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Explorers still chasing wildcats offshore Latin America

Oil prices offer little encouragement, but unexplored areas around the continent are still drawing investment

Offshore drilling has taken a dive as the oil price has fallen, but some areas are holding up better than others. In some unexplored Latin American waters, drillers are taking advantage of plunging rig and service rates to push forward exploration and development in frontier areas.

In March, Total will start drilling the world’s deepest offshore well in the Pelotas basin off the coast of Uruguay, the country’s first deep-water well. The $100m-plus Raya-1 well is being drilled in Block 14 about 200 km off the Uruguayan coast. Total has hired Maersk’s Venturer ultra-deep-water drillship from March through July to do the work. Total farmed out a 15% interest in the block to Statoil in early February, a deal that came just a few months after ExxonMobil bought a 35% stake.

It will be the first well drilled after a highly successful deep-water bid round in 2012. In that round, international majors flocked to Uruguay in search of new deep-water reserves in a country seen as less politically and economically tumultuous and offering better terms than neighbouring Brazil.

Interest in the frontier has waned for some since then. BP gave up the three blocks it won in the bid round last year saying it wanted to focus on lower-risk prospects, and Petrobras sold its acreage to Shell, which has inherited a huge position from BG in the country.

But more than 30,000 square km of seismic data have been taken over the past three years and some of the world’s largest deep-water players see enough to like in to put down a sizeable bet on Uruguay.

While capital spending cuts have forced companies to sharply curtail deep-water exploration campaigns, the companies that are persisting are enjoying much better rig rates

If the Raya-1 well is successful, it should spur more drilling in the country by Total and its partners, as well as neighbouring acreage holders – Statoil also bought a stake in neighbouring Tullow Oil’s Block 15 in February. It would also add impetus to Uruguay’s long-delayed third deep-water bid round when prices start to recover, as the round is expected to offer blocks adjacent to Total’s Block 14.

While capital spending cuts have forced companies to sharply curtail deep-water exploration campaigns, the companies that are persisting are enjoying much better rig rates. Data from leading deep-water rig fleet operators like Transocean and Diamond Offshore show daily rig rates – a huge chunk of drilling costs – have fallen from well over $400,000 a day in mid 2014 to less than $200,000 in some cases.

The sight of the frontier

Elsewhere, ExxonMobil is pressing ahead in Guyana after the Liza discovery last year – one of the most promising deep-water discoveries in the world in 2015. The company has been tightlipped about the size of the discovery, but government officials have speculated that the find could hold 0.7bn barrels.

ExxonMobil is clearly excited about the discovery. The 3-D seismic campaign at the Stabrock block, where the discovery was made, is the largest in the company’s history. ExxonMobil is lining up an appraisal well. “Since the discovery, we have moved quickly to get a drillship contracted and onsite to appraise the discovery and we expect that to spud very shortly,” Jeffrey Woodbury, a senior official at the company, told investors and analysts on a conference call in early February.

The company has bought an operating interest in the adjacent Canje Block and started early work on potential development plans for the Liza discovery, Woodbury added. ExxonMobil will hope it has more success in Guyana than Shell did in nearby French Guiana, where initial success at the Zaedyus discovery gave way to a disappointing and ultimately failed exploration campaign.

The news hasn’t been as positive in Colombia, where the low oil price and disappointing results have been a major setback for frontier offshore exploration.

State-owned Ecopetrol had been planning an aggressive offshore exploration campaign through 2020 – drilling several wells a year – to lead the opening of Colombia’s deep waters. But the plan has mostly been shelved now. “Unfortunately today we don’t have that kind of cash,” said Max Torres, exploration vice president at Ecopetrol.

Nor did the company have much luck when it offered up stakes in its offshore blocks last year. “There were not a lot of offers for deep-water farm-outs last year,” said Torres.

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