Exploration and development off southern Viet Nam are proving up the area's prospectivity and laying an energy foundation for economic growth.
Although still little more than a crawl, the pace of positive announcements in this portion of the South China Sea continues to quicken.
A steady string of oil and gas discoveries begun last year has carried over into first half 1995, boosting operator confidence to sustain the emerging drilling surge. With each announcement, observers increase their estimates of Viet Nam's recoverable oil and gas resources.
Meantime, Viet Nam in the past year continued ramping up oil production. It added production from Rong field in the Mekong basin and Dai Hung field in the Nam Con Son basin. Added to Bach Ho field's 120,000 b/d of production, Viet Nam's second and third producing fields boosted the country's oil flow to about 160,000 b/d (see map, OGJ, Nov. 28, 1994, P. 25).
Perhaps more important, Viet Nam last April began gathering about 30 MMcfd of the 90 MMcfd of gas flared in Bach Ho field, also in the Mekong basin, kicking off sales of domestic gas. State owned PetroVietnam transports the gas to the 268,000 kw Ba Ria power plant near Vung Tau through a 400 mm, 125 km pipeline completed early this year by Korea's Hyundai Heavy Industries (OGJ, July 3, p. 28).
The Bach Ho-Ba Ria pipeline is Viet Nam's first large diameter transportation link for a proposed gas pipeline grid expected to underpin construction of a series of gas fired power plants. Eventually, Vietnamese gas produced by foreign operators also could find its way into a proposed regional gas pipeline grid stretching across Southeast Asia.
Plans by foreign companies are equally ambitious for Viet Nam's future oil refining and product distribution systems.
OUTLOOK NOT ALL ROSY
Despite encouraging signs in many sectors of the country's energy sector, Viet Nam's oil and gas outlook is not all rosy.
Viet Nam in 1987 under revised investment laws began offering foreign companies acreage for exploration and development through production sharing contracts (PSCs). But foreign companies as recently as early 1994 had only mixed results after spending about $1 billion.
As operators continue testing exploration theories off Viet Nam with the bit, growing knowledge of the country's offshore geology is helping them better assess exploration and development risks.
Among the dawning realities, Viet Nam's offshore pay zones increasingly appear more gas prone than expected. And whether a company is pursuing oil or gas prospects, geologists are finding Viet Nam's offshore geology is much more complex than expected.
The mix of gas or oil discoveries emerging so early in a region's exploration cycle little more than defines the play. Explorationists at such an early stage can cost efficiently adjust strategies to seek targets that regional geology shows are most likely to be encountered. But dealing with problems raised by unexpectedly complex geology can send exploration and delineation costs soaring.
When the Vietnamese government reopened its offshore territory to exploration by foreign companies, it set stiff PSC terms in part because of the relative quick success achieved in the region with scant exploration history Higher than expected upfront costs are changing the region's economics, in some instances calling into question otherwise viable projects.
COMPLEX GEOLOGY
A case in point is the outlook for Dai Hung field, where a group led by a unit of Australia's BHP Petroleum Pty. Ltd. since late last year has been producing about 30,000 b/d of oil (OGJ, Oct. 24, 1994, p. 37). Production began only 18 months after signing a PSC.
The BHP group achieved the fast track milestone despite financial requirements imposed by the Vietnamese government better suited to a much larger oil reservoir.
Operator BHP Petroleum (Dai Hung) Pty Ltd. holds a 43.75% interest in Block 5-1 West, Petronas Caligari Overseas Sdn. Bhd. 20%, Vietsovpetro 15%, and Total Vietnam and Dai Hung Oil Development (Japan) Ltd. 10.63% each.
The combine by yearend 1994 had drilled three development wells and five delineation wells on the structure. Based on well data, partners reduced estimates of Dai Hung's recoverable reserves to 100-300 million bbl. That is a fraction of the 500 million-1 billion bbl of reserves thought to be in place based on PetroVietnam's data.
BHP's business interests in Viet Nam are substantial and expanding. In addition to becoming Viet Nam's first foreign oil producer as operator of Dai Hung, the company this year joined four others in a study group evaluating gas transportation options for the Nam Con Son basin. PetroVietnam holds a 38% interest in the Nam Con Son pipeline study group, BP Exploration Operating Co. Ltd. 24.8%, and BHP, Den norske stats oljeselskap AS (Statoil), and Mobil 12.4% each.
