Further Upstream Potential Promised By Cendor Hit

BMI View: The upgrade of resource estimates for the Cendor field not only suggest s that Malaysia's marginal fields could have larger potential than thought, but continue s to indicate that the offshore Peninsula Malaysia could have more resources left to be discovered.

Petrofac ' s latest oil discovery in the Cendor oil field proves once again that Malaysia's oil fortunes are not yet over. While drilling the Cendor Graben-2 appraisal well, operator Petrofac hit oil - and gas- bearing reservoirs which led it to significant ly hike its resource estimates for the field. Once thought to be a marginal field with only 12mn barrels (bbl) of recoverable oil, this latest appraisal has increased Cendor's recoverable resource estimates to about 200mn bbl.

Besides operator Petrofac, Malaysian national oil company (NOC) Petronas also holds a stake in PM304, together with Kuwait Foreign Petroleum Exploration Company and Petrovietnam.

Bringing The Spotlight To Marginal Fields

This discovery is significant, for it shows that Malaysia's 'marginal' fields could have larger resource potential than thought. The supposed lack of commercial potential led Armerada Hess to abandon the country in 2004. Oilfield services firm Petrofac took over operatorship of the field, and developed seven wells in it to produce about 3,500 barrels of oil per day (b/d) from 2006. However, the Cendor Graben-2 well, which was drilled as part of Phase II of Cendor's development, clearly shows that greater exploration of marginal fields could yield unexpected results.

In fact, the desire to unearth further resources from its marginal fields has led Malaysia to offer Risk Service Contracts (RSC) to encourage production from already-known fields which were thought uneconomical to produce ( see our online service, October 25 2012, 'Marginal Fields A Short-Term Solution To Long-Term Oil Woes'). Results have been positive, especially from the Balai Cluster RSC fields, located offshore East Malaysia. BC Petroleum, the venture consisting of ROC Oil (48%), Dialog Group (32%) and Petronas (20%), continues to confirm the extension of the hydrocarbon-bearing reservoirs in the contract area from exploration wells drilled. The latest is the West Acis-2 well, which BC reported in April 2013 to have hit a 20 metre (m) net hydrocarbon pay in three sandstone reservoirs.

Petrofac's success at Cendor could prompt other existing players in Malaysia to revisit producing fields. With oil prices expected to remain at historical highs above US$90/bbl through to 2017, this could provide sufficient monetary incentive to embark on further exploration activities, or to use more expensive techniques to bring difficult-to-extract resources online.

Old Is Still Good

Cendor's resource enlargement is also significant for it shows that the Malay Basin offshore Peninsula Malaysia has not yet ended its run. The Cendor field lies in Block PM30, offshore Terengganu in the Malay Basin, home to some of Malaysia's best- known fields including Tapis - renowned for its high- quality, light and sweet crude. However, in recent years greenfield deepwater projects offshore Sabah and Sarawak in East Malaysia have been given more attention, while most investment offshore Peninsula Malaysia tended to focus on enhanced oil recovery (EOR) in existing but mature fields.

The latest resource upgrade at Cendor should help support further exploration offshore Peninsula Malaysia. It adds to Lundin Petroleum 's large find in the Bertam oilfield in October 2012, whose location offshore Pahang suggests that oil potential exists further south of the Malay Basin.

Both Lundin's Bertam oilfield and Petrofac's Cendor oilfield are likely to begin development in the very near future. Lundin estimates that 17,500-20,000b/d could be produced from Bertam by Q314. Petronas has an even more ambitious timeline for Cendor, which it hopes to develop in stages throughout 2013 , such that it will produce 30,000b/d by the end of the year.

Upstream Fortunes

These developments will help support oil production growth in Malaysia. After a period of decline, 2012 saw a reversal in this downward trend by registering a 1.59% year-on-year (y-o-y) increase in oil production, according to the EIA. This upward trend is set to continue, thanks to several ongoing deepwater developments offshore East Malaysia while EOR efforts help support existing levels of production. Further contributions from new field discoveries such as Cendor and Bertam will certainly boost the country's short- to medium-term production prospects.

Revival In Sight?
Malaysia Oil Production & Consumption, 2000-2017 ('000b/d)

While offshore Malaysia could still offer more discoveries, the country's upstream business prospects are dragged down by relatively opaqu e licensing laws. There is no dedicated and neutral regulatory body to give out licences through open rounds. Instead, licensing is overseen by Petronas, which reports directly to the prime minister . While existing players with a working relation ship with Petronas will be able to navigate around the system, interested new entrants could find it difficult to get access to prospective acreage without connections.

This creates a business environment that benefits large international companies more than small independents. Oilfield services firms such as Petrofac and Schlumberger could also benefit from being third-party contractors to a growing number of projects.

A reform of Malaysia's oil regulatory environment, perhaps through the reorganisation of Petronas' role in the oil and gas industry to increase the transparency of the licensing system , could have positive effects on Malaysia's upstream business operating environment. Indeed, with growing political pressure for increased openness within Malaysia, this reform could be on the cards. Much of this will depend on the outcome of the country's elections in May. One of the opposition's biggest campaign promises is to reform Petronas and a further loss of power by the ruling Barisan Nasional (BN) in this election could speed the process of change in Malaysia's energy regulatory environment.

This article is tagged to:
Sector: Oil & Gas
Geography: Malaysia

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