World of Oil

Saudi Arabia ‘keeping some oil for future’

The world’s top exporter has ordered some new oil discoveries left untapped to preserve the nation’s oil wealth. “I keep no secret from you that when there were some new finds, I told them, ‘no, leave it in the ground, with grace from god, our children need it’,” said King, the official Saudi Press Agency reported.

Gazprom wins Chayanda

Russian gas giant Gazprom won the rights to develop the Chayanda gas field without an auction, according to reports. Deputy Energy Minister Andrei Dementyev was quoted by Russian news agencies as saying Gazprom would start work on the license this year aiming to start production in 2016.

Greece signs on to South Stream

Greece agreed to join the South Stream gas pipeline project, further boosting the nation’s energy ties with Russia, the country’s Development Minister Christos Folias announced. The pipeline, which will be jointly built by Gazprom and Italy’s Eni, will take 1.06 Tcf of Russian gas per year to southern Europe, with Greece becoming a transit state on the southern arm of the pipeline pumping gas to Italy.

Lukoil to work on West Qurna 2 project

On March 3, Ecuador Oil Minister Galo Chiriboga announced that the country had ended the force majeure on oil exports and resumed production. Oil experts 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

OAO Lukoil announced that it had reached an agreement with Iraqi authorities to establish a working group to implement the West Qurna 2 oil field development project. The field is be-lieved to hold 6 billion barrels of recov-erable oil reserves.

Gazprom, Eni joint Libyan gas project

On April 10, a spokesman for Gaz-prom said the company is in talks with Eni about working on a joint gas pro-ject in Libya. Also the International Herald Tribune reported the two com-panies would join forces to extract natural gas in Libya for transport to southern Europe, citing Eni officials.

Pipeline leak shuts in Independence Hub

Independence Hub natural gas platform in the deepwater Gulf of Mexico was shut-in on April 9 as a result of a leak on the Independence Trail export pipeline. “Operations at the platform and along the pipeline as well have been suspended after we discovered indications of a leak,” said platform majority owner Enterprise Products Partners spokesman Rick Rainey. Initial investigations indicate that the leak originated from a stainless steel o-ring gasket on the flex joint in about 85 feet of water. The flex joint assembly connects the pipeline to the platform and allows the pipeline to withstand movements caused by the platform. Enterprise expected repairs to take one to four weeks.

BP and Conoco to build Alaska gas pipeline

BP and ConocoPhillips will begin work on a $30 billion joint pipeline effort to link Alaska’s North Slope to the lower 48 states, even though the project falls outside the process approved by Alaska’s government. ConocoPhillips has already proposed a gas pipeline and has started field studies for a route. BP and ConocoPhillips intend to spend $600 million to accomplish the first project milestone, an open season, set to start before the end of 2010. Following the open season, the companies mean to obtain Federal Energy Regulatory Commission (FERC) and National Energy Board (NEB) certification and move forward with project construction. “This project is vital for North American energy consumers and for the future of the Alaska oil and gas industry. It will allow us to keep our North Slope fields in production for another 50 years,” said Tony Hayward, BP Group Chief Executive. “Our goal of bringing Alaska’s North Slope gas to market is becoming a reality. Denali, the Alaska Gas pipeline project, will deliver natural gas to meet North America’s growing energy needs,” said Jim Mulva, ConocoPhillips chief executive officer. The project would also include a large diameter pipeline from Alberta to the lower 48 states.

Alberta gives royalty breaks for deep oil and gas development 

On April 10, Alberta’s government announced two new royalty programs which aim to encourage the development of deep oil and gas wells, providing royalty breaks to high-cost, high productivity wells that were hit by Alberta’s royalty rate increases announced in October. “One of the goals of the new royalty framework was to help provide a greater degree of economic certainty for both industry and the government” over royalty revenues, said Energy Minister Mel Knight. Addressing the unintended consequences of October’s increases will encourage energy companies to develop the hard-to-access wells, instead of just focusing on “low-hanging fruits,” helping generate the royalties anticipated by the new plan, said Knight. The plan comes into effect in 2009.

Bolivian government sets takeover deadline

Bolivia’s government has set April 30 as a deadline to take control of four energy companies as part of a nationalization drive begun in 2006, buying company shares worth at least $200 million. The companies include Chaco, owned by BP; Andina, controlled by Spain’s Repsol YPF; pipeline company Transredes, controlled by Ashmore Energy International; and storage and fuel transport firm CLHB, controlled by German and Peruvian companies. President Evo Morales and his ministers set the deadline of April 30 in a decree on March 26. Energy Minister Carlos Villegas told reporters that discussions with the four companies were “very advanced.” “What was defined yesterday was a date, because the government wants to fulfill its promise to the Bolivian people to regain control of privatized companies,” he said. Villegas also said that no company “indicated that it disagrees with the nationalization decree ... or the (state’s stake of) 50% plus one share.” Starting in May 2006 the government targeted these companies for takeover, turning private companies into mere service providers to state oil company YPFB.

