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OMV: 'neutral tone' about Romanian black sea gas

Friday, November 23, 2012

Jaap Huijskes, head of exploration and production at Austrian oil and gas operator OMV, talked to Finding Petroleum / Digital Energy Journal about the company's expectations from Black Sea deepwater gas, how it is stabilising production in Romania and Austria, and its other development projects around the world

Austrian oil and gas company OMV says that it is 'trying to strike a neutral tone' about the prospects for deep-water gas in the Black Sea offshore Romania.

The company announced in February this year that its Domino-1 well in the Neptun block, 170km offshore Romania in the Black Sea, owned 50:50 with ExxonMobil, had found gas reserves, with a preliminary estimate of between 1.5 and 3 TCF (trillion cubic feet).

'What we're trying to do is strike a balance between being excited and being realistic,' said says Jaap Huijskes, head of exploration and production at OMV.

'We're sounding a little bit cautious - we don't know what we're going to find. I'm trying to strike a neutral tone.'

But 'when you find something the phone is always ringing.'

'This is not easy, this is not cheap. It is very deep-water and very far offshore,' he said.

To get a feel for how big 1.5 to 3 TCF is, Norwegian gas exports to date are a total of 1.1 trillion cubic metres of gas, which is about 39 TCF. Remaining gas reserves in the Ormen Lange field are estimated at 300bn cubic metres, or 10.5 TCF.

When the discovery announcement was made in Feb 2012, OMV CEO Gerhard Roiss was reported as saying that it might be the largest gas find OMV has ever made.

The company has recently started a 7,000 km2 2D and 3D seismic survey over the Neptun block, conducted by CGGVeritas, using one vessel. To get an idea of the size, an average North Sea block is 200-300km2.

Actual production is not expected for 'decades', Mr Huijskes said, with the seismic data probably being interpreted during 2013. 'It will take a couple of years before you drill a well.'

Bringing a drilling rig into the Black Sea is a complex procedure, because much of the topsides need to be removed in order for it to pass under the bridges across the Bosporus, the channel between the Mediterranean and the Black Sea. 'The Black Sea is not full of deep-water rigs,' he said.

OMV already has shallow-water production, through its subsidiary OMV Petrom.

Any gas found in Romanian sector of the Black Sea is likely to be used in domestic (Romanian) markets, replacing import gas. 'The Romanian state has a preference to use whatever we find domestically,' he said.

Bulgaria and Ukraine

The company has also acquired acreage in neighbouring Ukrainian waters of the Black Sea to the North, and Bulgarian waters of the Black Sea to the South.

'We're enthusiastic about deep-water gas in Romania - we want to see if there's potential nearby. You go North and South of where you are,' said Mr Huijskes.

The Ukrainian block is called 'Skifska', in a consortium led by ExxonMobil, joined by Shell, OMV Petrom and Nadra Ukrainy, a Ukrainian national oil company, beating Russia's Lukoil in the bidding.

The Bulgarian block is called Khan Asparuh, and is a consortium led by Total (40 per cent), with OMV and Repsol each having 30 per cent.

'We think we've got the prime spots for now,' he said.

After the current survey, 'We'll probably shoot seismic in at least 1 of the 2 countries (Ukraine and Bulgaria),' he said.

It is possible that production could be made in other areas of the Black Sea, including offshore Turkey. 'We'll have to see what happens in Bulgaria first,' he says.

Austria and Romania

For OMV's exploration and production strategy for Austria and Romania, the company wants to stablise production.

OMV saw a nasty drop in production in Austria and Romania from 232 kboe/d in 2007 to an expected 208 kboe/d in 2012, and wants to keep production stable at 200-210 kboe/d until 2014.

OMV acquired what was previously the Romanian state oil company, Petrom, in 2005, to form a subsidiary OMV Petrom.

Austria and Romania account for about two thirds of the company's global production.

It has a range of projects underway to stabilise production, including de-bottlenecking facilities, water injection, Eur 100m capital expenditure in 2012, and a polymer enhanced oil recovery pilot project in Austria.

