Singapore's Temasek Eyes Upstream Oil with New Firm

Singapore state investor Temasek Holdings has set up an oil exploration subsidiary to help diversify its financials-heavy portfolio, entering a sector crowded with expanding national oil companies and majors.

The newly created Orchard Energy will be involved in the "investment in energy exploration and development", according to filings with the Accounting and Corporate Regulatory Authority (ACRA) of Singapore. The company was incorporated in June as an indirect wholly owned unit of Temasek.

A spokesman with Temasek, which manages a S$164 billion ($114.1 billion) global investment portfolio, including stakes in the world's two biggest offshore rig builders, said it "does not have any information to share at this point in time".

By taking a more hands-on approach in the energy sector, Orchard will be pitting itself against other state-linked firms such as Japan Petroleum Exploration, India's Oil and Natural Gas, Malaysia's Petronas, as well as the likes of BP and Royal Dutch Shell.

Orchard Energy is unlikely to be content acting as a passive partner in exploration ventures, and hopes to quickly become a lead operator working with more established upstream firms as it moves into production, a Temasek source told Reuters.

"If anything, it would have to be a situation where Orchard Energy is operating the joint venture," said the source who declined to be named on company policy.

Oil and gas fields in the Gulf of Thailand, surrounded by Thailand, Vietnam and Cambodia, and off the coasts of Myanmar, as well as Central Asia are potential sweet spots for exploration within the region, the source added.

Analysts said Temasek, the world's seventh-largest sovereign wealth fund, was more likely racing to diversify a portfolio that was 38 percent invested in the financial services sector as of March last year. That ratio may have risen with its $5 billion buy-in to Merrill Lynch from late last year.

Another 23 percent is in telecommunications and media, its most recent annual report issued last year showed.

"Maybe it wants to go into the whole food chain," said Daphne Roth, vice president of Asia equity research at ABN AMRO.

"Singapore's already big on the refinery business, so this may be one way to go further upstream," she said.

Costly Asset Acquisition

The city-state is the world's third-largest refining centre by capacity, with Exxon Mobil , Royal Dutch Shell and Singapore Petroleum Company (SPC) combining for a total of about 1.3 million barrels per day (bpd).

Temasek has stakes in top rig builders SembCorp Marine and Keppel Corp, the latter of which which owns 45 percent of SPC, the closest thing Singapore has to a national oil company.

SPC has small stakes in exploration and production assets off the shores of Australia, Cambodia, China, Indonesia and Vietnam, but its primary business is refining, making it unlikely to clash with Orchard's greater focus on the upstream.

Orchard Energy enters the upstream industry at a time of intense competition for new reserves.

State-owned Asian firms are trying to get more oil to fire their booming conomies, while oil majors are desperately trying to find more oil than they pump. And a resurgence of resource nationalism worldwide is making it more difficult to get access.

With oil prices having surged from $30 in 2003 to records above $117 on Monday, the cost of acquiring assets has also surged, increasing the risk of buying at the top of the market, as Japan's oil companies did in the 1970s.

"We are talking (investments) of at least hundreds of millions of dollars, up to billions of dollars, for them to really have a shot at success," said Jeff Brown, managing director of consultant FACTS Global Energy.

Temasek's move to get more exposure to the energy sector comes just as China buys several-billion-dollar stakes in BP and Total, reported to have been accumulated by the State Administration of Foreign Exchange, an arm of the central bank that manages China's $1.68 trillion in reserves.

Analysts also said Orchard, which has an issued share capital of S$5 million ($3.69 million), must grapple with a lack of experience in the upstream sector at a time when it is harder than ever to find expert engineers, geologists and drillers.

"If they want to be an operator, it is possible, but they are going to need to be able to pay to have the right people come in and manage the set-up," Brown said.

Copyright 2008 Reuters. Click for restrictions.