UK-based BG Group is preparing to launch oil and gas exploration on Honduras's Atlantic coast with an initial investment of at least $20 million, marking the first contract for a foreign company to explore in the country.
BG will explore for oil and gas for four years in the offshore block covering 35,000 square kilometers off the coast of La Mosquitia, a jungle region bordering Nicaragua, and some say holding 15% of country’s total oil and gas potential.
For Honduras, there’s nothing to lose here, as Rigoberto Cuéllar, Minister of Natural Resources has pointed out: "If there is natural gas and oil in La Mosquitia, and we have such hydrocarbons, this will be a source of funds for the State,” he said, adding that if exploration came up dry, the state would incur no expenses.
The contract between the government of Honduras and BG Group was initially signed in 2012, with BG paying taxes to the Honduran government during the exploration phase and funding social development in communities located near the drilling site.
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According to the contract, BG Group must return 50% of the total land area to Honduras within four years.
Assuming a commercial discovery, once initial investments are recovered, BG Group would hand over half to 58% of output to the government.
Foreign investors have expressed optimism over the appointment of Juan Orlando Hernandez as Honduras’ president, despite the fact that Hernandez has indicated a tougher investment climate for the mining sector, which could in turn be applied to the oil and gas sector if this too gets off the ground.
Newly appointed Honduras president Juan Orlando Hernandez has promised to do more to attract foreign investment, but has also publicly considered new taxes or royalties for the mining sector to boost state coffers in the face of growing debt.
The energy sector has been languishing in a state of uncertainty since August, when former president Porfirio Lobo vetoed highly controversial plans to transfer mining projects into trusts or public-private partnerships.
By. Charles Kennedy of Oilprice.com