Ann: Trading Halt, page-4

From The Star Online today:

The Ophir oilfield, one of the last marginal oilfields to be awarded by Petroliam Nasional Bhd (Petronas), is poised to begin production by the middle of this year.
Considering that crude oil prices are expected to average more than US$50 per barrel this year, it is learnt that production from the oilfield is feasible, as it is less than US$45 per barrel.
“On average, approximately eight million barrels of crude oil are forecast to be produced per annum through the Ophir field. As for the cost of production, it is believed to hover around US$40 per barrel or even lower.
The cost of production has come down by about 30% in tandem with the drop in oil prices,” said a source.

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The Ophir oilfield was developed by Ophir Production Sdn Bhd, an entity comprising two local companies teaming up with Australia-based oil and gas (O&G) company Octanex NL.
Octanex owns half of the total stake in the consortium, while Scomi Energy Services Bhd controls 30%. The remaining 20% is held by Vestigo Petroleum Sdn Bhd, a wholly owned subsidiary of Petronas.
Petronas’ upstream unit Petronas Carigali Sdn Bhd established Vestigo in July 2013 to complement the former’s upstream activities with the focus on small, marginal and mature fields.
The tri-partite consortium was awarded a risk-sharing contract (RSC) to develop the Ophir oilfield in 2014.
After ironing out the early production issues, the oilfield is expected to hit a production schedule of some eight million barrels per annum conservatively.
Assuming an average of US$50 per barrel, the Ophir oilfield’s revenue should hit US$400mil per annum.
The production of crude oil would be a boost to Octanex and Scomi Energy - two companies that have been badly hit by the decline in crude oil prices since June 2014.
Octanex, listed on the Australian Stock Exchange, is trading as a penny stock and had indicated in its annual report that projects such as the Ophir oilfield, where the probability of producing oil is much greater, were its strategy going forward instead of focusing on exploration activities.
As for Scomi Energy, the stock is trading at less than 18 sen and has seen a significant decline in cashflow, as it adjusts to the lower price of oil that warrants a lower production cost. Scomi Energy’s mainstay is to provide drilling fluids for O&G exploration activities.
“The cashflow from the Ophir oilfield is expected to enhance the cash flow for both companies significantly,” said a source.
Octanex’s financing for the Ophir oilfield amounting to US$12mil primarily came from its partner Sabah International Petroleum, a state-owned entity.
The oil production from the Ophir marginal field has generally been on track. Scomi Energy’s 2016 annual report, which was issued last year, highlighted that first oil commercial production is expected in the second half of 2017.
The RSC model to develop marginal oilfields was adopted by Petronas in 2011. It is an alternative to the production sharing contract (PSC) that is used for oil fields with large reserves.
Marginal oilfields refer to oilfields with reserves of less than 30 million barrels.
In contrast to the PSC, under the RSC terms of contract, the contractor receives an agreed rate of return for production efforts and is compensated even if there is no discovery of oil.
The risk and returns for contractors are low.
As for the PSC, the risk is shared among all partners and the returns are high. The PSC is also for large oilfields with reserves so huge that the field can keep producing for more than 10 years.
While it was reported earlier that Malaysia had some 106 marginal fields, with approximately 580 million barrels of oil, over 20 marginal oilfields have been identified with redevelopment potential.
Since 2011, Petronas had dished out six RSCs, with half of them already witnessing commercial production.
However, last year, Petronas ceased two RSCs, namely Berantai RSC and the Balai RSC. The national oil company has cited the low oil price environment and uneconomical operations as reasons for the decision.
The companies involved were SapuraKencana Petroleum Bhd and Dialog Bhd, respectively.
Although marginal oilfield developments have proven to be uneconomical for some RSCs in the low oil price environment, the contractors in the Ophir oilfield managed to reduce the production cost significantly due to the guidance from Vestigo.
“The Ophir RSC has proven to be viable even in the times of the oil price slump primarily due to the significant reduction in the cost of production.
“The consortium successfully reduced its capital expenditure and operating expenditure and this allowed the overall cost reduction,” stated the source.