{"id":47245,"date":"2014-02-07T19:19:04","date_gmt":"2014-02-08T00:19:04","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=47245"},"modified":"2014-02-07T19:19:04","modified_gmt":"2014-02-08T00:19:04","slug":"bhp-billitons-half-a-billion-dollar-gamble","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2014\/02\/07\/bhp-billitons-half-a-billion-dollar-gamble\/","title":{"rendered":"BHP Billiton\u2019s Half a Billion Dollar Gamble"},"content":{"rendered":"

By MoneyMorning.com.au<\/u><\/a><\/p>\n

When you think of oil and gas investments, the Caribbean nation of Trinidad and Tobago isn’t the first place that springs to mind.<\/p>\n

However, BHP Billiton<\/strong> think they might be onto their next big oil find. Or gas.<\/p>\n

They’re not sure which.<\/p>\n

Considering companies spend millions of dollars on data before acquiring a lease or plot, you’d think they would be more certain.<\/p>\n

Anyway, it doesn’t matter to them whether it’s oil or gas<\/a>. It’s gonna be big. BHP has thrown down a massive $500 million to begin a 3D seismic exploration within the next three months. And they have committed another $500 million for drilling wells and possible production.<\/p>\n

Given that sort of financial commitment, you can assume they’re confident they’ll find something.<\/p>\n

The thing is, while Trinidad does produce oil and gas, it’s mostly onshore or in shallow waters. Like the Angostura shallow water oil rig, which BHP has a 45% interest in.<\/p>\n

But the thing is, in 2012 BHP acquired four blocks in a deep water area.<\/p>\n

The data is limited, and the basins around the islands are vastly underexplored.<\/p>\n

When a company is drilling in an area not known for producing oil, it’s often considered a wildcat play, as Diggers & Drillers<\/a><\/em> resource analyst Jason Stevenson told subscribers last month when he detailed his latest find.<\/p>\n

You see, Trinidad and Tobago are neighbours to Venezuela and Colombia, which both produce oil and gas. And estimates suggest that basins surrounding Trinidad and Tobago share the same geology.<\/p>\n

So, no. It’s not quite a wildcat play. But it’s still a highly speculative punt on BHP’s side.<\/p>\n

Let me explain. <\/p>\n

As I said before, they are basically going on the best guess from geology reports.<\/p>\n

And they’ve been snapping up blocks in the waters surrounding the nation for the past few years. With little confirmed data on what’s actually under the seabed.<\/p>\n

To prove how sparse the interest is in the deep water exploration of Trinidad, David Rainey of BHP said: ‘…during the last decade a number of bid rounds (for offshore acreage) were held but nobody came, nobody participated.’<\/em><\/p>\n

Clearly the big oil companies weren’t willing to take the risk.<\/p>\n

What didn’t help were inflexible government policies. Upon announcing the project, Rainey said, ‘Until recently, the fiscal terms on offer in Trinidad did not allow us to make a satisfactory return on the risk of undertaking a deep water exploration program.’<\/p>\n

Those fiscal terms were enormous government taxes. <\/p>\n

The government was more interested in lining its pockets than encouraging foreign investment. Exploration costs were only 10% tax deductable and the company tax rate was a massive 50%. However last year policies were relaxed and in some cases 100% of the exploration costs are deductable. More enticing to corporations is the lower tax rate of 35%.<\/p>\n

And finally, should a site move into the production phase, the government will share the costs with the firm.<\/p>\n

These financial changes are the reason BHP is moving ahead with exploring the area.<\/p>\n

A US Geology Survey reckons there’s an average of 21 oil fields and 104 gas fields of varying size undiscovered. <\/p>\n

As the area has never had any oil and gas<\/strong> exploration, BHP is going on a ‘best guess estimate’.<\/p>\n

In fact the whole seismic program will cover 17,000 square kilometres in total. One of the blocks, ‘Pegleg’ is 24km long by 8km wide. This isn’t a small operation. <\/p>\n

But will it pay off? <\/p>\n

Big companies like BHP don’t buy up blocks where there isn’t potential for a huge reward. They normally come in and swoop once a little mob has done the hard work. Here, they are taking an enormous risk to start from scratch.<\/p>\n

Vincent Pereira, BHP’s country manager, said they believe, based on available reports, that the ‘deposition environment’ is similar to the Niger Delta and the Gulf of Mexico where BHP has interests. <\/p>\n

Meaning it could be huge. <\/p>\n

But like all exploration, it’s a gamble. <\/p>\n

Shae Smith
\nEditor, Money Weekend<\/em><\/strong><\/em><\/p>\n

Join Money Morning on Google+ <\/u><\/a><\/strong><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nBy MoneyMorning.com.au<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au When you think of oil and gas investments, the Caribbean nation of Trinidad and Tobago isn’t the first place that springs to mind. However, BHP Billiton think they might be onto their next big oil find. Or gas. They’re not sure which. Considering companies spend millions of dollars on data before acquiring a … <\/p>\n

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