hunt begins for onshore oil in brunei

By Kevin Brown in Bandar Seri Bagawan

Published: April 22 2010 03:00 | Last updated: April 22 2010 03:00

In a clearing in the Borneo jungle, just off a single track road at Lukuk, 32 kilometres from the capital of Brunei, sits a drilling rig surrounded by what looks like mounds of thick black oil oozing from the ground.

Unfortunately for the oilmen sweating in the tropical sun, it isn't going to be that easy to hit pay dirt; the black stuff is just mud, thick with decayed plant life, which has been excavated to create a firm foundation for the rig.

The start of drilling at Lukuk is an important moment for Brunei, however. The well is the first to be drilled onshore in the former British colony since 1988 and will be followed by at least three more this year as Canadian and Australian oil groups explore two huge blocks licensed by the Brunei government.

"This is a classic oil province with huge potential," says Trevor Slater, country manager for Melbourne- based AED Oil, the Australian listed company handling exploration in a 2,220 square kilometre region covering an area offshore and onshore of eastern Brunei called block L. "The drill bit never lies, and we will soon find out what we have, but the probabilities of success are reasonably good," says Mr Slater.

Brunei is already a significant oil and gas producer. Two offshore fields - Seria and Champion - have each produced more than 1bn barrels of oil for Brunei Shell Petroleum, a joint venture between the government and the Anglo-Dutch oil major.

With the exception of some coastal wells that are part of the Seria field, however, no onshore oil or gas has been produced since 1962.

The fresh round of exploration has been prompted by rising oil prices as well as new technology, such as 3D seismic surveys.

"This is the best way to confirm the main risk, which is the structural composition of the field," says Blaine Ulmer, development manager for Perth-based Tap Oil, the Australian- listed company managing exploration in a separate 3,011 sq km area known as Block M.

"3D does not resolve the riddle, but it helps us to see more clearly - although it's not a magic bullet."

John Vautrain, head of Asia Pacific business at Purvin & Gertz, the US energy consultancy, says higher prices and better technology are prompting similar re-evaluations of apparently dry fields at several other locations in Asia.

Some have hit the jackpot, such as the 440m barrels of oil equivalent (boe) found by Murphy Oil of the US in a part of the South China Sea that had already been explored by Shell.

"It is always possible that there could be substantial reserves in these fields," says Mr Vautrain.

Kulczyk Oil Ventures, a Canadian oil group with a big stake in both Brunei blocks, says it estimates total prospective resources at about 80m boe in Block L and about 60m in Block M.

Kulczyk, controlled by Polish businessman Jan Kulczyk, is preparing for a $265m initial public offering on the Warsaw Stock Exchange next month.

Back in the jungle, the oilmen are more cautious. "There is a chance that we won't get our money back," says Mr Ulmer.

"We've spent $50m, we may spend another $30m, and we may not find enough oil to recover that.

"We will find oil, we know there's oil there, but it may not be in commercial quantities."

http://www.ft.com/cms/s/0/7817e236-4da6-11df-9560-00144feab49a.html