OUTLOOK 2007: WORLDWIDE OIL PRODUCTION

Demand flattens, giving producers time to expand capacity

Continued high prices throughout 2006 financially strengthened producers, but flattened global demand. According to the US Department of Energy's Energy Information Agency, world oil supply growth through the third quarter was off slightly at -0.2%, while demand also moderated with minimal growth of +0.2%. World Oil's production tally shows production growth with a slight 0.3% expansion.

The price signal that took hold in 2005 restrained demand in 2006. Oil prices for WTI continue at historically high levels. They began the year above $63/bbl and spiked to over $75/bbl during August. Since that time prices have fallen, but they remained above $57/bbl through the end of 2006.

Oil in storage continues at historically high levels as well, so there is no lack of hydrocarbons to meet any increased demand. High storage levels must be worked off before prices will firm again. All product categories remain above the average range in the US, as mild winter weather limits heating oil usage.

Last year's fears regarding the Iraqi conflict, Iran's nuclear ambitions and other tensions seem to have moderated. Even though the Middle East region continues to be conflicted, oil markets have settled. There seems to be sufficient supply at present with no threats to its delivery to markets.

Most Mideast countries moderated their output over the past year. The Former Soviet Union (FSU) countries, including Russia, continued to expand output. Africa grew its production, even with continued turmoil in several countries. The Far East had modest growth, and South Pacific countries saw a decline.

NORTH AMERICA

Conventional crude and condensate production continued its downward path in 2006 with a decline of 1.4%. This is much less than last year's drop of 8.2% for the region. The US again had a large production decline, down 38,000 bopd, to 5.140 million bopd. The North American region continues to produce more than 10 million bopd and retains its No. 3 producer status. All other countries in the region, except Cuba, showed declines. Cuba expanded its output 7.2% to 65,600 bopd, a 4,400-bopd increase.

Canada. Conventional crude oil production fell 4.8% to 1.45 million bopd. Oil sands development has been strong this past year, encouraged by high oil prices, but operators are anticipating a slowing of activity in 2007. Alberta Province operates the most wells in Canada�46,300 oil wells and 104,250 gas wells. Saskatchewan Province follows with 23,156 oil and 17,876 gas wells. Offshore production in the Atlantic increased slightly to 288,000 bopd from last year's 285,000 bopd.

Mexico. Oil production in Mexico continued to drop. In 2006, the country lost 39,000 bopd, a 1.1% decline to 3.392 million bopd. Most of this oil comes from offshore fields. The 2.713 million bopd from offshore production represents 80.0% of the country's output in 2006. Most of Mexico's new drilling will be in onshore development wells, but additional drilling will occur offshore, where 75 wells are planned. The deepwater exploration program has several years yet to run and is expected to yield new discoveries.

Other countries. The production decline continues across North America. The past year saw a 7.3% drop to 19,000 bopd from the remaining producing countries, principally Guatemala.

SOUTH AMERICA

This region's production rose 4.1% in 2006 to 6.48 million bopd. It was led by Venezuela and Brazil, followed by Argentina and Columbia. Venezuela produced the most oil in the region in 2006, raising its output 6.3%. Brazil produced the second-largest daily volume and raised its production 5.4%, on pace with 2005's 5.9% gain. Bolivia earned bragging rights for the largest percentage gain, 9.9%, which was a 4,200-bopd increase to 46,500 bopd.

Led by Venezuela's president, Hugo Chavez, the region is beginning to experience another round of nationalizations. This will increase the pressure on international oil companies and may limit investment in some production projects.

Venezuela. Oil production increased this past year to 2.71 million bopd. The government took control of 32 oil fields in January 2007, ending concessions granted during the opening to foreign investment of earlier years. The government is in the process of nationalizing all oil and gas assets.

Brazil. It was another good year for Brazil, with oil output growing to 1.72 million bopd. Petrobras brought a new FPSO online in Espadarte field, which will lift and process up to 100,000 bopd and 88 MMcfgd.

Argentina. Argentina was down 0.7%, a slight drop to 660,900 bopd. The country has 18,767 producing oil wells and 1,178 gas wells.

Columbia. Colombia reversed its production decline, raising its output 0.9% to 530,000 bopd. The country had struggled to stop declining production for the past five years.

WESTERN EUROPE 

Western Europe's production decline accelerated in 2006. The region was off more than 9%, dropping 464,300 bopd, but still produced an average of 4.53 million bopd throughout 2006. The Netherlands experienced the largest gain, up 46% to 66,000 bopd. Most other countries had declines.

Norway. The Norwegian offshore North Sea sector averaged 2.4 million bopd during 2006, off almost 11% from last year. The Norwegian Petroleum Directorate expects $13 billion (82 billion kroner) of new investment in 2007.

