Thailand thrives on booming gas development - Statistical Data Included

A healthy domestic gas market, solid gas prospects and developments, and resurgent energy prices are all contributing to strong upstream activity in one of Southeast Asia's most stable nations

Thailand has generally fared better economically than its neighbors over the last 20 years. Bordering Cambodia, Laos, Myanmar and Malaysia, the country experienced a decade of strong economic growth from 1987 to mid- 1997. Growth was based on a policy of encouraging industrialization, free trade, exports and an emboldened private sector. Contributing to prosperity was the nation's strategic position, the extensive use of low-wage labor and fairly abundant natural resources.

Problems ensued, however, when the government decided to float Thailand's currency, the baht, in mid-1997. Rapid depreciation occurred, throwing the country into a deep recession that eventually spread throughout Southeast Asia. Chastened government officials are now implementing economic reforms and have taken assistance in the form of a loan from the International Monetary Fund.

One sector of Thailand's economy that prospered during the decade of growth was upstream oil and gas, buoyed by a combination of solid gas prospects and an expanding domestic gas market. More than 80% of Thailand's oil demand is imported. On the other hand, increases in gas production have nearly met goals for utilizing more gas for electrical power generation. There are additional plans to replace oil imports by utilizing gas supplies from Myanmar, as well as developing gas fields in the Malaysia-Thailand Joint Development Area (JDA).

Many of Thailand's oil and gas fields were discovered in the first half of the 1970s. For instance, Surat, Erawan, Kaphong and Baanpot fields were all found before 1975. Sporadic discoveries continued throughout the 1970s and 1980s. In 1978, the government founded a national oil company, Petroleum Authority of Thailand (PTT). Several years after that, PTT formed its own E&P subsidiary.

Responsibility for supervising Thailand's upstream sector is held by the Ministry of Industry's Department of Mineral Resources (DMR). At the moment, the status quo is prevailing on Thailand's fiscal terms. DMR characterizes the situation as one where "the government is happy, and the companies are happy." There is no legal requirement that the state must participate in exploration or production projects.

Nationwide, crude and condensate production averaged a combined 83,000 bpd in 1999, while natural gas output was 1.851 Bcfd. Producing oil wells totaled 186, including 35 offshore. Producing gas wells numbered 600, of which 495 were offshore. Drilling activity registered 205 wells in 1999, of which 32 were exploratory. Within the total, offshore activity accounted for 186 wells, of which 29 were exploratory.

This year, DMR forecasts 34 onshore (including 14 exploration wells) and 192 offshore wells (including 44 exploration holes). Seismic activity was expected to amount to 400 km of 2-D work and 700 sq km of 3-D surveys, all offshore.

PTTEP

The upstream subsidiary of the Petroleum Authority of Thailand (PTT) was established in June 1985 and named PTTEP. Approximately 61% of the firm is owned by PTT The remaining 39% is held by private investors, who accumulated shares through three public offerings held in 1993, 1994 and 1998.

Beginning in January 1996, Dr. Prajya Phinyawat served four years as president of PTTEP, guiding the firm through its expansion phase. Shortly after World Oil interviewed him for this article, and just before this feature went to press, Dr. Prajya was promoted back to PTT as deputy governor, Corporate Plan and Development. He has been succeeded as PTTEP president by Dr. Chitrapongse Kwangsukstith.

Like many state companies in the Far East, PTTEP was hit hard by the Asian economic crisis. "Our pace of activity definitely slowed down from the middle of 1998, all the way through 1999," said Dr. Prajya. "In fact, that is tree for all of Thailand's operators. I think we will begin to see some increase in activity during 2000. There are some smaller companies, like Harrods Energy, that will still be aggressive explorers, as will Chevron."

"On average, we have been drilling about 10 development wells per year," said Senior Vice President Maroot Mrigadat. "At present, this activity has slowed down, but we anticipate drilling seven exploration wells in 2000." In recent years, PTTEP found enough reserves to enable it to slow down the pace of some exploratory drilling.

"Of the 17 million to 18 million boe that we have found recently, 90% is gas," said Dr. Prajya. "So, we are pursuing a strategy of swapping assets to gain more oil. Perhaps we will look at gaining assets in the Middle East--Iran is a good place, or maybe Oman."

