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OPEC output goes down, but so do prices

According to International Energy Agency (IEA) figures, OPEC’s combined crude production fell 490,000 bpd in November, to 29.38 million bpd. Primary reasons for the decrease included pipeline disruptions that interrupted Iraqi exports, as well as slight output declines in Saudi Arabia, Nigeria and the UAE. Iraqi production plummeted 430,000 bopd, to 1.79 million bopd. Excluding Iraqi output, the remaining 10 OPEC members had been pushing their output to capacity limits for most of last year. The November figures represent the first time in several months that the group’s combined output dropped. Nevertheless, prices did not rise in response; instead, they fell. The price for benchmark WTI crude slid to between $40 and $42/bbl, affected by a fall-off in world demand, a building of US inventories and an inevitable reduction in the speculative premium that had boosted prices to unsustainably artificial levels on commodity markets earlier last year. The decline in prices prompted OPEC ministers on Dec. 10, 2004, to agree to cut their collective production by 1.0 million bopd. The cut was expected to take effect January 1.

Opinions on US dollar vary among OPEC members

Concurrent with recent declines in oil prices has been a further weakening of the US dollar. However, this double dose of trouble is not a source of concern for all OPEC members, even though their oil is traded in dollars. Saudi Arabian Oil Minister Ali Naimi said he was not concerned about the US dollar’s weakness against most major currencies, noting that it is normal for them to fluctuate. His comments were echoed by UAE Energy Minister Mohammed bin Dhaen al-Hamli, who reiterated that OPEC is not considering dropping the dollar as the official currency in which the group’s oil is traded, despite recent depreciation. One dissenter was Nigerian Presidential Advisor on Petroleum and Energy, Edmund Dakouro. He worried that if oil prices fall further and OPEC insists on retaining the dollar, if it weakens more, the group’s members “could end up as double losers.”

Nexen completes major acquisition in UK North Sea

Calgary firm Nexen has completed a US$2.1-billion acquisition of the UK subsidiary of fellow Canadian company EnCana. The deal includes EnCana’s interests in Buzzard oil field, Scott and Telford producing fields, other satellite discoveries and exploratory blocks totaling 740,000 net, undeveloped acres. “This acquisition firmly establishes us as a significant player in the North Sea, with current production, high-quality operated infrastructure and built-in growth from the Buzzard development,” said Nexen President and CEO Charlie Fischer.

Saudi’s Naimi confirms plan to raise country’s capacity

At a London conference on oil economics, Saudi Oil Minister Ali Naimi said that his country will raise its crude production capacity to 12.5 million bpd from the current 11.0 million bpd. “This year, we increased our total production capacity from 10.5 (million) to 11.0 million bpd,” said Naimi. “We have also recently developed plans to increase Saudi Arabia’s sustainable production capacity to 12.5 million bpd over the next few years.” As for the long term, Naimi said that raising capacity to 15.0 million bpd can be put into motion, if global demand requires it. Naimi reiterated the kingdom’s commitment to maintain 1.5 million bopd of spare capacity.

ConocoPhillips approves Bohai Bay Phase II project

Roughly $1.8 billion in cash capital commitments has been approved by ConocoPhillips for the multi-year, second development phase of the firm’s Peng Lai 19-3 field in Block 11/05 of China’s Bohai Bay. Final project sanction is subject to Chinese governmental approval. Phase II development will “incorporate knowledge gained from the Phase I drilling and production results,” said the company. Phase I went onstream in December 2002 and is producing 20,000 bopd. Its facilities include a 24-slot wellhead platform and an FPSO vessel. ConocoPhillips (49%) operates the block, shared with China’s CNOOC (51%).

