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Vol. 227 No. 4 |
| KURT S. ABRAHAM, MANAGING/INTERNATIONAL EDITOR |
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DNO spuds Iraqi well
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Norway’s DNO successfully drilled its first exploration well on a PSA agreement area in Iraqi Kurdistan. The well had reached 3,100 m as of press time in late March, enroute to total depth within a few days. Tawke # 1’s data were being evaluated, to optimize an additional data acquisition program for the well. DNO said that several well tests would be performed, to evaluate hydrocarbon prospectivity and potential commerciality. While preparing for the well test program, the Tawke # 1 was temporarily suspended and the rig was moved to a new site to drill a second well in the PSA area.
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Chevron is up in GOM
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Chevron said its US Gulf of Mexico production will be up 25% in the first quarter, but that its overseas output, which is nearly two-thirds of its production, is down about 4%, at 1.89 million bopd. Chevron predicted its combined GOM oil and gas output for first-quarter 2006 will reach 200,000 boe/day, up from 160,000 boe/day in fourth-quarter 2005. Chevron blamed the international decline on “lower cost recovery barrels in Indonesia, and unplanned downtime in Kazakhstan and Australia, including weather-related downtime.”
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Aramco opens Haradh III
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Saudi Aramco inaugurated operation of its Haradh III crude processing facility. In addition to a maximum capacity of 300,000 bopd, Haradh III can process 140 MMcfd of associated gas. It is the first Aramco plant to have full-scale, automated, remote well control and monitoring. The facility was completed ahead of schedule and under budget, after approval in April 2004 and completion during January 2006.
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Indian field goes online
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First Australian Resources (FAR) said that Senegal’s Ministry of Energy and Mines has approved the firm’s 30% participation in the Rufisque Offshore, Sangomar Offshore and Sangomar Deep Offshore Blocks. The Sangomar-Rufisque offshore license covers 14,981 sq km, and contract terms were recently improved. FAR will partner with Senegal Hunt Oil Company (60%) and state firm Petrosen (10%) in a proposed 2,000-sq-km, 3D seismic program, beginning in early fourth-quarter 2006.
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Central Gulf sale attracts nearly $1 billion in bids
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Continued high oil and gas prices prompted stout bidding in the latest US offshore federal lease sale. Central Gulf of Mexico (GOM) Lease Sale 198 generated $588.3 million in high bids from 82 companies for leases in federal waters. The total of all bids was $978.3 million. This is a 38% increase over last year’s Central Gulf sale, said the Minerals Management Service. In Sale 198, 4,040 blocks covering about 21.3 million acres offshore Alabama, Louisiana, and Mississippi were offered. The agency received 707 bids on 405 tracts. While interest in deepwater production continues, the large number of shallow water tracts receiving bids is of particular note, said MMS Director Johnnie Burton. This indicates industry interest in deep gas in shallow waters, as well as deepwater production. Amerada Hess submitted the highest bid on Green Canyon Block 287 for $42.8 million. Newfield Exploration and Anadarko Petroleum submitted the second highest bid on Green Canyon Block 551 for $33.99 million. Each high bid will be evaluated before being awarded.
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Oil prices remain elevated on demand, geopolitical concerns
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Crude oil futures surpassed $64/bbl on March 24 before easing slightly the following Monday, March 27. Nevertheless, crude prices in the last couple of months have averaged about one-fifth higher than the same period a year ago, because of strong demand and geopolitical uncertainty. These factors have been strong enough to offset rising supplies. Concurrently, gasoline at the pump in the US averaged $2.50/gal nationwide, and government data showed that consumption was up 1.6% during late February and March, compared with the same period a year ago. Oil futures are 18% higher than a year ago, while gasoline futures are 16% higher. Most of the geopolitical uncertainty relates to lingering worries about supplies from Nigeria and Iran, and growing anxiety about the next hurricane season in the Gulf of Mexico.
