Gov’t Awards Oil Exploration Concession to U.S. Firm

In its bid to become an oil-producing country, Nicaragua last week signed a six-year exploration contract with U.S. oil company MKJ Xploration to explore and develop oil and natural gas fields at two sites off Nicaragua’s Caribbean coast.

The sites will be located 100 kilometers off the coast, in an area that is long reported to have oil reserves. If the company discovers oil or natural gas, it will have the right to drill and produce at the sites for 30 years.

According to the contract, the company would pay the Nicaraguan government 15% royalties on oil drilled and 30% taxes on its profits earned here.

MKJ Xploration, a Louisiana-based company, has been eyeing Nicaraguan oil fields since 2002, when the company first started talking with the government of Enrique Bolaños about the possibility of exploring off the Caribbean coast. Bolaños announced in July 2002 that Nicaragua was opening an international bidding process to explore for oil in more than 150,000 square kilometers of Nicaraguan territory (TT, July 19, 2002).

At that time, MKJ Xploration was in the middle of contract dispute with Costa Rican President Abel Pachecho, who suspended the company’s drilling plans in Tico territory, prompting them to look north.

Oil was reportedly first discovered in Nicaragua 78 years ago. In the Caribbean alone, Nicaragua is estimated to have 500 million barrels of oil, according to old calculations by the Nicaraguan Energy Institute.

Until now, however, Nicaragua has not been able to grant exploration concessions in Caribbean waters because the sites were in a disputed territory with Honduras.

Nicaragua brought the maritime border issue to the

at The Hague in 2000, and the court eventually ruled in Nicaragua’s favor at the end of last year, giving the government the green light to move forward on awarding oil concessions.

MKJ Xploration was first in line, and President Daniel Ortega was quick to shake their hand and sign on the dotted line April 8.

The timing of the oil concession – four days after the Supreme Electoral Council (CSE) suspended the regional elections in the North Atlantic Autonomous Region (RAAN), meaning several local Sandinista officials will remain in power longer than their legal terms of office – has led some to claim that the real reason the vote was postponed was to give the government time to finalize concessions with international companies before new officials are voted into power.

Several indigenous leaders on the Caribbean coast have argued that transnational lumber and oil interests are behind the decision to suspend the elections, rather than the official excuse of storm damage left over from last year’s Hurricane Felix.

However, Liberal party lawmaker José Pallais, president of the National Assembly’s Judicial Commission, told The Nica Times this week that he didn’t think the signing of the oil concession is related to the suspension of the elections, because international concessions are awarded by the central government rather than regional authorities.