UZMA

IPO Prospectus (30 June 2008)

Risk Factors

You should carefully consider the following risk factors (which are not exhaustive) in addition to the other information contained elsewhere in this Prospectus before applying for the IPO Shares: ­
3.1 RISKS RELATING TO OUR BUSINESS
(i) Dependence on Major Customers
The main customers of our Group, PETRONAS Carigali Sdn Bhd and Talisman Malaysia Limited, have collectively contributed approximately 49.8% of our total revenue for the FYE 31 December 2007. For the FYE 31 December 2007, revenue from the our Group’s top 13 customers totalled RM105.3 million, accounting for 82.2% of our Group’s total revenue. The remaining 17.8% of our Group’s total revenue was spread across 40 other customers. However, there is no guarantee that the business relationship with the major customers will not be disrupted and the tendered and forecasted projects will be secured and completed with the expected contract sum and profit margin, which may adversely affect our Group’s revenue and profitability. Nevertheless, our Group has enjoyed long-term business relationships with our customers. This is reflected by the fact that our Group’s top 20 customers have been dealing with us for an average of 2 years, which is a relatively long period of time considering that our Group was founded in 2000. In addition, 25% of our top 20 customers have been dealing with our Group for 4 years or more. In addition, the following factors serve to mitigate our Group’s dependency on PETRONAS Carigali Sdn Bhd:­(i) PETRONAS Carigali Sdn Bhd has been a customer of our Group for 4 years, indicating a long-term and stable business relationship. This will provide the basis for a continuing business relationship;
(ii) Our Group has been a provider of a wide range of specialized services to PETRONAS Carigali Sdn Bhd over the past 4 years, including: ­
(a) Geoscience and Reservoir Engineering Services Geoscience and Reservoir Studies Geoscience and Reservoir Engineering Software Services
(b) Drilling Services Drilling Project Management Wellsite and Operational Geology
(c) Project and Operations Services Resource Management Engineering and Operations
(d) Other Services Oil and Gas Engineer and Personnel Placement Management Systems
(iii) PETRONAS Carigali Sdn Bhd is a subsidiary of PETRONAS, which is entrusted with developing and adding value to all the Oil and Gas resources in Malaysia. As such PETRONAS and its subsidiaries are principal paticipants in the Malaysian Oil and Gas Industry, and will inevitably be a major source of revenue for our Group and other Oil and Gas players in Malaysia. Our Group’s dependency on PETRONAS Carigali Sdn Bhd has been declining. Although our Group’s revenue from PETRONAS Carigali Sdn Bhd continues to grow, PETRONAS Carigali Sdn Bhd percentage share of our Group’s revenue declined from the FYEs 31 December 2005 to 31 December 2007, as our Group increases revenue earned from other customers. The following factors serve to mitigate our Group’s dependency on Talisman Malaysia Limited: ­(i) Talisman Malaysia Limited has been a customer of our Group for 4 years, indicating a long-term and stable business relationship. This will provide the basis for a continuing business relationship; and
(ii) Our Group has been a provider of a wide range of specialised services to Talisman Malaysia Limited over the past 4 years, including: ­
(a) Drilling Services Drilling Project Management
(b) Project and Operations Services Resource Management Engineering and Operations
(c) Other Services Management Systems
(ii) Competition
Our Group faces competition from other local and foreign service providers in the Oil and Gas Industry in Malaysia. Although competition may exist in the industry, the threat from new entrants is relatively low due to high barriers to entry in terms of working capital resources, technical expertise, skilled workforce, proven track record and the requirements for licenses and registrations with amongst others, PETRONAS, Bank Negara Malaysia and the Ministry of Finance. However, there is no guarantee that our Group is insulated from competition from the existing or newly appointed licensed local service providers in Malaysia. Although there is no assurance that our Group will always be able to maintain our existing market share in the future, nevertheless, we have several competitive advantages over our competitors. Our Group has managed to implement several strategic measures, including continuous update with the latest technology for our range of equipment and parts and also continuously looking at ways to improve our operation processes in order to increase workflow efficiency. Furthermore, our Group maintains our competitive advantage by ensuring high safety standards, technical expertise, prompt delivery, consistent quality and price competitiveness of our products and services.
(iii) Overseas Operation Risks
During the FYE 31 December 2007, our Group served a customer base comprising 53 clients across a total of 12 countries, including Malaysia. As various multinational Oil and Gas operators have operations in different parts of the world, it is important that our Group ventures overseas to continue to provide our services to the operators in order to sustain future growth. Adverse developments in political, economic, government control and regulatory framework in the countries that our clients are based in could affect the financial prospects of our Group. In addition, there can also be no assurance that that any change in the policies of the foreign governments with respect to foreign investment and repatriation of profits will not materially and adversely affect the rights and performance of our Group. Nevertheless, our Group mitigates the above risks by exercising prudence and conducts research and analysis prior to venturing into overseas projects or entering into any business contracts. Our Group will also seek to mitigate the above risks by having strong local and international partners with good knowledge of local laws and regulatory framework in the respective countries.
(iv) Dependence on Directors, Key Management and Skilled Workforce
Being in a highly specialized industry, our Group believes that our continued success will depend, to a significant extent, upon the abilities and continued efforts of our Directors, key management personnel and skilled workforce. Our Group is led by experienced Directors and is managed by a team of qualified key personnel who have extensive knowledge and experience in the Oil and Gas Industry. This is well demonstrated by our Group’s established track records for serving multinational Oil and Gas Industry operators in Malaysia and overseas with specialized services. The credentials and list of Directors and key management of our Group are set out in Section 5 of this Prospectus. Furthermore, the nature of the business demands both the management team and workforce to be skilled and technically competent in quality and safety. Stringent safety measures are in place to prevent and eliminate hazards in the work environment. Progressive and continuous courses are organised by us to further develop our workers’ skill and technical competence and also to update them on new technology introduced within the country. Accordingly, the loss of any key personnel may have an impact on our ability to compete effectively in the industry. Therefore, every effort is made to attract, groom and retain the key management and technical personnel for succession planning to ensure smooth transition in management should changes occur. We motivate our employees by awarding bonuses based on each employee’s performances. This will ensure the continued performance and success of our Group in the future.
(v) Licences and Registrations
Our Group’s qualification to tender for and secure various Oil and Gas business in Malaysia is dependent on the licenses and registrations as set out in Section 4.2.5 of this Prospectus. All of these licenses and registrations are valid for certain periods of time with the renewal based on our Group’s compliance with those requirements imposed by the relevant authorities. Failure by our Group to renew, maintain or obtain the required licences and registration may have an adverse effect on our Group’s results of operations, financial condition and prospects. There is no assurance that the licences and registrations will be renewed, or if they are renewed, that such renewal would be effected within the anticipated time frame or without any new terms and conditions imposed, which may materially affect the operations of our Group. However, our Group will continue to ensure that it is in compliance with the requirements at all times and our Directors are confident of the on-going renewals of the licenses and registrations as our Group has no instances of failure to obtain the renewals in the past.
(vi) Delay in Completion of Projects
Completion of a project on time is dependent on many external factors which may fall beyond the control of our Group. Any delay caused by any of these factors may have a direct impact on our profitability. Nevertheless, our Group has an experienced and capable project management team as well as a management system in place to supervise and manage the projects and proper planning is essential for all major projects.
(vii) Material Litigation, Claim or Arbitration and Legal Uncertainties
As at LPD, our Group is not engaged in any material litigation, claim or arbitration, either as plaintiff or defendant, which has or may have a material effect on our financial position or the financial position of our subsidiaries and our Directors do not know of any proceedings pending or threatened or of any facts likely to give rise to any proceedings which might materially and adversely affect our position or business or the position or business of our subsidiaries. However, there can be no assurance that there would be no proceedings in the future that could adversely affect the position or business of our Group in the future.
3.2 RISKS RELATING TO THE INDUSTRY
(viii) Level of Oil and Gas Prices
Hydrocarbons, including crude petroleum and natural gas, are internationally traded commodities whose price fluctuates with the constant interaction between supply and demand for hydrocarbons. Geopolitical factors and unforeseen supply disruptions may also influence the market price of hydrocarbons. Activity in the Oil and Gas Industry is, to some degree, affected by fluctuations in the market price of hydrocarbons: ­(a) Activity tends to increase during periods of sustained high hydrocarbon prices. This is due to elevated production activity, as well as increased activity to bring reserves into production, and to explore for new hydrocarbon reserves;
(b) Activity tends to decline during periods of sustained low hydrocarbon prices. This is due to lower production activity, as well as temporary reduction or shutting down of production from reserves that are no longer commercially viable. Nevertheless, exploration activity tends to continue.
There is a risk that sustained lower price of hydrocarbons will negatively affect activity in the Oil and Gas Industry, leading to lower demand for supporting products and services, including Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services. OPEC, a grouping that includes many of the world’s largest oil producing nations, has some influence on the price of oil through their control of a sizable proportion of the world’s production capacity and reserves. Although the influence of OPEC over the market price of oil is not absolute, OPEC has a vested interest in ensuring that oil prices do not collapse, and as such are likely to actively attempt to sustain oil prices at an ‘acceptable’ level. The continuing development of the Oil and Gas Industry through growth in export of crude oil, natural gas and refined petroleum products will create and stimulate demand for Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services. (Source: Independent Assessment of the Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services Industry prepared by Vital Factor Consulting Sdn Bhd)
(ix) Changes to Existing Terms of Petroleum Development Act 1974
PETRONAS is the sole entity with ownership to the Malaysian Crude Oil and Gas deposits under the Petroleum Development Act 1974 and governs and oversees the licensing, safety, contractual and work scope of Oil and Gas service providers that are operating in Malaysia. A fundamental change in PETRONAS policy with regards to regulating the Oil and Gas Industry in Malaysia may come about through the liberalisation of the Oil and Gas Industry. PETRONAS may Iiberalise the Oil and Gas Industry by: ­(a) Removing licensing requirements for the provision of all supporting products and services;
(b) Loosening licensing requirements such that it becomes easier to obtain a license; and
(c) Allowing foreign suppliers to operate in Malaysia without restrictions and the need to operate with a local partner.
