World of Oil

Keystone gets go-ahead

The US State Department gave TransCanada the green light to begin building facilities for the Keystone pipeline at the border of the US and Canada, construction will begin on the pipe in the second quarter of 2008.

Iranian offshore production passes record

Iran increased crude production from its offshore oil fields to 723,000 bpd in March, beating the previous record of 716,000 bpd reached four years ago.

New Zealand to remove tax loophole

The New Zealand government announced that it is nearing a resolution for a legislative loophole that causes it to miss out on significant tax revenue from the production of oil and gas. “Under current law, New Zealand petroleum miners can offset their expenditure in other countries against the revenue from their New Zealand operations,” said Finance Minister Michael Cullen and Revenue Minister Peter Dunne in a statement. “That means New Zealand might receive less income tax than expected on profits from oil production in New Zealand, which is particularly unacceptable when oil production revenue from New Zealand is at an all-time high and predicted to grow.”.

Ecuador ends force majeure

On March 3, Ecuador Oil Minister Galo Chiriboga announced that the country had ended the force majeure on oil exports and resumed production. Oil exports were suspended after a main oil pipeline was ruptured by a landslide on Feb. 29. Chiriboga said that the pipeline is again operating normally and output had resumed at 510,000 bpd.

India gives ONGC green light

India’s cabinet has given the okay for state-owned Oil & Natural Gas Corporation (ONGC) to buy a 40% stake in the San Cristobal Field in Venezuela for $365 million; this amount includes a signing bonus of $174 million and expected capital expenditure of $182 million in the field.

Gulf of Mexico lease sales attract $3.7 billion

Offshore oil and natural gas leases in the Eastern and Central Gulf of Mexico attracted more than $3.7 billion in high bids in two federal sales. The first sale, the Central Gulf of Mexico Sale 206, attracted $3.68 billion in high bids, setting a US leasing history record for high bids. The Minerals Management Service (MMS) received 1,057 bids from 85 companies on 615 tracts in Sale 206. The second sale, the Eastern Gulf of Mexico Sale 224, received 58 bids from 6 companies on 36 tracts resulting in $64 million in high bids. Beginning with Sale 224, Louisiana, Mississippi, Alabama and Texas will receive a greater share in the revenues, including bids, rental payments and royalties. The states will share in 37.5% of the high bids from the sale and all future revenues generated from the acreage. In Sale 206, the highest bid received for a single exploration block was $105.6 million, submitted by Anadarko E&P, Murphy E&P and Samson Offshore.

TNK-BP’s headquarters raided by Russian police

On Mar. 19, Russian police raided BP’s TNK-BP headquarters as part of a long-running criminal investigation, raising new concern about the future of the venture. “The documents are being removed from the (company) as part of a criminal investigation relating to Sidanco,” a spokesperson for the interior ministry’s investigation committee told Reuters. Sidanco formed part of TNK-BP in 2003, when a group of Russian investors and BP decided to combine assets to create what is now Russia’s third-largest oil producing company. A stop on the sale of TNK-BP founders’ shares expired in January, and speculation has increased that the Kremlin wants one of its companies, such as state gas monopoly Gazprom, to buy out the Russian shareholders. The announcement from the ministry came after industry sources told Reuters that law enforcement agencies had started searches by blocking the entrance to TNK’s building on the Arbat in central Moscow. One industry source said the probe was investigating “a suspected small-scale fraud rather than anything political.” The Moscow office of oil major BP was also being searched by Russian authorities. In February, police raided the headquarters of Slavneft, which TNK-BP co-owns with Gazprom, and also confiscated documents in a five-year-old tax evasion investigation.

Gazprom, Total, StatoilHydro form joint venture for Shtokman

Gazprom, Total and StatoilHydro signed a shareholder agreement for the creation of Shtokman Development AG for phase one of the Shtokman Field. Under the agreement, Gazprom holds a 51% stake while Total holds 25% and StatoilHydro 24%. The group will be organizing the project engineering, development, construction, financing and exploration of the first phase facilities related to the development of the field. Shtokman Field, located in the Russian sector of the Barents Sea, holds 134.19 trillion cubic feet of gas reserves and around 37 million tons of gas condensate. “Shtokman can become a locomotive for new developments in the arctic region, with safe operations under cold and harsh condition,” said Helge Lund, CEO of StatoilHydro..

Nigeria crude shut-in estimate increases to 1 million bpd 

Original estimates given by the Nigerian National Petroleum Corporation (NNPC) of a 600,000 bpd shut-in have now been increased to 1 million bpd due to increased force by militants in the Niger Delta. According to the NNPC, Nigeria and joint venture partners may be losing $90 million per day because of the shut-in.

