INTERNATIONAL FOCUS

Dev George
Houston

Natuna Island

Petropolitics and human rights

The conflict carries on, and the petroleum industry, always on the cusp, is caught in the crossfire. Searching about for candidates for their wrath in this post-Cold War period, politicians have settled on violators of human rights of one stripe or another across the globe. Granted, there are ample villains out there who care not a whit for the basic rights of their citizens or those of other nations, but where should the lines be drawn separating the good guys from the bad guys, and by what definitions?

Sometimes, it appears that there is a dearth of petroleum where democracy prevails, and a plenitude of petroleum reserves where despotism reigns. But can sanctions reverse that order, or boycotts bring about better lives for the suffering masses, or stop the persecution of political opponents? I think not. They haven't in Iran, Iraq, Libya, or Cuba, and they won't in the latest litany of human rights violators - Myanmar, Nigeria, Indonesia, and China, to name only a few of the locations where the international petroleum industry has considerable interest.

The fact is, it is the very people whom the sanctions purport to serve that suffer, not their governments. Rather, experience has shown that where the standard of living has been driven upward by international investment and development of the sort the petroleum industry brings to a society, market economics and democratic institutions naturally develop, and with them the sanctity of human rights. Witness the remarkable changes that have occurred in Thailand, Malaysia, South Korea, Brazil, Venezuela, and Chile.

What the state takes in deepwater

E&P investment in deepwater prospects around the world is mainly determined by geological prospectivity, but the successful development of deepwater fields in the US Gulf of Mexico, the UK North Sea, and Brazil has driven a wide range of countries to offer their own deepwater aquatories for licensing in the hope that their acreage will yield comparable success. West African and Southeast Asian governments in particular have offered large deepwater tracks, but their ability to attract high risk investment has been mixed.

According to a new report by Petroconsultants, Review of Petroleum Fiscal Regimes (Oil) 1997, the competition for major investment in exploring these high risk deepwater sectors is fierce, necessitating the offering of attractive fiscal incentives. As a consequence, some countries' deepwater licensing rounds have met with considerable enthusiasm, while other countries' offerings go wanting.

The UK and USA have both introduced significant fiscal incentives and reaped the resulting rewards. In particular, the UK, which offers the most attractive regime today, has the same lenient regime for both deepwater and mature areas. The USA, likewise, by providing royalty relief for marginal field developments in the Gulf of Mexico, is also among the best.

The average state take (state's total cashflow, including direct participation, expressed as a percentage of the gross project cashflow - gross revenue less gross costs) for deepwater regimes is compared in the accompanying chart. Under most circumstances, the state take is considerably lower than it is for developments in standard exploration areas. Degrees of deepwater investment and development is generally inversely proportionate to the percentage of state take.

Natuna or not Natuna?

There has been some movement on the Natuna front. On February 18, Pertamina presented an industry briefing in Jakarta to emphasize the Indonesian government's continued commitment to moving forward with the execution phase of the Natuna Gas Project, which anticipates first gas in 2003. But it's not the original project, since production of LNG is not envisaged within the next decade due to a lack of customers. Rather, a considerably less ambitious albeit mammoth project nevertheless, is to get underway near the end of this year, if all goes as projected, with full field development staged according to market demand.

Phase 1 field development, predicated upon a memorandum of understanding with Thailand, will include a 38-in. delivery pipeline tying into the Thai system near Bongkot, a 30-in. CO2 injection pipeline, two treatment platforms, an injection platform, and a drilling/quarters platform.

Pertamina explains this initial downsizing of the project by pointing to new technology having reduced the cost per MMcf/d by approximately 50%, making piped gas to Thailand very competitive with LNG from Oman. Additionally, other prospective markets are now at hand - Malaysia, Singapore, Java, Batam, and the Arun LNG facility.

Exxon (Esso) continues to hold a 50% interest in the 46 tcf (recoverable) field, but Pertamina has reduced its stake to 11%, Mobil having purchased 26%. Another 13% interest is being sought by a group of 13 Japanese companies, and it is said, Thailand's PTT is interested in taking 5-10%.

Everything, however, still depends on gas sales contracts - the commencement of construction, the drilling of additional wells, the laying of pipelines. It's a $40 billion project that must have sales at a sturdy price before it can get underway. And, to further complicate matters, Indonesia has two other gas giants giving Natuna a run for the money:

1. Arco's 15 tcf Wiriagar Deep Field off Irian Jaya, which is expected to have fast-track development with a two-train LNG facility that will produce 6 million tons yearly, beginning in 2003.

2. Total's 8.1 tcf Mahakam Field Complex off East Kalimantan, which will be produced to the Bontang LNG facility.

Even the Arun LNG facility has gotten a new lease on life with the discovery and development of the 1.24 tcf North Sumatra A Block reserves, set for delivery by 1999.