"As an operator, PTTEP produces about 100,000 boed, of which about 80% is natural gas," said Maroot. "From Bongkot, the largest Gulf of Thailand (GOT) gas field, we produce 550 MMcfd, equivalent to 35% of Thailand's daily consumption." In addition to Bongkot, PTTEP operates PTTEP1 oil field onshore and the newly-discovered Arthit gas/condensate field offshore.

Located in Suphan Buri and Nakhon Prathom provinces, the PTTEP1 concession was the first project operated by the company. Production from Kamphaengsaen and U-Thong oil fields began in July 1993. The fields now produce at a sustained rate of 600 bopd. Recent activity on the concession includes a 3-D seismic survey in U-Thong field, covering 37 sq km, and interpretation of existing 2-D data for significant areas of the tract. In addition, one exploration well and one delineation well were drilled. A study also has been conducted to determine potential methods for improving and maximizing crude production.

Offshore, meanwhile, PTTEP has run Bongkot field since Total (now Total Fina) handed over operatorship on July 1, 1998. Current partners include PTTEP (44.4%), Total Fina (33.3%) and British Gas (22.2%). The original concession-comprising Blocks 15, 16 and 17--in which Bongkot lies, was awarded to Texas Pacific in 1972. The Bongkot discovery was drilled in 1973, but development of the 4.5-Tcf field was delayed for years by squabbles between Texas Pacific and the government over development schemes and pricing.

Finally, 17 years later, PTTEP bought the rights to the field from Texas Pacific and formed a consortium with Total, British Gas and Statoil. Total was named operator for the group. That same year, 1990, a three-phase Field Development Plan (IDP) was formulated for Bongkot. Phase I of development was subsequently begun, with first production in July 1993, at 150 MMcfgd.

Following startup of Phase I output, the consortium initiated Phase II development, to expand production capacity to 350 MMcfgd. In April 1996, the new capacity went online, and total output then represented 25% of Thailand's daily needs. Shortly thereafter, work began on Phase IIIA, to boost gas production further, to 550 MMcfd. Output from this phase began to go onstream in July 1998. The project finished in July 1999, when the last of 39 wells was completed.

Meanwhile, PTTEP had inserted a clause in the 1990 consortium agreement, whereby it had the option of transferring Bongkot operatorship from Total to itself, five years after production start-up. On July 1, 1998, PTTEP exercised that option. In addition, Statoil opted to sell its 10% interest to the remaining partners, split proportionately between them.

In August 1999, Phase IIIB development was begun. It comprises the construction and installation of two additional wellhead platforms, plus the drilling of 42 new development wells. This work is deemed necessary to maintain plateau production.

On the exploration side, in December 1999, the company struck additional GOT gas and condensate in the Arthit-15-1X wildcat. The well tested 41 MMcfgd and 1,657 bpcd from five zones, with net pay of 462 ft. On Block 15A, Arthit field is 21 mi northeast of PTTEP's Bongkot field. There are initial estimates that reserves may run as high as 3 to 6 Tcf of natural gas. Six additional exploration and appraisal wells were scheduled for drilling around the field, and they were slated to finish by mid-2000.

Maroot noted that Thailand and PTTEP have their share of technical challenges. "We've drilled the easier wells, leaving us with the more difficult targets," he said. "Now, much of our equipment needs to be looked at. Also, in some formations, we may need to do more fracturing. We are also seeing water and sand production coming into some wells. Steps are being taken to address these concerns. We are trying different approaches in our drilling, such as using different bits to drill larger holes, implementing new chemicals for water shutoff, things like that."

Meanwhile, PTTEP continues to experiment with new technologies. "We know that we have to think out of the box," said Maroot. "We're fortunate to be working with so many world class partners; we can adapt our thinking and adopt their techniques. We have to keep on adapting our development with new wells and platforms."

UNOCAL

King among Thailand's E&P operators is Unocal. The company has been in the country for 38 years and has produced in the Gulf of Thailand (GOT) for about 20 of those years. Unocal struck its first discovery in 1973, at the Erawan 12-1 gas well. First production from Erawan field went onstream in 1981.

Today, the company operates 13 offshore producing fields, with output averaging above 1 Bcfgd. Net share to Unocal is about 60%. There are 90 platforms supporting 1,293 wells. Unocal's 1997 sales were $1.1 billion.

