Ecuador has approved the scope and terms of an integrated natural gas/electrical power project proposed by units of Broken Hill Proprietary (BHP) Co. Ltd. and King Ranch Inc.
The $31.9 million deal, if completed in its present form, would allow BHP Power Inc. and King Ranch Power Corp. to begin producing about 100,000 kw of electricity for Ecuador's power grid as early as summer 1995.
Equally as important, the project also would mark construction of Ecuador's first large scale gas fired electrical power station and could lead to the first full development of an Ecuadorian offshore gas field.
With Ecuador still formulating many energy regulations in the wake of last year's oil and gas sector reorganization, government and venture group officials are negotiating separate hydrocarbon and power agreements.
BHP Petroleum (Americas) Inc. and King Ranch Oil & Gas Inc. are seeking to conclude a participation contract covering exploration, exploitation, and commercialization of oil and gas reserves on Block 3, a 1 million acre tract off Ecuador in the Gulf of Guayaquil (OGJ, Feb. 7, p. 38). BHP and King Ranch want to complete in final form a memorandum of understanding signed with Ecuador this month.
BLOCK 3 BID
Ecuador last June awarded BHP and King Ranch the exclusive right to negotiate a concession on Block 3 based on the companies' joint $31.907 million bid in the country's seventh competitive bidding round that closed May 31. It was the first competitive round since Ecuador revamped its energy sector.
The BHP-King Ranch bid proposed splitting Block 3 oil and gas production with Ecuador under a formula that would increase the country's share as production increases above specified volumes.
Independent calculations show that with yearly average gas flow of 75 MMcfd, the companies would retain more than 66% of Block 3 production. Production of 150 MMcfd would drive the companies' share down to little more than 40%.
By comparison, if Block 3's yearly oil production averaged 75,000 b/d, the companies would retain 86.7% of the oil and 85.4% if production averaged 100,000 b/d.
Officials continue negotiating many items in the Block 3 participation contract, including definitions of cost and profit oil and gas. Yet to be settled is the price BHP and King Ranch will receive for Block 3 gas.
PROJECT OVERVIEW
Also in the bid for Block 3, BHP and King Ranch proposed to:
- First focus Block 3 work on fast track delineation and development of Amistad gas field, a 25 year old, 200-500 bcf discovery that was never developed for lack of market.
- Collect, process, and interpret 18,914 km of reflection seismic data on the tract at a cost of about $7.657 million, including a 3D program using a vessel equipped with dual source, dual streamers, and high quality recording instruments.
- Drill three wells on Block 3 with a Marathon Le Tourneau class 116 cantilevered jack up rig or an equivalent unit at a cost of $22 million.
- Conduct a comprehensive environmental impact study at a cost of $1.25 million.
- Train local employees at a cost of $750,000.
Gravity and magnetometric data also are to be compiled, and partners expect to spend about $250,000 on other geologic, geochemical, and geophysical studies.
Also in the integrated project is construction of a 40 mile gas pipeline. Diameter and capacity of the line is to be based on requirements of a power plant BHP Power and King Ranch Power agreed to build on a nearby peninsula under terms of the power memorandum.
FINAL AGREEMENTS SOUGHT
Until gas from Block 3 is available onshore in 1997, the power generating station at first will bum diesel fuel.
About 25 MMcfd of gas would be needed to fuel the power plant's targeted first phase capacity of 100,000 kw. Depending on the volume of gas reserves found on Block 3, later expansions could increase capacity of the plant to more than 400,000 kw.
The preliminary participation contract terms and the memo of understanding assign the corresponding BHP units 66.67% interests and King Ranch units 33.33% interests in the upstream gas and downstream power components of the project. To begin generating electricity next summer and delivering gas to shore in 1997, BHP and King Ranch officials hope to wrap up the participation contract and power generation agreement by yearend.
BHP (Americas) and BHP Power are units of BHP Co. Ltd. King Ranch Power is a unit of King Ranch Oil & Gas, a unit of King Ranch Inc.
