NEWS British Gas steps up campaign to expand international operations

Sept. 4, 1995
Development of Miskar gas field off Tunisia is the first major overseas project completed by British Gas in its drive for world expansion. Here, a drilling and production module is welded into place on Miskar's A jacket, with the quarters platform in the background. David Knott Senior Editor British Gas plc, London, one of the world's biggest gas companies, is pressing a campaign to expand outside the U.K. It has moved in recent years to make sure the British government's ending of

David Knott
Senior Editor

British Gas plc, London, one of the world's biggest gas companies, is pressing a campaign to expand outside the U.K.

It has moved in recent years to make sure the British government's ending of the company's British gas supply monopoly does not affect its overall success.

When British Gas was forced to allow independent gas suppliers to take a slice of its major source of income, the company decided to use skills developed at home to build a presence abroad to replace lost income.

British Gas is about half way through a massive restructuring, launched as a result of the U.K. government's deregulation of the domestic gas market. This ultimately will see 25,000 jobs shed in the U.K.

The restructuring also is a chance to match areas of world gas industry operations with those of exploration and production. The move will take place soon.

The company's international operations are the responsibility of two directors. But a British Gas spokesman said all international operations will become more firmly interlinked with time.

In the meantime, the company is seeking interests in overseas projects in every sector of the gas industry from exploration through supply, as well as electrical power generation.

A concern

One public concern in Britain has been that British Gas is using profits from its highly lucrative U.K. gas supply market to finance its overseas projects. It is still by far the No. 1 player in Britain's gas industry until market liberalization is complete.

British Gas has published no figures to allay that concern, but the spokesman said overseas ventures of British Gas will benefit shareholders and customers.

"It is not a case of Mrs. Green in Acacia Avenue paying for a speculative venture in the Gulf of Bongkot," the spokesman said.

An analysis by Sheffield Energy & Resources Information Services (Seris), Sheffield, England, places British Gas at the head of a group of six companies that has emerged as the biggest world players since 1991.

In terms of the number of international projects among those companies, British Gas had the most with 13. Enron Corp., Houston, was second largest with nine.

Seris said recent financial results of international gas companies showed others were ahead of British Gas in terms of profitability. However, this was only because of extraordinary restructuring charges imposed on British Gas under the U.K.'s gas market liberalization.

Strategy

British Gas was driven to expansion in foreign markets by the U.K. government's decision to end the company's monopoly in the U.K. gas market. (OGJ, July 24, p. 12).

In September 1994, British Gas disclosed a plan to restructure its business so overseas growth would more than offset losses in U.K. gas supply profits.

Richard Giordano, chairman of British Gas, explained then that the company intends to seek foreign projects upstream and downstream.

He said, "There is no doubt that ours is a product and service highly valued and in great demand in many parts of the globe. We possess in depth all the skills that are part of the gas chain.

"We can build and operate transmission pipelines, distribution systems, gas fired power stations, storage facilities, and whatever else facilitates delivery and use of gas."

Giordano said British Gas plans to invest:

  • In growing markets where gas is a competitive, economic fuel.
  • Where the company's exploration and production programs can be used.
  • Most importantly where British Gas can be involved in downstream sectors of the gas chain, to derive maximum value from investment.

Giordano also said, "Success for British Gas in its international strategy will create a new platform of earnings and cash flow that will enrich British Gas and its shareholders in the next century -- but probably not before.

"Implementing this strategy is expected to lead to a substantial increase in the proportion of British Gas' capital employed represented by overseas business, both exploration and production and downstream, from a little less than 4% at present to around 10% in 1999."

Gas demand

Behind the strategy is British Gas' view that gas has emerged as the fuel of choice for many uses previously supplied by oil, coal, or nuclear power.

Giordano said, "This is particularly true in newly developed countries which are engaged in rapid industrialization and where rates of growth in gross domestic product are two or three times greater than in Organisation for Economic Cooperation & Development countries."

British Gas estimates there are significant gas reserves discovered not yet developed throughout the world, and many developing countries are within reasonable access of abundant supplies.

"These developing countries are also hungry (for electrical power)," Giordano said. "Demand for power generation projects has helped revitalize the gas market and will continue to do so.

