PETROLEUM E X P L O R A T I O N IN DEVELOPING C O U N T R I E S A N D CONSIDERATIONS ABOUT ITS FINANCING

B E R N A R D 0 F. G R O S S L I N G

Although the rate o f petroleum produced per foot drilled is much greater in the developing regions of the world, levels of petroleum exploration activities in the these areas are much lower than in the United States. Although exploration levels in the developing countries might have been expected t o rise after the 1973/74 price increase, they actually tended t o decrease. Classification of the developing countries in terms of the levels of exploration and development they have attained reveals that the greater part of the area with good petroleum potential (57 per cent of non-OPEC countries) is comprised of countries where significant exploration has already taken place. There i s a need for international assistance to increase exploration levels in the developing countries. A schedule of priorities for various forms of international assistance i s suggested.

1. Introduction

This paper discusses the positions of developing countries as to petroleum exploration, and forecasts the prospects and needs of various groups of developing countries for inter- national assistance. It is intended to identify the basic factors involved and attempts to provide a review of the most important aspects of petroleum exploration in these countries. The paper deals only with conventional petroleum sources and not tar sands or oil shale, for instance.

The main topics discussed are:

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Size of the prospective petroleum areas in developing countries. The past petroleum exploration activities in developing countries. The ratios of barrels of oil proved to feet drilled in past drilling efforts in developing countries, and comparison with that in other areas of the world. Classification of various developing countries according to the stage of their petro- leum resource development.

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Or. Bernard0 F. Grossling is a research geophysicist with the U.S. Geological Survey in Washington, D.C.. Before joining thesurvey in 1964, he worked for the Inter-American Development Bank as acting chief of the engineering division and later as a technical advisor. From 1954- 1960 he was engaged in research with the California Research Corporation, a subsidiary of Standard Oil Company of California. In his early career, Or. Grossling participated in the establishment of Chile's petroleum industry, first as chief geophysicist and later as exploration advisor of the Empresa Nacional del Petrdleo. He has served as a consultant, on special assignments, to the World Bank, the Inter-American Development Bank and the United Nations.

Natural Resources Forum 3 (1979) 299-307. All Rights Reserved. Copyright 0 1979 by United Nations, N. Y., U.S.A.

300 Bernard0 F. Grossling

TABLE I Gross prospective petroleum areas in developing countries (sq. mi.)

Onshore Offshore

Africa Latin America South and Southeast Asia (a) Asian mainland (b) Western Pacific

4,549,800 484,790 3,90 1,570 903,030

864,500 693,600 55 7,029 1,060,900

Source: B. F. Grossling, Window on Oil (Financial Times, London, 1976)

For this discussion, three groups of developing countries are used:

Latin America: All American countries south of the United States, including the Caribbean countries. Africa: All the countries on the African continent including the Malagasy Republic. South and Southeast Asia:

(a) On the Asiatic mainland: Afghanistan, Bangladesh, Bhutan, Burma, India, Cam- bodia, Laos, Nepal, Pakistan, West Malaysia, Sikkim, Thailand and Vietnam.

(b) In the Western Pacific: Brunei, Indonesia, Papua-New Guinea, the Philippines, Sabah and Sarawak.

Because of the difficulty of obtaining systematic petroleum exploration data for the developing countries the author has had to rely much on his own experiences and publica- tions.

2.1. Estimate of Prospective Petroleum Areas in Developing Countries

In order to provide a consistent reference framework one needs a measure of the relative prospects of the various regions. Ideally one should use a sophisticated measure that synthesizes all the many relevant geologic factors. However, all the required information is not available for developing countries. On the other hand, the gross sedimentary area provides a uniform system for all the countries, since it is available for all of them. Estimates for the gross prospective petroleum area are given in Table I , broken down into onshore and offshore areas, In Table I , offshore areas include the continental shelf only down to the 200-m. isobath, excluding the sedimentary areas of the continental slope and rises.

Africa has the largest onshore sedimentary area of the three developing regions, followed by Latin America. On the other hand, the largest offshore sedimentary area is in the Western Pacific part of the South and Southeast Asian region, followed closely by that of Latin America.

