NEW DEVELOPMENTS IN MIDDLE EAST EXPLORATION AND PRODUCTION.
Pete
Jeans Shell International E&P BV, Postbus 60, 2280 AB Rijswijk, The Netherlands
(Now
working as Independent Consultant)
Abstract
:
Little
or nothing in the way of significant new plays has emerged in the Middle East
since Saudi Aramco's huge Hawiyah Upper Palaeozoic gas discovery (which, with
follow-up success, has added ~30 trillion cubic feet (tcf) reserves in the last
5-6 years) and Petroleum Development Oman (PDO)'s Lower Palaeozoic gas play
(~25 tcf) in the early 1990s, and PDO's Infra-Cambrian Ara carbonate stringer
play in the late1990s (STOIIP >2 billion barrels (BBO), but only ~300 million
barrels (mmbo) added to reserves to date).
Active
Middle East exploration is currently strongest, and most successful, in those
countries where International Oil Companies (IOCs) are welcomed; where terms
and conditions have been relaxed; and where Production Sharing Contracts (PSCs),
or similar, are the norm. With these exceptions, and with Iraq still off-limits,
exploration has been limited by the fact that progress towards win:win relationships
between IOCs and Major Resource Holder (MRH) Governments has proved generally
intractable whilst in Iran the framework of buyback contracts - arguably acceptable
for lower-risk Development projects - has been largely unacceptable for higher-risk
Exploration projects.
In
addition, Middle East OPEC nations are focusing their efforts on major investments
in capacity-enhancing secondary recovery and gas utilization projects, rather
than on exploration: indeed, levels of exploration in Middle East OPEC states
are amongst the lowest in the world - arguably reflecting the buffer provided
by their huge reserves.
In
this paper, I will look firstly at the exploration history of the Middle East,
from antiquity to the present-day; then move to the broader upstream picture;
and finally review the Middle East upstream in a global context. Note that in
the text that follows, much of the information comes from confidential or proprietary
sources, and so conventional references may not be given.
Middle
East Hydrocarbon Exploration History (Fig 1)
Hydrocarbons
have been known, utilized, and even revered, in the Middle East since the mists
of antiquity, as evidenced by the asphalt seeps of the Dead Sea and Palestine,
and of Abu Jir in Mesopotamia, and by the 'eternal fires' of the Kirkuk region.
Modern hydrocarbon exploration commenced around the turn of the last century,
and found its first success in 1908 at Masjid-i-Suleiman in the Iranian Zagros
foothills. In the next 75 years, all major discoveries fell into one of three
structural settings or trap types, namely Zagros folds, salt domes or salt pillows,
and basement-cored arches. This is true both as regards early exploration, where
the emphasis was on surface structures (as shown on Fig. 1), and in post-WWII
exploration where the focus was increasingly on subsurface structures delineated
by seismic. Only in 1984 was an additional structural setting and trap type
(that of the Rift Basin) proven to be commercially petroliferous, with the discovery
of Alif and Thayyem fields, in the Marib and Euphrates Graben respectively.
Major
Plays of the Middle East (Fig.2)
Significant
hydrocarbon plays in the last two decades in the Middle East have been few,
and they have been dominated by Oman and Saudi Arabia. In Oman, the Huqf-sourced
Lower Palaeozoic non-associated gas play, centred on the Ghaba Salt Basin, has
proved ~25 tcf of gas reserves, which laid the foundation for the Oman Liquified
Natural Gas (LNG) scheme. The principal reservoirs are the Ordovician Barik
and Miqrat sands, located below the existing Permo-Carboniferous Haushi oil
fields of the Ghaba area, discovered in the 1970s. These deep targets only became
visible on the then newly-acquired long-offset 2D and 3D seismic data. Recent
exploration has extended the play to the northwest (onto the Central Oman -
Makarem High) and into the northeasterly continuation of the salt basin in the
Kauther area. Further south in Oman, and slightly later (late 1990s vs early
1990s), the Infra-Cambrian to Cambrian Ara Stringer play started to be proved
commercially viable, driven by new drilling and completion technology and high
quality 3D seismic. The play comprises self-sourcing Ara carbonate slabs floating
in and sealed by Ara salt. In place volumes are huge (well over 2 BBO), but
conservative reserve booking, reflecting the complexity and high Unit Technical
Cost (by Middle East standards) means that reserves currently total ~300 MMBO.