"Power generation projects present immediate, enormous demand for gas. They transform the economics of transmission and provide base load and economies of scale that provide low cost gas for further distribution into the industrial, commercial, and residential markets."

British Gas claims to be the leading international natural gas company, with pretax profits of 1.25 billion ($2 billion) on revenues of 9.69 billion ($15.5 billion) in 1994. It is active in more than 45 countries.

South America, Asia and the former Soviet Union are perhaps the main areas of British Gas' overseas expansion, but the company also is active in the Middle East and North Africa, Europe, and North America.

Tunisia

British Gas operates four exploration permits in Tunisia: West Kerkennah, Amilcar, Roumedia, and Abassia. The company also has an interest in South Kerkennah permit where Amoco Corp. is operator.

In West Kerkennah, British Gas also holds a 49% interest in producing fields in partnership with state owned Enterprise Tunisienne d'activites Petroleum (ETAP). Largest of these is Cercina field. Total production from the license is 8,000 b/d of oil.

Onshore in Tunisia, British Gas holds 49% stakes in two small oil producing concessions, Gremda/El Ain and El Hajeb/Guebiba.

In May, British Gas placed on production offshore Miskar gas field on its Amilcar permit, the largest international field investment the company has made. Miskar estimated reserves are 2.6 tcf.

Miskar at first was intended to produce from 10 wells, eight of which were drilled ready for start-up and the other two slated for drilling during the rest of this year.

Miskar's $600 million development program involved use of two linked platforms -- one carrying production facilities and the other accommodation -- and a flare boom platform.

Produced gas and condensate moves through a 120 km pipeline from the field to the Hannibal gas treatment plant, which British Gas owns and operates. The plant removes nitrogen, carbon dioxide, and hydrogen sulfide from the gas.

Ste. Tunisienne de L'Electricite et du Gas (STEG) has agreed to buy as much as 160 MMcfd of gas from Miskar field during the first 5 years of production and 200 MMcfd from then on.

In January, British Gas disclosed discovery of more gas in the Gulf of Gabes, about 30 km from Miskar field, when its 2 Hasdrubal well flowed 20 MMcfd of gas and 1,400 b/d of condensate.

Drilled on the Amilcar permit by the J.T. Angel jack up in 60 m of water, the well appraised a 1975 Ste. Nationale Elf Aquitaine discovery that had been classed as noncommercial.

Also in the Middle East, at the end of last year British Gas acquired a 25% interest in an exploration and production sharing contract covering part of Qatar's North field in the Persian Gulf.

FSU

Three years ago British Gas and Italy's Agip SpA jointly secured exclusive rights to negotiate with the government of Kazakhstan for further development of Karachaganak field.

The field is among the world's largest, with reserves estimated at 16 tcf of gas and 2.4 billion bbl of condensate. Karachagankgazprom placed the field on production in 1984.

Gas and liquids are separated and stabilized in the field, then sent by pipeline to Orenburg field in Russia, 150 km to the northeast. There the products are processed, with gas going into the Russian grid and liquids shipped further to Ufa and Salavat refineries.

Karachaganak production reached an annual peak of 70 million bbl of condensate and 160 bcf of gas in 1991. After that, lack of investment led to a decline to about 8.5 million bbl of condensate and 35 bcf of gas/year.

British Gas and Agip last March signed a production sharing contract with Russia's Gazprom and the government of Kazakhstan, which commits the western companies to upgrade production facilities. British Gas and Agip each hold a 42.5% interest in the venture, Gazprom 15%.

A British Gas official said the company is committed to boosting production from existing wells in the field before it can sign for further development. The companies are looking to an agreement for further development within 2 years under the current contract but expect this may be extended to 4 years.

At the moment. Karachaganak production has been lifted to 210 MMcfd of gas and 52,000 b/d of condensate. The official said production could be raised further, but Gazprom has said it does not want more gas just now.

British Gas is involved in Russia's KomiArcticOil venture and in March bought a further 25% interest from Gulf Canada Resources Ltd., boosting its share to 50%. The venture plans to develop Upper Vosey and Vosey oil fields in Northern Russia.

In Upper Vosey, British Gas and partners Komineft and Ukhtaneftegeologiya recently installed a western drilling rig. They have raised production to 16,000 b/d of oil from 4,000 b/d.

