E&D PROSPECTS IN FRANCE GAINING NEW LUSTER

The outlook for exploration and development operations in France is brightening.

The French government has launched a two pronged program in association with local oil companies to boost domestic exploration. The move was sparked by the lesson of the Persian Gulf crisis, which underscored the need for France to boost development of its hydrocarbon resources.

With that in mind, the French oil industry association UFIP has called for more government action to boost domestic oil and gas exploration and development. Noting that French E&D capital spending had fallen to 1.5 billion francs in 1990 from a peak of 3.2 billion francs in 1985, UFIP urged France's national and local governments to ease taxes on oil companies and expedite approvals of exploration permits.

Meantime, one leading French independent rates France's petroleum potential as attractive despite a difficult operating climate for oil companies. Petrole Saint Honore (PSH), Paris, plans an aggressive domestic exploration campaign with funding from France's Rothschild Group.

And Triton Energy Corp., Houston, the first U.S. independent awarded an exploration permit in France, in 1980, plans to continue an aggressive E&D program in France during 1991-92.

In addition, Garnet Resources Corp., Houston, has obtained government approval for its Toury oil and gas exploration permit in the Paris basin. Garnet will have a 100% interest in the 4 year, 132,000 acre permit in the southwestern portion of the basin.

DOMESTIC PROGRAM

The first French program, which has a budget of 10 million francs ($1.6 million), aims to improve data from seismic surveys in the Paris basin.

Cie. Generale de Geophysique (CGG), Esso Rep, Institut Francais du Petrole, Ste. Nationale Elf Aquitaine, Total, and Triton France will provide about half the budget.

A study focusing on middle Jurassic plays in the Villeperdue and Fontaine-au-Bron concessions will seek to adapt seismic techniques to the abrupt variations in reservoir features in the Paris basin.

The second study, to be carried out by CGG in the Vercors-Chartreuse area around Grenoble in the foothills of the Alps, will try to adapt seismic acquisition and processing to an area that features remote terrain and complex geology.

About half the 8.5 million franc ($1.4 million) cost of that study will come from Agip SpA, Petrofina SA, Elf, and Esso.

PSH GROWTH

Formed as a venture capital oil company by the Rothschild Group in 1986, PSH recently acquired Clyde Expro plc's oil interests in France.

They cover 14 exploration permits, of which 11 are in the Paris basin and three in the Aquitaine basin, in addition to interests in two Paris basin blocks that currently produce about 300 b/d of oil.

The move follows acquisition in July 1990 of Teredo France SA, a unit of Teredo Oils Ltd. That brought PSH another eight French exploration permits - seven in the Paris basin and one in Alsace - pushing PSH's total net acreage in France to 1,471 sq km on 31 permits - 26 in the Paris basin, three in Aquitaine, one in the Jura basin of northeastern France, and one in Alsace.

PSH now ranks fifth in terms of acreage among oil companies operating in France, although it has been awarded only two permits by the government.

Its earlier growth came mainly through two acquisitions. PSH acquired a farmout on four Esso permits, including the new Jura Meridional play that has yielded an oil strike. In addition, PSH offered a 39% interest in the company to Dyas BV, the upstream arm of the Dutch company SHV, in exchange for Dyas' interests in three Paris basin permits.

FRENCH INDUSTRY STATUS

For the Rothschild Group and two French insurance companies, starting up an oil company with venture capital was at the time unique in France.

PSH Exploration Manager Neil McNaughton explained the operation was timed to take advantage of the post-1986 oil slump.

Permits in the Paris basin are in a continual state of flux, he said, noting companies such as British Petroleum Co. plc, Rosewood, Teredo, and Clyde recently pulled out or disposed of acreage.

In terms of taxes, the situation is now improving, McNaughton said.

"When oil was below $15/bbl, the local taxes were horrendous," he said.

The French government has little leverage with local taxes but is subsidizing a number of "large reconnaissance" seismic operations in areas that have been lightly explored or are particularly complex. Those include the southern flank of the Paris basin, Vercors basin along the eastern flank of the Alps, Chartreuse basin north of Grenoble in the Rhone Valley, and Corbieres basin north of Perpignan near the Riviera.

Subsidies will come from the government's Hydrocarbon Fund, traditionally used to help France's oil industry proceed with advanced technology research and development programs.

During the last few years, considered "lean" years after the sizable Paris basin finds of Chaunoy and Villperdue of the early 1980s, exploration in the basin yielded a string of smaller finds.

McNaughton estimates the most recent Paris basin strikes total a combined 40 million bbl reserves, compared with about 70 million bbl reserves proved in the early 1980s' finds.

