Nippon Oil looking to bolster developments in SE Asia

Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Oct. 23 -- Nippon Oil Corp. executives, faced with falling profits on the home front as their traditional business model of importing and refining oil runs dry, are reported to be scouring Southeast Asia for promising oil fields as compensation.

"The domestic market is doomed to shrink," said Shinji Nishio, Nippon Oil president. "We will make oil development the pillar of our growth strategy," he told Japan's Nikkei Sangyo Shimbun.

The paper reports that Nippon Oil plans to invest ¥430 billion abroad over the next 3 years, and Vietnam is priority.

It says that Vietnam, one of Asia's leading oil producers, has steadily increased business with Japanese oil wholesalers, particularly since cutting ties with US oil majors after the Vietnam War.

In 1996, Mitsubishi Oil Co., now part of Nippon Oil, discovered Rang Dong field off southeastern Vietnam.

The field is Vietnam's second largest, and is the only one outside the Middle East which is controlled by a Japanese company. The field lies 3,600 m subsea and a layer of granite.

Though geologists had been skeptical the field could be developed, Mitsubishi struck oil on its first attempt, and has produced 150 million bbl of Rang Dong oil since 1998.

Nippon Oil's worldwide concessions produce 145,000 b/d of oil, of which 16,000 b/d are from Rang Dong. But Nippon Oil's overseas fields are not bottomless, as indicated by Rang Dong where output began to fall in 2007.

The company hopes that the new Phuong Dong field will pick up the slack through 2009, but Vietnam production volume might drastically decline from 2010 if new sources are not exploited.

As such, Nippon Oil will invest about ¥9 billion to drill some seven wells during fiscal 2009.

Pressure to increase output also has come from Petrovietnam, its state-owned partner. Likewise, Russian firms have been instructed by a deputy prime minister to increase production at the Bach Ho oil field.

The field, discovered in 1986, is Vietnam's largest, but output is now steadily falling.

To prepare for the future, Nippon Oil has begun to look beyond Vietnam, to other Southeast Asian countries and its Ho Chi Minh City office, opened in April, is the command center for this effort.

Twenty employees are gathering and analyzing geological data from the region, and the office chief is traveling far and wide "to discover a second Rang Dong."

Nippon Oil believes there are many such fields with physical characteristics similar to Rang Dong's, and as such, the company plans to use the technology it has developed for Vietnam elsewhere in Southeast Asia.

Unlike Western oil majors which are often vertically integrated and own direct stakes in fields, according to Nikkei Sangyo Shimbun, Japanese oil firms depend more heavily on refining and sales, and as such, have smaller profit margins.

As evidence, it cited the recent oil boom in which Western oil majors were making profits of ¥2-4 trillion, while Japanese companies missed out.

Contact Eric Watkins at [email protected].