Recovering industry focusing on West Africa, deepwater Gulf of Mexico, natural gas

West Africa has emerged as the most prospective market on the globe. Angola is gearing up for deepwater production with such systems as this deep-draft caisson vessel for Exxon, which is under construction in Europe.

• Drilling activity remains strong off West Africa as companies search for Angolan-sized fields in areas such as Côte d'Ivoire. [76,752 bytes]
• The deepwater Angolan blocks offer the greatest potential in the region due to the proven track record of its shallower water neighbors. Bids for these blocks were between $200 and $400 million.
• While the deepwater remains the key for the Gulf of Mexico, independents are trying to carve out a niche in the subsalt play and the gas market.[60,641 bytes]
• The opening of Brazil to international competition may supersede the countries current financial crisis. [94,628 bytes]
• The first blocks on offer since Brazil opened its oil industry. [22,336 bytes]
• Worldwide offshore activity [46,646 bytes]
• West, south and east Africa offshore activity [54,645 bytes]
• North America offshore activity [43,944 bytes]
• Latin America offshore activity [45,582 bytes]

One might have thought Charles Dickens was referring to the state of the oil industry over the past two years when he wrote, "It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness ellipse it was the spring of hope, it was the winter of despair."

Indeed, the past two years have been some of the best ($25/bbl oil) and, while not the worst of times ($11/bbl oil), the oil price collapse created severe problems.

In coping with good times and recent bad ones, the petroleum industry has demonstrated a good deal of wisdom, largely left over from earlier bouts of high and low oil prices. Unfortu nately, this past "winter of despair" proved not cold enough to impact prices, and 1999's "spring of hope" went flat until OPEC's moves to curtail production finally produced a price turnaround.

A common economic view is that the petroleum industry did not actually go through a "boom" or a "bust" these last two years, but rather a simple market correction. The observation also suggests that the industry was so far down before 1997 that any price and activity motion appeared as a boom.

This past year witnessed the downfall of economies, the collapse of major currencies, threats of war, scandals, economic unions, and major mergers. Virtually all of Asia's economies fell into the abyss, sending shock waves throughout the world. All eyes, especially those in the petroleum industry, are fixed on the region, measuring every nuance of recovery. Asia is beginning to show early signs of recovery, but there are still many economic disappointments.

The resulting mega-mergers also have been major events for the industry. Halliburton-Dresser, Exxon-Mobil, and now the $26 billion BP-Amoco Arco merger have begun to create a new, more consolidated industry. Most merged companies have been doing the expected things - cutting projects, cutting people, merging functions, etc. With low oil prices and cutbacks, operators are hesitant to undertake new operations. Infield Systems, an oil sector information provider, says the likelihood of operators proceeding with new projects at certain oil price levels is as follows:

• US$10/12/bbl - 60%
• US$14/16/bbl - 70%
• US$18/20/bbl - 80%

However, the biggest boost to oil prices and activities in 1999 has been the real threat of production cuts by some OPEC and non-OPEC producers. And, if official pronouncements are acted upon, they may be able to support oil prices until a semblance of supply-demand equilibrium returns.

Licensing opportunities

The most positive result of the oil price downturn is that greater opportunities for licensing with good terms have emerged in several international markets. Gaffney, Cline & Associates, a US-based energy advisor, said there are at least 20 acreage rounds already announced for this year. The company said that terms on many acreage offerings are the best the industry has seen in more than 20 years. They cited attractions such as:

• Large areas (thousands of sq km)
• Long exploration periods (up to 10 years)
• Realistic relinquishment requirements
• Areas in or offsetting current "hot spots"
• Modest work commitments.

Areas such as Brazil, China, and India have announced bid rounds this year with fairly attractive terms. Operators willing to invest in these risky times may see definite advantages in the long-term. When oil prices rise, the attractive terms these countries are offering will begin to decline.

The "Big Three"

As time passes and technology advances, the offshore industry shifts its focus to new prospective areas. For years, the focus was on the North Sea, and then shifted back to the Gulf of Mexico, and all the while, never strayed far from deep water. In recent years, other areas have begun to make their presence known, areas such as Brazil and West Africa. Now, multi-operator activity is highly focused on the "Big Three," - West Africa, deepwater Gulf of Mexico, and natural gas.

• West Africa: With the slowdown in the Gulf of Mexico and the North Sea, and the faltering of the Asian and Brazilian economies, West Africa has stepped into the forefront of operator interest. The area has remained strong, despite low oil prices. In 1998,West Africa had more discoveries (26) than any other region of the world. Most of them were in deepwater. Another attractive factor of the region is that almost every country along the coast has a major play. This includes Côte d'Ivoire's Foxtrot gas field, Ghana's gas-prone Tano, Nigeria's billion bbl Bonga, Gabon's Tchatamba, Equatorial Guinea's Zafiro, the Congo's N'Kossa, and Angola's Girassol.

• Deepwater Gulf of Mexico: The Gulf of Mexico deepwater will remain a hotbed of activity. Operators have committed to long-term exploration programs in deepwater with extremely high dollar, state-of-the-art equipment. The US Gulf offers a strong infrastructure in a relatively low cost and stable environment, more so than other regions of the world. With the number of major fields that have been discovered, the economics hold the region in high regard.

