The Falklands: Renewed Activity Off Brazil Is The Key To Oil Exploration Hopes In Waters Around The Falklands
By J. Brock, Falkland Islands News Network, September 28
Brazil Is The Key To Renewed Hydrocarbons Exploration In The North Falkland Basin
Several attempts have been made recently to speculate about why there is no
exploration activity for hydrocarbons in the North Falkland Basin. The headlines
touted reflect companies pulling out of the area and poor to no results. What the
articles failed to produce was anything for the investor that was concrete. Thinking
that any snippet of information is better than none at all, while dangerous, was
pounced upon by people who wanted to make their mark without researching the
consequences or giving much depth to the reports. Some good solid pieces of
information did come through but nothing was written to tie them together. I went
along to see Phyl Rendell after her trip to Birmingham and to South America and
asked her, first of all, at what stage was the licensing round in the Special Area of
Co-operation?
PR We are working away. We had our last meeting in July in Buenos Aires and
the message coming from the Argentines is very much business as usual despite
the fact that they have elections this year. They do still value co-operation over
working towards a joint licensing round for the oil industry.
FINN Are we going around in circles here?
PR I know I have said it before and it has become quite tedious, for readers but it is
a matter of breaking new ground and there are difficult technical issues still to
address. But, certainly a lot of progress has been made in the last few years and
there is a will to finalise the technical work but we don?t wish to start giving dates
as we had done previously because we may not keep to them. We are optimistic
that in the next year or so, we will successfully reach a point where we can issue
licences for that area.
FINN Given the exit of the major companies from the North Falkland Basin, is
there any hope of attracting the same companies to the Special Area of
Co-operation?
PR I don?t know if companies that have worked in the North Falkland Basin would
be interested in the Special Area or not. There are certainly companies interested in
the Special Area but much of the reason for companies withdrawing at the moment
is the state of the industry and the fact that some of the larger companies perhaps
suffered more than medium sized companies with the big crash in oil prices last
year. And, they had to review their strategic exploration programme. High risk
areas like the Falklands have really not been included in their new portfolios. So, we
have to see if the ones that were working in the North Falkland Basin will also be
attracted to the Special Area. There are obviously benefits in working in two areas
close together. Then you can share and utilise ships and rigs. So, we will have to
wait and see.
FINN This interest added to the renewed activity in the waters off Brazil looks
encouraging. How encouraging will this be for renewing exploratory drilling in the
North Falkland Basin?
PR We think this is key to further exploration in drilling in the North Falkland Basin
and having just been to an oil convention in Birmingham in September, this point
was reiterated over and over again, that activity offshore Brazil should bring about
availability of rigs and vessels to work in the South Atlantic. We are very hopeful
that activity in the next year/18 months would increase in Brazilian waters and that
there will be facilities available that could come and work in the Falklands. So,
really, Brazil is quite critical for the South Atlantic.
FINN does the same, therefore, apply for the Special Area of Co-operation?
PR Yes. I think any development off the East Coast of South America is going to
benefit new exploration areas to the South in the South Atlantic. This is very good
timing for us that Brazil has deregulated and are allowing new companies into the
country. I think there should be quite a lot of activity. At the moment, I am told,
there are some 20 vessels, all vying for acreage to carry out seismic surveys up
there so the area has a lot of Seismic surveys going on.
FINN Given any licensing round in the Special Area of Co-operation, what are the
future plans for a further licensing round in the North Falkland Basin?
PR We are not sure about that at this stage but the Falkland Islands Government is
looking at what other countries have been doing to maintain momentum in their
region. With the low oil prices last year and not so much capital about for
exploration drilling in high risk areas and we are moving towards what?s called an
open door licensing policy. We are considering introducing such a policy where we
could take bids from companies to operate in areas that are not already licensed.
This is a way of maintaining industry interest in the area and, at the moment, if we
had a competitive licensing round as we did in 1995/96, we don?t think we would
get any takers. This has been proven in countries like Namibia who had a
competitive licensing round this year and they had no bids whatsoever, even though
the area is quite attractive. So, by going to a more low-key open door policy where
we would absolutely offer acreage to companies, consortia, which probably
wouldn?t involve drilling at this stage. It would bring more data and more knowledge
to us about the area and keep the momentum going. That?s something FIG is
considering to possibly be introduced next year.