Liberalising the Oil and Gas Industry in this manner will negatively impact incumbent service providers by increasing competition in the industry. Currently, despite the restriction of licensing and registration, competition is intense. In the event of any liberalisation, existing service providers would not be significantly worse off as they have been operating in a very competitive environment already. On the contrary, the Iiberalisation of the Oil and Gas Industry may benefit existing service providers, as they may be able to enter new segments of the industry that leverage on their existing strengths and customer base. (Source: Independent Assessment of the Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services Industry prepared by Vital Factor Consulting Sdn Bhd) Our Group has been expanding our overseas activities in order to reduce dependency on any geographical market. Our Group has been constantly seeking overseas opportunities and currently has operational subsidiaries in Perth, Australia and Bangkok, Thailand, and overseas representative offices in Doha, Qatar and Jakarta, Indonesia.
(x) Depletion of Hydrocarbon Resources
All hydrocarbon deposits are non-renewable, in that it is not possible to regenerate hydrocarbons within a reasonable timeframe once they have been extracted. As such, hydrocarbon resources in all hydrocarbon-producing regions, including Malaysia, will eventually be depleted. It is likely that demand for supporting products and services, including Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services in Malaysia will end soon after Oil and Gas Industry Exploration, Appraisal, Development and Production activities cease in Malaysia. However, the relatively long period of time before current reserves of Crude Oil (including Condensates) and Natural Gas in Malaysia are expected to be completely depleted enables Oil and Gas Industry companies, including providers of Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services to diversify into other industries and I or venture into overseas markets. As at 1 January 2008, preliminary data indicates that the Hydrocarbon Reserves in Malaysia are as follows: ­Reserves of Crude Oil (Including Condensates) amounted to 5.35 billion BOE; Reserves of Natural Gas amounted to 15.33 billion BOE.
At the present rate of Production, Hydrocarbon Reserves in Malaysia are expected to sustain Production as follows: ­Production of Crude Oil (Including Condensates) for 22 years; Production of Natural Gas for 38 years. The National Depletion Policy introduced in 1980 to safeguard the exploitation of the natural oil reserves by postponing development and controlling the production of major oil fields (with reserves of 400 million barrels or more) will also ensure that extraction is carefully managed and sustainable over the long term. Current reserve estimates tend to be conservative and may underestimate the actual amount of hydrocarbons that is ultimately extracted, as they do not take into account the following: ­the existence of currently undiscovered hydrocarbon reserves; technological advances that increases the amount of hydrocarbons that may be commercially extracted from existing reserves; technological advances that enable production from previously inaccessible regions.
As such, activity in the overall Oil and Gas Industry in Malaysia may very well continue beyond the currently estimated date of complete hydrocarbon reserve depletion. (Source: Independent Assessment of the Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services Industry prepared by Vital Factor Consulting Sdn Bhd)
(xi) Scarcity of Petroleum Engineers and Technicians
The provision of Oil and Gas Geoscience and Reservoir Engineering Services, Drilling Services, and Project and Operations Services is dependent on the application of advanced technology and knowledge, and is highly technical. Qualified geoscientists, engineers and technicians with advanced degrees (usually with a minimum of a bachelor degree, with master degrees and doctorates common) or qualifications, and industry experience are typically required to carry out complex technical tasks. The number of personnel with the required qualifications and experience is small, and competition to acquire their services between PSC Operators I Contractors, other Oil and Gas service companies, and providers of Oil and Gas Geoscience and Reservoir Engineering Services, Drilling Services, and Project and Operations Services, and other services is usually intense. There is a risk that providers of Oil and Gas Geoscience and Reservoir Engineering Services, Drilling Services, and Project and Operations Services will face difficulty in securing qualified personnel. Service providers can build a database of qualified geoscientists, engineers and technicians, with detailed information regarding their area of expertise and experience to best match available personnel to tasks and projects. Operators may also build a network of relationships with these geoscientists, engineers and technicians. Service providers may engage geoscientists, engineers and technicians on a consultant basis to make up any shortages in in-house skill, which has the added benefit of allowing more flexibility in only engaging geoscientists, engineers and technicians as and when there is a need to do so. (Source: Independent Assessment of the Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services Industry prepared by Vital Factor Consulting Sdn Bhd)
(xii) Foreign Exchange Risks
Fluctuations in foreign exchange rates will have impact on the prices of systems, equipments or chemicals used to facilitate the services. This may have an impact on the profitability of service providers within the Oil and Gas Industry. An unfavourable foreign exchange rate movement against the Ringgit may negatively affect a service provider’s profitability by increasing its costs or reducing its revenue. Many of the systems, components, equipment, raw materials and services used by the Oil and Gas Industry are imported, with the transaction denominated in a foreign currency. In addition, a large proportion of the hydrocarbons produced in Malaysia are ultimately exported, with the transaction denominated in a foreign currency. As such, fluctuations in foreign exchange rates will have an impact on the Ringgit price of imported systems, components, equipment, raw materials and services, and on the Ringgit price of exported products. On 21 July 2005, the Malaysian Government removed the pegging of the Ringgit to the USD for a managed float system. This system is likely to minimise wide fluctuations in foreign exchange and provide some stability for business transactions denominated in USD. Bank Negara Malaysia’s primary policy objective of promoting the stability of the exchange rate will provide some mitigation against foreign currency risk. (Source: Independent Assessment of the Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services Industry prepared by Vital Factor Consulting Sdn Bhd) Where possible, our Group mitigates foreign exchange risk by using our foreign currency earnings to pay for purchases denominated in the same foreign currency. This could provide some natural hedging against foreign exchange fluctuations.
(xiii) Political and Economic Considerations
Changes in political and economic conditions in Malaysia and the countries in which we operate could materially and / or adversely affect the profitability and business prospects of our Group. These political and economic uncertainties include, but are not limited to, the changes in political leadership, expropriation, nationalization, changes in interest rates or tax, risks of war and global economic downturn. Whilst our Group practices prudent financial risk management and efficient operating procedures, there is no assurance that adverse political and economic development, which is beyond our control, will not materially affect our Group.

 

Business Overview

 

Industry Overview

1 BACKGROUND OF UZMA GROUP
• Uzma Group is primarily engaged in the provision of Oil and Gas Geoscience and Reservoir Engineering Services, Drilling Services, and Project and Operations Services.
• The Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services provided by Uzma Group are primarily to support the Petroleum Sharing Contract (PSC) Operators/Contractors engaged in the Exploration, Development, Appraisal and Production segments of the Oil and Gas Industry. The Group is currently providing its services to Oil and Gas Industry operators in Malaysia and internationally.
• The Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services Industry falls within the supporting services segment of the broader umbrella of the Oil and Gas Industry.
• For the financial year ended 31 December 2007, Uzma Group recorded total revenue of RM128.2 million.
2 INDUSTRY OVERVIEW • The Oil and Gas Industry plays a significant role as a major contributor to the growth and development of the Malaysian economy, contributing in terms of domestic production, as a major generator of export earnings, and as a source of feedstock and raw materials for the chemical and petrochemical industries.
• The majority of the Exploration, Appraisal, Development and Production activities of the Oil and Gas Industry in Malaysia is carried out offshore. Historically, activity has been focused in the shallow waters (informally defined as water depth of less than 200 metres) offtheEastCoast ofPeninsularMalaysia,Sabah and Sarawak.
• Deepwater and ultra-deepwater areas are becoming increasingly important, and are expected to drive the future growth and development of the Malaysian Oil and Gas Industry
• The primary exports of the Oil and Gas Industry in Malaysia are crude oil, natural gas, and refined petroleum products. These exports represent a significant proportion of the nation’s exports, and are an important source offoreign exchange.
3 STRUCTURE OF THE OIL AND GAS INDUSTRY
3.1 Overall Structure of the Oil and Gas Industry
• The overall structure of the Oil and Gas Industry is depicted as follows:
Figure 1 Overall Structure of the Oil and Gas Industry
• In general, the overall Oil and Gas Industry may be segmented into the Upstream, Midstream and Downstream sectors. The Upstream sector comprises Exploration, Appraisal, Development and Production segments. The Midstream sector comprises Transportation, while the Downstream sector comprises the Refining and Treatment, and Distribution segments.
• Within the Oil and Gas Industry, it is common to segment the Upstream sector to Exploration and Production only, where Appraisal is within Exploration and Development within Production. However, in this report Appraisal and Development are highlighted as part of the Upstream activities because a significant proportion of Uzma Group’s business activities are within these two segments.
• Exploration primarily involves gaining an understanding of the geological structure of the region and basin, and discovering of hydrocarbon accumulations through the acquisition and analysis of various forms of data, including seismic, core sample, petrophysical and fluid data.
• Appraisal comprises activities that are concerned with determining whether or not the discovered hydrocarbon accumulations are economically viable. Appraisal usually involves the acquisition and analysis of additional seismic, core, petrophysical and fluid data.
• Development comprises activities that are carried out to bring an untapped economically viable hydrocarbon reserve into production or significantly expanding and existing production facility, including additional data analysis and modelling to gain a better understanding of the reservoir.
