OGJ SPOTLIGHT Talisman's global strategy
The Petrolia semisubmersible drilling rig is shown at the site of the Orion oil field discovery in the U.K. North Sea working for operator Talisman North Sea Ltd. and partners. Talisman is developing the find as a satellite to Clyde field, part of its initiative to boost reserves and production outside Canada. Start-up is expected on Oct. 1, 1999, with initial output of 8,000 b/d of oil and 15 MMcfd of gas. Photo courtesy of Talisman.
Jim Buckee, president and CEO of the Calgary-based former British Petroleum unit, says the prizes are now potentially much larger in foreign arenas than in Western Canada, although the competitive challenges are not any easier abroad.
"I think it is a commonly perceived wisdom that a lot of the low-hanging fruit in Western Canada is gone," Buckee said.
"In the Western Canada basin, new-pool sizes average 250,000 bbl compared with 20 million bbl in the North Sea and 100 million bbl in Africa-there are large orders of magnitude in the difference."
Talisman is already reaping production gains on projects in the North Sea and Indonesia and expects its current major venture in Sudan, in partnership with three national oil companies, to begin production later this year. It looked at alternative investments in Alberta oilsands and the East Coast offshore before deciding to go abroad.
SudanThe company acquired Calgary independent Arakis Energy and its 25% interest in the Greater Nile Oil Project in October 1998, for $277 million (Canadian). It estimates the project's finding, development, and acquisition costs at $3.95/bbl. Talisman partners in the project's operating company, Greater Nile Petroleum Operating Co. (Gnpoc), are China's China National Petroleum Corp. (CNPC) 40%, Malaysia's Pe- tronas 30%, and Sudan's Sudapet 5%. Talisman says Sudan gives it a ground-floor opportunity to participate in development of a new basin with low operating costs and significant upside. And the company says its technical expertise is making a strong contribution to the partnership.
The Sudan project includes 12.2 million acres of lands in south-central Sudan in the Muglad basin on Blocks 1, 2, and 4 with five discovered oil fields under appraisal and development about 435 miles southwest of the capital city of Khartoum. The fields are Heglig, Unity, El Toor, El Nar, and Toma South.
The Muglad basin is the largest of three subparallel failed rift systems in Sudan. The 53,940-sq mile basin is characterized by a nonmarine sand-shale sequence that reaches a thickness of 45,000 ft in the basin's center. The sandstone reservoirs are highly porous and permeable.
A 932-mile, 28-in. pipeline has been completed to tidewater and port and storage facilities at Port Sudan on the Red Sea. The marine terminal will have 2 million bbl of storage and an offshore loading buoy. Buckee says the pipeline was completed in record time by a CNPC unit that operated 23 welding spreads and is now working on pumping stations. The line will have initial throughput of 150,000 b/d and design capacity of 250,000 b/d, and the consortium will own and operate the line for 15 years. Total ultimate (expansion) capacity of the 28-in. line will be over 450,000 b/d, with additional pumping stations. A number of companies, including CNPC, Petronas, Lundin Oil AB, Total, and OMV AG, hold concessions offsetting the contract area. Excess pipeline capacity would be available on a common carrier basis.
Buckee says the project is on track to begin production later this year, with a target of 150,000 b/d. Talisman's share will be 37,500 b/d. He says reserves estimates have increased to well over 800 million bbl from the 450 million bbl estimated when Talisman joined the project last October. He is confident that production can be increased to 200,000 b/d.
Other Sudan prospectsIn 1999, the Gnpoc partners plan to test and develop some of the more than 100 untested prospects, leads, and anomalies, many of which are low-risk and on trend with existing discoveries. The prospects' postulated reserves are put at 10-50 million bbl of oil each. A 1,616 line-mile seismic program and 18 exploration and appraisal wells are planned. Development planning is also scheduled for some of eight undeveloped discoveries on the concessions.
Talisman's mean estimate of undiscovered original oil in place is 10 billion bbl, with an estimated range of 8.5-12.5 billion bbl. Recovery factors are expected to average at least 30%. Oil gravities in the fields being developed are 25-40°, and the reservoirs feature a low gas-to-oil ratio. Wells are expected to produce 1,000-3,000 b/d on pump.
Sudan history, concernsThe Talisman CEO acknowledged the pioneering work of Chevron Corp., which undertook initial exploration and made the first discoveries in Sudan in the 1970s.
