World of Oil

International news in the oil and gas industry

	Vol. 227 No. 11
KURT S. ABRAHAM, MANAGING/INTERNATIONAL EDITOR

Click Here for Kurt's Opinion

Gazprom freezes Western firms out of Shtokman project

Russian gas behemoth Gazprom said it will develop the giant Shtokman natural gas field in the Barents Sea on its own, without the help and any partial ownership of Western companies, be they European or American. Gazprom also announced that Shtokman will no longer be an LNG project. Instead, the gas will be produced and transported by pipeline directly to European markets. The primary reason that it will develop the 131-Tcf field on its own, said Gazprom, is that no acceptable asset-swap offers were received from potential foreign partners. A revised scheme specifies that Shtokman's production will be fed into the planned North European Gas Pipeline, a.k.a. Nord Stream, which will tie-in Shtokman and some other West Siberian fields to Germany via the Baltic Sea link. Since Gazprom lacks Arctic offshore field development experience, it is still unclear whether it will enlist technical assistance from Norway's Statoil and/or Norsk Hydro.

OPEC reaches agreement on 1-million-bopd cut

Meeting in Doha, Qatar, last month, OPEC ministers agreed to reduce their collective output 1 million bopd from the 28-million-bopd quota, beginning Nov. 1. This was the first output cut by the group since December 2004, and it followed on the heels of a 25% decline in global oil prices since a peak in mid-July. The cut became much more certain after Saudi Arabian Petroleum & Mineral Resources Minister Ali Naimi said that his country "absolutely supports the cuts." In addition, ministers did not rule out the possibility of further cuts, if prices continued to show weakness. In response, prices rose $1/bbl or more within a day, to nearly $59/bbl.

Chesapeake shuts-in some gas, due to "low" prices

On Oct. 1, Oklahoma's Chesapeake Energy began shutting-in about 125 to 150 MMcfgd of gross output in various fields of the southwestern US. The move was made, said the firm, "in light of currently low wellhead natural gas prices." The volumes shut-in represent about 6% of the company's net oil and gas production. At the time of Chesapeake's decision, gas prices had fallen to $4.20/MMbtu on the New York Mercantile Exchange versus $7/MMbtu just two months earlier. Chesapeake CEO Aubrey McClendon said "today's low natural gas prices have more to do with temporarily high natural gas storage inventories caused by last winter's abnormally warm weather and less to do with any return to a structural oversupply of natural gas."

EIA sees mild North American winter, lower fuel prices

Taking its cue from a National Oceanic and Atmospheric Administration forecast for a warmer-than-normal winter (but slightly colder than last winter), the US Energy Information Administration predicts lower heating fuel prices in the coming season. EIA forecasts a Henry Hub natural gas price average of $7.39/MMbtu and a heating oil price of $2.46/gal. The latter figure is up only one cent from last winter. The EIA gas figure is 16% lower than year-ago levels, when Gulf of Mexico shut-ins from Hurricanes Katrina and Rita jacked up gas prices. Even if the winter is colder than expected, EIA said that gas in storage will remain above historical averages.

Lukoil set to double oil production by 2016

During a strategy presentation in New York, Russian producer Lukoil said it would invest up to $112 billion between now and 2016 to double its oil production to about 4 million bpd. The company also said it would invest heavily in a ten-fold expansion of gas output. Officials hope to produce 2.5 Tcf/year by 2016, so that gas would comprise one-third of the firm's hydrocarbon output. Accordingly, the plan envisions the firm's market capitalization rising to $200 billion from the present $66 billion. Gas operations would be centered on the Caspian Sea, the Bolshekhetskaya Depression of northern Russia, Uzbekistan and Saudi Arabia. Lukoil's second-quarter 2006 profit rose 65% to $2.32 billion, thanks to high prices, rising output and better management.

Field extensions improve US reserve figures

The US Energy Information Administration (EIA) credits high commodity prices, development drilling of recent finds and the use of technology in mature fields for an increase last year in US oil and gas reserves. Proved oil reserves rose 1.6%, to 21.757 billion bbl, while dry gas reserves increased 6.2% to 204.385 Tcf. NGLs were up 3.0%, to 8.165 billion bbl. "The majority of natural gas reserves additions in 2005 resulted from extensions of existing fields, rather than new field or reservoir discoveries" (particularly in Texas and Colorado), said EIA. Furthermore, "the majority of crude oil total discoveries in 2005 came from extensions to fields in Texas, California, Montana and Wyoming."

