research presentation 001

LOGO The Challenges of Malaysian Oil and Gas Industry: Imperative Pathways

for Sustainable Growth to Meet Future Energy Expectations

Ekeh Modesty (CEng. MEI) SPE

Petroleum Department,

UCSI University

Kuala Lumpur

www.themegallery.com

ContentsContents

Introduction & Overview1

stats. & Growth of Malaysia Oil & Gas Industry2

National Oil & Gas challenges: Myth or Reality?3

Overwhelming demand Vs Sustainability4


Why Malaysian Oil & Gas Industry?Why Malaysian Oil & Gas Industry?

The oil and gas sector is the mainstay of Malaysia’s growth

Oil and Gas sector is expected to generate RM131.4 billion in Gross National Income by 2020, (5% annual growth) in the period from 2010 to 2020.

Malaysia is aiming at becoming Industrialized nation by 2020, oil & gas is a pivotal platform to breed sustainable growth.

Identified as a key sector to fuel growth development under Malaysia’s Economic Transformation Programs.

OVERVIEWOVERVIEW

Oil was first discovered in Malaysia in 1910 in Miri, Sarawak in early 20th century with production rate of 83 (bbl./day).

Malaysia’s Parliament & the Petroleum Development Act in 1975

Petroliam National Berhad or PETRONAS became the custodian of petroleum resources with rights to explore & produce resources.

PETRONAS the game changer?

National Oil Industry, Overlapping ObjectivesNational Oil Industry, Overlapping Objectives

Energy Access

Energy Efficiency& Security

Environment

Profit&

Growth

PETRONAS

Energy Sustainability

Deepening Interdependencies

Malaysians

SatisfactionTrust /

Patriotism&

PovertyReduction

Exploration AcreagesExploration Acreages

Malaysia’s Continental shelf is favorable geographically (conditions) for the creation of hydrocarbon.

Malaysia has approximately 615,100 km2

of acreages available for oil and gas exploration.

Of these, 218,678 Km2 or 36% of the total acreages are currently covered by PSCs.

Exploration drilling in Malaysia by the PSCs has resulted in the discovery of 163 oil fields and 216 gas fields.


Malaysia’s Hydrocarbon potentialsMalaysia’s Hydrocarbon potentials

Malay BasinMalay Basin

1 2 Overpressure reservoir deep H2O– prospectivity

New exploration plays (carbonate plays)

Better understanding of HC response in carbonates

Enhanced 3D acquisition & better imaging may reveal traps in vugs & fractures

Sarawak BasinSarawak Basin

3

Deep H2O Turbidite plays

Large stratigraphic - features basinward of the Neogene delta.

Presence of the intersection of growth fault & folds.

DeepH2O Sabah prospect greater than 500m.

Sabah BasinSabah Basin

Contains thick deposits

Pre- Syn- & post- rift megasequence

Focus on tertiary - deposits

Paleozoic formation indicated source rock, reservoir & seals?

Stratigraphic plays looks promising

Malaysia has approx. 615,100 Km2 of acreages for O&G exploration

Malaysia’s continental shelf is made up of six sedimentary basins

Favourable conditions for the creation of hydrocarbon

Crude oil Reserves Vs ProductionCrude oil Reserves Vs Production

Crude oil & condensate reserve by Region

oil production is projected to 800,000 bbl / day by 2015

Recent drilling effort in Penyu – basin is anticipated to yield 20,000 bbl/day by 2nd half of 2014.

Gumusu/Kakap deep water production is expected to ramp- up to 120,000 bbl/d by end of 2013.

The dilemma: production Vs Growing DemandThe dilemma: production Vs Growing DemandNatural Gas – Consumption by sectors (ktoe)

Crude oil products – Import & ExportCrude oil products – Import & Export

Actual & Predicted price of crude oilActual & Predicted price of crude oil

Further cuts in fuel subsidies are expected

The index adopted from information theory & measures the order (disorder) observed within a particular system.

The Index is denoted as:

Where H is the Index of variant for a portfolio of i options, pi is the proportional reliance on the ith option & ln is the natural logarithm.

