SEAPEX FARMOUT FORUM

ACQUISITION OPPORTUNITY
BLOCK SK 301, SARAWAK. YPF (MALAYSIA) LTD.

Executive Summary
YPF (Malaysia) Ltd. a wholly-owned subsidiary of Repsol-YPF, is operator of Block SK 301, located
offshore Sarawak, East Malaysia (Fig.1). We offer an opportunity to acquire a significant portion of our
75% net interest in this highly prospective Production Sharing Contract. This presents a rare chance to
acquire a position in one of the most dynamic, rapidly expanding theatres of SE Asian E&P, in the large
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and virtually unexplored West Luconia delta. Block SK301 covers an area of 8164km and contains only
two exploration wells and one delineation well. One of the wells, L4-1x (Shell,1970) is a proven gas
discovery, with reserves estimated to be in the order of several hundred BCFG. The potential for liquid
hydrocarbon generation in the area is confirmed by good oil shows recorded in L4-1x, delineation well
Hibiskus-1 (Idemitsu, 1988) and nearby well C24-1 (Elf, 1990) which also produced condensate on test.
Contract terms were improved during the late 90’s by Petronas and there are a number of other factors
that result in favourable economics; benign operating conditions, relatively shallow water depths, of 100-
150m and potential access to nearby producing infrastructure to the east.
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The contract, signed on November 30 , 1998, calls for a commitment, within the five year exploration
period, of: two exploration wells having an aggregate depth of 6000 m; 3000 km of 2D acquisition; and
1500 km of seismic reprocessing. Both seismic obligations were satisfied during 1999 with a total
expenditure of around US$1,050,000, including the acquisition of 3691km of 2D seismic. Following the
interpretation of around 12,000 km of seismic and mapping five principal sequences, current activity
involves detailed prospect mapping and modelling preparatory to drilling of a well in late 2001.
Procurement contracts for the well are awarded as part of the currently-drilling, 13-well programme by
Petronas/Carigali, in which YPF has been given an optional slot for December, 2001.

Regional Setting
SK 301 is situated in the northwestern corner of the Sarawak continental shelf in the South China Sea,
adjoining the Indonesian border on the west. It is approximately 116 km from the nearest producing
facilities (Shell’s Jintan field), 222 km from the nearest coastline (Sarawak) and 20 km from the giant
Natuna D Alpha ‘L’ gas field. Water depths are between 100 and 150m. The block covers a large part of
the sedimentary province known as the West Luconia Delta, which is one of a number of geologic
provinces that comprise the large Sarawak Basin. The other areas include the Baram Delta, Balingian,
Tatau, North Luconia and Central Luconia Carbonate Province. Reserve estimates for these areas
exceed 7 BBO and 45 TCFG, with the Baram Delta being the most prolific to date. In addition, another 45
TCF of hydrocarbon gas is present nearby in Indonesia (Natuna Field). Similar mixed oil and gas
reserves exist in nearly every basin around the island of Borneo, which includes Malaysian Sarawak and
Sabah, Brunei Darussalam and several prolific basins around Kalimantan.

The hydrocarbon-prospective sequences of the Sarawak Basin began development during the late
Cretaceous and Eocene as a result of subduction and plate movements between the South China Sea
oceanic crust and the continental crust of Borneo. The West Luconia Delta Province covers an area of
approximately 30,000 sq km, and contains over ten kilometres of clastics deposited from late Cretaceous
through Tertiary time. The sequence prograded over oceanic crust until the present day where the shelf
edge, delineated by the 200m isobath, lies at the northern extremity of Block SK 301. Although itself an
entirely clastic province, the SK301 area is flanked on either side by carbonate domains: to the west lies
the Terumbu Shelf of the E. Natuna Basin and to the southeast, the Central Luconia Province. Both of
these areas were the sites of major Mio-Pliocene platform and pinnacle reef developments which contain
vast gas reserves. Some buildups, such as the giant Natuna (‘L’ or D Alpha) gas field for example, are up
to 1.5km thick.