Buzzard output expected this month offshore UK

Operator Nexen was expected to begin production this month from Buzzard oil field in the UK North Sea. At least two cargoes of 600,000 bbl of oil, each, were scheduled for export from Buzzard this month, indicating at least 40,000 bpd of initial output. Eventually, production from the field will reach a peak of 210,000 bopd. Thanks to this new output, British oil and gas production are forecast by the UK Offshore Operators Association to rise for the first time since 2007. The increase is expected to be about 300,000 boed, resulting in 3.3 million boed.

Alaskan sale yields $13.8 million in bids

Four oil companies submitted bonus bids totaling $13.60 million to win rights to develop 81 oil and gas lease tracts on about 940,000 acres in the National Petroleum Reserve-Alaska during a Sept. 27 Bureau of Land Management lease sale. Bids were received from Anadarko Petroleum, ConocoPhillips, FEX LP and Petro-Canada. FEX and Petro-Canada jointly bid more than $10.3 million, the highest amount, to acquire 48 tracts. Anadarko had 25 successful bids, and ConocoPhillips had eight. The bonus bids, along with annual rental payments, will be split 50/50 between the federal government and the State of Alaska. The sale was set to offer tracts within the reserve's northwest and northeast planning areas, totaling 8 million acres. Due to a final decision from the US District Court in Anchorage, the northeastern tracts were withheld from the sale. Meanwhile, Alaska has created a new agency. The Office of Lease Monitoring and Engineering Integrity Coordinating will assess which federal and state agencies have jurisdiction over specific pipelines and production facilities.

Terra Nova FPSO goes back on station

Petro-Canada's Terra Nova FPSO returned from maintenance to the Terra Nova oil field offshore Newfoundland and Labrador, and it was in the process of being hooked-up last month for a re-start of production by Oct. 31. The field had been shut down since last May, due to various mechanical problems. Because of delays in the re-start caused by additional unspecified work on the vessel, the operator now expects that peak production of 110,000 to 120,000 bopd will not be achieved before early 2007.

Shell agrees to take two Syrian blocks

Despite pressure from the US State Department to economically isolate Syria, Shell signed two new exploration agreements with the country's oil ministry and will spend $42 million on Blocks 13 and 15. Each deal would run for 20 years, if any commercial production is discovered. Syrian officials are hoping that new finds in the two blocks can help to stabilize or boost the country's faltering crude production. Shell is already a player in Syria through its Al-Furat Petroleum subsidiary.

Iran reported ready to announce new round

As this issue went to press, officials at National Iranian Oil Co. said they were getting close to announcing a fresh round of tenders to explore and develop onshore reservoirs. As mentioned on state-controlled television, all the permits for the blocks involved have been obtained, and the round may comprise 24 blocks. Of that number, 16 would be new blocks, and eight would be left over from a previous tender in 2004.

Development of New Zealand field underway

In a country where oil production has only been averaging about 20,000 bpd in the last year, every drop of new output counts. This certainly seems to be the thought behind Austral Pacific Energy's development of Cheal oil field in New Zealand's Taranaki basin. Drilling of the first of four wells in the Cheal B site began last month, and that timing was only three months after the field partners approved the development program. After finishing at the Cheal B site, the rig will move to the Cheal A location and drill two more wells. Output should average 1,000 bopd during first-quarter 2007 and then rise to about 1,900 bopd during second-quarter 2007, said the firm.

Canada specifies oil sands target

Canadian federal officials now predict that oil sands output will average 2.9 million bpd by 2020, which is nearly triple current production. This compares to forecasts of 3.27 million bpd by Canadian Association of Petroleum Producers and 3.0 million bpd by 2015 by other industry associations and companies. Natural Resources Canada (NRC) said its prediction "is only one of many possible outcomes." NRC also said that natural gas output will fall to about 5.3 Tcf/year in 2020 from a peak of 6.6 Tcf/year in 2011. The latter year is the assumed date by which the Mackenzie Gas Project should start supplying 1.2 Bcfgd to markets in the US.

