UPDATE 2-Shell, Exxon to invest $4.9 bln in Malaysia projects
* Exxon Mobil's Malaysia unit to invest 10 bln rgt in new O&G assets
* Shell's Malaysia unit to invest 5.1 bln rgt in new, upgraded energy facilities
* May add 20 mln bpd to Malaysia output
* For a factbox on investments, see [ID:nL3E7CB0EA] (Recasts with details, analysts' quotes)
By Razak Ahmad
PUTRAJAYA, Malaysia, Jan 11 (Reuters) - Oil giants Exxon Mobil and Royal Dutch Shell Plc (RDSa.L) will invest 15 billion ringgit ($4.9 billion) in new oil, gas and energy assets in Malaysia, the government said on Tuesday, in a move that could help the Southeast Asian country reverse a decline in output.
Malaysia needs fresh investments in the oil and gas industry given that output of its light sweet benchmark Tapis crude has fallen to around 190,000 bpd from a peak of more than 350,000 bpd in the 1990s. Most of that is kept for refining by equity producers Exxon Mobil and national oil company Petronas , leaving little for the spot market.
Prime Minister Najib Razak who announced the projects said the investments were in line with the introduction of tax breaks in November to develop new oil and gas resources and enhance recovery from ageing fields. [ID:nL3E6MU06A]
The planned investments by the oil companies are part of the Malaysian government's initiative to attract $444 billion in investments by 2020 to drive economic growth. [ID:nSGE68K06Z]
Of the total, Exxon will spend 10 billion ringgit while Shell Plc will invest 5.1 billion ringgit to upgrade and build energy facilities, the authorities said, although Shell said some of its investments had already been announced.
The investment by Exxon Mobil, said Najib, would provide "additional supplies for Malaysia's power and industrial needs and will promote organic growth of the natural gas sector."
Exxon Mobil's investments could "possibly add" 20 million barrels of oil equivalent to current reserves, Subramanya Bettadapura, associate director of energy & power systems at Frost & Sullivan, said.
Exxon's 10-billion ringgit spending also includes ventures that were announced earlier as well as the new Telok gas development project.
BOOSTING OIL RECOVERY
Subramanya also said part of Exxon Mobil's recent extension of its Production Sharing Contract with Petronas-Carigali, a unit of state oil firm Petronas, required that mature fields be operated on Enhanced Oil Recovery (EOR) mode.
Enhanced oil recovery projects refer to techniques used to boost crude production from mature fields.
"Such projects have never been done on a massive scale in Malaysia, so this is a pilot start," said Subramanya.
"More such EOR projects are likely in Malaysia with Shell, Carigali, Newfield and Murphy operated brownfields," Subramanya added.
From the total 10 billion ringgit to be invested by Exxon Mobil, Subramanya said close to 3.2 billion ringgit will be allocated to an Enhanced Oil Recovery (EOR) project for the Tapis field.
In addition, Exxon Mobil along with Petronas will invest about 3.6 billion ringgit for EOR projects in seven other mature offshore fields, namely Tapis, Guntong, Tabu, Palas, Seligi, Irong Barat, and Semangkok, he said.
Another 3.1 billion ringgit could possibly be spent on new exploration and development projects and also the mature gas field projects involving the Jerneh and Lawit-Bintang fields.
"The incentives will help bring in investment for capital intensive deepwater projects. More importantly, the tax incentives for marginal fields is bound to attract private investors," said Subramanya.
Malaysia, which produced 657,700 barrels of oil and condensates per day as of Jan 1, 2010, is expected to become a net oil importer by 2013.
Oil production in recent years has managed to sustain a plateau of between 550-650 million barrels per day, according to research from consultancy PFC Energy.
"But with nearly 63 percent of its reserves depleted, reserve additions have been decreasing despite high exploration success rates", PFC Energy said in a note on Dec 22 last year.
In November, the government unveiled a package of tax incentives to boost oil production to reverse a decline in output and boost production from mature fields. [ID:nL3E6MU05T]
A highlight of the measures were a cut in tax rates for the development of new oil and gas resources and enhancing recovery from depleted fields. [ID:nL3E6MU06A]
The tax incentives will cost the country 8 billion ringgit in foregone revenues for state oil giant Petronas, which provides almost half of all government revenues, Najib said.
"With Malaysia, the key growth area would be deepwater exploration and production, which is what Shell appears to be zoning into," said Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore.
"Malaysia is an interesting challenge for the oil majors as its production is slowing but it also has a decent-sized domestic market."
Investments by the oil major are significant in Malaysia but represent just a fraction of Shell and Exxon Mobil's total capital expenditure.
For Shell, Malaysia investments account for roughly 5-6 percent of its total annual capital expenditure of about $25-$30 billion for the next four years, Reuters calculations show.
"These projects have been individually announced before but without an aggregate investment value," said Anuar Taib, chairman Shell Malaysia.
Shell's 5.1 billion ringgit represents the Malaysian unit's spending for 2011, with three key projects taking a significant portion of it. The company is spending in expanding its MDS wax plant in Bintulu, the construction of a new diesel processing unit at the Shell Refinery in Port Dickson and in the Gumusut deepwater development, off Sabah.
($1 = 3.081 Malaysian ringgit) (Additional reporting by Niluksi Koswanage and Florence Tan; Editing by David Chance and Manash Goswami)
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