• Production comprises activities that are related to the extraction of hydrocarbons ITom identified and developed hydrocarbon reserves. One of the key goals of production is to maximise the extraction of hydrocarbons while minimising costs. Additional appraisal and development activities will also continue.
• Transportation comprises the activities related to the transportation of extracted hydrocarbons ITom production fields to storage facilities and refineries.
• Refining and Treatment comprises activities that are related to the processing of extracted hydrocarbons into a form that is utilised by intermediate and final users.
• Distribution comprises activities that are related to the transportation and distribution of refined and treated hydrocarbons to end-users.. Distribution activities include the operation of tankers, domestic gas networks, and retail outlets such as petrol stations.
3.2 Supporting Activities for the Upstream Sector
• Some of the activities that support the Upstream sector of the Oil and Gas Industry (comprising Exploration, Appraisal, Development and Production segments) include: Drilling Services Seismic Services Basin and Regional Evaluation Field Development Planning Reservoir Studies Reservoir Management and Surveillance Laboratory Analysis Operations and Maintenance Facilities Engineering Logistics.
• Many of these supporting activities are recurring in nature, in that one or more of these activities will be carried out repeatedly during the life of a hydrocarbon reservoir.
• Drilling Services refer to the wide range of services that support drilling activities carried out by the Oil and Gas Industry. The various activities that are included under Drilling Services are included in Section 5.
• Seismic Services involves a set of activities that are carried out to gather, process and analyse seismic data to determine the geological structure of a defined area. Seismic Services are divided into three distinct phases, i.e. Acquisition, Processing and Interpretation.
• Basin and Regional Evaluation are analytical activities carried out by geoscientists to gain an overall understanding of regional petroleum systems and sedimentary basins so that informed decisions can be made with regard to investment in exploration drilling and additional seismic acquisition.
• Field Development Planning is carried out to select and define the best development concept, including reservoir management, facilities design, well design, and operations and management philosophy, before major capital expenditure is committed to produce hydrocarbons from a field. In Malaysia, PETRONAS requires that Field Development Plans be reviewed periodically, and updated every 3 to 5 years.
• Reservoir Studies are carried out by geoscientists and engineers to gain an overall understanding of the hydrocarbon reservoir, and to examine in detail particular aspects ofthe hydrocarbon reservoir.
• Reservoir Management and Surveillance is required on an on-going basis to manage hydrocarbon reservoirs and individual wells to ensure optimal hydrocarbon production. Reservoir Management and Surveillance typically commences with the building of a dynamic reservoir model using powerful computer hardware and software.
• Laboratory Analysis in the Upstream sector of the Oil and Gas Industry primarily involves the preparation, analysis and storage of core and fluid samples obtained during drilling testing or production. Laboratory Analysis provides geoscientists and engineers with detailed data that they require to carry out Reservoir Studies, and Reservoir Management and Surveillance activities.
• These supporting activities may be carried out by Second Tier Oil and Gas Industry Companies, or fully be partially outsourced to Third Tier Oil and Gas Industry Companies.
• Uzma Group is currently engaged in providing the following types of supporting activities to the Upstream sector of the Oil and Gas Industry: Drilling Services
Seismic data interpretation (a subset of Seismic Services) Basin and Regional Evaluation Field Development Planning Reservoir Studies Reservoir Management and Surveillance Providing Laboratory Services and carrying out Laboratory Analysis. 3.3 Exploration • The main supporting activities that are carried out in the Exploration segment ofthe Oil and Gas Industry include: . Exploration I IIIII
Basin & Regional Evaluation  Drilling Services  Seismic Services  Laboratory Analysis  Logistics
Figure 2 Exploration Segment of the Oil and Gas Industry • The ultimate aim of Exploration is to gain an understanding of the geological structure of the region and basin, and to discover hydrocarbon accumulations. Exploration involves activities related to the gathering and analysis ofdata such as seismic data, core samples, and petrophysical and fluid data.
• Uzma Group is involved in the following fields of Exploration: Basin and Regional Evaluation; Drilling Services through planning and managing exploration drilling projects, and wellsite and operational geology services; Seismic data interpretation; Providing Laboratory Services.
3.4 Production • The main supporting activities that are carried out in the Production segment of the Oil and Gas Industry include: Production I IIII t Reservoir Management & Surveillance  Drilling Services  Seismic Services  Laboratory Analysis  Logistics
Figure 3 PrOduction Segment of the Oil and Gas Industry • Production comprises activities are related to the extraction of hydrocarbons from identified and developed hydrocarbon reserves. One of the key goals of production is to maximise the extraction ofhydrocarbons while minimising costs.  • Uzma Group is involved in the following activities related to Production: Reservoir Management; Enhanced Oil Recovery through studies and implementation; Drilling Services through planning and managing drilling projects, and wellsite and operational geology services; Seismic data re-interpretation; Production enhancement studies. 4 GEOSCIENCE AND RESERVOIR ENGINEERING • In general, Geoscience and Reservoir Engineering is the field of petroleum engineering concerned with finding reserves, characterising the reservoir, and optimising the production of Oil and Gas from reserves. Geoscience and Reservoir Engineering is applied to the Exploration, Appraisal, Development and Production segments of the Oil and Gas Industry.
• Geoscience and Reservoir Engineering encompasses a broad range of activities that support the Exploration, Appraisal, Development and Production segments of the Oil and Gas Industry. The field as a whole may be segmented into those activities related to Primary Recovery and Enhanced Oil Recovery.
• The Geoscience and Reservoir Engineering Services Industry may be segmented into
the following: Seismic Services Studies Laboratory and Analytical Services.
• The principal activities in Seismic Services are data acquisition, data processing, and data interpretation. Uzma Group has no involvement in data acquisition. Seismic interpretation is carried out by the Group as an integral part of the Group’s Geoscience and Reservoir Engineering Services.
• Geoscience and Reservoir Engineering Service companies carry out a wide range of subsurface studies, some of them broad, but many of them very specialised in nature. Studies form an integral part of the Reservoir Studies, Basin and Regional Studies, Field Development Planning, and Reservoir Management and Surveillance activities in the Upstream sector of the Oil and Gas Industry.
• Uzma Group has the capability to carry a broad range of Geoscience and Reservoir Engineering Service Studies and works with technology partners to provide specialised input and/or software as parts of the Group’s studies.
• Drilling Services and production activities acquire vast quantities of reservoir rock and fluids samples. Under Laboratory and Analytical Studies, there are various types of laboratories, including those dealing with core and cuttings, fluids, and speciality services, for example cement, drilling fluids and. formation damage.
5 DRILLING SERVICES • In general, Drilling Services refer to the range of services that support exploration drilling, appraisal drilling, development drilling, and other drilling activities carried out by the Oil and Gas Industry. Drilling Services are applied to the Exploration, Development, Appraisal and Production segments of the Oil and Gas Industry.
• Drilling Services are applied together with drilling products such drill bits, tubing, casing, downhole tools, drilling rigs and other supporting equipment to carry out these drilling activities.
• The range of activities that are included under Drilling Services includes: Well Design and Engineering Casing, Cementing and Related Services Drilling Rig Operations Directional Drilling Formation Evaluation While Drilling Mud Logging Lithographic Description.
• Well Design and Engineering generally refers to the set of engineering activities intended to efficiently design exploration, appraisal, production and injection wells. Well Design and Engineering activities range from formulating the overall drilling strategy, to designing individual programmes.
• Casing, Cementing, Drilling Fluids and Other Services refers to the activities related to drilling and completing the well. Casing is typically installed to achieve a number of goals, including to isolate different zones in the formations from one another, seal off high pressure zones from the surface, or isolate freshwater zones so that they are not contaminated during drilling and completion. Other Services include the supply of drilling and completion fluids, and the provision ofcompletion services and well testing services.
• Drilling Rig Operations refer to the activities that are related to the management of drilling rigs.
• Directional Drilling refers to the activities that are related to the drilling of wells with deviation from the vertical. Wells are drilled to a location not directly below the drilling unit to optimise reservoir drainage.
• Formation Evaluation While Drilling (FEWD) refers to petrophysical measurements acquired while drilling, or shortly thereafter, through the use of tools integrated into the bottomhole assembly. FEWD has the advantage of measuring properties of a formation before drilling fluids invade deeply.
• In Mud Logging, data and samples are collected while drilling is on-going to gather useful information about the rock layers that are being penetrated, and to determine if the hydrocarbon reservoir is reached.
• Lithographic Description involves analysing the cuttings and core samples recovered during drilling, and preparing a lithographic log over the length of the well.
• Uzma Group is involved in the fonowing Drilling Services activities: Wen Design and Engineering; Lithographic Description; Directional Drilling, through directional planning and supervision of directional drilling operations; Supervision ofFormation Evaluation While Drilling operations; Supervision of drilling operations, Mud Logging and other services.
• Uzma Group can undertake the full scope of Drilling Project Management services. The Group’s role in Drilling Project Management can be segmented into the following activities:
Design and engineering; Operation supervision and management.
6 OPERATORS IN THE UPSTREAM OIL AND GAS INDUSTRY • The operators in the Exploration, Development, Appraisal and Production segments (commonly referred to as the Upstream sector) ofthe Oil and Gas Industry in Malaysia may be segmented into several different tiers, depicted as fonows: First Tier Prod uction Sharing Contract Operator/Contractor (eg Petronas Carigali, She/I)
Second Tier International Provider of Supporting Products and Services  Licensed/Registered Local Provider of Supporting Products and Services  Third Tier
Figure 4 Operators in the Upstream Oil and Gas Industry in Malaysia
• Operators in the upstream Oil and Gas Industry in Malaysia may be segmented in the following manner: First tier operators, comprising an Authorising Body; Second tier operators, comprising Production Sharing Contract Operators/Contractors; Third tier operators, comprising local and international providers of Supporting Products and Services. First Tier • The first tier operator in the Oil and Gas Industry in Malaysia is PETRONAS, the national petroleum corporation. PETRONAS is the Authorising Body for the Oil and Gas Industry in Malaysia. PETRONAS is the primary regulator and licensing body for the Oil and Gas Industry in Malaysia, and is the organization responsible for the industry’s long-term development.
