Tunisia - Petroleum Exploration Promotion Project

Document of The World Bank FOR OFFICIAL USE ONLY CZJ.ooV :3 iIVA/ Report No. P-4924-TUN MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$5.5 MILLION TO THE ENTREPRISE TUNISIENNE D'ACTIVITES PETROLIERES (ETAP) WITH THE GUARANTEE OF THE GOVEUNMENT OF THE REPUBLIC OF TUNISIA FOR A PETROLEUM EXPLORATION PROMOTION PROJECT December 19, 1988 Thbis document has a restricted distribution and may be used by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorbation.  CURRENCY EQUIVALEN'TS Currency Unit = Tunisian Dinar (TD) US$1.00 = TD 0.8885 (September 20, 1988) TD 1.00 = US$1.130 TD 1,000,000 - US$1,130,000 WEIGHTS. MEASURES AND CONVERSION FACTORS BD u barrels per day CM = cubic meters t = tons toe = tons of oil equivalent CF a cubic feet CFD a cubic feet per day NV = megawatt kWh = kilowatt hour km1 = square kilometers 1 barrel = 42 US gallons = 159.0 liters 100,000 BD of crude a 5MMT per year (approx.) 1,000,000 CFD of gas 10 MMCM per year (approx.) ABBREVIATIONS CTF Compagnie Tunisienne de Forage ESMAP Energy Sector Management Assistance Program ETAP Entreprise Tunisienne d'Activites Petrolieres 8.0.M.T. Houston Oil and Minerals of Tunisia SITEP Soci6t& Italo-Tunisienne d'Exploitations P6trolieres SNDP Societ6 Nationale de Distribution des P6troles SOTUGAT Soci6t6 de Transport du Gaz en Tunisie STEG Soci6t6 Tunisienne d'Electricite et de Gas STIR Societe Tunisienne des Industries de Raffinage TMP Trans-M6diterranean Pipeline FISCAL YEAR January 1 - December 31  FOR OMCIAL USE ONLY REPUBUC OF TUNIIA PETROLEUM EXPLORATION PROMOTiON PROJECT Loan ad Project Borrower Entreprise Tunisienne d'Activit6s P6trolieres (ETAP) Guwarmtwr Government of Tunisia Amount: US$5.5 million equivalent Tenlm Seventeen years, including a five-year grace period, at the Bank's standard variable interest rate FbionedDR PiUL ETAP US$3.5 million IBRD USS5.5 million TOTAL US$9.0 million Map No.: IBRD 21067 Staff ADmibs! Ruort: Not applicable This document has a resticted distribution and may be used by recpints only in the peronnmance of their official duties Its contents may not ohierwise be disclosed without World Bank autxhoaon.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE ENTREPRISE TUNISIENNE D'ACTIVITES PETROLIERES (ETAP) WITH THE GUARANTEE OF THE REPUBLIC OF TUNISIA FOR A PETROLEUM EXPLORATION PROMOTION PROJECT 1. The following memorandum and recommendation on a proposed IBRD loan to the Entreprise Tunisienne d'Activit6s Petrolieres (ETAP), with the guarantee of the Government of Tunisia, for US$5.5 million is submitted for approval. The proposed loan would be at the standard variable interest rate with 5 years of grace and 17 years maturity and would help finance a Petroleum Exploration Promotion Project. Backaround 2. Although modest by global standards, oil production is an important part of Tunisia's economy: it accounted for 92 of GDP and 202 of export earnings in 1987. Commercially recoverable oil reserves are estimated at 440 million barrels (about 64 million tons), enough to provide another 10 to 12 years of production at current rates. However, most reserves are located in relatively old oil fields, with about 882 of production coming from two of these: El Borma and Ashtart. Production at these fields is entering its decline phase, despite efficient secondary recovery programs. There is also gas production at El Borma (0.5 million toe) which, since it is associated with oil, will decline in parallel with oil production. Total oil production has decreased at an average annual rate of 3.21 since 1984 and this rate of decline is expected to continue in the short term. The anticipated outcome of reduced petroleum production combined with the expected 5.41 per year average growth in domestic oil demand is that Tunisia could become a net oil importer in 1991-92. 3. With concerted action to maximize the output from fields which already have been discovered and to prove reserves in other fields, the decline in domestic oil production can be slowed, resulting in major macroeconomic benefits. In the short term, the national oil company ETAP, and some of the international oil companies (IOCs) operating in the country are beginning to explore the possibility of bringing on stream small fields which have displayed the greatest prospects for success. However, for a sustained improvement in domestic oil production, increased exploration activity is also needed to identify and evaluate reserves in other small existing fields. Recent changes in the Tunisian petroleum law (March 1987), which provide special incentives for small field development as well as a more liberal tax regime, have enhanced the attractiveness of these marginal fields to IOCs.  -2- Project Obiectives 4. The main objective of the proposed project is to provide the basis for increasing the rate of discovery and development of Tunisia's hydrocarbon resources through: (i) attracting further private sector participation in exploration of prospective open areas; (ii) strengthening ETAP's technical capabilities to assess hydrocarbon potential; and (iii) providing, through state-of-the art exploration data acquisition techniques, "leads" which would induce IOC activity in open areas currently left unexplored. The Government of Tunisia (GOT) has requested Bank assistance to attain the above objective, given the Bank's past experience with similar promotional activities in other developing countries. Exploration work will be carried out in compliance with the country's environmental protection requirements and sound practices of the oil industry. These objectives fit well within the Gc"ernment's overall policy for oil exploration which is to rely primarily on private risk capital for the financing of exploration and development with its own role being essentially one of promotion and regulation. This policy is fully supported by the Bank. Rationale for Bank Involvement 5. The Bank has been directly involved in Tunisia's energy sector through lending operations in power and gas that were satisfactorily implemented. The Bank assisted also ETAP in formulating Tunisia's new petroleum legislation and in petroleum exploration planning under the multisectorial Technical Assistance Loan (Loan 2197-TUN). The proposed project would be a timely follow-up to this loan and would allow the Bank to continue its active, cooperative role to assist the GOT and ETAP in addressing energy policy and strategy issues in the petroleum subsector. The Bank plans to follow this operation with a more comprehensive energy project to help assess and implement energy policies in the post-oil era. The present loan will provide part of the groundwork for this larger project. 6. Through continued financial and technical support, the Bank can help ETAP to become a technically efficient partner of the oil companies and to attract participation of IOCs, thereby providing additional risk capital for developing the petroleum sector. ETAP could use its enhanced data base to facilitate the operations of IOCs, especially newcomers, and to help them determine further exploration investments. ETAP would also provide a number of technical services not available elsewhere in the country which would permit more precise evaluations to assist GOT in its policy decision making. This is already the case in the simulation of Ashtart reservoir, conducted in cooperation with international services firm specialists under the previous Bank financed project. Project Description 7. The proposed project consists of three components: (i) exploration promotion technical assistance and training; (ii) geological and geophysical data acquisition, processing and reprocessing; and (iii) procurement of laboratory equipment and material. The components are summarized as follows:  (a) Exploration Promotion Technical Assistance. Joint preparatory work has led to the identification of six specific areas which are of potential interest to IOC's. These six geologic provinces will be promoted in accordance with the preparedness and progress of the studies related to each province. ETAP will be assisted by highly specialized, external experts to prepare quality promotion packages meeting oil industry standards. The country's hydrocarbon prospects are to be presented to the oil industry in a series of meetings held in one or two major oil capitals, such as Houston and London, followed by a third presentation in Tunis. After the last presentation, the blocks will be opened for bids from interested IOC's. The first bid round will cover as a priority the Gulfs of Vamtanet and Gabes offshore areas, where adequate data already is available. This round is planned to take place before April 1990. The promotional work on the other areas is expected to be completed by end 1992. A Project Unit established in ETAP will supervise the Implementation and progress of the promotion activities. (b) Data Acquisition, Processing and Reprocessing. This component includes new seismic data acquisition, processing and reprocessing on a limited basis. Acquisition of new data and their processing using modern techniques will fill in gaps and contribute to the solution of complicated geological and geophysical problems. An airmag survey will be conducted in the north, where data are non-existant. The project will provide a specialized consultant to define the objectives and modality of the airmag survey, and to interpret the data. The project will also use new techniques to clean and reprocess old and