August 2005
News & Resources

World of Oil


World of Oil
Vol. 226 No. 8 

Click Here for Kurt's Opinion

Unocal acquisition saga continues

In spite of growing opposition from Washington politicians, Unocal’s board told its management to continue negotiating with China National Offshore Oil Corp. (CNOOC), to solicit a higher bid than the $18.5-billion offer already made by the Chinese firm. The board still officially endorsed a previous, $16.6-billion bid made by Chevron Corp., but said it would consider a CNOOC offer, if several conditions were met. However, on July 19, Chevron sweetened its offer, boosting the stock portion by $2/share to $63 for each share of Unocal. Based on distribution of 168 million shares of Chevron at $57.30/share, this would equate to $9.63 billion, plus the already specified $7.5 billion in cash, for a total value of about $17.1 billion. That same evening, Unocal’s board voted to accept the Unocal offer and reject CNOOC’s bid. Nevertheless, on Aug. 10, Unocal’s shareholders will have the final say and vote on which offer to accept. Chevron pointed out that it has secured all required regulatory approvals. For more commentary on the Unocal sale, please see Kurt's Opinion.

Oil prices stabilize into range, supply outlook improves

During the first three weeks of July, oil prices traded in a range between $57 and $61/bbl, moving slightly downward or upward in response to a variety of market factors, from weather to stocks to demand. At the same time, both OPEC and the International Energy Agency (IEA) cut their estimates of 2005 oil demand growth by 150,000 bpd (to 1.62 million bpd) and 200,000 bpd (to 1.58 million bpd), respectively. Both entities attributed the revisions to weaker-than-expected growth in Chinese oil demand. For its part, OPEC was estimated to have pumped 30.1 million bopd during June, up 80,000 bopd from the May figure and about 250,000 bopd over the new quota that took effect on July 1. IEA also said that it expects non-OPEC oil supply to grow 900,000 bpd this year and gain another 1.4 million bpd during 2006. A noticeable portion of that gain will be IEA’s prediction of a 230,000-bopd increase in Latin American supplies. Brazil will account for nearly all of the growth expected, producing about 2.3 million bopd.

Norwegian oil production hits 11-year low

Norway’s oil output fell to its lowest level since August 1994 (2.0 million bpd), averaging 2.29 million bpd in June, said the Norwegian Petroleum Directorate (NPD). The reason, said NPD official Rune Hult, was that an unusually high number of offshore fields was shut in for maintenance. By contrast, output was 2.65 million bopd during May 2005 and 2.88 million bopd in June 2004. Some of the affected fields included Brage, Grane, Heidrun, Kvitebjorn, Oseberg South and Statfjord B. Norwegian operators traditionally have taken advantage of the long summer days and warm temperatures to conduct maintenance on producing fields. Production of NGLs and condensate also fell to 289,000 bpd in June from 385,000 bpd in May, said Hult. Back in May, the Norwegian government’s revised budget had called for total oil and gas output to be down 3% from last October’s forecast.

Canadian group boosts long-term output forecast

The Canadian Association of Petroleum Producers (CAPP) hiked its 10-year oil production forecast 11%, citing a large increase in investment that will nearly triple oil sands output. CAPP now predicts that Canada will produce 3.9 million bopd by 2015, up from the current figure of 2.6 million bopd and the previous forecast of 3.5 million bopd. In addition to more oil sands output, the group expects a slower decline in conventional crude production than previously thought, said CAPP Vice President of Markets and Fiscal Policy, Greg Stringham. Many of the oil sands projects, both mining and steam-driven, are designed to begin producing in phases, said Stringham. Due to the high price environment, investment has been accelerated, pushing some of those phases forward, into the forecast period. Following a multi-year trend, CAPP predicts that conventional output will decline over the decade to 1.1 million bopd from 1.4 million in 2000. Stringham said the annual decline is now averaging about 4%.

