Richels urges ‘workable energy policy’

Feb. 1, 2008
Energy policy is a hot topic anytime, but especially in an election year. With this in mind, the IPAA and TIPRO chose John Richels, president of Devon Energy, as guest speaker at their monthly luncheon, Jan.
Devon’s John Richels told a Petroleum Club audience in Houston that the government should avoid emotional reactions in setting energy policy.
Click here to enlarge image

Energy policy is a hot topic anytime, but especially in an election year. With this in mind, the IPAA and TIPRO chose John Richels, president of Devon Energy, as guest speaker at their monthly luncheon, Jan. 9 at the Petroleum Club of Houston. He chose to speak on “The Challenge of Energy Policy.” Richels began his presentation by noting the many attendees from the oil service sector and saying, “We’re going to spend more this year than last year.” With regard to energy policy, he implored the government to not restrict access to needed resources and to refrain from penalizing success. Richels, a native of Canada, noted that changes in Alberta’s royalty rules have created an unstable situation there and that Devon, EnCana, ConocoPhillips, and other companies are redirecting their priorities in other directions as a result. “We need a workable energy policy that encourages conservation,” said Richels. “We need a reasonable and stable fiscal and regulatory framework. We need stability as a long-term policy. And we should facilitate access to resources –areas currently off-limits to energy companies. Finally, we should streamline regulatory processes and reduce red tape.”

Alaska snubs ConocoPhillips offer

In a letter to ConocoPhillips CEO James Mulva, Alaska Gov. Sarah Palin has rejected a multibillion-dollar proposal from the Houston-based oil major to build a natural gas pipeline linking Alaska’s North Slope to the Lower 48 states. Palin chose instead to stick with a plan from TransCanada. She said the ConocoPhillips’ plan would have required the state to make certain concessions that would have cost Alaska $10 billion in revenue over the life of the project. ConocoPhillips made the proposal outside the Alaska Gasline Inducement Act, which would provide as much as $500 million in aid for building a pipeline to commercialize the 35 tcf of proved gas reserves in the North Slope. Palin did leave a small opening, however, saying that she hopes ConocoPhillips may someday be part of the project team. In late November, the state of Alaska received five proposals to construct the pipeline and later identified TransCanada’s offer as the only one in compliance. FERC approval would also be needed to proceed with the project.

Houston like a ‘third-world country’?

Coincidentally, John Westwood of Douglas-Westwood delivered the keynote speech at the SUT Scholarship Dinner at the Petroleum Club of Houston the evening of Jan. 9. Similar to John Richels’ presentation earlier that day, Westwood’s topic was “Of Presidents & Power; of Energy & Elections.” Admitting that even he was surprised at the speed at which we have moved from $30 oil to $100 oil, Westwood said keeping energy prices artificially low leads to “massive over-consumption and eventually even higher prices.” He argued, “It is only high prices which will cause people to reduce their energy consumption, reduce demand, and ultimately restrain prices.” In Westwood’s view, natural gas will form the Western world’s bridge between our present oil-fired economy and a distant future based on renewable energy. As for the US subsidizing the production of ethanol from corn, he believes it would be more efficient to import sugar cane-derived ethanol from Brazil and decrease our imports of cheap consumer goods from China. We should spend tax revenues on energy efficiency and public transportation, which in Houston currently resembles that of a third-world country, said the UK native.

Landrieu: Step up production, LNG imports

After oil futures contracts hit $100 briefly in January, Sen. Mary Landrieu (D-La.) went on “America’s Business with Mike Hambrick,” a nationally syndicated radio program, to discuss what America must do to achieve a sustainable and affordable energy supply. Among her comments: “[$100/bbl] oil is being driven by real demand because of global growth. With demand soaring, we not only have to produce more domestically, we have to be able to import more liquefied natural gas. . .Otherwise, we’ll become completely uncompetitive. And we do need to diversify our fuel source, which is why I’m also a huge supporter of trying to convert crops and switchgrass and using by-products of cellulosic fiber, etc. for fuel.”

