Halliburton Can Profit From Malaysia's Mature Fields

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Oil field service major Halliburton ( HAL ) is making progress into Malaysia's oil and gas industry. Earlier this month, the firm's subsidiary Halliburton Bayan Petroleum (HBP) signed a deal with Petronas Carigali Sdn Bhd, the exploration and production arm of state-controlled oil giant Petronas, to provide services to boost production from mature wells in the Bayan Field off the coast of Malaysia. The deal is estimated to be worth $1.2 billion and will span over 24 years. Dialog, a Malaysian oil and gas engineering services firm, has picked up 50% equity stake in HBP and will partner with Halliburton to provide services in these fields.

Malaysia holds Asia's third largest oil reserves with most of the fields located offshore. However, the country's production has been on the decline due to maturing oil fields. As of last year, the country's daily production stood at 630,000 barrels - around 25% below the peak of 860,000 barrels per day achieved  in 2004.  The country's oil consumption on the other hand has been steadily growing, prompting the government to invest in enhancing recovery from existing oil fields and leveraging the country's deepwater resources to meet energy needs. Given that much of the technology required is not available in the country, Petronas has forged partnerships with international oil firms and contractors to carry out drilling and enhanced recovery operations in the mature fields.

Mature Fields

The life cycle of an oil well can be categorized into different stages. During the primary recovery stage, oil is extracted using the wells' natural pressure and production rates are among the highest at this stage. In the secondary stage, oil is extracted using pumps or by injecting water to stimulate the flow.

After these two stages, the rate of recovery declines significantly, resulting in a drop in production. Wells at this stage of the life cycle are often called mature wells. Mature wells need enhanced recovery operations  that call for pumping of gasses, steam and chemicals into the well to stimulate the flow. According to Halliburton, a 1% increase in the recovery rate from mature oil fields could feed the world's oil needs for 2 years.

As easily accessible resources become increasingly scarce, oil firms will need to focus on improving yields of their existing fields. Enhanced recovery operations present a huge opportunity for oilfield services firms since mature fields account for about 70% of the world's oil production. Halliburton has a suite of services for mature fields that include production enhancement, drilling, completion, management and monitoring services. Mature field contracts are attractive to Halliburton since service periods are generally longer and service intensity is also quite high, which would positively impact the revenue per rig.

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This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: BHI , HAL , SLB

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