Singapore Company Wants To Conduct Oil Exploration In Palau

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Government considers proposed $15 million investment in Kayangel

KOROR, Palau (Island Times, Feb. 25, 2014) – Cepu Sakti Energy (CSE) PTE Ltd., a Singapore-based company, is in preliminary talks with Palau government officials regarding a plan for offshore exploratory drilling at the Velasco Bank in Kayangel State.

Kayangel Governor Jeffrey Titml said that talks between the Palau government and CSE representatives regarding the project are ongoing.

He said that they are awaiting a final agreement to be made. If a final agreement is made, according to the governor, a state-of-the-art drillship will come to Palau sometime in August 2014. The drillship is currently conducting oil exploration in Brunei.

The plan is for the drilling of one hole to determine if there are sufficient reserves for commercial drilling.

According to another source, the company is willing to invest $15 million for the project.

"They are willing to risk such a big amount for the project. Palau should not miss such opportunity that could have wide implications on its development," the source said.

Representatives of CSE met with officials of the Palau national government and Kayangel State in Manila, Philippines in November last year for preliminary discussions and agreements on the project.

Palau was represented in the meeting by Minister of Finance Umiich Sengebau, Minister Elbuchel Sadang of the Ministry of Natural Resources Environment and Tourism (MNRET), Senate President Camsek Chin, Kayangel Governor Jeffrey Titiml, Ngarchelong Governor Browny Salvador, Kayangel legislators and traditional chiefs.

The Palau group met with CSE representatives led by Kok Wah Lee, the company’s executive director.

Cepu Sakti Energy Pte Ltd. owns the rights to operate and produce oil from various oilfields in the Central Java region of Indonesia. It specializes in the enhancement of production of existing wells. The company was incorporated in 2002 and is based in Singapore.

Early this year, two members of the House of Delegates (HOD) who sponsored ‘The National Petroleum Act’ - RPPL No. 8-37 – have written Minister Charles Obichang of the Public Infrastructure, Industries and Commerce (MPIIC), urging the full implementation of the act without undue delay.

The lawmakers said it is in anticipation of the likelihood that exploratory drilling will commence sometime this year.

"Last December, we were advised that there is now a great likelihood that an exploratory oil-well drilling may take place sometime this year," said Delegates Marhence Madrangchar and Noah Kemesong in their January 24, 2014 letter to Min. Obichang.

If the project pushes through, it could be historic considering that in more than 30 years CSE is the only company that will do actual exploratory drilling.

An independent report by H.J. Gruy and Associates released in 2008 and prior studies showed that the Velasco Bank holds large world-class giant oil field reserve potential.

The report estimated that, in shallower zone, there is 1.044 billion barrels of oil in place with recoverable estimate of 35 percent or 366 million recoverable barrels. In deeper zone, there is an estimated 1.880 billion barrels of oil in place with recoverable estimate of 35 percent or 658 million recoverable barrels.

The plan for exploratory drilling has widespread support in this island nation.

Senate President Chin was quoted as saying that oil exploration is necessary to determine once and for all if there is commercially viable amount of oil or natural gas in the area.

Then Del. Secilil Eldebechel, who is now the Presidential Chief of Staff stated,"I support exploration if it is done right and will not affect the environment. Palau lacks the expertise to monitor such activity, so Palau needs to hire a professional expert from outside to advise it."

Delegate Jonathan Isechal of Peleliu said," Oil exploration should be done in order to ascertain the presence of oil in that place."

Opposition to the plan comes from those who fear that the exploratory drilling could have adverse effect on the environment.

I drilling will be successful, oil and gas production will allow Palau to generate more revenues and wean itself from foreign funding dependence.

The concept of the possibility of the presence of oil and gas in Palau dates back to the German occupation of Palau when low-grade coal (lignite) deposits were noticed on Babeldaub Island. After World War II the United States geological Service (USGS) conducted surveys of Palau’s mineral potential and part of the report concluded that Palau could posses hydrocarbons (oil & gas) particularly in the North at Velasco Reef.

The first attempts to explore for oil & gas in Micronesia started in 1975 when a geologist from the United States named Bill West teamed up with two palauan partners Polycarp Basilius and Carlos Salii. With funding from Yates Petroleum out of New Mexico U.S.A they formed a company called Micronesia Resources, Inc. (MRI)

In 1975 during the US Pacific Trust Territory days MRI applied for oil & gas exploration rights with the US Department of Interior (DOI) covering vast areas of the Pacific from the Marshall Islands to Palau. The DOI ultimately rejected MRI’s applications as being too large an area so MRI decided to focus their attention on Palau. MRI filed applications with the governing authorities of Palau seeking three exploration licenses – one in Kayangel and northern Babeldaob – one in Angaur and one covering the Southwest Islands. MRI was granted a permit and was given the rights to explore for oil & gas in Palau.

In 1982 with the funding from the Yates Group a seismic exploration company out of Singapore was contracted. Geophysical Services, Inc. (GSI) was contracted to acquire seismic data in the three licensed areas. A seismic ship (M/V Tasman Seal) came to Palau and conducted 2D seismic tests at Velasco, Angaur and Southwest Islands. Of the three locations Velasco Bank in Kayangel State showed the most prospectivity. $1.8 million was spend aquiring the seismic data.

During this period MRI contacted 220 companies worldwide to invest in the drilling of three wells in exchange for a ownership interest in the project. In the oil industry this is known as a "farm-out" program. Of the 220 companies contacted only 17 responded but none took up the farm-out offer.

By July of 1994 MRI was unable to continue and no test wells were ever drilled. The Yates group decided to withdraw its financial support to the project and Micronesia Resources Inc. (MRI) folded and went out of business all of the licenses agreements expired.

In 1995 (within days of the demise of MRI) a company called TMBR/Sharp Drilling arrived on the scene represented by a consultant named Bob Hijacek. TMBR/Sharp was owned by a well-known oilman from Texas named Tom Brown (Tom=TM, Brown=BR thus "TMBR"/ Sharp Drilling).

Tom Brown (TMBR/Sharp) due to financial reasons withdrew from the project the new partners decided to carry on with the project and added several more (new) partners and finally they formed Palau Pacific Energy Inc. (PPEI). During this transformation new seismic data was gathered on Velasco Bank by PPEI as well as geochemical testing for minute traces of oil on the surface of the ocean from natural seepage. ($3.5 million was spent on new the data)

Thereafter, the Palau Pacific Energy (PPE) entered the picture and was granted an exploration permit to look for oil in the area. For some reasons, the company was not able to proceed with the actual exploration before CSE came along.

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