World of Oil

	Vol. 226 No. 10
KURT S. ABRAHAM, MANAGING/INTERNATIONAL EDITOR

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OPEC uses almost 20% more rigs in 2004

OPEC members’ activities required 18.8% more drilling rigs last year, even though the actual number of oil wells completed declined 9.3%. However, member-countries’ gas completions were up 45%. OPEC used 272 drilling rigs last year, versus 229 in 2003. Some of the largest percentage increases in rig utilization occurred in Venezuela, Kuwait, Qatar, Nigeria and Indonesia.

Newfoundland accounts for 12% of Canadian oil

Newfoundland’s offshore output was just over 12% of Canadian oil production during 2004 – 2005. The East Coast produced 114.8 million bbls of oil (314,520 bopd), down from 122.96 million bbls (335,956 bopd) in 2003 – 2004. The decline was due to a 24-day shutdown at the Terra Nova floating production vessel following an oil spill last November. However, East Coast output will rise when White Rose field’s FPSO goes onstream next month at 92,000 bopd. The E&P industry created 16% of Newfoundland’s gross domestic product during the fiscal year ending March 31, 2005.

Warmth hits North Slope

State of Alaska officials said that North Slope oil production averaged 848,742 bpd during August, up 5% from July’s rate, when output fell because of pipeline shutdowns for summer maintenance. However, August production did not hit the maximum rate that it could have achieved, due to the weather. High North Slope temperatures in the early part of the month reduced the capacity to handle natural gas produced with the oil.

Kansas looks at rig blast

Federal agents, the Kansas state Fire Marshall and Montgomery County’s sheriff were investigating a June 2 explosion at a gas drilling rig in southeastern Kansas for possible criminal activity. The entities offered a $10,000 reward for information leading to an arrest and conviction but offered no theories. The rig was owned by McPherson Drilling of Cherryvale, Kansas.

Hurricane Katrina takes toll on infrastructure

Shell’s Mars TLP was damaged extensively by Hurricane Katrina offshore Louisiana.

Hurricane Katrina imposed its wrath on upstream offshore facilities before striking the US Gulf Coast on Aug. 29, 2005. At the height of the storm’s impact, the MMS report for Aug. 30 said that 645 platforms and 90 mobile drilling rigs had been evacuated. These evacuations represented 78.75% of 819 manned platforms and 67.16% of 137 rigs operating in the Gulf of Mexico. In addition, 1.427 million bopd and 8.8 Bcfgd were shut-in, representing 95.2% and 88.0% of daily GOM oil and gas output, respectively. The MMS said that the Gulf provides 30% of US oil production and 21% of gas output, so the shut-in figures of Aug. 29 – 30 represented 28.6% of daily US oil production and 18.5% of daily US gas output. As of Sept. 19, shut-in GOM production had been reduced to 837,648 bopd and 3.375 Bcfgd, representing 55.8% of oil capacity and 33.75% of gas capability. MMS said that GOM infrastructure held up better than expected, despite Katrina’s Category 5 status as the storm ploughed through producing fields. Of roughly 4,000 OCS production facilities, 46 shallow-water and/or low-producing platforms were destroyed, and another 20 platforms of various sizes were damaged. Within the latter figure are four Shell-operated facilities that will require significant work to bring them back onstream. Included are the Mars and Ursa deepwater TLPs, plus the Cognac fixed platform and the West Delta 143 gathering hub for Mars and Ursa. Shell said that Mars is not likely to return to service until sometime in 2006. Nevertheless, Burton predicted that GOM production would return to 90% of capability in three months (mid-December), once pipeline and onshore infrastructure damage is fixed. Actual output should reach 90% in 30 to 40 days. In addition to platform damage, MMS reported that Katrina destroyed four drilling rigs, and nine others had “extensive damage.”

