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Unocal's stake in Southeast
Asia
By Jeff Moore
First Chevron, now CNOOC: everyone seems
to want Unocal's profitable gas and oil assets,
which span the world from the Gulf of Mexico to
the Caspian Sea. Indeed, Unocal's resources would
add a plentiful bounty to any energy company's
portfolio, especially in Asia, where increasing
demand for oil and gas is having a noticeable
effect on regional economies. Unocal's investments
in Southeast Asia - in Thailand, Myanmar,
Indonesia, Vietnam, and the Philippines - are
amongst its prized possessions. In fact, outside
the United States, Thailand and Indonesia are the
company's biggest investments. Here's what's at
stake in the bidding war between Chevron and
CNOOC.
Thailand
Unocal has been
in Thailand since 1962. It is a significant
investor in both upstream and downstream projects
(upstream entails exploration and production, and
downstream refers to all post-production
projects). Some 92% of Unocal's 1,142 employees
are Thai, and it has another 1,500 personnel under
contract. Unocal's projects produce crude oil,
natural gas, and condensate, which is a mix of oil
and natural gas.
According to Duane
Grubert, a former strategic planner at Unocal now
with Fulcrum Global Partners, "Unocal runs its
upstream operations in Thailand under four Gas
Sales Agreements, or GSAs." Loosely, GSAs mean the
company owns the assets. "It's basically the type
of contract we have in the United States," says
Grubert. Each GSA encompasses a project, known
locally as Unocal I, II, III, and IV.
Collectively, these include 13 offshore drill
blocks spanning from the Gulf of Thailand into
Cambodian waters, covering a total of 6,028 square
miles (15,612 square kilometers). Unocal began
drilling off the Kingdom's coast in 1971. By 2004,
it had put in 2,063 wells. It has 122 platforms in
operation that it runs for several
co-concessionaries, including Thailand's PTT
Exploration and Production Public Company Limited
(PTTEP), Amerada Hess Ltd, Moeco Thai Oil
Development Company and Mitsui Oil Exploration
Company.
Unocal is Thailand's largest
natural gas producer, and Thailand is Unocal's
second-largest natural gas investment, behind only
the United States itself. According to Grubert,
"Unocal's first and biggest gas discovery in
Thailand was the Erawan, also known as Project I."
Unocal's share of Project I is 70%. Like most of
the company's Thai projects, Erawan is located in
the Gulf of Thailand.
Smaller projects
include the Trat field, which began production in
1999, and the Arthit project, off the coast of
Songkhla, of which Unocal is a 16% owner; PTTEP
owns 80%. For Arthit to benefit from production,
however, PTT must first complete a pipeline that
will move its gas to processing facilities
onshore, something it plans to do by 2006. "Unocal
doesn't make much money off these because of its
smaller share. It does much better in other areas
such as Surat where it is the majority
shareholder," says Grubert. Here, Unocal owns
71.25%. Moeco has 23.75%, and PTTEP owns 5%.
Unocal's second biggest gas project in
Thailand is Phase I and II of the Pailin field,
also referred to as Unocal IV. At a cost of US$820
million for Unocal and its partners, however, this
is possibly Unocal's most expensive Thai venture.
Unocal has 35% ownership of Pailin I and II; other
investors include PTTEP with 45%, Amerada Hess
with 15%, and Moeco with 5%. Pailin I and II
produce more than 1 billion cubic feet (bcf)
(28.32 million cubic meters or mcm) of gas per
day.
Unocal's future potential in the Thai
gas market is an issue both Chevron and CNOOC have
surely investigated. Steve Enger, an oil analyst
with Petrie Parkman & Co, says, "As you look
forward, there is still growth potential in
Thailand for Unocal. They can grow continually
with an expanding Thai power consumption market.
And [the Thai operations have] excellent potential
for growth in domestic gas supplies. They are able
to grow gas sales, and they have the premier
positioning in the Gulf of Thailand." Pipelines
are another issue that speak for current and
future worth. "Unocal produces into two major gas
pipelines built by PTT, and they are at capacity,"
says Enger. "At present, PTT is building a third,
which Unocal can feed into, [and that implies]
good growth potential."
