NOCs command about 90% of known oil reserves and about 75% of natural gas resources, but many are still striving to expand their presence globally.
Jeremy Cresswell, Energy Editor, Aberdeen
For decades, the broad assumption in the West has been that national oil companies (NOCs) tend to operate domestic agendas and it is the international oil companies (IOCs) and independents that free-boot their way around the globe, striking deals that give them access to NOC-controlled resources, typically under production sharing agreements and contracts (PSAs and PSCs).
Over the past 20 years, however, there has been a gradual shift whereby NOCs have also been securing opportunities in other countries, often where the incumbent itself is an NOC. Today, there is a remarkably eclectic mix of NOCs active around the globe, and not just obvious names like Petrobras or the Chinese or Indian companies, but also scarcely known examples such as MOL of Hungary or PetroVietnam, plus the European chameleons Eni and Statoil, both of which are hybrid listed/state-owned entities that are variously IOCs or NOCs, depending on which description suits their strategic purpose, Table 1. The World Bank particularly singles out StatoilHydro, Petrobras, CNOOC and Petronas as being “globalized”—that is, they seek and compete for international opportunities as part of their overall strategy.
| TABLE 1. Global distribution of select national oil companies |
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CHINESE JUGGERNAUT
Hardly a week goes by without mention of Chinese NOCs—typically China National Petroleum Corp. (CNPC), China National Offshore Oil Corp. (CNOOC) and Sinopec—seeking reserves, especially in the Middle East, Africa and the Americas. Even the hallowed US Gulf of Mexico and onshore Canada figure in Chinese plans and actions, Table 2.
| TABLE 2. China’s 2013–2015 overseas equity crude, bpd |
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The Chinese NOCs have to meet ambitious overseas production objectives. According to research by Chatham House, CNPC was producing about 35 million tons (0.72 million bpd) from its overseas fields in 2005, of which 20 million tons (0.40 million bpd) was its equity oil. It aimed to raise its total overseas production to 50 million tons (1 million bpd) by 2010. Roughly half of this production will be destined for China through its PSCs with other NOCs.
Beijing’s policy is to stand with its NOCs and arm them with the necessary funds. While the West continues to reel from the impacts of the credit crunch, Beijing’s coffers go on filling, albeit at a slower pace, so it can sustain its commodity safaris.
The Chinese are unquestionably taking advantage of the situation and becoming more assertive. Witness the level of courting now taking place in Africa and considerable successes in Iraq of late. Especially witness the latest contract agreements that will result in the Chinese playing a major role in redeveloping assets rendered moribund by war. For example, CNPC, with Total and Petronas, has the Halfaya Field at $1.40 per bbl and a plateau production of 535,000 bpd. CNPC is also engaged in Rumala, having successfully negotiated a larger stake (37%) for itself at BP’s expense (down from 50% to 37%).
Arguably, quite a lot of this activity has happened “under the radar” and apparently at the expense of asset-hungry IOCs. Gross annual deal values are regarded as being modest; however, they are the thin end of a resource-hungry wedge whose population is now past the 1.3 billion mark. They have the rigs, they have their own supply chains, they have struck strategic technology deals calculated to benefit them more than the external parties that they signed with, and they are very fast learners.
MIDDLE EAST FOOTHOLD
What is really striking is how well the Chinese have come through the complex negotiations with Tehran, with CNPC securing two packages thus far and with NOCs generally dominating throughout the complex process, taking advantage of the frosty relations between Tehran and the West. Witness the memorandum of understanding signed in July 2009 between the National Iranian Oil Company (NIOC) and CNPC regarding South Azedegan Field and another agreement that will see Total ejected as operator from South Pars Phase II in favor of CNPC. In the case of South Azedegan, in return for taking a 70% stake, CNPC will fund 90% of the field’s development, which has an estimated price tag of about $2.5 billion. The field is expected to produce about 260,000 bpd of oil—150,000 bpd during the first phase of development and 110,000 bpd during the second phase—from its estimated 42 billion bbl of recoverable reserves.
A third, very fresh Middle East win for the Chinese is Qatar’s decision to grant a 25-year PSC to CNOOC covering Block BC in the Persian Gulf pre-Khuff play. The arrangement calls for drilling three wells at a cost of approximately $100 million as part of the initial five-year exploration period.
This is Qatar’s first deep pre-Khuff exploration and development project, and it is expected to be the precursor of other comparable projects. CNOOC chairman Fu Cheng Yu reportedly indicated future investments of more than $100 million in the play and adjacent acreage, should it be secured.