• Natural gas: Gas prices have remained relatively stable over the past year, a situation that is expected to continue. As a result, operators have been focusing on gas development to compensate for lower oil prices. Smaller independents have begun carving a niche in the market with gas development and thriving off the market. Many countries also have been finding new ways to develop their gas resources. For example, West Africa is planning a major gas pipeline from Nigeria to Ghana.

These three major areas should continue to remain industry hot spots for the coming year. Operators have made strong commitments in all three areas and will use the potential profits from the three to compensate for less economical pursuits until oil price stabilizes and activity picks up.

WEST AFRICA

West Africa now holds the crown as the hottest theater in the offshore industry. Even though the region is in a constant state of political turmoil, the prospect of discovering other billion bbl oil fields is too great for operators to pass up. 1998 was a strong year for West Africa. Twenty-six oil and gas field discoveries were made off the continent in 1998, with half in deepwater. Nine of the 13 deepwater fields are off Angola.

Nigeria has long been the most prospective area on the coast, but over the past several years, Angola has stepped into the spotlight. Angola now is the leading producer in West Africa. But other countries, such as Equatorial Guinea, Gabon, and Côte d'Ivoire, have maintained a strong presence and are thriving off the reputations of their neighbors.

ANGOLA

- Angola is politically and socially unstable, has relatively little infrastructure, and does not yet have deepwater production. Yet, it now has 12 billion bbl of oil reserves, at least three fields of a billion bbl or more, is now West Africa's largest offshore producer. Operators are locked in fierce competition for the country's deepwater acreage.

Production is expected to increase dramatically over the next few years as some of the major deepwater discoveries come onstream. Chevron is planning to bring its Kuito Field onstream this year, followed by the Benguela and Landana fields, all located in Block 14. Elf is also making headway toward bringing the monster Girassol Field onstream in Block 17 by the fourth quarter of next year. These deepwater additions will push production up to around a million b/d by 2000, and to two million b/d by 2003. The current production however is centered cheifly around the shallow water Cabinda Block 0. The block is the home to the Lomba, Takula, Numbi, and Kokongo fields and accounts for 65% of the country's production.

On the discovery side, Esso, Chevron, and Elf have made several key finds in the deepwater off Angola this past year. Esso discovered the Kissanje, Marimba, Hungo, and Dikanza fields on Block 15. Reserves for the block are now estimated at about a billion bbl. Chevron followed suit with the discovery of Landana, Benguela, and Belize Fields on Block 14, home of Kuito. Elf also added two fields to its already impressive list, which includes Girassol and Dalia, with the Rosa and Lirio discoveries on Block 17.

This activity has kept Angola on the top of almost every operator's list. Angola held a licensing round for several deepwater and ultra-deepwater blocks last year, and companies scrambled to get a piece of the action with bids reaching nearly $400 million per block. Rumors suggest Angola will license more ultra-deepwater in a new round that will include the Northern UltraDeep West and Northern UltraDeep Kwanza areas. State oil company, Sonangol, contends that half of the country's reserves are yet to be discovered. Only two of Angola's three basins have been drilled thus far, leaving this world leader with more potential.

NIGERIA

- Nigeria is its own worst enemy. Over the past year, the country watched its position as West Africa's largest producer slip away to Angola. Major social unrest forced a one-third production cutback. But, Nigeria is not out of the running. The country is not far behind Angola in production, and would still be in the lead if conditions were more stable. Increasing social unrest has caused many international oil companies, such as Shell, to focus operations offshore.

Also, a corrupt and ever-changing government, along with a flailing economy, has long been a problem. The country is trying to change its image with the election of General Olusegrun Obsanjo, but he has a long road ahead. He has the enormous task of trying to unite a multitude of tribes and solve the country's current $29 billion external debt. He has received strong international support and is thought to be the best person for the job.

Fiscally, the Nigerian government has long since had problems with the industry. The government has never enacted a fiscal framework necessary for companies to make the large investments needed for the Nigerian deepwater. Hence, the Nigerian deepwater remains mostly unexplored. But, the government finally began making strides in the past year to boost deepwater activity through a licensing round and tax incentives for companies operating in the deepwater.

Activity is down in Nigeria's shallow water region, but in the deepwater, discoveries are beginning to mount. The most recent was Statoil and Texaco's Nnwa-1 well in Block 218. This discovery came just before Statoil was considering abandoning Nigerian operations. Texaco also made a discovery with indigenous partner Famfa on OPL 216. Conoco also made the Chota-1 discovery in the deepwater OPL 220.

On the development side of things, Shell's has commited to invest $8.5 billion into Nigerian operations, after announcing plans to move operations offshore. The majority of this money will go to an LNG train to help boost company production by 600,000 b/d of oil by 2005. The remaining money will go to the billion bbl deepwater Bonga and EA fields. Shell has increased offshore activities by planning wells for the EA Field next year and drilling on the shallow water OML 71. Shell plans to also bring EA into production this year and is planning an FPSO for the Bonga Field, where production is to begin in 2002.

Other fields that have entered production have been the Ejulebe Field in OML 95 by Atlas Petroleum, Summit Oil and Gas, and CanOxy at a rate of 10,000 b/d of oil. Production is also underway on Mobil's Oso NGL project. The field in producing 50,000 b/d of NGL.

Another active front for Nigeria has been on the gas side of the market. Final approval was given to the West African Gas Project which will transport gas from the Escravos Field in OPL 91 to neighboring Benin, Togo, and Ghana. Chevron is heading up the project.

