European prospectors cash in on new oil rush

Rising energy prices have made wind turbines a common sight in rural Germany. But as the global competition for resources heats up, country dwellers could soon have new eyesores on their horizons: oil rigs.

Last month, the Bavarian government issued Germany’s first oil concession for decades, giving Rhein Petroleum – a joint venture of three small oil exploration companies – the right to explore a 2,000 sq km area west of Munich for crude.

“We know there is oil in the area,” says Leigh Hooper, a former Merrill Lynch banker and one of the group’s three directors. “If all goes as expected, we could be drilling three years from now.”

The fact that there is oil in Germany is not new. After the oil shocks of the 1970s sent prices rocketing, the majors of the time began searching. Some of the small fields discovered at the time are still being exploited. Wintershall, a subsidiary of the chemicals group BASF, is pumping modest quantities of oil from the mature Aitingen field in Bavaria.

It produces only 600 barrels a day, compared with 5m a day at the Ghawar oil field in Saudi Arabia. Such mini-fields are unattractive to most big players. But Mr Hooper thinks his group’s cost structure can allow it to make a substantial profit.

“The big guys are like Cindy Crawford: they won’t get out of bed for less than $10,000 a day,” says a European oil executive. “The small guys will.”

Despite the few exceptions, the high costs involved in extracting German oil mean that it has generated virtually no interest since the mid-1980s, when crude prices fell.

Mr Hooper’s best hope lies in Kinsau, a field discovered in 1984 by Mobil, which abandoned it two years later. He believes that such fields can be mined profitably as long as oil prices remain above $50 per barrel.

Claudia Kemfert, energy expert at Berlin’s DIW economic institute, says: “There is a global trend. We’re seeing rising interest in pretty inaccessible oil fields from Brazil to the Siberian permafrost. We are not talking about new reserves, not even about big reserves, but about reserves that have only recently become economically attractive because of rising prices.”

Old oil fields from the North Sea to Romania are being re-opened by companies eager to cash in on record oil prices.

Petrom of Romania will until 2010 pump more than €1bn ($1.5bn, £785m) into getting more out of its fields, where production had fallen back until recently. The chance to squeeze more from old fields and re-open abandoned ones was one of the main reasons OMV bought a controlling stake in Petrom after Romania privatised the group in 2004, analysts say.

Bankers Petroleum of Canada is using steam flooding to coax oil out of Albania’s Patos Marinza, making it one of Europe’s largest onshore fields. The oil is heavy, sulphurous and hard to extract. But Bankers hopes new technology and high oil prices will make its quest for 20,000 barrels a day by 2011 worthwhile.

The rising number of wells being drilled around Europe bear testament to the new rush. In the UK, 125 exploration and appraisal wells were drilled in 2007, compared with 44 in 2003 and, in Norway, 33 wells were drilled in the same period – a 150 per cent increase.

Meanwhile, in Turkey, activity has doubled in three years, with 80 wells drilled in 2006, according to Wood Mackenzie, the Edinburgh-based industry consultants.

In Germany, Mr Hooper thinks a more systematic survey could uncover new fields, boosting proven national reserves beyond the current 250m barrels.

Drilling has become more efficient, making complex techniques, such as horizontal drilling, more attractive financially than in the past, giving access to reserves once inaccessible. Few analysts expect oil prices to fall significantly in the foreseeable future. Ms Kemfert says: “Europeans may have to get used to seeing oil wells on their doorsteps.”

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