World of Oil and Gas

Vol. 234 No. 1

WORLD OF OIL AND GAS

NELL LUKOSAVICH, SENIOR EDITOR

EXPLORATION

Shell battles to control MODU off Alaska

As this issue of World Oil went to press, Shell Oil was still battling to recover the Kulluk drilling vessel after it grounded off Kodiak Island, Alaska. The Kulluk had been under tow, enroute to Seattle for maintenance, preparatory to conducting further Beaufort Sea drilling during the summer of 2013. On Dec. 28, the Aiviq tugboat experienced multiple engine failures while towing the drilling unit, about 50 mi south of Kodiak Island. As additional ships assisted, control of Kulluk was lost, as the vessel went adrift, and then regained temporarily. Unfortunately, high winds resulted in additional, multiple towing failures that resulted in Kulluk grounding itself off Sitkalidak Island, Alaska, on Dec. 31. As of Jan. 4, Shell, along with other firms and the U.S. Coast Guard, was still attempting to regain control of Kulluk, conducting overflights and response-and-recovery operations.

New Zealand government awards 10 exploration permits

New Zealand’s government said that it has awarded 10 exploration permits to local and overseas companies, which had bid in Block Offer 2012. Strong interest in this permitting round proves that New Zealand is a key destination for both domestic and international investment in oil and gas exploration, said Energy and Resources Minister Phil Heatley in a statement. Among the companies that have won permits are Anadarko Petroleum, OMV New Zealand, New Zealand Oil & Gas, Shell New Zealand, Todd Exploration, Cue Taranaki, Tag Oil and New Zealand Energy. Seven of the 10 blocks are in the Taranaki basin, on the west coast of the country’s North Island, which is the most active oil- and gas-producing basin. Among the rest, two are in the Pegasus basin on the south side of North Island, and one is in the Great South basin, on the south side of South Island.

Exxon, Talisman selling Polish shale gas leases

Canadian company Talisman Energy and Exxon Mobil Corp. are in talks with Poland’s largest oil firm, PKN Orlen, to sell their Polish shale gas exploration licenses, the daily, Rzeczpospolita, reported. Foreign and domestic companies are concerned about planned levels of taxation and the involvement of the state, once the industry moves to the next phase and starts producing commercial volumes of shale gas in Poland. Exxon decided earlier this year to exit Poland after drilling just two wells, saying it didn’t find enough oil or gas to justify additional drilling.

OMV Petrom, Exxon Mobil begin large study in Black Sea

OMV Petrom, Romania’s biggest oil company, and Exxon Mobil are conducting the largest 3D seismic study in the Black Sea, to date. The study covers approximately 6,000 sq km in the deepwater area of the Neptun block in the Romanian sector of the Black Sea. Exxon Mobil and Petrom will use data collected from this seismic program and earlier seismic work in 2009 and 2010, to further assess the commercial and technical feasibility of the Domino gas discovery announced earlier this year. Data also will be used to determine targets for future exploration drilling. Exxon Mobil operates the deepwater sector of the Neptun block. Petrom will operate the initial work program.

UNCONVENTIONALS

Exxon Mobil, Rosneft sign tight oil pilot development deal

Rosneft and Exxon Mobil have signed an agreement for a pilot drilling program to assess tight oil reserves in Western Siberia. Exxon will provide financing of $300 million, as well as technology and specialists for the pilot program. Drilling will begin in 2013, and the companies will select blocks for development in 2015. Rosneft and Exxon signed a broad cooperation deal last year, and agreed in June to develop the unconventional oil reserves at the Bazhenov and Achimov formations, which are believed to hold vast resources. Rosneft will own 51% and Exxon 49% in the JV, which will run the pilot program and potential commercial production.

Poland ignores European Union objections on shale drilling

Poland will continue to drill for shale gas despite objections raised by some members of the European Parliament and calls for a European Union wide moratorium on the rock fracturing technology used in shale gas production, Polish government officials said. “We will be persistently trying to show Europe that production of shale gas makes sense,” Prime Minister Donald Tusk told a press conference. The European Parliament rejected calls for a moratorium, but some would like to see the hydraulic fracturing technology banned on environmental grounds. Poland has a treaty right to freely choose the sources of its energy, Treasury Minister Mikolaj Budzanowski said.

PRODUCTION

Total CEO says new peak oil production seen at 98 MMbpd

New discoveries and technological advances have increased the oil industry’s ability to increase production in recent years, pushing global maximum production to 98 MMbopd for longer than initially expected, said Total SA Chairman and Chief Executive Christophe de Margerie. Global oil production should plateau at that level for some time before dropping as reserves gradually deplete, said de Margerie. Technological constraints led the French oil major to estimate in 2007 that the “peak oil” production rate would be at around 95 MMbopd—a conservative estimate compared with those of its competitors. Even though there is plenty of oil available now, it won’t be cheap, and prices should remain at a high level as the industry tries to balance its investments and returns, said de Margerie.