Activity will remain down in shallow water for the coming year as companies concentrate their focus on deepwater.

GABON

- Gabon has been feeling the pain of the downturn. The country held its eighth licensing round in 1998 with only three blocks awarded out of 13. The country offers a deepwater offshore play, with geology similar to that of Brazil. Producers have yet to hit oil in deepwater. The Gabonese government has said that in order to make up for a drop in oil activity, it is going to increase mineral mining activity. The government also said that when activity picks up again, it expects the remaining 10 blocks will be licensed.

Of the awards of the licensing round, a Shell-Elf-Amerada Hess partnership won two of the blocks, H-97 and J-97, and Total and Santa Fe won the M-97 Block. However, Gabon held third place in discoveries in 1998, behind Angola and Nigeria. This included Vaalco's Etame Field, which flowed 3,500 b/d of oil, and Marathon's East Oroyinave and Tchatamba South discoveries. Most of the activity focus recently has been centered on the deepwater Anton Marin and Astrid Marin blocks. Total is the operator of these blocks on behalf of a group including Vanco Energy, Unocal, Reading & Bates, and Kerr-McGee. The companies predict these areas to hold "world class" structures, possibly greater than Girassol and Dalia. A 3D seismic program is currently underway.

EQUATORIAL GUINEA

- Activity has seemed to slow down in Equatorial Guinea after the Zafiro Field established the country as a major oil producer. Most activity has taken place around the giant field and its satellites. Mobil and Ocean Energy have vowed to increase production from Zafiro to 120,000 b/d, from 80,000 b/d, by next year. The companies have also commenced production on the Jade, Opalo East, and Topacio fields. The companies also confirmed a significant new geologic play with the Tsavorita discovery in Block B.

Equatorial Guinea has also been busy trying to attract newcomers to its industry. The country will close a deepwater licensing round this month that includes all the country's offshore concessions in excess of 200 meters. The new round is being governed by the country's newly revised hydrocarbons law.

CONGO

- Elf, and partner Chevron, very much dominate the Congo's offshore region. The companies already hold the N'Kossa and Moho fields, but they added a few new discoveries in the past year. A third Moho discovery was made in the Haute Mer 312 license and confirmed the potential of a Tertiary play in the region. The companies also announced the discovery of the Bilondo Marine No. 1 and the Libonolo-1 last year also in the Haute Mer.

However, some other companies are trying to cut into Elf and Chevron's action. Exxon is expected to begin drilling off the Congo this year in its Mer Profonde Nord license. In addition, Agip, in partnership with Elf, holds the Mer Tres Profonde Sud license, and Elf holds the Mer Tres Profonde Nord, and Mer Profonde Sud licenses. The companies will begin drilling on the licenses following a Geco-Prakla 3D survey.

COTE D'IVOIRE

- Côte d'Ivoire is still in search of its Angolan potential. As a result, exploration activities have been centered on the country's deepwater. Companies such as Ocean Energy and Apache have begun drilling in their respective deepwater blocks. Drilling is underway by Apache and Ocean Energy in their respective deepwater blocks.

Apache who heads the Foxtrot Consortium has made a dsicovery with its first well on the Foxtrot Field in deepwater Block CI-27. The well is expected to begin production shortly at 30 MMcf/d of gas. A second well is currently underway.

Ocean Energy has also been drilling on its deepwater concessions. The company said it identified 26 structures in the country's deepwater acreage. Five of these structures are believed to lie within Ocean Energy's Block CI-105. Drilling is underway in the block.

Ranger also holds several deepwater concessions, but is debating whether to farm out their interest to concentrate efforts on redevelopment of the shallower water Espoir Field.

GHANA

- The majority of Ghana's activity has been centered on the Cape Three Points area and the Tano Field. Exploration has been underway on the Cape Three Points area, but no success has been announced yet as the country still waits to become an oil producer.

Ghana is experiencing a major energy shortage and has been looking to its neighbors for help. Côte d'Ivoire is expected to supply some short-term gas from its Foxtrot Field, while most of the needed gas will come from the West African Gas Pipeline running from Nigeria, and a power plant barge to be installed on the country's gas producing Tano Field.

OTHER COUNTRIES

- Other West African countries also have been trying to cash in on their neighbors good reputation. Countries such as Senegal, The Gambia, Guinea, and Sao Tom? & Pr!ncipe have signed agreements and licenses for offshore exploration. Namibia is also trying to attract interest with a deepwater licensing round that is publicized as offering Angolan-type plays. South Africa also made news when it became an oil producer with the commencement of first production from the Oribi Field.

NORTH AMERICA

The oil price downturn hit the North America offshore industry relatively hard, with the continent being the home base of many of the major integrated companies. But it has still maintained a strong position as the second most active region in the world, carried almost exclusively by the deepwater Gulf of Mexico. Operators have made long-term investments in the Gulf's deepwater and this will continue to keep it strong regardless of the downturn. However, gas and subsalt activities in the Gulf of Mexico have also been strong.

Canadian exploration may pick up again with more leasing on the horizon. Production from Hibernia is still rising. Terra Nova will come onstream next year.

US GULF OF MEXICO

- Activity in the US Gulf has been off in the past year, especially in the shallow water. Deepwater activity has remained stable because of long-term commitments and high bids for blocks when oil prices were higher.