One new field, Ringhorne Øst, came onstream in 2006. Production should increase in 2007, when seven new fields are scheduled to begin producing: Alvheim, Blaine, Enoch, Ormen Lange, Volve, Snøhvit and Vilje. Also in 2007, the NPD anticipates that eight plans for development and operation will be submitted. The region saw 18 exploration wells and eight appraisal wells drilled in 2006, which produced four discoveries. Rig shortages limited drilling and will continue to do so in 2007.

Norway hopes to see its offshore territory expand this year when the United Nations redefines the country's outer maritime boundary. The country hopes to gain an additional 155,343 sq mi (250,000 sq km), based on new Continental Shelf data it has gathered.

United Kingdom. The UK North Sea continued its decline, dropping 9% in 2006. The good news is that this was less than last year's 13% decline. The country produced almost 1.5 million bopd in 2006, but was down 148,000 bopd from last year. One new field was brought onstream in 2006.

EASTERN EUROPE/FSU

The Former Soviet Union continued its production expansion for the eighth straight year. FSU production rose to 11.89 million bopd in 2006, a 443,800-bopd rise over 2005. Outside of the FSU, Poland had a 4.5% decrease to 16,800 bopd, while Hungary led the declines with a 33% production drop to 17,900 bopd. Other Eastern European countries saw a net reduction of 13,400 bopd. Albania raised its output almost 13% to 7,100 bopd, while most other producer countries saw decreases in output.

World crude/condensate production by countries, 2006 and 2005*

Russia. During 2006, production growth continued in Russia, rising 195,500 bopd to 9.56 million bopd. The country grew its production 2.1%, on track with its policy of expanding production by 1�2% per year. The country is close to achieving its goal of producing more than 10 million bopd. Moves within the government to control more of the industry could limit outside investment funding for the oil and gas industry.

Other FSU countries. Outside of Russia, FSU countries expanded their output by almost 12%, raising production to 2.3 million bopd, from 2.1 million bopd.

AFRICA 

Africa's oil industry had a 1.3% production increase to 9.33 million bopd. Growth was led by Angola and Algeria, which produced 1.41 million bopd and 1.82 million bopd, respectively. Libya and Sudan had modest gains. Egypt, Nigeria and Gabon had net reductions.

Nigeria. Crude and condensate production averaged 2.23 million bopd, down 9% from last year's 2.45 million bopd. Unrest continues onshore in the Niger River Delta oil fields. Onshore facilities, pipelines and personnel remain vulnerable.

Angola. The country's production increased an additional 157,500 bopd, a 12.6% gain. Production averaged 1.4 million bopd for 2006. Major discoveries continue to be made off Angola. Most recently, Cabinda Gulf Oil, Chevron's Angolan affiliate, announced a new oil find, Negage, in deepwater Block 14. The discovery well was drilled to 10,958 ft TD in 3,940 ft of water 29 mi southwest of the Gabela discovery. The well found a 320-ft pay zone and tested more than 8,600 bopd.

Algeria. Crude and condensate production averaged 1.82 million bopd, an increase of 8.5%. Total announced eight Algerian discoveries in 2006 in the Timimoune region. The most recent discovery in the Hassi Rmel prospect area has an estimated gas flow of 8.3 MMcfd.

Other countries. Libya raised its output to 1.7 million bopd from 1.64 million bopd, a 3.6% increase over 2005. Sudan had a modest 1% increase to 298,000 bopd, up from 295,000 bopd in 2005.

MIDDLE EAST

It was a flat year for Mideast oil production. Overall output was up slightly to 22.66 million bopd from 22.65 million bopd in 2005. Saudi Arabia, Iran, the United Arab Emirates and Kuwait continue as the strongest producers.

Saudi Arabia. The kingdom took a rest from its strong production in 2005 with a 1.7% decline, as world demand moderated in 2006. Saudi Aramco tested a deeper-pool wildcat, which found gas and produced 40 MMcfd. The government says the Karan 6 well is tapping 10 Tcf in reserves. The well is part of a multi-well, deep, gas drilling program. Additional gas finds were located at Kassab, Nujayman and Zamlah prospects in 2006.

Iran. Production was off this year with a 2.5% drop to 3.89 million bopd from 2005's 3.99 million bopd. Iran found new onshore reserves in Ahvaz oil field in Khuzestan province. Production is from the Khami formation, a high-pressure deep gas zone with estimated reserves of 7.4 Tcf. Production is anticipated to reach 37,000 bopd and 150 MMcfd of gas after initial development. NIOC and Sinopec continue to develop Yadavaran oil field, which has oil reserves of 17 billion bbl.

Kuwait. Crude and condensate production averaged 2.225 million bopd, up from 2.21 million bopd in 2005.

