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Nov. 2002 Vol. 223 No. 11
World of Oil
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Kurt S. Abraham,
Managing/International Editor
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OPEC digs in its heels on production quotas
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OPEC members agreed in late September to retain their existing 21.7-million-bopd production ceiling, frustrating Western politicians, who had hoped for lower oil prices to jump-start their economies. To many industry observers’ surprise, other OPEC countries convinced Saudi Arabia to join them in holding the line on quotas. Saudi Oil Minister Ali Naimi reportedly came to the group’s meeting in Vienna, ready to argue for at least a minor quota increase, to get in line with supply realities. Riyadh fears that OPEC might be losing credibility, given the cheating on quotas, which OPEC President Rilwanu Lukman admitted was running 1.8 to 2.0 million bopd above the ceiling. However, unlike Saudi, most members are at or near capacity and want to maximize revenue. These nations include Venezuela, Indonesia, Kuwait, Iran and Qatar. Iraq is exempted from the group’s quota agreements. However, in early October, as oil traded above $30/bbl, Naimi did not rule out the possibility that Saudi would bring on additional output if prices remained at this level for more than 20 days. |
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Nigeria opens marginal field bids from 66 companies
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Government petroleum agency DPR accepted bids from 66 of 70 indigenous oil firms that met requirements for the Sept. 13, 2002, deadline on marginal fieds. These bids will now be evaluated by a committee of DPR, Nigerian National Petroleum and the current joint venture partners (mostly major oil companies). DPR Deputy Director Mac Ofurhie said, “We want companies that are very technical, that will operate the fields just like the multinational companies, only that theirs are marginal fields.” The 70 companies that qualified last June for the September round had been whittled down from 142 firms that submitted 408 packages in November 2001. Nigerian fields are defined as marginal, if they are capable of producing less than 10,000 bopd and have been abandoned by multinational companies, due to low reserves and high overhead costs. |
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U.S.-Russia energy summit yields good reviews
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Participants gave a thumbs-up to two days of speeches, presentations and deliberations at the first-ever U.S.-Russia Energy summit in Houston. Organized by the United States Energy Association and the James A. Baker III Institute for Public Policy at Rice University, the summit explored the two countries’ growing energy relationship. Event co-sponsors were U.S. Commerce Secretary Don Evans and U.S. Energy Secretary Spencer Abraham. Russian Energy Minister Igor Yusufov said his oil industry needs investment of U.S.$1 billion annually over the next few years to reach a target output of 390 MMt/year (7.8 million bopd). Russia produced 348 MMt in 2001 and should top that figure by 30 MMt this year. Gas output should grow 3% in 2002, to 600 MMcm (21.2 Tcf). Again, Western investment is needed to achieve growth targets. Given U.S. concerns about diversifying supplies away from the Middle East, Russia offers U.S. firms growth opportunities. As Evans noted, “If we’re going to lead this world to peace and prosperity, we’re going to do it through economic development. And you can’t do that without reliable, steady supplies of energy.” |
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Norway expects investment upturn for 2003
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Government officials are banking on a strong improvement in Norwegian up-stream spending next year. The Department of Finance has forecast that Norwegian Shelf spending will increase by NOK 10 billion (between U.S.$1.40 billion and $1.45 billion). In its proposed 2003 budget, the government expects to see investments total NOK 70 billion (close to $10 billion). According to Norway’s National Association of Technology Companies, this spending level would be enough to secure more than 1,000 jobs at Norwegian offshore yards. |
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U.S. oil and gas reserves rose again in 2001
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For the fourth year in the last five, U.S. oil and gas reserves posted a gain, said the Energy Information Administration. Crude oil reserves were up nearly 2%, and dry gas reserves increased 3.4%. Examined another way, reserve additions exceeded production by 21% for oil and 31% for gas. The trend toward U.S. reserves increases in recent years is in stark contrast to the 1977 – 1996 period, when oil reserves fell in 17 of 19 years. However, as was noted by EIA program contact John Wood, “One new deepwater field accounted for a significant portion of all new oil reserves. Thunder Horse field is 125 mi southeast of New Orleans, at a water depth of 6,000 ft. After full development, Thunder Horse is expected to be the largest field in the Gulf of Mexico.” Total U.S. crude discoveries were 2.565 billion bbl in 2001, double the figure for 2000. All data are from an advance summary of EIA’s annual reserves report. |
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PetroChina employee indicted for copying software
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A U.S. federal grand jury in San Francisco indicted a Chinese national and employee of the Daqing Oil Field division of PetroChina for illegally copying proprietary seismic imaging software. Yan Ming Shan, 32, had been undergoing training by California-based 3DGeo Development, Inc. The firm suspected Yan had copied their software to a laptop belonging to another Daqing employee, for illegal transfer back to China. Company officials alerted FBI agents, who arrested Yan in September at San Francisco International Airport, just before he was set to board a flight to China. A federal magistrate ruled that Yan was a flight risk and ordered that he be held without bail, pending trial. Authorities were clearly pleased to crack down on an example of persistent Chinese disrespect for U.S. copyright and patent laws. “This case represents the most recent example of how prompt reporting by the victims of high-tech crime can lead to the preservation of crucial evidence and the arrest of perpetrators before they can flee the country,” said U.S. Attorney Kevin V. Ryan. |
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Saudis give final notice on mega gas projects
