High risk frontier drilling looks well on the way to complete recovery from the lack of incentive and money that followed the crude oil price collapse of 1986.
An indicator of the health of this part of the exploration business came from two very different directions in London.
Britain's Department of Energy reckons the time is right to entice big companies with exploration budgets to march back into the U.K.'s most difficult frontier area, the deepwater North Atlantic off the western coast of Scotland. And it's backing this hunch with a new licensing round consisting entirely of frontier acreage.
PETRESEARCH'S MOVE
At the other end of the scale, a small London company, Petresearch International plc, which grew up putting together farmouts for other companies, decided the time is right to get into exploration on its own account.
Significantly, Petresearch's first venture into exploration has very pointedly avoided any contact with the North Sea. John Verity, the company's chairman and managing director, sees no gain for North Sea investments by small companies. "The upside will come from Africa, Latin America, Southeast Asia, and the Indian subcontinent," he said.
As an adviser, Verity said, the company can see a major move in the industry to replace reserves via frontier exploration. In 1989, Petresearch started putting together a portfolio of frontier plays by taking a carried interest in return for its services.
The company is now seeking a listing and $22 million from the London Stock Exchange to complete the transition from an industry adviser to a full fledged independent with a sound production base.
Production will come from oil and gas leases purchased in the U.S., which will provide Petresearch with a net cash flow of $4 million/year to help finance its exploration program of participating in 12-15 wells/year.
Petresearch's business plan always envisaged obtaining production income to avoid constant returns to shareholders for funds. But as the public offering was processed, the company discovered that a production base controlled by the company was not only desirable, it was also essential.
New guidelines from the London Stock Exchange require a company to control 50% of its assets. Verity says in London a company can raise only $1 for uncommitted exploration for every $3 of proved assets on the balance sheet.
WHERE ITS PLAYS ARE
Petresearch's initial spread of acreage lies in Papua New Guinea, Ras Al Khaimah, Tunisia, Spain, and Belize. It also holds options on deals in Gabon and Chile, which the company believes will be among the new generation of frontier plays.
Verity wanted to participate in the Viet Nam and Myanmar frontier plays. But rather than be the last man in, the company is looking elsewhere.
Chile fits the bill. It is largely unexplored and has seen political instability, then undesirability. Now the fiscal terms are attractive, and the area is starting to attract the attention of exploration companies.
Copyright 1990 Oil & Gas Journal. All Rights Reserved.
