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Country Brief - Malaysia (Part 2)

Malaysia's New Fields Offer Optimism

Despite being Southeast Asia's leader in the oil and gas industry Malaysia faced concerns with regards to decreased production due to aging fields. New developments, especially in deepwater have done much to alleviate these concerns. This report gives a breakdown of the country's oil and gas position.

lthough Malaysia's oil fields are maturing, new offshore developments of both oil and gas are expected to increase aggregate production capacity in the near- to mid-term. Malaysia's western coast runs alongside the Strait of Malacca, an important route for seaborne energy trade that links the Indian and Pacific Oceans. According to the sources, Malaysia held proven oil reserves of around 5

Profile Energy Overview Proven Oil Reserves (January 1, 2009E) Oil Production (2008E) Oil Consumption (2008E) Crude Oil Distillation Capacity (January 1, 2009E) Proven Natural Gas Reserves (January 1, 2009E) Natural Gas Production (2007E) Natural Gas Consumption (2007E) Total Energy Consumption (2006E)

A

4 billion barrels 727,000 bbl/d, of which 84% was crude oil 547,000 bbl/d 514,832 bbl/d 83 trillion cubic feet 2.3 trillion cubic feet 1.2 trillion cubic feet 2.56 quadrillion Btu*, of which Natural Gas (35%), Oil (41%), Coal (15%), Hydroelectricity (2%) Total Per Capita Energy Consumption ((Million Btu) (2006E) 99.4 million Btu per person Oil and Gas Industry Organization Major Oil/Gas Ports Foreign Company Involvement Major Oil Fields Major Natural Gas Fields Major Refineries (capacity, bbl/d)(January 1, 2009)

Malaysia's state-owned Petroleam Nasional Berhad (Petronas) dominates all aspects of the country's oil and natural gas sector. Kertih, Johor, Sepangar Bay, Bintulu, Kuching, Melaka, Penang, Port Dickson, Kelang, Kota Kinabalu, Kemaman BP, ConocoPhillips, ExxonMobil (Esso), Hess, Mitsubishi, Murphy Oil, Newfield Exploration, Nippon Oil, Shell, Talisman Energy Bekok, Bokor, Erb West, Bunga Kekwa, Guntong, Kepong, Kinabalu, Samarang, Seligi, Semangkok, Tapis, Temana, Tiong Bedong, Bintang, Damar, Jerneh, Laho, Lawit, Noring, Pilong, Resak, Telok, Tujoh Shell: Port Dickson (125,000), Lutong (45,000); Petronas: Melaka I (92,832), Melaka II (126,000), Kertih (40,000); EssoMalaysia: Port Dickson (86,000)

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billion barrels as of January 2009. Nearly all of Malaysia's oil comes from offshore fields. The continental shelf is divided into 3 producing basins: the Malay basin in the west and the Sarawak and Sabah basins in the east. Most of the country's oil reserves are located in the Malay basin and tend to be of high quality. Malaysia's benchmark crude oil, Tapis Blend, is very light and sweet with an API gravity of 44° and sulfur content of 0.08 percent by weight. More

PETRONAS Share of Malaysia's Production In `000 barrels of oil equivalent per day

Malaysia's Oil and Gas Reserves As at 1 January in billion barrels of oil equivalent

Malaysia's Oil and Gas Production In `000 barrels of oil equivalent per day

companies must operate through production sharing contracts ( P S C s ) w i t h PETRONAS. ExxonMobil (through its local subsidiary Esso Production Malaysia Inc.) is the largest foreign oil company by production volume, and there are numerous other foreign companies operating in Malaysia via PSCs, including Shell, Chevron, and BP. All energy policy in Malaysia is crafted and overseen by the Economic Planning Unit (EPU) and the Implementation and Coordination Unit (ICU), which report directly to the Prime Minister. The Ministry of Energy, Water, and Communications regulates the hydrocarbon and electricity sectors, although it does not have policymaking powers.

Exploration and Production

Total oil production in 2008 was 727,000 barrels per day (bbl/d). During 2008, Malaysia consumed an estimated 547,000 bbl/d, and had net exports of about 180,000 bbl/d. PETRONAS and its various PSC partners are most active exploring offshore areas. Since 2002, the focus has been on deepwater fields on the eastern continental than half of total Malaysian oil production comes from the Tapis field.

