Blair Price
Monday, 23 July 2012
ALREADY a key driver of the $US15.7 billion PNG LNG project, Oil Search could become the second biggest owner of another LNG project in Papua New Guinea if fortune smiles on its upstream campaign in the Gulf region.
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Licence map courtesy of Oil Search. |
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The Stena Clyde semi-submersible rig has already been contracted by Oil Search to drill at least two offshore wells. |
Published in the June-July 2012 PNG Report magazine
The under construction PNG LNG project is expected to transform PNG’s economy. The target of first LNG exports in 2014 is rarely questioned; after all, its operator ExxonMobil has an industry-leading reputation for delivering projects on time and budget.
Despite this sense of inevitability, developing PNG LNG has been an enormous effort on a variety of fronts. Known challenges for commercialising the project gas fields in the remote, high altitudes of the Southern Highlands include treacherously high rainfall and limited infrastructure – a key issue the project is addressing to a large degree.
Then there are the technical difficulties with acquiring and interpreting seismic in this region and the vast sums required to spud wells for these plays.
Perhaps most challenging of all, there are risks of site disruptions posed by landslides and unforeseeable flare ups with local communities.
While the payoff for 29% project owner Oil Search will more than compensate for the hard work so far, its wish for easier opportunities is not surprising.
How it found the time for a fresh strategy during PNG LNG project work, its other exploration which extends to the Middle East and its existing PNG oil and gas operations might be a mystery, but Oil Search is gearing up for a major drilling program in two key areas of PNG that differ vastly from the more challenging Southern Highlands.
Its immediate focus is several offshore licences in the Gulf of Papua, which has not been drilled for years. There have been three key offshore discoveries in this part of PNG to date but Oil Search aims to find a bag more and potentially provide an avenue to exploit the existing stranded fields.
Last year it launched the first-ever 3D seismic program in PNG to identify possible offshore leads. Data from the 6300sq.km captured did not disappoint and Oil Search had a follow-up 3D seismic program this year that continued into May.
While capturing seismic is impossible in some Highlands areas, it’s far easier offshore and the data already acquired gives the exploration team opportunities to make full sequence stratigraphic reconstructions to understand the targeted geology in finer detail.
Oil Search managing director Peter Botten told PNG Report the 3D seismic significantly de-risked the offshore licences and he was confident there was “an active source system in play there”.
“Certainly on the 3D seismic there is substantial evidence of the presence of gas but I think the question that really needs to be answered is how much reservoir there is,” he said.
While several different play types have been identified, Oil Search is likely to drill turbidite structures, especially near the Pasca wet-gas discovery in petroleum prospecting licence 234.
“The turbidites have potential to put reservoir into that area – we now have to drill them in the right spots to give us the best chance of finding them,” Botten said.
This kind of sandstone structure can result in big discoveries. It is also what constitutes the Galoc oil field in offshore Philippines.
While all petroleum exploration drilling is high risk – even if that seems less likely in PNG this year as the last three onshore wells have been successful (P’nyang South 1, Ketu-2 and Elevala-2) – Botten is not concerned that the Gulf of Papua is largely untested.
“We are pretty comfortable there is a very active gas prone basin out there,” he said.
There are also submarine-fan sandstone targets. In fact, Oil Search is yet to decide which prospects to drill, even though it has already contracted a high quality semi-submersible rig to start drilling one of its two budgeted offshore wells later this year.
This program will start in late2012 and continue through the first quarter of 2013, but an option was secured to possibly spud two more wells next year using this rig.
“We haven’t absolutely finalised our drilling program,” Botten said. “We have narrowed it down to about six or maybe seven targets of which we are going to drill a minimum of two.”
Oil Search aims to bring in a suitable project operator before this drilling starts. Its farm-out dataroom has generated various bids and a deal is expected to be finalised at some stage in the September quarter.
“One of the reasons we have been targeting credible LNG operators is that we recognise that we are a pretty good local operator but we don’t have the expertise to do LNG developments,” Botten said.
“So we are intending to potentially introduce at least one significant party with LNG development credibility and that process is underway.”
On the possible commercialisation opportunities – and it should be noted that the Gulf of Papua does not host great oceanic depths – Botten warned it was still too early to make any decisions.
He said a floating LNG development was one option but it was also possible to pipe any offshore gas into the Port Moresby area, a route taking it to the under-construction LNG plant of the PNG LNG project, which is near the capital.
The data so far suggests there could even be enough gas around the Pasca and Uramu discoveries in the Gulf of Papua to support a two-train LNG plant – the present scope of the PNG LNG project.
“Clearly if the turbidites work there is multi-trillion cubic feet of gas potential in that area. The size of the gas resource discovered will ultimately drive the final development scenario,” Botten said.
But the potential for LNG development is only part of the equation. Both the Pasca and Uramu discoveries have high liquid contents. As any petroleum industry watcher knows, access to the lucrative market for condensates will vastly improve the economics of any petroleum project.
It is perhaps for this reason that the other discovery in the Gulf of Papua, the Pandora field, which was found in 1988 and hosts an estimated 1.5Tcf, is yet to be exploited as this gas is relatively dry and contains a high sulfur content.
“Because we are looking in areas primarily around Pasca we view that it is more likely than not that we’ll be in the wet gas zone than the dry gas zone. But that’s to be tested by the drilling,” Botten said.
Should a decent new reservoir be discovered, initial development is expected to be far easier than the work behind the PNG LNG project, which has many logistical challenges.
The other prong to Oil Search’s new exploration strategy is to drill onshore targets in its licences in Gulf province. This area is best known for InterOil’s upstream success with reef/carbonate structures over the past few years.
As part of this effort, Botten said Oil Search would continue to shoot seismic over the next 18 months, mainly on carbonate prospects of a similar ilk to InterOil’s.
While Oil Search’s new exploration plans add weight to its budgeted, record in-country spend of $A2 billion this year, there is increasing concern that project timing is more important than ever.
Part of this is fuelled by the multitude of Australian LNG projects underway and the global explosion in unconventional gas exploration over recent years – including projects that target abundant shale gas resources.
On whether there was a window of opportunity of achieving higher gas prices between 2014 and 2018, Botten said he had heard about such windows in the LNG market for the last ten years.
“The market is unambiguously dynamic,” he said.
“Clearly it is changing with what is happening on the demand side in Japan post the Fukushima nuclear disaster and with potential new supply from North America, East Africa and other unconventional gas plays.
“But at end of the day I am a great believer that if you find the gas and it is a reasonable and quality resource – certainly with high liquids content – you are going to be competitive in the market.
“I think you can genuinely see significant demand growth through to 2018 and if we are successful in our drilling program we are looking to get into the market within that period.”
While there is still a lot of farm-out negotiating ahead for Oil Search, which has stakes in four Gulf of Papua licences and two onshore licences in Gulf province, it seems likely that some big oil players will be in the running.
“PNG LNG has put PNG on a much broader map with respect to people wanting to be involved in terms of both development and exploration, and it’s only good for the country,” Botten said.
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