The West Luconia Delta is analogous in structural style and stratigraphy, and probably in terms of its
petroleum system, to the many other Tertiary deltas around Borneo, especially the nearby prolific Baram
Delta. The former lithostratigraphic scheme originally established by Shell, divided the Tertiary and
Pleistocene into Cycles I to VIII; this has now been updated into a sequence stratigraphic context (Fg.2).
Sediment provenance is considered to have initially been from the Sunda Shield and Natuna Arch in the
west during the Paleogene, then from Borneo during the Neogene when it was sourced by the
uplifted,quartz-rich Jurassic subduction complex known as the Rajang Accretionary Prism. These major
supply routes may have been modified by local reworking from re-entrant highs formed by postulated
wrench-fault blocks.

Overall, the stratigraphy of W. Luconia is similar to the other nearby sub-basins, comprising only clastics
unlike the extensive carbonate platforms present on either side of the W.Luconia delta, on the E.Natuna
and central Luconia platforms. The oldest stratigraphic penetration to date, in the SK301 area, is only into
the uppermost late Miocene. As such, the economically prospective section ranges in age from Plio-

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Proceedings of the 2001 South East Asia Petroleum Exploration Society (SEAPEX) Conference, 2001

Copyright © 2016 by Southeast Asia Petroleum Exploration Society (SEAPEX)

Pleistocene down to late and mid-Miocene, with gas proven in Cycles V and younger cycles. Oil shows
have so far only been encountered in the late Miocene sandstones. Recent sequence stratigraphic
studies show that environments of deposition at the top of Cycle V, originally interpreted to be shallow
marine from core and paleontology in well Hibiskus-1, are bathyal, reworked lowstand sediments. The
sandstones are now considered to be upper to middle, slope turbidites.

Structural Framework
The West Luconia Delta is characterized by an arcuate series of young, down-to-basin, normal growth
faults, striking northwest on the western half of the delta and northeast on the eastern side; a pattern
remarkably similar to the growth faults of the Baram Delta. The growth faults probably resulted from
northeastward gravity gliding as the West Luconia Delta subsided into the deep South China Sea basin.
Beyond the present-day shelf edge (200m isobath), is a series of northeastwards-verging toe-thrusts
resembling those of deepwater NW Sabah where Shell has recently discovered accumulations of up to 2
TCF of gas in-place and reportedly some 200 MMBO in-place in Kamunsu East. The growth fault system
(Fig.7) is related to the contemporaneous toe thrusts and obliquely crosses a NNW/NW-oriented series
of large, dextral wrench faults which may extend at depth into SK301. However, since the section is too
deep to image on seismic, their NW continuation is conjectural.

The SK301 growth fault systems are associated with dozens of areally large, faulted anticlines. Most are
broadly sub-parallel to the growth-fault systems, being W-E, NW and NE-oriented, depending on their
positions on the east and west sides of the delta respectively. Some noses are oriented roughly
perpendicular to the strike of the delta, perhaps the result of shale withdrawal between sub-parallel
diapiric structures. Development of the growth features began at least as early as mid-Miocene and
continued, although not so markedly, through late Miocene to Pleistocene time.

Exploration History
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YPF (Malaysia) Ltd. signed a five-year production-sharing contract on SK301 on November 30 , 1998.
The contract came with a commitment to drill two wells having an aggregate depth of 6000 m, to
reprocess 1500 km of old seismic and shoot 3000 km of new 2D seismic. Thus far, the seismic
commitment has been exceeded and performed under-budget, by shooting 3691 km of new seismic and
reprocessing 3281 km. The current SK301 block (Fig.3) corresponds to the northern half of former Shell
block SK1. Shell shot 3600 km of seismic and drilled two exploration wells between 1966 and 1970.
Following a 1976 relinquishment, SK1 was acquired by Idemitsu, who shot 4700 km of new seismic,
reprocessed some of the Shell lines and drilled a third well in 1988 (Hibiskus-1, a delineation of the L4-1x
gas find, an unsuccessful search for a down-dip oil leg). After Idemitsu withdrew in 1990, Petronas
acquired an additional 70 kilometers of seismic in 1989 and redefined the new SK301 block.

Well X1-1x, drilled by Shell in 1970, situated in the central part of the block, tested a growth fault, rollover
prospect (Figs.4,6). It reached a total depth of 7546 ft (2300 m) in early Pliocene, Cycle VI clastics and
was terminated prematurely without reaching the Cycle V objective, due to hard overpressure. Although
several zones with gas-cut mud were encountered, log calculations showed all sands to be water bearing.
However, the well is off the crest of deeper objective horizons, furthermore raised conductivities due to
clay coating of silty sands or thin turbidite sand zones may have resulted in pessimistic log calculations.
The structure is in now interpreted as due to shale movement, accounting for the anomalously low
sandstone content. Thus the prospectivity of the area is not diminished as DHIs are visible just beneath
TD and other distinct DHIs are present up-dip from the well. Additional DHIs can also be seen in the
adjacent fault block, as well as a gas chimney associated with the controlling fault. Two upthrown
structural closures are present; this type of play is as yet undrilled, as all earlier wells are on downthrown
rollovers.

