Easwaran Kanason

Co - founder of NrgEdge
Last Updated: April 4, 2019
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Business Trends
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Founded in 1944 in El Dorado, Arkansas, Murphy Oil isn’t quite an international major but the American oil company managed to boost itself up the ranks of the world’s independent oil companies to become a successful player. Part of this has comes from Murphy Oil’s decision to branch out overseas in the 1990s, venturing east to strike oil and gas in the states of Sarawak and Sabah in 1999.

Last week, Murphy Oil announced that it would be selling its stakes in both its Malaysian subsidiaries – covering five upstream projects including Sabah K, SK309 & SK311, Sabah H, SK314A and SK405B – to Thailand’s PTTEP for US$2.13 billion. Effectively ending the era for Murphy Oil in Malaysia. It is the largest M&A deal in Southeast Asian upstream in over five years, and could be an indication of an upcoming trend for the region’s players in general.

For Murphy Oil, the sale is a philosophical change. Of the company’s proven reserves of 816 million boe in 2018, some 16% - or 129 million boe – are in Malaysia. Murphy Oil’s Malaysian fields produced over 48,000 boe/d over the same period, which is a large volume to lose particularly for one that is publicly-traded in the NYSE. But it makes sense. Malaysia was Murphy’s only bright spot internationally. Its forays into other developing markets like Australia, Brunei, Vietnam, Namibia, Equatorial Guinea and Spain have not been as successful. On its home turf, the shale revolution is re-invigorating and re-inventing American upstream. High-yielding and low-cost, it has presented Murphy Oil with a question – why spend money on riskier overseas projects when there is so much potential available at home? This PTTEP deal is Murphy’s answer; and the money raised will be used to pay down debt, buy back shares and (crucially) fund new deals and acquisitions in the US. This won’t just be focused on shale – although Eagle Ford has been named as a focus area – but also more traditional assets in the Gulf of Mexico.

Market chatter suggests that Murphy Oil will be selling off most of its non-Western Hemisphere assets. So while Murphy Oil prepares to go back home, the sale kicks off what could be a major year of M&A in Southeast Asia. When rumours of the sale emerged last year, it was Repsol that was thought to be the preferred buyer – fresh from its massive gas find in Indonesia. Together with Eni, Repsol has been one of the more aggressive European players expanding in Asia – galvanised by declining assets elsewhere. Meanwhile, players who have the capability to swing into the shale oil patch – Chevron, for example – are slowly refocusing there, possibly to the risk of putting eggs into a single basket. And regional players – like PTTEP – are looking to make inroads. That PTTEP won the sale is interesting. Like many Asian state-linked oil firms, PTTEP suffers from a maturing portfolio and needs to find new fields to plumb. Its Thai fields are declining and new discoveries aren’t keeping pace to keep the numbers up. Having ventured into Australia, Indonesia, Myanmar and even Africa, PTTEP’s relevance as an upstream player depends on making strategic acquisitions like this. And Murphy Oil’s Malaysian assets are valuable. Murphy Oil will receive up to US$100 million as a bonus payout if certain exploration projects are completed and sold results before October 2020. Also, Murphy Oil had a close relationship with Petronas; with PTTEP, there may be more opportunities for both state firms to collaborate on other regional assets.

This recalibration will continue. As players capable to focusing on shale divest out of Southeast Asia, there will be plenty other eager players to take their place. Attractive assets always draw interest, whether it is in the Permian Basin or in the South China Sea.

Murphy Oil Malaysian Assets and Projects: 

  • The Kikeh field, the first deepwater development in Malaysia, has been in production since 2007.
  • The Kakap field is unitized with the Gumusut field. The field has been in production since 2012 via interim tie-back to the Kikeh production facility. The main field production facility was completed and started up in October 2014.
  • The Siakap North field is unitized with the Petai field and first production was in the first quarter of 2014.
  • The West Patricia field was Murphy’s first development in Malaysia and first production was in 2003.
  • The Sarawak Gas Project is multi-phase development for several natural gas discoveries in blocks SK309 and SK311, and started producing in 2009. Murphy provides gas to the Malaysia LNG complex via our gas sales contract with PETRONAS, the Malaysian state-owned oil company, for gross sales volumes up to 250 mmcfd.
  • The Sarawak Oil Project comprises several oil discoveries in SK309 and SK311, and production came on-stream in the second half of 2013 through a series of new offshore platforms and pipelines tying back to West Patricia infrastructure.
  • The Block H Floating LNG project has been sanctioned by both Murphy and PETRONAS with first production targeted in 2020.
  • Murphy was awarded this Block SK 314A in May 2013. The first two exploration wells were drilled in 2015 and a third was drilled in 2016.

