The wave of corporate consolidation that led to the creation of the big four Western supermajors and is, in the process, changing most every rule in the oil and gas game, now promises to start a paradigm shift in Southeast Asia's upstream business, judging by a report on the region from Edinburgh-based industry analysts Wood Mackenzie.
Most transformative, says WoodMac, will be the fact that three of the supermajors present in Southeast Asia-ExxonMobil Corp., BP, and TotalFinaElf SA-are shifting shapes in the region as they turn their attention away from exploration and toward the "key battleground" in the long-term race for a share of the region's gas market: China.
Since the collapse of the Asian economies in 1997, new block signatures by this triumvirate have fallen away "significantly," and not one of the three has signed a block since post-merger. Exploration drilling by these companies, according to WoodMac, has also slowed, with supermajors responsible for 11% of total exploration well drilling expenditures in the first 9 months of this year, as compared with 16% for the same period in 1999.
Asset disposals
Even more tellingly, upstream disposal programs are under way at two of the three. Since 1997, both ExxonMobil and TotalFinaElf have sold or transferred assets in production-sharing contracts containing potentially commercial reserves: ExxonMobil its 50% stake in the deepwater Makassar field off Kalimantan, and TotalFinaElf a 70% share in three blocks off Viet Nam.
With the exception of Royal Dutch/Shell, which expanded its acreage portfolio during the wave of mergers, the other supermajors' loss of interest in Southeast Asia reflects the reality that the largest cut of global exploration budgets is going to the "Golden Triangle" regions-the Gulf of Mexico, Offshore West Africa, and Offshore Brazil-where deepwater developments have an almost mesmeric hold on Big Oil.
The Chinese downstream and gas markets appear to be one opportunity that the supermajors will not pass up. BP stumped up $620 million for a stake in PetroChina's initial public offering-and was joined by ExxonMobil and Shell in buying a slice of China National Petrochemical Corp.'s IPO.
WoodMac acknowledges that, with the ExxonMobil merger only 12 months in, it may be premature to draw conclusions regarding the impact of the formation of the supermajors on Southeast Asia's upstream business. But as a comparatively mature exploration province with "significant" uncommercialized gas reserves, the region is "unlikely to attract significant supermajor exploration dollars until the appropriate scale of opportunity emerges."
Chinese charm
New exploration will have to be handled by lesser majors and independents-for which niche plays should be plentiful as the supermajors continue to dispose of noncore assets. Not a bad lot, as oil companies already there, such as Amerada Hess Corp. and UK minnow Cairn Energy PLC, would likely tell you.
Beyond the supermajors themselves, the winner in the post-consolidation world-at least against the changing backdrop of the Southeast Asia oil and gas region-will, it seems, be China. The country is already witnessing an influx of investment in its upstream industry, as WoodMac emphasizes, albeit "indirectly in the form of stakes in IPOs" from the supermajors, and, simultaneously, catching the eye of smaller major and independents seeking new oil finds.
