November 10, 2007

GGMC making regulatory preparations for oil exploration in award zone

Stabroek News

GEORGETOWN, GUYANA - The Guyana Geology and Mines Commission (GGMC) is making the necessary regulatory preparations for CGX Energy Inc, Repsol YPF and Exxon to carry out their exploratory work in the maritime area awarded to Guyana by the Arbitral Tribunal set up under the United Nations Convention on the Law of the Sea (UNCLOS) in September.

But things will not happen "overnight," since there will be a lengthy period of mobilization of seismic vessels to continue the exploratory work which may eventually lead to drilling, and then oil once everything works out favourably.

In addition, the government had put many of its preparatory arrangements on hold pending the judgement, and these will now have to be revisited.

Repsol YPF has tendered for its seismic vessel and isn't expected to conclude this until mid-next year, according to Petroleum Manager at the GGMC Newell Dennison.

He said that this company would not be drilling before 2009, and neither would CGX Energy Inc. Dennison said that the delays in procuring seismic vessels had been caused by the heightened exploration activity around the world which had led to a scarcity of such vessels and equipment. He said that with the work already done Repsol was confident of commercial finds in their area of opportunity. That company was also discussing with the GGMC what else they could do in terms of exploration.

Dennison said that all the petroleum exploration companies had expressed their intention of recommencing activities in the area awarded with a view to making commercially viable discoveries.

Further, CGX Energy Inc announced on October 16 that it had entered into an underwritten private placement common share financing agreement with a syndicate of underwriters, pursuant to which the company would issue 15,000,000 common shares at US$2 per common share for total gross proceeds of US$30M pursuant to certain exemptions from prospectus requirements.

The company has also granted the underwriters an option to purchase up to an additional 2,500,000 common shares for additional gross proceeds of US$5M. CGX said that the net proceeds of this offering would be used to fund capital expenditures associated with the exploration and development of CGX's concessions located offshore Guyana and for general corporate purposes. President and CEO of CGX Energy Inc Kerry Sully says that the company will be spending US$15M for seismic work on the two identified targets in the awarded areas off Guyana's coast and a further US$65M for the drilling of those targets in a renewed quest for oil. CGX holds an interest in four Production Sharing Licences from the Government of Guyana, covering 8.7 million acres (6.7 million net) offshore and 800,000 acres (680,000 net) onshore.

The company had started the process of contracting a seismic vessel for the necessary prospecting work required before drilling could take place. For more than seven years the dispute had prevented any additional exploration offshore Guyana.

But it gave the company the time to reinterpret its 1999 2D seismic programme in detail. In addition to its Eagle and Wishbone West Paleocene targets at 13,000 feet, the company has identified Eagle Deep, a significant structural opportunity in the Cretaceous at 15,000 to 20,000 feet. CGX said too that there may also be a number of shelf-edge targets in between. "Our plan is to shoot 3D seismic to clarify these targets to prepare for an exploration well that has the possibility of penetrating several targets with a single wellbore," said Warren Workman, CGX's Vice President, Exploration, after the award.

In June 2000, a jack-up drilling rig leased by CGX from an American drilling contractor and operating under licence from the Government of Guyana was forced off its Eagle drilling location by gunboats from the Surinamese army in contravention of the UNCLOS Treaty to which both countries were full signatories.

Negotiations between the two sides first in Trinidad and then in Jamaica produced no result, and subsequent joint meetings of the Border Commissions of Guyana and Suriname, the last of which was convened in Georgetown in March 2003, did not yield much either.

With no hope of a negotiated solution, Guyana announced that it had commenced arbitration proceedings against Suriname under Annex VII of the UNCLOS Treaty. Another exploration company, Canadian firm Groundstar Resources, will mobilise a light onshore drilling rig to spud two wells in its Takutu basin project in southern Guyana next year. Also Trinidadian Sadhna Petroleum should have started exploratory drilling for oil in the Mahaicony area but has experienced some start-up delays. This is according to Dennison who said that the company had reaffirmed its commitment to getting the drilling done at the earliest opportunity.

In July 2005, Sadhna received a Petroleum Prospecting Licence which is initially for a four-year period.

ON Energy Inc, a subsidiary of CGX Energy Inc, packed up and shipped out after some weeks of exploration at four sites in Berbice. That project saw drilling going to depth of 6,200 feet. This company is said to be thinking of further on-shore exploration work though this is not to be an immediate consideration.