|
|
|
|
Unocal a rich prize for
Chevron
By Jeff Moore
Now that CNOOC has dropped its bid for
Unocal, Chevron in all likelihood will gain
control after Unocal shareholders vote on the
takeover bid on Wednesday, August 10. If Chevron
wins, it has everything to gain. After years of
declining production from its own assets, it
stands to acquire Unocal's strong and promising
production assets in Thailand and Indonesia.
Farther west, there are two other Unocal gems that
show great potential - Bangladesh and Azerbaijan.
The first has natural gas and the second offers a
route into Caspian oil assets, and one of the
biggest pipeline projects in history.
Bangladesh
Unocal entered the
Bangladesh market in 1974 with an offshore block
under a production-sharing contract (PSC). But it
handed over its single 1977 gas discovery back to
the government because of the country's then
unprofitable domestic gas market. In 1996, Unocal
went back in a 50-50 partnership with Occidental
for three onshore blocks near the border with
India. In 1999, it bought all of Occidental's
shares and became 100% owner in all three blocks.
Presently, Unocal operates under three
PSCs on three onshore blocks - 12, 13 and 14 -
located 62 miles (100 km) northeast of Dhaka,
bordering India. Unocal sells its gas to the
government via three natural gas purchase and
sales agreements (GPSAs). "Unocal's original plan
in Bangladesh was mainly to sell gas to India,
which made things politically challenging," says
Duane Grubert of Fulcrum Global Partners. When
Unocal began, there was little domestic market for
its own gas reserves.
Adds Steven Knell,
an Asian energy analyst at Global Insight, "The
economy in Bangladesh is primarily an agrarian
economy that has traditionally relied on
low-yield, high-pollutant fuels, which does not
mesh with their new, national economic plan that
calls for industrial development. And they need
modern oil and gas to do this. This is why they
were upset about Unocal exporting gas to India.
Plus, there is some historical animosity between
the two nations that still causes friction now and
then."
"But the domestic oil and gas
market is currently expanding and improving, which
makes it an alternative outlet beyond the idea to
export to India," comments Grubert. "So now,
Chevron could use Unocal's position to feed the
domestic market for a long period of time, much
like what Unocal does in Thailand. And Unocal is
sitting on a lot of known resources in Bangladesh,
so the prospect of exporting to India in the long
term is feasible, and the politics surrounding
that issue looks like it is improving."
The company's first successful project in
Bangladesh was Jalalabad field in Block 13. Knell
says, "They've got significant reserves there at
that site, about 1.5 trillion cubic feet (tcf) (42
billion cubic meters, or bcf) of gas. The company
is well placed to make a good return." In 2004,
Jalalabad netted an average of 55 million cubic
feet (mcf) (1.5 million cubic meters, or mcm) per
day of natural gas and 405 barrels (bbls) a day of
liquids.
Unocal's second and most recent
Bangladesh production began in March 2005 in Block
14's Moulavi Bazar field, which is south of
Jalalabad. Unocal signed a GPSA with Petrobangla,
the state gas, oil, and mining company, to develop
it in October 2003. It contains about 440 bcf of
natural gas, and Unocal wholly owns the project.
At present, it is producing 70 mcf per day of gas
from two wells. It began drilling two more in May.
To process gas from Moulavi Bazar, Unocal built a
14.9-mile pipeline and a 150-mcf-a-day gas
processing plant that connects to Bangladesh's
national gas grid. At peak capacity, the plant
could process 600 mcf per day. The project cost
US$$42.
Unocal signed its third GPSA with
Bangladesh in November 2004 to produce natural gas
from Block 12's Bibiyana field, which it
discovered in 1998. According to Knell, "It
operates under a PSC, which is standard for
Bangladesh." Bibiyana has an estimated 5.5 tcf of
natural gas and 30.7 million bbls of condensate,
making it Unocal's biggest field in country. Its
share is 98%. Bibiyana will have as many as 15
wells, and Unocal expects that by late 2006, it
will be producing 200 mcf a day of natural gas.
"Given the potential, Unocal is expected to sink
$230 million in the field to commercialize it, and
they are ramping up production," says Knell. "They
expect to hit 500 mcf per day by 2009, and it will
make a healthy contribution to Bangladesh's gas
market and make a nice profit for Unocal." If
Bibiyana reaches 500 mcf per day, it will be one
of Unocal's biggest gas producers.
What
all this means is that Unocal supplies Petrobangla
with nearly 15% of Bangladesh's natural gas needs.
