International

Namibia sweetens terms for third round; Exxon's Orinoco involvement

January 1998 Vol. 219 No. 1
International

Kurt S. Abraham,
International Editor

Namibia sweetens terms for third round

As we begin a new year, the competition among nations for E&P investment continues to stiffen. Fresh evidence of that surfaced recently, when the Namibian government improved its fiscal regime, ahead of the country's Third Petroleum Licensing Round.

At its meeting on Oct. 14, 1997, the Namibian Cabinet approved a number of sweeteners, some of which will be extended to companies already operating under First and Second Round licenses. As a spokesman for the cabinet explained, "The package is being offered in order to improve Namibia's competitive position internationally, and in the expectation that new exploration capital will be attracted under the Third Round."

Back on June 16, 1997, the Ministry of Mines and state firm Namcor had announced the Third Round, attaching opening and closing dates of Oct. 1, 1998, and March 31, 1999, respectively. Having received their new marching orders from the cabinet, the Ministry and Namcor put final touches on the language before publicizing the changes in late November and early December.

Specifically, the changes will be made as amendments to the 1991 Petroleum (Exploration & Production) Act, the 1991 Petroleum (Taxation) Act and the Model Petroleum Agreement in time for promotional seminars slated for London and Houston in September 1998. The changes fall under three headings:

Licensing Provisions—The minister will be given powers to extend, by up to one year, the initial and/or exploratory period, "for good cause shown by a licensee." Presently, the initial exploratory period is four years, with two renewal periods of two years, each, possible.

Economic/Fiscal Terms—For companies awarded Third Round and subsequent licenses, the production royalty will be reduced to 5% from the current 12.5%. The old rate will still apply to First and Second Round licenses. In addition, the petroleum income tax (PIT) will be reduced to 35% from 42% for all rounds. Beginning in 1998, the PIT will be relaxed further, under special exploration expenditure provisions. Dependent on the PIT reduction, a change also will be made in the formula for determining the first tier rate of the Additional Profits Tax (APT) for future licenses. Existing licensees will see their APT revised to 25%. Finally, relief against PIT and APT will be granted for contributions made to an approved fund/escrow account for abandonment costs.

Provisions for Abandonment—As per the previous sentence, the government will establish special funds to cover the costs of ultimately abandoning fields and related installations. Licensees will be required to make annual contributions into an approved fund, once 50% of estimated field reserves have been produced.

Government officials said they believe that the new incentives, as well as the Third Round tracts, will encourage operators to grab new exploration licenses in Namibia, particularly in the deeper waters offshore. They also realize that they must compete with other nations all up and down the western coast of Africa. Further information, including details about the availability of new geophysical data, is available from Joe Mazeingo, managing director of Namcor in Windhoek. His fax and phone numbers are 264 (61) 221785 and 264 (61) 221699, respectively.

Chevron expands Nigerian gas effort. Chevron announced approval of a project to double capacity at its newly commissioned associated-gas utilization project in Nigeria. Touting the environmental and economic benefits, Chevron Overseas Petroleum President Dick Matzke called the Escravos Gas Project "the boldest initiative to end gas flaring in Nigeria."

In late September, the $550-million project exported its first LPG cargo. Daily production at Escravos is running at 130 MMcfd of dry gas, more than 8,000 bpd of LPG and NGLs, and 2,000 bcpd. The newly approved second phase is due onstream in late 1999, but at only one-fifth the cost of the first phase. It will provide additional capacity of 110 MMcfgd and about 6,700 bpd of liquids. Escravos is one portion of joint efforts by Chevron and state firm NNPC to commercialize natural gas produced in association with the U.S. company's oil output. Prior to the first phase, all gas produced in association had been flared on site. Chevron's Nigerian oil production was averaging 455,000 bpd, up about 10% from the 1996 level.

Exxon wades into Orinoco. A Heads of Agreement has been signed by Exxon and PDVSA affiliate Corpoven to develop extra heavy oil in the Hamaca area of Venezuela's Orinoco heavy oil belt. As per the agreement's 35-year term, the project will have two phases. Upgraded production of 80,000 bpd of 8–10°API oil would begin in 2002, with an expansion to 170,000 bpd slated for 2007/2008. Over the project's life, up to 2 billion bbl of the thick crude may be produced.

This pact follows a joint studies agreement signed between the two firms in March of 1997 to address technical issues, define contract terms and develop association language. Exxon and Corpoven expected to submit documentation by year-end to the Venezuelan Congress to gain approval. Assuming all facets remain on schedule, a joint venture agreement will be completed and signed during this first quarter of 1998. Exxon said it will hold a 70% interest.

Key elements of the project include an upstream development that utilizes horizontal wells and "cold flow"; shared pipeline and terminal facilities; use of Exxon's proprietary upgrading process during Phase I; and a long-term arrangement for linking the joint venture to existing Exxon refining capacity. A final decision on Phase II's upgrading will be delayed to account for technology advances and commercial trends.