BMI: Deepwater exploration in Malaysia gathers momentum

KUALA LUMPUR (May 6): BMI, a Fitch Solutions company, said Malaysia’s deepwater explorations are expected to accelerate as more investments are directed towards under-explored areas.

In a report on May 3, the firm said Malaysia has already found success in deepwater development, and with the government awarding additional deepwater blocks for exploration, efforts are set to further intensify in 2024 and beyond.

BMI said that since 1994, Malaysia has been offering exploration blocks in deepwater areas, but it wasn’t until 2021 that momentum in deepwater exploration really began to gain pace.

It said this is due to Malaysia’s increased focus on tapping into previously unexplored reserves in deepwater regions as part of its long-term objective to meet oil and gas production targets.

BMI said that from 2021 to 2023, over 10 deepwater blocks were offered through Malaysia’s petroleum bidding rounds, with seven blocks awarded to consortia of foreign and local companies.

International oil companies will continue to be crucial for Malaysia’s deepwater success

BMI said that since 2022, Petroliam Nasional Bhd (Petronas) has signed several production sharing contracts (PSCs) with Shell, TotalEnergies, and Inpex Corp.

The firm said Shell plays a significant role in deepwater development, holding operating stakes in three deepwater blocks — SB2W, SB-X and SK3B — which were awarded in the Malaysia Bid Round (MBR) 2021 and MBR 2022.

TotalEnergies owns a 34.9% interest in the ultra-deepwater block SB2K in Sabah and operates the block in partnership with Petronas and Shell.

The MBR 2022 launch marked the return of Japanese explorer Inpex, which is participating in deepwater Block 4E with a water depth of 2,000 metres.

Previously, Inpex held interests in deepwater Blocks S and R in the state of Sabah before selling them to Santos.

BMI said Inpex, which owns 52.5% of deepwater block SK4E in Sarawak, is currently the block’s operator, alongside Petronas and Petroleum Sarawak Bhd (Petros).

Norway’s Longboat Energy is a new entrant in deepwater development, now acting as the operator with a 36.75% stake in Block SK2A, awarded in MBR 2022.

Significant increase in exploration expenditures in 2024

BMI said Sabah and Sarawak continue to hold substantial untapped hydrocarbon resources.

The firm said there are considerable opportunities to intensify drilling activities as a result of licensing commitments made in recent PSCs.

It said Shell will maintain its position as a key investor in Malaysia’s deepwater regions, given the company’s ongoing exploration and development success in the country.

BMI said an example of Shell’s achievements is the Shell-operated deepwater Timi gas project in Block SK318, which began production in 2023.

It said additional investments are expected from TotalEnergies, Petronas, Inpex, and Longboat Energy.

The firm said the sustained strength in oil prices has encouraged Petronas to allocate more resources to the upstream sector, aiding the state-run company in increasing its hydrocarbon reserves.

Petronas plans to drill over 25 wells annually, focusing on shallow water wells in Peninsular Malaysia and Sarawak, as well as deepwater wells in Sabah, to promote exploration growth in the country.

Deepwater discoveries present significant potential benefits

BMI said that in 2022, TotalEnergies made an oil and gas discovery at the Tepat-2 well in Block N within Sabah’s emerging ultra-deepwater Trough province, complementing the company’s earlier discovery of Tepat-1 in 2018.

Off the coast of Peninsular Malaysia, Hess discovered a new gas reservoir at the Bergading Deep-4 well in Block PM302 within the North Malay Basin, it said.

In the Northwest Sabah Basin, three discoveries — Layang-Layang-1 by Petronas, as well as Hikmat-1 and Dermawan-1 by PTTEP — confirmed a viable petroleum system, unveiling new opportunities in the ultra-deepwater and deepwater regions.

These discoveries provide incentives for investors to ramp up explorations and raise capital expenditures.

Despite cost-related challenges, an increase in deepwater drilling is expected in 2024 and beyond, with a primary focus on natural gas for liquefied natural gas production.