The second exploration well, L4-1x, 51 km to the SE of X1-1x, (Figs.4,6) also tested a hanging-wall
rollover down-dip from a growth fault and terminated at 8874 ft. (2705 m) in uppermost Cycle V
sediments. Log calculations indicate up to 34m (112 ft.) of net gas pay in upper Cycle V and lower Cycle
VI sandstones. No drill stem tests were conducted but wireline formation tests of the sands recovered
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gas with low CO2 (0.2 - 7%) and good shows of 38 API oil. These results are significant in that they
prove that oil has been sourced in the apparently distal areas of the delta, also that in this part of the
Sarawak Basin, low -CO2 gas occurs. No fluid contacts were encountered in the three pay zones of L4-
1x; the deepest and thickest has an LKG at 7362 ft. (2243.8 m) subsea. YPF estimates the accumulation
to have reserves in the order of 200-300 BCFG.

The third well in SK301, Hibiskus-1 (Idemitsu 1988), was drilled 1.6 km NW down-dip of L4-1x, seeking
an oil leg. The TD at 7989 ft. (2435 m) was just into the top of Cycle V. Although good oil and gas shows
were again encountered within the objective Cycle V sand, RFT tests recovered only water with small
amounts of gas. The nine metres of sandstone recovered in the core have good porosity and permeability
with oil staining. Log analysis of this rapidly alternating sandy and shaly sequence shows only 6 m. of net
gas pay. Oil has recently been extracted from this core and exhibits a chromatograph typical of the ‘fluvio-

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marine’ oils found elsewhere throughout the Baram delta sand Luconia Province; a preliminary qualitative
assessment of maturity indicates that it is not high.

Potential Reservoirs
Historically, delta top and front sandstones of Cycle V provided the primary objectives, with secondary
targets occurring in deltaic marine shelf sandstones of Cycles VI and VII (Fig.2) . This interpretation was
supported by the original sedimentological interpretation of the Hibiskus-1 core. However, recent
sequence stratigraphic work by YPF indicates a turbidite origin. The net gas pay in L4-1x is within two
Cycle V sandstone units between 2132-2278m with an additional 3m probable gas in lower Cycle VI
sandstones. Porosities are high, averaging 24-25%. The Hibiskus-1 appraisal of L4-1x also had good
sand development in Cycle V, with around 108 m of gross sand. Log-derived porosities ranged from 12-
28%, with an average around 20%, and RFT-derived permeabilities ranging from 2 - 700 mD.

Other possible reservoirs are turbidite sandstones of Cycles VI and VII. They constitute viable objectives
in the fairways where they prograded northwards during the two or three lowstand episodes observed on
seismic and interpreted from paleontologic data. Since these objectives would lie at shallower drilling
depths and have a lower chance of being overpressured, they should provide more economically
favourable targets. Additional objectives are present in the as yet unpenetrated, deeper intra-Cycle V,
expanded sequences on the downthrown sides of rotated growth blocks and also the untested flanks of
the shale diapiric structures, upon which turbidite flows are likely to have been ponded.

Source Rocks, Maturation and Migration

All three wells drilled on SK 301 have encountered hydrocarbons, proving oil and gas petroleum systems
are present. Furthermore, abundant DHIs in the form of gas chimneys, amplitude anomalies, flat events
and circular depressions (‘pock marks’) suggest that abundant hydrocarbons have migrated both in the
past and at present day. In the West Luconia Delta, as in the Baram Delta, no thick, mappable, discrete,
rich source rock layers have been identified. However, since there are oil shows and gas, it is likely that
well developed and mature source rocks are present by analogy to the other Tertiary deltas around
Borneo island, most of which are prolific hydrocarbon provinces. Known source rocks from the finds in E.
Luconia and Baram are Cycle I and II, ‘fluvio-marine’, coastal plain sediments. However, additional
younger horizons, eroded from earlier source beds and redeposited as turbiditic lowstand deposits may
also be effective source rocks. It is believed this is the type of source rock for Unocal’s W.Seno and
Merah Besar fields of the Mahakam Delta in E. Kalimantan and possibly for the Shell E. Kamunsu oil and
gas accumulations offshore Sabah.

