World of Oil

Tengiz reaches full output

On Sept. 25, Chevron announced its consortium in Kazakhstan reached full production at Tengiz Field, increasing its oil output capacity to 540,000 bpd. The latest increase at the Chevron-led Tengizchevroil project comes after the consortium increased capacity at the field earlier this year to 400,000 bpd from about 310,000 bpd. Chevron has a 50% stake in Tengizchevroil with partners KazMunaiGaz (20%), ExxonMobil (25%) and LUKArco (5%).

Azeri output still capped

A BP-led group resumed oil production at one of its two Azeri offshore platforms shut in after a gas leak in September. BP will not be able to completely restore oil production from its Azeri fields until the end of October and will keep pumping at decreased capacity. The platform resumed production of 600,000 bpd instead of the usual 900,000 bpd.

Iraq outlines oil contracts

Iraqi Oil Minister Hussain al-Shahristani gave details in mid-October of the country’s first-ever licensing round, and said the national government will have firm control over several fields that will be jointly developed with foreign companies. Shahristani said Iraqi state-run entities will have 51% control in the project to rehabilitate six oil fields already producing crude and two natural gas fields yet to be developed. Foreign companies will have 49% interest in the projects and operate under fee-based service contracts. Shahristani made it clear that Iraq wants to move fast with the licensing round after many delays at getting its oil sector back on its feet. Foreign companies are expected to submit bids within six months, and the government wants deals in place by June.

Second EnCana pipeline explosion

A second explosion targeting a gas pipeline owned by EnCana on the British Colombia-Alberta border is being investigated. The blast site was discovered by pipeline workers on Oct. 16. The incident appears to be related to one earlier this week in which a sour gas pipeline owned by EnCana was hit. The explosion left a small crater under the line, but EnCana said the line did not rupture and no gas was released.

Peru fires officials, suspends oil contracts amid scandal

Peru’s government has suspended recently awarded contracts giving exploration and development rights for oil and gas lots to a partnership made up of state-owned Petroperu and Norwegian company Discover Petroleum, and has fired several high-level government officials due to a corruption scandal tied to the oil and gas lots. In September, state oil and gas licensing agency Perupetro awarded concessions to Petroperu and Discover Petroleum to jointly explore four offshore blocks and a potential gas field in Peru’s jungle. In early October, a news program broadcast recordings of conversations between Perupetro director Alberto Quimper and Romulo Leon, a lobbyist, negotiating under-the-table payments for awarding the contracts. Quimper was removed by the government and Petroperu’s president Cesar Gutierrez also submitted his resignation. Prime Minister Jorge del Castillo was also mentioned in the conversations as someone who would provide favors in a plan to rig auctions of oil and gas elections. Former Mines and Energy Minister Juan Valdivia has also been forced to resign amid allegations of corruption in the form of kickbacks in exchange for guaranteeing lucrative oil contracts for Discover. In response to calls from opposition leaders, Peruvian President Alan Garcia also accepted the resignation of his entire cabinet in an effort to deal with the corruption allegations.

StatoilHydro executives resign in Libya probe

A report in early October from an investigation into Hydro’s former oil operations in Libya found that breaches of regulations were made, resulting in the resignation of two StatoilHydro executives. StatoilHydro announced in a statement that Tore Torvund and Morten Ruud resigned from their posts at StatoilHydro’s corporate executive committee with immediate effect. The investigation report, submitted to the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime (Okokrim), found that Hydro failed to disclose problematic issues to Statoil in the due diligence of the two companies’ operations prior to the merger last year. Statoil was informed in late September last year of possible consultancy agreements and transactions related to activities by the former Hydro Oil & Energy business in Libya that might be in breach of Norwegian and international anti-corruption legislation. Law firms in the US and Norway completed an external investigation into these and other issues related to Hydro. StatoilHydro’s investigation ran in parallel to a separate investigation set up by Hydro. Both investigations show that a breach of ethical regulations took place when Hydro entered into an agreement with a consultant to assist in a planned sale of the Libya portfolio. Payments under this agreement, which Hydro had estimated at $6.85 million, amounted to $7.4 million in the investigations’ reports. The investigations also reported a payment of about $1.9 million made to the operator of one of the fields in Libya in October 2000. Further payments made to representatives of the state-owned National Oil Corp. who were members of operators and steering companies in fields where Hydro had stakes were also highlighted. “We have to admit that misjudgments were made in the handling of Hydro’s former Libya portfolio,” Hydro President and Chief Executive Eivind Reiten said. StatoilHydro’s report will also be submitted to the US Department of Justice and the US Securities and Exchange Commission.

