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Tullow says Caribbean, South America are promising new frontiers

Published:Wednesday | November 12, 2014 | 12:00 AM

John McKenna, business unit manager for Tullow Oil Plc in, said the company is "very encouraged" by prospects for oil in the region, including Jamaica, which is now included in its push to explore for opportunities in South America and the wider Caribbean.

That comment came at the announcement of a licensing and production-sharing agreement between Tullow Oil's wholly owned subsidiary Tullow Jamaica Limited and the Government of Jamaica through the Petroleum Corporation of Jamaica (PCJ).

The agreement covers exploration of 10 of Jamaica's 31 blocks - 6, 7, 9, 10, 11, 12, 17, 25, 26, and 27 - which have been marked for oil and gas exploration, plus a portion of Block 1.

Minister of Science, Technology and Mining Phillip Paulwell said Tullow would invest about US$60 million to explore the blocks for oil. Jamaica stands to earn up to 48 per cent of any production over 50,000 barrels of oil per day, plus royalties.

Describing Tullow as the largest oil and gas exploration company in Europe with capitalisation of US$13.5 billion as at June 2014, Paulwell said the Irish company had the capacity to conduct 3-D seismic studies and drilling of exploratory wells, unlike the companies previously engaged.

The blocks selected by the oil explorer are all located to the south of Jamaica and cover approximately 32,065 square kilometres in water depths ranging from 20 metres to 1,000 metres (65-3,200 feet), said the PCJ.

The exploration and any drilling will be funded 100 per cent by Tullow.

The Jamaican Government has no stake in the operation.

Paulwell said negotiations are ongoing for the exploration of the other blocks but that the names of the companies involved would not

be disclosed to protect the government's "bargaining position".

The PCJ outlined in background documents that Tullow - whose agreement with Jamaica took effect on November 1 and which has already begun technical consultations - will next undertake geological and geophysical studies in the first phase.

"If the results are sufficiently favourable, then the company can elect to proceed into the next phase of the agreement, which will involve the collection of seismic data that will help to identify the structures beneath the seabed that may have trapped hydrocarbons," said the PCJ

This survey phase is likely to last five to eight years. After the seismic evaluation, if "a drillable prospect is identified, the contractor has the future option to drill any exploratory wells".

Under the Petroleum Act, the exploration phase cannot exceed 25 years in the first instance, with the potential for renewal for up to another 25 years.

agreement value

PCJ said the exploration phase can last anywhere between 5.5 and 7.5 years and the production phase between 17.5 and 19.5 years.

The PCJ said that total actual value of the agreement is held in commercial confidence as there are other interested firms that the PCJ is in discussions with, or will enter into discussions with, in the near future.

"A dollar-value disclosure could negatively prejudice Jamaica's position in those discussions, so the specific details of each agreement have to be kept confidential."

Tullow's McKenna said the company had made " significant investment in South America in the Guianas region, being the operator responsible for making the first discovery of a deepwater field called Zaedyus in the Guyane Maritime basin in French Guiana.

Tullow is also engaged in Suriname, where McKenna said they are the leading investor in the hydrocarbon industry and actively involved in the development of the country's oil sector.

During 2013, Tullow was also awarded an offshore Block 15 in Uruguay's second licensing round, where seismic data has been acquired and is being interpreted.

The PCJ said that it is expected that if the company progresses to a production phase, the Government of Jamaica will earn first through royalties and then by production split.

Each year, after the contractor has recovered its exploration and development costs, the oil remaining will be shared with the PCJ on an increasing production scale based on the barrels of oil produced per day.

The PCJ noted that no assurances of discovering oil and gas were being given now but noted that " studies have shown that in our geological past, a hydrocarbon system was shown to be operational in the region and seismic work has shown interesting structures that have never been drilled before".

Jamaica has been exploring for commercial oil since the 1950s. The latest surveys have indicated signs of about 2.7 billion barrels of prospective reserves.