Mongolia re-joins oil producing world

David Knott
London
[email protected]

Mongolia has begun producing oil commercially for the first time in more than 30 years, in a project operated by SOCO International plc, London.

In the mid-1960s, the Soviets found oil in the Gobi basin, developed two fields, and built a small refinery nearby. Then they found massive oil deposits in western Siberia, blew up what they had installed, and returned home.

After Mongolia's communist regime collapsed in the early 1990s, a new democratic leadership opened its doors to international oil exploration firms, through licensing rounds in 1991 and 1992.

SOCO was formed in January 1997 to operate assets taken over from Snyder Oil Corp., Fort Worth, and Cairn Energy plc, Edinburgh. It is now acquiring Territorial Resources Inc., Houston, another Mongolian license holder.

Once this latest transaction is complete, SOCO will be operator of Blocks 19, 20, 21, and 22 in Mongolia (OGJ, Dec. 26, 1994, p. 32).

To balance these high-risk assets, SOCO has net production of 2,500 b/d of oil in Russia, 2,800 b/d in the U.K., and 2,000 b/d in Yemen.

Development

Roger Cagle, SOCO's vice-president and chief financial officer, said eight wells were drilled during 1993-97 on Blocks 19 and 21. Six wells encountered hydrocarbons, and five finds are thought to be viable.

The 19-3 well tested 700 b/d and was brought into production in January. SOCO installed a gathering station and 5,000 b/d processing plant near the well.

Under a sales contract with China National Petroleum Corp. (CNPC), processed crude is taken from the field by tank truck to the Chinese border. There custody transfers to CNPC, which sends oil by pipeline and rail car to a refinery at Hohhot, China, 270 miles from Beijing.

"The sales contract," said Cagle, "requires us to deliver a minimum of 10,000 bbl/month of oil to the border. We should easily be able to accommodate this from the 19-3 well."

SOCO plans to drill a further eight wells this year with two rigs. Most of the wells will explore and appraise Block 19, but one will be a Block 20 wildcat. A 3D seismic survey will be shot to guide appraisal drilling.

Potential

SOCO has amassed probable reserves amounting to 40 million bbl of oil on Block 19. Reserves for the 19-3 well will be booked as proven this year.

"Our geologists suggest there is considerable potential in Blocks 19 and 20," said Cagle. "We would not be in this remote place drilling rank wildcats in the expectation of a 40 million bbl ultimate reward."

Cagle said the remoteness of the play had deterred majors. One said it could only envision development if it involved a pipeline to a sea port-an expensive undertaking from Mongolia.

SOCO based its viability decision on a $70 million pipeline to China's Daqing refinery to the southeast. Since then the company has discovered it could build a much shorter pipeline southwards.

"We saw that field development could work by selling produced oil to China," said Cagle. "Opening of a manned border crossing for this project was highly significant.

"China and Mongolia have not always been on the best of terms. It was no mean feat to persuade Mongolian authorities to let a Chinese rig in, but since then things have worked beautifully."