Unocal to lead deepwater oil and gas development

Unocal to lead deepwater oil and gas development

By Johannes Simbolon

JAKARTA (JP): Oil and gas company Unocal Indonesia Company, a
subsidiary of the giant United States energy company Unocal
Corp., is set to put itself in the position of leader in
developing the country's oil and gas deepwater resources.

Last year, the company impressed the country's oil and gas
industry, which had rarely seen a huge oil discovery over the
past decade, with its combined oil and gas discovery in the Merah
Besar field of the Kutai basin in the deep water of the Makassar
Straits.

It announced a similar huge discovery in its Seno field of the
same block in August this year.

The block is operated and 50 percent owned by Unocal and the
remaining 50 percent shares belong to the Mobil Oil Indonesia
Inc, a subsidiary of the U.S. energy giant Mobil Oil Corp.

The water in the Merah Besar field is less than 2000 feet (600
meters) and at Seno 3000 feet (1000 meters) deep.

This year, Unocal signed three other production-sharing
contracts (PSC) for the exploration and development of oil and
gas resources in the deepwater areas off East Kalimantan and
South Sulawesi.

It signed two of the three deepwater PSCs last Monday, that is
for the development of the 7,957 square kilometer Sangkarang
block and the 10,268 square kilometer Lompa Block, both offshore
South Sulawesi. These blocks, which have water to depths of 3000
feet, are wholly owned by the company.

Another PSC was signed by the company in February for the
exploration of the 5,050 square kilometer Ganal block also in the
Makassar Straits.

The Ganal block is 90 percent owned by Unocal and 10 percent
by the Nusamba group. But the company is currently seeking to
take over Nusamba's shares.

Unocal Indonesia president Timothy C. Lauer admitted the
company's leading position in the development of the country's
oil and gas resource but denied it would focus on developing the
country's deepwater oil and gas resource.

"First thing, we focus on the geological values of the block,
how good are they, and the chances of finding oil and gas."

"But, when we can use our technology, particularly our
deepwater Saturation Exploration (SX) type drilling technology,
we want to leverage that. Because we can drill wells very cheaply
compared to the rest of the industry," Lauer told The Jakarta
Post on Monday on the sidelines of the ceremony to sign ten oil
and gas contracts, including Unocal's contracts, at state oil and
gas company Pertamina's headquarters.

The government launched several incentive packages from 1988
to 1993 to encourage the exploration of the country's oil and gas
resources in deepwater and frontier areas and the use of tertiary
enhanced oil recovery (EOR) technology in mature fields in light
of the dwindling reserves in the productive wells in conventional
areas.

The country's oil and gas resources were estimated at 73.3
billion barrels of oil and 307.95 trillion cubic feet of natural
gas as of last year. The resources are buried in 60 sedimentary
basins, of which only 36 have been explored.

Net importer

International oil consultancy firm Wood McKenzie has predicted
that Indonesia is likely to become a net oil importer in the
middle of the next decade, given the lack of oil discovery over
the past decade and continued growth in domestic demand.

The country's oil production has remained 1.5 million barrels
per day (bpd) over the past several years but its exports
continued to decline to 600,000 bpd to last year due to the
growth of domestic demand.

McKenzie predicted that in 2006 Indonesia will turn into a net
oil importer when the domestic consumption reaches 1.2 million
bpd.

President of the United States-based Unocal Corp. John F. Imle
recently said that Unocal's discoveries in the Merah Besar and
Seno fields will refute the prediction.

"Industry observers predict that Indonesia will become a net
oil importer by the middle of next decade. Hopefully, the new
deepwater 'oil boom' -- when it occurs -- will push Indonesia's
status as a net oil importer much further into the future," Imle
said during the last month's 26th Indonesian Petroleum
Association (IPA) Convention.

According to him, the Merah Besar and Seno fields have a
combined gross resource potential of between 300 and 870 million
barrels of oil equivalent.

Pertamina's expert staffer Zuhdi Pane said on Friday during
the Indonesia Forum business conference that Unocal's Makassar
Straits block will become the country's oil production center in
the coming 10 years aside from the oil blocks in the province of
Riau owned by PT Caltex Pacific Indonesia, a joint venture of the
U.S. giant energy companies Chevron and Texaco.

Lauer said Unocal will start developing its Merah Besar and
Seno fields by 2001.

Lauer said the company will invest above US$800 million to
develop both fields, including $275 million for the Merah Besar
field.

He said Unocal expects to file with Pertamina its plan of
development for the Merah Besar field before the end of the year
and it plans to finish delineation of the Seno field this year.

According to Lauer, the company has set up two teams in the
U.S. and Indonesia, which include Pertamina and Unocal engineers,
to develop the deepwater facilities which will enable the company
to exploit petroleum in both fields at a relatively low cost. Two
Pertamina engineers will go to the U.S. in December for that
purpose.

"Even at today's prices (of between $12 and $14 per barrel),
we think we can develop these fields economically," Lauer said.

Unocal entered Indonesia in 1968 with the signing of its first
PSC contract for the development of the West Pasir onshore and
offshore block in East Kalimantan. The company extended its
contract on the block last month.

The company also operates and owns a 60 stake in the Teweh
onshore block in Central Kalimantan, wholly owns the Sesulu
offshore block in East Kalimantan.

It has also 90 percent shares in the Rapak deepwater block
offshore in the Makassar Straits in a partnership with the
Nusamba group, but it is seeking to take over Nusamba's shares.

According to Pertamina data, Unocal produced 95,690 bpd of oil
last year making it the country's fourth largest oil producer. It
is also the fifth largest natural gas producer with an output of
327 million cubic feet per day.