Drilling and investment in Southeast Asia

November 1, 2013

Two countries – Malaysia and Indonesia– hold nearly two-thirds of the region’s reserves, and national oil companies outstrip international oil companies in regional capex.

According to the Infield Systems Offshore Asia Oil & Gas Market Report to 2017, four countries control 88% of the oil and gas reserves in Southeast Asia: Malaysia (44%), Indonesia (19%), Vietnam (14%), and Myanmar (11%). Four other countries control only 12% of reserves: Thailand (6%), Brunei (3%), Philippines (2%), and Cambodia (1%).

Oddly enough, the four countries with the largest reserves accounted for a disproportionately low share of offshore drilling activity in the region, even when Chinese drilling is excluded. Based on Baker Hughes International offshore rig count data for the last year (see table), drilling activity in these four countries has dropped from a high of 78% of all regional rigs in October 2012, to only 57% in September of this year.

Looking at the same data for Thailand, Brunei, and the Philippines (Cambodia had no offshore drilling), those countries with a combined 12% of reserves rose from using 26% of all offshore rigs in the region in October 2012, to using 41% in August and September of this year.

Divesting

While return on investment is a likely cause of shifting focus, there may be other competitive factors affecting IOC’s decisions to abandon certain Southeast Asian assets. Local government policies, driven by social and political pressures, are not always market-oriented. Foreign investors may question whether they are facing fair competition in the alliances between consumer and producer NOCs and local suppliers.

The upshot is that some US energy companies and drillers are unloading assets in favor of more strategic and profitable projects:

At the Barclay’s CEO Energy Power Conference, 12 Sept 2013, Newfield CEO Lee Boothby said the company was now focused on North American “liquids” plays, and confirmed that the international sales process was underway.

Newfield is the fourth-largest oil producer in Malaysia and owns an interest in about 3.3million net acres offshore Malaysia and about 290,000 net acres offshore China. The Malaysian fields accounted for 39% of NFX’s revenues in 2012. Petronas operates some of the blocks in the Malay Basin in which Newfield holds an interest.

In late October, the company announced that it would sell all of its equity interests in Newfield Malaysia Holdings to SapuraKencana Petroleum Berhad for a total cash consideration of RM2.85 billion (US$898 million). The deal is expected to close in early 2014 and Newfield said it would use the proceeds of the sale to pay down existing debt and for general corporate expenses. The announcement has not yet significantly affected NFX stock price, while SapuraKencana stock (SKPETRO) has increased.

Among the unsuccessful bidders for Newfield Malaysia are Exxon Mobil, Royal Dutch Shell, Talisman Energy, and Petrofac.

Newfield also announced, on 14 October, that Terry W. Rathert, a Newfield founder and the Executive Vice President and Chief Financial Officer (CFO), will retire in 2014, after more than 25 years with the Company. Newfield’s Board of Directors will appoint Lawrence S. Massaro to succeed Rathert as Executive Vice President and CFO effective November 11, 2013.

Investments

The newbuild Tungsten Explorer is drilling off Myanmar (Burma) for Thailand’s PTTEP, in 3379ft water depth. Photo from Vantage Drilling Co.Damen Group will open a new shipyard in Vietnam in Q1 2014. It will design and fabricate 60m workboats.

Malaysian shipbuilder Coastal Contracts (COCO) announced in October that it had clinched deals for six offshore support vessels worth 318million ringgit (US$100million).

UMW Oil & Gas Corp Bhd plans to set up a local drilling academy to ensure a steady supply of trained manpower for the industry. The company runs a fleet of four jackup drilling rigs. Deep water Southeast Asia has not been a major deepwater arena. Most drilling has been in shallow water, with jackups or drilling tenders. That said, six drillships are in the area, four of which are undergoing inspection, modification, or are ready stacked in Singapore. Two others are drilling.

Transocean’s Discoverer Seven Seas is working off Indonesia for Japanese oil and gas company, INPEX.The contract, announced in December 2012, runs May- December 2013 at US$500,000/d.

Houston-based Vantage Drilling Co. has its newest ultra-deepwater drillship, Tungsten Explorer, working under a 90-day contract at US$750,000/d.The ship began operations on 20 September off Myanmar, in 3379ft water depth, for Thailand’s PTT Exploration and Production Public Co. Ltd. (PTTEP). This is the second-deepest water depth currently being drilled in Southeast Asia. Vantage has contracts pending to drill as many as four additional wells before the ship heads to West Africa to begin a two-year contract in the second half of 2014, working on the Moho Nord development project.

There are 21 semisubmersible rigs in Southeast Asia, but only 9 are actively drilling: 4 in Malaysia, 3 in Vietnam, 1 each in the Philippines and Indonesia.

Most are working in water greater than 1000ft deep, and Ocean Rover, operated by Diamond Offshore Drilling, is working in the deepest water in the region: 4542ft deep off Malaysia, for Murphy Oil. This ODECO Victory-class semisubmersible is one of five rigs upgraded by Diamond, since 2000, from deepwater to ultra-deepwater capabilities, with 15k blowout prevention equipment. Ocean Rover can work in water to 8000ft deep, and drill to 35,000ft. It’s under contract for $305,000/d until March 2014, at which time it begins a new 2-year contract at $465,000/d.

Sovereignty

Sovereignty over several areas of the South China Sea remain under dispute, involving China, Vietnam, Malaysia, Brunei, and the Philippines. In mid- October, Chinese Premier Li Keqiang visited several ASEAN countries to discuss maritime boundaries. We hope for a harmonious outcome. OE

Image Caption: The newbuild Tungsten Explorer is drilling off Myanmar (Burma) for Thailand’s PTTEP, in 3379ft water depth.
Photo: Vantage Drilling Co.

Data on reserves and capital expenditures published by permission from Infield Systems' Offshore Asia Oil & Gas Market Report to 2017.