Lately, there has been some softness in deepwater. Operators are not taking on new projects. Instead, they are concentrating on existing projects and development drilling. This is why drilling has remained strong, but the discovery rate has shown a massive decline. Only a handful of deepwater discoveries have been made over the past year. These have included the most recent Chevron-BHP Typhoon discovery in Green Canyon 236 and before that was Shell, CNG, and Murphy's North Marlin discovery in Viosca Knoll 827. A major discovery last year was EEX's Llano in Garden Banks 386. Reserves for this field have been estimated at over one billion bbl of oil.

Exploration is thought to be at a low level largely because operators are waiting for new deepwater vessels to begin operations. This new class of giant deepwater rigs began rolling out last year and early this year, including the Glomar Explorer, the Deepwater Pathfinder, and soon the Discoverer Enterprise. These vessels will allow operators to begin prospective drilling programs in the deepwater Gulf later this year.

Production from deepwater has remained steady. Chevron and Exxon's Genesis Field recently began production and several other deepwater production systems have been installed and are on production including Morpeth and Baldpate. Others such as Ursa, Petronius, and the Diana/Hoover deep-draft caisson are set to be installed and entered into production within the next two years.

The deepwater Gulf of Mexico offers operators a relatively low cost environment with good working conditions and a strong infrastructure. With large fields still being discovered and new development plans in place, the Gulf deepwater will remain to be a focus of activity.

On the shallower water portions of the Gulf of Mexico, two niche markets have been re-enforced over the past year: subsalt and natural gas. Independents have been doing a great deal of drilling in both. With their lower overhead, the smaller companies can still maintain a profit in both of these areas.

Subsalt experienced a minor re-birth in the market last year. Anadarko made two major finds - Tanzanite and Hickory. Tanzanite on Eugene Island 346 uncovered an estimated 1,000-acre productive reservoir with reserves of 140 million boe. Hickory in Grand Isle 116 hit reserves estimated at 40 million boe. Both fields are expected to enter production next year.

As the first producing subsalt well, Anadarko and Phillips' Mahogany also doubled its production last year to 19,900 b/d of oil. These two finds and this production increase have aroused a great deal of interest in subsalt exploration and companies began taking a second look at the Gulf of Mexico's "subsalt fairway."

On the gas side, prices have been stable over the past year. Many smaller independents have been stepping up on-the-shelf drilling activity to boost gas production. This activity began to taper off in the later months of 1998 and early this year, but it has been a saving grace for many small companies that cannot afford the cost of deepwater.

Even with the subsalt and gas activity, shallower water operations are down significantly from last year. This is due to budget cuts. When operators decide to cut budgets offshore, they usually start from the shore and work outward. The entire Gulf of Mexico will remain a hot spot for operators because of location, good climate, and vast reserves. However, most of the new technology and investment will be in deepwater.

CANADA

- Canada's offshore centers around its two major oil fields - Hibernia and Terra Nova. Hibernia currently produces about 40,000 b/d of oil with more drilling underway to expand production. Terra Nova is next in line with reserves estimated at 470 million bbl and is expected to begin production next year via an FPSO. These two fields have defined the east coast of Newfoundland as a major offshore play. But, other prospects such as Whiterose, Terra Haute, and Hebron also offer strong potential.

Drillers on the Hebron tract recently recorded a discovery - the D-94 well. This was the first well planned for the area by a Petro-Canada-led consortium. Drilling is now underway on the South Nautilus H-09 well. Both South Nautilus and Hebron target the prolific Ben Nevis formation. Drilling is also currently underway on White Rose by operator Husky Oil.

The Canada-Nova Scotia Offshore Petroleum Board also issued a call for bids early this year for 20 exploration licenses off Nova Scotia. This license round closed last month and offered long-term licenses (up to nine years).

Also active, is the Sable Offshore Energy Project off Nova Scotia. The project is planning to produce about 14,500 b/d of ethane when it is brought onstream next year. The gas will be used to supply markets in Canada and the United States. However, the Nova Scotia government has announced plans to claim first rights to the areas offshore resources. If imposed, the measure could seriously harm Sable Offshore's plans.

Another area in Canada gaining interest near the French Islands of Saint Pierre and Miquelon. The government of France has granted Gulf Canada Resources a license to explore the region that has been under moratorium since the 1960s. Gulf has acquired some seismic over the license and is currently in the process of shooting an additional 4,000 miles of new 2D data. Drilling is expected to begin next year.

ALASKA

- Alaska has held its seventh lease sale in the Beaufort Sea area. The 27 blocks on offer covered a limited area nearshore and near areas already under exploration. Companies including Phillips, BP, Chevron, Arco, and Petrofina bid on the blocks. The highest bid was $911,922 for a block offshore Prudhoe Bay.

GREENLAND

- Greenland has finally awarded its first offshore license since the 1970s. Statoil, Phillips, Dopas, and Nunaoil won the right to explore the Fylla license. Drilling has been delayed due to lack of obtaining a rig for the program, but will begin next year. Seismic surveys in the area have indicated that the area has sedimentary basins larger than the Viking-Central Graben area of the North Sea.

LATIN AMERICA

- Latin America held a relatively strong foothold as one of the top oil and gas theaters for most of last year. However, economic and political changes have begun to scare would be investors away from the region. The economic crisis in Brazil, with the devaluation of the real, and the political change in Venezuela, with the election of Hugo Chavez, have made many people wary despite the proven and potential reserves in the area, which have been compared to that of West Africa.

