Petronas pitches $1 billion stake in offshore gas project

Petronas offering stake in SK316 offshore gas block

According to a report by Reuters, Petronas is hoping to partner with potential bidders in the company’s $1 billion upstream local gas project located off the coast of Malaysia’s Sarawak state.

Possible bidders include Royal Dutch Shell, ExxonMobil Corp, Thailand’s PTT Exploration and Production (PTTEK) as well as some firms from Japan.  About a dozen prospective buyers have been approached by the Malaysian state-owned energy company to purchase a 49 per cent stake in the operation.

If Petronas is successful, the deal could be the company’s largest upstream stake sale since oil prices began falling in 2014.

To sweeten the deal, Petronas says it is lowering costs by project rollbacks, reducing operating expenses and cutting jobs

In February, Reuters reported that the company was considering selling as much as 49 per cent of its share in the SK316 offshore gas block.  Sources say Petronas has begun providing financial information and operational data to potential buyers and is expecting to receive bids in the coming weeks.

“It’s just what the environment is. Nobody wants to keep all the risk on their books,” Vikas Halan, senior credit officer, corporate finance group at Moody’s told Reuters. He added he sees the move as a rebalancing of Petronas’ portfolio.

“Petronas is the leader in the oil and gas space, especially on the gas side. The experience of getting or producing LNG and marketing LNG is quite an interesting one and Petronas becomes a logical choice for players,” he said.

In a statement from Petronas through its subsidiary Petronas Carigali Sdn Bhd to Reuters, the company said it is looking to partner with a company that will bring the technology and capabilities needed to explore, develop and operate the SK316 offshore gas fields efficiently.

“We are confident that we will attract the right partners to maximise the potential value of these opportunities to help meet the world’s growing oil and gas demand,” Petronas said.

According to Reuters, it is not known at this time what the companies’ response to Petronas’ offer was.

One financial source said the 49 per cent minority stake may not appeal to non-Asian oil majors, but a decision to bid would depend on details of the stake being offered, valuations and the potential for long-term partnerships with Petronas.

At this time, Exxon has declined to comment and Shell referred Reuters to Petronas.  A spokeswoman for PTTEP declined to comment on the sale, but said the company was eager to invest in the area because it has local expertise and costs and risks are considered low in the region.

 

The funds from the sale of the stake in SK316 could go to developing Petronas’ Kasawari field in the same block.  Kasawari is one of the largest non-associated gas fields in Malaysia with an estimated recoverable hydrocarbon resource of about three trillion standard cubic feet.

“Kasawari will require a significant capital investment to develop due to the high CO2 content,” Prasanth Kakaraparthi, senior upstream research analyst at consultancy Wood Mackenzie told Reuters.

“In a lower-for-longer oil price world, it makes commercial sense for Petronas to farm down its interest and partner with companies that have innovative CO2 handling technology,” he said.

In 2015, with oil and gas prices falling, Petronas put on hold plans to develop Kasawari, according to media reports.

Gas from the NC3 field in the SK316 block is used in LNG 9, Malaysia’s LNG export project.  LNG 9 is Petronas’ joint venture with JX Nippon Oil & Energy Corp that began commercial production in January.