BHP's power affiliate is considering plans to develop a power station and a fertilizer plant to use Nam Con Son basin gas. Outside the oil and gas industry, another BHP affiliate has built a steel rollforming plant near Ho Chi Minh City and is building a second near Hanoi.
Despite substantial evidence that BHP is committed to playing a significant role in Viet Nam's economic development, further development at Dai Hung is on hold.
'If BHP and its partners are to proceed with further stages of development work at Dai Hung, the Vietnamese government must make some changes to the fiscal terms applying to the field," BHP said.
NOT TOO BAD
John T. Schulenberg, a Kerrville, Tex., geologist, attributes some dissatisfaction among foreign operators to unrealistic expectations based on scant data. Schulenberg has studied Viet Nam's offshore geology for more than 2 decades as a technical adviser to companies preparing to bid for oil and gas acreage.
When Mobil in the early 1970's confirmed the prospectivity of Bach Ho and Dai Hung fields with only two wells, Schulenberg said, many companies mistakenly concluded the region would be relatively easy to explore and develop. Vietsovpetro augmented that expectation more than a decade later when it drilled the Dai Hung discovery well.
"Although the Russians didn't have a lot of success after that, a lot of people thought it was because they lacked off-shore expertise,' Schulenberg said.
But all along, clues in available data suggested Viet Nam's regional offshore geology would not be characterized by large, relatively simple structures. For example, Schulenberg quickly concluded Mobil had drilled its Dai Hung prospect first because it was the biggest structure in the region.
"I didn't see more big structures like Dai Hung," Schulenberg said. "Everything else was smaller and more complex."
Earlier this decade, while reviewing offshore bidding data to evaluate prospects as an adviser to Korea Petroleum Development Co. (Pedco), Schulenberg found evidence of faults in the Dai Hung structure.
"It was obvious there had to be several points of oil-water contact and there wasn't continuity across the faults," he said. "Just how complex it is was anybody's guess."
BHP apparently accepted Viet Nam's terms on Dai Hung because, despite the indicators, there was no way to be sure of how large the prospect could be, Schulenberg said.
Now that Dai Hung has turned out to be smaller than many had expected and foreign operators have become more familiar with the region's geology, Schulenberg said companies searching for oil and gas in the area have much better ideas of what to expect.
"There have been some big fields found, but a lot of wells have been drilled with a lot of dry holes and disappointments," Schulenberg said. "But within the past year or so, there have been some discoveries that point back to the possibility that the area might not be all that bad."
STATUS OF COMMERCIALLY
In addition to the fiscal implications stemming from Viet Nam's emerging offshore geological makeup, companies operating off Viet Nam are cautious about revealing exploration and development plans because of confidentiality agreements and political sensitivity
But based on public data and interviews with many of the foreign companies involved in the play, Charles J. Johnson, a senior analyst at the East-West Center in Honolulu, estimates that oil and gas reservoirs with commercial possibilities have been reported on 11 of Viet Nam's offshore tracts. Johnson includes eight tracts with one or more discoveries resulting from wildcat drilling by foreign operators since 1987.( 28602 bytes)
"There's a lot more oil and gas off Viet Nam that's going to fall into the commercial category than most people think," Johnson said.
He bases his conclusion on data compiled with other East-West analysts for a May 1995 report about Indochina's energy outlook for the international energy assessment office of the U.S. Department of Energy.
"We knew at the beginning of 1994 that companies had to come up with a number of discoveries, because there hadn't been enough to justify the exploration spending of more than $1 billion that had occurred since Viet Nam opened up," Johnson said.
In the DOE report, East-West Center analysts found that from 1988 through early 1995 foreign operators had drilled about 100 wells off Viet Nam and reported eight apparently commercial discoveries for a discovery rate of about 14%.
"Recent drilling success ratios in the Mekong and Nam Con Son basins have been much higher," the report said.
East-West Center estimates Viet Nam holds about 80% of Indochina's offshore oil and gas reserves. But the international nonprofit institute warns that Current estimates of Viet Nam's reserves are incomplete because of the region's light exploratory activity.
Still, the center pegs Viet Nam's oil reserves as of yearend 1993 at 1.4 billion bbl and gas reserved at 4-8 tcf. East-West Center estimates the country's ultimate recoverable oil potential could reach as much as 3.5 billion bbl by 2010, with recoverable gas reserves amounting to as much as 30 tcf.
The center developed three scenarios to model Viet Nam's oil production outlook.