The partners have introduced enhanced oil recovery to the mature part of Vosey field and have started up a pilot production scheme ahead of full development. Spending by Komi ArcticOil is said to have amounted to $200 million so far.

British Gas is one of a number of western companies funding a massive seismic survey in Kazakhstan's Caspian Sea area (OGJ, Jan. 30, p. 36). Surveying is expected to be complete in late 1996.

The Busiest Global Gas Companies chart (41617 bytes)

Trinidad and Tobago

British Gas is a partner in a venture led by Amoco Corp. to develop a liquefied natural gas export plant and marine terminal at the planned Brighton-La Brea industrial site on the west coast of Trinidad.

The group of companies has set up Atlantic LNG Co. of Trinidad & Tobago to own and operate the plant. Interests are Amoco Trinidad (LNG) Corp. 49%, British Gas Trinidad LNG Ltd. 31%, and Cabot Trinidad LNG Ltd. and Natural Gas Co. of Trinidad & Tobago LNG Ltd. 10% each.

The LNG plant will process gas arriving by pipeline from fields off the east coast of Trinidad to produce 3 million metric tons/year of LNG for shipment to the U.S. and Europe. First LNG delivery from the plant is slated for fourth quarter 1998.

Amoco is negotiating to supply all the natural gas feedstock for the plant, which will amount to 3.3 tcf of gas during 20 years.

In November 1994, project partners let contract to Chiyoda Corp. and Hudson Engineering Corp. for an LNG plant design based on the Air Products process.

Last March, project partners announced the award of a front end engineering contract for the plant to Overseas Bechtel Inc. to provide an alternative design based on Phillips Petroleum Co.'s Optimized Cascade LNG process.

"The Bechtel contract will provide a technology alternative to the Air Products design," British Gas said, "and is therefore an important part of the project's strategy of controlling costs through effective competition."

Final project authorization and award of the main engineering, procurement, and construction contract for the plant are expected in third quarter 1995.

The group recently agreed on sales contracts for all the plant's intended output, with Cabot taking 60% and Enagas SA of Spain the balance.

British Gas also is operator and 50% owner of a number of licenses off Trinidad and Tobago. One holds the Dolphin gas discovery, which has estimated reserves of 1.2 tcf.

Development of Dolphin is under way, with installation of a single production platform slated for October. First gas is expected in February 1996, with as much as 325 MMcfd being sent ashore through a 24 in. pipeline for distribution through Trinidad's supply grid.

Americas

British Gas disclosed in mid-August it had moved its Americas headquarters to Buenos Aires from Houston. Reuter news agency said the shift is a mark of the company's growing interests in South America, especially the continent's southern countries.

In Argentina, British Gas has a 35% shareholding and operatorship of MetroGas, a gas distribution company serving 1.8 million customers in Buenos Aires.

Also in Buenos Aires, British Gas has a 45% interest in Central Dock Sud, a gas fired power station.

The company is involved in exploration and production in Argentina, and is involved in a feasibility study for the trans-Andean pipeline, intended to ship gas from Argentina to Chile. British Gas is operator of the distribution section of the pipeline project.

British Gas is a member of BTB Group, along with BHP Petroleum Pty. Ltd. of Australia and Tenneco Gas of the U.S., which has been selected by Brazil's state owned Petroleo Brasileiro SA to develop a pipeline to move gas from Bolivia to Southeast Brazil.

The plan is to build a 3,250 km pipeline, expected to cost about $2 billion, with construction slated to begin this year and gas deliveries to begin in 1997.

In June, British Gas acquired a 35% interest in the Caipipendi exploration block in the southern sub Andean basin of southern Bolivia. License partners led by Chevron Corp. intend to conduct a seismic survey on the 2.5 million acre block this year.

In the U.S., British Gas holds a 36.5% interest in Natural Gas Clearinghouse (NGC), Houston. A merger between NGC and Trident March gave British Gas a 33.7% share in the combined company NGC Corp., one of the leading gatherers, processors, transporters, and marketers of energy products in the U.S.

Pakistan

In May 1994, British Gas disclosed a gas discovery on Block 34 in Pakistan, where it is 50% interest holder and operator. The block covers 4,500 sq km of the eastern foothills of the Sulaiman Mountains in Central Pakistan.

