Following the sale of its shares in Shell Refining Company (federation of Malaya) Bhd (SRC) to a Chinese company, Royal Dutch Shell plc is seeking new opportunities for further growth in its upstream portfolio in Malaysia and to reinforce its joint ventures here with Petroliam Nasional Bhd (Petronas), besides strengthening its position in the retail segment.
In a press conference held in conjunction with the Offshore Technology Conference Asia 2016 yesterday, its upstream director Andy Brown reaffirmed the oil and gas (O&G) major’s commitment in growing in the exploration, development and production side of the industry in Malaysia.
“If I look at Shell in Malaysia, over the last two years, we have made 11 gas discoveries. We are very focused on our upstream business in Malaysia, seeking new opportunities for further growth, but also reinforcing our joint ventures, like the Baram Delta Offshore that we have [with Petronas].
“I think it is not the time to be spending a lot of money, but we are demonstrating that we are here to stay, that Malaysia is an important part of Shell’s upstream business,” said Brown. Shell is the second-largest oil and gas producer in Malaysia after state-owned Petronas.
On Feb 1, Shell Overseas Holdings Ltd entered into a conditional sale and purchase agreement with Malaysia Hengyuan International Ltd for the disposal of its 51% stake in SRC for US$66.3 million (RM265.2 million).
The disposal sparked rumours that Shell might look at selling off some of its stakes in its O&G fields in Malaysia. However, Shell dispelled any connection between the disposals of the refinery with its upstream business in Malaysia.
In a press release dated Feb 17, Shell explained that the sale of the stake in SRC should be seen in context with the oil major’s global strategy and portfolio activities. It said a refinery of SRC’s scale is not a strategic fit for its portfolio and that it would find it difficult to compete for new capital.
Yesterday, Shell Malaysia Ltd chairman Datuk Iain Lo said the sale of the refinery is actually to ensure the stability and continuation of fuel supply in the country, as there was a concern that the SRC is a weak link in the supply chain.
“We were concerned, [that] perhaps this is a very weak link in the supply chain of fuel supply in Malaysia. That is why we decided to find somebody who is prepared to invest in it, because it is not strategic for Shell to invest in it,” said Lo.
In the upstream sector, Shell has been pioneering deepwater field developments in Malaysia, through the Gumusut-Kakap and Malikai fields, both offshore Sabah, and the Central Luconia and Baram Delta projects off Sarawak.
According to Brown, Gumusut-Kakap has a peak production capacity of 135,000 barrels of oil equivalent per day (boepd). About 20% of Malaysia’s average oil production of around 650,000 boepd, comes from Gumusut-Kakap. Malikai will also be coming online soon.
“When it comes to Malaysia, we’ve been here over 100 years, starting with Miri in 1910, and we’ve grown from that position. Last year for instance, we produced half the gas in Malaysia.
“We have built in Malaysia a business that has the key elements of integrated gas, deepwater, and our fundamental fuel retail and lubricants, which really kind of mirrors the key focus areas for Shell now and going forward. We continue to look at ways we can partner with Petronas to continue to build that position,” said Brown.