Latin prospects, interest growing despite oil price, Asian weakness

Atlantic, Caribbean margins looking up

Victor Schmidt
International Editor

Latin America's importance and influence is rising. Offshore oil activity continues strong even though regional economies are soft.

Change continues to sweep Latin America, raising both the region's importance and influence in the world of offshore petroleum. Democratization in some countries, along with reorganization and privatization of some state oil companies, and expanded opportunities for private and foreign firms have transformed economies over the past few years. That progress now is hampered by two intertwined forces: low oil prices and the Asian financial crisis.

Oil price effect: Low prices equal reduced cash flow for countries using petroleum sales as a primary revenue source. The major oil producers in Latin America - Mexico, Venezuela, and Brazil - have all been affected. The loss of oil revenue has squeezed social services tied to oil sales and produced restiveness in the body politic. This was likely the reason Mexico agreed to work with Saudia Arabia on production constraint.

The importance of both Venezuela and Mexico was highlighted by the Riyadh accord this past April. OPEC failed on its own to maintain prices forcing the largest producer, Saudia Arabia, to seek help outside the cartel.

Venezuela was a major stumbling block in the cartel, resisting production reductions until economic pain forced it to moderate output. Mexico was approached by the Saudis and agreed to help form part of a critical mass to begin the reduction process. In both cases, Latin American producers were treated as serious players on the global oil scene.

Asian effects: Latin America economies have well-developed trade ties to SE Asia and are feeling the negative effects of the current crisis there. While the economies have not collapsed, they have become shaky and have slowed. The momentum of the SE Asia financial crisis was blunted by International Monetary Fund and World Bank intervention. This action slowed a wholesale economic cascade across the world, but has not inhibited the damage to many economies. As the Asian economies rebuild, Latin America will return to full strength. A modest increase in the oil price would further aid the Latin American economies.

Sector growth

The result of these two global forces is to slow the opening of new offshore oil provinces to the international oil industry, primarily Brazil. Argentina opened its oil sector to foreign investment as part of a wider restructuring of its economy in 1991. Venezuela continues with its process that began in 1992.

Brazil resisted foreign investment in its oil sector until it completed the restructuring of Petrobras operations last year.

These current problems are only a summer shower in the expanding field of growth opportunities in Latin America. Growth is well underway along the Caribbean and Atlantic margins of South America including:

Lake Maracaibo, Venezuela
Deepwater Caribbean, Trinidad & Tobago
Brazil (opening soon)
Argentina
Falkland Shelf, UK

Venezuela

Venezuela's Lake Maracaibo is revitalizing, as operators expand production from new strata or develop methods to continue field output volumes.

Earlier licensing of marginal fields for redevelopment has reinvigorated the lake. New seismic surveys and 3D interpretations are identifying deeper zones as well as bypassed reserves.

Slimhole drilling technology and horizontal well technology are using existing wellbores to reach outward for unproduced resources. New gas injection equipment is enhancing recovery from pressure depleted zones.

Oil continues to flow from the lake as part of Venezuela's planned pro duction expansion to 7 million b/d by the year 2000. The drop in world oil demand has slowed movement toward this goal and was the main reason Venezuela resisted calls to reduce production.

Trinidad & Tobago

Success on the shelf around Trinidad and Tobago encouraged Amoco and others to step out into the deeper waters of the Caribbean. They bring their considerable experience to bear on this new theater and expand the envelope of opportunities available. This activity could open offshore activity to the southeast off the coasts of Guyana, Surinam and French Guiana. Political unrest in this region is hampering offshore exploration.

Brazil

Brazil is very close to opening its waters to foreign operators. Petrobras has chosen its properties to develop and divided the remainder for licensing to international companies.

The politics have been intense. Contract award announcements are expected later this year on 19 offshore contracts under negotiation.

Argentina

Argentina's coast is open now, but has seen little exploration and drilling. Both national and international companies have been busy digesting the onshore fields from the 1991 opening of the country.

Recent offshore license awards hold the hope of an expanding offshore presence. Many companies are watching the Falkland Island drilling before moving to explore the South Atlantic shelf to the north and west.

Falklands

Amerada Hess opened drilling in late April on Tranche A north of the Falkland Islands. Hydrocarbon shows in the first well were a most encouraging sign. The second well was unsuccessful and a third well is drilling. Two more wells are planned in the current program. No successes from the area have been announced yet.

The industry should not be discouraged by the lack of immediate success. Every wildcat drilled increases the knowledge of this unexplored oil province. Every core sample and well log improves the knowledge base. This enhances regional geologic models and explains FLT's (funny little things) in the seismic data.

The North Sea (similar in size) was not opened by the first five wells. It took tens of wells to gather enough rock evidence to build a thorough knowledge base, to explain the region's rift basin, and to understand the wider earth puzzle. New fields in the South Atlantic will be found when a sufficient body of knowledge is built to point the way.