Exclusive: Petronas in Talks with Oil Majors for Petchem Tie-up

December 29, 2011 by · Leave a Comment 

By Niluksi Koswanage and Liau Y-Sing

2011-12-23T044657Z_1_BTRE7BM0DAB00_RTROPTP_3_BUSINESS-US-PETRONAS

Petronas advertising boards are seen near the grandstand ahead of the Malaysian F1 Grand Prix at the Sepang circuit outside Kuala Lumpur April 7, 2011.

REUTERS/Tim Chong

KUALA LUMPUR (Reuters) – Petronas is in talks with several global oil majors including Shell <RDSa.L> and Exxon Mobil <XOM.N> to develop petrochemical plants within its $20 billion refinery complex in southern Malaysia, two sources with direct knowledge of the matter said.

Malaysia’s national oil company is also talking to Japanese firms Itochu Corp <8001.T> and Mitsubishi Corp <8058.T> as well as to Dow Chemical Co <DOW.N> — the largest U.S. chemical maker — as it seeks to tap surging Asian demand and diversify its earnings, the sources told Reuters.

Petronas <PETR.UL> is expected to make a decision on the partnerships by mid-2012, which signals it is quickly moving beyond the feasibility stage of the project.

“Petronas is getting a lot of interest for the joint venture undertakings,” said one source who declined to be identified as the talks are ongoing.

“They have moved to the basic engineering and design stage and after this the tendering process for building the complex will start,” the source added.

Petronas, Shell and Mitsubishi officials in Malaysia declined to comment. Itochu, Dow Chemical and Exxon Mobil were not immediately available to comment.

Petronas first unveiled the Refinery and Petrochemicals Integrated Development (RAPID) project in May and has said the complex will be commissioned by end-2016, which both sources said was on track.

The $20 billion complex is to be built in southern Johor state which borders Singapore — the largest oil trading hub in Asia.

The project is key to Petronas’ plan to join the likes of India’s Reliance Industries <RELI.NS> in grabbing a larger share in the $395 billion global market for specialty chemicals — high value raw materials used in products from diapers to higher performance tires and LCD televisions.

“In terms of markets for petrochemicals coming from RAPID, Petronas is aiming for Myanmar, Bangladesh and parts of the subcontinent,” said a second source.

“The potential is there as these are huge markets or in the case of Myanmar, just opening up.”

RAPID REACH

The RAPID project will include a 300,000 barrel-per-day refinery that produces naphtha, gasoline, jet fuel, diesel and fuel oil. The first source said the crude feedstock would come mostly from Petronas’ equity projects in Sudan, Chad and eventually Venezuela instead of Malaysia’s own higher quality and expensive crude, domestic production of which is slowing.

The crude feedstock from Petronas equity projects will also be channeled into the petrochemicals and polymer complex, including a 3 million ton-per-year (tpy) naphtha cracker and petrochemical derivatives facility focusing on synthetic rubber.

“Over 1 million tons will be for ethylene and propylene and the rest for high grade specialty chemicals,” said the first source.

“Synthetic rubber is a big thing. Nearly 90 percent of a tire is made of synthetic rubber because natural rubber production is declining in Asia, so there is an opportunity for Petronas,” the source added.

STRUGGLE OR SURVIVE

The RAPID project gives Petronas’ downstream operations a better chance of staying afloat in times of economic downturns and poor margins as it allows Malaysia’s only Fortune 500 company to tap into its global feedstock sources, analysts say.

“From a Petronas perspective, there is vertical integration opportunity,” said Andrew Wong, lead analyst covering Petronas at Standard & Poor’s in Singapore.

“I think the expectation for a recovery in the petrochemical sector in 2011 did not quite happen due to the external factors and there is concern whether the project will come on-stream at a good point in time of the global economic cycle,” he added.

Industry players have said Malaysia and Petronas’ ramp-up of oil infrastructure in the southernmost tip of the country will create a “Greater Singapore” trading hub that allows the region to keep up with competitors like China.

Petronas is counting on interest from Japanese firms which are looking to relocate their plants or re-invest outside their home base after the March tsunami and earthquake triggered uncertainty over future energy supply, the second source said.

“The interest has particularly been strong from the usual Japanese players in the petrochemical market. This project has started at the right time,” the source added.

