Tunisia: Drills at the Ready11 July 2008
While record oil prices may be ramping up inflationary pressures on Tunisia's economy, the high cost of crude hides a silver lining for Tunisia's local energy sector. The significant rise in the cost of oil has helped focus attention on marginal producer countries, which, in the case of Tunisia, has led to a raft of new exploration projects in recent years, many of which are proving highly successful.
According to Afif Chelbi, Tunisia's minister of industry, energy and small to medium enterprises, speaking at the Maghreb and Mediterranean Oil and Gas Conference in Tunis last month, investment in hydrocarbon exploration and production is set to rise to $2.5bn in 2008, nearly a fourfold increase over the past three years.
Last year, 60% of foreign direct investment (FDI) in the country was in the energy sector, with several foreign companies active in Tunisia's upstream sector, including Austria's OMV and Royal-Dutch Shell. By the end of 2007, the government had issued 36 exploration and 14 prospecting permits, and - according to the national oil company, Entreprise Tunisienne d'Activités Petrolières (ETAP) - another 20 exploration wells are expected in 2008. Currently 16 blocs, including 10 offshore licences, are available for concession either as joint ventures or production-sharing agreements.
One of the most prominent projects in recent months has been the Shurouq field on Jenein Nord concession. Operated by US-based Pioneer Natural Resources (PNC), who acquired the concession in 2006, the field came online in November 2007 and is currently producing 10,000 bpd (barrels per day). Pioneer has spent over $135m on the field, and according to Pioneer executives, output is due to reach 15,000 bpd by the end of 2008, with estimates for drilling capacity at the field as high as 20,000 bpd.
Other foreign companies have followed PNC's lead. Canadian companies Eurogas and Candax have recently begun drilling in new fields. Candax has started tapping an undrilled oil reservoir bloc in the Ezzaoui field, while Eurogas has opened up a new exploration well on the Ras el Besh structure in the Sfax concession. Similarly, Swedish-based PA Resources has completed the drilling of a new 12,500 bpd production well in the mature Didon field.
The successful returns of exploration wells in recent months have encouraged companies to venture further afield. Shell Tunisia aims to spend some $3m on seismic exploration in under-developed fields. The oil giant was recently awarded a two-year permit in the 5000 sq km Metouia area south east of Gabès, which, despite its large size, has been under-explored due to its inaccessible geological structure.
The government has also moved to boost the country's downstream capacity, awarding a tender last year to Qatar Petroleum for a 30-year contract to build and operate a 150,000 bpd refinery in La Skhira, south of Tunis. The new $3bn refinery will supplement Tunisia's existing 35,000 bpd refinery in Bizerte and could significantly increase domestic petroleum supplies. Qatar Petroleum has recently finished its feasibility study for the plant, paving the way for construction to begin.
The improved forecast for investors and new exploration projects come at an ideal time for Tunisia, as some of its older fields are in decline. According to figures from ETAP, Tunisia has some 437m barrels of recoverable oil, in addition to some 116bn cubic metres of gas. Production in 2007 was 35m barrels, bolstered in part by an extensive programme of redevelopment that has helped limit decline in the country's more mature oil reservoir blocs.
Yet, while Tunisia's energy sector will enjoy a windfall of new investment over the coming months, the age of many of the country's active fields suggests that long-term expectations for hydrocarbon revenues should be somewhat tempered. A number of Tunisia's blocs, such as the offshore Didon field, consist of mature reservoirs. This means that new drilling techniques can only be effective in slowing the natural decline rather than boosting production. As a result, ETAP is also beginning to explore the potential for overseas initiatives. The company is already involved in projects in Algeria and is looking for new agreements in Mali and Mauritania, local press reported.
With crude oil costs soaring past $140 a barrel, commodity-poor countries around the world are struggling with inflation. Tunisia is no exception. It has seen its inflation rate rise towards 5% - up from 2% in April 2007 - and the government increased petrol prices twice this year. Nevertheless, the heightened oil prices also provide an excellent opportunity for smaller producer countries to reap a short-term windfall, something which has not gone unnoticed in Tunisia.
© Oxford Business Group 2008