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03 Comment
Contents 27 Shifts in seismic technology
November 2018
Volume 11 Issue 11

O. Valishin, Sercel, France, discusses developments in

05 World news borehole seismic technology.

10 Is Southeast Asia’s upstream missing out on 31 Simplifying data sorting

higher prices? Ali Karimi, Jeremy Ma, Hanna Lee, Hamed Darabi, and
Elisabeth Murphy and Yao Wu, ESAI Energy, LLC, USA, David Castiñeira, Quantum Reservoir Impact, explore
discuss the region’s efforts to drive up investment – the practical applications of AI for drilling.
and drive down reliance on imports.
35 Practice makes perfect
15 Multi-disciplinary discrimination Claire Kennedy Platt and Michael Rossing, NOV, USA,
Romain Baillet and Nicolas Desgoutte, Beicip-Franlab, report on the testing of customised solutions aids in
France, discuss the use of discriminant analysis in milling and intervention operations.
seismic inversion on multi-disciplinary projects.
38 Enhancing well allocation
19 Reducing operational risk Alick MacGillivray, TUV SUD NEL, UK, explains how
Tristam Horn, DeltaTek, UK, explores new technologies shared well allocation methods could be costing
designed to save rig time and optimise drilling operators dear.
operations.

23 Optimising hydraulic fracturing operations 41 Drill Bit Design Q&A

Mostafa Shahin, MAP Oil Tools Inc., USA, explains Oilfield Technology invited experts from BHGE, Ulterra,
how new frac sleeve technology can provide limitless and Varel to share their knowledge on a variety of drill
stages across various completion challenges. bit design topics.

45 A breath of fresh air

Front cover Pete McGuigan, Parker Hannifin, UK, outlines holistic
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©
Copyright Palladian Publications Ltd 2018. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted
Oilfield Technology is audited by the Audit Bureau in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright owner.
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 Comment David Bizley, Editor
November 2018
Contact us
david.bizley@oilfieldtechnology.com
Editorial

