Mubadala award brightens up M'sia O&G sector

Singapore

ABU Dhabi-based Mubadala Petroleum has progressed a key field development off Sarawak to front-end engineering and design (Feed) phase, a move regarded by many as extending the much-needed reprieve to Malay-sia's oilfield services sector, which has been starved by a drought in upstream contracting activity amid a protracted oil-and-gas (O&G) sector downturn.

Mubadala confirmed in an email to The Business Times on Wednesday the Feed for its Pegaga gas field development has been awarded to Aker Engineering Malaysia Sdn Bhd.

"The Feed will form the basis for the subsequent invitation to bid for the engineering, procurement construction, installation and commissioning (Epcic) contract," Mubadala said.

The operator of the Pegaga gas field also said the project has progressed to the next stage ahead of a final investment decision.

The Business Times has learnt the Malaysian unit of Oslo-based oilfield services giant Aker emerged as the winner of the Feed award after roughing out a tight contest that climaxed with a price war among participating contractors.

Aker was said to have been considered a frontrunner on technical competency alone matching Mubadala's expected project requirements. But sources said the early frontrunner had to dive on its final price offer to fend off competition from other contenders including the Malaysian unit of international bigwig Technip and the O&G unit of Kuala Lumpur-listed MMC Corporation. The final offered prices were understood to have gone in at up to 50 per cent off the initial proposals.

The Mubadala Feed award brings a breath of fresh air to Malaysia's O&G sector following deferrals of major field developments.

Pegaga signifies to industry players active in Malaysia the first if not the only serious contracting prospect that will materialise as other projects of similar scale were postponed after oil prices collapsed in 2014.

Aker's Feed award, said to be ranging above RM10 million (S$3.3 million), spells the start of a project cycle that could generate contracting opportunities totalling billions of US dollars.

The Epcic contract for Pegaga planned production facilities - said to include also a central processing platform of at least 14,000 tonnes - would easily exceed US$1 billion going by contracting prices prior to the oil price crash.

With oil prices holding up at above US$40 despite Brexit and other O&G market shocks, Malaysian sources said other field operators have stepped up gas and fresh hopes have emerged that those projects that were put on hold - including Petronas's billion-dollar-bracket Kasa-wari gas field development - may return to the drawing board.

Pegaga, however, is widely seen as boasting several elements that will support the project progress towards a final investment decision even in this downcycle.

Backed by Abu Dhabi's sovereign wealth fund, Mubadala is widely seen as financially well-endowed to carry the load of a billion-dollar project. Pegaga, as among the first major field developments operated by Mubadala, also boasts significant gas reserves - reported in excess of 10 trillion cubic feet - that allows for a wider base for amortisation of unit costs.

The project was nonetheless not spared its fair share of setbacks in that its field development concept has to be redrawn following the deferment of Petronas's Kasawari gas project.

Mubadala has to find an alternative way to export Pegaga gas to shore instead of tapping Kasawari's planned pipeline infrastructure that tied in to the ninth liquefied natural gas (LNG) train at the Bintulu LNG complex. A new plan being mooted is said to call for Pegaga gas to be channelled to either of three existing trains at the MLNG (Malaysia LNG) Dua plant of the Bintulu complex.

BT understands the Pegaga Feed will last for about nine months, leading to an Epcic tender projected to kick off in the third quarter of 2017.

The international oilfield services community - including listed players in Singapore - will be waiting for signs from Mubadala and Malaysia's overall custodian of O&G resources Petronas to see if the Epcic tender or further contracts associated to Pegaga field development will be opened up to non-Malaysian or non-Malaysia-based oilfield services players.

A final investment decision for Pegaga is expected the earliest around early 2018.