Rise in new players in south-east Asian upstream sector

Since the fall in oil prices in 2014, oil majors and international oil companies (IOCs) have accelerated a shift towards resources and regions offering higher returns, lower complexity and shorter timeframes, away from the more challenging regions such as south-east Asia. To date, close to 800mn boe of the region’s resources have left the hands of majors and IOCs, according to market analyst Wood Mackenzie.

However, a niche group comprising East Asian and Middle Eastern conglomerates, including JXTG, Mitsubishi, POCO and Kufpec, among others, together with Medco Energi, Saka Energu, KrisEnergy, Sapura Energy and other domestic independents, has been steadily growing their presence in the region’s upstream sector.

‘As the majors and IOCs relinquish assets in south-east Asia, national oil companies [NOCs] will inevitably have greater roles to play to prevent domestic production decline,’ comments Ashima Taneja, Senior Research Manager, Wood Mackenzie. ‘Partnering with those who still consider the region as core will be critical in delivering the message that the region is still open for business in the upstream sector.’

According to Wood Mackenzie figures, these rising new players have acquired over 600mn boe of resources in south-east Asia since 2013. Notable acquisitions include Indonesia’s Medco Energi’s farm-ins into South Natuna Sea block B and North Sumatra block A (total of 263mn boe), as well as Sapura’s  acquisition of Newfield’s Malaysian assets (220mn boe).

Production from East Asian and Middle Eastern conglomerates and domestic independents has more than doubled, growing from 260,000 boe/d a decade ago to more than 675,000 boe/d in 2018. These companies make up 12% of the region’s production and will grow modestly into the next decade.

‘South-east Asia falls in the backyard of East Asian and Middle Eastern conglomerates looking for diversity of supply,’ says Taneja. ‘As for the domestic independents, strong networks with local NOCs, government and domestic supply chain have contributed to their success.’ She also notes that, led by management teams with regional experience, domestic independents bring diversity and an entrepreneurial approach to the sector. These companies will seek to partner with NOCs on suitably sized projects but are unlikely to fill the shoes of majors in operating technically difficult projects.

South-east Asia is maturing as an oil and gas province. Production peaked at 5.9mn boe/d in 2010 and has since remained steady. Around 68% of today’s production comes from mid-life and mature fields, and with a lack of significant developments in the pipeline, output will decline by 15% by 2025, suggests the market analyst. Coupled with tough fiscal terms, a restrictive regulatory environment and lack-lustre exploration results, it will be an uphill climb for NOCs and regional-focused players vested in this region.

Taneja says: ‘Even as we see oil prices rebounding in recent times, fundamental challenges in the region remain. In this environment, governments and regulators must question whether they are doing enough to attract investors that are looking to grow and diversify. If not, the region will be bereft of players that can help the NOCs fill the major gap.’

Petroleum Review will be looking at oil and gas developments in south-east Asia in its November 2018 issue.

Figure 1: Asia-focused E&Ps resource traded, 2013–2017
Source: Wood Mackenzie