Total natural gas production in Bangladesh for
2005 is at about 270 mcf per day by Jalalabad and
Moulavi Bazar combined. Unocal expects its other
projects to increase this to 35% three years from
now. Natural gas wise, this would make the company
as valuable to Bangladesh as it is to Thailand.
More, says Knell, "Unocal's production operations
there can make a huge difference in a positive way
in improving the poverty line, which most live
below."
Other assets Chevron might
capitalize on include Bangladesh's offshore Block
7, a contract Unocal won in July 2005 for the Bay
of Bengal. It is covered under an existing PSC.
"Onshore exploration having been largely
completed, offshore exploration and production is
now increasingly dynamic," Knell says. "It will be
the more vibrant area for Bangladesh in the
future."
Adds Grubert, "Some producers
prefer offshore because infrastructure is easily
protected. Offshore projects, because they are
isolated, don't have to deal with extensive
security, and the government traditionally helps
in these cases. And another thing is that Unocal
was not dissuaded by politics to invest in Block 7
and expand its position there, so its situation is
really improving."
According to Knell,
"The renewed PSC is part of Unocal's Western
Regional Integrated Project (WRIP), which is the
company's proposal for developing the region."
Specifically, WRIP is an ongoing, $1 billion
project that involves producing gas from the Bay
of Bengal, piping it 93 miles to Khulna, and
feeding it to four power plants onshore. According
to Knell, "The Block 7 PSC includes production
from Shahbazpur field. The terms of this PSC are a
three-year exploration license with the option to
extend for four more in two phases." Bangladesh
officials believe Shahbazpur holds 330-400 bcf of
natural gas.
Azerbaijan
After
Azerbaijan declared independence in 1991, Unocal
entered its energy market via PSC as a 10.28%
shareholder of the Azerbaijan International
Operating Company, or AIOC. There are 10 other
investors, including BP, the consortium's
operator. AIOC focuses on offshore gas and oil
production in the Caspian Sea for export,
specifically from the Azeri and Chirag fields, and
the deepwater portion of Gunashli field. Unocal
refers to it as the "ACG project", short for
Azeri-Chirag-Gunashli. All are roughly in a line
running east of Sangachal Terminal on the
mainland. "For Chevron, between Bangladesh and
Azerbaijan, Azerbaijan is the more important of
the two," says Duane Grubert. "They did not
previously have a presence there, and AIOC is a
collection of international heavy hitters that
they can now work with to expand and do other
projects."
Andrew Neff, a senior energy
analyst at Global Insight, specifies, "For
Chevron, Unocal's assets in Azerbaijan are key.
Acquiring Unocal will allow Chevron to create a
Caspian oil 'bridge' with its assets in western
Kazakhstan, where the company is heavily
invested." He says Chevron had one unsuccessful
investment in Azerbaijan, the Absheron field, but
officially abandoned it in 2003 after drilling a
failed well in 2001. But in Kazakhstan, he says,
Chevron is invested in the Tengiz field with
ExxonMobil, Kazmunaigaz, and LUKArco, a joint
venture of LUKoil and BP. Chevron's share is 50%
and output is 270,000 bbls a day. Tengiz has an
estimated 6-9 billion bbls in reserves.
AIOC is driving its oil projects in
Azerbaijan forward in four phases: Early Oil, and
Phases 1, 2, and 3. Early Oil, which is in the
Chirag field, began production in 1999 with 43
million bbls of oil a day. It currently produces
approximately 150,000 bbls a day. Phase 1, the
Central Azeri field, began in February 2005 and is
projected to produce an average of 93,000 bbls of
oil per day this year. Phase 2 consists of
projects in the West and East Azeri fields, and
Unocal officials think they will start production
there between 2006-07. Unocal assesses that the
Azeri projects are sitting on 2.7 billion bbls of
oil. Phase 3 is a deepwater project, Gunashli,
which is projected to begin producing in 2008.
Combined, these projects will encompass five
platforms. Current average production through the
end of June 2005 was an estimated 203,000 million
bbls a day.
AIOC has two pipelines running
from the Caspian through the mainland that carry
Azerbaijan's oil to export markets. It exports 97%
of its oil through the Baku-Supsa pipeline, which
runs from the Caspian west to Georgia's Black Sea
coast. It exports the remainder through a
north-running pipeline that connects to Russia's
Black Sea coast.
