OIL & GAS

Second wind for marginal fields?

3 May 2013
Alex Goh alexgoh@ambankgroup.com +603 2036 2291 Investment Highlights

(OVERWEIGHT)
Rationale for report : Thematic Research

Marginal field developments in Malaysia may be getting a second wind from the findings that their reserves may be much larger than earlier estimated. Petroliam Nasional (Petronas) has announced that the Cendor field development, the first marginal field development in the country, has performed above expectations and has significantly increased the recoverable reserves in block PM304, off Terengganu (See Chart 3). The group confirmed the presence of oil and some gas-bearing reservoirs after drilling to a depth of over 1,000 metres. Recall that drilling was undertaken by Petrofac (Malaysia PM304) Ltd, the operator for Block PM304, together with joint-venture partners PETRONAS Carigali Sdn Bhd, Kuwait Foreign Petroleum Exploration Company and PetroVietnam Exploration Production Corporation Ltd. The Cendor field was first discovered by Amerada Hess in 2001. However, the discovery was initially regarded as marginal with estimated recoverable resources of only 12 million barrels of oil and was therefore deemed too risky and uneconomical for development. In May 2004, Petrofac acquired Amerada Hess interest and assumed operatorship of Block PM304. According to Petronas announcement yesterday, the efforts undertaken successfully transformed Cendor from a field deemed marginal, which means reserves of below 30 million barrels, to one of the biggest oilfields in Malaysia. Cendor was developed using leased Mobile Operating Production Unit (MOPU) and first oil was achieved in September 2006. This culminated in Cendor Phase 2 development and other new developments in PM304 which increased the estimated recoverable resource to over 200 million barrels, 16.7x from its original estimate. These other developments in PM304, through fast-tracked efforts in the last two years, are expected to commence production in stages throughout 2013 which will propel production to 30,000 barrels per day by end of the year. This significant increase in reserves from marginal fields augurs well for prospective marginal field developments in the country. The Berantai field, which commenced production in 2012, has raised its estimated recoverable gas resources by 15% from the estimates of around 30 million barrels in 2011. Additionally, the pre-development work of the Balai Cluster has also given early indication of increase in resources estimates. Petronas had earlier indicated that there are 106 marginal fields with estimated reserves of 580 million barrels of oil. We understand that the Tembikai marginal field risk-service contract (RSC) is currently under review after the bid by the jointventure between Scomi Group-Cue Energy Resources fell through. But unlike the earlier RSCs for Berantai, Balai-Bentara and Kapal, Banang and Meranti clusters were awarded to SapuraKencana-Petrofac, Dialog-Roc Oil-Petronas Carigali and Coastal Energy-Petra Energy, respectively, we believe further studies are required before other operators are willing to venture into new marginal field developments. Hence, news flow on this front may only materialise in the longer term. Nevertheless, excitement in this sector will be further supported by contract awards emanating from the RM60bil RAPID project in Pengerang and tank terminal projects in Southern Johor, together with the massive gas cluster projects off Sabah and Sarawak, which are tied in to the completion of the Bintulu LNG complex expansion in 2015. Hence, we maintain our OVERWEIGHT call on the sector with BUY calls for SapuraKencana Petroleum, Bumi Armada, Dialog Group and Alam Maritim.

TABLE 1 : SECTOR VALUATION MATRIX

Market Fair capitalisation value RMmil RM/share 696 1.30 517 2.90 11,626 4.65 5,678 3.14 415 0.49 6,112 3.30 39,574 21.60 15,413 3.70 1,198 1.86 PE CY13F x 8.9 10.8 20.1 22.0 11.1 26.3 23.2 19.1 15.2 Div yield CY13F CY14F % % 1.7 1.9 3.1 3.1 0.7 0.8 1.3 1.3 2.4 3.0 2.6 2.6 3.0 3.2 0.3 0.3 4.9 5.5 ROE FY13F % 13.2 13.0 13.7 15.7 4.5 9.7 17.8 13.0 8.0

Stocks Alam Maritim Resources Boustead Heav y Industries Bumi Armada Dialog Group KNM Group MMHE Petronas Gas SapuraKencana Petroleum Wah Seong Corporation
Source: AmResearch

