World of Oil

Alaska passes new tax bill

On Nov. 16, Alaska Gov. Sarah Palin signed legislation that imposes higher taxes on oil and natural gas production in the state despite protests from oil and gas companies. The bill replaces the “Petroleum Profits Tax” passed last year that has since been questioned following an ongoing corruption investigation involving state lawmakers and oil executives. The new tax legislation establishes a base tax rate of 25% of producers’ net revenues from oil and gas production, and when crude oil prices exceed $52/barrel an escalator formula kicks in that raises the tax rate. Palin’s bill is expected to boost state oil and natural gas revenues by $1.5 billion this fiscal year. The governor said that the new tax will maximize the value of the state’s natural resources, adding that Alaska will use the additional revenues responsibly.

Alaska gas pipeline

ConocoPhillips has submitted a proposal to the governor of Alaska to advance the development of the Alaska Gas Pipeline Project. The pipeline would transport approximately 4 Bcfd of natural gas from the Alaska North Slope to markets in Canada and the US. “We desire to work directly and purposefully with the state of Alaska and the legislature to advance this project as quickly as possible,” said Jim Mulva, chairman and chief executive officer of ConocoPhillips.

Fire hinders Syncrude coker unit

Canadian Oil Sands Trust said a fire on Dec. 5 in the 8-3 coker unit had forced it to slash production at its Syncrude upgrading facility near Fort McMurray, Alberta. The company was unable to say to what extent production from the coker would be reduced, but said it was now producing only at “minimum rates,” and the company estimated repairs would take two to four weeks. Syncrude has suffered several hitches with the coker unit since its startup last year, such as coke buildups, which have slowed production and forced unscheduled maintenance downtime on the unit.

Kashagan debate continues

In a recent development pertaining to the Kashagan project in Kazakhstan, ExxonMobil, partner on the project, does not agree with the view that state-owned KazMunaiGas should receive a higher stake in the project. Kazhakstan has been at odds with the Eni-led group over cost overruns and production delays at the Caspian Sea field. ExxonMobil is the only member of the Eni-led AgipKCO consortium developing the field not to agree to KazMunaiGas’s increased stake in the project. The dispute has turned Kashagan into a symbol of the growing assertiveness of oil-producing countries. Kazakhstan has joined the ranks of countries like Venezuela and Russia that have increased the restrictions on foreign investors, and in some cases have driven them out of the projects altogether. Earlier this year, Kazakh lawmakers passed legislation allowing the government to cancel natural-resource contracts deemed harmful to Kazakhstan’s strategic interests.

 Forty die in Saudi pipe blaze 

Forty people died in a gas pipeline fire in Saudi Arabia on Nov. 16. The fire broke out overnight during maintenance work on the Haradh-Uthmaniyah gas pipeline near Hawiyah in Saudi Arabia’s Eastern Province. Saudi Aramco said a committee had been set up to investigate the blaze.

 SEC contemplating changes in reserves reporting 

On Dec. 11, the US Securities and Exchange Commission voted unanimously to reevaluate regulations oil and gas producers use when reporting hydrocarbon reserves. Currently, oil and gas producers can only report proved developed reserves and must value them based on one price point during the year, most commonly the Dec. 31 spot price for West Texas Intermediate at Cushing, Oklahoma, for crude, or the Henry Hub price for natural gas. “Our rules, and the tests specified in them, have changed very little in the 30 years since the Commission adopted them,” said Mellissa Campbell Duru, Attorney-Adviser, Division of Corporation Finance for the SEC. “Technological advancements have made it easier for companies to identify buried reservoirs and estimate more accurately the amount of oil or gas in them.” The review request poses questions about how to assess and measure proven reserves, how new technologies (e.g. horizontal drilling and 3D seismic surveys) effect the definition of proved reserves, whether the rules should permit other categories of resources (e.g., oil sands and oil shales) to be disclosed, and whether the rules should require third party verification of the reserves estimates companies report in their filings. The SEC is requesting public comments on possible revisions to the reserves requirements listed within the revision request.

 Kurdish officials arrive in Baghdad to discuss oil contracts 

Kurdish officials arrived in Baghdad on Dec. 10 to discuss several controversial issues, including a dispute over several oil contracts the regional government signed with foreign companies. With national legislation stalled, Kurdish authorities signed more than a dozen contracts with foreign companies over the objections of Oil Ministry officials in Baghdad, who consider the deals illegal. The Kurdish delegation, led by Prime Minister Nechirvan Barzani, also planned to hold a referendum on the status of the oil-rich city of Kirkuk. “The agenda includes such vital issues as oil drilling, [oil] contracts already concluded by the regional government of Kurdistan, the region’s share of the budget and Article 140 of the constitution and the means of implementing it,” said Jabar Yawar, a spokesman for Kurdistan’s security forces. Article 140 refers to the constitutional section that calls for a referendum on Kirkuk by the end of this year. The Kurds want to incorporate Kirkuk, 180 mi north of Baghdad, into their self-rule region, but they have met stiff resistance to the idea.

