OBG talks to Yves Grosjean, General Manager, Total E&P Deep and Offshore Borneo, and Ken Marnoch, Managing Director, Brunei Shell Petroleum (BSP)

Interview: Yves Grosjean, Ken Marnoch

What potential is there for Brunei Darussalam to increase oil and gas production in the medium term?

YVES GROSJEAN: The potential for increasing production in the medium term for us is mainly represented by the Maharaja Lela South Project. It is about developing several new reservoir compartments discovered by Total, extending in depth to over 5500 metres measured from the sea surface. It is very high pressure and at this depth the limits of technology are put to the test. We have carried out the exploration for these deep resources between 2008 and 2010. The overall investment in exploration was expensive, at some $350m. We expect to increase output in 2015 by about one-third because of this project. We are today producing a yearly average of 3.7m cu metres of gas per day and we will be ramping up in 2015 to 5m cu metres annual average.

KEN MARNOCH: There are a number of different opportunities for all the players in the Sultanate. From our perspective there are many prospects, but speaking for Shell in a global context, Brunei Darussalam is seen as one of the places with a good track record of success and a varied portfolio of possibilities, including onshore exploration, offshore exploration and, especially, deepwater exploration. Our view is that we have prospects that will allow us to continue at the size and scale that we are at for the next 20 years. For Brunei Darussalam as a whole, I believe that future growth will come from deepwater reserves, but there are also very promising prospects to boost production outside of Bruneian waters. In the future I expect the country to evolve in the same manner as Petronas. Brunei Darussalam has key expertise in this field can harness its knowledge, coupled with its regional relationships, and look externally for new opportunities and partnerships.

In terms of technical difficulty, how does exploration and enhanced extraction in the Sultanate compare to other oil and gas producers in the region?

MARNOCH: Reservoirs are very complex in Brunei Darussalam. There are lots of faults, compartments and other geological challenges, which is one of the reasons why the country has been at forefront of some of the latest technology involving how to develop small, disconnected accumulations of oil and gas. We are continuing to look into new technology and these are coming on-line as deeper prospects mean higher pressure, and more advances in technology. The challenge in these new places being opened up is simply finding hydrocarbons, which means first finding reservoir rock.

GROSJEAN: The challenges here are not very different from what we have in other petroleum basins. The bread and butter of our industry remain in the proven petroleum basins. In this regard, it is all about implementing the best technology in all disciplines. Well design and engineering for instance are of the utmost importance.

With regard to the geosciences, the issue is about getting access to the best data and information, and we are investing heavily in subsurface imaging technology to maximise use of advanced 3D seismic acquisition and processing. Returning to the Maharaja Lela South reservoirs, it is worth noting the high operation costs attached to the depth and pressure. Indeed, the development wells cost up to $100m each, meaning that we are on par with deep offshore costs.

How would you assess the quality of human resources available locally in the oil and gas sector?

GROSJEAN: The main difficulty we have is attracting experienced staff. Our challenge stems from being small in Brunei Darussalam. With only one asset we cannot afford a large workforce. Also our activity has a lot of ups and downs that must be taken into account at the time of recruitment, and planning the future development of our employees. We have adapted our organisation to the realities of the Sultanate, where we can attract very talented young graduates or less experienced people coming from other sectors. We are engaged in a recruitment programme that will see our local workforce double by the end of 2013. And we have been pleased by the quality of people we could recruit.

MARNOCH: Everyone is fishing in the same pool for local talent here. What I see in BSP are keen, talented and enthusiastic people. The opportunity we have to free up some of the talent here depends on how well the industry can work with the Ministry of Education and others to assess and create the competency framework associated with the industry. Many of the initiatives taken in the last two years related to bringing industry and education together with a shared agenda rather than each side waiting for the other to sort things out. In some cases the local oil and gas human resources are as good as any other country, and I honestly believe Bruneian staff could easily compete anywhere else in the world. Sometimes people do not see the advantages here. There is a good local knowledge of English and technical understanding, which contribute significantly to our operations.

To what extent is there scope for growth of local oil and gas logistics and services companies?

MARNOCH: There is a lot of scope in different ways. Historically BSP has run everything vertically within the company. We have our own helicopters, schools, supply and logistics base. There are some areas where local business could fill a role and others where the activity levels will change with increased activity, and there are possibilities to create jobs. Deepwater facilities can be one of these areas. At the moment we have 200 facilities and only three are manned. When you talk about deepwater there are fewer facilities yet they are bigger and more complex. This will change the dynamic associated with the industry as it continues to evolve.

GROSJEAN: There is definitely scope for Brunei Darussalam to develop local companies and even more local employment in these companies. The government has clearly identified this opportunity. The minister of energy is driving a number of initiatives to allow the oil and gas sector as a whole to reform and achieve what actually should have been done long ago. New processes and regulations are being set up, and we are strongly contributing to the consultations and thought processes involved in these developments. Mature logistics and service companies compete on an international basis and have developed advanced tools and technology. It is most likely that joint ventures with them will be required for local companies to get a foothold in the market. The possibilities are about defining the opportunities and developing proper business plans. The market segments are quite specialised and the very nature of our activity means that activity can be quite cyclical.

Given oil price volatility, how are oil majors approaching investments in advanced extraction?

GROSJEAN: For Total’s operations in Brunei Darussalam it is not so much the oil price but the gas price that affects us. The gas market in the Sultanate is now diversifying.

There is not only BLNG, but also new consumers such as petrochemicals companies like Brunei Methanol Company, with prices that are negotiated with each client individually. In the long term, we need the gas price to offer appropriate returns as per exploration and production investment, and as I have explained before with the example of the Maharaja Lela South Project, costs are increasing as we target deeper, smaller and lessproductive deposits. Higher investments related to gas exploration need to be compensated by a higher price.

A drop in gas price due, for example, to a contagion of the East Asian gas market by the North American market would indeed negatively affect us.

MARNOCH: Everything has to have an economic value. The question around enhanced oil recovery, or any investment for that matter, is not going to happen without some amount of risk. At the same time, you cannot risk the whole company trying to make it happen. One of the advantages for BSP is that we have operations at a size and scale where we can do significant levels of testing without compromising the company. We also aim to maximise our position as part of Shell’s global operations. We can learn from our experiences around the world and share them locally as well as vice-versa.