Latin America's Petroleum Prospects 

in the Energy Crisis

GEOLOGICAL SURVEY BULLETIN 1411

Latin America's Petroleum Prospects 

in the Energy Crisis

By BERNARDO F. GROSSLING

GEOLOGICAL SURVEY BULLETIN 1411

UNITED STATES GOVERNMENT PRINTING OFFICE, WASHINGTON : 1975
UNITED STATES DEPARTMENT OF THE INTERIOR 

STANLEY K. HATHAWAY, Secretary

GEOLOGICAL SURVEY 

V. E. McKelvey, Director

Library of Congress Cataloging in Publication Data

»

Grossling, Bernardo F 1918-

Latin America's petroleum prospects in the energy crisis. » 

(Geological Survey bulletin ; 1411)

Bibliography: p. »c 

Supt. of Docs, no.: I 19.3:1411 

1. Petroleum industry and trade-Latin America. I. Title. II. Series: United

States. Geological Survey. Bulletin ; 1411. 

QE75.B9 no.1411 [HD9574.L3] 557.3'08s [338.2'7'282098] 75-61916&

For sale by the Superintendent of Documents, U.S. Government Printing Office

Washington, D.C. 20402 

Stock Number 024-001-02694-5
CONTENTS

Page

Synthesis _____________________ 1

' Energy intake and economic activity _ __ 4

Latin America's energy-supply pattern ______ _____ 6

Petroleum _________________ _ 10

^ Background ___________________________ _ 10

Microeconomics of the petroleum industry _____ __ _______ 11

Complexities of the petroleum industry _______ ______ ___ 12

* The appraisal of petroleum resources _____________ _________ 14

The concepts of resources and reserves ___ ______ __ ___ 14

* How to appraise the petroleum resource base ____ __ 16

The drilling finding rate _______________ ___ _ 19

The impending worldwide depletion of petroleum resources ____ _ 22

Latin America and petroleum _____________________ _ 23

The oil price squeeze and Latin America ________^____ 23

\ Latin America's petroleum potential _____________________ 26

i Magnitude of the prospective areas ____________________ 26

Extent of drilling for petroleum _____________________ 27

_. Outcome of past petroleum development ________________ 28

Comparison with certain benchmark areas __________ 29

^ Estimates of EUR's for Latin America ___________ 29

Note on the petroleum potential of the Argentine

continental shelf _______________________________ 30

, How to develop the Latin American petroleum potential _________ 31

Latin America's energy resource base ___________________________ 33

"* Latin America's energy options _________________________________ 35

References cited _______________________________________________ 36

ILLUSTRATION

Page

FIGURE 1. Chart showing span of the various resource and reserve

terms for oil _______________________________________ 14

ill
IV CONTENTS

TABLES

Page

TABLE 1. 1971 per capita energy consumption by industrial nations 6 ^

2. Latin America 1971 per capita energy consumption _ 7

3. Latin America 1969 energy data _____ __ -_ _________ 8

4. 1971 net imported-energy dependence of Latin America's

energy-deficit countries _________ ______ ___________ 8

5. Energy contributions to Latin America's 1969

energy demand ________________ 9

fi. Comparative use of commercial oil and natural gas ^

energy, 1969 ______'__________________ 10

7. Stages in petroleum resource development ______________ 19

8. Price structure of Middle East crude __--_-______ 24

9. Ecuador's oil revenue sharing in dollars per barrel 

an estimate ____________________________ 24

10. Latin American petroleum exchange balance, as to

requirements of each national economy ______________ 24

11. Latin America's prospective petroleum area _____________ 26

12. Resume of petroleum drilling in Latin America ________ 28

13. Petroleum outcome for Latin America __________________ 30

14. Drilling and petroleum outcome for Latin American >, 

groups of nations ______________________________ 30

15. Latin America-United States energy data comparison ____ 35

16. Nations of population 1 million or more ranked as

per 1971 GNP per capita ___________________ 38

17. Basic conversion factors for energy calculations ______ 39 M

18. Heat equivalence factors ______________ 39

19. Evolution of oil prices 1955-74 ________________ 40
LATIN AMERICA'S PETROLEUM PROSPECTS IN 

THE ENERGY CRISIS

By BERNARDO F. GROSSLING

SYNTHESIS

A country's economic development and its consumption of energy are closely related; in fact, the physical counterpart of the 

gross domestic product is the total annual consumption of energy. 

The Latin American countries in order to just begin to catch up 

with the more industrialized nations would have to double or 

triple their per capita energy intake.

Taken as a whole, Latin America appears to have a strong energy resource base, and, although individual countries are liable to 

medium-term energy crunches, the long-term prospects for expanding per capita energy consumption are excellent.

The energy sources now used in Latin America are renewable 

vegetable fuels, human and animal power, fossil fuels, hydroelectric energy, and, to a minor extent, solar and geothermal energy.

About two-thirds of the countries of Latin America have a 

total energy deficit that is, they have to import some of the 

energy needed and about one-third have a surplus.

Overall, oil provides 65 percent, natural gas 16 percent, hydroelectric power 14 percent, and solid fuels 5 percent of the commercial energy used. Of the major regions of the world, Latin 

America depends more than any other on petroleum (80.8 percent) for energy. Its pattern of relative consumption of the various energy resources indicates that for GNP less than about $400 

per capita, the major contributors to the energy supply are agricultural residues, followed by oil; for GNP more than about $400 

per capita, the major contributor is petroleum, followed by agricultural residues or hydroelectric power.

For Venezuela, natural gas is the main contributor to energy 

supply, followed by oil. Only three countries Mexico, Chile, and 

Colombia have a fairly diversified pattern of energy supply, 

although in these countries petroleum also comes first.
2 LATIN AMERICA'S PETROLEUM PROSPECTS

Latin America is next in importance to the Middle East and 

Africa as a net provider of oil to other world regions. About half 

of the Latin American countries, including most of the major 

ones, produce petroleum; but only Venezuela, Ecuador, Trinidad 

and Tobago, Colombia, and Bolivia, in order of decreasing surplus, 

have an export surplus. The three most important petroleum producers, in order of decreasing rank, are Venezuela, Mexico, and 

Argentina; they are followed by Ecuador, Colombia, Brazil, and 

Trinidad and Tobago.

Except for Venezuela, Ecuador, Colombia, Trinidad and Tobago, 

and Bolivia, all the Latin American countries have <a net physical 

oil deficit. The largest deficit, about 200 million barrels, corresponds to Brazil, followed by Cuba with a deficit of about 53 million barrels. The deficit of the Latin American deficit countries is 

about 448 million barrels and the surplus of the surplus countries 

is about 1,237 million barrels.

Because market prices (f.o.b.) of Middle East crude were increased from about $2.20 per barrel in January 1973 to about 

$7.65 per barrel effective in January 1, 1974, the effective cost 

per barrel of crude, including various excise taxes, has been raised 

from a range of $5.70-$8.90 per barrel to $14.85-$23.15 per barrel, depending on the consumer country involved. With this drastic 

price increase, the Latin American balance of payments surplus 

can be projected at $9,150 million, but the deficit of the deficit 

countries would increase from about $923 million to about $5,094 

million. The full impact of the new prices has not been felt yet 

because of the purchase agreements in force.

A complicating factor, as well as a source of confusion, are the 

methods used in estimating the extent of the remaining resources. 

Because of the nature of petroleum deposits and because of technological limitations, it is not possible to locate all the remaining 

deposits.

To appraise the long-range supply of oil and gas, it is insufficient to merely project from present trends. One of the most perverse effects of the conceptual difficulties of petroleum assessment 

is the accuracy delusion, the misconception that published figures 

of undiscoverable resources have a somewhat narrow uncertainty 

function.

Density of drilling is a useful indicator of what needs to be done 

in Latin America. A common assumption is that the average 

amount of proven reserve found each year is proportional to the
ENERGY INTAKE AND ECONOMIC ACTIVITY 3

amount of drilling in that year and that this finding rate decreases 

as the cumulative drilling increases. A closer examination of this 

question indicates that this generalization is not true and obscures 

a much more complex process.

The exploration record in basin after basin reveals that the 

larger fields are not discovered until some 30 years after exploration begins in a region. The year-to-year fluctuations of the 

finding rate cannot be explained by increased depth of drilling. 

The actual statistical data does demonstrate rather erratic fluctuations of the finding rate. Consideration of the oil finding as a 

game of search does not support the assumption of a decreasing 

finding rate.

Latin America has 19 percent of the world's prospectivepetroleum area, yet it currently produces 9 percent of the oil. In 

much of Latin America the drilling density is two orders of magnitude smaller than what has been achieved in the United States. 

Even in the aggregate of Argentina, Mexico, and Venezuela, the 

drilling density is only about 4 percent of that achieved in the 

United States. The outcome of past efforts has been about 24,200 

barrels of oil and 52 million cubic feet of gas found per square 

mile of prospective area, compared to 101,600 barrels of oil and 

556 million cubic feet of gas in the United States. Hence in Latin 

America most of the oil is still in the ground and undiscovered.

By taking certain areas of the world as benchmarks, I estimate 

that the recoverable petroleum for large continental units is about 

100,000-250,000 barrels of oil and 500-1,300 million cubic feet of 

gas per square mile of prospective area. Moreover, these figures 

do not allow for giant size accumulations as in the Middle East, 

which cannot be excluded in Latin America. With that exclusion 

I estimate the ultimate recovery for Latin America to be (490 to 

1,225) x 10° barrels of oil and (2,450 to 6,370) XlO12 cubic feet 

of gas.

Some industry estimates for the remaining world petroleum 

recoverable resources indicate that these would be exhausted by 

the year 2008 if consumption were to increase 5 percent per year. 

By my own estimates of resources, which are two to five times 

larger, the exhaustion would be postponed only a few decades 

beyond 2008.

Published data on Latin America are completely inadequate and 

grossly underestimate its energy resource potential. The extent of 

the energy resource base can be gauged by comparing it to that of 

the United States, for which significant published data are avail-
4 LATIN AMERICA'S PETROLEUM PROSPECTS

able. Published proven reserve figures for oil, gas, oil shale, coal, 

and uranium for Latin America are only a small fraction of those 

for the United States. The discrepancy is even greater for identified and undiscovered resources.

As for petroleum, after sedimentary basins have been indentified, a pre-drilling potential estimate is made on the basis of geological factors. Using such a basic scheme as this, I could justify 

for the upper bound of the potential of the Argentine continental 

shelf a figure of about 200 billion barrels of oil that is, four 

times as large as a figure published for the recoverable oil resources for the United States Atlantic continental shelf.

The published figure for coal is 20 billion tons for identified 

resources and 10 billion tons for undiscovered resources, both of 

which estimates seem to me to underestimate the Latin American 

potential by two orders of magnitude.

As a new start, I believe one could assume that the energyresources base of Latin America is about twice that of the United 

States.

The immediate energy options for the Latin American countries 

are hydroelectric expansion, import of hydroelectricity, coal production, onshore petroleum resources, offshore petroleum resources, geothermal resources, and nuclear energy. Coal liquification, 

coal gasification, shale oil, bituminous sands, solar energy, and 

nuclear energy are the mid-range options.

Some countries Brazil, Chile, Argentina, Mexico, and Venezuela have a wide variety of options. The options of others are 

more limited, either because of their resource base, their stage of 

economic development, or their size.

