Sample News Story
Vietnam’s Explorers Keep Turning Up Gas
28/12/1994
Back in the 1980s when Europe’s oil companies rushed in to explore for oil in the waters offshore Vietnam one oil analyst reminded the slower players (and the US companies then barred from jumping on board) of a Vietnamese proverb: the last buffalo to the water hole drinks muddy water. Well, it looks like there is worse news for companies who came in when they could but were looking for oil: there’s gas in them thar waters, and lots of it. Shift to gas For some companies, like BP, which has made the mental shift to welcoming gas, this is good news. To a company like Lasmo, which is mainly a gas producer but can’t bring itself to publicly admit to producing anything but "oil equivalent" this may not be so welcome. But gas is what is being developed, and even a company which found some of the rare oil, BHP, knows it must also develop and commercialise gas if it is to have a future in Vietnam. The road ahead is not straightforward, however.
Good and bad Good and at the same time disappointing news is coming in from the gas front in Vietnam as the country steadily opens up its offshore resources to development by foreign investors. Discoveries there are a plenty, with all those "oil" companies tripping over gas still. Lasmo, the independent UK producer, has tested a little gas on its first well on an offshore block and intends to drill more wells next year. On the negative side, though, TransCanada PipeLines has pulled out of an offshore pipeline project just as the final touches were being put to a feasibility study on that project. In general, however, Vietnam’s long-neglected but promising potential continues to draw favourable attention from interested parties overseas. Growing list Lasmo’s find on its Flying Horse offshore block 04-2 in the South Con Son Basin was at best modest by world standards, testing at 2 MMcfd of gas and 40 b/d of condensate. But the well was the latest in a growing list of gas discoveries in the region. News that gas had tested on Flying Horse followed closely on the announcement by BP that it had found two large fields, Lan Tay (West Orchid) and Lan Do (Red Orchid), on its offshore block 06 (GasBrief, September 1994, page III).
Studious silence Appraisal drilling continues on BP’s two fields, with cautious estimates for their combined reserves ranging up to around 2 Tcf. Perhaps significantly, BP is saying little about the results of its latest well on Lan Tay. The studious silence has of course done nothing to stop rumours that Lan Tay’s first appraisal well, which was completed last September, produced a significant gas flow. That the area had gas potential was indicated almost from the beginning, when the very first wildcat well drilled on block 06 had to be abandoned following a gas blow-out. Speed ahead The company is already considering development plans including pipelines to transport the gas ashore, probably for power generation in and around Ho Chi Minh City. BP, which has a 30% stake in the block, and its partners – Statoil of Norway (15%) and Oil and Natural Gas Commission of India (55%) – are thinking about how best to get the gas onshore, possibly as early as 1998. The apparent confidence implied in this timetable is by itself quite impressive, given that BP and Statoil farmed into the block just two years ago. BP is expected to spend $1billion on production facilities and pipelines for the two fields and a similar amount for on-shore pipelines and related projects.
Not quite yet Quite evidently, Lasmo and its partners on block 04-2 are not yet anywhere near as advanced in assessing their find. But Lasmo, which is operator of the block with a 37.5% interest, has already said that it will drill more wells in the area during 1995. Lasmo’s partners in block 04-2 are Cieco Con Son Inc., which also has 37.5%, and Union Texas, which acquired a 25% interest at the middle of this year (GasBrief, July 1994, page V). Nice neighbours The Lasmo block lies not very far away from some already proved gas reserves. It lies about 18 miles north of the Dai Hung (Big Bear) oilfield, which is now under development by a group led by BHP of Australia and where associated gas reserves are estimated at about 300 Bcf. The block also lies due south-east of, and not much further from, Vietnam’s biggest oil and gas prospect so far, the Bach Ho (White Tiger) field operated by the Vietnamese-Russian joint venture company, Vietsovpetro. Bach Ho was brought on stream in 1986 and was until recently the scene of some highly profligate wellhead gas flaring: some estimates suggest that up to 1 Bcf of Bach Ho gas has gone up in flames over the years. However, Vietsovpetro has learnt the lesson and is now taking steps to tap this gas and pipe it ashore. In the meantime, however, gas is still be flared from Bach Ho at a reported 70 MMcfd. Gas get going Unofficial estimates put likely recoverable reserves of gas in Bach Ho at about 1 Tcf, according to the Edinburgh analysts Wood Mackenzie. Of this, WoodMac believes something like 700 Bcf remain to be recovered. In its recent South East Asia Report, WoodMac forecasts