Countries compete for exploration

Representatives from Brazil, Peru, Columbia, and the World Bank, gathered for the American Association of Petroleum Geologists convention in Dallas, presented their response to the increasing competition between countries for the oil industry's investment. Countries are modifying contract terms and conditions to attract investment.

Representatives from Brazil, Peru, Columbia, and the World Bank, gathered for the American Association of Petroleum Geologists convention in Dallas, presented their response to the increasing competition between countries for the oil industry's investment. Countries are modifying contract terms and conditions to attract investment.

Most notably, Columbia has modified its terms to reposition itself into the top quartile of international competitiveness. The country is reducing the state take from over 70% to about 50% and correspondingly increasing the contractor take from around 25% to around 50%. Columbia expects this easing of terms to increase its licensing profitability from 32% to 36%, while improving its standing and exposure to more oil investment.

Other topics included the need for more uniform approaches to environmental issues and ways to deal with the social problems caused by oil development. Legacy issues from earlier oil licenses leave many abandoned oil field with open wellbores requiring closure. Often field-closure monies set aside with host governments have been redirected to other purposes, leaving the fields orphaned.

Service companies have had bad experiences and failed investments opening local branches. While local content requirements tend to support service company expansion into new countries, the lack of business directed their way has forced them to retreat, leaving local people without oil service jobs and hindering the development of local oil expertise. The plea from service companies is for countries to include them in oil development discussions, since they exist to meet the oil industry's specialized needs.

Henry Pettingill, Noble Energy's exploration manager, presented Noble's independent oil company viewpoint. The needs of independent companies are very different from those of major oil companies. Because of their higher cost of capital, low cost is critical for licenses and for production. The advantage independents bring is that they are able to profitably explore smaller prospects and marginal basins. They can also take on downstream investments, such as Noble's gas infrastructure work in Ecuador to develop the Amistad field offshore and bring the gas to the local market. Pettingill suggested that countries work with independents or set realistic expectations and reasonable entry costs to achieve a win-win contract for all parties.

04/18/04

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