Significant deepwater GOM fields go onstream

BP (50%) announced start-up of production from its Holstein deepwater development, about 100 mi south of Grand Isle, Louisiana. Situated in 4,300 ft of water in Green Canyon Block 645, the Holstein spar is the largest of its kind. Output began on Dec. 9, 2004, and will increase as additional wells are completed and brought online. At peak output, Holstein will produce more than 100,000 bopd and 90 MMcfgd. “It is exciting to see Holstein commencing production on schedule,” said David Eyton, vice president of BP’s GOM Deepwater Business Unit. “Technology developed here is already benefiting later projects.” Also in the GOM, Murphy Oil began output from Front Runner field in Green Canyon Blocks 338 and 339, in 3,100 ft of water. Production commenced on Dec. 4, 2004, from the first of eight wells to be completed, and has ramped up to 13,000 to 15,000 boed. Eventually, the field’s spar will produce up to 60,000 bopd and 110 MMcfgd.

East Timor finalizing new petroleum law

At press time, East Timor was set to approve a petroleum legal code that will open the door for exploration by foreign companies later this year. The country’s Secretary of State for Environment and Investment, Jose Fernandez Teixeira, said the draft law had gone through a nine-month period of negotiations with industry groups and domestic stakeholders, to strike a proper balance between interests. Also, on a recent trip to Japan, East Timor President Xanana Gusmao said that his nation will entrust Chinese firm PetroChina with conducting initial seismic surveys onshore.

Venezuela needs $8.8 billion annually for five years

Venezuela’s oil and gas industry needs investments totaling $44 billion over the next five years said the head of state oil firm PDVSA, Eulogio del Pino. Funds from the private sector, including international companies, will comprise 25% of these investments, said del Pino. In just the Orinoco region, $15 billion will be required during the next four years. According to the country’s Energy Ministry, efforts to develop offshore gas fields will begin, and implementation of LNG projects will be given priority. Several gas fields in eastern Venezuela will be developed, said del Pino. The ministry plans to organize a conference this year at which operators, including Russian companies, will be invited to discuss developing these fields. Venezuela produces 6 Bcfgd, but needs 7 Bcfgd to meet demand.

Capital budgets provide optimism for E&P activity levels

Two recently announced budgets for significant upstream operators indicate even greater E&P activity this year, compared to 2004 levels. ConocoPhillips approved a capital expenditure budget of $6.9 billion for all segments this year. Of that amount, about 75% will go to E&P and midstream projects, or about $5.1 billion. Included in this figure is $500 million for worldwide exploration activities. Meanwhile, Burlington Resources will boost its capital investments to $2.0 billion this year, up 11% from last year’s $1.8 billion. The firm’s budget calls for higher activity levels in all major operating areas, and it includes adjustments for expected increases in service/ supply costs and shifts in foreign currency exchange rates. Geographically, 88% of Burlington’s budget is planned for investment in the US and Canada. About $85 million is earmarked for acquisitions.

Petrobrás to reduce exploratory wells, despite recent finds

Brazil’s Petrobrás will drill 56 exploratory wells this year, said news service Agencia Estado. This figure is down from 62 wildcats and appraisals in 2004. The company’s exploratory efforts will concentrate on the Campos, Espírito Santo and Jequitinhonha basins. This reduction in wells is ironic, given that the firm last month reported new oil finds in the Santos and Espírito Santo basins. In the BM-S-12 Block of the Santos basin, oil was found in the BRSA307-SCS well, about 160 km (99 mi) offshore the southern state of Santa Catarina. Over in the BES-100 Block of the Espírito Santo basin, oil was struck by the BRASA316-ESS well. This is the same block where Petrobrás is developing the Golfinho deepwater, light crude production project.

Libyan bidding awards expected late this month

The head of the negotiation committee from Libya’s National Oil Co. (NOC), Azzam Mesallati, said that his panel met with international oil companies to hear their comments and suggestions, and would review them before the country’s bidding round closes this month. At an industry conference in Tripoli, Mesallati said that winning bids will be announced late this month, rather than in the middle of the month as originally planned. NOC has offered 15 areas that include 58 blocks. After the round was launched last September, 68 international oil companies qualified to bid. NOC also plans to offer another 89 areas, covering 306 blocks, in a similar bidding process later this year.

