halliburton in the the Bayan EOR field off Sarawak. For now, we expect only companies with such as SapuraKencana, Dialog Group, Bumi Armada and UMW Oil & Gas to have sufficient capital to invest into these new frontiers.

- As mentioned in our earlier reports, contract rollouts are accelerating after the recent 13th general election, with 2Q2013 orders surging to RM7.8bil thus far, vis-à-vis 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. Together with the upcoming increase merger and acquisition activities amongst local service players to achieve greater scale of resources and expertise, 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