PETRONAS

Malaysia's national oil company, Petroleam Nasional Berhad (PETRONAS), dominates upstream and downstream activities in the country's oil sector. PETRONAS is the only remaining wholly state-owned enterprise in Malaysia and is the single largest contributor of government revenues. PETRONAS holds exclusive ownership rights to all exploration and production projects in Malaysia, and all foreign and private

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shelf that pose high operating costs and require substantial technical expertise. PETRONAS announced in January 2009 that 7 new oil fields had come online in 2008, making for a total of 68 producing oil fields.

Malaysia Crude Oil Production

Malaysia has approximately 615,100 square kilometres of acreages available for oil and gas exploration. Of these, 218,678 square kilometres or 36% of the total acreages are currently covered by Production Sharing Contracts. Exploration drilling in Malaysia by the Production Sharing Contractors has resulted in the discovery of 163 oil fields and 216 gas fields. Many significant discoveries were made in shelfal shallow waters as well as in deepwater environments. Increasingly, new discoveries have been made through new play-types such as fractured basements, pinnacle reefs, low CO2 gas and turbidites. Application of new technologies such as seabed logging have also greatly contributed to exploration successes, espeLocation: cially in deepwater areas. Depth:

percent and Petronas with 30 percent. The field was discovered in 2004 at 1,854 feet subsea offshore Sabah. In August 2009 Shell invited bids for engineering and design services. Malakai is expected to come online in 2012 with production of up to 150,000 bbl/d. Earlier this year Shell committed that it would continue to expand its investment in Malaysia in view of the potential of its deepwater fields. According to a company spokesperson Malaysia is a key country for the Shell group so that it will continue to invest in the country to sustain and strengthen its position as a leading international oil and gas company. According to the spokesperson Malaysia's oil and gas industry was still robust in the medium term as some deepwater fields can hold some reserves, while mature fields can yield more oil and gas. Malaysia still exports more oil and gas than it consumes currently, though it would hard to maintain given the increasing energy usage from a bigger and richer population and the reduction of easily accessible oil and gas. Despite a challenging year in 2009 when the oil price dropped, Shell had made a major achievement as it maintained its significant investment program, including its deepwater projects with local partners like Petronas, the national oil company of Malaysia. Shell has set up a regional outfit in Kuala Lumpurto manage its deep-water projects.

Sabah, Malaysia ~1,220 metres Shell 33% (operator), ConocoPhillips Sabah 33%, Petronas Carigali 20%, Murphy Sabah Oil 14%

Shell

Interests:

The Gumusut field is the first deepwater Fields: Gumusut opportunity for Shell in Malaysia. Sabah Shell Design Production: 135 kbbl/d Petroleum Company will be operator of the Key contractors: MISC Berhad, FMC Technologies, Malaysia Marine and Heavy development, which will employ Malaysia's Engineering, Atwood Oceanics, JP Kenny first deepwater semi-submersible production system. The Gumusat/Kakap project, located offshore Sabah in 3,937 feet of deep water, will include the regions' first ExxonMobil Offshore: ExxonMobil's predecessor Standard Oil began deepwater floating production system with processing capacity of 150,000 bbl/d. from 19 subsea wells. The prospecting for oil in this region as far back as the early system will be connected via pipelines to a new oil and gas 1900s, culminating with the incorporation of our exploraterminal to be built in Kimanis, Sabah. In March 2009, it tion arm Esso Exploration Malaysia Inc. in 1965. Today was reported that the engineering contract was awarded ExxonMobil has working interest in 6 Production Sharing and that the offshore installation will begin in 2010. Shell Contracts with PETRONAS. They operate over 40 offshore holds 33 percent interest; ConocoPhillips also holds 33 platforms in 17 fields in the South China Sea, off the East percent interest, Petronas has 20 percent and Murphy Oil Coast of Peninsular Malaysia, These facilities produce 160,000 barrels of oil and condensate, and 1.2 billion has 14 percent. Shell is also the operator at the Malikai oil field with 35 cubic feet of natural gas per day. percent interest, in partnership with ConocoPhillips at 35

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Onshore: ExxonMobil is the main tenant of the Kemaman Supply Base, a comprehensive logistic supply facility that supplies us with marine vessels, berthing facilities and other logistical efficiencies, all of which provide our offshore operations with critical onshore support.