The principal options appear to be: development of onshore 

petroleum resources (Bolivia, Peru, and Colombia); development 

of offshore petroleum resources (Argentina and the countries of 

the Caribbean); coal liquification and coal gasification (Chile and 

Colombia); shale oil (Brazil); and bituminous sands (Venezuela 

and Colombia).

ENERGY INTAKE AND ECONOMIC ACTIVITY

Energy in the physical world is, literally speaking, the underpinning ol change. And in the practical world of civilized man 

various sources of energy are the underpinnings of civilized life, 

which consist of various forms of change in plowing the land 

and irrigating and cultivating it; in producing fertilizers and pesticides; in operating shovels, mining and drilling equipment to 

produce coal, petroleum, and minerals; in transporting materials,
ENERGY INTAKE AND ECONOMIC ACTIVITY 5

products, and persons; in operating machine tools and the multitude of various devices invented by man; in driving motors, electrical generators, generating radio waves, operating electronic 

computers; etc., etc. All of these expressions of civilized life 

would come to a stop without adequate and economic sources of 

energy. The essence of economic activity is change and so is 

energy.

The economic development of nations and their consumption of 

energy are closely related. The physical counterpart of the concept 

of GNP (gross national product) is the total annual consumption 

of energy. The first measures the economic activity, say in dollars 

per year, and the second measures the total energy required to 

drive the economy, say in equivalent tons of oil per year.

When the nations of the world are ranked by GNP per capita, 

the Latin American (L.A.) nations are found to occupy an intermediate position between the 20-odd most industrialized nations 

and the truly underdeveloped nations (table 16). Moreover, the 

bulk of the L.A. nations are already right behind the most industrialized nations.

A rather strong statistical correlation exists between GNP per 

capita and total consumption of energy per capita. The first quantity appears to increase somewhat faster than linearly with the 

second quantity. That is, a doubling of the GNP per capita implies 

somewhat less than doubling the energy consumption per capita.

To obtain a measure of the total energy intake of a nation, all 

forms of energy must be converted to a common unit. From the 

point of view of physics, there are two fundamental forms of 

energy: kinetic energy and potential energy. The first one is equal 

to (1/2) mv~ where m is the mass of the object moving and v is its 

velocity. The object could be a small fundamental particle as an 

electron, for instance, or any other object. Heat is a form of 

kinetic energy the aggregate of the kinetic energy of the atoms 

in the body where heat is studied. Potential energy has to 

do with the existence of internal or external forces in a system, 

which, left alone, would drive it to some other configuration. 

Hence, change is of the essence in both of these fundamental 

forms of energy whether through velocities of objects or through 

actual or virtual configuration changes in a system. For statistical 

purposes, the energy of fuels is conventionally expressed in kilograms of oil equivalent. Also electrical energy and mechanicaJ 

work can be converted to kilograms of oil equivalent because of the 

equivalence of heat and mechanical energy. Some basic conversion 

factors used in the calculation of total energy are summarized in
G LATIN AMERICA'S PETROLEUM PROSPECTS

tables 17 and 18. A complicating factor is the various efficiencies 

of the energy conversion processes which are utilized. The total 

useful energy obtained with a given total initial fuel input varies 

with the relative use of the various energy processes. Therefore 

a society could obtain greater useful energy from a given fuel 

input by structural changes. But I do not discuss this question 

here, although it is important.

The correlation between consumption of total energy per capita 

and GNP per capita is easily demonstrated by the statistical data. 

This data reveals that to merely catch up with the group of the 

more industrialized nations (table 1), Latin America (table 2) 

would require energy intakes greater by factors of approximately 

2 to 3. A detailed examination of the situation for the various 

L.A. nations indicates that the ratio between GNP per capita 

and kilograms of oil equivalent per capita ranges between 0.34 

and 7.33 in $/kg of oil equivalent. Therefore the economic output 

achieved from a given intake of energy varies greatly.

TABLE 1. 1971 per capita energy consumption by industrial nations

Country

United States ______________

Canada - ________________

Czechoslovakia _____________

German Democratic Republic _____ . Belgium _______ ___ ___ _.

Sweden _______ 

United Kingdom __ ______ __ _.

Denmark __ _ _ 

Federal Republic of Germany ______

Norway __________________________

Netherlands _______________________

U.S.S.R. _________________

Finland __ _ ____

France _ __ _ ___________________

Switzerland _____ ________ .

Japan __ ___________________

Italy _ __ .__

GNP * 

(per capita)

4,760

3,700

2,230

2,490

2,720

4,040

2,270

3,190

2,930

2,860

2,430

1,790

2,390

3,100

3,320

1,920

1,760

Oil equivalent 2 

(kg/capita)

7,189

5,962

4,229

4,033

3,910

3,893

3,521

3,406

3,339

3,318

3,241

2,899

2,771

2,511

2,285

2,084

1,715

i World Bank Atlas (1972).

a Statistical Office of the United Nations (1973).

LATIN AMERICA'S ENERGY-SUPPLY PATTERN

The energy sources presently utilized in Latin America consist 

mainly of renewable vegetable fuels, animal work, fossil fuels, 

and hydroelectric potential energy and, to a minor extent, solar 

and geothermal energy. Nuclear energy has not yet been used for 

commercial purposes in Latin America, although there are several 

experimental reactors. Of the above resources, on a worldwide 

basis, the fossil fuels are depletable within rather short time
LATIN AMERICA'S ENERGY-SUPPLY PATTERN 7 

TABLE 2. Latin America 1971 per capita energy consumption

GNP * Oil equivalent 2

Country (per capita) (kg/capita)

Trinidad and Tobago ____________ 860 2,536

Venezuela _____________ 980 1,612

Surinam ______________________ 530 1,427

Panama _.__________ 730 1,357

Argentina ________________ 1,160 1,135

Chile _________________________ 720 970

Jamaica __ ______________ 670 856

Mexico ______________________ 670 813

Cuba ____________________ 530 737

Guyana ._____________ 370 637

Uruguay _______________ 820 613

French Guiana ________________ 940 600

Colombia ___________________ 340 408

Peru _______________._____ 450 397

Brazil _____________________ 420 320

British Honduras ______________ 590 310

Costa Rica ______ _ 560 285

Nicaragua ___________________ 430 249

Ecuador ______.. ___________________ 290 202

Dominican Republic ______ ______ 350 169

Guatemala __________________ 360 160

Honduras ___________________ 280 150

Bolivia _____________________ 180 143

El Salvador __________________ 300 143

Paraguay ___________________ 260 91

Haiti _____________________ 110 15

' World Bank Atlas (1972).

3 Derived from Statistical Office of the United Nations (1973).

spans (a few decades to a few centuries) at the projected trends 

of utilization. Petroleum, in particular, stands as the first of the 

major fossil fuels with a foreseen worldwide. exhaustion within 

several decades.

Total energy consumption and production for 1969 of the 

various Latin American countries, ranked in decreasing order 

of total energy consumption, are shown in table 3. It is to be 

noted that about two-thirds of the L.A. nations have a deficit 

of total energy that is they have to import some of the energy 

they need; about one third of the countries have a surplus, but 

most of the major L.A. nations, with the exception of Brazil, have 

a surplus of total energy. Specifically, Mexico, Argentina, Venezuela, Colombia, Chile, and Peru have a net total energy surplus 

or are about in balance.

The largest absolute deficit of total energy corresponds to 

Brazil (17.5 million ton oil equivalent), followed by Cuba (6.2 

million ton oil equivalent) (table 4). The import dependence with 

respect to total energy is above 80 percent generally for the 

smaller countries only; of the larger L.A. nations, Brazil is the
8 LATIN AMERICA'S PETROLEUM PROSPECTS

only one with an import dependence higher than 50 percent 

(actually 57 percent).

TABLE 3. Latin America 1969 energy data l

[Energy data in millions of tons of oil equivalent 2 ]

Country Consumption 3 Production 3

Brazil _________.

Mexico ____________

Argentina _________

Venezuela _____ 

Colombia _______

Cuba ______________

Chile ______________

Peru ______________

Trinidad and Tobago 

Ecuador ___________

Uruguay ________

Jamaica _______

Guatemala ______ 

Dominican Republic 

Bolivia _____ ___

Haiti _____________

El Salvador ________

Panama _^_________

Surinam ________

Costa Rica _____

Nicaragua ______

Honduras _______

Guyana ___________

Paraguay __________

49.67

43.10

27.00

14.73

12.59

10.93

8.18

7.83

3.64

1.72

2.11

2.08

1.60

1.58

1.46

1.23

1.12

1.04

.92

.89

.86

.83

.80

.64

36.12

51.40

27.22

230.54

20.22

4.46

11.61

8.54

11.33

2.47

.42

.48

.97

1.06

3.14

1.11

.75

.30

.43

.56

.51

.53

.32

.46

1 Comision Economics para America Latina (1973).

2 Oil-calorific value assumed: 10,700 kcal/kg.

 '' Including locally used energy from agricultural residues.

TABLE 4. lf>71 net importcd-energy dependence of Latin America's energydeficit countries

Country

Deficit, in 

millions of tons 

oil equivalent '

Percentage of 

consumption

Panama _____ ______

Dominican Republic _______

Guatemala ___________

Cuba ________._______

Nicaragua _____________

Honduras ________________

Uruguay _______________

Jamaica _________________

El Salvador ______________

Surinam _____________

Ecuador ________________

Costa Rica _______________

Brazil _________________

Chile ________________.

Peru ________________

Argentina _______________

Mexico ______________

Venezuela, Colombia, Bolivia, 

Trinidad and Tobago ___.

2.00

.70

.83

6.21

.48

.21

1.68

1.61

.48

.50

1.07

.43

17.48

3.85

2.20

2.61

3.52

100

99

98

97

95

95

94

93

94

87

84

84

57

40

39

10

9

1 Statistical Office of the United Nations (1973).
LATIN AMERICA'S ENERGY-SUPPLY PATTERN 9

The L.A. pattern of relative consumption of the various energy 

resources varies systematically with the GNP per capita of each 

country (table 5). For GNP less than about $400 capita, the 

major contributor to the energy supply are agricultural residues, 

followed in importance by petroleum. For GNP greater than 

about $400 per capita, the major contributor becomes petroleum, 

followed by either agricultural residues or hydroelectric power. 

Moreover, Venezuela is the only L.A. country for which natural 

gas is the major contributor to the energy supply, oil following 

in second place. The contribution of petroleum increases markedly 

with the GNP/capita. Only a few countries (Mexico, Chile, and 

Colombia) have a fairly diversified pattern of energy supply between the various energy sources, although petroleum comes first, 

even in these countries.

Overall, in Latin America oil provides 65 percent, natural gas 

16 percent, hydroelectric power 14 percent, and solid fuels 5 percent of the commercial energy, that is, agricultural residues excluded. Of the major regions of the world, Latin America depends 

to the greatest extent on petroleum (80.8 percent), as shown by 

the data in table 6.

