Business

Saturday November 21, 2009

Uzma diversifies into exploration and production

By FINTAN NG


HELPING clients exploit the very last drop of oil by using its expertise and knowledge in marginal fields production used to be what Uzma Bhd did – until now, that is.

The oil and gas services provider bought a 35% stake in Hong Kong-based Oriental Motors Co Ltd in September last year for RM4mil for the purpose of managing a project in Baiyin Chagan, Inner Mongolia which is in China’s arid north-east.

"This will enable Uzma to have sustainable income" - DATUK KAMARUL REDZUAN MUHAMED

Baiyin Chagan is a geological depression located in the oil-rich Erlian Basin where China Petroleum & Chemical Corp (Sinopec) has been prospecting for oil since the 1970s.

This marks Uzma’s first direct foray into the exploration and production aspect of the oil and gas industry as Oriental Motors is in a joint venture with Hefei XinXing Petrochemical Co Ltd via Hefei Sun Xing Mineral Development Co Ltd to extract oil from the concession area.

Oriental Motors has a 70% stake in the joint venture with the remainder under Hefei XinXing, which signed the technical service contract with Sinopec to develop the concession area over a 15-year period beginning last year.

According to Uzma’s managing director and chief executive officer Datuk Kamarul Redzuan Muhamed, drilling began in April. “We found that there were proven reserves of 65 million barrels based on the six wells that were drilled, that’s what got us really excited,” he tells StarBizWeek.

The concession area can support over 1,000 wells. Kamarul says earlier studies of the area showed there were 70 to 80 million barrels.

He says the information is only now being made public because the company wanted to quantify the results of the drilling.

“Our technological expertise is in the extraction of oil from marginal fields, so we really feel good about this as we’ve been rewarded appropriately based on the value creation that we made,” Kamarul says.

Uzma specialises in providing consultancy services under its three core businesses – geoscience and reservoir engineering, drilling and, project and operations services.

“This will enable Uzma to have sustainable income as this project allows us to provide not just services or consultancy, but also to act as a partner in a lucrative venture,” Kamarul says, adding that Uzma will up its stake by another 10% in Oriental Motors before year-end now that the reserves have been proven.

“The additional 10% stake will mean an extra RM47mil to us. We’re now in an advanced stage of negotiations,” he says.

Kamarul says at US$60 per barrel oil and the cost of producing at between US$10 and US$12 per barrel, the company’s share of revenue will work out to RM170mil for the concession period based on its current stake in Oriental Motors. The price of oil traded on the New York Mercantile Exchange is now around US$80 per barrel.

Kamarul says the plan is to extract a maximum 25 barrels per well, per day with the highest production rate in the first five years. He adds that extracting oil in the region is quite a basic affair.

“This has to be done cheaply. We’ve the expertise after observing how operations were run in Thailand where we provided our technical services for an oil major,” he says.

Uzma, in an announcement yesterday, says the strategy is to “cluster-drill” all the wells to ensure optimum cost spending on operations and minimise the time required to drill and complete the wells.

“We’re also not borrowing any money to fund the costs of production since it’s low, and as we start to get the cash flow, we’ll explore the other parts of the concession area,” Kamarul says.

He admits that the weather is the major obstacle to production. “We originally intended to have first oil by this quarter but the bad weather delayed it, so we’re now targeting the end of the first quarter next year,” Kamarul says.

He says the company is also in negotiations with other parties for similar business arrangements in India and Indonesia.

“It will be on a case-by-case basis as we need to look at costs but this will change the company’s revenue stream quite a bit, which at the moment is largely project-based,” he says.


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