Reflections on Volume

Big volume without further upside equals distribution
Big volume without further downside equals accumulation

Volume tends to peak at turning points
Volume often precedes price movement
Volume is a relative study

Friday, January 28, 2011

Marginal move, massive impact

Petronas will start developing 25 per cent of its marginal oil fields from this year

Petroliam Nasional Bhd (Petronas) plans to start rolling out contracts to develop marginal oil fields from this year, a move that will not just replenish oil reserves but also help local companies servicing the industry to grow further.

Malaysia has 106 marginal oil fields with some 580 million barrels of oil, Petronas chief executive officer Datuk Shamsul Azhar Abbas told reporters at a briefing in Kuala Lumpur yesterday.

Marginal fields are small oil fields with less than 30 million barrels of oil and are usually considered uneconomical to develop. But the current high oil price, at about US$87 (RM265) a barrel now in the US markets, makes it attractive for foreign firms with the technology and knowledge to explore such fields.

The marginal fields plans also come under the government's Economic Transformation Programme where incentives were announced to help Malaysia earn some RM50 billion from oil and gas over 20 years.

"We have created a lot of excitement. We are in talks with interested parties and some fields are going through the bidding process," Shamsul said.

This will include fields like Sepat and Berantai, both in offshore Terengganu.

Petronas will start by developing 25 per cent of its marginal fields and it will group five fields into a cluster to make it more attractive for bidders.

It is now finalising bids for its first two marginal field clusters and hopes to award contracts by April this year.

Petronas also expects to start producing oil and gas from marginal fields this year.

The main difference in how Petronas will develop the smaller fields is the risk service contract (RSC). Unlike the production sharing contract (PSC) introduced in 1976, Petronas will own all of the oil under an RSC.

Contractors who build the oil rigs and other facilities will be paid a fee based on their performance.

Under a PSC, oil giants like Shell would partner Petronas and they will also own a percentage of the oil.

But Petronas will not focus on major oil firms for marginal fields but rather woo development and production specialists like UK-based Petrofac, Houston-based Schlumberger and Sweden's Lundin Petroleum.

They will also have to partner local firms that must have at least 30 per cent equity stake. The foreign firms are free to choose their local partners but Petronas will not tolerate sleeping partners.

The knowledge on marginal fields will also be useful for Petronas to develop its own smaller fields overseas.

The new incentives for the oil and gas sector may spur the production of 1.7 billion barrels of oil over some 20 years. This is the oil that will come from marginal fields and existing fields that have matured. Petronas and its foreign partners will use enhanced oil recovery methods where they will extract more oil from old fields.

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