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Senate approves opening ANWR on surprise vote

With soaring oil and gasoline prices in mind, a bitterly divided Senate last month voted to open the Alaska National Wildlife Refuge (ANWR) to drilling, affirming a key component of President Bush’s energy strategy. By a 51-49 vote, the Senate rejected an attempt by Democrats and GOP moderates to remove a refuge drilling provision from the FY 2006 budget, preventing opponents from using a filibuster. The latter is a tactic that has blocked repeated past attempts to open ANWR to activity. Sen. Ted Stevens (Republican – Alaska), who for more than 20 years has been unable to persuade Congress to open ANWR, was ecstatic. Alaskan officials will be happy, too, because they view the refuge’s oil as replacing dwindling shipments from the aging Prudhoe Bay fields on the North Slope. Seeking to sidestep a Democratic filibuster that would require 60 votes to overcome, Republican leaders put the ANWR provision into a budget document that is immune to filibusters under Senate rules. During the Senate debate, Sen. Richard Durbin (Democrat – Illinois) said that even at peak production, the refuge would account for less than 2.5% of US oil needs (a figure that seems to indicate 500,000 bpd). He argued that more conservation and fuel-efficient automobiles would save more oil than ANWR would produce. The US House was expected to duplicate the Senate’s approval.

OPEC’s quota hike has little effect on jittery markets

While the US looked to ANWR as a long-term internal solution, OPEC seemed incapable of taming the global spike in world oil markets. A decision last month to raise output targets failed to keep the price of oil from hitting new all-time highs. On March 16, the price of West Texas Intermediate hit $56.60/bbl, eclipsing the $55.67 record set last October, amid reports of drops in US gasoline inventories. At their meeting in Iran, OPEC members agreed to raise the oil production ceiling to 27.5 million bpd, up 500,000 bpd, with a further increase of 500,000 bpd mandated, if prices remain high. But their decision may have little impact, because most of the 11 members are already producing above existing quotas, and near their output capacities. Even if Saudi Arabia and Kuwait can deliver more oil, analysts expect only a minimal increase in oil supplies as the summer approaches. Still fearing double-digit growth in Chinese demand, some traders and analysts expect oil to pass $60/bbl and perhaps even hit $80. Yet, others say that new supplies coming online by 2007 from both OPEC and non-OPEC producers could be enough to meet demand.

UK changes timing of operator’s tax payments

Showing once again that he cares more about boosting governmental coffers than the long-term welfare of the E&P industry, UK Chancellor of the Exchequer Gordon Brown has changed the timing of payments of oil companies’ corporation tax. The move is expected to hit operators’ cash flows, according to Ernst & Young. The measure should bring in an extra £1.1 billion ($1.92 billion) to the Treasury, making it the biggest revenue earner in the pre-election budget. Nothing else in the pre-election reforms comes close to this impact. Ironically, while the change in tax payments will adversely affect oil companies’ cash flows, it is unlikely to provoke much industry reaction from the industry amid soaring crude prices. One analyst noted that it is palatable to make such a change when oil prices are high. Brown’s rationale for the measure is to address “slippage” in the tax cash flow by advancing corporation tax while oil prices are rising. Although this is not a big issue for most companies at the moment, what could be worrisome are potential reforms in the next budget if oil prices continue rising, tempting officials to take even more revenue.

Congressman pins fate of bill on Virginia governor

Speaking to the Virginia Ship Repair Association in Norfolk, Rep. Frank Wagner (Republican – Virginia) said that supporters of a bill to allow drilling for natural gas offshore Virginia should press the state’s governor, Mark Warner, to resist catering to what Wagner called “fringe” groups opposed to the idea. Before his speech, Wagner handed out the governor’s contact information to more than 100 association members, asking them to start writing him. Natural gas production, Wagner said, is much less environmentally risky than oil tankers coming in from abroad. Such drilling would help not only reduce America’s dependence on foreign oil, he said, but also reduce customers’ energy bills. “The little small group that represents the other side is vocal – too vocal,” said Wagner. “What I’ve read about the other side, their argument isn’t based on facts.” The opposition includes 23 environmental groups, including Greenpeace, the Sierra Club and the Ocean Conservancy.