• Through its subsidiaries, PETRONAS is involved in a wide range of Oil and Gas Industry activities. PETRONAS is also involved in petrochemical manufacturing and marketing, shipping, automotive engineering, and property investment.
• In addition to operating in Malaysia, PETRONAS is a participant in the international Oil and Gas Industry. As at 31 March 2007, PETRONAS had interests in a total of 58 upstream (exploration and production) ventures in 22 overseas countries.
(Source: PETRONAS) Second Tier • The second tier operators in the Oil and Gas Industry in Malaysia are the Production Sharing Contract (PSC) Operators/Contractors.
• PSC Contractors are Oil and Gas companies that have entered into a Production Sharing Contract with PETRONAS. These Oil and Gas companies have the financial and technical ability to bear the cost and risk of undertaking hydrocarbon Exploration, Appraisal, Development and Production.
• The majority of the PSC Contractors currently active in Malaysia are large, multinational Oil and Gas companies. PETRONAS Carigali Sdn Bhd, a wholly owned subsidiary ofPETRONAS, is a PSC Contractor.
• In addition to their involvement in the upstream sector of the Oil and Gas Industry, some PSC Contractors are also involved in transportation, refining and distribution.
Third Tier • Companies in the third tier of the Oil and Gas Industry in Malaysia comprise local and international providers of supporting products and services to PSC Operators/Contractors and PETRONAS.  • Both local and international providers of supporting products and services are required to obtain the appropriate licence or registration for a particular product or service from PETRONAS before they are allowed to supply first and second tier operators.
• International providers of supporting products and services are usually required to establish partnership arrangements with a Malaysian party before they are allowed to provide supporting products and services to first tier and second tier operators in Malaysia.
• Uzma Group is a PETRONAS licensed company providing Oil and Gas Drilling, Geoscience and Reservoir Engineering Services in Malaysia.
7 GOVERNMENT LEGISLATION, POLICIES AND INCENTIVES 7.1 Government Regulations • All rights related to the exploration and extraction ofpetroleum in Malaysia is vested in Petroliam Nasional Berhad (PETRONAS) under the Petroleum Development Act 1974. PETRONAS was also granted control over the carrying out of downstream activities and development relating to petroleum and its products under the Petroleum Development Act 1974.
• All operators wishing to participate in the Oil and Gas Industry are required to obtain the necessary licences, or successfully register with PETRONAS before they are allowed to participate in these activities.
7.2 PETRONAS Licenses and Registrations • Applicants are required to specify the scope of work for which the licence or registration is being applied for, based on a set of Standardised Work & Equipment Categories (SWEC). An individual licence or registration must be obtained for each SWEC.
• Companies that have obtained a license for a SWEC are allowed to participate in the upstream sector, downstream sector, and maritime sector of the Oil and Gas Industry. In contrast to a licence, companies that are registered in a SWEC are only allowed to participate in the downstream sector and maritime sector of the Oil and Gas Industry. Registered companies are not allowed to participate in the upstream sector or in the offshore sector.
• Generally, licenses and registration are effective for a period of I year. However, licenses and registration that are effective for a period of more than I year may be considered.
7.3 Registration with the Ministry of Finance • Uzma Engineering Sdn Bhd, a wholly-owned subsidiary within Uzma Group, is registered as a Bumiputera Contractor with the Ministry of Finance Malaysia. This registration expires on 24 April 20 IO. • Uzma Engineering Sdn Bhd holds the following regislTations with the Ministry of Finance: Code number 220501, “Kontrak Buruh” Code number 220502, “Tenaga Pengajar” Code number 220503, “Data EntrylPerisian”. These registrations expire on 24 April 2010. 7.4 Government Initiatives and Incentives • As part of the aim to promote and encourage local participation in the Oil and Gas Industry, PETRONAS has implemented the following initiatives: licensing and registration of companies with preference given to local companies; implementation of the Vendor Development Programme (VDP) for Bumiputera entrepreneurs. 7.5 Environmental Regulation • Uzma Group does not generate any waste that is likely to have a negative impact on the environment during the normal course of the Group’s normal business operations. 8 DEMAND • Essentially, demand for Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services will come from the local and export market demand of the overall Oil and Gas Industry.
8.1 Exploration Well Drilling • Between financial years ended 31 March 2003 and 2007, the number of Exploration Wells Drilled increased at an average annual rate of 5.1 %. For the financial year ended 3I March 2007, Exploratory Well Drilling activities declined, with the number of Exploration Wells drilled declining by 26.4% with a total of 39 Exploration Wells drilled (Source: PETRONASj.
8.2 Production Sharing Contracts • Between financial years ended 31 March 2001 and 2006, a total of 28 Production Sharing Contracts were signed between PETRONAS and PSC Operators/Contractors.
• The number of Production Sharing Contracts in operation between PETRONAS and PSC Operators/Contractors increased from 41 for the financial year ended 31 March 2002, to a historic high of60 for the financial year ended 2006.
• Of the 60 PSC in operation, 18 of the PSC in operation are in deepwater areas for the financial year ended 2006. During the financial year ended 31 March 2006, a total of 9 PSC were signed.
• During the financial year ended 31 March 2007, 4 new PSC were signed, 2 of which were for deepwater blocks (Source: PETRONAS). 8.3 Number of Oil and Gas Fields in Operations • Between financial years ended 31 March 200 I and 2007, the number of Oil and Gas fields in operation in Malaysia increased from 53 to 85. Of the 85 Oil and Gas fields in operating during the financial year ended 31 March 2007, 59 were Oil fields while the remaining 29 were Gas fields (Source: PETRONAS). 9 DEMAND DEPENDENCIES • The demand for Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services will be primarily dependent on the performance of the Oil and Gas Industry in Malaysia.
• The demand for supporting products and services, particularly those related to Exploration, Appraisal, Development and Production, is also dependent on the following factors:
The number ofrecently signed PSC, and the number ofPSC in operations; The number of Oil and Gas fields currently in operation in Malaysia; Exploration well drilling activity.
• In addition, the demand for supporting products and services, particularly those related to Exploration, Appraisal, Development and Production, is dependent on the level of investment in Exploration and Production activities made by PETRONAS and PSC Operators/Contractors. This demand dependency is discussed in Section 10.
9.1 Production of Crude Oil and Condensates • Between the fmancial years ended 31 March 2003 and 2007, average daily production of Crude Oil and Condensates declined at an annual average growth rate of 1.5%. For the financial year ended 31 March 2007, average daily production of Crude Oil and Condensates declined by 5.4% to 661,000 Barrels of Oil Equivalent (BOE) per day.
• The slight decline in Malaysia’s production of crude oil and condensates, and natural gas for the financial year ended 31 March 2006 was due to shutdowns for major maintenance and repair works in several facilities operated by the Petroleum Sharing Contract Operators/Contractors (Source: PETRONAS).
9.2 Production of Natural Gas • The average daily production of Natural Gas declined marginally at an average armual growth rate of 0.2% between the financial years ended 31 March 2003 to 2007. For the financial year ended 31 March 2007, the average daily production of Natural Gas declined by 0.7% to 950,400 BOE per day (Source: PETRONAS).
9.3 Sales Value of Manufacture of Refined Petroleum Products • Between 2004 and 2007, the sales value of the manufacture of Refilled Petroleum Products grew at an average annual growth rate of 20.9%. In 2007, the sales value of the manufacture of Refined Petroleum Products increased by 9.0% to reach RM89.8 billion (Source: Department o/Statistics). 9.4 Export Value of Petroleum Oils, Crude and Crude Oils Obtained from Bituminous Materials • Between 2003 and 2007, export value of Petroleum Oils, Crude and Crude Oils obtained from Bituminous Materials grew at an average annual growth rate of 20.5%. In 2007, the export value of Petroleum oils, Crude and Crude Oils obtained from Bituminous Materials increased by 3.0% to reach approximately RM33.5 billion (Source: Department o/Statistics). 9.S Export Value of Natural Gas, Whether or not Liquefied • Between 2003 and 2007, the export value of Natural Gas, whether or not Liquefied grew at an average annual growth rate of approximately 18.4%. In 2007, the export value of Natural Gas, whether or not Liquefied increased by 12.3% to reach approximately RM26.2 billion (Source: Department a/Statistics). 9.6 Export Value of Petroleum Products, Refined • Between 2003 and 2007, the export value of Petroleum Products, Refined grew at an average annual growth rate of24.0%. In 2007, the export value of Petroleum Products, Refined increased by 3.2% to reach approximately RM19.8 billion (Source: Department o/Statistics). 9.7 Implications • The continuing development of the Oil and Gas Industry through the growth in the export of crude oil, natural gas and refined petroleum products, and investment in Exploration and Production activities will create and stimulate demand for Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services.
• New acreage is constantly being opened up for Exploration and Appraisal and subsequent Development and Production. This is reflected by the number of signed Production Sharing Contracts signed between PETRONAS and various Oil and Gas Industry companies. This would create demand for Exploration and Appraisal activities, and subsequently Development and Production activities if economically viable reserves are found.
• The discovery of marginal reserves could also create opportunities and stimulate demand for specialised Geoscience and Reservoir Engineering services, and specialised Drilling technology to commercialise the production of Oil and Gas from these marginal reserves.