In Saudi Arabia, by contrast, the two major plays of the late 1980s - mid 1990s
have been sourced from Silurian 'hot' shales of the Qusaybah Formation. Successive
discoveries of light oil in Permian Unayzah sands, draped over basement horsts
in the Hawtah trend, southeast of Riyadh, on the western flank of the Rub'al
Khali basin, have contributed ~30 BBO to Saudi Aramco's reserves, whilst deep
exploration on and around the super-giant Ghawar field has lead to the discovery
of over 30 tcf of non-associated gas in Khuff carbonate and Palaeozoic clastic
reservoirs, above or on the flanks of basement horsts. Elsewhere in the Middle
East, exploration of the deep Jurassic play in Kuwait by KOC has proved successful
in the highly-pressure, fractured limestones of the Najmah-Sargelu sequence,
and also in the deeper Marrat grainstone shoals. Recoverable volumes, though
significant, are not yet thought to have reached the multi-billion barrel class.
Most recently, the results of NW Raudhatain-1 well suggest the emergence of
a potential Palaeozoic clastic play in Kuwait may be heralded. The Akkas discovery
in Western Iraq, close to the Syrian border (comprising ~100 mmbo in a Silurian
sand and ~7.5 tcf of gas in underlying Ordovician sands) represents a significant
extension of the Silurian-sourced Palaeozoic clastics play. Finally, it is ironic
that the largest discovery in the Middle East during this period (Azadeghan,
with well over 10 BBO reserves) does not qualify here because it is not a new
play - merely another large, gentle anticline sitting in the Zagros foreland
basin, outboard of the Dezful Embayment in Iran.
More
Recent Exploration Activity: periphery of the Arabian Plate (Fig. 3)
Exploration
on the periphery of the Arabian Plate is thriving, driven by the presence of
the IOCs, who are, in turn, attracted by the prevalence of PSCs, with their
attractive risk:reward structure. Pre-eminent in this class are Syria (especially
the Palmyrid gas play), Oman (activity throughout the country, but especially
in the foredeep of the Oman Mountains), and Yemen (primarily in the Masila Basin
in central Yemen, but new production also proved in the S1 and Auqban blocks).
Success rates in all these areas are high - attributed to modern, high-quality,
seismic acquisition and processing.
More
Recent Exploration Activity: the core MRHs (Fig. 4)
By
contrast, the core MRHs of the Middle East are characterised by National Oil
Company (NOC) exclusivity, or by provision of access to IOCs only through the
medium of Buyback or Service-type Contracts; by a focus on deeper-pool exploration
and appraisal; and by levels of exploration which are much lower than in the
periphery of the Peninsula. The sole exception to this last statement is Iran,
where NIOC is very active - striving to reverse long-term decline in existing
fields, and focussing on deeper pool and outstep tests. However, only 2 IOCs
are currently drilling in Iran (soon to be joined by a third), all exploring
under Buyback contracts. Saudi Aramco and Kuwait Oil Company continue to be
successful. The key observation, however, is the unattractiveness of Buyback
and Service-type contracts, especially for exploration: the contractual framework
offers minimum upside to the IOCs in the event of success, and hence no balance
of risk and reward. Indeed, Buybacks have been described as "all stick and no
carrot".
The
benefit of PSCs to both host Governments and IOCs is illustrated by Fig. 5:
high
levels of license uptake and exploration drilling are the exclusive preserve
of PSC-awarding countries. Even though these PSC terms are 'harsh' by global
standards (IHSE, 2002), the access to upside still provides a sufficient incentive
for many IOCs.
The
Core MRHs are building Production Capacity (Fig. 6)
Moving
to the broader E and P, Upstream, arena, it is apparent that the Middle East
MRHs are focussed on building oil production capacity and (in the case of Iran)
actual oil production. There are two principal challenges, namely - the large
tank reservoirs in the super-giant fields like Burgan, Ahwaz, and even Ghawar
are becoming seriously depleted, and operators are now targeting bypassed oil
and more heterolithic reservoirs, whilst gas and water cuts are increasing -
all factors which lead to an increase in Unit Technical Cost (UTC). - the dramatic
increases in domestic oil consumption will make the task of maintaining export
volumes increasingly difficult, especially for Iran, and not least because OPEC
quotas are based on total production, not exports alone.
A
Shift to Gas (Fig. 7)
Throughout
the Middle East, a significant shift to gas production and consumption is apparent,
with major investment focussing on three prime areas - Domestic substitution
of oil by gas (to free up oil for export) - Enhanced oil recovery, via gas injection
- Export, either in the form of LNG, or as products from Gas To Liquids conversion
(GTL), or by pipeline. Domestic substitution is the driver behind Saudi Arabia's
Natural Gas Initiative, which will see the first entry of IOCs (Shell and Total)
into Saudi Arabia since the nationalization of Aramco in 1980 (Fig. 8).
