ERHC Energy Inc (ERHE)

[spp119]

Pre-salt oil and the EEZ

Someone here was asking about pre-salt possibilities in the STP/EEZ yesterday. I remember posting about it on the EEL thread some time ago and looked for that post. Found it just now and am reposting here.

Incidently, P Dimmock EEL/CTO did point out, at the end of the AGM discussion late December, the real possibility of pre-salt discoveries in the STP/EEZ. However it would be extremely premature at this basic pre-exploration stage to assume anything more than that, however remote it may or may not be.

Here is that post;
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spp119 - 13 Sep'08 - 16:15 - 24659 of 24659 edit (Pre-salt oil & the EEZ)

I strongly urge fellow PIs to read this FT article published last week on the recent deepwater Brazilian oil finds. It is both informative and enlightening to someone holding stock with interests in the EEZ.

http://www.ft.com/cms/s/0/fcfbfd0a-7f64-11dd-a3da-000077b07658.html

It first quantifies the actual scale of the discoveries in terms most people can understand. Indeed they appear to be “as significant as the North Sea” which in the 1970s was one of the new frontiers that helped pull the world out of its last big oil shock….Maybe (according to some Brazilian officials) even ten times larger!! Should this be true, proponents of “peak oil” theory must surely twitch their assumptions somewhat.

Secondly, it clarifies the notions of “pre-salt” oil finds and associated drilling thereof. Mostly located way offshore, these fields (off Brazil) have oil locked below the many rocky zones (where conventional oil drilling usually aims to penetrate), below even the hot, volatile, high pressure salt layers beneath these rocks to depths between 5,000m to 7,000m+. Here is oil, trapped in place “since before Africa and South America parted company more than 100m years ago”.

Drilling at these depths and conditions, although tempered by a history of 100% success rate, is still full of operational difficulties. Only a tiny handful of companies have mastery over the relatively novel technique used (called “long duration testing”), primarily Petrobras and – interestingly enough - Portugal’s state oil company, Galp and the Gulbenkian Foundation owned Portuguese oil firm, Partex…. In other words, a complete Lusaphone axis of expertise.

Accordingly, could we be perhaps be entering a new drilling era, witnessing the emergence of a new hydrocarbon exploratory paradigm targeting depths away from the rocks and deep under the salts….no longer pursuing just elephants or giants, but the gargantuan deposits trapped just below these outer crusts of the earth’s surface.

Thirdly, the article describes in clear relief, through the Brazilian version, the intense conflict, currently playing out in full swing globally, between the politics of resource nationalism with the attendant growth of many new NOCs, and the need to attract and maintain international finance capital, technological expertise and….. the investor confidence which sustains them. It is a conflict with many differing local strands, but one in which the words of a former Brazilian finance minister are apt words of wisdom to the many budding would-be modernizers; “Either we make this investment possible, or we will be saying, ‘the oil is ours – ours down there under the ground’.”


Now why is all this of any interest to shareholders in companies like EEL or ERHC who hold major commercial rights in that vast stretch of watery territory of the Sao Tome/Principe’s EEZ ?

The short answer is because the various different strands of interests the article brings up, converge on thinking of how development of the EEZ is likely to occur….A development whose beginnings now look imminent……

It has, first, been suggested that at least some of the geology underneath outer Gulf of Guinea waters, especially in the more southerly pre-salt layers, in many ways mirrors the basins off the Brazilian coasts, as the two areas were once joined together over a 100m years ago.

http://pubs.usgs.gov/bul/2207/B/pdf/b2207b_508.pdf

So there is legitimate cause for additional exploration interest in these STP waters, especially at below salt level depths. Could these contain some gargantuan size “pre-salt” oil fields like their cousins across the Atlantic off Brazil, instead of the proximate 4-11 billion barrels of gassy oil anticipated from the rocky zones cursorily studied so far? And indeed, should this be the case, the huge delay STP’s fractured politics have so far imposed on exploiting the islands hydrocarbon wealth will have turned out to be a blessing in disguise. For newer E&P techniques and knowledge can now kick in to permit the country…and the various stakeholders in its oil wealth, to frog leap into a new drilling era….peak oil situation or not.

But though of pivotal importance, this potential is hardly the only interest the FT article stokes up. It is now an established fact (testified in many posts here and on ERHC threads) that every STP administration and the Presidency are long united in desiring a consortium of Lusaphone oil companies to lead in prospecting and mining their oil wealth. And it is not unknown that both Petrobras and Galp have paid (repeated in the case of Petrobras) visits to the island in this regard, concurrent with tightening state-to-state accords between STP, Brazil, Angola and Portugal in oil sector co-operation.

So it is pretty clear that these companies will be dominant players in the STP EEZ. And with their almost unique, collective, pre-salt E&P expertise, they will definitely seek to find and exploit such potential, if it exists. A task made easier, in no small way by the fact that Petrobras - in large part because of the huge new pre-salt finds it keeps announcing - has already booked some 80% of the worlds deepwater drilling ships for use in these fields over the years to come. In fact, drilling STP waters to such deep depths, could be so facilitated by Petrobras, despite world-wide rig shortages, and come much sooner than what is conventionally assumed.

Lastly, the main question the FT article deals with, how to balance the needs for efficient exploration/development with the desire to maximize public benefit of resources is now coming to center stage in STP. As was posted last week, the government has just sent three draft bills necessary for holding of EEZ block auctions to Parliament, namely the Framework Law for Petroleum Operations, the Petroleum Tax Law and the Production Sharing Contract Model:

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=31998416

Just what kind of a concessionary regime will be framed into the basic Petroleum Law and the PSC remains to be seen. Judging from STP’s statements at the July JDZ meeting it seems to be in a rather atavistic and fighting mood in trying to reclaim as much as possible from prior undertakings.

What seems certain is that at long last, the delineation of the EEZ blocks will be entered upon so as to enable the auction to take place within 2009. Whether it will attract sufficient interest is conditional on STP lawmakers heeding the words of wiser Brazilian brethren. To enable i.e. major investments with a light concessionary regime with minimal taxation, royalties and bureaucracy (such as cases like with Albania or Georgia who seek to mine their oil resources quickly) or, conversely to keep hoisting the nationalistic banner and let their possibly super-abundant (pre-salt) oil stay where it is.. “down there under the ground”.

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spp119