A
Managing Editor: James Little
s promised by the Trump administration, the United States james.little@oilfieldtechnology.com
has reinstated sanctions on Iran. Lifted in early 2016 as Editor: David Bizley
david.bizley@oilfieldtechnology.com
part of the ‘Iranian nuclear accord’ (which saw sanction
relief exchanged for a cessation of Iran’s nuclear programme) the Editorial Assistant: Aimee Knight
aimee.knight@oilfieldtechnology.com
wide-ranging sanctions are designed to hinder oil exports and
restrict access to shipping and banking. Design
President Trump once referred to the accord as the “worst deal ever negotiated” and argues Production: Hayley Hamilton-Stewart
hayley.stewart@oilfieldtechnology.com
that the reinstated sanctions are necessary to bring Iran back to the negotiating table. According
to the US Department of State, exactly why Iran needs to be forced to negotiate is clear: it argues Sales
that through state-sponsored terrorism “Iran’s regime has brought suffering and death to the Advertisement Director: Rod Hardy
world and its own people [and has] scarred countless lives.”1 US Secretary of State, Mike Pompeo, rod.hardy@oilfieldtechnology.com
has argued that “The Iranian regime has a choice: it can either do a 180˚ turn from its outlaw Advertisement Manager: Ben Macleod
ben.macleod@oilfieldtechnology.com
course of action and act like a normal country, or it can see its economy crumble.”2
Perhaps unsurprisingly, news of the reinstated sanctions has been met with a measure of Website
scorn (to put it mildly) in Iran; President Rouhani has vowed to “proudly break the sanctions” Website Manager: Tom Fullerton
and “continue selling oil”.3 Indeed, exactly how effective the sanctions will be isn’t quite as tom.fullerton@oilfieldtechnology.com
clear cut as one might hope – without the support of the EU (which has stuck to the terms of Digital Editorial Assistant: Nicholas Woodroof
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the accord) and exceptions being made for eight major Iranian oil importers, including India
and China, there remain some (albeit diminished) legal routes for Iran to do business with the
world. Despite these concerns, Mike Pompeo claims that US pressure has already cost Iran Marketing
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US$2.5 billion in lost oil revenues since May this year.4
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The fact that India and China (amongst others) have been granted temporary waivers is
Reprints:
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roughly 230 million vehicles on India’s roads, but this market is still actually underdeveloped.
Estimates show US$345 billion of investment will be needed to meet fuel demand by 2030.6
To meet this staggering demand, India has been pulling out all the stops to attract investors,
including holding roadshows in London and emphasising attractive fiscal terms for exploration
and production contracts. The CEO and Managing Director of Indian Strategic Petroleum
Reserves, HPS Ahuja, was quoted as saying “India is a bright spot in the world economic order,
where demand for petroleum products is on the rise. The primary energy demand of the
country will almost double in the next 12 years.”7
The last decade was shaped by the growth of China – it looks like the next will be shaped
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References
year discounted rate £128 UK including postage/£152 overseas
(postage airmail).
1. ‘Select Iran-Sponsored Operational Activity in Europe, 1979 - 2018’ – https://www.state.gov/j/ct/rls/other/283789.htm Subscription claims: Claims for non receipt of issues must be
2. ‘Iran sanctions: US vows ‘relentless’ pressure as sanctions resume’ – https://www.bbc.co.uk/news/world-middle- made within three months of publication of the issue or they will
east-46101703 not be honoured without charge.
3. ‘Iran sanctions: Rouhani defiant as US re-imposes measures’ – https://www.bbc.co.uk/news/world-middle-east-46094489 Applicable only to USA & Canada: OILFIELD TECHNOLOGY
4. ‘India, China among eight countries exempt from US sanctions on Iran oil’ – https://economictimes.indiatimes.com/industry/ (ISSN No: 1757-2134, USPS No: 025-171) is published monthly
by Palladian Publications, GBR and is distributed in the USA
energy/oil-gas/india-china-among-eight-countries-exempt-from-us-sanctions-on-iran-oil/articleshow/66520204.cms
by Asendia USA, 17B S Middlesex Ave, Monroe NJ 08831.
5. Ibid. at 2. Periodicals postage paid New Brunswick, NJ and additional
6. Raval, A., ‘FT BIG READ. INDIA’, Financial Times, p. 11, (5 November, 2018). mailing offices.
7. ‘India stages roadshow in UK to attract investors for oil, gas sector’ – https://energy.economictimes.indiatimes.com/news/ Postmaster: Send address changes to Oilfield Technology, 701C
oil-and-gas/india-stages-roadshow-in-uk-to-attract-investors-for-oil-gas-sector/66438959 Ashland Ave, Folcroft PA 19032.