CHINA IN AFRICA
Africa is of massive interest, and there has been speculation about whether Chinese companies will trump European and US interests in Ghana and Uganda, both of which are attracting huge interest due to spectacular results led variously by Anadarko, Tullow Oil and Heritage Oil.
By far the hottest news is China’s proposal to invest $50 billion to “buy” 6 billion bbl of oil reserves in Nigeria. The Nigerian government also said it was in advanced talks with CNOOC over signing deals on several onshore oil blocks as the state-run company looks to expand its position in Nigeria by securing drilling rights currently “unused” by Western energy firms.
This particular negotiation highlights a very important issue, namely, the tendency for Western companies to amass acreage banks but not necessarily do much with them until pressured by the country concerned. Such terms act as a lever for change where companies are perceived as doing nothing or carrying out insufficient activity. Any Western company stripped of licenses in, say, Africa, is inviting competition from NOCs. There is already a precedent whereby Russian NOC behemoth Gazprom completed a deal with Nigeria that is primed to give it a dominant gas position in West Africa.
In Kenya, CNOOC was granted six PSAs in 2006 that cover Blocks 9, 1, 10A, L2, L3 and L4 in the Anza Basin as well as the Lamu and Mandera Basins. It then sought to farm out its interests to reduce risk, and reached an agreement in July 2008 with the European independent Lundin, which would take a 30% interest in Block 9.
Late October 2009 finally saw CNOOC spud its first exploration well on Block 9 with the intention of making the Boghal-1 well the deepest yet drilled in Kenya. This Anza Basin well is the 32nd so far drilled in the country, which has yet to see a commercial discovery. Expectation is that the well will reach TD late in the first of quarter of 2010.
CHINA IN EURASIA
Eurasia is a very important and geographically convenient target for the Chinese companies. There is a strong affinity, for example, between former Soviet satellites like Kazakhstan and Turkmenistan and Beijing. The net result is that a number of major asset deals and infrastructure projects have been initiated over the past several years, and in some cases completed.
Moreover, the Chinese are seeing results via the drillbit. In 2008, CNPC, through majority-owned PetroKazakhstan, was reported to have made two discoveries in Kazakhstan. CNPC said PetroKazakhstan, operator of the Karaganda and Doshan Blocks onshore Kazakhstan, made the first of two oil and gas finds on the Karaganda Block with its Karabulak-2 exploration well. This well was tested, achieved output rates of some 1,278 boepd, and was considered commercial. On the Doshan concession, the Doshan-14 well was reported to have achieved up to 684.3 boepd with the expectation of improving.
For clarity, CNPC subsidiary PetroChina holds 67% interest in PetroKazakhstan, with Kazakh state-owned Kaz-MunaiGas holding the remaining 33%.
CHINA IN THE AMERICAS
Among the latest news to emerge is that Petroecuador and Sinopec, in joint venture, are planning to develop an onshore Ecuador heavy oil concession. The JV is to jointly develop Block 42 in the Pastaza Province in the eastern part of the country, with Petroecuador holding a 60% interest and Sinopec holding the remaining 40%. The block has proved reserves of 120 million bbl of oil. The JV estimated that about $1 billion will be needed to explore and exploit the resources.
The most intriguing step so far taken in the Americas is for CNOOC to take stakes in four Statoil-operated US Gulf of Mexico fields via a farm-in arrangement covering a portion of development costs. This arrangement marks the first entry into the Gulf by CNOOC. In return for the agreed share of Capex (no figures are yet in the public domain), CNOOC is acquiring a 20% interest in the deepwater Tucker Field, 10% on the deepwater Logan Prospect, 10% in Krakatoa Field, and 10% in the Cobra Prospect. Statoil will remain the operator of all four blocks with varying interests.
In Canada, where there had been a chilly reception toward the notion of Chinese interests buying up oil and gas resources, relations have now thawed. Deals are being done, such as Athabasca Oil Sands Corporation (AOSC) reaching a series of agreements with PetroChina by which it will acquire a 60% working interest in AOSC’s Mackay River and Dover oil sands projects. The target projects are located in the center of the Athabasca area in northeastern Alberta and have been independently assessed to hold, at best case, around 5 billion bbl of contingent bitumen resource.
While this fits the acquisitions category, the key interest is the fact that AOSC recognizes that the Chinese have “world class” experience gained on their home ground. PetroChina uses sophisticated technologies, including various steam-assisted gravity drainage (SAGD) processes and firefloods to produce heavy oil in China.
The plan is that AOSC and PetroChina will use common in situ methods to develop their oil sands projects. The former has filed applications with Alberta’s Energy Resources Conservation Board for approval of two pilot projects within the areas and had intended to file a regulatory application for the first, 35,000-bpd phase of the Mackay River commercial project at the end of 2009.
