Rigs move to the Mexican GoM
A shift in E&P focus off Latin America has put Trinidad and Tobago and Mexico in the spotlight. Operators can't seem to go wrong off Trinidad, where nearly all of the news is good. And Pemex has kicked exploration in the Gulf of Mexico into high gear.
The hottest play
Trinidad and Tobago still represents the best return on investment off Latin America. The country's offshore has seen one success after another, and more exploration is in progress.
In March, BHP Billiton announced that it had committed up to $327 million for the first development phase of the Greater Angostura oil and gas field. The joint venture is fast tracking development, scheduling first oil by the end of next year.
In June EOG Resources completed a 3D survey over the Lower Reverse L block. Data processing is expected to be completed by mid November. The same month, Vermilion got approval to shoot a 75-sq-km 3D survey in the northern part of block (3a) in July.
The 2003 bidding round officially opened the first week of July 2003. Bidding is expected to be highly competitive. The closing date for bids is Oct. 14.
The gas-based subsector is dramatically expanding, with projects moving quickly into production. BG is beginning development on 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. Drilling on Dolphin Deep is scheduled for early next year.
The completion of Atlantic LNG trains two and three moved Trinidad into fifth place in the world for LNG export, and negotiations are underway for train four.
Government stability, secure reserves, and promising seismic data will keep Trinidad and Tobago in the vanguard of exploration and development activity in Latin America for the coming year.
The Mexican Gulf
Mexico has spent the year 2003 investing a $10-billion E&P budget, much of which has gone toward offshore exploration.
Many of the rigs now working in Mexican waters have moved from the US Gulf of Mexico in the last 12 months. In August, Pride International alone had 12 rigs in the Mexican GoM. A number of the rigs are on long-term contracts, which indicates Petroléos Mexicanos (Pemex) will continue with a heavy drilling schedule through 2004.
Pemex also is contracting for seismic surveys, particularly in deepwater, over the next three years.
A Pemex affiliate has drawn up an inventory of 190 deepwater exploratory opportunities with a prospective resource base of 22 Bboe. Pemex is moving forward with a drilling program that will cover a large offshore area that is slowly moving into water as deep as 3,000 ft.
At present, Pemex is orchestrating the entire drilling program. However, as Pemex makes deepwater discoveries, the need for technology will become an impediment to exploiting Mexico's hydrocarbon reserves. Importing foreign technology will become a necessity. So sooner or later, foreign operators will join the mix. The most likely first step will be through joint ventures with Pemex.
In mid April 2003, Petróleo Brasileiro SA announced board approval of its 2003-2007 strategic plan. Investments approved for the five-year period total $34.3 billion, with $7.2 billion to be spent in 2003, $3.8 billion of which is earmarked for E&P.
After years of successful wildcat drilling, Petrobras has changed tack, drilling a large number of evaluation wells in addition to wildcats. Drilling has continued in the Santos, Campos, and Espírito Santo basins, where most of the country's significant finds have been made. But activity outside those areas has been growing in hope of finding reserves in unproven areas of Brazil's offshore.
Despite Petrobras' redirected focus, most of the finds have been in the same few fields. In February 2003, Petrobras reported a promising find in the ultra deepwater 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. The well is expected to begin production in 2006.
In June, Petrobras discovered oil in block BC-60 in 1,330 m of water off the southeastern state of Espírito Santo. Preliminary well analysis showed potential reserves of 600 MMbbl of oil. In the same month, Petrobras announced a record natural gas discovery. The 70-bcm field was found in the ultra deepwater of the Santos basin. In addition, Petrobras discovered a 630-MMbbl field with block 1-ESS-121 in the Espírito Santo basin.
More good news came in July with Petrobras' announcement that the company hit significant pay with three deepwater wells on block B-60 on the Espírito Santo continental shelf. Reserves are estimated at 500 MMbbl.
The same month, Petrobras made a deepwater oil discovery in the Submarina basin off the coast of Espírito Santo state. The well is in the BES-100 block, one of the areas that would have had to be returned to regulatory agency Agência Nacional do Petrôleo if no discoveries had been made.
Petrobras was obligated to turn back undrilled acreage on 22 blocks to the ANP on Aug. 6, in what is being called Round Zero licensing. The returned licenses comprise about 30% of Pet-robras' total exploration acreage. A lot of the acre-age is in petroliferous areas. About half of the blocks are in the Campos basin, which generates more than 80% of the country's total production. The remaining blocks are in the Bahia, Espírito Santo, Parana, Santos, and Sergipe-Alagoas basins.
ANP plans to auction the returned blocks in the next bidding round. Interest is likely to be fairly high for the returned blocks because Petrobras held on to them beyond the initial leasing period. The implication is that the company planned to drill on the blocks and retained them in hope of carrying out their drilling plans, but ran out of time.
Changes introduced to the bidding process this year, however, could somewhat deflate foreign interest in upcoming rounds. Certainly, participation in the latest round was disappointing.
Besides the fact that there have been few major discoveries in the past year, bidding requirements have changed. The new grid system, which offers smaller blocks (and a larger number of them), was designed to allow smaller companies to bid. The problem is that increased requirements for local content and shorter exploration periods will make drilling the licenses trickier.