Call BUY HOLD BUY BUY HOLD SELL BUY BUY HOLD

CY14F x 8.0 3.8 17.9 16.9 9.0 23.5 20.5 14.9 12.3

P/BV x 1.3 1.5 3.2 4.6 0.3 2.4 4.5 2.4 1.2

PP 12246/05/2013

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CHART 1: MALAYSIA HYDROCARBON PRODUCTION & PETRONAS ENTITLEMENT

Source: Petronas

CHART 2: PETRONAS CAPEX

RMbil 50 45 40 35 30 25 20 15 10 5 0 FY2005 FY2006 FY2007 FY2008 Others FY2009 FY2010 FY2011 CY2011 CY2012 Exploration & production 10.7 11.5 6.9 9.6 19.1 20.7 33.8 26.4 23.3 27.5 30.4 9.1 16.9 10.7 11.6 10.2 13.7 45.6 15.2

Source: Petronas

AmResearch Sdn Bhd

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3 May 2013

TABLE 1: UPCOMING OIL & GAS PROJECTS

EPCIC jobs Upstream Ex x on-Mobil's enhanced oil recov ery Rejuv enation of Tapis, Telok, Seligi, and Palas oilfiields off Peninsula, Sabah & Saraw ak. Carigali-Hess' North Malay gas project- fast track basis North Malay basin (Blocks PM301 and PM302), near JDA Central processing plafform, 8 w ell head platforms, 200km pipeline 16,000 MMHE, SapuraKencana, Wah Seong, Bumi Armada, Alam Maritim Shell's deepw ater Malikai project Malikai field, off Sabah Fabrication of tension leg platform, installation of pipelines and facilities 5,000 MMHE, SapuraKencana, Wah Seong, Bumi Armada, Alam Maritim Petrronas Carigali's EOR projects Dulang, Semarang, Bokor 3 Central Processing Platforms for enhanced oil recov ery . Petronas' 1mil tonne FLNG Murphy Oil, 1.5mil tonne FLNG Shell Malay sia's EOR projects Kimanis gas field Rotan, off Sabah Baram Delta, off Saraw ak and North Sabah 1st floating liquiefied natural gas carrier 2nd floating liquiefied natural gas carrier Enhanced oil recov ery proejcts 5,000 MMHE, SapuraKencana, Wah Seong, Bumi Armada, Alam Maritim 6,000 Technip-Daew oo, MMHE 9,000 JGC Corp, Toy o Engineering 38,000 MMHE, SapuraKencana, Wah Seong, Bumi Armada, Alam Maritim 25 marginal field projects Peninsula, Sabah & Saraw ak New risk-sharing contract from Petronas. 52,500 SapuraKencana,Dialog Group, Petra Energy , Scomi Marine, Puncak Niaga, UMW Oil & Gas, Bumi Armada Petronas' umbrella tender for shallow w ater jobs Downstream Petronas' Refinery & Petrochemical Integrated Dev elopment and other mutlinationals Tank Terminal Projects Southern Johor- Pengerang, Tanjung Bin, Tank terminals for crude oil, Tanjung Langsat LNG Regassification plants Malay sia LNG Train 9 Petronas' Samur ammonia/urea plant Total petrochemicals, LNG. Pengerang, Johor Refinery , petrochemical projects 120,000 Dialog, SapuraKencana, Muhibbah Engineering, Ranhill, KNM 10,000 Dialog, MMC, Benalec, Muhibbah Engineering, Ranhill 12,000 Dialog, Muhibbah Engineering, Ranhill Bintulu, Saraw ak Sipitang, Sabah 3.6 mil tonne increase to MLNG's liquefaction facilities Fertilizer plant 10,000 JGC Corporation, Chiy odaSaipem 4,500 Muhibbah Engineering, Ranhill 308,000 Peninsula, Sabah & Saraw ak 5-y ear Hook-up & Commissioning, maintenance contracts. 10,000 SapuraKencana, Day ang, Alam Maritim, Perdana Petroleum Central processing platforms, gas MOPU, tender rigs, offshore v essels. 10,000 MMHE, SapuraKencana, Wah Seong, Bumi Armada, Alam Maritim Guntong, Semangkok, Irong Barat, Tabu compression sy stems, process equipment, Location Scope of works RMmil Likely bidders

Malacca, Lahad Datu, Pengerang, Lumut LNG Regassification plants

Source: AmResearch, various sources

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CHART 3: LOCATION MAP FOR BLOCK 304

Source: Maps & Globe Specialist

AmResearch Sdn Bhd

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CHART 3: SALES GAS DELIVERY (MMSCFD)

Source: Petronas

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