Trends and Developments for Malaysia’s Oil & Gas Trends and Developments for Malaysia’s Oil & Gas

Oil consumption will probably not keep pace with underlying economic expansion.

Because the country has been replacing oil-fired power stations with coal-fuelled plants, undermining the oil demand trend

In addition, the government has been reducing fuel subsidies, which could have a negative impact on consumption.

It also faces some gas-related challenges; the primary problem comes in the form of increasing domestic demand, which could result in some imports being used for local consumption

Fuel pricing remains under state control.

Forecasts for crude productionForecasts for crude production

Analytical forecasts suggest a potential demand for 617,000 barrels per day (b/d) by 2016, increasing to721, 000b/d by the end of our forecast period in 2021.

Production of crude and liquids, which averaged an estimated 651,700b/d in 2010 (EIA), looks set to rise over the medium-term, aided by EOR schemes and some new fields.

Mature fields are generally in decline, but ExxonMobil, Royal Dutch Shell and Hess have new projects that should partly offset the falling output.

Predicted average output of 632,200b/d in 2012,rising to a new peak of 881,000b/d in 2017, before a steady decline to 780,000b/d by 2021.

Forecasts for crude productionForecasts for crude production

Oil & Gas Malaysia and Its Blinking Future: Oil & Gas Malaysia and Its Blinking Future: Myth or Reality?Myth or Reality?

The national oil and gas industry sits directly at the centre of the production and consumption of energy.

Heavy reliance on oil & natural gas to sustain economic growth

Energy demand is expected to continue to grow with the nation’s ambitious goals of becoming industrialized nation with stimulating increase in population.

Proven oil reserves of 4 billion bbl as of Jan. 2013

In addition to the 2% annual declining of Malaysian oil reserve due to maturing offshore reservoirs

Rising Capex and Falling Returns

Oil demand is expected to increase to 99 mil bbl/day by 2035 (IEA).

Oil majors will continue investing upstream to maintain production.

Capex increased fourfold between 2000-2008; fell 15% in 2009.

However, returns from exploration activities have been declining for PETRONAS

Formulation Synergy

Reserve Improvement Strategy

Strategy to Increase oil ReserveStrategy to Increase oil Reserve

Re-exploring old field

Intensifying search for new reservoirs

Improved skills & Tech. for offshore exploration

Timely rejuvenating of existing fields

RSC partnership Attractive - incentives (PSCs& Tax)

Improved Tech.

Tailored EOR Strategy

Good Reservoir mgt.

Increased Reserve /

production growth

Malaysia Maturing Reservoir & EORMalaysia Maturing Reservoir & EOR

PETRONAS and Shell Malaysia Ltd in joint venture for two oil field projects offshore East Malaysia.

Revitalization investment of US$12 billion (RM38 billion) over 30 years, targeted nine oilfields in the Baram Delta off Sarawak and four fields in the North Sabah development area.

These investments are expected to extend the life of the fields beyond 2040 & raise recovery factor from 36% to about 50%.‟

Enhance Oil Recovery – ChallengesEnhance Oil Recovery – Challenges

Offshore EOR (Chemical Injection) is new. No one has done it before.

New approach and technical ability

Requires more precise technology (cost) – fit for purpose

Need for good reservoir management and understanding of subsurface architecture

How to extend the life of platforms from 30 years to another 15 or 20 years

Maintenance of platforms and aging facilities

Marginal and Mature Field DevelopmentMarginal and Mature Field Development

What parameters affect Marginal fields?

This includes environmental concerns, political stability, access, remoteness and, of course, the price and price stability of the produced gas/liquids.

Malaysia has 106 marginal fields, containing 580 million of barrels of oil

Required special tax incentives to develop such fields (tax, capital allowances, etc.)

Special procurement arrangement

Matured FieldsMatured Fields

EOR is the answers to matured fields

Matured fields contain about 40 to 60% of OOIP

Malaysia can extend the economic producing life of the fields using cost-effective, low-risk technologies.