Chevron’s Gorgon project cost up 40% to $52 billion

The estimated price tag for Chevron’s massive Gorgon LNG project, off the coast of Western Australia, has risen by about 40% to $52 billion for the multi-year effort, Raymond James analyst Pavel Molchanov said. Chevron disclosed plans for a review of the Gorgon costs, following price hikes in the Australian resource sector. “While the 40% escalation in costs is obviously not what Chevron or the other project partners would hope for, let’s point out that the price of Tapis crude against which Gorgon LNG offtake deals are benchmarked is up 80% over the same timeframe,” he said.

Iraq may spend $150 billion to boost crude output

Iraq could spend up to $150 billion on projects to expand its crude production capacity to more than 12 MMbopd, the country’s oil minister said in remarks at the ADIPEC conference. “Iraq can reach 9 MMbopd in 2018, and I believe we can exceed 12 MMbopd, given the massive potential of our fields,” Oil Minister Abdul Kareem Luaiby told the daily briefing of the Abu Dhabi International Petroleum Exhibition and Conference. Iraq currently produces about 3.2 to 3.25 MMbopd and could raise its output to 3.4 MMbopd by early next year, and to 3.5 MMbopd by the end of 2013, Mr. Luaiby said. About 100,000 bopd will come from Majnoon oil field, while the rest will come from Rumaila and other fields, he said.

BUSINESS

UK has no issue with CNOOC’s Nexen takeover

CNOOC Ltd’s $15.1-billion takeover of Canadian energy firm Nexen Inc. isn’t cause for regulatory concern in Britain, where the Chinese state-run company would assume control of the country’s biggest oil field, a Department of Energy and Climate Change spokesman said. Because the U.K. doesn’t need to formally approve the deal, the fact that it doesn’t have objections means it won’t stand in the way of the deal and effectively clears the path for CNOOC to operate the 200,000-bpd Buzzard field, a key component of the Brent crude pricing benchmark. Canada finally approved the deal in early December, but the U.S. still has to give its assent, because Nexen also owns some oil fields in the Gulf of Mexico.

Range looks to sell Permian basin assets; focus on Marcellus

Range Resources Corp. said it has hired Bank of America Corp. to market some of its Permian basin properties in southeastern New Mexico and West Texas, as the company looks to fund projects in 2013, particularly drilling and recompletions, and focus on the Marcellus liquids-rich area and its horizontal Mississippian play. Range said its $1.3-billion capital spending budget includes about $1.1 billion for drilling and recompletions, $100 million for leaseholding and renewals, $75 million for pipelines and facilities, and $25 million for seismic. The company noted that about 85% of the budget will be targeted toward liquids-rich and oil projects, predominantly in the Marcellus shale and horizontal Mississippian plays.

Freeport agrees to buy McMoRan for $9 billion, MMR shares up 75%

Freeport McMoRan Copper & Gold Inc. has agreed to buy energy companies McMoRan Exploration Co. (MMR) and Plains Exploration & Production Co. for about $9 billion. MMR, a pure Gulf of Mexico player, acquired Newfield Exploration’s GOM assets for $1.1 billion in 2007 and PXP’s shallow GOM assets for $818 million in 2010. MMR’s key asset is the Davy Jones prospect, which involves a large ultra-deep structure encompassing four OCS lease blocks (20,000 acres). The company holds a 63.4% interest and is the operator of this project, which is estimated to hold 841 MMboe. Production has not yet started from the Davy Jones prospect.

ConocoPhillips to sell Algerian unit to Pertamina for $1.75 billion

ConocoPhillips has agreed to sell its Algerian business unit to Indonesian state energy company PT Pertamina for $1.75 billion, plus customary adjustments, as part of its ongoing asset-disposition program. ConocoPhillips Algeria Ltd. holds interests in three major onshore oil fields that averaged 11,000 boepd through October. The company said the net carrying value of its Algerian assets was roughly $850 million as of Oct. 31. ConocoPhillips expects to close the transaction by mid-2013.

REGULATORY AFFAIRS

Exxon Mobil lifts force majeure on Nigerian production

A local unit of Exxon Mobil Corp., Mobil Producing Nigeria, said it has lifted the force majeure it declared on Nov. 20. The company declared a force majeure on exports of Qua Iboe crude from Nigeria, due to an oil spill on Nov. 9. A force majeure is declared, when a company is unable to fulfill its contractual obligations to deliver crude, due to circumstances beyond its control.

