Still sunny, but clouds are brewing Glut of newbuild deliveries, falling oil prices cast shadows on otherwise positive Asia Pacific outlook By Astro Wynne, Contmaurinc Eoiror projects in Australia, a focus on maximizing domestic resources in Indonesia and Malaysia, and new bidding rounds announced in Myanmar, Thailand and the Philippines, the region’s long-term outlook Is strong. Still, current uncer- tainty around the oil price is casting doubt over how many projects will go ahead in 2015, as well as how dayrates and con- tract lengths will be affected. And as in other drilling markets around the world, companies in the Asta Pacifie are looking to technological solutions to mitigate costs for both brownfields and deeper water In this article, representatives from UMW Oil & Gas, PetroVietnam Drilling, PETRONAS, IHS and Myanmar-based Parami Energy share their insights on what the coming yoar holds, T he Asia Pacifie is as vast as itis diverse. With huge gas MU THE ELEPHANT IN THE CORNER tainty Is undoubtedly impacting the Asian According to Tom Kellock, Rig Consultant for TES, declining ofl prices will also affect LNG prices in the region, reducing most operators’ cash flows from 2013/2014 levels. In the region as a whole, Mr Kellock sald he sees potential for $89 billion in drilling spend for 2015, with India, Australia and Malaysia as regional lenders, followed by Indonesia and Vielnam. However, actual drilling spend still depends on how the oll price fares Oi price deilling marks 84 | DRILLING contRACTOR Asia Pacific market highlights * Operator cash flows are forecast fo fall, but national oil companies prioritizing secutily of energy supply are unlikely 10 delay driling programs. Melaysia and Vietnam are evaluating expanded exploration of deeper waters but also seeking lower-cost development solutions. New bidding rounds in Philippines, Myanmar and Thailand add to pipeline of potential projects. IHS data: Total rig utilization in Southeast Asia averaged 92% for 2014. “How much this will affect their drilling plans is still unknown, but itis possible we wil see an increase in attempts to sublet rigs, as well as reduced numbers of new fixtures,” he sald. “IS very difficult to say how many drilling contracts we expect in 2015 because of uncertainty about timing. In the entire Asi Pacific region, we have identified around 120 projects for jack JANUARY/FEBRUARY 2015Me ups that could potentially start in 2015 and another 106 th ‘would require semisubmersibles. For drilships the number Is about $5. Howover, we don't expect that all of thse wil result in contracts during 2015. Fie added: "Wo are not expecting any great upward changes in rig demand, but Malaysia is most likely to see an increas rig count ‘According to IHS data, the average jackup dayrate for Indonesia, Malaysia, Brune, Thailand, Vietnam and Myanmar ‘was approximately $147,000 atthe end of 2014, That's down ftom approximately $161,000 at the beginning of the year ‘Average floater fixtures in Southeast Asta followed a sinila downward trend in 2044, from $400,000 in Qt to $250,000 in Only’ in Australia were floater rates more buoyant, averaging $480,000 over the past three years Coniract lenge for Jackups appear tore positive, which has been increasing slightly over the past three years, "This does appear fo reflect an increased emphasis on development drilling, For tenders, the numbers have ftuated, whichis not surprising given the relatively low numbers of new contracts eat year, It ie hard to identify any underlying trend,” Mr own ident of Malaysia-based UMW Oil and ‘ot in ©48, highlighted what he ealled a paradigm shift on the part of “Asia cal NOCs in terms of drilling spend. “The national oll com: ties, while they are still eoncerned about profit, are looking 201? ANUARY/ FEBRUARY 2015 ET Above: The Dulang B Platform operates at Terengganu, ja. For 2015, IHS see a potential for $8-9 bilion tiling spendin the Asia Paciiic, with Malaysia as a leader ‘along with india and Australia. Actual diling spend will depend on the health of the oll price, however. more toward socurity of supply,” he said, “In the event of the prloe of oil spiking again like in 2008, atleast that would help to reduce the eash they have to issue out to buy or import foreign oil. It is more and more prevalent in the countries in the region = especially Indonesia, Vietnam and Thailand ~ to have more reliance on oil and gas products to sustain the economy. There is a social obligation on a number of these countries, especially Malaysia and Indonesia, to subsidize oll, kerosene and things like sugar and food. I think a lot of these subsidy funds come from oll and gus produetion.” In terms of rig rates, Mr Darus sald jackups had been golug {or as high as $170,000/day but are now starting to consolidate ‘toward a regional standard ranging between $145,000-$160,000/ day. The exception is Malaysia, where the rate is slightly lower because PETRONAS Is able to offer longer contract lengths of ‘one year up to three years. Smaller ofl eompanies in the region {typically offer two- or throe-well contracts. “There are not many Jocal companies, big enough to award a three-year contract,” he coxplained. DRILLING CONTRACTOR | 85Care - Asia Pacific potential projects by type, 2015 Orihips semisubs | Jadups Leff: HS data on the Asia Pacific region suggests there are |” Average jackup dayrates, worldwide vs Southeast As | = ull 20000 | "ge88agessaas399: Ri | daaddabdaaaaiae @ fotal of 140 floater and 120 jackup projects that could poter faly startin 2015. However, tis probable that many of these will be postponed and some wil no longer be commercial Viable at today’s ol prices. Right: According to IHS dota, jac! tracked above those of the rest of the world in recent yeors, " Southeast Asia ‘kup rates for new fixtures in Southeast Asia have generally | | Worldwide, excluding Southeast Asia =i a in cs mm 2 il il |= ; om ™ 00% "Independent Oil napeet ol | 3 ‘en | ee sy | oo ther xopy i sao Spey | a per, “National O8 Company | poe sectors! | | fal a 7 nae = EaGnE | | cof eieaenlerror cx extetedte' en! ot ere es 1 a2 at 01 Gz at F at a2 a2 oF oF a as _ SSSSSSeesessees | Geesssesssee aes | iy : eee rane ‘Comparing rig contracts by operator type in Southeast Asia (lef) vs the rest of the world (fighl), it's opporent that majors hold a larger proportion of rig contracts in Southeast Asia while in world. Percentages for contracts fram NOCS, UMW Drilling, a subsidiary of UMW Oil and Gas, eurrently hhas three jackups in Vietnamese waters, Nagn 2 and Naga 3 are with Hoang Long Joint Operating Co (JOC), and Naga 6 is with PetroVietnam. In addition, tho UMW Naga 5 jackup is drilling in Myanmar for PTTEP, and the UMW Naga 4 is working in Malaysia for PETRONAS, Naga 7, delivered in Q4 last year | by China Merchants Heavy Industries (CMHI) in Shenzhen, China, is due to begin a contraet for Philippines-based Frontier Ol Corp in Q1 this ya Mr Darus noted that, overall, rig utilization in the region remains strong for now. “t's very tight, In fact, we have had to rush from one contract to another contract for the past two oF three years. Ifthe tenders that are being issued now maintain the same trend, 1 believe this will continue, Whatever we are seeing right now may be just a hiceup and may last three to six months. There is a knee-jerk reaction on behalf of oll companies as they start to slow down on exploration activities, but { don't, believe it willbe long term.” Several countries in the region have issued new bidding rounds in 2014. ‘The Philippines announced the launch of the 86 | DRILLING conTRACTOR }dependients hold a bigger share in other parts of the meanwhile, are comparable, according fo these IHS charts. 5th Philippine Energy Contraeting Round in May 2044, with { ‘new areas on offer in Luzon, Palawan, Masbate, Iloilo and Ret Bank, Myanmar awarded 20 offshore and 16 onshore blocks i (Q1 2014 in ts first open bidding round, and Thailand announce: a bidding round for 2 new blocks for the first time in seve: years in October 2014, ME CHINESE YARDS STEP UP In line with the expected increase in driling demand UMW Is expanding its feet. Although established shipyard: {n Singapore remain popular, more companies are also look ing to China. Within the past year, UMW has taken delivery of two identical-design Jackups from CMT in China. Both are GustoMSC C446-X100-D fackups built for operations in up to 372 ‘of water and delling to 30,000 f You need to have a number of suppliers from a number ol countries 0 ensure you get the right pricing. At the same time, re are trying o got more than one kind of rg.” Mr Darus said. “Chinese yards have come a long way from where they were before. Ihave no experience wit the other yards, but the yard JANUARY/FEBRUARY 2015,10.2, 0 CME-X Cin Vietnamese waters. UMW's Ne Hoang Long ¥ Ding works we have been working with good quality and timely delivery ‘Other Chinese newbuilds in the region include two Friede & Goldman F&C ,JU2000E jackups under construction at China Shipbuilding Industry Corp. One is due in 2015 for Apexindo, and a socond Is set for 2018 delivery for Seadrill According to IHS, 98 new offshore rigs are scheduled for (67 jackups, 11 semis and 20 driliships. The e seinis and three drilships is giving very delivery this year Chinese share is 39 jackups, thr MA WELL-SUPPLIED MARKET According to IHS data, total rig utiliza weraged around 9 4, compared with approximately Iso In the rest of the World, For jackups specifically, utilization averaged ‘compared with almost in the rest of the world on in Southeast Asta almost 999% during the yeu DRILLING + with PV Orling fo cll wets for King under @ contrac The higher utilization