Uzma Unfazed by Concerns Over Berantai, Balai RSC Cessations in Malaysia

Malaysia's upstream oil and gas services company Uzma Berhad, holder of a minority stake in the Tanjung Baram oil field in Block SK307 offshore Sarawak, is unfazed by talks that the risk service contract (RSC) for the acreage might be cancelled amid cost rationalization initiative undertaken by the country's national oil firm Petroliam Nasional Berhad (PETRONAS), local media The Star reported Saturday. 

Such views were triggered recently after PETRONAS reached an agreement last month with the joint venture comprising Petrofac Energy Developments Sdn Bhd and SapuraKencana Petroleum Berhad’s subsidiaries for the cessation of the Berantai RSC located in Block PM309 offshore Terengganu, Malaysia.

"The RSC’s cessation will allow PETRONAS to minimize the project’s long-term value erosion and optimize the development and production activities in Malaysia, in line with its efforts to reduce costs and increase the efficiency of its operations," the Malaysian state-owned firm said in the July 11 press release.

Berantai was the second RSC cessation after BC Petroleum Sdn Bhd (BCP) and PETRONAS agreed to the terminate the contract for Balai Cluster fields off Bintulu, Sarawak. Dialog Group – a partner in BCP – had cited difficult business environment and persistently low prices for the decision.

Uzma however believed that the Tanjung Baram development remains a viable project despite low oil prices as the RSC partners – Enquest Petroleum Development Malaysia Sdn Bhd (70 percent, operator) and Uzma (30 percent) – have kept costs low.

"The drop in global crude oil prices means volume production now plays an important role in minimizing the impact of reduced oil revenue to the country; hence, production from all fields plays an important role," Uzma Bhd Managing Director Kamarul Redzuan Muhamed said, as quoted in The Star.

"The key factor is the cost of production and in the case of Uzma’s Tanjung Baram RSC, we believe our low operating expenditure for the project makes the field viable despite the current low oil price environment," he explained.

Tanjung Baram, which flowed first oil in June 2015, currently producers around 2,000 barrels per day.

Under the terms of the RSC, the contractors will provide the upfront development capital and undertake the development drilling and production of the marginal field, with PETRONAS remaining the owner of the project. The RSC contractors, subject to their performance, will recover its capital and operating expenditures and will be paid a remuneration fee, which will be adjusted by key performance indicators based on the timely implementation of the agreed field development plan and budget.

PETRONAS has identified 106 marginal fields in Malaysia holding more than 580 million barrels of crude oil, with each marginal field containing less than 30 million barrels of oil, The Star said.

Chee Yew has covered the upstream and downstream sectors of the oil and gas industry in Asia for more than 15 years. Email Chee Yew at cheeyew.cheang@rigzone.com

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