BHP ACCENTS FRONTIER SEARCH TO BOLSTER RESERVES PORTFOLIO

Roger Vielvoye
International Editor

When BHP Petroleum, Melbourne, decided in the mid-1980s to buoy its reserves, mainly in Australia's Bass Strait, by exploring frontier areas of the world there was relatively little competition from the rest of the industry.

In sweeps through under-explored, often remote areas of the world, BHP rarely came across other companies. Today, the competition is everywhere.

Bryan Griffith, BHP's exploration director and general manager of the new ventures division, said there was a window of opportunity stemming from the 1986 oil price crash. Acreage was relatively available as the industry trimmed operations.

But frontier acreage is now tight and will grow tighter as the U.S. industry continues to diversify away from the home country.

BHP now has a portfolio of acreage in 20 countries. Building an attractive portfolio has been a long exercise, Griffith said. The prospects will be drilled in the next 1224 months, requiring a continual process of replacement.

There is less acreage going into the new ventures portfolio, and Griffith is concerned at the increasing level of competition.

The competition is driving up work commitments and making the process of acquiring acreage much longer.

He said, "With frontier acreage you can drive up the price only to a certain level. The competition just takes away from the market acreage you would like to have yourself."

BHP's first steps onto the world scene were in partnership with BP Exploration in China.

Peter Willcox BHP Petroleum's chief executive officer, said BHP spent $46 million in China and found nothing.

Lessons were learned, and the exploration effort now has a radically different look. Willcox said, "Instead of putting all our money on one number, we have it dispersed in at least 10 plays around the world."

HIGH POTENTIAL

BHP currently holds frontier acreage in Newfoundland, Quebec, Trinidad, Guyana, Argentina, Denmark, Malta, Tunisia, Egypt, Algeria, Congo, Guinea, Madagascar, Oman, Myanmar, Malaysia, Indonesia, Viet Nam, China, and in four areas off Australia.

This year the company will spend about $130 million (Australian) on exploration in the June 1-May 31 financial year, slightly more than in the previous 12 months.

Frontier does not always mean high risk. It means high potential, a preface to Griffith's views on entering the Soviet Union.

He says no one can afford to ignore the Soviet Union-even a company like BHP Petroleum, where new ventures focus almost exclusively on exploration plays because of the upside opportunities.

The U.S.S.R. is a huge resource base with relatively low risk and high potential, the kind of opportunity that does not come up very often.

"The risks in the Soviet Union are nontechnical," Griffith says. "They are legal, commercial, and political. They are significant."

BHP's new ventures operations are looking for exploration opportunities because development opportunities are very high cost. The return is marginal at best. The fiscal regime can be exceeding onerous as well.

"You are effectively buying crude oil in the ground, and there is limited upside," Griffith said.

In the U.S.S.R., opportunities are very much development driven, but there are some associated exploration opportunities that interest BHP. And at this stage, the fiscal regime does not appear to be too onerous, although Griffith concedes that could change.

The company also is interested by the fact that some of the fields have not been properly appraised. Off Sakhalin Island, where BHP is reviewing potential involvement in development of two large fields, there is also associated exploration acreage attached.

Willcox takes a pragmatic view of the Soviet Union. Even if BHP does not go in, "the Soviet Union will soak up the capacity of our competitors, and that will be to our advantage.

"I love the thought of Chevron assigning 600 people to the Soviet Union. That will be 600 fewer people to compete with us."

ALGERIAN DRILLING

Griffith cites BHP's Algerian acreage, where the first of two wells is drilling, as an example of the time it takes to activate frontier work.

Algeria was spotted during the window of opportunity in the mid-1980s. By the time BHP had identified the opportunity, approached the Algerians, negotiated the deal, and signed the contract, 3-4 years had passed.

"It is a very slow process," Griffith said. "Of course, you can drill a couple of holes in a matter of 6 months and find the acreage is no good. So you have to have a large portfolio."

The current drilling program includes the first of two key wells in the Western Desert operated by Agip SpA and in Irian Jaya, where a unit of Mobil Corp. is drilling the first of two wells.

BHP has just drilled a dry hole in Myanmar and is reassessing data. It could be back for a second well by October.

It also is about to begin a two well program off Malaysia.

In Argentina, drilling will start in the next few months. And by the beginning of winter drilling could have started in Congo.

Denmark, where Statoil unexpectedly found oil in a gas play, has moved up the list, and another well is expected within 12 months.

Within a year there also will be BHP wells drilled in Malta, Tunisia, Madagascar, and Viet Nam.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.