Hironori Wasada, senior vice president of JX Nippon Oil & Gas Exploration, highlights the ambitions and challenges facing the domestic and international operations& of his company.
What is the current status of the oil and gas industry in Japan?
Japan imports almost 99.6% of its oil requirements, as we produce only 14,000 BOPD, which is less than 0.4% of our consumption. For gas, Japan produces about 3% of its consumption, with 97% of our consumption imported in the form of liquefied natural gas (LNG).
The country is trying to reduce its energy export reliance, and the Japanese government is assisting and encouraging local companies to search for oil and gas offshore. Onshore fields in Japan are old and have started depleting, and recently a Japanese firm made a trial production of shale oil from an onshore oil field. In addition, the government is looking for alternative energy resources to meet growing local demand, and is currently looking at the commerciality of offshore methane hydrates.
Also, several companies recently have been listed on the local stock exchange, which has put the industry under the scrutiny of investors who expect it to deliver revenue.
Who are the major shareholders of JX Nippon? What major projects are you currently involved in?
JX Nippon Oil & Gas Exploration Corporation is a business unit of JX Group, and is engaged in oil and gas development all over the world. We are very active in Japan, where development of local energy resources is the mission of Japanese companies. We are committed to continuing exploration activities in Japan, with the aim of contributing to a stable supply of energy. Currently, we are involved in exploration activities offshore Japan, and this includes the Sanriku and offshore Erimo blocks. Also, we hold a 100% interest in offshore blocks Shikoku, Nishi-kyushu, Sado, and Toyama Bay.
The onshore Nakajo oil and gas field in Niigata Prefecture, Japan, is the domestic E&P base of JX Group. Our mission in the Nakajo field is to steadily supply natural gas to customers, including industries and local communities.
How about investment outside Japan?
NOEX (JX Nippon) currently operates in 14 countries. We are leading projects as operators in crude oil production in Vietnam, natural gas production in Malaysia, and exploration in the UK North Sea. We have also been part of a consortium producing oil in the United Arab Emirates (UAE) for more than 30 years.
We are very active in several Asian countries, including Thailand, Myanmar, Vietnam, Indonesia, and East Timor. In Thailand, we will apply our own experience and technologies acquired through our operations in Vietnam to improve the efficiency of crude oil production at the Nang Nuan oil field in Block B6/27, where we hold a 40% interest with PTTEP Siam, the operator with a 60% interest in the field. In Vietnam, we are involved in Block 15-2, Block 05-1 b/c, and Block 16-2, while in Myanmar, we hold interests in Blocks M12, 13, and 14 and Block M11.
We are also involved in LNG projects, including the Tangguh LNG project in Indonesia, and Papua New Guinea’s first LNG project, which is set to deliver its first LNG cargo in 2014.
How has your company evolved over the past few years?
In recent years, a number of factors have combined to make it extremely difficult for us to acquire assets at the development and production stages. These factors include an increase in resource nationalism, escalating competition with other countries to secure resources, and the rise in oil prices. Accordingly, to expand reserves and production volumes over the medium to long term, our basic policy is to participate in projects from the exploration stage.
In the future, the number of projects requiring advanced technology and higher development costs, such as deepwater and unconventional resources, are set to increase. Therefore, strengthening our technical know-how and adopting appropriate risk management will be needed.
During our first Medium-Term Management Plan (2009–2012), we expanded exploration activities in various regions around the world and acquired large projects as operator in Malaysia and Qatar, or working interests in places like the North Sea, UAE, Myanmar, and Australia. Among these projects is the Finucane South oil field in Australia, which started production in May 2013.
The Papua New Guinea LNG project, in which we took a final investment decision in 2009, is currently progressing on schedule for a 2014 startup.
Also, in December 2012, we acquired multiple oil and gas assets in the North Sea from Eni, and in February 2013, we made the final investment decision to develop the Mariner oil field in the North Sea, which is one of our largest investments and is scheduled to start commercial production in 2017.
What is the core E&P strategy of your company?
Our E&P strategy is divided into three parts. First, we want to expand our reserves and production volume mainly through exploration, and to increase our production to 200,000 BOEPD by 2020. In addition to our ongoing projects, we are working on taking the final investment decision to develop projects under exploration, such as the Culzean gas field in the North Sea and the third train of the Tanggul LNG project in Indonesia following a detailed feasibility study.
On top of that, we are planning to invest USD 900 million (JPY 90 billion) in exploration activities over the next 3 years as part of our Medium-Term Management Plan (2013–2016).
The second part of our strategy aims to establish superiority by focusing on core countries and core technologies. We try to secure leadership in business and obtain more access to business opportunities through the distribution of our resources in certain areas in addition to the accumulation of technologies through operating projects.
We have categorized certain areas as “core countries” or “core candidates.” Core countries include Malaysia, Vietnam, and the United Kingdom. We will continue exploration, development, and acquisition by utilizing our knowledge and relationships with national oil companies.
In our core candidates category, we have the UAE, Qatar, Myanmar, and Australia, countries where we aim to strengthen our business foundation further. Then, we will try to obtain access to business opportunities and enhance our business foundation to promote our future core countries.
On the technical side, we have categorized several technologies as “core technologies,” such as deepwater development, utilization of enhanced oil recovery (EOR) techniques, and development of tight oil and gas. We will try to accumulate a technical advantage through operating our projects.
For deepwater technology, we are planning to use it offshore Sabah, Malaysia (Deepwater Block R); the UK; and West of Shetlands. We are planning to use EOR in Vietnam (Rang Dong oil field HCG-EOR), while for the tight oil and gas technologies, we plan to use them in Block A in Qatar.
The third part of our strategy aims to restructure our business portfolio quickly while responding to changes in the business environment to maximize the value of assets while distributing risk. We plan to replace assets flexibly and efficiently, and optimize our asset portfolio.
What is the status of your unconventional resources business?
With regard to our unconventional business, it is divided into two broad categories:
- Unconventional gas resources, which include shale gas, methane hydrates, and coalbed methane. For shale gas, because of the slump in the natural gas market in the United States, we should not be optimistic about the profitability of the shale gas E&P business. However, we are reviewing some projects, and we may consider targeting some projects if they are profitable.
Regarding methane hydrates, they may be a promising energy resource for the future, and they may exist in Japan’s domestic offshore blocks, in which we are applying for exploration. On the other hand, the technologies for developing and producing methane hydrates are immature, and it is still early to commence commercial exploration activities. For the time being, we will pay closer attention to how R&D activities conducted by Japanese governmental institutions are trending and, at the same time, we will consider developing technologies necessary for the development of methane hydrates ourselves.
For coalbed methane, we have acquired a working interest in the Sanga Sanga CBM block (Japan CBM, in which NOEX holds 4.4% working interest) in Indonesia, and we are now conducting a feasibility study.
- Unconventional oil resources, which include oil sands. We have participated in the Syncrude project in Alberta, Canada, in which we are producing synthetic crude oil from oil sands. Mocal, our project company, holds a 5% working interest in the project. Our production from oil sands in Canada stands at about 14,000 BOPD, while total production of the field is 350,000 BOPD.