INDOCHINA BECOMING PRIME TARGET FOR FOREIGN INVESTMENT IN E&D

May 18, 1992
Indochina is emerging as a prime target for investment in oil and gas exploration and development. The Southeast Asian subcontinent offers sharp contrasts: the booming, market oriented economy of Thailand with its friendly climate for foreign investment, compared with the flagging socialist economies of Myanmar (formerly Burma), Cambodia, Laos, and Viet Nam.

Indochina is emerging as a prime target for investment in oil and gas exploration and development.

The Southeast Asian subcontinent offers sharp contrasts: the booming, market oriented economy of Thailand with its friendly climate for foreign investment, compared with the flagging socialist economies of Myanmar (formerly Burma), Cambodia, Laos, and Viet Nam.

The contrast extends to the Thai energy sector as well. Aggressive development of Thailand's gas reserves with foreign assistance and capital underpins the buoyant Thai economy and has helped it reduce its dependence on imports to 40% of total energy demand.

That contrast may also give impetus to a window of opportunity for oil and gas companies to participate in little tested or rank exploration plays elsewhere in the region.

Except for Thailand, the region has seen little exploration-and almost none by private companies-since the early 1970s.

The other countries are just beginning to emerge from years of international isolation caused by war or civil strife, and some are seeking foreign private investment in oil and natural gas for the first time in more than a decade.

The need for hard currency capital is keen. Accordingly, industry officials point to nations such as Cambodia offering among the most attractive terms for oil and gas investment in the world.

THAILAND THE PACESETTER

Along with foreign multinationals, perhaps no one is better poised for a major role in this activity than Thailand's state oil company Petroleum Authority of Thailand (PTT). It has aggressively sought upstream and downstream opportunities with its neighbors, often in joint ventures with private multinationals.

Thailand remains a prime opportunity for upstream foreign investment, as long time players step up investment there and new players enter the action.

Early in the game, Viet Nam has emerged as a potential crude oil exporter of sizable scope (OGJ, July 13, 1991, p. 23).

Myanmar is aggressively moving to exploit its sizable gas reserves, possibly with a multibillion dollar liquefied natural gas export project.

Cambodia is pressing international investment in oil and gas E&D there. The government has thrown the entire country open to competitive bidding for acreage.

And Laos soon will see the first well spudded by a foreign private company on its territory.

Stumbling blocks still could turn up, notably involving the confusing welter of boundary claims among the countries of Southeast Asia. Hostilities have occurred in the past over boundary disputes there-notably between Viet Nam and China. But those nations also are making rapid progress toward resolving the disputes with joint oil and gas development proposals (OGJ, Mar. 30, p. 80).

Another problem will be risks posed by a vast amount of unexploded bombs and ordnance left by wars that have ravaged the region for decades (OGJ, Feb. 17, Newsletter).

As the trend toward privatization grows in Indochina, just as it is growing worldwide, the region will remain a prime target for oil and gas company E&D investment the rest of the decade.

INVESTMENT OUTLOOK

Oil companies generally take a favorable if cautious view toward petroleum exploration and production ventures in Indochina, says A.D. Melzer, Premier Consolidated Oilfields plc managing director.

Melzer made the comments at a conference in Bangkok.

He contends the region is entering a period of relative political stability, and there is good potential for finding and developing oil and gas reserves for consumption within the region.

Premier currently operates in Cambodia, Myanmar, and Thailand.

Melzer said current and potential investors see a window of opportunity to achieve a long term role in Indochina as those countries shift gradually to a market economy alongside the rapidly industrializing "tiger" economies of East Asia-Taiwan, South Korea, Hong Kong, and Singapore.

Each of the Indochina nations has identified its energy sector as a priority in fueling economic growth. Each in turn has concluded exploration and development of oil and gas is risky and requires huge amounts of hard currency capital and special technical knowledge and equipment, Melzer said.

Accordingly, the nations have sought involvement of foreign oil companies in oil and gas development by enacting favorable foreign investment laws and quickly implementing international tenders for exploration and production acreage.

