Thailand Rewards Ready for Reaping

Patience, Cooperation Pay Off

Development is under way in the Gulf of Thailand on a giant gas field that's a testament to patience, compromise, perseverance and vision; two small countries and one independent oil company are set to reap the rewards of a project that started in the early 1970s.

Triton Energy, a U.S. independent focused entirely on international ventures, has long used the strategy of identifying new prospective exploration trends and remaining committed to those concepts.

That's never been truer than in the Gulf of Thailand.

Nearly 30 years ago the offshore region on the Malaysia and Thailand border was a disputed area, and both countries awarded the acreage to different companies: The Malaysian acreage was held by Exxon, and Thailand awarded one block to Triton and two to BP.

Exploration under these contracts commenced, with Triton drilling a dry hole and BP and Exxon making sub-commercial gas-condensate discoveries.

"BP and Exxon subsequently relinquished their rights because in the 1970s the focus was primarily on oil exploration -- gas was regarded as having little value," said Brian Maxted, senior vice president of exploration for Triton.

"Plus, there was a limited amount of infrastructure in the area."

Triton maintained its rights to Block 18, but since hydrocarbons had been discovered in a disputed area both governments enforced a moratorium on further exploration activity until resolution could be found for the dual claims.

By 1979 the two countries agreed to develop the acreage jointly, and the Malaysia-Thailand Joint Development Area was established with a 50-year term. The area was still a disputed region, but both governments agreed to jointly exploit the resources of the acreage.

Even though the joint development agreement was reached relatively quickly, it took the two countries another 10 years to formalize the future production sharing contracts.

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Development is under way in the Gulf of Thailand on a giant gas field that's a testament to patience, compromise, perseverance and vision; two small countries and one independent oil company are set to reap the rewards of a project that started in the early 1970s.

Triton Energy, a U.S. independent focused entirely on international ventures, has long used the strategy of identifying new prospective exploration trends and remaining committed to those concepts.

That's never been truer than in the Gulf of Thailand.

Nearly 30 years ago the offshore region on the Malaysia and Thailand border was a disputed area, and both countries awarded the acreage to different companies: The Malaysian acreage was held by Exxon, and Thailand awarded one block to Triton and two to BP.

Exploration under these contracts commenced, with Triton drilling a dry hole and BP and Exxon making sub-commercial gas-condensate discoveries.

"BP and Exxon subsequently relinquished their rights because in the 1970s the focus was primarily on oil exploration -- gas was regarded as having little value," said Brian Maxted, senior vice president of exploration for Triton.

"Plus, there was a limited amount of infrastructure in the area."

Triton maintained its rights to Block 18, but since hydrocarbons had been discovered in a disputed area both governments enforced a moratorium on further exploration activity until resolution could be found for the dual claims.

By 1979 the two countries agreed to develop the acreage jointly, and the Malaysia-Thailand Joint Development Area was established with a 50-year term. The area was still a disputed region, but both governments agreed to jointly exploit the resources of the acreage.

Even though the joint development agreement was reached relatively quickly, it took the two countries another 10 years to formalize the future production sharing contracts.

"The concept of a joint development area had never been considered before anywhere in the world," Maxted said. "This was the first time two governments were able to reach an agreement to allow for exploitation of natural resources in a disputed area."

Block Party

Even 20 years ago natural gas was beginning to emerge as a fuel of choice, especially for power generation, and with the rates of economic growth both countries were experiencing the governments saw a huge future need for natural gas reserves.

"It made a lot of sense to set aside the territorial claim and reach an agreement that would allow for early development of gas resources in the area," Maxted said. "The compromising nature of both the Malays and the Thais was essential to this agreement. Both recognized the economic benefits of a compromise over a political standoff that wouldn't benefit anyone."

During the years of negotiation Triton developed strong ties and contacts within both countries and provided technical assistance to both parties. Those ties proved very important.

"We don't have a business card with a well-known brand name on it, so our future relationship with the host governments was very much dependent on our ability to develop a good understanding and working relationship," Maxted said.

"The Gulf of Thailand is a platform asset for Triton," he continued, "a long-term asset that will provide significant cash flow for an extended period and provide the resources to grow the company through other projects, particularly our offshore West Africa operations."

The three divisional blocks that had previously existed were maintained under the Joint Development Area agreement. Blocks C19 and B17 were open acreage from both sides of the border, so that acreage was awarded on a 50-50 basis to PETRONAS, the Malaysian state oil company, and the Petroleum Authority of Thailand, the Thai state company. Since Triton had maintained its 100 percent rights to Block A18 jointly with the Thais, the firm was permitted to enter into a joint venture with PETRONAS on a 50-50 basis.

