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Big Oil renews Asian crude hunt as reserves dwindle http://today.reuters.com/business/newsarticle.aspx?type=reutersEdge&storyID=2006-07-24T122653Z_01_SP265591_RTRUKOC_0_US-ENERGY-ASIA-UPSTREAM.xml&WTmodLoc=NewsArt-L3-Reuters+RecommendsNews-2
Mon Jul 24, 2006
By Maryelle Demongeot
SINGAPORE (Reuters) - Oil majors are stepping up exploration in aging 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 deepwater reserves and proximity to fast-growing markets have revived the appeal of wildcat drilling, seen in the appearance of majors such as Royal Dutch Shell (RDSa.L: Quote, Profile, Research) and Exxon Mobil Corp. (XOM.N: Quote, Profile, Research) in places off the radar a few years ago.
It may have a long way to go before rivaling hotspots 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, head of South East 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 a small oil reserves associated with the Philippines' biggest natural gas field, this year committed itself to exploring the country's East Palawan basin.
"Exploration activity in the Asia-Pacific region has increased significantly," a Shell spokesperson said.
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-per-day (bpd) Cepu field.
ENTHUSIASM RISING WITH HIGHER PRICES
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 Corp. (CVX.N: Quote, Profile, Research) made its entry in Vietnam with the award of a deepwater exploration block in the Phu Khanh Basin. Its purchase last year of U.S. independent Unocal gave it a major portfolio in Asia, mostly natural gas.
Italy's Eni SpA (ENI.MI: Quote, Profile, Research) 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 has doubled since 1988, but its crude reserves have 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 firm 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, against 32 percent during 1980 to 1984, data compiled by upstream consultancy IHS Energy Group showed.
Over the same period, national oil companies (NOCs) drilled an increasing number of wildcats, raising their share to 60 from 28 percent, while independents' share fell to 30 from 40 percent , IHS data showed.
But things are changing with international companies increasingly desperate to replace their reserves base, while NOCs face new constraints.
TERMS STILL TOUGH
"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 lags the rest of the world. The number of rigs being used in Asia Pacific is up 7 percent so far this year against 2005, said U.S oilfield services company Schlumberger, half the 15 percent rise worldwide. Yet, the global trend toward more deepwater developments is helping open doors for the more experienced majors, even in places like China, the region's biggest oil producer, which has shunned foreign investment in its mainly onshore oil sector.
The rising role of the majors may also be the result of NOCs reaching their technological limits as a global shortage of experienced oil industry experts -- from geologists to engineers -- draws more professionals to the private sector.
Job vacancies at Malaysia's state oil firm Petronas are said to be several hundreds as engineers are poached by international majors dangling higher salaries.
"Some NOCs are suffering from skills shortages. They may wish to expand more rapidly but they are constrained by human resources," said McCafferty.
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