Oil giant sets the mood for oil investment in Afghan assets

Afghanistan has been drawing a lot of attention from firms looking to invest in oil exploration within the Middle East. Firms have been embarking on this to step up energy output or to offset production from declining fields at home.

Prices of crude have been bouncing to new highs and lows this 2012 as major economies weakened and geopolitical tensions abound. Despite the record lows, crude price ranges are still four times higher than historical trends back in the early 2000s.

Various U.S. oil giants have set their eyes on other energy alternatives, like exploring shale gas. The boom in North Dakota’s Bakken Shale production enabled the U.S. energy sector to increase oil output.  Advancements in hydraulic fracturing methods have contributed much to the rise in oil exploration and drilling activities, spurring oil production all the more. Still, some others have mobilized drillings offshore, notably in the Gulf of Mexico (GOM).

Total SA of France lately clinched a transaction allowing it to embark in oil exploration in the Black Sea region near Bulgaria. Total intends to tap the Eastern European nation’s natural gas deposits.  Meanwhile, Statoil of Norway and Exxon Mobil entered into contracts with Rosneft of Russia – proof that oil firms are also eyeing regions where energy sectors are under-developed, partly due to lack of technology or financing.

While the Afghan region is estimated to hold almost 2 billion barrels of recoverable crude deposits as well as close to 60 trillion cubic feet of natural gas, oil firms have generally shunned oil investment and exploration in the country due, in part, to the US-Afghanistan conflict.

But the general sentiment is slowly being replaced by growing interest in the country as oil giant Exxon Mobil hinted of joining in on bids for oil blocks in Afghanistan’s Tajik basin. In fact, China came in ahead when its National Petroleum Corp. shelled out about $700 million in 2011 to purchase drilling rights in the same area where new oil blocks will be auctioned off.

But Exxon’s move has made more impact to the rest of the oil firms who may follow suit. For them, the oil giant’s decision to invest in the Afghan region is almost an assurance that the region does have potential.

Eight more oil firms have reportedly indicated interest to join the bidding.

Despite the growing awareness of Afghanistan oil prospects, security remains a huge concern among would-be investors. Recently, the Taliban attacked and damaged more than 20 oil tankers in the region.

But what matters at this point is that an oil major and other big oil firms are dead-set on investing in Afghanistan. This alone is a clear indication that the region has oil potential waiting to be tapped by those who are in for the challenge.