Published On: Wed, Jan 28th, 2015

Exclusive interview with Dr. John Wright: Is there oil and gas in Curaçao? (Part 2)

Oil rigYesterday we published the first part of our interview with Dr. John Wright. Dr. Wright is a retired consultant geologist with over 30 years’ experience in natural resource exploration. He has managed major exploration initiatives in Australia, Europe, Asia, the Middle East, Caribbean and North America.

Where is Curaçao’s area of oil and gas exploration interest and how big is it?

The area of Curaçao’s offshore licensing interest for hydrocarbon exploration is defined to the west by the international maritime boundary with Aruba, to the south with that of Venezuela, to the east with that of Bonaire and to the north it by the -4,000m submarine or bathymetric contour. This gives an area of 16,000km2, similar to Aruba, which we might consider open for potential business.

What would be the extraction costs compared to other parts of the world which have known oil and gas production?

Most of Curaçao’s territorial waters having any commercial petroleum licencing interest are deep (>1000m) to ultra deep (>2500m-4000m).  While it is technically feasible to drill in 3km-plus water depths the effect of deep and ultra deep water drilling is to dramatically increase both hydrocarbon exploration and development costs. For example, a deep water well of 100 days duration can cost as much $100 million, while drilling a similar well of 100 days duration in 100m water would total about $30 million. These costs do not include increased insurance risk for offshore explosion and leakage of oil or gas, which have escalated following the Deepwater Horizon disaster.

During the last election it was said that PAR under the premiership of Etienne Ys had previously signed three previous concessions with international oil companies and hired a ship to do exploration work?

Despite newspaper reports, no exploration licences appear to have ever been formally issued. Whether these agreements represent some type of memorandum of understanding with the government is not transparent from press reports.  However, without a National Petroleum Ordinance, it is doubtful any licenses were issued, and no exploration work has been reported by any of the companies said to be involved in such concessions in the public arena. The ship that is referred to, I believe, is the R/V Maurice Ewing, which undertook the BOLIVAR seismic survey for the University of Texas in April-June, 2004. At that time the Netherlands Antilles Office of Oil Affairs was a contributing member to this scientific project.

What is the purpose of the new company Curaçao Oil and Gas Company (COGC) and when will it begin drilling?

COGC, or as initially announced Kompania di Petroli i Gas di Korsou (KPG), is what is called in the industry a ‘state or national owned oil company’ (or NOC). Its primary function will be to provide the legal and fiscal framework to attract, negotiate and monitor international oil companies exploring under license in Curaçao’s territorial waters. COGC will not itself be directly exploring or undertaking any drilling. This fact still appears not understood by many people of Curaçao, including apparently some parliamentarians.

Does Curacao now have a law in place so petroleum exploration can begin?

No the law is not yet in place. The Draft National Petroleum Ordinance has not yet been presented for approval before parliament, but the Prime Minister announced two weeks ago this will be undertaken in the very near future.

How will the licensing system work?

The licensing model can take several forms depending on particular circumstances of the NOC. However for COGC it will almost certainly be based on what is called a Production Sharing Contract or PSC. This type of contract was first introduced in Indonesia in the late 1960s. In this model the financial risk (that is, exploration costs if no petroleum is discovered) is entirely with the oil company. Only after production begins will COGC be required to contribute financially, and these payments are made from production and not cash (or more importantly not Curaçao taxpayers).

In practice how will the exploration licensing process begin?

Again this could commence in several ways. One could wait for an international oil company to come “knocking on the door”. This appears to have occurred in the case of Aruba, where one company has been granted the entire area of commercial exploration interest as a single block (14,000km2). Most countries, however, adopt a bidding process where various blocks are auctioned to one or more companies offering the best and cost effective technical programmes. For instance, Curaçao’s area of offshore area of interest could be divided into eight moderate to deep blocks (each about 1,000km2), and further four ultra-deep water blocks (each about 2,000km2).