With Viet Nam's petroleum consumption growing at a rate of 8-12%/year, the country in all three cases appears destined to become a net oil importing nation by 2010 and as early as 2005 in the low production case.
Johnson said Viet Nam's gas potential is considerably greater than the volume expected to be needed on domestic markets.
As a result, it appears likely fields off Viet Nam could export gas to markets in Thailand or China. In addition Viet Nam could export liquefied natural gas to growing markets in Japan, Taiwan, or Korea if 8-10 tcf of reasonably priced gas reserves can be developed.
Johnson estimates enough gas already has been proved off Viet Nam to support exports. But he said the first priority for Viet Nam is to develop gas infrastructure for domestic markets.
"The government is not going to agree to export gas until operating companies have shown there are enough reserves to first meet Viet Nam's needs," he said. "Once it achieves that target, the government can work out scenarios for serving export markets."
Johnson expects Viet Nam leaders within the next 2 years to decide a gas export program is viable.
DRILLING ACTIVITY
Many companies taking part in Viet Nam's current exploration campaign are yet to drill discoveries. But confidence among operators appears stronger today than earlier in the decade, when they were just starting to come to grips with regional geology and Viet Nam's formidable government bureaucracy (OGJ, July 18,1994, p. 22).
In summing up 1994 upstream activity off Viet Nam, U.K. consulting firm Integrated Exploration & Development Services Ltd. (IEDS) at yearend reported a relatively high level of exploratory drilling. It also cited mixed implications for the future.
IEDS said activity was shifting toward drilling and away from seismic surveying because many foreign operators were near the end of their primary PSC exploration phases.
"Several companies will face decisions of whether to continue into their second phases, which means active drilling commitments have to be fulfilled and evaluated by early 1995," IEDS reported.
After reports of five discoveries off Viet Nam in 1993, IEDS in 1994 counted seven discoveries.
Among the most significant oil discoveries in 1994 off Viet Nam, IEDS listed two discoveries disclosed during the summer:
- Japan Vietnam Petroleum Co. (JVP) in a test of 15-2-RD 1X wildcat on Block 15-2 in the Cuu Long basin gauged an oil flow of more than 14,000 b/d, including 10,000 b/d from basement (OGJ, June 27, 1994, Newsletter).
- Petronas Caligari Overseas Sdn. Bhd. in August reported an oil and gas discovery at its 1-B 1X wildcat on Block I in the Mekong basin that flowed 7,000 b/d of oil.
IEDS said the two strikes prompted PetroVietnam to reoffer Block 15-1 for bids after rejecting as too low bids for the tract in an unsuccessful 1991-92 bidding round. The latest tender for Block 15-1 has progressed into the second round, with the winner to be named from among four contenders.
Meantime, Petronas and JVP through first half 1995 have been evaluating their respective discoveries on Blocks 1 and 15-2.
1994 GAS DISCOVERIES (19273 bytes)
In third quarter 1994, operator BP and partners Statoil and India's Oil & Natural Gas Commission confirmed the discovery of two offshore gas fields on Block 6 (OGJ, Sept. 26, 1994, p. 40). The companies estimate combined reserves of Lan Tay and Lan Do fields at 2 tcf.
BP said the combine has drilled seven wells on the tract and expects to start development drilling as soon as it receives all approvals. With BP and Statoil participating in the $3.5 million study of the proposed regional Nam Con Son basin gas pipeline, commercial production from the fields could begin when the transportation system is ready to begin operating.
The gas pipeline system under study would begin at Lan Tay and Lan Do and run 400 km, mostly offshore. Study participants expect their analysis to help set the line's diameter and configuration by projecting sources and volumes of gas supply off Viet Nam.
The main purpose of the proposed gas line would be to gather and transport to shore gas produced from fields in the Nam Con Son basin. But the study also is considering options that would enable the system to pick up gas from other basins nearby.
Pipeline sponsors would time construction of the system based on the interplay between field development and onshore markets.
"We believe it is possible for construction to commence in 1997 for possible use in 1998, if all other conditions are met," BP said.
FIRST HALL 1995 DISCOVERIES:
IEDS through May 1995 reported four significant discoveries off Viet Nam during the year, three of which were spudded in fourth quarter 1994.
The company also lists seven offshore wells spudded in Vietnamese waters this year and cites plans by foreign operators to begin drilling at least another 13 wells before yearend.
Operators BP and Total Oil & Gas International BY (Vietnam) in quick succession in late February reported Viet Nam's first two discoveries of 1995.