PSH STRATEGIES

PSH has a 30 million franc capital budget for 1991 - mainly for exploration, with a very small share for development.

"One of the problems in France," said McNaughton, "is that there is a very large service industry that is not really interested in working in France. Three quarters of its sales are made abroad. So the unitary cost of its services in France is much higher than anywhere else in the world."

He estimated finding costs in the Paris basin at $7/bbl.

In addition, McNaughton said it is "incredibly difficult" for a small, unknown company to hire contractors.

PSH decided to buy its way into the exploration scene in France because permits awarded to new companies by the government "are poor ones," in keeping with a policy of pushing new companies into relatively unexplored areas.

The focus has been to acquire permits or interests in permits near production.

Despite the difficult investment climate in French E&D, PSH is betting on higher oil prices in the 1990s to warrant an ambitious drilling program.

EXPLORATION PROGRAMS

McNaughton rates the Paris basin as a good investment overall, considers the Aquitaine basin a high risk area, and sees considerable promise in the Jura basin.

PSH's 1991 exploration program calls for participating in 11 wildcats and 500 line km of seismic surveys.

That compares with only three wildcats in 1990. Of those three, one was an oil discovery, one had oil shows, and one was dry. The discovery well, 1 Champrose, found oil in middle Triassic Chaunoy, flowing 37 bbl of oil and 12 bbl of water during a 28 min open hole test. The well, on La Marsange permit, was placed on production in early 1991. A step-out was scheduled.

Plans call for an aggressive exploration program in the Jura Meridional permit in the mountainous terrain of Northeast France. Operator Esso, in partnership with PSH and Ranger Oil (U.K.) Ltd., spudded the first of a series of wells on the permit, which is sheduled for relinquishment in 1994. Much of the activity on the permit in 1990 involved 116 line km of seismic.

Interests in the Jura permit changed in 1990. Excluding the Chaleyriat area, Ranger farmed out 10% of its interest in the permit to Esso and 5% to PSH in exchange for a carrythrough on the 1990 seismic survey and the next wildcat. That will leave interests at Esso 60%, PSH 30%, and Ranger 10% in the main part of the permit, Esso 50% and PSH and Ranger 25% each in the Chaleyriat area.

Two wells are scheduled on the Jura permit in 1991, one on the Chaleyriat structure, the other a wildcat on a separate structure.

The Estissac permit was renewed for a second term with some acreage relinquished. In 1990, the Le Parc du Chene wildcat found oil shows in Jurassic Dogger, but poor reservoir quality stymied efforts to put the well on production. Plans call for four more Dogger wells on the Total operated permit this year.

Other 1991 exploration plans on PSH permits call for:

A Dogger well on Dormans permit operated by Total, near Fontaine-au-Bron and Villeperdue fields.
A Dogger well on Montereau permit operated by Elf.
Continuing seismic begun in December 1990 on Montigny Lencoup permit operated by Petrofina SA. After interpretation of data, a wildcat is planned to test Dogger and Triassic potential.
Completing interpretation of a 1990 seismic survey on the Conoco Inc. operated Pierre Levee permit, followed by a well to probe Triassic Chaunoy.
A 200 line km seismic survey on Triton operated Trencat permit between Cazaux and Parentis oil fields involving two land surveys and a shallow water survey on Cazaux Lake.
A Dogger well on Ultramar plc operated Voulx permit.

PSH PRODUCTION PLANS

PSH is implementing a waterflood in Les Bagneaux field, targeting a 50% hike in oil production.

Tentative plans call for another development well to be drilled in Les Bagneaux this year.

After converting one producer to water injection in La Motte Noir field, PSH plans to redrill a third development well to a different bottomhole location.

If the projects are successful, PSH estimates its production will jump by about 70%.

TRITON FRANCE

Triton France expects to drill 23 wildcats and 13 development wells in fiscal 1992.

The development push is intended to maintain Triton's French oil production at about 5,800 b/d, the average for the fiscal year ended May 31. More than 90% of that production comes from Villeperdue oil field, where Triton drilled 17 development wells and began a waterflood in fiscal 1991.

In addition, Triton has drilled four horizontal wells in Villeperdue since last April. Before that campaign, only one horizontal well had been drilled in the field, a 1989 completion that is producing 330 b/d compared with 60 b/d typical for a conventional well in that part of the field.

Also in fiscal 1991, seismic surveys were completed to taling 50 line km on the Estissac permit and 200 line km on the Trencat permit in the Aquitaine basin.