Hungry for more, Part 2

Oilfield Technology correspondent Ng Weng Hoong reveals that despite predictions of a glut, Asia is growing increasingly anxious about oil and gas supplies.

Indonesia’s 2013 oil and gas production below target, oil at 42-year low

Not for the first time, Indonesia’s oil and gas industry will likely miss the government’s annual production targets amid charges of corruption, mismanagement and failure to attract foreign investments to make up for the depletion of its ageing fields.

Southeast Asia’s largest oil and gas producer has seen both decline in recent years, with oil’s slide the more drastic from around 1.6 million bpd in 1992 to 918 000 bpd last year, according to BP.

For 2013, Indonesia’s oil production is expected to fall below 900 000 bpd for the first time since 1971.

Its natural gas output has also been in decline since the start of the decade, from a peak of 82 billion m3 in 2010 to 71.1 billion m3 last year, and it is likely to fall below 70 billion m3 this year.

The government is preparing for worse to follow in 2014 and beyond with negative implications for an economy heavily dependent on hydrocarbon production and exports.

Last year, Deputy Energy and Mineral Resources Minister Susilo Siswoutomo told an industry conference that Indonesia’s oil output will fall to around 850 000 bpd in 2014, well below the official target of 870 000 bpd, due to problems at the ExxonMobil-operated Cepu field.

But industry insiders believe his numbers are too optimistic and expect Indonesia’s production to fall to as low as 810 000 bpd on account of the rapid depletion of the country’s mature oil fields and the government’s failure to attract foreign investment.

As a sign of Indonesia’s growing resource nationalism, the government recently turned over the Siak oilfield in Sumatra to Pertamina after rejecting an extension of Chevron’s 50-year operatorship. While Siak produces just 4000 bpd, it adds to a series of decisions over the last few years that Indonesia appears to be favouring Pertamina and local interests over foreign investors and customers.

The US major is one of the most important and oldest investors in Indonesia where it produces 320 000 bpd of crude and 636 million ft³/d of natural gas.

In 2013, several foreign contractors including US firms ExxonMobil, ConocoPhillips and Marathon along with Norway’s Statoil and Netherlands’ Tately NV surrendered their upstream concessions while at least two US firms, Hess and Anadarko, have left Indonesia citing the country’s deteriorating investment climate.

Already a net oil importer, Indonesia will have to increase its purchases from abroad, from around 500 000 bpd this year to as much as 660 000 bpd in 2014 to meet rising domestic demand. The projected sharp increase in oil imports will add to the country’s rising trade and budget deficits.

According to the IMF, rising energy subsidy costs also drove oil and gas imports and fiscal deficits higher. As a result, Indonesia slipped into a current account deficit in 2012 for the first time in more than a decade.

Thailand’s PTTEP lowers long-term production target

Faced with rising costs and fierce competition for oil and gas reserves, Thailand’s leading upstream company, PTT Exploration and Production Pcl (PTTEP), said it has lowered its production target for 2020 from 900 000 bpd to a ‘more realistic’ figure of 600 000 bpd.

For its latest five-year plan, PTTEP expects production to rise to 337 000 bbls of oil equivalent/day (boepd) this year and to peak at 354 000 boepd in 2015, thanks largely to the expected ramp-up in its offshore Montara oil field in Australia and start-up of the Zawitka gas field in Myanmar from the first quarter. The company expects its total production to decline to 344 000 boepd in 2016, 330 000 boepd in 2017 and 321 000 boepd in 2018.

Last year, its production averaged 292 000 boepd, up 6% from 2012.

The company said it plans to invest a total of US$ 27.28 billion over the next five years to 2018, up 9.1% from US$ 25 billion covering the previous plan from 2013 to 2017.

The new budget includes capital expenditure of US$ 17.53 billion, up from US$ 15 billion in the previous five-year plan, and operating expenditure of US$ 9.75 billion compared with US$ 8.87 billion previously, said company president and CEO Tevin Vongvanich.

PTTEP produces its oil and gas from the Bongkot and Sikrit S1 fields in Thailand, the MTJDA-B17 joint development with Malaysia, Kai Kos Dehseh (KKD) oilsands in Canada and the Montara field in Australia.

The company may consider selling off its stake in Canada’s loss-making KKD oilsands project on account of rising costs and the dim prospects of the oil being exported to Asia. Environmental and aboriginal groups in Canada are deeply opposed to building pipelines to coastal ports and allowing tankers to ship the oil from Alberta to Asia.

Petronas says marginal fields helping to slow down oil depletion rate

State energy firm Petronas said its policy to exploit Malaysia’s marginal fields has helped lower the annual decline rate of the country’s oil reserves to between two and 3% compared with the international norm of 8 - 9%.

At a recent briefing, CEO Shamsul Azhar Abbas said the company is applying enhanced oil recovery (EOR) methods on 14 mature and marginal fields to produce an additional 750 million to 1 billion bbls of oil. He said Petronas is working with ExxonMobil and Shell to further extract barrels from the mature Tapis field off Terengganu state, and five other fields off Sabah and Sarawak states.

As a result, Malaysia has been able to maintain crude production levels of approximately 480 000 bpd.

Despite the continuing decline in Malaysia’s shallow-water oil production, research and consulting firm GlobalData said it does not expect the government to introduce further fiscal changes to attract new investments.

Instead, the government is focusing efforts on developing opportunities in the country’s deepwater areas and marginal fields.

“As most of Malaysia’s oil production has historically come from shallow-water areas, the government has been pushed to introduce a number of tax incentives this year to help improve the attractiveness of the country’s fiscal terms and promote further development activity,” said GlobalData.

“Under production sharing contracts (PSCs), marginal fields – defined by reserves of up to 30 million bbls of oil, or 500 billion ft3 of natural gas – are subject only to petroleum income tax at a rate of 25% instead of the usual rate of 35%.”

Meanwhile, companies operating under risk service contract (RSC) terms that also apply to marginal fields pay a corporate income tax of only 25% instead of the 35% petroleum income tax.

GlobalData believes that the additional investment allowance introduced by recent legislation should prove to be a significant improvement to Malaysia’s fiscal regime.

Jonathan Lacouture, GlobalData’s lead analyst for the Asia-Pacific region, said: “Numerous measures have been involved in the government’s drive to increase production from its marginal fields. Since the introduction of RSCs in 2011, there have been two forms of contract into which investors may enter, and this, combined with reductions in the tax liability afforded to marginal fields under 2013 legislation for PSCs, should increase the attractiveness of investment opportunities.”

However, due to these recent changes to Malaysia’s fiscal terms, it is expected that any further alterations will be unlikely over the next few years. “If the terms do not achieve their desired investment amounts in the medium- to long-term, the government may decide to make additional changes, but this will depend on short- to medium-term results. It is most probable that terms will remain stable until the effects of these recent policies can be assessed,” said Mr Lacouture.

Part 1 of this article can be reached here.

Part 3 of this article can be reached here.

Adapted by David Bizley

Read the article online at: https://www.oilfieldtechnology.com/drilling-and-production/18032014/hungry_for_more_part_2/