Nicaragua's President Enrique Bolanos is preparing a presidential decree that would open up the oil sector and award exploration licenses, according to Gabriel Solorzano, president of the Nicaraguan Development Institute (Inde), quoted by daily newspaper La Prensa.
Nicaragua already has a hydrocarbons exploration and exploitation law, published on June 12 1998, which authorizes the National Energy Institute (INE) to negotiate contracts directly or through public auctions.
Points of the law include:
- Any given exploration block can cover a maximum of 4,000 square kilometers
- The exploration period can be no longer than six years, although a one-year extension can be granted to complete drilling
- Production concessions last for 30 years, with the possibility of a five-year extension
- Income tax during exploration and production is up to 30%
- Equipment for exploration can be imported duty free for the first four years
INE oil development director Mauricio Darce said the document outlining Nicaragua's oil potential was delivered in mid-2001, but action was delayed due to presidential elections.
Between 1930-1977, some 32 wells were drilled, of which only six were located on the Pacfic side of Nicaragua. Areas drilled include the Chitalapa river, which revealed crude oil of 12.6 degrees API. In 1969, Anglo-Dutch Shell drilled Perlas 1 in the Atlantic discovering reserves with potential production of 350 barrels a day, with crude varying between 21-26 degrees API. At Huani-1, Shell discovered small quantities of 30-36 degrees API.
Oil fires 90% of electric power generation facilities in Nicaragua, making oil imports a heavy burden on the country's balance of payments, according to consultant Roger Cerda.
Oil exploration could turn Nicaragua into a net exporter and could also lead to the discovery of natural gas, according to Nicaragua Industry Chamber (Cadin) president Gabriel Pasos.
"Countries that have found natural gas can produce electricity at around US$0.04-0.05 a kilowatt/hour, instead of using bunker oil or diesel which lies at around US$0.065-0.07. [This] is a considerable saving," Pasos said.
Nicaragua has one refinery, built by US-based Esso and inaugurated in 1961, capable of processing a variety of different oil types. Oil is currently imported from Venezuela, Mexico, Ecuador, Colombia, Argentina, Bolivia and Russia.
The oil is received at Puerto Sandino, some 70km from the capital city Managua. A new system of pipes and moorings was installed in 1995, using technology such as Break Hawai Coupling and Quick Disconnect Coupling. Esso owns a 200,000 barrel storage terminal in the port.
Esso supplies gasoline and diesel to distributors Shell and Texaco. Shell has 27% of the Nicaragua fuels market, Shell Nicaragua general manager Mauricio Sierra said.