About half of the L.A. countries, including most of the major 

L.A. nations, produce petroleum. But only Venezuela, Ecuador,

TABLE 5s Energy contributions to Latin America's 1969 energy demand

Percent energy contribution l

GNP/cap 

Country (1970)

Venezuela ____ ___ _

Argentina __________

Trinidad and Tobago _ Mexico _ _ _ _ _ _

Chile _______________

Jamaica _ __ _ _ _ _

Panama _ __ _ _ _ _ _

Guyana _ ___ ____

Cuba _ ___ __ _

Peru ______ __

Brazil _____________

Costa Rica __________

Colombia ___ ___ _

Nicaragua _ _____ __

Guatemala ____ ___

Dominican Republic __ 

El Salvador ________

Ecuador ____ __

Honduras ___________

Paraguay

Bolivia ___ _ ___ 

Haiti _______________

980 

1,160 

860 

670 

720 

670 

730 

370 

530 

450 

420 

560 

340 

430 

360 

350 

300 

290 

280 

260 

180 

110

Petroleum

87 

89

93 

70 

57 

77 

71 

60 

59 

59 

45 

37 

44 

41 

39 

33 

33 

39 

36 

29 

32 

9

(Gas plus 

oil)

(47+40)

(17+72) 

(38+55) 

(24+46) 

(6+51) 

(0+77) 

(0+71) 

(0+60) 

(0+59) 

(2+57) 

(1+44) 

(0+37) 

(8+36) 

(0+41) 

(0+39) 

(0+33) 

(0+33) 

(0+39) 

(0+36) 

(0+29) 

(0+32) 

(0+9)

Hydroelectric

6 

1 

0 

5

15 

2 

10 

0 

1 

14 

20 

28 

15 

10 

4 

1 

13 

4 

8 

7 

13 

0

Coal

2 

3 

0 

10 

16 

0 

0 

0 

1 

2 

5 

0 

13 

0 

0 

0 

0 

0 

0 

0 

0 

0

Agricultural 

residues

5 

7 

7 

15 

12 

21 

19 

40 

39 

25 

30 

35 

28 

49 

57 

66 

54 

57 

56 

64 

55 

91

1 Derived from Comision Economica para America Latina (1973, p. 11).
10 LATIN AMERICA'S PETROLEUM PROSPECTS W

*,

TABLE 6. Comparative use of commercial oil and natural gas energy, 1969 1

Region Percentage of region demand

Latin America __:_____________________ 80.8

North America -_________________-____ 72.9 s

Asia, Africa, Oceania ________-____________ 57.7

Western Europe _______________________ 54.2

Eastern Europe and other countries _i__________ 36.6 ^

1 Comision Economica para America Latina (1973).

Trinidad and Tobago, Colombia, and Bolivia have a net surplus 

for export. The three most important L.A. petroleum producers ^ 

are, in order of decreasing rank: Venezuela, Mexico, and Argentina ; they are followed by Ecuador, Colombia, Brazil, and Trini- * 

dad and Tobago. It should be noted, however, that Venezuela's

011 production accounts for about 71 percent of the total. Latin 

America follows the Middle East and Africa as a net provider 

of oil for other world regions. Of the net importing regions, ^ 

Europe imports the greatest by far amount of oil; North America 

and Asia follow far behind.

PETROLEUM 

BACKGROUND

Petroleum occurs naturally and widely in certain sedimentary ~ 

basins and geosynclines. It forms in sedimentary rocks, wherein ^ 

organic matter buried with the sediments becomes petroleum in 

the course of geologic time under the action of pressure, tempera- r 

ture, and physical-chemical processes. Not all sedimentary accumulations are favorable for occurrence of petroleum. Those 

having a regional maximum thickness of less than about 610 m v 

(2,000 ft) and those too severely deformed are to be excluded ¥ 

from consideration. Moreover, petroleum can be wasted away 

from a basin or geosyncline by water flow and erosion. <*

The basic requirements for the existence of petroleum accumulations are: source rocks, reservoir rocks, and adequate 

petroleum migration and accumulation conditions. Not all of the * 

determinant factors can be ascertained beforehand, and, what is > 

more important, not all the relevant factors are known even 

today after more than a century of petroleum exploration and 

development. But what can be learned about the manner of occurrence of petroleum more than justifies the undertaking of 

geologic and geophysical surveys for selecting drilling sites.

Petroleum deposits vary greatly in size of the accumulation, >» 

quality of the petroleum, proportions of oil and gas, and geologic 

factors controlling each accumulation. The history of petroleum
PETROLEUM 11

exploration consists of periods of expansion following some previous model of occurrence,' called a play, followed by periods of 

frustrating lack of success, and then the introduction of a new 

successful model. Because of this it is extremely difficult to predict the ultimate recoverable amounts of oil from the earth. Each 

overall prediction springs forth from past experiences and dares 

to tread into new hypothesis only cautiously.

Exploration proceeds from reconnaissance, to regional, to detailed phases. In the regional appraisal, some of the main factors 

taken into consideration are: area of sedimentary basin or 

geosyncline, maximum thickness of the sedimentary column, 

type of sediments, existence of structural and stratigraphic traps, 

and identification of favorable migration and entrapment conditions for petroleum. The detailed exploration aims to rather 

accurately locate wildcat wells where they are most likely to 

discover an oil or gas deposit.

As the exploration proceeds, one must modify earlier pictures 

with the new information obtained, reassess the situation, plan 

the next move, and do this repeatedly until the operator decides 

to quit or finally succeeds. The complexities of this game can be 

appreciated by the many instances when an operator quits an 

area only to be followed by someone else who succeeds using a 

different concept.

MICROECONOMICS OF THE PETROLEUM INDUSTRY

Conventional financial statements are of limited value for 

assessing the problems of the petroleum industry as a whole or 

the financial posture of individual companies. This is mainly because such statements do not explicitly disclose some very important issues. Those statements which are published are prepared mostly for income tax and stockholder purposes, in the 

manner that is usual for business corporations. Undoubtedly, 

petroleum companies can trace very well their own financial operations, but because of competitive considerations they may be 

unwilling to disclose in full their financial and petroleum-reserve 

positions.

The major factors that need to be taken into consideration to 

properly understand the financial issues are: statistical risk of 

petroleum exploration, discretionary decisions about the distribution of reinvested earnings among the different phases of exploration and development, depletion allowance, and expensing 

versus capitalization choices.

It is proper to ask several questions. How critical is the tax
12 LATIN AMERICA'S PETROLEUM PROSPECTS

environment for the financial and operating policies of the industry? Past experience indicates that expenses due to depreciation, depletion, and other retirements represent a sizable percentage of gross income. Should the bulk of capital for expansion 

continue to be provided from reinvested earnings, or should the 

industry resort more to outside financing? How does the industry 

use the different statutory choices concerning the expensing or 

capitalizing of certain items of cost? Which is the mechanism 

used, on the average, to establish the depletion allowance? Which 

has been the predominant financial policy of the industry either 

to maximize current profits, to maximize return on net worth, 

to maximize present value of future earnings, to minimize the 

federal tax bill, or to maximize tax deductions, for instance?

COMPLEXITIES OF THE PETROLEUM INDUSTRY

1. In comparison to most other industrial undertakings, petroleum exploration is a very risky business. In fact, it is in 

the nature of a game requiring judgment of statistical risks.

2. Because of the nature of petroleum exploration and development, an appreciable lead time is required between a decision to search for new reserves and the actual bringing 

in of production from the fields eventually discovered. This 

lead time is at present a minimum of 3 to 5 years.

3. In many countries the petroleum industry's tax environment 

is quite unique and significantly conditions its financial and 

operating policies. A special tax treatment has been given 

to the industry, as well as to other industries that exploit 

wasting assets.

The depletion allowance, as applied for instance in the 

United States, is an interlocking set of rules which cannot 

be easily comprehended by mere verbal discussions. It involves cost depletion and percentage depletion within the 

context of various alternative choices and with limits which 

act as cutoff points. A further complication is that the depletion calculation has to be handled separately for each 

oil property. Aggregate data, therefore, can give at best 

only a fuzzy average of what actually happens, that is, how 

the depletion is handled in the various properties held by 

a particular company.

Aside from the depletion allowance, there is preferential 

treatment in the manner of choices, at the discretion of 

each company, as whether to expense or to capitalize certain expenditures. These choices bear upon the flow of
PETROLEUM 13

funds and the tax bill, and they interact with the depletion allowance calculations.

4. Another important issue in the financial operation of a petroleum company is the reallocation of reinvested earnings 

among the different facets of exploration and development 1 . 

A company may increase its petroleum reserves by buying 

proven acreage, it may choose to lease new lands, or it 

may utilize or develop secondary recovery techniques on 

its own land or carry out various geological and geophysical 

surveys in lands under its control. Some of the exploration 

prospects may be drilled and may turn out to be dry holes. 

Others may result in discovery wells which may be implemented by development effort. The many discretionary 

choices interact with each other. They have different lead 

times.

5. Consumption of petroleum products is very sensitive to and 

closely parallels the business cycle. Thus the petroleum industry must adapt its rate of operation to a cycle conditioned by the overall dynamics of the economy, which is 

unrelated to the statistical fluctuations of newly discovered 

petroleum reserves and to the lead time between exploration and production.

In some countries, a unique tax environment has permitted the industry to ride the ups and downs of the business cycle, yet providing funds for expansion with adequate 

anticipation. On the other hand, if the volume of reinvested 

funds were to vary inversely with the business cycle, then 

the financial and operating position of the industry might 

be thrown out of kilter by the business cycle. Despite the 

fact that the business fluctuations of the economy have 

tended to become relatively small and their periods have 

shortened to 2 to 3 years, past history indicates that the 

cycle has a period of about 5 years, which is about the same 

as the lead time of petroleum exploration with respect 

to development. That is, in a period of recession the petroleum industry might find itself with reduced funds. This 

would force a reduction in the exploration effort, which 

would be reflected about 5 years later in reduced production at the time of another recession.

1 I have confined this discussion to the resource-development issues of the petroleum 

induftiy: therefore, indust7-y phases such as transportation, refining, and marketing are 

not discusscil here.
14 LATIN AMERICA'S PETROLEUM PROSPECTS

THE APPRAISAL OF PETROLEUM RESOURCES

THE CONCEPTS OF RESOURCES AND RESERVES

The span of the various resource and reserve terms for oil are 

shown in figure 1. The situation for gas is similar.

First we have the initial oil in place (OIP), that is, the amount 

prior to any exploitation which is to be found in undiscovered and 

discovered fields. Obviously, the OIP is difficult to estimate. As to 

the undiscovered (unknown) fields, an estimate has to be made 

based on the discovered (known) fields. This would be all right 

if the unknown fields were of similar characteristics to the known 

fields, or if both would form a reasonable statistical population. 

Actual exploration, however, shows that often a certain discovery

A

Cumulative 

T

production

Initial oil

in place

(OIP)

Recoverable oil 

Estimated ultimate 

recovery 

(EUR)

Proven 

reserves

Expanded proven 

reserves

Undiscovered 

T

recoverable oil

FIGURE 1. Span of the various resource and reserve terms for oil.
PETROLEUM 15

alters the concept of the petroleum accumulations to be found in 

a given area; projections from an old model become obsolete. 

The logical difficulty is hard to overcome. Perhaps the best we 

can hope with respect to the OIP value is to set lower bounds for 

it, and to raise the lower bound whenever wider knowledge about 

the petroleum geology of the region considered justifies it.

Second comes the concept of recoverable resources, that is, the 

amount of oil which can be recovered, within technological and 

economic limits, both from undiscovered and discovered fields. 

This is often denoted as the Estimated Ultimate Recovery (EUR). 

The relative amount of oil which is recoverable varies greatly 

and has not been well established on a worldwide basis. At the 

moment, a figure of 40 percent probably represents a target 

figure for recovery. With modern production practices, primary 

and secondary methods o;f production have become well integrated, and a sharp distinction is not justifiable. How much oil 

still remains in the ground even after the best production practices is not really known. Perhaps the recovery can be as high as 

80 percent of the oil in place. Another factor that conditions the 

amount of recoverable resources is the economic limits. These 

will change with time, so the forecast of the recoverable resources 

should vary with the time span of the forecast.

