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Total leads for Shtokman

Russian officials said that Total’s chances of participating in the Shtokman gas development project in the Arctic are quite high. In fact, Sergei Naryshkin, head of the government’s administration, hinted at a press conference in Moscow that Total may be the leading contender. “The results of efforts to form a consortium will be announced soon, but I hope there will be a place for Total in the project,” said Naryshkin.

Alaskans debate pipeline

Defending himself before state legislators for only negotiating with North Slope leaseholders for a gas pipeline, Alaska Gov. Frank Murkowski said that a non-leaseholding pipeline operator might have to “wrench the gas or the leases from the producers, triggering an epic legal fight that could doom the state’s long struggle to get a gas pipeline and the thousands of jobs and billions of dollars in state revenue that could come with it.” One company, Conoco, has reached agreement with the governor on certain basic terms. Murkowski said negotiations for operating the project continue with BP and ExxonMobil.

Venezuela awards tracts

Venezuela’s Energy and Oil Ministry has awarded three E&P licenses for three offshore blocks in Phase B of the Rafael Urdaneta tender in the western part of the country. The awards netted $61.3 million in licensing fees, said Rafael Ramirez, president of state firm PDVSA. The Castillete Noreste 2 Block was awarded to Vinccler Oil & Gas for $7.38 million. A consortium of Petrobras and Teikoku Oil paid $19.5 million for the Moruy 2 Block. Finally, the Cardon 4 Block was acquired by Eni and Repsol-YPF for $34.4 million. Natural gas produced from these blocks and others will be used for thermal power generation and secondary oil recovery.

Togo to hold round

Togo’s Ministry of Mines, Energy and Water announced that a bidding round will take place for deepwater Block B. The tract covers about 4,000 sq km, and 656 km of new 2D seismic and 3,000 sq km of 3D seismic will be made available. The deadline for bidding on this block is May 1, 2006.

OPEC adopts “all is well” attitude on price and supply

OPEC President and Kuwaiti Energy Minister Sheik Fahd Al Ahmed Al Sabah said he did not see any need for the group to cut its oil production. At a parliamentary press briefing, Sheik Ahmed also said that OPEC does not yet have a target price level to defend. Excluding Iraq, the organization’s members are producing at or near maximum capacity and well above the last ceiling of 28 million bopd. Providing further elaboration, acting OPEC Secretary General Adnan Shihab-Eldin said that oil prices are now more “realistic,” because the market has become more balanced. Speaking to Algeria’s al-Khabar newspaper, Shihab-Eldin said it is likely that OPEC will increase its collective production capacity by 1.5 million bopd during 2006, as part of a larger plan to boost capability to 38 million bopd by 2010. The OPEC Secretariat also commented that world oil demand is now recovering, and there is little evidence of “demand destruction” caused by high prices in the aftermath of Hurricanes Katrina and Rita.

ExxonMobil downplays rumors of larger Hibernia oil pool

In response to independent Canadian media accounts, ExxonMobil cautioned that reports of new estimates showing the Hiberian oil field reservoir to be 20% larger are “speculative.” Indeed, veteran Newfoundland analysts noted that estimates of the field’s potential have fluctuated wildly in the past. Rumors were fueled recently, when a newspaper in St. John’s quoted Newfoundland Premier Danny Williams as saying that he had heard of a new pool south of, and adjacent to, the existing field. Williams reportedly heard an estimate of 200 million to 300 million bbl of oil in that new pool. There have also been rumors of the operator soliciting bids for platform and subsea modifications. In response to the speculation, ExxonMobil spokeswoman Margo Bruce-O’Connell said, “There have been positive drilling results in the southern areas of the existing reservoir. We’re currently drilling in the area to better understand what this means. We’ve been saying since June that it’s too early to speculate.”

Petrobras foresees high lifting costs indefinitely

Brazilian firm Petrobras said that it expects lifting costs to remain high, as long as international demand growth for oil products continues to outpace production. Discussing the firm’s third-quarter results with analysts, company officials said that strong growth will push equipment and service costs even higher. Petrobras’ lifting costs rose 21.5% in third-quarter 2005 to $5.83/bbl, up from $4.88/bbl in the second quarter and $4.09/bbl in third-quarter 2004. According to Petrobras, $0.71/bbl of the current lifting costs results from higher costs for platforms and FPSO leasing, along with greater service costs. This figure also includes a bonus payment to the owners/ operators of the FPSO stationed in Marlim Sul field of the Campos basin.

