Oil and Gas in the Capitals

	Vol. 230 No. 11
JEFF MOORE, CONTRIBUTING EDITOR, ASIA-PACIFIC

Exxon’s Asia-Pacific activity sees stealth growth

In 2009, ExxonMobil ramped up its projects and rearranged its portfolio in Asia and the Pacific Islands. Though annual reports did not reveal the true scope of Exxon’s projects there, World Oil analyzed the company’s activities and discovered interesting details about its Asia-Pacific strategy.

According to the company’s 2008 annual report, its net developed and underdeveloped oil reserves from Asia/Middle East projects almost doubled between 2004 and 2008, from 1.6 billion bbl to 2.9 billion bbl. During the same period, natural gas from Asia/Middle East projects jumped from 19.9 Bcfd to 31.1 Bcfd.

Because these statistics include Middle East numbers, they obscure the true extent of Exxon’s Asia-Pacific portfolio. And Exxon’s activities in that region are many; in 2008, it began three new projects there and started production at two facilities.

The first project was the $12.5 billion LNG project at Papua New Guinea’s Hides, Angore and Juha Fields, projected to double the country’s economy. First sales are expected in 2013–2014, with LNG destined for exports throughout Asia by way of Exxon’s 6.3 million-tonne-per-year (mtpa) liquefaction facility near Port Moresby. The second was pre-production engineering at Gorgon and Jansz Fields offshore Australia, to feed a 15-mtpa LNG plant on Barrow Island. The third is the Banyu Urip project at Cepu Field in Java, Indonesia. Exxon was drilling 49 wells there through 2008. Full production is estimated at 165,000 bpd.

Of eight global startups for Exxon in 2008, two were in Asia: the 150-MMcfd Jerneh-B gas platform in Malaysia and Azeri-Chirag-Gunashli Phase 3 in Azerbaijan, with expected output of 300,000 bopd.

Exxon’s annual report announced big downstream goals for Asia in 2008. It said 60% of future world petrochemical demand would happen in Asia—over a third in China. Exxon’s strategy is to tap these opportunities by becoming Asia’s biggest refiner. Its million-ton-a-year Jurong refinery in Singapore is the company’s biggest. Its Quanzhou 800,000-ton-a-year facility, which began operating in Q2 2009, is China’s first combination refinery-petrochemicals plant.

While Exxon’s 2008 and February 2009 reports said Asia-Pacific was valuable, they said Russia, Africa and the Middle East would be key production areas come 2012. Exxon did not slight the Asia-Pacific region, but it did not tout it, either—funny, because 2009 showed substantial investment and portfolio shifts in that region.

Vietnam. Exxon may have begun to divest from Vietnam. In October this year, Vietnamese newspaper Thoi Bao Kinh Te Vietnam said Exxon was selling its lubricant business in the country to Total. Exxon’s other businesses in Vietnam have not included E&P.

In 2008, China threatened Exxon over proposed E&P projects with PetroVietnam in the South China Sea. Beijing claims that sea and its Spratly Islands as its territory and has fought several naval skirmishes with Hanoi over them. As Exxon and PetroVietnam were discussing E&P plans, the Chinese Foreign Ministry told both parties it had “sovereignty and jurisdiction” over the disputed waters. According to a September 2008 report by AFP, China threatened to exclude Exxon from its vast market if it went forward on the project. In 2007, Beijing compelled BP to quit its E&P with PetroVietnam in the South China Sea, too.

Indonesia. In September, Exxon divested 20% of two deepwater blocks to Petronas: Mandar in the Makassar Strait and Surumana off North Makassar. It had owned 100% of both projects. Exxon’s only reported reason was “to share the risks.” Neither company announced a price for the sale.

Exxon might have wanted to share the political risk of Mandar and Surumana. Exxon spends considerable political capital in Indonesia. It has been in bitter disputes with state-owned Pertamina over both the D-Alpha gas field in the Natuna Sea and Cepu Field (with an estimated 600 billion bbl of oil and 1.7 Tcfg) on the eastern border of Java for years, and the arguing has stifled production.

The fight over Cepu boiled over in September and October this year. BPMigas, Indonesia’s state oil and gas regulator, warned Exxon in September to ensure that Cepu was producing 165,000 bopd by 2012 or risk losing control of it to Pertamina, which owns 45%. Exxon owns 45% also, and the government owns 10%. Exxon is struggling to meet the deadline because of a “late tender process” and the fact that receiving facilities were not fully set up as of October. Exxon has a full production target date of 2013. As of October, it was producing a mere 6,000 bpd, but with capacity for 20,000 bpd. In 2001, Exxon estimated that Cepu would cost $1 billion to set up and operate. That figure is now $3 billion.

Malaysia. In June, ExxonMobil signed a $2.1 billion contract with Petronas to further develop seven existing oil fields: Palas, Barat, Irong, Semangkok, Tabu, Seligi, Guntong and Tapis. Petronas was interested in leveraging Exxon’s enhanced oil recovery technology to more thoroughly exploit mature fields.

Philippines. Another big move ExxonMobil made in Asia was diving headfirst into the Philippines with a $100 million E&P investment. Exxon first mentioned it in investor’s literature in September 2009, but not to any great extent. The project is the Dabakan-1 well in the SC-56 contract area, which consists of 8,620 hectares of the Sulu Sea. The block might hold 750 million bbl of oil.

But it is still a high-risk project because of its uncertainty, technological complications and extremely high costs. Furthermore, it sits a mere 65 km off the coast of Tawi-Tawi province, where Muslim rebels associated with al Qaeda have waged war for years.

All these projects demonstrate an Exxon more engaged in Asia-Pacific than official reports indicate. It is marching forward in stable Australia and Malaysia, and perhaps walking away from a threatened and limited position in Vietnam. Its massive project in Papua New Guinea promises to be an LNG windfall. And while Exxon remains engaged in resource-rich Indonesia, it remains a rocky marriage where both sides need each other to do business. WO