• The continuous growth in the number of Oil and Gas fields in operation over recent years also creates demand for services related to Oil and Gas Production.
• In addition, there are various Geoscience and Reservoir Engineering techniques used to optimise production. For example, EOR techniques are used to halt the drop in production and maintain maximum profitability. The continuous growth in the production of Oil and Gas from EOR should spur the demand of supporting services including Oil and Gas and Geoscience and Reservoir Engineering, and Drilling Services. 10 SUPPLY • Uzma Group is principally involved in provision of Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services for the PSC OperatorS/Contractors within the Exploration, Appraisal, Development and Production segments of the Oil and Gas Industry.
• As there are no direct data and statistics available on Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services, data on investment in Exploration and Production of Oil and Gas, and Offshore Seismic Survey are used as a proxy to provide analysis of the performance of Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services.
10.1 Investment in Exploration and Production of Oil and Gas • The level of Investment made by PETRONAS and PSC Operators/Contractors in the Exploration and Production of Oil and Gas in Malaysia increased at an average annual rate of20.6% between the financial years ended 31 March 2003 and 31 March 2007.
• For the financial year ended 31 March 2007, investment in Exploration and Production increased by 19.5% to reach RM19.2 billion (Source: PETRONAS).
10.2 Offshore Seismic Survey • Offshore Seismic Survey activity is measured in terms of the number of line kilometres ofseismic data recovered. Between financial years ended 31 March 2003 and 2007, the amount of Offshore Seismic Survey Data Recovered declined at an average annual rate of8.2%.
• During the financial year ended 31 March 2007, the amount of Offshore Seismic Survey Data Recovered declined by 43.1% to approximately 250,000 line kilometres of 3­Dimensional seismic data (Source: PETRONAS).
10.3 Value of Output of Engineering Consultancy Services • Between 1994 and 2003, the value ofgross output of Engineering Consultancy Services increased at an average annual growth rate of 5.7%. The value of gross output of Engineering Consultancy Services increased from RMI.O billion in 1994 to approximately RM 1.7 billion in 2003.
• In 2003, preliminary data indicates that the value of gross output of Engineering Consultancy Services increased by 15.4% to reach approximately RMI.7 billion, compared to the previous year (Source: Department ofStatistics)
11 SUPPLY DEPENDENCIES • Uzma Group is primarily involved in the provision of Oil and Gas Geoscience and Reservoir Engineering, Drilling, and Project and Operations Services for the Oil and Gas Industry. As such, it does not use any raw materials in any significant amount. 12 VULNERABILITY TO AND RELIANCE ON IMPORTS 12.1 Vulnerability to Imports • Uzma Group is not vulnerable to the threat of imports, as overseas service providers who wish to supply PSC Operators/Contractors in the Exploration, Appraisal, Development and Production, and offshore segments of the Oil and Gas Industry in Malaysia are required to obtain the relevant license from PETRONAS.
• As a result, overseas service providers cannot supply PSC Operators/Contractors in the Exploration, Appraisal, Development and Production, and offshore segments of the Oil and Gas Industry in Malaysia directly.
12.2 Reliance on Imports • Uzma Group is not reliant on imported raw materials and components as the Group is primarily engaged in the provision of services, and as such the Group’s purchases of imported raw materials and components are minor. 13 COMPETITIVE NATURE AND INTENSITY IN MALAYSIA 13.1 Competitive Nature • In general, the Oil and Gas Geoscience and Reservoir Engineering Services, Drilling Services and Project and Operations Services Industry operate under normal competitive conditions.
• However, there are some conditions as follows: In Malaysia, only service companies that are licensed or registered by PETRONAS are allowed to bid directly for work provided by PETRONAS  and Production Sharing Contract (PSC) Operators/Contractors in the Oil and Gas Industry. Registration as a contractor with the Ministry of Finance under specified categories is a pre-requirement for PETRONAS licensing or registration under specified Standardised Work and Equipment Categories. All service companies who wish to obtain contracts from the Malaysia Government or to bid directly for work provided by PETRONAS and PSC OperatorS/Contractors in the Oil and Gas Industry in Malaysia are required to register as contractors with the Ministry of Finance (MoF). • Therefore, although service providers within the Oil and Gas Geoscience and Reservoir Engineering Services, Drilling Services and Project and Operations Services Industry operate under normal competitive conditions, it is imperfect due to the requirements for licensing and registration that partly inhibits free competition.
• As with most free enterprise environments, once all the licensing and registration requirements have been complied with, competition is based on a number of factors, including:
Technical compliance to customers’ specifications and requirements Geoscience, engineering and technical service capability Availability of qualified geoscientists, engineers and technicians, and other related professionals and technicians Health, Safety and Environment management; Access to technology Cost competitiveness Quality of products and services Prompt delivery and compliance with deadlines. 13.2 Competitive Intensity • In general, competitive intensity among operators in the Oil and Gas Geoscience and Reservoir Engineering, Drilling, and Project and Operations Services Industry is low to moderate.
• Considerations on competitive intensity are as follows:
Factors that Increase Competitive Intensity A large proportion of the contracts are awarded on an open tender basis. This system tends to create a highly competitive environment. In practice all-open tender situations, once the technical specifications are fully complied, the contract is awarded to the lowest price bid. Large international firms may be involved in the bidding process through their local subsidiaries or partners in situations where large, complex and high value projects are placed on tender. In some situations, there are many bidders with the relevant credentials for tender and non-tender jobs. Factors that Moderate Competitive Intensity Competition for contracts within the Oil and Gas Industry in Malaysia is ultimately restricted to service companies with the relevant PETRONAS license or registration. The number of service companies with the relevant license or registration to provide a particular service or product may be limited, particularly in the case of more specialised or advanced products and services. Some clients may award certain contracts based on closed tender, restricted tender, or a direct negotiation basis. In these instances, competitive intensity is reduced. The technical requirements and specifications for some complex projects may be so challenging that only a small number of the more specialised service companies are able to meet the requirements. Some service companies may not be able to meet the “similar experience” track record requirement for more specialised projects. Clients normally take into consideration non-price factors, such as technological ability and the ability to provide specialised geoscientists, engineers and technicians in awarding more complex and challenging projects.
14 OPERATORS IN THE INDUSTRY • As at 30 April 2008, providers of Oil and Gas Geoscience and Reservoir Engineering
Services operating in Malaysia include the following: UzmaGroup Fugro Group GeoMechanics Intemationallnc. (a member of the Baker Hughes Group) Halliburton Group Orogenic Group Rabutec Sdn Bhd RML Reservoir Management Sdn Bhd Schlumberger Group.
• As at 30 April 2008, providers of Oil and Gas Drilling Services operating in Malaysia
include the following: UzmaGroup GeoMechanics Intemationallnc. (a member oftile Baker Hughes Group) Halliburton Group Orogenic Group Rabutec Sdn Bhd Schlumberger Group. (Source: Primary Market Research undertaken by Vital Factor Consulting Sdn Bhd)
15 BARRIERS TO ENTRY • The barriers to entry for new entrants wishing to provide Oil and Gas Geoscience and Reservoir Engineering Services, Drilling Services, and Project and Operations Services in Malaysia are high.
15.1 Government Licences, Registration, Regulations and Policies • The need to obtain government licences and registrations, and to comply with government regulations and policies forms a high barrier to entry to the Oil and Gas Industry.
• Under the Petroleum Development Act, 1974 and other related legislation, activities within the Oil and Gas Industry in Malaysia are regulated by PETRONAS. Companies wishing to participate in a particular area of the Oil and Gas Industry are required to either obtain the corresponding license from PETRONAS, or successfully register with PETRONAS as a service or product provider.
15.2 Qualified and Experienced Geoscientists, Engineers and Technicians • The need to have qualified and experienced geoscientists, engineers and technicians forms a high barrier to entry for new entrants wishing to provide Oil and Gas Geoscience and Reservoir Engineering Services, and Drilling Services.
• Geoscientists and engineers with advanced academic degrees are required to provide most types ofOil and Gas Geoscience and Reservoir Engineering Services, and Drilling Services. These geoscientists and engineers typically possess at least an undergraduate degree in a relevant field, with Master’s degrees and doctorates being relatively common. The number of geoscientists and engineers with suitable academic qualifications is limited. Technicians with the necessary qualifications, training and experience are required to provide certain types ofservices such as drilling services.
• A small new entrant may fmd it difficult to recruit suitable geoscientists, engineers and technicians, as these highly skilled individuals may be more inclined to work for major oil and gas companies or more established competitors. In addition, a new entrant may not have the internalised knowledge required to identify, evaluate and engage geoscientists, engineers and technicians who have the most suitable skills for a particular project.
15.3 Specialised Technology and Knowledge • The application of specialised technology and knowledge is required to perform many Oil and Gas Geoscience and Reservoir Engineering Services, and Drilling Services, including seismic data processing and interpretation, 3-dimensional geological modelling, computer and laboratory simulation, design and engineering of production facilities, core analysis, Stratigraphy and laboratory analysis.
• The knowledge and technology required to provide Oil and Gas Geoscience and Reservoir Engineering Services, and Drilling Services such as those listed above creates a high barrier to entry.
• Service providers also require access to advanced technology, software and powerful computers to carry out complex tasks such as seismic data processing, interpretation and visualisation, stratigraphic modelling, and 3-dimensional reservoir modelling and simulation.
15.4 Local Knowledge • Individual regions and basins usually have individual geological characteristics in terms ofthetype ofrockspresent,theextent offaulting, stratigraphyandothercharacteristics. An understanding of local geological characteristics is required to undertake activities such as Basin and Regional Evaluation, Reservoir Studies and Field Development Planning.
