Related Stories:

Just Finding Gas Isn't Always Enough

Total Strategy Needed for Success

-- KATHY SHIRLEY

While most oil companies have been active in North America and in the North Sea for years, driven by the proximity of large, obvious growing natural gas markets, more individual strategies have been employed in other parts of the world.

TotalFinaElf, for example, began operating in Southeast Asia with major oil discoveries, followed that success with gas development for LNG in Indonesia and then expanded steadily into other countries like Thailand for the domestic market and Myanmar for exports.

TotalFinaElf's recent success in Bolivia is another illustration of a company's strategy in the global natural gas business.

Petrobras, Brazil's state oil company, is building a $2 billion (U.S.) pipeline connecting the Bolivian gas fields of the Sub-Andean Range with the rapidly expanding Sao Paulo-Rio region market.

"The project was started with initial sales of eight million cubic meters a day due to increase further to 30 million cubic meters daily in the next five years," said Bernard Duval at the AAPG Annual Meeting.

"New reserves had to be discovered in order to ensure a steady long-term supply," he continued. "The Brazilian market is currently 15 to 20 million cubic meters a day and could reach 60 million cubic meters daily by 2010.

"This was a tremendous challenge for Bolivia and whatever companies were ready to take the risk and could react rapidly to a changing business environment."

Suggestions for Success

One of the most prospective regions was a geologically attractive structural trend -- successfully drilled for gas in Argentina -- that extends northward over 130 kilometers into Sub-Andean Bolivia and was virtually untested on the Bolivian side.

In 1999, there was little doubt that gas was present in the structures, he said, but there were several challenges, including:

• This was a complex thrust belt play that would require difficult and costly drilling for deep targets down to 6,000 meters. Well costs could run $20 to $30 million (U.S.).
• Uncertain reservoir quality was a concern, as was the need to rely on fractures to provide high productivity.
• High transportation costs and low wellhead prices were major economic considerations.

On the other hand, the project presented several positive issues -- chances of finding natural gas on large clearly identified structural trends were good, there were low processing costs and there was an existing transportation infrastructure.

TotalFinaElf, Petrobras and partners started an aggressive drilling program on three blocks and found a sequence of world-class discoveries that same year, with reserves possibly in excess of 12 trillion cubic feet of gas.

"What strengthens the companies' optimism is a combination of a thick reservoir at 500 gross meters, a huge gas column of more than 1,000 meters, no gas-water contact yet encountered and high flow rates in the order of 60 million cubic feet a day," Duval said.

"This case history sends us important messages on key ingredients of a successful gas exploration strategy," he said, namely:

• Anticipate the regional market growth and the gap between the actual needs and available supply.
• Recognize early the potential of a gas-prone, under-explored frontier with giant structures.
• Move fast on permitting and take advantage of changing political conditions, such as arrangements between states to initiate a pipeline project like the one in Brazil, upcoming privatization and related opportunities.
• Enter into the right alliance. Petrobras is a key shareholder in the Bolivian project, and that will allow its partners to participate in the first development project of the area.
• Make the best use of technology.

"Smart geological interpretation and well monitoring, drilling skills and fast-track development schemes by TotalFinaElf and Petrobras in Bolivia bears witness to this fundamental need, " he said.

Dealing With Selective Exploration

The Bolivian discoveries have had a huge impact on the natural gas industry in South America. Gas from northwest Argentina was touted as a major supply source two years ago. Today this gas is unlikely to go to Brazil.

"Ultimately, the Bolivian gas itself might contribute to the Argentinean market," he said, and even gas from Camisea, the Peruvian giant field discovered 15 years ago, will not go to Brazil for many years go come."

San Alberto, the first Bolivian field to be developed, will produce five million cubic meters a day this year, increase to 12 million in 2003 and possibly go higher in the future. TotalFinaElf and its partners will continue to drill on these blocks and benefit from the expected market growth in Brazil.

It's conceivable that $1 billion U.S. or more will be invested by the industry in the region during the next 10 years. A second pipeline may even be needed by the end of the decade.

"There is an overwhelming global surplus of world gas reserves versus the total long-term demand, which might reach some 3.5 trillion cubic meters annually by the end of the decade, compared to the current 2.4 trillion cubic meters," Duval said. "However, due to their irregular geographic distribution, one can foresee a durable premium attached to gas located near markets, and produced and transported at competitive costs.

"Exploration will therefore be more and more selective, but will continue to play a key role in reserve replacement," he continued.

"Several questions remain unanswered, though, and could influence the industry's attitude in the future -- including evolving attitudes of national oil companies, future developments of large untapped reserves in the Middle East, emergence of new potentially producing countries like Azerbaijan, use of associated gas and gas-to-liquid technology."