World of Oil

US oil and gas lease act rejected

The US House of Representatives rejected legislation that would have required energy companies to develop oil and natural gas supplies on federal leases that they have held for years or be denied future drilling access on government land. The Responsible Federal Oil & Gas Lease Act-also known as the “Use It or Lose It” bill-did not receive enough votes needed to move the bill forward.

Russia limits foreign investment

Russia established official limits on the sale of shares in strategic and raw materials companies to foreigners. Under the new rules, companies engaged in geological exploration are subject to the tightest cap and will be allowed to sell only 5% of their shares to foreigners.

Iran increases production

Iran has reached its highest production levels since 1979 and plans to increase production further. “Iran aims to raise its daily oil production to 4.28 million bpd by the end of the year,” said Seifollah Jashnsaz, managing director of National Iranian Oil Company. “Iran’s oil fields have the capacity to increase production; therefore, we will certainly reach our desired daily output by the end of the year.” A United Arab Emirates newspaper recently estimated Iran’s production at 4.23 million bpd.

China’s imports up 11%

China imported 11% more crude oil in the first half of 2008 than in the same period in 2007. Crude imports for the world’s second-largest energy consumer stood at about 700 million bbl at the beginning of July. China’s refined oil products also increased in first-half 2008, up 16.4% from first-half 2007.

Bush lifts executive offshore drilling ban

US President George W. Bush lifted an almost 20-year-old executive order that banned oil and natural gas drilling in most US coastal waters. The move, by itself, will do nothing unless the US Congress acts to lift its own ban on offshore drilling.

Russia approves tax breaks aimed at increasing output

Russia’s legislative lower house approved key tax breaks for the oil sector, with the intent of helping oil companies fight stagnating production. The tax code provides for reducing the mineral extraction tax on oil. This move is expected to boost oil companies’ earnings by up to $5 billion annually. The law also gives tax breaks to companies developing new fields in hard-to-explore regions with little infrastructure; e.g., the Caspian, Azov and Arctic Seas along the Yamal Peninsula and the northern Timan-Pechora region. Deputy Finance Minister Sergei Shatalov said the government would also consider adding the Black Sea and the far eastern Sea of Okhotsk to the list of tax-break regions. Companies will be allowed to pay reduced taxes for a period of up to 15 years or until they produce a certain volume of crude from the field.

Arctic scramble: Canada, US collaborate to map region

Canadian officials announced that Canada and the US will work together on a United Nations scientific mapping project for the Arctic region. Canadian and American icebreakers will head to the area later this summer to map the Canada Basin, located north of the Beaufort Sea. The joint effort will save both countries time and money, as well as increase the amount of data coming in from the region for both countries. Canada is already working with Denmark to map the Lomonosov Ridge, located off the coasts of Ellesmere Island and Greenland. In July at the World Petroleum Congress in Madrid, Donald Gautier, a geologist with the US Geological Survey (USGS), said, “There are 100 billion barrels of oil to be found in the Arctic.” A USGS forecast later published an estimate of 90 billion bbl of recoverable oil.Gautier said that throughout the world, “Our best guess is still that there is a 50-50 chance that there is an excess of 500 billion barrels of unconventional recoverable oil in undisclosed fields as of now.” Gautier also said that the biggest barrier to the development of oil resources in the Arctic is not a lack of technology, but the disputed ownership of the area-Canada, Denmark, Norway, Russia and the US all claim sovereignty over the region’s waters. Lieutenant-General Vladimir Shamanov, head of the Russian military’s combat training directorate, said that Russia has been preparing for a conflict over the region. “After several countries contested Russia’s rights for the resource-rich continental shelf in the Arctic, we have immediately started the revision of our combat training programs for military units that might be deployed in the Arctic in case of a potential conflict,” Shamanov said.

BLM announces lease sale in NPR-A

The US Bureau of Land Management (BLM) announced that it will make land in the northeast portion of the National Petroleum Reserve in Alaska (NPR-A) available for oil and gas leasing. “This action sets the stage for a major lease sale this fall,” said Stephen Allred, assistant secretary for land management. “Developing the NPR-A in an environmentally sound manner will contribute to our domestic oil and natural gas supplies. Together with new production from other offshore and onshore areas, these increased supplies will help stabilize energy costs,” said Secretary of the Interior Dirk Kempthorne. The NPR-A lands made available for leasing could result in as much as 8.4 billion bbl of oil being developed and could also provide trillions of cubic feet of natural gas through gas pipelines currently in the planning stages. The agency will continue to work closely with the US Fish and Wildlife Service. “This decision provides for the protection of high-value wildlife, including waterfowl and caribou, and meets the subsistence needs of North Slope residents while making lands with oil and gas potential available for leasing,” BLM-Alaska State Director Tom Lonnie said.

