Malaysia to start producing oil at new Sabah offshore field by end-December 2016

Malaysia is expected to start oil production at the end of December at a deepwater field that could lift February export volumes of key grade Kimanis by 25 percent from January, two sources with knowledge of the matter said on Tuesday.

Operated by Royal Dutch Shell, the Malikai field off the East Malaysian state of Sabah could boost exports of Kimanis to 193,000 barrels per day in February, or nine 600,000-barrel cargoes, they said, meeting crude demand from Australia and India.

The sources spoke on the condition of anonymity as they were not authorised to speak to media. Shell and its partner, Malaysia's state-owned energy company Petronas, declined to comment.

The new production will come after Malaysia joined producers from outside of the Organization of Petroleum Exporting Countries (OPEC) on Sunday to cut output along with its OPEC counterparts. News of the agreement boosted global oil prices by more than 6 percent to 18-month highs on Monday.

"Malaysia will benefit from the oil price increase as they have maintained production levels and can maintain it till 2024 at least," said Subramanya Bettadapura, a Frost & Sullivan analyst in Kuala Lumpur.

The Malikai oilfield is expected to keep the country's overall crude output steady at 700,000 bpd in 2017 from 2016 as it will replace declining output at mature fields such as former flagship field Tapis, the sources said.

Malikai lies around 100 kilometres (60 miles) off Sabah in waters about 500 metres deep and comprises two main reservoirs that will produce 60,000 barrels per day at their peak.

The oil will be blended with oil from another Shell-operated field, Gumusut-Kakap, and exported as Kimanis, a medium-sweet crude with an API gravity of 38.61 degrees and a sulphur content of 0.06 percent. Production at the Gumusut-Kakap field has reached about 160,000 bpd after it started up in late 2014.

ConocoPhillips is the third shareholder in the two fields.