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Word leaked out of Riyadh that Saudi Foreign Minister Prince Saud Al Faisal gave foreign oil firms a Nov. 1 deadline for responding positively to a final offer on three mega gas projects. If companies refuse the offer, negotiations would terminate, and all preliminary awards would be voided. To develop three large gas fields, Saudi’s final guarantee was a rate of return between 14.5% and 15.5% for associated power generation, water desalination and petrochemical facilities. Foreign firms have demanded 18% to 20%. Saudi also reportedly increased the amount of gas available to foreign firms. |
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SOCO hits off Vietnam
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On its first wildcat in Vietnamese Block 9-2, offshore Vung Tau City in the Cuu Long basin, SOCO International has struck an oil and gas discovery. Drilled to a 14,984-ft TD, the 09-2-CNV-1X well tested 2,500 bopd and 6.6 MMcfgd. SOCO and its partners, Petrovietnam and Thailand’s PTTEP, will drill a second well on Block 9-2 late this year. The partners plan up to four wells, combined, on Blocks 9-2 and 16-1. |
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Thailand awards blocks
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Industry Ministry officials have handed seven exploration concessions to six operators and their partners. Among the 18th Round winners were ChevronTexaco (offshore Block G4/43); Shell (onshore Block L22/43); CNPC (L21/43); Pacific Tiger Energy (L33/43 and L44/43); SVS Energy Resources (L71/43); and Nucoastal Corp. (G5/43). These firms are expected to spend more than $32 million in the first three years of exploration. |
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U.S. DOE turns 25
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Officials last month hosted several activities celebrating the U.S. Department of Energy’s 25th anniversary. On Oct. 8, Energy Secretary Spencer Abraham chaired an event at DOE headquarters, featuring several former Energy Secretaries and honoring 2,000 employees that have been with DOE since it opened on Oct. 1, 1977. |
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Indonesia bans by-laws
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World Oil’s contributing editors report that the Indonesian government has recently revoked 68 by-laws in its energy and mining sector to improve the investment environment. These by-laws dealt mostly with taxation imposed by regional governments on companies operating local mineral and gas production. Indonesia’s Energy and Mineral Resources Ministry said that the move would create legal certainty for investors. Until now, regional governments had issued by-laws as a legal basis for collecting extra revenue from foreign firms and investors, creating onerous burdens for these operations. |
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Alaska may regulate BP
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A small blowout at one well that seriously injured a worker and caused an onshore oil spill has led Alaskan officials to consider oversight of some BP operations. The Alaska Oil and Gas Conservation Commission was set to hold a hearing on Nov. 14 to decide whether to regulate BP’s wells. Until now, the British firm has self-regulated and managed 1,600 Prudhoe Bay wells. Since the one well exploded because of pressure problems on Aug. 16, authorities have highlighted 260 more wells as "potentially problematic," requiring further safety tests. “Our goal is to make the operations safer,” said AOGCC Commissioner Dan Seamount. |
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Well spudded off Oman
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In a country known for onshore activity, Heritage Oil Corp. is drilling a somewhat rare offshore wildcat. Begun around Oct. 1, the well is sited in Block 8 on the Tibat prospect of the Arabian Gulf, off the Musandam Peninsula and 12 km (7.5 mi) south of the Bukha field production platform. Targeted reserves identified by a 3D seismic survey are 100 Bcf of gas. Drilling should take 60 days, and if successful, an extended well test program is likely. |
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Anadarko goes for age
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A $200-million acquisition of Howell Corp. will give Anadarko Petroleum access to two aging, but large Wyoming oil fields. The firm will obtain former giant Salt Creek field and the smaller Elk Basin field. Salt Creek dates to 1908 and originally held 1.7 billion bbl of oil. Anadarko plans to increase the field’s output to 35,000 bopd from 5,300 bopd by the end of 2006.  |
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Opinion
As was not so subtly pointed out at the recent U.S.-Russia Energy Summit in Houston, Russian officials have a golden opportunity to expand their oil and gas sector while also cementing greater ties with American firms. Like never before, this is a win-win situation in the making for both countries.
What has brought both sides to this point is a rare confluence of their individual needs. Despite building back 1 million bopd in productive capacity during the last two years, Russia clearly needs more investment from foreign sources to keep the momentum going and reach growth targets. At the same time, the U.S. finds its ties to Middle Eastern oil increasingly dicey, and American officials would like to diversify their import sources to gain supply reliability. So the equation looks pretty simple, right?
Well, yes, it looks good on paper, but the road to mutual energy bliss has one large pothole that needs to be filled – Russian officials must get their energy regulatory structure in order and pass the proposed Production Sharing Agreement (PSA) law. At the summit, Conoco Phillips Chairman Archie Dunham summarized the case: “The PSA model is attractive because it allows companies to accelerate cost recovery. Conoco Phillips is eager to do more in Russia. However, we need to see the adoption of a consistent PSA law. Unfortunately, that has not yet been accomplished.” ChevronTexaco Vice Chairman Peter Robertson amplified Dunham’s comments: “We are encouraged by the progress that has been made with PSA legislation in Russia over the past few months and look forward to the PSA Tax Chapter becoming law before the end of the year. PSAs have the ability to attract large amounts of capital that not only can open up the frontier, but will build infrastructure that will facilitate the further development of Russia's continental shelf.”
Judging by the amount of time that these two major oil company leaders and others spent discussing this one particular topic, the list of priorities for Russian officials should be clear: Pass the PSA law and then clean up other muck, like tax stability, pipeline bottlenecks and access to so-called “rim areas,” such as Timan-Pechora and East Siberia. Russian officials have a rare chance to enrich their economy and improve U.S. relations. Let’s hope they don’t waste too much time haggling over how to get it done.
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