Murphy Oil

Sabah: The most significant impact project Murphy has lies in deepwater Malaysia offshore Sabah. After a rocky beginning, with announced dry holes at the Bagang and Bliais prospects, Murphy achieved tremendous success at the Kikeh prospect (80%). Located in 4,400 feet of water, the Kikeh discovery lies in the southern part of Block K and is the first deepwater oil discovery ever made in Malaysia. The initial well found in excess of 500 net feet of oil The two blocks are worth at least US$100 billion (RM320 billion) from estimated reserves pay and Murphy quickly moved to drill more wells of almost one billion barrels of oil. to appraise the size of the structure. The average net pay of the three wells and two associated sidetracks was Murphy to fully develop its surrounding acreage, includ400 to 600 feet. Furthermore, all oil pay sands appeared to ing the Congkak oil discovery which is already been routed be in communication and were full to base with oil. During through the facility as well as perhaps the Endau, Rompin 2003, a different well location on the Kikeh structure was and Permas discoveries yet to be fully appraised and drilled, cored, then production tested, to help further sanctioned. Murphy has also continued its string of successful define both reserves and oil flow characteristics. A formal sanctioning of the $1.5 billion, 440 million barrel project exploration on our two blocks offshore Sarawak, adding was announced in 2004 and includes the tie-in of a natural gas discoveries to our growing inventory at Pemanis, Serandah, Gasing, Wangsa, Tiram and Sapih nearby discovery at Kikeh Kecil. The Kikeh development is being executed extremely during 2006. Murphy has signed a Gas Sales Agreement well with the field expected to begin producing in the to develop several of our discoveries. The project insecond half of 2007 ­ an impressive five years after the cludes the development of several fields which will discovery and within the original schedule. The topside supply natural gas to a nearby LNG facility beginning modules have been installed on the FPSO and the SPAR is in 2009. Production volumes are expected to be as high on location with the mating of the hull and topsides as 350 million cubic feet a day and cover up to 15 complete. A total of 20 producing wells have been drilled years. This project will complement our Kikeh oil ­ all of which were completed on schedule and on budget production in Malaysia as well as West Patricia, and as the field is drilling out as envisioned. We expect the will serve as a predictable and low decline anchoring initial field production rate to be 40,000 barrels a day with asset in our international portfolio. a one year ramp up to plateau of 120,000 barrels a day, which will provide meaningful production growth for Murphy from the latter half of 2007 through 2008. Sarawak: Murphy's initial success in Malaysia was offshore Sarawak in 2002 where our first well found the West Patricia field (85%), located approximately 25 miles from the coast. The field was quickly appraised and brought on stream within 18 months ­ a record in Malaysia. West Patricia produces from a well jacket to a floating storage facility and continues to produce at levels above 20,000 barrels a day. The establishment of a production center at West Patricia will allow

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Malaysia Natural Gas Production

Current Concerns

In March 2009, the North Fields development, located offshore Malaysia near Vietnam, reportedly began producing oil. The North Field is expected to produce between 40,000 and 50,000 bbl/d by early 2010. Talisman Energy (Canada), the operator, has plans to drill 16 development wells in 2009 and another 13 in 2010. Brunei and Malaysia signed an agreement in March 2009 to settle their maritime territorial dispute that has prevented exploration of the rich offshore oil reserves off Borneo for the past 6 years. Despite having conceded rights to Brunei, Malaysia will be allowed to jointly exploit the resources of the area for 40 years, which has been confirmed by PETRONAS. Under a "commercial" agreement with Brunei, Malaysia can now jointly develop oil and gas

reserves are found off Peninsular Malaysia, much of the country's natural gas production comes from Eastern Malaysia, offshore Sarawak and Sabah. As in the oil sector, Malaysia's state-owned PETRONAS dominates the natural gas sector. The company has a monopoly on all upstream natural gas developments, and also plays a leading role in downstream activities and LNG trade. Most natural gas production occurs from PSCs operated by foreign companies in conjunction with PETRONAS.