Third comes the concept of cumulative past production, that 

is, the total oil which has been produced from the discovered 

fields. This is the figure that can be ascertained more readily.

Fourth comes the concept of proven reserves (Ri). Proven 

reserves, designated in figure 1 as Rt , are defined as the amounts 

of petroleum which can be considered with certainty to be producible from explored acreage within present economic and technological limits. To convey a qualitative sense to the above 

definition, I would say that in known fields the amounts of petroleum that can be obtained with certainty, say higher than a 90 

percent probability, can be estimated within ±25 percent or so. 

The main uncertainty in this estimation process would be covered 

by the span of the error (±25 percent). The increments of oil to 

be expected from known fields would fall off rapidly below a 90 

percent probability. Essentially then there would be a rather 

narrow estimation distribution function for the proved reserves 

the estimation of the magnitude of a quantity which is known 

to exist.

Fifth comes the concept of expanded proven reserves (R*), 

which represents the expected amounts, in a statistical sense, of 

oil from revisions and extensions of discovered fields. We deal
16 LATIN AMERICA'S PETROLEUM PROSPECTS

here with a different kind of uncertainty: the speculation that 

some petroleum may exist beyond the known parts of fields and 

as extensions of them. For most of the non-OPEC developing 

countries I can make the following generalization. An additional 

quantity equal to the proven reserves can be obtained with a 

probability of eight-tenths, and another equal additional quantity 

can be obtained with a probability of five-tenths. Hence the 

expected value of the expanded proven reserves would be 

(1 + 0.8 + 0.5)^ = 2.3^,.

The recoverable petroleum that with certainty can be said to 

have been found so far in a given country is the sum of the 

cumulative production plus the proven reserves. The expected 

value from discovered fields in somewhat larger. For this purpose I have introduced the concept of EVRD = Expected Value of 

Recoverable Discoveries, defined as: EVRD = cumulative production + (R2 ).

Finally, the difference between the "recoverable resources" and 

the sum (cumulative production+expanded proven reserves) is 

the undiscovered recoverable resources (R3 ). Hence an estimation 

of Rs involves an estimation of the recoverable resources.

HOW TO APPRAISE THE PETROLEUM RESOURCE BASE

The issue underlying the sudden increase of oil prices is the 

realization that the petroleum resources would be depleted within 

a few decades. Yet how to appraise the extent of the remaining 

petroleum resources is a source of confusion. For long-range 

economic planning it would be useful to have rather accurate 

estimates of the total amount of recoverable oil in a given 

country. But because of the high degree of unpredictability of 

the actual location of petroleum deposits and because of technological limitations in the search techniques, it is not economically viable nor technically possible to discover prior to development all the fields in the remaining resources.

Therefore, to appraise the long-range supply of oil and gas 

we need to do more than merely project from present trends. 

First, one should estimate the magnitude of the resource base, 

regardless of economics and uncertainty of discovery. Then one 

should subdivide the resource base according to various intervals 

of unit costs, in increasing order from present levels. Future 

technological developments or changed market conditions would 

allow the exploitation of certain resources which currently are 

uneconomical. Secondly, the resource base should be subdivided 

according to certainty of occurrence. Improvement of explora-
PETROLEUM 17

tion techniques and increasing knowledge of actual geologic conditions would allow incorporating into the available supply some 

resources whose existence now is considered uncertain. Such 

a conceptual framework for the long-range appraisal of resources 

has already been proposed by McKelvey (1972). It provides a 

much more meaningful basis for long-range forecasts than before.

The language of mathematical statistics is required to define 

more rigorously the problem of appraisal of petroleum resources. 

The recoverable reserves for one fully developed oil field can be 

estimated with a relatively great accuracy (say within 25 percent) ; but the estimation for a new field, a petroleum district, a 

sedimentary basin, one nation, or the earth are exercises of 

increasing difficulty and with correspondingly wider ranges of 

uncertainty. A few basically original estimates have been made 

of the world petroleum resources, but there is a vast amount of 

published data which in fact amounts to "regurgitations" of 

somebody else's data, or somebody else's regurgitations of somebody else's, etc.

To carry the analysis a step further, one can pose the question 

of whether the amount of recoverable oil and gas of a given part 

of a region could be of a given magnitude. The answer can be 

given only in probabilistic terms. That is, we are faced here with 

the a priori probability density function of the recoverable amount 

of petroleum for an undrilled area. Such probability density function is really not known for an area such as the Argentina continental shelf, and it can only be surmised.

Conceptually, at a given time one could first classify the remaining resources R as to the probability of being found with 

continued exploration. This probability, say p, can be considered 

to be the product of the probability of existence of a field and of 

the probability of actually locating the undiscovered field. The 

resources that at a given time we know with certainty is a 

specific amount. Next, we could consider the resources that have 

a probability of eventually being found equal or greater than 80 

percent but smaller than 100 percent (certainty). In this manner 

one could conceptually proceed to classify the undiscovered resources as incremental quantities dR corresponding to ranges of 

the probability p, down to some low value of the probability, say 

5 to 10 percent. The resource base, say B, could be defined as the 

expected value of the resources, that is, the integration of the 

incremental resource amounts multiplied by the probability of 

finding them: B = fp dR. 2

-' This integral, which may be multiple, is to be carried over the parameters defining the 

position of dR.
18 LATIN AMERICA'S PETROLEUM PROSPECTS

Upon this first classification scheme we now have to impose 

the constraints that result from economics. Only a fraction of 

the segment of resources within a certain probability range can be 

considered to be economically recoverable, as per the conditions 

at the time when the assessment is made. In the future, the 

economic limits should widen, although not necessarily so, thus 

permitting a larger proportion of each segment to be exploitable.

Moreover, it would seem that the a priori probability density 

function is not narrow, and would definitely fall off only beyond 

the largest conceivable size of the recoverable amount of petroleum. That is, the probability density corresponding to a very 

small size of the recoverable oil, or gas, is significant and different 

from zero. Similarly, the probability density for, let us say, an 

amount of recoverable oil comparable on a unit area basis to a 

given known oil basin is significant and different from zero. As 

we do not know the shape of this probability density function 

and as it appears to be quite broad, it is not proper to give only 

one value for the amount of recoverable oil or gas, nor to expect 

that its standards deviation is a small fraction of the magnitude 

of the recoverable amount. As a first approximation, a uniform, 

or flat, probability density function could be taken for the petroleum estimates of an unexplored area. To give one figure for the 

petroleum resources of an unexplored area seems to be a futile 

undertaking.

Although the above scheme might appear to be conceptually 

clear, it is operationally very difficult. Below a certain uncertainty 

value, say 60 percent, the situation becomes highly speculative. 

There is very little basis on which to construct the actual scheme. 

And yet the largest expected contribution to B should come from 

resources with low probabilities of eventually being found. One 

could strive, however, to gradually perfect such a picture, considering the past record of discovery as a basis for estimating 

parameters of theoretical statistical models.

Perhaps one of the most perverse effects of the conceptual 

difficulties of petroleum resource assessment is the accuracy delusion. By that I mean the misconception that published figures 

for undiscovered resources have a somewhat narrow distribution 

function, that is, that the possible values form a gaussian distribution about the published figure with not too great a standard 

deviation, say 20 percent. For new tracts of territory, as exemplified by the continental shelves, it is not possible yet to provide 

such a gaussian distribution. A team of company specialists might 

agree among themselves on a "most probable" value, but from
PETROLEUM 19

team to team the "most probable value" will be found to vary 

substantially. The wide scatter observed in bids for offshore 

petroleum leases can well be attributed to this effect.

A better approximation to the underlying uncertainty function 

of resource estimates than the gaussian curve of the accuracy 

delusion is a modified uniform distribution function. It would extend with uniform probability from zero up to a resource amount 

somewhat greater than an amount corresponding to the richest 

known similar tract elsewhere, and then would drop rapidly to 

zero probability for larger resource amounts. By analogy with 

other tracts and from knowledge on adjoining areas one might 

justify modifying the uniform distribution on the low side also, 

that is, to drop quickly to zero probability for resource amounts 

smaller than a certain amount.

To appraise the petroleum resource potential of new tracts of 

territory, one should consider the basic scheme (table 7) which 

underlies petroleum resource exploration and development. After 

the sedimentary basins have been identified, a pre-drilling potential estimate is made based on factors listed in table 7.

TABLE 7. Stages in petroleum resource development

Geological and geophysical exploration

Existence of sedimentary basins ^ Yes No > Out

V 

Pre-drilling information:

Area of basins

Maximum thicknesses sediments

Type of sediments

Existence of structural traps

Existence of stratigraphic traps

Reconstruction of geologic history

Oil or gas seeps

Adjoining petroleum provinces

Pre-drilling potential (End of first cycle of appraisal) 

Exploratory drilling campaign

Post-drilling estimate of petroleum potential (End of second cycle of appraisal) 

Further geological and geophysical work 

Further drilling 

Development of oil potential

The estimated magnitude of the resource base, and its subdivision according to economics and degree of uncertainty in finding, sets targets for long-range petroleum exploration. In this we 

are not restricted to the high degree of certainty required by 

short-range considerations. This is because in the exploration of 

large unknown areas the plot unfolds as the exploration proceeds.

THE DRILLING FINDING RATE

The density of drilling, that is, the number of wells drilled per 

square mile of prospective area, is a useful indicator of what
20 LATIN AMERICA'S PETROLEUM PROSPECTS

needs to be done in young petroleum provinces, as in most of 

Latin America. Because of this it is necessary to review the 

relationship between wells drilled and petroleum found. Total 

footage is a measure of the amount of drilling.

A common assumption is that the average amount of proven 

reserve found each year is proportional to the amount of drilling 

in that year. Moreover, it is generally assumed that this finding 

rate, in barrels of oil or millions of cubic feet of gas per foot, decreases as the cumulative drilling increases. Offhand this appears 

to be a reasonable assumption.

Why should the finding rate decrease steadily as the cumulative drilling increases? It cannot be simply because the oil resources in a region are being depleted as the exploratory drilling 

increases. For it could happen that the finding rate remained constant or even increased during most of the exploratory phase of 

a region and then dropped rapidly as the limits of the resource 

base are finally approached.

It has been claimed that the finding rate should decrease because the larger fields would be discovered first. Of course this 

is what one would like to do, but the record of exploration in 

basin after basin reveals that this is not so. The discovery of 

giant fields typically occurs some 30 years after exploration begins in a region. And there does not appear to be any "pickling 

effect" to thus justify a decrease of the finding rate.

Maximum depth of drilling has been increasing worldwide. For 

given basins and time lapses of 10-20 years, the average drilling 

depth may show a trend of increase. This would introduce a decreasing trend in the finding rate with time. The year-to-year 

fluctuations of the finding rate, however, can be considerably 

larger than the effect per year of this basic trend.

An exploratory well aims at a very specific target, which has 

been selected among undrilled unrecognized targets on the basis 

of prior data obtained in a region plus the specific geological and 

geophysical surveys in the particular prospect. The various targets that exist in the basin may be grouped into various categories, such as folded anticlines, fault traps, reefs, domes over 

salt domes, pinch outs, etc. Moreover, the geologic definition of the 

targets in each category could be quite specific.