The 1 Savi Ragha wildcat flowed 16 MMcfd of gas and 700 b/d of condensate from an 82 m pay zone in lower Ranikot sandstone.

The well is 35 km from Dhodak gas/condensate field, due on stream this year. British Gas said further work is needed to establish commerciality of the new find.

The well is currently on test, and a second well in the block is to spud soon.

The company said a commercial gas find in Pakistan would improve its ability to offer a completely integrated service to Pakistan's gas industry.

Last November, British Gas signed a number of contracts with the government of Pakistan, giving the company a spread of upstream and downstream projects in the country.

British Gas secured operatorship and a 57% interest in the Sulaiman license, a 1,845 sq km exploration tract in Baluchistan. Obligations include acquisition of 250 km of seismic data and drilling of a wildcat. Seismic surveys are to start soon.

In the Central Indus basin of Sindh province, British Gas won two exploration licenses, the Guddu and Gambat blocks covering 2,093 and 6,594 sq km, respectively.

On the Guddu block, the company is committed to acquiring 200 km of seismic data and drilling a well. On Gambat, British Gas will acquire 250 km of seismic data and drill a well.

In the region of Taunsa and Dera Ghazi Khan in Central Pakistan, British Gas plans to build a 300,000 kw gas fired power plant, with electricity to be sold to Pakistan's Water & Power Development Authority.

The company is unlikely to proceed with building this plant if the nearby Savi Ragha discovery does not prove to be a commercial gas find suited to development.

The company also has been chosen to operate a 1,500 kw power plant at Kot Addu when it is privatized and is keen to take on other power plant operations under the government's privatization program.

British Gas also is negotiating to take a share in Pakistan's gas distribution companies, Sui Northern Gas Pipelines Co. and Sui Southern Gas Co. Other small projects include a study for government of a natural gas storage project and a study for Pirkoh Gas Co. of design and installation of gas compression facilities.

India

Gas Authority of India Ltd. (GAIL) and British Gas have formed a joint venture to transport natural gas to Bombay by pipeline. The company is Mahangar Gas, which plans to deliver gas from India's offshore Bombay High field to more than 600,000 customers, with a program of connections expected to take 12 years starting in late 1995.

Once Mahangar Gas has installed the pipeline grid, it will market gas in the city's residential and commercial markets. It plans to target industrial users as more gas becomes available.

Mahangar Gas also has taken over a gas powered vehicle program launch- ed by GAIL.

Also, British Gas and India's Oil & Natural Gas Commission (ONGC) have signed an agreement to cooperate in exploration and production activities internationally. The venture recently took a farmout on the North Zaafarana concession off Egypt in the Gulf of Suez. The companies will earn a 50% interest in the license in return for funding a commitment well to be drilled on the Balah prospect this year.

Philippines

First Gas Holdings is a joint venture between British Gas and First Philippine Holdings Corp. that plans to build a gas transmission pipeline, a series of combined cycle power plants, and a gas distribution network for industrial and commercial users in Philippines.

The venture plans to lay a 480 km pipeline to transport gas from offshore Malampaya and Camago fields, to be developed by Pilipinas Shell Petroleum Corp. and Occidental Petroleum Corp.

British Gas expects to spend $1.5-2 billion on projects in Philippines by 2000 (OGJ, Oct. 10, 1994, p. 38).

First Gas Holdings recently invited bids from contractors to build a 400,000 kw combined cycle power plant at Santa Rita, near Batangas. The project is to cost about $400 million, and contract award is expected to be announced in October.

The First Gas Holdings plant is to be part of a 1,500,000 kw station to be built on the site at a cost of $1 billion. The entire plant will be fueled by Malampaya and Camago gas.

The fields are expected to produce a combined 500 MMcfd of gas, twice the volume needed by the plant, with first gas expected to be produced in 2001-02. Manila Electric Co. agreed with First Gas Holding to purchase power from the plant.

In late July, First Gas Holdings disclosed it planned to ask government for a franchise to operate a gas pipeline on Luzon, the largest, most densely populated Philippine island.

The venture declined to bid when government offered Manila Gas Corp., holder of a franchise to supply gas in Manila, in an auction held July 5.

British Gas recently paid $2 million for a 25% interest in the GSEC 72 exploration license operated by Coplex Resources NL. Coplex is drilling the 1 Manila Bay wildcat on the license, and British Gas has an option to assume operatorship of the block.

