MISC Annual Report 2018

MARKET REVIEW In early 2018, a more stable and higher oil price environment paved the way for a gradual recovery in global offshore oil and gas investments. Oil majors revisited their business plans and announced new Final Investment Decisions (FID) to build and convert Floating Production Storage and Offloading (FPSO) units and Floating Storage and Offloading (FSO) units, after a dearth of new projects in recent years. However, during the second half of 2018, geopolitical considerations dampened market sentiment, with growing tensions in the US-China trade war, and uncertainty over Iranian crude oil production following the re-imposition and the unexpected temporary waiver of US sanctions. These factors led to short-term instability in the oil price towards the end of the year, which resulted in oil majors being more cautious in FID and making new announcements. In Malaysia, PETRONAS opened tenders on its first deepwater development at Limbayong, offshore Sabah. Other attention was focused on how regulatory frameworks may influence the demand in decommissioning activities as more than 40% of offshore facilities in Malaysia are now more than 30 years old, with significantly higher levels in neighbouring countries. In other parts of the world, oil and gas producing countries are planning to ramp-up production in the near term. Brazil’s national oil and gas company Petrobras released three new tenders; the revitalisation for Marlim 1 & 2 and the latest FPSO addition to the Parque Das Baleias FPSOs. The third tender was for a second FPSO to be installed at the pre-salt Mero field, located in the Santos basin. There was also a Mobile Offshore Production Unit (MOPU) tender released by India’s national oil and gas company, Oil and Natural Gas Corporation Ltd, in the Ratna field, offshore India. KEY DEVELOPMENTS IN 2018 With oil prices rising and stabilising over 2018, the Offshore Business segment bolstered its position as an international player in the FPSO/ FSO market. In 2018, we added two new floaters to our list of assets which will provide a source of secured and sustainable income to support our growth and financial performance moving forward. During the year in review, our Vietnamese joint venture, Malaysia Vietnam Offshore Terminal (L) Ltd., won a seven-year FSO charter contract from Idemitsu Kosan Co. Ltd. which will commence in 2020. The contract marks MISC’s first venture with Idemitsu Kosan which was secured through an international competitive bidding process. This charter contract also represents the expansion of MISC’s footprint as a leading player in providing offshore solutions in the ASEAN region. MANAGEMENT DISCUSSION & ANALYSIS OFFSHORE BUSINESS Floating Production Storage and Offloading (FPSO) units are vessel-type production systems that receive full well stream fluids (crude oil, water and others) from a subsea reservoir through risers. They have topside production facilities that separate the fluids into crude oil, natural gas, water and impurities. They also have storage tanks where processed crude oil is stored. Crude oil is offloaded onto shuttle tankers for further refining onshore. They can be designed with the capability of staying on location for continuous operations for 20 years or longer. Mobile Offshore Production Units (MOPU) are mobile structures used offshore well production, operating in shallow waters. MOPUs have production facilities to process oil and natural gas and export oil through subsea pipeline to an FSO. Semi-submersible Floating Production System (FPS) is a large pontoon-like structure submerged below the sea surface at a predetermined depth with a floating production system that receives fluids (crude oil, water and others) from a subsea reservoir through risers. The topside production facilities separate the fluids into crude oil, natural gas, water and impurities. Our Semi-Sub FPS operates at a depth of 1,400m. The oil is exported via a 200-km long pipeline to an oil and gas terminal in Kimanis, Sabah. 6 UNITS 2 UNITS 1 UNIT Floating Storage and Offloading (FSO) units are simpler than FPSOs as they do not have production processing capabilities. They are normally integrated with other production systems, such as fixed platforms, Mobile Offshore Production Unit (MOPU), Tension Leg Platforms (TLP) among others. FSOs are also equipped to store and offload crude oil to a shuttle tanker. FPSOs and FSOs today have become the effective way of extracting hydrocarbon for many offshore oil and gas producing regions around the world. The vessel sizes depend on the oil and condensed storage capacity requirements and the vessels are secured to the seabed via mooring systems which are determined by the environment where they operate. 6 UNITS HIGHLIGHTS OF THE YEAR OUR BUSINESS OUR LEADERSHIP OUR PERFORMANCE OUR COMMITMENT TO SUSTAINABILITY OUR GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 50 TH ANNUAL GENERAL MEETING 107 MISC BERHAD ANNUAL REPORT 2018 106