Hot rig market expected to last well into 2007

Sustained, high oil prices will continue to drive a booming global drilling rig market into 2007, said Standard & Poors Director Karl Nietvelt. He told Dow Jones Newswires that global economies have shown few signs of cooling down enough to slow oil demand growth and retard high prices. In turn, he believes that E&P firms will continue to expand upstream activity and spending. “Oil prices are high, and E&P investment should remain pretty high going forward,” said Nietvelt. “On the drilling rig side, there is a shortage, and we don’t see that trend finished in 2006 to 2007.” He noted that previous oil shocks over the last 30 years resulted primarily from supply problems, while the current sustained rise in prices is caused by demand growth. He cited factors that included a limited demand-supply cushion, greater reliance on OPEC and an increased risk-premium, due to greater dependency on politically unstable, insecure areas. “The risk premium is likely to stay...especially since the situation in Iran and Iraq isn’t likely to change,” explained Nietvelt. “We haven’t seen prices really curb demand. We’ll probably only see demand destruction at around $80 to $100/bbl.”

MMS proposes new OCS cost recovery fees

The Department of Interior’s Minerals Management Service (MMS) recently published in the Federal Register a proposed rule seeking public comments regarding new cost recovery fees related to the Regulation of Oil and Gas Activities on the OCS. The proposed rule would impose new fees to process certain plans, applications and permits. These proposed service fees would offset MMS’s costs of processing such items. The agency anticipates that the proposed new fees would result in $16.5 million in cost recovery. Furthermore, these fees are for different activities than were addressed in the recent cost recovery rule issued on Aug. 25, 2005. The plans and permits identified for potential fees include exploration plans, deepwater plans, applications to drill, platform applications, pipeline applications, permits for scientific research, etc. Comments on the proposed rule are due by Jan. 13, 2006.

Insurers re-think policies after hurricane claims

Two claims filed for hurricane damage by Chevron and Dominion are the talk of the insurance industry, and they are cited as evidence that insurers must re-calibrate their assumptions about potential amounts and how much they are willing to bear. In addition to being based on aggregate damage instead of a per-claim basis, new policies being drafted for 2006 include much larger excesses. It is also nearly impossible to buy business interruption insurance, which covers profits lost, due to catastrophes. Chevron has filed claims for $485 million for Hurricane Katrina and $485 million for Hurricane Rita. Dominion has claimed $700 million from Katrina and $175 million from Rita.

Kerr-McGee waves goodbye to North Sea

Kerr-McGee has completed the sale of 100% of the stock of its Kerr-McGee (G.B.) Ltd. subsidiary to Maersk Olie og Gas AS, a subsidiary of A.P. Moller - Maersk A/S, for $2.95 billion. Effective back to July 1, 2005, this transaction has completed Kerr-McGee’s exit from the North Sea. The combination of this deal and the previously closed sale of the non-operated portion of the firm’s North Sea properties provides net after-tax proceeds of about $3.1 billion to the company. “The company now has closed (about) 75% of the expected $4.4 billion in net after-tax proceeds to be received this year, which enables us to continue our efforts to reduce leverage,” said Kerr-McGee CFO Bob Wohleber. “We expect to receive the remaining proceeds by year-end 2005. In addition, we currently are evaluating bids for our Gulf of Mexico shelf properties.”

Alberta producers must give up 917 wells

A seven-year dispute within Alberta’s energy industry has ended with a provincial ruling that backs up an earlier decision that natural gas operators must shut in and permanently cap 917 gas wells capable of 120 MMcfd, because the wells threaten future oil sands development. In a final ruling, the Alberta Energy and Utilities Board (AEUB) rejected appeals to save the northern gas wells. The appeals were made last summer, during a period of technical hearings on previous bitument conservation decisions. The new policy shuts in about 0.7% of Alberta’s total gas reserves, but nearly 15% of the province’s bitumen reserves are involved in the case. AEUB has a compensation program that reduces royalties on other wells that the affected operators may have, rather than pay out cash directly to compensate for lost gas output. Already, Paramount Energy Trust has collected about C$32 million (US$26 million) in compensation in kind.

Arctic drilling struck from US House bill

Rather than hold up passage of a key budgetary bill, GOP leaders in the US House stripped a provision from the legislation that would have permitted drilling in Alaska’s Arctic National Wildlife Refuge. However, there was still a chance as this issue went to press that ANWR drilling might still make it into any Senate-House Conference Committee reconciliation. The Senate negotiators assigned to the conference proceedings included Sen. Ted Stevens (Rep.-Alaska) and Sen. Pete Domenici (Rep.-New Mexico). Both men reiterated that they wanted to see any final reconciliation version of the bill include a provision allowing ANWR drilling.

Syria attempts to improve oil output scenario

Alarmed by future oil production forecasts, Syrian officials are taking steps to encourage greater development and efficiencies. As reported by Middle East Economic Survey, Oil Minister Ibrahim Haddad said that several contracts to promote more oil exploration in new blocks have been signed, and work is progressing. The largest producer in the country, Syrian Petroleum Co., said that the nation’s output has fallen to 425,000 bpd of liquids from three producers. This results from an annual 4% to 6% decline, which dates back to a peak in Syrian production in 1997 – 1998. If no new discoveries are made, said Haddad, then Syrian output could fall to 370,000 bopd by 2012 and only 300,000 bopd before stabilizing in 2030. 

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