Algeria looks at short-term gas deals

Algeria intends to switch from long-term to short-term gas sales contracts to earn more by renegotiating prices every few years, Energy & Mines Minister Chakib Khelil was quoted as saying. “Once you sign a long-term contract, the producer is in a losing position,” the Wall Street Journal quoted Khelil as saying of traditional contracts of 15 years or longer. “We go to short term because at least I know that in one year or two years, I’m going to have a chance to say, ‘look, you want more gas, you’re going to have to pay me more.’ And at that time, I’ll have leverage. Now I don’t have any leverage,” he added. Algeria is developing the Medgaz pipeline to Spain, due to start up in the mid-2009, and the Galsi pipeline into Sardinia in Italy, due to start exporting gas in 2012. Contracts to build these two pipelines include long-term supply agreements. But once those pipelines are completed “we are not going to be signing any more 15-year contracts,” said Kehlil. Gas is being sold far too cheaply under long-term contracts, and gas producers need to cooperate to obtain a better price, he added.

Ecuador offers temporary contracts

Ecuador’s President Rafael Correa offered foreign companies working in the country’s hydrocarbons sector six-month temporary contracts while talks over revising exploration and production deals continue. Galo Chiriboga, oil and mines minister for the country, told a press conference that the government will seek to seal temporary deals. Following that period, the government will seek service contracts. “They will be improved contracts that guarantee legal security for both parties,” Chiriboga said. Correa made an announcement on April 13 from Mexico that he had stopped contract negotiations with France’s Perenco, Spain’s Repsol-YPF, US-owned City Oriente, Chinese-owned Andes Petroleum and Brazil’s Petrobras. The companies began renegotiating their contracts in January after Ecuador increased its share of windfall profits from 50% to 99% last year by a presidential decree.

Kazakhstan to impose duty on crude

Kazakhstan will impose an export duty on crude of about $14.70 per barrel beginning in May. The measure, signed by Prime Minister Karim Masimov on April 8, is aimed at stabilizing domestic supplies, taming inflation and raising budget revenues. Officials have reassured companies operating in the state that the duty is unlikely to affect their existing contracts, but new investors will be liable. Industry Minister Vladimir Shkolnik said the final list of exempted producers had yet to be drawn up. “It will not affect contracts with a stable customs regime,” he said. “The list of such contracts is being worked out.” The duty is Kazakhstan’s first such measure since the nation gained independence in 1991. “The crude export duty is aimed not only at achieving fiscal goals, but also at stabilizing domestic oil products prices that have formed main inflationary pressures,” Shkolnik said. The duty is based on the average first-quarter global oil price of about $94 per barrel.

Egypt will sell southern oil and gas rights

Egypt announced on March 23 that it would sell oil and gas exploration and production rights in twelve areas in the country’s southern region. State-owned Ganoub el-Wadi Petroleum Company (Ganope) said on its website companies could buy information about the blocks, in the Red Sea, Gulf of Suez, and the country’s eastern and western deserts, starting on April 1, and bids should be submitted by mid-July. Prices for any gas discovered would be agreed upon between Ganope and the contractor after the discovery of the gas and based on market prices.

Qatar receives China supply deals

On April 10, Qatar signed two deals to sell liquefied natural gas to PetroChina and China National Offshore Oil Corporation (CNOOC). QatarGas will sell 23.7 million barrels per year of LNG to CNOOC, currently China’s only LNG importer, starting from 2009, according to a heads of agreement the two companies signed in Beijing. QatarGas together with partner Shell agreed to sell 35.5 million barrels per year to Petro China from 2011, formalizing a deal the Chinese company previously announced.

Libya to redefine oil contacts

The Libyan government announced that it will review all future contracts with oil companies in a move to reap more benefit for the country. “Libya is going back to renegotiate all its oil contracts,” said Seddigui N. Ismail, Libya’s national representative at the African Petroleum Producers’ Association. “On completing the agreement with Repsol YPF, we can say that we have set the standards for old and new deals to be reached with old and new oil companies to operate in our country,” he said, referring to a deal with the Spanish oil company. “The negotiations between Repsol YPF and the Libyan government are still on. We’re still in talks and we’re certain these agreements will be finalized in the nearest future,” he added. The initial deals Libya signed with oil companies some 20-25 years ago. The initial deals were signed at a 50-50% stake, but now Libya is seeking a 75% stake in the agreement.