 China seeks public opinion in energy law draft

By publicizing its energy law draft, China is seeking feedback from key industry players and the public, meaning the final version of the law is likely to include several revisions before it is enshrined in the country’s statutes. China’s recently published draft energy law said that Beijing must set up an energy department under the State Council, China’s cabinet, to unify administration of all energy sectors and carry out key reforms. The department would be tasked with handling strategic reserves of natural gas and uranium that China would set up in addition to its strategic reserves of oil and deciding on the timing of their release, the draft law states. The law proposes holding some reserves of oil, gas, uranium and special kinds of coal underground for future development. However, it doesn’t disclose volumes or specific conditions on when the reserves would be used. On pricing, Beijing signaled that it wants to retain a measure of control rather than throw open its energy sectors to market forces. The draft energy law also states that the government should set up a mainly market-oriented energy pricing mechanism to reflect the relations of demand and supply, the scarcity of resources and the cost of environmental damage.

 Russia, Kazakhstan, Turkmenistan sign pipe deal 

On Dec. 20, Russia, Kazakhstan and Turkmenistan signed an agreement to build a natural gas pipeline by 2010 along the Caspian Sea coast. The new pipeline would have an initial annual capacity of 20 billion cubic meters. The deal ended months of tense arguments over the price of gas and reaffirms Russia’s monopoly on gas supplies from Central Asia. “We have just signed an extremely important agreement between Russia, Kazakhstan and Turkmenistan on building the Caspian pipeline,” President Vladimir Putin said. “It will become a new important contribution of our nations into strengthening the European energy security.” Russia controls an existing export pipeline for gas from Turkmenistan-which has the largest reserves in the former Soviet Union after Russia-with an annual capacity of 50 billion cubic meters.

 Brazil E&P auction sidelines oil heavyweights

Brazil’s oil and gas exploration and production block auction held on Nov. 27 earned the government a record $1.1 billion, but the big players in the country’s oil industry were sidelined. Majors such as Royal Dutch Shell PLC and Chevron made no bids after the government withdrew the most promising blocks from the auction earlier this month. State-run oil company Petrobras only won stakes in 22 blocks. Newcomer OGX Petroleo e Gas Participacoes SA won rights to most of the high-profile lots on offer in Brazil’s Campos and Santos Basins. OGX won stakes in 18 blocks, representing 70% of all fees to be paid to the National Petroleum Agency.

First-ever China International Petroleum Exhibition

Over five hundred global exhibitors have confirmed participation at the first-ever China International Petroleum Equipment & Technology Exhibition 2008. Organized with the support of leading international petroleum groups, the exhibition will be held at the Dongying International Trade Center on Sept. 12-14, 2008. More than 3,000 prospective international buyers are expected to attend the event. “We have prepared extensively for this exhibition, making sure that there will be room for any product on display regardless of size, so clients will be able to see the actual products and not just scale models,” said Mr. Wang Jun Yi, standing vice president of the China Council for the Promotion of International Trade.

ONGC to shut down two facilities

ONGC will shut down two production complexes at Bassein Field to hook up new facilities in January and February. This will cut output by one-third, lowering natural gas availability from 42 MMcmd to 29-31 MMcmd, a company official said. “These two new platforms will bridge existing BPA and BPB process complexes and during hook-up, integration and pre-commissioning, the BPA and BPB production facility will require shutdown,” the official said. The shutdown of the BPB facility for 24 days will reduce gas output by 13.5 MMcmd, and the 15-day shutdown of BPA facility will reduce output by 11 MMcmd.

Petro-Canada looking into Arctic LNG project

 Petro-Canada is looking into ways to tap its massive natural gas reserves in Canada’s inhospitable northern reaches. Chief executive Ron Brenneman said the company is looking into a liquefied natural gas project; however, no solution is expected for years. Petro-Canada has about 12 trillion cubic feet of gas reserves in Canada’s far north, the Arctic islands region thousands of miles from potential markets. “We’ve just formed small team to start looking at the feasibility of that,” said Brenneman. He also said the Canadian government is interested in Petro-Canada’s plans. It has been aiming to assert national sovereignty over waters in the region, which is becoming ice free in the summer as the Arctic climate warms.

