By Judy Maksoud
Gulf of Mexico still struggling
The US Minerals Management Service (MMS) is offering royalty relief intended to increase deep gas drilling on the shallow shelf and to coax operators back into the Gulf of Mexico.
Development off Eastern Canada is taking off. The Terra Nova project got underway early this year, and Husky's White Rose received final approval to move forward in late March. The first deepwater drilling is taking place off Newfoundland and Nova Scotia this year, and there is optimism that at least one of the exploration wells will hit sizable reserves. Further south, there is equally good news. Offshore Trinidad and Tobago is host to new exploration drilling, and newly opened areas offshore Brazil also are seeing exploration activity.
Although E&P activity has slowed dramatically in the GoM, other areas in the Americas are seeing an upswing. The next year will bring increasing interest in the Maritime provinces and the Atlantic coast of South America. And, if analysts are right, the coming months will bring improved conditions to the GoM as well.
Alaska and Arctic Canada
Alaska will continue to play a role in supplying hydrocarbons for the US, but most production will continue to come from onshore fields.
Last September the MMS announced a call for information and notice of intent to prepare an environmental impact statement for three Beaufort Sea oil and gas lease sales proposed under the 2002-07 leasing program. This is the first MMS-issued multi-sale call for the Beaufort Sea. The Beaufort Sea Planning Area extends 3-60 nautical miles offshore Alaska's northern coast in 25-200 ft water depths and covers 9.9 million acres. The North Slope fishing industry and native Alaskans oppose plans to sell Beaufort Sea leases.
Canada's Maritime provinces were extremely busy last year, and an active marine seismic summer season is coming up.
Newfoundland's Terra Nova project in the Jeanne d'Arc Basin came onstream in 1Q 2002, and development of Husky's neighboring White Rose will begin soon. A 1,000-sq km seismic campaign began last summer in the Flemish Pass Basin northeast of the Jeanne d'Arc Basin, where Petro-Canada plans a deepwater well this year. Exploration is also taking off in Nova Scotia's deepwater. Marathon Oil was first in the game with Annapolis. Chevron Canada Resources Ltd. followed with an exploration well in April. Kerr-McGee, Shell, and PanCanadian are planning deepwater exploration wells. A hit by any of these operators will open up a new province for development.
A drilling moratorium is in place on Canada's West Coast, but a forum held in Vancouver last October addressed resolving issues to allow offshore oil and gas exploration. If these initiatives are successful, the outlook for drilling could change in the next few years.
A licensing round for blocks offshore West Greenland that was to be held in March 2001 was finally announced in April 2002. The previous licensing round was not terribly successful, but new seismic data provided by TGS-Nopec shows that the corridor in Baffin Bay between Greenland and Canada could be promising.
Certainly, the Greenland Bureau of Minerals and Petroleum is optimistic. The organization has posted registration information on its web site and held meetings in Copenhagen and Houston in April to present new data and shape investment terms, including a reduction in corporate tax from 35% to 30%.
Gulf of Mexico
Jackups are still leaving the GoM in search of higher dayrates, and many more are stacked along the Gulf Coast. But the rig relocation that began in September has slowed, and the market could be looking up in the next few months. Analysts predict a flat second quarter this year, followed by an upswing in activity through the end of the year.
TransoceanSedcoForex's Deepwater Nautilus working in the Gulf of Mexico.
Drilling contractors are beginning to show some optimism about the near future. With the shorter cycles the industry has been seeing, there is less likelihood of a prolonged downturn than in years past. Drillers are getting their rigs ready for the next wave of increased activity, which could be just around the corner.
Mexican President Vicente Fox continues to make strides toward exploiting the sizable hydrocarbon potential of the country despite congressional opposition that impedes many forward-looking initiatives.
Early this year, Mexican state oil company Petréleos Mexicanos (Pemex) announced an extensive offshore exploration effort that will cover areas from shallow water to 2,600 ft water depth. And a dry gas find in March, some onshore and some in the GoM, could boost current reserves by 25%. Pemex is also making plans for seismic surveys in the GoM, particularly in deepwater, over the next four years.
Trinidad and Tobago
This small country off the Venezuela coast continues to see increased investment. Petréleos de Venezuela SA (PDVSA) plans to spend $375 million over the next three years on a natural gas exploration project. PDVSA spent $32 million in 2001 and has allocated another $158 million in 2002.
BHP Billiton is pursuing fast-track development and plans to produce first oil in the first half of 2004 from its Angostura development. BHP awarded Technip-Coflexip a front-end engineering design contract early in the year and expects completion by June.
With investment on the upswing, Trinidad is trying to increase royalties. If the new royalty (equivalent to about 9 cents US) is approved, it will not impose an onerous burden on producers, but will dramatically benefit the country.
