SOUTHEAST ASIA ACTIVITY ON THE RISE

Jimmie Aung Khin
Afka Co. Pte. Ltd.
Singapore

Daniel Johnston
Daniel Johnston & Co. Inc.
Dallas

The Asia-Pacific region has gained favor in the increasingly competitive global market for drilling funds and technology. The level of activity in the region contrasts to the U.S., where political, fiscal, and geological conditions have caused an industry-wide depression.

Consolidation and restructuring of the oil industry have also affected the Asia-Pacific area, but not as adversely as North America. The shifting focus of most U.S. oil companies to the international sector has increased attention on Southeast Asia. The number of production-sharing contracts and exploration licenses in the region has increased to almost 800, covering an area of 7 million sq km.

Nearly 200 operating companies are active in the Asia-Pacific region with numerous other nonoperating companies participating as joint venture or working interest partners.

In 1991, Pakistan signed 23 concession agreements, and Indonesia signed 22 production-sharing contracts-up from 17 the previous year.

The region has much to offer to both major and independent oil companies. The current exploration and production activity includes established provinces, frontier areas, and new countries opening doors to the petroleum industry. In just the past few years Papua New Guinea, Viet Nam, Cambodia, Myanmar, and Laos have opened up. In the same time frame, attractive acreage in the U.S. has continued to be off limits to the oil industry, with a corresponding deterioration of the political and fiscal climates.

Asia, however, continues to attract investment; the 1992 exploration and development budget for the region is about $20 billion. The various national oil corporations account for approximately $13 billion of this budget, and private and public oil companies will provide the remaining $7 billion.

The Asia-Pacific region is characterized by good exploration potential, a high percentage of offshore activity, and a highly evolved fiscal and logistical infrastructure.

Furthermore, gas demand should increase in the near future. An increase in the gas demand and the further development of a gas grid will add considerably to the upstream sector. In the past, gas discoveries had to sustain very large projects, such as liquefied natural gas, to be economically viable.

An increase in demand and further additions to the infrastructure will enhance the economic development of smaller gas fields, with threshold field sizes becoming smaller.

EXPLORATION POTENTIAL

Asia-Pacific has many virtually unexplored sedimentary basins with promising geological conditions. The unexplored basins are geologically complex or are located in relatively deep waters. The potential for additional discoveries still exists, however.

One such example is the recent 1/A Rhu discovery by Texaco Exploration Penyu Inc. in the Penyu basin offshore Malaysia (OGJ, April 6, p. 28). The discovery well tested at a combined rate of 6,050 bo/d on a 1/2-in. choke from three zones between 8,540 and 8,770 ft. The well, in 237 ft of water and 100 miles offshore, is the first discovery in this basin.

Indonesia alone has nearly 60 basins and subbasins of which only about half have been explored to some degree. Indonesia accounted for over 20 discoveries during 1991 with test rates ranging from 300 to 10,000 bo/d and gas well tests of 6 to 60 MMcfd.

Although Indonesia has the major share of activity with over 50 operating companies in the country, Viet Nam is expected to be a center of activity in the next couple of decades. Viet Nam has good exploration potential, and U.S. companies have missed much of the petroleum operations in that country.

The drilling success ratios have been relatively high in this region. Published statistics for exploration drilling usually include the results of both the initial wildcat exploration well and the first associated delineation well. This kind of reporting yields success ratios on the order of 30-50%. Generally though, success rates for exploration and development well drilling are high according to world standards. The wildcat success ratio worldwide for new fields is less than 13%, compared to equivalent success ratios in Asia-Pacific of 16-20%.

The region continues to offer larger exploration objectives than those available in the U.S. These prospects are one of the main reasons for the trend in increased activity in the Asia Pacific region.

Although most fiscal systems in the Asia-Pacific countries are tougher than those in the U.S., the favorable geological potential compensates for the differences. The area has the potential for large discoveries, and the larger fields can offset the stringent contract terms. Furthermore, the political climate in the region is quite favorable toward the oil industry.

The geological conditions prevalent in the region are reflected in the range of production rates; Table 1 compares the typical production rates in various Asian countries with production statistics from the U.S.