BRAZIL

- Brazil's opening of the oil industry to foreign competition has been seen as a major event in the oil industry. Operators have been waiting years for the opportunity to access Brazil's offshore reserves.

Brazil established the Ag?ncia Nacional do Petr?leo (ANP) to act as the country's regulatory body for the petroleum industry. The ANP announced in January the first formal bidding round for the country's petroleum licenses. This includes 27 extremely large blocks (averaging over 1.1 million acres), 23 of which are offshore. The blocks are in seven basins, including 12 blocks in the Campos and Santos basins. Contracts are expected to be signed in June.

This opening of the industry does not mean that state-owned deepwater king, Petrobras, is out of the running. Petrobras has signed several joint ventures with international companies for exploration programs on its acreage off Brazil. Santa Fe and several other companies have signed joint ventures with Petrobras for exploration in such basins as Potiguar, Santos, and Campos.

Petrobras recently broke its own deep water production world record, when it brought the Roncador Field in the Campos Basin onstream in 6,079 ft water depths. The field is producing 20,000 b/d of oil and was put onstream two years after discovery.

The opening of the Brazilian sector was thought to push the country into the forefront of world activity, just behind West Africa. However, at about the time the licensing round was announced, the Brazilian currency, the real, plunged in value and the country was thrown into an economic crisis. Would-be investors are skeptical about entering the country when oil prices are low and the economic is struggling. But, many companies will still take on the risk. The potential of Brazil's offshore basins is too good to pass up.

VENEZUELA

- Venezuela has always held a major position in the oil industry. The country is a member of OPEC, has proven reserves thought to be greater than Saudi Arabia, and several major offshore plays such as in Lake Maracaibo. However, with the election of former leader Hugo Chavez, the oil industry is unsure about the future of Venezuela.

Chavez has called for major budget cutbacks within state oil company PDVSA, while at the same time saying that he will support OPEC production cuts, and keeping the door open to international oil companies. However, until he begins make good on his word, the oil industry remains skeptical.

Venezuela has successfully attracted international interest in its oil industry for several years. PDVSA has held three rounds of operating agreements under which PDVSA and companies form an exploration agreement for acreage and the company covers the first phase of exploration. The first two rounds attracted 27 companies from nine countries, while the third round attracted another 26 companies. Properties that were on offer included several in Lake Maracaibo, in the Caribbean Sea, and in the Gulf of Paria.

But, Lake Maracaibo remains to be the center of the country's activity. Activity in the Lake is expected to remain strong as several barge rigs are under construction, specially designed for the area's operating conditions. Due to the maturity of the Lake, most activity underway now involves recovery and re-entry work.

TRINIDAD

- Trinidad has seen a good deal of activity in the past year. Amoco has been busy with an Atlantic LNG plant on the country's Atlantic coast which is due to come onstream next quarter. Amoco also made a major oil discovery in the Immortelle Field and estimates reserves for the field to be 50-100 million bbl. British Gas and Texaco also made a gas discovery off Trinidad earlier this year with the Starfish IX well. The well tested at 16.2 MMcf/d of gas. Starfish lies adjacent to the companies' Dolphin discovery, which has been producing since 1996.

FALKLAND ISLANDS

- The Falklands was considered one of the last pure frontier plays in the world. However, it has proven to be a disappointment thus far. Several companies formed a consortium called Falkland Offshore Sharing Agreement in which they licensed five of the seven available tranches and contracted a rig for the drilling. Following the completion of a six-well exploration program, the companies had no commercial success. The companies of the consortium, which include Amerada Hess, Lasmo, Lundin Oil, and Shell, are currently evaluating their drilling results to determine whether or not to consider additional exploration efforts.

MEXICO

- Production restrictions imposed by the Riyadh and Amsterdam agreements have forced Mexico to concentrate all its efforts on a five-year $5 billion revitalization of the Cantarell project in the Bay of Campeche (southern Gulf of Mexico). Cantarell is the sixth biggest oilfield in the world and produces an average of about 1.3 million b/d of oil. Mexican state-owned Pemex recently installed the first floating, storage, and offloading vessel (FSO) in the Gulf of Mexico on the field. Pemex is also planning a nitrogen injection program on the field to stabilize and increase field production. The firm projects that Cantarell still has about 15 years of oil production remaining.

EUROPE

- Europe has been hit hard by the downturn in the market, especially since many of its now-maturing fields need costly revitalization to keep production curves reasonably high. Also, costs have escalated in the region and government inter ference and regulation has become an increasing problem for operators.

NORWAY

- Norwegian government decided to take it upon itself to help oil prices and its own economy by cutting production and delaying production on several fields. This was thought to be a major blow to the country's oil sector and dampen the high level of activity. But, investments and activity remain strong.

Norway agreed some time ago to cut production by 100,000 b/d of oil, a promise that ends next month. Contingent on OPEC cuts, the country has decided to double that figure and cut 200,000 b/d of oil starting in April. This represents about 6% of the country's total production.

On the development front, Norway brought its Ekofisk II development onstream and plans to bring the Åsgard Field onstream shortly. Ekofisk II is the massive redevelopment of the Ekofisk Field designed to extend production profitably through 2028. The redevelopment consists of two new platforms and 31 miles of new pipeline.

