High oil price draws explorers to deep Southeast Asian waters

Wednesday, May 23, 2007
By Ioannis Gatsiounis
The International Herald Tribune (Paris, France)

"Michael Smith, chief executive of Energyfiles, an independent oil and gas consultancy, said he estimated Cambodia's recoverable oil reserves at 750 million barrels and recoverable gas reserves at 300 billion cubic meters."

KUALA LUMPUR: Across Southeast Asia, benchmark crude oil prices near $70 a barrel have triggered fresh exploration and development activity in countries ranging from Indonesia, an original Opec exporter that is now a net importer after years of declining output, to Cambodia, which has never produced oil but may have huge offshore reserves.

With countries like China, Japan, Korea and India on its doorstep, competing for supplies, the region is witnessing significant developments in exploration and production, including the opening of deeper-water exploration blocks in Malaysia and new fields in Indochina, the building of new pipeline infrastructure and the adoption of more investment-friendly tax and revenue-sharing rules, industry analysts say.

In Malaysia, the deep water Kikeh field off Sabah, northern Borneo, discovered by Murphy Oil in 2002 and estimated to hold 350 million barrels of crude oil, is expected to come into production this year following an agreement with the neighboring sultanate of Brunei to end delays caused by a territorial dispute.

Also in deep water off Sabah, the 400 million-barrel Gumusut-Kakap field, discovered in 2003 and operated by Murphy and Royal Dutch Shell, is set to start production within five years.

Other deep water finds off Sabah include the Ubah and Malikai fields. Because deep-water finds are not typical of the region, these projects will require the importation of technology and expertise, adding to the cost and complexity of development, but they also should position Malaysia closer to its long-term aim of becoming the region's center for deep-water discovery, say officials at the national oil company, Petronas.

The Malaysian government is not only pushing oil field development. Earlier this month it approved construction of a $14.2 billion pipeline stretching 200 miles, or 320 kilometers, across the northern peninsula states of Kedah and Kelantan. The pipeline, to be financed in part by the National Iranian Oil Co. and partly by Malaysia state-sector and private companies, will provide a short-cut alternative to sending tankers through the narrow Malacca Straits, a congested transit route for about half the world's oil shipments.

Vietnam, the third largest oil producer in the region behind Indonesia and Malaysia, with production of around 350,000 barrels a day, is also aggressively trying to increase output as foreign investment soars. Plans to open bidding for seven offshore exploration blocks are currently under review, said Hoang Ngoc Dang, a senior Vietnamese oil exploration official. The blocks are in fairly shallow waters, with an average depth of 60 to 100 meters, or 200 to 330 feet, in the Song Hong Basin, off northern Vietnam.

Vietnam has between 4 billion and 4.5 billion metric tons - or 30 billion to 33 billion barrels - of crude reserves, and drilling activity has nearly doubled there since 2005, said Hazel Cameron, an analyst at Wood Mackenzie. Most of Vietnam's oil production comes from the Cuu Long basin, off southern Vietnam.

Three oil fields, Ca Ngu Vang, Su Tu Vang, and Te Giac Trang, in the Cuu Long basin, contain an estimated 700 million barrels and may be on stream by 2010. Last month, Japan-Vietnam Petroleum said a new discovery off the country's south coast might contain reserves of nearly 37 million barrels, according to the state-run Viet Nam News Agency.

Meanwhile, the state-owned company Vietnam Oil & Gas, known as PetroVietnam, may invest $6 billion for oil and gas exploration projects through 2010, as part of an effort to increase oil output to 440,000 barrels a day by 2009, according to officials. Earlier this month the government said it would scrap fuel price caps in a bid to encourage investment in the oil sector.

Indonesia will also try to improve the business and investment climate in its oil sector, President Susilo Bambang Yudhoyono said this month. Indonesia is now producing just under one million barrels a day, down from an average of just over one million a day last year, according to International Petroleum Monthly.

Complications in taxation due to differing regional and national policies, security issues and overlapping land ownership have deterred investment, as have contract terms under which 15 percent of oil revenue goes to the producers and 85 percent to the government. In April, however, the state oil company Pertamina said it would invite foreign companies to join in exploration and production work and negotiate the revenue split on a case-by-case basis.

Aging oil fields have led to a slip in production, and Indonesia became a net importer in 2004. The government is now targeting a 30 percent increase in output, to 1.3 million barrels a day, by 2009. Among other steps, it has put heavy pressure on Pertamina to resolve a four-year dispute with its partner Exxon Mobil and start production from the Cepu oil block, the country's biggest untapped reserve, by the end of next year. The $2.6 billion project, bordering East Java and Central Java, is estimated to hold 600 million barrels of oil and 1.7 trillion cubic feet of gas.

Pertamina, meanwhile, reached an agreement this month with the largest South Korean oil refiner, SK Corp., and the state-run Korea National Oil Corp. to explore and develop Indonesian fields. South Korea is one of the largest crude oil importers in the world.

Elsewhere in the region, Cambodia has been a focus of attention following an offshore oil find in 2005 by the U.S. oil major Chevron. At least five European, American and Asian companies are now seeking exploration rights from the government. Officials say an estimated 200 million barrels are to be found off Cambodia's coast; the World Bank puts the figure at closer to two billion barrels.

Michael Smith, chief executive of Energyfiles, an independent oil and gas consultancy, said he estimated Cambodia's recoverable oil reserves at 750 million barrels and recoverable gas reserves at 300 billion cubic meters. The government hopes to see a revenue stream by 2010.

In Myanmar, new pipelines will shuttle Middle East oil, and production from the country's own offshore fields, to China's southern Yunnan province.The military government says the country has 3.2 billion barrels of recoverable crude oil reserves and that for the fiscal year 2005-06 the country produced nearly eight million barrels of crude.

While Western countries have sought to isolate the military government, Russia and China have sold it arms and, in January, vetoed a United Nations Security Council resolution condemning the regime. Days later, Myanmar handed major contracts to China's National Petroleum Corp. In September, it awarded Russia's state-owned oil company Zarubezhneft a first contract to explore for offshore oil.

In Thailand, the energy ministry has recently put 56 onshore and nine offshore exploration blocks in the Gulf of Thailand up for bidding. In the Lanta production area of the Gulf of Thailand, Chevron has discovered fields capable of producing 14,000 barrels per day. Thailand now produces 143,900 barrels of crude per day, and substantial quantities of gas.

Brunei, a net oil exporter, currently produces 198, 000 barrels of crude oil a day from its heavily depleted reserves. Smith, of Energyfiles, and other industry analysts say that its shallow coastal waters are unlikely to yield significant new finds. The most potential for additional reserves is probably in deep waters in the South China Sea, but territorial ownership disputes with Malaysia could be a problem, Smith said.

In the Philippines, deregulation of the energy sector under President Gloria Macapagal Arroyo has triggered some foreign interest. Known reserves are limited but the Sandakan deep water basin, bordering Sabah and covering some two million acres, may have large potential, some analysts say. Exxon Mobil has a 50 percent operating interest in the basin.

"Southeast Asia is the most easy place for western-style oil companies to do business," Smith said, and rich finds in shallow offshore waters have provided strong incentives for explorers.

Across the region "the risk/reward profile" is favorable, said Bradley Way, a senior analyst with BNP Paribas.