2.2. Review of Past Petroleum Exploration Activities in Developing Countries

Petroleum exploration consists of geological surveys, geophysical surveys, and exploratory drilling. Practically all petroleum exploration begins with geological reconnaissance and

Petroleum Exploration 30 1

surface geological mapping. When geologic prospects are considered encouraging, then seismic reflection surveys follow. For a given territory, the cost of each of these phases of work is substantially greater than the previous one. Geological surveys in a basin may entail expenditures of from ten thousand up to a few hundred thousand dollars. The usual geophysical methods applied to petroleum exploration are: magnetic, gravity, refraction, and seismic reflection surveys, the last being the most expensive. Expenditures on seismic surveys are normally one or two orders of magnitude greater than expenditures on geol- ogic surveys. How the different methods of exploration are applied depends on the nature of the basin and the methods of the party conducting the work. Other important methods of exploration include airborne measurements, aerial photography, space photography, remote sensing and geochemistry, but geologic surveys and seismic reflection studies are the most important.

Geologic reconnaissance has been undertaken already in most sedimentary basins of developing countries, and there has been geologic mapping in many of them. No figures for the cost of these geologic surveys have been published systematically, so a study of trends is not possible. As to geophysical surveys in developing countries, detailed and systematic statistics have been published, and these provide a means of analysing the most important component of pre-drilling exploration expenditures.

The total geophysical expenditures for petroleum exploration are summarized in Table I1 for Africa, Latin America, and South and Southeast Asia. Total expenditures comprise the costs of acquisition, processing and interpreting the geophysical data. All geophysical methods applied to petroleum exploration are included. The 1961 -1972 period has been selected as a measure of the preenergy crisis levels of activity, followed by the expenditures for 1973, 1974, 1975 and 1976. For comparison the equivalent. figures for the United States are also presented in Table 11. The three regions of developing countries, and the United States, are listed in decreasing order of total prospective area.

Table I1 shows that the levels of geophysical expenditures in the developing countries, while roughly the same from developing region to developing region when size is taken into consideration, are about one-tenth to one-third of those in the United States when reduced to areas of the same size. These much lower levels of geophysical expenditures prevail despite the much greater cumulative geophysical expenditures in the United States.

TABLE 11 Total geophysical expenditures for petroleum exploration

Prospective area relative to U.S. 1961-1972 (per cent) Cumulative Average 1973 1974 1975 1976 1977

(millions of U.S. dollars) Africa 1.62 1,096.7 91.4 134.4 129.6 122.9 117.8 153.7 Latin America 1.53 898.4 74.9 130.0 201.0 147.6 94.7 93.8 South and Southeast Asia 1.01 650.8 54.2 90.0 123.8 74.3 47.0 40.4 United States 1 2,830.5 235.9 368.6 510.3 516.5 496.9 475.1

Source: Geophysics, Geophysical Activity Report, specific yearly issues, 1962-1978 and author’s estimates.

302 Bernard0 F. Grossling

TABLE I11 Average total geophysical expenditures for petroleum exploration (millions of U.S. doIlars)

1961-72 1973-74 1976-77

Africa 134.4 132.0 135.8 Latin America 130.0 168.5 94.2 South and Southeast Asia 90.0 196.9 43.7 United States 368.6 439.4 486.0

TABLE IV Activity of seismic petroleum exploration in developing countries, and the United States (in crew- months)

1961-1972 Region or Country Cumulative Average 1973 1974 1975 1976 1977

(A) ONSHORE: Africa Latin America South and Southeast

United States Asia

(B) OFFSHORE:

Africa Latin America South and Southeast

United States Asia

9,959 10,327.5

4,754.3 41,560

74 1 354

798.6 2,795

829.9 726 861.6 1,137

396.2 740 3,463.3 2,784

61.8 49 29.5 92

66.6 131 232.9 272

712.7 582.7 649.2 776.0 1,245.2 719.9 505.0 374.5

743.0 310.0 236.3 187.1 3,286.5 3,048.9 2,843.4 2,863.2

83.4 93.3 25.1 23.5 68.8 70.4 54.0 60.0

111.1 96.7 52.2 41.9 374.4 366.7 296.1 199.8

Source: Geophysics, Geophysical Activity Report, specific yearly issues, 1962-1978

Therefore, even to match the current intensity o f geophysical expenditures in the United States, the developing countries would have to increase their own by a factor of about five.