November 2018 Oilfield Technology | 3

CENTRALISE...
...NO COMPROMISE

4 | Oilfield Technology Month 2014 www.downholeproducts.com

World news November 2018

Siemens: major milestone achieved in development of In brief

subsea power distribution system
Siemens has successfully concluded the first phase of its Subsea Power Grid shallow water
test in Trondheim, Norway. Siemens, in collaboration with industry partners Chevron, Equinor, Mozambique
ExxonMobil, and Eni Norge, is in the final stages of a programme to develop a barrier-breaking Eni has signed a contract for the exclusive
system that will become the world’s first Subsea Power Grid designed for distribution of medium exploration and development rights
voltage power using pressure compensated technology. of the offshore block A5-A, in the deep
“There will be more subsea compressors, pumps, processing plants, and in the future entire waters of the Northern Zambezi Basin,
production facilities placed on the seabed, all of which require power,” said Frode Tobiassen, approximately 1500 km to the north east
Head of Subsea at Siemens. “This development is what we are preparing for with the Subsea Power of the capital Maputo.
Grid system.” The Subsea Power Grid system consists of a subsea transformer, subsea switchgear, The block was awarded to Eni
subsea variable speed drive (VSD), subsea wet mate connectors, and a highly reliable remote control as a result of its participation in the
and monitoring system that includes cloud-based user dashboards and data analytics. 5th competitive Licensing Round launched
The Subsea Power Grid is an enabling technology for subsea processing with multiple by the Republic of Mozambique. It
seabed power consumers. The system is ideally suited to support enhanced recovery in subsea extends over an area of 5133 km2, at
brownfield projects and tie-back fields, benefitting from single- or multiphase boosting to water depths between 300 and 1800 m, in
increase oil recovery. During the initial test phase at Siemens’ test site in Trondheim, the a completely unexplored zone in front of
system operated in a ring loop topology at full load and a predetermined test and verification the town of Angoche.
programme was performed. The initial results from the shallow water testing were positive and Eni is the operator of Block A5-A
all units operated within their design parameters. Consortium, with a participating share
In agreement with its programme partners, Siemens will now move into the next phase with of 59.5% owned by its subsidiary
an extended shallow water test to build operational experience and verify long-term reliability. Eni Mozambico. Other partners are
The goal is to accumulate 3000 hrs of runtime on the equipment while performing further Sasol, with 25.5%, and the Mozambican
system testing. In parallel, preparations are ongoing for a deepwater pilot programme where the state company Empresa Nacional de
equipment will be installed and used on a subsea field. Hidrocarbonetos (ENH) with 15%.

Solid-state wellbore surveying Stork awarded asset Ghana

system improves accuracy
During this year’s Abu Dhabi International
Exhibition & Conference (ADIPEC), held on
12 - 15 November, Gyrodata Incorporated
released a new all-attitude, solid-state drop
gyro tool. The OmegaX™ marks the first
product offering utilising Gyrodata’s new
disruptive SPEAR™ technology.
The OmegaX service provides: increased
reliability, improved robustness, data
redundancy, transparent QC and significantly
higher accuracy. OmegaX drop gyro surveys
are recorded while tripping the drilling string
out of the hole and with zero rig time.
The solid state sensors are not
affected by a mass unbalance or magnetic
interference, and greatly reduce the ellipse
of uncertainty by up to 154% compared
to competing MEMS Gyro-While-Drilling
systems.
integrity contract extension
Fluor Corporation has announced that
Stork has been awarded a two-year
contract extension by Chrysaor for the
delivery of integrated specialist asset
integrity services for its Armada, Everest
and Lomond offshore production platforms
located in the Central North Sea.
Taco de Haan, Stork’s President, said:
“Utilising our full portfolio of professional
solutions will provide significant
opportunities to support Chrysaor’s goal
to maximise efficiency and achieve reliable
operations across its North Sea portfolio.”
“Stork has provided specialist asset
integrity solutions for these platforms
since 2014, so we are delighted to have
been awarded this contract extension,”
said Erik-Jan Bijvank, Stork’s International
Vice President.
Subsea 7 S.A. has announced the award
of a contract by Tullow Ghana Limited
on the Jubilee field, offshore Ghana,
in water depths of up to 1000 m. The
engineering, procurement, construction
and installation (EPCI) contract is
awarded under a consortium comprising
Subsea 7 Volta Contractors and NOV Oil &
Gas Services Ghana Ltd.
Subsea 7’s scope of work includes the
installation of the Buoy Turret Loading
(BTL) system from APL, a group within
NOV Completion & Production Solutions,
with associated suction piles and EPCI
activities including two offloading lines
for the BTL and the additional hang-off
platform and skid for the FPSO. A
significant part of the fabrication will
be completed locally, in Ghana, and the
offshore installation will take place in
2020.