'That's not an easy game,' says Mr Huijskes.

'Some fields have been in production for more than 100 years. Romania prides itself at being one of the first oil producing areas of the world. But average recovery rates are still relatively low.'

Onshore in Romania, 'there is still exploration to be done, most of it is relatively small,' he said.

There is development to produce gas condensate in the Carpathian foothills of Romania. 'It is difficult to find - not huge volumes. There's so much infrastructure cost,' he said.

'A lot of it is covered in 2D seismic, we're getting onto 3D. We've used wireless seismic technology in onshore -offshore transition zones.'

'It's a hi-tech game,' he says. 'Austria is a technology hotbed. We test in Austria, if it works, roll it out in Romania.'

'It's a cost game, the more we get costs under control, the easier it is to hunt for smaller [pockets] of oil.'

Currently, the price which gas is sold in Romania is regulated by the government, at a level which is lower than gas can be purchased from Russia, or imported as LNG.

The government has plans to liberalise the price, for industrial purchasers in 2013, and for consumer purchasers by around 2017.

The price regulation has an impact on the viability of the deepwater Romanian project, because if the gas can only be sold in Romania at the regulated price the potential returns are much lower.

'Unless gas is liberalised it will be very difficult. But there are clear plans to liberalise gas,' Mr Huijskes said.

North Sea

OMV has plans to grow in the North Sea, and spend 'some billions' on acquisitions (of companies and fields), said CEO Gerhard Roiss, at a London press conference on November 21st.

'This is one of our focus areas.'

The company acquired 20 per cent of Norway's Edvard Grieg oilfield in October 2012, 15 per cent of Norway's Aasta Hansteen gas field in July 2012, and 20 per cent of Norway's Zidane gas field in December 2011.

OMV's North Sea production declined from 15 kboe/d in 2005 to 7 kboe/d in 2010, but the company plans to grow production to 80 to 100 kboe/d by 2020, half through acquisitions and half through developing existing assets.

Other E&P investment

Altogether, OMV is spending 2/3rd of its capital expenditure in exploration and production (it also has activities in refineries, gas power and downstream).

The company intends to grow total production from 318 kboe/d in 2010 to 350 kboe/d in 2016.

It has new ventures under investigation in the Caspian Sea, the Middle East and Africa.

It has exploration projects in the Black Sea (described above), the Kurdish region of Iraq, and New Zealand.

It has appraisal projects in Tunisia, the Domino field (Black Sea, described above), Bina Bawi (Kurdish region of Iraq), West of Shetland (UK), Zola (Australia), Shuwaihat (UAE) and Zidane (Norway>

There is field development going on across Romania, in Habban (Yemen), Schiehallion (UK), Rosebank (UK), Nawara (Tunisia), Edvard Grieg (Norway), Aasta Hansteen (Norway), Latif (Pakisan).

There is new production in the Cherouq field (Tunisia), and Mehar field (Pakistan).

It has a program called 'Energize OMV', which aims to increase an additional 2 per cent increase in return on capital invested, both upstream and downstream.

The company is also divesting a number of investments in central North Sea where it has stakes of 1-3 per cent, where ''we have very little influence,' he says. 'We're building up the portfolio and cleaning up the tail end of the North Sea.'

European energy policy

OMV's CEO Gerhard Roiss believes that Europe and the EU need to do more to clarify its energy policy particularly with gas. It needs to decide if it is going to import nearly all of its gas, like Japan does, or develop its own reserves.

'If you decide not to go to the import route in Europe, what options do you have?' he asks. 'Does Europe have its own gas? Yes, on the Black Sea, that's quite substantial, and the North Sea.'

'We have conventional gas but it needs infrastructure and logistics.'

Also Europe needs to figure out how it feels about unconventional gas. '90 per cent of the gas we have in the ground is unconventional,' he says. 'The question is - how is the European position on shale gas. It needs a European positioning and support.

'We have to develop our own technology and we have to communicate the impact. This also needs communication - what is the impact in terms of ecology and employment.'

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