All Malaysian offshore producing reservoirs are in this category.

Integrated Operations in EOR ModeIntegrated Operations in EOR Mode

What is needed for effective EOR?

Instrumentation / data capturingInstrumentation / data capturing

Semi automated data analysisSemi automated data analysis

Integration into modelsIntegration into models

Cover 3 time horizons:Cover 3 time horizons: Field operation / efficiency Production Optimization EOR scheme monitoring & optimization

Role of Technology in reversing production Role of Technology in reversing production declinedecline

The U.s have achieved decline reversal with unlocking resources through new technologies; e.g. in shale oil /gas development.

Deep water Malaysia offshore:Deep water Malaysia offshore:

Technologies for harsher environments • Particularly in EOR & data acquisition & interpretations

Reliability / Safety Cost effective technologies (invest in R&D to develop local

technologies) More incentives for

Issues?

Recommended 4N-Hypothesis


Indentified challenges to the growth of oil and gasIndentified challenges to the growth of oil and gas

Need to recruit and retain Need to recruit and retain a skilled workforcea skilled workforce

Larger skilled workforce recruiting & retaining talent.

Implementing growing demand on them, to deliver greater production

4NHypothesisHypothesis

Need for technology Need for technology advancement alongside advancement alongside safety and regulatory safety and regulatory compliance toolscompliance tools

Respect of safety & regulatory tools for oil and gas. Indicate regulatory and reporting landscape

Need for high performance Need for high performance data managementdata management

Accurate data procurement & accessibility.

Engaging all stakeholders & translating their interest and values into the corporate agenda

Need for sustainable Need for sustainable solutionssolutions

Extension of platform life

Risk & integrity measures to allow for sustainable management of existing assets. lower carbon footprints


Focal Focal pointpoint

Maximize Recovery

Sustain production

Diversify Energy

What Next for Overwhelming Demand Vs What Next for Overwhelming Demand Vs SustainabilitySustainability

Initiating trust for Investment in Malaysia Initiating trust for Investment in Malaysia O&G IndustryO&G Industry

Openness of the custodian of Malaysian Oil & Gas, oriented in sound business ideology

Disclose all types of payments (royalties, taxes, etc.) according to international disclosure standards for transparency in company reporting.

Make fully transparent the revenue flows coming from foreign countries in which PETRONAS operates.

Amend the Petroleum Development Act 1974 to make PETRONAS reportable to Parliament instead of to the Prime Minister.

PETRONAS should be granted the autonomy to reinvest more of its profits, through subsidy reductions .

Active Industrial policy (including RSCs leniency)

Shield from political interferences & other external appendage forces.

Increasing oversea exploration portfolio; to balance international trust.


Building platform for more GrowthBuilding platform for more Growth

To increase exploration for new reservoirs & matured fields & develop local tech.

Full role in PSCs negotiation to allow more rent capture, tech. transfer & human capital building

Board members should be on merit with experience & qualifications

Capability of top mgt withAppropriate professionalBackground & ethics

Investment in R&D

PETRONAS Autonomy

Capable talents

Leadership integrity


SustainableSustainablePathwayPathway

BB

EE

CC

DD

AARealignment of

business ideology; inclusive of more

oversea investment

Improving reserves from existing sources, new exploration &

interpretation of data in deep H2O

Environmental challenges; e.g., CO2 & H2S (Bunga

Raya in Peninsular Malaysia & Chakerawala in

JDA)

Diversify the Energy Sector

Transparency Issues & adequate accountability to

parliament

Managing Future Expectations?Managing Future Expectations?

Conclusions

Future looks very stimulating with so much opportunities, but though with challenges.

Billions of ringgit have been directed into RSCs: high expectations of deepwater reserve discovery.

Potential technological demanding areas: EOR & deepwater exploration is expected to provide opportunities for the local players to develop track record & indigenous technology.

Awarding more PSCs for the development of marginal fields, with at least 22 identified is estimated to offset production decline.

More involvement in oversea exploration would assist in balancing growing domestic demand crude oil resources.

LOGO

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