David Knott
Senior Editor
The 1 Monte Foi new pool wildcat in Italy's southern Apennines region is the first operated onshore well in that country for Enterprise Oil plc, one of a handful of U.K. independents accelerating exploration activity outside the U.K. The company is involved in five wells currently drilling in the area. A number of finds here are on long-term production test, with produced oil being trucked to Agip SpA's Taranto refinery.
Independents in the U.K. have embarked on a campaign to accelerate their exploration activity around the world.
Listings of U.K. North Sea license partners almost always show a major British or foreign company as operator, with some of the smaller shares held by U.K. independents.
In listings of foreign license partnerships, however, the names of these U.K. 'small fry' often occur in the role of operator or major partner.
These independents have traditionally found it impossible to take big slices of North Sea projects, because of their smaller size and lack of money or expertise to take on huge offshore development projects.
Size has been less of a drawback in foreign plays, particularly onshore, but new technologies and innovative strategies are increasingly narrowing some of the gaps between majors and minors.
One noticeable recent trend has been for smaller companies to try to replace their production by buying into development projects, rather than by staking everything on rank exploration.
Another has been for independents to buy aging producing assets from majors, bring down operating costs because of their lack of 'corporate baggage,' and hence squeeze out extra production.
John Wilson, exploration director of Hardy Oil & Gas plc, London, believes recent advances in exploration technology make small independents less disadvantaged than the majors, compared with 20 years ago.
"Now we all have access to the same quality of workstation," said Wilson. "The difference between independents and the majors is that we can't explore in as many countries, because we have fewer people, but we must apply as good a set of skills. Small doesn't mean backward."
Balancing acts
Hardy's strategy is typical of the small independent: taking part in a range of ventures while performing a continual balancing act with spending and exposure to risk.
"We seek to have an exploration program with a diverse mix," said Wilson, "with some low risk/low reward projects and some high risk/high reward prospects.
"We can't have all frontier licenses, because gambling isn't the business we're in, though it may sometimes look like it. Exploration should be properly diversified, to give a good mix with the objective of adding value."
Another balancing act is Clyde Petroleum plc of Ledbury, U.K., which has four main areas of operation: U.K., Netherlands, Indonesia and Australia.
Paul Zatz, Clyde's finance director, explained, "We are keen to keep a balance. In the U.K., Clyde is mainly an oil producer, in the Netherlands it's gas, in Indonesia it's oil, and in Australia it's gas.
"We balance oil and gas, and we balance operated and non-operated assets. This balancing act gives us the opportunity to select suitable areas overseas, if project costs are too high in the U.K. market."
Zatz said Clyde's reasons for looking outside the U.K. for growth are partly based on costs of operations, on recent tax changes under which exploration costs can no longer be written off against later revenues, and above all because the U.K. is a mature area, where there are even less opportunities to go for.
Lasmo
Lasmo plc, London, is one of the U.K.'s two largest independents, with net production amounting to an average 172,000 b/d of oil equivalent (boed).
A Lasmo official explained that the company has a fourfold strategy for targeting new projects that include:
- Investing further in countries where it has a presence and can build on this, such as Algeria, Colombia, Pakistan, and Indonesia.
- Targeting countries or regions that are opening to foreign investment and that offer growth potential to companies that gain early entry. These include Venezuela, Middle East, and the Falkland Islands.
- Looking for projects where new technologies are cutting costs and opening previously inaccessible areas, such as U.K.'s West of Shetland play.
- Developing new markets for gas, liquefied natural gas, and power generation, particularly where linked to field developments.
In Algeria, Lasmo plans to spud a new field wildcat on Block 404, where the company has a share in the Berkine East discovery, operated by Anadarko Algerian Corp.
Berkine East is being appraised for development. Here, the 4 BKE appraisal well was recently completed as a producer without testing.
The group is currently acquiring 3D seismic on Block 404 over Hassi Berkine South, another oil find, and plans to drill 2 El Merk appraisal well in another discovery on the same block.
Lasmo has a 25% interest in Block 404, and estimates proved and probable reserves in Hassi Berkine, Hassi Berkine South, and Berkine East discoveries at 1.5 billion bbl of oil and condensate.
The company reckons two of the Block 404 discoveries can be brought on stream in 1998 at a rate of 40,000 b/d, with six discoveries in Algeria expected to bring in 30,000 b/d net to Lasmo by 2000.
