Trinidad still the hottest play

E&P offshore the Americas is a mixed bag. Drilling off Eastern Canada and in the US Gulf of Mexico has slowed, while activity in the Mexican Gulf is picking up.

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Rigs move to the Mexican Gulf of Mexico

Judy Maksoud
International Editor

E&P offshore the Americas is a mixed bag. Drilling off Eastern Canada and in the US Gulf of Mexico has slowed, while activity in the Mexican Gulf is picking up. Venezuela's oil and gas industry, which was dealt a knockout blow by the Petróleos de Venezuela SA strike, is barely getting back on its feet. Brazil is still trying to explore its frontier areas, while developing its discoveries. And Western Canada is optimistically embarking on a program that will revive exploration and production activity after a 30-year hiatus.

The focal point for activity in the Americas continues to be Trinidad and Tobago's offshore, where the Angostura field is moving into development and exploration drilling has revealed another giant gas field.

Alaska and Arctic Canada

Early this year, the US Minerals Management Service issued the Proposed Notice of Sale for Beaufort Sea OCS Lease Sale 186. The entire sea is included in this offering, which covers 1,850 whole or partial blocks totaling 9.7 million acres.

Though there have been discoveries in the area, high drilling costs and drilling restrictions coupled with a history of dry holes have led to only marginal interest. MMS royalty incentives will not dramatically increase interest.

An area that has seen growth is Cook Inlet, Alaska. The US government's announcement that it needs to find energy resources outside the Middle East sparked much recent interest in the area. Unocal, working with Marathon, has aggressively bought up and explored oil and gas leases. At least one well has shown commercial quantities of gas. As early as this summer, a mobile offshore drilling rig will be at work in the upper Cook Inlet for the first time in a decade.

The MMS plans to hold Sale 191 in the lower Cook Inlet in 2004 and Sale 199 in 2006. Each sale covers 2.5 million acres of oil and gas leases.

Canada

Activity off Canada's Maritime provinces slowed somewhat last year. Off Newfoundland, deepwater drilling is just getting under way in the Flemish Pass basin northeast of the Jeanne d'Arc Basin, where the province's two producing fields are located. Husky's White Rose project is moving toward scheduled production in 2005. There is not a lot of drilling planned for the coming few months. The only thing that could change that outlook would be a large discovery, something the province hopes to see.

Nova Scotia saw a number of deepwater discoveries last year, and a few more deepwater wells are on the books for 2003. According to the Nova Scotia Petroleum Directorate, there are 59 exploration licenses offshore Nova Scotia that carry commitments to spend $985 million between now and 2007.

Marathon Oil, which had the Annapolis success in 2002, will drill in the deepwater this year. Canadian Superior, which teamed up with El Paso to drill Canadian Superior's Marquis block last year, will drill several wells on its acreage in the next few months. And Kerr-McGee will also carry out exploratory drilling.

New discoveries are needed. Production has fallen from the Sable Offshore Energy Project, and EnCana has put the Deep Panuke development temporarily on hold.

The oil and gas E&P outlook is improving off Canada's west coast. BC's provincial government formed an offshore oil and gas team that is working toward re-starting offshore E&P, with a goal to have production under way by 2010.

US Gulf of Mexico

Analysts have said they expect Gulf of Mexico drilling levels in 2003 to be similar to 2002, a prediction bearing out with rig utilization rates about flat with those of a year ago. There should be improvement in 2Q 2003 and an upswing in the GoM in the second half of the year.

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The GoM jackup market will likely see improvement in usage and day rates during the remainder of the year. Despite the current depressed day rates, there has been drilling in both the deepwater and shallow-water portions of the GoM. Most 2003 deepwater work will be of the development variety rather than exploration as companies continue their efforts to increase production.

Deep shelf gas fields are attractive targets, given the royalty relief available on the first 20 bcf of gas from the frontier area below 15,000 ft on leases made after March 2001. The availability of the relief is popular with the independents, which came out en masse for Central GoM Lease Sale 185. Two-thirds of the bids in Sale 185 were for shallow water.

Mexico

Mexico is stepping up offshore exploration. Mexican state oil company Petróleos Mexicanos announced a 2003 budget of $10 billion for E&P, the biggest the company has ever had.

Last year, Pemex announced a sizable offshore exploration effort that covered areas from shallow water to 2,600-ft water depth. A large amount of exploratory drilling has taken place over the past few months, and much more will occur in the coming year. One indicator of increased activity is the large number of drilling rigs US drilling contractors are moving to the Mexican GoM.

Pemex is also contracting for seismic surveys, particularly in deepwater, over the next three years.

Pemex's oil reserves have fallen dramatically in recent years, so exploration is suddenly a major priority again. Some of the exploration requires technology that Mexico simply doesn't have. Pemex has entered into technical agreements with several majors to plan deepwater exploration projects, but those companies cannot operate in the Mexican gulf. Though Pemex has acknowledged a need for foreign involvement in its energy sector, current laws exclude private operators from any kind of oil production.

With the country's energy need increasing, it could be time for those laws to change.

Trinidad & Tobago

Trinidad remains a hot spot and a magnet to investors, in great part because of the varied successes in the region over the last year.

In August 2002, ChevronTexaco and BG got approval from the Ministry of Energy and Energy Industries to develop the Dolphin Deep and Starfish fields, which will supply a long-term LNG contract with El Paso Merchant Energy to import LNG to the US. Beginning in 2005 and continuing through 2023, 80 MMcf/d of natural gas from these fields will be delivered to a re-gasification terminal in the US.

