April 2003
News & Resources

World of Oil

Vol. 224 No. 1  KURT S. ABRAHAM, MANAGING/INTERNATIONAL EDITOR   Click Here for Kurt's Opinion Saudi Arabian output climbs, prices remain

World of Oil
Vol. 224 No. 1 

Click Here for Kurt's Opinion

Saudi Arabian output climbs, prices remain high

In response to the void left by Venezuela’s strike-induced oil export deficit, Saudi Arabia opened up the taps, producing 9.2 million bopd during February. This compares to a normal rate between 7.5 and 8.0 million bopd. Crude exports from the Kingdom to the US were also well above the normal level of 1.5 million bopd. Saudi Arabia, which has a 10.5-million-bopd capacity, said that it would boost output still higher, if Iraqi supplies are disrupted by military action. Elsewhere in OPEC, the United Arab Emirates raised production slightly, to 2.2 million bopd vs. the normal 2.14 million bopd. However, outside the UAE and Saudi, most OPEC members are already producing flat out. In response to questions about high oil prices, one Saudi official said that one thing they will not do is raise production just to provide Western consumers with cheaper crude. They believe that this would be taking market intervention too far.

ExxonMobil begins output at Yoho offshore Nigeria

Early oil production has begun at ExxonMobil's $1.2-billion Yoho oil development in Nigerian Tract 104. The field contains a minimum of 400 million bbl of recoverable oil in shallow water depths of 200 to 300 ft. The company is utilizing a temporary FPSO vessel as an early production system, to bring Yoho online almost two years ahead of full-field start-up. Production through the FPSO is expected to average 90,000 bopd. “This first deployment of an EPS in West Africa is another example of our leadership position in project management and execution capability,” said company Senior Vice President Rex Tillerson. Full-field facilities will include additional wellhead platforms, a central production platform, quarters and an FSO.

TotalFinaElf sells non-core GOM assets

In accordance with a strategy of focusing E&P efforts on prospects with high reserve potential, TotalFinaElf announced that it would sell its interest in 13 non-core assets of the shallow-water Gulf of Mexico. TFE’s share of production from these fields is about 4,500 boed. However, the firm has retained exploration rights for horizons below current production depths in two of these assets. Two examples of assets that TFE definitely will hold onto are Aconcagua and Matterhorn fields in the Mississippi Canyon area of the Gulf of Mexico. These two developments are expected to significantly increase the firm’s output in the Gulf.

Alaskan House approves gas drilling amendments

By a 37 – 0 vote, Alaska’s House of Representatives passed House Bill 69, which will streamline the permitting process for drilling shallow coalbed methane wells. The chairman of the House Special Committee on Oil and Gas, Rep. Vic Kohring (Republican-Wasilla), said that it’s only fair for shallow gas wells to bypass drilling regulations that were meant to apply to deeper oil wells. “It’s basically an apples-to-oranges comparison,” said Kohring. “The small operators should not be subjected to the same strict requirements that the operators on the North Slope are, and for good reason. The North Slope has much more complicated, more difficult types of wells to drill.” Kohring estimates that the approval time for shallow well applications should change to 30 to 60 days, compared to one to two years. At press time, the bill had moved on to the Alaskan Senate, where passage was expected. Once the bill becomes law, it will take effect immediately.

Devon Energy and Ocean Energy form largest independent

Devon Energy will become the largest US-based independent after Houston-based Ocean Energy is merged into the Oklahoma firm. The transaction is valued at $5.3 billion. The combined entity will hold production of about 650,000 boed and have a value of nearly $20 billion. Put another way, the merged company will produce about 2.4 Bcfgd and 250,000 bpd of oil and NGLs. “Combining our two companies creates a balanced portfolio with North American and international assets, increased oil and gas production capabilities, and greater internal growth opportunities through active exploration,” said Devon Chairman, President & CEO Larry Nichols. After the merger, Nichols will retain the chairman and CEO positions. Ocean head man James Hackett will be named president and COO. There will be nine Devon board members, plus four from Ocean.