LNG
export capacity expansion is dominated by Qatar and Iran, on the back of the
~900 tcf gas reserves in the Khuff North Dome - South Pars accumulation. Qatar
is reported to be planning to increase LNG capacity from a current 14 million
tonnes p.a. to 77 million tonnes p.a. by 2010, but this expansion, and that
similarly planned by Iran, will not be straightforward. Significant competition
for key markets in the Atlantic Basin will come from Nigeria, Venezuela, and
Trinidad; in the Far East competition will come from Indonesia, Sakhalin and
the NW Shelf of Australia; whilst the W-E pipeline will pre-empt potential LNG
imports to the eastern seaboard of China. A focus on pipelines is relatively
new, but significant, with supply hubs developing in Egypt (gas to Israel, Jordan,
and Lebanon), Qatar (gas to Dubai via the Dolphin project; gas to Kuwait under
discussion), and Oman (gas to Fujairah). These projects together with the north-south
gas pipeline in Iraq (when completed) have the potential to form the 'seed'
for a Middle East-wide gas pipeline network. One negative side-effect of the
dramatic increase in gas production will be the concomitant increase in condensate
and Natural Gas Liquids (NGLs) hitting the market. Current Middle East condensate
and NGL production (excluded from OPEC quotas) is ~3.5 mmb/d, and these, OPEC-generated,
volumes are contributing to the erosion of OPEC's share of world crude markets
(see below). Recent Events and their Implications Recent events (Fig. 8) firstly
highlight the difficulty of concluding win:win deals in MRH countries (Saudi
Arabia, Kuwait, Iran, UAE: Qatar alone has been successful in attracting multiple
inward investment deals). However, pressure from external events means that
attitudes will surely need to change if Middle East MRHs are not to be left
behind in the race to attract investment funds: Iraq will open up; UN sanctions
have recently been lifted on Libya (a PSC country); whilst capital investment
requirements of the Deep Water arena (again dominantly PSC terrain) are estimated
at $15 billion p.a. for the next 3 years. Secondly, recent events also highlight
just how dramatically OPEC 10 (i.e. OPEC without Iraq) oil production is being
squeezed (Fig. 9) by a combination of burgeoning non-OPEC oil production and
weak increases in global oil demand.
Non-OPEC
supply is slated to increase by 1.2-1.4 mmb/d p.a. driven especially by Russia,
the CIS, and Deep Water (notably West Africa). World oil demand is increasing
annually by only ~1.0 mmb/d. On top of this, by 2004, Iraq is expected to bring
an average of 1.5-2.0 mmb/d to the market. In September 2003, OPEC acted and
reduced the OPEC 10 quota from 25.4 mmb/d to 24.5 mmb/d, effectively choosing
to maintain oil prices at the high end of the OPEC target range ($22-28/bbl)
rather than compete for market share. Indeed OPEC's ability to compete for market
share by opening the taps and prompting a freefall in oil price is weakening:
Fig. 10 shows that OPEC's desire to maintain high oil prices is driven by its
high oil price 'discomfort zone' - i.e. the oil price required to keep national
budgets out of deficit.
Also
shown on Fig. 10 are the comparative, significantly lower, 'discomfort levels'
of Russia/CIS and major IOCs, and also the Finding and Development costs for
Tertiary Delta Deep Water oilfields - now ~$6/bbl, or roughly half of what they
were 20 years ago.
This
illustrates the downside for MRHs of a high oil price: it encourages the development
and utilization of high technology to enable production of the marginal barrel,
notably in Deep Water, but arguably most dramatically in the Athabaska Tar Sands
(Fig. 11) where 180 BBO are now deemed economically viable by the EIA at a Unit
Cost of ~$12/bbl - resulting in the first ever significant drop in OPEC's share
of world oil reserves (from 65% to 56%).
This,
for me, is the most significant development in the Middle East oil patch in
recent years
Conclusions
The
principle conclusions of this review are :
- there have been no significant new plays in the Middle East in the last 10
years or so,
- exploration on the periphery of the Arabian Plate is thriving
-
driven by the presence of PSCs, and hence IOCs,
- exploration in the core MRHs is more limited, focussing on 3D-seismic
-lead deeper pool exploration,
- the core MRHs are focussing on building production capacity through field
re-development,
- there is a major focus throughout the region on gas
- for domestic fuel substitution, enhanced oil recovery, and export (as LNG,
GTL, or by pipeline),
- there is a dilemma facing the Middle East MRHs (the OPEC 10), namely how to
balance the conflicting needs for market share and high oil price in the face
of burgeoning non-OPEC production.
Text
Figures and Captions Author notes: Pete Jeans worked for Shell for 30 years.
From 2001-2003, he held the position of Regional Geological Consultant for the
Middle East region in Rijswijk. Pete has a Ph.D in Geology from Birmingham University,
England; is a member of the AAPG; a Fellow of the Geological Society; and is
on the Editorial Board of GeoArabia.
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