Lasmo's other active exploration projects include: 1 Gorgoglione new pool wildcat in Italy; 1 Piramide and 1 Cabalonga new pool wildcats in Colombia's Espinal license area; 1 BHIT well on Pakistan's Kirthar block, spudded in March but suspended until early 1997 because of monsoons and mechanical problems; 1 Turtle well on Block NC173-1 off Libya; and Cumi Cumi exploration well in Indonesia.
Lasmo is also working towards formation of a joint venture company, based in Kuwait, as an investment vehicle to pursue opportunities throughout the Middle East.
The company hopes to secure exploration and field rehabilitation projects in that region: "Several opportunities are already under review."
Enterprise
Enterprise Oil plc is the other sizable firm among U.K.'s independents, with net production amounting to more than 200,000 boed, and operations in the U.K., Norway, Denmark, Italy, Ireland, and the Far East.
Graham Hearne, chairman of Enterprise, said, "We are on track to replace our produced reserves this year and to increase overall production to around 300,000 b/d by 1999.
"We are also continuing to progress our international exploration ventures, both by pursuing our existing drilling programs and by taking advantages of opportunities to develop a position in known hydrocarbon producing provinces with upside potential."
In July, Enterprise acquired a farm- out of a redevelopment program in Mubarek field off Sharjah, where it will spend $25 million on 3D seismic acquisition and drilling two wells in return for a 40% share in output from the new wells.
The wells are to be completed by yearend 1997 and are anticipated to prove tens of millions of barrels of oil, with potential for further reserves additions (OGJ, July 15, p. 22).
On Sept. 12 Enterprise disclosed a deal to acquire a farmout on 102 leases in the Gulf of Mexico operated by Pennzoil Co. The deal involves all Pennzoil's Gulf of Mexico licenses where it owns 50% or more.
Enterprise said it will earn an interest equal to half of Pennzoil's working interest in each prospect by contributing funds towards the cost of drilling an exploration well on each prospect, subject to agreement.
On 59 of these leases, said Enterprise, where Pennzoil's average working interest is 92%, it will fund drilling 100%, with a minimum $100 million expected to be spent through to 1998.
On the remaining leases, where Pennzoil's working interest averages 80%, Enterprise will cover two thirds of the drilling program costs through 1999.
Pennzoil and Enterprise plan to drill 20 wells in Gulf of Mexico during the next 2-3 years, with the first four scheduled to begin soon in Quarantine Bay area, Gheens in Louisiana, on High Island 352A Atlanta prospect, and on Garden Banks 161.
Enterprise has completed 21 exploration and appraisal wells so far this year in U.K., Norway, Denmark, Italy, Ireland, Australia, Cambodia, Viet Nam, and Peru.
"Seven of these wells were successful in identifying potentially commercial quantities of hydrocarbons," said Enterprise. "The 1 Vai Thieu well in Viet Nam tested oil at uncommercial rates, while a further five had untested oil or gas shows. Seven wells are currently being drilled, including five in the southern Apennines area of Italy and one each in Ireland and Denmark."
Hardy
Hardy is active in Pakistan and Australia as well as in the U.K., with appraisal of recent finds being the main focus of activity.
Its net production is an average 17,200 boed.
Wilson said Hardy is a partner in two licenses in the Middle Indus region of Pakistan-Miano and Southwest Miano operated by Austria's OMV AG-and Riwat near Islamabad, operated by local firm Pakistan Petroleum Ltd. (PPL).
In Miano gas field the partners are currently drilling an appraisal well, although the discovery has already been declared commercial. The partners are working on a development plan and hope to begin production next year.
Wilson said Miano reserves are estimated at least 300 bcf of gas, "with substantial upside." The find is close to both the Sui South and Sui North gas trunklines, so gas will be delivered into Pakistan's gas grid.
Seismic data are currently being acquired in Southwest Miano, while Wilson said PPL plans to spud a well in Riwat in October.
In Australia, Hardy has no operating interests, but is a partner in a number of discoveries being appraised for development.
In the Carnarvon basin off Northwest Australia, Hardy is partner in the producing Harriet oil and gas field.
Last year a group led by Apache Corp., Denver, found Wonnich, which holds gas and oil, and this year discovered Agincourt oil field.
Wilson said Wonnich is regarded as commercial. The partners are waiting on environmental approval to drill appraisal wells and develop the field with a monopod platform exporting gas via the Harriet gas gathering system.
In Agincourt oil find the partners have drilled an appraisal well and are now working on a development plan.
Hardy's big project off Australia is its 15% share in a license in the Timor Sea zone of cooperation area between Australia and Indonesia.