Anti-war oil weapon considered by 49 Islamic nations

Representing 40 countries and 20 key oil-producing nations, the Organization of the Islamic Conference (OIC) has declared opposition to the US/UK plan to attack Iraq for non-compliance with UN Resolution 1441. At the same time, OIC called on Iraq to fully comply with that resolution and to fully cooperate with UN weapons inspectors. The declarations came at a special OIC meeting in Kuala Lumpur, Malaysia, and officials said that they were considering whether to use oil exports as a means of pressuring the US and UK on the war question. “How this can be done is something else,” said Malaysian Prime Minister Mahathir Mohamad. “But there is a consensus as to the need for us to think about these things. This is something very dangerous. Some say it may cause a lot of repercussions, but if we do not think about it, we will not be able to exert some influence.” He acknowledged that such a move could backfire, causing some Islamic nations to pay a financial price later.

DTI initiates greenhouse gas cut plan

Britain’s Department of Trade & Industry has revealed plans to cut carbon dioxide emissions by 60%, albeit over a very long timeframe to year 2050. Naturally, some of the reduction will be mandated to come from offshore oil and gas installations. DTI Secretary Patricia Hewitt also pledged another £60 million (about $95 million) over four years to support renewable forms of energy. The country’s goal of boosting renewables’ share of the energy mix to 10% from 3% was reaffirmed.

Dead Sea search likely

Ness Energy International, based in Texas, has successfully concluded verbal negotiations to acquire rights to explore about 100,000 acres in Israel, in the southwestern area of the Dead Sea region. The verbal pact was only reached, however, after Ness CEO Hayseed Stephens extended his Israeli trip a third time for final-hour meetings. “This parcel is ready to become active,” said Stephens. Centered on the tract, but not included in the acquisition, is a producing gas field that is still active. Stephens noted that the area has a history of oil shows from earlier drilling. Furthermore, he said that seven sites within the parcel have geological indications of potential gas reserves.

Iran sues US in Int’l. Court for treaty violations

In one of the more bizarre actions affecting E&P policy, Iran has charged the US with violating a treaty when it supported Iraq in the 1980s during the Iran-Iraq War. Iranian officials filed their suit in the International court of Justice in The Hague, seeking unspecified compensation for breaking the Treaty of Amity, Economic Relations and Consular Rights, established in 1955. An additional grievance in the suit contends that the US broke the treaty by firing on, and destroying, three Iranian offshore oil platforms in 1987 and 1988. The US Navy destroyed the platforms in response to an Iranian missile hitting a US-flagged tanker in the Persian Gulf, as well as a mine explosion that damaged a US Navy vessel. A court ruling is not expected for several months. WO





 We hear frequent industry chatter lately about how major operators are not spending enough money on new projects, particularly drilling. Given the unusually high crude and gas prices that have persisted for 18 months (thanks to OPEC quotas, Venezuelan unrest and Iraqi war anticipation), our friends at the service/supply companies have expressed consternation at the failure of activity indicators to show gains. They have a right to be miffed – to a point. Yes, the majors have failed to increase their spending in proportion to prices. This is in stark contrast to previous high-price cycles, when the industry spent money like water, and the recent reluctance borders on becoming a multi-year phenomenon. Numerous theories prevail as to why the majors are not opening their wallets wider. Yours truly likes to finger the following culprits: Companies busily buying back their stocks to shore up share prices; some executives still traumatized by previous, sudden drops in oil and gas prices (e.g.1986, 1991 and 1998 – ”the horror, the horror”), fearing a quick, successful Iraqi war could trigger another such fall; and (my favorite reason) some upper-level people are happy to take extra profits from high prices and dump them into the bank and onto the bottom line. Who can blame some folks for focusing on production, draining their reserves, and ignoring exploration and drilling, when so much of their compensation is tied to short-term, profit-driven performance incentives? Exacerbating the situation is what we, at World Oil, deduce to be a sea change in majors’ spending habits. Although these firms may spend the same total on E&P in 2003 as they did last year, look at where, and on what, they spend money. In a quest for maximum reserves per well, the majors are infatuated with exotic prospects and projects, particularly in deep water. They would rather spend $50 million on one deepwater well than drill 20 onshore wells in Texas, Canada or Venezuela. The problem is that overall activity levels are reduced, thus cutting into already meager profits for service companies.

 Regarding the latter, National Oilwell Chairman, President & CEO Pete Miller raised an interesting point while speaking to the NOMADS group in Houston. He noted that the average onshore and offshore (particularly jackups and older semis) rig age in the US and Canada is about 20 years. There will be a need shortly, if not already, he opined, for drilling contractors to update, modernize and replace much of their fleets. Yet, they can’t accumulate enough money for this noble cause. Given the majors’ collective attitude, we unfortunately should not expect this situation to change any time soon.


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