that commercial gas production will start at Bach Ho next year at around 70 MMcfd and then steadily rise to 190 MMcfd by 2001 before dropping off to about 150 MMcfd in 2005. Vietsovpetro is also operator of the much smaller Rong (Dragon) oil field, which is on the same block (09) as Bach Ho and is thought to contain about 200 Bcf of associated gas. This gas, too, is to be brought into commercial production. WoodMac suggests a possible start-up in 1998 at something like 20 MMcfd with production continuing at about 40 MMcfd in the years up to 2005. Wait a minute Whether the Bach Ho and Rong gas production timetables actually go ahead exactly according to schedule must be the subject of some uncertainty in the wake of TransCanada’s reported decision to withdraw from the proposed Vietnam Gas Utilisation Project. The project focused precisely on tapping gas from Bach Ho for power generation and industrial use in Vietnam. The plan called for a gas compressor and riser platform to be built on Bach Ho, a subsea pipeline to transport the gas to the mainland and development of an onshore distribution pipeline. The estimated cost of the project was inked in at around $400 million. Don’t give up TransCanada had a 40% interest in the project under a memorandum of understanding signed in September 1993. That agreement also appointed TransCanada as the operator of the project. The company is now said to have decided to withdraw from the agreement after its role in the project was reduced from operator to investor. Under the original terms, the other partners were British Gas, also with a 40% interest, and Mitsui of Japan with 20%. The state energy company, Petrovietnam, was to get 50% when commercial production started, in a move which would have halved the shareholdings held until then by TransCanada, BG and Mitsui.
So what? Just where the departure of TransCanada leaves the other partners and the plans for revising ownership once the project gets under way remains something of a mystery. Notably, or at least in public, none of them was quick off the mark to say they were willing to take over from TransCanada. This may be because TransCanada’s withdrawal will not actually make that much difference to at least the initial stages of developing Bach Ho gas. The first phase of the project has already been built by Hyundai Heavy Industries of South Korea under a $150 million contract. This is a 107-km subsea stretch of 16-inch gas line to the refining centre at Vung Tau on the mainland and a further 17-km onshore section to take the gas on to the Ba Ria power station south of Ho Chi Minh City. Unconfirmed reports say that the underwater pipeline was damaged in several places by a ship’s anchor and repairs were expected to delay test flows on the line. After that, all that will remain to be done will be to get Bach Ho gas into commercial production.
Answers, please Decisions still need to be reached on the second phase of the project, involving the proposed riser/compressor platform on Bach Ho, a second 130-km pipeline extending the system to Ho Chi Minh City and other facilities including an onshore plant to extract LPG from the gas. The likelihood is that some (maybe all?) of the original plan may go by the board, particularly in the light of BP’s evident enthusiasm for quickly developing the Lan Do and Lan Tay fields and BHP’s project in the Dai Hung field.
Think bigger All of these fields lie due south of Bach Ho. It is an idea to link pipelines for these fields (and Lasmo’s find, should it come to anything) to an offshore pipeline system based on Bach Ho. But this would require the initial line to be much bigger and would raise issues of diversity, security and operatorship which most veterans of the UK North Sea will find easy to argue in favour of diversity. In addition, Vietsovpetro has apparently not yet made up its mind on the details of linking Rong gas up with Bach Ho. There is a case for holding fire on the second phase of the Vietnam Gas Utilisation Project until the shape and scale of Vietnam’s offshore gas reserves is better fixed in people’s minds.
Think better A rethink is quite often a good thing, and in this case almost certainly would be. The exact requirements of exploiting Vietnam’s gas resources to best advantage still remain subject to several uncertainties. Despite those unanswered questions, there is little doubt that Vietnam’s gas potential is finally set to come of age. Remaining recoverable reserves are currently estimated at about 850 million bbl of oil and 3.7 Tcf of gas. On an energy equivalent basis, those figures indicate that gas now accounts for over 40% of Vietnam’s known hydrocarbon reserves. Heart change The biggest and most necessary step has in any case already taken place – a change of heart in the government’s attitude towards both foreign investment and gas. A new Petroleum Law has been on the statute book since July 1993. In drafting the legislation, the government took a visible tilt towards gas when it revised the terms of production-sharing contracts (PSCs) to cut the royalty on gas production to between 0% and 10% (compared with 6-25% on oil production.