Iraq. The good news from Iraq is that the production system is being rebuilt and is increasing crude volume produced. This year the nation advanced its output by 3%, raising its volume to 1.9 million bopd from 1.85 million bopd in 2005. The conflict still occasionally cuts pipelines, but reconstruction is bringing more production to market.

UAE. Abu Dhabi enjoyed a production expansion in 2006, while Dubai had a significant drop in output, off 29.6%. Abu Dhabi increased its production by 250,000 bopd to 2.4 million bopd, a nearly 12% increase.

Oman. The country had a 4% drop in output, to 742,500 bopd, but continued to find new oil resources. Petroleum Development Oman discovered oil in the Malaan area in the Shuaiba formation. The Malaan-2 well, a horizontally drilled well, is producing 1,800 bopd, and the follow-up appraisal well, Malaan-3, is producing 2,600 bopd.

FAR EAST 

Production in the Far East is up slightly. Production grew by 0.4%, to 6.597 million bopd, up from 6.569 million bopd in 2005. China had the largest production while Indonesia came in second. India and Malaysia tied for third most productive.

China. The strong investment China has made over the past few years is producing results. Its oil production grew again this past year by 53,700 bbl to 3.4 million bopd, a 1.6% expansion. The country continues to seek and develop oilfields in other parts of the world, notably Venezuela and Mexico.

China National Offshore Oil Corp. discovered oil in the Yellow River mouth sag in Bohai Bay. The well was drilled to a 3,070-m TD in 70-ft water depth and tested at 760 bopd. Roc Oil discovered oil-filled sands in the Wei-6-12S-1 well in Block 22/12 of the Beibu Gulf, offshore China. The well's second sidetrack found more than 500 ft of oil pay in multiple zones.

Sinopec discovered Xinbei field, offshore and north of the Huanghe River's mouth. The field has 50.4 million bbl oil and 17 Bcfg of proven reserves, according to the operator, Shengli Oilfield Co. Sinopec is planning a 12,000-bopd production platform.

Indonesia. The country's production dropped almost 8% in 2006, lowered its flow to 930,000 bopd from 2005's 1.01 million bopd. The country has been a net importer since 2003 and has tried incentives to develop its deepwater and frontier regions without stopping the production decline. Oil companies' capital spending rose 13% to $7.7 billion in 2006 from $6.8 billion last year, but this was below the $8.9 billion the government had anticipated.

Genting Oil and Gas Ltd. drilled and tested two offshore exploration wells, Ande Ande Lumut�2X-R (AAL-2X-R) and Ande Ande Lumut�3X (AAL-3X), in West Natuna close to the Malaysian border. Flow from two zones produced a test rate of 1,735 bopd.

India. Production rose 2.6% to 685,000 bopd from 667,700 bopd in 2005. Oil & Natural Gas Corp. drilled gas discoveries in the Krishna Godavari and Mahanadi basins off the east coast of India in 2006.

Malaysia. Matching India in production, Malaysia saw a 2.6% production drop, which lowered its output to 685,000 bopd. Murphy Oil discovered oil in the Senangin No. 1, an exploration well in Block K, offshore Sabah. The well was drilled to a 15,962-ft TD in 4,695 ft of water.

Petronas Carigali and Newfield Exploration discovered oil in the Padang No. 1 well offshore in Malay basin block PM-318. Drilled to 11,135-ft TD, the well found oil in Lower Miocene K Group sands. Estimated reserves are 13 million bbl oil. The field will begin production in 2008.

Other countries. Vietnam increased its output 2.3% to 360,000 bopd. Brunei raised its output almost 11% to 220,000 bopd. Production jumped again for Thailand to 210,000 bopd from 2005's 183,100 bopd, a nearly 15% increase.

SOUTH PACIFIC

Production dropped for the region in 2006, led by Australia, even though Papua New Guinea had a major increase in its output.

Australia. The production turnaround in Australia during 2005 became a nearly 6% decline in 2006. The country saw its production drop to 490,000 bopd from 519,000 bopd.

Apache Corp. brought its Mohave-1H discovery onstream flowing 10,690 bopd from a 42-ft oil column. The well is in the Carnarvon basin offshore Western Australia in 26 ft of water some 4.5 mi southeast of Apache's Varanus Island production hub. Tap's Amulet discovery on the North West Shelf found oil reserves estimated at 10�15 million bbl.

In the Ashmore and Cartier offshore area, Coogee found oil in its Swift North and Swallow wells. Coupled with the earlier Montara discovery, these discoveries have commercial oil reserves of 30 million bbl.

South Australia had three significant discoveries in 2006. Beach Petroleum's Callawonga No. 1 flowed 2,400 bopd. Stuart Petroleum had two discoveries: The Revenue No. 1 flowed 1,100 barrels a day, and the Toporoa No. 1 flowed 1,814 bopd.