As the measured vitrinite reflectance does not exceed 0.7% Ro in Hibiskus-1, Cycle V or older sediments
beneath TD (to approximately 1500 m below) are theoretically still within the current peak oil and gas
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windows. Temperature data from Hibiskus-1 (show a moderate geothermal gradient, of 2.7 F/100 ft,
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(49 C/km), much less than in the hotter E.Natuna basin. The time of primary expulsion and migration (and
possible secondary migration) are speculative and basin modeling is being conducted to help define this.

Prospects and Leads

Approximately 45 structural closures have been mapped at either, or both top Cycle VI and VII (Pliocene).
Also a more extensive set of closures has been mapped at top Cycle V below. These leads have been
grouped into five areas/play types, based on structural size and hydrocarbon risk criteria and
approximately 14 prioritized as potential prospects. Of these, four or five ‘type’ structures have been more
fully categorized in terms of objective depths, size, risk and approximate reserves, to obtain a general
idea of the prospectivity. These have similar, follow-up structures nearby which may also be successful in
the case of discoveries. Potential reserves for each of these three type areas are estimated to range from
0.6 to 1.8 TCFG or 120 to 350 MMBO, thus a significant cumulative upside in the range of 5.5 TCFG or
1000 MMBO.

Summary and Conclusions

SK301 has high potential for the discovery of significant hydrocarbons. Although the area has been very
lightly explored indeed, the only two exploration wells have encountered both oil and gas. The W.Luconia
Delta petroleum system appears to be analogous to the Baram Delta, with similar trapping potential in
growth fault traps, hanging wall rollovers and faulted anticlines. The occurrence of frequent DHIs
throughout the block demonstrates the probability of considerable hydrocarbon generation.

Water depth is moderate, has generally benign drilling conditions and is reasonably close to production
infrastructure (Fig.5). Large accumulations with both oil and gas may be encountered in many of these
large structures; a chain of several finds on which would make development very economic. The current
rig contract has very favourable prices (which will increase significantly next year) and the block has the
potential for an early discovery with a relatively short cycle-time.

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TABLE: CONTRACT DATA
1. CONTRACT NAME/TYPE
2. LOCATION
3. WATER DEPTH
5. AREA
6 .PARTICIPATING INTEREST
7. EFFECTIVE DATE
8. CONTRACT TERMS
Exploration period :
Production
9. COMMITMENTS
10. EXPLORATION ACTIVITY
11. CURRENT STATUS
: SK 301/Production Sharing Contract
: Offshore Sarawak, E. Malaysia.
: 100-150 metres.
: 8,164 km sq.
: YPF (MALAYSIA) Ltd. 75%.
MITSUBISHI Corp. 25%.
(CARIGALI - Option to acquire 15% net when commitment is satisfied).
: November 30th, 1998.
5 years (expiry November 29th, 2003).
: 30 years (expiry November 29th, 2027).
: Acquire 3000 km 2D new seismic, reprocess 1500 km old seismic. (Both these
were satisfied in 1999). Remaining:: two exploration wells with aggregate depth of
6000 m. (or US$ 13 million over 5 years).
: Drilling 2D Seismic
1970 X1-1x, L4-1x (Shell) 1966-70 3600 km
1988 Hibiskus-1 (Idemitsu) 1987 4700 km
1989 70 km
1999 3691 km
: Currently evaluating existing drilling and site surveys contracts (in Carigali operated
13 well programme) for a firm exploration well slot in December 2001, using the
semisubmersible rig Hakuryu III.

For terms and conditions please contact: Dr. Andy Wight or Fuad Osman, YPF
(Malaysia) Ltd., Level 20 Suite #01, Menara Citibank, 165 Jl. Ampang, 50450
Kuala Lumpur, Malaysia. Phone: (60-3) 2166 0225; Fax: (60-3) 2166 0260

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YPF Malaysia, Ltd.
YPF Malaysia, Ltd.
YPF Malaysia, Ltd.
YPF Malaysia, Ltd.
YPF Malaysia, Ltd.
YPF Malaysia, Ltd.
YPF Malaysia, Ltd.