rate for jackups is a trend that bas continvied sinee 2012, Still, some regional drilling contractors are growing concerned with the number of newbuilds scheduled «in 2015-16 and the possible effect on the market. Pham Tien Dung, CEO of PetroVietnam Driliing (PV Drilling), says he believes the flood of new Jackups will make things more Aiffieult for drilling contractors in Southeast Asia. “There are still Jot of secondhand rigs or rigs that are more than 10 years n the Gulf of Mexico, the set up a higher level of regulatory requirements so they only ‘accept higher-spec rigs. The Middle East also prefers premium jackups. In Africa, most of the areas are deepwater drilling Southeast Asin is x very good target for those olde Other than this concern of oversupply, Mr Pham said h ty positive outlook for 2015 in PY Drlling’s home market cll as in other Southeast Asian countries. In old,” Mr Pham said. 8 government relat of Viewam, as JANUARY/FEBRUARY 2015fact, the company Is looking to enlarge its offshore fleet of three lackups and one tender ~ perhaps even adding floaters In Vietnam, the market looks to demand for 14-16 premium jaekups annually for the range of shallow and mid-water depths. PV Drilling at the moment ean only eater to approximately 30% of the rig demand in this mar ket. The rest is supplied by foreign contractors,” he said. “Due to the nature of budget planning, the contracts in Vietnam te tobe short - ‘or even a few months only Mr Pham explained that PV Driling works with its major- ity shareholder, PetroVietaam, and other operators to create be stable. We foresee nd drilling schedules that ensure longer periods of continuous work for their own rigs as well as rigs from foreign companies. PY Drilling plays the role of connecting those individual short DRILLING Contract programs from several different operators into longer-tern contracts, Looking at the medium term, Mr Pham sees a move towany deeper water in Vietnam, In October, Eni signed an exploration contract on the 6,000-sq-kim Block 124 in the Pha Khanh Basin where waters can run as deep as 2,600 m (8,530 ft). Promoting ‘deepwater exploration is also a stated aim of PetroVietnam, anc the NOC has asked PY Drill would be a long project if ontinued noting that the company is seeking partners for a possible join venture to purehase an existing sem: PY Drilling’s four offshore rigs are currently: working it Vietnamese waters. The jackups ~ PV Drilling I, and TI = are working for Cuu Long JOC, Lam Son JOC and VietSovPetro. ld a new rig,” herespectively: The PV Drilling V tender rig is under contract to Bien Dong Petroleum Operating Co. PV Drilling also has one land rig, PV Driling 11, working in Algeria for GBRS, An additional jaekup, the PV Drilling VI, is scheduled for delivery from Keppel FELS in February. Mr Pham said that inarkeé requirements for premium rigs are driving PV Driling’s focus on new assets. “Even in Brunei, for example, they require rigs with 2 milion hookloads. I's not only HPHT or extended- reach wells that need big rigs now,” he said. 92 | DRILLING CONTRACTOR a RAK 3 Above, left: PV Driling’s PVD 1 is on contract to GBRS. a Partnership of PTIEP, PetroVieinam and Algerian govern- ment-owned Sonatrach, in Algeria. Above, right: UMW's Keppel FELS B class jackup Naga 5's dling appraisal wells for PTTEP on Block ASK-8 offshore Myanmar. This follows a contract for NIDO Petroleum in the Philiopines, which was ihe first for the rig after being delivered in 2014 Bottom: PV Driling is working offshore Vietnam for Lam Son JOC. PY Diiling said it is evaluating adding a semisub fo ifs feet as Vieinam prepares to expand deepwater exploration in the coming years. The contractor said it would fkely buy an existing semi rather than build new. I NEW TECHNOLOGIES FOR NEW CHALLENGES From the operator perspective, resource replenishment con Linues (0 be a significant ehallenge. According to PETRONAS crude oil output from Malaysia’s hydrocarbon basins is on the decline. The country’s currently producing domestic resoure are expected to last only 20 years unless the eompany inter ‘venos to prolong the life of mature fields and to make new dis coveries, PETRONAS stated, “The drilling focus for 2015 is on initiatives that include sudvaniced preparations in terms of pro-drill and rigiess sctiv ties, as well as initiating lower-cost wells and using multipar pose rigs,” sald Datuk George Ling Kien Seng, who heads up the drilling division of PETRONAS’ upstream business, “For completion technology, the biggest challenge is to reduce com pletion cost. Due to complex reservoir environments in HPET and deepwater, the requirement for reservoir surveillance and well completion operations are taking up longer rig time, whieh translates into higher cost. ‘To mitigate this challenge, a focus on operations optimization and {t-for-purpose