The Golden Block of 16/08 in the South China Sea - the Story of Texaco's Early Operations in China

May 20, 2016

Dr. Shum has over 40 years experience in the international petroleum industry and is widely recognized as a leader in the international oil industry in China for his ground-breaking achievements, including the first successful international discovery of oil in offshore China.  He also led the team that developed the largest enhanced oil recovery operation in the history of the industry, which was located in Indonesia, and was head of Texaco’s office in Beijing for almost a decade. Joining Texaco in 1968, Dr. Shum held positions of responsibility in exploration, development and production operations around the world, with significant responsibilities for operations in China, Indonesia, Malaysia, Pakistan, Thailand and Kuwait.

 

China opened its entire offshore area for cooperative development with foreign oil companies in the late 1970's.  All of the participating global oil companies formed their own group with the responsibility to conduct a general seismic survey of certain designated offshore areas, to be followed by data processing, interpretation, mapping, reporting and then making presentations to the relevant Chinese authorities, in preparation for the first round of offshore bidding.  In the meantime, drafting of the first standard Chinese Production Sharing Contract, known as a PSC, with the help of foreign oil companies was in progress. Frank Ingriselli was a leading member of the Texaco team negotiating this first Chinese PSC, and I was on the team helping to facilitate because I am a reservoir engineer specializing in oil field development and thermal recovery, as well a native Chinese speaker. 

For the first round of bidding, companies formed their respective bidding groups.  Texaco teamed up with Chevron, Exxon with Shell, etc.  We at Texaco and Chevron had identified blocks 16/08 and 40/01 in the South China Sea as among the best to bid on.  At the end we decided to bid for block 16/08, while Exxon and Shell chose to bid for block 40/01. We were all so glad that we made the right choice and received block 16/08.  Over time it turned out to be the most productive block in the South China Sea, and I would say that it is the “Golden Block” of the South China Sea, much like the Brent Field is the “Golden Block” in the UK North Sea!

Before the awarding of block 16/08 to the Texaco/Chevron group, the Chinese added the Italian oil company, Agip, to the group, and the group was thereafter known as the ACT (Agip/Chevron/Texaco) Operation Group.  The PSC was signed just before Christmas 1983.

 

 

Caption above (clockwise) : 1. Historic signing of China's first international oil contract (Texaco) in 1983  2. Frank Ingriselli in toast with Minister of Petroleum Tang Ke at signing  3. Frank Ingriselli initialing pages on the historic first successful foreign Production Sharing Contract in China  4. Chinese Premiere Li Peng at the signing

Exploratory drilling commenced immediately, and the first exploration well, HZ21-1, was a very significant discovery, the first in the South China Sea, with a water depth in the field area of about 100 meters.  Following several successful confirmation/delineation wells, the Huizhou 21 oil field (the “HZ Field”) was developed, and began producing in 1989, just six years after the PSC Frank Ingriselli had negotiated was signed.  This was the first commercial oil production in the South China Sea, producing at an initial rate of 20,000 b/d. The production streams from wells were tied to a well head platform for initial processing, then flowed into a nearby FPSO (floating, production/processing, storage, and off-loading vessel), which was in excess of 200,000 tons.  The oil was then off-loaded to oil tankers and shipped to destinations, mostly to refinery terminals in China. Thus the crude oil sales were made at a premium price. The well head platform was equipped with a heavy duty rig for drilling, completion and work-over as required, and was a very cost effective development operation. 

According to the signed PSC, CNOOC (China National Offshore Oil Company) participated 51% in the HZ Field development, while the three ACT group companies each owned 16 and one-third percent. The partners continued to explore the block through long reaching directional wells tied back to the well head platform and FPSO, and this has yielded several discoveries, and expanding the HZ Field development. The field eventually reached a peak production in excess of 150,000 b/d. The field is still producing at a good rate after 25 years of continuous production since 1989!  Thus the HZ Field has provided a sizable profit and cash flow to its owners to grow their respective businesses in the world. 

 

 

Above: Golden Block 16/08 - the Huizhou 21-1 oil field is still producing after 25 years of continuous production (courtesy of CCTV.com) 

When the HZ Field was first developed, we had made allowance for water injection for pressure maintenance to increase recovery from the field, with water injection wells drilled within the oil column near the oil/water contact as part of the initial field development. Later on, we learned that the HZ Field was actually connected to a huge water aquifer, and there was no need for water injection, which resulted in a great saving in field development capital.  In addition, the 16/08 block was full of oil -- filled to the spill point – with every drillable structure mapped in the block filled with oil!  

There is no doubt that the HZ oil field and block 16/08 is the best block ever discovered in the South China Sea.  Development was well planned and cost effective, and we have been able to keep it producing for a very long time, with production expected to continue well into the future! It continues to be the great success story of Chevron/Texaco’s operations in China. 

 

Above: Nanhai Faxian - the FPSO used in the Huizhou 21 Oil Field. The FPSO is detachable, enabling the vessel to be disconnected and sail to safe place when severe typhoon is approaching. (Photo courtesy: MarineTraffic.com and CCTV)

 

 

 

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