November 2018 Oilfield Technology | 5

 World news November 2018

Diary dates Hibiscus Petroleum to acquire oilfields offshore UK

from Caldera Petroleum
05 - 07 February, 2019 Hibiscus Petroleum has announced that its indirect wholly-owned subsidiary, Anasuria
Subsea Expo Hibiscus UK Limited (AHUK), has entered into a conditional sale and purchase
Aberdeen, UK agreement with Caldera Petroleum (UK) Limited to acquire a 50% participating interest
E: events@subseauk.com in Block 15/13a and Block 15/13b under the Production License P198, for a purchase
www.subseaexpo.com consideration of US$37.5 million.
The blocks are located offshore in the United Kingdom sector of the North Sea,
26 - 28 February, 2019 approximately 250 km northeast of Aberdeen. Block 15/13a consists of a significant
oil bearing discovered field, whilst Block 15/13b which lies northeast of Block 15/13a
IP Week
London, UK consists of a smaller discovered field. Based on an independent report by AGR TRACS
E: joanne.mcbratney@hg3.co.uk International Limited, the gross contingent oil resources (2C Oil Resources) in the blocks
www.ipweek.co.uk is estimated to be 60 million bbls (30 million bbls net to AHUK). Prior to this transaction,
the group’s proved and probable oil reserves (‘2P Oil Reserves’) and 2C Oil Resources in
its current portfolio are 46 million bbls and 38.5 million bbls, respectively.
05 - 07 March, 2019
Commenting on the proposed acquisition, Hibiscus Petroleum’s Managing Director,
SPE/IADC Dr Kenneth Pereira, said, “We are excited by this acquisition. It is a key component
The Hague, The Netherlands of our 2021 mission to secure 100 million bbls of proved and probable reserves.
E: registration@spe.org
Furthermore, the blocks are located in an area that is close to other discoveries and
www.spe.org
existing infrastructure. We look forward to working closely with the UK regulators as
well as with our new partner to optimally monetise the resources within these blocks
13 - 15 March, 2019 and deliver shareholder value.”
AOG 2019
Perth, Australia
E: aogvp@divcom.net.au Crondall Energy secures contract to support
www.aogexpo.com.au
Siccar Point Energy’s Cambo field development
18 - 21 March, 2019 The FPSO scope of work includes consideration of a range of FPSO options, including new
builds, redeployments and conversions. The FPSO studies will consider the suitability
MEOS
of the various options from the perspective of their suitability for operations in the
Manama, Bahrain
E: spedub@spe.org challenging West of Shetland environment, as well as compliance and suitability for
www.meos19.com operations on the UK continental shelf (UKCS). Support will initially cover the identification
and evaluation of FPSO options for the development and pre-FEED technical assurance

Web news
highlights
ÌÌEni and Lukoil sign agreement on
exploration licenses offshore Mexico.
ÌÌJumbo awarded transportation and
installation contract for TechnipFMC.
ÌÌCabot Energy Plc: annual reserves and
resources report.
ÌÌRowan Renaissance awarded contract
by Total.
To read more about these articles
and for more event listings go to:
www.oilfieldtechnology.com
of the subsea design. The subsea engineering work scope involves peer review and peer
assist activities on the pre-FEED subsea design, including flow assurance and operability
reviews. Crondall is providing Siccar Point with a unique assurance service which is ideally
suited to operators implementing the latest cost-efficient contracting models.
Duncan Peace, Crondall Energy’s Managing Director, said “As an independent
consultancy with expertise across floating and subsea systems we are delighted to be
working with Siccar Point and to be playing a critical role in developing the Cambo field.
Crondall Energy has significant experience working on projects in the harsh West of Shetland
environment so we are certain that we can make a significant contribution to this project.”
Alex Back, Developments Manager, of Siccar Point Energy said: “Crondall Energy brings
extensive experience of delivering projects and we look forward to working with them as
we further develop the Cambo field and Greater Cambo Area.”
The Cambo Field is located 125 km north-west of the Shetland Islands and lies 30 km
southwest of Rosebank and 50 km north of Schiehallion. The field was discovered in 2002
and has five wells drilled into the structure. Siccar Point acquired a 100% operated interest
in the field from the takeover of OMV (UK) in January 2017 and brought Shell UK in as a
partner in May 2018.
Crondall Energy will execute the FPSO evaluation from their Winchester and London
offices, while the subsea engineering work scopes will be provided from their Aberdeen office.

