We had a fantastic AAPG Property
and Prospect Expo in Houston in August. Geologists were aggressively
making deals left and right, and I had several e-mails before I
got back to Denver telling me of prospects sold and bought.
That is exactly what executive director Rick Fritz
envisioned as he guided AAPG toward providing this new service to
members. Lots of people helped to make it possible including Marlan
Downey and his Executive Committee last year, Chuck Noll and his
organizational committee, SIPES and the energetic HGS!
is designed to serve both U.S. and international prospectors, and
this was an excellent beginning. Alfredo Guzman, PEMEX vice president,
ignited interest in oil and gas development in Mexico with his keynote
speech on Tuesday evening (soon to be on the Internet at "Search
My brief remarks preceding Guzman's talk focused
on the need for countries to look to independents for exploration.
Formerly accustomed to courting eight or nine majors into bidding
for licenses, most countries now have only four majors to try to
attract to bid.
There is a vacuum developing that only independents
can fill -- all sizes of independents.
So, the question: How to attract the independent?
Offer negotiated deals for licenses.
Independents cannot "waste time and money" competing in a bidding
war for licenses with high risk of not winning. Of course, they
cannot expect to have no competition, but they must have a good
chance of getting a license before spending time, energy and money.
Accept a low entry fee.
Independents do not have money to spend without some probability
of return on investment. This means spending money on exploration,
not on the opportunity to explore.
It is a win for the country, too; to have an independent's spending
go into the ground.
Approve a reasonable work program.
Flexibility and creativity can better guide these decisions.
Larger independents can spend a million or millions, tiny companies
must keep their spending much lower -- tens of thousands to hundreds
of thousands. Evaluate what work can move a license from undrillable
to drillable -- and if a small independent can do it on a mean
budget, empower them!
Give companies time to do the work with limited staff.
The smaller independents will often be doing much of the work
themselves -- fieldwork, petrology, geochemistry, structural interpretation,
seismic re-processing, gravity, magnetics and finally developing
the materials needed attract financial backing.
Understand they will need to find a financial partner.
The independent needs the time not only to develop a prospect
on this license, but also to market it. This is just another step
in the independent's exploration effort. The independent is more
interested in finding oil and gas than the licensee is, believe
it or not -- and they have risked their company budget on it,
and their survival depends upon it!
Offer an attractive royalty.
Independents are accustomed to a 12.5 percent royalty. They
can be pushed to higher, but they will flock to lower. Ireland,
which offered a zero percent royalty, enjoyed enhanced exploration
efforts and the resulting new Corrib discovery. Northern Ireland
offered 7.5 percent and also has seen new drilling and exploration
as a result. New Zealand has attracted independents by offering
similar low royalties. They are reaping the benefits -- more exploration
at no cost to the government!
Understand the landman ideology.
Many independents and potential financial partners enjoy a U.S.
landman philosophy -- and it's not a bad one. If you have viable
geology, your chances of success are much greater with a million
acres than if you control only 10,000 acres. No brainer.
Fast, efficient licensing and permitting.
Time is money to the independent. Every delay eats away at limited
resources, at limited time and at limited financial commitment.
No independent can justify long, expensive delays for licensing,
seismic permitting, well permitting and development permitting.
Develop efficient, responsible fast tracking.
Time, as we said, is money. Develop permit processing that is
simultaneous and interactive between departments. Assume that
development, in a responsible manner, is good for everyone, and
try to implement it with the prudent requirements it deserves
-- as quickly as possible.
Assist with surface access.
It is unreasonable to expect a company to spend enormous amounts
of money developing drill sites, and then have no legal recourse
to access the land to drill. If the government cannot provide
legal access to the minerals it wants an independent to develop,
it will greatly reduce or eliminate an independent's interest
in exploring in that country.
Be flexible on drilling requirements.
Superimposing offshore, large scale, high pressured and expensive
operation techniques onto shallow onshore underpressured prospects
(like tight gas sands or coal bed methane) does not make economic
sense to the independent the offshore requirements are expensive
and often simply not necessary. Every project needs to be viewed
with its unique economic and safety requirements.
The independents can be your "adjunct" national oil
company -- and will pay for the privilege! They pay for the right
to develop prospects, attract financial resources and to take enormous
Who wouldn't "hire" them?