World of Oil

Det norske, Aker boards approve merger

Two Norwegian exploration companies entered into a merger plan that will form the second-largest oil company on the Norwegian Continental Shelf, after StatoilHydro. Det norske oljeselskap ASA and Aker Exploration agreed on Sept. 16 that Det norske’s shareholders will receive 82% of the shares of the merged company, which will retain the name Det norske oljeselskap ASA, while Aker Exploration’s shareholders will receive 18%. The merger is expected to be registered and completed within 2009. Aker ASA will be the largest shareholder, with about 30% of the new company’s shares. The combined company will operate for 32 licenses and have a total of 70 licenses in its portfolio.

Gas discovered onshore Western Australia

Origin Energy and joint venture partners made a gas discovery in the northern Perth Basin, onshore Western Australia. The Redback South-1 exploration well encountered the Wagina Sandstone reservoir objective at an MD of 12,738 ft. Preliminary analyses indicate gas composition similar to that in the nearby Beharra Springs gas field. Reservoir development in the Wagina Sandstone is also comparable with that in Beharra Springs Field, despite this reservoir having been encountered some 1,300 ft deeper. The discovery’s commercial significance is dependent on further evaluation including testing to determine the gas flowrate.

Rosneft may allow a partial sell-off

The head of the Russian state oil firm Rosneft said that he would welcome the sale of more of its shares, after Prime Minister Vladimir Putin promised a new wave of privatizations.

Sergei Bogdanchikov, chief executive of Russia’s largest oil company, told Reuters reporters, “I am aware of such proposals. We have not discussed them but, in general, in terms of increasing the free float, attracting new investors—we welcome them.”

The government already owns 75% of Rosneft. Bogdanchikov also said the company would sell its treasury shares, which represent about 9% of its charter capital, together with the state.

US ends controversial royalty-in-kind program

The Mineral Management Service will no longer accept oil and gas from producers in lieu of cash royalties, US Interior Secretary Ken Salazar announced last month. The agency’s controversial Royalty in Kind (RIK) program came under fire last year after reports by the department’s inspector general revealed that RIK agents had accepted lavish gifts from oil and gas companies. In a press release, Interior said the RIK program involves the federal government excessively in oil and gas markets. It also cited a Government Accountability Office report that found that the program may not ensure fair return to the US Treasury. “Clearly, the department’s energy leasing and royalty programs have not been working as they should, and the American people have not been receiving the full benefits from these valuable assets,” Salazar said in testimony to the House Natural Resources Committee. American Petroleum Institute President Jack Gerard blasted the decision in a press release, saying, “Terminating this straightforward method of handling royalty payments runs the risk of raising administrative costs and adding additional layers of paperwork required to determine the value of oil and gas production.” The API response continued, “The government’s Minerals Management Service itself noted administrative efficiencies brought on by the program, and pointed out that another of the benefits of RIK is the reduction in costly lawsuits tied to product valuation.”

IHS study: Reserves fell despite record spending in 2008

Worldwide oil and gas replacement rates fell in 2008 to 88% of production even as spending on upstream development reached record highs, according to a new study. The report, released Sept. 23 by oil and gas research firm IHS Herold Inc. and upstream corporate advisor Harrison Lovegrove & Co., found that upstream investment of 232 oil and gas companies totaled $492 billion last year, up 21% from 2007. About 63% of that 2008 total was for development, which jumped 23% over the previous year.

The surveyed companies’ exploration spending increased 21% over 2007, and doubled since 2005. Despite this record spending, worldwide oil and gas finding and development replacement rates fell in 2008 to 88% of production, making it the first year since 2004 in which production was not replaced. Total reserves were 0.4% lower at the end of 2008 compared with 2007, as a 3% increase in gas reserves was more than offset by a 4.4 billion-bbl decline in oil reserves. The study also found that returns to oil industry shareholders were impacted by the plunge in commodity prices in late 2008. Dividends rose to a record level, exceeding $100 billion for the first time, but common share repurchases were 23% lower, falling for the first time since 2004. As revenue fell in the second half of the year and financing options closed, many companies reduced or ended stock buyback programs to conserve increasingly scarce cash.

Chesapeake to form midstream joint venture

Chesapeake Energy Corp. and New York-based private equity fund Global Infrastructure Partners (GIP) have agreed to form a joint venture that includes Chesapeake’s midstream Barnett Shale assets. Chesapeake will contribute certain natural gas gathering and processing assets into a new entity, Chesapeake Midstream Partners, LLC (CMP), and GIP will purchase a 50% interest in CMP. Chesapeake will retain the remaining 50% interest in CMP and receive $588 million in cash from GIP. The assets Chesapeake will contribute to the joint venture are substantially all of its midstream assets in the Barnett Shale and also the majority of the company’s non-shale midstream assets in the Arkoma, Anadarko, Delaware and Permian Basins. Closing of the transaction is anticipated to occur later this month.

CMP will enter into various agreements with Chesapeake, including a long-term gas gathering agreement at rates consistent with current market pricing. CMP will focus on unregulated business activities in service to both Chesapeake and third-party natural gas producers, and its revenues will be generated almost entirely from fixed, fee-based arrangements for gathering, compression, dehydration and treating services.

