March 2015
Columns

Oil and gas in the capitals

Southeast Asian nations develop “coping strategies” for oil price downturn
Jeff Moore / Contributing Editor

The oil price downturn in just a few months’ time has forced energy companies to shelve high-risk projects and cut work forces to maintain profitability. Governments and state-owned energy companies, however, are not driven wholly by profit; they have national interests in mind, as well. In this regard, the E&P “coping strategies” of Thailand, Indonesia, Myanmar, Malaysia and Vietnam provide an interesting picture of the upstream environment for Southeast Asia during 2015.

Thailand. Bangkok announced on Feb. 14 that it would hold its 21st round of oil and gas concession bidding, with applications due by March 16. Thailand is offering 29 blocks: 23 onshore, and six offshore. So far, the French government has guaranteed that Total will participate. Additionally, Bangkok said it was switching from petroleum concessions to a PSC system for the bidding—the latter will reap more state revenues.

Aside from national development, Thailand Energy Minister Narongchai Akrasanee indicated that Bangkok had to hold the bidding round, to boost the confidence of foreign investors, some of which was lost as a result of the 2014 coup.

Indonesia. On Jan. 20, Indonesia announced that it would host bidding on eight oil and gas blocks—five offshore and three onshore—to increase domestic reserves. No exact time frame for the bidding has been given. Another reason for the block offerings is the maverick attitude of the new president, Joko Widodo. He wants a strong, independent and vivacious Indonesia. His political, defense and economic policies—including gas and oil production—are showing it.

Indonesia and its foreign corporate partners are also moving forward with three major projects: Chevron’s Indonesia Deepwater Development (five fields in the Kutal basin); BP’s Tangguh Train 3 gas expansion project in West Papua; and Eni’s deepwater gas project at Jangkrik field.

At other producing fields, such as West Madura Offshore, Pertamina has asked contractors to develop money-saving mechanisms to cut costs. 

Bucking the downward price trend further, Pertamina aims to increase crude output 38% this year, to 329,000 bpd. During 2014, the firm’s crude output was 238,000 bpd. With domestic oil production sliding, much of these increases came from overseas projects, in places like Algeria.

Myanmar just had a bidding round during 2014, but it’s not clear how many of the 20 fields selected will be developed in 2015. 

Having said this, there are at least six early-stage E&P projects that appear to be moving forward handily in Myanmar, as of late February. First is exploration of the A-5 Block, a shallow-water PSC, by Unocal Myanmar Offshore and Myanmar’s Royal Marine Engineering. Second is exploration of Block AD-10, a deepwater PSC, by Statoil and Conoco Phillips.

Myanmar Oil and Gas Enterprise (MOGE) recently announced that Shell and Mitsui would conduct E&P at three blocks: MD-5, offshore Taninthayi; and AD-9 and AD-11, both offshore Rakhine.

On Feb. 7, Myanmar began deepwater exploration in Block AD-1 via the Aung Pyi Hein 1 oil well, a JV between MOGE and Chinnery Assets Ltd, which is owned by CNPC. CNPC already drills in Blocks AD-6 and AD-8, offshore Rakhine.1 For Aung Pyi Hein, CNPC is using its own rig, Herculean Marine Oil 981, which became infamous last summer, when China inserted it into waters claimed by both Hanoi and Beijing.

Malaysia’s economy and national budget are taking a major hit from falling prices. It is the second-largest gas exporter in the world, behind Qatar, and it’s the largest such exporter in Asia. Oil and gas revenues make up about 30% of Malaysia’s budget, and the downturn is forcing a two-year delay of downstream projects, says Wood Mackenzie.

At the same time, says Wood Mackenzie, since 71% of 2014’s new oil and gas discoveries in the region happened in Malaysia, the country is well-positioned to continue upstream activity. Moreover, WoodMac says Malaysia is offering tax breaks to energy companies to continue E&P. Thus, Petronas, SapuraKencana and Shell are, so far, expected to continue their ongoing operations.

Vietnam. Unlike its neighbors, Vietnam is making E&P decisions, based mostly on price fluctuations. PetroVietnam Chairman Nguyen Xuan Son announced in late January that his firm would likely cut oil production by 450,000 tonnes, and that the cuts would happen in fields that cost more than $50/bbl to produce. PetroVietnam’s average E&P cost is $30-37/bbl, and Vietnam has four fields where exploitation costs more than $60/bbl. 

Chairman Nguyen also said that if prices fall to $40-45/bbl, PetroVietnam would increase oil reserves, in order to sell them when the price increases again. At the same time, PetroVietnam said that it has enough cash to buy fields that have good potential, so the downturn in prices might actually allow PetroVietnam to expand.

Conclusion. All these national interest-driven strategies are well and good, but most of them require the participation of foreign energy companies and their high-tech capabilities. And, if the profitability isn’t there, or if the risks are too high, they’ll be hesitant to join in. If Southeast Asian governments take up most of the risks, however—which they might do, perceiving the oil price slump to be temporary—then corporations might gravitate toward the region, looking for good deals. On the other hand, if prices stagnate or fall further, then all of these countries might be forced to shelve projects until demand and prices rise once again. wo-box_blue.gif  

Reference

1.“Myanmar explores fourth oil block in Rakhine offshore,” Eleven Myanmar.com, Feb. 9, 2015; “Myanmar explores fourth oil block in Rakhine offshore,” Asia News Monitor, Feb. 17, 2015; and cnpc.com.cn/en/Myanmar/country index.shtml.

About the Authors
Jeff Moore
Contributing Editor
Jeff Moore runs Muir Analytics, a risk consulting firm specializing in deciphering threats in conflict zones. He is author of the book, Spies for Nimitz, which depicts America’s first modern intelligence agency. He holds a PhD from the University of Exeter in the UK.
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