6 | Oilfield Technology November 2018

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 World news November 2018

Talos Energy announces transaction with Hokchi Energy NOVATEK discovers

to cross-assign interests offshore Mexico North-Obskoye field
Talos Energy has announced that it has entered into a transaction with NOVATEK has announced that its
Hokchi Energy, a subsidiary of Pan American Energy LLC, to cross assign the wholly-owned subsidiary OOO Arctic LNG 3 has
company’s Participating Interest in Block 2 and Hokchi’s PI in Block 31, both in the completed the testing of the first exploration
Sureste Basin offshore Mexico. well at the North-Obskiy license area located
Under the agreed conditions for the swap, Talos will assign a 25% PI in Block 2 in the shallow waters of the Ob Bay.
to Hokchi in exchange for a 25% PI in Block 31, which is immediately to the south The North-Obskoye field has estimated
of Block 2. Once the transaction is completed, Hokchi will be the operator of both reserves of more than 320 billion m3 of natural
blocks and Talos will own a 25% PI on Block 2 and a 25% PI on Block 31. The gas under Russian reserve classification, and
transaction is subject to approval by the Mexican oil and gas regulator, the National its total resources at the drilled well area are
Commission of Hydrocarbons (CNH), and has not yet been approved by CNH. estimated at more than 900 billion m3 of natural
Talos was awarded the Production Sharing Contract (‘PSC’) for Block 2 in gas. The reserves estimates will be submitted
September 2015 as part of the competitive bidding process in the historic Round 1.1 to the Russian State Reserves commission for
auction. Hokchi was awarded the PSC for Block 31 as part of a competitive bidding confirmation in November 2018.
process on Round 3.1 in June 2018. Both blocks had multiple bids. “The discovery of significant hydrocarbon
“On both of our Mexican assets, we are taking action to facilitate quicker, more reserves at the North-Obskoye field is an
robust investment and shorter cycle time to production, and potentially a more important starting point for one of our
material level of production”, said Timothy S. Duncan, President and CEO of Talos. future LNG projects in the Arctic region”, said
“The swap with Hokchi is a great way to pool resources between two operators Leonid Mikhelson, Chairman of NOVATEK’s
that have a proven track-record in offshore Mexico. And this trade also allows us to Management Board.
aggregate our neighbouring opportunities. We look forward to working alongside “Under the Russian reserve classification,
the Pan American team on Blocks 2 and 31 while we focus our operational efforts the North-Obskoye field will be included into
not only on Zama but the other material opportunities we have put together on the ‘unique’ category in terms of reserves
the Block 7 acreage.” size.”

