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Malaysia-based Dialog Group has signed a $1.2 billion agreement with Halliburton (NYSE:HAL) to increase its output from an offshore oil field in East Malaysia. According to the deal, both companies will hold 50% stakes in their joint venture Halliburton Bayan Petroleum (OTC:HBP) for a period of 24 years. HBP, which was previously a Halliburton subsidiary, is already working with the Malaysian state owned oil giant Petronas to boost the output from the mature Bayan oil field. The current agreement is in line with Dialog's strategy to further develop its mature oil assets for sustainable long term growth.

Malaysia is home to one of Asia's largest oil reserves, mostly located offshore but maturing oil fields and little redevelopment has caused its output to fall by more than 26% from 860,000 bpd in 2004 to 630,000 bpd in 2011. During this period (2004-11) its GDP continued to rise - except for 2009 when it fell by 1.6% - and peaked at 7.2% in 2010. As the country's GDP rose from $124 billion in 2004 to $278 billion in 2011, the demand for oil also increased and the government started refocusing on the mature oil fields.

Mature oil wells are those from whom now it requires a complex procedure that involves gas pumps and chemicals to extract more oil. All of the easily extracted oil, first through the oil's own natural pressure and second, by actively pumping is gone. At each stage of the well's life, obviously, the cost associated with extraction rises. According to one estimate, mature oil fields account for around 70% of the total global oil production, which is a number that should frighten anyone projecting lower oil prices in the long-term.

However, like other Asian countries, such as China, Malaysia needed support from North American and European oil and gas companies as the country simply did not possess the technology to carry out the work itself. Petronas has worked in a joint venture earlier with Chevron (NYSE:CVX) in 2006 on Vietnamese offshore oil projects. About a year ago, Petronas started working with Shell (NYSE:RDS.A) on mature oil fields offshore of Sarawak and Sabah, Malaysia. Before that, in January 2011, the Malaysian government revealed that it expects Shell and Exxon to invest ~$4.9 billion on developing new oil and gas assets in the country.

Looking forward, Halliburton's chief has made it clear that the coming quarters will be challenge due to volatile guar gum prices and the general economic slowdown in North America which has prompted its customers to cut costs. However, its international operations remain strong and its current expansion into Malaysia will provide diversity to its North American-focused portfolio.

That said, however, International Energy Agency (IEA) has said that despite having 90% lower oil reserves than Saudi Arabia, the United States could become the world's biggest crude oil producer by 2017, even if it is only short-lived. This is because U.S. has relatively more active drilling operations and is tapping into shale and tight oil. The shale oil output is increasing at an impressive pace and has gone up by 44% to the current 720,000 bpd. The increasingly complex procedure to extract shale oil, which requires hydraulic fracturing (or fracking), has been mastered by Schlumberger (NYSE:SLB), Baker-Hughes (NYSE:BHI) and Halliburton.

So, despite the current decline, all three firms are expected to gain more U.S. business in the coming years. In the short term, however, the oversupply of natural gas will continue to exert pressure on fracking service prices that are expected to fall by 14% in 2012 and 8% in 2013.

 

 

 

Halliburton

Schlumberger

Baker-Hughes

Market Cap

$29.73B

$93.50B

$18.9B

Stock YTD

-7.2%

3.1%

-10.4%

P/E

10.4

17.0

13.5

EPS

$3.10

$4.13

$3.20

Yield

1.10%

1.50%

1.42%

ROA

12.9%

8.3%

5.2%

ROE

21.0%

16.9%

8.5%

Schlumberger has reported a 9.5% increase in earnings with a profit of $1.42 billion on the back of strong international operations. Unlike Halliburton, Schlumberger earns just 30% of its revenues from North America where customers are cutting back on drilling operations. In general, we love moves like this by the major oil and gas services companies which will benefit from improving natural gas prices in North America while securing deals to produce gas around the world. Our position on this sector has not changed, we like all three companies for different reasons and see all three as worthy of accumulation on dips to improve yield.

Source: Halliburton Diversifies Into Malaysia