Chile’s Magallanes Basin offers proven petroleum systems, active fields, installed infrastructure, active exploration efforts and, as of June 10, a government that wants domestic and foreign investors to take a look at its potential.

The nation put 10 blocks on the line. Seven of the blocks will belong to the successful bidder or consortium and the other three require the bidder to form a joint venture with state oil company Enap. Those blocks are in the neighborhood of active oil and gas projects.
Exploration started 61 years ago in Chile and Arco and Hess were the first private companies allowed in the country in the 1970s. Since that time, Chile has signed 17 CEOPS (special petroleum operating contracts), 15 onshore and two offshore.

Only four remain active, two in the Magallanes Basin. Outside of the basin, March Resources

Chile will offer 10 blocks in the southern part of the country for open bidding by local and international companies. (Map courtesy of Chile Ministry of Minerals)
is testing the Pico North and Pico South prospects in the Tamarugal Basin of northwestern Chile, sometimes called the driest area in the world. Layne Energy is looking for coalbed methane in the Arauco Basin of south-central Chile. In the Magallanes Basin, Geopark Chile Ltd. has two blocks, including the Fell Block, which is producing natural gas.

In addition, Enap has set aside Magallanes tracts for its own use, including Lago Mercedes in Tierra del Fuego and Dorado-Riquelme north of the Straits of Magellan. Joint venture partners will bid on the Coiron Block, adjacent to the Fell and Dorado-Riquelme properties; the Caupolican Block near a large Enap-reserved block on the east coast, and the Lenga Block, adjacent to recent Lago Mercedes discoveries.

Sole-control blocks are Tranquilo, Otway, Russfin, Porvenir, Brotula, Isla Magdalena and Bahia Inutil. The Tranquilo block had a commercial gas field. Pipelines run throughout the area as gas fed residential and industrial sites and a large methanol plant.

Chile needs hydrocarbons. It currently imports 99% of the 79 million bbl of oil it uses annually and the Magallanes produces only 25% of the 279 Bcf of gas the country uses. The rest comes from Argentina, which has a spotty supply record.

The Magallanes Basin has produced 401 million bbl of oil and 3.82 Tcf of gas. It’s the same basin as Argentina’s Austral Basin, which has produced more than 500 million bbl of oil and 10 Tcf of gas.

The bidding round opened June 10. Interested parties can pick up term sheets through July 10, get technical materials from July 11 through 30, submit questions from July 10 to 25 and get responses by Aug. 3. Bids must be presented by Oct. 10, and they will be opened and certified the following day. The state will issue results of evaluations and acceptance of administrative terms on Oct. 29 and open and verify economic terms 2 days later. It will make the formal announcement of awards on Nov. 15 and publish results on Nov. 17. It plans to sign contracts in December.

Contracts will be bid on the amount of money committed to work effort in the exploration stage. That consists of three phases, one for 3 years and two each for 2 years. Those bids are up to investing companies on seven of the tracts, but minimums are mandated on the joint venture blocks.

For example, the 3-year first exploration phase on the Coiron blocks requires acquisition, processing and interpretation of 116 sq miles (300 sq km) of 3-D seismic at a cost of US $3.6 million and the drilling of two wells to a minimum of 6,562 ft (2,000 m) at a cost of $3.2 million each, for a total investment of $10 million.

Each block will be controlled by a coordinating committee of representatives from the state and the contractor. At the end of each exploration, the committee will decide on property that will be turned back to the state.

If a company proves up a commercial find in the exploration period, it can hold onto the discovery for 25 years, but it must turn back unproven territory. The state will reimburse the company for the state share of investment on commercial properties, based on a complicated formula.

The income tax rate is 17% and the value-added tax is 19%, but hydrocarbon exports are exempt from taxation.

Additional information is available at www.minmineria.cl.