Sam Fletcher
OGJ Online
HOUSTON, Jan. 29 -- There are "many opportunities in the world" for international independent operators to find large oil and natural gas reserves if they manage risks, said industry analysts and executives at the opening of the 10th annual North American Prospects Expo Tuesday in Houston.
The potential for larger discoveries, coupled with lower finding and operating costs, are attracting US independents to expand internationally. "Onshore Latin America is fertile turf for independents" who are taking over land exploration and development in South America as the majors move offshore, said Pete Stark, vice-president of industry relations for IHS Energy Group, Denver, in a panel discussion of international markets.
"The majors are evacuating more and more areas with large (remaining) reserves," he said. At the same time, areas formerly held by national oil companies are opening to foreign investors, particularly mid-size independents, for exploration and development. Industry paradigms include "a global shift toward natural gas and a global shift offshore," said Stark.
According to IHS Energy officials, the 10 most active countries for foreign investment in oil and gas are Australia, Indonesia, China, Brazil, Egypt, Argentina, Mexico, the UK, Russia, and Poland.
The 10 countries that added the most reserves during 2000 were Kazakhstan, 8.44 billion boe; Australia, 3.8 billion boe; Angola, 2.36 billion boe; Indonesia, 1.66 billion boe; China, 1.45 billion boe; Norway, just over 1.08 billion boe; Saudi Arabia, a little under 1.08 billion boe; Russia, 1.06 billion boe; Egypt, 1.03 billion boe; and Iran, 988 million boe, said Candida Scott, commercial manager for IHS Energy Economics & Consulting in Houston.
Stark pointed to several large international discoveries in 2000-2001, including "the king" of the bunch, the Kashagan discovery in Kazakhstan in 2000. That structure is estimated to hold at least 10 billion bbl of liquids reserves and associated gas reserves of about 25 tcf (OGJ Online, Dec. 20, 2001). However, Stark said step-out drilling might run those estimates even higher.
The Buzzard discovery is one of the largest in the UK North Sea in some 10 years and is setting off a new play, said Stark. Two appraisal wells recently increased estimates of Buzzard's reserves to more than 400 million bbl from 300 million bbl previously. An intensive appraisal program continues with three more wells and associated sidetracks anticipated this year (OGJ Online, Jan. 17, 2002).
Reserves for the recent Chinguetti discovery off Mauritania are estimated at 180 million bbl, while the Baobab find on block CI-40 off Ivory Coast has estimated reserves of 241 million boe, said Stark.
But international opportunities are somewhat offset by frequently longer lead times to first production; potentially onerous and unstable fiscal terms; and political risks, said Mark E. Fischer, managing director and senior oil and gas analyst for Banc of America Securities LLC.
Because oil companies employ so many technical people, they often believe they understand the technical risks of international projects better than they really do, said John Dorrier, chairman and CEO of Gulfsands Petroleum Ltd., Houston, a privately held independent with ventures in South America and the Middle East.
On the other hand, he said, most US oil companies overestimate the political risks of working overseas. As a result, Dorrier said, "They often are more aggressive on technology than they should be and more conservative toward political risks than they need be."
"The world is a risky place," said Terry Hallmark, manager of political risk and policy assessment for the IHS Energy Group. But almost all risks can be managed so that oil companies can work almost anywhere in the world, he said.
Corporate executives first must ascertain the exact nature of the risks they are facing with their foreign investment, as well as the company's "risk threshold." Some companies and some projects have higher profiles and therefore may be more susceptible to certain risks, Hallmark said.
According to a political risk index developed by IHS Energy, the five "riskiest" countries for oil and gas investment are Israel, Ecuador, Pakistan, Nigeria, and Congo (former Zaire). The five "most risk-free" non-North American countries are Greenland, Portugal, the Netherlands, New Zealand, and Brunei, Hallmark reported.
Research by Banc of America Securities officials shows that stocks of those exploration and production companies that grew their overseas reserves the fastest during 1996-2000 outperformed those of competitors by a modest margin, said Fischer.
Yet paradoxically, he said the average 1996-2000 weightings of a company's foreign reserves versus its North American reserves "had no discernable impact" on stock performance. "Integrated oil companies historically tend to have more overseas reserves," Fischer said.
"Currently, investors are according higher valuations to the more North American E&P companies, likely because they are bullish on North American gas prices," said Fischer.
Contact Sam Fletcher at [email protected]