Marshall DeLuca
Houston
Brazil now open for business
The Agéncia Nacional do Petróleo (ANP), Brazil's one-year-old petroleum regulatory body, has turned the "open for business" sign on for the country's petroleum industry. The agency has officially announced the opening of Round 1, the first formal bidding round for licenses in the country's previously-privatized petroleum industry.Twenty-seven blocks are on offer for both offshore and onshore areas. Twenty-three of the blocks are offshore, located in seven basins, including 12 blocks in the prolific Santos and Campos basins. The ANP specifically designed the round to focus on offshore to attract the oil industry's biggest names. The areas on offer are also very large with most averaging over 1.1 million acres.
The offshore areas vary from deepwater in frontier basins to shallow water gas plays. The terms of the concessions are nine years plus options for extensions. Upon discovery and declaration of commerciality, a production contract will be negotiated. Total concession agreements will be for 30 years. The timetable for the round is as follows:
The ANP is stressing in this first round the size of their concessions (200 times larger than blocks in the Gulf of Mexico; 20 times bigger than blocks in the North Sea) and the adequate time frame for the concessions (9-year exploration agreements; 30-year total contracts). They are also boasting competitive contracts and their role as a responsive host. The ANP also stated that about 500 companies were sent invitations to bid.
The opening of this round comes at a time when the Brazilian economy, previously the ninth strongest in the world, has all but crumbled as the result of the devaluation of the real and the resignation of the president of Brazil's Central Bank. This has left many would-be investors wondering as to the economic sanctity of investing in one of the world's largest petroleum plays, while the country teeters on economic catastrophe. It seems, however, that the economics have had little impact on the industry perception of the region as a "can't miss" opportunity.
The ANP recently held several road shows in Rio, Houston, and London, promoting the round - well after news of the financial collapse. And from the turnout in Houston, few have shied away. The ANP spoke to an almost full room of representatives from almost every sector of the industry eager to begin exploring some of the more interesting basins.
Blocks on offer in Brazil's first open petroleum licensing round.David Zylbersztajn, Director General of ANP, said that agency has recognized that they are opening the market at a challenging time in the oil and gas industry. "We believe that a broader, more competitive and dynamic oil and gas industry will have an important and lasting impact on the overall development of the Brazilian economy."
However, investors will also be granted a safeguard in that the contracts are expected to be based on dollars rather than real. The ANP has also begun work on a second round that will offer mostly onshore properties.
Pipeline wars in Central Asia
Iran, Russia, Georgia, Azerbaijan, Turkey, and the United States are all vying for a stake in the Caspian pipeline game. Georgian International Oil recently celebrated commencement of oil through a new pipeline running from Baku to Supsa, Georgia on the Black Sea. The first tanker loading of oil from this line is expected at the Georgian port in April.However, the governments of Turkey, Azerbaijan, and Georgia are also expected to sign an agreement for another new 1,240-mile pipeline from Baku to the Turkish terminal in Ceyhan on the eastern Mediter ranean coast that will run through Georgia. A consortium will be formed to build the pipeline and will be accepting members after finalization of the agreement between the countries. The 11-member Azerbaijan International Operating Company (AIOC) is expected to join the consortium.
This pipeline, called Baku-Ceyhan, has been the cause of a great deal of international controversy. The United States, Russia, and Iran have all been competing for their choice of the pipelines final destination. Iran and Russia want the line to flow to their respective provinces, while the US is lobbying for a Turkish Mediterranean culmination.
With the full support of the US, Turkey approached Azerbaijan, Georgia, and the AIOC in hopes of winning the bid. To sweeten the deal, Turkey offered tax privileges and low transit fees for the pipeline. However, the parties concerned did show reluctance due to the high cost of the proposed route ($2.3-3.8 billion), the uncertainty on the amount of oil the Caspian fields will produce, and the increased competition from the Baku-Supsa line. Regardless, US and Turkish governments remain optimistic that the vote will go their way.
In other pipeline news:- Iranian state-owned Mapna International was tipped to have won the right to construct a $347 million oil pipeline linking Iran's northern refineries to the Black Sea. However, a Chinese consortium of China National Petroleum and China Petrochemical linked up with Mapna and Iran has asked the group to re-submit the bids for the project.
- Lukoil has stated that operations for the oil pipeline from Western Kazakhstan across Russia to the Black Sea will be delayed until the end of 2001.
E&P Briefs
Africa
The long-awaited production sharing agreements on three of Angola's deepwater blocks have been signed. The three blocks - 21, 22, and 24, cover approximately 1.2 million acres in water depths ranging from 1,300 to 5,900 ft. The awards went to:- Block 21: BHP (operator) 30%, Esso 20%, Amoco 20%, Sonangol 20%, Shell 10%.
- Block 22: Texaco (operator) 40%, Esso 25%, Sonangol 20%, BHP 15%.
- Block 24: Esso (operator) 50%, Sonangol 20%, Petronas Cariga* 15%, UMC Angola 15%.