"The whole Southeast Asian region is rich in natural gas, and we've made this our core business here, including conversion of gas to electric power," said Randy Howard, Unocal's vice president of International Energy Operations for Myanmar/Thailand/Viet Nam. "We now see good reasons emerging for a steady rise in natural gas usage locally, particularly with the advent of combined-cycle power plants. If you look back 20 or 30 years, most of these countries had similar GDPs, but Thailand has surpassed its neighbors, due to use of natural gas. Our strategy is aimed at developing more of those gas supplies. And if we find oil along the way, that's okay, too." Unocal has taken part in two power generation projects to feed electricity to industrial users and the Electricity Generating authority of Thailand (EGAT). Both projects run on natural gas.

Unocal's GOT development philosophy has been one of "capital efficiency;" in other words, developing "just-in-time" resources. When the Asian financial crisis hit in late 1997, it did dampen the company's spending on development projects. However, Unocal has continued to develop fields as market conditions have allowed.

A recent example is Pailin gas field, the single-largest project ever undertaken by Unocal in Thailand. The company installed five wellhead platforms and a central processing platform at Pailin during 1998. In addition, 45 development wells were drilled before the field went onstream in third-quarter 1999. "Output from Pailin is running 180 MMcfgd," said Howard. "The central facility has [CO.sub.2] removal capabilities, and it is one of the largest platforms installed anywhere in Southeast Asia. Typically, we drill 75 to 100 development wells countrywide, to maintain our deliverability. However, in 1998, we drilled 150 wells, due to the impact of Pailin."

Two additional gas fields that Unocal previously brought onstream in 1998 are Plamuk and Pladang. These fields lie in a concession that is separate from Pailin. Plamuk has two platforms tied into nearby Surat field. Pladang went onstream in April 1999 with one wellhead platform. A second platform is planned to be operational in 2002.

From an exploration angle, Unocal continues to find additional opportunities in existing tracts. "We still have plenty of territory to explore" said Howard. "Technical advances have allowed us to go back and make old gas discoveries commercial that weren't so earlier. The rocks, themselves--the geology--continue to be one of the biggest challenges and a critical operating problem. Mastering the geology has been necessary for us to remain commercial. Drilling innovations have really helped us break through."

Howard explained that slimhole technology has been particularly helpful, allowing the company to drill 6-in. holes instead of 12-in. holes, allowing drillers to put wells down faster. "It takes us about six days now to drill a well, as opposed to 60 days many years ago. That (the drilling cost today) translates to about $800,000 per well. We currently have two rigs operating in the GOT tracts."

One of Unocal's more noteworthy wells is the Trat A-07, which was the company's first GOT horizontal gas well. It was completed early last year after drilling 6,530 ft, including a horizontal section that penetrated 1,500 ft of 60-ft-thick gas-bearing sands. From Trat A-07 and four other wells, Trat field began producing gas and condensate last September. Output from this Block 11 field is 70 MMcfgd and 2,100 bcpd.

In Thailand, Unocal has benefited from a long-term relationship with the government's Department of Mineral Resources (DMR). "We've pretty much grown up together with DMR," said Howard. "The same way that we've worked with DMR here is beginning to pay off in Viet Nam, too. We very much value the trust that the government ministries in these countries put in us. We like the people here, and we've been able to build up a competent Thai workforce that stacks up against anybody around the world. About 90% of Unocal's personnel in Thailand are local citizens."

Something else that Howard takes pride in is the contribution that Unocal has made to Thailand's economy. "We take great pride in the opportunity to make a difference that's visible," he said. "Through our development of abundant natural gas supplies, and our efforts toward helping the Thais harness the gas for commercial purposes, we've seen a whole variety of new industries and businesses spring up, creating employment for citizens while raising their standard of living."

CHEVRON

Chevron is a relatively new player offshore Thailand, having acquired Rutherford/Moran's share of the B8/32 Block in December 1998 for $91 million and assumed Rutherford/Moran's debt. The B8/32 Block was awarded originally to Maersk Oil. The company successfully drilled the Tantawan 1 discovery in October 1992. Houston's Pogo Producing Co. bought into a 45% share of the block in early 1995 and took over operatorship on the Tantawan Area part. Now, Chevron will try to take the block's development to a new level.

