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Petronas awards first production sharing contract for this year to 3 companies

KUALA LUMPUR (NewsRise) -- Malaysia's national oil company Petroliam Nasional, or Petronas, has awarded its first production sharing contract for 2016 to three oil companies to explore a hydrocarbon block off the Sarawak state.

Thailand's PTT Exploration & Production will operate the SK410B oil field with joint venture partner Kuwait Foreign Petroleum Exploration Company, Petronas said in a statement. PTT and the state-run KUFPEC will each hold a 42.5% stake in the block while Petronas will own the remainder 15% through a wholly owned unit.

"[The] signing not only marks Petronas' first PSC award in 2016, but also welcomes PTT for their first operatorship in Malaysia," said Petronas' executive vice president for upstream Mohd Anuar Taib. "We are also pleased to collaborate with our long term partners, KUFPEC once again."

Analysts say the award suggests potential revival of offshore exploration activities that could ultimately benefit Malaysian companies, although an industry-wide recovery in capital expenditure remains unlikely in the near-term as oil prices still stay depressed.

"This is positive to the sector as it indicates that offshore activities, including exploration and development could pick up," said Kenanga Investment Bank analyst Sean Lim. "We do not discount the possibility of further PSC awards since the sector has been muted for more than one-and-half years."

Production sharing contract refers to an agreement that typically details the percentage of output the host country and a group of companies will receive after deducting costs involved in the extraction of fossil fuel. The last PSC in Malaysia was announced in November 2014 with two blocks in the state of Sabah awarded to SapuraKencana Petroleum, M3nergy, and Petronas.

PTT and its partners plan to conduct seismic surveys and drill one exploration well during the three-year exploration period within shallow waters of the 1,800 square-kilometer area off the eastern Malaysian state of Sarawak.

The block is located in an area where "considerable natural gas discoveries" have been made in the past, said PTT chief executive Somporn Vongvuthipornchai in a separate statement. "Malaysia is renowned as being an area in Southeast Asia of high petroleum potential," he said, noting continued discoveries of oil and gas in the region between 2011 and 2015.

The announcement comes at a time when oil prices have climbed more than 25% so far this year following easing concerns over production glut and rising demand. Brent, the global benchmark for crude oil, was trading at $45.92 on Friday, still at less than half of its value as in June 2014.

"If you take a look worldwide, there have been projects that have been revived," said Maybank Investment Bank analyst Liaw Thong Jung. "Stronger oil price has led to optimism in the market and that gives them the impetus to drive the project."

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