The Canada-Nova Scotia Offshore Petroleum Board has issued a call for bids for twenty exploration licenses with a total area of about 2.2 million hectares off Nova Scotia. The call will remain open until April 29 and bidding on each parcel will be based solely on the amount of money proposed to be spent on exploration during the first period of the nine year exploration licenses. The first period of each license will be five years, and may be extended to six years with an additional deposit. If a well is drilled during the first period, the term of the license will be extended to nine years.
Canada-Nova Scotia Offshore Petroleum Board's 20 new exploration licenses on offer.Santa Fe and Petrobras have signed another joint venturefor exploration in Brazil. This venture involves two blocks in the Potiguar Basin, the Carauna production block, and the BPOT-2 Block. The agreement for Carauna has a 27-year term and will involve Santa Fe re-entering several previously drilled Petrobras wells for early production, and drilling three development or appraisal wells to develop six fields previously discovered on the block. On BPOT-2 Santa Fe will shoot additional seismic to add Petrobras current data to evaluate a final drilling program. Santa Fe will operate both blocks.Asia-PacificThe current low oil price environment has caused Lundin Oil to defer the Phase II development on Block PM-3 in the Commercial Arrangement Area between Malaysia and Vietnam. Production from Phase II was scheduled to come onstream in December 2000 at rates of 250 MMcf/d of gas and 40,000 b/d of oil. Lundin is the operator of the block and holds a 41.44% interest with partners Petronas Cariga* (46.06%) and PetroVietnam (12.5%).
Woodside has closed down the Cossack Pioneer FPSO for an upgrade. The vessel is undergoing the upgrade at Dubai Drydocks in Dubai and is expected to take 160 days at a cost of A$190 million. The upgrade will increase production capability from 90,000 b/d to 115,000 b/d. Upon completion, Woodside says production will rise to 115,000 b/d and 100 MMcf/d of gas in August.
Central AsiaDrilling has resumed on the Shakh Deniz Fieldin the Caspian Sea by a BP-led consortium. Drilling was suspended while the semi Shelf 5 was upgraded at a local yard near Azerbaijani capital Baku. The Shelf 5, now called the Istiglal, is expected to reach target drilling depth of 6,200 meters next month. The rig has re-entered the SDX-1 well which was started in 1997 using the semi Dada Gorgud.
A Japanese oil consortium is in final negotiations with Azerbaijan state-owned Socar to jointly develop the Atashgah, Yana-Tava, and Mugan-Deniz fields in the Caspian Sea. The consortium will consist of operator Japan Petroleum Exploration (22.5%), Indonesia Petroleum (12.5%), Itochu (7.5%), and Teikoku Oil (7.5%) and would mark the first Japanese exploration program in the Caspian Sea without an alliance with a major international oil firm. Socar will hold the remaining 50% interest in the fields. The fields lies south of Baku and has estimated reserves of 500 million to 1 billion bbl.
EuropeSaga has reported that following preliminary drilling, the Varg Field holds about 50% more reserves than originally estimated. A new well, 15/12-A5T2, encountered the deepestoil-water contact in the field to date which implies a significant increase in reserves. New estimates now indicate reserves of 8 million standard cubic meters. Varg, which came onstream in December, is being developed via the Varg A wellhead platform tied-into the Varg B production vessel. Peak production of 50,000 b/d is expected to be reached during the first quarter.
Several North Sea concessions have changed hands. Conoco has agreed to purchase Canadian Petroleum and will take a 50% interest in the company's Vulcan and South Valiant fields, as well as a 30% interest in the Caister Field. The company will also acquire a 15% interest in the Caister-Murdoch System gas pipeline and a 10% interest in the Esmond Transportation System gas pipeline. On another front, Total sold it's 11.5% interest in the Murdoch Field and an interest in the Caister-Murdoch System to Gaz de France. And, Shell is looking to unload its operatorship and 30% interest in production license on Block 214 on the Norwegian Shelf after wells on the license proved disappointing.
Middle EastBurlington Resources has acquired a 50% interest for both exploration and development in Amoco's North Sinai Block in the Nile River Delta in the Mediterranean Sea off the coast of Egypt. The North Sinai Block covers an area of 489,000 acres and contains three proved undeveloped gas fields, and several exploration prospects. Under the agreement, Burlington will fund a disproportionate share of Amoco's capital commitment to develop the fields. Burlington has also agreed to fund a share of Amoco's Seti East exploration prospect if it is deemed commercial.After months of negotiations, a consortium of Shell and Lasmo has signed an agreement with National Iranian Oil for exploration in the southern Caspian Sea off Iran's coast. Under the agreement, the companies have been granted an 18-month exploration term which, upon discovery, will lead to a production agreement. The group will identify prospects using existing seismic data during the first six months of the agreement, and upon selecting up to four prospects will have a year to negotiate service agreements. A seismic survey over previously unexplored areas is also planned. BP also has the option to join the group.
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