BP and partner Statoil reported the 5-2-KCT 1X/1X(ST) wildcat flowed 5,075 b/d of oil and 15.4 MMcfd of gas on drillstem test of a Miocene carbonate zone at about 3,000 m. Partners drilled the well on the western side of Block 5-2 on the Kim Cuong Tay structure believed to extend onto Block 5-3 operated by Arabian Exploration & Development Co.
BP and Statoil last March spudded their 5-2-HT 1X well about 16 km north-northeast of 5-2-KCT 1X/1X(ST) on a northeast-southwest trending basement high that also extends onto Block 5-3. It is the partners' fourth and final commitment well on the tract in phase one exploration under the PSC signed in June 1992.
The companies in May reportedly were drilling below 3,300 m and laying drilling plans for the 2 year exploration phase to begin in June.
Total and partners in first quarter 1995 finished drilling their 11-1-CC 1X wildcat on Block 11-1 as an oil, gas, and condensate discovery. The well earlier flowed a combined 2, 100 b/d of oil and condensate and 32 MMcfd of gas on four drillstem tests of mid to late Miocene sediments. Several gas zones remain untested, IEDS said.
The Total group plans a 300 sq km 3D seismic survey on Block 11-1 and a 2,000 line km 2D shoot. Collection of field data is to begin this month.
Meantime, IEDS reports Vietnamese officials are expected to grant Total an extension to interpret seismic data before the group commits to further drilling in the new exploratory phase.
PEDCO BLOCK 11-2 WELLS
A group led by Pedco last April disclosed back to back gas/condensate discoveries with wells on Block 11-2 in the Nam Con Son basin. The drilling yielded three discoveries in as many attempts.
Pedco about mid-April said its 11-2-RD 1X/1X(ST) wildcat flowed a combined 43 MMcfd of gas and 1,365 b/d of condensate on five drillstem tests at 3,685-4,542 rn. IEDS said the flow originated from Miocene and possibly upper Oligocene strata above 4,624 m total depth after Pedco had sidetracked the well because of mechanical problems.
The Pedco group spudded its 11-2-RD 1X/1X(ST) in November 1994 on the Rong Doi structure.
That success was followed at the end of April when Pedco said its 11-2-RVD 1X wildcat flowed a combined 26 MMcfd of gas and 300 b/d of condensate from Oligocene pay above 4,780 m TD. Pedco spudded the 11-2-RVD 1X early last January about 28 km northeast of 11-2-RD 1X/1X(ST).
The Rong Vi Dai structure is a large, low relief fault block in the east half of Block 11-2.
More than a year earlier, in February 1994, the group's first well on Block 11-2-the 11-2-RB 1X wildcat-flowed 3,419 b/d oil and 22 MMcfd of gas (OGJ, Nov. 28,1994, p. 23).
IEDS reports that Pedco's first exploratory phase ended in May, and PetroVietnam granted the group a 3 month extension to decide whether to take the PSC into second phase exploration. Choosing to continue would be a big commitment for Pedco group members. IEDS said the second phase work program is expected to require drilling of four wells.
SUPPORTING SUSTAINED GROWTH
Taken together, the reserve base accumulated by continuing discoveries, the pace of exploratory drilling, and the growing body of knowledge about Viet Nam's offshore geology are redefining upstream economics in the region.
After overcoming early incorrect interpretations of regional geology, most companies working off Viet Nam today are better able to identify horizons likely to produce oil or gas, East-West Center's Johnson said.
What's more, a series of relatively smaller discoveries going on stream over time could effectively support the hefty economic surge expected in Viet Nam.
Schulenberg said that as companies continue to find more oil and gas and infrastructure reaches critical mass, upstream costs will decline and more smaller fields will become economic to develop.
"At that point," he said, "companies will be able to stop searching for quarter billion barrel fields and start looking for something more realistic."
A trend toward developing smaller fields off Viet Nam would severely test the fiscal requirements currently favored by Viet Nam. But many believe the economic constraints imposed by Viet Nam's offshore geology could be harbingers of what is to come.
If pressed by emerging economic realities that conflict with existing PSC terms, would Vietnamese officials be willing to amend requirements to allow economic development of smaller fields?
"My perception of PetroVietnam's officials is that they are very realistic," Schulenberg said. "It might not come about as quickly as some companies would like, but I think they will do what they have to do to encourage exploration and development."
Many in the industry hope Schulenberg is right.
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