EnCana delays split due to financial volatility

EnCana has delayed its plans to split the company into natural gas and oil sands divisions. EnCana issued a release announcing that it is revising the original schedule for the split, citing market concerns as the main reason for the move. “Given the uncertainty and volatility in the global financial markets, EnCana is choosing to delay the timing of a shareholder vote until clear signs of stabilization return to financial markets,” EnCana announced in a statement. The oil sands branch was to take the name Cenovus Energy, while the EnCana name would be retained for its natural gas operations. EnCana shareholders were to vote on the move in December, with the split scheduled to have taken place early next year.

Kazakhstan pursues BP’s Caspian pipeline

Kazakhstan’s state oil and gas company KazMunaiGas announced that it is interested in buying BP’s stake in the Caspian Pipeline Consortium (CPC), which pumps crude from Kazakhstan to the Black Sea. BP said last month it may sell its stake in CPC if the oil company fails to agree with Russia on terms for expanding the line. “There is certainly interest in these assets,” KazMunaiGas head Kairgeldy Kabyldin said. “We are starting talks now.”

US drilling activity up from last year

According to API’s third-quarter 2008 Quarterly Well Completion Report, US drilling activity continues to surpass last year’s levels and is nearly twice the level seen in the 1990. An estimated 16,379 oil wells, natural gas wells and dry holes were completed in the third quarter of 2008, up 16% from the third quarter a year ago. An estimated 6,244 oil wells were completed in the third quarter of 2008, up 34% from last year’s third quarter and the highest third-quarter estimated oil activity in over two decades. Natural gas continues to be the primary target for US drilling, with an estimated 8,467 natural gas wells completed in the third quarter of 2008. That was up 6% from last year’s third quarter and more than double the natural gas drilling activity of a decade ago. Total estimated exploratory well completions increased 8% in the third quarter compared with the same quarter last year. Total estimated development well completions increased 17% from the corresponding quarter a year ago, largely due to a surge in estimated development oil wells, which were up 36% in the third quarter of 2008 compared with last year’s third quarter. API also reported total estimated footage of 107.6 million ft drilled in the third quarter of 2008, a 26% increase from third-quarter 2007 and the highest estimated third-quarter footage drilled ever. Estimated oil well footage drilled was up 40% from last year’s third quarter.

Iran proposes to build $4 billion gas pipeline to Europe

Iran is proposing to build a $4 billion natural gas pipeline, the Pars pipeline, to the European Union, Deputy Oil Minister Akbar Torkan announced. The Pars pipeline is Iran’s answer to the EU-backed Nabucco line and Gazprom’s South Stream project. Iran intends to pipe as much as 1.3 Tcf of gas to Europe annually, about 20% more than either Nabucco or South Stream. “We have no contract and no engagement with Nabucco,” Torkan said. “We have come up with a new route and will have new customers.” From Iran, the Pars pipeline would cross Turkey, passing on to Greece, Italy and to Switzerland, Austria and Germany. Eastern Europe will be completely avoided, Torkan said, and all countries along the route will also buy Iranian gas. To supply the pipeline, Iran will tap its South Pars Field. International sanctions have prevented Iran from receiving the technology and financing necessary to liquefy gas and export it via tankers as LNG. Companies such as Shell, Total and Repsol have curbed LNG projects at South Pars because of the increased political risk. South Pars gas exports would be more cost-effective through a pipeline rather than as LNG, Torkan said.

Nigerian court orders Shell to return land

Shell announced that a Nigerian court has ordered the company to return land around its Bonny oil terminal to the local population. “The ruling was given some months ago but we have appealed,” said Precious Okolobo, Shell’s spokesman in Nigeria. Why the decision was only made public now, several months after the ruling was handed down, is not clear.

Petrobras refuses Ecuador renegotiation

The president of Brazil’s state-owned Petrobras, Jose Sergio Gabrielli, announced that the company would not renegotiate with the Ecuadorean government on its oil production in the country. Gabrielli made the announcement after Ecuador’s President Rafael Correa threatened to expel Petrobras from his country if the company did not renegotiate its contract. In September, Correa ordered contract renegotiation with all foreign oil companies.

Iraq, Shell sign gas deal

Iraq has signed a multi-billion-dollar natural gas deal with Shell. Oil Minister Hussain al-Shahristani described the deal as an initial agreement that he said was worth “some billions” of dollars. The agreement is between Shell and the state-run Southern Gas Company for a joint venture in Basra province in Iraq’s south. Under the terms of the deal, Iraq will hold 51% in the venture and Shell 49%. The deal includes the capture of natural gas associated with crude oil extraction as well as the rehabilitation of gas facilities in Basra. Shell is also expected to produce dry gas. Shell will also construct new gas facilities to process the associated gas, some 700 MMcf of which Iraq burns off, or flares, each day, the Oil Ministry has said.