Unocal's first
crude oil operation in Thailand was the
Yala-Plamuk facility, also known as the Pattani
oil development project. While Pattani is a
province in southern Thailand, the term in this
context refers to an undersea trough that contains
many of the company's exploration and production
sites. Unocal owns 71.25% of Yala-Plamuk; Mitsui
Oil Exploration owns 23.75%; and PTTE owns 5%. It
puts out around 16,000 barrels (bbls) of crude oil
a day.
Another one of the company's oil
producers is Platong, which consists of two
central oil-processing platforms (CPPs). Unocal
plans for it to turn out 40,000 bbls of oil a day
before the end of 2005, up from its past levels of
24,000 a day. The latest CPP, called CPP2, began
working in June 2005 and is the largest such
platform in all of Thailand. Concerning Unocal's
growth in the oil sector, Enger says, "Look for
the second part of this year for their oil
potential to grow, but anything beyond recent oil
discoveries remains to be seen."
Overall,
Unocal is a major factor in Thailand's domestic
energy consumption. In May 2004, it produced on a
daily average 1.166 bcf (33.017 mcm) of gas,
41,236 bbls of condensate, and 18,987 bbls of oil.
This means that Unocal supplies Thailand with gas
that meets 30% of its electricity demand. It also
provides a hefty portion of its transportation and
industrial fuel, feedstocks for petrochemicals,
and household cooking gas. Furthermore, Unocal
produces 25% of Thailand's domestically used oil.
Greg Priddy, a Washington, DC-based energy
analyst says, "CNOOC's main interest is acquiring
Unocal's assets in SE Asia. As energy companies
go, Unocal is only a mid-cap company, and it's
dwarfed by those like ExxonMobil. But it has a
large presence in places like Thailand [which is]
actually a big market."
Regarding
downstream operations, Unocal has a stake in two
power plants. At present, it owns 15% of two
facilities in Chonburi, both run by Amata Power.
The first is a 165-megawatt (MW) plant, and the
second is a 112-MW plant. In January 2005, the
Petroleum Institute of Thailand (PTIT) reported
that Unocal would increase its offshore gas and
oil exploration investment by 26% from 2004, which
equals $580 million. At the same time, it also
said the company would leave the power production
business in Thailand. While such moves might be in
the works, Amata confirmed as of late June 2005
that Unocal still held 15% of the power plants in
Chonburi. Unocal sold its 24% interest in a 700-MW
plant in Sri Racha run by Independent Power
Production of Thailand (IPT) in December 2004.
Myanmar
Next door to Thailand,
Unocal has been involved in Myanmar's upstream gas
sector since 1993. But because of the government's
human rights track record, which has been spotty
to say the least, it has not been a smooth ride.
However, that does not take away from the
significance of the company's business there.
Specifically, Unocal is a 28.26% owner in
Moattama Gas Transportation Company, which runs
the Yadana gas project. Yadana is a field off the
coast of Myanmar in the Andaman Sea containing 5
trillion cubic feet (tcf) (141.6 bcm) of natural
gas, which, according to Unocal, could last 30
years. There are three other investors: PTTEP with
25.5%, Myanmar's Myanma Oil and Gas Enterprise
with 15%, and Total with 31.24%. According to
Enger, "Myanmar gas flows into the same market as
Thai gas. The project itself is steady as she
goes, so while it's not that exciting on a
forward-looking basis, it's working fine."
Total operates Yadana, which feeds
Thailand's Ratchaburi and Wang Noi electric power
plants daily with 700 mcf (19.8 mcm) of natural
gas. Greg Priddy says, "Gas from Yadana also feeds
industrial parks near Bangkok with feedstocks for
petrochemicals. It's an important asset for both
Unocal and Thailand." Moattama transports the gas
to Thailand via a pipeline that spans 412
kilometers underwater, and then 65 kilometers
overland through Tenasserim, Myanmar. At a cost of
$1 billion, this was the first sizeable
country-to-country pipeline in all of Southeast
Asia.