When the petroleum industry in a given basin is pursuing a 

given "play," in fact it would be running after targets in one of 

these categories. Before drilling, the actual existence of petroleum 

in one of these targets can only be ascertained within a certain
PETROLEUM 21

probability even after consideration of all the information that 

can be established prior to drilling. One could say, for example, 

that one out of four structures of a certain type on a certain part 

of a basin would contain oil. Moreover the magnitude of the accumulation would be mainly determined by the category itself, the 

actual size being almost unpredictable.

In this manner, the statistical success of drilling would be about 

the same almost to the very end of the play, except for the effect 

of the enhancement of knowledge because of interaction with previously obtained data. One could thus describe the outcome, in say 

barrels of oil or in millions of cubic feet of gas found per foot 

drilled, as a random sample from normal distribution, having a 

certain mean and a certain variance which characterize the play. 

When several plays are being pursued, the outcome would consist 

of random samplings from the various normal distribution corresponding to each group.

In none of these models would there be a decreasing finding rate 

as a normal situation. The exploration would reach the limits of 

the resource with little warning signals on the finding rate, and 

the bottom would be hit rather unexpectedly.

An analogy here may help to visualize the problem. Let us suppose an experienced hunter is hunting rabbits with a shotgun in 

a large enclosed field. Let us further assume that there are 20 

rabbits initially in the field and that the hunter requires 3 shots 

per rabbit, as per his early experience in similar fields. Then one 

would expect that on the average he will require three shots per 

rabbit beginning with the first one he downs and ending with the 

very last rabbit. But in the case of a series of exploratory wells 

in a given region, the aim could improve. This is because of the 

enhancement of the geologic picture as the data from an increasing number of wells and exploration surveys becomes available.

A quantitative assessment of the role of a finding rate, which is 

a function of the cumulative drilling, reveals that the finding rate 

plays a major role in defining the supply curve for petroleum. A 

decreasing finding rate, even a mild linear decrease with cumulative drilling, imposes a definite roof (an asymptotic value) to the 

supply curve. No matter how high the price would go, the supply 

would not go above it. As the price increases, the supply increases 

at a more and more sluggish pace. Thus the assumption that in 

general the finding rate is a decreasing function of cumulative 

drilling seems to be spurious, sustained neither by the historical 

data nor by consideration of the petroleum search game.
22 LATIN AMERICA'S PETROLEUM PROSPECTS 

THE IMPENDING WORLDWIDE DEPLETION OF PETROLEUM RESOURCES

Some of the best petroleum-resource estimates available are 

those made by petroleum companies which have farflung exploration activities and which have maintained activities in many 

countries for several years. Such companies have had or have obtained access to data gathered in various exploration and development campaigns in sedimentary basins throughout the world. 

Some of these companies have made it a practice to send small 

teams of geologists to gather the data and to sense the course of 

petroleum events from time to time so as to update their appraisals of the various basins. These companies try to examine all 

basins that may have an impact on their worldwide activities, and 

not merely those in which they have carried operations by themselves. Such petroleum resource estimates are thereby based on 

actual exploration data, and not merely on quotations from published literature or extrapolations from aggregate published figures.

A difficulty is that petroleum companies in the best positions to 

know have been reluctant to reveal the extent of their knowledge. 

But from time to time a comprehensive assessment of petroleum 

resources does appear from inside one of these companies. As an 

example, I would like to mention the estimates given by K. 0. 

Emery 3 and stated to be based mainly on data gathered by the 

Mobil Oil Co. For the world petroleum recoverable resources, he 

gives the figure of 217 XlO9 metric tons (1,365 billion bbl), a 

figure which obviously must have a wide margin of error. But for 

the sake of argument, let me accept it. Now, world demand for 

1971 was 2.393XlO9 metric tons. If world demand were to increase 

at 5 percent cumulative, then the above-mentioned world recoverable resources would be completely exhausted by the year 2008. 

Despite the fact that this is a mere exercise, it does indicate the 

rather impending depletion of oil resources. Even if the figure for 

world recoverable resources were five times greater than that 

given by Emery, the depletion would be postponed only to 2045.

On the other hand, by reviewing the overall situation independently, I have arrived at a somewhat larger world potential. 

For this, I considered certain best explored areas in the world as 

benchmarks. Thus I have estimated that the ultimate petroleum 

recovery (EUR) for the world is between 2,600 to 6,500 billion 

bbl of oil and 13,000 to 34,000 trillion (that is 1012 ) cu ft of gas. 

Of these amounts, about 305 billion bbl of oil and 741 trillion cu

:> K. O. Emery, 1973, Resources of fossil fuels, unpublished report to U.S. National Research Council.
PETROLEUM 23

ft of gas had been produced by the end of 1973. Moreover, by 

allowing for the eventual discovery of Middle East-size accumulations, one should increase the above figures. The expanded reserves 

of the Middle East are 595 billion bbl of oil and 612 trillion cu ft 

of gas, and the corresponding EUIT's can be surmised to be at most 

equal to a few times these amounts. Yet even with the above 

larger estimates for the world EUR's, one can predict a depletion 

of the petroleum resources within several decades if demand continues to grow at just a few percent per year.

LATIN AMERICA AND PETROLEUM

THE OIL PRICE SQUEEZE AND LATIN AMERICA

The current great public concern with energy issues is caused 

by the drastic increase of the crude oil prices imposed by the 

OPEC organization on December 23, 1973. F.o.b. market prices of 

Middle East crude were then increased from a level of about $2.20 

per barrel in January 1973 to about $7.65 per barrel in January 

1974.' After consideration of the various excise taxes imposed by 

consumer countries on oil products (gasoline taxes, import taxes, 

other use taxes) the effective cost per barrel of crude to consumer 

has been raised from a range of $5.70-$8.90 per barrel to $14.85- 

$23.15 per barrel (table 8). The lower of these limits refers to a 

level of excise taxes of 30 percent and the higher to a level of 70 

percent. The drastic price increase demanded by the producing 

countries and the existence of the substantial excise taxes on consumption are feasible because of the large consumer surplus in 

the demand curve for petroleum products. It may be said that the 

consumer countries's excise taxes on petroleum products are an 

attempt to preempt this consumer surplus.

The schemes for oil-revenue sharing adopted by oil exporting 

countries starts with a reference price per barrel. Ecuador, for 

example (table 9), established in January 1974 a reference price 

of $13.70 per barrel, whereby it would collect $9.55 per barrel as 

royalties, export tax, income tax, and workers share. The resulting f.o.b. cost, ex-producing companies profit, with this scheme 

would be $10.06 per barrel. At the foreseen rate of production, 

estimated at 84 million barrels per year, Ecuador's total share 

 would be about $802 million per year.

To gauge the oil balance of payments position of the various L. A. 

countries,one must first consider the net physical deficit (or sur1 Posted price Saudi Arabian liffht crude was increased from $2.591 to $11.(55 in same 

period (table 10).
24 LATIN AMERICA'S PETROLEUM PROSPECTS

TABLE 8. Price structure of Middle East crude in dollars per barrel an

estimate

January 1973 December 23, 1973

Production cost ______________ $0.10 $0.10 

Company profit ______________ .55 .55 

Country "take" ______________ 1.55 7.00 

F.o.b. market price _________________ 2.20 7.65 

Tanker transportation ________________ 1.20 1.20 

Impact of consumer country

gasoline excise taxes 1 ____________ 2.30-5.50 s 6.00-14.30 3 

Effective dollars per barrel

to consumer __________________ 5.70-8.90 14.85-23.15 

Country "take" ____________________ 1.55 7.00 

Consumer country tax ____________ 2.30-5.50_______15-23

1 A yield of 21 gallons gasoline per barrel of crude assumed.

- Gasoline excise rates of 30 to 70 percent assumed.

" Product price increases in proportion to crude c.i.f. price assumed.

TABLE 9. Ecuador's oil revenue sharing in dollars per barrel an estimate

Reference price (January 1974)

Production cost _____ __ ______ $0.21

Pipeline tariff ________________________ .30 

Royalties __________________________ 2.26 

Export tax ___________________________ 2.06

Gross revenue:

Income tax __________________________ $3.90 

Workers share ________________________ 1.33

Companies net revenue: 

Country's share:

On 84x10" bbl/yr: $802.2x10°

$13.70

$ 4.83 

$ 8.87

$ 5.23 

$ 3.64 

$ 9.55

TABLE 10. Latin American petroleum exchange balance, as to requirements

of each national economy

Petroleumdeficit countriesCrude oil ' 

(million barrels)

Million dollars, 

1974 estimates

Inter-American International

Development Monetary

Bank - Fund -

V

Cuba _______ . Mexico _ ______ .

Chile _ __ _____.

Uruguay _ _ _ _ .

Dominican Republic 

Peru ___ _____ _.

Panama ___ __.

Guatemala ___ __.

Costa Rica ___ . Nicaragua _____ _.

Guyana _ _____ . El Salvador ___ . Honduras __________

Paraguay

Haiti ________ .

.__ 2 -200 (1974)

 53 (estimate)

a 40 HQ7/n

.__ 2 -32 (1973)

.__ °-28 (1973)

.__ °-13 (1972)

.__ a -13 (1970-72 average)

__ 2 -12 (1974) 

.__ 2 -12 (1974)

___ 78 -7.4 (1973)

___ a -6.9 (1973)

.__ °-4.1 (1974)

.__ 2 -4 (1974)

__ "-3.8 (1972)

__ °-3.6 (1972)

.__ 8 -3.5 (1973)

.__ »-1.7 (1974)

_ 2 -1.3 (est. 1974)

2,105

J (-636)

-450

375

400

-157

-155

-150 

-190

'-97

-96

-60

-43

'(-46)

-51

-47

-24

-12

-3,000

333

-467

-455

-177

176

-140 

-164

-122

84

58

-53

-53

-41

-32

13

Total ______ -447.9 -5,094
LATIN AMERICA AND PETROLEUM 25

TABLE 10. Latin American petroleum exchange balance, as to requirements 

of each national economy 'Continued

Petroleumsurplus countries

Venezuela _____________________

Ecuador _____________ _

Trinidad and Tobago __ ___ _

Bolivia ______ ___ _ ____ _

Colombia _ _ _ _ _ _ _ _ _ . Total ____________

Overall balance (positive) ____ __

frndo oil 10 Million dollars, 

i MIY. £ 1^ 1974, Inter-American (million barrels) Development Bank *

____ B 1,137 (1973)

__ 3 70 (1974)

__ 78 15.4 (1973)

__ 3 14.3 (1974)

Small

1,237

__ 789

13,167 

685 

102 

200 

Small

14,244

9,150

1 Crude imports crude exports stock changes and losses + products balance; negative.

2 Div. Country Studies, Dept. Economic and Social Development, Inter-American Development Bank, 1974, Impacto de la crisis del petroleo en America Latina en 1974, unpub. report. 

 'Robichek (1974). 

4 Dollar estimate based on an assumed cost of $12 per barrel.

6 U.S. Bureau of Mines, unpub. data. 

"U.S. Bureau of Mines (1974).

7 Inter-American Development Bank, oral commun.

8 Excludes bunkers.

0 Note that figures added are not for same year.

10 Crude production less domestic demand.

plus) in. barrels of oil of each country. This position fluctuates 

from year to year, aside from time trends.

