August 12, 1992

Article at Reuters

Western firms seek oil finds to rival Middle East

By Wilson da Silva

SYDNEY – Western petroleum geologists agree on one thing – the world desperately needs elephants.

In the geologists’ lexicon this means big oil finds, and geologists at an international conference in Sydney last week said the world needs new fields to rival the politically volatile Middle East.

One candidate is the former Soviet Union, but prospects also exist across Asia and the Pacific.

“For the several hundreds of billions of barrels, the Commonwealth of Independent States is the place,” said associate director David Falvey of Australia’s respected Bureau of Mineral Resources exploration research agency.

“For the tens of billions of barrels, that’s when you look at the Far East and the Pacific,” he said.

Possibilities in the region are the Timor Sea, offshore Vietnam, the southern highlands of Papua New Guinea, eastern Indonesia, the North West Shelf off Australia, and regions of the South China Sea, including the much-disputed Spratly Islands.

Western companies say investing in the Commonwealth – where the best “elephant” candidates lie – carries some political risk as the region is unstable following the collapse of the Soviet Union. But the potential payoffs are too large.

“Many companies cannot afford not to play that game in case the economic situation betters,” said Leslie Beddoes, vice-president of exploration for Canada’s Bow Valley Industries Ltd.

“You’re talking about something that could rival the Middle East,” he said. “To get a piece of some of those fields....”

Chevron Corp of the United States has been one of the companies to make the leap. In May it announced a US$20 billion joint venture with the Kazakhstan government to develop one of the world’s biggest oil fields in the former Soviet republic.

The Tengiz area oilfields produce 60,000 barrels a day but have potential for output of 700,000 barrels in a decade. Kazakhstan needs better technology to exploit the basin as many reservoirs are under high pressure or riddled with deadly hydrogen sulphur gas.

“Everybody’s looking for ‘elephants’,” said Scott Prior of Arco International of the United States. “Your profit per barrel is going to be higher. But your chances are one in 100 of success (in big finds) compared with one in 10 of finding anything.”

Geologists at the conference of the American Association of Petroleum Geologists, an international group despite its name, said the world had to break the stranglehold of the Middle East on the world’s oil supply.

By relying on the Middle East, the world was placing all its eggs in one politically volatile basket. The rollercoaster ride of oil prices during the Gulf War showed how essential it was to find other major oilfields, geologists said.

“A single source for oil adds instability – the more oil in different areas we can come up with the better,” said Beddoes.

Importing nations have now been trying to diversify their supply, geologists said. And Western companies, largely locked out of the Middle East, are obliging.

But the geologists buttoned up when asked about the Spratlys, a low-lying archipelago in the South China Sea suspected of being rich in oil and natural gas.

The islands lie between rich or potentially rich fields in Brunei, China, Vietnam, the Philippines and Malaysia. But they are all or partly claimed by the five nations and Taiwan.

The Spratlys are a potential flashpoint – five of the nations keep troops there and warning shots have been fired at passing ships. But its potential for an ‘elephant’ keeps oil firms interested, and silent lest they antagonise any side.

“There are significant oil provinces in the South China Sea,” said Falvey, the only geologist to venture a comment. “I’d hesitate to say it’s a hot region, but it’s definitely warming up. But you can’t say until you drill a hole into it.”

Both China and Vietnam recently granted exploration contracts there, creating conflict at a meeting last month of the Association of Southeast Asian Nations, which includes many of the claimants.