Staying on the ultra-heavy theme, this time in Venezuela, the Hugo Chavez administration has reached an agreement with the Chinese under which they will plough about $16 billion into the exploration and development of Venezuela’s Orinoco Basin. This is a classic case of East displacing West coupled with NOC replacing IOC. President Chavez indicated that a JV would be set up between Venezuelan NOC Petroleos de Venezuela (PDVSA) and Chinese interests, presumed to be PetroChina, with the objective of producing up to 450,000 bpd of extra heavy crude at peak.
The China deal followed close on the heels of a similar arrangement reached with the Russians and said to be worth up to $20 billion.
HUNGARIAN WANDERER
At the opposite end of the spectrum to the Chinese cadre of NOCs is Hungarian state oil company Magyar Olaj-es Gazipari (MOL). MOL has perhaps been bolder than any other former Soviet satellite state petroleum company when it comes to hunting for resources outside its national borders.
Hungary has slender reserves, and MOL has sought to redress the balance by striking deals and prospecting in other countries, particularly Kazakhstan and Pakistan. In that regard, there have been two pieces of notable recent good news for MOL.
In Pakistan, MOL made a further find on the Northwestern Frontier Province Tal Block 3370-3. MOL is the operator of Tal Block 3370-3 with a 10% interest. Oil & Gas Development Company (OGDC) and Pakistan Petroleum each hold 30% interest, Pakistan Oil Field has 25%, and Government Holding has the remaining 5%.
MOL said it’s the company’s third gas and condensate find on the concession, and that the consortium it leads will be conducting further extended tests to evaluate the size and economic potential of the reserves. Exploration has been carried out in this block since 1999, and significant commercial production has been clearly established. The Mami Khel-1 well is reported to have flowed 8,898 boepd of gas and 2,881 bpd of condensate.
MOL reported in June 2008 that it made a light oil and gas condensate find with its Rozhkovskaya-U-10 exploration well on the Federovskoye Block in Kazakhstan. Production tests in the 4,344–4,365-m interval flowed at 8.24 MMcfd of gas and 1,503 bpd of oil and condensate.
MOL said that the find, which is located in the northwestern part of Kazakhstan on a 2,400-sq-km concession, is not far from the giant Karachaganak gas condensate field.
It’s difficult to escape the long reach of the Chinese, as Sinopec is also a stakeholder in the Federovskoye Block. MOL is the operator with a 27.5% interest, Exploration Ventures Limited holds 50% and Sinopec has the remaining 22.5%.
PETROVIETNAM EXPANDS TO THE AMERICAS
Not exactly a high-profile player on the global stage, Petrovietnam has gained traction and visibility over the past three years or so. This is highlighted by, from the company’s perspective, the lining up of future production in Venezuela and exploration offshore Cuba, plus successful drilling onshore Algeria in 2008.
Mid-2009 saw Petrovietnam reporting that it was establishing a joint venture with PDVSA to develop and produce heavy oil from the Junin-2 Block in the Orinoco Belt. The JV, PetroMacareno, is targeting 200,000 bpd of heavy and extra-heavy oil from the block, which will then be processed into light crude oil to supply to an oil refinery in Vietnam. Petrovietnam’s interest is 40%.
A second JV is under negotiation, this time covering development of oil fields in Lake Maracaibo. The two companies jointly carried out studies for Lake Maracaibo field developments over the past two years that focus on Centro Lago, Lagomar and Lagomedio Fields.
In 2007, Petrovietnam signed an agreement to team with Cuban government-owned Cupet and pursue a number of offshore exploration opportunities. Significant progress has been made, including 2D seismic survey work carried out in 2008. The latest step is that Russian company Zarubezhneft has farmed in with Petrovietnam in a reciprocal agreement that will cover activities in Vietnam.
Petrovietnam holds four deepwater blocks off Cuba’s northwestern coast in the Gulf of Mexico—Blocks N30, N31, N42 and N43—where previous non-commercial discoveries of light oil have been made. Estimates are that the North Cuba Basin may contain around 4.6 billion bbl of oil and 1.0 Tcf of natural gas.
POLISHED PETROBRAS
Petrobras, a hybrid (the Brazilian government holds 32%), is similarly becoming increasingly active outside territorial waters, despite possessing a considerable domestic reserves base.
