Total Hopes To Succeed In Waters Exxon Abandoned
BMI View: Total ' s 75% farm - in to a block in the Philippines ' Sulu Sea suggests upstream entrance in the country remains strong. However, Total is entering a block where Exxon spent several years and US$400mn drilling four non-commercial wells before exiting. Resource estimates suggest offshore potential in the Philippines , and with Total eager to build its presence in the Asian gas market, the French IOC may be able to succeed where Exxon failed.
Total announced its acquisition of a 75% stake from Malaysian independent Mitra Energy in Block SC56, in the Philippines' Sulu Sea. Total enters the Philippines upstream at a time of increased interest from both oil majors and independents in the country's oil and gas sector. We have highlighted Manila's attractive business environment, which is underpinned by a growing economy - factors which have supported its presence near the top of our Asian oil & gas risk/reward ratings ( see our online service, June 25, ' New Investment Highlights Strong Business Environment ').
Recent upstream activity has increased in the country on the back of a concerted government effort to drive domestic production and increase fuel efficiency in the hope of reducing the future import burden. With oil consumption set to rise, and a plan to increase the use of gas for power and industry, developing domestic resources will be key to meeting future demand affordably. However, the ongoing territorial dispute with China over parts of the West Palawan Basin continues to weigh on Manila's ability to tap domestic resources.
|Struggling Production Signals Import-Led Future|
|Philippines - Oil Production, Consumption & Imports, 2000-2016 ('000b/d)|
Total Enters Block With A Past
Total's presence will be welcome on SC56, following the October 2011 exit of US oil major ExxonMobil and Australian independent BHP Billiton, which previously held equity in the licence with Mitra. After spending some US$400mn on four exploratory wells, Exxon and BHP pulled out following their assessment that, despite gas discoveries, the finds were non-commercial. Total may be able to succeed where Exxon has failed, if the resource estimates are accurate. According to the Philippine Petroleum Resource Assessment Project, the country's total risked petroleum resources are approximately 9bn barrels of oil equivalent (boe), with more than 5bn boe located in the offshore West Palawan and Sulu Sea regions.
|Philippines - Total Risked Petroleum Resources (%)|
Among the four wells drilled on the block were the Deabakan-1 and Palendag-1A, which, according to an independent estimate cited by Mitra, had contingent resources of 134mn boe with a high estimate of 343mn boe. The new partners are wasting little time, with a new exploration phase set to begin on September 1 2012; the new seismic data set to be acquired will help determine whether Total has made a wise investment.
In June 2012, Anglo-Dutch major Shell signed a Memorandum of Understanding (MoU) for a feasibility study for the Philippines' first liquefied natural gas (LNG) terminal, with a lack of existing import infrastructure placing an artificial ceiling on gas consumption. If Total can bring its newly acquired acreage into production, there should be sufficient demand for volumes in the country, as natural gas demand is set to increase by an average of 5.7% to 2016.
|Gas Grows But There Could Be More Offshore|
|Philippines - Gas Production And Consumption, 2000-2016 (bcm)|
Does It Work For Total?
For the French international oil company (IOC), an upstream presence in a market with the scope for strong growth is consistent with its plans to build on its leading position in the global LNG, natural gas sectors and deepwater plays. This is especially true in Asia, where capturing demand is an integral part of Total's growth strategy. While Exxon may have been counting on larger volumes to justify the costs of bringing the block into production, the US$400mn sum spent on exploration in the Sulu Sea is a warning for Total, whom we have highlighted faces ongoing production problems in the North Sea and spiralling costs at flagship projects such as Ichthys LNG.