EPA approves Barrow pipeline

 Australian conservation groups have reacted angrily to the Environmental Protection Authority’s decision to allow ExxonMobil to build a gas feed pipeline across the Barrow Island nature reserve. The EPA approved the proposal, saying it was unlikely to cause significant environmental impact beyond that already considered in the $20 billion Gorgon gas projection, previously approved by the state government in September. EPA chairman Paul Vogel said that, in principle, the EPA did not support the use of A-class nature reserves for industrial development. “Given that the government has authorized the Gorgon development on Barrow Island, the Jansz proposal is capable of being managed in a manner such that it is unlikely that significant, additional, environmental impacts would occur,” he said. ExxonMobil plans to construct the pipeline to carry natural gas from the Io/Jansz offshore gas field across the Barrow Island nature reserve to the Gorgon gas processing plant.

 China to stand up to Ecuador tax

Chinese state oil companies will seek international arbitration to overturn a move by Ecuador to impose a surprise windfall tax, arguing that it threatens millions of dollars of investment in the country. An official close to CNPC’s operations in Ecuador told Reuters the royalty would force Chinese projects in the country “out of business” and lead Beijing to review its investments in oil producing nations with “limited resources but rising risks.” CNPC and Sinopec own Andes Petroleum, a company they bought from Canada’s EnCana in 2005 and that produces about 80,000 bopd in Ecuador. Top executives from CNPC and Sinopec are expected to meet with Ecuador’s Oil Minister to raise the royalty issue, but industry executives said hopes for a compromise from Ecuador were dim.

 Liberia opens bidding for offshore oil blocks

State-owned National Oil Company announced that Liberia has opened bidding for 10 offshore oil blocks in its second licensing round. The blocks, each measuring roughly 1,158 sq mi and extending to about 1.9 mi in depth, will be on offer until the close of the licensing round on June 1, 2008. Liberia’s first licensing round was held in 2004. Repsol and Woodside Petroleum Ltd. are among the companies developing the eight offshore blocks awarded in that round.

 India pursuing Iranian natural gas 

India is going ahead with plans to import Iranian natural gas through a pipeline across Pakistan, undeterred by US opposition. “At the end of this week we have a meeting with them,” Nosratollah Sayfi, managing director of the National Iranian Gas Export Company (Nigec), told Reuters. “Every time we asked whether they were under pressure from the US they said ‘no, we will follow national opportunities.’ And that is what they are doing.” In late October a US government official said that Treasury Secretary Henry Paulson would urge Indian officials, during a trip to India, not to move forward with the project and that India would be better off securing its energy future by working with the US to develop civilian nuclear energy. Sayfi said Nigec was currently meeting Pakistani and Indian officials over the operational agreement for the pipeline.

Enbridge pipeline explodes in Minnesota

A Minnesota oil pipeline explosion that killed two workers can be traced back to a pinhole leak was fixed with a repair sleeve three weeks ago. Workers shut down the pipeline to remove the 11-ft section that included the leak and sleeve. They replaced it with a new section of pipeline, but oil apparently leaked at a section where that joined the old line, said Enbridge vice president of operations, Leon Zupan.

 Cuba invites Russian firms to pump oil 

Cuban Deputy Foreign Minister Eumelio Caballero invited Russian companies to take part in prospecting for crude deposits in the Gulf of Mexico. The minister stated that Cuba had already signed contracts with companies from Spain, Norway, Venezuela and China that will participate in the exploration and exploitation of petroleum deposits within the Cuban economic zone in the GOM. “We are in contact with the Russian companies and we hope that they participate in the prospecting for those deposits, in particular creating the necessary infrastructure,” said the diplomat. “Russia and Cuba have considerable prospects for increasing their bilateral economic and trade links.”

GOM Sale 204 nets $287 million in bids

The Minerals Management Service (MMS) accepted high bids valued at $287 million and awarded 274 leases to the successful high bidders who participated in Western Gulf of Mexico Oil and Gas lease Sale 204. A total of 282 tracts in the Western Gulf of Mexico with forty-seven companies submitting 358 bids with a total for $290 million. Using the two-phase bid evaluation process, MMS rejected high bids totaling $2.9 million on eight tracts as insufficient for fair market value. The highest bid accepted on a tract was $37.6 million made by Statoil Gulf of Mexico LLC for Alaminos Canyon Block 810; this tract is in deep water and received two bids. The top five companies with the highest number of accepted bids were BP Exploration & Production Inc., bids totaling $29.8 million; Statoil Gulf of Mexico LLC, bids totaling $138.6 million; Petrobras America Inc., bids totaling $28.8 million; Devon Energy Production Company, L.P., bids totaling $20 million, and ConocoPhillips Company, bids totaling $12.3 million.

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