Shell solidifies into single company, ponders future

Newly unified Royal Dutch Shell Plc began trading as one company on July 20 after the consolidation was brought about by an ongoing scandal over the firm’s oil and gas reserve figures. Previously, shares of the super major had been owned by Netherlands-based Royal Dutch Petroleum (60%) and London-based Shell Transport & Trading Co. (40%). However, after being forced repeatedly to lower reserve estimates, the firm decided to unify. The company has struggled to win back investor confidence since admitting that it overstated reserves by nearly 6 billion boe. Indeed, said Chief Executive Jeroen van der Veer, “We are now one company.” Shell is now incorporated in London, but headquarters and a single management and supervisory board are in The Hague. Market capitalization is $220 billion. Shell is considering whether to buy a large natural gas company or to pursue growth of internal assets and form partnerships with other oil companies. Potential targets might include Talisman Energy, Anadarko Petroleum or the Williams Cos.

MMS amends rule on offshore platforms and structures

The US Minerals Management Service (MMS) has issued a final rule that streamlines the permitting process for floating platforms and incorporates, by reference into MMS regulations, industry standards pertaining to floating production systems. Until this new rule, MMS regulations had not specifically addressed floating facilities separately from fixed platforms. The rule takes effect on Aug. 18, 2005, and amends subpart I of CFR part 250, Platforms and Structures. It addresses the rapid increase in deepwater exploration and development, and industry’s increasing reliance on floating facilities for these purposes. MMS said that incorporating the industry standards will save the public the costs of developing separate, duplicative governmental standards.

Thunder Horse platform recovers from instability incident

Fig 1

Over the course of a week, crews from BP, SMIT, the US Coast Guard and the MMS were able were able to stabilize the Thunder Horse platform, and bring it back to normal trim and displacement. Due to the passage of Hurricane Dennis last month, the BP-operated semisubmersible began listing to port by as much as 20° on Mississippi Canyon Block 778, about 150 mi southeast of New Orleans. At press time, BP and the Coast Guard were working to determine the cause of the listing, but no potential sources of the trouble had been identified publicly. As part of the process to right the vessel, crews spent several days pumping water out of the structure and restoring electrical power. The platform had not been slated to begin oil production until the end of 2005, so it was not connected to any subsea wells. BP said that at least 72 contractors and subcontractors had provided some form of assistance during the recovery phase.

UK and Norway approve two North Sea developments

Development of Enoch and Blane fields in the North Sea has been approved by officials in the UK and Norway. The fields had remained undeveloped for years, partly because they overlap the boundary between the two countries. However, new trans-boundary projects have been encouraged by recent enhanced UK-Norway cooperation, as well as the signing of the Framework Agreement Concerning Cross-Boundary Petroleum Cooperation. Enoch is southwest of Norway’s Glitne field and will be a subsea development tied back to Brae field in the UK sector. It should go onstream by the end of 2006 and produce up to 12,000 bopd. Operator for Enoch is Paladin Expro Limited with 10 partners. Blane lies southwest of Norway’s Ula field, to which it will be tied back as a subsea development. It, too, is planned to go onstream by the end of 2006 and produce up to 14,000 bopd. Paladin Expro is also the operator for Blane with six partners. In the past, trans-boundary fields had been subject to individual UK-Norway treaties.

Senate version of energy bill would survey coastal waters

A provision in the Senate version of the US energy bill would direct the US Dept. of the Interior to conduct an inventory and analysis of offshore oil and natural gas resources along the outer continental shelf. This inventory would be gathered largely with the use of seismic equipment and would not involve drilling. Such language was not included in the House version of the bill, and it is unclear how much of a chance the wording has of surviving the conference committee negotiations. Given that US natural gas supplies continue to get tighter, the Bush administration is eager to identify all potential reserves off the nation’s coasts, including suspected pockets off Cape Hatteras, North Carolina. However, both of the state’s Republican senators, Elizabeth Dole and Richard Burr, have gone on record as being against the seismic survey provision, as well as drilling. Individual North Carolina counties are taking varying stands, based on their own economic needs.

