Small Asian Firms Seize Upstream Opportunities in Weak Market

Small Asian companies find the prolonged weakness in global oil prices an opportune time to purchase stakes in upstream oil and gas assets.

While low oil prices may have dampened prospects for the petroleum industry, a group with little or no exposure to the sector viewed the market downtrend favorably. This involved small companies in Asia keen on capitalizing on the window of opportunity to buy stakes in upstream petroleum assets.

These firms find the entry barrier to the upstream asset market, particularly for producing ones, to be lower than before. The acquisition cost for such assets fell due to prices being weighed down by an approximate 70 percent decline in global oil prices that begun in the second half of 2014.

Since then, the lower purchase price of hydrocarbon assets – typically mature and aging – encouraged some of these companies to venture into the industry, a move they had previously deemed to be financially unrealistic.

Some Companies Seek to Grow Energy Arm

Recent Asset Acquisition by Small Asian Firms
Source: Companies

Last November, Boustead Singapore Ltd., an engineering services provider with no prior ownership of upstream assets, announced a plan to own an 83 percent stake in a consortium – with One North Energy Private Ltd. and Lamara Energy Pte Ltd. – to purchase Australia’s Triangle Energy (Global) Ltd. (TEG) 100 percent interest in Pase Production Sharing Contract (PSC) in Aceh, Sumatra Indonesia for $3.9 million.

The Singapore-based company explained that the proposed acquisition of Pase PSC presented “an excellent opportunity to expand its Energy-Related Engineering Division … [as well as] the ability to grow its recurring revenue base further.”

Perhaps a more significant factor in encouraging the proposed acquisition was Boustead’s assessment that “the current business environment in the global oil & gas industries … [has] resulted in attractive valuations for energy assets. The Group believes that the Purchase Price offered for Pase PSC provides great value and that the downside risks of the Acquisition can be comfortably managed.”

Pase PSC, located adjacent to Exxon Mobil Corp.’s Arun gas field and associated liquefied natural gas (LNG) gas field, has been operated by TEG for three years from February 2012. TEG was granted a 20 year extension for the block in February 2015, with plans to further explore and develop onshore gas reserves in the acreage.

The Boustead-led joint venture’s proposed acquisition failed when TEG shareholders voted overwhelmingly Dec. 24, 2015 to dispose of the company’s stake in Pase PSC to Indonesia’s PT Enso Asia (PTEA) for $4.5 million. PT Enso already has a working relationship with TEG, having provided loans to the latter to meet its working capital commitments for the Pase project.

GSS Energy Ltd., another Singapore-based firm was however successful in acquiring an upstream interest in Indonesia in May 2015. It entered into an agreement with Ramba Energy Ltd., a company with three onshore assets in Indonesia, including West Jambi Kerja Sama Operasi in South Sumatra. GSS answered Ramba’s call for capital to fund exploration at the West Jambi block by placing a $5 million investment in the work program, under which two wells will be drilled.

“The West Jambi agreement with Ramba represents a great addition to our portfolio for our shareholders to benefit from Indonesia’s exciting oil and gas sector ... GSS Energy is committed to strategically investing in the near-production or producing oil and gas sector across the country,” GSS CEO Sydney Yeung said in a May 19 press release.

In October 2015, PT Hexindo Gemilang Jaya, the local subsidiary of Ramba – which had received approval from the Indonesian authorities to develop the Akatara field in Lemang Production Sharing Contract (PSC) in Sumatra – divested 35 percent interest in the block to Singapore-based Mandala Energy Ltd. for up to $179.6 million. A 2011 study by consultant DeGolyer & MacNaughton estimated that the Lemang block holds prospective resources of around 511 million barrels of oil and 468 billion cubic feet of gas.