Source:
The National, Monday 18th March, 2013

CHRIS Hart makes no bones about where Papua New Guinea-focused UMC Energy sits in the oil and gas sector’s food chain.
“We are a small company that under normal circumstances would struggle to finance the exploration and appraisal costs of our projects,” the company’s technical director said.
However, these are by no means normal circumstances UMC finds itself in.
The key to unlocking the huge potential of four onshore and offshore licences in Papua New Guinea is China National Offshore Oil Corporation (CNOOC), a Goliath of the industry.
Followers of the sector would be aware that CNOOC produces a million barrels of oil a day that help keep a resource-thirsty and growing Chinese economy turning.
What is little known, however, is that CNOOC has been tasked over the next five years to increase its annual output three-fold.
“China’s just a resource sponge,” Hart said.
“This works to our advantage -  being involved in the development of energy resources with the CNOOC.
“I have been in joint-ventures with Exxon and Shell, where discoveries have been made, but they are still there undeveloped.
“That’s because Shell controls the joint venture with a majority share and is the operator – but it is booked as equity gas until the resource meets certain global merit order criteria, which doesn’t help the small company involved.
“UMC doesn’t have that worry because China needs everything that CNOOC discovers brought into production. What you’ll find is that discoveries are brought on incredibly quickly.”
Projects such as UMC’s, which geographically are right on China’s doorstep, are of huge importance to the Chinese economy.
CNOOC is earning 70% of the company’s four licences in return for financing the substantial exploration costs, estimated to be at a minimum around US$450 million.
“The arrangement we have is CNOOC is earning its interest by funding all the exploration, appraisal and field development and production development design,” says Hart.
The company’s PPL378 West permit is next door to the producing Moran field, operated by Exxon. This field has already produced over 70 million barrels of oil.
The Paua discovery in the PPL378 licence points to the prospectivity of the area.
The data suggests two scenarios, the first of which is a 3C, or “possible resource” which is mainly gas.
The estimated size of the resource is put at around 800 billion cubic feet of recoverable gas with just six million barrels of oil.
The second scenario gives a 3C resource of 68 million barrels of oil and 337 billion cubic feet of gas.
The remainder of the year will be devoted to the reprocessing and acquisition of 2D seismic coverage over the Moran oil field, Paua discovery and neighbouring Poro lead.
“We expect Paua and Poro will be drilled in 2014,” Hart reveale. –  Proactive Investors