Upstream activities in Southeast Asia could suffer in the wake of expiring production sharing contracts this decade that could see substantial discovered resources, particularly gas, remain unexploited.
The PSCs due to expire put over 6 billion barrels of oil equivalent at risk unless host governments initiate early discussions on potential extensions, according to Norwegian consultancy Rystad Energy.
With upwards of 100 blocks covered by expiring PSCs, national oil companies and international oil companies are faced with significant opportunities for discussion, expansion and portfolio re-evaluation.
Although efforts have been made to remove some of the barriers to progress on final investment decisions aiming to boost production in the region — including setting up more favourable exploration policies and fiscal revisions to promote international investments — concerns have been raised over the PSCs due to expire by 2030, Rystad notes.
“Challenges also linger over recent examples of resources nationalisation and the performance of national oil companies on these producing blocks.”
Rystad says that as international players continue to exit projects in Southeast Asia, it allows state companies to capitalise on the opportunity and grab additional interests in top producing blocks.
As such, the share of resources held by oil and gas majors in the region has fallen from about 30% in 2015 to 19% this year and is likely to further decline to around 16% in 2022.
Regional production from these blocks is likely to be over 12% by 2030, and they hold around 10% of the resources planned for sanction by 2030.
While most of the recent PSC extensions in Southeast Asia have been for producing blocks, the resources from acreage due to expire in coming years reflect a mix of around 60% producing and 40% in pre-project sanction stage.
“This represents an additional challenge for expiring contracts, predominantly on blocks located in Indonesia, Thailand and the Malaysia-Thailand Joint Development Area, which alone accounts for close to 4.6 billion boe.
Operators with the greatest exposure to regional PSCs due to expire before 2030 include US supermajor Chevron — about 70% of its Southeast Asian assets fall into this category — and Indonesia’s Medco Energi, which has about 35% of its resources on soon-to-be expiring blocks.
“As most upstream companies are looking to restructure portfolios, the uncertainty around extensions on blocks with expiring PSC in the near term might impact their long-term interest,” Rystad says.
Revised fiscal terms
However, on a brighter note, PSC renewals often allow the potential for revised fiscal terms, higher government participation, as well as higher production and investments targets.
“As such, if initiated timely, these PSC extensions might be an opportunity for majors, E&Ps, and industrial and regional players to discuss more favourable terms, expand regional portfolios and look for partnership opportunities with regional national oil companies.”
Indonesia in recent years has been boosting resource nationalism with state-owned Pertamina since 2015 increasing equity in, and often taking operatorship of, expiring PSCs.
However, the departure of players such as Total — now TotalEnergies — and BP has come at a price.
Output at some projects has slumped, while losing out on contract renewals has made some international players less enthusiastic over investing in other upstream ventures in the country.
“Although, Indonesia has recently announced fiscal incentives... an early discussion on expiring PSCs might be an additional booster, transforming the PSC extension into an opportunity to reassess production and investment targets on the blocks,” Rystad suggests.
Blocks accounting for about 95% of Philippines’ production, 90% of the Malaysia-Thailand JDA production, about 50% of Myanmar’s output and around 40% of Vietnam’s production are subject to PSC renewal by 2030.