The latest example of its international work, and among the most important to date, is an ultra-deepwater discovery offshore Angola on Block 18/06 in the Baixo Congo Basin. Sonangol is the concessionaire of the block, with Petrobras serving as operator of the Manganes-01 discovery well with a 30% interest. Sinopec International holds 40%, Sonangol P&P 20%, Geminas 5% and Falcon Oil 5%.
In May 2009, Petrobras farmed into a 50% interest in exploration Block 2714A, located offshore southern Namibia. In exchange, Petrobras will initially pay Chariot $16 million, which includes the cash consideration and past costs including reimbursement for 1,000 m of recently acquired 3D seismic over the block.
Petrobras is also active in the lightly explored Black Sea, working the deepwater Turkey sector in partnership with Turkish Petroleum Corporation (TPAO). Petrobras began oil production activities in Turkey in February 2006 after successfully bidding to operate in two blocks in the Black Sea. As a result, Petrobras and TPAO signed operating agreements giving each company a 50% interest in Blocks 3920 (Kirklareli) and 3922 (Sinop).
TPAO sees the Black Sea yielding as much as 10 billion bbl of oil and 1.5 Tcm of natural gas.
In the US Gulf of Mexico, Petrobras is bent on becoming a major deepwater player. This is abundantly clear from its high bids of about $179 million for 22 blocks in Lease Sale 206 in 2008. In October 2007, Petrobras was the high bidder for 26 deepwater and ultra-deepwater blocks.
The seriousness of its intent is also illustrated by the fact that its planned investment in US properties during 2008–2012 is about $4.9 billion for exploration, production and refining activities. The goal is to produce 130,000 bpd of oil by 2013.
Today, Petrobras holds stakes in four of the most important US Gulf discoveries made in the Lower Tertiary reservoirs in the Cascade, Chinook, Saint Malo and Stones prospects in the Walker Ridge area. The Cascade and Chinook fields are at an advanced stage of development and will be exploited using the first FPSO in the US Gulf. First oil is anticipated in June 2010.
THE EUROPEAN CHAMELEONS
Eni and Statoil are hybrids with growing international portfolios. The Italian group has been especially active over the past couple of years and seems to have an ability to pull off deals where many other companies fail. One question as 2009 gave way to 2010 was whether Eni would enter Uganda via buying Heritage Oil’s interests. However, the Italian major was thwarted when Tullow Oil played its pre-emption card. Eni (as well as many others) is also linked with bidding for the Kosmos Energy interest in the large Jubilee project offshore Ghana, currently in development.
Eni is accustomed to working with Statoil in a relationship that generates results, the most recent of which was declared in October 2009, namely a significant discovery offshore Angola with the Cabaca Norte-1 exploration well. The well flowed 6,500 boepd during production tests.
Tim Dodson, Statoil’s global exploration senior vice president, said further wells would be drilled in the Cabaca Norte-1 locale in order to accelerate the development of a second production hub on the block to be named the Northeastern Hub. The first production hub, the Northwestern Hub located between the Sangos and N’Goma wells, is currently in pre-development, and evaluation studies and related activities are underway.
Offshore India, Eni continues exploration efforts on concessions around the Andaman and Nicobar Islands on Block AN-DWN-2003/2. In 2008, Eni submitted an application to the Ministry of Energy and Natural Resources to drill three exploration wells on the block. The drilling would be carried out in deepwater locations in the southeastern Andaman Sea, with the first well to be spudded approximately 120 km from the Great Nicobar Island.
In November 2009, it emerged that Eni was preparing to submit a 10-month extension request to the Directorate General of Hydrocarbons (DGH) covering the Andaman and Nicobar area. It was reported then that Eni would likely file for an extension under the Phase-I work program to drill the first well in the block. Eni has cited the lack of environmental clearance as the main reason for falling short of its work program on AN-DWN-2003/2.
Eni is the operator of the block with 40% interest in partnership with Oil and Natural Gas Corporation (ONGC) holding 45% and the Gas Authority of India Ltd. (GAIL) holding the remaining 15%. Drillship Saipem 10,000, which can operate at water depths up to 3,000 m (10,000 ft), is expected to drill the well.
Eni has also been plugging away in Africa for a considerable period. In May 2008, the company said it had found and would be developing a major oil sands deposit in the Republic of Congo that it estimates contains between 500 million and 2.5 billion bbl of recoverable oil. Eni said then that it had reached an agreement for the exploration and exploitation of non-conventional oil in tar sands in the Tchikatanga and Tchikatanga-Makola permit areas of Kouilou Department from two blocks covering a total of 1,790 sq km that show enormous potential. Further, according to preliminary studies undertaken on just a 100-sq-km area, recoverable reserves may prove to be far more than the initial estimates.