What would the main advantage of the block system?

The main advantage of such a system is it stimulates competition, and allows the flow of technical information and expertise from more than one company onto the national oil company. The main disadvantage to a small island NOC is that it requires a certain level of petroleum exploration or ‘upstream’ technical capacity, presently not evident at COGC, and only a limited number of blocks are available to put on offer. Of course one company could also take out the full complement of blocks on offer.

What other advantages might there be to the block system?

In the longer term, if correctly administered, this provides for greater potential investment and success by maximising the number of exploration wells drilled. Let me illustrate this by making some simple comparisons between Aruba and deep water blocks granted between 2012-2013 in Trinidad and Tobago. In Aruba, Repsol are committed to spending about $100milion on drilling. Depending on water depth this amounts to 1-3 wells, or 1 well per 5,000 to only 1 per 14,000km2 of licensed area if a single ultra deep water well is actually completed. In Trinidad, which operates a block system, minimum work obligations vary from 1 well per 1000-2000km2. While not directly comparable, as Trinidad is a proven producer of oil and gas, some of these blocks like Curaçao are also frontier areas more than 100km away from known hydrocarbons.

What if oil or gas was found on the border with Venezuela - could Venezuela access it?

No Venezuela would not be able to access hydrocarbons located within Curaçao’s border. This situation is governed by both international maritime law and legal precedent. Around the world there are several hydrocarbon fields of this type which are referred to as “straddling oil and gas resources”. For example the Loran-Manatee gas field straddles the border Trinidad and Venezuela. An unitisation agreement to jointly develop this field was signed in 2007.

Why two weeks after the formation of Curaçao’s own oil company is it announced by Prime Minister Asjes that Aruba is going to conduct exploration in Curacao waters?

Yes, why would you announce incorporation of your own national petroleum company and a week later say you are allowing another sovereign power to explore in your own territory? I also do not understand why Aruba (actually Repsol) would fund this work without any written guarantees in the form of a contract of work. However, I suspect that Aruba has simply asked permission for their seismic ships to turn around in Curaçao territorial waters. In 3D marine surveys a large turning circle is required and while the cables are bent you cannot shoot. Hence if you want to shoot up to the territorial boundary (which Repsol do) you have to cross over. However, this is only my guess, as what is reported in the press is certainly not logical or transparent.

How does the plunging oil price around the world affect the new national oil company COGC?

The recent precipitous fall in oil prices (Brent crude is now about $48 per barrel) will present serious challenges to the short-medium term management of COGC. Already this year, major international oil companies have announced budget cuts of 10-20% (the Russian giant Gasprom 50%) and junior explorers in the range 20%-50%. Industry job losses worldwide expected to be in the many thousands. Increasingly frontier areas will be seen as higher risk and loose investment interest in this low-cost oil world. Unfortunately, recent press statements coming from COGC suggesting ‘many companies are interested in exploring’ appear naïve to what is actually happening in a dramatically changed global marketplace.

Are you optimistic about the discovery of gas or oil offshore Curaçao?

To have spent over 30 years working in natural resource exploration, it is important to have an optimistic outlook. However one must also be a realist. The main risks for Curaçao are the deep to ultra deep water depths, lack of a proven source rock and whether or not these have ever generated hydrocarbon fluids. On the upside, however, the potential prize is finding a ‘world giant’ gas field like La Perla with greater than 16 trillion cubic feet proven reserves.

Finally here is a question from “left field”, what is the most expensive oil well ever drilled?

This is an easy question to answer and is Mukluk-1 drilled by BP on the North Slope of Alaska in 1983. This is known as the most expensive single dry hole in oil industry history and cost $430 million. But if you also include costs to purchase the original exploration concession some analysts put these in excess of $1 billion. Why do I know this, because in 1983 I was working for BP.

Image: Ultra deep water drilling ship required for wells in water depths of 3000-4000m.

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