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Abstract: The Changing Nature of Hydrocarbon Exploration in SE Asia
Hydrocarbon exploration in SE Asia is changing and will undergo further changes in order to meet the requirements of the region. Over the last 20 years (1980-2000), the exploration for, as well as the production of oil and gas in SE Asia have been dominated by powerful incumbents. Intense competition for international exploration acreage, high growth rates and increased demand for oil and gas attracted many new entrants into the region. However, the predominance of gas over oil discoveries, coupled with moderate-to-low product prices and high government takes, led to considerable value destruction for both new and incumbent companies in the region.
Investment into the newly opened areas of Burma, China and Vietnam failed to develop into any obviously commercial E & P ventures. However, many SE Asian countries were able to extract considerable 'value' from the largely foreign companies involved. Since the opening-up of Central and Middle Eastern regions in particular, the reinvestment of revenues in SE Asia has diminished significantly to become among the lowest in the world. In essence, for most companies the rewards of success have generally been insufficient to encourage their undertaking further exploration risk.
A review of the giant oil and gas discoveries in SE Asia over the last 20 years indicates that almost all are gas. This ratio is also representative of the overall exploration results in the region. The average size for new oil discoveries in SE Asia has declined, and the reserve replacement rate via new discoveries is now well short of the oil production rate. Consequently oil reserves are depleting and production levels are mostly in decline. In contrast, gas production is increasing and related condensate yields will offset some of the total liquid decline. However, the current overhang of undeveloped gas and gas condensate reserves in SE Asian nations is a serious impediment to further gas exploration.
Speculative funds leaving the sector have led to large numbers of existing contracts being offered for sale or farmout. Farmout forums and Internet deals are now commonplace. Partly as a consequence, substantial knowledge of the petroleum geology of most SE Asian basins is now readily accessible to all, but this has yet to be fully exploited.
To offset the value-loss effect of exploration in the region, many of the majors are refocusing their efforts and buying rather than exploring for hydocarbon reserves.
For most large companies, searching for big gas or deep-water reserves is the only real exploration alternatives in SE Asia. In addition, Japanese funding for exploration is winding down, and SE Asian NOCs are increasing their exposure to international exploration opportunities.
For niche players, exploration is still a viable mechanism for growth. Not only might a small discovery be meaningful, but also these investors are less constrained by risk analysis and portfolio management. They are unlikely to have a portfolio of alternative investment opportunities such as are usually available to the majors. For SE Asia this is significant since deepwater Gulf of Mexico and West African plays, for example, are winning the competition for the exploration funds of most major companies.
Risk analysis alone does not find oil and gas. New opportunities, good prospects, real incentives and adequate funding are required to find significant new reserves. For SE Asia, the complex petroleum systems make local experience rather than company size a premium asset. However, much of this experience has been lost to many through corporate restructuring and short-term staff rotation.
To halt the decline of oil reserves in the region, significant increases in exploration are needed. To replace its reserves, Indonesia needs to find around 500MMBO each year. This would require at least a 10-fold increase in exploration effort from current levels. Several new initiatives to increase SE Asian exploration have begun to emerge. Malaysia has improved contract terms for the development of oil fields under 30MMBO and started a new CD and Internet promotional campaign. Indonesia is restructuring its oil and gas sector to include the privatisation of Pertamina, with the Oil and Gas Directorate assuming the role of promoting and licensing exploration acreage.
Thailand has begun a 3-year period for monthly license applications on most of its open acreage, and the Philippines has started a 'window of opportunity' for its Palawan 'corridor of focus'. These are useful initiatives, although probably not radical enough to seriously increase levels of exploration. To offset the risk of finding yet more stranded gas, and to encourage the search for new plays, fundamentally new licensing schemes and exploration initiatives need to be introduced. Additional incentives could also be offered in the area of the development and marketing of gas in SE Asia in order to encourage more exploration.
Presented at: 2003 South East Asia Petroleum Exploration Society (SEAPEX) Conference, Singapore, 2003
Acknowledgments and Associated Footnotes
1 Peter B. Woodroof: Genting Oil and Gas Ltd., Malaysia
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