Alaska BLM sale nets $31 million

The Alaska Bureau of Land Management (BLM) has awarded five companies various oil and gas tracts in the National Petroleum Reserve in Alaska (NPR-A) for almost $31 million. The bids cover 150 tracts on more than 1.6 million acres in the 23 million-acre reserve. The state will receive 50% of the bid receipts. Submitting winning bids were Anadarko Petroleum, ConocoPhillips Alaska, Petro-Canada Alaska, FEX and Petro-Hunt. In 2002, the US Geological Survey estimated that the NPR-A holds as much as 9.3 billion bbl of recoverable oil and 59.7 Tcf of recoverable natural gas.

E.ON and Gazprom sign Siberian deal

Russia’s Gazprom and Germany’s E.ON have signed an asset swap agreement. E.ON will give a 49% stake in Gerosgaz CJSC, which has a 2.93% stake in Gazprom, back to the Russian company, and E.ON in exchange will receive a 25% stake, minus one share, of Gazprom subsidiary Severneftegazprom, operating the Yuzhno Russkoye gas field in northwest Siberia. Yuzhno Russkoye Field has recoverable reserves of 21.2 Tcf of gas.

Arawak Energy to develop Kazakh fields 

Kazakhstan has given Arawak Energy the go-ahead to restart development at Akzhar and Besbolek Fields. Arawak stopped development drilling at the fields earlier this year due to regulatory constraints imposed during the approval process of the technical plan of development. Wells were also previously shut in, but are being brought back onstream, and drilling has resumed. Proved plus probable reserves for the fields were 23.4 million bbl for Akzhar and 7.9 million bbl for Besbolek.

BTC to carry Tengiz crude

Chevron-led Tengizchevroil plans to begin oil shipments via the BP-run Baku-Tbilisi-Ceyhan (BTC) pipeline in late October. “First deliveries into BTC are expected in the second half of October for arrival in Ceyhan exports in mid-November,” BP said on its website.

Gazprom signs MOU with Kyrgyzstan

Gazprom signed a Memorandum of Understanding (MOU) with Kyrgyzstan that will help the company buy a stake in Kyrgyz state-owned gas company Kyrgyzgaz. The Kyrgyz government invited Gazprom to take part in the planned privatization of Kyrgyzgaz and another state-owned company, Kyrgyzneftegaz.

Occidental to develop fields in Abu Dhabi

Occidental Petroleum Corporation signed an agreement with Abu Dhabi National Oil Company to appraise and develop Jarn Yaphour and Ramhan Fields. Oxy will operate both fields and hold a 100% interest in newly created concessions. Jarn Yaphour Field is located onshore near the capital city of Abu Dhabi. Development activities at the field will commence immediately, and first production from the field is expected in 2009. Gross production from the initial development is anticipated to be around 10,000 boepd. The Ramhan discovery, located in very shallow water near the Abu Dhabi refinery, was tested in 1992 and flowed at a combined rate of 1,750 boepd and 14 MMcfgd from one well. Appraisal activities at Ramhan will begin immediately and first production from the field could begin as early as 2011.Total capital investment in both development projects is expected to be in the range of $500 million over the next three to four years. In addition to the initial field developments, this investment will include further field appraisal activities to determine the full upside potential of each area.

South Korea signs up for Russian gas

South Korea’s Energy Ministry announced that the nation signed a $90 billion deal with Russia to receive 353 Bcf of natural gas per year for 30 years. A pipeline will be built from Vladivostok, Russia across North Korea to South Korea to transport the gas. If the countries are unable to build the pipeline, South Korea will review a plan to import the same amount of natural gas from Vladivostok in liquefied natural gas or compressed natural gas form, the ministry said.

KazMunaiGas, Shell partner for Kashagan

Kazakhstan’s Energy Minister Sauat Mynbayev announced that state oil company KazMunaiGas would create a joint venture with Shell to handle the production segment of Kashagan Field. Apart from Shell and KazMunaiGas, the consortium developing Kashagan unites Eni, ExxonMobil, Total, ConocoPhillips and Inpex Holdings. Mynbayev said KazMunaiGas would take over production-related operations at Kashagan in five years. KazMunaiGas said earlier this year that Western companies developing Kashagan Field would all get new roles after the completion of the project’s initial development stage. Mynbayev made the remarks after a meeting with senior Eni officials in the western oil region of Atyrau, where Kashagan is located.

Brazil cuts number of blocks in 10th auction

Brazil’s National Petroleum Agency (ANP) decreased the number of exploration and production blocks scheduled to be auctioned at the 10th round scheduled for December. The ANP published a notice in early October that 130 blocks in eight sectors and seven sedimentary basins would be auctioned on Dec. 18. That number was down from a previous notification of 162 blocks in 11 sectors and nine sedimentary basins. The auction will only cover land blocks, with deepwater sea blocks held back until changes to Brazil’s oil legislation take in effect. A previous eighth-round auction, suspended earlier in the year, includes blocks in the subsalt layer off Brazil’s coast.

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