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Vol. 227 No. 1 |
| KURT S. ABRAHAM, MANAGING/INTERNATIONAL EDITOR |
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Ekofisk area is online
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France’s Total said that its partner and operator, ConocoPhillips, had brought the first five wells in the Ekofisk Area Growth project onstream, offshore Norway. Begun in 2003, the project has involved installing a new plat-form and drilling 25 more production wells at Ekofisk field. At peak, the new development will produce around 100,000 boe per day. Other Ekofisk partners are Eni, Norsk Hydro, Petoro and Statoil.
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Bolivia has new minister
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Mauricio Medinacelle was sworn in on Nov. 25, 2005, as Bolivia’s new hydrocarbons minister. His ascension to that position came after Jaime Eduardo Dunn stepped down on Nov. 24, due to “personal reasons.” Dunn had become hydrocarbons minister last June, overseeing much of the controversy swirling around the highly debated new hydrocarbons law. Medinacelle is said to be a young (in his 30s) tax expert, who worked for several years to help draft the law, so he is familiar with its problems, including a 32% tax rate and 18% royalty.
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Peru inks six contracts
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Perupetro signed six additional E&P contracts with four companies. This brings the 2005 total to 14, up from just six contracts signed during all of 2004. The latest deals are for Blocks 110 and 112 (Petrobras), Blocks 108 and 115 (Pluspetrol) and Blocks 111 and 113 (China’s National Oil & Gas Exploration & Development Corp.). Including these latest contract signings, Peru expects total investment through 2010 to be $2.35 billion. Perupetro’s goal for 2005 signings had been 17 contracts. Two more contracts were pending approval at press time, but they were expected to finalize after Jan. 1, 2006.
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PSAC sees well boom
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The Petroleum Services Association of Canada predicts another record well count for the country, plus a milestone record for Alberta in 2006. PSAC forecasts 25,290 wells will be drilled across Canada in 2006, including 20,000 wells in Alberta, alone. The Alberta figure would be a 6% increase. PSAC based its forecast on US$60/bbl for oil and C$9.50/Mcf for natural gas. World Oil’s forecast may or may not affirm PSAC’s numbers in next month’s issue.
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ConocoPhillips acquires Burlington in staggering deal
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ConocoPhillips said that its offer to acquire Burlington Resources has been accepted by the large independent in a transaction valued at $35.6 billion. Upon approval by Burlington shareholders, the deal will give ConocoPhillips access to extensive natural gas E&P assets, most located in North America. Terms of the agreement specify that Burlington shareholders will receive $46.50 in cash and 0.7214 shares of ConocoPhillips common stock for each Burlington share that they own. This represents a $92/share value, based on the closing price of ConocoPhillips shares on Friday, Dec. 9, 2005. The combined company will have pro-forma reserves of 10.5 billion boe, as of Dec. 31, 2004, excluding 0.3 billion boe associated with Syncrude operations. Pro-forma production is 2.3 million boe, including Lukoil and Syncrude. The deal is a bet on the part of ConocoPhillips that natural gas prices will remain high in the near-to-mid term, It also gives the firm a high-quality US asset portfolio without any offshore exposure, so these assets are not associated with hurricanes or the increasing Gulf of Mexico production decline rate. Burlington Chairman and CEO Bobby Shackouls will retire from daily work but will take a seat on the ConocoPhillips board of directors. Several other Burlington executives have agreed to stay on in new roles within the company. The fate of rank-and-file Burlington employees was not mentioned.
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OPEC maintains status quo on output for near-term
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Meeting in Vienna during Dec. 12-13, 2005, OPEC oil ministers agreed to keep their output steady at what is nearly a maximum rate and a 25-year-high. Their intent was to keep oil prices from rising too high, and to reassure consumers in industrial nations, particularly the US. Although the ministers continued their previous official output ceiling of 28 million bopd, their actual production has been running closer to 30 million bopd, which is close to capacity. Saudi Arabia has been providing most of the overage, as some member countries struggle just to meet their quota levels. “I have said we are continuing the way we are,” said Saudi Arabian Oil Minister Ali al-Naimi at a media gathering. “It depends on customers. If nobody wants 9.5 (million bopd), we can’t put it (on the markets). If they want 9.5, it’s there.” Asked if his emirate would produce to its limit, Kuwaiti Oil Minister Sheikh Ahmad Al-Fahd Al-Sabah said, “Yes, and over. We are trying to do maximum production.” Nevertheless, oil prices rose above $60/bbl on rumors that OPEC might cut output later this month. OPEC is likely to meet again at the end of this month.
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Saudis plan big jump in drilling activity for 2006
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Under its 2006 Operating Plan, approved by the company’s Executive Board on Dec. 10, Saudi Aramco anticipates that its drilling rig fleet will more than double through next year from its level at the end of 2004. Furthermore, the firm projects a 61% increase in the number of development wells to be drilled during 2006, compared to the 2005 figure. This drilling boost will support current production and future “increments” added to output through development projects. Also next year, Saudi Aramco intends to “execute four mega-projects,” including the Hawiyah NGL Recovery Program. The Operating Plan is predicated on increasing the firm’s contribution to Kingdom revenues and promoting greater development of the local economy.
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Standard & Poor’s lowers price projections
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Standard & Poor’s (S&P) Equity Research lowered its forecast of several oil price levels. The firm lowered its final 2005 figure for WTI crude by $0.72, to $56.49/bbl and the 2006 projection by $2.88, to $56/bbl. S&P’s 2007 outlook was trimmed $0.61, to $48.39/bbl. On the natural gas side, S&P is now calling for a final 2005 figure of $8.17/million btu, with the 2006 figure forecast at $9.34/million btu. “While we see little evidence of oil demand destruction, and expect colder weather will boost near-term oil and gas prices, we project new global oil supplies should ease 2006 oil prices,” said S&P analyst Tina Vital. The firm’s projections assumed that OPEC would maintain its output level temporarily, which is indeed what has occurred.
