Oil and Natural Gas Exploration Production (EP) - PDF by exg15922


									reVieW oF operAtions

Oil and Natural Gas Exploration & Production (E&P)
major Achievements
 Acquisition of oil and gas interest in U.S. Gulf of Mexico from                       Acquisition of onshore exploration block in Sarawak, Malaysia
   Anadarko Petroleum Corporation (May 2007)                                               (December 2007)
 Moved to development stage at Phuong Dong oil field offshore                          Acquisition pending for exploration block offshore Thailand
   Vietnam (May 2007)                                                                      (December 2007)
 Acquisition of exploration block offshore Vietnam (November 2007)


K2 Oil Field                    Phuong Dong Oil Field               Acquisition of 16-2 Block
                                                                    Offshore Vietnam

                                                     positioning of upstream operations
                                                     Oil and Natural Gas E&P activities are an important part of the growth strategy for the Nippon
                                                     Oil Group. In fiscal 2004, we recorded production volume of 111,000 Barrels of Oil Equivalent
                                                     per Day (BOED). Fiscal 2005 saw the launch of the Nippon Oil Group’s Third Medium-Term
                                                     Management Plan, under which we invested aggressively in new interests. From this invest-
                                                     ment, production volume in fiscal 2007, the plan’s final year, grew to 145,000 BOED. Earnings,
                                                     also spurred on by soaring crude oil prices, rose substantially, exceeding plan targets by a
                                                     significant margin. Although production volume fell short of the plan’s 180,000 BOED target, this
                                                     outcome reflected a more selective approach to identifying profitable asset purchases amid
                                                     skyrocketing prices for producing oil and gas field assets.
                                                         Oil and Natural Gas E&P will remain a major part of the Group’s growth strategy under our Fourth
                                                     Medium-Term Management Plan. Launched at the start of fiscal 2008, the new plan will see us
                                                     continue our efforts to grow production volume. In the Third Medium-Term Management Plan, the
                                                     Nippon Oil Group increased volume mainly through asset purchases. By contrast, we now plan to
                                                     boost volumes by investing more heavily in exploration and by conducting additional development of
                                                     existing exploration blocks.
                                                         During the Third Medium-Term Management Plan, we acquired promising new exploration blocks in
                                                     countries like Libya, Vietnam and Malaysia in preparation for placing greater emphasis on exploration.
                                                     Under the Fourth Medium-Term Management Plan, we intend to make total investments of ¥430 billion, an
                                                     even larger amount than was invested during the Third Medium-Term Management Plan. By the close of
                                                     this plan in fiscal 2010, our goal is to boast production of 170,000 BOED. Realization of this target will
                                                     move the Nippon Oil Group ever-closer to its long-term objective of producing more than 200,000 BOED in
                                                     fiscal 2015.

                                                     Core Area strategy
                                                     The Nippon Oil Group focuses its resources on four core areas: Southeast Asia, Oceania, the U.K.
                                                     North Sea and the U.S. Gulf of Mexico. Through this strategy, we have efficiently gained the tech-
                                                     nological insight and experience that are essential for taking optimal advantage of our finite

24       nippon oil CorporAtion Annual Report 2008
                      financial resources. In addition to the Rang Dong oil field in Vietnam and the Helang and Layang
                      gas fields in Malaysia, the Group plays a pivotal role in production activities as operator of 18 of
                      the 38 oil and gas fields in the U.S. Gulf of Mexico in which it has interests. The Group functions
                      similarly in the U.K. North Sea.
                          Under the Fourth Medium-Term Management Plan, we will focus on activities in these four core
                      regions to achieve steady growth in production volume.

                      natural Gas projects
                      Nippon Oil is actively expanding its business with integrated operations that capture value across
                      the whole chain of the natural gas business from exploration to marketing. Examples of such
                      expansion include participation in the Malaysia LNG Tiga Project and the Indonesian Tangguh LNG

                                                                                                                               Review of Operations
                      Project, both of which encompass everything from exploration and development to liquefaction and
                      marketing. Natural gas produced from the first of the two aforementioned projects (Nippon Oil
Tangguh	LNG	Project
                      Group interests: SK-10 block, 75%, and SK-8 block, 37.5%) is transported via pipeline from off-
                      shore Sarawak, Malaysia, to a Malaysia LNG Tiga Sdn. Bhd. liquefaction plant, in which the
                      Nippon Oil Group has a 10% interest, to be processed into LNG. This LNG is then sold to Japan
                      and to other parts of Asia. Using a variety of short-, medium- and long-term contracts, the Tangguh
                      project sold some 6.24 million tons of LNG in fiscal 2007.
                          The highly promising Tangguh LNG Project in Indonesia, meanwhile, has roughly 14 trillion
                      cubic feet of proven reserves. After acquiring an initial stake of 12.2%, the Nippon Oil Group
                      purchased the shares of KG Berau Petroleum Ltd. from Kanematsu Corporation in October 2007.
                      The Group’s equity interest in the project now stands at 13.45%. A liquefaction plant from which
                      LNG will be sold, with an annual production capacity of 7.6 million tons, is being constructed for
                      this project. Plans are progressing smoothly toward an anticipated start of LNG production at
                      the end of 2008. The Tangguh project already has contracts for the annual sale of 7.45 million
                      tons of LNG to markets in Asia and North America.