The year toyear fluctuations of expenditure levels, as shown in Table 11, obscure sorne- what the assessment of what the reaction t o the energy crisis has been. But the situation becomes clearer if averages are used, as indicated in Table 111.

It now becomes clear that the levels of geophysical expenditures have remained about constant for Africa, and they have significantly decreased in Latin America and South- east Asia. On the other hand, they have increased substantially for the United States. The causes for the significant drop in the levels o f geophysical activity in the developing coun- tries since the advent of the energy crisis are not iinrnediately apparent.

Table IV shows the seismic exploration activity for the same time periods as Table 11. Both onshore and offshore are presented, and the unit used is the crew-month. The figures for seismic crew-months reveal a conclusion similar t o that drawn from the total geo- physical expenditures.

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TABLE V Drilling for petroleum in developing countries and comparison with United States

Number of wells (Footage in parenthesis) Exploratory Total wells Total wells cumulative to cumulative to end 1974a end 197Sa 1976d 1977e

Africa 5,079 12,850 (88,181,709)

Latin America 12,949 103,359 (4 20.5 27,730)

South and Southeast Asia 815 21,455 (7 7,086,948)

United States 4,800,000 2,425,095 about 6,000,000,000)

6 34 (4,980,457)

2,046 (1 3,728,537)

889 (4,514,854)

(188,155,874) 40,529e

598 (4,76587 1)

2,366 (16,088,930)

799 (4,216,746)

44,207 (198,908,850)

a B. F. Grossling. Window on Oil (Financial Times, London, 1976). Estimated from data in World Oil, February 15,1976, and using factors worked out by M . K. Hubbert. World Oil, February 15, 1976.

Worldoil, August 15, 1977. d A m . Assoc. Petroleum Geologists Bull., Vol. 61, No. 10, 1977.

The most expensive phase of petroleum exploration is drilling, for which expenditures are usually more than one order @f magnitude greater than geophysical expenditures. Exploration drilling is followed by development drilling. The statistics for exploratory drilling in developing countries are quite incomplete, in the publit record at least. On the other hand, there are better data for total drilling, which comprises exploratory and development drilling.

Table V presents an overall comparison of petroleum drilling in the three developing regions and in the United States. Estimates of total cumulative exploratory drilling to the end of 1974, estimates of total drilling to the end of 1975, and the data for 1976 and 1977 are given. Both the number of wells and the footage drilled (figures in parentheses) are shown. The figures for 1977 are forecastspublished in 1976. Examination of the figures reveals that the levels of drilling activity in developing countries have been one to two orders of magnitude lower than in the United States. Even though about 2.5 million wells have already been drilled in the United States, new wells totalled about 44,207 in 1977, as compared to only 2,366 in Latin America, which has a prospective petroleum area 1.53 times as large. It should be noted that, in general, there are n3 accurate or clear drilling statistics on a world-wide basis. The above figures are estimates from sources of various accuracies.

2.3. Outcome of Past Petroleum Exploration in Developing Countries

It is important to examine whether the substantial lag in exploration and drilling in the developing countries, as compared to more intensely developed areas such as the United States and Western Europe, is because of unfavorable geologic conditions or because of other factors. A review of the amount of oil found per foot of total drilling (exploratory

3 04 Bernard0 F. Grossling

TABLE VI Comparison of total drilling and oil finding rates in developing and developed regions (Barrels per foot)

Time interval United States Western Europe Latin America Africa

1970-74 15.0 1,134.0 208.6 1,06 2.4 1965-69 30.3 322.6 158.4 1,189.4 1960 -64 13.9 35.7 1 1 7 . 5 813.6 1955-59 13.7 26.9 160.6 996.2 1950-54 16.1 84.8 167.5 71.8 1945-49 25.5 49.9 191.2 109.8

Source: B. F . Grossling, ‘A Critical Survey of World Petroleum Opportunities,’ hoject Interdependence: U.S. and World Energy Outlook through 1990, Committee on Energy and Natural Resources, 1977, H. of R . , U.S. 95th Congress, Committee Print 95-33, p. 645-658.

and development), estimated over five year intervals for the period 1945-1974, will indicate whether or not lower potential productivity is a factor in these areas.