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BP forms alternative energy subsidiary
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BP expects to double its investment in alternative and renewable energies, and thus create a new low-carbon business that has growth potential estimated to be $6 billion annually within the next decade. Using BP Solar as a model, the company is forming BP Alternative Energy to manage investment in solar, wind, hydrogen and combined cycle-gas turbine power generation. “Consistent with our strategy, we are determined to add to the choice of available energies for a world concerned about the environment, and we believe we can do so in a way that will yield robust returns,” said BP Chief Executive Lord Browne. Browne said the first phase would total about $1.8 billion over the next three years, spread equally between the aforementioned technologies. Investment will be made step by step, depending on individual opportunities and profitability.
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Jordan signs first PSA in eight years
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US firm Sonoran Energy has signed a production sharing contract with the Hashemite Kingdom of Jordan for the 11,250-sq-mi Azraq Block. The tract is directly east of the capital, Amman. In addition to an active exploration and development program, Sonoran Energy will take over operation of the block’s Hamzah oil field. The firm said that it will undertake acquisition of 3D seismic data and drill two exploration wells, and also conduct technical studies. Officials said there is potential to boost production from existing wells and facilities. The block has produced oil since 1985.
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Rumsfeld, IPAA spar over eastern GOM
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In a letter to the US Senate Armed Services Committee, US Defense Secretary Donald Rumsfeld said that potential exploration projects in the eastern Gulf of Mexico were “incompatible with military activities.” Citing “prior analysis and existing agreements” with the Interior Department, Rumsfeld said that areas east of the 86°41' line in the Gulf (known as the “Military Mission Line”) are recognized as being “especially critical to DOD, due to the number and diversity of military testing and training activities conducted there now.” He said drilling and development “structures” would be incompatible with “missile flights, low-flying drone aircraft, weapons testing and training.” In a direct reply to Rumsfeld, IPAA President Barry Russell stated, “Although the IPAA and our members understand the importance of ensuring that our nation’s armed forces have the ability to properly train and conduct exercises, we do not believe oil and natural gas exploration activities in the Eastern Gulf of Mexico are incompatible with that use. Florida Sen. Bill Nelson (Dem.), a staunch opponent of upstream activity, immediately used Rumsfeld’s letter to bolster his steady stream of anti-development rhetoric.
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Firms agree to new Venezuelan JVs
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Whether they like it or not, BP, Shell and Argentine firm CGC have signed agreements with the Venezuelan government to change their existing operating agreements to joint ventures controlled by state firm PDVSA. The contracts were announced by Venezuelan Energy and Oil Minister, and PDVSA President, Rafael Ramirez. So far, 15 companies with 26 operating agreements have signed preliminary deals to migrate to JVs. At press time, five companies representing six operating agreements were still holding out against the Dec. 31, 2005, deadline for conversion to JVs. Among these firms were Chevron, Total and Statoil.
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Demand leads contractors to reactivate rigs
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Citing strong North Sea and US demand, two major US drilling contractor firms have said that they will reactivate two rigs. Transocean said it will return the Transocean Winner semisubmersible to active status after signing a three-year work contract with Norsk Hydro. Restoration work on the rig is already underway, and it will go to work on the Norwegian Continental Shelf by October 2006. The day rate will be about $350,000/day. Meanwhile, Todco will return the mat slot jackup, THE 252, to service. It will work a one-year contract for an unnamed independent oil company at a rate of $85,000/day. Todco said the rig last worked in 2001 and will be stationed in the shallow-water US Gulf.
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Senator worries about China oil conflict
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A senior Democrat senator, Connecticut’s Joe Lieberman, said that there is potential military conflict if the US and China cannot work together to reduce oil consumption and diversify their energy sources. In a speech to the Council on Foreign Relations, Lieberman said that discussions on alternative fuels must go forward before the situation becomes “hot and dangerous.” Added Lieberman, “Wars have been fought over such competition for natural resources. If we let it go, this could end up in a real military conflict.” His speech was part of a pitch to gain support for legislation in Congress that would reduce US oil consumption by 10 million bpd by 2031. 
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Opinion
Alas, Brown may still succeed in killing off the UKCS golden goose. Despite pleadings from British E&P firms, the lure of easy money has proved too much. With oil and gas prices still high, Brown smelled a Treasury windfall and on Dec. 5 slapped another 10% surcharge on upstream taxes, raising them to 50%. According to local economists, Brown looked for a quick, short-term way of raising sufficient revenue to plug a widening gap in the government’s wobbly, inefficient finances. Ironically, his move came as the UK economy hit its lowest growth level in 12 years, so he wounded one of the best-performing sectors left at his disposal. This can only add to economic woes – for immediate short-term gain, Brown could be doing incalculable harm to the industry’s (and economy’s) mid- and long-term health. An unrepentant Brown said, “The balance has to be struck between the consumers who pay for fuel and heating and the producers.” The UK Offshore Operators Association (UKOOA) said the tax hike will cost $11.3 billion over three years, and hurt jobs and investment. “It will deter investment in new fields and make older fields less attractive for increased recovery,” said UKOOA Chief Executive Malcolm Webb. “The government has failed to grasp the vulnerability of the industry’s future.” Perhaps Conservative shadow Chancellor George Osborne summed it up best when he said that Britain needs “a chancellor with his mind on the job, not on inheriting the Prime Minister’s crown.” This editor could not agree more – heaven help the UK oil and gas industry if Brown ever becomes prime minister.
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