Eni outlined a $3 billon development program aimed at producing 150,000 boepd and expects to utilize its proprietary Eni Slurry Technology (EST) for improving the quality of heavy oil produced. The project is also expected to benefit from synergies resulting from the close proximity of M’Boundi Field.
A third example of recent success for Eni is a major natural gas find made in the Gulf of Venezuela on the Cardon IV Block with the Perla-IX probe. In October 2009, Repsol YPF, Eni’s partner in the concession, said that the Perla discovery held reserves in the range 5.6–7.8 Tcf, making it the largest gas discovery in the country’s history and probably one of the top five gas discoveries in the world for 2009. The well flowed 20 MMcfd of gas with 620 bpd of condensate.
Eni and Repsol each hold a 50% interest during the exploration and appraisal phase. This will be reduced at the development phase when PDVSA will assume 35%, leaving Repsol and Eni with 32.5% each. According to PDVSA, the plan is to produce the discovery in the range of 600–800 MMcfd.
Statoil announced in 2009 that exploration activities would commence on the Karama Block offshore Sulawesi in the Makassar Strait during 2010. Pertamina, itself an active NOC on the global stage, said the partners were conducting seismic surveys over the concession area in preparation for the drilling of the first exploration well on the block. That well is predicted to cost about $25 million to drill and the prize is estimated at some 200 million bbl of oil. Statoil is the operator of the Karama Block with 51%, with Pertamina holding the remaining 49%.
Statoil has also been successful onshore during 2009, notably with a gas discovery made in Algeria with its Tinerkouk-2 exploration/appraisal well drilled in the Timimoun Basin on the Hassi Mouina Block. TNK-2 is the sixth positive well drilled by Statoil and partner Sonatrach on the license.
MALAYSIAN NOC BOOSTS GLOBAL PRESENCE
Malaysian NOC Petronas Carigali has been ramping up its global content over the past decade or so. International operations have grown from 35% in 2005 to about 42% today. The prime example of success in 2009 is the negotiation of a JV with Shell for Iraq’s giant Majnoon Field contract. This technical assistance contract for developing the 12.8 billion-bbl field is subject to ratification by the Iraqi authorities. The consortium bid a plateau production of 1.8 million bpd of oil, up from a current level of approximately 45,000 bpd.
Petronas is also involved in the Halfaya Field contract, with CNPC operating the project with a 50% interest, and Total and Petronas each holding 25%. They had bid a plateau production target of 535,000 bpd from the present 3,000 bpd.
Elsewhere, Petronas indicated in October 2009 that it was drilling the first of three Timor Leste wells on Block 06-102. The wells are to test the hydrocarbon potential of prospects in the Jurassic sandstone located in the Elang-Plover Formation. Petronas was awarded the block in late 2006, following the country’s inaugural licensing round, and is the operator of the block and the three exploration wells.
In the Atlantic Basin, Petronas is actively engaged in exploration offshore Mauritania, where the high hopes of Woodside Petroleum and others were severely dented less than 10 years ago, to the point that Woodside is no longer active there.
Heavy reliance is being placed on Petronas to realize the still young and lightly explored province’s potential, with priority on making sense of the modest existing portfolio of discoveries, including the gas find Banda made under Woodside. Late 2008 saw Petronas make a success of its Banda East-1B appraisal well.
Since then, things have gone rather quiet in the Mauritania sector, though it has been reported that Petronas is keenly lobbying the sub-Saharan state’s government in order to remain the operator of the A and B license areas.
Showing the versatility of Petronas and, for that matter, Eni, a major gas discovery was made in Pakistan’s Sindh Province during 2008. The find was made on the Mubarak Concession Block 2769-4, in the southeastern sector of the province.
Saqib-1A was drilled to a total depth of 3,780 m (12,402 ft) at a location not far from the joint venture’s first field discovery in the country, Rehmat Field, which today produces some 15 MMcfd. The well flowed 25 MMcfd of natural gas, along with 60 bpd of condensate.
On last inspection, the partners were evaluating the discovery for the most suitable development plan. Expectation was that it would feed the Sui Northern Gas Company with output via the Sawan-Qadirpur pipeline to the Rehmat plant in Ghotki.
Petronas holds a 57% interest in the Mubarak Block, Eni has 38%, and Pakistan’s Government Holding Private Limited (GHPL) has the remaining 5%. 
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THE AUTHOR
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Jeremy Cresswell is Editor of Energy in Aberdeen. He is an honorary professor at Aberdeen Business School at the Robert Gordon University and an honorary research fellow at Aberdeen University’s School of Geoscience.
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