The latest readily available figures on the L.A. petroleum exchange balance are shown in table 10. All L.A. countries, other 

than Venezuela, Ecuador, Trinidad and Tobago, Bolivia, and 

Colombia, have a net deficit. The largest deficit (about 200 million 

bbl) corresponds to Brazil, followed by Cuba (about 53 million 

bbl). The total deficit of all the L.A. deficit countries is about 448 

million bbl). On the other hand, the total surplus of the surplus 

countries is about 1,237 million bbl. In 1971 the oil balance of payments amounted to a deficit of about $923 million for the deficit 

countries, and to a surplus of about $3,071 million for the surplus 

countries. So the total L.A. oil exchange balance was a surplus of 

about $2,148 million.

The situation has changed drastically by the price increases 

announced in January 1974, as shown by the following figures:

Surplus: 789.1 x 10° bbl. crude oil

At $2.80/bbl.

C.i.f. value is $2,209.5 billion.

At an average of $11.60/bbl.

C.i.f. value if $9,150 billion.

1971

1974

The L.A. surplus can now be projected at $9,150 million, but 

the deficit of the deficit countries would increase from aibout $923 

million to about $5,094 million. The full impact of the new prices 

has not been felt yet because of the delaying effect of long-term 

purchase agreements. But as these agreements expire, the effect 

of the new price structure will be severe.
26 LATIN AMERICA'S PETROLEUM PROSPECTS 

LATIN AMERICA'S PETROLEUM POTENTIAL

To appraise the L.A. petroleum potential we can use the following basic factors:

1. Magnitude of the prospective areas.

2. Total number of wells and footage which has been drilled.

3. Cumulative production plus proven* reserves to date.

4. Comparison with certain benchmark regions.

MAGNITUDE OF THE PROSPECTIVE AREAS

My estimates for the major regions of the world, including continental shelves down to a depth of 600 feet, having sedimentary 

areas with a petroleum potential are as follows:

Square miles

Developed economies, except U.S.S.R. _______- 7,916,000

Latin America _____________________ 4,890,000 (19 percent)

Africa and Madagascar ________________ 4,722,000

U.S.S.R. __________________________ 3,480,000

South and Southeast Asia _______________ 2,993,000

Middle East ______________________ 1,200,000

Peoples Republic of China ______________ 900,000

26,101,000

Thus Latin America holds about 19 percent of the world's prospective area for petroleum; yet it currently produces only 9 percent of the total oil.

The distribution of the prospective acreage between the various 

Latin American countries, for onshore and offshore, is shown in 

table 11. :

TABLE 11. Latin America's prospective petroleum area \

Country

Brazil _ ___ __ _ _ _____

Argentina _ _ ___ _ __ __ __ _

Mexico ___ _____ _ _____

Peru ____ __________ _

Colombia _ _____ _ ___________

Venezuela ___ ________ _

Bolivia ____ ______ _

Paraguay

Ecuador _ _ ________ __ _____

Chile _ _________ __ _

Nicaragua ______ ______ _

Honduras _________ __ __ ___

Uruguay

Guatemala __ _ _ ___ _ ______

Panama ____ ____ _________

Onshore

____ 1,480

___ __ 590

305

_____ _ 400

_ ___ 350

_______ 141

_ __ 254

_______ 78

60

_______ 58

25

_ ____ 30

_______ 31

33.5

__ __ 14.5

Prospective area . 

(103 sq mi) , Offshore |

240

215 1

170 '

9.5 i

9fi 1

33 i

i

i

18 '

5

28 !

20.5;

17 : 4.8 ~

22
LATIN AMERICA AND PETROLEUM 27 

EXTENT OF DRILLING FOR PETROLEUM

The extent of the past drilling effort in Latin America up to 

1972 can be judged by the following comparison:

Region or country fflweU* Wells/an mi

USA, conterminous 48 States __________ 2,222,300 1.17

U.S.S.R. ______________________ ~530,000 0.15

Latin America _____________________________ «*100,000 0.02

| Argentina, Mexico, Venezuela ________ 59,000 0.05

1 Other Latin America ____________ «=41,000 0.01

Therefore in much of Latin America the drilling density is two 

orders of magnitude smaller than what has been achieved in the 

United States. Even in the aggregate of Argentina, Mexico, and 

Venezuela which are the relatively more densely drilled countries 

in the region the drilling density is only about 4 percent of that 

achieved in the United States.

Consolidated drilling statistics for petroleum are not readily 

available. Estimates that I and Diane Nielsen have made for the 

various Latin American countries are given in table 12. The notes 

to the table indicate the period covered, data gaps, and other explanations.

The yearly Foreign Development issues of the "Bulletin of the 

American Association of Petroleum Geologists" were used to extract the following information.

1. Number of exploratory wells completed, including stratigraphic, structural, and core holes deeper than 2,000 feet.

2. Successful number of exploratory wells.

3. Total number of wells completed, that is, development plus 

exploratory.

4. Total footage drilled during each year in wells completed, plus 

drilling footage during the year in wells being drilled at the 

end of the year.

Outpost or stepout wells were counted as either exploratory or 

development, when so classified by the rapporteur in the Bulletin; 

when not so classified we have counted them as development wells.

When the data had small gaps, estimates have been made for: 

a) the total footage drilled in a missing gap by interpolating an 

appropriate average well depth and multiplying by the total number of wells in the gap, and b) estimates for the number of successful exploratory wells have been made by interpolating an appropriate average success ratio if the success ratio did not fluctuate too much.
28 LATIN AMERICA'S PETROLEUM PROSPECTS

TABLE 12. Resume of petroleum drilling in Latin America

[Average depth of wells is 4,263 feet. Exploratory wells constitute 14 percent of total wells; 

35 percent of exploratory wells were successful. Underlined numbers indicate overall cumulative values up to 1972]

Country

Brazil _______________

Argentina _ _ _____ . Mexico __ ___ .

Peru _ __ ______ . Colombia __ _ __ __.

Venezuela _ _ _____ . Bolivia _ _ __ ____ .

Paraguay _ ___ ____.

Ecuador __ ___ __

Chile _____ ____ .

Nicaragua ___ _ _ __ _ . Honduras _______ .

Uruguay _ ____

Guatemala _ __ _ __ . Panama _________ __ .

Surinam _ _____ _ .

Guyana _ ______ .

Cuba 4 _ ___ __ ___ .

French Guiana _____ __.

Dominican Republic * _ .

Jamaica _ ____ ___.

Belize ___ _________ .

Trinidad and Tobago __ .

El Salvador _ __ _ __

Haiti __ ___ __ _ _ .

Costa Rica

Barbados _ __ _ _ .

Cumulative sums _.

covered

1949-72

. 1951-72

._ 1949-72

._ 1948-72

._ ^1972

. 1949-72

. 1949-72

._ 1949-72

__ 1949-72

._ 1945-72

._ 1949-72

. 1949-72

._ ^1972

._ 1949-72

._ 1949-72

. 1949-72

._ 1949-72

. 1949-64

._ ^1972

._ 1949-70

. 1949-72

._ 1949-72

._ 1949-72

._ -=1972

._ 1949-72

^1972

._ 1950-71

Exploratory

1 1,441

1,725

2,662

734

2,655

22

309

353

20

6

17

12

33

9

>201

*18

8

28 14 515

0

3

19

17

11,958

explorX

"303

igOl

i£92

i 250

1 1,401

X 72

166

78

0

0

0

>H

0

14 230

0

0

6

4,132

Wells

y Total

3,680

20,644

16,554

1 9,700

3,857

28,571

765

29

2,970

1,520

20

6

17

12

33

9

>524

i ig

8

28

1 8,450

0

3

19

19

91,962

Footage 

drilled

^16,130,000

1 4 68,543,000

1 71,805,000

1 4 20,200,000

1 18,755,000

1 4 118,900,000

14 4,847,000

76,082

4 4,887,193

1 10,488,000

>2 178,912

56,277

>3 68,410

>2 65,484

1 2 102,148

48,336

>1,712,723

>44,419

>3 29,581

>3 94,987

25,266,001

0

>2 12,930

131,103

3 149,760

362,592,346

1 Estimate made by myself and D. Nielsen by filling in the gaps in the data for the 

period covered.

- One-year data gap. 

:1 Two-year data gap. 

1 Several-years data gap.

OUTCOME OF PAST PETROLEUM DEVELOPMENT

The outcome of past efforts may be judged by the amount of 

petroleum which has been found per unit of prospective area. 

This can be estimated by the expected value of recoverable discoveries (EVRD) per unit area, which I have defined before. 

My estimates for major world regions are as follows:

EVRD/sq mi

Oil

(barrels)

Gas 

(10s cubic feet)

Middle East _____________. 

USA, conterminous 48 States ____. 

U.S.S.R. ___________-___ _- 

Africa and Madagascar ______ 

Western Europe _________________

Latin America _______________

Argentina-Mexico-Venezuela 

South and Southeast Asia, mainland

496,000

101,600

49,500

30,700

27,000

24,200

56,700

2,500

510

556

453

92

207

52

96

60
LATIN AMERICA AND PETROLEUM 29

The fact that the EVRD per square mile of prospective area for 

Latin America is rather low is a direct consequence of the limited 

amount of drilling. Most of the EUR is in the ground and undiscovered.

Cumulative production plus proven reserves through 1971 are 

shown in table 13 for the various L.A. countries.

The Latin American petroleum fields 'are of average size by 

world standards; only a few giant accumulations have been discovered so far. The largest oil fields are: Poza Rica, NaranjosCerro Azul, Arenque, Ebano-Panuco in Mexico; Lama, Lamar, 

Boscan, La Paz, and Quiriquire in Venezuela; Comodoro Rivadavia 

in Argentina; and La Brea-Parinas-Talara in Peru. All of these 

had EUR's of 1 billion bbl of oil or more.

For further analysis, one can set three subgroups (1) Venezuela, 

Colombia, Trinidad and Tobago, (2) Mexico and Argentina, and 

(3) all the remaining Latin American countries, as shown in table 

14. The first subgroup owes its petroleum development essentially 

to the efforts of international petroleum companies. The second 

subgroup owes its major petroleum development to the efforts of 

national petroleum companies. The countries in the third subgroup 

are, until now, smaller producers or have both international petroleum companies and national companies operating.

The first subgroup accounts for 69 percent of the oil and 61 

percent of the gas, as cumulative production plus proven reserves, 

whereas it possesses only 12 percent of the prospective area. Nonproducer countries account for 10 percent of the total prospective 

area.

COMPARISON WITH CERTAIN BENCHMARK AREAS

I have selected three areas as benchmarks in order to estimate 

the EUR for Latin American. These benchmark areas are: (1) 

conterminous USA, (2) U.S.S.R., and (3) Middle East. From a 

study of the range of estimates for the conterminous USA and the 

U.S.S.R., I have adopted a range of 100,000-250,000 bbl of oil and 

of 500-1,300 million cu ft of gas per sq mi of prospective area as 

being indicative of large continental units. These values are an 

order of magnitude lower than those for the Middle East.

ESTIMATES OF EUR'S FOR LATIN AMERICA

In the manner described above I have estimated that the EUR's 

for Latin America are (490 to 1,225) xlO9 bbl of oil, and (2,450 

to 6,370) xlO12 cu ft of gas.
30 LATIN AMERICA'S PETROLEUM PROSPECTS

The above figures do not include any allowance for the occurrence of giant-size accumulations like the Middle East. These cannot be excluded; moreover, I suspect that the Caribbean area and 

the Argentine continental shelf are two regions where they could 

occur.