They see benefits from successful oil and gas ventures that include increased revenues from royalties, taxes, and profits, domestic security of supply, technology transfer, improved domestic infrastructure, increased employment, and eventual upgrading of local and government services and personal income levels, Melzer said.

There remains some concern over the role governments in the region play in exploration and production, whether through state petroleum companies or contractual participation. Foreign companies view the role of government participation with suspicion, contending the state should not plan, the dual role of "player and referee," Melzer said,

These nations' continuing debt crisis and the performance of state oil companies has spurred some of the region's governments to consider a policy of privatization more in accord with market economy trends.

Considering the region's emerging political stability, Melzer said, it is more likely financing for energy projects in Indochina will come from East Asian sources such as Japan, South Korea, Taiwan, and Thailand.

THAILAND'S ROLE

Thailand gets most of its impetus for aggressively pursuing oil and gas projects elsewhere on the subcontinent from its dramatically rising energy demand, especially for electrical power.

At the same time, Bangkok wants to reduce burning of oil to generate power for environmental reasons. That's why so much of its emphasis is on securing natural gas supplies in neighboring countries.

PTT has sought joint venture offshore gas development projects with neighboring Myanmar, Malaysia, Cambodia, and Viet Nam.

The country has produced offshore gas for more than a decade with the help of Unocal Corp. and other foreign oil and gas companies. It also is courting other foreign investment in its petroleum sector-downstream as well as upstream.

Thailand's stability and economic strength are attracting foreign multinationals to take up residence there not only for investment in Thailand's petroleum sector but as a base of operations for the region.

British Gas plc (BG) Chairman Robert Evans told Thai Prime Minister Anand Panyarachun BG has chosen Thailand as a center for its investments in Southeast Asia.

BG recently disclosed spending plans totaling more than $110 million for gas exploration and development in the Gulf of Thailand during the next 5 years. It's part of an overall budget of $200 million earmarked for Southeast Asia gas projects, including distribution and cogeneration.

About 60% of those outlays will go toward developing giant Bongkot gas field in the Gulf of Thailand, in which BG holds a 20% stake.

The rest will be spent for exploration on Block 5/27 in the gulf, covering a 15,554 sq km block off the southern Thai isthmus province of Prachuab Khiri Khan. BG operates Block 5/27 with a 50% interest in partnership with PTT's exploration unit PTT Exploration & Production (Pttep).

BG also is negotiating with Thai Olefins Co., a partly state owned petrochemical firm, to build a 160,000 kw gas fired cogeneration plant at Mab Ta Phud, Rayong province. Spending for that project is expected to be more than $303 million (OGJ, Sept. 2, 1991, p. 26).

PTT SETBACK

PTT's push to be the subcontinent's leading player was dealt a setback when state owned Petrovietnam chose Liquigaz/SNC Lavalin, Montreal, to build a 75 mile natural gas pipeline and gas processing plant at a combined cost of $300 million (OGJ, May 4, p. 34).

The project will recover 75 MMcfd of gas currently being flared in Bach Ho oil field off southern Viet Nam, with plant products to be exported.

Petrovietnam and the Canadian combine signed an initial joint venture agreement and are to define gas reserves and arrange financing before a final agreement is signed. Industry sources place Petrovietnam's participation in the project at 30%.

PTT, in a venture with Mitsui, had offered to import all of the plant's production. The company said it will continue to keep its proposal on the table.

FUNAN UPDATE

Unocal brought its sixth Gulf of Thailand gas field, Funan, on stream more than 2 months behind schedule. Production began Feb. 20, and Unocal expects the field to produce as much as 150 MMcfd.

Development costs to date total $272 million.

Unocal Thailand Pres. Graydon Laughbaum said Funan gas will provide a stopgap for the company while it carries out maintenance and modifications on facilities in other Gulf of Thailand fields, enabling it to maintain minimum contract deliveries to PTT of 700 MMcfd while other production is shut in.

