OGJ Newsletter

Dec. 24, 2007
General Interest - Quick Takes

SEC mulls oil, gas reserves disclosure rules

The US Securities and Exchange Commission is seeking public comment on possibly revising oil and gas reserves disclosure requirements.The proposal recognizes that significant changes have occurred in the business in the 3 decades since the federal securities regulator first adopted oil and gas reserves disclosure rules, it said on Dec. 11.

“Technological advancements over the last 30 years have changed the way in which companies detect and extract oil and gas resources. Managements of oil and gas companies rely on these advancements to consider their investments,” said John White, who directs SEC’s corporation finance division.

A number of analysts and investors also told the agency that its oil and gas disclosure requirements needed to be updated to reflect companies’ reserves and how they are managed, he added.

The commission seeks input on five questions:

  • Should the SEC revise the proved reserves definition, including assessment and measurement criteria?
  • How do new technologies affect that definition?
  • How might the rules be changed to accommodate future technological innovations?
  • Should the rules permit other resource categories to be disclosed?
  • Should the rules require third-party verification of companies’ reported reserves?

Comments may be filed with the SEC for 60 days following the notice’s publication in the Federal Register, SEC said.

MMS to revise Indian oil valuation rule

The US Minerals Management Service has published a revised US Indian oil valuation rule, which the Department of the Interior said is designed to bring more certainty to the valuation process, as many changes have occurred in the oil market since the March 1988 oil valuation rule was codified.

MMS also is seeking nominations of individuals to a negotiated rulemaking committee to make recommendations regarding the “major portion” provision contained in most Indian tribal and allotted leases. The committee will include representatives from the federal government, Indian tribes, individual Indian mineral owners, and the oil and gas industry, it said.

The agency said the leases define “major portion” as the highest price paid or offered at the time of production for the major portion of oil produced from the same field. The rulemaking is intended to improve the Indian oil valuation process by eliminating reliance on posted prices and addressing the unique terms of tribal and allotted leases, MMS said.

Oil services consolidation continues

The end of 2007 brought more consolidation with oil services.

National Oilwell Varco Inc. (NOV) is buying Grant Prideco Inc. for $7.4 billion in cash and equity.

The boards of both companies already approved the transaction, which creates a giant supplier of drilling rig equipment and pipes used in oil and gas wells.

Separately, private equity firm First Reserve Corp. said it was acquiring European for Abbot Group PLC for $1.8 billion.

First Reserve said it was the largest private equity buyout in the drilling services industry. Last month, offshore drilling contractor Transocean Inc. bought GlobalSanteFe Corp for $18 billion.

NOV and Grant Prideco both are based in Houston. Closing is expected in the first half of 2008. Upon completion, current stockholders of NOV will own 86% of the combined company.

The transaction remains subject to regulatory and Grant Prideco shareholder approvals. NOV designs, manufactures, and sells drilling and production equipment and provides field services. Grant Prideco specializes in drillstem technology and drill pipe.

Industry Scoreboard
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Exploration & Development - Quick Takes

Indonesia reduces exploration period for blocks

Indonesia’s upstream oil and gas executive agency BP Migas may reduce the mandatory oil and gas exploration period to 3 years from 10 years to accelerate exploration at newly awarded oil and gas blocks.

BP Migas Chairman Kardaya Warnika said if oil and gas companies fail to find reserves during the 3-year period, they would have to return the leases to the government. Should the companies find reserves during the period, they would not be given deadlines for conducting drilling activities, he said. Under current regulations, oil and gas contractors have 10 years for exploration and drilling activities, or the government will revoke their rights.

“We plan to exclude drilling activities from the list of commitments stated in the exploration stage. Drilling can be done only if the feasibility study proves that reserves are available,” Kardaya said. His hope is that the government will see a 30% increase in oil and gas production by 2009, rising by 100,000 b/d to 1.03 million b/d as targeted in the 2008 national budget.

Thailand awards 10 exploration blocks

Thailand has awarded 10 exploration blocks in its current petroleum exploration licensing round.

