OGJ Newsletter

Aug. 31, 1998
U.S. industry scoreboard 8/31 [43,110 bytes] Fueled by a General Accounting Office report concluding that a royalty in kind program is infeasible, the war of words rages on among the oil industry, MMS, and other interested parties (see Editorial, p. 17). The most recent salvos were fired last week at a Casper, Wyo., oil and gas royalty conference sponsored by Washington think-tank Frontiers of Freedom (FOF).
Fueled by a General Accounting Office report concluding that a royalty in kind program is infeasible, the war of words rages on among the oil industry, MMS, and other interested parties (see Editorial, p. 17).

The most recent salvos were fired last week at a Casper, Wyo., oil and gas royalty conference sponsored by Washington think-tank Frontiers of Freedom (FOF).

Former Sen. Malcolm Wallop disparaged MMS's royalty valuation rule (OGJ, June 22, 1998, p. 23) and accused the agency of turning accounting disputes into criminal incidents. "If they can't be more confidentellipse," said Wallop, "it's impossible to understand how industry could possibly begin to comply with it."

Independent producers added their voices to the chorus. Diemer True, of True Oil Co., said, "The cure is worse than the disease." Mark Murphy of Strata Production Co. added, "We want certainty; we want lower costs."

Walter J. Mead, coauthor of an FOF report on royalty valuation, urged MMS to give RIK a try: "You can't estimate the gain or loss to the government except by waiting to see how things turn out."

Despite the need for a resolution, Rep. Barbara Cubin (R-Wyo.), cosponsor of the RIK bill in the House, said, "I truly do not expect that this legislation will pass in this congress."

The trend of big service companies filling gaps in their portfolios continued at the Offshore Northern Seas conference in Stavanger last week, with Aker Maritime's purchase of Genesis Engineering Consultants (ONS coverage begins on p. 25).

Aker says its strategy is "to provide comprehensive and unequaled services throughout the value chain, from seismic acquisition to the provision of cost-effective field development solutions." The purchase follows Aker's establishment of seismic survey unit Aker Geo and the acquisition of geophysical interpretation specialist JSI earlier this year: "The purchase of Genesis will complete a powerful suite of front-end capabilities."

Even before the ink had dried on the Genesis check, Aker also announced a joint venture with Progenitive Services.

The new maritime Progenitive Services unit will operate out of Stavanger, providing coiled tubing services to the Norwegian and Danish offshore sectors.

Controversy over climate change policy simmered around ONS.

According to some Norwegian critics, the government of Norway has embraced the Kyoto accord more strongly than any other. The reason, contends Norwegian economist iysten Noreng, is Oslo's desire to appear "especially concerned and responsible" while assuaging a "feeling of guilt" because exported Norwegian oil is a source of CO2 emissions. He also claims that Norway has a poor domestic environmental record that it wants to play down.

Noreng questions the logic of what he describes as Norway's "missionary" global warming policy.

At an offsite press conference not sanctioned by ONS, Noreng noted that Norway has the world's highest CO2 tax in several areas. If major buyers of oil and gas introduce similar measures, he claims, the outcome could be a major decline in international oil and gas prices: "Norwegian authorities have basically shot themselves in the foot," and, consequently, Norway's renowned social benefits would suffer.

Greenpeace has continued its anti-oil activities by putting eight protesters aboard the Deepsea Bergen semisubmersible as it prepared to drill for state firm Statoil off Norway.

Campaigner Matthew Spencer, on the MV Greenpeace ship from which the protesters' inflatable boats were launched, said, "We intend to continue our occupation, stopping Statoil searching for yet more oil. Government and industry must wake up to the necessity of phasing out fossil fuels and developing renewable energy industries if we are to protect the world's climate."

Meanwhile, protest group Natur & Ungdom Aksjonerer (Nature & Youth Action) attempted a face-off with Norway's King Harald as he arrived to open ONS. In the same way Greenpeace tried to prevent development of virgin waters in the U.K.'s West of Shetland area, the Norwegian campaigners called for a ban on development of Norway's pristine Barents Sea area, where Statoil is contemplating an LNG export scheme to develop giant Søhvit gas field.

The group's members draped themselves in fishing nets and proclaimed the planned development would be one of the largest CO2 emitters on the Norwegian continental shelf, after which they were marched away by Stavanger police.

The six-member protest team was a much more feeble barrier than the main hurdle the remote Snøhvit project must pass: economic viability.

Norsk Hydro plans to spud a well shortly to help assess potential for development of the gas field's thin oil zone. The operator envisions using carefully steered horizontal wells, the method it pioneered in the tricky Troll gas field's thin oil layer development in the North Sea.

The first of a new generation of satellite oil fields on Alaska's North Slope has started up (see related story, p. 18).

BP Exploration Alaska last week started production from Badami oil field, the first stand-alone oil field to be developed on the slope in more than a decade. Located 35 miles east of giant Prudhoe Bay oil field, production from the 120 million-bbl reserve Badami is expected to peak at 30,000 b/d.

Saudi Aramco has started production of Arabian extra light crude at Shaybah field, 800 km south of Dhahran (OGJ, July 11, 1994, p. 44).

The massive, $2.5 billion project includes 140 production and injection wells; three gas/oil separation plants; a dehydrator/desalter; a 640-km, 46-in. pipeline; and oil processing, blending, and stabilization facilities.

Abdulrahman Al Wuhaib, vice-president for project management, said project completion time had been cut by 25% from the original estimate.

Shaybah production is expected to peak at 500,000 b/d.

U.K. firm Premier Oil and Calgary's Bow Valley Energy have formed a joint venture to develop Balal oil field off Iran in the Persian Gulf, in cooperation with National Iranian Oil Co.

The companies will design, construct, and install two offshore production platforms with capacity to produce and process as much as 40,000 b/d of crude. Bow Valley is reportedly nearly finished with front-end engineering and design of the offshore structures. First oil is expected in 2000.

Premier, which will be operator and 75% voting interest holder in Balal, does not expect its investment to exceed the U.S. sanctions-triggering limit set by the Iran-Libya Sanctions Act.

Balal, discovered in 1967, is thought to contain 120 million bbl of oil.

Elf has confirmed that it will not pursue a proposed strategic alliance with Russian oil major Sibneft, saying it is "increasingly concerned at the continuing volatile investment climate worldwide-particularly in Russia."

Elf had been prepared to invest 7.7 billion francs to fund half the cost of developing western Siberia's Sugmut field, as well as take a stake in Sibneft.

Elf said, "In light of these recent economic developments and the continuing low oil price, Elf has terminated the current negotiations. However, the two companies will continue to explore the possibility of other types of mutual cooperation in the future."

Elf is looking closely into development of other Russian fields. It plans to make a decision by yearend on whether it will develop Chapkino field in the Timan-Pechora area.

Lower oil prices are taking a toll in Canada.

Drilling activity has declined in western Canada, and employment has fallen by about 4,800 jobs, says Canadian Association of Oilwell Drilling Contractors.

Caodc said 236 of 577 available rigs were active in mid-August, down 193 rigs from the same period in 1997. A 1998 forecast of 13,500 wells could be reduced to 12,000 in a new forecast in September, said the association.

A record 16,488 wells were drilled in 1997.

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