Singapore: Asia is emerging as the most proactive region in trying to lure oil and gas companies, offering more exploration acreage than any other continent as it moves to get its share of the high price bonanza.
With galloping oil consumption at a third of the world’s total demand, Asian countries are launching upstream auctions at a pace unmatched elsewhere, a Reuters survey of global licensing rounds shows.
The efforts, some of which have faltered, underscore some analysts’ views that Asia has a large share of undiscovered oil to yield, but also highlights the increasingly closed attitudes of oil-rich nations elsewhere, forcing firms to reconsider a region some gave up decades ago.
“Asia is fully on board with the strategy of attracting foreign risk investment capital to exploit its resources,” said Michael Smith, chief executive officer of forecasting firm Energyfiles.
A Reuters poll of upstream rounds shows Asian countries with 11 rounds ongoing or in the pipeline for this year, more than double the number of rounds for Africa, for instance.
Their strategy contrasts with that of top resource holders such as Saudi Arabia, whose oilfields are off limits to foreign investors, and with nations such as Venezuela, which stripped major Western companies of control over huge projects this month.
Hyperactive: A Reuters poll of upstream auction rounds shows Asian countries with 11 rounds ongoing or in the pipeline for this year, are more than double the number of rounds for Africa.
“For a successful bid round, you first need to have prospective acreage, which is potentially commercially viable given the terms and conditions of the countries’ minerals and hydrocarbon management system,” says Bob Fryklund, vice-president of industrial relations for upstream consultancy IHS Inc.
Companies will scrutinize the exploration programmes and signature bonuses requested, as well as production splits with the government in case of successful discoveries.
“Secondly, the procedure must be clear, transparent and understandable,” Fryklund added.
Asian countries are hoping to attract revenues and develop their own resources by marketing their potential actively.
Consultancy Wood Mackenzie forecasts that overall production from Asia-Pacific will decline over the next 20 years from some eight million barrels per day (bpd)—about 10% of the world’s total—to below six million bpd.
But even the lower figure requires additional discoveries to replace dwindling fields.
The US Geological Survey had estimated that by 1 January 2006, there were about 20 billion barrels of undiscovered conventional liquids in Asia- Pacific.
According to Wood Mackenzie’s global study of countries and basins where it expects new discoveries, some 28% of Asia-Pacific’s oil production in 2025 will be from new fields.
“There is going to be a lot of activity to get to these numbers,” says James Dyer, regional director, Asia-Pacific and Middle East, for Wood Mackenzie.
Licensing rounds work especially well for underexplored nations that need to put their country on the world oil map.
East Timor, independent since 2002, organized a first licensing round last year, awarding blocks to India’s Reliance and Italy’s Eni.
Even international oil companies have begun to take notice, despite a past aversion to such open, public offers.
“International oil companies actually prefer not to participate in bid rounds, as like most open auctions, there is a tendency to overbid,” IHS’s Fryklund said.
Indonesia, OPEC’s only Asia-Pacific member and once a major exporter, has been a net crude importer on a monthly basis on several occasions since 2005, and has been issuing regular licensing rounds as it attempts to halt declining production.
It awarded nine blocks in March to major oil companies Exxon Mobil Corp., France’s Total SA and Canada’s Talisman Energy Inc. in its latest round.
But launching a round is neither a sure formula for success, nor a huge money-spinner in itself, for Asian governments.
Papua New Guinea, which this year closed its first oil and gas exploration round in six years, failed to attract much interest despite improved tax terms and several roadshows.
A change of energy minister last year, disputes regarding outstanding applications over some of the blocks on offer and a national election planned for later this year helped explain the low interest in the round, a senior official said.
“It is not a one-stop shop and terms are crucial,” said Energyfiles’ Smith.
Companies will look at oil potential, exploration maturity, availability of the gas infrastructure and open acreage, as well as the government’s attitude to foreign investment.
Income from signature bonus—pre-payment to governments for the rights to develop an exploration area—has been patchy.
Consultants say while signature bonus for Indonesian blocks have risen fivefold to around $5 million in the past few years, they remain short of more prospective areas.
In contrast, Angola raked in more than $3.1 billion (Rs14,260 crore then) in signature bonuses last year.