FINN In a recent interview with Colin Phipps on BBC Calling the Falklands, it was
revealed that Desire will not be active in the Islands for another 12 to 18 months.
Keeping this in mind, the oil price is due to settle at around $15.00 per barrel after
having reached a high of nearly $22.00.. Are Desire going to be a bit too late in
coming back, seeing that the make or break price per barrel for viable exploration
drilling is $13.50 to $14.00?
PR Various oil analysts have quoted the price a barrel of oil that would best suit
exploration prospects for the Falklands. And some of those consultants have
pin-pointed it at $15.00, some even as high as $18.00. But, I think at the exploration
stage companies are probably not so much looking at the day to day price of oil
because, obviously, it takes time, first, to find commercial quantities of oil and then
to proceed to a production stage and the oil price may have varied considerably in
that period, or over a number of years. Furthermore, technology may have moved
on and it may actually be cheaper to produce oil in a few years? time than it is at
present. Oil companies will take into account costs operating offshore but I don?t
think it?s critical. It?s very early days of exploration for hydrocarbons.
FINN What are some of the factors that would make the price change before
Desire decide to come back and take up exploratory drilling in their tranches?
PR As you know from Dr. Phipps? interview with Calling the Falklands, Desire
have merged with a company called Gaelic and Gaelic has activity onshore in
Portugal for gas. I think Desire need time or are looking for time to consolidate
their company and that?s probably more the reason for them not beginning offshore
drilling in Falklands waters than the price of oil. I think that?s not bad news for the
Falklands because Desire, with Gaelic, are growing and learning and getting more
experience.
FINN In Newfoundland the Hybernia field was discovered nearly 30 years before
the first commercial well came on line. Seeing that Dr. Phil Richards of British
Geological Survey, in January 1997 predicted that oil companies would pull out and
leave us alone for anything up to 15 years, would the Newfoundland model be
about right for the North Falkland Basin?
PR In answer to that, I do hope it?s less than 15 years. Otherwise I will be retired
in my rocking chair. However, one can?t rule out the experience of Newfoundland
and we have been fortunate enough to have Mark Shrimpton coming from
Newfoundland and giving us that sobering story of Newfoundland?s experience and
it?s been helpful to us to try and learn from some of the mistakes in Newfoundland.
I think nowadays the oil industry does move somewhat more quickly than perhaps it
was during those early exploration days off Newfoundland. I think we are just
going through a period of merger and uncertainty and also there is plenty of
resource around in the world. But, as reserves tighten up and there are less
hydrocarbons available, and, perhaps the far east economy picks up again, I think
demand will increase and I am fairly confident that companies will be looking back
at areas in the Falklands that they would like to explore and seek commercial finds
of oil.
FINN Though there are two hydrocarbons systems operating in the North Falkland
Basin, they are not thought to be large enough to attract major oil companies. It is,
however, sufficient to interest medium to small oil concerns but could there be
larger oil reserves out there that would attract the larger companies again?
PR It?s as long as a piece of string, really. At the moment the industry are
indicating that those six wells indicate that there will not be the massive finds and
the structures that they were hoping for. Certainly the data (and Dr. Phil Richards
will fill us in next week when he visits the Islands) the data is not that discouraging
and particularly medium sized companies, as you say will be very interested still in
the region. But, six wells does not test the whole of the offshore Falklands and
there could well be, in the future, large reserves in other regions, perhaps not the
North Falkland Basin. There?s a vast amount of water out there and there are still
some very interesting structures that have not been tested. The Falkland Islands
Government did try to license acreage to the south-east of the Islands in 1996 and
there were no takers. So, that?s a whole region yet to be further explored. For all
we know there might be those large structures there.
Though the hydrocarbons exploration has ceased in the area, there is still hope that
there will be renewed activity. More will be known sometime next week when Dr.
Richards comes and gives a demonstration at the public meeting.
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