Ukraine and Russia settle gas row

On Mar. 14, Ukraine’s Naftogaz and Russia’s Gazprom signed a deal that detailed supply volumes and prices for 2008, resolving a gas row between the countries. “From the moment we sign this agreement, all instability on the gas market will disappear,” said Ukrainian Prime Minister Yulia Tymoshenko at a news conference. Tymoshenko said that Ukraine will receive gas in 2008 at $179.50 per thousand cubic meters.

Ecuador seeks to dissolve oil contract with Petrobras

On Feb. 19, Ecuador’s attorney general, Xavier Garaicoa, announced that he has asked for the cancellation of a contract with Brazil’s state-run company Petrobras to extract crude in Ecuador. Citing the “illegal” sale of Petrobras’ holdings for Block 18 in the Palo Azul Field, Garaicoa said the Brazilian firm should have followed correct legal procedure before declaring null and void its contract with Petroecuador. Petrobras did not inform the Ecuadorian government about the transfer of its 40% stake in projects at Block 18 to the Teikoku Corporation.

Gazprom signs Bolivian exploration deal

On Mar. 17, Gazprom signed an agreement with Bolivian state energy company YPFB to assess natural gas exploration and production projects in the South American country. Under the deal, YPFB and Gazprom will form a joint venture with the majority controlled by YPFB. The partnership between the two state-controlled companies will focus on the Sunchal Block in the natural gas rich Tarija province in southern Bolivia. YPFB president Santos Ramirez said the Bolivian company will hand over studies it has conducted on Sunchal to Gazprom to allow the Russian company to assess risk and identify potential exploration projects. Bolivia has proven and probably natural gas reserves of some 48 trillion cubic feet.

Baku-Ceyhan pipeline flows delayed again

Tengizchevroil, the Chevron-led Kazakh oil venture, has again delayed first oil shipments via the Baku-Ceyhan (BTC) pipeline due to disagreements over fees and other issues. The BTC pipeline, which can pump more than 1 million bpd, is run by BP and pumps crude from large Azeri fields on the Caspian Sea to the Turkish Mediterranean port of Ceyhan. “We haven’t yet agreed on a wide range of issues, mostly commercial, despite Tengizchevroil’s desire to start shipments from the beginning of 2008. We continue talks and still expect the transit to start this year,” said an official from Azeri state oil company Socar.

StatoilHydro acquires 100% of Brazil’s Peregrino

On Mar. 4 StatoilHydro and Anadarko have signed an agreement whereby StatoilHydro will take over the remaining 50% in the Brazilian Peregrino project, giving StatoilHydro a 100% working interest and operatorship of the development. StatoilHydro is also acquiring Anadarko’s 25% interest in the Kaskida discovery in deepwater US Gulf of Mexico. StatoilHydro will pay Anadarko $1.8 billion for these assets, plus a maximum pre-tax value of $300 million related to the Peregrino Field to be earned by 2020, conditional on future oil prices above pre-defined threshold levels. Peregrino Field, located in the Campos Basin offshore Brazil, is estimated to have approximately 500 million barrels of heavy oil and is expected to come on stream in 2010.

South Korea, Uzbekistan agree on gas-field development

On Feb. 25, a South Korean consortium signed a deal with Uzbekistan’s state gas company to jointly develop a major gas field in Uzbekistan. The 50/50 deal was signed by consortium leader Korea Gas and Uzbekneftegaz. The two sides will jointly develop the Surgil gas block in western Uzbekistan near the Aral Sea. The field is estimated to hold 96 million tons of natural gas.

Dana Gas and Crescent Petroleum continue work in Iraq

Dana Gas and Crescent Petroleum have completed more than 70% of a project to find, develop and supply natural gas for power generation in Iraq’s Kurdish region and are on track to supply first gas by the middle of this year. Dana Gas said in a statement that the pair had wrapped up the engineering, procurement and manufacturing stage of the contract with the Kurdistan Regional Government, and that they were now working with area contractors on building infrastructure. Dana expects to supply an initial 150 million cubic feet of natural gas per day, increasing to 300 MMcfg by early next year. The gas will drive new power plants being built in Sulymaniya and Erbil in northern Iraq. Dana said the development of a gas utilization hub for local industries has also been discussed.

Karachaganak consortium fined $15 million 

A Kazakh court fined Karachaganak Petroleum Operating (KPO), the consortium operating Karachaganak Field, around $15 million for environmental damage. The Kazakh Prosecutor General’s Office said in a statement that during operation in 2007 KPO “produced arbitrary emissions of polluting substances in to the atmosphere resulting from gas flaring.” Karachaganak Field, one of the world’s largest gas condensate fields, is estimated to contain more than 15.8 billion barrels of oil and condensate and 47.67 trillion cubic feet of gas. BG Group and Eni each own a 32.5% stake in KPO, while Chevron owns 20% and Lukoil 15%.

