Key Decisions Near For Chad Pipeline Proposal

Patrick Crow
Energy Policies Editor

The Chad-Cameroon Proposal [33177 bytes]

The World Bank is expected to play a key role in a proposed $3 billion development of oil fields in Chad and an export pipeline through Cameroon to the Atlantic Ocean.

The project, which has been at least 4 years in the making, could see a breakthrough later this year.

Esso Exploration & Production Chad Inc. is operator for the consortium proposing the project. It holds a 40% interest, Ste. Shell Tchadienne de Recherches et d'Exploitation has 40%, and Elf Hydrocarbures Tchad has a 20% share it purchased from Chevron Corp. in 1993 (OGJ, Feb. 1, 1993, p. 25).

The governments of Chad and Cameroon, which had approved a framework agreement for the pipeline in 1995, now are studying an assessment of the pipeline's environmental impact. If they approve the plans, they are expected to apply to the World Bank for financing.

Chad fields

Last November Exxon Corp. affiliate Esso Chad signed a memorandum of understanding with the government of Chad on terms that could lead to development of the first commercial oil production in that country.

It set key financial, legal, and operating terms for developing three fields in the Doba basin of southern Chad, about 350 miles south of Chad's capital, N'Djamena.

The basin is estimated to contain 900 million bbl of recoverable reserves.

While the consortium is awaiting final government ratification of terms and the securing of project financing, it has sought proposals from potential bidders for the major engineering, procurement, and construction contracts.

Esso said it would drill about 300 wells in Kome, Miandoum, and Bolobo fields to produce 200,000-250,000 b/d of oil beginning as early as 2000.

Average depth of the wells would be 5,000 ft. Artificial lift and produced water disposal would be required.

The consortium was continuing drilling and technical and economic studies to better define field reserves and lower development costs.

The consortium also is considering developing Sedigi field north of Lake Chad and building a pipeline to supply a refinery to be built in N'Djamena.

Ste. d'Etude et d'Exploitation de la Raffinerie du Tchad would operate the plant, which would produce fuel for local transportation, electric power generation, and other uses.

Export pipeline

Production from the consortium's three Doba basin fields would be gathered into a central treating facility.

The heavy oil then would be pumped about 650 miles via a 30 in. pipeline across Chad and Cameroon to a floating terminal offshore the town of Kribi. From there, tankers would carry the oil to world markets.

Plans call for building three pump stations in Cameroon. The heavy crude would be heated at each of the stations.

The 1995 pipeline framework agreement set key commercial, financial, legal, and operating terms under which a pipeline company would be formed to lay and operate the Cameroon portion of the crude oil export system.

Cameroon, through its state-owned Ste. Nationale des Hydrocarbures, would own a 15% interest in the proposed pipeline. Chad also is expected to take an equity interest.

Another Exxon affiliate let contract in 1993 for preliminary engineering services for the pipeline project.

Background

Stuart McGill, executive vice-president of Exxon Co. International, recently briefed a World Bank conference on the project.

He said Conoco Oil Co. initiated Chad exploration in 1969. Significant discoveries followed in the late 1980s and early 1990s. Reserves total about 1 billion bbl, but reservoirs are unusually complex.

He said since Chad is a landlocked country and has limited demand for petroleum, the most feasible solution would be to export the oil through a pipeline and sell it on the world market.

McGill said the project would greatly benefit both countries, especially Chad.

Chad has a population of about 6.5 million persons and an economy primarily based on subsistence farming. Gross domestic product (GDP) in 1994 was about $200 per capita, and exports were less than $25 per capita.

Cameroon has a population of 13 million and a GDP of about $1,200 per capita. Its exports are less than $150 per capita, mostly petroleum-related.

The country has about 100,000 b/d of production from fields along the coast, but output is declining.

Bank's role

McGill said although the project may be economic, it faces "substantial" political risks. He said sponsors are willing to finance the upstream portion of the project but want political risk protection for the transportation system.

McGill said "meaningful equity participation" by the governments of Chad and Cameroon in the pipeline is seen as an important element of the total project.

He said government participation in financing of the line reduces both the consortium's political risk exposure and equity commitment and enhances the entire project's profile for international lenders.

McGill said the two host countries would benefit from tax, royalty, and transit fee revenues; the creation of jobs for their citizens; an improved infrastructure that would come with construction of the line; and a return on their equity investment.

"The project also is aligned with the World Bank's objectives," he said. McGill observed that both countries are dependent on the World Bank for economic support, and private investment is more efficient than aid.

And he said the process can be structured to address socioeconomic and environmental impacts.

McGill said the World Bank's cooperation is essential to ensure a balanced and efficient review of the project by the governments and their people.

He said two members of the World Bank group also could play important roles. The International Development Association would be the primary source of funding for the government's equity.

And the International Finance Corp. would be project lender and play a lead role in agreeing on a security package.

"Together they would be catalysts for assembling a broader finance package in difficult markets," McGill said.