Venezuelan gas licenses may wait until end of year

According to local media, Venezuelan Gas Processors Association (AVPG) President Tino Bonadonna has predicted that state firm PDVSA could delay until year-end the awarding of six offshore gas blocks, due to requests made to companies involved for more information. The blocks are in the Gulf of Venezuela, offshore Falcón state in western Venezuela. Twenty nine domestic and foreign companies bought data packs for the tender. Bids were due on July 27, and PDVSA had planned to award the blocks in September or October. At a minimum, this could be delayed to November or December, said Bonadonna. PDVSA is still processing data revisions and clarifications that it requested from companies.

Pemex halts Campeche output ahead of storm

Mexican state oil company Pemex suspended 2.95 million bpd of oil production in the Bay of Campeche and grounded all tanker shipments ahead of the progress of Hurricane Emily last month. The company normally produces 3.4 million bopd, but it shut in 63 wells and evacuated 15,000 workers from platforms in Cantarell and neighboring complexes. The volume of oil exports halted was estimated at 1.87 million bpd, most of it destined for the US. Emily hit Mexico’s Yucatan Peninsula on July 18 as a Category 4 hurricane, with winds of 135 mph. Pemex said it would begin restoring output on July 20 and expected to resume full operations on July 22.

Pan-Ocean produces oil onshore Gabon

Pan-Ocean Energy began production at its Tsiengui field, southeast of Port Gentil. Nine months after the Tsiengui discovery was struck, two field wells, TST-2H and TST-3H, were brought onstream through early production facilities. Combined output is 2,400 bopd. A third well has been completed and was due onstream at press time. Once additional export pipeline capacity is completed, output will be able to go higher. An additional 3D seismic survey is also planned over the field.

Pioneer buys US assets

Pioneer Natural Resources has closed the $177-million purchase of assets in two of its US onshore core areas, the Permian basin and South Texas. The Permian properties were bought from Occidental Petroleum. The South Texas seller was not disclosed. About 70 million boe of undeveloped reserves and 1,800 boed of output are added by the purchases.

Egypt, Cyprus ink deal

Egypt and Cyprus agreed to cooperate in developing the latter country’s E&P potential. “Cyprus has a very good chance to find oil and gas,” said Egyptian Petroleum Minister Sameh Fahmy. “We are not going to end this cooperation unless we make sure that Cyprus enjoys the utilization of gas and oil.”

California panel slows LNG terminal approvals

To no one’s great surprise, the Utilities and Commerce Committee of the California Assembly has approved legislation that would slow the process of building LNG terminals along the coastline. The bill, SB426, would require the California Energy Commission to determine how much natural gas is needed and then rank the potential projects before approving any LNG terminals. However, the measure only passed after Assembly Speaker Fabian Nunez (Dem.) removed a committee member who had previously rejected the bill. It has been approved by the Senate and awaits Assembly passage before going to Gov. Arnold Schwarzenegger (Rep.) for signing.

Shell updates Sakhalin II

As per previous statements about cost and schedule “challenges,” Shell now anticipates that Sakhalin II Phase 2 will cost $20 billion. This covers all development activity, including drilling, through 2014, with LNG deliveries to begin in the summer of 2008. Shell has 75% of the project’s LNG capacity sold under long-term contracts. Recoverable resources are 17.3 Tcf of gas and 1 billion bbl of oil. Cost and schedule estimates are still under review by project shareholders.

Yemeni field onstream

Operator DNO has begun oil output from Yemen’s Nabrajah field. This fast-track project is the third development for DNO since it entered Yemen in 1998. The firm said that output from several wells is being built up slowly to a central processing facility (CPF) capacity of 5,000 bopd. Output is from the Qishn sandstone only. DNO plans to expand CPF capacity to 15,000 bopd by the end of this month. Combined proven plus probable reserves are about 68 million bbl.

Thai firm begins output from new field

Thailand’s PTTEP has put Nang Nuan oil field online at about 3,100 bpd from one well. During 2006, the firm plans to drill two additional wells to boost its reserves and increase production. PTTEP is the operator and holds 100% interest in the project. Nang Nuan is on Block B6/27in the Gulf of Thailand. The site is about 25 km (15.5 mi) offshore from Chumphon province. WO






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