BG Joins The Central American Hydrocarbons Hunt

BMI View: BG's reported request for an exploration permit in Honduras mirrors a trend in Central America, where we see industry interest in the region's offshore potential pick ing up. Political instability is unlikely to deter exploration activity, thou gh it still poses a risk to companies' oil and gas licences.

BG Group could be making a foray into Honduras' upstream. According to Honduran presidential advisor Roberto Herrera, the British producer has requested an exploration licence for an 'extensive offshore area' - 35,000 sq uare kilometres (sq km) - along the Central American country ' s Atlantic coast. If approved by President Porfirio Lobo and the Honduran legislature, exploration activity could begin as early as Q113.

Herrera is 'confident' that oil and gas will be found. Hydrocarbons would 'allow us to improve development and well-being in the country', he added .

Return To Honduras

Honduras has no proven oil and gas reserves. There has been off shore exploration in the past : an antenna placed on one of its islands by a petroleum company more than 30 years ago prospecting for oil and gas was used to support its maritime territorial claim against Nicaragua in the International Court of Justice (ICJ) back in 2007. However, the amount of oil and gas found were insufficient to be commercial .

Seeking An Uplift From Ground Zero?
Honduras' Oil Consumption, 2000-2011 ('000b/d)

Hopes for a resumption of oil exploration were raised after its dispute with Nicaragua was resolved. On a private level, Norway-based Petroleum Geo-Services (PGS) embarked on a US$22mn project to collect 2D seismic data of Honduran waters in 2009, with the support of then-president Mel Zelaya. It covered 6,180km - or 'practically all of the Caribbean coast of Honduras', according to PGS. No details were revealed other than the 'great potential' exhibited by offshore Honduras. Two unnamed companies were reported to have bought this data, but nothing has been heard of private activity since.

Venezuelan-led trade block Bolivarian Alternative For The Americas (ALBA) signed a joint declaration for 'petroleum prospecting and production in the Honduran Caribbean' in August 2008. However, this was not heard of again after a coup put a right-wing government in power and the new Congress withdrew Honduras from ALBA in January 2010.

This standstill in upstream exploration appears to be ending. In late October 2012, presidential advisor Herrera was quoted by Latin American news agency BNAmericas to have said that industry majors have approached PGS for seismic data on Honduras. BG's purported interest in offshore exploration builds upon this news report. At the time of writing, the British firm had yet to confirm its intentions.

Surfing The Regional Wave

Growing i ndustry interest in Honduras ' oil and gas potential mirror s a regional trend. In late November, independent New World Oil & Gas announced that its B Crest Prospect in neighbouring Belize has seen oil shows. Chief executive William Kelleher confirmed the company has ' an active hydrocarbons system' in the offshore prospect that it drilled. New World will now conduct further appraisal drilling and target additional oil accumulations.

Nicaragua has also attracted the interest of Repsol to its waters. Nicaraguan energy and mines minister Emilio Rappaccioli told the press that the large Spanish player has submitted an 'official request' to explore for oil and gas, including in waters recently awarded to the country by the ICJ in its dispute with Colombia. Although President Daniel Ortega later assured the public that he will not grant concessions in these waters - where the Seaflower Biosphere Reserve lies - it reflects the keenness of big name industry players to take every opportunity available to explore offshore Central America's underlying potential.

Risks In Uncharted Waters

Growing global demand for oil, and especially gas, and the industry's eagerness to find new oil and gas sources are driving frontier exploration worldwide. Historically high oil prices are also incentivising exploration into untapped regions in the world. In the search for profits, firms have been braving political risks to enter uncharted waters, whose exploration results appear to have justified the risks. Offshore exploration in Mozambique and Tanzania has unlocked a new gas province, whose resource potential could be further confirmed with more drilling expected to take place in Kenya. In West Africa, notwithstanding government fragilities, early exploration by companies that ventured into Sierra Leone, Liberia and Cote d'Ivoire has also been met with oil and gas discoveries.

The political risk within Honduras, which is still trying to reconcile bitter political tensions between the left and the right in the aftermath of a 2009 political coup, would probably be insufficient to de-incentivise exploration. The energy import-dependent country would also gladly welcome any oil and gas and income arising from production . However, potential investors will have to contend with a relatively fragile environment, and could see rights to exploration licences r evoked following unexpected political change s .

This article is tagged to:
Sector: Oil & Gas
Geography: Honduras, Belize, Nicaragua

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