Winning groups were selected from bids submitted in the first round of the 20th bidding that closed July 16 and attracted 28 international firms vying for 21 blocks (OGJ Online July 26, 2007).

The selected companies are committed to spending $79.41 million to explore their acreages over the next 3 years and another $110 million should they opt for a 6-year extension, according to the Department of Mineral Fuels.

Two awarded tracts are in the Gulf of Thailand, and eight others are onshore:

  • Offshore Block G4/50 (11,655 sq km) was awarded to Chevron and Mitsui Oil.
  • Offshore Block G9/50 (122 sq km) went to Harrods Natural Resources (Thailand) Ltd.
  • Onshore tracts L7/50 (3,906 sq km) and L13/50 (3,934 sq km), both in the Northern Intermontane basins, were awarded to Australia’s Twinza Oil Ltd.
  • Tract L16/50 (3,934 sq km) in the northeast’s Khorat Plateau, was granted to Tatex Thailand LLC.
  • Tract L26/50 (3,301 sq km), also on Khorat Plateau, went to UK-based Salamander Energy (E&P) Ltd.
  • Tracts L36/50 (3,970 sq km), L37/50 (3,972 sq km), and L38/50 (3,972 sq km) in Khorat Plateau were awarded to Bangkok-based Thai Petrochemical Industry Co. and TPI Polene Power Co.
  • Tract L51/50 (3,933 sq km) in the Central Plains went to Thai Petrochemical Industry Co.

Hannon Westwood forecasts 210 wells on UKCS

Operators on the UK Continental Shelf are expected to drill at least 210 wells by 2010, according to a report by UK North Sea consultancy Hannon Westwood LLP, Glasgow.

A total investment of $500 billion will be required to maximize the UKCS’s potential of 24 billion boe over the next 40 years. About $1 billion/year should be spent over the next 4 years to develop 83 exploration prospects with farmin investment. The consultancy forecasts that 50 exploration and appraisal wells will be drilled on the UKCS each year.

However, operators are turning away from the gas basin on the UKCS because of low gas prices and high equipment costs. Instead, gas-prone companies are moving into oil projects, particularly in the Central North Sea.

The report said, “The majority of the 83 wells expected to be partially or fully offered for farmin funding–mostly in the Central North Sea–are mainly offered by independents that are seeking to fully fund their portfolio of proposed wells.” There are 26 prospects on promote or frontier licenses up for farm-in opportunities. In contrast, the number of projects available in the southern North Sea for farmin have fallen since July 2007.

Chris Bulley, executive director of Hannon Westwood, said: “Since we first started reporting on farmin opportunities, the Central North Sea has consistently delivered the most farmin opportunities, signaling a continued drift towards an oil province and despite the continued uncertainty over gas prices a continuation in [high pressure, high temperature] drilling.”

Chevron, CNPC to develop Sichuan gas fields

Chevron Corp. and China National Petroleum Corp. signed a 30-year production-sharing contract to develop the 2,000-km Chuandongbei gas area in Sichuan province.

Chevron’s main Chinese subsidiary will be the operator and hold 49% interest, while CNPC will hold 51% interest.

The Chuandongbei area includes Tieshanpo, Dukouhe-Qilibei, and Luojiazhai gas fields (OGJ Online, Aug. 8, 2007).

Total makes oil find on Angola’s Block 32

Total SA and its partners have tested 5,400 b/d of oil from the Alho exploration well on deepwater Block 32 off Angola.

The well, drilled to a TD of 4,981 m, produced 26º gravity oil from reservoirs in the Oligocene section. Alho is the twelfth discovery on Block 32. Earlier this year Total and its block partners drilled the Colorau-1 exploration well, the group’s eleventh find on Block 32 (OGJ Online, Aug. 7, 2007). Alho was drilled in 1,700 m of water and hit Upper Oligocene oil-bearing reservoirs. It is 9 km northwest of the previously announced Cominhos discovery and is 155 km off the Angolan coast in 1,607 m of water.

