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Viewing cable 07KUALALUMPUR1215, KIKEH FIELD TO DOUBLE MURPHY OIL'S GLOBAL CRUDE PRODUCTION

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Reference ID Created Released Classification Origin
07KUALALUMPUR1215 2007-07-30 08:28 2011-08-25 00:00 UNCLASSIFIED Embassy Kuala Lumpur
VZCZCXRO5643
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHKL #1215/01 2110828
ZNR UUUUU ZZH
R 300828Z JUL 07
FM AMEMBASSY KUALA LUMPUR
TO RUEHC/SECSTATE WASHDC 9730
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHDC
RHEBAAA/USDOE WASHDC
RUEHGV/USMISSION GENEVA 1494
RUCNASE/ASEAN MEMBER COLLECTIVE
UNCLAS SECTION 01 OF 02 KUALA LUMPUR 001215 
 
SIPDIS 
 
STATE PASS USTR - WEISEL AND BELL 
STATE PASS FEDERAL RESERVE AND EXIMBANK 
STATE PASS FEDERAL RESERVE SAN FRANCISCO TCURRAN 
USDOC FOR 4430/MAC/EAP/J.BAKER 
TREASURY FOR OASIA AND IRS 
GENEVA FOR USTR 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EPET EFIN EINV ENRG MY BX
SUBJECT:  KIKEH FIELD TO DOUBLE MURPHY OIL'S GLOBAL CRUDE PRODUCTION 
 
 
Ref:  BANDAR SERI BEGAWAN 194 
 
1.  (U) Summary:  Murphy Oil Corporation's deepwater operation at 
Kikeh field off the coast of Sabah, Malaysia, is expected to begin 
producing light sweet crude by the end of the third quarter of this 
year, barring unforeseen delays, according to Kuala Lumpur-based 
Murphy Oil executives.  The Kikeh field output is expected to be 
40,000 barrels per day at the outset, with a ramp-up to 120,000 
barrels per day after one year.  Kikeh is an 80:20 joint venture 
between Murphy and Malaysia's national oil company, Petronas. 
Murphy's current global output is between 95,000 and 100,000 barrels 
per day.  The estimated 700 million barrel Kikeh field is suspected 
of extending into disputed territory with Brunei (reftel). End 
summary. 
 
2. (SBU) On July 25 Econoff met with Ted Botner, Murphy Sarawak Oil 
Company General Manager for Malaysia, and Paul Vaughan, Finance and 
Administration Manager.  Neither Botner nor Vaughan could provide an 
update on the disputed territory being claimed by both Brunei and 
Malaysia; however, Vaughan said the solution was to craft an 
agreement whereby no one lost face, which he did not see as an 
insurmountable obstacle.  He also expressed concern that the 
solution might come in the form of a unified concession involving 
Total or Shell -- since both companies operate in both countries -- 
leaving Murphy out of the deal.  It is unclear how such an agreement 
would affect Murphy's contract for the Kikeh field. 
 
3. (SBU) Botner and Vaughan described their working relationship 
with Malaysia's national oil company Petronas as "transparent" if 
not entirely efficient.   For example, Petronas provides a list of 
"licensed" vendors from which Murphy is required to choose.  In some 
cases, Petronas selects a specific vendor that it has decided to 
"mentor" and requires Murphy to work solely with that company. 
While products and services might be a better deal elsewhere, Botner 
and Vaughan both expressed satisfaction that the Malaysian vendors 
they had worked with had been reliable, pointing out happily that 
the Kikeh field was right on schedule.  Nearly everything for the 
Kikeh operation had been built in Malaysia.  The Kikeh Floating 
Production Storage and Offloading (FPSO) vessel was built by 
Petronas-owned Malaysia Shipyard Engineering in Pasir Gudang in the 
state of Johor. 
 
4.  (SBU) Botner shrugged off the less-than-competitive 
government-mandated procedures and vendor lists as not being unique 
to Malaysia, adding, "You have to get used to that when you operate 
overseas."  He then countered that all foreign oil companies had to 
work from the same lists and procedures, giving no foreign oil 
company an unfair advantage.  Vaughan expressed satisfaction with 
Petronas' adherence to its contracts, and stated that the production 
sharing contracts were standardized - one for shallow water and one 
for deep -- with very little room for negotiation, hence very little 
scope for an unfair advantage to one foreign partner over another. 
 
5. (SBU) Botner estimated that Malaysia would remain a net exporter 
of oil for another five to ten years.  He had not seen the recent 
press report quoting Petronas' CEO who claimed the country would be 
a net importer of oil by 2010 if the current 4 per cent annual 
increase in domestic demand remains constant.  Botner found the 
three-year time frame unlikely, pointing out that when the Kikeh 
field began production, this would increase Malaysia's oil output by 
about 40,000 barrels per day in the beginning, and then up to 
120,000 barrels per day after the first year - and this was just one 
new well.  However, he did say that as the larger wells began to dry 
up, it no longer would be profitable to go after smaller or more 
difficult to reach wells unless the standard production sharing 
contracts were re-negotiated.  Since it takes five years or more 
from discovery to production, Malaysia would have to begin 
re-negotiating those contracts now to prevent a decline in 
production. 
 
6. (U) Murphy Oil's output from Malaysia comes from the West 
Patricia and surrounding fields offshore Sarawak, producing about 
20,000 barrels per day.  The company also is developing several 
confirmed gas fields in two blocks offshore Sarawak.  The company 
also operates in the Gulf of Mexico, Canada, and the North Sea.  In 
2003 it acquired an 85 per cent working interest in two blocks in 
the Lower Congo Basin.  Development and analysis in these two fields 
is ongoing. 
 
 
 
 
KUALA LUMP 00001215  002 OF 002 
 
 
7. (U) Comment: The longer-term outlook for Malaysian oil production 
is not good news, but right now Murphy Oil is not focusing on that. 
At this moment, Murphy executives are all smiles as they see their 
own production ready to shoot upwards, just as the price of oil 
continues to break records. 
 
LAFLEUR