RM6.7bil Petronas thrust into N. Africa


BY JAGDEV SINGH SIDHU

PETROLIAM Nasional Bhd (Petronas) is acquiring major oil and gas assets in Northern Africa in a 1.6bil euros (RM6.7bil) deal that would not only give it a significant foothold in the Atlantic Basin liquefied natural gas (LNG) market but also boost its status as a major player in the global LNG industry.  

By far this is the biggest Malaysian overseas investment ever. 

The aggressive move is in line with the national oil company's strategy to invest in strategic areas worldwide. 

In a statement yesterday, Petronas said it had signed an agreement to acquire a 50% working interest in and joint operatorship of the West Delta Deep Marine (WDDM) concession, which is offshore Egypt, and a 35% interest in the Egyptian LNG (ELNG) project from Edison SpA of Italy. 

“The acquisition positions Petronas as one of the leading investors in the North African gas business and paves the entry of Petronas into the Atlantic Basin LNG market,” the company said. 

“Coupled with its already strong position in the LNG market of North Asia, the acquisition effectively transforms Petronas into one of the leading players in the global LNG industry.” 

The upstream assets in the WDDM concession include 13.6 trillion cu ft (TCF) of 2P gas reserves in nine discovered fields, giving Petronas 6.8 TCF of net 2P reserves. Gas produced from the concession is being supplied to Egypt’s fast growing domestic market and the ELNG project. 

The remaining 50% working interest in and joint operatorship of the WDDM concession is held by British Gas Group (BG Group). BG Group, together with Edison, had been awarded the concession by the Egyptian government in 1995. 

According to Petronas, the ELNG project comprises the development and operation of the natural gas liquefaction plant and related infrastructure at Idku, about 50km east of the Egyptian city of Alexandria.  

Construction of the ELNG project’s Train 1 with a 3.6 million-tonnes-per-annum capacity is under way and first production is expected in 2006.The entire output of Train 1 has been contracted to Gaz de France under a 20-year take-or-pay contract. 

Petronas said initial work on the second train, which would double the output from the ELNG project, had started. 

“Marketing of Train 2 output has reached an advanced stage with potential buyers from Europe and the United States having expressed strong interest in purchasing Train 2 output,” said Petronas. 

The ELNG plant is designed to accommodate up to six trains, reflecting the substantial upstream resources and future potential for LNG sales to the Atlantic Basin. 

Petronas said production from the WDDM concession started recently and would initially supply gas to Egypt’s fast-growing domestic market, which had been expanding at an average of 15% per annum over the last five years. 

Production from the WDDM concession would increase to about 1,200 million standard cubic feet per day (mmscfd) when the first LNG train starts up in 2006 and would rise further to about 1,780 mmscfd as the second train is brought on stream. 

“Extensive additional exploration potential is recognised in the WDDM concession, offering scope to build on the 100% exploration and appraisal success track record from the 16 wells drilled to date,” Petronas said. 

The company said it viewed the acquisition as an attractive opportunity for investment and value creation. 

“With significant upstream potential, a strong domestic gas market and access into Southern European and Eastern Seaboard US LNG markets, the world-class integrated project provides a high-quality foundation for Petronas to further develop its gas business in North Africa and the Middle East,” it said. 

The acquisition is conditional on the approval of the Egyptian government and is expected to close during the second quarter of this year. 

The agreement for the acquisition was signed in Cairo yesterday, with Petronas represented by its president and CEO Tan Sri Mohd Hassan Marican, who is reportedly a potential candidate for appointment by the US administration to advise on the management of the Iraqi oil industry in the post-Saddam Hussein era. 

Citigroup acted as financial advisor to Petronas in the transaction, while Lambert Energy was its strategic advisor. 

Petronas’ existing position in the North African gas business includes a 16% stake in Egypt’s North East Mediterranean Deep Water (NEMED) block, which is located about 100km north-west of WDDM, providing the possibility and opportunity to integrate gas production from NEMED into the WDDM project. 

Petronas is also involved in the development of the Ahnet gas project in Algeria in partnership with Gaz de France.  

As for the LNG business, the Petronas LNG Complex in Bintulu is set to become the single largest LNG production facility in the world with a combined capacity of 23 million tonnes per annum by October 2003. 

Through subsidiary Malaysia International Shipping Corp Bhd, Petronas is also the world’s largest owner and operator of an LNG fleet with 15 tankers currently in operation. Six more tankers are under construction. 

In another development, Petronas and PetroChina, in consultation with Indonesia's Pertamina, have in a 50:50 joint venture acquired Amerada Hess Indonesia Holdings Ltd (AHIH) for US$164mil. 

AHIH has a 30% interest in Indonesia’s Jabung block production sharing contract (PSC) and a 20% interest in the head of agreement (HOA) for the development of a project in Jabung to process and market liquefied petroleum gas (LPG) and light naphtha. 

“The joint acquisition signifies Petronas’ long-term commitment to continuously invest in and actively pursue commercial opportunities in Indonesia,” Petronas said.  

AHIH is one of the Indonesian subsidiaries of Amerada Hess Corp, a US-based independent energy company listed on the New York Stock Exchange. Petronas participated in the joint acquisition via subsidiary Petronas Carigali Jabung Ltd. 

Petronas and PetroChina already own a 30% stake each in the Jabung PSC, with PetroChina as the PSC operator. The remaining 10% stake in the PSC is owned by Pertamina. 

Petronas and PetroChina also have a 20% stake each in the HOA on the proposed LPG and naphtha project.  

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