Operator Total holds 30% in the block. Other Block 32 partners include Marathon Oil Co. 30%, Sonangol EP 20%, Esso Exploration & Production Angola (Block 32) Ltd. 15%, and Petrogal 5%.

Cuba invites Russian firms to explore offshore

Cuban Deputy Foreign Minister Eumelio Caballero, in Moscow on a state visit, invited Russian oil and gas companies to undertake exploration off Cuba in the Gulf of Mexico.

“We are in contact with the Russian companies, and we hope that they participate in the prospecting for those deposits, in particular creating the necessary infrastructure,” said Caballero.

He said Cuba is “open to cooperation” and that “favorable” political conditions on the island create “magnificent prospects” for Russian firms that participate in the project. “Russia and Cuba have considerable prospects for increasing their bilateral economic and trade links,” he said, adding that one of the most attractive and advantageous areas is energy cooperation.

Caballero said his country has signed contracts with companies from Spain, Norway, Venezuela, and China for exploration and exploitation of offshore petroleum deposits.

Brazil awards five Santos basin blocks to Karoon

Melbourne-based Karoon Gas Australia Ltd. has been awarded five contiguous offshore exploration blocks in the Santos basin off Brazil—the same region as the recent 8 billion bbl Tupi oil discovery (OGJ Online, Nov. 16, 2007).

Karoon said the Brazilian permits are 300 km east-southeast of Tupi and 100 km from producing Caravela and Coral oil and gas fields.

The blocks—1037, 1101, 1102, 1165, and 1166—will be officially awarded next March when Karoon pays $25 million in nonrefundable signature bonuses and refundable bid bonds.

Karoon has pledged a work program consisting of geological analysis along with the reprocessing and interpretation of existing seismic data. The company must acquire an additional 170-sq-km 3D seismic survey in three of the permits during the first 3 years. In an optional second 3-year term, one well is committed to each block. Karoon was one of the successful companies that bid a total $1.5 billion in cash for 117 exploration blocks.

Harvest Resources acquires Gabon block

Harvest Natural Resources Inc., Houston, will operate a block off Gabon after signing a purchase agreement with Sasol Petroleum West Africa Ltd. Harvest will gain a 50% interest under the Dussafu Marin exploration and production-sharing contract.

The PSC contains 680,000 acres that lie in 1-1,000 ft of water.

Harvest Pres. and Chief Executive James A. Edmiston said, “The Dussafu PSC lies within an active proven hydrocarbon basin containing significant production and infrastructure in contiguous blocks and provides Harvest with exposure to multiple medium-to-low risk exploration plays and a pre-existing small oil discovery.” The partners will acquire 500 km of 2D seismic data, geology and geophysical interpretation, and engineering studies, and it will drill a conditional well. This second exploration phase of the PSC, which started May 28, is expected to last for 3 years.

The PSC requires approval from the government and the other coventurers before it is finalized.

Another oil shock will accelerate the emphasis

Drilling & Production - Quick Takes

Mexico sees 2.1-3.4 million b/d oil output to 2016

Mexico’s ministry of energy has released the country’s oil outlook for 2006-16, providing best-case and worst-case scenarios for the outlook period, as well as key recommendations for development of state-owned Petroleos Mexicanos.

Under the best-case scenario, Pemex production levels will average some 3.255 million b/d over the period, reaching 3.4 million b/d in 2016. Under the worst case scenario, production will average 2.5 million b/d during 2006-16 and fall to 2.1 million b/d by 2016.

According to Energy Minister Georgia Kessel, the best-case scenario will depend on annual investments of some 157 billion pesos as well as new production from Chicontepec and from Gulf of Mexico deep water.

However, Kessel said that developing deepwater reserves requires “carrying out works in extremely complex conditions and above all, a multiplication of Pemex’s operating capacity that would be impossible under current conditions.”

More broadly, she said, “We should design the technical, legal, and economic instruments to strengthen Pemex so it can generate the investments, experience, and employment Mexicans demand. I’m confident that with the help of our legislators, we’ll find the solutions.”

