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markgovols   Wednesday, 07/01/09 10:28:24 AM
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Sao Tome drilling gets underway after three-year break
Sinopec's acquisition of Addax Petroleum has provided a major boost for exploration activities in the Joint Development Zone, offshore Nigeria and Sao Tome and Principe, where so far results have been disappointing.

Efforts to speed up exploration in Block 2 came as state-owned Sinopec sought to clinch a C$8 billion takeover of Addax Petroleum Ltd., one of its partners in the JDZ.

While the deal will focus primarily on Sinopec's entry into the Kurdistan section of Iraq, Addax's prized acreage in the JDZ, as well as it other oil producing assets in West Africa, should not be forgotten.

So far, exploration in the JDZ has been slow, with only one well drilled since the 2001 agreement between Nigeria and Sao Tome. That well was drilled back in 2006 by Chevron, but the well did not prove commercial.

Sinopec plans to start drilling the first prospecting wells in the JDZ early next month when the Transocean SEDCO-702 deepwater rig arrives on block 2. Drilling also could begin in July on three wells in the Addax-operated block 4, starting with the Kina-1 prospect.

IHS Global Insight's analysts say once the Sinopec-Addax acquisition is complete, Asia's largest refiner will hold a 43% stake in block 2 and will immediately become the dominant player in Sao Tome and Principe's oil sector. If commercial reserves are discovered in the JDZ, then Sinopec will have considerable influence on how they are developed.

Industry sources also say the Addax deal may pave the way for Sinopec to buy out Houston-based ERHC's significant holdings in the JDZ, where it has interests in six of the nine blocks awarded by the Joint Development Authority, the body set up to oversee exploration.

China's expansion of its footprint across Africa has been fueled by a desperate appetite for resources in the country, the world's second-largest -- and fastest-growing-- consumer of oil.

Sinopec, who was up against rival Korea National Oil Co in the bidding for Addax, is keen to move on with its first foray into deepwater offshore drilling. Sources don't rule out an acquistion of ERHC's equity.

It is unclear whether waters off Sao Tome will ever produce oil in commercial quantities. Promising seismic data is no guarantee that there is really as much oil or gas as anticipated, and finding new hydrocarbons has become more difficult. Companies are drilling deeper and deeper, but as the price of oil increases, deeper drilling becomes more worthwhile.

But the government of Sao Tome and Principe are optimistic that substantial petroleum discoveries are forthcoming.
Until a few years ago the islands' only claim to fame were Marilyn Monroe postage stamps, and a key export crop, cocoa. That was until oil deposits were detected in the '90s

The former Portuguese colony has now become another test case for oil companies. Will it be plundered and overwhelmed by the discovery of black gold? Or can it avoid the paradox of plenty, and become a rarity: a small underdeveloped country ever to have found oil in large quantities, while still avoiding the resource curse.

Posted by Jacinta Moran on June 30, 2009 | Permalink
Category: Africa

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