The lands were originally granted to Chevron in 1974, with Royal Dutch/ Shell later acquiring a farmout for a 25% interest. The two companies spent about $1 billion (U.S.), shot extensive seismic, and drilled 52 wells, including 34 suspended oil wells, before reducing activities in 1984 and relinquishing their concession in 1992.
"They did excellent work and we still use some of their seismic and core data," Buckee said. "We still talk to Chevron. I believe they withdrew for a couple of reasons: The pipe- line investment was pretty daunting at that time, and Chevron had lots of alternatives for spending the money, with Sudan low on the list."
Talisman's investment in Sudan has been strongly questioned by the United Church of Canada, a shareholder, which says that oil revenues could give the government additional funds to wage war in southern Sudan in a long-running conflict against secessionist groups.
Buckee says the fighting is predominantly a tribal conflict and an internal political matter in an area where there are about 300 tribes and 200 different languages, some as "different as French and Chinese."
"Our argument, in a nutshell, is that development is good and stagnation is bad. Lack of investment won't help anyone," he said in support of the project, which is providing infrastructure such as roads and health care in the region.
Other areasTalisman also is moving ahead with projects in Indonesia, the North Sea, Algeria, and Trinidad and Tobago, as well as with its core operations in Western Canada.
The Canadian emphasis is on natural gas development, particularly in the deep plays of the Rocky Mountain foothills.
Growth in the key Alberta foothills region helped cushion the effects of low oil prices and contributed to average gas production in 1998 of 682 MMcfd.
Company production overall in 1998 averaged 231,000 boed, up 14% over 1997. Yearend production was up to 242,000 boed.
In Indonesia, Talisman increased oil production in 1998 by 19% to 33,920 boed, mainly through drilling and waterflood operations in Tanjung field in Kalimantan. It expects Indonesian production to increase to 50,000 boed this year. In 1998, its Indonesian netback averaged $6.28/bbl.
Elsewhere in Indonesia, the Corridor natural gas project in South Sumatra also began production last October, with fourth quarter gas sales averaging 53 MMcfd. A unit of Gulf Canada Resources Ltd. is operator with a 54% working interest; Talisman has 36% and Pertamina 10%.
The Corridor project is providing gas for the massive Duri steamflood project in central Sumatra (see map, p. 70).
In 1999, Indonesian projects include expansion plans for the Corridor project, continuation of a development program in Tanjung Raya oil field, and a full waterflood operation in Ogan Komering field in Sumatra, based on pilot results.
The company will also complete technical evaluation of an offshore concession southeast of Madura Island in the East Java Sea.
Talisman's North Sea operations ran into heavy financial weather in 1998, largely because it lost litigation over natural gas contracts and had to sell substantial volumes at much lower spot prices, Buckee says. It declared $183 million in after-tax writedowns associated with Ross and Beatrice fields and some properties in the southern gas basin. It also experienced high fixed costs, production interruptions, and exchange rate pressures on operating costs.
Despite these problems, the company increased its North Sea production 11% last year to 74,749 boed-57,480 b/d of crude oil and other liquids and 104 MMcfd of natural gas. Talisman also added interests in seven blocks in the Moray Firth area and now holds interests in 52 central North Sea blocks. It is now the largest net acreage holder in the Inner Moray Firth area.
Talisman also has exploration programs under way in Algeria and off Trinidad.
In Algeria, the company has a 35% interest in northern Blocks 215 and 405. It discovered three fields in 1998 and drilled four wells under a $47.1 million exploration and development program. In the MLN-5 field on Block 405, the MLN-5 appraisal well flowed on test at a rate of 6,820 b/d of oil and 7 MMcfd of gas, and the company expects development approval later this year with first production in 2001.
Appraisal work will continue this year on the MLSE-1 discovery on Block 405, which flowed oil and gas on test at rates of 14,638 b/d and 107 MMcfd. Development work is under way in Qoubba field, which extends into the northeastern portion of Block 405 and has estimated oil in place of 2.5 billion bbl. Talisman has an initial 2% interest and has booked 12 million bbl of proven reserves.
Off Trinidad, Talisman has completed a bottom-cable seismic program, on acreage on trend with discoveries in Venezuela, with plans for two wells this year.
President Jim Buckee
"I think it is a commonly perceived wisdom that a lot of the low-hanging fruit in western Canada is gone. In the western Canada basin, new-pool sizes average 250,000 bbl, compared with 20 million bbl in the North Sea and 100 million bbl in Africa-there are large orders of magnitude in the difference."
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