Salamander builds niche in underdeveloped Thai, Indonesian plays

Offshore: Salamander has developed relationships and contacts at various levels across the Southeast Asia region. How did it happen, and is this level of a contact unusual for an E&P independent of Salamander's size?

Buck: I think it is partly as a result of the directors having worked in Southeast Asia via their previous roles. More importantly, I think it comes through being regionally focused. As a pure Southeast Asian play, our management is not splitting its time between three regions in different parts of the world and that certainly helps to develop strong relationships. I think people within the region know we are committed to making Southeast Asia work and can see the track record we have built of delivering developments on time and budget, which makes them want to get to know us.

Offshore: Would you say Salamander has been more active than others offshore Thailand in trying to maximize production from its assets, in this case in the Greater Bualuang Area (GBA)?

Buck: The west of the Gulf of Thailand is relatively under-explored and so far there are only a handful of development projects. We have been actively investing in the Bualuang field to both grow production and reduce operating costs. We installed a new platform (Bravo) in 4Q 2012 and are in the early stages of a 16-well development drilling program that will see production grow by at least 50% in 2013. We are in the process of building new power and processing modules to load onto the platform at the end of 2013 that will enable us to replace the current FPSO with a floating storage and offloading unit (FSO), which will lower operating costs by around 30% per annum.

Offshore: Is the Bualuang field complex to image or produce? Historically, were reserves this size offshore Thailand ignored by foreign investors?

Buck: Exploration in the Gulf of Thailand has traditionally focused on the large Pattani basin to the east of our acreage position, where Chevron is the main producer. Exploration in the western basins has been much lighter to date and this immaturity means the block sizes in the west tend to be larger. All Gulf of Thailand basins have similar play elements, although the Pattani is much deeper and so more gas-prone.

Typical Gulf of Thailand traps are complex, fault block structures with stacked thin pay zones. Early vertical wells often failed or found minimal pay, and accurate structural mapping using 3D seismic is essential. Bualuang, on the other hand, is a relatively simple fault-bounded structure with one thick reservoir sand and two thinner pay zones. It is extremely well imaged by Salamander's 3D seismic data, so wells can be targeted with precision. The primary challenge for efficient production is to ensure a balance of oil production rate with water cut that maximizes the commercial recoverability of reserves.

Offshore: How have the Bualuang production wells performed to date? Has there been any need for supplementary measures to stimulate flow?

Buck: We have drilled around 14 wells now, excluding workovers and side tracks, so we have a very good model and can accurately predict well performance. One of the keys to the success has been drilling horizontal wells. We have a very good quality reservoir and water management is a key issue. Through drilling horizontal wells and using electric submersible pumps to regulate fluid flow, we are able to maximize recovery and delay water breakthrough. All slots on the Alpha platform are now fully used - the 12 available slots provide 10 production wells and two water disposal wells.

As for development drilling from the Bualuang Bravo platform, this has gone well so far and the initial wells have performed as expected. The Bravo platform is an unmanned structure with 16 drilling slots and weighs 2,100 tons [1,905 metric tons]. It is roughly twice the size of the Alpha platform. Bravo was designed and built by Thai Nippon Steel, which constructs a lot of platforms for operators in the Gulf of Thailand. There are no processing facilities on either platform at present and we have an FPSO at the field. Later this year, we will load processing facilities onto the Bravo platform as well as replacing the FPSO with an FSO. The Bravo platform has pipework already installed that will allow satellite discoveries to be tied into the Bualuang processing and oil export facilities.

Offshore: Are any of the new development wells the Atwood Mako is drilling complex in any way?

Buck: The bridge-linked Alpha and Bravo platforms are centrally located on the Bualuang field. This is highly efficient from a facilities standpoint but does require all the production wells to be deviated to their targets. The main reservoir in Bualuang is only 1,100 m [3,609 ft] below the surface and so some of the wells are quite long reach with drilled depths of up to 3,000 m [9,842 ft]. Long reach horizontal drilling technology is tried and trusted in the industry, if rather new to the Gulf of Thailand, and to date, Salamander is having great success in drilling the production wells on the Bualuang field. To maximize recovery, we drill horizontal wells very close to the top of the reservoir and the skill is in locating these wells in the right place to maximize reservoir quality and stand off from the oil/water contact.

Offshore: Bualuang is said to be under a tax and fiscal regime that rewards productivity - how does it compare with other regimes in the region?

