Flexibility, trust keys for government, operators in maximizing oil, gas value, pre-AAPG delegates told

March 11, 2002
Higher levels of cooperation, trust, and flexibility will be needed if host countries and international operators are to wrest the most value from oil and gas opportunities, said panel members in advance of the American Association of Petroleum Geologists annual convention here Sunday.

Alan Petzet
Chief Editor, Exploration and Economics

HOUSTON, Mar. 11 -- Higher levels of cooperation, trust, and flexibility will be needed if host countries and international operators are to wrest the most value from oil and gas opportunities, said panel members in advance of the American Association of Petroleum Geologists annual convention here Sunday.

Supermajors explore for giant oil and gas fields because they provide decades of value, infrastructure, and employment, but obstacles can thwart these efforts, said Peter D. Carragher, manager of exploration excellence, BP PLC.
Some of these obstacles stem from factors under government and national oil company control, he told a global forum sponsored by IHS Energy Group.

A given country may be more attractive for investment if it has uniform laws and regulations, if efficient ministries apply the regulations, if the fiscal regime contains transparency and includes anticorruption laws, if the country respects human rights, and if the country's economic development plans include the use of oil and gas wealth.
Education is paramount because countries need a world-class, empowered workforce to understand and implement multimillion-dollar, complex technologies such as 3D and 4D seismic surveys, fifth generation rigs, platforms, spars, and FPSOs, Carragher said.

Operators' effectiveness and efficiency are determined by the extent to which a host country offers easily available, recent well and seismic data; maintains transparent rules for competitive bidding; offers the opportunity to establish a long-term business; enacts a limited number of uniform fiscal terms; and offers unambiguous rights to develop production.
The purpose of exploration is production, Carragher said. Oil and gas are very different and should be treated as such in fiscal systems.

Shifting focus
Host countries have seen a shift to concentration on gas and offshore exploration, said Jonathan Green, IHS senior technical manager.
Today more than half the world's exploration concentration is offshore, while during the early 1980s it was 75% onshore. Today half of the emphasis is on gas even though a bias toward oil continued through the early 1990s.
More gas than oil has been discovered during the 1990s, and more investment is going into deep offshore and gas projects, Green said.

Industry makeup has also shifted, to fewer large companies, fewer companies overall, and less spending.
The largest exploration companies want big projects with small risk, generally 500 million bbl or 3 tcf minimum recoverable, gas preferred.

Host countries and commercial oil companies must balance their separate areas of focus, said Bruce Laws, general manager, new ventures frontier exploration and production, Murphy E&P Co.
Countries see themselves as stewards of natural resources, acting for posterity, taking into account political considerations, and dealing with balance of payments. Companies are focused on short-term profits, reserves and production growth, and satisfying financial markets, Laws said.
Country and company gears mesh in the areas of risk-reward balance, cash flow, technology, human resources, and long-term stability and needs, he said.

Oil companies and host countries should work to empower politicians, whose tenure can be quite brief, to make long-term decisions and obtain a short-term gain by doing so, said Charles Lucas-Clements, president of the Americas, IHS economics and consulting.

Time factors
Cycle time is fundamental to project economics, Green said.
Time delays can be connected to, for example: negotiating contracts, applying government regulations, resolving border disputes, obtaining environmental permits, resolving disputes with indigenous populations, and negotiating development of discoveries.

Colombia's Empresa Colombiana de Petroleos SA changed its approach to licensing and became aggressive in its efforts to attract international companies after noticing that no major discovery occurred in Colombia during 1993-99, said Tomas Villamir, Ecopetrol vice-president, exploration.
It adopted a policy of promoting technically good opportunities, providing data and knowledge at little or no cost, ceasing to compete, negotiating and signing contracts at E&P companies' speed, trying to anticipate and break bottlenecks before they reach industry, and thinking as a single company.
The result, Villamir said, has been six potentially significant discoveries in 2000-02.

Role of technology
Carragher's remarks reflected BP's desire to employ the latest technology, while Steve Benedetti, vice-president, Samson International Ltd., said Samson's low-risk approach would keep it from ever becoming a technological leader.

Carragher responded to a question about the merits of the high-tech vs. low-tech approaches and whether larger companies do not risk loss of the company in drilling exploratory wells that cost tens of millions of dollars and employing costly new techniques on a research basis in the field.
He said companies face the most risk in the first use of new technology and that host countries should be aware that for the companies the key question is reducing the risk of first use.

Green added that similarly the company that discovers the first gas in a basin should be treated preferentially and differently from subsequent finders of gas there.
Benedetti noted that Samson is a privately held independent that ranks among the top 20 US independents. One strength besides Samson's expertise in low-permeability gas reservoirs is its independence from financial markets.
In international ventures Samson looks for access to reliable data at a fair price; clarity of process, laws and regulations, and change; and government agency responsiveness.

Emil Pena, president and chief executive officer of Generation Power Inc., Houston, and formerly with the US Department of Energy Office of Fossil Energy, said it critical for industry to support government and nongovernment programs aimed at furthering technological advancement.