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The United States now exports crude oil to more destinations than it imports from

As U.S. crude oil export volumes have increased to an average of 2.8 million barrels per day (b/d) in the first seven months of 2019, the number of destinations (which includes countries, territories, autonomous regions, and other administrative regions) that receive U.S. exports has also increased. Earlier this year, the number of U.S. crude oil export destinations surpassed the number of sources of U.S. crude oil imports that EIA tracks.

In 2009, the United States imported crude oil from as many as of 37 sources per month. In the first seven months of 2019, the largest number of sources in any month fell to 27. As the number of sources fell, the number of destinations for U.S. crude oil exports rose. In the first seven months of 2019, the United States exported crude oil to as many as 31 destinations per month.

This rise in U.S. export destinations coincides with the late 2015 lifting of restrictions on exporting domestic crude oil. Before the restrictions were lifted, U.S. crude oil exports almost exclusively went to Canada. Between January 2016 (the first full month of unrestricted U.S. crude oil exports) and July 2019, U.S. crude oil production increased by 2.6 million b/d, and export volumes increased by 2.2 million b/d.

monthly U.S. crude oil production and exports

Source: U.S. Energy Information Administration, Petroleum Supply Monthly

The United States has also been importing crude oil from fewer of these sources largely because of the increase in domestic crude oil production. Most of this increase has been relatively light-sweet crude oil, but most U.S. refineries are configured to process medium- to heavy-sour crude oil. U.S. refineries have accommodated this increase in production by displacing imports of light and medium crude oils from countries other than Canada and by increasing refinery utilization rates.

Conversely, the United States has exported crude oil to more destinations because of growing demand for light-sweet crude oil abroad. Several infrastructure changes have allowed the United States to export this crude oil. New, expanded, or reversed pipelines have been delivering crude oil from production centers to export terminals. Export terminals have been expanded to accommodate greater crude oil tanker traffic, larger crude oil tankers, and larger cargo sizes.

More stringent national and international regulations limiting the sulfur content of transportation fuels are also affecting demand for light-sweet crude oil. Many of the less complex refineries outside of the United States cannot process and remove sulfur from heavy-sour crude oils and are better suited to process light-sweet crude oil into transportation fuels with lower sulfur content.

The U.S. Energy Information Administration’s monthly export data for crude oil and petroleum products come from the U.S. Census Bureau. For export values, Census trade data records the destinations of trade volumes, which may not be the ultimate destinations of the shipments.

October, 23 2019
Recalibrating Singapore’s Offshore Marine Industry

The state investment firm Temasek Holdings has made an offer to purchase control of Singaporean conglomerate Keppel Corp for S$4.1 billion. News of this has reverberated around the island, sparking speculation about what the new ownership structure could bring – particularly in the Singaporean rig-building sector.

Temasek already owns 20.5% of Keppel Corp. Its offer to increase its stake to 51% for S$4.1 billion would see it gain majority shareholding, allowing a huge amount of strategic flexibility. The deal would be through Temasek’s wholly-owned subsidiary Kyanite Investment Holdings, offering S$7.35 per share of Keppel Corp, a 26% premium of the traded price at that point. The financial analyst community have remarked that the bid is ‘fair’ and ‘reasonable’, and there appears to be no political headwinds against the deal being carried out with the exception of foreign and domestic regulatory approval.

The implications of the deal are far-ranging. Keppel Corp’s business ranges from property to infrastructure to telecommunications, including Keppel Land and a partial stake in major Singapore telco M1. Temasek has already said that it does not intend to delist and privatise Keppel Corp, and has a long-standing history of not interfering or getting involved in the operations or decisions of its portfolio companies.

This might be different. Speculation is that this move, if successful could lead to a restructuring of the Singapore offshore and marine industry. Since 2015, Singapore’s rig-building industry has been in the doldrums as global oil prices tumbled. Although prices have recovered, cost-cutting and investment reticence have provided a slower recovery for the industry. In Singapore, this has affected the two major rigbuilders – Keppel O&M and its rival Sembcorp Marine. In 2018, Keppel O&M reported a loss of over SS$100 million (although much improved from its previous loss of over SS$800 million); Sembcorp Marine, too, faces a challenging market, with a net loss of nearly 50 million. Temasek itself is already a majority shareholder in Sembcorp Marine.