Åsgard is expected to be brought onstream soon. The field has estimated reserves of 830 million bbl of oil and 212 Bcm of gas and comprises the Midgard, Sm rbukk, and Sm rbukk South discoveries. The field will produce from the most extensive subsea production installation in the world, embracing a total of 58 wells grouped in 17 seabed templates, to the Asgard A production ship, ranked as the largest vessel of its kind.

The Balder Field is also expected to come onstream this year, some two years after its initial planned start-up date. Production has been delayed due to construction delays with the Balder FPU. Norway also held a "North Sea" licensing round, which attracted 18 companies bidding for acreage. The companies bid on 20 of the 33 full or part blocks offered in the round.

UNITED KINGDOM

- Activity in the UK has also been strong, despite operator cut-backs and government intrusion. The current labor government had strongly attacked the UK's petroleum tax regime and power generation market last year and threatened major changes. However, the overhaul was withdrawn, soon after oil prices crashed.

The UK did hold its 18th offshore licensing round last year and has awarded the acreage. Seventy-eight of the 82 blocks on offer were awarded. This included some new faces in the central North Sea including EDC, Murphy, and PanCanadian. The UK Offshore Operators Association has said that the companies will need to reduce costs in order to make the licenses viable with the low oil price.

The area also recently celebrated its 200th field to come onstream on the UK Continental Shelf. Included in this 200, are several major fields that have come onstream in the past year. These include Conoco's Banff and Britannia fields, Enterprise's Pierce Field, Phillips' Delilah Field, and Talisman's Ross Field. Several discoveries also mounted in the past year and many developments are planned within the next year. Shell confirmed its Goldeneye discovery in Block 14/29b, Shell and Phillips made a discovery in Block 22/23b, and Talisman discovered gas on Block 14/26a.

On the development side, Texaco has been granted approval to expand its Captain Field to Area B, Amerada Hess, and Premier will begin production on Flora in October, and Kerr-McGee will begin production on the Janice Field later this year.

IRELAND

- Irish activity is showing signs of picking up. Exploration has taken place sporadically off Ireland for years, but only two fields have entered development. Both are considered marginal. Statoil's Connemara discovery was earlier thought to be a major success, the first off western Ireland, but the company deemed it non-commercial.

The government of Ireland recently held a South Porcupine Basin Frontier licensing round. Only two companies, Elf and Agip, bid for blocks. Exploration is planned in the area for the future, following award of the blocks. Enterprise has also announced plans to drill two wells off the country this year. It will drill an appraisal well on its Corrib gas discovery and an exploratory well on the adjacent Shannon area.

DENMARK

- The Danish Energy Agency held its fifth licensing round last year. Seventeen companies submitted 19 applications for previously unallocated acreage in the Central Graben and adjacent areas at the western edge of the Danish sector. However, signing of some of the licenses was delayed due to protests from A.P. Moller-Maersk, the operating company for the Danish Under ground Consortium, which includes Maersk, Shell, and Texaco. The company protested the country's proposed reform of its corporation tax. The government had proposed a reduction in the corporate income tax rate from 34% to 26%, but oil companies are not included.

Production also began on two major fields offshore Denmark. In a first ever unitization agreement for the joint development and production of a Danish offshore field, the Danish Underground Consortium and a Statoil-led group brought the first phase of the Lulita Field onstream. Statoil also began production from its Siri Field in the central Graben area. Denmark now has around 14 fields in production.

NETHERLANDS

- Activity off the Netherlands is down significantly. Exploration and oil and gas production was down significantly from previous years. Only a handful of wells was spudded last year, with very little success. Gulf Canada Resources did make a gas discovery on the Q-4 Block in the Dutch sector of the North Sea and has submitted a production license application.

On the Kotter and Logger fields, two of the Netherlands' few producing fields, Clyde took over operatorship from Conoco. The two fields produce a combined 4,000 b/d of oil.

MIDDLE EAST/CASPIAN SEA

- The Middle East and Caspian Sea regions are some of the most closely watched areas in the world - and, rightly so. The Middle East holds the greatest amount of oil reserves in the world, while the Caspian region has boasted similar reserves.

However, reserves in the Caspian might not be as great as originally thought. Two international consortia have recently pulled out of the region after disappointing drilling programs. On the Middle East front, the countries of the region have begun opening the doors to international investment. Several companies have signed contracts in the region amidst major international controversy.

SAUDI ARABIA

- The king of all oil producing countries will probably hold onto its producing crown without the aid of foreign investment, but it won't be easy. Companies across the globe have been trying to get in on the Saudi oil play for years. Recently, the Saudi government had discussions with foreign firms and governments regarding investment in the industry. However, the Saudi government has said that the only sector it is considering opening to foreign investment is the gas market. The government said it does not need help with its oil market. The country is only producing 10 of 80 discovered fields.

Saudi Arabia does need to do something to help its economy. The country's GDP has plummeted with the drop in oil prices. The Kingdom does have several alternatives to boost its economy, including opening to foreign investment and increasing production. But, Saudi's ability as the lowest cost producer in the world provides a major advantage over other countries, regardless of price.

IRAN

- Iran began increasing foreign investment in 1995 when it tendered its buy-back contracts, which allow foreign firms to develop the nation's hydrocarbon reserves with no ownership. The country has signed four contracts thus far with foreign firms, despite US sanctions against investment in Iran.

