Mining Exploration News

KUALA LUMPUR: The global thirst for oil has driven crude oil prices to record level and in turn, made marginal oilfield development a potentially lucrative business for contractors like M3nergy Bhd.

“The project secured in India is an opportunity for M3nergy to move higher upstream,” its managing director and chief executive officer Datuk Shahrazi Sha’ari told StarBiz in a recent interview.

“This is the business area where we want to focus on … in the exploration and production (E&P) side of the global oil and gas (O&G) industry,” he said.

M3nergy, as part of a consortium, was awarded a service contract in March by the India’s Oil and Natural Gas Corp Ltd (ONGC) to develop three drilling areas, collectively known as Cluster 7, off the coast of Mumbai.

The contract was M3nergy’s first E&P project outside Malaysia.

“Oilfield development is a risky business but the potential payoff once the oil well start producing is fantastic,” Shahrazi said, adding that the Indian venture would significantly boost the group’s income once oil production starts in the early part of 2009.

“We should be able to make good profits as long as oil stays above US$40 per barrel,” he said.

Crude oil prices had fallen by a fifth from a record US$78.40 per barrel in mid-July to around US$61 per barrel last week.

Despite the sharp decline – crude oil prices are at the lowest in six months – the outlook for the O&G industry remained bullish.

“In our view, the industry is playing catch up on 20-30 years of neglect in terms of upgrading and maintaining existing infrastructure and finding new reserves,’’ RHB Research Institute said in an update on the sector last week.

Apart from India where M3nergy had recently submitted a fresh bid for another drilling right, the firm is also eyeing opportunities in Indonesia, Australia and the Philippines.

For the Indian project, Prize Petroleum Company Ltd (PPCL) will be leading the consortium. Its parent company, Hindustan Petroleum Corp Ltd, which is India’s second-biggest oil refinery and a Fortune 500 corporation, has a 60% share in the project. PPCL owns a direct 10% stake in the consortium.

M3nergy, which owns a 30% stake, was appointed to execute the job.

“We know there is oil down there … the idea is to employ the best method to extract it in the most profitable way,” he said.

According to data obtained from the company, the drilling area awarded to the consortium has an estimated oil reserve of 30 million to 40 million barrels. Production is projected to start at 15,000 barrels a day and should last for eight years to 10 years.

Shahrazi said field development work, which was expected to cost more than US$200mil, was targeted to start in the second half of next year.

Apart from building the necessary rigs and platforms to extract oil and gas from the sea bottom, M3nergy plans to use Floating Production Storage and Offloading (FPSO) facilities for the project.

An FPSO vessel is basically a sophisticated oil and gas processing plant mounted on a tanker.

M3nergy, formerly known as Trenergy (M) Bhd, is the owner/operator of an FPSO vessel called Perintis. Over the past six years, the vessel provides its services to three Petronas-owned rigs off the coast of Terengganu under a contract that run until 2009.

It also operates a Floating Storage and Offloading (FSO) vessel, the Puteri Cakerawala, which provide storage to gas platforms located off the coast of Kelantan in the Malaysia-Thailand joint development area.

“Using the FPSO is one of the most cost-effective method to process O&G from smaller fields,” Shahrazi said.

Specialised vessel like the Perintis, which has a storage capacity of 650,000 barrels, does not come cheap. These complex vessels carries a price tag of RM500mil or more, depending on the actual size ordered.

Shahrazi said M3nergy was capable of making such an investment, with its strong balance sheet and cash-generating businesses. For the year ended Dec 31, 2005, its revenue stood at RM345mil.

“The group’s existing FPSO/FSO contract would continue to provide steady income stream, while the barite processing business is expected to grow further,” he said.

The company is estimated to have a 60% market share in the local barite business. Barite powder is a key ingredient in drilling fluid used in the oil and gas industry.

Earlier this year, M3nergy had announced plans to set up its second barite processing plant in Labuan to cater to the growing demand amid increased drilling activities of the coast of Sabah and Sarawak.

However, the group’s current year performance is expected to be slower than the previous year following the disposal of assets and businesses of a unit based in Singapore.

Shahrazi said the sale was a prudent move as the group would be at a disadvantage in competing against a more established global player operating in the same field.

“Proceeds from the sale would be used to strengthen the group,” he said. In September, the company received RM105.8mil in dividends from its 53%-owned Maveric Ltd.

Maveric Ltd was formerly known as Total Automation Ltd, whose business and assets were acquired by Wartsila Corp of Finland in April this year.

Meanwhile, the company is also banking on its 29%-owned Malaysian Merchant Marine Bhd (MMM) to boost its ambitious expansion in the O&G sector.

“The O&G industry is capital intensive. The group (M3nergy and MMM) would work together to exploit new opportunities,” said Shahrazi, who until May this year, was also MMM head.

Shares in M3nergy had risen 53% year-to-date at RM1.79 last Thursday, boosting its market capitalisation to RM142mil. The company graduated to the main board on July 18 this year.

M3nergy is controlled by the Melewar group, which is related to the Negri Sembilan royalty.

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