Petronas’ licensing round offers upside risk for reserves, output growth but …

THE biggest challenge facing national oil corporation Petronas’ latest bidding exercise for its offshore exploration blocks is whether the incentives it offers will be enough to coax global international oil companies (IOCs) to fork out the necessary investment.

This is despite the introduction of stronger production sharing contract (PSC) terms and potential for new block awards that provide upside risks to forecast for future reserves and output growth in Malaysia, according to Fitch Solutions Country Risk & Industry Research.

“For instance, the shallow water blocks may not have the size or the scope to attract larger oil majors although smaller domestic firms or oilfield services companies may find the scale sufficient to be profitable,” opined the research house in its latest commentary.

“In addition, the anticipated cooling off of IOC interest is as much a reflection of an ongoing shift in long-term corporate strategies than a mere reaction to uncompetitive licensing terms as fossil fuel developments are increasingly shunned in favour of renewables and decarbonisation efforts.”

This is already affecting other oil & gas (O&G) markets across emerging Asia where IOCs have begun to slow investments and divest upstream stakes although Malaysia is a much lower risk market than similar sized regional peers as assessed by the Fitch Solutions Upstream Risk/Reward Index (RRI) and so may appeal to firms that are risk-averse.

On Feb 26, Petronas launched the Malaysia Bid Round (MBR) 2021 by putting up 13 offshore exploration blocks for bids, an improvement from the nine and six blocks that were offered in the 2018 and 2019 rounds respectively.

Of the 13 blocks, nine are situated in shallow water areas near proven producing zones and at water depths of no more than 200 meters, while the rest are in deepwater, offshore Sabah and Sarawak.

Held virtually, the round attracted some 250 attendees from across Europe, North America and also within the Asia-Pacific.

Interested firms will have until August to submit bids. Evaluation and awarding of PSCs to successful bidders will take place before the end of 2021 according to Petronas’ current timeline.

The bidding outcome will be made public before the end of 2021 according to Petronas’ current timeline after which winning firms will have about five years for pre-development works. – March 10, 2021

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