What's happening in production
Venezuela speaks "clearly;" an unplugged lawsuitRemember just a few months ago when Venezuela said it would not abide by further OPEC production cuts? Then, a month later, the country said it had agreed to cut production. Then on April 6, Vice-Minister of Energy and Mines Alvaro Silva said that Venezuela’s latest production cuts of 125,000 bopd, which were to take effect on April 1, will not be made immediately. He confirmed Venezuela’s commitment to decrease output, but said the country’s social problems did not allow sudden implementation. He declined to say what Venezuela’s current oil output was, and said he was not able to give a date by which the agreement would be implemented in full. "You know what problems we have with jobs and the economic recession, and (the cuts) have to be done in a planned way, but they will be done," Silva told reporters after a meeting in the Venezuelan congress. The next day Venezuelan Energy and Mines Minister Ali Rodriguez said his country was in full compliance with the latest agreement to cut oil production. In an interview with Reuters, Rodriguez said crude production was at 2.7 million bpd. When asked about what Vice-Minister Silva had stated the previous day, that the cuts would not be made immediately, Rodriguez said Venezuela had been preparing for the reductions since March 12. He added that Venezuelan oil customers had already been notified of the intended cut of 125,000 bpd, which had been in effect on April 1. Rodriguez said Venezuela had complied with the previous cut of 525,000 bopd by March 12 and had already started cutting further, because some wells had become uneconomic due to rock-bottom prices. Venezuela agreed to slash another 4% from its output as part of a third round of producer cuts, which theoretically would reduce world supply by about 6%. Another day later, the rhetoric sounded like a well-honed plan. Rodriguez said that worldwide cuts in oil production were aimed at bringing U.S. inventories down to the equivalent of 80 days of demand. He said OPEC should closely monitor markets and devise a mechanism to reactivate shut-in capacity when prices recover. "The initial target was 80 days of inventories according to the studies made here and in OPEC. That is a level that will not lead to excessive prices, but which will maintain an acceptable level," Rodriguez told Reuters in an interview. "If there is a reduction, there should be a mechanism by which each country would know how much it can increase its production ... that is why monitoring is so important," he added. He said he was mindful of the mistakes of the 1970s and 1980s when prices soared and then collapsed despite severe reductions in OPEC output. "I am not one of those dogmatists who prostrate themselves before production cuts, nor among those who prostrate themselves before the expansion policy. Both policies have shown major failures," Rodriguez said, referring to the previous administration’s strategy of rapid output growth. "Everything points to the fact that neither extreme is right and both policies have led to the same result: an abrupt fall in prices." But where will OPEC obtain accurate data to hold U.S. inventories at 80 days? According to data supplied by the U.S. Department of Energy, oil stocks in the U.S. on March 26 stood at 85.5 days. However, the DOE has a difficult task and is well known for its qualifying footnotes and large revisions. "The large print giveth and the small print taketh away," one analyst quipped. In reality, attrition of marginal production, which is mostly located in the U.S., surely accounts for some decrease in overall supply. Unplugged lawsuit. In an interesting story from Compact Comments, a newsletter of the Interstate Oil and Gas Commission, Stanley Leavell, a marketer of oilfield supplies, filed suit against the governor and two state employees to force Illinois to plug more than 150 abandoned wells. Being sued are Illinois Governor George Ryan; Brent Manning, director of the Department of Natural Resources; and Lawrence Bengal, superintendent of the state’s oil and gas division. The lawsuit alleges that the trio failed to comply with state statutes requiring the wells to be plugged or temporarily idled. Bengal stated, "The State does not assume ownership of the abandoned wells. The legislature gave us the authority to plug these wells for environmental and public safety reasons." Leavell is asking the court for an order to direct the defendants to either plug or begin operating the wells within 30 days. Leavell is also seeking damages of $1 million, punitive damages of $10 million and related attorneys’ fees and court costs. Optimized gas lift. As reported by NewsEdge, Chevron was recently assigned a patent for its method of automatically determining the optimum gas-injection rate for a gas-lifted oil well. Although conceptually simple, apparently no one thought to patent it until now. The method is as follows. The optimum gas-lift slope for the well is initially computed
and entered in a computer program. Lift gas is injected at a measured rate to determine the
well’s initial production rate. These two rates are then entered in the program as
well. Thereafter, the lift-gas injection rate is incrementally altered. The new injection
rate and resulting production are also entered in the program. A gas-lift slope is then
calculated from initial and incrementally altered injection rates as well as their resulting
production rates. The new gas-lift slope is compared to the optimum gas-lift slope, the
lift-gas is again tweaked, either up or down, and the entire process repeated. This
iteration loop continues until the best gas-lift rate for optimum oil production is
achieved.
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