Exploration and Production

Natural gas production has been rising steadily, reaching 2.3 Tcf in 2007, while domestic natural gas consumption has also increased steadily, reaching 1.2 Tcf in 2007. There are several important ongoing projects that are expected to expand natural gas production in Malaysia over the near term. E&P activities in Malaysia continue to focus on offshore areas, especially deepwater blocks.

Malaysia-Thailand Joint Development Area

One of the most active areas for natural gas exploration resources in two areas previously under dispute by both countries. Although sovereign rights to the resources in what was known as Block L and Block M now belong to Brunei, Malaysia will be allowed to participate on a commercial basis for 40 years. The terms were set in an agreement signed March 16, 2009 via an Exchange of Letters between the Sultan of Brunei and the Prime Minister of Malaysia, after the Malaysian cabinet approved the deal on Feb 11, last year.

Natural Gas

According to sources, Malaysia held 83 trillion cubic feet (Tcf) of proven natural gas reserves as of January 2009. While much of the country's oil

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Malaysia Condensate Production

17 and C-19 are operated by the Carigali-PTTEP Operating Company (CPOC), a joint venture of each country's national oil company. Block A-18: Cakerawala Gas Development Project The Cakerawala Gas Field is located offshore in the lower part of the Gulf of Thailand approximately 150 km Northeast to Kota Bharu and 160 km East of Narathiwat in water-depth of about 60 meters in contract area of Block A-18 in the Joint Development Area. The Cakerawala field development project consists of three Wellhead Platforms (CKA, CKB and CKC), Central Processing Platform & Living Quarters (CKP), Riser Compressor Platform (CKR) and FSO (Puteri Cakerawala). Initial processed gas at a rate of 390 mmscf/d will be delivered to the Buyers sales pipeline originating on riser platform. The field is developed with the following facilities (as shown in pictures below): The construction Contract for the facilities of Cakerawala Gas Development Project was signed on March 2000. · The Cakerawala Complex was successfully installed offshore on June 2002. · Cakerawala Gas Field Development Facilities are completed as per Gas Sales Agreement obligations (390 MMscf/d) on September 2002. · Engineering, Procurement and Construction (EPC) of pipeline (TTM) contract awarded on April 2003. · The Operational Acceptance of Cakerawala Facilities was issued on July 2003. · In December 2004, the MTJA and the Contractors of Block A-18 signed the Supplementary Agreement to sale additional 400 MMscfd to Buyers (PTT and PETRONAS). The total Daily Contract Quantity (DCQ) from Block A18 is 790 MMscf/d. Additional volumes are sold to the new Northern 42-inch pipeline connecting to Arthit PLEM in the Gulf of Thailand. · Commencement of first JDA gas (Phase 1) production from Cakerawala Gas Field, Block A-18 on January 2005. · Commenced Phase 2 Development in February 2006. · Phase 2 facilities were installed in quarter 3 and quarter 4 of 2007. · Phase 2 facilities were ready to export 790 MMscfd of gas in April 2008. · The Northern 42-inch gas pipeline was successfully installed by TTM on October 2008. · Natural gas was first introduced into the 42-inch Northern pipeline on November 2008. · Block A-18 Gas Sales achieved first ever daily delivery exceeding 1 Billion cubic feet per day (Bscf/d) on September 2009.

and production is the Malaysia-Thailand Joint Development Area (JDA), located in the lower part of the Gulf of Thailand. The area is divided into three blocks, Block A-18, Block B-17, and Block C-19, and is administered by the Malaysia-Thailand Joint Authority (MTJA), with each country owning 50 percent of the JDA's hydrocarbon resources. The JDA reportedly holds 9.5 Tcf of proved plus probable natural gas reserves. The Carigali-Triton Operating Company (CTOC), a joint venture between Petronas Carigali and Hess, operates Block A-18, while Blocks B-

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Blocks B-17 & C-19 and Block B-17-01: Integrated Gas Field Development Project

