KUALA LUMPUR: SapuraKencana Petroleum Bhd and Malaysia Marine and Heavy Engineering Holdings Bhd (MHB) are among the local oil and gas (O&G) players that analysts feel will benefit if Petroliam Nasional Bhd (Petronas) proceeds with the construction of a mobile offshore production unit (Mopu) for its K5 sour gas project off Sarawak.

“It would make sense for the players with fabrication expertise such as SapuraKencana and MHB to benefit from this. Meanwhile, if they decide to go for a Mopu lease contract, then MISC Bhd or Bumi Armada Bhd may benefit,” opined one bank-backed analyst.

Last Friday, O&G news provider Upstream, quoting sources, reported that Petronas had been making market inquiries about the Mopu, which is said to have a total weight of just over 16,000 tonnes — including jacket and topside with a cryogenic distillation facility.

“The Malaysian operator recently received submissions from select Malaysian and foreign offshore contractors regarding the engineering, procurement and construction of the Mopu.

“Sources emphasised that this was an information and cost-gathering exercise, and that no guidance had been provided as to when, or if, an invitation to tender would be issued,” said Upstream.

Upstream also noted that some sources are uncertain about whether the offshore project, located some 230km from Bintulu, would proceed anytime soon given the cost and technology challenges.

An analyst with a local investment bank shared the same view on the cost challenge for the Mopu construction.

“A Mopu of that proportion is insanely big, and would require a capital expenditure (capex) of at least RM1 billion. My view is Petronas could fare better exhausting its current fields and increasing production rates rather than investing in a new project, especially one that is as capex-intensive as this.

“However, another way of looking at it is Petronas could have a bullish view of oil prices in 2019, for instance, and is trying to take advantage of the current low oil-price environment to lock in lower prices so that it can reap the gains in the future,” he said.

Another O&G analyst opined that the technicalities involved for the whole K5 sour gas project would hinder it from being a game changer for the industry.

“Even assuming that the contracts awarded are of large sizes, the size may also reflect that the costs involved for the technicalities are huge.

“The execution risk on this project by the relevant contractors would be very high, solely because there would be a difficult learning curve on the technical side, and is made worse by the fact that many good O&G human talent might have been laid off in the current industry environment

“The real question then is can these companies guarantee they have room to make a decent profit in this scenario,” said the analyst.

An analyst with TA Securities also doesn’t see the project as a major boost to the industry.

“This is underpinned by expectations that this project, which has a high degree of complexity, will likely be rolled out over a protracted period

“Furthermore, the value of this single project may not be sufficient to fully replenish the order books of large players,” she told The Edge Financial Daily.

According to Upstream, the K5 is a significant shallow-water gas resource discovered in 1970 with up to 70% carbon dioxide content. The field is thought to contain 21 trillion cu ft of gas of which four trillion cu ft is deemed recoverable.

A two-phase development is planned for K5, starting with the Mopu and a small floating storage and offloading vessel, it said.

In December 2014, Petronas signed an agreement with Technip, Twister, Generon and UOP, a Honeywell company, to collaborate on the technology requirements for the K5 field.

“Dutch company Twister confirmed it had reached an agreement to collaborate with Petronas on separating carbon dioxide from a natural gas stream utilising Twister’s proprietary supersonic gas separation technology,” reported Upstream.