PETALING JAYA: Malaysia’s first risk-service contract (RSC) ever awarded by national oil company Petroliam Nasional Bhd (Petronas) for the development of the Berantai marginal oil field has finally come to an end due to the low oil price environment that has made the venture uneconomical.
SapuraKencana Petroleum Bhd (SapKen) announced yesterday that the company, its partner Petrofac Energy Developments Sdn Bhd and Petronas had reached a mutual agreement with Petronas for the cessation of the Berantai RSC.
It was signed five years ago when the oil price was more than US$100 per barrel and there were increasing calls for oil and gas companies to be given the opportunity to go upstream in the area of exploration.
The mutual agreement to call off works at the Berantai field makes it the second RSC to be discontinued after Dialog Group Bhd ceased operations in its Balai marginal oilfield back in February.
When Dialog announced the cessation of its RSC then, the company also said that it would incur a loss of about US$10mil although Petronas would reimburse the joint venture the capital expenditure incurred in the course of undertaking the job as the RSC provider.
According to SapKen in its filing with Bursa Malaysia yesterday, Petronas will reimburse all outstanding capital and operational expenditures to the contractors by June 2017.
SapKen’s announcement did not indicate whether it would incur any losses.
However, a source familiar with the matter said that the decision to discontinue was long anticipated and would not result in any negative financial impact on SapKen.
“SapKen will be fully compensated by next year. It is not a surprise if other RSCs would cease as part of Petronas’ cost-cutting measures,” he said.
The writing has been on the wall that the road would come to an end for RSC service providers.
Petronas officials had said previously that with crude oil prices still far below the US$100 per barrel seen during the industry’s heyday several years ago, the development of marginal oilfields no longer made economic sense, given its high breakeven cost of production.
“The breakeven price was just above US$60 for the marginal oilfields to be economically viable,” said an industry official.
In a statement yesterday, Petronas said the cessation of the RSC would allow it to minimise the project’s long-term value erosion and optimise the development and production activities in Malaysia in line with efforts to reduce costs and increase efficiency.
The Berantai RSC was undertaken by SapKen through its subsidiaries Sapura Energy Ventures Sdn Bhd and Kencana Energy Sdn Bhd and their partner Petrofac.
Sapura Energy and Kencana Energy hold a 25% stake each in the RSC, while Petrofac owns the remaining 50%. The three partners had been awarded the project by Petronas back in January 2011.
In another statement, SapKen’s president and group chief executive officer Tan Sri Shahril Shamsuddin expressed his appreciation to Petronas for giving the group the opportunity to demonstrate its capabilities throughout the duration of the RSC’s operation.
“Together with our partner (Petrofac), we have managed to operate the facilities over the past four years safely. We will continue to support Petronas in its cost-reduction efforts with a view of preserving the long-term value of the project,” he said.
The cessation of the RSC will be effective on Sept 30, 2016, after which the ownership of the Berantai floating production, storage and offloading vessel will be transferred back to Petronas.
With two RSCs discontinued, the spotlight could now be on the other operators whose fields are still in production. Apart from the Balai and Berantai fields, another four are still currently operating.
Under the typical RSC structure, a local firm would team up with an established international player to undertake marginal developments which require sophisticated extraction methods compared to conventional drilling.
The four local companies whose RSCs are still in effect are Petra Energy Bhd , Uzma Bhd , Scomi Energy Services Bhd and Petronas subsidiary Vestigo Petroleum.