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Upcoming exploration phase a make or break moment for Jamaica's oil hopes

Published:Friday | March 30, 2012 | 12:00 AM
The headquarters of Petroleum Corporation of Jamaica, the state agency leading the hunt for offshore oil, and home of the Ministry of Energy. - File

McPherse Thompson, Assistant Editor - Business

Jamaica has so far earned approximately J$40 million from acreage fees which oil exploration companies are required to pay the Petroleum Corporation of Jamaica (PCJ) as a condition of their licences.

It has also emerged that the production-sharing agreement with one of the companies was terminated on December 6, 2011 due to non-performance, even as another continue the search - a year on - for partners to start drilling exploration wells.

The Ministry of Science, Technology, Energy and Mining, in emailed responses to Financial Gleaner queries, said that in addition to the acreage fees, the companies have deposited another J$40 million to the Petroleum Training and Education Trust Fund to be used for upgrading laboratories in secondary schools, as well as provide training for science teachers and to foster awareness of the natural sciences, mathematics, engineering and technology among the population.

Each of the companies granted licences is required to pay US$4 per square kilometre annually for the area explored.

Proteam exits

But the ministry said it could not definitively speak to all the reasons for what it said was the non-performance of Hong Kong-based Proteam, which owned exploration rights to four blocks.

"However, they were in breach of terms within their contract," the ministry said. "For instance, they did not fulfill their work obligation as it relates to the acquisition of seismic data."

Proteam has been given the rights to explore four of 20 designated off-shore research blocks initially demarcated by the Petroleum Corporation of Jamaica (PCJ) and was expected to commence seismic surveys by February 2008. Its last licence was issued in November 2008.

The block map for Jamaica has been revised and now has 31 offshore blocks, up from 20, in addition to four onshore blocks, the ministry said.

Proteam's exploration commitments for the production-sharing agreement included providing seismic data by the end of the second year and have one well drilled by the end of the four-year period.

The ministry said the standard production sharing agreement for each licencee is for an initial exploration period of five years, followed by an initial production period of 20 years, both of which may be extended or renewed by the PCJ.

In the meantime, Sagres Energy, the Canadian oil exploration company licensed to explore for oil in blocks 9, 13 and 15 located in the Walton Basin, Pedro Banks, has, for more than a year, been seeking an equity partner to proceed with drilling.

Sagres needs partner

"It is our understanding that Sagres is in advanced negotiations with potential partners," the ministry said.

Chief executive officer and president of Sagres Energy, Gary Wine, declined to comment on how advanced are those negotiations, noting that the matter is confidential.

Rainville Energy, a subsidiary of Sagres Energy which is undertaking exploration in Jamaica, is yet to embark on the second phase of the contract, having been granted an extension on the first phase until the end of April to allow potential joint-venture partners sufficient time to complete their evaluation of the blocks.

Minister of Science, Technology, Energy and Mining Phillip Paulwell has suggested that the prospects for striking commercially viable oil offshore Jamaica appears more certain, based on data collected indicating there could be as much as 10 billion barrels of reserves in the Walton Basin.

Drilling risky

But the ministry pointed out that the drilling of an exploration well was an expensive and risky venture, and "in frontier provinces - areas where commercial quantities of oil or gas have yet to be established - it is customary for exploration companies to seek partners to spread the risk. If a partner is not secured, a company will either have to elect to drill the well using its own capital or drop the acreage."

The other licencee, the Finder/Flow joint venture out of Australia, has completed its geotechnical assessments of their area and is also seeking farm-in partners for the drilling of one or more exploration wells, the ministry said.

As to how close the licencees were to finding oil in commercial quantities, the ministry said both companies were now ready to conduct exploration drilling, the next step towards locating the reserves.

Questioned about the progress made during the past three years, the ministry said that during that time, the PCJ has focused much of its attention on developing and marketing the deepwater blocks.

The ministry also pointed out that much-needed data has been acquired and analysed, and the international community has been re-engaged with respect to exploration activities thereby earning revenue.