The first contract was with Total of France, Gazprom of Russia, and Petronas of Malaysia. The contract was for $2 billion for development of the South Pars gas field. Other companies such as Elf, Agip, Premier Oilm, and Bow Valley of Canada also have signed contracts for the Balal and Doroud oil fields.

The US has looked disapprovingly on these contracts, but has thus far, has done nothing to stop them. The US, however, took a strong stance against a pipeline proposed to run from Baku to Iran. The US is supporting an alternative route for the pipeline that will run through Turkey. A decision on the route is yet to come. As far as investment in Iran is concerned, many US companies are trying to lift the trade sanctions. Arco and Shell have expressed a desire to invest in Iranian contracts.

EGYPT

- Egypt has had a number of discoveries in the past year, mostly onshore. Apache made a gas discovery with its Alamenin West well in the western Mediterranean, while Pennzoil made a discovery on the North July Block in the Gulf of Suez. Also, Elf has acquired acreage in Egypt's deepwater portion of the Mediterranean. Egypt's deepwater is relatively unexplored and several companies are currently debating entry. Egypt did hold a licensing round for some of its offshore acreage last year. The round included nine blocks on offer, three in the Nile Delta and the shallow North Sinai, and six in the Gulf of Suez. The contracts will be signed with six major international companies and are valued at $1.1 billion. Further licensing rounds are expected to be announced this year.

CASPIAN SEA

- Success has been fleeting for these two Caspian Sea countries. More than 25 dry holes have been drilled off their coasts in recent months. The only success, thus far, has come from the Azerbaijan International Oil Company (AIOC) consortium. However, none of the successes has proven to be of the mass quantities the Caspian is thought to contain. The company recently drilled its seventh production well on the Chiraq prospect and has resumed drilling on the Shakh Deniz. The Shakh Deniz is being carefully watched by the industry as one of the last hopes for the central Caspian region.

Another international consortium, Caspian International Petroleum Company, has decided to pull out of the region following disappointment on the Karabakh Field. A second consortium is also calling it quits. The North Absheron Operating Company (NAOC), the BP-Amoco-led international consortium operating in the Caspian off Azerbaijan, has announced that results from a third test well on the Dan Ulduzu Field did not reveal commercial quantities of hydrocarbons. The group planned over $2 billion in investments if the project were successful.

However, the Offshore Kazakhstan Inter national Operating Company (OKIOC), plans to begin exploration efforts on the Kashagan structure late this month or next month. Kashagan is thought to be an extension of the massive onshore Tengiz Field.

On another front, pipelines have been a hot topic in the region. Several new pipelines have been planned for the export of Caspian oil to several countries in Central Asia and the Middle East. However, companies have expressed concerns that the Caspian is not producing enough oil to fill the lines. Whether the Caspian lives up to its reputation, remains to be seen. Most hope is thought to lie on Shakh Deniz and the Kashagan Field.

RUSSIA

- Russia has been in political and economic crisis for many years, a condition which has limited foreign investment in the oil industry. The government is trying to open the industry to foreign investment with the passing of a new regulation increasing foreign participation in production sharing agreements from 10% to 20%. This is expected to take some time to implement and still has to receive full government approval before being enacted. Regardless, it is the greatest stride the country has made toward helping the oil industry. If enacted, along with improvement in oil prices, this policy should help foster an increase in foreign investment.

The most notable development project however remains the Sakhalin energy projects off Sakhalin Island. Reserves for Sakhalin are estimated to be 700 million tons of oil and condensate and 2.5 Tcf of gas. The Sakhalin-2 project is due to come onstream in July marking the startup of Russia's first offshore facility. A pipeline is also being consdered to run from Sakhalin to Japan. This would allow a boost to the Russian economy by adding a tie-in to the Asian market.

INDIA

- India has made headway into developing its petroleum industry with the development of the New Exploration Licensing Policy (NELP). Under the licensing policy, the government opened its ninth licensing round. Thirty-eight offshore blocks are on offer, including 12 in deepwater. The NELP allows for a much more "outsider friendly" investment scenario. The policy puts foreign participation on par with indigenous companies and allows for 100% foreign investment. NELP also offers incentives for its deepwater acreage.

The bidding round will close on the 18th of this month. India is hoping that these generous terms will attract the investment needed to make the country a major player in the industry, as well as meet the country's growing demand for petroleum products. Currently, local supply only covers about 37% of demand.

ASIA-PACIFIC

- Asia has received much of the blame for the downturn in the oil industry. The crumbling of Asian markets lowered energy demand considerably. Today, Asian economies are beginning to show signs of life and making a turn towards stability. Exploration and production activity has remained fairly stable over the past year. Companies already involved in the region are continuing activities, but companies pondering the decision to enter the market have been stalling. A large number of gas fields have been discovered in the region, but companies are waiting until demand for gas in the Asian market increases before committing to development. So far the main activity has been through licensing. Almost every country in the region has held a licensing round in the past year, with very favorable terms.

CHINA

- China has been trying to increase foreign investment in its oil industry with a new licensing round. The China National Offshore Oil Corp (CNOOC) has placed six offshore blocks on offer in the Donghai, Pearl River Motuh, Beibu Bay, and Yinggehai basins. The company has said that it chose these blocks because they offer the greatest exploration potential. The round will close on the 30th of September. China also awarded some 20 blocks earlier last year in which several companies including Agip, Apache, and Texaco signed production sharing agreements.