PGNiG: New tax will lead to closure of gas fields

PGNiG will be forced to shut down some of its gas fields, which will start generating losses once new gas and oil production taxes are introduced, Polish daily Dziennik Gazeta Prawna reports. Poland plans to introduce new and higher taxes on oil and gas production so the state benefits from any development of shale gas, but changes will also be applied to existing conventional gas wells, which often are close to break-even levels, the report says.

DISCOVERIES

Petrobras discovers light oil in ultra-deep basin

Petrobras has discovered a new light oil accumulation in ultra-deep waters of the Sergipe-Alagoas basin, within concession area BM-SEAL-11, in Block SEAL-M-349. The well is 105 km from the municipality of Aracaju, off the coast of Sergipe State, at a water depth of 2,328 m. It is still being drilled and has reached a depth of 5,768 m. This is Petrobras’ fifth hydrocarbon discovery in the Sergipe-Alagoas basin this year.

Hess makes fifth strike offshore Ghana

Hess has filed a notice of discovery with the Ghana National Petroleum Corporation (GNPC) for the Pecan-1 exploration well in the deepwater Tano/Cape Three Points license offshore Ghana. There, it has encountered 245 net ft of oil pay in two separate Turonian intervals. Hess has a 90% interest in the block. GNPC holds the remaining 10%. The Pecan-1 was drilled to a TD of 15,420 ft, in a water depth of 8,245 ft. An extensive data acquisition program was undertaken, including wireline logs and MDTs. The well was then sidetracked to obtain bypass cores and is now being suspended. Pecan-1 is Hess’ fifth discovery on the block.

New Algerian oil find yields area’s highest flowrate

PTT Exploration and Production Public Company Limited (PTTEP) and its partners announced that they have discovered a new oil field from the 6th exploration well, Mouia Aissa-1 (MAS-1), drilled in the Hassi Bir Rekaiz Permit of Algeria. The well was drilled to a TD of 3,844 m, and yielded the petroleum discovery in the Triassic Argilo Greseux Inférieur (TAG-I) reservoir. The flow test was conducted, and it discovered the crude oil flowrate to be approximately 5,243 bpd, and natural gas flow at 5.0 MMcfd, the highest flowrate that has ever been discovered in the Hassi Bir Rekaiz permits. PTTEP and its partners have planned in the first exploration phase of the Hassi Bir Rekaiz permits to drill nine exploration wells during late 2011 to early 2013. At present, six exploration wells were completely drilled with five success wells. PTTEP and its partners are now in the process of flow testing the seventh exploration well.

Eni makes 170-Bcm gas discovery in Mozambique

Italy’s Eni said it has discovered new gas resources amounting to an additional 170 Bcm of gas in Mozambique. The company said the discovery was made in the Mamba South 2 and Coral 2 delineation wells. The full potential of the Mamba complex in area 4 is estimated at 2,115 Bcm of gas-in-place, said Eni. The company plans to drill at least two further delineation wells, Coral 3 and Mamba South 3, to assess the full potential of the Mamba complex discoveries. Four of the five largest oil and gas discoveries in the world this year have been made off Mozambique, including three earlier finds by Eni. These discoveries have the potential to put Mozambique in the gas-exporting big leagues with countries like Qatar and Australia. Eni is the operator of area 4 with a 70% participating interest.

Cobalt International makes big, deepwater GOM find

Cobalt International Energy struck a significant oil discovery at its North Platte prospect on Garden Banks Block 959 in the deepwater Gulf of Mexico. Based on extensive wireline evaluation, the discovery well encountered several hundred feet of net oil pay in multiple Inboard Lower Tertiary sands. North Platte is in 4,400 ft of water and was drilled to a TD of approximately 34,500 ft. Cobalt first attempted to drill this prospect in May 2010, and had a rig on the North Platte well location preparing to spud, when the Department of the Interior implemented the 2010 drilling moratorium, requiring Cobalt to move the rig off the well location. Total holds a 40% interest in the prospect.

Beach Energy discovers 2 MMboe onshore Australia

Beach Energy announced a new field oil discovery, with multiple oil columns encountered in the Cooper basin’s McKinlay, Namur and mid-Namur sandstones, and oil shows in the Birkhead formation in Pennington-1 in PEL 91. The pre-drill upside gross estimate have been exceeded and appear to be in excess of 2 MMboe of recoverable oil, which is supported by wireline log data. The Pennington-1 exploration well, is 9 km due east of the Bauer oilfield, in PEL 91 (Beach 40% and operator, Drillsearch Energy 60%). The well will be cased and suspended as a future oil producer.

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