LONDON: Four of the world's most successful oil and gas exploration companies last month signed contracts to invest more than $1.5 billion over the next three years in prospecting for fossil fuels off the coast of Uruguay, betting that geological conditions which produced deposits off the West African coast are replicated on Uruguay's continental shelf.
Sandwiched between hydrocarbon giants Brazil and Argentina, Uruguay produces just 900 barrels of oil per day, according to the US Energy Information Administration (EIA). It imports nearly all the crude used in its lone refinery at Montevideo as well as refined products.
But on Oct. 5, Uruguay's state petroleum company ANCAP signed exploration agreements for eight offshore blocks with BG Group (3 blocks), BP (3 blocks), Total (1 block) and Tullow (1 block) that committed the companies to an expensive surveying program.
The program includes drilling an ultra-deep water exploration well, 33,000 square kilometers of three-dimensional seismic surveys and 13,000 square kilometers of electromagnetic surveys, according to the government.
Previous exploration in the 1970s and 1980s, including 12,000 kilometers of two-dimensional seismic survey lines, failed to produce commercial discoveries. But the companies are hoping improvements in surveying will enable them to locate large deposits of oil and gas in 500-2,000 meters of water off the Atlantic coast.

"MIRROR CONCEPT"
Until the two continents were forced apart by a rift down the centre of what became the Atlantic Ocean, Latin America's east coast was joined to the west coast of Africa.
Exploration in the string of giant sedimentary basins along the West African coast (Niger Delta, Cameroon, Gabon, Congo, Kwanza, Mocamedes, Walvis and Orange River) has resulted in series of major oil and gas discoveries.
Explorers are betting that the matching basins off the east coast of Latin America (Bahia Sul, Espirito Santo, Campos, Santos, Pelotas, Oriental del Plata, Punta del Este, Colorado and Malvinas/Falkland) have a similar geological structure and contain an equally attractive amount of hydrocarbons. It is a strategy Total calls "the mirror concept".

HYDROCARBON POTENTIAL
Huge oil deposits have already been discovered in the pre-salt formations of the Campos and Santos basins off Brazil.
The sedimentary basins to the south, off Uruguay, also appear to have strong oil- and gas-producing potential. The post-rifting sedimentary layers have a total thickness of 2,500-4,500 meters. Greater thickness improves the chances that hydrocarbons will be found in significant quantities.
During the licensing round, ANCAP's geologists also highlighted the thickness of many of the pre-rifting layers, laid down in the same environment as the basins off West Africa, before the two continents were separated.
They have the greatest similarity to offshore areas of Nigeria and Angola, such as the Bonga, Nnwa Doro and Dalia oil fields, where large volumes of oil have been found.
Pre-rift sedimentary layers include thick shales deposited on the floors of ancient seas and lakes, similar to those off West Africa or the coast of Brazil, with a high organic content: Ideal for generating oil and gas.
It is this massive hydrocarbon potential that makes the area attractive to prospectors such as BG, BP and Total.
Total described the bidding round as "very competitive". It has undertaken to start 3D seismic surveying before the end of the year and to drill its first well in 2014.

NO OIL BEFORE 2020
Potential is not the same as finding suitable structures that have trapped oil or gas in big enough quantities to make it worth drilling costly offshore wells in deep water to extract them.
The exploration companies are committed to conducting seismic and/or electromagnetic surveys between Q4 2012 and 2014.
It is far from certain any of the blocks will yield commercial discoveries. Even if they do, the first oil or gas production is likely to be five to 10 years away.
Fields are generally discovered one to three years after the start of detailed geological and geophysical exploration. Development and the start of production generally occur five to 11 years after discovery.
So even if Uruguay's offshore basins contain commercial volumes of oil and/or gas, and that is a big if, production is unlikely to start before 2020.
Nonetheless, the search in the deepwater off the coast of Uruguay is another example of how high oil prices have provided the major international companies with both the cash and the incentive to go hunting on new frontiers.
It adds to the enormous amount of exploration and development activity taking place, mostly away from the Middle East and much of it Africa and the Americas, which is gradually shifting the geographical balance in the oil market.
— John Kemp is a Reuters market analyst.
The views expressed are his own.