Until recently, Petrobras was the sole producer of Brazilian oil. In mid August 2003, Shell became the first foreign company to produce Brazilian oil in competition with Petrobras. The Bujipirá and Salema fields in the Campos basin have reserves of 188 MMbbl of oil and 62 bcf of gas. Allowing foreign companies to produce Brazilian gas is a step in the right direction if Brazil plans to continue drawing foreign firms into its offshore.
Activity off Venezuela has been iffy of late. There has been some positive activity, but the overall business climate is far from balmy.
In June, ChevronTexaco and ConocoPhillips announced a partnership to explore and develop block 2 in Venezuela's offshore Plataforma Deltana, awarded to ChevronTexaco in February. Natural gas produced from the fields will be processed into LNG and exported to US markets.
The involvement of supermajors in Venezuela's offshore is good news. The bad news is that investment has been spotty, and the present investment climate is not attractive.
Despite claims to the contrary from Petróleos de Venezuela, the country has not returned to normal following last year's strike. In fact, the strikes did not end in January. New evidence of the continued unrest occurred in August, when Venezuelan police used tear gas and buckshot to disburse striking oil workers. Thousands of PDVSA employees have lost their jobs, and the company is still reeling from the repercussions of so much lost expertise.
In August, news surfaced that PDVSA's accounting is in confusion. With the dismissal of a large number of accounting personnel during the December/January strike, $2.2 billion in oil deliveries were not billed, and money was not collected on huge amounts of exported oil.
These developments underscore the continued uncertainty of the country's investment climate. And present circumstances fly in the face of continued PDVSA claims that Venezuela is open, ready, and safe for investment.
A Wood Mackenzie report published in July indicates a bleak outlook for Venezuela. WoodMac believes PDVSA fields will continue to decline. According to the report, "Considering the financial challenges facing PDVSA and the harsh fiscal terms of the New Hydrocarbon Law – discouraging further IOC (international oil company) investment – it is hard to see where the necessary investment levels will emerge to maintain Venezuela's current production capacity. A continuation of the status quo would see Venezuela struggle to supply its current market share and could result in production levels falling to a new low of 2.5 MMb/d by 2008."
While the bigger Latin American players continue to compete for international investment, some newcomers are emerging on the scene.
Jamaica's move toward domestic E&P was initiated by the continued upset at PDVSA. Jamaica, which currently imports most of its oil from Venezuela, began gearing up for domestic exploration in early April 2003.
State-run Petroleum Corp. of Jamaica reportedly began making plans for a multi-million-dollar exploration project that will target the Pedro Banks and New Banks areas off the island's southeast coast.
The Bahamas also will see exploration activity soon. In late June, Kerr-McGee Corp. affiliates Kerr-McGee Bahamas Ltd. and Atlantic Exploration and Production Co. acquired 100% interest in nine licenses offshore the Bahamas. The oil and gas licenses in the Blake Plateau basin about 100 mi north of Freeport, Grand Bahamas Island, cover 6.5 million acres in water depths ranging from 650 ft to more than 7,000 ft.
The blocks contain multiple play types, including large untested carbonate structures similar to producing fields in North Africa and the Middle East.
The first phase of Kerr-McGee's work program for the Bahamas includes seismic data acquisition and interpretation.
New seismic could bring other countries into the game. In early 2003, Hardman Resources concluded a 7,750-km 2D seismic survey offshore French Guiana. The processed data could open the door to new exploration drilling.
Interpretation of seismic data collected in a 2001 survey of the Falkland Islands will soon allow further delineation of the area's prospects. Most exploration off the Falklands has been carried out north of the Islands. The newly interpreted seismic data could open up the southeast.
Late last year, the Falkland Islands Hydro-carbon Consortium, formed by Global Petro-leum and Hardman Resources, was awarded frontier acreage southeast of the islands. The group holds 10 adjoining exploration licenses covering 57,700 sq km in water depths to 6,562 ft.
Though Ecuador had a poor showing at its bidding round in April, the country is still looking for foreign investors. The four offshore blocks, which cover 1.3 million hectares in the Gulf of Guayaquil, brought in no offers from companies reportedly interested in exploration acreage.
Five fields were auctioned off in July, and several more followed in August. The government is strapped for cash and has failed to provide investment safeguards. The plan at present is to pay investing companies with oil produced from the fields. Winning bidders will provide money, technology, and operations expertise, only to return the licenses to the government at the conclusion of the contract period.
Unless terms improve considerably, Ecuador will have difficulty attracting investors.
Nicaragua has run into difficulties as well. Early this year Nicaragua's Instituto Nicaraguense de Energia (INE) 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.
Contract signing was to take place in April, with technical studies to start by the end of the year.
In May, Colombia's defense minister warned Nicaragua that Colombia was prepared to use force if Nicaragua began exploration near the San Andres archipelago. The two countries dispute ownership of parts of the island chain that became part of Colombia as a result of a 1928 treaty.
Though the areas up for bid do not fall in the disputed region, the discord has dampened interest.