By DAVID BROWN
EXPLORER Correspondent

Offshore Plays Boosting Production

Vietnam Finds Oil in the Basement

Northern Vietnam Offshore Discovery Sparks Potential Territorial Dispute

PetroVietnam announced the first discovery of oil offshore northern Vietnam in October 2004.

The find came in the area of Blocks 102 and 106 of Yen Tu field, about 70 kilometers east of Hai Phong, with an initial reserves estimate of 700-800 million barrels.

Venture partners include the company's Petroleum Investment and Development Co., Malaysia's Petronas and the Singapore Petroleum Co.

China quickly announced it was concerned and displeased by Vietnam's exploration in the area.

Territorial rights in nearby parts of the South China Sea have been claimed by six countries -- China, Vietnam, Malaysia, the Philippines, Brunei and Taiwan.

Prospects in Vietnam

Vietnam rarely makes headlines for petroleum development.

But consider:

Vietnam ranks third in oil production among Association of South East Asian Nations countries, trailing only Indonesia and Malaysia.

If its current rate of development continues, Vietnam will become the world's 30th largest oil-producing nation.

And perhaps the most startling aspect about Vietnam -- most of its production comes from offshore basement reservoirs.

Attractive Reserves

To date, Vietnam has produced almost a billion barrels of crude oil and 300 billion cubic feet of natural gas, according to Viet Anh Nguyen, new ventures coordinator for national oil company PetroVietnam.

Nguyen estimated 2004 total output at 130 million barrels of oil and 200 Bcf of gas.

The country's estimated resources, both onshore and offshore, now stand at 6.5-8.5 billion barrels of oil and 75-100 trillion cubic feet of gas, he said.

Current oil and gas production comes from fields in the Cuu Long, Nam Con Son and Malay-Tho Chu basins, with gas also produced in the Song Hong Basin.

Click to enlarge.

PetroVietnam began 2005 in the middle of a licensing round for nine blocks in the Phu Khanh Basin, offshore the south-central coast of Vietnam. The offered blocks average 7,000 square kilometers in size.

Water depths in Phu Khanh range from 50 to 2,500 meters, and sediment thickness extends up to 8,000 meters, the company said.

Additional, frontier exploration areas include parts of the Hoang Sa and Truong Sa group of basins.

Because of challenging conditions, exploration in those areas may be limited to small, prospective acreages of interest, Nguyen said.

Geological Setting

A system of Cenozoic sedimentary basins defines the 1 million-square-kilometer Vietnamese continental shelf area, according to descriptions from PetroVietnam.

These rift basins lie within a transitional zone from the continental crust of the Indochina Craton to the suboceanic crust of the eastern deepwater area.

Most of the main structural elements occurred during a Late Eocene-Oligocene rifting phase, with extension and transtensional deformation.

Local uplift, rotation and erosion began in the mid-Oligocene, followed by regional subsidence. Compression dominated the area, later subject to diverse, low- to moderate-amplitude tectonic activity.

Oligocene-Early Miocene lacustrine shales and deltaic coals and coaly claystones constitute the main source rocks, showing potential for both oil and gas generation.

Clastics -- delta plain, fluvial channel, submarine slope fan and turbidite sandstones -- make up the most common reservoirs. However, exploration has found fractured granite basement to be an important oil-bearing reservoir type.

PetroVietnam now has an extensive history of working with foreign companies in exploration and development ventures.

In October the company signed a contract with Idemitsu Kosan Co., Nippon Oil Corp. and Teikoku Corp. for exploration on two blocks in the Nam Con Son Basin.

According to PetroVietnam, that was the 48th petroleum contract signed with foreign companies since the Vietnam Foreign Investment Law took effect in 1987.

Roaring Young Lions

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Oilfields in the Cuu Long Basin offshore southeastern Vietnam typify the country's fractured basement reservoirs.

Bach Ho (White Tiger), Vietnam's largest oilfield, produces almost 280,000 barrels of oil per day from granitoid basement.

Recently, a basement-reservoir play extension in the nearby Su Tu or "lion" fields generated wide industry interest.

The Su Tu Den (Black Lion) field currently produces about 80,000 barrels per day, but PetroVietnam expects to increase output to 200,000 barrels per day within three years.

In September, PetroVietnam announced that up to $300 million dollars will be spent on production enhancement in Cuu Long Block 15-1, where Su Tu Den is located.

Neighboring fields Su Tu Vang (Golden Lion) and Su Tu Trang (White Lion) also show promise for production increases, it said.

Wallace G. Dow, an AAPG member and consultant in The Woodlands, Texas, calls the Cuu Long oil "paraffinic, classic lacustrine crude" expelled into fractured basement from lower source rock.

"The oils in the basement are virtually identical to the oils in the sandstone sitting around the basement," Dow said.

"This is the key -- they migrate updip through faults into the basement, in horst blocks," he said.