(Editing by Himani Sarkar)

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Analysis: Arab Spring Likely to Leave Oil Firms Unscathed

June 23, 2011 by · Leave a Comment 

By Tom Bergin

2011-06-15T172504Z_01_BTRE75E1CDW00_RTROPTP_3_INTERNATIONAL-US-TUNISIA-TOURISM

A Tunisian artisan makes tributes to the “Arab Spring” revolution by etching flags on bronze plates in the medina, the old city of Tunis, June 14, 2011.

REUTERS/Zoubeir Souissi

LONDON (Reuters) – Western oil firms are unlikely to face widespread asset seizures or contract revisions as a result of Arab uprisings, thanks to deft diplomacy, legal protections and efforts to depict themselves as partners of the local citizenry.

In the past, big political shifts in the Middle East have often been followed by the eviction of foreign oil producers — Muammar Gaddafi in Libya, Saddam Hussein in Iraq and Ayatollah Khomeini in Iran to cite a few examples.

This time around, upheaval has hit Libya, Egypt, Yemen, Tunisia and Syria — not the biggest oil producers in the Arab world but among the most open to foreign investment. Companies including BP Plc, Exxon Mobil and Royal Dutch Shell have spent billions there.

“I wouldn’t describe us as worried. We’re being vigilant,” said Bob Dudley, chief executive of BP, echoing comments from other companies.

The new governments that have emerged, or may emerge, are expected by and large to remain supportive of foreign investment, because they will wish to maintain output and government revenues.
“I don’t see there being a large nationalistic wave,” said Richard Quin, Middle East analyst at Wood Mackenzie.

In the past popular anger toward a regime has spilled over to the companies that supported it, but oil companies say that over the past two decades, they have positioned themselves on the side of communities, rather than as agents of government.

“Companies now are not so closely aligned with governments,” said Mahdi Sajjad, president of Syria-focused Gulfsands Petroleum, whose shares have been hit by investor fears about the unrest.
In part this has been achieved by investing in community engagement projects. Oil contracts that are more transparent and more favorable toward host nations also play a big role.

Contract Changes

Up to the 1970s, oil contracts were opaque and seen as beneficial to companies and the region’s frequently corrupt governments — at the expense of citizens. Now contracts usually follow internationally accepted models.

This will help oil executives argue they are giving host nations the best deal that a new leadership could hope to get and, therefore, that existing contracts should be respected.
“We look at it (investment) from a perspective of the fundamental stakeholders, the population of the country .. rather than through the lens of the current incumbent government,” said Frank Chapman, chief executive of British Gas producer BG Group.

“What we are doing in Tunisia and Egypt is sustainable,” he added.

Oil companies have beaten a path to new leaders in Egypt and Tunisia, and, an Italian ministerial source told Reuters last month, even to Libyan rebel leaders. Companies say the signals received so far do not point to widespread asset seizures.

If new governments do seek to expropriate oil fields or to rewrite contracts, companies will find they have greater legal protection than they did when the last wave of nationalization swept through the Arab world in the 1970s.

Modern contracts bar governments from taking unilateral action to seize assets and can limit their ability to hike taxes. And if there is a dispute over whether the government has overstepped its authority, companies don’t have to worry about arguing their cases in front of potentially biased local courts.

“Contracts usually provide for arbitration in a neutral venue,” Anthony Sinclair, a partner with law firm Allen & Overy said.

Potential for Loss Still

In addition, many countries have signed bilateral investment treaties, known as BITs, which commit them to protect foreign investments in their territories.
“There are close to 3,000 of these treaties in existence,” Sinclair said.

These will help deter unilateral moves against companies, but they will not protect companies against all losses. International litigation can drag on for decades, during which opportunities are lost, said Harry Clark, partner at Dewey & LeBoeuf. This suggests companies might agree to unfavorable contract changes that would not be upheld in court.

Also oil companies can face a big financial hit if instability delays production.

“The oil industry values everything in net present value terms … (and) because you are pushing things out, on a discounted cash flow basis, that will erode value,” said Quin.
BP and other companies have suspended operations in Libya, while French oil major Total said it lost production at one field in Yemen due to the conflict there.
Sajjad said Gulfsands’ operations in Syria were unaffected, but the conflict could create difficulties in importing equipment there and in other countries — especially if new sanctions are imposed against governments fighting revolts.

There is little companies can do to limit such losses.

Yet some executives say the problems thrown up by the Arab Spring simply reflect the intrinsic nature of the oil business.

