PETROLEUM BRUNEI SEEKS EXPANSION OPPORTUNITIES

UNCLAS BANDAR SERI BEGAWAN 000041 SENSITIVE SIPDIS DEPARTMENT PASS FOR EAP/MTS/COPPOLAMG, EEB/ESC/IEC E.O. 12958: N/A TAGS: ECON PGOV PINR BX SUBJECT: PETROLEUM BRUNEI SEEKS EXPANSION OPPORTUNITIES SUMMARY -------------- ¶1. (SBU) DCM and Commercial Assistant recently met with the CEO and Head of Commercial Sales and Planning for Petroleum Brunei (PB). CEO Haji Jaafar Awang Bakar and Head of Planning, Danilo Verastigue, stated that Petroleum Brunei are not changing their current business plan and, in fact, are looking to expand. Their primary focus will be regional, with a particular interest in Australia. Petroleum Brunei is not looking to acquire companies but instead to form strategic partnerships, focusing on sizeable minority share stakes. Bakar also explained the interlocking regulatory and ownership structure of the company. This investment and business strategy is reflected in other large Bruneian businesses who are seeking to diversify and expand their market shares. End Summary. LOOKING TO EXPAND -------------- ¶2. (SBU) CEO of Petroleum Brunei (PB),Haji Jaafar Awang Bakar and Head of Commercial Sales and Planning, Danilo Verastigue were forthcoming in a recent meeting with DCM and Commercial Assistant. Both noted that PB will not change their business strategy or cut back on operations, even in the current bleak economic climate. In fact, PB is looking to expand regionally. However, they have no plans to expand into the US market. PB is focused on two potential companies and/or sites in Australia. Jaafar noted PB does not have an interest in acquiring companies or sites but instead prefers to work in "strategic partnerships." PB will look to acquire sizeable minority share holdings and use them as a long term investments. While looking at other regional opportunities, both agreed that joint investments with Malaysia may raise red flags given ongoing border (especially maritime) disputes. Jaafar noted that PB must still take directives from the Government of Brunei (GoB), especially on matters that have political overtones. CURRENT PROJECTS, FUTURE POSSIBILITIES -------------- ¶3. (SBU) PB is currently developing two on-shore "blocks". Block M development is proceeding as planned but Block L has had two wells in development delayed. Block L is a joint venture with Nations Petroleum and Loon Energy, both Canadian firms. Block M is a joint venture with TAP energy, an Australian firm. (NOTE: Block M will soon have a large scale seismic survey conduct, with over 1,200 foreign workers arriving in Brunei to work on the survey. This has stirred up some local concerns given the large number of foreign workers. END NOTE) In addition, it is possible that PB will be awarded a new 1,000 square kilometer off-shore block for further development. When asked if they are looking at more on-shore development, Jaafar said PB is currently not exploring this option. PB does not see remote areas, such as Temburong as development possibilities. (NOTE: Much of Temburong is protected as part of the Heart of Borneo Initiative. END NOTE.) PB is also doing a feasibility study on export refining. Currently Brunei only refines for domestic consumption. Jaafar noted PB also has large stake in the Brunei Methanol Plant that is scheduled to start exports next year. WHO IS IN CHARGE AND WHERE EMBASSY CAN HELP -------------- ¶4. (SBU) Jaafar took a few moments to explain the current ownership and regulatory structure of PB, along with pointing out areas where he would like to work directly with the Embassy. Previously, PB had the same Chairman of the Board and regulator, the former minister of Energy. Now, that responsibility is split between the Current Chairman of the Board, Pehin Lim Jock Seng who is also the Deputy Foreign Minister, and the new Minister of Energy, Pehin Mohammad. The Minister of Energy, besides serving as regulator, also represents the Prime Minister's office as the proxy shareholder in PB. In essence, Jaafar has two bosses. He said that while this has presented some challenges, the current system is working well as the level of work required was often overwhelming for one person. Jaafar made a special point of mentioning that he would like to work with the US Embassy on a variety of training programs, especially executive leadership training. COMMENT: -------------- ¶5. (SBU) Jaafar's comments and PB's expansion plans seem to be in line with the overall government investment strategy in Brunei. Other government and quasi-governmental entities, such as the Brunei Investment Agency (BIA),are looking aggressively at expansion and investment opportunities. PB's strategy is more cautious than BIA's but the company's financial stability puts it in a position to expand where other private sector companies are cutting costs. There are growing opportunities for US energy service firms in Brunei, which the Embassy continues to promote. TODD