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Business Report (South Africa): Shell, Exxon renew hunt for crude in Asia

July 25, 2006 Edition 1

Maryelle Demongeot

Singapore – Oil majors are stepping up exploration in ageing or neglected areas of Asia, potentially helping lift output a decade after shunning the region to hunt for giant oilfields in more prospective patches.

Asia’s relative political and fiscal stability, untapped deep-water reserves and proximity to fast-growing markets has revived the appeal of wildcat drilling, seen in the appearance of majors such as Royal Dutch Shell and Exxon Mobil in places off the radar a few years ago.

It may have a long way to go before rivalling hot spots such as west Africa or Libya, but growing resource nationalism in the rest of the world – from the Middle East to Russia to Latin America – is giving Asia an edge, especially as Big Oil struggles to replace its dwindling reserves.

“Because there are opportunity constraints, companies are willing to look at areas that had not previously interested them,” said Mark McCafferty, the head of southeast Asia research at energy consultants Wood Mackenzie.

“People are looking at the Philippines, for example, despite the fact there have been no recent successes. Companies are now willing to take a look to see if there is any potential.”

Shell, which in 2004 opted not to develop small oil reserves associated with the Philippines’ biggest natural gas field, committed itself this year to exploring the country’s East Palawan Basin.

“Exploration activity in the Asia-Pacific region has increased significantly,” said a Shell spokesperson.

Industry sources say it also bid in the latest Indonesia round, its first effort in years to enter the Opec member’s upstream sector, which is struggling to halt falling production.

Shell seems to have lost that bid, but Exxon Mobil did take two exploration blocks, likely encouraged by the resolution of a five-year row over its 170 000 barrel a day Cepu field.

Exxon Mobil, the world’s biggest publicly traded company, has also bid for a 30 percent stake in a major gas field in India, which would be its first upstream investment in the region.

Chevron made its entry in Vietnam with the award of a deep-water exploration block in the Phu Khanh Basin. Its purchase last year of US independent Unocal gave it a major portfolio in Asia, mostly natural gas.

Italy’s Eni is betting on East Timor, where it has taken a bumper five offshore exploration areas in the young nation’s first ever upstream round this year.

Asia-Pacific oil demand had doubled since 1988, but its crude reserves had risen only 1.5 percent, according to BP’s statistical review. Asia produces about one-tenth of the world’s crude, but holds only 3.4 percent of its reserves.

The surge of interest by major oil firms may mark a turning point for a region that has been neglected by majors.

Big oil companies drilled only 10 percent of all wildcat or exploration wells in Asia during the 2000-2004 period, compared with 32 percent during 1980-1984, data compiled by upstream consultancy IHS Energy Group showed.

Over the same period, national oil companies drilled an increasing number of wildcats, raising their share to 60 percent from 28 percent, while independents’ share fell to 30 percent from 40 percent, IHS data showed.

But things are changing, with international companies increasingly desperate to replace their reserves base, while national oil companies face new constraints. “It is not that fiscal terms have really changed in Indonesia. Incentives are not very encouraging. But oil prices are on the rise and Asia is an expanding market,” said an industry official with a major, who declined to be identified.

Exxon Mobil’s chief official in Malaysia said that tough fiscal terms were still putting it off investing in the country’s deeper waters, despite Shell’s success there.

Asian exploration still lagged the rest of the world. The number of rigs being used in Asia Pacific was up 7 percent so far this year against 2005, said US oilfield services company Schlumberger, half the 15 percent rise worldwide.

Yet, the global trend toward more deep-water developments is helping open doors for the more experienced majors, even in places such as China. China is the region’s biggest oil producer and has shunned foreign investment in its mainly onshore oil sector.

The rising role of the majors may also be the result of national oil companies reaching their technological limits as a global shortage of experienced oil industry experts draws more professionals to the private sector. – Reuters

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