Officials still see potential for finds offshore Norway

The Norwegian Petroleum Directorate still sees potential for large oil and gas finds on the continental shelf, said Director Bente Nyland. Speaking to a geologists’ meeting in Bergen, Norway, she said that in particular, the Barents Sea, deepwater zones in the Norwegian Sea and acreage around Lofoten Island in northern Norway offer the best prospects. Norway’s resource replacement rate was 8% in 2004, compared to 25% in 2003. She said that better technology available now, coupled with the entrance of smaller operators more suited to tail-end production, gave her hope for greater resource recovery.

Pressure from unions exerted on Bolivian energy reform

Unions and other left-leaning groups pressured governmental officials to approve controversial energy legislation in Boliva. The reform legislation would require foreign oil and gas companies to pay much higher royalties to the state. The protesting groups intensified their efforts in central and southern Bolivia by blockading highways in the Chapare region, halting the movement of about 1,500 vehicles along Bolivia’s main east-west road. In addition, protesters closed several routes to the southern provinces of Sucre and Potosi. The increased pressure came just hours after Congress resumed debate on the new Hydrocarbons Law. The plank in the bill concerning royalties to be imposed on transnational energy firms has brought the administration and legislature into steady conflict with the leftist opposition and labor unions.

Iranians, Venezuelans talk of cooperation

At press time, visiting Iranian Minister of Industries and Mines Eshaq Jahangiri said in Carcas, Venezuela, that several agreements worth more than $1 billion, total, were expected to be signed during Irania President Mohammad Khatami’s stay in that country. Jahangiri told local reports that 20 agreements and memoranda of understanding (MOUs) were set to be mutually signed in various fields, particularly oil and gas. “Agreements on encouragement and support of investment, elimination of double taxation, shipping and marine trade, as well as MOUs on oil, gas and petro-chemistry will be signed during the current visit,” he said. The news will not be welcomed by Western oil firms that already are having problems dealing with the regime of leftist Venezuelan President Hugo Chavez.

Talks proceed between Australia and East Timor

Australian Foreign Affairs Minister Alexander Downer told media in Canberra that progress had occurred in negotiations with East Timor over a seabed boundary between the two countries. Australia wants a final decision on the boundary to be deferred for up to 100 years, to allow oil and gas projects to go ahead in the Timor Sea. The country has offered East Timor A$3 billion to put aside its concerns about sovereignty issues. Talks over the sector broke down last October, after the two nations failed to reach an agreement over maritime boundaries. Before talks re-started last month, Australian Prime Minister John Howard, and his East Timorese counterpart, Mari Alkatiri, exchanged letters that defined issues regarding the dispute. Representatives of both countries then met in Canberra last month to continue discussions that were termed “productive.”

Groups sue Interior over California offshore drilling

Ten conservation groups sued the US Interior Dept., claiming it had ignored potentially harmful effects of drilling at 37 sites off the central California Coast. The lawsuit, filed in federal court in Oakland, seeks a decision that the federal government violated environmental laws by not conducting more drilling analysis and an order for further environmental review. Included in the group are the National Resources Defense Council, The Defenders of Wildlife, Sierra Club, Santa Barbara Channelkeeper and the Surfrider Foundation. The leases in question are offshore Ventura, Santa Barbara and San Luis Obispo counties. Interior originally sold the leases between 1968 and 1984. Officials were ordered by a federal judge in 2001 to study the effects of extending the leases, after California sued to block drilling at the sites. In addition, the lawsuit claims that seismic activity could harm marine life.

Petrobras will invest $3.5 billion in Bahia state

Brazilian state firm Petrobras will invest at least $3.5 billion in the northeastern state of Bahia through 2010 to expand the local gas network, boost oil and gas output and improve refining capabilities. Among the projects, Petrobras plans to invest over $1.2 billion to develop gas production at the offshore Manati field in the Camamu-Almada basin. Production there should begin by January 2006, with output reaching about 4.5 MMcmgd (158.9 MMcfgd), raising the state’s gas production to 11 MMcmgd (388.5 MMcfgd). Petrobras is investing another $988 million to build the PRA-1 pumping platform in the state, for use in the Campos basin.

