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VIETNAM

"Bright Star" Vietnam Moving into Unchartered Territory

Jim Redden, Contributing Editor

Though it may not contain the known reserve base or production rates of neighboring Indonesia or Malaysia, Vietnam nonetheless has emerged as a "bright star" in Southeast Asia. So says Bob Fryklund, IHS vice president of global E&P critical information analysis, who adds that both proven reserves and daily production are expected to increase appreciably as the nation's eclectic group of operators move into more exotic plays. "For years in Vietnam, everybody just worked a couple of basins. Now, with the country wide open, companies are working all these other unexplored basins. Traditionally, they tended to focus on just the basement play, which was all fractured, but some of it was carbonates, some of it was granitic-type rock, and some of it was volcanic rock. Now, clastic plays are starting to pan out and some of those will move out into the deeper water," he said. To date, Vietnam has proven oil reserves of approximately 600 million bbl, which Fryklund predicts will reach 1 billion bbl with the fields that came on line in late 2008 and those scheduled to begin production this year and early next year. State operator PetroVietnam, however, says the results of earlier studies suggest that total offshore and onshore reserves could be as high as 6.5 to 8.5 billion bbl of oil and 75 to 100 Tcf of natural gas. Figures from the US Department of Energy's Energy Information Administration show that the nation's production rate, which is entirely from offshore, is 283,000 BOPD, compared to 943,000 and 601,000 BOPD for Indonesia and Malaysia, respectively. Between existing fields, those expected to come on line over the next 2 years, and prospects for frontier plays, research analyst Business Monitor International predicts that Vietnam oil production will increase by 6.5% between 2008 and 2018, peaking at 400,000 BOPD next year. Gas production, it predicts, will rise from the estimated 10 billion m3 produced in 2008 to 27 billion m3 in 2018. According to IHS, last year a total of 31 exploratory wells were spudded, of which 16 were classified as wildcats. The 2008 drilling campaign technically resulted in six discoveries, but the actual count is eight when the two wells spudded the previous year are taken into account. "Vietnam certainly is not a giant in Southeast Asia like Indonesia and Malaysia, but its [reserves] are respectable and will be very important as the country continues to grow," Fryklund said.

New Output On Line

Fields that began ramping up in 2008 and others coming on stream this year or in early 2010 will add a supplementary 350,000 bbl to Vietnam's daily production rate, Fryklund said. For example, the Cuu Long Joint Operating Company Block 15-1 Su Tu Vang field began first production late last year, and the operator's Su Tu Den field is expected to go on line in early 2010. Both are located within the 3840-km2 (2,386 sq mile ) Cuu Long Basin Block 15-1 in the South China Sea. In late 2008, the Japan Vietnam Petroleum-operated Phuong Dong field on Block 15-2 also began production, as did the Talisman Energy Song Doc on Block 46/02 and the giant ConocoPhillips-operated Su Tu Vang (Golden Lion) field on Block 15-1. Golden Lion began producing late last year at a rate of 100,000 BOPD, which will make it Vietnam's largest source of crude oil over the next 3 years, the operator said. More recently, in late July Hoan Vu Joint Operating Company (HVJOC) began production of its 20,000 BOPD Ca Ngu Vang (CNV) (Golden Tuna) oil and wet gas field in Block 9-2. In 2011, Talisman Energy plans to begin production of its Hai Su Trang (White Sealion) and Hai Su Den (Black Sealion) fields, which are located in Block 15-2/01 and part of a larger exploration campaign between the Canadian operator and PetroVietnam. Today, exploration is centering primarily in the Song Hong; the deepwater Phu Khanh; the Nam Con Son; the gas-rich Malay-Tho Chu; and the prolific Cuu Long Basin, home of the giant Bach Ho and Rang Dong fields, which produce from both tertiary and basement formations. Recent field developments are focusing on the Cuu Long and Nam Con Son basins. One of the most recent projects in Cuu Long is the CNV field on Block 9-2, which was discovered in 2002 with exploration well CNV-1X and confirmed with appraisal CNV-2XA less than a year later. HVJOC, comprising partners PetroVietnam Exploration and Production, Soco Vietnam, and PTT Exploration and Production, operates the field currently in production. First oil and wet gas came on stream in July 2008 from the basement reservoir with production expected between 10,000­20,000 B/D of oil and 25­50 Tcf of gas. The field is a tie-back to Bach Ho in Block 9-1, which is the first time the infrastructure of that long-time field has been employed for a new development.

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20 18

20 18 16 14 12 10 8 6 4 2 0 2000 2001 2002 2003 Exploration 2004 2005 2006 Discoveries 2007 2008 Appraisal

Number of Wells Drilled

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Courtesy of IHS.

Fig. 1--(a) Historical summary of Vietnam drilling results and (b) 2008 discoveries by operator (Courtesy of IHS).

Four development wells already have been drilled on CNV with additional locations under evaluation. Since its discovery, the high compressive strengths and other characteristics of the CNV field have generated more than their share of downhole difficulties, including bit and bottomhole assembly balling, stuck pipe, drillstring twist off, and stick/slip, says Le Van Hung, HVJOC senior drilling engineer. However, he noted that as operators move into more untested regions and infield plays, the drilling challenges are not relegated solely to the basement plays of the Cuu Long Basin. "The biggest challenge we have now is the move toward high-inclination wells with a longer horizontal section. For example, Japan Vietnam Petroleum and Cuu Long Joint Operating Company recently drilled wells with more than a 4500-m (14,764 ft) horizontal section. Five years ago, nobody did this," he said. "Also, we are seeing well total depth in the granite sections getting deeper. For example, we drilled a [basement] well to 6526 m MD [21,411 ft measured depth] with 4500 m TVD [true vertical depth]. In Vietnam, we also have begun drilling more high-temperature/high-pressure exploration wells with bottomhole temperatures of around 180°C (356°F) and

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pressures of 13,800 psi. The primary drilling challenges we face today are high losses in the basement, requiring highdensity mud, shale inhibition, and instability and availability of services," he added. In basement reservoirs, Fryklund said it is completions that cause the most headaches for operators. "Basement rocks can give you a lot of issues with completions. While they have the logging down pretty well, completions have presented some challenges. For instance, if volcanics are involved you have to check continually on the different fluids to make sure nothing is interacting."