Funan is the first field developed under Unocal's second gas sales contract with PTT. Next up is Jakrawan, expected to go on stream in 1993 at a rate of 40 MMcfd.

In the past 15 months, Unocal has drilled 50 development wells and installed six wellhead platforms, a central processing platform, and an accommodation unit in Funan field.

Unocal earlier targeted start-up for Dec. 1, 1991, then Jan. 15. Delays in installation stemmed from delays in fabrication and transportation of the upper deck of the accommodation platform from Philippines late last year.

The Philippines delays were caused by strikes and the eruption of Mount Pinatubo.

UNOCAL ONSHORE

Onshore, Unocal began a seismic survey on the Khorat Plateau in Northeast Thailand in December 1991 and plans to complete acquisition of 1,000 line km in the second quarter.

Meantime, Mitsui Oil Exploration Co. agreed to acquire a 25% interest in Unocal's four Khorat Plateau blocks,

It is the sixth joint operating agreement in Thailand for Mitsui and Unocal. The earlier ones involved Gulf of Thailand development. Unocal retains a 75% interest in onshore Blocks 5543/32, 5843/32, 5941/32, and 5942/32.

To date Unocal has completed about 45% of the seismic surveys required under the concession agreement, with the balance to be complete by June. Data processing and interpretation will take about a year, with exploratory drilling to begin in mid-1993.

Unocal plans to spend $30 million for onshore Thailand exploration during the first 3 year commitment period, involving 1,300 line km of seismic and four exploratory wells.

OTHER THAI ACTION

A number of other foreign companies entered into or stepped up participation in Thailand's upstream sector in recent months (see map, OGJ, Sept. 23, 1991, p. 15).

Ampolex Ltd., Sydney, completed a seismic survey covering its Block B-10/32 in the West Central Gulf of Thailand. The block is thought to be prospective for oil in an otherwise gas prone province.

Western Geophysical's MV Western Pacific acquired 2,049 line km of seismic data over the 9,800 sq km tract about 100 km offshore from Nakhon Si Thammarat to Chumphon provinces.

It is the first phase of an exploration program Ampolex has undertaken after being awarded the block 5 months ago. After processing and interpretation, the seismic data will determine the company's 1993-94 work program. Ampolex is likely to conduct a detailed seismic survey on the block in 1993 and follow that with an exploratory well in 1994.

A combine of Kirkland Resources (Holding) plc and Aberdeen Petroleum plc, both of the U.K., has committed to spend at least $7.5 million under an initial 3 year commitment and another $6.25 million minimum under a second 3 year term for exploration on its 11,350 sq km Block B-12/32 (OGJ, Mar. 23, p. 35). A seismic vessel is on hand and ready to begin work.

Texaco Inc. is stepping up its involvement in Thai's upstream. With a unit of Petrofina SA, it acquired the 14,478 sq km Block B-11/32 in the Gulf of Thailand and alone acquired Blocks B-1/32 and B-3/32 covering a combined 11,522 sq km in the gulf (OGJ, Mar. 30, p. 31). Plans call for Texaco to acquire 12,000 line km of seismic data and drill five exploratory wells on the offshore tracts during the next 6 years.

It also acquired a 50% interest and operatorship of Block 5441/32 AB via farmout from Nomeco Oil & Gas Co. Block 5441/32 covers 1,520 sq km in Khon Kaen and Chaiyaphum provinces. Texaco and Nomeco will drill four exploratory wells in the first 6 year commitment period.

VIET NAM'S STATUS

Viet Nam plans a new licensing round for oil and gas exploration acreage in the second quarter.

State oil company Petrovietnam set aside for the tender five highly Prospective blocks in the southern Con Sun basin off southern Viet Nam. The basin holds two of Viet Nam's biggest oil fields, Bach Ho (White Tiger) and Dai Hung (Big Bear).

Petrovietnam Chairman Truong Thien said the government expects soon to conduct another round of licensing for remaining acreage.

The tender follows the recent submission of bids for development of Dai Hung, believed to be Viet Nam's biggest oil field.

