Light for Some as Industry Grapples with Low Oil Price

By: Cheang Chee Yew

Cut, cut, cut! That seems to be the mantra of many global petroleum firms, including those in Asia, as they deal with the fallout of a drastic downturn in oil prices that begun the second half of 2014. Industry players, whether independent oil companies (IOC), national oil companies (NOC) or oilfield services firms, have responded by wielding the axe on expenditures, leading to layoffs at some firms.

Still, a few Asian firms see the bleak business environment as an opportunity to execute business operations at lower prices, while others seek to acquire upstream petroleum assets or recruit skilled manpower at relatively attractive rates – originally priced out of their reach when oil stood above $100 a barrel.

Just to recap, oil prices began to trend lower in the second half of 2014, with global benchmark Brent futures dropping below $100 a barrel in early September to settle at $54.16 Feb. 4. The dip in Brent prices mirrored the slide in U.S. West Texas Intermediate crude which broke the $100 a barrel mark in late July.

In response to the gloom that plagued the oil and gas industry, some IOCs have announced reductions in capital expenditure (capex). Chevron Corp. will cut capex by 13 percent this year, while Royal Dutch Shell plc trimmed its three-year capex by $15 billion – representing a 14 percent reduction annually from 2014. Meanwhile, BP plc, which intends to freeze pay this year after announcing in December a $1 billion program to cut thousands of jobs worldwide, has reduced capex by 13 percent to $20 billion.

Asian NOCs were not spared the adverse consequences of weaker oil prices, with Malaysia’s Petroliam Nasional Berhad (Petronas), Thailand’s PTT Exploration and Production Pcl (PTTEP) and Indonesia’s PT Pertamina EP (Pertamina) jumping on the bandwagon to cut capex.

In contrast to the gloom facing most industry players, some small independent petroleum companies in Asia are hopeful that the oil price downtrend could generate positive outcomes for their business operations in 2015.

One of these is Malaysia’s exploration and production company Hibiscus Petroleum Berhad, which hoped that the decline in service rates, including dayrates for rigs, could help lower its operational costs. The firm has several drilling projects planned for this year in Australia, Middle East and Norway.

“The drilling climate is extremely attractive right now, with drilling rates down by 25 percent compared to the same period last year. Therefore, as subscribers to services, we see this as an opportunity. A year ago, we could only drill four wells but today, given the generally low service company rates, we could be drilling five wells,” Hibiscus’ Managing Director Dr. Kenneth Pereira said.

Moreover, lower oil price may induce resource-deficient NOCs in Asia to boost their respective petroleum reserves through acquisition of producing upstream assets – especially those located in the region – as the cost of purchasing them has declined.

PTTEP is an Asian NOC exploring such upstream acquisitions. The firm is keen to expand its petroleum resources to provide for the increasing energy demand in Thailand.

“Based on current oil prices, savings (on acquiring upstream assets) could be found … perhaps $2 billion could be raised for mergers and acquisitions. Fields in Thailand are still first priority, Southeast Asia is also a target but the aim is not to buy at expensive prices,” Sutthichai Kumworachai, an analyst at Maybank Kim Eng Securities (Thailand) Public Company Ltd. told Rigzone.

Pertamina – which recently completed its $2 billion purchase of a 30 percent stake in Murphy Oil Corp.’s oil and gas assets in Malaysia – is eyeing further acquisitions in the region and beyond as the state-owned firm is expected to contribute its share in meeting Indonesia’s official oil production target of 825,000 barrels per day in 2015.

Over in Malaysia, Hibiscus’s Managing Director Pereira revealed that that current oil prices present acquisition opportunities for the company, which has expressed interest in securing upstream assets in geopolitically stable areas.

The decline in oil prices was perhaps a blessing in disguise for Malaysia’s Sona Petroleum Berhad after it acquired a 40 percent stake in the B8/38 concession – holding the Bualuang oil field – and the G4/50 concession offshore Thailand from Salamander Energy plc for $280 million in mid-2014.

The deal was scrapped following Salamander’s acceptance of Ophir Energy plc’s takeover bid, with Sona planning to approach Ophir or Salamander regarding a revised transaction for the two Thai offshore concessions “based on new terms reflecting prevailing market conditions and level of oil prices.”

As for recruitment, low oil prices couldn’t have come at a better time for some hiring firms in Asia as the supply-demand curve rebalances, especially for skilled manpower. Such firms expect to benefit from the availability of a larger pool of experienced candidates for selection and at more competitive salaries.

“We have seen people very quickly lower their expectations to secure work,” Kevin Gibson, Asia Pacific managing director of recruitment firm EarthStream Global told Rigzone.

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