Frontier exploration moves to new areas

Exploring in the North Sea could be considered old hat.

Search for hydrocarbons leads to remote locations

Jennifer Pallanich Hull
Gulf of Mexico Editor

Exploring in the North Sea could be considered old hat. West Africa, for a few years the belle of the exploration ball, has also lost its frontier glow. Now, those seeking hydrocarbons off Tanzania or in the Barents Sea are in the latest exploration frontiers.

To update the ever-changing map of frontier areas, Offshore asked Deloitte & Touche and Infield Systems Ltd. to put together a worldwide survey of offshore frontier exploration.

Parts of Canada, China, and the Faeroe Islands, as well as east India, eastern Indonesia, the Barents Sea off Norway and Russia, Russia's Kara Sea, and the Indian Ocean off Tanzania can be considered frontier exploration areas because of their lack of existing infrastructure and development, remoteness of the drilling operation and support for the drilling operation, and under- or non-explored status. Other areas, such as the South Atlantic, Falkland Islands, Greenland, and Morocco, have seen the drill bit, but no commercial finds have been announced.

Companies working in exploration frontiers often deal with severe climates, like that of the Barents Sea, and remote locations, like drill sites off Indonesia. Another characteristic of a frontier may be challenges associated with terms and conditions of licensing or unstable governments.

A handful of the finds listed in this survey date back to the 1970s and 1980s, with one off Indonesia going back to 1958. Most, though, are from the last few years. All the finds off east India have been reported since 1999, and the single Faeroes discovery was reported in 2001. Only a handful of the reported discoveries are actually onstream – the lack of existing infrastructure is holding back development in some cases. Many of the targeted onstream dates range from 2006 to 2012. Worth mentioning are Songo Songo, off Tanzania, which is slated to begin production in early 2004, and the Snøhvit complex, planned for 2006. The bulk of the finds are considered possible developments, according to D&T and Infield, which provided the information for the survey.

Click here to view the Survey of Global Frontier Exploration in PDF.

Technology stretches

Dr. Roger Knight, data manager at Infield Systems, called Snøhvit's planned 160-km subsea tieback from the Barents Sea off Norway to shore a frontier, not only in terms of geographic location but also in technological reach.

"That's a remote geographical frontier," he said of the gas-prone area. The area runs from the Barents Sea off Norway east to the Kara Sea off Russia. The market for the Russian gas will be Western Europe, Knight said, adding the Russian Shtokmanovskye field is garnering lots of interest.

From west to east

Off India, where production has by and large been on the west coast, the frontier area is the east coast, Knight said. Cairn pioneered in the area, followed by Oil and Natural Gas Comm-ission and Reliance. Reliance's Dhirubhai in the Bay of Bengal, potentially slated to go onstream in 2005, is "quite an important source of gas for India," he said.

With India and China both on the way up, ONGC and China National Offshore Oil Corp. are beginning to look around the rest of the world for expansion opportunities in the same way European companies have, Knight said.

South China sees interest

D Alpha in the South China Sea was going to be a regular platform, Knight said. The field is difficult to develop, he added, because of the plan to pipe the gas onshore to Natuna Island 200 km away. The field would need production facilities to deal with the carbon dioxide issue, he said. No development plan is set for the find.

"That's a tricky area of the world," he said. "The Chinese are trying to claim a large part of the South China Sea."

The area is remote geographically but not in terms of technology, he said.

The waters off China are a frontier area to western companies, Knight said.

"There's been very little exploration in China as such. It was very much the flavor of the month about 10 years ago, but it seemed to die down," Knight said. "There are one or two very important fields there, but it has picked up again, particularly because of discoveries in Bohai Bay."

He said Southeast Asia's deepwater holds a lot of potential, including Murphy's Kikeh field find off Borneo. He also expects further exploration off West Africa, Eastern Canada, and deepwater Canada.

Many areas have had some degree of exploration, he said, and those areas are moving from positions of geographic frontiers to technological frontiers.

Hiatus drawing to end

There's been a bit of a hiatus in discoveries off West Africa, Knight noted.