“It is always like that in exploration, you can always face different kinds of issues .. This is part of life for an oil and gas company,” said Total head of strategy Jean-Jacques Mosconi.

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Mideast Firms Ramp Up in Iraq, Western Firms Trail

December 3, 2009 by · Leave a Comment 

By Deepa Babington

2009-11-27T155315Z_1505821627_GM1E5BR1TSO01_RTRMADP_3_IRAQ-OIL

Workers dig a new oil well at South Rumaila oil field, in southern Iraq November 26, 2009. Britain’s BP and China’s CNPC have clinched a final agreement to operate Iraq’s biggest field, Rumaila, and groups led by Italy’s Eni and U.S. major Exxon Mobil have secured initial deals over Zubair and West Qurna Phase One. Picture taken November 26, 2009. 

REUTERS/Atef Hassan

BAGHDAD, Nov 30 (Reuters) – While Western firms notch up high-profile energy deals in Iraq, smaller regional firms from Iran to Turkey are quietly building a broader Iraqi presence by pumping billions of dollars into housing and other projects.

Pledges by companies to invest in Iraq are suddenly taking off as violence falls sharply and the government seeks help to rebuild after years of war, sanctions and bloodshed.

Investors have announced $156.7 billion worth of projects in Iraq this year, not all of which are likely to bear fruit, Dunia Frontier Consultants said in a report.
Much of the spotlight has fallen on mega-deals by Big Oil firms like Exxon Mobil <XOM.N> and BP <BP.L> for oilfields, but high security costs — 26 percent of total costs according to one estimate — have deterred Westerners from other sectors.

Meanwhile, Iranian investors have been piling into the Shi’ite Muslim tourism business, Turkish companies have cornered the market in the Kurdish north and Gulf companies, some run by Iraqi expatriates, are nailing construction deals.

Middle East firms are perhaps more accustomed to operating in difficult environments, and have an easier time navigating Iraqi red tape and corruption, analysts said.

“It is easier for Gulf and regional companies to operate here because they know the mentality here,” said Munther al Fattal, director of investment promotion at the U.S. agency for international development’s Tijara project.

“Security has greatly improved but there still are a lot of impediments such as bureaucracy and lack of transparency.”

While most investment projects announced in Iraq never seem to get off the ground, the growing business clout of regional firms is increasingly obvious.

Turkish firms have been investing in projects in the north and plan an $8 billion mixed development project in the south, while Iranian firms have catered to tourism supporting Shi’ite pilgrimages to the holy cities of Najaf and Kerbala as well as industrial projects in Basra in the south, Dunia says.

Lebanese investors have opened up a bank and plan to set up a $500 million residential city and dairy factory in Diwaniya, while investors from the United Arab Emirates have been eyeing residential complexes and infrastructure projects.

US is Small Fry Outside Energy

The United Arab Emirates has emerged as the top foreign investor in Iraq this year with pledges of $37.7 billion, followed by South Korea and the United States, Dunia said.

But South Korea owes its number two spot almost entirely to a planned $20 billion investment in a new industrial city in Anbar province’s untapped gas fields, which appears to be little more than a pipedream or at the very least, aspirational.

The U.S. position in the rankings is almost entirely due to Exxon’s $25 billion contract for the West Qurna oilfield, which has yet to be ratified by the Iraqi cabinet. U.S. investment into Iraq accounts for less than 1 percent of the total if government contracts and oil are excluded.

A look at smaller deals offers a more revealing picture of the players with a wider presence in Iraq.

Lebanon tops the list of investment deals below $1 billion, followed by South Korea, Iran, the UAE and Turkey, Dunia said.

Once again, South Korea’s position in the list is misleading, exaggerated due to a single energy project.

“Once the major energy deals are stripped away, it is largely regional players that dominate,” the Dunia report said.

Some analysts say the dominance of Middle East players is likely to continue.

“Most of the investment will come from Gulf States and Jordan — with a significant contribution from Iran,” said Gavin Jones of Upper Quartile, an Edinburgh-based research firm.

He said repatriation of wealth by Iraqis living in Jordan or the Gulf could account for a sizeable chunk.

(Editing by Michael Christie; Editing by Victoria Main) ((deepa.babington@thomsonreuters.com, Baghdad newsroom, +964 7901 917 023, deepa.babington.reuters.com@reuters.net))

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