BP to spend $1.5 billion in Liberty Field

BP has given final approval to spend $1.5 billion to develop Liberty Field in the Beaufort Sea off the northern coast of Alaska. Liberty has an estimated 100 million bbl of recoverable reserves and will become the first oil field entirely in US federal waters in Alaska when it starts production. First production is expected in early 2011.

SEC moves forward with oil reserves reclassification

The US Securities and Exchange Commission (SEC) has put forward plans to reclassify what producers can include in their reserves data in regulatory filings. The SEC plan will allow companies to include previously excluded sources of oil, such as oil sands, and disclose probable and possible reserves, not just proved resources. The plan aims to help companies present a more accurate picture of their reserves. “The more that precise, first-hand information from oil and gas companies is available to investors and the marketplace, the less that the marketplace is forced to rely solely upon information provided by speculators,” the SEC stated in a press release as it issued the proposals for public comment. The plan would also allow companies to use newer technology to calculate their proved reserves. The recommendations outlined in the reserves plan have long been sought by the industry. The plan would become final after a 60-day comment period and a second SEC vote. The SEC is also looking into changes that would require producers to determine whether their reserves are economically recoverable based on average oil and gas prices over the prior 12-month period rather than year-end prices. The SEC has also proposed requiring companies to report the qualifications and independence of reserves auditors based on criteria published by SPE, as well as requiring companies to file reports when they use third parties to either conduct an audit of reserves or prepare reserves estimates.

Vanco files for arbitration with Ukraine over Black Sea work

Vanco filed for international arbitration with Ukraine after the government cancelled a 30-year license to explore and extract oil and gas in the Prykerchenska Block-an area of just under 11,583 sq mi at the northern end of the Black Sea, 8 mi offshore. Vanco initially won the contract in early 2006 and then spent 18 months in talks about its details; Vanco only received the go-ahead last October. Under the deal, the company received a 65% stake and Ukraine 35% at the prospecting and development stage. The sides were to go 50-50 with the launch of commercial production. Vanco International eventually transferred its rights to the Black Sea shelf development to its subsidiary, Vanco Prykerchenska Ltd., which started to prospect for hydrocarbons in the Prykerchenska Block in fall 2007. Prime Minister Yulia Tymoshenko said that Vanco broke conditions of the agreement and that the company’s structure was unclear, and voiced concern that the company could sell the licenses to Russia’s Gazprom. Vanco has denied all allegations. “We are committed to Ukraine’s energy independence that would be reached through the realization of this [agreement],” said Jim Bown, president of Vanco’s unit in Ukraine. “We remain open to dialogue with the government of Ukraine to resolve issues but have also chosen to pursue our right to protect our investments through the Arbitration Institute of Stockholm.” Ukrainian President Viktor Yushchenko, long at odds with Tymoshenko, has sided with Vanco. Tymoshenko, however, said the license would still be revoked. Industry sources have said that within Vanco’s company structure in Ukraine is DTEK, an energy group that is part of the vast empire of companies belonging to Rinat Akhmetov, Ukraine’s richest man and a leader in the opposition Regions Party. Tymoshenko has said the Black Sea Shelf should be developed by state energy company Naftogaz, potentially with a foreign partner that would get a 30-40% stake in a production sharing agreement.

Shell, Jordan to sign production sharing deal

Royal Dutch Shell will sign a production sharing agreement with the Jordanian government to explore the country’s vast oil shale. “We are about to complete drafting a production sharing agreement with Shell and expected to sign the agreement initially in September this year,” said Hisham al-Rabi, Jordan’s Natural Resource Authority’s assistant director-general for mining and petroleum. The PSA needs the approval of the Jordanian parliament, he said. Shell is expected to invest more than $20 billion in the project over a period of 20 years. The project would cover an area of 8,500 sq mi, al-Rabi said. Under Jordanian production sharing terms, the contractor receives 60% of oil production or gas equivalent up to 10,000 bpd, with a sliding scale to a 35% share of production over 100,000 boepd.

