April 16, 2012

Asian Oil Companies Need to Focus on Deepwater Areas

Asia's national oil companies need to shift their exploration focus towards oil sands, unconventionals, LNG and deepwater areas if they want to maintain their long-term oil and gas production growth prospects, consultancy Wood Mackenzie said Thursday.

"Asian company portfolio value remains heavily inclined towards maturing conventional assets," said Norman Valentine, senior corporate analyst for Wood Mackenzie.

"They are under-exposed to international growth resource themes like oil sands, unconventionals, LNG and deepwater assets. They remain underweight in net present value terms and have weaker production growth prospects compared with international majors in these areas."

Declining production from maturing fields has been a problem for nearly every significant oil producer in Asia, including Indonesia, Malaysia, Thailand and Vietnam. Woodmac said it will be important for these countries and other Asia producers to turn to the new "resource themes" since production from such assets could meet as much as 45% of daily global oil demand in 2030.

Global oil demand will be about 110 million b/d in 2030, mainly driven by demand from Asian economies, Woodmac said, while output from oil sands, unconventionals and deepwater could account for 50 million b/d of global supply by that same year.

Currently, however, "conventional assets in Asia currently make up 70% of Asian company portfolios and will still make up 60% of their portfolio value by 2017," Woodmac said. "In contrast, the international majors already have a majority 55% of current portfolio value focused on international growth resource themes and this will increase to 65% by 2017."

While Asia's large national oil companies have been employing a multi-pronged approach to portfolio development, exploration is going to be increasingly vital to winning access to resources as well as potentially attractive financial returns.

"They have started to undertake M&A, discovered resource opportunity access, exploration, joint ventures and strategic partnerships. [And] in the near-term, M&A activity will remain at the forefront of international expansion," Valentine said.

Exploration can't be forgotten, however, since over the last ten years, it "has proven to be a highlight of the global upstream business with a profitable full-cycle return of an estimated 18% under the oil price assumption of $80/barrel," Woodmac said.

While some producers such as China's Sinopec Group and CNOOC have increased their exposure to deepwater exploration, Asian companies "are generally under-represented in many proven deepwater plays such as the Gulf of Mexico, West Africa, Australia and Egypt; as well as in new frontier provinces such as the West Africa pre-salt, Atlantic transform margin and East Africa deepwater," Valentine said.

"This reflects their relatively early stage of internationalization and tendency for risk-aversion. Many have not yet accessed high impact but high-cost and technically challenging exploration provinces to the same extent as their international peers," he said.
Source: Platts

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