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Cablegate: Kikeh Field to Double Murphy Oil's Global Crude Production

VZCZCXRO5643
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHKL #1215/01 2110828
ZNR UUUUU ZZH
R 300828Z JUL 07
FM AMEMBASSY KUALA LUMPUR
TO RUEHC/SECSTATE WASHDC 9730
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHDC
RHEBAAA/USDOE WASHDC
RUEHGV/USMISSION GENEVA 1494
RUCNASE/ASEAN MEMBER COLLECTIVE

UNCLAS SECTION 01 OF 02 KUALA LUMPUR 001215

SIPDIS

STATE PASS USTR - WEISEL AND BELL
STATE PASS FEDERAL RESERVE AND EXIMBANK
STATE PASS FEDERAL RESERVE SAN FRANCISCO TCURRAN
USDOC FOR 4430/MAC/EAP/J.BAKER
TREASURY FOR OASIA AND IRS
GENEVA FOR USTR

SIPDIS

E.O. 12958: N/A
TAGS: ECON EPET EFIN EINV ENRG MY BX
SUBJECT: KIKEH FIELD TO DOUBLE MURPHY OIL'S GLOBAL CRUDE PRODUCTION


Ref: BANDAR SERI BEGAWAN 194

1. (U) Summary: Murphy Oil Corporation's deepwater operation at
Kikeh field off the coast of Sabah, Malaysia, is expected to begin
producing light sweet crude by the end of the third quarter of this
year, barring unforeseen delays, according to Kuala Lumpur-based
Murphy Oil executives. The Kikeh field output is expected to be
40,000 barrels per day at the outset, with a ramp-up to 120,000
barrels per day after one year. Kikeh is an 80:20 joint venture
between Murphy and Malaysia's national oil company, Petronas.
Murphy's current global output is between 95,000 and 100,000 barrels
per day. The estimated 700 million barrel Kikeh field is suspected
of extending into disputed territory with Brunei (reftel). End
summary.

2. (SBU) On July 25 Econoff met with Ted Botner, Murphy Sarawak Oil
Company General Manager for Malaysia, and Paul Vaughan, Finance and
Administration Manager. Neither Botner nor Vaughan could provide an
update on the disputed territory being claimed by both Brunei and
Malaysia; however, Vaughan said the solution was to craft an
agreement whereby no one lost face, which he did not see as an
insurmountable obstacle. He also expressed concern that the
solution might come in the form of a unified concession involving
Total or Shell -- since both companies operate in both countries --
leaving Murphy out of the deal. It is unclear how such an agreement
would affect Murphy's contract for the Kikeh field.

3. (SBU) Botner and Vaughan described their working relationship
with Malaysia's national oil company Petronas as "transparent" if
not entirely efficient. For example, Petronas provides a list of
"licensed" vendors from which Murphy is required to choose. In some
cases, Petronas selects a specific vendor that it has decided to
"mentor" and requires Murphy to work solely with that company.
While products and services might be a better deal elsewhere, Botner
and Vaughan both expressed satisfaction that the Malaysian vendors
they had worked with had been reliable, pointing out happily that
the Kikeh field was right on schedule. Nearly everything for the
Kikeh operation had been built in Malaysia. The Kikeh Floating
Production Storage and Offloading (FPSO) vessel was built by
Petronas-owned Malaysia Shipyard Engineering in Pasir Gudang in the
state of Johor.

4. (SBU) Botner shrugged off the less-than-competitive
government-mandated procedures and vendor lists as not being unique
to Malaysia, adding, "You have to get used to that when you operate
overseas." He then countered that all foreign oil companies had to
work from the same lists and procedures, giving no foreign oil
company an unfair advantage. Vaughan expressed satisfaction with
Petronas' adherence to its contracts, and stated that the production
sharing contracts were standardized - one for shallow water and one
for deep -- with very little room for negotiation, hence very little
scope for an unfair advantage to one foreign partner over another.

5. (SBU) Botner estimated that Malaysia would remain a net exporter
of oil for another five to ten years. He had not seen the recent
press report quoting Petronas' CEO who claimed the country would be
a net importer of oil by 2010 if the current 4 per cent annual
increase in domestic demand remains constant. Botner found the
three-year time frame unlikely, pointing out that when the Kikeh
field began production, this would increase Malaysia's oil output by
about 40,000 barrels per day in the beginning, and then up to
120,000 barrels per day after the first year - and this was just one
new well. However, he did say that as the larger wells began to dry
up, it no longer would be profitable to go after smaller or more
difficult to reach wells unless the standard production sharing
contracts were re-negotiated. Since it takes five years or more
from discovery to production, Malaysia would have to begin
re-negotiating those contracts now to prevent a decline in
production.

6. (U) Murphy Oil's output from Malaysia comes from the West
Patricia and surrounding fields offshore Sarawak, producing about
20,000 barrels per day. The company also is developing several
confirmed gas fields in two blocks offshore Sarawak. The company
also operates in the Gulf of Mexico, Canada, and the North Sea. In
2003 it acquired an 85 per cent working interest in two blocks in
the Lower Congo Basin. Development and analysis in these two fields
is ongoing.


KUALA LUMP 00001215 002 OF 002


7. (U) Comment: The longer-term outlook for Malaysian oil production
is not good news, but right now Murphy Oil is not focusing on that.
At this moment, Murphy executives are all smiles as they see their
own production ready to shoot upwards, just as the price of oil
continues to break records.

LAFLEUR

© Scoop Media

 
 
 
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