Petronius regains its sea legs

Marathon reported that the ChevronTexaco-operated Petronius platform, in which it holds 50% interest, has resumed production in the Gulf of Mexico after Hurricane Ivan damaged it. Petronius is producing at about 75% of pre-Ivan rates of 53,000 gross boed, with efforts underway to ramp up production to 100% by the end of March. As Ivan approached the Alabama Gulf Coast last fall, its eye passed almost directly over Petronius. Significant damage occurred to the rig crew quarters, production equipment, and deck structures. Petronius is about 130 miles (200 km) southeast of New Orleans.

Amerada Hess begins output from JDA

Amerada Hess has begun initial natural gas sales from Block A-18 of the Malaysia-Thailand Joint Development Area (JDA). Gross output is averaging about 110 MMcfgd and is expected to increase to 390 MMcfgd by first-quarter 2006. Amerada Hess and Petronas Carigali each own a 50% interest in the Block A-18 Production Sharing Contract (PSC). Amerada Hess estimates that net production from Block A-18 will exceed 55 MMcfgd in 2005 and 140 MMcfgd in 2006.

Abandoning platform at sea is best, says Total

A leading North Sea operator has announced controversial proposals to leave the entire concrete superstructure of a redundant platform out at sea, instead of bringing it ashore for decommissioning. Total said that its ground-breaking application to remove only the steel topsides of the gas manifold compression platform, MCP-01, is the only safe environmental option for taking the installation out of service. Assuming the UK government approves the plan, Total will leave part of the 386,000-ton structure protruding above the North Sea surface, 110 mil northeast of Aberdeen. In addition, there will be a 500-m (1,640-ft) exclusion zone, banning Scottish fishermen from the area. The Scottish Fishermen’s Federation said it was keeping an open mind on the proposed abandonment.

First LNG exits Egypt

Petronas together with partners BG International Limited and Egyptian General Petroleum Corporation (EGPC), have successfully delivered their first LNG cargo to Asean LNG Trading Company Ltd (ALTCO), a subsidiary of Petronas. The delivery is the partners’ first cargo commitment under a five-year sale and purchase agreement signed with ALTCO and BG Gas Marketing Ltd (BGGM). Under the agreement, ALTCO and BGGM will, on a 50:50 basis, lift 1.45 million tons of LNG annually from the Damietta LNG Complex in Egypt, owned by Spanish Egyptian Gas Co. (SEGAS). The plant receives feed gas from the West Delta Deep Marine (WDDM) concession area under a separate five-year processing. Petronas has a 50% working interest in the WDDM Concession Area, about 140 km away from the LNG complex.

CVX cuts US reserves

Citing disappointing drilling results in two locales, ChevronTexaco slashed its US natural gas reserves by 13% for 2004, the third year in a row in which it took a substantial reserves hit. Pointing to problems in the Gulf of Mexico and the Midcontinent area, the second-largest US oil company cut its stated figure by 680 Bcfg, or equal to 3% of the company’s worldwide natural gas reserves. The company reported downgrades in 2002 and 2003 for similar reasons.

Shell alters compensation plan for executives

Royal Dutch/ Shell Group said it will propose to shareholders an amendment of executive remuneration policies, increasing the use of shares for bonuses and discontinuing the use of stock options. The changes were proposed after consulting with shareholders. The measures take into account “current market practices and governance developments.” The new policies will be proposed to shareholders at the annual meeting on June 28. Shell said the changes “would not lead to an increase in the overall value of compensation for executive directors.” Under the proposed changes to the “‘long-term incentive plan,” executives due for a performance review can receive a conditional award of shares worth up to two-and-a-half times base pay. The number of shares will depend on the total shareholder return of the group over a period of up to three years, relative to peers in other major companies.

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