Latvian oil a long shot

The Norwegian-U.S. firm that won rights to investigate the oil potential of Latvia's Baltic Sea shelf warned that it could take time before oil companies are ready to invest in excavation.

Jorn Christansen, vice president for marketing at TGS-Nopec, said interest in applying for oil exploration and extraction licenses may remain low because the company has yet to begin new exploratory works in Latvia's territorial waters.

The Economy Ministry has set Oct. 18 as a deadline for a applications to take part in a tender for extraction licenses. An earlier tender in 2001 failed to attract any interest.

"Not much has happened (since the last tender), so I wouldn't be surprised if interest is not great," he said. "It's a very early stage and we haven't done any of our own data acquisitions yet. There's potential, but there's a lot of work to do before we get a better understanding."

TGS-Nopec, which specializes in compiling seismic data and determining for oil drilling companies the feasibility of extraction, won a tender in April to investigate some 20,000 square kilometers of Latvia's territorial waters. The license is only good for geological study and does not permit drilling.

Some 2,675 square kilometers of this area have been set aside for exploration and production.

Licenses will be offered for 70,000 lats (125,000 euros) apiece and will give exploration and production rights for up to 30 years.

The state would take anywhere from 2 percent to 12 percent in royalties depending on the rate at which oil is to be extracted.

The main tender evaluation criteria will be the previous experience of bidders as well as their technical capabilities and environmental credentials.

Latvia's State Geological Survey estimates that Latvia's Baltic Sea shelf may contain about 200 million barrels of oil.

But officials have said the relatively small amount may also limit interest."Over the course of 30 years, 200 million barrels is not really that much," said Leonids Kvaskovs, head of the petroleum resources center at the Latvian Development Agency. "This is not Norway here. This is not even Denmark."

But Kvaskovs said a recent decision to cut the corporate income tax rate to 22 percent may be a draw for companies.

Latvia does not produce or refine oil but is a major transit corridor, mostly for Russian oil headed to Western European markets.

Oil deposits in the Baltic Sea were initially discovered in 1963, but while pre-investigations were conducted in the 70s and 80s, no drilling was carried out.

"In those days, it was so small compared to what was coming out of Siberia, so there was very little attention paid to it," Kvaskovs said.

TGS Nopec has said it intends to begin advertising extraction possibilities among oil companies worldwide. The company, the result of a 1998 merger of Houston-based TGS Calibre and Norway's Nopec International, has contracts with more than 200 oil companies worldwide.