Gustavson 3-25-99-5a

AN INTRODUCTION TO INTERNATIONAL PETROLEUM CONTRACTS

By John B. Gustavson

Gustavson Associates, Boulder, Colorado

Part Two: Some Examples of Possible International Projects/Opportunities

Consider the following possibilities:

Large amounts of natural gas have been discovered in various countries around the world, but in every case, no local market exists for sale of the gas.
Opportunity: Develop an alternative source or utilization for the gas.
A major oil field has been produced for an extended period of time and is at the end of its primary production history. It is possible that the field was returned to the host government without secondary or EOR methods being evaluated. It is very likely that the potential for production from deeper zones has not been fully evaluated.
Opportunity: Review older oil/gas fields under the "control" of government entities for potential profitable development of EOR techniques or for renewed exploration programs .
Throughout the world, there are many sedimentary basins that are either unexplored or incompletely explored. These basins extend over hundreds of thousands of square kilometers, and yet many of them have been tested by fewer than twenty wells. In some areas, the major oil companies explored for hydrocarbons thirty to forty years ago and left either because:

Ø Some of the obvious surface structures were drilled and found barren;
Ø Wells were mislocated due to poor structural control and the absence of modern, sophisticated geophysical and geochemical techniques;
Ø The stratigraphic section and the paleogeographic history were poorly understood; or
Ø The amount of oil or gas discovered was felt to be uneconomic at then prevailing prices.

With relatively recent improvements in seismic recording and processing technology, it is now possible to acquire subsurface information of a quality and quantity that was previously impossible. In addition, substantial improvements in the analysis and understanding of hydrocarbon geochemistry now allow the earth scientist to better understand why certain areas within a sedimentary basin are more prone to oil or gas accumulation than others. Just as importantly, we are now better able to understand the importance of the timing of oil and gas migration.

Opportunity: Identify those areas or basins of the world where the application of new technologies may result in a better understanding of the subsurface and development of significant new exploration opportunities .

Many foreign countries are just now becoming involved in oil exploration and production. In some cases, there are no dependable national companies available to supply oil field tubulars, services or supplies to the industry.

Opportunity: An enterprising group may well be able to develop an association or joint venture with a group of nationals to set up a profitable supply or service company in the country, in support of the fledgling petroleum industry.

The opportunities in the petroleum industry around the world are diverse. A growing number of petroleum explorationists are recognizing the broad range and diversity of international opportunities, particularly in exploration and production. The large, major oil companies have been reducing their domestic exploration efforts and are now expanding in the international arena.

The major oil companies are looking for substantial fields (100 million barrels and larger) and, consequently, many of their decisions about exploration projects hinge upon the potential for major discoveries. Just because the major operators are more active does not mean the smaller companies cannot compete effectively. A smaller operator can move significantly faster than a major, and, if "prepared," can often win a license or concession even when in direct competition with a major.

If a company does a thorough technical evaluation and is prepared to negotiate patiently with the government, then it is possible to acquire some attractive opportunities. There are numerous examples around the world where major oil companies explored an area and left "empty-handed" only to have other companies come in years later and find significant reserves. This reflects the result of companies being open-minded, innovative, and willing to apply the latest technology in the search for petroleum.

Many countries have seen their monetary resources squeezed by ever-expanding energy needs. Some have billions of dollars of foreign debt, much of it from energy imports. These countries realize that the importing of petroleum is perhaps the biggest drain on their finances. They are now starting to do something about it in the form of improved exploration/exploitation contracts, the creation of a better tax environment and, particularly, favorable subsidies for petroleum companies.

TYPES OF INTERNATIONAL PROJECTS

"Upstream" Projects:
Ø Acquire exclusive rights for exploration, development, and production of hydrocarbons.
Ø Review existing concession/license agreements for potential joint venture or farmin projects.
Ø Evaluate existing undeveloped hydrocarbon discoveries for commercial feasibility in present or future market.
Ø Analyze past and present petroleum producing areas for possible secondary recovery or EOR projects.
Ø Investigate the presently available service company or supply opportunities.
"Downstream" Projects:
Ø Assess market demand and economic viability of a new refinery or topping plant operation.
Ø Review and develop pipeline projects in support of crude oil or gas distribution.
Ø Establish an internal/external marketing organization to take advantage of currently undeveloped resources.

Coming Next: Types of International Petroleum Contracts

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