In July 2002, BP announced the discovery of the 1-tcf Iron Horse field off Trinidad.

The promise of world-class reserves sparked interest in the unexplored offshore area, which brought about significant seismic activity. In mid-year, the government of Trinidad and Tobago signed a memorandum of understanding with 12 international exploration companies to carry out ultra-deepwater seismic exploration. Surveys covered previously unsurveyed areas from 5,610 to 9,900 ft water depths off the country's east coast.

Exploration saw results in January 2003, as Shell completed the Peppersauce-1 well in 3,445-ft water depth, acquiring promising data that will direct the company's deepwater drilling program over the coming months.

In March, BHP Billiton committed up to $327 million for the first development phase of the Greater Angostura oil and gas field.

Over the past year, every facet of E&P off Trinidad has proven profitable, which bodes well for the year to come.

Venezuela

Venezuela was not as lucky as its neighbor last year. The national upset in Venezuela has caused a critical situation for state-run Pdvsa. Strikes and work stoppages arrested production for weeks as conflict escalated between entrenched Pdvsa employees and the newly appointed management team named by the Venezuelan government.

Thousands of Pdvsa employees lost their jobs. Production stopped. Gas, oil, and LNG shipments ground to a halt. Inflation skyrocketed. With the cessation of fighting and the crisis over, it will take some time for the country's energy sector to return to normal.

The governmental upset in Venezuela, which at one time was viewed as a short-term problem, is expected to have repercussions that will make it a serious long-term issue. A return to business as usual will take a very long time, in great part because the economy is extremely oil dependent. Oil accounts for more than three-quarters of total Venezuelan export revenues, about half of total government revenues, and about one-third of gross domestic product.

A Wood MacKenzie report published in January presented a comparison of current output and Wood Mackenzie's pre-shutdown prod-uction forecasts and economic analysis for 2003. The top 10 international oil companies in Vene-zuela were losing a combined $6.7 million/day in net revenue (after royalty, but before tax and costs) at that time. According to the Venezuelan government, under revised Pdvsa production targets, the effects of the strike will cut national average annual production by 23% this year.

Brazil

Brazil is South America's third largest oil producer, and much of its offshore has yet to be explored.

Petróleo Brasileiro SA, the only refiner in Brazil, operates the vast majority of offshore developments. This year, an increase in requirements for local content could make it even more difficult for foreign companies to compete. Brazil's fifth exploration licensing round, originally scheduled for June, has been postponed until the second half of 2003 while the content requirements are delineated.

Brazil only opened its reserves to foreign exploration and production in 1998, and Petrobras has been the only producer. This year, that will change. Shell's first Brazilian crude output, scheduled for mid 2003, will make Shell the first foreign firm to produce oil in Brazil. Shell will produce from the seven-well Bijupira and three-well Salema fields in the Campos basin to the tune of 70,000 b/d.

After years of successful wildcat drilling, Petrobras announced last year that it would drill a large number of evaluation wells in addition to wildcats.

In 3Q 2002, Petrobras started oil and gas production as part of a one-year output test from the 600-MMbbl deepwater Jubarte field discovered earlier in the year in the Campos basin. The field, which is the company's largest find since the 1-Bbbl Roncador field six years earlier, is scheduled to come onstream within three years.

December 2002 saw Petrobras announce a deepwater discovery in the Campos basin, the source of nearly 80% of the country's oil production. The well is expected to produce 20,000 b/d.

In February 2003, Petrobras reported a promising find in the ultra-deep waters in the Santos basin and another in the Campos. The Campos find in the Marlim Sul field holds estimated reserves equivalent to 150 MMbbl of oil. Production from the new well is expected to go online in 2006.


Smaller players

French Guiana

In 1Q 2003, Hardman Resources concluded a 2D seismic survey offshore French Guiana in northeastern South America. A spread of 7,750 km of seismic data was acquired under an agreement with Fugro Data Services AG.

The survey began in December of last year and concluded in February. Data processing is expected to be complete by the end of May.

Nicaragua

Early in 1Q 2003, the government of Nicaragua's Instituto Nicaraguense de Energia held the first bidding round for hydrocarbon exploration and development in Nicaragua in over 25 years.

INE offered 37.3 million acres, 36.4 million of it in the Caribbean. The primary term is for a six-year exploration period and a 30-year production period. Technical studies are to start by the end of the year.

Interest in Nicaragua's offshore got a boost after a 2001 Fugro-Geoteam survey.

Falkland Islands

The Falkland Islands Hydrocarbon Consortium, formed by Global Petroleum and Hardman Resources, was awarded frontier acreage off the Falkland Islands in 3Q 2002. The group holds 10 adjoining exploration licenses covering 57,700 sq km southeast of the islands in water depths to 6,562 ft.

A seismic survey gathered last year will allow further delineation of the area's prospects. To date, most exploration off the Falklands has been north of the islands.

Ecuador

In early December 2002, IHS Energy announced details of Ecuador's Ninth License Round. Blocks 39 and 40 were the only entirely offshore blocks offered in the round. They are in the Gulf of Guayaquil in water depths ranging from 10 m to nearly 2,000 m. Blocks 4 and 5 cover areas that are onshore and offshore.

Because Ecuador has a stable economy and a government that is pro-active toward developing its energy resources, Ecuador is considered a sound investment choice.

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