Cuadrilla sees first shale gas produced from Wintershall Norge AS granted
Preston New Road drilling permit
Cuadrilla has announced that it has begun to see natural gas flow to the surface from its The well will be drilled from the Transocean
shale exploration well at the Preston New Road site. The gas returned to surface, along Spitsbergen drilling facility in position
with water being recycled from the shale rock, after hydraulic fracturing a small section 67˚37’20.60”N and 6˚45’57.57”E.
of the shale surrounding the first horizontal exploration well. Cuadrilla described the The drilling programme for
news as significant and indicative of the potential of the shale. well 6706/6-2 S relates to the drilling of
Francis Egan, Chief Executive Officer of Cuadrilla, explained: “The volumes of gas a wildcat well in production licence 847.
returning to surface at this stage are small. However, considering that we are only at Wintershall Norge AS is the operator with an
the very start of fracturing operations and, given operating constrains, have not yet ownership interest of 40%.
been able to inject as much sand into the shale as we had planned, this is a good early The other licensees are Repsol Norge AS
indication of the gas potential that we have long talked about.” (20%), OMV Norge AS (20%) and Equinor
The company, based in Bamber Bridge, Lancashire, plans to fully test flow rates from Energy AS (20%). The area in this licence
the first two exploration wells towards the end of 2018 and into the New Year following consists of a part of block 6706/5 and a part
the completion of hydraulic fracturing operations which began in mid-October. of block 6706/6. The well will be drilled about
Mr Egan said: “This Preston New Road site is being monitored to an unprecedented 7 km northwest of the 6706/6-1 (Hvitveis)
level. This initial gas flow is by no means the end of the story. However, it provides early discovery.
encouragement that the Bowland Shale can provide a significant source of natural gas Production licence 847 was awarded on
to heat Lancashire and UK homes and offices and reduce our ever-growing reliance 5 February 2016 in APA 2015. This is the first
on expensive foreign imports. This week, three huge tankers carrying liquefied natural well to be drilled in the licence.
gas from across the world, including shale gas imported from the US, will dock in the The permit is contingent on the operator
UK to safeguard our winter gas supplies. If we are able to fully test these wells, without obtaining all other consents and permits
compromising on safety, we have the potential to make a major difference to UK energy required by other authorities before the
supply, security and economic prosperity.” drilling activity commences.

8 | Oilfield Technology November 2018

IS SOUTHEAST ASIA’S
UPSTREAM MISSING
OUT ON HIGHER
PRICES?