Global warming speeds up race to North Pole

Jane’s Defence Weekly reports that global warming is accelerating the quest for the North Pole’s vast potential energy resources, which are becoming more accessible due to the disappearance of Arctic sea ice. Claiming Arctic sovereignty is becoming a high-stakes and potentially dangerous game. As reported in the Sept. 2007 issue of OGFJ, the Russian government has asserted its claim to vast regions of the Arctic by claiming that Russia’s continental shelf extends northward to the Pole –a claim that is disputed by Canada, Denmark, Norway, and the United States. These claims could become more contentious should energy reserves be proven to be recoverable. A preliminary assessment by the US Geological Survey suggests that the Arctic seabed may hold as much as 25% of the world’s undiscovered oil and natural gas reserves. If a joint study by the US National Science Foundation and NASA is correct, the region could be ice free in the month of September by 2040.

CIBC forecasts $150 oil, $4.50 gasoline

US consumers should brace for $150 oil and $4.50 gasoline in the near future as global oil supply will have trouble keeping pace with demand, forecasts a new energy report from CIBC World Markets. The report predicts that surging demand in developing countries combined with accelerating depletion of existing supply will see the global supply of oil fall as much as eight million barrels a day below US Department of Energy and International Energy Agency estimates by 2012. “Those projections ignore two fundamental forces that have, in recent years, brought global production to a virtual standstill,” says Jeff Rubin, chief strategist and chief economist at CIBC World Markets. “The first is depletion. You have to run faster to stand still. Depletion from existing fields has accelerated to over 4%, a rate that currently cuts nearly four million barrels per day out of each year’s production.” Rubin notes huge project delays and massive cost overruns associated with many of the world’s largest new oil mega-projects, including ones in Kazakhstan and Nigeria’s Delta region as well as heavy reliance on high cost and technically challenging fields like the Kashagan project in Kazakhstan, Russia’s Sakhalin II, and Canadian and Venezuelan oil sands. Lastly he calls attention to “cliff-like depletion rates” in the North Sea and the huge Cantarell field in Mexico. CIBC says crude prices should hit $150/bbl within the next five years.

Fred Sewell exits Netherland Sewell, Scott Rees assumes role as CEO

Frederic D. Sewell, chairman and CEO of Netherland, Sewell & Associates Inc., retired from the firm effective Jan. 1. A co-founder of the Dallas-based company, Sewell plans to stay active in the industry by starting a new oil and gas venture. Assuming the role vacated by Sewell is former president and COO C. H. (Scott) Rees III. Rees, a petroleum engineer with more than 25 years of oil and gas experience, has been with NSAI since 1988 and had served as president of the company since 2002. In his new role as CEO, Rees will remain involved in all aspects of the business, while concentrating on the strategic direction of the company. NSAI also appointed Danny D. Simmons as president and COO. Simmons, manager of the company’s Houston office and formerly executive vice president, has been with NSAI since 1976 and has over 35 years of petroleum engineering and consulting experience. Carter Henson, senior vice president, has been promoted to the Executive Committee. He originally joined NSAI in 1989 and was instrumental in the establishment and growth of the company’s Houston office. Craig Adams and Rick Krenek were promoted to the position of team leader. Jim Davidson, Phil Hodgson, and Mike Krehel were all promoted to the position of vice president –technical advisor. Founded in 1961, NSAI has grown to become one of the major providers of petroleum property analysis to industry, financial organizations, and government agencies.

Range completes Barnett acquisition

Fort Worth-based Range Resources Corp. has completed the acquisition of Barnett shale properties from a subsidiary of DTE Energy Co. and an unnamed private company. The adjusted purchase price was $284 million. With the closing of this transaction, Range’s position in the Barnett shale play has expanded to 103,000 net acres, and production has increased to more than 90 MMcfe/day. In addition, Range has sold non-core oil properties in East Texas for $64 million. The properties include 99 shallow oil wells covering 5,600 net acres. Range did not own the leasehold rights to the deeper formations. The sale was structured as a like-kind exchange. Therefore, Range has deferred any cash taxes as a result of the transaction. John Pinkerton, Range’s president and CEO, said the company completed about $300 million of property sales last year and anticipates additional divestitures in 2008.

OGFJ contributors Peter Howard Wertheim (left) and his wife, Dayse Abrantes, were among the invited guests at Petrobras’ annual year-end dinner for journalists in Rio de Janeiro. They are pictured with Jose Sergio Gabrielli de Azevedo, CEO of the Brazilian oil giant. Peter’s and Dayse’s article on Petrobras America’s huge investments and strategic partnerships in the US Gulf of Mexico is featured in this issue. Photo by Stéferson Faria of Petrobras
Click here to enlarge image