On the production side, Statoil brought the 35 million bbl Lufeng Field onstream in the South China Sea, while CACT, a joint venture of CNOOC, Agip, Chevorn, and Texaco brought the Huizhou 32-5 Field onstream in the Pearl River Mouth Basin. With this added production, CACT became China's largest offshore producer.

Chevron has also decided to commit $60 million to China upstream operations over the next two years. The company has announced plans for the drilling of six wells this year. They include three wells in the Bohai Sea, one in Zhanhuadong off the Shengli Field, one in Yacheng, and one in the Huizhou Field. On the discovery side, three key discoveries were made in the Shijiutuo area, China's largest offshore production area. The three discoveries have proven reserves of 60 million tons of oil and 8 Bcm of gas.

PHILIPPINES

- The most notable development offshore the Philippines has been Shell's Malampaya Field. Malampaya will be used to supply gas to Philippine power plants when it goes onstream in 2001. Construction is currently underway for a concrete gravity based platform.

Shell is also currently exploring the Nido prospect off northwest Palawan just south of Malampaya. Both Shell and the Philippine government are predicted a massive find, hopefully of around 2 Tcf of gas. The company is also planning to drill two wells on the San Martin prospect north of Malampaya.

MALAYSIA

- The Malaysian offshore is anybody's game. Some operators are continuing with development; others are holding off until demand rises. Esso has been one of the active operators. The company began production from its Tapis E oil platform, the fifth platform to installed on the field. Esso also brought the Seligi F and Raya A platforms onstream last year.

Murphy Oil is also an active participant in Malaysia's offshore. The company has signed production sharing contracts for three blocks - SK09, SK311, and Block K in the deepwater Sabah Block. The company is expected to begin a seismic program this year.

The development of the Cakerwala Field in Block A-18 of the Malay-Thai joint area was finally granted government approval. Operator, Triton, is currently undergoing cost and technical studies on the project. Shell and Petronas Carigali are holding off investment, however. The companies discovered the large Kanunsu East gas field in Block G last year, but are waiting for gas demand to rise before submitting a development scheme.

VIETNAM

- Vietnam activity has slowed substantially. In recent months, several companies, including Petronas Carigali and Arabian Oil, have decided to discontinue activities in some blocks due to high costs and low production. But, the country also passed out five exploration contracts last year, which should be finalized soon.

The most active operators in Vietnam have been Lundin Oil, Unocal, JVPC, and Petronas Carigali. Lundin discovered the North Bunga Pakma oil and gas field last year in the commercial arrangement area near the midline between Vietnam and Malaysia. Unocal made a gas discovery in Block B off southwest Vietnam, and JVPC made an additional discovery on its Ran Dong gas field. Petronas Carigali also brought the Ruby Field onstream at 8,000 b/d of oil. The field is producing to the Ruby Princess FPSO.

THAILAND

- Thailand's activity has been mainly focused on Block B8/32. This block includes the 102,000-acre Benchamas Field, the 68,000-acre Tantawan Field, the 91,000-acre Maliwan Field, and the Jarmjuree Field. Tantawan and Benchamas are Thailand's largest offshore fields. Benchamas has 22 successfull wells drilled on the field and will begin production from its first three platform locations in July. Tantawan is currently in produciton and has produced about 91 Bcf to date. Production on Maliwan and Jarmjuree is expected after next year. The block is operated by Pogo until September, at which time Chevron will serve as operator.

INDONESIA

- Indonesia also tried to spur activity with new contracts last year. Pertamina, the state oil company, offered eight areas for "direct negotiation" production sharing contracts and nine areas open for tender. Companies including Shell, Total, and Unocal were awarded contracts.

Indonesia's deepwater is beginning to develop. Unocal and Mobil have confirmed the potential of the West Seno deepwater field off East Kalimantan. The companies have estimated recoverable reserves of 150 million boe. Both have decided on a fast-track development for West Seno.

This is planned to be followed by the Merah Besar Field. The companies are also planning to drill 20-25 deepwater wells in Indonesia's deepwater this year. The wells will be drilled in the Makassar Strait and Rapak production sharing contracts.

AUSTRALIA

- Australia has been the most stable of the Asian economies during the crisis, and its petroleum industry has faired relatively well. In fact, Australian offshore exploration reached record levels last year. Seventy-four wells were drilled and more than 960,000 line km of seismic was undertaken in Australian waters in 1998. Most Australian activity took place in the Bonaparte, Browse, and Carnarvon Basins off Northwest Australia, and off Tasmania in the Bass Basin.

The government is also planning to offer 56 new offshore exploration areas for licensing this year to offset any activity decline caused by the downturn. Several licenses were granted last year to Woodside, Shell, and BHP. On the production side, BHP is planning to bring its Buffalo Field in the Timor Sea onstream by year-end. Woodside's Laminaria Field is also expected to begin production later this year. Both fields will produce to FPSO's. A few discoveries have also been recorded for last year, including Apache's Legendre discovery in the Caranarvon Basin and Mobil's John Brookes-1 gas discovery in the Barrow sub-basin of the Carnarvon.

Copyright 1999 Oil & Gas Journal. All Rights Reserved.