Published On: Fri, Nov 7th, 2014

Oil and Gas Curacao – Fantasies, Myths and Facts Explained (Part 2)

After many years of deliberating, arguing and political mudslinging, on the 28 October the Prime Minister signed the notary act incorporating Kompania di Petroli i Gas di Korsou (KPG). Representing Curacao’s state-owned national petroleum company, this will put in motion oil and gas exploration of its territorial waters.

As I indicated in Part 1 (Curacao Chronicle 24 July, 2013) the next important step is to establish a proper legal and transparent licensing framework to conduct hydrocarbon exploration. While this is not yet in place, aspects of the National Draft Petroleum Ordinance have been discussed by Mr. Dirk Ormel of Van Eps Kunneman Van Doorne (http://www.ekvandoorne.com), which gives us a good insight to its contents.

As described by Mr. Ormel, the Draft Ordinance is based on previous legislation for exploration of the Saba Bank, and was written 40 years ago. While it may provide a useful framework for parliamentary discussions, in its present form it appears to fall short of meeting modern petroleum industry practices.

A number of other key factors will need to be further considered in developing an efficient and effective legislative structure to attract international oil companies. These include geological, environmental, regulatory, contractual and fiscal. In this article I will highlight some geological and environmental factors.

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While Curacao is located in a region well-endowed in hydrocarbons containing some of the largest “giant and supergiant” fields in the world (stars on map), it is a frontier area with no known oil or gas.

While local pundits (“wijsneus”) talk of a giant oil pool extending from Venezuela to Curacao this is fantasy. Indeed, geological data indicate that more than 95% of the hydrocarbon reserves shown on the map originate from one particular, unusually organic rich source rock not present around Curacao. Called La Luna and Querecual Formations in Venezuela, and Naparima Hill Formation in Trinidad, these are the same age as Curacao’s barren volcanic (“diabase”) core, but formed in a very different geological setting about 90 million years ago.

Most of Curacao’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 US$100 million, while drilling a similar well of 100 days duration in 100m water would total about US$30 million.

Not only, these costs do not include increased insurance risk for offshore explosion and leakage of oil or gas, which have escalated following BP’s Deepwater Horizon disaster. Considering that approximately 90% of Curacao’s territorial waters possessing hydrocarbon potential are classified as deep-ultra deep water, new international regulations for deep water drilling standards need to be included within the context of the National Petroleum Ordinance.

All these factors need to be considered in development of an attractive licencing process. For example, they determine block size, contract duration, and fiscal incentives, which need to be competitive with deep-ultra deep provinces presently being explored elsewhere in the Caribbean. One possible scenario is shown dividing Curacao’s area of offshore petroleum interest into effectively three shallow to moderate depth, five deep and four ultra-deep water blocks.

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Other factors such as phased exploration programmes, minimum exploration work commitments, pre-determined relinquishments, licence rental payments and environmental guarantees are not considered in the present Draft Ordinance. However, to achieve this requires a certain level of upstream technical capacity, not evident as yet in the make-up of KPG. Indeed, if technical experience is limited to planning and maintenance of an oil refinery this has very little in common with exploration.

The last decade has shown increasing interest by oil companies in deep water hydrocarbon exploration in the Caribbean region. Most notably Trinidad and Tobago, which is a mature petroleum producing province and has 39 deep water blocks. It remains to be seen how a tumbling global oil price (to perhaps below 70 USD per barrel) will effect exploration in the region and our fledgling petroleum company in the short and perhaps even medium term.

Dr. John Wright is a retired consultant geologist with over 30 years’ experience in natural resource exploration.

Images: Snapshots from GIS database compiled by the author. First shows known hydrocarbon fields and producing provinces in the southern Caribbean.  Green circles are areas sourced by older organic rich marine shales of Cretaceous geological age, while orange circles those sourced by younger Tertiary rocks. Second shows area of commercial hydrocarbon exploration interest (thick red polygon, about 16,000 km2) divided into optimal-sized blocks. Other coloured lines are publicly available seismic lines; the blue grid to the south of the island is that shot by Western Geco in 1979.

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