TWO OPPORTUNITIES DEVOID OF RESOURCE NATIONALISM
While resource nationalism
initiatives have scared away investors in ARGENTINA, BOLIVIA, ECUADOR and VENEZUELA,
PERU and COLOMBIA are two LATIN AMERICA venues that offer relatively
hassle-free investment and have plenty of new acreage openings. In PERU, we
think LNG is the hot track to follow, while in COLOMBIA, it’s all about shale
oil—if you can stomach the improving but lingering security threat.
PERU: ALL ABOUT LNG
Against the backdrop of increasing
resource nationalism in LATIN AMERICA, PERU stands out because of its untapped
natural gas reserves, a new LNG plant, new investor-friendly policies and an
independent licensing regime.
While PERU is a net importer of oil,
it is a net exporter of natural gas and also home to SOUTH AMERICA’S first
liquefied natural gas (LNG) plant.
In a nutshell, PERU has 18
sedimentary basins with high hydrocarbons potential, but only six are
undergoing any significant exploration activity and only three are currently
producing. Geologically, the potential is vast: Nine of the 18 basins are
located in the PERUVIAN coastal regions and the continental shelf; those basins
in the central and southern continental shelf are particularly underexplored.
In 2011, 18 exploratory wells were spudded, with another 25 drilled by the end
of 2012 and more than 30 hoped for by the end of 2014.
As of early last year, PERU had
around 582 million barrels of proven oil reserves, adding about 50 million
barrels to its reserves annually for the past two years. The onshore reserves
are largely in the Amazon, while offshore reserves have been discovered most
notably in the Talara basin (1.4 billion barrels of recoverable oil). Onshore,
the most recent big discovery was in the Maranon Basin (970 million barrels of
recoverable oil).
As of 2012, foreign oil companies
had managed to get a hold of 41% of the exploration license area in the Amazon,
but the country’s attempt to lure in more investors could see this nearly
double in the coming 2-3 years. (Right now there are more than 50 foreign oil
companies engaged in oil and gas exploration and drilling in PERU). Bidding
rounds in late 2011 saw 11 new exploration licenses and production contracts
awarded. In late 2012, another 22 exploration blocks were up for auction in the
Amazon region.
PERU IS INTENDING TO CREATE A GAS CONCESSION BORDERING OR
EVEN INCLUDING PARTS OF THE MANU NATIONAL PARK IN THE AMAZON TO EXTEND
EXPLORATION ACTIVITIES THERE!
Many of PERU’S oilfields are already
reaching declining output, and while new exploration may boost reserves, we’d
rather talk about the potential of natural gas liquids.
Almost all of PERU’S natural gas
liquids production is from onshore fields. Right now, PERU has about 12.5 trillion
cubic feet of proven natural gas reserves, with its largest field in Camisea,
in the southeast. Production here began in 2004 and has grown by nearly 40%
year-on-year. However, the rate of natural gas production began exceeding
domestic consumption in 2010. By December 2010, PERU'S natural gas production
was in excess of 1 Bcf per day, mostly from the Camisea reserve. PERÚ LNG's revenue last year reached $1.33bn, up
3.94% from 2011. But it’s still not fully explored, and we could see another
318 billion cubic feet discovered as this progresses.
But there are other, newer fields
that hold great potential for exploration.
• Madre de Dios
(onshore): Lot 76 of Madre de Dios, in southern PERU, is currently being
explored by Hunt Oil, which believes the reserves could rival those of Camisea
• Ucayali Basin (onshore): This field, in central PERU, was discovered by Petrobras in 2010 and is said to contain around 1.7 trillion cubic feet of natural gas
• Devonian Shale: In 2009, Maple Energy discovered unconventional gas in this shale
(There is also a leaked document that shows that the government of
PERU is intending to create a gas concession bordering or even including parts
of the Manu national park in the Amazon to extend exploration activities there.
This one will get tricky, though, as it is home to indigenous peoples and is a
unique area of biodiversity that UNESCO is keen to protect.)