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BHP’s LNG terminal off California moves closer to reality
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BHP Billiton’s effort to build an $800 million LNG terminal offshore California took a step forward last month, when the US Coast Guard and California State Lands Commission issued a revised environmental report. The report addressed several scenarios, such as the terminal being bombed, rammed by a ship, commandeered or attacked from the air. Authorities concluded that it was an unlikely terrorist target, and any fire resulting from an attack would be contained by the ocean. BHP’s terminal would receive LNG from Australia, which would be re-gasified and shipped through an undersea pipeline to a local gas utility’s pipeline near Ormond Beach, California. Officials in nearby Malibu and Oxnard had worried about the possibility of terrorism. Both cities’ councils have passed resolutions opposing the facility. The project cleared a major obstacle last year, when the US EPA classified the terminal as being outside the control of the Ventura County Air Pollution Control District. The location is 25 mi from Anacapa Island, in the Channel Islands chain in Ventura County. Gov. Arnold Schwarzenegger could approve the project as early as September.
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Woodside also moves forward with California plans
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A day after BHP cleared the environmental report hurdle, another Australian company, Woodside Energy, unveiled plans to put an LNG terminal near the site of BHP’s proposed facility. Woodside’s OceanWay Secure Energy project proposal differs from BHP’s, because it does not require a permanent offshore regasification facility. It would involve just a rotation of moored ships with a flexible connection to Southern California Gas Co.’s pipelines. Woodside’s site is in the Santa Monica basin, 22 mi from Point Dume in Malibu. Gas will be delivered from these specially designed ships through the undersea pipeline to existing gas pipeline facilities in an industrial area near Los Angeles International Airport. Woodside anticipates little or no disruption to residential neighborhoods. The industrial area includes the Los Angeles Department of Public Works’ Hyperion sewage treatment facility, the Scattergood power plant and the Chevron oil refinery.
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Bolivia set to regress to complete nationalization
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As one of the more vocal participants in a regressive Latin American trend back toward 100% state control of oil and gas, Bolivia’s new government said that it will complete full nationalization of its hydrocarbon resources by July 12. Stressing that the process will not be a “confiscation” of multinational firm’s assets, President Evo Morales said that oil and gas reserves will be nationalized through individual negotiations with license-holders. State firm YPFB said that contracts with 12 operators are being renegotiated and should be completed by the deadline. Leading operators include Petrobras, Repsol-YPF, BG Group and Total. Bolivia’s proved reserves are 465 million bbl of oil and 27.2 Tcf of gas. Production is averaging more than 46,000 bopd and 1.4 Bcfgd, according to YPFB.
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Strong year expected for US drilling contractors
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A recent report from Standard & Poor’s Ratings Services predicts that US drilling contractors will see higher day rates and better pricing leverage this year, compared with 2005. Analysts noted that drillers had experienced significant cash flow growth last year, particularly in the second half. The threshold for maintaining this growth, said S&P, was prices above $45/bbl for oil and $6/Mcf for natural gas. All product lines and markets now have backlogs, added S&P, and in the last six months, contractors have seen rapid contract extensions by operators and increasing day rates. In particular, said the report, drill bits, drilling components, directional drilling, logging and wellhead equipment have shown market strength.
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ExxonMobil halts Venezuelan field output
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ExxonMobil has temporarily halted production at Venezuela’s La Ceiba oil field, due to problems in getting state oil company PDVSA to transport crude from there to market. The firm was notified by PDVSA that it would discontinue lifting La Ceiba’s crude oil. Thus, ExxonMobil “has proceeded to request to the Ministry of Energy and Petroleum, a temporary and safe shutdown of production,” said a spokesman. It was not clear why PDVSA had decided to stop lifting oil from the 12,000-bopd site, where ExxonMobil (operator) and Petro-Canada each hold a 50% stake. The shut-in is ExxonMobil’s most recent of several problems in Venezuela.
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As oil prices rise, Alaskan production drops
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High oil prices have sent Alaskan revenues soaring, but North Slope oil fields’ output is declining faster than expected. “While our revenue picture has improved, I remain concerned about the continued decline in oil production,” said Gov. Frank Murkowski. “High prices, to a large extent, have masked the impact of (lower) production on state revenues.” State officials also said that their forecasts have been too optimistic. The latest forecast calls for 117,000 bopd less in fiscal year 2008 than 2005. For the current fiscal year, state Revenue Commissioner Bill Corbus said output will be down 6.75%. This year’s decline is steeper than predicted for large, mature, declining oil fields, due to unanticipated field maintenance problems and project delays, said chief state petroleum economist, Michael Williams. The Revenue Department will revise downward its future production estimates to account for possible problems with new projects and increasing down-time for maintenance.
