SPANISH LOOKOUT, Belize (Reuters) -- A Mennonite farmer watches a black plume of smoke spew from an oil well near his house in western Belize, the only visible sign that this tiny Central American nation is the world's newest oil producer.

Wildcat oil companies have been drilling for more than 50 years in this former British colony bordering Guatemala and Mexico, but this year for the first time a joint venture between Belize Natural Energy Limited, or BNE, and Denver-based investment company CHx Capital finally struck the black gold mine.

In March BNE, a small company backed by some 80 Irish and American investors, declared the oil find commercially viable -- big news for this sleepy country the size of Massachusetts.

The 6 million barrels of proven reserves in the Spanish Lookout area, inhabited mainly by a tight-knit community of Mennonite settlers, is a drop in the ocean of world oil supplies, but with crude prices topping $70 a barrel expectations are high.

At the same time, some worry that Belize's reputation as a pristine tourist haven -- with its barrier reef declared a world heritage site by the United Nations -- could be ruined by further oil exploration.

"We have to make sure not to skew the whole economy of the country by becoming dependent on oil," Prime Minister Said Musa told Reuters.

"In everything we do, environmental conservation and protection is a central concern. We can't sacrifice that for short-term gain," he said.

BNE is now pumping more than 2,000 barrels a day of high quality sweet light crude, similar to the prized West Texas Intermediate.

The oil is shipped to the United States for refining because Belize has no processing infrastructure of its own.

BNE estimates there could be more than 15 million barrels of oil in Belize, whose economy until now has depended almost entirely on tourism, sugar cane and a small amount of citrus, bananas and fish products.

Environmental groups, however, are concerned the find in Spanish Lookout will spur more exploration in southern Belize's Sarstoon Temash National Park, an area long suspected to have oil reserves.

The park encompasses 41,000 acres of relatively undisturbed wetlands where hundreds of species of birds, tropical butterflies and animals live, including manatees, ocelots and endangered jaguars.

Indigenous Mayan communities that live around the park want to promote it as an eco-tourism destination. Tourism is a booming business in Belize with more than 200,000 people visiting this country of just 280,000 people each year.

Texas-based company U.S. Capital Energy is ready to begin seismic testing in the area, exploration that could damage a delicate lowland moss, the only one of its kind in Central America, advocates for the park's protection say.

Smell, pollution concerns
There are some environmental concerns in the German-speaking Mennonite community as well, where all of BNE's current operations are concentrated.

"Everybody is worried about the smell and the pollution," said Peter Dueck, a Mennonite man whose house overlooks one of the drill sites.

"We have rainwater collection systems for our drinking water. What if that smoke is poisonous?" he asked, watching natural gas burn off the well near a cow pasture.

But most of the community's concerns are overwhelmed by the promise of royalties they will receive as land owners.

The Mennonites, who settled in Belize two generations ago and cut down the jungle to build a vast network of profitable farms and dairies, are promised 5 percent of the government's 7.5 percent take of oil profits.

30 percent government take
Between taxes and royalties, the country will end up collecting more than 30 percent of BNE's gross income and the government plans to buy a 10 percent stake in the company.
Tuesday, April 25, 2006; Posted: 9:14 a.m. EDT (13:14 GMT)

"Belize was caught by surprise by this bonanza. They knew there was oil all along but the quantity was never defined. Now that it's commercial, it's a different ballgame," said Godsman Ellis, head of the Belize Alliance of Conservation NGOs.

"The country will close its eyes to environmental degradation when the dollar is flashed," he said.

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