Commercial success proving elusive at Saudi's Rub Al Khali.

IN THE hydrocarbons industry, risk and reward are not equally balanced. And no one knows this better than Saudi Aramco and a select band of international oil companies (IOCs) that have been scouting over the past few years for natural gas in the vast and inhospitable Rub Al Khali or Empty Quarter, the seemingly endless tract of desert that stretches from Saudi Arabia to the UAE. According to an industry rule of thumb, the success rate of drilling a new structure is usually 33 per cent. However, a closer look at exploration and drilling activity in the Empty Quarter indicates a different story. Although there was a cautious optimism in 2003 when exploration started, the results have so far been far from promising and have dulled initial hopes. Six years on, commercial success has proved elusive, says a report in The Gulf. Saudi Aramco, the state oil giant, was well aware from the beginning of the challenges that lay ahead -- hostile topography and extreme climate, to name a few. But a prime reason for the firm's decision to move ahead with exploration and production (E&P) activity was to discover a new source of natural gas to feed the country's growing demand from the power generation and petrochemical sectors. According to the government's Gas Strategy, prepared back in 2001, Saudi Arabia's total gas consumption was due to reach 12.2 billion cubic feet a day (cfd) by 2025, compared with 4.7 bcfd in 2003. That projection has since changed considerably, with Saudi Aramco now estimating a gas demand of 15 bcfd by 2025. Last year, the county's total demand was 8.3 bcfd. "With Rub Al Khali estimated to contain some 8 tcf (trillion cubic feet) of non-associated gas-in-place, the ministry of petroleum and mineral resources (MPMR)] was aiming to produce 2 bcfd of gas from 2011 for a 25-year period," says a Gulf-based industry executive. What followed was the signing of four upstream project agreements, covering an area of nearly 330,000 square kilometres, roughly the size of the UK. The largest acreage, of 209,160 square kilometres, was handed over to the South Rub al Khali Company (Srak), a joint venture between Aramco, Total of France and the Royal Dutch/Shell Group. This week, Srak said that gas from two zones under exploration in its Kidan-6 well flowed at a combined rate of 50 million cfd. The other agreements were for North Rub al Khali (Nrak), which in turn was awarded to three joint ventures: Italy's Eni, Spain's Repsol and Saudi Aramco (EniRepSa); Lukoil Overseas of Russia and Saudi Aramco (Luksar); and China's Sinopec and Saudi Aramco (Sino Saudi Gas Limited, SSGL). The economic model was in favour of IOCs, with the potential of an internal rate of return (IRR) in excess of 20 per cent. "It was a simple make-or-break factor for IOCs," said a report issued by energy consultancy, Wood Mackenzie. "If the gas is dry, the returns will be marginal. Liquid contents [condensate and natural gas liquids] have to be found and therein lay the challenge. Overall the IRR could range between nine to 22 per cent." While guaranteeing a minimum gas price of $0.60 per million British thermal unit (btu) for the full duration of the project, the government mandated that any gas discoveries would have to be sold to the MPMR at $0.75 per million btu. This was not exclusive of the $0.10-0.15 to be borne by the operating companies for transportation and processing, the report said. Armed with the mandate of being the first IOCs to get access to the Saudi's upstream hydrocarbon sector, the operating companies put all their might behind E&P activities. "Seven wells were to be drilled in the pre-Khuff stratigraphic rock strata, about 5,500 metres below the surface," says a former official of Srak, who did not wish to be identified. "The first well was drilled in May 2006. But it was preceded by 30 months of preparatory work." E&P activity will involve the deployment of a myriad of cutting-edge tools to scout for gas deposits. These ranged from acquiring the largest amount of high-resolution data, integrating satellite imaging and airborne magnetic data into basin-scale evaluation studies and the innovative light torch aerial survey that has the capability to detect ethane gas particles. Nevertheless, despite best efforts, the results have not been encouraging. Late last year, the MPMR granted an 18-month extension until July 2010 to Srak to complete its programme to drill seven wells. The firm has so far drilled four wells.

Copyright 2008 www.tradearabia.com

Copyright 2009 Al Hilal Publishing & Marketing Group

Provided by Syndigate.info an Albawaba.com company