What's new in production

	Vol. 226 No. 8
ROBERT E. SNYDER, EXECUTIVE ENGINEERING EDITOR

E&P Spending Survey: Midyear Update. Lehman Brothers’ June 22 major survey updating its year-end Original E & P Spending Survey of December 6, 2004, indicates worldwide exploration and production expenditures are now forecast to rise 13.4% in 2005 vs. the 5.7% indicated in the 2004 survey, to $192 billion by the 356 companies in the survey. The improvement from December is driven by increases in spending levels both in the US and outside North America.

The substantial increase in international E&P expenditures, now forecast at 13.3% vs. 4.5% from December, is fairly spread out and not limited to one region of the world. Spending increases are coming from US independents, majors, Canadian independents, significant European companies and several national oil companies or state-sponsored enterprises, both in Asia-Pacific and Latin America.

The increase in 2005 domestic US expenditures, now 16.9% for 265 companies surveyed, vs. the 7.8% forecast in December, is likely a result of higher-than-expected commodity prices leading to better cash flows for US independents, and higher pricing for rigs and services, also forcing budget increases. Comfort with high commodity prices is continuing to increase and companies in the survey are now using oil prices of almost $41/bbl and gas prices of about $5.75/MMbtu in their 2005 budgets. Canadian E&P expenditures are expected to rise 6.4% in 2005 for the 78 companies surveyed – lower than the 8.6% suggested in December due to overspending of 2004 budgets.

Next year is likely to be another year of increasing E&P spending, as 65% of the companies surveyed suggested spending would be higher in 2006. Most notably, for those companies forecasting the higher spending, almost 80% indicated it would be up more than 10%; 38% are forecasting increasing their budgets by more than 20%.

PRB and Enterra to develop more CBM. PRB Gas Transportation, Inc. and Enterra Energy Trust announced a letter of intent to develop coalbed methane (CBM) properties in an area of mutual interest in Wyoming and Montana. PRB will have the right to earn up to a 50% working interest in certain properties of Enterra’s recently acquired subsidiary, Rocky Mountain Gas (RMG). The RMG properties, which hold natural gas assets in Montana and Wyoming, include in excess of 130,000 net acres of CBM production rights.

PRB may provide up to $21.8 million to acquire, drill and develop CBM properties, including the RMG properties, in the area of mutual interest. On that expenditure, PRB will have earned a 50% interest in the RMG properties. For properties purchased by PRB within the area of mutual interest, PRB and Enterra will each own a 50% working interest.

UK North Sea activity. A drop in UK North Sea oil and gas production this year is noted, as the Royal Bank of Scotland Group reported UK oil production fell by 17% to 1.6 MMbpd and natural gas fell by 10% to 10.6 Bcfd through March. But from the start of 2005, expectations are high that exploration, drilling and development will increase this year. More exploration in particular is sought by government. This information comes from three reports in ODS-Petrodata’s recent Offshore International Newsletter.

On a positive note, the number of applications for the UK Department of Trade and Industry’s (DTI) 23rd Licensing Round for offshore oil and natural gas prospects hit a 30-yr high, with operators applying for a record 279 blocks, the largest number applied for since 1972. Applications submitted included 67 traditional applications, 60 promote applications, and 279 applications for seaward blocks.

But despite the optimism, much work remains to be done, including securing further investment to fund new exploration and development projects and the importance of UK licenses being in the hands of companies that will fully exploit all opportunities. Under a new initiative, DTI would have the power to force operators to sell their interests in fields if they are not actively working to explore for and produce oil and gas.

By early July, optimism had grown for UK North Sea drilling from a survey conducted by the Strathclyde University’s Fraser of Allander Institute as the third Aberdeen & Grampian Chamber of Commerce oil and gas survey. The most encouraging signs for the UK Continental Shelf and the Northeast are the forecasts for increased exploration, drilling, development and appraisal activity in the UKCS for the next 12 months.

Forty-five percent of contractors reported increased UKCS-based activity over the past four months, and 40% expect an increase in activity within the next year. While the survey underlined increased activity and confidence, indications of potential problems ahead exist. Most of the optimism comes from development and appraisal activity; however, limited exploration activity is being seen, which is not good news for the long-term future of the sector.

Brain damage from welding. A Mayo Clinic case series analysis has pinpointed syndromes associated with toxic damage to the brain and nervous system from manganese fumes generated during welding. The analysis revealed that all affected patients shared a risk factor: welding with inadequate ventilation. Researchers examined medical records from eight patients referred to the Clinic between 1999 and 2005 for various nervous system complaints. All of their MRI scans showed an area of increased T1 signal intensity in the basal ganglia region of the brain.

As further reported in the July 4 Gulf of Mexico Newsletter, all patients were men involved in welding for one to 25 years. Symptoms included cognitive impairment, headaches and tremor, and balance problems. Each patient was diagnosed with neurotoxicity from welding fumes. This is the first case series of welders highlighting such widespread neurological impairment. A common factor with all eight welders studied was inadequate fume-protective measures, providing further evidence that unprotected welding leads to neurological damage.

Many of the patients studied still had symptoms after they stopped exposing themselves to welding fumes, leading the Mayo neurologists to postulate that the damage invoked by manganese exposure may be permanent. “It seems to be static or progressive, not reversible,” they noted.