"This is a kind of once-upon-a-time story for us," said Jay Pryor, managing director of Chevron Offshore (Thailand) Ltd. "For about three years, our New Ventures staff in San Ramon, California, looked at how to enter the Thai market in a big enough way to create a growth platform for Chevron in the area. In addition, we wanted to get involved on the development side, with some existing infrastructure, rather than spend a lot of time up front on exploration. In Rutherford/Moran, we found a company that allowed us to satisfy these criteria." It also didn't hurt that B8/32 was just west of Blocks 7, 8, 9 in the disputed zone with Cambodia. Chevron has been an interest holder since 1972.

Since the block's inception, there have been about 150 wells drilled, with the recent rate averaging 40 wells/year. Average measured well depth is 9,000 to 10,000 ft, and most wells are drilled directionally.

To date, four field areas have been discovered on the B8/32 Block, including Tantawan, Benchamas/Pakakrong, Maliwan and Jarmjuree. According to Pryor, all the fields are named after Thai flowers. Peak production from Tantawan and Benchamas/Pakakrong reached a collective 150 MMcfgd and 32,000 bpd of liquids earlier this year.

"The B8/32 Block has four major components," explained Pryor. "In the first of these, Pogo Producing began development of Tantawan (meaning "sunflower") field, and we are continuing that development. Tantawan's production went onstream in February 1997. Output is now 78 MMcfgd and 6,900 bcpd. Currently, there are five wellhead platforms, the latest of which went online in June 1999. Production is tied back to the Tantawan Explorer FPSO, which has been in place since late 1996."

Second of the block's four major components is Benchamas (meaning Chrysanthemum) and Pakakrong fields. Benchamas went onstream in July 1999. Facilities include three wellhead platforms, one processing platform and one quarters platform, with oil stored in an FSO. Output is running at about half of potential, averaging 78 MMscfgd and 25,000 bcpd.

"We'll continue drilling through 2000 at Benchamas, with two rigs running," said Pryor. "It's been an interesting field to work with. In the beginning, we suffered from a lack of production data. Lately, it's been very nice to see the initial production rates come up to exceed expectations. We'll start the first offshore waterflood program in Thailand later this year, and that effort will be expanded with time." Chevron is pursuing fast-track development of Tantawan and Benchamas, including a move toward horizontal drilling to maximize production and minimize development cost.

Third component of the block is Maliwan field, where five successful exploration wells have found commercial hydrocarbon accumulations. "We have a production license, and a development plan is moving forward," said Pryor. "In the Chevron project development and execution process, we are in phase 2, `Identification of alternatives that meet our development criteria.' Alternatives include sending the output to Tantawan or to Benchamas, or a new stand-alone project. We hope to let bids in mid-to-third-quarter 2000. Speed of the development will depend on progress made in the gas marketing efforts. Our projection is that Maliwan will be onstream in late 2001. It's got the potential to be a very big field over time."

The fourth and final component in Block B8/32 is the Jarmjuree exploration area, a high-potential location that is on trend with the Pakakrong discoveries. Six wells had struck hydrocarbon accumulations on this trend as of late 1999, and another six to eight wells will be drilled last year. Chevron applied for a production license area (PLA) early this year.

Pryor said his operations have not experienced any major technical problems or logistical headaches, with one glaring exception. "Short term, the only problem is when Mother Nature throws those typhoons at us. It rearranges all your priorities. We have typhoon preparedness plans that are composed of stages. For instance, in the lowest level, Stage 1, your daily business meetings are cancelled, and the whole company schedule changes. In advanced stages, we have specific plans for curtailing or even halting operations, as well as evacuating personnel, both offshore and near the coast. After a typhoon has come and gone, we sit down later and do an after-fact assessment. One of the most important things that we do is focus on protection of people and the environment."

Chevron is working hard to develop a local workforce. Approximately 70% of the firm's employees in Thailand are local citizens, and efforts are underway to expand the available skilled pool. "We need some very talented technical people to make our operations here a success" said Pryor. "We need to attract more young Thai engineers and other professionals. That's why I support the local SPE chapter so much, including the bringing-in of visiting professors and supporting summer training programs. The university is our `feeder' here."

The Thai upstream industry has made a lot of progress since the 1970s, and Pryor is very happy with the manner in which industry and government work toward the common goal. "One thing I like about the Thai market is it's very predictable in the long term," said Pryor. "The government officials value the industry, and you get a lot cooperation. The DMR is very open, discusses things, and they are very efficient. They handle their responsibilities well, which encourages us to invest more money."