Natural gas is becoming a higher priority in Venezuela, which holds the eighth largest reserves of gas in the world. Exploration activity in the offshore Deltana region in the northeast will see an immediate investment of $375 million by state-owned PDVSA. The company looks to achieve liquefied natural gas (LNG) exports through a $1.2 billion onshore LNG plant at Güiria by 2007. Bringing this plan to completion will require a number of factors to fall into place, not the least of which would be sustained high gas prices allowing the venture to be profitable.
While developing its gas interests, PDVSA is also courting foreign investors with leading edge technology. However, a new law announced in January increases state control over the industry and imposes a 30% royalty rate, the highest in the world. On paper, the returns look good for Venezuela. In reality, there will probably be far fewer companies accepting these investment terms.
Pride International's Pride Venezuela semisubmersible drilling offshore Venezuela.
The biggest news in Venezuela is the continuing strikes and work stoppages at PDVSA. This crisis will certainly delay, if not derail, activities in the planning stages.
Colombia is crafting attractive contract terms to entice foreign investment. However, even the greatest incentives will not tempt many potential investors to take a chance on this political hot spot. Colombia's problem is ongoing political unrest with no resolution in sight.
Colombia has about 2.6 Bbbl of proven oil reserves, yet production has been declining, and unless large foreign investors get into the mix, this trend is likely to continue. The largest field developments at present are onshore, making them prime targets for saboteurs. Lack of political stability is still the biggest factor working against the country and will continue to be a major deterrent to investors.
Argentina is still the most important gas-producing region in Latin America, and gas projects continue to attract foreign investment. Even though domestic markets are saturated, neighboring Brazil and Chile are interested in importing gas to generate power, a fact that continues to fuel E&P.
A consortium made up of Repsol YPF, British Gas, and TotalFinaElf is exploring for gas in the Argentinian Cuenca Austral region between Tierra del Fuego in the south and the Falkland Islands over 93 miles offshore in 1,650 ft water depth. In early December, J. Ray McDermott secured a contract for engineering, procurement, construction, and installation of two natural gas production platforms and submarine pipelines in the Carina and Aries field development project 50 miles east of Tierra del Fuego. Fabrication was scheduled to start in March, followed by installation in November and production next summer. While gas production continues apace, oil production is declining in spite of a national goal to produce 1 MMb/d.
Guyana and Suriname
Guyana and Suriname have bickered in recent years over their common offshore boundary, but that situation is about to change. Unable to satisfactorily resolve their dispute, the two countries are now laying the groundwork to establish a joint venture that would allow them to exploit the estimated 15 Bbbl of oil reserves in the Guyana-Suriname Basin. Negotiations are scheduled to take place this month.
In mid-January, state-owned Petroecuador announced that final preparations were being made to announce the country's ninth international oil and gas exploration licensing round. Of the eight blocks to be offered, four are offshore Ecuador's southwest Pacific coast: Blocks 4, 5, 39, and 40.
Ecuador cannot develop its hydrocarbon resources without foreign involvement. As a result, allowances have been made for companies to work in dollars and to use existing pipelines to transport oil to market. These incentives have piqued the interest of would-be investors.
Last July, Noble Affiliates found gas with Amistad 7, its first well in the shallow water of the Gulf of Guayaquil, and it plans to drill three more wells as part of a four-well work program on its Amistad Field license. Noble expects to produce 87.5 bcf of reserves and sell the gas to a power plant in Machala, Ecuador.
Brazil took a number of hits last year in a string of bad luck that began with the P-36 explosion on its Roncador Field. But despite hurdles that impeded development and production, the country had a good year with continually growing production. Brazil is now heading into what appears to be a successful 2002.
Major international companies participated in Brazil's fourth bidding round last June. The round included 43 offshore blocks in deep and ultra-deepwater and netted $250 million for Agência Nacional do Petréleo (ANP).
Huge opportunities exist in the enormous offshore basins. Although the greatest concentration of exploratory activity is in the Campos, Santos, and Espirito Santo basins, exploration drilling has spread into frontier basins, including Pelotas and Foz do Amazonas (Mouth of the Amazon). Since licensing opened to outside operators, Brazil's frontier exploration activities have increased.
Brazil is South America's second largest oil producer, with 8.1 Bbbl in known reserves. Increased foreign investment will no doubt unearth significant plays that will sustain the world-class reputation of the Brazilian offshore.
In July of last year, Cuba announced that it would carry out exploration over 4,000 sq mi of the Gulf of Mexico off its northern coast beginning in August. The activity, financed by Repsol-YPF, was to be carried out by Cuba's national oil company.
Of the 59 offshore blocks originally put up for licensing in this area, only 20 are held, mostly by British, Canadian, French, Spanish, and Swedish companies. As of last September, four more blocks were being negotiated.
The US embargo against investment in Cuba is turning out to be costly. According to a paper prepared by the Cuba Policy Foundation, the embargo could result in $2 billion to $3 billion in lost annual revenue for the US energy industry.