• A new entrant without in-house local knowledge that wishes to provide these services will have to acquire local knowledge by hiring geoscientists and engineers with the necessary knowledge and experience, and/or by gaining access to a third-party database.
• Local knowledge of the geological characteristics of a particular area creates a high barrier to entry to new entrants wishing to provide the types ofservices listed above.
15.5 Proven Track Record • The preference of customers to appoint Oil and Gas Geoscience and Reservoir Engineering Service, Drilling Service, Project and Operations Service providers is predominantly based on a proven track record of successful project implementation. This creates a high barrier of entry to new entrants who normally would not have the required track record to win contracts.
• Service providers are typically required to demonstrate proof of “similar experience” at the company level when submitting applications for contracts tendered by PSC Contractors/Operators. A new entrant wishing to submit a bid is at a disadvantage, as they are not able to demonstrate proof ofsimilar experience at a company level.
• In addition, as the demands by the Oil and Gas Industry tend to be critical in nature, a good safety record is also an important factor in securing a contract. For example, Health, Safety and Environment (HSE) Management continues to be a top priority in all PETRONAS’ operations (Source: PETRONAS).
• Oil and Gas Project and Operations Services also tend to be for critical functions. As a result, clients are more likely to engage an established service provider with a proven track record, rather than a new entrant. In this respect, established service providers with a proven track record of successfully completing projects and maintaining the required safety standards have a distinct advantage over new entrants.
15.6 Capital Set-up Cost • The barrier to entry created by capital set-up cost (excluding land and buildings) to new service provider wishing to provide Oil and Gas Geoscience and Reservoir Engineering Services, and Drilling Services are low.
• Thecapitalcost ofsetting-upabasicprovider ofOilandGasGeoscienceandReservoir Engineering Services, and Drilling Services is approximately RM2.0 million (excluding land and buildings). The capital is invested in the required specialised software (RM1.5 million) and computer hardware (RMO.5 million).
• At this level of investment, the new entrant will be restricted to competing for projects for which it has acquired the suitable software and hardware. As qualified geologists, engineering and technicians are required to provide specialised services, the new entrant’s ability to carry out projects will also be dependent on the ability to engage qualified staff, either on a permanent or contract basis.
16 BARRIERS TO EXIT • Barriers to exit for service providers wishing to exit the market for providing Oil and Gas Geoscience and Reservoir Engineering Services, Drilling Services, and Project and Operations Services and are low.
• Service providers wishing to exit the market can sell their stock of computer hardware and software to other providers of Oil and Gas Geoscience and Reservoir Engineering Services, Drilling Services, and Project and Operations Services, or to other users operating in the Oil and Gas industry. Nevertheless, as the capital cost of entry is relatively low, the cost of exit is correspondingly low.
17 INDUSTRY OUTLOOK AND GROWTH FORECAST 17.1 Outlook and Growth Forecast of the Supporting Products and Services for the Oil and Gas Industry • The outlook for the Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services Industry in Malaysia is favourable.
• The outlook for the Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services Industry as a whole is dependent on the outlook of the overall Oil and Gas Industry. As such, the favourable outlook of the Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services Industry in Malaysia is based on the following observations and analyses:
Local Exploration Activity Between the financial years ended 31 March 2003 and 31 March 2007, Investment in the Exploration and Production sectors of the Malaysian Oil and Gas Industry by PETRONAS and PSC Operators/Contractors increased at an average annual rate of 20.6%. For the financial year ended 31 March 2007, investment increased by 19.5% to reach RM19.2 billion; Between the financial years ended 31 March 200 I and 31 March 2006, a total of 28 Production Sharing Contracts were signed between PETRONAS and PSC Operators/Contractors. For the financial year ended 31 March 2006, 9 PSC were signed and a record 60 PSC were in operation. During the financial year ended 31 March 2007, 4 new PSC were signed, 2 of which were for deepwater blocks; Between the financial years ended 31 March 2003 to 2007, Offshore Seismic Survey Data Recovered declined at an average annual rage of8.2%. In 2007, the amount of Offshore Seismic Survey Data recovered declined by 43.1% to approximately 250,000 line kilometres oO-Dimensional seismic data. Between the financial years ended 31 March 200 I and 2007, the number of Oil and Gas fields in operation in Malaysia increased from 53 to 85. For the financial year ended 31 March 2007, a total of 85 fields were in operation, of which 59 were Oil fields while the remaining 26 were Gas fields; Between the financial years ended 31 March 2003 to 31 March 2007, the number of Exploration Wells Drilled increased at an average annual rate of 5.1%. For the year ended 31 March 2007, the number of Exploration Wells Drilled declined by 26.4% compared to the previous year. A total of 39 Exploration Wells were drilled during the year ended 31 March 2007; (Source: PETRONAS) Local Production and Reserves Between the financial years ended 31 March 2003 and 2007, average daily production of Crude Oil and Condensates declined at an annual average growth rate of 1.5%. For the financial year ended 31 March 2007, average daily production of Crude Oil and Condensates declined by 5.4% to 661,000 Barrels ofOil Equivalent (BOE) per day; As at I January 2008, preliminary data indicates that Malaysia’s Reserves of Crude Oil (Including Condensates) amounted to 5.35 billion barrels of oil equivalent. If these reserves were extracted at a constant rate, production is estimated to continue for 22 years; Between the financial years ended 31 March 2003 and 2007, average daily production of Natural Gas declined marginally at an average annual rate of 0.2%. For the financial year ended 31 March 2007, average daily production ofNatural Gas declined by 0.7% to 950,400 BOE per day; As at I January 2008, preliminary data indicates that Malaysia’s Reserves of Natural Gas amounted to 15.33 billion barrels ofoil equivalent. At the current daily rate of Natural Gas production, production in Malaysia is projected to continue for 38 years; Between 2004 and 2007, the sales value of the manufacture of Refined Petroleum Products grew at an average annual growth rate of20.9%. In 2007, the sales value ofthe manufacture of Refined Petroleum Products increased by 9.4% to reach RM89.8 billion. (Source: PETRONAS, Bank Negara Malaysia and Department a/Statistics) Exports Between 2003 and 2007, the export value of Petroleum Oils, Crude, and Crude Oils Obtained From Bituminous Minerals increased at an average annual rate of 20.5%. In 2007, export value increased by 3.0% to reach approximately RM33.5 billion; Between 2003 and 2007, the export value of Petroleum Products, Refined increased at an average annual rate of24.0%. In 2007, export value increased by 3.2% to reach approximately RM19.8 billion; Between 2003 and 2007, the export value of Natural Gas, Whether or not Liquefied increased at an average annual rate of 18.4%. In 2007, export value increased by 12.3% to reach approximately RM26.2 billion; (Source: Department a/Statistics)
Additional Factors The Oil and Gas Industly in Malaysia’s continuing push into producing from deepwater resources should continue to drive the growth of the Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services Industly. Deepwater exploration, appraisal and development is typically more complex and riskier compared to shallow water development, and often requires a substantial amount of specialised support services. For example, due to the higher risk and cost anticipated, more complete and detailed field reviews may be carried out to maximise recovery and minimise risk. The on-going development and improvement of Oil and Gas Industry technology should sustain the growth of the Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services Industly as PSC Operators/Contractors continue to demand these new technologies. Activity in the Oil and Gas Industly is likely to continue to grow with the sustained high global market price for hydrocarbons. On 30 April 2008, the spot price of Brent Crude Oil fluctuated around US$III per barrel. Sustained high price for hydrocarbons is likely to sustain hydrocarbon exploration, development and production activity. Demand for Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services such as seismic data interpretation, full field reviews, field development planning and enhanced oil recovery methods should be sustained by the desire to maximise production from existing oilfields. In particular, discovery of new reserves may lead to demand for Geoscience and Reservoir Engineering services such as field reviews, field development planning and enhanced oil recovery methods to maximise production. Deepwater production in Malaysia, which commenced in August 2007 when the Kikeh field came on-stream (Source: PETRONAS), is expected to help drive development of supporting products and services including Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services in Malaysia. It will also position Malaysia closer to its aspiration to becoming the regional centre for deepwater capability.
