Temporary Solution Brings Gumusut-Kakap Online

BMI View : Shell has officially announced that first oil has flowed from the deepwater Gumusut-Kakap field, whose start-up was made possible by a temporary solution to tie-back two production wells to the Murphy-operated Kikeh field. Large developments such as these are encouraging as Malaysia seeks to arrest a decline in its crude oil production. We maintain that more upstream investment is needed to sustain output growth, while licensing terms allow ing for more competition in the oilfield facilities construction sector could allow greater efficiency to be achieved.

Royal Dutch Shell has officially announced that first oil flowed from the deepwater Gumusut-Kakap field on November 20 2012. The 1,200 metre (m)-deep field is located 120 kilometres (km) off the coast of Sabah, East Malaysia. It is the country's second deepwater field after the Murphy -operated Kikeh.

This confirms reports, revealed in September by an unnamed source , of production start-up at Gumusut-Kakap ( see our online service, September 13 2012, ' Rising Consumption Reduces Gains From Increased Production' ). However, initial produ ction was listed at 10,000 barrels per day (b/d) in 2012 by the source, who expects peak production to hit 135,000b/d by 2013-2014. Petronas , one of the partners of the field, has a smaller peak output figure of 120,000b/d.

Shell also disclosed that current production is derived from two wells, tied back to Kikeh's floating production and storage offloading (FPSO) unit. This is a temporarily solution as Gumusut-Kakap's partners await the completion of a permanent floating production system for their field - currently under construction by state-owned Malaysia Marine and Heavy Engineering (MMHE) and to be ready by end-2013. Following this , 19 subsea wells will be tied-back to the platform and crude oil will be transported via an export pipeline to the Sabah Oil and Gas Terminal in Kimanis, Sabah.Some figures suggest that Malaysia's underexplored deepwater may hold up to 10bn barrels (bbl) of undiscovered resources. First oil from the Gumusut-Kakap project is a key development in Malaysia's plans to develop these resources.

Encouraging oil production has risen in importance as the country seeks to arrest a downward trend in its output - since hitting a peak of 861,810b/d in 2004, production has fallen to 645,270b/d in 2011, according to data by the US Energy Information Administration (EIA). Meanwhile, economic growth has fuelled a consumption boom, bringing its export capacity precipitously down from 361,820b/d in 2003 to 103,550b/d in 2011.

Losing The Crown
Malaysia's Oil Production, Consumption & Net Exports, 1990-2012 ('000b/d)

A further fall would not only hit government revenues from export duties, but also reduce income from production royalties. At present, petroleum income makes up one-third of Malaysia's revenue, according to Deputy Finance Minister Datuk Donald Lim Siang.

Malaysia is depending on a mixture of marginal field developments and larger projects such as Gumusut-Kakap to reverse the trend of falling crude oil output. Gambling on marginal fields appears to be sensible in the short term, with oil prices staying above US$100/bbl in recent years to support investment in these small fields with proven hydrocarbon potential ( see 'Marginal Fields A Short-Term Solution To Long-Term Oil Woes', October 25 2012). In the longer term, large deepwater projects could play a bigger role in helping the country.

Fighting Waning Fortunes
Malaysian Oil Production, 2011-2021 ('000b/d)

We have taken into account Gumusut-Kakap's start-up for our oil production forecast for 2012, in which we expect output to remain relatively unchanged at about 645,000b/d. For 2013, this is likely to rise to about 676,310b/d as the field slowly approaches peak capacity. Other projects - such as ExxonMobil's enhanced oil recovery (EOR) project at the Tapis field, as well as ConocoPhillips' Block G fields (Malikai, Petai, Ubah, Pisagan) and Kebabangan Cluster fields - will contribute to a rise in output to 894,500b/d by 2017. Nonetheless, without further developments, output will likely plateau by 2017 and begin to fall again to 793,400b/d by 2021.

The temporary solution to tie-back production to Kikeh to facilitate production also shows another problem in Malaysia's upstream segment. Delays in Gumusut-Kakap's FPSO construction have no doubt limited the amount of oil that can be produced initially. The dominance of state-owned MMHE in oilfield facilities construction has most likely come at a cost of efficiency. A more competitive business environment for construction, which could be encouraged by less restrictive licensing terms, would help the country avoid these delays and ramp up production more quickly.

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

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