Nine companies or combines submitted bids under that tender: British Petroleum Co. plc/Den norske stats oljeselskap AS, Nissho Iwai/Japan Petroleum Exploration/Indonesia Petroleum Ltd., Mitsui, Sumitomo/Total, Marubeni/Norsk Hydro, Korea Oil Development, BHP Petroleum Pty. Ltd., Royal, Dutch/Shell Group, and Enterprise Oil plc.

Dai Hung, which Mobil Corp. discovered along with Bach Ho in 1976, is estimated to hold reserves of 600 million bbl. Bach Ho, currently producing about 70,000 b/d, is thought to hold about 500 million bbl of reserves.

Given Hanoi's financial constraints, the government called for the international tender to develop Dai Hung, lying in 110 m of water about 300 km southeast of Vung Tau, in partnership with Vietsovpetro, the joint venture of Petrovietnam and the former U.S.S.R. Development cost is expected to reach at least $300 million.

To date, Viet Nam has awarded 29 offshore blocks to foreign oil companies, reserving another three for Vietsovpetro, which currently operates the country's only three commercial oil fields announced to date. The third is Rong (Dragon), thought to hold about 100-150 million bbl of reserves. A combine of Shell Exploration By and Cities Service Oil Co. found Rong in 1976.

Vietsovpetro has not been able to move forward with Dai Hung development because of lack of technology and financing. Because the venture's resources have become even more limited following the collapse of the Soviet Union, it is not expected to play a role in field development.

Conspicuous by their absence from Viet Nam's surging E&D scene are U.S. companies, blocked from participation by a U.S. trade embargo against Viet Nam. U.S. firms left Viet Nam in 1975, followed by all other private companies in 1981 when Viet Nam shut down exploration by foreign companies other than the Soviet agencies.

Thien said Petrovietnam is prepared to hold "more serious" talks with U.S. companies about their participation in exploration off Viet Nam if and when the embargo is lifted. Prospects for ending the embargo seemed to improve last year (OGJ, July 15, 1991, p. 23).

Thien cited informal talks held with Mobil, Amoco Corp., Chevron Corp., Exxon Corp., Texaco Inc., Unocal Corp., and Union Texas Petroleum Holdings. Exxon, Mobil, and Union Texas held concessions off southern Viet Nam during the early 1970s before the Saigon government fell to the North Vietnamese.

Unocal Chairman Richard Stegemeier recently confirmed his company is seeking opportunities to participate in Vietnamese exploration once the embargo is lifted.

Meantime, Petrovietnam has identified the offshore block covered by a production sharing contract recently signed with Royal Dutch/Shell Group (OGJ, May 4, Newsletter).

Shell's contract covers Block 10 off southern Viet Nam (see map, OGJ, Mar. 30, p. 80). The block is one of 10 once controlled by Vietsovpetro but relinquished to Viet Nam last year. It lies between Block 9, containing Bach Ho and Rong fields, and Block 5, containing Dai Hung field.

CAMBODIAN OUTLOOK

Cambodian oil and gas exploration is likely to yield substantial discoveries, especially of gas, predicts Charles Johnson, research associate with East-West Center, Honolulu.

At least three fourths of that potential is offshore, he said.

"Based on offshore geological data mostly from neighboring areas, discoveries are likely to be in the neighborhood of 1.5-3.5 tcf of gas and 50-100 million bbl of oil," Johnson said.

With those assumptions, Cambodia's first decade of exploration through 2001 could result in production of about 450 MMcfd of gas and 14,000 b/d of oil.

Johnson also predicted Thailand and Cambodia will reach agreement within 1-2 years on joint exploration and development of a highly prospective disputed area in the Gulf of Thailand. The most prospective undisputed areas for oil and gas were awarded to four joint ventures last year (see map, OGJ, Oct. 14, 1991, p. 28).

Enterprise Oil Exploration Ltd., London, in a 60-40 partnership with Cie. Europeene des Petroles, France, acquired two blocks in the Gulf of Thailand. They were the first foreign companies in 20 years to acquire Cambodian acreage.

