Dominican Republic aims to drive activity
The Caribbean nation hopes that attractive entry terms will spur exploration activity
The Dominican Republic, which has just launched its first licensing round in decades, is the very definition of a frontier province. But it hopes that setting the barriers for entry low, as well as renewed exploration interest in the region, will bring in players keen to get drilling.
"We are a low entry cost proposition. There is no signing fee, no bonus," says Alberto Reyes, the country's first vice-minister for oil and gas, adding that consultancy Wood McKenzie classifies its fiscal regime in the lowest quartile globally. "It should work well even for relatively low volumes in a low price environment, not just for high volumes at high prices."
The Dominican Republic's economy does not depend on oil and gas, giving it the "luxury", says Reyes, of offering a tax take that is a bit lower at this stage. Previous activity has produced 20,000km² of seismic and other data that the state is making available for free. Wells, including producing wells, had been drilled as far back to the 1900s but none to any significant depth.
"We had production in the 1950s, but with 1930s technology and only around areas where there was seepage from hydrocarbons that had migrated close to the surface," says Reyes.
The Dominican Republic has not issued any exploration rights in the last 30 years; there has been no exploration in the last 20-30 years due to lack of a legal right to do so. A team with the requisite capacity to oversee the upstream E&P sector was appointed only in 2014.
"There are a lot of promising geological structures, everything points to a working petroleum system. There have been gas shows in all of the basins where we are offering licences," Reyes says.
The country launched its licensing round in early July, offering up 14 blocks across both onshore and offshore basins. The blocks lie in the Cibao, Enriquillo, Azua, and San Pedro basins. Companies have 60 days to propose any changes to the currently offered blocks, either changing the shape of what is on offer or suggesting new areas, says Reyes.
By October, the ministry of energy and mines will finalise what the blocks look like and, on 27 November, will open the bids. "That will be broadcast on the website, it will be a very transparent process," says Reyes.
After contracts are signed, they will be sent to the country's legislature for ratification, and then transcribed in Dominican Republic law. Arbitration under international law will be available for licence holders.
There is a minimum work requirement of $2mn for onshore licences and $5mn for offshore. Bidders for the licences will compete via additional work commitments, rather than on fiscal terms. They will also be able to renounce licences or parts of licences in stages. "We are aiming to give investors security and flexibility, as well as competitive terms and a low cost of entry.
"Gas is the future of the region and the Dominican Republic is the stepping stone for gas in the Caribbean" Isa Conde, ministry for energy and mines
"Our mission is to issue contracts that guarantee minimum activity requirements on a block," says Reyes. Firms in the Energy Intelligence Top 100 global NOCs and IOCs will automatically pre-qualify, those outside will go through a qualifying process to bid. "Exploration is what we need, we can look at tighter fiscal terms later on. We want to get the contracts signed as soon as possible, but firms will have three to four years to execute the minimum requirements," says the vice-minister.
There is renewed interest in the Caribbean region, with new players entering Guyana, Jamaica and the Caribbean region of Colombia. "We have seen that, in other frontier basins recently, explorers have been able to find something world-class, to 'hit a home run'," says Reyes. He points out that the Dominican Republic owns a large, under-explored chunk of the Caribbean with a maritime border to the south that goes down to meet Colombia and Venezuela.
"We are very happy with the amount of interest so far," says Reyes. "Some majors have shown more interest than we were expecting, as well as other large international oil companies and smaller firms that have been successful in other frontier basins. The fact that some have crossed the Atlantic specifically to meet us is a good indicator of the strength of interest."
Reyes is hopeful that one of the risks of frontier exploration-finding expensive to transport non-associated gas rather than more easily monetised oil—should be less relevant to the Dominican Republic. "We would like to find oil and gas, but the fiscal terms make development of finds that are just gas possible," he says.
The country has the largest gas demand in the region and is currently dependent on imported LNG. These requirements are soon going to double, as a 700MW gas-fired plant is under construction in San Pedro. "The expansion of the Dominican Republic's power capacity is based only on gas and renewables," says Antonio Isa Conde, the minister for energy and mines.
14 Onshore and offshore blocks available
As the second most populous Caribbean country and a key regional economy, additional residential and industrial demand potential is significant. And there is a "tremendous opportunity" for gas to change the nature of Caribbean energy demand, where liquid fuels are traditionally used for generation, says Reyes.
The country already has a break-bulk facility to allow smaller LNG cargoes to be exported to neighbours such as Barbados. "Gas is the future of the region and the Dominican Republic is the stepping stone for gas in the Caribbean," says minister Isa Conde.
Source: Petroleum Economist