Watching The World: Oil diplomacy at work in Asia

May 18, 2009
The Sultanate of Brunei has long had a certain cache among members of the international oil and gas industry.

The Sultanate of Brunei has long had a certain cache among members of the international oil and gas industry. After all, who would not like to work on a South Pacific island with a lot of oil and gas?

A year ago, things were not looking very bright. Industry analysts were estimating that Brunei’s reserves would run dry in about 12 years, while problems were mounting with Malaysia over maritime boundaries.

Brunei’s Minister of Energy Pehin Dato Haji Yahya tried to put a positive spin on the situation. “You’ll never know–technology can change a lot of things,” he said, suggesting that new technology could discover and reach new deposits.

As for the troubles with Malaysia, they came to a head 5-6 years ago when both countries awarded similar acreages to two different consortia. Tensions rose when a Total SA exploration vessel, working under a Bruneian contract, was chased off by a Malaysian gunboat.

Consider the stakes

At stake is a potentially oil and gas-rich area, which both countries covet, especially in an era of tightening belts. Yet, when discussing the matter a year or so ago, Yahya admitted that little progress had been made.

“We think this needs a chance for diplomacy,” he said, adding–perhaps optimistically–that Brunei’s crude output had meanwhile stabilized at about 200,000 b/d and may stay there in coming years.

Was it all just wishful thinking? Yahya’s hope for diplomatic solution might have received the horselaugh from cynics, but in fact it was borne out in March when the two nations reached an agreement over their long-disputed maritime boundary.

It came about when, among other things, the two sides established a “commercial arrangement area” under which oil and gas revenues in the formerly disputed area will be shared between the two nations.

There’s no telling what got the two countries to reach an agreement after so many years of failing. But it may have something to do with a statement by David Blevins, chief operating officer of Nations Petroleum Sdn. Bhd.

Polo Club perk

At a dinner in October 2008 at Brunei’s Jerudong Park Polo Club, Blevins said the “first shot” of the Block L 3D seismic program was a significant event, and it marked the beginning of a fruitful and successful venture between the Block L partners and Petroleum Brunei.

Even a cursory glance at the map reveals that the area covered by Block L is near the region long under dispute by Brunei and Malaysia. Did someone recognize that the disagreement could hinder exploration? Or did someone recognize that an agreement could ease exploration?

Either way, it was a victory for diplomacy and for the oil and gas companies who could soon be investigating the region’s potential. Meanwhile, don’t be surprised if you see an announcement that output figures are beginning to rise in the Sultanate of Brunei.