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US-based oil exploration company MKJ Xploration is one of four US-based companies involved in the pre-qualification stage of bidding on Nicaragua's Caribbean and Pacific offshore exploration rights.
A dispute between Nicaragua and Honduras over ownership of Caribbean coast territories has however threatened to derail the bidding process. MKJ VP Brent Abadie spoke to BNamericas about the company's prospects in the region.
BNamericas: So did you see that Honduras has disputed Nicaragua's claim to some of the territory included in the exploration blocks on offer?
Abadie: Yes, I'm aware of a border dispute on the Caribbean coast, and I understand it has gone to the ICJ [International Court of Justice] for a decision. Depending on the ruling, Nicaragua would have to share revenues with Honduras in some contested areas.
Obviously we would like to avoid the problem and it may turn out that the areas we are awarded for exploration are on the Pacific side. It will depend on what areas we are awarded. However, if there is some political instability in the area, it will have something to do with where we decide to invest the money.
BNamericas: What is MKJ's expected investment if your bid is successful?
Abadie: First let me say that any project in Nicaragua is going to be very expensive because it's a frontier country and there isn't the infrastructure in place for oil exploration. They have some very talented people down there but, in terms of equipment, we would have to bring everything with us. My estimation is that we would have to spend US$75mn-100mn.
Secondly, any exploration in Nicaragua would take time, and time is money. Nicaragua is not like Mexico where you can buy 3D seismic studies of most of the coast. In Nicaragua, we would have to shoot seismic first, and then bring all the equipment down, which takes more time. Once a drilling area is identified, the time needed to find a company with the right equipment, and then get a rig on site would be 9-18 months.
BNamericas: Japan's Geo-science Institute has reportedly confirmed the presence of hydrocarbons on the Caribbean coast.
Abadie: Well I saw that, but I would have to say that a lot of geo-science is based on a crystal ball. Realistically, until you've actually drilled a well down there, you aren't going to know for sure if there's oil. I would say that there is a good probability, although it's still very speculative because there are still no proven reserves in Nicaragua. Other major companies like Shell have drilled down there and been unsuccessful, but we're hopeful we'll be able to find something they missed.
BNamericas: Nicaragua's government has speculated that oil production could reach 50,000 barrels/day (b/d). Is that realistic?
Abadie: I don't know where that figure comes from, but I would say that in order for any exploration project in Nicaragua to be economically feasible, production would have to be at least 30-50,00b/d.
BNamericas: And reports say that there is a high probability of finding natural gas. Does that interest MKJ?
Abadie: Definitely. Natural gas is the fuel of choice at the moment. It's cleaner and better than oil. However, the problem in Nicaragua is marketing. There is no infrastructure in place for natural gas and domestic demand is low. We would expect to have to build a plant on the coast if natural gas is discovered there.
ABOUT THE CONCESSIONS
The deadline for submitting pre-qualification details in what is Nicaragua's first ever hydrocarbons exploration and production round is October 10, with the round set to start October 31 and scheduled for completion by January 31, 2003.
MKJ Xploration, Empire Energy subsidiary Industria Oklahoma-Nicaragua, Helen Great House and RSM Production Corporation, are the four companies which have entered the bidding process.