The tiny nation of Sao Tome & Principe-two islands, of which Sao Tome is the farther from the West Africa shore but hosts the capital city-is ready to offer oil and gas exploration licenses. The much-awaited program is expected by explorationists to open acreage along a prolific deepwater trend in the Gulf of Guinea that has been found to contain billions of barrels of reserves already. Bids for nine blocks are due October 18. They're being offered by a joint-develop authority-an entity created by Nigeria and Sao Tome & Principe in a recent resolution of their offshore-boundary dispute. The islands lie south of the Nigerian coast-they actually sit off the coasts of oil producers Equatorial Guinea, Cameroon and Gabon as well. In fact, Principe may be nearer the Equatorial Guinea mainland than Bioko, the capital island of Equatorial Guinea. Confusing? Perhaps, but sorting out the geography is expected to be worth exploration companies' while: the geology in the area has been very easy to understand; it consists of huge and long-life oil and gas reserves. This isn't the mature shallow Gulf of Mexico. It's fresh-field, unexplored deep water. Nearby discoveries include Bonga, Agbami, Ikija, NNWA, Doro, Chota and Akpo. The latter was drilled by Total SA in 1,400 meters of water, and is estimated to contain nearly 1 billion barrels of oil and 4 trillion cubic feet of gas. It's about 14 miles north of the joint-development zone (JDZ) that is being offered for drilling now. Also in the neighborhood, ExxonMobil's deepwater Erha Field is estimated to contain 500 million barrels of reserves and should yield 150,000 barrels of oil per day at maturity. Its 400-million-barrel Yoho Field in shallow water is producing 90,000 barrels per day, and full-field output will be 150,000 barrels per day. ChevronTexaco's Agbami Field contains nearly 1 billion barrels of recoverable hydrocarbons. Oil production should peak at 225,000 barrels per day. Shell's deepwater Bonga may produce 225,000 barrels per day, and is estimated to contain 700 million barrels of oil. Bonga South West is estimated to contain nearly 600 million barrels. The current licensing program, in the works for years, was jump-started by Sao Tome & Principe's new president, Fradique de Menezes, who took office two years ago. The post came with myriad claims to exploration rights in the country's waters. In various places, there were overlapping rights and all of these agreements were signed by a previous administration. While under pressure for a plan, he held off for more study, called in attorneys, sat down with companies that had prior agreements, and worked out deals with them and with Nigeria. The president has impressed many in the industry, says Mike Rodgers, senior director, upstream services, PFC Energy, the Washington, D.C.-based global energy advisory firm. "Several people have met him and all feel he is a sincere person trying to do the right thing." PFC Energy has been following events in Sao Tome & Principe and associated risks for more than a year. Rodgers expects the analysis will result in high marks for the republic, relative to the rest of West Africa. "The concern would be that-being it's a tiny, somewhat sleepy, nation now-it could incur outside pressures, which would change its risk make-up," Rodgers says. Rodgers was doing preliminary research on the country more than a year ago, and needed additional data from the government. "I called the president's office, and he answered the phone. It's a pretty small place." The country's total population is about 170,000. Existing claims to exploration rights were by ExxonMobil and by Houston-based ERHC, also known as Chrome Energy Corp. The rights have been the only asset of publicly traded ERHC, which was originally founded in 1996 in Lafayette, Louisiana, as Environmental Remediation Holding Corp. Mark Bagge, senior project manager, Schlumberger Data and Consulting Services, says, "What's attractive about the Sao Tome & Principe acreage is it is a proven hydrocarbon area. This toe-thrust play, where you've had some large world-class discoveries in deep water offshore Nigeria and Equatorial Guinea, clearly extends to the joint-development zone." Schlumberger's IndigoPool business is providing data-dissemination and other marketing support to the JDZ licensing round. Helpful is that there are existing and recent 3-D and 2-D seismic data, which have been acquired by PGS, Western-Geco and Veritas, he adds. "People are not going in blind. There is good seismic already." Another bonus is that, while the acreage is unexplored, it is next door to existing infrastructure and services-all of these are already supporting exploration, development and production in Nigerian and Equatorial Guinean waters. (For more on the latter, see "Equatorial Guinea," Oil and Gas Investor, May 2001.) Exploration rights in waters exclusive to Sao Tome & Principe are not being offered at this time; however, a licensing program is expected sometime after bids for JDZ blocks are processed and awarded. Sao Tome & Principe's negotiation of a boundary settlement with Nigeria began in 1999, and an agreement was soon reached to not draw a line. Instead, the area in dispute is being shared-60% Nigeria and 40% Sao Tome & Principe-under terms of a 45-year treaty that resulted from the discussions. The deal is much like the Australia-Indonesia joint-development zone in the Timor Gap. "The Gulf of Guinea is without doubt, one of the most prolific oil and gas provinces in the world," Rilwanu Lukman, the JDZ's Joint Ministerial Council chairman, said in a recent speech in the U.S. "In this respect, the joint-development zone, with its central location in the Gulf of Guinea, offers an excellent opportunity for investors in the oil and gas industry...It has high prospectivity acreage that is within the reaches of today's technology." ERHC has had claim to rights to drill offshore Sao Tome & Principe since 1997, in an agreement with a previous administration. As a result of a more recent agreement, it has an option for working interests in the nine JDZ blocks: a total of 35% in two blocks with payment of full signature bonuses required, and a total of 90% in four blocks with no signature bonus due. Essentially, it will have an aggregate 90% interest in four of the nine blocks at no charge. Also, it may choose in which blocks it will take a position, after bids are received October 18, with knowledge of which other companies will win positions and what work commitments they will make. ExxonMobil Corp. also has option rights in the JDZ: to acquire 40% in one block and 25% in two additional blocks. It will choose ahead of ERHC, and its deal requires payment of full signature bonuses. ERHC's reward is the result of its 1997 contract with Sao Tome & Principe for exploration rights in the country's waters for $5 million, and because it hired attorneys and other professionals to define the country's offshore boundaries, or "exclusive economic zone." The document was eventually accepted by the United Nations, according to John Coleman, an ERHC spokesman. Upon UN acceptance, EHRC assisted in drawing the exploration blocks and Mobil Corp. provided technical assistance, hired seismic shoots and further developed the eventual general offering of exploration rights. "Then, Sao Tome & Principe became something people were interested in," Coleman says. PFC Energy's Rodgers expects oil-industry interest in exploration in the blocks that are available will be strong. "The potential is there." As for the contract terms, they appear to Rodgers to be fair. "They won't turn people off." The terms are similar to what Nigeria initially signed with E&P companies for deepwater blocks off its coast, except there has been some revision to reflect the now-proven promise of large finds. Many expatriates working in the oil fields of Nigeria holiday in Sao Tome, where there is an active eco-tourism industry. The potential is huge for this island nation-whose annual per capita GDP is $1,200 and derived mostly from agricultural exports and tourism, and may increase exponentially with eventual oil and gas exports.