Human rights groups have strenuously
objected to the project due to its alleged
association with the Myanmar government's abusive
treatment of local laborers. Unocal has rejected
accusations that it colluded with any such
behavior. Several US courts agreed, but the case
dragged on in others. In March 2005, Unocal
settled out of court for an undisclosed amount.
The company says that it supports democracy in
Myanmar, and its involvement there has had a
positive socioeconomic impact on as many as 45,000
people.
Indonesia
Unocal has
been in Indonesia since 1968 operating both
upstream and downstream facilities, often via
subsidiary companies. Unocal employs 1,900 people
in Indonesia, 96% of them Indonesian. Its first
upstream project was a production-sharing contract
(PSC), which entailed exploration off the
northwest coast of Sumatra with the state oil and
gas company, Pertamina. All it found was a gas
field too small to be economically viable. But
things changed in 1970 when Unocal discovered
Indonesia's largest gas and oil field, Attaka, off
the coast of East Kalimantan. From then to 1997,
it discovered eight more, which greatly expanded
its operations in the country.
In all,
Unocal has major interests in 10 offshore projects
in Indonesia, all under PSCs. PSCs typically
require oil companies to absorb the exploration
risks of a pre-designated area and receive
reimbursement upon discovery of profitable
hydrocarbon deposits. They also mean sharing
production costs and profits. Only one of Unocal's
projects is a production contract, which is just
off East Kalimantan, but it is massive and
includes Attaka. Unocal's share is 50%. Unocal has
11 producing fields off Kalimantan.
Unocal's success in Indonesia has been
mixed. Company CEOs in their 2004 annual report
said it best: "While the hunt for big oil
accumulations in Indonesia's deep water is still
proving elusive, our natural gas position in the
region continues to gain in value as the fields
become more defined and our assessment of
potential development options for this gas takes
shape."
Interestingly, the pattern in
Indonesia follows the company's overall global
trend. "Unocal is a gas heavy company rather than
liquid heavy," says Priddy. "Liquid makes up less
than a third of its total output. Generally
speaking, Unocal only puts out about 100,000 bbls
of oil a day worldwide." Unocal's most recent
statistics say its Indonesian production assets
were pumping out 63,000 bbls of oil and
condensate, and 269 mcf of gas per day.
Unocal processes all this oil, gas, and
condensate through its liquid extraction plants at
Santan and Lawe-Lawe terminals onshore in East
Kalimantan. It has future plans to establish a
floating hydrocarbon processing facility in the
area, which would, in theory, shorten lines of
logistics and cut down on overhead costs.
Seven of the company's 10 projects are
exploration contracts. Four of them - the Makassar
Straits, Rapak, Ganal, and Sesulu - are off the
east central coast of Kalimantan. Two of them -
Sangkarang and Lompa - are farther south off
Sulawesi. Of these, Unocal is an 80% or more owner
in each of the Kalimantan projects, and a 100%
owner in each of the Sulawesi ventures. It has a
non-operating, minority interest in three other
fields - 45% of two and 15% of a third. They are
Kapoposang, which is off Sulawesi, and Bukat and
Ambalat, which are both off northeast Kalimantan.
The major shareholders in these are South Makassar
Exploration Co Ltd and Lamo.
Unocal's main
claim to fame in Indonesia is its breakthrough,
deep water exploration. Says Enger, "Unocal has
traditionally had a strong position in shallow
water operations such as Attaka, but they are
declining as gas fields do. So strategically, they
have within recent years stepped out into deep
water to find more hydrocarbons to supply the
Bontang LNG plant in East Kalimantan. It's the
largest LNG facility in the world." Its plants
produce methanol, urea fertilizer, and ammonia for
export. International customers include Japan,
Taiwan, and Korea.
Unocal Indonesia's
first deep water project, drilled in 1996, is in
nearly 2,000 feet (609.47 meters) of water in the
Merah Besar field, located northeast of Balikpapan
in the Makassar Strait. Unocal drilled another
4,500 feet into the earth's crust to access the 80
million bbls of oil there. The plan was to begin
production in 2007.