Once Keppel Corp is under Temasek’s control, this could lead to consolidation in the industry. There are many pros to this, mainly the merging of rig-building operations and shipyards will put Singapore is a stronger position against giant shipyards of China and South Korea, which have been on an asset buying spree. With the overhang of the Sete Brasil scandal over as both Keppel O&M and Sembcorp Marine have settled corruption allegations over drillship and rig contracts, a merger is now increasingly likely. It would sort of backtrack from Temasek’s recent direction in steering away from fossil fuel investments (it had decided to not participate in the upcoming Saudi Aramco IPO for environmental concerns) but strengthening the Singaporeans O&M industry has national interest implications. As a representative of Temasek said of its portfolio – ‘(we are trying to) re-purpose some businesses to try and grasp the demands of tomorrow.’ So, if there is to be a tomorrow, then Singapore’s two largest offshore players need to start preparing for that now in the face of tremendous competition. And once again it will fall on the Singaporean government, through Temasek, to facilitate an arranged marriage for the greater good.

Keppel and Sembcorp O&M at a glance:

Keppel Offshore & Marine, 2018

  • Revenue: S$1.88 billion (up from S$1.80 billion)
  • Net Profit: -S$109 million (up from -S$826 million)
  • Contracts secured: S$1.7 billion

Sembcorp Marine, 2018

  • Turnover: S$4.88 billion (up from S$3.03 billion)
  • Net Profit: -S$48 million (down from S$157 million)
  • Contracts secured: S$1.2 billion
October, 22 2019
Global energy consumption driven by more electricity in residential, commercial buildings

Energy used in the buildings sector—which includes residential and commercial structures—accounted for 20% of global delivered energy consumption in 2018. In its International Energy Outlook 2019 (IEO2019) Reference case, the U.S. Energy Information Administration (EIA) projects that global energy consumption in buildings will grow by 1.3% per year on average from 2018 to 2050. In countries that are not part of the Organization for Economic Cooperation and Development (non-OECD countries), EIA projects that energy consumed in buildings will grow by more than 2% per year, or about five times the rate of OECD countries.

building sector energy consumption

Source: U.S. Energy Information Administration, International Energy Outlook 2019 Reference case

Electricity—the main energy source for lighting, space cooling, appliances, and equipment—is the fastest-growing energy source in residential and commercial buildings. EIA expects that rising population and standards of living in non-OECD countries will lead to an increase in the demand for electricity-consuming appliances and personal equipment.

EIA expects that in the early 2020s, total electricity use in buildings in non-OECD countries will surpass electricity use in OECD countries. By 2050, buildings in non-OECD countries will collectively use about twice as much electricity as buildings in OECD countries.

average annual change in buildings sector electricity consumption

Source: U.S. Energy Information Administration, International Energy Outlook 2019 Reference case
Note: OECD is the Organization for Economic Cooperation and Development.

In the IEO2019 Reference case, electricity use by buildings in China is projected to increase more than any other country in absolute terms, but India will experience the fastest growth rate in buildings electricity use from 2018 to 2050. EIA expects that use of electricity by buildings in China will surpass that of the United States by 2030. By 2050, EIA expects China’s buildings will account for more than one-fifth of the electricity consumption in buildings worldwide.

As the quality of life in emerging economies improves with urbanization, rising income, and access to electricity, EIA projects that electricity’s share of the total use of energy in buildings will nearly double in non-OECD countries, from 21% in 2018 to 38% in 2050. By contrast, electricity’s share of delivered energy consumption in OECD countries’ buildings will decrease from 24% to 21%.

building sector electricity consumption per capita by region

Source: U.S. Energy Information Administration, International Energy Outlook 2019 Reference case
Note: OECD is the Organization for Economic Cooperation and Development.

The per capita use of electricity in buildings in OECD countries will increase 0.6% per year between 2018 and 2050. The relatively slow growth is affected by improvements in building codes and improvements in the efficiency of appliances and equipment. Despite a slower rate of growth than non-OECD countries, OECD per capita electricity use in buildings will remain higher than in non-OECD countries because of more demand for energy-intensive services such as space cooling.

In non-OECD countries, the IEO2019 Reference case projects that per capita electricity use in buildings will grow by 2.5% per year, as access to energy expands and living standards rise, leading to increased use of electric-intensive appliances and equipment. This trend is particularly evident in India and China, where EIA projects that per capita electricity use in buildings will increase by 5.3% per year in India and 3.6% per year in China from 2018 to 2050.

October, 22 2019