Ukraine gas imports set

To avoid a cut-off in natural gas supplies, similar to what occurred last winter, Ukrainian Fuel and Energy Minister Yuriy Boyko said his country will begin taking gas at a rate of 2.0 Tcf/year from only Uzbekistan, Kazakhstan and Turkmenistan during 2007. Under the deal brokered by RosUkrEnergo, Ukraine's exclusive gas supplier through 2010, none of the gas will come from Russia. This year's gas is still coming from Russia, plus Turkmenistan.

Caracas yowls on taxes

Venezuela's Seniat tax agency said that its latest audit of 22 private operators indicates that it may have to bill the firms for $326 million in supposedly unpaid taxes from 2005. Tax officials already have billed about half of these firms for $255.8 million. This action follows the Seniat's levy of about $700 million for taxes that allegedly went unpaid during the years from 2001 through 2004.

Israeli license okayed

Canadian independent PetroMed received permission from Israel's Ministry of National Infrastructures to begin exclusive exploration of shallow-water prospects in a 3,500-sq-km tract offshore Haifa. The firm has budgeted about $17.2 million for a pre-drilling exploration phase that runs through first-quarter 2008. After that, the company expects to receive a drilling license for a five-to-seven-year period. PetroMed said its work is intended to find new oil and gas output that can displace imported coal for generating electricity in the country.

Abraham

Opinion

There's an old saying that "what goes around comes around," and that seems to apply to South American E&P. Back in the first half of the 1970s, there was a wave of nationalization that swept this continent. The various countries either established or expanded national oil companies, seized operations and assets, and made somewhat outrageous declarations about how they could conduct their activities without the help of "outside" (a.k.a. US and European) oil companies. At the time, oil prices were relatively high and rising. Many oil fields were recent discoveries and producing near peak. As long as prices stayed high, governments could get away with this collective behavior.

Then came the mid-1980s and large price drops. Revenues were down, some fields were not as flush with output, and South American national oil firms did not have the technological capabilities to compensate. By the end of the 1980s, it became obvious to more enlightened leaders that if they were going to maintain viable upstream operations, they would have to enlist US and European help. Thus were born the openings and offerings of the 1990s to foreign oil companies, with relatively generous monetary terms, as the countries strived to improve production. Even Venezuela got into the act, signing up firms for service and association contracts. Everything went well through the remainder of the 1990s and even into the early 2000s. But the high prices of the last two years have replenished some of these nations' treasuries and generated a new behavior of greed.

Now, several South American countries have come full circle back to the mentality of the 1970s, and the news is bad for the E&P industry. Events in Venezuela have been well publicized – punitive tax actions, asset seizures, contract revisions at a whim and bellicose threats. Bolivia is an even more desperate case, where a hostile president was elected, and the country has adopted a full-blown nationalistic stance on upstream activity. Unfortunately, Ecuador may be next to join the group. It has been a rocky year for private operators in Quito. Last April, the administration of President Alfredo Palacio signed into law a new tax that forces firms to hand over 50% of gross income from production, when crude exceeds a certain threshold. In May, officials seized fields operated by Occidental, insisting that the US firm had breached its contract. Also, despite high prices, Ecuador's output has stagnated at about 530,000 bopd. Complicating the situation is a Nov. 26 run-off in Ecuador's presidential election, which now pits industry-friendly billionaire Alvaro Noboa (26.7% of the first-round vote) against unfriendly, ex-Finance Minister Rafael Correa (22.5%). The choice is clear-cut – Noboa supports greater investment by private oil companies, while Correa is running as an anti-market, anti-establishment candidate. If Correa wins, it could mean a return to a nationalistic Ecuador that hasn't been seen since it was a part of OPEC in the 1970s and 1980s. And just for good measure, Palacio Economy Minister Armando Rodas just quit, amid a fight over implementation of a trust fund for revenues collected from Oxy's former fields. Rodas was the fourth economy minister appointed by Palacio in the last 18 months. What a mess Quito has become.

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