Table VI shows the amount of oil found in barrels per foot of total drilling in the United States, Western Europe, Latin America and Africa. It can be seen that throughout the period of study, much more oil has been found per foot of well drilled in Latin America and Africa than in the United States. In Latin America about 9 times more oil has been found per drilled foot. Therefore, the results of exploration efforts cannot explain the gap in drilling between the two areas.

3.1. Classification of Developing Countries According to Petroleum Resource Posture

To analyze the financial requirements of developing countries it is useful t o divide them into groups according to their levels of petroleum exploration and development. Using country by country drilling and petroleum production statistics the following classifi- cation system results: Group I: This group includes the countries where extensive exploration and development has taken place. This implies geologic surveys, geophysical surveys, exploratory drilling, and considerable petroleum development. It should be noted, however, that although the cumulative activity completed for this group is significant, it is still approximately one order of magnitude or more lower than that in the United States. Group IZ: Countries in this group have completed initial exploration and have experienced incipient development. In these countries the overall drilling density is about two orders of magnitude lower than that in the United States, and there is minimal petroleum develop- ment. Group III: Countries in this classification have seen initial or incipient exploration but no petroleum discoveries. Group IV: These are countries with a priori some geologic petroleum prospects, but no exploratory drilling has taken place. In this case, the petroleum prospects are taken to arise from their total sedimentary area. Group V: These countries have insignificant petroleum prospects.

Using the above system of classification all the developing countries in Latin America,

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TABLE VII Tentative classification of developing countries according to petroleum resource posture

(I) Countries where significant exploration and development have taken place (a) In Africa

(b) In Latin America Algeria, Libya, Egypt, Nigeria, Morocco, Tunisia, Angola, Gabon, Congo, Cameroon

Brazil, Argentina, Mexico, Peru, Colombia, Bolivia, Venezuela, Ecuador, Chile, Cuba, Trinidad and Tobago, Barbados

(c) In South and Southeast Asia: on Asiatic Mainland India, Burma, Pakistan, Afghanistan

(d) In South and Southeast Asia: in Western Pacific Indonesia, Sarawak, Sabah, Brunei

(11) Countries with initial exploration and incipient development (a) In Africa

Zaire, Ethiopia, Chad, Mozambique, South Africa, Senegal, Namibia, Ghana, Dahomey (b) In Latin America

Guatemala (c) In South and Southeast Asia: on Asiatic Mainland

Thailand, Vietnam, Peninsular Malaysia, Bangladesh (d) In South and Southeast Asia: in Western Pacific

Papua-New Guinea, the Philippines

(111) Countries with initial or incipient exploration and no discovery (a) Africa

Niger, Mauritania, Sudan, Mali, Somalia, Malagasy Republic, Kenya, Tanzania, Guinea-Bissau, Ivory Coast, Liberia, Gambia, Equatorial Guinea, Togo

Paraguay, Uruguay, Honduras, Nicaragua, Panama, Surinam, Guyana, Dominican Republic, Jamaica, Belize, Haiti, Costa Rica

(c) In South and Southeast Asia: on Asinn Mainland Cambodia, Republic of Korea, Sri Lanka

(d) In South and Southeast Asia: in Western Pacific None

(b) Latin America

(IV) Countries, with geologic petroleum prospects. where no exploratory drilling has taken place (a) In Africa

(b) In Latin America

(c)

Guinea, Sierra Leone, Rhodesia, Lesotho, Swaziland, Central African Empire, Upper Volta

French Guiana, El Salvador In South and Southeast Asia: on Asian Mainland Laos, People’s Democratic Republic of Korea, Nepal, Bhutan

(V) Countries with no or insignificant conventional petroleum prospects (a) In Africa