TABLE 13. Petroleum outcome for Latin America

[N.a.=not available]

Country

Cumulative production plus 

j>roven reserves to 1971 * 

Oil Gas 

(10° barrels) (109 cubic feet)

Brazil ____________ _ _

Argentina - _ - --- _

Mexico _ _ _ ___ _ _ _

Peru _____ ____ _ ______

Colombia ____ _ _ ___ ___

Venezuela _ _ __ ___ _

Bolivia _______ ___ _ _

Ecuador ______ _ _ _

Chile ________________

Cuba _ ___ -_ ______

Trinidad and Tobago ___ _

Barbados _ _ ___ ____ _ _

Cumulatitve sums _ ___ __ _

_____ 1,648

_ _ 4,811

7,941

1,394

_____ 3,393

__ 43,908

_ _ _ 381

____ 6,170

_____ 319

_____ N.a.

__ __ _ 2,984

_____ K-)

_____ 72,950

1,344

10,424

20,687

4,314

5,408

70,380

5,357

4,533

5,762

N.a.

6,574

0< + )

134,783

1 Albers and others (1973).

TABLE 14. Drilling and petroleum outcome for Latin American groups of

nations

Group Total 

wells '

Cumulative production plus proven 

reserves to 1971 2

Oil

(10« barrels)

Gas

(10s cubic feet)

A. Venezuela,

Colombia,

Trinidad and

Tobago _____ 40,878 

B. Mexico and

Argentina ___ 37,198 

C. All the other

Latin American

countries ___ 3 >13,866

50,285 (69 percent) 

12,752 (17 percent)

9,913 (14 percent)

=100,000 72,950

82,362 (61 percent) 

31,111 (23 percent)

21,310 (16 percent) 

134,783

1 Compiled from table 12.

-Albers and others (1973).

:s Some data, mostly prior to 1949, not included.

When reviewing the petroleum opportunities throughout Latin 

America it becomes apparent that outstanding possibilities are 

met in the Argentine continental shelf.
LATIN AMERICA AND PETROLEUM 31

This shelf, down to 200-m depth, has an area of 306,500 sq mi. 

Five sedimentary basins have already been identified there: 

Salado, Bahia Blanca, San Jorge, Magallanes, and Malvinas. The 

maximum thickness of sediments in these basins, according to a 

1960 survey by the Lament Geological Observatories, would be 

respectively, less than 5 km, 4-5 km, about 4 km, about 5 km, and 

possibly 7 km. Two of the basins San Jorge and Magallanes, are 

seaward continuations of important onshore petroleum-producing 

basins.

The Argentine continental shelf 'may be compared with the Gulf 

Coast basin and with the U.S. Atlantic continental shelf. For the 

Atlantic continental shelf of the United States, figures in the range 

of 10-50 billion bbl of potentially recoverable oil resources have 

been published by the U.S. Geological Survey. Taking into consideration the facts that the area of the Argentine continental 

shelf is four times larger than the U.S. shelf, that the thicknesses 

of sediments is greater in Argentina, and that two of the Argentine basins produce onshore, one would be justified in estimating 

for the Argentine continental shelf an upper bound for the potential at least four times as great as that for the U.S. Atlantic 

continental shelf.

HOW TO DEVELOP THE LATIN AMERICAN PETROLEUM POTENTIAL

From the point of view of resource development, one should 

consider which alternatives are available to the L.A. developing 

nations to carry out petroleum exploration, namely: bilateral foreign assistance, international petroleum companies, national oil 

companies, and private entrepreneurs. I will discuss some of the 

issues involved, without advocating any particular solution.

Foreign participation in petroleum development often raises 

delicate issues both in a host country and abroad. The factors 

involved are many, most of them being subject to various interpretations. The main issues appear to be: form of ownership and 

control, fair participation in the profits, backward and forward 

linkages of the petroleum activity, and compatibility of the rate 

of development and production and marketing policy with the 

interests of the host country .

The extent of bilateral assistance would depend on the circumstances of each nation and the tasks to be accomplished. For countries with no know-how and limited resources, financial aid to 

undertake the basic geologic and geophysical reconnaissance may 

be required. These basic surveys can provide a basis for negotiation and for formulating adequate leasing policy. A few million
32

dollars per 100,000 square miles of prospective area would be 

enough for this initial task. To continue on with exploration, involving wildcat drilling, substantially larger sums are required. 

They are of the order of tens of million dollars per 10,000 square 

miles of prospective area. The assessment of an area like the Argentine continental shelf, on the other hand, is an even more vast 

undertaking; roughly $500 million may be required, but even if 

the results were unsuccessful, one would still find some petroleum 

companies willing to continue exploring.

The assistance of foreign companies and private entrepreneurs 

may be engaged in various ways: concession, service contract, 

technical assistance, partnership in mixed companies, financing. 

Exploration and development are the more sensitive sectors for 

foreign participation, whereas it has been more readily accepted 

in pipeline transportation, refining, petrochemicals, and marketing.

Mixed enterprises and service contracts have the advantage of 

readily bringing to bear technical, managerial, and financial capability. The contract terms, however, are difficult to work out so 

that no subsequent difficulties arise. In a mixed enterprise a foreign (government or private) entity may join with a host-country government entity. The initial exploratory risk may be entirely absorbed by the foreign entity. All the capital may be contributed by the foreign entity, with a formula for sharing in the 

profits and for capital contributions by the government entity 

depending on the outcome of the exploration.

Service contracts have been awarded in some countries to undertake programs of: (1) exploration and development, (2) exploration, (3) development, and (4) drilling. The contractor may 

be paid outright, or by means of a share of the petroleum production. But it is difficult to foresee in preparing a service contract 

all subsequent exploration and development issues, to consider all 

cost contingencies and changed marketing conditions. Service contracts have been used in some cases with success; in others they 

have ended in controversy. They should be undertaken only when 

a host government is fully aware of the issues and is ably represented in the negotiations. Such contracts ought to be comprehensive, followed by adequate public disclosure.

The underlying force of successful international petroleum corporations is a top-level small team of highly skilled petroleum 

executives, geologists, geophysicists, and petroleum engineers. For 

some of the prospective areas involved, only the skills of such a 

group could probably succeed in finding in a reasonable time the 

undiscovered petroleum accumulations. Concessions or service con-
LATIN AMERICA AND PETROLEUM 33

tracts are alternative means to engage this expertise. In other 

cases, only large international .petroleum companies may have the 

financial capability, and willingness, to risk the large amounts of 

risk capital that may be required and to readily bring to bear 

upon the assessment of a new territory skilled expertise with 

worldwide experience.

As for national petroleum companies, one should distinguish two 

quite different types.

The first type is a national company that has found its petroleum, and the second type is a national company that has acquired 

its current petroleum by nationalization of the assets of private 

international corporations. Some of the companies in this first type 

have been very to moderately successful. There are others in the 

first type of national companies which have had little success. On 

the other hand, the second type of national companies cannot yet 

claim to have demonstrated a petroleum-finding capability. If a 

country decides to use national enterprises for petroleum exploration, some mechanism must be found to provide radical changes of 

exploration strategy when failures predominate. This may be difficult in the context of political criticism, to endure a sustained effort or to acknowledge a protracted failure.

The U.S.S.R. provides another type of national petroleum undertaking. In the USSR's system there is a basic resource reconnaissance phase regional geology and geophysics and stratigraphic and core drilling which is followed by detailed exploration 

and development. The control of the first phase is tightly held by 

the top scientific organizations of the country. They appear to have 

done an excellent job of basin appraisal. The second phase is entrusted to operational bureaus. Only in a fully planned economy, 

having an effective upper technological and scientific echelon, 

could this system work, as it has in the USSR.

LATIN AMERICA'S ENERGY RESOURCE BASE

From a long-range point of view, the energy position of Latin 

America has to be judged in terms of its energy resource base. 

Yet, the published energy resource data seems to be utterly insufficient and to grossly underestimate the energy resource potential of Latin America.

To gage the extent of its energy resource base we can make a 

comparison with the United States, for which figures have been 

published on proven reserves, identified resources, and unidentified 

resources (table 15). The validity of such comparison is suggested
34 LATIN AMERICA'S PETROLEUM PROSPECTS

by the many geologic analogies between the frameworks of the 

North and South American continents. There is a close parallelism 

between cratonic areas, folded geosynclinal areas, marginal cordilleras, internal basins, and many other features. Moreover, the 

United States is only a part of North America. The area of Latin 

America is about twice that of the United States.

The similarities include a close parallelism between major 

mineral and petroleum occurrences. For instance, the petroleumproducing areas of the North Slope of Alaska may be matched 

with those in northern Venezuela. The petroleum-producing shelf 

of California may be matched to the producing shelf of Ecuador, 

Peru, and central Chile. The most important petroleum province 

in North America is the Gulf Coast, to which the Argentine continental shelf would be the corresponding unit in South America.

The proven reserve figures that have been published for oil, gas, 

oil shale, coal, and uranium for Latin America are only a small 

fraction of those for the United States. The discrepancy is even 

greater for identified and undiscovered resources. A few examples 

might suffice here. The figure for the identified oil resources for 

South America is 74 billion barrels, and no figure has been given 

for the undiscovered resources. For the United States, on the other 

hand, the figure of 290 billion barrels is given for the identified 

resources and 2,550 billion barrels for the undiscovered resources 

(Theobald and others, 1972).

For L.A. coal, the figure of 20 billion tons has been published 

for the identified resources and 10 billion tons for the undiscovered 

resources.

These figures seem to understimate the potential of Latin 

America by a factor of 100. We can mention just two basins, one 

in southern Chile and the other in Colombia, which indicate potential resources much greater than the sum of the figures of 

identified and undiscovered resources given for all of Latin 

America.

Analogy of geologic conditions and examination of the rationale 

used in forward-looking resource assessment, such as being carried out by the U.S. Geological Survey, would indicate that most of 

the published energy resource base figures on Latin America are 

worthless. As a new start, I believe one can presume that the 

energy resource base of Latin America is about twice that of the 

United States.
LATIN AMERICA'S ENERGY RESOURCE BASE 35 

TABLE 15. Latin American-United States energy data comparison

United States

Area (X10" km3) : of America Latin America

9.40 19.9

10" barrels

Oil: 

Proven reserves ___________

Other identified resources _ 

Undiscovered resources __

*52

1 290 

1 2,550

2 29

3 74 ( South America ) , 

? other countries?

1012 cubic feet

Gas:

Proven reserves __ ___ * 290 S 12 

Other identified resources _ 4 170 ? 

Undiscovered resources __ * 4,000 ?

10° barrel oil yield

Oil shale:

Identified resources ____ B 2,000 °800 

Undiscovered resources __ B 23,850 "41,200

10° barrels bitumen

Tar sands:

Identified resources _____ '29 7 1,200 (Venezuela, Colombia)

? others

10° metric tons

Coal:

Identified resources ____ 8 1,587 "20 (?) 

Undiscovered resources __ 8 1,637 ° 10 (?)

10" metric tons U3O8

Uranium:

Identified resources ____ 10 6,436 10 11.4 (Ar, Me) 

Undiscovered resources __ 10 8,382 ? others

1 Theobald, Schweinfurth, and Duncan (1972, p. 7). 

3 Statistical Office of the United Nations (1973).

3 K. O. Emery, 1973, Resources of fossil fuels, unpub. report to the U.S. National Research 

Council.

4 Theobald, Schweinfurth, and Duncan (1972, p. 9).

0 Theobald, Schweinfurth, and Duncan (1972, p. 26).

"Culbertson and Pitman (1973, p. 501).

'Cashion (1973, p. 101).

"Theobald, Schweinfurth, and Duncan (1972, p. 3).