Dow emphasized that the oil's components indicate a lacustrine organic facies with lipid-rich, land-plant debris and fresh-water algal material, refuting theories of abiogenic origin in this area.

Exploration Challenge

Discoveries on basement highs in Cuu Long can encounter thousands of feet of oil column.

"When you open up a 1,000-foot section, you don't need more than 2 or 3 percent porosity. The oil migrated recently, so it's still all there. You can produce a lot of oil," Dow said.

Cuu Long's challenge is predicting where to drill, according to Dow, and "a lot of companies have lost their shirts trying to drill these darn things.

"The whole problem is, how do you do these plays?" he asked. "Some companies want to believe there are plays away from these horst blocks. I'm sure there are, but are they economic?"

A joint venture, Cuu Long Joint Operating Co., conducts oil and gas development on Cuu Long Block 15-1, including the Su Tu fields.

Partners are:

• PetroVietnam, 50 percent.
• ConocoPhillips, 23.25 percent.
• Korean National Oil Corp., 14.25 percent.
• South Korean oil refiner SK Corp., 9 percent.
• French company Geopetrol, 3.5 percent.

Operating in Vietnam is "like operating just about anywhere else," said Georg Storaker, ConocoPhillips country manager of Vietnam in Ho Chi Minh City.

Storaker said the venture's general manager is seconded in from PetroVietnam and the deputy general manager from ConocoPhillips, with other companies providing representation.

By agreement, partners make operating decisions jointly, under voting rights specified in the working contract.

"It works. It's functional to do it this way," Storaker observed. "But it tends to become very bureaucratic to operate in this fashion."

He said Vietnam may return to the partner-operated approach used in earlier government-sponsored ventures, providing more direct operator control.

Build-As-You-Go

Having no refining capacity of its own, Vietnam exports all of its crude production and imports processed fuels and petrochemical products.

"All oil markets are out of the country," Storaker said. "All gas production is going into domestic markets, primarily for power generation."

With minimal petroleum infrastructure in place, development can be a build-as-you-go effort. Much of the support manufacturing takes place in Vietnam, according to Storaker.

"The simple wellhead structures, the jackets and topsides, we build here in Vung Tau, the harbor city just outside of Ho Chi Minh City," he said.

The Cuu Long venture had no problem identifying prospects on Block 15-1, said Bill Schmidt, ConocoPhillips general manager for Vietnam.

"The first well that was drilled was a successful discovery," Schmidt said. "It was targeting the basement. The block was picked up based upon the success of the Bach Ho field."

Basement reservoirs at Bach Ho and the Block 15-2 Rang Dong field, where ConocoPhillips has a 36 percent interest, indicated the play concept could be extended.

"For that reason, there was a lot of interest in what was considered this 'golden block,' Block 15-1. Basically, it came in as expected in Su Tu Den and Su Tu Vang," Schmidt said.

"They were the two nicest structures on the block," he added.

Riding a Horst

The company's ongoing development plan is typical of local operating style: Find a horse, or horst, and ride it.

"Block 15-1 is the one that has the longest life, that we're tying most of our future on," Storaker said. "The Rang Dong field that got us started has a life expectancy of 2017.

"We are now moving into the preliminary engineering phase of Su Tu Vang," he continued, "and if everything goes the way we hope, we would like to sanction it in 2005 for first production in 2007."

The third discovery, Su Tu Trang, is in evaluation. It initially tested at 70 million cubic feet of gas and 8,500 barrels of condensate production per day, Storaker said.

"We have been shooting a lot of seismic work on that structure in the past year," he added, and an appraisal well is slated for 2005.

"We are also likely to go out and drill an exploratory well on another prospect we see out on the block," Storaker said.

At Rang Dong, where water injection began in 2004, ConocoPhillips plans to add one production platform and one new liquids handling platform this year.

ConocoPhillips also holds an equity interest in the 242-mile Nam Con Son pipeline system, linking gas supplies from the offshore basin to gas markets in southern Vietnam.

For the period 2005-10, PetroVietnam plans to triple gas production and add 7-to-10 new oil and gas fields, Nguyen said.

Vietnam also will focus on infrastructure construction to develop its domestic natural gas market and reduce dependence on imported oil products.

Things in Motion

After a series of false starts and delays, including the loss of a Russian venture partner, PetroVietnam now plans to begin operating a $1.6 billion, in-country refining complex at Dung Quat by 2007.

Vietnam continues to develop rapidly, Storaker said, promising a stronger domestic market for transportation fuels and power-generation gas in the future.

"It's growing quite fast -- there is a growth rate of about 7 percent a year," he said. "There's a focused effort here on getting more high-tech industry into this area.

"There's tons of things to be done to, for example, catch up with the speed of the neighbor to the north," he added.

Continued exploration success in Vietnam presents the industry with an increasingly attractive place to work, to operate and to chase offshore plays.

"Things are in motion down here," Storaker said.