Tuesday, June 8, 2010

#Update* Petronas sees higher oil exploration costs

KUALA LUMPUR: Costs for upstream oil projects are likely to rise after the BP Gulf oil spill, a senior executive at Malaysia's national energy firm Petronas said on Tuesday, June 8.

"With the possible tighter US regulation, there will probably be higher insurance costs. As a result, there could be higher costs given the risks we are seeing," Mohd Arif Mahmood, vice president, corporate strategy planning, said.

He said he does not expect exploration projects to shift to other regions like Asia because of any regulations arising from the oil spill.

"Companies will go where the opportunities are," he told reporters at an oil and gas conference in the Malaysian capital.

Petronas itself wants to trim overseas exploration and set aside more resources for domestic oilfields, as well as plans to sell off non-core operations, to focus on the oil and gas business, CEO Shamsul Azhar Abbas told a local paper last week.

"Rationalisation is part and parcel of doing business. It happens all the time," Arif said when asked about the plan.

While a planned Australian mining tax was a concern, the impact was "manageable", Arif said.

Under the tax, starting in 2012 companies will pay 40% tax on profits above 5.3%, although it is expected the threshold will be lifted nearer to 12% during negotiations with the government over the next six months.

Petronas made its largest investment in Australia in 2008 when it spent about US$2.5 billion to buy a 40% stake in Australia Santos Ltd's coal-seam gas export project and associated gas fields.

The national energy giant is also keeping a keen eye on Australia's nascent shale gas sector and may start investing in shale gas if the resource proves to be vast.

Arif also said a feasibility study on expanding the firm's 200,000 barrels per day (bpd) Melaka refinery should be completed this year.

However, he would not comment on the size of the expansion, saying this would depend on the results of the study and the type of crudes available. ' Reuters

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