Buck:Thai fiscal terms are very attractive and Thai barrels are some of the most valuable in the region.

Offshore: Can you provide an update on Salamander's exploration drilling plans for the B/38 and surrounding G4/50 licenses?

Buck: Exploration in our offshore acreage is now focused on maturing the G4/50 prospect inventory, and we eagerly anticipate the start of a minimum six-well drilling campaign in 2013 targeting prospects which have good chances of success and are quick to drill. We have completed initial interpretation of 5,000 sq km [1,930 sq mi] of 3D seismic across the license, and preliminary mapping of the data has identified over 20 prospects. These lie within the 20-80 MMbbl oil range, with chances of success expected to be around 30% once the prospects are matured. A number of these prospects are drill-ready and will be among the 2013 planned wells.

Well costs are anticipated to be about $6 million each, depending on depth. Discoveries can be brought onstream rapidly, using existing facilities where possible.

Offshore: What is the situation concerning seismic coverage and interpretation over the Bontang and Southeast Sangatta licenses?

Buck: There are over 28 leads and prospects mapped across the Bontang and SE Sangatta production-sharing contracts. South Kecapi is the first well in a potentially high impact program, and will be followed by the North Kendang and Bedug wells in a campaign that will test combined mean prospective resource of 1.4 tcf of gas and 189 MMbbl of oil.

Offshore: The 2010 Angklung discovery demonstrated distinctive seismic response of gas-bearing sandstones in this area, and that these could be mapped using 3D seismic data. What was the difficulty in terms of imaging, and how did you or your contractor overcome this?

Buck: The seismic response of the main gas sand at Angklung was very clear and provided excellent calibration to help optimize the processing of the 3D data sets. Similar seismic responses have been identified on many of the prospects mapped in Bontang and Southeast Sangatta. As with any seismic data set, it is extremely important to ensure careful control of seismic velocities during processing. Salamander has put great effort into this aspect of the work and processes the data with prestack migration in both the time and depth domains to image as clearly as possible the traps and their geology. The multiple stacked potential of the prospects has presented some difficulties in imaging as the deeper targets can have their seismic response masked by high amplitude response in the shallower targets above. Where this occurs, careful interpretation of the seismic is required; incorporating detailed mapping with geological modeling to ensure a coherent and consistent assessment is made, allowing reserves and risk potential to be properly evaluated.

Offshore: Has the discovery of a sand system led to others exploring in the North Kutei basin?

Buck: There is not much other exploration in the North Kutei at present, but other people are chasing similar plays further to the south.

Historically, exploration of the Kutei basin has shown it to be predominantly a gas province yielding around 70% gas reserves and 30% oil. Discoveries in the northern Kutei to date tend to conform to the overall gas/oil percentages. However, the presence of active oil seeps onshore adjacent to the Southeast Sangatta block and seabed oil seeps detected on the sea surface by multiple pass satellite surveying indicate that the Miocene section of the North Kutei basin is more oil-prone than the shallower, gas-prone Pliocene. The Kendang structure has a very well defined seabed seep associated with its bounding fault which supports the argument for a significant oil play in the area. However, with the gas markets being so strong in the area due to the presence of the Bontang LNG plant and the surrounding industrial infrastructure, realizable gas prices are also high and gas is more valuable than in many other parts of the world.

Offshore: The 3D data review over the two licenses identified over 28 leads and prospects. Do they appear complex to drill - is that the reason for the planned side track on South Kecapi-1?

Buck: The wells are not overly complicated, requiring relatively minor amounts of steering to ensure the stacked targets are penetrated at the desired locations. The prospects lie in water depths between 350 and 550 m [1,148-1,904 ft] and so require a floating rig, but the sea state in this sheltered part of the Makassar Strait is benign year round and presents no particular challenge to operations. The side track of South Kecapi is necessary as one of the Pliocene channel targets of the first well shows potential to be substantially thickened and perhaps independently trapped down dip of the original hole. The side track is therefore required to evaluate this down dip thickening.

The majority of the targets defined are in the Pliocene and Upper Miocene sections.

We have the equipment at site to test the wells. We will also use pressure-testing logs to determine fluid type and potential hydrocarbon column height so not every pay zone would have to be drillstem tested.

Offshore: Salamander exited Vietnam last year after an unsuccessful drilling campaign off the north coast. Is it looking at other offshore opportunities elsewhere in Southeast Asia?

Buck: We are always looking at new opportunities but most of them would be onshore or in shallow water.