New Plays Offer Potential

Because the Vietnam offshore remains underexplored, Fryklund said a number of highly promising opportunities clearly exist in relatively unchartered territories. "The whole coast of Vietnam has a lot of potential in all those basins," he said. "What we are seeing now is a lot of plays extending up and down the coast from the border with China and all the way down to the border with Cambodia." By way of example, he pointed specifically to US-based Plains Exploration and Production's White Shark exploration

JPT · OCTOBER 2009

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VIETNAM

getting involved now in the Nam Con Son Basin. Gazprom, for example, received a couple of new blocks close to the Thailand border and Chevron also has some gas fields that are not yet developed. So, overall Vietnam is really trying to diversify its supply," Fryklund said, adding that the Gulf of Tonkin has long served as the nation's primary traditional source of natural gas. That diversity extends to coal bed methane (CBM) with two pilot projects under way in the Hanoi Trough. Early this year, Australia's Arrow Energy spudded the first of eight CBM exploratory wells on its onshore MVHN-01KT Block 100 km (62 miles) from Hanoi and adjacent to the Thai Binh industrial area. Keeper Resources also began drilling operations on a second CBM program in the Red River Basin of the Hanoi Trough. "Both of these projects are in the pilot mode," Fryklund explained. "What is happening is Vietnam's traditional sources [of power] are drying up in that area, so what they are doing is using CBM to go forward. This certainly is not a world-class play, but it could help diversify their supply."

Cambodia

Tuy Hoa

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Nha Trang

Phan Ly Cham

Ho Chi Minh City

Prospects Going Forward

Fig. 2--Location of Block 124 in Phu Khanh Basin.

discovery on maiden Block 124 in the Phu Khanh Basin off the eastern coast and north of Ho Chi Minh City. In early June, Scotland-based Premier Oil announced a discovery with its Ca Rong Do (Red Emperor) exploration well on Block 07/03 in 319 m (1,047 ft) of water. Both of these discoveries, Fryklund said, are examples of the new plays unfolding throughout Vietnam offshore. "Plains' [discovery] really is a play opener, as we like to call them. The company basically has moved to a new basin and that well opens up the middle of the country and opens an entirely new play in high-potential wells. This was the first well in that sub-basin and it was successful. There will be a lot of room to run in that basin," he said. Plains spokesman Scott Winters said data from White Shark is being evaluated as a prelude to drilling the second prospect on the block. The Purple Tiger well is expected to be drilled during the third quarter, he said. Meanwhile, the Red Emperor discovery in the largely unexplored Nam Con Son Basin is significant, Fryklund said, for its potential role in opening further the deeper water basins of Vietnam. "It's significant because it is way past the traditional Phu Khanh [deepwater] basin and is almost on the border with Malaysia." Other high-potential frontier exploration areas include the Vung May, Hoang Sa, and Truong Sa basin groups.

CBM Joins Mix

It is said often that natural gas will feed the big engine that drives Southeast Asia. Unlike its neighbors, Vietnam primarily has been an oil province, but that is about to change as the country looks to both conventional and unconventional gas to replace its traditional power sources. "Traditionally, this is a country that primarily received its power from hydroelectric and coal, but now it is looking to change that mix with natural gas. Associated gas, of course, is generating a lot of interest and a number of companies are

Supply diversity, indeed, has become the mantra in Vietnam, which saw its oil production decline significantly in 2005 and 2006 after peaking in 2004 at more than 400,000 BOPD. Spurred by the production dip and a need to secure new supplies, PetroVietnam went on a global campaign, which Fryklund said now includes operations in 11 countries. "A lot of that [globalization] was driven by the fact their production had been declining, until recently," he said. "Now, it is increasing." According to Fryklund, much of the increased activity in what has always been a pro-investment environment can be attributed to the nation reversing inflation that had soared to double digits and, subsequently, put the brakes on a number of E&P projects. "Last year, inflation was something like 23%, but this year it is in the 7% range. That [high inflation] always has been Vietnam's Achilles heel, but they are now out of the double-digit realm going forward," he said. Whether owing to a dramatic reduction in the inflation rate, highly promising prospects, or a combination of both, Fryklund said Vietnam obviously has something going to attract one of the industry's most diverse collection of players, both majors and independents, alike. "Unlike the more mature areas, Asia traditionally has been a pretty mixed group, but Vietnam is interesting in that it really has a wide mixture of players, both the big guys and independents. Another thing that is interesting is that we have recently seen a lot of the majors, like Total and Petronas, come back. The perception of the prospect size in Vietnam is changing and more companies are coming in, particularly as they began looking more and more at these clastic plays," he said. Going forward, IHS anticipates E&P activity moving farther offshore in the Phu Khanh, basin and the delta, which may be limited only by decades-long border disputes with China. "In the north, Petronas drilled an interesting well that may add a little zip in that area around Hanoi. And, of course, the third key area is the one where Plains is working," Fryklund said. JPT

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