Industry’s 100-year storm standards may have to be revised

Threatened by yet another dangerous hurricane, Rita, operators began evacuating workers from offshore facilities in the central and western Gulf during mid-September, even as industry officials pondered what revisions they may need to make to 100-year storm standards. Attendees at a July API conference in Houston on GOM infrastructure had expected to have more time to consider the associated issues, but then Katrina made the situation a priority. API drilling and production coordinator Tim Sampson noted that most definitions of a 100-year event were calculated before Katrina and last year’s Hurricane Ivan. For instance, the recommended deck height in the 1960s was 35 ft, but the most common figure used in the last several years has been 55 ft. However, even that height proved to be insufficient for Ivan, which produced a 90-ft wave that hit Chevron’s Petronius platform, causing extensive damage that kept the facility off-line for six months. Industry officials expected to spend the next several months considering whether, and how, to redefine 100-year storm criteria. A new task force on the subject may emerge from these discussions.

ONGC secures Bombay High North insurance claim

India’s Oil and Natural Gas Corp. (ONGC) has obtained a full, $173-million settlement of its claim for the Bombay High North (BHN) production platform, destroyed by fire on July 27, 2005. This settlement only covers the platform, while a separate insurance claim for the Samudra Suraksha workboat, which struck the BHN facility, was close to being settled as this issue of World Oil went to press. ONGC said that Bombay High output had recovered to 220,000 bopd from a low of 145,000 bopd after the accident. However, this is still under the pre-accident rate of 265,000 bopd. Achieving and exceeding the pre-accident rate will require installation of a new platform.

Saudi crown prince expresses worry over high prices

Saudi Arabian Crown Prince Sultan said the kingdom was concerned about high oil prices, but the regime stands ready to fill the gap on any supply shortages, said the official Saudi Press Agency. “We’re worried about the rise in oil prices, and we affirm the kingdom’s readiness to do all it can to compensate for any shortages of supply and to meet rising demand,” the agency quoted Sultan as saying. US oil prices traded in the mid-$60s/bbl range for a week before Sultan’s comments, down from earlier highs of more than $70/bbl.

OPEC says demand dulled by high product prices

Record high gasoline prices have pushed down forecasts for world oil demand in 2005, said OPEC in its monthly oil market report. World oil demand is forecast to grow 1.4 million bpd during 2005 and 1.5 million bpd in 2006. These figures represent a downward revision of 200,000 bopd for both years. “Estimated world oil demand (for) 2005 has been revised down from last month’s projection,” said the report, “to reflect apparently weak demand growth in the first half of the year, record pump prices for transportation fuels and negative retail margins.” OPEC analysts revised non-OPEC supplies down in second-half 2005, mainly in the US, where Hurricane Katrina shut-in a substantial amount of production.

Eni hit by cost over-runs at Kashagan

According to details leaked by analysts in London, Italy’s Eni will suffer a $5 billion increase in development costs at 13-billion-bbl Kashagan oil field. Eni (18.52%) operates Kashagan, the largest discovery since 1991, offshore Kazakhstan in the Caspian Sea for partners ExxonMobil (18.52%), Shell (18.52%), Total (18.52%), ConocoPhillips (9.26%), KazMunaiGaz (8.33%) and Inpex (8.33%). If the rumor proves accurate, then Eni will see its original project estimate of $29 billion rise by 17%. Eni’s new chairman, Paulo Scaroni, was expected to confirm the cost boost during a presentation to investors on Sept. 21. A week earlier, Total Chairman Thierry Desmarest had fueled speculation that Kashagan could go over budget, when he told analysts that the target date for first production from Kashagan had slipped into 2009 from 2008. If Eni continues to have problems, it could embolden ExxonMobil and ConocoPhillips, both of which have coveted the field’s operatorship.

UK chancellor warned about North Sea

Senior oil and gas executives have counseled UK Chancellor of the Exchequer Gordon Brown not to raise taxes on UKCS production, fearing that any hike in the rate could ruin the recovery now underway. Ironically, it was Brown’s surprise “shock tax,” a 10% surcharge on offshore output in 2002, that prompted a recession in the British industry that the government has had to work hard to remedy. Department of Trade & Industry officials have worked extensively to build back the sector, implementing new incentives and recruiting additional independent operators to take over assets that no longer interest the major operators. DTI just had its most successful bidding round in four decades, announcing that it would offer 152 blocks for award to 99 companies.