Afars and Issas, Botswana, Burundi, Malawi, Rwanda, Uganda, Zambia (b) In Latin America

None (c) In South and Southeast Asia: on Asian Mainland

Sikkim (d) In South and Southeast Asia Extended: in Western Pacific

None

306 Bemardo F. Grossling

Africa and South and Southeast Asia have been assigned to one of these groups. The results are shown in Table VII. Each group has been further divided into sub-groups corresponding to the three developing regions considered. The total prospective area in each of the groups of developing countries is as follows:

Group I: 8,709,009 sq. mi. Group 11: 1,849,610 sq. mi. Group 111: 2,348,800 sq. mi. Group IV: 185,800 sq. mi. Group V: nominally, zero sq. mi.

As can be seen, the bulk of the petroleum prospective area in developing countries is in group I, comprising countries where significant exploration and development already has taken place.

What is surprising in the distribution of prospective areas between country groups is that Group I (countries with significant exploration and development) accounts for 66.2 per cent of the total comprised by Group I to IV. The actual distributions of areas is as follows:

Group Prospective area (Sq. mi.) Per cent I 8,709,009 66.5 I1 1,849,610 14.2 I11 2,348,800 17.9 IV 185,800 1.4

However, the countries that are members of OPEC should be separated from the rest of Group I .

Sq. mi. Group I , non-OPEC 5,8 18,729 Group I, OPEC 2,890,280

In this manner the prospective areas for non-OPEC countries in Groups I to IV become:

Group I I1 I11 IV

Sq. mi. Per cent 5,8 18,729 57.1 1,849,610 18.1 2,348,800 23 .O

185,800 1.8 - 10,202,939 100.0

3.2. Forms of International Assistance for Petroleum Resource Development in Developing Countries

International assistance and co-operation have been important factors in the development of petroleum resources in developing countries. When examining these types of assistance, a number of factors should be considered including the following: views of a country about possible petroleum resource development, basic geologic surveys, surface geologic

Petroleum Exploration 307

petroleum exploration, geophysical exploration, petroleum laws of a country and their implementation, and wildcat drilling.

In some areas thefactor blocking petroleum resource development might be a country’s attitude towards developing its oil, while others lack adequate published geologic inform- ation on which their national authorities can base decisions on the advisability of investing in petroleum development. Surface geologic and geophysical exploration are important pre-drilling phases. Petroleum taxation legislation also plays a crucial role in engaging private participation. But actually finding petroleum requires the drilling of wells, which is the only decisive test of a new sedimentary basin.

The country groups defined previously (Table VII) provide the other variables for the examination of possible forms of international co-operation. Table VIII gives various forms of international assistance to be preferred depending on the Group of the countries, and the basic factors mentioned in the previous paragraphs.

The forms of co-operation considered in Table VIII are: Consultation: Advice to a national government that requests it. Technical collaboration: Collaboration between technical organizations in developed countries and the appropriate bodies in developing countries on petroleum resource development. Technical support: Technical services provided by entities in developed countries. Partial financing: Participation in financing of certain phases of petroleum resource development through loans as well as credit financing of equipment and services. Financing: Complete financing of certain phases of petroleum resource development in accord with the provisions of the petroleum laws of a country. Promotion: Promotion of the financing of certain phases of petroleum resource development by international agencies.

TABLE VlII Tentative priorities for forms of international assistance for petroleum resource development to various developing countries (Prospective area, under group number, in sq. mi.)

Country Group

Factor Iv Ill 11 I (185,800) (2,348,800) (1,84 9,6 10) (8,709,009)

Stance about petro- leum development Consultation Consultation Consul tation Basic geologic surveys Financing Technical support Technical collab-

oration Surface geologic ex- Partial financing Partial financing Technical collab- ploration oration Geophysical explor- Partial financing Technical collab- Technical collab- ation of basic surveys oration oration Petroleum laws Consultation Consultation Consultation Wildcat drilling Promotion Promotion -

Nore: See Table VII for definiti0.n of groups and lists of countries in each group.

Consultation Technical collab- oration Technical collab- oration Technical collab- oration Consultation -