                      Activities During Fiscal 2007 and in the near Future
                      In September 2007, crude oil production commenced at the Blane oil field in the U.K. North Sea.
                      In the U.S. Gulf of Mexico, in May 2007 Nippon Oil Group and MCX Gulf of Mexico, LLC, a sub-
                      sidiary of Mitsubishi Corporation, acquired a 23.2% stake through a joint bidding proposal
                      (11.6% each) in the deepwater K2 oil field from Anadarko Petroleum Corporation, a major U.S.
                      independent oil company, which held a 65% stake. In December of the same year, we began
                      producing natural gas and condensate at the SM44 block, which is located in the Gulf shallows.
                          In addition to these projects, production proceeded smoothly at the Rang Dong oil field in
                      Vietnam, the Mutineer-Exeter oil fields in Australia, and the Jintan gas field in Malaysia.
                      Production volume in fiscal 2007, however, declined by 7,000 BOED, or 3.9% year on year, to
                      145,000 BOED. This result largely reflected a downturn in performance last year at the Helang
                      gas field in Malaysia caused by faulty compressors.
                          On the development front, we decided to move several projects to the development phase,
                      including the Saderi gas field in Malaysia in February 2007, the Phuong Dong oil field in Vietnam in
                      May, the Cilipadi gas field in Malaysia in September, and the West Don oil field in the U.K. North Sea
                      in May 2008. Development work at each of these projects is now under way.

                                                                             Annual Report 2008 nippon oil CorporAtion   25
reVieW oF operAtions

                                                        We also conducted the full range of investigative work necessary for the development of the
                                                    Layang gas field in Malaysia. And in April 2008, trial drilling by the Group as an operator in the
                                                    WC552 block in the U.S. Gulf of Mexico revealed a commercially viable layer of gas. Prepara-
                                                    tions are now progressing quickly to develop the WC552 discovery.
                                                        As new exploration blocks, the Nippon Oil Group acquired interests in the 16-2 block off-
                                                    shore Vietnam in November 2007, and in the onshore block SK333 (as operator) in Sarawak,
                                                    Malaysia, in December.
                                                        Elsewhere, we took steps to establish a presence in Thailand by concluding an agreement that
                                                    will transfer interests in the B6/27 block in the Gulf of Thailand to the Nippon Oil Group. Addition-
Acquisition of PM 308A Block in Malaysia
                                                    ally, in April 2008, the Group, in collaboration with alliance partner Japan Energy Corporation,
                                                    acquired interests in the offshore PM308A block in waters off Peninsular Malaysia.
                                                        By forging ahead with exploration work and by pursuing new development of existing blocks
                                                    to increase production volume, we hope to strengthen the role that Oil and Natural Gas E&P
                                                    activities play in advancing the growth of the Nippon Oil Group.

     I have worked on large projects offshore for 25 years in Australia and                         Graham Slapp
     Asia. I joined JVPC (Japan Vietnam Petroleum Company, Limited)                       Offshore Installation Manager
     before its first oil was drilled and have been with the Rang Dong                        Japan Vietnam Petroleum
                                                                                                      Company, Limited
     project through all its development phases.
       As the person responsible for operations in the Rang Dong oil field
     in Vietnam, my job is to ensure all personnel work towards achieving
     the Company goals, with a special emphasis on targets for safety,
     production and environmental issues.
         I’ve been part of the team since production started here at the        development of the large number of new recruits required has been
     Rang Dong oil field in 1998. Total oil production at the field has now     remarkable. Mother Nature has tested us at times with occasional
     exceeded 148 million barrels and we’re still going strong.                 typhoons and severe weather, but as with all our major challenges,
         The reason we can keep production levels up comes down to              good engineering, strong onshore support, and appropriate offshore
     our detailed geological surveys and analyses that enable us to             procedures all help us maintain our high level of achievement.
     avoid any production declines, and maintaining a highly skilled and             We’ll continue working hard to ensure sustained production at
     motivated workforce.                                                       the Rang Dong oil field, a key oil field for the Nippon Oil Group.
         Some of the more memorable moments, both good and bad, at                   This year we are installing our eighth platform and connecting it
     the oil field over the last 10 years include the successful completion     to our Central Production Complex. This may be the last major expan-
     of major expansion projects every year, which have vastly increased        sion for our field. However, I believe that the knowledge and produc-
     the size and complexity of our operations. Our workforce has multi-        tion technologies we have gained as a result of this project can be
     plied along with this expansion, and the successful training and           readily applied to other development projects in the future.

26      nippon oil CorporAtion Annual Report 2008

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