Iraq announces six fields available for bidding

The Iraqi oil ministry announced a list of six oil fields that will be available to foreign companies via long-term development contracts. The list named Rumailah, Kirkuk, Zubair, West Qurna Phase 1, Bai Hassan and Maysan Fields. Maysan contains three fields-Bazargan, Abu Gharab and Fakka. Foreign companies bidding on the fields must take on an Iraqi partner that will hold a 25% stake in the deal. The government has already pre-qualified 41 foreign companies to bid on the contracts. The deadline of the tender is the end of March 2009, and preliminary contracts will be signed by June 2009. Two gas fields, Akkas and Mansuriyah, will also be available for bidding at some later undisclosed date.

Ottawa, Nova Scotia settle feud

The Canadian federal government pledged to pay Nova Scotia $867 million to end a dispute about offshore resources that has been ongoing for 22 years. The first payment will total $234.4 million to cover what’s owed to the province up to the current fiscal year, with the province receiving the additional $633 million over the next 15 years. The money settles a dispute dating to the 1980 National Energy Program (NEP), which gave the federal government the right to acquire a stake in private oil and gas projects. The NEP was abolished in 1984, but under a 1986 agreement, the government promised Nova Scotia compensation for giving up its ownership interest in the offshore projects.

Dana Gas, Emarat complete Hamriyah gas pipeline

Dana Gas and Emirates General Petroleum Corporation (Emarat) completed the Middle East’s first common-user gas pipeline, located in the emirate of Sharjah. A Memorandum of Understanding for the implementation and utilization of the pipeline was signed in January 2006. Dana Gas and Emarat each have a 50% stake in the construction, ownership and operation of the pipeline. Phase One of the project was completed in May 2006 and has since been delivering gas to the Sharjah Electricity and Water Authority power station at Hamriyah.

TransCanada, ConocoPhillips to expand Keystone pipeline 

Partners on a crude oil pipeline from western Canada to the US Gulf Coast will expand the line, doubling its initial planned capacity by 2012. TransCanada, which is planning the pipeline with ConocoPhillips, expects the expansion to cost about $7 billion and to increase total capacity in the Keystone pipeline from 590,000 bpd to 1.1 million bpd, with a total capital investment of about $12.2 billion. “The Keystone expansion will be the first direct pipeline to connect a growing and reliable supply of Canadian crude oil with the largest refining market in North America,” TransCanada’s chief executive, Hal Kvisle, said. “The Keystone pipeline will be constructed and operated as an integrated system with delivery points in the US Midwest and Gulf Coast.” The expansion will include a 1,988-mi, 36-in. crude oil pipeline starting at Hardisty, Alberta, extending south to Port Arthur, Texas, and will include another 50-mi pipeline to the Houston area.

China warns ExxonMobil over Vietnam deal

China warned ExxonMobil to pull out of an exploration deal with Vietnam that it describes as a breach of Chinese sovereignty. The protests concern a preliminary cooperation agreement between ExxonMobil and state oil outfit PetroVietnam covering exploration in the South China Sea off  Vietnam’s south and central coasts, near the Spratly Islands. “China’s position on the South China Sea is clear and consistent,” Chinese Foreign Ministry spokesman Liu Jianchao said. “China opposes any activities that infringe on our sovereignty and territorial integrity in the South China Sea.”

Shell freezes Beaufort startup 

Shell announced that it is delaying drilling on its Sivulliq prospect in the Beaufort Sea off northern Alaska for a year because of an environmental lawsuit. Shell spent $44 million on leases in the area in 2005 and had planned to begin drilling at the prospect later this year. A group of environmentalists filed a lawsuit with the Ninth Circuit Court of Appeals in San Francisco to stop the drilling project due to concerns about its impact on marine mammals.

Oxy, Libya sign production agreements

Occidental Petroleum Corporation signed 30-year agreements with the Libyan National Oil Company (NOsC) to upgrade its existing petroleum contracts. “We believe these new agreements with NOC represent an important step toward Libya’s goal of doubling oil production to more than 3 million bpd in the near future,” Occidental Chairman and CEO Ray R. Irani said. The new agreements cover fields with approximately 2.5 billion bbl of recoverable oil reserves and allow NOC and Occidental to design and implement major field redevelopment and exploration programs in the Sirte Basin.

Construction begins on Kazakh section of Central Asia-China pipeline

Construction began on July 9 on the Kazakh section of the Central Asia-China gas pipeline. The pipeline will originate at the Turkmenistan-Uzbekistan border, pass through the middle of Uzbekistan, and cross southern Kazakhstan into China’s Xingjiang province at Horgos to be connected with the country’s second west-east gas pipeline. The pipeline is expected to be finished and put into operation in 2010 and will annually transmit about 1.1 Tcf of natural gas from Central Asia to China, the bulk of that volume being supplied by Turkmenistan.

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