But another pipeline
project farther south is Azerbaijan's main
attraction, the Baku-Tblisi-Ceyhan (BTC) pipeline,
which began construction in April 2003. The BTC
Company owns it, and Unocal is also an 8.9%
investor. The BTC Company's largest shareholders
are BP with 30.1% and the State Oil Company of the
Azerbaijan Republic (SOCAR) with 25%. All others
hold less than 10%. They include Statoil, TPAO,
Eni, Itochu, INPEX, Amerada Hess, ConocoPhillips,
and Total.
Spanning 1,100 miles from
Azerbaijan to Georgia to Turkey's port city of
Ceyhan on the Mediterranean, the BTC will move 1
million bbls of crude oil a day once the project
is fully operational. The BTC Company began
pumping oil into it on May 25 and it will take
about six months to fill. As of 29 July, it was
full up to the Georgian border. Unocal projects
the pipeline will be filling up tankers at Ceyhan
terminal by the end of 2005. The project cost,
including loans, interest, and pumping oil into
the pipeline to prime it, was $3.6 billion and
required about 2,000 workers to complete.
It might alleviate Chevron's pipeline
headaches in Kazakhstan. Neff says, "Chevron's had
problems in seeking to expand capacity on the
Caspian Pipeline Consortium's (CPC) pipeline from
Tengiz to Novorossiisk, a Russian port on the
Black Sea. Russia, which is a part owner, has
continually demanded higher transit tariffs. And
as the largest stakeholder in the pipeline, it has
effectively blocked the CPC's other owners from
proceeding with plans to boost capacity to allow
it to export additional volumes. So acquiring
Unocal and its stake in the BTC pipeline could
give Chevron an additional export outlet aside
from the CPC for some of their Tengiz oil
production."
Unocal's Bangladesh and
Azerbaijan assets are thus indeed appealing, not
just for their present worth, but for their future
production value as well, a key motivator for
shrewd oil and gas investors. Assuming Chevron
buys Unocal and does not divest its best Asia
assets, it stands to strengthen its international
standing and solidify its position as America's
second largest gas and oil company behind
ExxonMobil.
Duane Grubert says, "It is
possible that the Unocal's shareholders might
still vote not to accept Chevron's offer. They
might say the price is too low, but I think
Chevron should prevail on August 10. If so,
Chevron is getting an absolutely discounted deal
in that the whole evaluation for the company has
gone up."
Concerning Bangladesh, Steven
Knell remarks, "Chevron's potential in Bangladesh
is gaining a foothold in the country and in the
region. Chevron is likely hoping to consolidate
its gas interests. Overall, it wants to be
positioned to feed the growing market in Asia, and
it's easier to buy Unocal than to go through the
bidding process. The market for gas there is only
going to get larger, and India's gas consumption
is the largest in the region, so the potential to
export gas from Bangladesh is real."
Regarding Azerbaijan and the Caspian Sea,
"For Chevron, the benefit would be adding to its
Caspian portfolio without having to do the work,"
says Andrew Neff. "They would be buying
production, essentially. Chevron's been criticized
for its declining production, which is one of the
reasons they are moving on this. It boosts their
production, gives a long-term and better foothold
in Caspian, and provides a reason to look for
other assets in Caspian and invest in Azerbaijan.
For example, they have discussed a potential
pipeline linking Azerbaijan and Kazakhstan via a
Caspian sub sea pipeline."
So when Unocal
shareholders vote to either accept or reject
Chevron's buyout offer, gas and oil facilities
ranging from Southeast Asia to Europe will be in
play. Bangladesh and Azerbaijan, two assets that
will likely provide long-term revenues for any
company, will certainly help influence that
outcome. If Chevron gains and keeps all of
Unocal's Asia assets, there will be a new and
improved oil and gas company in the region, and it
will be a Goliath.
Jeff Moore is
an employee of Science Applications International
Corp, a consultancy with headquarters in San
Diego, California, and MacLean, Virginia. He has
researched and written more than 15 country
profiles and studied the infrastructures of
countries in Southeast Asia, Eastern Europe,
Africa, and Latin America.
(Copyright
2005 Asia Times Online Ltd. All rights reserved.
Please contact us for information on sales, syndication and republishing.) |
|
|
|
|
|
|
|
 |
|
|
|
|
|
All material on this
website is copyright and may not be republished in any form without written
permission.
© Copyright 1999 - 2005 Asia Times
Online Ltd.
|
|
Head
Office: Rm 202, Hau Fook Mansion, No. 8 Hau Fook St., Kowloon, Hong
Kong
Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
|
|
|
|
