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Investment Opportunities in the Marginal Oil & Gas Fields in Southeast Asia : High Crude Oil Prices and Better Project Financing Schemes Likely to Drive Investments

  • November 2014
  • 89 pages
  • Frost & Sullivan
Report ID: 2470304

Summary

Table of Contents

Executive Summary

•The total revenue potential from marginal fields in Southeast Asia is estimated to be $x trillion driven mainly by high oil and gas prices and advancements in technology.
•At the recently held ‘Offshore Technology Conference Asia 2014’ in Malaysia, the country’s Prime Minister mentioned that the global upstream expenditure in the oil and gas sector has been estimated at $x billion over the next decade, out of which x% will occur in Southeast Asia.
•About x% of the active fields in Southeast Asia are mobile offshore production unit (MOPU) developments. Moreover, x% of the fields under development will employ MOPUs.
•In deep water, satellite fields with subsea producers are repeatedly tied to MOPUs, especially in later stages of the projects. Southeast Asia accounts for x% of global developments by MOPUs.
•Fixed platforms will remain more common in Asia, given that there is a push to develop marginal Malaysian fields. However, as more fields are developed, more complex types of platforms will come into use, which will also benefit equipment suppliers.
•Oil price plays an important role in the decision to develop marginal fields. It is economical to exploit marginal fields when oil prices are above $x per barrel.

Marginal Fields Overview
Definition: Any hydrocarbon bearing field that is not economically viable for development at a given time is termed a marginal field. Should technical or economic conditions change, such a field may become commercial*. The definition of “marginal” depends on a mixture of technical, commercial, and regulatory issues, but it is also often related to the size of an individual company portfolio.
Generally, hydrocarbon bearing fields with reserves less than xmillion barrel of oil equivalent (boe) that may not produce enough net income if developed by deploying conventional infrastructure and solutions are considered marginal fields. Certain fields even with xmillion boe reserves may not be developed if they are not economically viable. These fields would also be termed marginal. However, with increasing oil prices and technical development, most “marginal” fields are becoming commercial.
The two important considerations for marginal field investors are:
•Project Cost Requirements
•Net Present Value (NPV) Calculations
Investing companies examine whether the cost of extraction is higher than the perceived returns in the current economic environment to determine if a discovery is commercial. Often fields do not meet requirements and are not developed. This leaves many millions of barrels of oil untapped all over the world.
*Commercial Field: An oil or natural gas field that under existing economic and operating conditions, is judged to be capable of generating enough revenues to exceed the costs of development.

Legislative Drivers for Development of Marginal Fields

Marginal fields have become important issues for oil and gas producing countries. Legislation plays an important role in the development of marginal fields in a country. If the economic burden is lowered, some previously non-commercial fields can become viable projects and additional production can be realised.
Legislation and incentives for development of marginal fields include tax holidays, reinvestment incentives, and sliding scale royalties.
A country generally adopts two approaches to develop marginal fields:
•Improving the fiscal structure
•Opening up previously unavailable acreage
Major international oil companies do not favour legislation mandating marginal field development as they do not see significant upside to marginal accumulations. Thus, they generally do not find it worthwhile to invest in smaller fields and this paves the way for smaller, niche oil companies and new entrants. Smaller, niche oil and gas companies with expertise in field evaluation, principally in geology, geophysics, reservoir engineering, and drilling, find investing in marginal oilfields attractive. New entrants in the oil and gas industry consider investing in marginal fields as the investment required and the associated risks are modest in comparison to larger fields.

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