incomplete seismic data for more reliable interpretation. (c) Equipment and Material. The project includes acquisition of: (i) geochemistry laboratory equipment; (ii) computer hardware; and (iii) software packages for reservoir engineering and log processing. Procurement of all goods and services, as well as hiring of consultants financed under the Bank loan would be in accordance with Bank guidelines (see schedule B). An implementation schedule and map are attached to the Technical Annex. Some of the equipment will complement data base software purchased under T.A. Bank Loan No. 2197. Proiect Cost Estimates 8. The total project cost is estimated at about US$9.0 million, of which US$2.5 million are in local costs and US$6.5 million in foreign costs (722). The proposed loan of US$5.5 million will finance 612 of the project cost. A detailed breakdown of the project's cost estimate is given in Annex A. Amounts and methods of procurement and of disbursements, and the disbursement schedule are shown in Annex B. A timetable of key project processing events and the status of Bank group operations in Tunisia are given in Annexes C and D respectively. The Technical Annex and a map are also attached. The proposed loan would cover 852 of the project foreign cost and would allow for retroactive financing of US$500,000 (82 of the loan amount) for hiring a system analyst specialist and acquiring additional software packages. All of the local costs (US$2.5 million) and US$1.0 million of the foreign cost would be financed by ETAP's internal funds.  -4- Agreed Actions 9. ETAP has agreed to the following actions: (a) establish and staff a Project Unit (PU). The Unit will serve as the principal focal point for ensuring effective project implementation and will have the delegated authority to act on all project matters to liaise with and use the services of all ETA* divisions; (b) procure all services, equipment and software needed in accordance with Bank guidelines; and (c) organize an airmag survey team for the northern part of the country prior to preparation of the data package. Benefits 10. Development of small fields plus new discoveries would allow Tunisia to extend the life span of its total oil reserves and improve its reservelproduction ratio (currently estimated at 12 years). During the past two years, the level of exploration activities has shown a certain stability (10 to 13 wells per year) despite the enormous slowdown in the worldwide oil industry; many of these wells were drilled because of previous commitments. Seismic activity in Tunisia decreased by about 372 between 1986 and 1987 and this level will probably remain unchanged in 1988. There has been a downward trend in perm!t relinquishments since 1984. Attracting new companies would help reverse tais downward trend. It would not be unreasonable to expect in the short term that additional exploration investments would commit at least US$30 million in new areas following the promotional activities, although given the inherent nature of the project, its full benefits are impossible to quantify in advance. 11. GOT is negotiating new exploration permits with IOCs, both newcomers and already established companies. The newcomers are small- to medium-sized European and American companies interested in expanding their field of activity outside the US or the North Sea. However, due to the absence of a systematic approach in granting exploration permits, negotiations are lengthy and cumbersome. The project will provide technical advisory expertise to ETAP that will help reduce the delays and ensure that equal information is provided to all interested IOCs. Risks 12. The principal risk associated with this project, as with all exploration promotion projects, is that oil industry response to the promotion efforts would be weak due to an unfavorable international climate or poorer than anticipated geology. This risk is considered acceptable; the alternative is either that IOCs activity will be held back for lack of information or that IOCs expenditure based on poor information may itself have negative results with an even less desirable demonstration effect. The proposed course of action is more appropriate than either of these alto-natives.  Recomoendation 13. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve the proposed loan. Barber Conable President Attachments: - Technical Annex - Map IBRD 21067 Washington, D.C. December 19, 1988.  -6- Annex A TUNISIA - PETROLEUM EXPLORATION PROMOTION PROJECT Project Estimated Costs and Financing Plan (US$ '000) Estimated Costs /a Foreign Local IBRD ETAP Total (A) Exploration Promotion and Technical Assistance (1) Consultancy 400 400 (2) Training 200 200 (3) Special Services 200 200 (4) Exploration Promotion 100 600 700 Subtotal (1) 100 1,400 1,500 (B) Data Acquisition and Processing (1) Seismic Survey and Processing 800 1,600 2,400 (2) Gravity and Airmag 500 300 800 (3) Data Reprocessing 3700 Km 700 700 Subtotal (2) 2,000 1,900 3,900 (C) Eauipment and Material (1) Geochemistry Laboratories 320 320 (2) Software Seismic + Hardware 250 250 (3) Equipment Reservoir Engineering 130 130 (4) Software Reservoir Engineering 180 180 (5) Software Logs Etc. 120 120 (6) Software Geological/Geophysical/ Including Modeling for Computerization of Geophysical and Geological Mapping 600 600 (7) Sedimentology Laboratories 400 400 Subtotal (3) 1,290 710 2,000 Total Base Cost (1988 US$) 2,100 4,600 710 7,400 Physical Contingencies 200 410 130 740 Price Contingencies 200 500 160 860 TOTAL COST (current US$) gQ 50 l. Financing Plan (US$ Million) Local Foreign Total IBRD - 5.5 5.5 ETAP 2.5 1.0 3.5 TOTAL 2.5 6.5 9.0 /a net of taxes and duties  -7- Annex B TUNISIA - PETROLEUM EXPLORATION PROMOTION PROJECT I. PROCUREMENT Project Element Procurement Method Total ICB LID Other Cost (US- Million) Studies and Consultancy Services and Training 0.40 1.00 1.40 Seismic Surveys and Processing 1.60 1.60 Gravity and Airmag 0.30 0.30 Computer Packages Equipment a: d and Material 0.97 0.97 Laboratory Equipment 0.33 0.33 Contingency 0.90. TOTAL 1.90 1.70 1.00 5.50 II. DISBURSEMENTS Category Amount Percentage -(us$ million) 1. Consultancy, Training and Special Services 3.3 100S of Foreign Expenditure and 802 of Local Expenditure 2. Equipment and Material 1.3 1002 of Foreign Expenditure and 0.9 901 of Local Expenditure 3. Unallocated TOTAL 5.5 1II. ESTIMATED IBRD DISBURSEMENTS Bank 1Y 89 90 91 92 - (US$ million) Annaal 1.6 0.4 2.8 0.7 Cumulative 1.6 2.0 4.8 5.5  Annex C TUNISIA - PETROLEUM EXPLORATION PROMOTION PROJECT Timetable of Key Project Processing Events (a) Time taken to Prepare: eight months 'b) Prepared by: ETAP with IBRD Assistance (c) First IBRD Mission: January 1988 (d) Appraisal Mission Departure: June 1, 1988 (e) Negotiations: November 1988 (f) Planned Date of Effectiveness: March 1989  9Annex D Page- 1 of 2 DAt JStAs oFr RO UTION IN TUNMIsA A- 5 I m L5 IS C ITS (As 2 r 1p ul Loan Or 15illion Aunt Credit l&n s _ WNhK L Zin bR IM Udihurzheg forty-tour Loans and Credits fully Disbursed 728.93 75.16 1797 1930 Ottico dos Ports NationOUX Third Port 35.20 1.S2 1961 1961 Rpblic of Tunisia Fourth Education 21.00 8.74 19t 196) Repltic of Tunisia Small-Scale tIdustry Devlolpnt 30.00 4.47 1997 1981 Republic of Tunisia Rorthmest Rural Development 17.54 3.27 200S 1981 Rpublitc of Tunisia Health and Population 8.50 3.20 20S2 1941 Republic of Tunisia Grain Distribution and Stor*ge 38.00 5.65 2108 1982 Republic of Tunisia fifth ighway (Rural Roads) 3S.S0 10.99 2134 19OU S031 Sixth Water Supply 30.SO .10 2157 19" Reulic of Tunisia Irrigation Oevelop t 15.30 3.41 2197 192 Republic of Tunisi Technical AssistaneC 4.50 .E8 2223 1943 Repubiic of Tunisia Urban Delopnt Itt 2S.00 17.36 2230 19U3 RepOlic Of Tunisia Education V 27.00 17.36 2234 1983 Reublic of Tunisio Central Tunisia Irrigation 13.70 5.78 225S 1983 Republic of Tunisia Urban Swerae t 34.00 22.53 2289 1963 Republtc of Tunisia Sfan Flood Protection 25.0 3.94 2301 1983 SOFOMECA Industry (IV) foundry 16.80 .78 2346 1984 Repblic of Tunisia Mining Technical Assistance 13.40 8. S3 2368 1984 Republic of Tunisia Seventh Water Supply s0.o0 28.92 2429 1984 Repblic of Tunisia Second Urban Transport 33.00 2S.01 24S 1984 SoCidti Tunisienne de Plglectricitd et du Oat Fourth Power 21.52 8.52 2502 1935 Republic of Tunisia Northwest Agricultural Production 1500 13.91 2S22 1985 Republie of Tunisia Export Industries 322.0 23.61 2SS4 1985 Republic of Tunisia Second Electrical and Mechanical Industries 32.50 23.50 2573 1965 Rpublic of Tunisia trrigation Managnt Improvewmnt 22.00 18.20 260S 1985 R"ublic of Tunisia Gabes Irrigation 27.70 20.26 273S 1986 Republic of Tunisia Energy conservation 4.00 3.99 2736 196 Republic of Tunisia fourth Urban DeveloP_t 30.20 29.88 2754 19" R"ublic of Tunisia Agricultural Sector Adjustment 150.00 58.73 2781 1967 Reub ic of Tunisia Industrial & Trade Policy Adjust. 150.00 62.41 285 1967 WT t tv 30.00 26.27 2870 1987 Re1lic of Tunisia Agriculture 20.00 17.96 2896 1 Reubl ic of Tunisia Hi_ Maintenance 8 Rehabilitation /a 63.00 63.00 2911 1968 Reublic of Tunisia Secod Small & Mdim Scale nd. Devlop. /a 28.00 28.00 2962 1966 Reublic of Tunisia SAL t /it .5*068 - _5LA TOTAL 1,979.29 75.16 720.71 Of Wtich has be_n rpaid .44SL.M 12M Total Mo Outstanding 1.S31.9 62.61 Amunt Sold 37.86 ot which has ben repaid 2 15.18 Total now hold by Sank and tDA 1JZLiA 5141 1,516.80 total Undisbursed 720.71 /a Not yet effective. 2831L/ o0ec_r 19. 1986  - 10 - Annex D Page 2 of 2 B. ~TtEMIfFCT OF !fe !UVEITNIMTC XE TuMZas tAt of