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East Timor Eyes Billion-Dollar Oil Bonanza, As Wildcat Drilling Starts In 2019

This article is more than 5 years old.

Timor Resources will drill its first exploration well onshore East Timor in April 2019 as it attempts to uncover an oil bonanza for the Southeast Asian nation.

Consultancy Netherland Sewell, which carried out an independent assessment of potential reserves for Timor Resources, estimates the privately-owned Australian company is sitting on 127 million barrels of potentially recoverable oil onshore East Timor.

At $60 per barrel, 127 million barrels, would sell for a total of around $7.6 billion. But Timor Resources, part of diversified manufacturing and engineering company Nepean Group, has a lot of work ahead before it can prove its onshore permits hold so much oil.

Still, Timor Resources, which is in a 50:50 joint venture with East Timor’s national oil company, TimorGAP, is optimistic.

The company is busy reprocessing old 2D seismic information and is in the middle of an infield seismic campaign to identify more drillable targets across its 250,000-acre contract area, nearby several offshore fields, that have produced billions of dollars of oil and gas since 2011.

Timor Resources told me that it has already defined five drillable prospects. A drilling rig is scheduled to arrive in East Timor by February next year and will start drilling the country’s first onshore well in decades by April, pending environmental approvals.

Over the past hundred years, many onshore oil explorers have gone to East Timor and left empty handed. But Timor Resources says it has taken all the historical data, including information from 12 wells that were previously drilled, and pieced it all together with modern technology, to identify four different play types.

Realistically, the company said it is targeting 58 million barrels of recoverable oil. At $60 per barrel this would net some $3.5 billion in revenue. But that is before any development and production costs are deducted.

As part of the production sharing contract (PSC) signed with regulator ANPM the company will recover its costs first. Then, after government royalties, taxes and operating costs are paid on any potential oil production, the remaining petroleum profit will be split 50:50 with TimorGAP.

Any significant oil discovery would provide a welcome windfall for East Timor. As the fledgling nation is almost entirely dependent on revenues from petroleum. Its Petroleum Fund, which had $16.9 billion at the end of June, is the source of funding for about 90% of the nation’s yearly spending, which is budgeted at around $1.3 billion to $1.4 billion.

But, alarmingly, its oil and gas income peaked in 2012 and continues to fall. The ConocoPhillips-operated Bayu-Undan project – East Timor’s only producing field – has provided more than $20 billion over the past 10 years, but the oil money has all but dried up, as output is expected to stop sometime between 2020 and 2022.

Yet, despite any concrete signs of new petroleum production in sight, the government is forging ahead with its grand petroleum development plan known as Tasi Mane. The scheme on its southern coast, includes plans for an oil refinery and an LNG export terminal, that will freeze gas for shipping.

The government hopes that the discovered Greater Sunrise offshore oil and gas fields will fuel development of Tasi Mane. But development of Sunrise in East Timor remains speculative at best and at least a decade away, if ever. News that ConocoPhillips has agreed to sell its 30% stake in Sunrise to East Timor, is unlikely to accelerate, or even guarantee, development of the project in East Timor, as I wrote for Interfax Global Energy on 1 October. ConocoPhillips said the deal is expected to be complete during Q1 2019.

“The key onshore project risk is the construction of a greenfield LNG project in a country that has historically lacked large-scale infrastructure projects,” David Low an analyst at global energy consultancy Wood Mackenzie said in response to the sales deal agreed on 28 September.

Moreover, the Timor LNG export plant will be expensive to develop and is unlikely to be competitive against many of the new global LNG projects looking to progress in the next couple of years, which include expansions of existing export plants in Qatar and Papua New Guinea, as well as various Australian backfill projects, and new developments in Mozambique, Canada and several large projects in the United States.

In the meantime, East Timor will be banking on explorers, such as Timor Resources, to uncover new oil fields. However, most geologists familiar with East Timor, remain skeptical about the onshore potential. While the chances of finding another Bayu-Undan or Sunrise in East Timor’s small maritime area look slim at best. Such sizeable fields probably would have been found by now. Still, geologists I spoke with are more optimistic of finding smaller oil and gas fields offshore. Although this will require attracting new exploration investment.

Meanwhile, Australia’s Carnarvon Petroleum is working on plans to redevelop the Buffalo oil field in East Timor’s territorial waters.

BHP abandoned Buffalo in 2004 when the field was still producing around 4,000 barrels per day. Carnarvon says it has remodeled the project and identified a strong case for a redevelopment, supported by new exploration targets.

At current oil prices the project would generate revenue (not profits) of more than $2 billion over a lifespan of a few years, the listed-company believes.

Carnarvon also hopes to start drilling in 2019. But East Timor and Australia will first have to ratify a new maritime boundary treaty signed in early March.

Nevertheless, it looks like 2019 could mark a turning point for East Timor’s fledgling oil and gas sector. Only time will tell.

But, as East Timor has moved from dependence on revenues from selling petroleum to dependence on revenues from its Petroleum Fund investments, it urgently needs to focus on diversifying its economy.

The new sources of income that East Timor desperately needs will not come from unsustainable extractive projects like Greater Sunrise, but from a productive, diverse economy based on East Timor’s human and renewable resources, reports Dili-based thinktank La’o Hamutuk.

 

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