"There was a great rush of them in the late '90s, then it dried up a bit," he said, adding companies are now refocused on this area. "Exploration tends to go in spurts."

Looking from west of Nigeria to Mauritania, "there are quite a few areas of West Africa that haven't been drilled that much," Knight said.

Mauritania has become a frontier-y area, he said, noting that Woodside is operating two finds there.

"There is quite a bit of room for more exploration in West Africa," he said.

He called the São Tomé and Príncipe area interesting. The island nation's border abuts the Nigerian deepwater border.

"That's going to be an area that there might be quite a scramble for," Knight said.

Back in the limelight?

Another area regaining interest is the eastern coast of Canada, which seems to be coming back into its own, Knight said.

Even the heavily explored Gulf of Mexico holds frontier promise in its unexplored deepwater areas, he said. Finding new play types, such as subsalt, could return established areas, like the North Sea or the Gulf of Mexico, to the frontier arena, he said.

Areas without substantial infrastructure also muddy the development waters, as fields must be larger to be economically justifiable, Knight said. For example, a find in the North Sea would need to be up to 10 times larger than a find on the heavily developed shelf in the Gulf of Mexico to be considered for production.

"What appears to be economic in the Gulf of Mexico, people would turn their backs on in the North Sea," Knight said.

Remote work

"A strong increase in domestic and regional demand for hydrocarbons in recent years and the start-up of a number of large scale gas export agreements with Singapore and Malaysia have served to highlight the potential of Indonesia's hydrocarbon resources and increase the relevancy of frontier exploration in the country," according to Deloitte & Touche Petroleum Serv-ices' Indonesian Upstream Petroleum Report.

That a number of discoveries are located in areas where access to market is a challenge tempers the relative success of exploration in Indonesia's frontier areas, said Ben Arnott, senior oil analyst at D&T. Gas-prone Indonesia has a number of currently undeveloped large gas discoveries because they are prohibitively far from the main demand center in Java, current pipeline infrastructure, or the existing terminals at Arun and Bontang, where LNG is produced and sold to markets outside Indonesia.

In the case of a discovery the size of the 18.3-tcf Tangguh, a standalone development solution has been implemented based on sales agreements made before development began, Arnott said. Delivery of Tangguh LNG to China via an onshore LNG terminal is due to begin in 2006 with other sales agreements to Japan and West Java likely to follow.

Regional demand for hydrocarbons is strong, and supply for particular industries from Indonesia's existing developed fields has been problematic; both domestic markets and LNG export contracts recorded significant spot shortages in 2001 and 2002. The disparity in supply and demand is set to continue and is unlikely to be resolved through production from fields currently known to be in development or simply increasing crude oil imports. A quicker-than-expected decline in a number of aged onshore oil fields, many operated by state oil company Pertamina, only adds to the impetus for new exploration and development in Indonesia, Arnott said.

The areas offered in BP Migas' yearly open acreage release and the attractiveness of revenue sharing splits between government and contractor offered for frontier areas limits future frontier exploration activity to some degree, Arnott said. BP Migas is the regulatory body that oversees Indonesia's oil and gas business.

In recent years, release areas have been concentrated in the deeper offshore areas of East Kalimantan and offshore northwest Java, both areas where discoveries could be easily tied in to existing infrastructure and facilities. Eleven new areas have been offered in 2003, and improved terms for contractors are being considered.

Two can play

Two types of companies invest in the frontiers. Knight noted that majors are favored in the game of real-estate speculation, as they are not as hurt by a $50-million dry well. The indys, he said, often find other companies to farm-in and help foot the bill.

"It's not just for big boys, but for any enterprising company, really," he said.

Independents like Cairn, which has leased acreage off eastern India, and Vanco, which seeks its elephants off West Africa, are frontier leaders.

"One of the main challenges in any frontier area is decent exploration because of the high cost of drilling," Knight said.

Editor's Note: For more information, see the websites at www.deloitte.com/petroleumservices and www.infield.com.

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