ExxonMobil to develop Alaska field

ExxonMobil announced a new project to develop and produce hydrocarbon resources from the Point Thomson Field on the Alaska North Slope. The project involves evaluation, delineation and development of Point Thomson reservoirs through a phased approach to fully develop the resources, with production expected to start by the end of 2014. The project includes an investment of $1.3 billion to begin a multi-year development and delineation drilling program during the 2008-09 winter season and to build production facilities, pipelines and support infrastructure. Approximately 200 million cubic feet per day of Point Thomson gas is expected to be produced under the initial phase, with 10,000 bpd of liquid condensate separated from the gas being delivered for sale through new and existing oil pipelines. The remaining gas will be injected back into the Thomson Sand reservoir to maintain pressure for continued recovery.

Iran makes Pars deals 

On Feb. 27, Iran and China National Offshore Oil Corporation (CNOOC) signed a $16 billion contract to develop the North Pars gas field. The field holds around 48 Tcf of gas and is considered to be Iran’s second largest gas field; South Pars Field is the country’s largest. The Iran-CNOOC agreement aims at developing the field to produce 4.8 billion cubic feet a day of natural gas, with CNOOC to invest $5 billion in upstream projects and $11 billion in liquefied natural gas facilities. Gazprom is also poised to begin development of three blocks of Iran’s South Pars Field. Gazprom CEO Alexei Miller met with Iranian Oil Minister Gholam Hossein Nozari on Feb. 19 to discuss contract terms. Gazprom’s agreement with Iran includes exploration, development, transportation, processing and marketing.

Kazakhstan may back away from PSAs

Kazakhstan announced that it is considering discontinuing the use of Production Sharing Agreements (PSA) as a form of cooperation with companies. Prime Minister Karim Masimov, addressing a meeting with tax officials, said the nation will remain committed to contractual obligations stipulated in all existing PSAs with foreign and domestic companies. “For new contracts we ought to exclude production sharing agreements as a type of contract,” Reuters quoted Masimov saying. He did not describe what type of contract Kazakhstan wanted to use with oil companies from now on, but said taxes should be increased for all subsoil companies.

UK judge reverses Exxon, Venezuela ruling

Justice Paul Walker of the Royal Courts of Justice lifted the $12 billion freeze on PDVSA’s assets. Alan Jeffers, a spokesperson for ExxonMobil, said the company has no plans for an appeal following the UK judge’s ruling. Reports show that PDVSA’s attorneys argued in court that ExxonMobil had no right to have the assets frozen in a UK court because the UK has no jurisdiction over a Venezuelan company. ExxonMobil has been ordered by the court to pay damages totaling $765,300 caused by the freezing of the assets and legal expenses. ExxonMobil’s additional asset attachments in Dutch Antilles and the Netherlands are now in the sights of Venezuela’s legal team. ExxonMobil has reportedly applied for arbitration over compensation for losses incurred during the asset acquisition.

Gazprom Neft to cut flaring

Gazprom Neft, Russian giant Gazprom’s oil sector, is planning to spend $714.6 million over the next three years in an attempt to reduce gas flaring. The company aims to cut gas flaring to 5% of output by 2011, partly by building new gas processing and power generating facilities.

PDVSA to pay Eni for Dacion Field

PDVSA has agreed to pay Eni $700 million in cash as compensation for the recently nationalized Dacion oil field. Venezuela seized the field in April 2006 after Eni refused to accept the government’s new nationalization terms, Eni then began international arbitration proceedings. Venezuelan Oil Minister Rafael Ramirez stated that the payment will span seven years.

Beijing reworks energy sector

China said it will set up an Energy Commission to develop national strategy and security and an Energy Bureau to administer the sector under the National Development and Reform Commission. These new departments will replace an Energy Office and the current Energy Bureau and several other small departments, including one managing civilian nuclear energy. The new energy bodies were part of a larger administrative reform plan that also established an Environment Ministry. The Energy Commission will be responsible for studying and developing national energy strategy and assessing major issues in energy security and development. The Energy Bureau will be in charge of formulating and organizing the implementation of energy sector plans, industry policy and standards, developing new energy sources, and encouraging conservation.

Saudi Arabia and Norway push for CCS

Saudi Arabia and Norway have joined forces in an attempt to get Carbon Capture and Storage (CSS) recognized as a method for rich countries to offset their emissions. Norwegian Oil Minister Aaslaug Haga asked for Saudi Arabia’s support for CSS at a meeting in Riyadh with Saudi Oil Minister Ali Naimi. “Both Saudi Arabia and Norway are concerned about the environment and want to reduce emissions with all possible means. CO₂ capture and storage is an excellent way to reduce emissions,” said Naimi. Norway is attempting to get CCS projects included in the Clean Development Mechanism, which gives investors in projects that cut greenhouse gas emissions in developing countries carbon credits that can be used to offset emissions elsewhere.

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