Surmont oil sands project starts production

The Surmont oil sands project in Alberta started commercial production Dec. 11, said Total E&P Canada Ltd., which owns 50% interest in the ConocoPhillips-operated project (OGJ, May 21, 2007, Newsletter).

Surmont is 60 km southeast of Fort McMurray. Phase 1 has a capacity of 25,000 b/d, and it is expected to reach plateau production by 2012. Phase 2, scheduled for commercial production before 2015, is expected to reach plateau production of 75,000 b/d. A Surmont pilot project began in 1997. In 2003, the partnership decided to launch the first phase of commercial development at Surmont using steam-assisted gravity drainage. First steam was injected into the ground in June.

Total also holds other oil sands leases.

Husky lets EPC contract for White Rose field

Husky Operations Ltd. has awarded AKCS Offshore Partner a contract for the engineering, procurement, construction, and maintenance support services related to the production and operations of White Rose field in the Jeanne d’Arc basin 350 km east of St John’s, Newf.

The $75 million (Can.) contract is for 5 years. At an additional cost, the contract may be extended for up to 15 successive years.

The contract includes engineering design, modifications and support services, campaign maintenance services, field development planning, feasibility and engineering concept development, subsea and floating production, storage, and offloading moorings support, and engineering services.

AKCS Offshore Partner consists of Aker Kvaerner Offshore Partner AS 40%, SNC-Lavalin Inc. 40%, and G.J. Cahill & Co. Ltd. 20%.

White Rose oil field’s southern section is scheduled to go on stream in late 2009. A 2006 delineation program in the field increased the assessment of White Rose oil field’s reserves by 190 million bbl of oil. The field could contain 40-100 million bbl of oil, with a likely estimate of 70 million bbl (OGJ Online, Nov. 21, 2006).

Darfur rebels halt 50,000 b/d Defra oil production

Darfur rebels of the Justice and Equality Movement (JEM) in Sudan said they attacked the Defra oil facility in south Kordofan, halting an estimated 50,000 b/d of oil production.

If confirmed, the refinery closure would be the third assault since October by JEM rebels against petroleum installations in Kordofan after the group vowed to target Chinese oil firms.

Earlier this month, a rebel attack prompted the Chinese government to call for the safety of its oil workers in the country (OGJ Online, Dec. 13, 2007). In October JEM rebels said they attacked the Chinese-run Defra oil field. The rebels accuse China of indirectly funding Khartoum’s war effort in Darfur by investing in Sudan’s oil industry. The Sudanese government receives large royalties from estimated production of 500,000 b/d, and JEM says some 70% of the oil revenue goes to the military.

US drilling slips from 14-week high

US drilling activity slipped from a 14-week high, down by 4 rotary rigs to 1,824 still drilling, up from 1,716 a year ago, Baker Hughes Inc. reported Dec. 14.

As usual, land operations registered the biggest change, down 5 rigs to 1,734 working. Inland waters activity increased by 1 rig to 29. Offshore drilling was unchanged with 61 rotary rigs drilling, including 59 in the Gulf of Mexico.

Texas had the biggest gain among the major producing states, up by 13 units to 885 drilling. California’s weekly rig count increased by 1 to 39. Louisiana and Alaska were unchanged at 160 and 10, respectively. New Mexico dropped 2 rigs to 77 working. Colorado and Wyoming lost 4 rigs each, with respective counts of 113 and 70. Oklahoma, which was hit by ice storms this week, was down 5 to 196 rigs still working.

Canada’s weekly count jumped by 31 to 419, but still remained below the year-ago level of 497 rigs drilling.

Processing - Quick Takes

Placid refinery expansion on schedule

Privately owned independent refiner Placid Refining Co. LLC said its previously announced $300 million project to upgrade and expand its Port Allen, La., refinery is on schedule for completion in first-half 2010.