In terms of exploration and development maturity, most of the region is at a stage similar to that which existed nearly 40 years ago in the U. S. The U.S. has over 800,000 producing wells, compared to roughly 20,000 in the Asia-Pacific region (excluding China). The total number of wells drilled in the U.S. is approaching 2.9 million,which is two orders of magnitude greater than the 30,000 or so wells that have been drilled in Asia-Pacific. Seismic data acquisition in the U.S. is about 10 times greater than that in southeast Asia. There have been roughly 6.2 million miles of seismic data acquisition in the U.S. compared to 650 thousand miles of data acquired in Asia-Pacific.

DRILLING ACTIVITY

Excluding China, nearly 2,000 wells will be drilled in Asia-Pacific during 1992. This figure represents little change from last year. Table 2 summarizes the projected drilling activity for 1992. The projected drilling footage (excluding China) is estimated at over 9,000,000 ft from both offshore and onshore.

The region's 120 onshore rigs operate it a 60% utilization rate. Offshore, the rig utilization rate has averaged about 80% over the past few years, above the world average. However, from May 1991 to May 1992, the number of active offshore rigs dipped from 86 to 62 rigs (Table 3). Table 4 outlines current day rates for various classes of rigs in the region. Tables 5 and 6 summarize typical costs for offshore drilling in the region.

RESERVES

Last year, the Asia-Pacific region produced 7 million b/d of crude oil and 17.9 bcfd of natural gas.

The Association of South East Asian Nations (Asean), which comprises Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand, accounts for 36% of the region's oil and 54% of the gas production. ln the 5 year period from 1987 to 1991, Asean oil production increased 22% from 2.075 to 2.528 million bo/d. Gas production increased 27% from 7.65 to 9.72 bcfd (Table 7).

Future development activity will be strongly influenced by the incentive to tap some of the 140 trillion cu ft of proven but undeveloped gas reserves.

During the same 5-year period, oil and gas reserves increased by 18.5% and 35.4%, respectively. At the end of 1991, reserves for the Asean nations were 17.8 billion bbl of oil and 187 tcf of gas (Table 8). These five countries alone account for nearly 50 billion bbl of oil equivalent-only 20% less than the U.S.

OFFSHORE

Offshore production accounts for 33% of the oil and 54% of the gas in the Asia-Pacific region. Excluding China, approximately 38% of the wells planned for 1992 are offshore.

An increase in seismic activity, a common indicator of future exploration efforts, shows further promise for the region. Nineteen seismic vessels are operating, up from 15 vessels a year ago. This figure represents nearly 25% of the world's working seismic vessels.

The region has an excellent opportunity for increased use of well-developed, "off-the-shelf" technologies, such as subsea systems, floating production storage and off-loading systems, and environmental and safety technologies.

The number of subsea completions in Asia-Pacific has increased greatly over the past few years (Table 9). As the oil industry matures and exploration and development efforts step into deeper water, subsea technology will become increasingly important. By the end of 1991, 73 subsea completions had been installed in the region, with over half of them installed after 1988.

Subsea technology is still in a somewhat immature development status relative to that found in many other offshore regions. The market for subsea completion equipment (wellheads), templates, manifolds, and floating production facilities, will increase during the 1990s.

During 1992, the number of platforms in Southeast Asia will increase from over 530 to nearly 570. Most of these platforms are along the IndoMalay archipelago. There, water depths for existing production range from 10 to 300 ft deep, and the average water depth for these platforms is less than 100 ft.

Costs associated with offshore development are similar to those in the Gulf of Mexico; the climates are also quite similar.

ONSHORE

The Asia-Pacific onshore sectors exhibit numerous extremes in terrain, accessibility, and degree of exploration or development maturity. The exploration frontiers onshore range from mangrove swamps to remote forest highlands, with tropical rain forests and rice paddies in between these extremes.

Costs for building a drillsite, mobilizing a rig, and drilling a typical 9,000-ft well in some of the more difficult terrain can range from $5 million to over $8 million.

Helicopter-transported rigs have been used with much success by a number of operators for the initial exploration in many of these areas such as northern Myanmar or Papua New Guinea. Roads are often insufficient, and ferries or barges often outnumber bridges; transportation costs rise accordingly. The producing provinces, however, have a fairly well developed service and supply infrastructure, and many of the oil field service companies have operated there for years.