KUALA LUMPUR: Murphy Oil Corporation’s production sharing contracts (PSC) for the offshore exploration areas designated as Blocks L and M have been terminated by Petroliam Nasional Bhd (Petronas) as they “are no longer a part of Malaysia”.
The El Dorado, Arkansas-based Murphy Oil announced to the New York Stock Exchange that the PSC was terminated after Malaysia and Brunei determined that the designated offshore areas were no longer a part of Malaysia.
“As a consequence, the production sharing contracts covering Blocks L and M, awarded in 2003 to Petronas Carigali Sdn Bhd and Murphy, were formally terminated by a letter dated April 7, 2010.
“Murphy’s potential participation in replacement production sharing contracts covering these areas is under discussion,” it told the exchange on Wednesday.
Commenting on this development yesterday, AmResearch Sdn Bhd said the PSC cancellation was unlikely to affect news flow of oil and gas projects, which were already under development in Malaysia.
“Together with an expected pick-up in pace of new contract awards overseas in India, Brazil and the Middle East over the next three quarters, we remain positive on the sector’s prospects,” it said.
The research house remains overweight on the sector with its top pick being SapuraCrest Petroleum Bhd, given its huge order book, improving execution capabilities, healthy balance sheet, high stock liquidity and presence of Seadrill as a substantial shareholder as well.
“We also like Kencana Petroleum, Coastal Contracts, Alam Maritim Resources, Tanjung Offshore, Dialog Group, Petronas Gas, Scomi Group and Wah Seong Corp. Our holds are KNM Group and Boustead Heavy Industries Corp,” it said.
The research house said the PSC termination was unlikely to affect Murphy’s current producing fields, which has been developed such as Kikeh block, which lies in Block K, not in the area under dispute with Brunei.
The second deepwater project Gumusut-Kakap and the next six projects — Malikai, Kebabangan, Jangas, Ubah Crest, Pisangan and Kamunsu — are also not in blocks L and M, it said.
“Recall that Murphy was the first to discover oil reserves in Kikeh in Block K offshore Sabah back in 2002, which marked a significant milestone for Malaysia’s venture into deepwater development.
“Murphy Oil is the main operator of the deepwater oil fields with 80% interest while Petronas Carigali holds the balance 20% interest, it said.
AmResearch said Murphy’s Kikeh Field, located 110km offshore in water depths of 1.3km, had estimated oil reserves of between 400 million and 700 million barrels of oil equivalent (boe), or 13% of the nation’s FY09 oil reserves of 5.5 billion boe.
Kikeh was developed as a stand-alone facility with oil being produced from both subsea and dry tree wells on board a Truss Spar floating production platform hull and topside, it said.
The research house said Murphy had also continued its string of successful exploration on two blocks offshore Sarawak, adding natural gas discoveries at Pemanis, Serandah, Gasing, Wangsa, Tiram and Sapih during 2006.
“In 2008, Murphy discovered gas with a provisional estimate of one trillion cubic feet of gas in Block H, offshore Sabah,” it said.
This article appeared in The Edge Financial Daily, April 23, 2010.