The project will expand the refinery’s crude throughput capacity to 80,000 b/d from 55,000 b/d while cutting total air emissions in half. All existing process units are being expanded and upgraded. In addition, a fluid catalytic cracker gasoline hydrotreater, sulfur extraction capacity, tankage, and other environmental improvements are being constructed to enable the refinery to meet all applicable clean fuel standards for its products. The upgrades will allow the company flexibility to utilize a less-costly, high-sulfur crude oil mix in its production process, officials said.

More than 100 construction workers are on site for Placid Refining Co.’s $300 million expansion, which will increase the Port Allen, facility’s capacity to 80,000 b/d from 55,000 b/d (OGJ Online, July 23, 2007). Photo from Placid Refining.
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Placid currently supplies 35-40% of the gasoline consumed in the Baton Rouge area. The refinery’s gasoline production will increase to 1.5 million gpd from 1 million gpd when expansion is completed. Diesel production will increase to 1 million gpd from 750,000 gpd. The 80-acre refinery, purchased in 1975, is Placid’s only manufacturing facility.

China’s NDRC okays Sinopec, KPC joint venture

China’s economic planning agency, the National Development and Reform Commission (NDRC), has approved a refinery planned by a joint venture of China Petroleum & Chemical Corp. (Sinopec) and Kuwait Petroleum Corp. (KPC) in southern China’s Guangdong province. Sinopec last year agreed to establish a JV with KPC to build the $5 billion refinery in the Guangdong city of Nansha, with a refining

Transportation - Quick Takes

Nicaragua, Esso near oil import storage accord

Nicaraguan President Daniel Ortega said his country is nearing an agreement with ExxonMobil Corp. subsidiary Esso that would allow increased oil imports from Venezuela next year. Ortega’s statement, unconfirmed by ExxonMobil, follows stepped-up pressure on the firm.

Ortega has ordered Energy and Mines Minister Emilio Rappaccioli to “quickly” draft a proposal to nationalize the import of oil, claiming Esso officials were “acting like true mercenaries, speculators, [and] bleeding the Nicaraguan people.” Ortega alleged that Esso refused to store the additional supplies of Venezuelan crude. Ortega wants to increase the amount of oil received from Venezuela by 8 million bbl/year and to begin producing products for export.

However, Nicaragua can store only 2 million bbl. Ortega wants the additional storage capacity to be provided by Esso which owns import and storage facilities at Corinto port.

An earlier dispute between the company and the government over use of the Esso terminal led to a temporary seizure of the facility in August (OGJ Online, Aug. 23, 2007). The government returned the terminal after Esso signed a memorandum of understanding with state oil company Petronic granting its shared use.

The increased Venezuelan imports follow an earlier agreement between Ortega and Venezuelan President Hugo Chavez who jointly launched construction in July of a 150,000 b/d refinery at Piedras Blancas, near Nicaragua’s Pacific coast (OGJ Online, July 23, 2007).

Greece proposes Libyan gas pipeline

Greece is interested in having a new gas pipeline from Libya to the island of Crete, according to media reports. Details have not yet been released, but the two nations are in consultation regarding the project. Senior Greek business officials, led by Greek Deputy Minister for Foreign Affairs Petros Dukas, are visiting Libya to strengthen relationships on several fronts, including energy, transport, telecoms, and tourism. Greece is a major consumer of Libyan oil and petroleum products, with trade estimated at about $1.2 billion in 2007.

El Paso plans Ruby natural gas pipeline

El Paso Corp. has filed a federal right-of-way application with the Department of the Interior’s Bureau of Land Management for its Ruby Pipeline, a 680-mile, 42-in. natural gas transmission line that will extend from the Opal Hub in Wyoming to the Malin, Ore., interconnect near California’s northern border.

The pipeline will have an initial capacity of 1.2 bcfd and will be expandable to 2 bcfd. On this project, El Paso plans to partner with the Bear Stearns Cos. Inc. subsidiary Bear Energy LP, Houston.

The Ruby Pipeline is expected to be in service in the first quarter of 2011 subject to regulatory approvals.