Following in quick succession were a group led by Premier for one block (OGJ, Nov. 4, 1991, p. 30), Hungary's Nawa Oil Co. two blocks (OGJ, Nov. 11, 1991, p. 31), and a Japanese combine led by Japan Petroleum Exploration Co. one block (OGJ, Jan. 6, p. 28).

Major oil companies are waiting for the disputed areas with Thailand to become available before they bid aggressively for more Cambodian offshore acreage. Those blocks are not likely to become available until after elections early in 1993, Johnson said.

The current round of bidding, mainly involving onshore blocks, is expected to attract limited interest from large companies, Johnson said.

He noted that although exploration in 1970-74 by Ste. Nationale Elf Aquitaine and an Exxon unit did not yield commercial discoveries, the drilling campaign there was halted prematurely because of increased risk of military hostilities.

A geological and geophysical study by Soviet Geologists identified six sedimentary basins prospective for oil and gas, Johnson said. Government officials estimate the total area prospective for oil and gas at 116,000 sq km with 38,200 sq km offshore.

Oil fields are likely to range from a minimum 25-30 million bbl for commerciality offshore to a maximum of 70-90 million bbl, Johnson said.

"The size of the offshore basins are sufficient for much larger oil and gas fields than indicated in these estimates, but there is insufficient exploration data to allow larger estimates at this time," he said.

Cambodia's Ministry of Industry is responsible for oil and gas exploration and uses a model production sharing agreement (PSC) typically used in other countries. Johnson notes that PSC terms determining division of profits are left blank, with bidders for blocks filling in the blanks with suggested revenue splits. They bid on the percent of cost recovery, profit split, sliding scale of the profit split at various production levels, income tax rate, and bid bonus.

The long term outlook for Cambodia's attractiveness for investment is improving, Johnson contends.

"The Khmer Rouge have little chance of returning to power in the 1993 elections, and the Phnom Penh government has moved quickly to open the economy and dismantle Communism.

"The government has rapidly privatized many enterprises, and considerable investment is flowing into Phnom Penh."

Meantime, the Ministry of Industry has retendered 18 onshore and remaining two offshore blocks offered in 1991.

Deadline for bids was Apr. 30, with bids to be reviewed in May-June and awards likely in July.

The blocks cover an average 4,000 sq km, with the biggest 7,000 sq km. Each applicant will be limited to no more than two blocks.

MYANMAR LNG

Myanmar may opt for a multibillion dollar LNG project from a giant gas field to be developed in the Gulf of Mataban if negotiations with Thailand's Pttep and a multinational oil company partner regarding development and pipeline export of the gas to Thailand collapse.

Myanma Oil & Gas Enterprise (MOGE) Engineering Director Pe Kyi said his company has been discussing with "some parties" the prospect of establishing an LNG project.

"This is not just an investment option (vs. gas sales to PTT)," he said. "The parties we are talking to are very much interested in the LNG project."

Vying to participate in the pipeline project with Pttep are Unocal, Royal Dutch/Shell Group, and Total. Under Pttep's proposal, the company chosen would operate the field and hold an interest in the project with MOGE and Pttep. Pttep would take a 30% interest (OGJ, Dec. 30, 1991, p. 26).

Pttep proposes to lay a 400 km subsea pipeline from Mataban field to Three Pagoda Pass near the Thai western border town of Kanchanburi. It would take more than 300 MMcfd of gas from the fields.

The field, in which three wells were drilled in the 1980s, is estimated to have reserves of 3.5-5 tcf.

Big up front capital costs required for an LNG export project might tilt Phnom Penh toward the Pttep proposal. But the LNG proposal has been under consideration by the government since Mataban Gulf fields were discovered in 1983.

At one point, Yangon (formerly Rangoon) decided to proceed with the LNG project. The government selected a site and lined up financing from World Bank and other sources only to back out because of concerns about how associated high debt might hurt the flagging Myanmar economy.