Unocal has already
begun production on another field, which is in an
even deeper part of the Makassar Strait - the West
Seno. Unocal is a 90% owner of this field,
discovered in 1998, and Pertamina holds 10%. What
makes West Seno such an achievement is that it is
located 3,200 feet below the surface. It has both
gas and oil. To drill there, Unocal uses tension
leg platforms (TLPs), the first in Southeast Asia.
In layman's terms, TLPs consist of an oil rig
attached to a submerged platform connected by
strong, tendon-like cables to anchors on the
seafloor. The lack of superstructure is supposed
to make them economical and their undersea
platforms make them stable to work on.
Despite its technological prowess, Unocal
has not found as much oil in West Seno as
expected. It had intended to develop the field in
two phases, but shelved this plan in 2004. Enger
says, "By this point, West Seno met with modest
success at best, and the lack of huge oil finds
has disappointed those who had high expectations."
Nevertheless, Phase I began production in 2003.
The project cost about $400 million and produces
around 40,000 bbls of oil a day. "West Seno is
producing," says Enger. "Not as high as previously
thought, but it is working, so it's worth keeping
an eye on. Overall, deep water exploration in
Indonesia will bear fruit, I think. There may be
large gas fields there."
The same year
Phase I began producing, Unocal drilled 15
additional exploratory deepwater wells off East
Kalimantan, bringing its total number of wells
there to 125. One was the Gehem-1, which went down
a total of 15,241 feet. Unocal found more than 600
feet of gas and 18 feet of oil and believes it to
be economically viable. Another successful well
was the Ranggas. Enger speculates that Unocal's
payoff might be at the turn of the decade from all
the gas they've found in deep water. "Gehem is a
big deal, as is Ranggas. They're being developed
together, and are mainly gas, but there is some
associated oil. On a gross basis, which is not all
just for Unocal, there are at least 2 plus tcf (57
plus bcm) of gas in these two fields, and it's
expected to feed the Bontang facility."
According to Enger, Unocal has multiple,
additional gas discoveries, one in particular
called Gendalo, yet another deepwater field. "It's
mainly gas, and has about 2 plus tcf (57 plus bcm)
gross. Unocal's interest will vary according to
the PSC details." Its partner here is Eni SpA, a
Rome-based company that was contemplating buying
Unocal in April of this year. These later projects
are still pre-production and are supposed to come
on line later this decade. Another is the Sadewa.
"It's smaller than Gendalo and the rest at less
than a tcf, but it will start up sooner than these
others," says Enger.
As in Thailand,
Unocal's downstream investments in Indonesia are
in power generation. In a partnership with
Pertamina and PLN, Indonesia's national
electricity company, Unocal operates two power
plants in West Java that produce 440MW.
Collectively, these investments mean that
Unocal is a substantial gas and oil provider for
Indonesia, not unlike its impact on Thailand. For
example, it sells gas to Pertamina for the
domestic electricity market. It also supplies an
average of 2.8 bcf of natural gas each day to the
LNG plant in Bontang. At present, Unocal supplies
Bontang with about 8% of its needs; Total is its
biggest supplier.
Unocal's recent
deepwater discoveries such as Gehem, Ranggas, and
Genaldo are very important going forward, because,
says Enger, "They will drive substantial
production growth in Indonesia for Unocal." He
explains: "Specifically, by about 2010, a lot of
the current Bontang LNG contracts will expire, and
there will be a large increment of gas processing
space available there at the facility in 2011, so
Unocal is strategically positioned to supply a
large part of this. It's well out into the future,
but it's a big increase, and its speaks well for
Unocal's position as a supplier in Indonesia."