Other Far East

British Gas is booking income from Far East production through a 20% interest in Bongkot gas field in the Gulf of Thailand. The company also owns interests in Gulf of Thailand exploration Block B5/27 and Blocks 7, 8, and 9 and is pursuing gas fired power projects.

In Indonesia's Irian Jaya, British Gas operates the Mutiri onshore/offshore production sharing contract and is looking to build a 400,000 kw power plant in Serpong, West Java.

In Malaysia, British Gas is involved in a joint venture with Genting Sanyen to operate a 720,000 kw power plant in Kuala Langat and has an exploration license off Sabah.

In Viet Nam, British Gas holds offshore exploration Block 4.1 in the Con Son basin, where it plans to drill a second well this year. It is working with BP Exploration Operating Co. Ltd. to help plan infrastructure to supply Viet Nam's burgeoning gas market.

British Gas also is working with Mitsui Co. and Petrovietnam on studies under the Vietnam Gas Utilization project, intended to extract liquid petroleum gas from natural gas currently flared in offshore Bach Ho field.

Off Cambodia, British Gas holds a 20% interest in exploration Blocks I and II. It has licensed processing plant technology to Japan and performed pipeline inspections in Australia.

Europe

In Europe, the company has a number of interests outside the U.K.

British Gas holds exploration rights on nine blocks in the Kutno area of Poland, about 100 km west of Warsaw (OGJ, Dec. 20, 1993, p. 31).

In June, British Gas signed a cooperation agreement with Zespol Elektrocieplowni Poznanskich SA for modernization of the Garbary power plant in Poznan and its conversion to natural gas fuel.

When the Czech republic begins a privatization program, expected this fall, British Gas intends to secure investments in two or three gas distribution companies.

In Hungary, the company will seek downstream investments in the wake of the government's privatization program.

British Gas bought a 1,080,000 kw oil fired power station at Ballylumford, Northern Ireland, which it intends to convert to gas fired operation in 1996.

A subsidiary, Premier Transco Ltd., has been set up to build and operate a 135 km, 24 in. gas pipeline from Twynholm in Southwest Scotland to Ballylumford to import gas for the power plant. First gas is slated for delivery in October 1996.

In the former East Germany, British Gas owns 25% interests in regional gas distribution companies GSA and EWS, operating in Leipzig and Halle, and a 5% interest in transmission company Verbundnetz Gas AG, Leipzig.

In Italy, British Gas has interests in 11 exploration licenses and is operator of three: Monte Petrella, Monte Caruso, and Duronia. They are in the southern Apennines play, where the company intends to seek more interests.

Overextended?

When British Gas first began to take shares in overseas projects, there was a feeling among U.K analysts that the company was reaching too far in its bid to compensate for U.K. market shrinkage.

Chris Buckley, European analyst at Morgan Stanley International, London, said British Gas was initially viewed as an innocent abroad.

"Now British Gas is more hard-nosed," Buckley said. "The company no longer takes a scattergun approach to projects as it did at first. Now, British Gas is seeing the fruits of its labors with Tunisia's Miskar field on stream, and in Karachaganak with Agip the company looks to have a good position. It also has good exposure in Egypt and the Far East."

Philip Wright, director of Seris, said whether British Gas had overreached is best judged by returns on investments, and in general "nobody could complain about these."

Wright said he once asked British Gas contacts how the company had managed to expand into 45 countries in the past 7-8 years, an operation that normally would require a massive increase in personnel.

"British Gas expanded by taking equity in most of its overseas projects," Wright said, "and is generally not the operator. The company used its financial muscle to buy into what it deemed to be potentially profitable projects and let other more experienced operators take charge."

Wright said understanding British Gas' position is like looking at a share portfolio: The company is involved in some risky ventures and some that are capable of delivering steadily.

Wright said, "Utility gas operations in particular are steady guarantors of profit, once the host government has established go-ahead conditions. As long as there are some relatively cautious projects in the portfolio, one or two can go wrong and British Gas will still be okay."

In Italy, British Gas has been involved in converting the Genoa area from use of coal gas to natural gas. The company also is seeking to build a portfolio of exploration and production assets in the southern Apennines region.

Copyright 1995 Oil & Gas Journal. All Rights Reserved.