Oil firms open wallets for reserves access
Sunday, June 11, 2006
LONDON: Oil firms are paying millions of dollars more to governments to get access to oil and gas fields, a further sign that record oil prices are shifting the balance of power towards owners of reserves.
Competition for resources is driving up “signature bonuses” companies pay up front for access to fields, particularly in West Africa, making firms more dependent on oil prices staying higher for longer and squeezing returns.
“There are a number of places where you can see signature bonuses increasing quite a bit,” Tom Hickey, chief financial officer of UK-listed Tullow Oil Plc told Reuters. “For sure, it certainly means that even at current oil prices, discoveries will need to be quite sizeable.”
The increase in bonuses comes as oil-producing countries from Venezuela to Russia seek more cash and control from multinationals that drill in their oil and gas fields, a trend dubbed “resource nationalism” by some analysts.
China’s state-owned Sinopec last month won a 40 percent stake in an area off the coast of Angola, Block 18, after proposing a record-breaking $1.1 billion government signature bonus.
Bonuses for the top three blocks reached more than $3.1 billion, Deutsche Bank said, a jump from the $6 million to $35 million Total and others paid in the 1990s for access to the areas, all of which have seen huge oil finds. “The companies have far exceeded bonuses seen anywhere else,” Deutsche analyst Paul Sankey said in a note. “For major oils, returns are under fundamental pressure.”
Restraint to the winds? The top three blocks offered by Angola 15, 17 and 18 according to Deutsche are now home to fields such as Total’s Girassol. The parts on offer were those not developed or planned for development by the original operator.
“They are throwing restraint to the winds,” said Deborah White, analyst at Societe Generale. “It’s not even a full block, it’s part of a block.” The bonuses invite comparisons with the $1.2 billion firms paid for permits covering Mukluk, an area in Alaska found in 1983 to hold no oil and considered the world’s most costly dry well, she said.
Growing global demand, dwindling reserves in regions such as the North Sea and a 4 1/2 year rally in crude prices to a record high of over $75 a barrel in April are driving up bonuses in Angola and Nigeria. Sub-Saharan Africa’s top two producers are both open to foreign investment and offer the chance of large discoveries an increasingly rare combination in 2006.
“There are relatively few places at the moment where you can make very, very, very big discoveries that are open to non-national companies,” Tullow’s Hickey said. “Angola is one of the places.” Tullow, a bidder in the Angolan licensing round, is finalising its position over shallow water Block 1, he said.
Rising bonuses add to pressure on oil companies’ returns already coming from rising taxes in some producers, and higher costs for services such as rigs. Nigeria, Africa’s top oil producer, in May sold 16 oil licences in return for bids totalling $500 million and promises by mostly Asian investors of $20 billion in new infrastructure, in a sale that raised questions about transparency.
Private firms pay more: Facing competition from state-backed companies for reserves, their publicly traded counterparts are also paying more.
In Angola’s Block 17, Sinopec was beaten by France’s Total whose $670 million bonus took a 40 percent stake, leaving Sinopec with 25.5 percent. Italy’s ENI bid $902 million for a stake in Block 15. To get a 15 percent return, Eni will need a huge 800 million barrel find and a real US crude price of $57 a barrel more than double the average in the 1990s, Deutsche Bank estimates. Eni Chief Financial Officer Marco Mangiagalli said in May the company was “quite excited” by the block’s potential, and the huge bonuses suggest the bidders are confident of success at the drill bit. reuters
AI
