While in most of the petroleum producing countries the attention and discussion moves toward the optimization of production and the necessary adjustment to contracts so as to limit the benefits for international oil companies (IOCs), in Chile the situation is somehow different.
In the last couple of years, and basically due to the high prices of oil and gas, some IOCs have turned their attention to areas less explored (often where the risk is much higher). As a consequence, countries like Chile have become more interesting and IOCs are willing to invest important amounts of capital in finding oil and/or gas.
One good example is the recent successful international bid round made by the government of Chile where 9 exploration blocks were awarded to IOCs and contracts (known as Special Petroleum Operation Contract or CEOP) where signed some few days ago. For this process the CEOP form was updated to international standards but keeping its characteristic of being a very convenient agreement from the point of view of IOCs (a very high proportion of the income from the production is allocated to IOCs).
However, some influential people have insisted that the Chilean system should be changed in order to increase the interest and level of investment from IOCs. They insist that the current legal frame and the CEOP are responsible for the insufficient level of private investment in the Exploration and Production (E&P) business. Well, I believe that they are not just wrong, but they do not fully understand how the E&P business operates.
The truth is that the interest from IOCs has almost nothing to do with the current legislation or changing the system. The CEOP is in fact one of the most convenient contracts existing in the international E&P market. In addition, Chile has one of the lowest country risk indexes and it is seen as a very serious country to work with. Of course there is some room for improvement (such as the time and the series of approvals that a CEOP need) but changing the legal framework or the CEOP system would cause only problems and not solutions.
I suggest to those who criticize the Chilean system an call for a change to review other realities, the current market and some examples of E&P investment in other countries. They will clearly see and understand that IOCs go to the countries where there is more prospectivity (geologic potential) almost regardless of the legal framework.
22 May 2008, 10:17 pm
good to find something in English about this topic.
25 September 2008, 12:04 am
[...] como lo indiqué en un artículo escrito en mi blog, desde hace algún tiempo se han escuchado voces que indican que debiera cambiarse el sistema [...]