Venezuela to collect windfall tax on oil 

Venezuela will collect a windfall oil tax from all private companies operating in the country. President Hugo Chavez announced that the new tax will take 50% of oil revenues above $70 per barrel and 60% of revenues above $100 per barrel. A group of joint ventures between PDVSA and private operators that do not directly export oil had originally appeared exempt from the tax, which only applies to exported barrels. “All the hydrocarbons operators in this country are subject to this extraordinary tax,” said Oil Minister Rafael Ramirez. He said the tax would apply only to exports to avoid creating losses on oil consumed within Venezuela, where heavy fuel subsidies leave the price of gasoline at around $0.12 per gallon. However, a group of joint ventures between PDVSA and companies such as Shell that produce around 300,000 bpd will have to pay the tax because they export indirectly via PDVSA, Ramirez said. Ramirez also added that the country’s new oil tax could potentially generate more than $9 billion annually.

Ugandan cabinet approves oil policy

Uganda’s cabinet has approved the national oil and gas policy. The new policy will formulate a structure to manage revenue from the two resources found in the western part of country in mid-2006. The policy sets guidelines on how oil revenue will be equitably, accountably and transparently distributed and managed. The policy also details the possible alternatives for transportation of oil if economically viable quantities were discovered. The options include laying a crude oil pipeline to the oil refinery in Mombasa. Simon D’Ujanga, energy state minister said the ministry would now start licensing oil companies under the new guidelines. The government last year stopped the awarding of oil exploration licenses until a policy was developed to ensure efficiency in licensing and production with emphasis on national participation in oil and gas activities in order to create more jobs and acquire diversified skills. The new policy is an expansion on the Petroleum Exploration and Production Act 2000, which grants exclusive rights for exploration, development and production of petroleum in any licensed area. The government will also form the Petroleum Authority of Uganda and the National Oil Company to manage the country’s untapped resources.

Expert recommends that Ecuador court fine Chevron $7-$16 billion 

Richard Cabrera, a prominent Ecuadorian geologist and independent environmental expert for various oil companies, told a court in Ecuador that Chevron Corp. should pay $7 to $16 billion in compensation for environmental damage in the country. Cabrera said in a report to the court that the low end of the range represented the cost to remediate soil around all 378 of Chevron’s former Ecuador production facilities, and pay for health care costs, infrastructure improvements, a water system, loss of indigenous land, ecosystem impacts and other categories of damages. The high end of the range was determined to be the amount that Chevron benefited in “unjust enrichment” by failing to adhere to proper standards when it operated in Ecuador. The lawsuit, which peasants and Indians in Ecuador brought in the early 1990s, contends that Texaco, bought by Chevron in 2001, polluted the jungle and damaged their health by dumping more than 18 billion gallons of toxic wastewater into Amazon waterways and leaving roughly 900 open-air toxic waste pits in the jungle over a 26-year period (1964 to 1990) while it was the exclusive operator of an oil concession in Ecuador. Indigenous groups assert they are on the brink of extinction because of the contamination, which has produced a spike in cancer rates and spontaneous miscarriages in the region.

ONGC and PDVSA sign joint venture

In April India’s ONGC and Venezuela’s PDVSA signed a deal to explore and produce oil and natural gas in eastern Venezuela. PDVSA will hold a 60% interest in the project, known as Petrolera Indo Venezolana, and ONGC will have the remaining stake. Venezuelan Oil Minister Rafael Ramierz said ONGC will put $450 million into the project, $173 million as an initial sign-on bonus with the rest of the investment paid in the next five years. The project will pump oil from San Cristobal Field; production is set to begin within three years.

Russia unveils oil and gas tax breaks

In late March the Russian Finance Ministry revealed a series of tax-break proposals for oil and gas industries. The document, part of its fiscal policy strategy for 2009-2010, includes proposals to cut the mineral extraction tax, change excise duties on high-quality oil products and introduce tax breaks for exploration on the continental shelf. Russian Finance Minister Alexei Kudrin told reporters he would propose increasing the non-taxable limit of oil to $15 a barrel from $9, resulting in a $4.2 billion tax break overall. The proposal also includes a possible tax holiday for companies exploring offshore areas or mineral extraction tax breaks. The proposal also stated that the mineral extraction tax for natural gas would not be increased before 2011. “As far as the mineral extraction tax on gas is concerned, the decision was taken to postpone the discussion until 2010 ... This decision is linked to the considerable investment program of Gazprom,” said Kudrin.

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