The Faroe Islands has opened their long-anticipated first offshore hydrocarbon licensing round.

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Faroe Islands licensing open until May

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Blocks open for licensing off the Faroe Islands.
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The Faroe Islands has opened their long-anticipated first offshore hydrocarbon licensing round. The Faroese Ministry of Petroleum officially opened the round on 18 February and will keep it open until 17 May for companies to apply for licenses. The area on offer covers 14,000 sq km east and southeast of the Islands, split into 56 whole blocks and 26 partial blocks.

The Ministry said that great weight will be attached to the applicants' work programs and the use of Faroese goods and services. To enforce this, the government has proposed a new tax regime to Parliament. This will include an acreage rental fee, which will rise gradually after the first six years to keep companies from sitting on their acreage. In addition, companies have been obliged to base their operations in the Islands. The tax regime also calls for a progressive profit-related special tax with rates of 10%, following a 20% rate-of-return, an additional 15%, at a 25% rate-of-return, and another 15%, at 30%.

Some of the acreage is located in the contested White Zone area, lying between the Faroes and the UK's Shetland Islands. This area has been the cause of the delay in exploration. Plans for exploration in the area began in 1993, but could not begin until the dispute on the area was settled. The dispute ended in May of last year when a boundary line was made.

Seismic surveys have been performed in the area and have estimated reserves larger than some of the more mature finds discovered in the North Sea. The acreage, most of it in deepwater (500-1,000 meters water depth), has prompted interest from the larger majors - BP Amoco and Elf, for example. The Ministry plans to award licenses in September.

Prospects improve for Brazil's second round

Brazil's oil agency, the Agencia Nacional do Petroleo (ANP) has high hopes for the country's second international bidding round. Following a recent road show in London, the group says that interest looks even better than that present at this point for the first round.

ANP said that the meeting, highlighting the 23 new blocks on offer, attracted over 130 representatives from 81 companies, compared to 40 companies when the first round was presented. In addition, 26 groups have shown interest in the blocks and the ANP has received $5 million from participation fees from 23 prospective bidders.

A bidding conference is expected in the second quarter of this year for the blocks, 13 of which lie offshore, with the concession contracts to be signed in the third quarter.

Brazil's first licensing round, "Round 1", attracted some R$340 million in investment. Twelve contracts were signed with 10 oil companies for the blocks that were offered.

This first round was seen by several analysts as "less than spectacular," but was held during a time of low prices and merging companies. However, due to the current high price climate, the second round is expected to far exceed the first despite the fact that less attractive blocks are on offer.

Blue Stream decision expected soon

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The Blue Stream gas pipeline from Russia to Turkey.
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The Russian government is hoping that Turkey's Parliament will ratify the Blue Stream gas pipeline project this month. The project includes the $5 billion installation of a pipeline across the Black Sea, from Russia to Turkey, that will carry gas at an annual rate of 16 bcm.

While the project was initiated by Turkey, the Russian's are growing more concerned as the nation's parliament has delayed approval. Even worse, speculation has been growing that the reason for the delay has been the result of a plan to build a separate gas pipeline to Turkey from Turkmenistan. Reportedly, Turkmenistan sees Blue Stream as a threat to its pipeline project. According to Russian Deputy Prime Minister Mikhail Kasyanov, Turkey does not want to damage its relationship with Turkmenistan.

In response Kasyanov was reported as saying that Russia should cooperate more actively with Turkmenistan to settle conflicts of interest. In addition, the Russian government sent letters to Russian gas company Gazprom, one of the largest stakeholders in the project, confirming the government's support. Turkey's state-owned pipeline company, Botas, had responded to Kasyanov's remarks by saying that Parliament is expected to approve the project and grant the official go-ahead after it convenes.

Gazprom and joint partner ENI of Italy have already begun construction of the first phase of the project, which includes the onshore section of the pipeline. Gazprom plans to export 6-8 bcm per year through this phase. The project is expected to be completed in April of 2001.

Meanwhile, another deal is underway that may solve the whole dilemma. Gazprom plans to sign a contract this month with Turkmenistan to supply the country with 50 bcm of gas per year for 30 years. With this agreement in place, it has been speculated that it would dismantle Turkmenistan's plan to build the competitive pipeline to Blue Stream.

Another key aspect of the deal is that, with a 30-year supply, Russia will in effect have complete control over the Turkey's energy needs. But beyond all of this, the deal will deliver a massive blow to US plans in the region. The US has been putting its weight behind several pipelines from Azerbaijan, Turkmenistan, and Kazakhstan on the basis that the export routes specifically bypass Russia.

This has not curried much favor with the Russians and this deal could mark a major form of retaliation. In addition, it could place a major hindrance on several projects in the region, including the multi-billion dollar Baku-Ceyhan line from Azerbaijan to Turkey. Needless to say, this pipeline game is a tough business to figure out and is in a state of constant change. But nothing is a done deal, until the gas and oil begin flowing.

Iran gets feet wet in the Caspian

Iran has joined its neighbors in the Caspian Sea. The Iranian Parliament has approved a project for National Iranian Oil (NIOC) to begin exploration efforts in the Caspian Sea off Iran's northern coast. The Islamic country has long been calling for its Caspian neighbors - Azerbaijan, Russia, Kazakhstan, and Turkmenistan - to come to terms in sharing the water body. While Iran waited to form an agreement, the others jumped into the race. The country now has given up waiting and is joining the already fierce competition. NIOC is expected to begin seeking foreign partners in the project, which should not be too difficult to find, given recent interest in Iran and the lure of the Caspian Sea.

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