18 DRIVERS OF GROWTH • Some of the drivers of growth for the Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services Industly are as follows: Market Price of Hydrocarbons Sustained at a High Level For the financial year ended 31 March 2007, the average price of West Texas Intermediate (WTl) and Brent crudes increased by 8.5% and 12.2% respectively. The average price of West Texas Intermediate (WTl) and Brent crudes reached US$64.92 per barrel and US$65.08 per barrel respectively for the fmancial year ended 3I March 2007. The weighted average price of Malaysian Crude Oil (MCO) rose in tandem to US$68.50 per barrel, an increase of 11.2% for the financial year ended 31 March 2007, over the same period (Source: PETRONAS). Sustained high market price for hydrocarbons is likely to encourage hydrocarbon producers to maintain production at a high level, or even to increase production by developing new fields, including marginal fields. Efforts to maintain and increase production are likely to spur the demand on the application of supporting products and services such as seismic data processing and interpretation, field reviews and other similar oilfield studies, drilling and completion, design and engineering of various production facilities, and the development and application augmented recovery methods. PETRONAS Policy PETRONAS has a policy of nurturing the development of local Oil and Gas Industry companies, including local providers of supporting products and services such as Oil and Gas Geoscience and Reservoir Engineering and Drilling Services, and others. As part of the aim to promote and encourage local participation in the Oil and Gas Industry, PETRONAS has implemented the following initiatives: licensing and registration of companies with preference given to local companies; implementation of the Vendor Development Programme (YDP) for Bumiputera entrepreneurs. In addition, PETRONAS encourages Malaysian operators to participate in the Oil and Gas Industry overseas. Qualified Malaysian Oil and Gas Industry operators are encouraged to support PETRONAS’ foreign operations. As at 31 March 2007, PETRONAS had interests of total of 58 upstream ventures in 22 overseas countries. (Source: PETRONAS) Technological Advances Technological advances that enhance production efficiency and optimisation, or enable Production to take place in previously inaccessible areas are likely to increase demand for Supporting Product and Service Providers. Technological advances that contribute to the discovery of new reserves, and to increasing hydrocarbon production in economical viable marginal fields in particular, would generally create opportunities and demand for service providers within the Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services Industry. Opening of Acreage for New Exploration The opening of new blocks of Malaysian territorial waters for exploration, appraisal, development and production will create new demand for supporting products and services, including Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services. With a large proportion of shallow water acreage (generally with depth of less than 200 metres) already allocated to PSC Operators/Contractors, the opening of new acreage is primarily for deep-water exploration, appraisal, development and production.  Between 1976, when the current PSC model was initiated, and October 1999, PETRONAS signed a total of 70 Production Sharing Contracts with various Oil and Gas Industry companies. For the financial year ended 31 March 2007, there were four new PSC were signed, two of which were awarded for ultra­deepwater blocks. (Source: PETRONAS) . Discovery of New Reserves The discovery of new reserves will stimulate demand for products and services to support Exploration, Appraisal, Development and Production of the new reserve. In 2005, a total of? new offshore oilfields were discovered. Of these discoveries, 4 were in Sabah, 2 in Sarawak, and one in Peninsular Malaysia (Source: Bank Negara Malaysia). For the financial year ended 31 March 2006 (the most recently available data), new oil and gas reserves amounting to 645.3 million barrels of oil equivalent were discovered in Malaysia (Source: PETRONAS). The continuing discovery of new reserves would drive growth of supporting products and services including Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services. In addition, there are various techniques within Geoscience and Reservoir Engineering to be use for enhancing production. For example, Enhanced Oil Recovery (EOR) techniques can be used to maintain or increase production in mature fields. The discovery of new reserves would also spur the demand of supporting services including Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services. Demand for the Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services is stimulated by the development of new offshore fields for production. PSC Operators/Contractors may implement field management progranunes to maximise production over the life of the oilfield. Enhanced oil recovery techniques may also be carried out. Development of Deepwater Resources According to PETRONAS, for the financial year ended 31 March 2006, nearly 60% ofthe additions to the nation’s Oil and Gas reserves that wen~ made from deepwater areas, while 6 ofthe 9 new PSC awarded during this period were for ultra-deepwater blocks. Production· from deepwater areas commenced in August 2007 when the Kikeh field came on-stream. This is expected to help spur development of Malaysia’s Oil and Gas Industry including supporting products and services industries. (Source: PETRONAS) Deepwater areas are recognised as the most promlsmg fields of the development of the Oil and Gas Industry in Malaysia. As Exploration, Appraisal, Development and Production activities in these areas are typically more challenging, they are expected to require more support from supporting products and services, including Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services. Development in Challenging Areas According to PETRONAS, new reserves are located not only in deeper waters but also in harsher climatic and environmentally sensitive regions, making access more difficult, technologically more demanding and riskier (Source: PETRONAS). As a result, development in these challenging areas are expected to require more complex and challenging supporting services such as specialised and ilUlovative Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services, with an emphasis on implementing or applying new and ilUlovative technologies. 19 AREAS OF GROWTH AND OPPORTUNITIES 19.1 Overseas Operations • The Malaysian Oil and Gas Industry is large, and has been able to sustain the development of local service providers. To support enhanced current and future growth, it is important that these service providers operate in overseas markets.
• It is also important to venture to new areas to survive beyond the depletion of Malaysia’s own hydrocarbon resources, although given the current size of reserves and production rate this is not likely to happen in the near or medium term.
• Service providers within the Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services Industry may gain a foothold in overseas markets by first providing products and services to PETRONAS and its affiliates in its overseas operations.
19.2 Technological Advancement • The Oil and Gas Industry is driven by technology, and companies are generally willing to adopt new technology. This is particularly true for advances that increase production efficiency, increase extraction rate, decrease cost of production, and/or enable production in previously inaccessible regions.
• Development of technological advance that fits one or more criteria is likely to create an opportunity for service providers that able to provide that technology.
19.3 Sustained High Price of Hydrocarbons • The expectation that high market price for hydrocarbons can be sustained should encourage development of marginal fields. With the high market price for hydrocarbons, the expected value of the extractable hydrocarbons rises such that the expected return from production becomes economically viable. Development of marginal fields is likely to create an opportunity for service providers that are able to provide supporting products and services to enable and enhance production from these fields. • High hydrocarbon prices could also revive some old wells that still contain some proportion of reserves to be commercially viable for extraction. Service providers may undertake development projects in mature fields to increase production in these areas. 19.4 PETRONAS Field Review Guideline • PETRONAS has implemented a field management guideline whereby Field Development Plans are to be reviewed periodically and updated every 3 to 5 years. This requirement creates opportunities for providers of Oil and Gas Geoscience and Reservoir Engineering Services that have the capability to provide field review services.
• The application of new technology and techniques to existing data can lead to the discovery of new hydrocarbon reserves in mature fields. This creates additional opportunities for other service providers in the Oil and Gas Industry.
• This requirement creates the potential for repeat business for Uzma Group, particularly for fields for which the Group has already done a field study.
19.5 Redefinition of Blocks • PETRONAS has the authority to redefine petroleum blocks to encourage Exploration, Appraisal, Development and Production activity.
• In some cases, petroleum blocks allocated to PSC Operators/Contractors are found to be un-economical as a whole after initial Exploration and Appraisal. This may be because discovered hydrocarbon reserves are found to be too scattered or dispersed to allow for economical development ofthe entire petroleum block.
• PETRONAS has the authority to redefine the petroleum block in question to “carve out” the fields with economical hydrocarbon reserves into one or more new petroleum blocks. This will facilitate the development of these fields, along with associated Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services.
20 THREATS AND RISK ANALYSIS 20.1 Scarcity of Geoscientists, Engineers and Technicians • The provision of Oil and Gas Geoscience and Reservoir Engineering Services, Drilling Services, and Project and Operations Services is dependent on the application of advanced technology and knowledge, and is highly technical. Qualified geoscientists, engineers and technicians with advanced degrees (usually with a minimum of a bachelor degrees, with master degrees and doctorates common) or qualifications, and industry experience are typically required to carry out complex technical tasks.
• The number of personnel with the required qualifications and experience is small, and competition to acquire their services is usually intense. There is a risk that providers of
Oil and Gas Geoscience and Reservoir Engineering Services, Drilling Services, and Project and Operations Services will face difficulty in securing qualified personnel. Mitigating Factors • Service providers can build a database of qualified geoscientists, engineers and technicians, with detailed information regarding their area of expertise and experience to best match available personnel to tasks and projects. Operators may also build a network of relationships with these geoscientists, engineers and technicians.
• Service providers may engage geoscientists, engineers and technicians on a consultant basis to make up any shortages in in-house skill, which has the added benefit of allowing more flexibility in only engaging geoscientists, engineers and technicians as and when there is a need to do so.
20.2 Sustained Fall in the Market Price of Hydrocarbons • Hydrocarbons, including crude petroleum and natural gas, are internationally traded commodities whose price fluctuates with the constant interaction between supply and demand for hydrocarbons. Factors such as geopolitical factors and unforeseen supply disruptions may also influence the market price ofhydrocarbons.
• Activity in the Oil and Gas Industry is, to some degree, affected by fluctuations in the
market price of hydrocarbons: Activity tends to increase during periods of sustained high hydrocarbon prices. This is due to elevated production activity, as well as increased activity to bring reserves into production, and to explore for new hydrocarbon reserves; Activity tends to decline during periods of sustained low hydrocarbon prices. This is due to lower production activity, as well as temporarily reducing or shutting down production from reserves that are no longer commercially viable. Exploration activity tends to continue, however.
• There is a risk that sustained lower price of hydrocarbons wi II negatively affect activity in the Oil and Gas Industry, leading to lower demand for supporting products and services, including Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services.
Mitigating Factors • OPEC, a grouping that includes many of the world’s largest oil producing nations, has some influence on the price of oil through their control of a sizable proportion of the world’s production capacity and reserves. Although the influence of OPEC over the market price ofoil is not absolute, OPEC has a vested interest in ensuring that oil prices do not collapse, and as such are likely to actively attempt to sustain oil prices at an ‘acceptable’ level.  20.3 Downturn in the Local and Global Economy • Any prolonged and/or widespread downturn in the global economy is likely to negatively affect the global demand for hydrocarbons, and production of hydrocarbons. This in tum is likely to negatively affect demand for supporting products and services in Malaysia, as activity in the Oil and Gas Industry in Malaysia also slows down.
Mitigating Factors
• A global economic slowdown may not automatically lead to a sustained fall in the market price for hydrocarbons, as the demand for hydrocarbons for power generation and transport tends to be relatively inelastic.
• The Malaysian Government has taken pro-active policies to mitigate the negative impact of global economic downturn in the past, by implementing stimulus packages to boost domestic spending and demand to counter the effect oflower external demand.
20.4 Foreign Exchange Risk • Fluctuations in foreign exchange rates will have impact on the prices of systems, equipments or chemicals used to facilitate the services.
• This may have an impact on the profitability of service providers within the Oil and Gas Industry. An unfavourable foreign exchange rate movement against the Ringgit may negatively affect a service provider’s profitability by increasing its costs or reducing its revenue.