The Muda and Jengka Field is located offshore in the Gulf of Thailand approximately 150 km Northeast to Kota Bharu, 250 km East of Songkhla province and 350 km North of Kemaman Supply Base (KSB) in water-depth of ranging between 55-65 meters in contract area of Block B17 in the Joint Development Area. The Muda and Jengka field development project consists of four Wellhead Platforms (Muda-A [MDA], Muda-B [MDB], Muda-C [MDC] and Jengka-A [JKA]), Muda Central Processing Platform (MDPP) and Living Quarters (MDLQ), Flare Tripod and FSO (Ratu Songkhla). Initial processed gas for the DCQ of 270 mmscf/d for a plateau period of 10 years and 250 mmscf/d for the remaining 6 tears. The field is developed with the facilities shown in the diagram below. · PTT Public Company Ltd. signed the Gas Sales Agreement (GSA) with the MTJA, PCJDA Ltd. and PTTEP International Ltd. for Blocks B-17 &C-19 and Block B-1701 gas on June 2005. · The Engineering, Procurement, Construction & Commissioning (EPCC) tender for construction of a Central Production Platform (CPP), Living Quarter deck and jacket, flare platform and bridges, and 4 wellhead platforms for Block B-17 were awarded in 2007. The first gas is expected in October 2009. · Development wells and 2 water disposal on MDA platform, JKA platform and MDC have been drilled. Development wells drilling on MDB is in progress. · Supplementary GSA was approved by MTJA Board on May 2009. · Block B-17-01 exploration period extension was approved by MTJA Board on May 2009.

mile Sabah-Sarawak Gas Pipeline between Kimanis, Sabah and Bintulu, Sarawak to transport gas from Sabah's offshore fields, such as Kota Kinabalu, to Bintulu for liquefaction and export. Some of the gas will be used for downstream projects in Sabah. The pipeline is expected to be completed by March 2011. However, while environmental approval has been received, land acquisition issues are still being finalized.

Exports

Malaysia was the second largest exporter of LNG in the world after Qatar in 2007, exporting over 1 Tcf of LNG, which accounted for 13 percent of total world LNG exports. Japan, South Korea, and Taiwan were the 3 primary purchasers. LNG is primarily transported by Malaysia International Shipping Corporation (MISC), which owns and operates 27 LNG tankers, the single largest LNG tanker fleet in the world by volume of LNG carried. MISC is 62-percent owned by Petronas and also has significant involvement in oil shipping activities. PETRONAS owns majority interests in Malaysia's 3 LNG processing plants, all located in a complex at Bintulu, Sarawak (East Malaysia) and supplied by the offshore natural gas fields at Sarawak. The Bintulu facility is the largest LNG complex in the world, with 8 production trains and a total liquefaction capacity of 1.1 Tcf per year. A further increment through debottlenecking is expected by 2010, raising overall capacity by 0.6 Tcf per year. As the main LNG importer in Asia, Japanese financing has been critical to the development of Malaysia's LNG facilities. Construction began on the Sabah Oil and Gas Terminal (SOGT) in February 2007 and is expected to be completed by January 2010. It will have handling capacity of 300,000 barrels of crude and 1 billion cubic feet of natural gas per day and will primarily serve export markets. The SabahSarawak Gas Pipeline project is part of this development.

Pipelines

Malaysia has one of the most extensive natural gas pipeline networks in Asia. The Peninsular Gas Utilization (PGU) project, completed in 1998, expanded the natural gas transmission infrastructure on Peninsular Malaysia. The PGU system spans more than 880 miles and has the capacity to transport 2 billion cubic feet per day (Bcf/d) of natural gas. Pipelines now connect Malaysia with Singapore and Indonesia, and the Trans-Thailand-Malaysia Gas Pipeline System allows Malaysia to pipe natural gas from the Malaysia-Thailand JDA to its domestic pipeline system. This linkage marks a significant step toward the realization of the proposed "Trans-ASEAN Gas Pipeline" (TAGP) system, a transnational pipeline network linking the major natural gas producers and consumers in Southeast Asia. Because of Malaysia's extensive natural gas infrastructure and its location, the country is a natural candidate to serve as a hub in the proposed TAGP project. PETRONAS is also reportedly planning to build the 310-

Acknowledgements:

Energy Information Administration, Murphy Oil Malaysia Shell Malaysia, PETRONAS, ExxonMobil Malaysia, MTJA

PP

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