Looking to the future, Chevron is likely to enter into additional Thai blocks, said Pryor. "There's additional growth potential in this market, and we may even get into the exploration end, now that we have a base of infrastructure. We're able to take advantage of incremental projects." Pryor said that his Thai business plan is based on doing projects that are viable in a range as low as $15/bbl. Given that factor, which contrasts with recent high price levels, he does not expect to significantly adjust his activity level, either up or down. "Our international E&P work level isn't going to go up or down very much in any one year. We are focused on growing a long-term profitable business in the region, based on gas market expansion as the economy continues to grow."

SHELL

As the dominant onshore operator in Thailand, Shell began upstream activities 20 years ago. In 1981, the firm struck its Sirikit oil field, which has remained the S1 concession's principal asset. Development ensued, and output first peaked in 1992 at around 24,000 bopd.

However, the field and tract have had their shortcomings. The location is in a remote area of north-central Thailand, with the nearest city being Phitsanulok. Given the oil price declines of 1982 and 1986, the field's economics did not justify building a pipeline out of the field complex, not even to the closest railroad, in Phitsanulok. Hence, Shell from Day One has trucked every barrel of oil produced to Phitsanulok, where the crude is transferred to railroad tankcars for trans-shipment to refining facilities further south.

In early 1998, Shell said it had grown weary of operating Sirikit field and announced that the concession would be sold. Analysts valued the assets at about $300 million, but the bids that were received fell below Shell's expectations.

In late 1998, the company said that it had changed its mind. Instead of selling the onshore assets, Shell announced an expanded development scheme for Sirikit, in which the company will spend $360 million from 1999 through 2007, to drill nearly 190 new wells. Within that total, there will be 132 development wells in the main portion of the field. Officials said that the plan is designed to recover another 110 million bbl of oil. This should ensure that the current output level of 23,000 to 24,000 bopd is maintained for another 10 years.

By late 1998, Shell had drilled about 230 wells on the S1 concession since operations were begun in 1981. Of these, 50 were exploratory wells. The 1992 output record for Sirikit and satellite fields was broken in November 1998, when production reached 24,393 bopd.

Shell also has had on-again, off-again operations offshore in GOT Block B6/27 southeast of Chumphon. In January 1997, Shell had begun oil production from Nang Nuang field, at about 10,000 bpd. Unfortunately, technical problems forced the company to end output in August 1997 at what had been Thailand's first offshore oil field.

Last year, Shell announced plans for fresh activity on B6/27, scheduling two wildcats to be drilled in the next year or two. One site is 2 km north/northwest of Nang Nuang. The other site is on the Nok Kaew prospect. In all, Shell has drilled eight wells on the B6/27 concession.

HARRODS ENERGY

The newest operator in Thailand, Harrods Energy, is a venture begun by Mohamad al-Fayed, owner of London-based Harrods department store. Fayed is also known for his late son, Dodi, who, along with Britain's late Princess Diana, was killed in the infamous car crash of Sept. 1, 1997, in Paris.

Harrods Energy set up an office in Bangkok during second-half 1998 and acquired offshore Block B2/38 through the 17th Licensing Round. In addition, the company farmed into a 50% interest in PTTEP's B5/27 license and took over operatorship of the offshore tract. In June 1999, Harrods expanded its presence, acquiring a 50% interest in GOT Blocks B11/32, B11/38 and B12/32 from Texaco. Harrods agreed to take over as operator from Texaco, which now has a 32.5% interest in each block. Britain's Dragon Oil holds the remaining 17.5% of each tract.

No money changed hands as a result of the Harrods/Texaco deal. Instead, Harrods agreed to drill two appraisal wells in Blocks B 11/38 and B 12/32, where traces of gas were found previously. The company will drill these wells after finishing a number of wells on its other blocks. This activity is part of a 10-to- 15-well, jackup-based program for year 2000.

Last year, Harrods drilled about 10 wells in Blocks B2/38 and B5/27. Per the B2/38 license agreement, the firm is obligated to conduct a 3-D seismic survey and drill one exploratory well. At B5/27, a 50-km, 2-D seismic survey is to be conducted, and at least one appraisal will be drilled. Prior to Harrods assuming the operatorship, two wells were drilled at B5/27. One of these was a minor oil discovery that flowed 200 bpd. Harrods has stated that it entered Thailand, because company managers are enthusiastic about the Thai energy sector's long-term prospects.

COPYRIGHT 2000 Gulf Publishing Co.
COPYRIGHT 2000 Gale Group