Lure of deep sea oil could bring investment back to Indonesia: Unocal

Deep-sea oil fields off Indonesian Borneo could hold the key to a new millennium revival of the country's crisis-shattered economy, an American oil company official has told industry players in the Asia Pacific.

Unocal's Indonesia chief, Brian Marcotte, told a three-day international energy conference in Jakarta last week that deep offshore explorations along the eastern Borneo coast were throwing up a wealth of new discoveries.

Unocal Indonesia is a subsidiary of California-based Unocal International.

It has been tapping into Indonesia's onshore and shallow-water offshore oil and gas resources since 1968, when it signed its first production sharing contract, and last year accounted for 4.9 percent of Indonesia's total crude production.

But now, says Marcotte, although Indonesia's most accessible onshore blocks have been staked out, the post-2000 future lies in the black gold surging thousands of feet of below the ocean's surface along the shores of Indonesia's East Kalimantan province.

East Kalimantan takes up the central eastern section of Borneo island. Borneo is also home to the tiny oil-rich sultanate of Brunei, and Malaysia's easternmost states.

In the last four years Unocal has been exploring in "deeper and deeper water" in East Kalimantan, Marcotte said, "pushing the limits of deep water drilling."

The prizes for drilling deep have been considerable.

In 1996 the company's first one-thousand-feet-plus drill resulted in the discovery of the huge Merah Besar (Big Red) field within three months. That was with a shallow water rig, Marcotte said.

The following year, Unocal's first probe below two thousand feet took four months to throw up the three thousand foot-deep Seno field.

West Seno is now under development as part of the Makassar Straits Production Sharing Contract, with first production anticipated in late 2002.

Unocal's first venture below 4,000 feet resulted in three discoveries. A thousand feet deeper in September 1999 netted another two strikes.

The US explorer is currently pushing below 6,700 feet, and now counts 80 deep-water wells in East Kalimantan.

"Sustaining discoveries continue to be made," Marcotte told conference delegates, calling the East Kalimantan finds "a new horizon in the oil and gas arena."

Comparisons with the Gulf of Mexico in the United States indicate how attractive the deep sea fields are, he said.

There, the number of exploration wells drilled to depths of 5,000 to 7,500 feet tripled in just 12 months, jumping from 10 in 1998 to 31 in 1999, said Marcotte.

Citing figures from the US Minerals Management Service, Marcotte said 50 percent of offshore production now came from deep water production.

"This is why I am optimistic about energy as a foundation for the new millennium in Indonesia," he said.

Marcotte believes the lure of the deep-sea fields should be strong enough to overcome the litany of disincentives foreign investors have faced over the past few years in turbulent Indonesia.

Among them, he said, were uncertainties in the security of operations, with imminent changes in Indonesian regionalisation and contract laws, bringing fresh potential problems for oil and mining contractors.

Unocal has been a prime example of contract insecurity in post-Suharto Indonesia; its six-year-old geothermal operations at Gunung Salak, south of Jakarta, experienced trouble when the Asian financial crisis set in.

Only partial payments were made by Indonesia's cash-strapped state electricity firm PLN, with the validity of original Suharto-era contract terms, along with other private power suppliers, a major political football.

Marcotte says a long-term resolution still has to be fixed, although the feared scenario of loan defaults was avoided.

Unocal and its partners, he said, planned to invest 700 million dollars in offshore facilities, drilling and pipelines over the next two years.

"(These developments) are part of a clear message to the outside financial community that investment can proceed in Indonesia when the principles of commercial relationships are clearly understood."

Unocal currently operates nine offshore oil and gas fields and two onshore processing terminals in Indonesia. (*)