Since the fall in oil prices in 2014, oil majors and international oil companies (IOCs) have accelerated a shift towards resource themes and regions offering higher returns, lower complexity and shorter timeframes, away from the more challenging regions such as Southeast Asia. To date, close to 800 million barrels of oil equivalent (boe) of the region's resources have left the hands of majors and IOCs.
However, a niche group comprising East Asian and Middle Eastern conglomerates, including JXTG, Mitsubishi, POCO and Kufpec, among others, together with Medco Energi, Saka Energu, KrisEnergy, Sapura Energy and other domestic independents has been steadily growing their presence in the region's upstream sector.
"As the majors and IOCs relinquish assets in Southeast Asia, national oil companies (NOCs) will inevitably have greater roles to play to prevent domestic production decline," Ashima Taneja, senior research manager, Wood Mackenzie, said. "Partnering with those who still consider the region as core will be critical in delivering the message that the region is still open for business in the upstream sector."
Since 2013, these rising new players have acquired over 600 million boe of resources in Southeast Asia. Notable acquisitions include Indonesia's Medco Energi's farm-ins into South Natuna Sea Block B and North Sumatra Block A (total of 263 million boe), as well as Sapura's acquisition of Newfield's Malaysian assets (220 million boe).
Production from East Asian and Middle Eastern conglomerates and domestic independents has more than doubled, growing from 260,000 barrels of oil equivalent per day (boe/d) a decade ago to more than 675,000 boe/d in 2018. These companies make up 12% of the region's production and will grow modestly into the next decade.
"Southeast Asia falls in the backyard of East Asian and Middle Eastern conglomerates looking for diversity of supply," Ms Taneja said.
"As for the domestic independents, strong networks with local NOCs, government and domestic supply chain have contributed to their success."
Led by management teams with regional experience, domestic independents bring diversity and an entrepreneurial approach to the sector. These companies will seek to partner with NOCs on suitably sized projects but are unlikely to fill the shoes of majors in operating technically difficult projects.
Southeast Asia is maturing as an oil and gas province. Production peaked at 5.9 million boe/d in 2010 and has since remained steady. Around 68% of today's production comes from mid-life and mature fields, and with a lack of significant developments in the pipeline, output will decline by 15% by 2025. Coupled with tough fiscal terms, a restrictive regulatory environment and lack-lustre exploration results, it will be an uphill climb for NOCs and regional-focused players vested in this region.
Ms Taneja said: "Even as we see oil prices rebounding in recent times, fundamental challenges in the region remain. In this environment, governments and regulators must question whether they are doing enough to attract investors that are looking to grow and diversify. If not, the region will be bereft of players that can help the NOCs fill the major gap."