Lake Albert oil discovery may be biggest yet

UK-based Tullow Oil said results from its Ngassa-2 exploration well in Uganda’s Lake Albert Basin suggest a “significant” oil find that could be the largest in the basin. The Ngassa-2 exploration well encountered 23 ft of oil pay in a 46-ft gross sand. Pressure data acquired through logging operations indicates a potentially significant oil column down-dip that could fill the entire 58-sq-mi closure. Wireline log characteristics indicate that the reservoirs seen in Ngassa-2 are equivalent to those encountered in the Kingfisher discovery some 25 mi southwest, pointing to significant lateral reservoir extent. Further offshore appraisal drilling is planned to test a deeper 15-m gross sand at the well location.

Record $30 million settlement in market manipulation case 

The US Federal Energy Regulatory Commission (FERC) settled manipulation claims against Energy Transfer Partners, L.P. (ETP). The settlement terms require ETP to pay $30 million to settle allegations that it manipulated physical wholesale natural gas prices at Houston Ship Channel on specific dates from 2003 through 2005. This is the highest amount of any settlement related to an enforcement action since Congress gave FERC enhanced enforcement authority under the Energy Policy Act of 2005 (EPAct 2005). The settlement ends proceedings that began on July 26, 2007.

Under the settlement, ETP will pay a $5 million civil penalty and establish a $25 million fund to disgorge alleged unjust profits to entities that file claims. The fund will be administered by a FERC administrative law judge. Entities have 60 days to file documents showing that they are entitled to a distribution.

ETP previously settled similar allegations with the Commodity Futures Trading Commission, acting under separate statutory authority, for $10 million.

Typhoon damage shuts in Huizhou oil fields

China National Offshore Oil Corporation (CNOOC) and partners have shut in their offshore Huizhou oil fields after Typhoon Koppu damaged some production facilities on its way through the South China Sea on Sept. 14. The storm displaced the single-point mooring system for Nanhai Faxian FPSO, the central loading system for all the Huizhou producing fields. CNOOC issued a release saying that there were no casualties. An ROV examination of the field’s underwater infrastructure revealed that four anchors and the delivery hose to the FPSO were broken. Before the storm, the Huizhou fields’ production capacity was about 41,000 bopd and 33 MMcfgd.

Global spending in floating LNG to hit $23 billion by 2016

UK-based Lloyd’s Register expects world capital spending on the emerging floating LNG market (FLNG) will get to $23 billion in seven years, with Asia accounting for 23% of that. Worldwide, the firm also forecast the Capex of all types of floating offshore installations to reach $190–$200 billion.

Asia, which has only a slight need for FLNG now, will grab 20% of global spending in the future. There are large gas fields in Asia-Pacific, Australia and Indonesia, some of which are stranded gas reserves. Floating LNG can make them economic. An FLNG storage facility is expected to cost about $2.5–$3 billion.

BLM’s first online lease sale nets over $150,000

The US Bureau of Land Management’s state office in Colorado completed the federal agency’s first online oil and gas lease sale, selling 19 parcels totaling 7,701 acres, of 28 parcels offered. The lease sale earned $153,637 in total proceeds, with 49% going to the state of Colorado.

The highest per-acre price was for a 1.2-acre parcel in Rio Blanco County that sold to Petroleum Development Corp. for $777 per acre. The high bonus bid of $111,265 was made by ABO Petroleum Corp., MYCO Industries Inc., Yates Drilling Co. and Yates Petroleum Corp. for a 1,444-acre parcel in Rio Blanco County.

The sale was conducted entirely online over an eight-day period, beginning Sept. 9 and concluding on Sept. 17. Some 48 bidders registered to participate in the sale, which was about the number registering for individual, live on-site sales over the past year.

Canada’s first LNG plant opens

Canada’s first LNG receiving terminal opened in St. John, New Brunswick, with a 1-Bcfd capacity. It will supply natural gas to Canadian and northeastern US consumers. The Canaport LNG terminal, built for about $1 billion by Repsol and Irving Oil, is the first of its kind to be built on the eastern coast of North America in 30 years, and can receive LNG tankers year round in its ice-free port. The terminal began taking small LNG tankers from Trinidad and Tobago in June, but has so far operated only at about one-tenth of capacity. Repsol has contracted for 100% of the plant’s capacity and is the plant’s managing partner with a 75% stake.

Output from Shenzi in GOM exceeds expectations

The Shenzi oil field in the deepwater Gulf of Mexico, onstream since March 23, has exceeded the production facility’s nominal capacity of 100,000 bopd for the past two months, BHP Billiton said. Output from just seven wells is hitting 120,000 bopd. Two additional wells are shut in and will be brought onstream when the other wells begin to decline. Eventually, Shenzi should expand to 15 producing wells plus future water injection wells. Shenzi is located about 120 mi off the Louisiana coast and is installed in about 4,300 ft of water on Green Canyon Block 653, making it the second deepest tension-leg platform (TLP) in the world. BHP Billiton operates with 44% equity, along with partners Hess and Repsol, each holding 28%.