The proposed LNG project calls for two liquefaction trains, each with capacity of 250 MMcfd, to take the entire flow from the field in Blocks M5 and M6. The plant would be built at the mouth of the Bassein River in Myanmar's southern delta region and linked via subsea pipeline to the fields.

MOGE would target LNG exports to Japan, South Korea, Taiwan, and perhaps Hong Kong. MOGE hopes to reach agreement with Pttep on the Mataban project this year but has not set a timetable.

MYANMA SHELL

Myanma Shell By has begun talks with Yangon to develop its recent gas discovery on Block G about 80 km north of Yangon.

The discovery well flowed about 8 MMcfd. There is no estimate of reserves. Gas production was expected to begin soon at an initial rate of 20 MMcfd. The government is emphasizing early development to meet an urgent need for new gas supplies for electrical power generation.

Gas production from Myanmar's few onshore fields has declined to about 70 MMcfd. About 40% of that volume goes to power generation, with the rest used in the chemical sector. Total reserves are estimated at 6.5 tcf, mostly in the Gulf of Mataban.

MOGE wants to put the discovery well on stream immediately because Yangon faces possible power shortages and does not want to wait for Shell to delineate the reservoir. The well would be tied into the country's gas grid via a 24 km spur that MOGE has begun laying.

Pe Kyi said he believes MOGE will sign a gas purchase agreement with Shell very soon while Shell continues to assess extent of its find. Plans call for a delineation well on Block C, where Shell has acquired 3,519 line km of seismic vs. a commitment of 500 line km. Shell's strike is the only success among eight onshore exploratory wells drilled by nine foreign companies that have entered into PSCs with Myanmar. The foreign companies plan to drill five or six wells this year, Pe Kyi said.

UNOCAL, PREMIER IN MYANMAR

Unocal Myanmar last month was to spud its second wildcat in the southeast part of Block F in Central Myanmar.

The new prospect is believed to have greater potential for a commercial discovery than the company's first effort, drilled on the Kandaw structure last year.

The Kandaw well found traces of oil and gas in an interval at about 14,000 ft, but attempts to test the well failed. It was plugged.

Unocal and partners Petro-Canada 30% and Pttep 10% think their prospects were buoyed by Shell's success on adjoining Block G. The Unocal group is obligated to drill two more wells on the 6,200 sq km tract this year as it enters the third year of its 3 year commitment program.

Meantime, MOGE has started production from a discovery well that opened Pyaytaungdan oil field in Myanmar's Bago province, Xinhua News Service, Beijing, reported. No other details were disclosed.

Myanmar produced 15,890 b/d of oil in fiscal 1991 ended Mar. 31. Since 1989, 11 foreign companies have participated in PSCs in Myanmar.

Meanwhile, Premier expects to drill its first wildcat in Myanmar in October.

In its annual report, the company said it has completed geophysical work and will drill the well with joint venture partners Texaco and Japan's Nippon Oil.

LAOS

Sparsely explored Laos only recently took steps to invite foreign participation in its oil and gas sector (OGJ, June 26, 1989, p. 28).

That was followed by PSCs awarded to a combine of Enterprise 70% and Cie. Francaise des Petroles (CFP), Paris, 30% (OGJ, Sept. 25, 1989, Newsletter) and to Hunt Oil Co., Dallas (OGJ, Mar. 5, 1990, p. 20). They were the first oil and gas concessions awarded in the country. Last year Total acquired a 25% stake in CFP, bringing it into the Laotian E&D scene.

BG last fall acquired a 50% interest in Enterprise/CFP's Savannakhet concession in Laos, halving the latter's interests. Laos approved BG's participation in the license, which covers 20,200 sq km in South Central Laos.

Terms cover four phases spanning 8 years. The first two phases have been completed.

Work commitments include seismic surveys with an option to drill one or more exploratory wells.

Enterprise will continue as operator through the seismic phase. BG has an option to operate thereafter.

Copyright 1992 Oil & Gas Journal. All Rights Reserved.