It wasn't until 1994 that Triton signed a production sharing contract and exploration once again commenced -- 20-plus years after the first wells were drilled.

"Triton's vision was that one day there would be a significant market for gas as an energy source in the region, particularly for power generation," Maxted said. "There had been discoveries to the north of this area in Thailand by Unocal and other companies. As those developments came on line a gas market did begin to emerge.

"Of course, Triton never dreamed it would take another 20 years," he added, "but the company realized there was a significant gas resource in the disputed area and the only issue was a market.

"The technical risks of this project were relatively low since the gas discoveries in that first round of drilling had proved the hydrocarbon potential. It was basically a commercialization risk."

No Dry Holes

After the production sharing contract was signed , Triton and PETRONAS set up a joint operating company called Carigali-Triton Operating Co. (CTOC), based in Kuala Lumpur, that is the E&P arm of PETRONAS.

CTOC acquired an extensive 5,000-kilometer 2-D seismic program over the block in 1994, and one year later kicked off its exploration program. To date, 16 wells have been drilled on Block A19 with no dry holes; there were eight discoveries, and the remaining eight were appraisal wells.

"The geology is relatively simple and the geophysical imaging is quite good, so the exploration risk is minimal," Maxted said.

Based on the eight discoveries, the block's gross potential resource base is 10 to 12 trillion cubic feet of gas, making Block A18 one of the largest gas discoveries worldwide in the 1990s -- and one of Triton's core assets.

A development plan for the first discovery, the Cakerawala Field, was submitted and approved in 1996. The field is expected to come on line by the end of 2002 and have a 20-year life.

Block A18 covers about 731,000 acres and is about 30 kilometers offshore in 180 to 200 feet of water, with pay zones found at 5,000 to 6,000 feet. The development plan is a straightforward Gulf of Mexico type, he said, with three wellhead platforms, a living-quarters platform, a processing platform with facilities for gas production, a riser/compression platform, a floating storage and offloading vessel and 35 development wells.

In addition, the world's largest offshore CO2 removal plant will be included.

Reserves for this first phase development on Block A18 are approximately 2.5 trillion cubic feet of gas. A pipeline will connect the field to Songkhla, Thailand, and a contract has been reached to sell the first phase gas to Malaysia for power generation. The first phase development costs will be approximately $500 million.

Production from this first phase of development in Block A18 is expected to be 390 million cubic feet of gas per day. No firm date has been set for phases two and three in Block A18, although both are planned for this decade.

"The timing of future developments is dependent on the availability of markets," Maxted said, "and finalizing negotiations for additional gas supply to Thailand and Malaysia.

High Hopes for Tomorrow

Maxted said Triton is very optimistic about the future of the gas markets in Malaysia and Thailand.

"It's really a question of timing and having the patience to wait out future contract negotiations," he said. "There's quite of bit of gas in this part of Asia, but one of the things that makes this gas project unique is the competitive nature of the situation. Both Thailand and Malaysia have a policy of preserving their own strategic reserves and see the Joint Development Area as an obvious secure gas supply that allows them to preserve their own sovereign gas resources."

Of course, a project of this magnitude is an enormous undertaking for a company Triton's size. So, in 1998 the company accepted an offer by Arco for 25 percent of Triton's gross working interest in the Joint Development Area.

Under the terms of the agreement Arco paid Triton a bonus of $150 million, picked up the historical costs of the project and provided a carry through to first gas or costs up to $377 million, whichever comes first. BP has since inherited the deal through its acquisition of Arco.

"Bringing in a partner like Arco was an important step," Maxted said. "At this time Triton does not have any expense toward development of the first phase gas, which makes this a very valuable deal for us. Arco was looking to develop a long-term position in Asian gas. Today BP-Amoco has significant reserves in Indonesia, Tango and other areas. The Joint Development Area is strategic for both companies."

The Joint Development Area has some future exploration potential as well.

"The low hanging fruit has been taken off the tree, but we are drilling a couple of exploration wells later this year to test some stratigraphic plays along the basin flank," he said. "The structural potential has largely been drilled and tested, but 3-D seismic over about half the block has indicated some stratigraphic prospects and the possibility of some oil production.

"Obviously, we could exploit any oil finds along the flank of the Malay Basin relatively quickly."