technology t0 reduce cost has been set up, JANUARY/FEBRUARY 201594 ] DRILLINGC IByeratopate etal ite multizone gravel ‘onventional gravel . land the use of offshore vice rigs for completion operations. Offshore service ri he said, are similar to service rigs for land operations and ean Feduee completion costs by approximately 20% cost concepts for deepwater development ave also being d, as deopwater resources account for the bulk of esti- ‘mated undiscovered resources in Malaysia, PETRON/ doepwater exploration presence in West Afviea, as well as in mbique, Cuba, Egypt, Mauritania and ‘at home in Malaysia include the under. explored onshore prospects of Sabah and Sarawak in East Malaysia, as well as ultra-deepwater basi same states. Notable recent developments Include the Kikeh and Gumusut-Kakap fields. PETRONAS expects those two projects, along with ottier deepwater developments in Malaysia, o account for more than 20% of its total oll produetion over include single-t screens to replac countries NTRACTOR ‘the next five years. While these proj potential, they also average around 22% higher in cost than in shallow water in Southeast Asia, the eompany sald Datuk Ling outlined possible ways to mitigate the cost impli- cations: “Our deepwater completion design philosophy will be interventionless, whereas HPHT development will focus on {it-for-purpose materials for appropriate field lifetime. f that contain high 18 or CO, will require fit-or-purpose chrome materials, such as 17 ehrome, to replace the common 22 chrome,” Datuk Ling said, referring to steel coating materials. Other measures will also be implemented, such as single trip bore cleanup and single-trip upper and lower completion installation, he added, PBTRONAS eurrently has five jackups driling in Malaysian ‘waters, being managed by Aban Offshore, Hercules Offshore, Maersk Drilling, UMW Drilling and Vantage Drilling. In addition, it has one somisub managed by Japan Drilling Co and three tenders managed by SapuraKeneana Drilling. UARY/PEBRUARY 2015BOrw Relig Wyatt rations each in Drilling) and wrasia Drilling Co and Ezion Holdings), OPENING MARKET IN MYANMAR Myanmar has a history of drilling that extends back to the 19th contury, but the country has only recently begun to open to expanded foreign investment. A total of blocks were offered in a 2018 bidding round, On 014, the Ministry of Energy announced the winning bids for 0 of those blocks, 10 of which are classed as deepwater and 10 as shallow-water. PSCs are being signed with the likes of Shell, BG, TOTAL, Chevron, Eni and Woodside. According to a presentation given by China's North Petro-Chem Corp at OSEA 2014, hold 2-5 Decomber in Singapore, there is potential for another bidding round as soon as late 2015. Sixteen n shore blocks also were awarded during the m ding round, Indonesia (Rowan Companies and Vantagt ‘Turkmenistan (B 8 March DRILLING One indigenous operator, Parami Energy, has inter ‘one offshore sand two onshore blocks from the recent b ding rounds. The company also has investments in the Ophir jore block ADS, for which a PSC was signed on 4 December, and in on: and PSC-J, ’s Petroleum Exploration, Parami on operator status on existing hlock PSC T, an rea of approximately 8,600 sq km located 125 km northwest fangon in the Ayeyarwady region. The company is currently carrying out sefsmic analysis on PSC I, and drilling is expected to begin mid-2016 with a minimum of two wells, Looking at the wider market in Myanmar, UZaw Win, Head ss Unit at Parami, said that at least 20 be drilled under new PSCs in the next two years, as well as significant work on the M9 shallow-water block ‘operated by Thaand's PTTEP. For M9, they have to drill perhaps 40-50 development wells over the next two to three years. According to their plan, they ore blocks, JANUARY/FEBRUARY 2015in Myanmar. Par partnered with Poki Petroleum Exp blocks PSC: a5 the operator of ex: PSC4, Above: A land ined by Myanmar Qi anc 1 Enterprise 0 the Apyauk fleld in Myanme will need 50 wells at for two to three appraisal wells per block using floaters, ike at least in to begin In the second half of 2017. He explained that, in th market atleast, the falling price of oil is unlikely to stop dri e they have to dill within a time ct. I they have some reason for waiting delay, they need to explain, f the reason is not sound, they he to dri ~ they must drill" & have to use jackup rigs, so jackup activity will be least,” Mr Win safd, “Onshore first drilling will com the first one and a half years.” He said he sees growing potential for more development drill noting that ONGC is working on discover and EP}, In the 10 deepwater Mr Win sald he sees « need plans. “The PSCs will manner for the contr Ing in the near ter les on oushore blocks PSt concessions just awarded in 20 98 | DRILLING CONTRACTOR JANUARY/FEBRUARY 20