Italian major Eni and Malaysia’s national champion Petronas have signed an exclusive memorandum of understanding (MOU) to create a joint venture holding company to oversee selected upstream assets in Indonesia and Malaysia.
The standalone company would invest in, and raise external financing, for new gas development and infrastructure projects to create synergies to grow the new entity into “a major LNG player in the region,” the partners said in a 27 February news release.
Reacting to the news, Wood MacKenzie’s vice president for corporate research, Asia Pacific, Andrew Harwood, went further, suggesting that if successful, the tie- up “would create a new Southeast Asian ‘Major’” combining Eni’s industry-leading exploration capabilities with Petronas’ regional presence.
The proposed JV would combine approximately 3 billion BOE of reserves with an additional 10 billion BOE of potential exploration upside while delivering in the medium term a sustainable 500,000 BOED of production, Eni and Petronas said in their announcement.
Focus on Indonesian LNG
Though the assets to be selected remain a mystery, Wood Mackenzie is betting that choices will focus on Indonesia, including Eni’s holdings in the Kutei Basin and Petronas’ stake in the Abadi LNG development led by Japan’s Inpex.
In its release, WoodMac said it expects Petronas to also “contribute production and exploration assets in Sarawak and Sabah from its domestic portfolio. Petronas’ largest domestic producing asset is the SK316 block in Sarawak, which includes the Kasawari development.”
Eni and Petronas said they will develop a business plan to capture future opportunities in exploration, development, and portfolio growth.
WoodMac’s Harwood suggests that “this proposed joint venture is more innovative and broader in scope than the industry anticipated.”
Satellite Strategy With a Twist
Eni has employed its “satellite model” to structure successful ventures in Angola (Azule Energy, in partnership with BP), Norway (Var Energi), and the UK (Ithaca), aiming to unlock value from noncore assets unable to attract capital from within a larger portfolio.
But while the method is similar, the driving force differs in the case of Southeast Asia. Harwood pointed out that “due to the successful capture of organic and inorganic growth opportunities, Indonesia is set to become one of the largest producing countries in Eni’s global portfolio by the early 2030s.
“Managing capital commitments, unlocking new growth opportunities, and broadening strategic relationships are the key drivers behind the formation of the new venture,” he said, adding, “For Southeast Asia, the creation of a new technically capable and well-funded operator, with a mandate to pursue new growth, could be the key required to unlock the region’s significant untapped potential.”
Under the arrangement, assets folded into the JV will retain their current operational structure, with a focus on health, safety, and environment, project delivery and efficiency, while both companies continue to uphold their sustainability commitments, according to the partners.
Eni and Petronas aim to ensure stability in production for Malaysian assets while supporting new developments in Indonesia, according to the announcement.
Any final transaction will be subject to relevant governmental, regulatory, and partner approvals, the partners said.