Vietnam
Unocal's upstream and
downstream trends in the region apply to Vietnam,
too. It has offshore exploration projects and has
invested in two power plants as well. Unocal has
been in Vietnam since 1996, and made its first
natural gas discovery in 1997. Unocal has three
exploration blocks off the south coast of Vietnam
that have proven economically viable - Block B,
Block 48/95, and Block 52/97. Combined, they
equate to 6,473.39 square miles (16,766 square
kilometers) of water. Unocal explores under two
PSCs with PetroVietnam, the state gas and oil
company; it owns 42.38% of the first two and 43.4%
of the last. Its partners include Mitsui, Moeco,
PTTEP, and PetroVietnam's Exploration and
Production Company. Together, they have invested
around $174 million in exploration.
By
late 2002, Unocal had drilled 14 exploratory wells
off southern Vietnam. Ten resulted in gas
discoveries. It planned to drill eight more
between 2003 and 2005. Also in 2002, Unocal filed
with PetroVietnam a "declaration of commercial
discovery" on both its PSCs. The declarations were
necessary before the company could develop and
produce its discoveries. They further contained
long-term agreements for PetroVietnam to purchase
gas from Unocal. Unocal thinks it could be in
production by 2008-10.
"Unocal is hopeful
that the market will develop late this decade,"
says Enger. "The current market there has growth
potential, but the domestic market has to develop.
And this anticipation of potential has been going
on for a while now. We'll just have to see how the
market develops." Taken as a whole, Unocal
estimates its discoveries could amount to more
than 10 tcf of natural gas, enough to supply
Vietnam's gas-burning plants for at least 50
years.
Overall, however, Priddy says,
"Things remain slow for Unocal in Vietnam. The US
Department of Energy's (DOE) latest update is
generally reflective of the situation there." The
DOE's last report on Vietnam, completed in
February 2005, cites no new discoveries or
production for Unocal.
Downstream, Unocal
has invested in two power plants, both at the
planned O Mon power complex in Can Tho province.
The first entails switching two old thermal plants
- O Mon 1A and 1B - from oil to gas burning
facilities that together can produce 600MW. Unocal
documents say the timeline on this is 2005-06, but
Vietnamese sources say 2008.
The second,
called O Mon 2, would be a wholly new plant.
Unocal and its partners, PetroVietnam and
Electricity of Vietnam (EVN), plan for it to
produce 750MW. They conducted a feasibility study
for the new plant in 2002, which included a
380-kilometer pipeline from gas discoveries
offshore to the mainland, much like BP's Phu My
III plant farther north. The interested parties
signed a memorandum of understanding on these
projects in May 2004.
The
Philippines
One of Unocal's more
interesting investments is in geothermal energy
plants in the Philippines, which are not even
hydrocarbon-based. These plants entail piping
volcanically heated steam from thousands of feet
underground to the surface for use in electricity
plants. Unocal has been in the Philippines, which
is one of the world's top geothermal producers,
since 1971. It operates two plants that supply
enough steam to the Philippines' National Power
Corporation to provide Luzon with 15% of its
electricity. The first plant, Tiwi in Albay
province, has a top capacity of 300MW. The second,
Mak-Ban in Laguna province, peaks at 426MW. In
2004, Unocal began to upgrade both facilities for
US$26 million; over the years, both had lost
efficiency and were running at 70% or less
capacity.
Unocal's Southeast Asia assets
reflect decades of relationship building, hundreds
of millions of dollars invested, high technology,
hard labor, and fierce competition. They also
impact the lives of thousands in the countries
involved. Furthermore, they fulfill the energy
needs of regional governments, cities, and
individual homes. In effect, Unocal has helped
nourish the very lifeblood of the countries it has
invested in. But hidden underneath all this is
something more - the political, economic, and
military power that benefits the owners of such
influence. Will the new wielder of these assets
act as benevolently toward its host countries as
Unocal, for the most part, has? Might the US
government approve CNOOC's bid for Unocal, or will
the Chinese firm be denied in favor of Chevron? Or
will another deal between the three companies
evolve that breaks up its assets, diluting
Unocal's proud and profitable energy empire? The
future remains to be seen, but the pressure is on.
Meanwhile, Thailand, Myanmar, Indonesia, Vietnam,
and The Philippines sit and wait.
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. He lived in Vietnam in
the late 1990s and has spent time in Cambodia.
(Copyright 2005 Asia Times Online Ltd. All
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