Norwegian industry sweats new regime

Fearing that the new government will slow or halt development in the Barents Sea, and delay or scrap plans to open areas on the Norwegian Continental Shelf (NCS) to further exploration, Norway’s upstream industry is nervous after a left-leaning coalition won power in the national election on Sept. 13. Incoming Labour Prime Minister Jens Stoltenberg’s Red-Green alliance of three parties (Labour, Socialist Left and Centre Parties) won 87 seats in the 169-member national parliament. Outgoing Prime Minister Kjell Magne Bondevik’s Christian Democrat Party won only 82 seats, and Bondevik said he would step down on Oct. 14, assuming that winning parties have formed their new regime by then. Stoltenberg had campaigned on a pledge to spend more of Norway’s oil wealth on welfare, health and educational programs. Bondevik had advocated further tax cuts.

Western Australian gas field goes onstream

Apache Corp. (operator, 55%) and Santos Ltd. (45%) said that production has begun from the John Brookes gas development in the Carnarvon basin, offshore Western Australia. The $300-million project includes an unmanned, minimal platform, with three production wells interconnected via a pipeline to processing facilities on Varanus Island. Initial flowrate was 56 MMcfgd to 74 MMcfgd, with capacity set to increase to 223 MMcfgd by the end of 2005. The field was discovered in 1998, in 154 ft of water.

Abraham

Opinion

In light of Hurricane Katrina’s rampage, who is more incompetent? The US national media, or various federal, state and local officials? Despite their respective poor performances, both groups have shamelessly sniped at each other, a daily circus that embarrasses average US citizens and amazes folks in other countries. Orleans Parish mayor (same as the city of New Orleans), Clarence Ray Nagin, Jr., had not held political office prior to being elected in a May 2002 runoff. Before that, Nagin had been a cable communications firm vice president. He was a Republican who jumped to the Democrats just days before the February 2002 mayoral election. He also contributed to the 2000 campaigns of President George W. Bush and other Republicans, as well as to Democratic senators some years earlier. Nagin also endorsed now-GOP Congressman Bobby Jindal in the 2003 Louisiana gubernatorial runoff over current Democratic Gov. Kathleen Blanco. Since Nagin was clearly confused about his political identity, it is no surprise that he was overwhelmed by Katrina logistics. His poor relationship with Blanco further complicated the situation.

Blanco is much more of a career politician, but since becoming governor in January 2004, her biggest issue before Katrina was whether or not the state could hold on to the National Football League franchise, the New Orleans Saints. Instead of learning how to run the Louisiana bureaucracy better, Blanco spent her time worrying about whether the state should renovate or replace the Superdome to placate the Saints. Once Katrina hit, Blanco had no idea how to make the bureaucracy work, but now she really will have to worry about what to do with the Superdome after its ignominious tour of duty as a makeshift shelter.

Then there is Michael Brown, the now-deposed Federal Emergency Management Agency (FEMA) director, who appears to have attained that position only because he is a childhood friend and college roommate of Joe Albaugh, a trusted Bush confidant and the previous head of FEMA. One cannot imagine that Brown’s stint from 1989 to 2001 as Judges and Stewards Commissioner for the International Arabian Horse Association qualified him to head up FEMA. Meanwhile, broadcast and cable news network anchors swarmed into New Orleans as if they were trying to earn military combat ribbons. Discarding journalistic objectivity for blatant emotionalism, these anchors and reporters boo-hoo’d their way into infamy, throwing any wild rumor onto the television, as if it were solid fact. And, from his dry studio in New York, conservative Fox News “intimidator” Bill O’Reilly showed his complete lack of knowledge of the oil and gas industry by skewering, week after week, the major oil companies for “price gouging.” He failed to mention the role of jobbers (wholesalers) in pushing up gasoline prices, nor did he say that crude prices were inflated by New York Mercantile oil traders engaging in blatant speculation. But what should we expect from someone born in Manhattan? Lost in the shuffle and largely unreported by the spoiled brat media were the magnificent efforts by industry personnel to keep as many Gulf Coast refineries running as possible, as well as to quickly repair offshore facilities.

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