State Take for Deepwater Regimes

Marginal Fields		Economic Fields		Upside Fields
UK	33.40%	UK	33.00%	UK	33.00%
USA (OCS)	46.10%	USA (OCS)	41.40%	USA (OCS)	37.10%
Cote d'Ivoire	50.90%	Cote d'Ivoire	49.20%	Cote d'Ivoire	46.80%
Nigeria	53.10%	Angola	52.60%	Gabon	50.00%
Thailand	53.30%	Gabon	52.60%	Thailand	50.50%
Angola	56.20%	Thailand	54.70%	Nigeria	58.50%
Gabon	56.60%	Nigeria	57.80%	Congo	58.60%
Congo	67.60%	Congo	61.40%	Angola	64.80%
Indonesia	74.20%	Indonesia	72.40%	Indonesia	71.30%
Malaysia	78.20%	Malaysia	74.10%	Malaysia	71.30%
World Ave.	69.90%	World Ave.	65.10%	World Ave.	63. 90%
(116 Fiscal Regimes)		(116 Fiscal Regimes)		(116 Fiscal Regimes)

Briefs. . .

Europe:

Another West of Shetland field has been discovered by British Petroleum and Shell, the Suilven Field, which lies north of the Foinaven-Schiehallion complex in Block 204/19, 160 km west of the Shetland Islands. Wood Mackenzie calculates that the new discovery contains between 100 and 200 million bbl recoverable oil reserves. The discoverers, however, remain silent. The discovery was made by the Ocean Alliance semisubmersible.

Romania's Black Sea Block 15 is being drilled by Enterprise Oil in the second phase of its exploratory project for the Romanian shelf. Three wells are scheduled in the current drilling program, based on gas finds from 1995 that tested 17.5 MMcf/d.

Mideast:

Egypt's Mediterranean Nile Delta Wakkar Field began production last month at 42 MMcf/d gas and 2,700 b/d condensate. Production is being piped to Port Said. The Agip/EGPC field holds approximately 1.4 tcf gas. Balaym Petroleum Co. is the operator. Elsewhere in the Nile Delta, Amoco has found significant gas reserves in its North Sinai concession. The Tao-1 wildcat tested 37.9 MMcf/d gas of high quality. This is the company's 16th discovery here in just five years.

Africa:

Côte d'Ivoire's Block CI-102, one of the country's most prospective aquatories, has been awarded to a group headed by operator Ranger Oil (24%) Energy Africa (24%), Clyde Petroleum (24%), and Gentry Resources (11%). Five previous exploratory wells have produced high quality oil shows. Water depth is 200 meters.

Elsewhere, in the eastern Ivoirian aquatory, Block CI-01, UMC and partners have confirmed their Kudu Field as commercial, with 27.7 MMcf/d gas and 740 b/d condensates flow rates. Expected production is 80 MMcf/d gas for onshore power generation in Côte d'Ivoire and Ghana.

Nigeria's Obe Field on OML 110, held by Allied Petroleum and Tuskar Resources, is about to see development drilling. A 3D seismic survey over the field was completed at yearend 1996, preparing the way for this year's drilling program. Tenders are out for contractors at this time.

In Cameroon, Pecten has launched a 23-well project on the Lipenja Field, for which it has fixed the jackup Glomar High Island VII. The contract is expected to last about 17 months, but has a 10-well extension option.

Namibia's Kudu gasfield, offshore Oranjemund, is now being drilled and studied seismically. The next stage of exploration begins this month, with a likely two more years to go before the field is fully evaluated. Namibia is counting on it for gas export to South Africa and to generate local energy needs.

Ghana has signed a letter of intent with Chevron for a 500-km, $400 million offshore pipeline to carry gas from Nigeria's Escravos Field, where some 650 Mcf/d is currently flared, to Ghana's Tano and Saltpond Fields, where their gas will be added to the stream destined to power the Ghana's Takoradi Thermal Plant, now under construction.

Americas:

Record bidding was recorded last month in US Gulf Sale 166, with a 12-year high total of some $1.24 billion - largest in the area since 1985. Most bids were for tracks in water depths of 800 meters or more. 1,790 bids were made for 1,032 tracks. Shell Offshore was the primary bidder, with Vastar Resources second. Mississippi Canyon Blocks 286 and 287 drew the highest bids - from Kerr-McGee/Agip and Kerr-McGee/Agip/British Borneo respectively, at $8 million each.

Canada's massive, 600,000-ton Hibernia topsides and gravity base structure were successfully mated last month, to ready the oft-maligned platform project for towout to the three-billion bbl field so that drilling can begin with an aim of production by the end of this year.

The bill to open Brazil's petroleum industry to private and foreign participation has been slowed in the country's Chamber of Deputies due to debate over a proposed amendment that would initiate privatization of Petrobras, the state oil company, by eliminating stipulation that the state maintain its ownership. The pending bill will end Petrobras's monopoly of the Brazilian petroleum industry and allow private companies to compete against Petrobras and/or form joint ventures with Petrobras.

Asia-Pacific:

China's Bohai fields will be linked by a pipeline network to carry both oil and gas to shore. First phase of the CNOOC project will connect fields in the southern and western sectors of Bohai Bay and should be completed by the end of this year.

Once again India's government plans to reform its oil industry through restructuring and a move toward market-based pricing. The restructuring has been announced before, with little to actually show for all the hoopla that preceded it. This time it's the Union Ministry of Petroleum that drew up the plan, centered on tax holidays for exploration in high-risk offshore blocks, now before the Cabinet. All is intended to attract international investors. So far, however, the words haven't been replaced by any real action.

Exercising their license agreement, Thaipo, Palang, and Rutherford-Moran Oil have bought all of Maersk's 31.67% interest in Gulf of Thailand offshore oil operations, including the highly prospective Block B8/32, with its Benchamas, Pakakrong, Kaphong, and Surat gasfields, for some US$28.6 million.