UK authorities give go-ahead to Farragon oil development

BP received approval from the UK Department of Trade & Industry for the $130-million (£74-million) development of Farragon oil field. Farragon is 140 mi northeast of Aberdeen, Scotland, in Block 16/28 of the central North Sea, in water depths averaging 350 ft. The project will include the drilling of two horizontal wells and installation of a subsea manifold that will be tied back to the existing Cyrus subsea manifold. Crude produced from the field will be processed through existing facilities on the Andrew platform and then relayed through the Forties Pipeline System. First oil from Farragon is expected in late 2005.

Colombia calls for bids

State oil firm Ecopetrol has launched its second tender for 10-year contracts to develop 13 inactive or underdeveloped fields, said a company statement. Each field contains between 300,000 and 1 million bbl of oil. As reported by government-controlled news service SNE, each field will require up to $2 million of committed funds. Nine fields are in the Upper Magdalena Valley, one is in the Lower Magdalena Valley, and two are in the Catatumbo basin. Five of the fields are actively producing.

Statoil will double exploration wells in 2005

Between 18 and 20 exploration wells with Statoil involvement will be drilled on the Norwegian Continental Shelf this year. This figure is double the firm’s exploration activity in 2004. Three wells are planned for the Barents Sea, with seven to nine wells in the Norwegian Sea and nine to 11 wells in the North Sea. Statoil’s NOK 1.8-billion (US$292-billion) exploration budget will be 64% greater than last year’s program.

Passage of Pemex reforms requested

Mexican Energy Secretary Fernando Elizondo and Pemex CEO Luís Ramírez, along with members of a special commission for the Burgos basin, have asked the Senate to pass reforms needed to give the company increased resources for project development. In November, legislators rejected the proposed reforms, which included a lowering of Pemex’s exploration taxes via a variable scheme. The firm’s present tax obligations equate to about 61% of its revenues. The issue has reached new urgency, as Pemex has been on the edge of technical bankruptcy.

Brazil confirms Round 7

As predicted in World Oil last month (page 9), the national energy policy council (CNPE) has set October 2005 as the date for the nation’s 7th Licensing Round. According to CNPE, the blocks that will be offered have good potential for natural gas finds. Hydrocarbons regulator ANP has already begun studies of potential blocks for the round.

Ecuador qualifies firms

Sixteen companies have been qualified by the Energy and Mines Ministry to bid on four state-owned oil and gas fields in the Amazon region. Bids were scheduled to be received through Jan. 14. Purpose of the tender is to increase output from the Shushufindi, Lago Agrio, Auca and Culebra-Yulebra-Anaconda fields. During the first seven months of 2004, these fields produced 81,801 bopd. State firm Petroecuador hopes that winning bidders will work to add 42,000 bpd of oil output.

Chad awards concession

Canada’s Energem Resources was granted a five-year exploration permit by the Chadian government for 259,664 sq km in the Chari-Ouest and Largeau basins. The Chari-Ouest concession is in the center of the Doba basin and is adjacent to discoveries and production operated by ExxonMobil. The Largeau tract is a highly prospective area in central and northern Chad. Relinquished by major oil companies under license provisions, the permit areas were returned to the government and subsequently re-tendered.

Jordan attempts to improve oil resources

The National Resource Authority has reached an agreement with Sonoran Energy to study the exploration potential of the Azraq Block east of Amman. New seismic will be shot over the next five months on the block, and the company will also look at the potential for increasing output from the Hamzah oil field. Hamzah has been producing since 1985, with the last well drilled in 1989. At one time, the field produced more than 400 bopd, but current output is only 40 bopd.

Operator picks up extra tract offshore Falklands

An offshore license covering 50,000 sq km has been awarded by the Falkland Islands government to Falkland Oil and Gas Ltd. (FOGL). The area is adjacent to existing licenses where FOGL is in a JV with Hardman Resources. In all, FOGL holds an interest in 83,000 sq km. The firm has contracted for a 2D seismic survey over all of its acreage, and about 10,000 km of seismic lines are expected to be acquired. The survey will investigate and high-grade eight leads already identified in the JV area.

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