Here Hardy has a 15% stake in ZOCA 91-13 block operated by Phillips Petroleum Co. Bayu/Undan gas/condensate find straddles this block and adjacent ZOCA 91-12 operated by BHP Petroleum Pty. Ltd.
Hardy participated in the discovery well drilled early in 1995. So far four successful wells have been drilled on each block, and the Phillips group plans to drill another appraisal well later this year or early next.
Bayu/Undan reserves are estimated at 4-7 tcf of gas, with an anticipated 55 bbl/MMcf of condensate and 40 bbl/MMcf of natural gas liquids.
"As you can imagine, this project is concentrating our minds," said Wilson. "As with all remote gas/condensate finds, exploitation will be via the liquefied natural gas route.
"LNG sales agreements take time, which makes development timing uncertain, but we envisage selling the LNG into the Far Eastern market. Partners of both license groups are anxious to achieve returns."
Wilson said the groups are considering early development of condensate, with gas reinjected for later recovery when a market is available.
Hardy is also involved in Banff and Elgin/Franklin developments, under way off the U.K. at present, and is therefore being careful to focus its efforts.
The company is involved in exploration ventures in Algeria and Namibia-not active at the moment-but is seeking to farm out its interests.
"Expenditure is required for appraisal and development in Australia and Pakistan," said Wilson. "We have to find funds and cut some activities for the time being."
As part of the refocusing process, Hardy sold its U.S. subsidiary in May and a Canadian unit last December, said Wilson. Yet the company has a strong conviction that it must grow.
"So where does Hardy go next?" said Wilson. "In short, anywhere we can bring a competitive edge. Hardy has just concluded negotiations for one foreign license, but we can't make a public announcement because it's awaiting government approval."
Wilson said recent attempts by U.K. government to attract small companies to apply for exploration licenses was encouraging in a general way, but added, "Most of our future activity will be overseas, because of the potential size of the prizes available."
Clyde
Zatz said Clyde is unusual among independents in not setting out after "mega-finds."
The company pursues a policy of mixing exploration with buying into production as a way of replacing reserves.
"Clyde has higher net production than many of its peers at 42,000 boed," said Zatz. "We are risk-aware if not risk-oriented; with this level of cash flow, it would not be sensible to bet everything on exploration."
Late last year Clyde won approval for development of three satellite finds in P Quadrant off the Netherlands. The company has bought into a number of licenses here since 1989 and won operatorship of P6 gas field.
"We are using existing facilities to bring on three satellites, with estimated net reserves totaling 25 bcf of gas, using minimal facilities platforms. Here economics can be improved by government backing into developments and paying a share of costs."
Contracts have been placed to develop the finds on Block P/2a, and pipelines to P/6A platform have been installed. Clyde has acquired seismic data to help in placing development wells, to be drilled this winter.
The company has also acquired 3D seismic data on Blocks Q/4a, Q/8a and P/9 over the past 6 months, and plans exploration drilling in 1997 and 1998 in areas close to Clyde-operated infrastructure.
In Indonesia Clyde bought a 31.25% interest and operatorship of Kakap field from Mobil Corp. in March, and now plans to bring three small discoveries there on stream the next 3 months.
"The additional reserves in the satellites are not huge, certainly too small for a major to develop" said Zatz, "but the economics of the project is good. And we have already been able to reduce operating costs in the field by 30%."
Zatz said the Kakap project shows the type of project in which independents can compete with the majors: "If a project is too small for a major, it may be useful for us.
"We can't compete in high-tech or deepwater projects, for example. Majors now need to be looking to these, or to the F.S.U. and so on where there is lots of oil and gas, if they are going to be able to replace reserves."
Clyde also has a handful of more risky exploration projects, all of which are operated by other companies. In Syria, Clyde holds 27% of Kishma discovery, which is expected to be brought into production next year.
In Yemen, Clyde has a 38% interest in Block 32, where negotiations for a farmout are under way and are intended to lead to further drilling in 1997.
In Libya, Clyde has taken a 15% share in Sirte basin licenses operated by Pan-Canadian Petroleum Ltd., Calgary. The company also has a 12.5% interest in a British group bidding in the Falkland Island licensing round.
John Wilson, exploration director of Hardy Oil & Gas plc
Recent advances in exploration technology make small independents less disadvantaged than the majors, compared with 20 years ago. Now we all have access to the same quality of workstation. The difference between independents and the majors is that we can't explore in as many countries because we have fewer people, but we must apply as good a set of skills. Small doesn't mean backward.
This is the first of two articles updating U.K. independents' exploration activity around the world.
Copyright 1996 Oil & Gas Journal. All Rights Reserved.