SMALL FIRM HAS FIRST U.S. ONSHORE PRODUCTION SHARING PACT IN CHINA

Bob Williams
Senior Staff Writer

A small Tulsa independent is the first U.S. company to sign an onshore production sharing contract in China.

The contract Myung & Associates Inc. signed late last month covers joint venture exploration and development on Hainan Island with state owned Hainan Oil Corp. (HOC) (OGJ, Oct. 8, p. 44).

The contract covers about 20,000 acres encompassing the Jinfeng field area in the Fushan basin of northern Hainan Island, where an Australian group led by CSR Orient Oil Pte. Ltd. found small volumes of oil, gas, and condensate last year.

After spending more than $15 million, completing about 1,200 line km of seismic surveys, and drilling six wells, the CSR group decided the finds were not commercial for it at 1989 oil prices and relinquished its contract acreage, essentially all of the 600,000 acre Fushan basin, to HOC (OGJ, Aug. 7, 1989, p. 87).

Myung Pres. John Myung contends, however, that his proposed exploration/development project involving the Jinfeng discoveries could lead to production of about 10,000 b/d of oil, 20-30 MMcfd of gas, and more than 3,500 b/d of condensate. He believes such a program could be commercial if oil prices remain more than $20/bbl.

Further, Myung says, the deal reflects a strong interest Beijing has in attracting more U.S. and other foreign independents to participate in shallow, low risk, modest potential plays in onshore provinces. Previously, the government's emphasis on foreign joint ventures targeted major companies offshore.

PROJECT DETAILS

Myung's contract calls for a $2 million minimum commitment to drill two wells offsetting the Jinfeng discoveries to delineate the reservoir and probe for deeper pay and to reprocess the CSR group's seismic data.

Myung plans to spud the first well before the required 6 month time limit. The wells would target Tertiary pay at 6,500-7,500 ft to assess downdip potential of the Jinfeng strikes, where Myung thinks the oil pay pinches out.

Initial flow from CSR's 1 Jinfeng South discovery well was 1,630 b/d of oil and 1.8 MMcfd from pay at 7262-70 ft and 1,004 b/d and 1.1 MMcfd 7,286-7,308 ft during an 18 hr drillstem test. Combined oil flow in the well then dropped to 511 b/d of oil while gas production rose to 3.84 MMcfd after 14 days, Myung said.

The CSR group's 1 Jinfeng flowed 2.5 MMcfd from pay at 7,283-7,333 ft.

Myung estimates the Jinfeng area contains about 8,000 net acres prospective for development, holding potential reserves of more than 30 million bbl of oil and 200 bcf of gas.

Assuming all that acreage covers commercial pay, a 20 50 well development program that has an average production per well of about 300 b/d of liquids and 2 MMcfd of gas, and oil prices remain at more than $20/bbl, payout could occur within a few years, Myung said.

His company has a 51-49 production sharing deal with HOC. Myung also has an option to acquire more acreage in the Fushan basin.

Improving prospects for marketing Hainan oil production in the near term is a 115,000 b/d export refinery planned at Haikou.

Myung plans to produce Jinfeng liquids and reinject the gas until a gas market develops. With ARCO's planned development of Yacheng gas field off southern Hainan Island leading to a pipeline across the island to Haikou, Myung hopes to begin gas sales by 1992.

Other prospects for gas sales in the Haikou area are a distribution grid Hainan Province is considering and a joint venture industrial/commercial port development. Jinfeng is 6 km from Haikou.

LOW RISK VENTURE

Myung is intent on keeping the Hainan venture as low risk as possible.

China declared Hainan Island, formerly part of mainland Guangdong Province, a special economic zone and granted it provincial status in 1988.

For the commitment wells, Myung can reduce drilling day rates to $6,000-7,000/day with an Oklahoma rig vs. a typical international rate of $10,000-12,000/day. The toolpusher, geologist, and engineer on the job will be Myung staff, the drilling crew Chinese.

Myung plans to ship a truck mounted rig and logging truck from Oklahoma for the two wells and possible future drilling.

Myung cited a surprisingly big turnout for the final contract signing ceremony in Haikou last month, including representatives from China's ministries of energy and trade, as evidence of the government's interest in attracting U.S. independents to onshore projects in China.

"If this is successful, we will continue to promote the idea of pursuing shallow, low risk plays in China," he said. "It's ideal for independents."