AZERBAIJAN - Higher Bonuses For E&P Deals.

IOCs are paying millions of US dollars more to governments to get access to oil and gas fields, a further sign that record oil prices are shifting the balance of power towards owners of reserves. Competition for resources is driving up signature bonuses companies pay up front for access to fields, particularly in West Africa, making firms more dependent on oil prices staying higher for longer and squeezing returns.

Reuters on June 12 quoted Tom Hickey, chief financial officer of UK-listed Tullow Oil, as saying: "There are a number of places where you can see signature bonuses increasing quite a bit. For sure, it certainly means that even at current oil prices, discoveries will need to be quite sizeable".

The rise in bonuses comes as oil-producing countries from Venezuela to Russia seek more cash and control from IOCs which drill in their oil and gas fields, a trend dubbed "resource nationalism". China's state-owned Sinopec in May won a 40% stake in Block 18, off the coast of Angola, after proposing a record $1.1 bn signature bonus. Bonuses for the top three blocks reached more than $3.1 bn, a jump from the $6m to $35m Total and others paid in the 1990s for access to the areas, all of which have seen huge oil finds. Reuters quoted Deutsche Bank analyst Paul Sankey as saying: "The companies have far exceeded bonuses seen anywhere else. For major oils, returns are under fundamental pressure". The top three blocks offered by Angola - 15, 17 and 18 - were now home to fields such as Total's Girassol giant. The parts recently on offer were those not developed or planned for development by the original operator.

Reuters quoted Deborah White, analyst at Societe Generale, as saying: "They are throwing restraint to the winds. It's not even a full block, it's part of a block". The bonuses invite comparisons with the $1.2 bn firms paid for permits covering Mukluk, an area in Alaska found in 1983 to hold no oil and considered the world's most costly dry well. Growing global demand, dwindling reserves in regions such as the North Sea and a 4 1/2 year rally in crude oil prices are driving up bonuses in Angola and Nigeria. The top two sub-Saharan producers are both open to foreign investment and offer the chance of large discoveries an increasingly rare combination in 2006. Reuters quoted Tullow's Hickey as saying: "There are relatively few places at the moment where you can make very, very, very big discoveries that are open to non-national companies. Angola is one of the places". Tullow, a bidder in the Angolan licencing round, was last month finalising its position over shallow water Block 1.