10 |
Elisabeth Murphy and Yao Wu, ESAI
Energy, LLC, USA, discuss the region’s
efforts to drive up investment – and drive
down reliance on imports.
W
ithout significantly more upstream investment, Southeast Asia’s
oil production will decline by 2022, falling under 2 million bpd.
Over the same period, natural gas output from the region will fail
to rise above 20 billion ft3/d. As a result, the region will increasingly rely on
imports to meet its fast-growing energy demand.
The sharp downturn in oil prices during the past three years
precipitated a large reduction in exploration and development budgets
for IOCs and NOCs alike. This has impacted Southeast Asia where ageing
oil and gas fields require a steady influx of capital to maintain productive
capacity and offset decline. A lack of significant new discoveries in the
region has also dampened the prospects of longer-term production
growth.
Offshore resources in Southeast Asia are generally costlier to extract
given complex and challenging reservoirs that tend to be smaller in size
and in remote areas. The resulting Capex risk exposure for companies
is high, and therefore local government policies and regulations that
are friendly to foreign investment are critical. There is significant global
competition for investment dollars and internal hurdle rates must be
met or exceeded to attract capital to the region. Deepwater projects in
Southeast Asia compete with abundant new resources and assets in
South America, Africa, and the Gulf of Mexico.
In the meantime, the region is experiencing soaring energy demand
that must be met by increasing imports of crude oil and natural gas as
domestic supply struggles to keep up. Natural gas demand in particular
is growing rapidly in the region, with LNG trade increasing. China’s LNG
imports alone grew over 42% in 2017 to over 5 billion ft3/d and are forecast
to grow a further 40% by 2020. Indonesia and Malaysia supplied nearly
20% of China’s total imports last year. Upstream producers, therefore, have
an excellent opportunity to meet growing gas demand in the region.
The recovery in oil prices is helping oil and gas producers increase
their capital spending this year. Currently, most projects in the region are
small scale, or brownfield expansions. Regional NOCs will have to take on
a bigger role to fund the necessary maintenance in mature fields, and to
increase exploratory budgets to replace falling reserves.
Indonesia looks to reduce imports
Indonesia has had no significant hydrocarbon discoveries in a number
of years. Investment sunk to very low levels in 2017, falling to only
US$7 billion from over US$20 billion in 2014. This has contributed to the
decline in oil production. So far in 2018, drilling activity has not lived up to
goals set by the country’s regulator, meeting only 40% of their target as of
September.
Indonesia’s investment terms have not attracted more foreign
companies to open their purse strings. In 2017, Indonesia introduced the
gross-split PSA. This gives operators a bigger share of output than previous
contracts but leaves out the cost recovery mechanism. The idea was to
lessen the regulatory burden caused by the need for expenditure approvals
and audits under cost recovery PSAs. But many details are not clear, such
as what market price will be paid to foreign producers who must sell their
output to state-owned Pertamina for the domestic market.
Over half of Indonesia’s existing production will be subject to
takeover by Pertamina by 2025 as PSCs are expiring. In an effort to reduce
dependence on imports and reduce currency outflows, the government of
Indonesia awarded operatorship of the Rokan oilfield to Pertamina starting
in 2021, after Chevron had been operating the field for decades. Pertamina
signed a commitment to invest US$500 million in the first five years and
plans to run the crude in its own refineries, rather than export. Enhanced
oil recovery methods will be necessary to maintain output at the field. Last
year, the field’s output was roughly 120 000 bpd.
With abundant gas reserves, natural gas production could increase
significantly in Indonesia if government policy around resource
nationalism relaxes. Pertamina has also taken over the country’s biggest
gas field, Mahakam, from Total and Inpex. The ageing Mahakam field
needs constant drilling to offset decline and keep production flat.
New projects will be critical to support Indonesia’s LNG facilities.
Current liquefaction capacity in the country is about 3.5 billion ft3/d,
with another 2 billion ft3/d planned to come onstream over the next five
years.
Thailand to boost natural gas reserves
Like Indonesia, Thailand has not had a significant gas find for some time,
and the country needs investment in the sector. Thailand is the largest
consumer of natural gas in Southeast Asia. LNG imports increased by
over 30% in 2017, with demand for gas increasing for industrial use and
power generation.
Current concessions for the Bongkot and Erawan gas and condensate
fields expire in 2022 and 2023. Combined, the two fields produced over
2 billion ft3/d of natural gas in the first half of 2018, representing about 75%
of the Gulf of Thailand’s output. Thailand also receives production from
a joint-development area with Malaysia. Those fields are near depletion
stage, highlighting the need for increased investment.
The Thai government recently introduced a PSC for its September
bidding auction on both the Bongkot and Erawan fields. Expiring
concessions with available production may be replaced by PSCs
| 11
while new, and therefore higher risk, blocks are subject to the current
concession agreement. Blocks that are currently marginal are expected
to fall under the PSC to incentivise development, as has happened in
Malaysia.
To ensure domestic consumers are not burdened with high
gas prices, bidders in the recent auction were required to commit
to a minimum production level of 800 million ft3/d for Erawan and