"Averitt, 1973, p. 140.

'"Theobald, Schweinfurth, and Duncan (1972, p. 23-24).

LATIN AMERICA'S ENERGY OPTIONS

Many significant energy options appear open to the various 

L.A. countries. Immediate options are: hydroelectric expansion, 

import hydroelectricity, coal production, onshore petroleum resources, offshore petroleum resources, geothermal resources, nuclear energy, and solar energy. Midrange options are: coal liquefaction, coal gasification, shale oil, bituminous sands, solar energy, 

and nuclear energy. Some countries (Brazil, Chile, Argentina, 

Mexico, and Venezuela) have a wide variety of options. Most of 

the other countries have a more limited range of options either
36 LATIN AMERICA'S ENERGY OPTIONS

because of their resource base, stage of economic development, or 

absolute size of the economy. The most outstanding energy options 

of all those available appear to be: develop onshore petroleum resources (Bolivia, Peru, Colombia), develop offshore petroleum 

resources (Arge'ntina and Caribbean countries), coal liquefaction 

(Chile and Colombia), coal gasification (Chile and Colombia), 

shale oil (Brazil), and bituminous sands (Venezuela and Colombia).

Taken as a whole, Latin America appears to have a very strong 

energy resource base; individual countries, however, are exposed 

to short term and midterm energy crunches. Whether the potential becomes a reality hinges on economic, institutional, and political factors, rather on constraints of the resource base.

REFERENCES CITED

Albers, J. P., Carter, M. D., Clark, A. L., Coury, A. B., and Schweinfurth, S. 

P., 1973, Summary petroleum and selected mineral statistics for 120 

countries, including offshore areas: U.S. Geol. Survey Prof. Paper 817, 

49 p.

Averitt, Paul, 1973, Coal, in Brobst, D. A., and Pratt, W. P., eds., United 

States mineral resources: U.S. Geol. Survey Prof. Paper 820, p. 140.

Cashion, W. B., 1973, Bitumen-bearing rocks, in Brobst, D, A., and Pratt, 

W. P., eds., United States mineral resources: U.S. Geol. Survey Prof. 

Paper 820, p. 101.

Comision Economica para America Latina, 1973, La industria del petroleo en 

America Latina notas sobre su evolucion reciente y perspectivas: New 

York, United Nations, 165 p.

Culbertson, W. C., and Pitman, J. K., 1973, Oil shale, in Brobst, D. A., and 

Pratt, W. P., eds., United States mineral resources: U.S. Geol. Survey 

Prof. Paper 820, p. 501.

McKelvey, V. E., 1972, Mineral resource estimates and public policy: Am 

Scientist, v. 60, no. 1, p. 32-40.

Robichek, E. W., 1974, The payments impact of the oil crisis the case of 

Latin America: Finance and Development, v. 11, no. 4, p. 12-17.

Statistical Office of the United Nations, Department of Economic and Social 

Affairs, 1973, Statistical Yearbook 1972: New York, United Nations, 

850 p.

Theobald, P. K., Schweinfurth, S. P., and Duncan, D. C., 1972, Energy 

resources of the United States: U.S. Geol. Survey Circ. 650, 27 p.

United Nations Economic and Social Council, 1974, Latin America and the 

current energy problems: Economic Commission for Latin America and 

Latin American Institute for Economic and Social Planning ST/CEPAL/ 

Conf. 50/L. 2, p. 37.

U.S. Bureau of Mines, 1974, International petroleum annual 1972: Washington, D.C., Department of the Interior, 30 p.

World Bank Atlas, 1972: Washington, D.C., International Bank for Reconstruction and Development, 14 p.

World Bank Atlas, 1973: Washington, D.C., International Bank for Reconstruction and Development, 15 p.
TABLES 16-19
38 LATIN AMERICA'S ENERGY OPTIONS

TABLE 16. Nations of population 1 million or more ranked as per 1971 GNP

per capita 1

Rank

1

5

6

10

11 

15

16

20

21

25

26

30

31

35

36

40

41

45 

46

50

51

Country

United States __ __ _

Sweden __ __ _ _ __ __

Canada ____ _ ____

Switzerland _ _____ _ _

Denmark _ __ ______

France _______________

Federal Republic of

Germany ____________

Norway _ ___ 

Belgium ______ __

Australia ___ _ ___ _ __

Netherlands __________ 

Finland ____ ______ 

New Zealand __________ 

United Kingdom __ _ 

Austria ______________

Israel _ _ ____________ 

German Democratic

Republic __ _ _______

Japan __ ___ __ _____

Czechoslovakia __ ____

Italy _________________

Puerto Rico _ _________

Ireland __ ___ __ _

Libya _ _____ _____

U.S.S.R. _____________

Poland _ __ ______

Greece _ ___ ___ _

Argentina ______ _ ____

Singapore _____ ____ _

Hungary _____________

Spain _______________

Venezuela _ _ _ _ _ _

Trinidad and Tobago _ 

Hong Kong ___ ____ ___ 

Bulgaria __ _ _____

Panama _________ _

South Africa __ _ 

Chile _________ , __ _

Uruguay __ __________ 

Romania ____ _ _ _

Yugoslavia ____ ____

Portugal __ ___ _ 

Jamaica ___ ___ _______ 

Mexico ____ __ _ ___

Lebanon __________

Costa Rica _ _ __ ______ 

Saudi Arabia _ _ ____

Peru __ ___ __________

Brazil _ _________ __

Nicaragua __ ____

Iran __ ____ _ __ __

Republic of China _____

Dominican Republic __

$/cap

5,160

4,240

4,140

3,640

3,430

3,360

3,210

3,130 

2,960

2,870

2,620 

2,550 

2,470 

2,430 

2,200

2,190

2,190

2,130

2,120

1,860

1,830

1,510

1,450

1,400

1,350

1,250

1,230

1,200

1,200

1,100

1,060

940 

900 

820

820

810 

760 

750 

740

730

730 

720 

700

660

590 

540

480

480

460

450

450

430

430

Rank

55

56

60

61

65

66

70

71

75

76

80

81

85

86

90 

91

95

96

100

101

105

Country

Malaysia __ ____ ______

Guatemala _____ _ _ __

Zambia _____ _ _ __ _ __

Mongolia _ _ __ _ _ _ _ _

Angola _ ______ 

Colombia ___ _ _ _ ____

Iraq _______ __ _____

Algeria _ ___________

Turkey _______________

Ivory Coast ____ _ _

El Salvador ___________

Papua New Guinea _ - 

Tunisia _ _ __________ 

Rhodesia ____________ 

Democratic Republic

Ecuador _ ________ ___

Honduras ____ _ _______

Syria __ ___ _ __ ____

Republic of Korea ______

Mozambique ___ _ _ __ _

Paraguay ___ _ __ __ ___

Congo _ _______ _

Morocco _ ____ _ __

Jordan ____ ___ ______

Ghana _ ___ ________

Senegal ___ _ _________

Philippines _ __ _ _

Republic of Vietnam ___

Egypt ____ _ ____

Thailand _____________

Sierra Leone _ ___ _

Liberia _ __ _ __ __ 

Cameroon _____________ 

Bolivia _ ___________ _

Mauritania ____ _______

Peoples Republic of 

China __ ______ __ _ 

Kenya __ _____ _

Central African Republic 

Togo __ _ ___________

Malagasy Republic _____ 

Nigeria _ __ _ __ _

Pakistan _ _ __ ___

Uganda _ ___ _ 

Khmer Republic __ ___ 

Laos __ _______ __ _

Peoples Democratic

Republic of Yemen ___

Sudan _______ _____

Haiti _ ____ _____ _ __

India _________________

Tanzania __ _ __ __ _

Dahomev

$/cap

400

390

380

380

370

370

370

360

340 

330

320

320 

320 

320

310

310

300

290

290

280

280

270

270

260

250

250

240

230

220

210

210

210 

200 

190

170

160 

160

150 

150

140 

140

130

130 

130 

120

120

120

120

110

110

100

T&-U.S.GOVERNMENT PRINTING OFFICE: 1975 0-585-476/157
REFERENCES CITED 39

TABLE 16. Nations of population 1 million or more ranked as per 1971 GNP

per capita^ Continued

Rank Country $/cap Rank Country $/cap

106 Democratic Republic 115 Burma ___ ___ 80

of Vietnam ______ 100 116 Indonesia ________ 80

Sri Lanka ________ 100 Ethiopia _________ 80

Niger ___________ 100 Afghanistan _______ 80

Guinea __________ 90 Somalia _________ 70

110 Zaire ___________ 90 120 Bangladesh ________ 70

111 Malawi __________ 90 121 Upper Volta ______ 70

Nepal __________ 90 Mali ____________ 70

Arab Republic of Yemen 90 Burundi __ 60

Chad ___________ 80 124 Rwanda __________ 60

1 World Bank Atlas (1973).

TABLE 17. Basic conversion factors for energy calculations

1 BTU=252 cal.

1 joule=10' erg=0.2389 cal.

1 kWh=8.6xl05 cal=3,413 BTU.

1 barrel=42 U.S. gallons=0.15899 m3 .

Coal's heat of combustion assumed for coal equivalents ______ 6,880 cal/gr.

Oil's heat of combustion assumed for oil equivalents ______ 10,700 cal/gr. 

Calorific values equivalence: 1 kg coal <-> 0.64 kg oil.

TABLE 18. Heat equivalence factors

Tons, 

coal standard

United Nations coal heat equivalence factors 1

Of 1 ton of:

Coal briquettes _____'.______________________ 1 

Brown coal and lignite briquettes _____________________ .67

Pechkohle _________________________________ .67 

Coke ____________________________________ .9 

Brown coal and lignite _______________________________ .3-.3S

Peat ____________________________________ .5 

Crude petroleum and shale oil ____________________ 1.3

Motor spirit, kerosene, fuel oils __________________ 1.5

Of 1,000 m3 standard of:

Natural gas _______________________________ 1.332 

Manufactured gas ____________________________ .6 

Refinery gas _______________________________ 1.75

Of electricity:

1,000 kWh 2 _______________________________ .125

Comision Economica para America Latina, 1973, overall thermoelectric 

plant efficiency 1 kWh=3,000 cal.

1 Statistical Office of the United Nations (1973).

- The efficiency of the conversion of heat into electricity in a thermal plant is not considered 

in this factor.
40 APPENDIX

TABLE 19. Evolution of oil prices 1955-74 *

[Current dollars per barrel, Saudi Arabian light crude, 34° API, f.o.b. Ras Tanura]

Estimated 

Date Posted price market price

January 1, 1955 ________________._______ 1.93 1.93

1957 ________________________ 1.93 1.93

1959 ________________________ 2.08 1.70

-1961 ________________________ 1.80 1.45

1963 ________________________ 1.80 1.40

1965 ____. .__________________ 1.80 1.33

1967 ______________________ 1.80 1.33

1969 _______________________ 1.80 1.28

1971 _______________ ______ 1.80 1.33

3 1972 ________________________ 2.285 1.75

1973 ________________________ 2.591 2.20

April 1, 1973 ________________________ 2.742 2.30

June 1, 1973 ____________._____________ 2.898 2.70

August 1, 1973 _______.______________. 3.066 2.85

October 1, 1973 _______________________ 3.011 3.00

Kuwait, October 16, 1973 _________________ 5.11 3.65

January 1, 1974 _____,__________________ 11.65 7.65

1 United Nations Economic and Social Council (1974).

- After OPEC.

" After Teheran agreements.