About 110 million years ago, the supercontinent of Pangea broke apart, forming Africa and the Americas. So when Angus McCoss of U.K. wildcatter Tullow Oil PLC found a supergiant oil field off the West African coast of Ghana, among his inclinations was to venture across the Atlantic Ocean to French Guiana: The two nations, once generally bound together, at least hypothetically had similar petroleum geology. So it was that, in September, Tullow announced the first discovery of oil in French Guiana.
Tullow's discovery was notable not just for its scale -- the company believes that just three offshore French Guiana reservoirs contain a collective 1.4 billion barrels of oil -- but for its potential economic and political significance: With the find, Tullow proved an important piece of a long-held theory -- that oil could underlie a stretch of seabed straddling the east coast of almost the whole of both North America and South America.
To the degree that the evidence revealed by Tullow holds beyond French Guiana, this new chain of oil reservoirs could enrich many countries. It could also reverberate politically in the United States, where there is considerable political pressure to drill off the Eastern Seaboard. Facing election-year accusations that it is blocking hundreds of thousands of potential oil industry jobs, the Obama administration last week relented and approved oil exploration of the outer continental shelf along the Atlantic Coast.
"We found an absolutely vast oil discovery, proving the idea that these twin basins, off the African and South American coasts, exist," said George Cazenove, a London-based Tullow spokesman. "And we believe that's possible right the way up the Atlantic Margin, and that's all the way up from Tierra del Fuego all the way to the top of Canada. The entire Atlantic Basin, for us, is in play."
The Tullow discovery is part of a momentous shift in expert perceptions of global energy. Less than a year ago, the conventional intellectual framework for energy was how to overcome its scarcity -- within eyesight, it was thought, the world's oil and gas reserves seemed likely to tail off.
Since then, countries heretofore on no one's hydrocarbon map are potential new petro-states -- among them Kenya, Mozambique, Somalia, Tanzania and now French Guiana and its neighbors.
North America itself is in the throes of an oil boom and, some say, an age when its oil imports will shrink to perhaps a third of the current 9 million barrels a day. Yet, since its early days, none of even the most optimistic U.S. reserve estimates included the Atlantic play -- oil volumes, such as those found in French Guiana, that may lie off the coast of Virginia and elsewhere along the U.S. East Coast.
"When you think of the plays off of Baltimore, when you think of the [waters offshore from] Virginia and Georgia, there is potential along those of a similar kind of play," said Bob Frykland, who runs the Latin America practice for industry consultant IHS CERA. "That's basically what we are trying to figure out now. That's why it's frontier exploration still. From a tectonic standpoint, from an early birth, these basins had something in common [with Africa's], but do they have reservoirs? Do they have the source rock? Those are some of the key questions."
Sweet deal in the frontier
Since Tullow's discovery, French Guiana, a French territory of 230,000 people, has become the epicenter of perhaps the world's most remote oil boom. Known as the Equatorial Margin, the region stretches from northern Brazil to the southern tip of Venezuela, and in addition to French Guiana includes Guyana and Suriname. Tullow -- already the most successful wildcatter in Africa -- has now stretched its area of operation to almost the entire band of the Equatorial Margin, where it has partnered with deep-pocketed fellow travelers Royal Dutch Shell PLC, Total SA and Statoil ASA.
Because it was first, Tullow managed to obtain an extraordinarily large exploration block covering 9,300 square miles off French Guiana. By comparison, exploration blocks in neighboring Brazil range between 80 and 450 square miles, said RoseAnne Franco, an analyst with Wood MacKenzie, the energy industry consultant firm. "The block is huge," she said.
Last year, Tullow spent $250 million drilling a well called Zaedyus, where it announced its discovery in September. Tullow and its partners may spend up to $3 billion for additional wells and infrastructure before delivering oil perhaps in six years, Frykland said.
Yet, local officials sweetened the deal with remarkable financial terms. In an age in which governments are often receiving more than 85 percent of the profit, and up to 98 percent of it in the case of Iraq, French Guiana is taking 25 percent of the cut, Franco said. The deal aligns with French law, which was written to correspond with France's minuscule potential for big oil production and "not for an area of high prospectivity," Franco said. "It's extremely competitive."
She said, "This could be related to the fact that French Guiana is a frontier player and eager to encourage exploration."
One question is whether Tullow's deal will be stable. A lesson of recent oil history is that, in frontier nations unschooled in the hard-charging oil industry, companies often must look out for the best interest of the country as well as themselves in order to better the chances of a long-term stable contract. Even when one does not, new petro-states can abruptly turn volte-face and demand more money. "One has to think that over the medium term there is always the potential they could take another look at the fiscal terms," Franco said.
Yet IHS CERA's Frykland said that the three Equatorial Margin governments so far have been open to the foreign companies drilling off their shores.
"They are looking at their current account deficits," he said. "They are looking at how much they are paying for energy imports. So they are very much proactive in trying to reduce those costs, and if they can find it at home, more power, right?"
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