700 million ft3/d for Bongkot at prices no higher than current levels
for the next 10 years.
Thailand imports natural gas from Myanmar, which holds the
last frontier acreage in an otherwise mature region. However,
present fiscal terms provided by the Myanmar government may
be deterring investment. Many of the offshore blocks awarded
in 2014 after a successful bidding round have subsequently been
relinquished. Natural gas demand is also growing in Myanmar, and
industrial development in the country would benefit from more
domestic natural gas.
High taxes, a lack of infrastructure, and uncertainty on regional
gas prices are combining to dampen the prospects for developing
new resources from Myanmar. According to Myanmar’s Ministry
of Electricity and Energy, Oil and Gas Planning Division, the next
bidding round for concessions in deep and shallow waters offshore
Myanmar will be scheduled for the first half of 2019.
Among these blocks are 11 offshore blocks, which have recently
been relinquished by previous drillers including Shell and India’s
Reliance Industries. Once termination agreements are signed for
all the relinquished blocks, they will be included in future bidding
rounds. The Myanmar government has encouraged local companies
to register and team up with foreign oil and gas companies with the
aim to gain experience for future exploration efforts.
In 2018 - 2019, a number of foreign companies are scheduled
to carry out seismic surveys, exploration, and feasibility on both
onshore and offshore blocks. How interested major oil and gas
companies are in the bidding prospects will be indicative of the
risk-reward trade-off and the resulting prospects for future growth.
Figure 1. Southeast Asia annual crude and condensate production.
Figure 2. Major oil and gas company annual expenditures for Asia
exploration and development in US$ millions.
12 | Oilfield Technology November 2018
Maritime disputes remain hurdle for Vietnam and the
Philippines
Exploration has fallen in Vietnam and reserves are not being replaced.
Output will continue to decline if more investment does not materialise.
State-owned PetroVietnam reported that it does not have the resources
to significantly expand its exploration budget, and the current petroleum
laws need to be changed to stimulate foreign investment.
Continued conflicts with China regarding boundaries in the
South China Sea will have a detrimental impact on production in
Vietnam and the Philippines. The Ca Rong Do project off the southeast
coast of Vietnam has wavered between getting the go-ahead and
indefinite suspension. Recent news of the project’s suspension came
as a surprise; a sizeable outlay of capital was made and commercial
drilling was already underway. Repsol’s local subsidiary has previously
estimated it contains 45 million bbls and 172 billion ft3 of gas.
The Philippines and China are continuing their discussions around
a joint exploration of hydrocarbons in efforts to end conflicts in the
South China Sea. The Philippines would like to increase its domestic
production to reduce its heavy oil imports from Persian Gulf producers.
With proved and probable reserves of about 190 trillion ft3 of natural
gas and 11 billion bbls, and possible undiscovered resources that could
double those figures, the South China Sea will be a critical area for
prospective growth in oil and natural gas. The overarching requirement
for attracting upstream investment is governmental policies that attract
capital with the appropriate level of risk and reward.
CNOOC focus on South China Sea gas projects
As China transitions to more natural-gas use in its industrial sector,
activity in the South China Sea will increase. Indeed, CNOOC announced
over US$3 billion investment in its first self-operated deepwater gas
project Lingshui 17-2, which was initiated in June 2018 and is expected
to start production by the end of 2020 or early 2021. In the next few years,
the state-owned company will direct more investment to natural gas
projects in the South China Sea. About one-third of the deepwater fields
in the South China Seas are complex, with high-temperature and high-
pressure, and therefore costlier to develop.
So far, CNOOC’s major gas fields are in the Western South China Sea
in shallow waters, with depths between 40 to 120 m (130 to 400 ft).
Discovered by China’s first semisubmersible deepwater rig, Lingshui 17-2 is
about 1500 m (5000 ft) deep and has a proven reserve of over 3 trillion ft3.
The project has strong policy support for two reasons. First, its potential
output could help to ease China’s energy security concerns. China has
seen its natural gas demand growing from 5.9% of primary energy
consumption in 2015 to 7.3% in 2017. Beijing has set a target for natural gas
to account for 10% in 2020 in order to reduce coal consumption. Second,
if successfully completed, it will be lauded as a milestone under Beijing’s
Made in China 2025 plan that aims to pursue technological leadership.
In addition, other offshore projects to start in the 2019 - 2020 period
include shallow-water oilfield developments Huizhou 33-1/32-5 and
Bozhong 34-9, which are based on existing facilities. CNOOC is also
building LNG infrastructure and storage projects in Fujian and Zhejiang
to enable the uptake of natural gas into Southeast China. Discovery of
Bozhong 19-6 will continue to draw investment in natural gas in the
medium term beyond 2020.
Higher oil prices and increasing domestic energy demand in China
and throughout Southeast Asia present an opportunity for the upstream
sector. Government policies that attract and retain investment, however,
are critical to finding and developing oil and gas resources and reducing
dependency on foreign imports. The NOCs can play a larger role in the
region as countries try to shore up their domestic markets and reverse
stagnating or declining production, but it is unclear if that is the likely path
ahead for the region.
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