Asia gunning for deep-sea oil and gas
--------------------------------------------------------------------------------

SINGAPORE: August 9, 2004


SINGAPORE - Failure to find enough oil and gas onshore is pushing energy-thirsty Asia further out to sea in search of more black gold despite the higher risks.


The lure looms large: by some estimates, 20 billion barrels of oil equivalent (boe) await prospectors in Asia-Pacific's vast but largely untapped deepwater acreage, representing more than 40 percent of the region's proven oil reserves.
Yet to find hydrocarbons hidden hundreds or thousands of metres under the seas is tough and costly, and such exploration is relatively new to Asia starting barely a decade ago.

"The technical challenge for exploring the deepwater region of this area (Southeast Asia) can be geologically complex. Obviously, without a lot of previous exploration, it is a high-risk and high-cost area to explore," Norman Valentine, an analyst at Wood Mackenzie, said by telephone from Edinburgh.

It is also uncertain how much of the estimated 20 billion boe in Asia can be profitably recovered using existing technology, which is being pushed to the hilt.

"Technology has to prove itself against commercial conditions as anticipated in the future. So if you are convinced that you are going to have $40 oil, you keep on drilling," said Al Troner, managing director of U.S.-based Asia Pacific Energy Consulting. "But a lot of people, myself included, are not."

Record-high oil prices above $40 a barrel are spurring firms to spend more on drilling, contributing to a global drilling boom that is fuelling the revenues of oil service firms such as Baker Hughes BHI.N , Halliburton HAL.N and Schlumberger SLB.N .

"We believe that increased upstream spending outside North America will drive worldwide spending growth of 10-11 percent in 2004," Merrill Lynch said in a report.

GAS, NOT OIL

Malaysia, Indonesia, Brunei and India have made notable deep-sea finds, raising hopes of more major discoveries. Malaysia, where Murphy Oil Corp. MUR.N and Shell have made major finds in deepwater, plans to open ultra-deepwater areas to foreign investors.

But most discoveries are dominated by natural gas, which is more difficult to handle and transport than oil and requires a dedicated market for sales.

Asia has to vie with other regions for big players such as BP BP.L and Royal Dutch/Shell RD.AS SHEL.L , which have the most advanced deepwater technology. These companies are focusing on more promising deepwater areas in West Africa, the U.S. Gulf of Mexico and Brazil.

Most reserves found in West Africa are crude oil. The success ratio for deep-sea drilling in Angola exceeds 80 percent, above the global average of about 50 percent.

Finding more indigenous energy is crucial to Asia, which imports two-thirds of its oil needs of over 23 million barrels per day (bpd). Its crude oil reserves and production, a fraction of the global total, are not growing partly due to limited incentives for foreign companies to boost upstream spending.

In Southeast Asia, 30 operators had drilled deepwater wells and found 6.7 billion boe, Shamsul Azhar Abbas, vice president of Malaysian state oil firm Petronas' exploration and production business, told a recent industry conference.

DEEP HOPES

The cost of deepwater drilling is much higher than shallow-water or onshore exploration and the risks are high. A deepwater oil rig costs up to $200,000 to rent a day, five times that of a shallow-water rig.

The first deep-sea well in Pakistan, drilled this year by France's Total TOTF.PA , Petronas and Austrian OMV AG OMVV.VI , turned out to be a dry hole. The cost: $30 million plus months of hard labour.

Andrew Latham, consultant at Wood Mackenzie told Reuters the 20 billion boe in Asia Pacific - 11 percent of 180 billion boe estimated in yet-to-be found deepwater reserves in the world - should be mainly in Australia, Indonesia, Malaysia and India.

Deepwater drilling is also hotting up in India and China, which is the world's second-largest oil consumer. China is holding talks with Brazil's Petrobras PETR4.SA over deepwater cooperation and has just awarded a licence to PetroChina PTR.N 0857.HK to drill near the disputed Spratly Islands.

India's Oil and Natural Gas Corp. ONGC.BO and Reliance Industries RELI.BO are racing to drill deep-sea wells, with ONGC vowing to spend $750,000 a day in the next few years, after making a string of deepwater gas finds.

Yet to cash in on the gas reserves is not easy. The reserves lie in eastern India's Krishna-Godavari basin, while the main natural gas market is on the west coast. It means India will have to lay a pipeline across the country to sell the gas.

Many of the oil majors with the technical expertise are cautious about high investment in parts of Asia where operating and regulatory regimes may be murky and governments are loathe to improve production terms.

"Things are definitely improving but a further exploration success, a few more discoveries may need to be made before the international majors seriously look at India," Wood Mackenzie analyst Alister Morrison said.

There are also diplomatic issues. Some offshore reserves lie in contested waters, such as parts of the South China Sea and East China Sea, and the East Timor Sea. Conflicts over drilling have flared up between Malaysia and Brunei, and China and Japan.

"No one is going to put money into a long-term project until the legal status of the area and the project is recognised by both countries," Troner said.


Story by Charlie Zhu
http://www.planetark.com/dailynewsstory.cfm/newsid/26469/story.htm