NATURAL GAS INFRASTRUCTURE
This is why we like the natural gas
potential of PERU—aside from the exploration potential: pipelines and SOUTH
AMERICA’S first LNG plant. Right now, there are two pipelines carrying natural
gas from the Camisea fields: 1) the 336-mile, 450-million-cubic-feet/day
capacity Camisea pipeline, which ends at the Pisco port terminal which handles
exports; 2) a 444-mile pipeline that runs from Malvinas along the coast to Lima
and Callao for residential and industrial distribution. A third pipeline, the
620-mile Southern Andean, is being built from Camisea.
In 2010, PERU began exporting LNG
from its Melchorita plant, and by early 2012 exports had reach 15 billion cubic
feet, with the bulk of exports going to SPAIN, the US, MEXICO, CHINA and SOUTH
KOREA. This LNG plant is owned by the PeruLNG consortium: Hunt Oil (50%), SK
Energy (20%), Repsol (20%) and Marubeni (10%). The plant has a yearly capacity
of 215 billion cubic feet and expansion plans are also under way for two or
three more LNG trains within the next 4-5 years.
Construction also began just over
two years ago on a new liquefied petroleum gases (LPG) plant in the Cuzco area
in the southeast for meeting local demand.
A note on governance is also
appropriate here: While the state body of Perupetro manages and oversees the
licensing process as well as exploration and exploitation, it does not
participate as a partner or shareholder with private companies.
COLOMBIA: SHALE OIL EXPLORATION
GAINS MOMENTUM
Colombia’s oil production has risen
by about 40% from 2009 to 2011—making it the fastest-growing oil producer in LATIN
AMERICA. Right now, the focus is on expanding unconventional exploration, but
this means treading on territory that until very recently was dominated by
rebel groups.
Is it too early? Perhaps. The
government is still in talks with the Revolutionary Armed Forces of Colombia
(FARC). The security situation remains extremely complex, and will continue to
dominate the potential investment climate.
The first auctions of shale acreage
in COLOMBIA were held late last year, with ExxonMobil Corp. and COLOMBIA’S
state-owned Ecopetrol SA making the highest bids for three onshore blocks—two
of which are believed to contain shale oil. There really wasn’t enough data on
these blocks in time for the auction: only five bids were placed for 49 blocks
up for grabs.
In late February, CANADIAN company
Canacol Energy Ltd (CAAEF) and ConocoPhillips joined forces to explore for
shale oil in COLOMBIA’S Middle Magdalena Basin. ConocoPhillips will pay $13.5
million in cash and be responsible for the cost of drilling, completing and
testing some 13 wells. ConocoPhillips will get 70% of shale oil discovered in
the deeper areas of the play, while Canacol will retain 30% in the deeper areas
but 100% in the shallower reservoirs. This is for Canacol’s Santa Isabel
contract (334,000 acres), which is only one of five contracts it has in COLOMBIA.
For other contracts, Canacol has agreements with ExxonMobil Corp. and Royal
Dutch Shell PLC.
We like Canacol in COLOMBIA because
we believe it is the best positioned to take advantage of the country’s
unconventional shale oil play.
Right now, this is really a play for
the juniors—small and medium-sized businesses. Discoveries haven’t been on a
massive scale, but we like the trend that has emerged with Canacol—junior
exploration lures in the majors.
THE KEY BASINS:
The Middle Magdalena Basin: This is where the big attention is now. This basin is
located in the Eastern Cordilleras of the Colombian Andes and
exploration to date has led to discoveries of some 1.9 billion barrels of oil
and 2.5 trillion cubic feet of gas. Explorers are already calling this the next
Eagle Ford, and comparing it also to western ARGENTINA’S Vaca Muerta shale.
Some have put recoverable shale gas reserve estimates at 31.7 trillion cubic
feet.
The Llanos Basin: This east-central COLOMBIA is one of the most prospective
areas for E&P, with more than 1.5 billion barrels of recoverable oil
recorded so far. Around 70% of current production comes from this basin. This
is the sight of a heavy oil belt (particularly in the Rubiales Field—4.38
billion barrels of oil in place).
Caguan-Putumayo Basin: This basin is in the country’s southwest, bordering ECUADOR
and PERU and covering around 104,000 square kilometers. So far, more than 365
million barrels have been discovered in 19 different fields.
Catatumbo Basin: A southwest extension of the Maracaibo Basin in VENEZUELA,
the Catatumbo basin accounts for about 2% of the world’s hydrocarbon reserves.
It is one of the most prolific basins, but only moderately explored.
Via Oilprice
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