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Danish Energy Authority to issue 14 licenses
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Denmark’s Minister for Transport and Energy, Flemming Hansen, intends to issue 14 new licenses as a result of the 6th Licensing Round, according to a statement presented to the Energy Policy Committee of the Danish Parliament. “I am very pleased with the results of the licensing round,” said Hansen. In general, the applications and work programs are of high quality and based on comprehensive preliminary studies.” According to the Minister’s statement, the 14 licenses cover 3,490 sq km, or about one-fourth of the area offered for licensing. That area comprised all the unlicensed areas in the western part of the North Sea. Exploration costs associated with the 6th Round licenses are estimated to total DKK 1.3 billion ($209.4 million) over the coming six-year license term.
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Windfall tax could hurt state pension funds
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The retirement assets of US federal, state and municipal workers will be significantly and adversely affected by the “Windfall Profits Rebate Act of 2005,” said a study funded by Investors Action Foundation. Publicized by United for Jobs, the study says the windfall profits tax being considered by Congress targets US oil companies, and will cost the average pensioner as much as $5,465 over the next five years. About 41% of the shares of these companies are held by public employee pensions that have 10% of their assets in oil and gas stocks, making them particularly vulnerable to the tax. The tax’s projected effect on 28 million accounts in more than 2,650 federal, state and local public employee pension funds would be to reduce future dividend payouts and capital gains earned by these funds by between $2.1 billion and $12 billion a year. 
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Opinion
Last month, our contributing editor for South America, Mayra Rodríguez, composed a fun, but disturbing chronology of the sniping between Venezuelan and US officials, as well as bad behavior by Venezuelan President Hugo Chavez. By reading her text about the antics of Chavez and his minions, one could conclude that he seeks to milk US and European oil companies for all he can, and then force them out of the country.
Sadly, the situation has worsened further. On March 6, Energy and Oil Minister Rafael Ramirez, who doubles as president of state firm PDVSA, demanded that four heavy oil joint ventures (JVs) pay their royalties in crude, rather than cash. Furthermore, Ramirez said the four Western companies in the JVs – ExxonMobil, Chevron, ConocoPhillips and Total – would not be given additional acreage to boost output. He said they would have to settle for improving recovery rates. This comes on top of Chavez’s unilateral decision to raise the royalty rate on these JVs to 16.67% from 1% in October 2004. Also on March 6, Ramirez insisted that all 32 operating agreements held by private operators must be converted to JVs controlled by PDVSA by April 1. Those 32 agreements run by 22 firms would be reduced to 19 JVs in which PDVSA holds a 60% to 70% share.
On March 13, an official at the tax authority, Seniat, said the government was likely to raise the tax that operators pay on their natural gas output to 50% from 34%. Conveniently, this news came only five months after officials awarded new E&P licenses to Chevron, Gazprom, a Petrobras/ Teikoku JV and an Eni/ Repsol-YPF JV. One day later, Seniat gave Total 48 hours to pay at least some of the $107million in back taxes that it alleges the French firm owes. This is based on Chavez retroactively applying a 50% tax rate to oil fields operated by Western firms since 2001, instead of the 34% that these companies had paid for more than a decade. To its credit, Total refused to give in, so Seniat shut down the firm’s Venezuelan offices, all the while screaming about "shoddy bookkeeping." And, in a statement reminiscent of strong-armed tactics that US mafia dons would employ, Seniat manager Jose Cedillo threatened to seize Total’s assets and levy a fine of 250% against the firm on the unpaid amount. Another firm getting the threatening treatment was Eni, which is alleged to owe $73.2 million in back taxes. Its offices were also closed for "poor bookkeeping," said Seniat director Jose Vielma. He subsequently had a court freeze Eni’s accounts.
On March 24, the government was still adding more firms to its hit list, including BP, which was hit with a $61.39-million tax bill and also threatened with mafia-style fines and asset seizures. On that same day, Ramirez said that drilling acreage in the original 32 private oil contracts would be reduced in size by 60%, effectively making them much more unattractive. One can only imagine what Chavez and his fellow, opportunistic thugs will come up with in the next two months.
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