• Many of the systems, components, equipment, raw materials and services used by the Oil and Gas Industry are imported, with the transaction denominated in a foreign currency. In addition, a large proportion of the hydrocarbons produced in Malaysia are ultimately exported, with the transaction denominated in a foreign currency.
• As such, fluctuations in foreign exchange rates will have an impact on the Ringgit price of imported systems, components, equipment, raw materials and services, and on the Ringgit price of exported products.
Mitigating Factors
• On 21 July 2005, the Malaysian Government removed the pegging of the Ringgit to the US Dollar for a managed float system. This system is likely to minimise wide fluctuations in foreign exchange and provide some stability for those business transactions, which are in US Dollars. Bank Negara Malaysia’s primary policy objective of promoting the stability of the exchange rate will provide some mitigation against foreign currency risk.
• A company that earns revenue denominated in a foreign currency may mitigate against foreign exchange risk by using its foreign currency earnings to pay for purchases denominated in the same foreign currency. This could provide some natural hedging against foreign exchange fluctuations.
20.5 Depletion of Hydrocarbon Resources • All hydrocarbon deposits are non-renewable, in that it is not possible to regenerate hydrocarbons within a reasonable timeframe once they have been extracted. As such, hydrocarbon resources in all hydrocarbon-producing regions, including Malaysia, will eventually be depleted.
• It is likely that demand for supporting products and services, including Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services in Malaysia will end soon after Oil and Gas Industry Exploration, Appraisal, Development and Production activities cease in Malaysia.
Mitigating Factors • The relatively long period of time before current reserves Crude Oil (including Condensates) and Natural Gas in Malaysia are expected to be completely depleted enables Oil and Gas Industry companies, including providers of Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services to diversifY into other industries and/or venture into overseas markets.
• PETRONAS encourages Malaysian service providers to participate in the Oil and Gas Industry overseas. Qualified Malaysian Oil and Gas Industry service providers are encouraged to support PETRONAS’ foreign operations. As at 31 March 2007, PETRONAS had interests of total of 58 upstream ventures in 22 overseas countries
(Source: PETRONAS). • As at 1 January 2008, preliminary data indicates that Hydrocarbon Reserves in Malaysia are as follows: Reserves ofCrude Oil (Including Condensates) amounted to 5.35 billion BOE; Reserves ofNatural Gas amounted to 15.33 billion BOE. (Source: PETRONAS) • At the present rate of Production, Hydrocarbon Reserves in Malaysia are expected to sustain Production as follows: Production ofCrude Oil (Including Condensates) for 22 years; Production ofNatural Gas for 38 years. (Source: Bank Negara Malaysia) • Between financial years ended 31 March 2002 and 31 March 2006 (the latest available data), a cumulative of approximately 3.4 billion BOE of New Discoveries of Oil and Gas were made in Malaysia by PETRONAS and PSC Operators (Source: PETRONAS).
• The National Depletion Policy introduced in 1980 to safeguard the exploitation of the natural oil reserves by postponing development and control the production of major oil fields (with reserves of 400 million barrels or more) will also ensure that extraction is carefully managed and sustainable over the long term.
• Current reserve estimates tend to be conservative and may underestimate the actual amount of hydrocarbons that is ultimately extracted, as they do not take into account the following:
the existence of currently undiscovered hydrocarbon reserves; technological advances that increases the amount of hydrocarbons that may be commercially extracted from existing reserves; technological advances that enable production from previously inaccessible regions.
• As such, activity in the overall Oil and Gas Industry in Malaysia may very well continue beyond the currently estimated date of complete hydrocarbon reserve depletion.
20.6 Change in PETRONAS Policy • A fundamental change in PETRONAS policy with regards to regulating the Oil and Gas Industry in Malaysia may come about through the liberalisation of the Oil and Gas Industry.
• PETRONAS may liberalise the Oil and Gas Industry by: Removing licensing requirements for the provision of all supporting products and services; Loosening licensing requirements such that it becomes easier to obtain a license; Allowing foreign suppliers to operate in Malaysia without restrictions and the need to operate with a local partner.
• Liberalising the Oil and Gas Industry in this manner will negatively impact incumbent operators by increasing competition in the industry.
Mitigating Factors • Currently, despite the restriction of licensing and registration, competition is intense. In the event of any Iiberalisation, existing service providers would not be significantly worse off as they have been operating in a very competitive environment already.
• On the contrary, the liberalisation of the Oil and Gas Industry may benefit existing service providers, as they may be able to enter new segments of the industry that leverage on their existing strengths and customer base.
21 THREAT OF SUBSTITUTES • In general, there are currently no practical substitutes to the Oil and Gas Geoscience and Reservoir Engineering Services, and Drilling Services currently provided by Uzma Group. As such, Uzma Group faces no threat from substitutes for the Group’s principal business activities.
22 SUSTAINABILITY • The sustainability of the overall Oil and Gas Industry, particularly in the Exploration, Appraisal, Development and Production sectors, is dependent on a large degree to the availability of Hydrocarbon Reserves in Malaysian territory. The sustainability of local supporting products and services providers is similarly dependent on a large degree to the availability of Hydrocarbon Reserves in Malaysian territory.
• Hydrocarbon reserves are those quantities of hydrocarbons that are anticipated to be commercially recoverable from known accumulations from a given date forward. Over time, Hydrocarbon Reserves are depleted as hydrocarbons are extracted from hydrocarbon reserves.
• Hydrocarbon Reserves may increase through new discoveries of Oil and Gas reserves that are commercially viable. Reclassification of previously discovered but not commercially viable deposits as Reserves may also occur, leading to an increase in the quantity ofReserves. This may occur through the following:
A sustained increase in the market price of hydrocarbons and an upward revision of the forecast future price of hydrocarbons may result in previously discovered but not commercially viable deposits becoming commercially viable. These deposits are then re-elassified as reserves; Advances in production technology may lower the cost of extracting hydrocarbons from a particular deposit to a point where Production is commercially viable; Advances in production technology may allow production from previously inaccessible hydrocarbon deposits; The application of enhanced oil recovery techniques such as gas injection, fluid injection, or chemical injection may increase the hydrocarbon recovery rate of a deposit, which may warrant an increase in the level of reserves in that deposit.
• At the present rate of Production, Hydrocarbon Reserves in Malaysia are expected to
sustain Production as follows: Production of Crude Oil (Including Condensates) for 22 years; Production ofNatural Gas for 38 years. (Source: Bank Negara Malaysia) • Statistics on the following factors that are related to the sustainability of the overall Oil and Gas Industry in Malaysia are presented in Section 20.5: Reserves ofCrude Oil (Including Condensates) in Malaysia; Reserves ofNatural Gas in Malaysia; New Discoveries ofOil and Gas in Malaysia. 23 CRITICAL SUCCESS FACTORS • The critical success factors for service providers in the Oil and Gas Industry, among many others, including service providers of Oil and Gas Geoscience and Reservoir Engineering, and Drilling Service, are as follows:  PETRONAS Licensing and Registration: Companies wishing to participate in the Oil and Gas Industry in Malaysia are required to obtain PETRONAS licenses, or to be successfully registered with PETRONAS, as providers of specified products and services. The possession of these licenses or registrations is a fundamental requirement for direct entry and participation. Access to Qualified Geoscientists, Engineers and Technical Personnel: The provision of Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services is highly technical and dependent on the application of various technologies and technical knowledge, commonly requiring personnel with advanced academic degrees and industry experience. Service providers with an extensive database of qualified geoscientists, engineers and technicians and their area of specialisation will enjoy a distinct advantage over other service providers. Track Record: The possession of an established track record is a key advantage when securing projects in technically challenging fields within the Oil and Gas Geoscience and Reservoir Engineering, and Drilling Services Industry. As these projects are often critical in nature, PSC Operators/Contractors would commonly prefer to deal with service providers that have proven track record. Multi-Discipline Engineering Capability: Companies that have multi­discipline engineering capability are able to provide a wider range of engineering services, as well as undertake larger and more complex projects. Health, Safety and Environment (HSE) Concerns: HSE Management continues to be a top priority in all PETRONAS’ operations (Source: PETRONAS). Companies in the Oil and Gas Industry require that their contractors and sub-contractors have a good HSE record. As a company’s HSE record is one of the factors considered when evaluating tender submissions, the possession of a good HSE record evidenced by low work­related fatalities, injuries and lost-time incidents is a success factor. Financial Stability: Companies who are in a healthy financial position are more likely to retain and attract new customers. Potential customers would emphasise fmancial stability as a key criterion in the evaluation of a prospective service provider as they would not want any disruptions to critical on-going projects. A financially strong provider would be in a better position to upgrade its product and service range, if necessary, to keep abreast with technology. Companies without sufficient cash flow or reserves would run into possible supply disruptions.
24 MARKET SIZE AND SHARE 24.1 Market Size • In 2006, the market size of the Development and Production segments of the Oil and Gas Industry in Malaysia based on Investment made by PETRONAS and PSC Operators/Contractors was estimated at RMI0.3 billion (Sources: PETRONAS).
• In 2006, the market size of the Exploration segment of the Oil and Gas Industry in Malaysia based on Investment made by PETRONAS and PSC Operators/Contractors was estimated at RM1.9 billion (Sources: PETRONAS).
24.2 Market Share • In 2006, Uzma Group’s market share of the Exploration segment of the Oil and Gas Industry in Malaysia based on Investment by PETRONAS and PSC Contractors/Operators is estimated at 5%.
• In 2006, Uzma Group’s market share of the Development and Production segments of the Oil and Gas Industry in Malaysia based on Investment by PETRONAS and PSC Contractors/Operators is estimated at 1%.

 

 

 

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