Oil & Gas Financial Journal - December 2010

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E S I C IA NG L R AP EP OR OR E T:

Contents

December 2010

TransAtlantic seeks

to unlock potential in Turkey, Romania INSIDE • • • • •

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Control risk for competitive edge Water challenges for shale SEC revises reserves rules Q&A with Sean Boland Interview with Keppel CEO

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ENERTIA SOFTWARE

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CONTENTS V7/#12

FEATURES

✱

ON THE COVER: TransAtlantic Petroleum chairman Malone Mitchell

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COVER STORY: TransAtlantic Petroleum Malone Mitchell developed Riata Energy (now SandRidge Energy) into a hugely successful oil and gas company before selling controlling interest in 2006. After stepping down, he founded Mitchell Group, a privately held oil and gas company. He also serves as chairman of TransAtlantic Petroleum Ltd., which has assets in Turkey, Romania, and Morocco. OGFJ Editor Don Stowers recently caught up with Mitchell to discuss his plans for the company.

22 SEC rules In December 2008, the SEC modified the oil and gas disclosure rules for the first time in 30 years. Originally heralded as modernizing and liberating, questions regarding the lack of clarity for certain critical

provisions have surfaced. Mark Folladori of Mayer Brown takes a look at the first round of reporting under the new guidelines, examines and analyzes how companies applied the rules, and looks to what’s next.

30 Merger climate Sean Boland is vice chairman of the Howrey law firm in Washington, DC and co-chair of the firm’s antitrust practice. He recently spoke with OGFJ Editor Don Stowers about industry mergers and the current regulatory climate

in Washington.

36 Risk and uncertainty The current preoccupation with deepwater development risks and uncertainties has an interesting parallel to the global preoccupation with emerging risks in the

broader world economy, says Scott Randall of Boots & Coots. Managing the risk and uncertainty could provide a competitive advantage.

42 Choo Chiau Beng Keppel Corp. is one of Singapore’s largest and

most diversified conglomerates. Choo Chiau Beng, formerly head of the company’s rig and shipbuilding arm, was named CEO in January 2009. Focus Reports LLC spoke to the new CEO in an interview exclusively for OGFJ.

Oil & Gas Financial Journal® (ISSN: 1555-4082) is published 12 times a year, monthly, by PennWell, 1421 S. Sheridan Rd., Tulsa, OK 74112. Periodicals Postage Paid at Tulsa, OK, and additional mailing offices. POSTMASTER: Send address changes to Oil & Gas Financial Journal, 1421 S. Sheridan Rd., Tulsa, OK 74112. Change of address notices should be sent promptly with old as well as new address and with ZIP or postal code. Allow 30 days for change of address. Copyright 2010 by PennWell. (Registered in US Patent & Trademark Office.) All rights reserved. Permission, however, is granted for libraries and others registered with the Copyright Clearance Center Inc. (CCC), 222 Rosewood Drive, Danvers, MA 01923, Phone (508) 750-8400, Fax (508) 750-4744, to photocopy articles for a base fee of $1 per copy of the article, plus 35 cents per page. Payment should be sent directly to the CCC. Federal copyright law prohibits unauthorized reproduction by any means and imposes fines up to $25,000 for violations. Requests for bulk orders should be sent directly to the Editor. Back issues are available upon request.

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DEPARTMENTS [Editor’s Comment]

5 Why shale, why now? Here at home, Chevron and ExxonMobil have bought in. IOCs, CNOOC, Total, Statoil, and Eni have, too. Why are the majors acquiring independent natural gas producers and assets when gas prices seem chronically depressed? OGFJ Editor Don Stowers takes a look at recent analysis from the current year. [Capital Perspectives]

6 Challenge = opportunity Despite all the excitement around shale plays and the technological advances that have enabled the industry to produce this resource, many challenges remain. However, underneath these obstacles lies great opportunity for entrepreneurs, innovators and investors. Leif André

Skare, and Dr. Vikram Rao of Energy Ventures explain. [Upstream News]

10 Chevron’s shale Following recent shale asset acquisitions in Poland, Romania, and Canada, Chevron has made a large grab at the North American shale industry, particularly the gas-rich Marcellus shale, with a plan to acquire Atlas Energy for $4.3 billion.

[Beyond the Well]

72 Year in review

46 Deal Monitor 48 Industry Briefs 52 Energy Players 56 Special Report: Singapore

OGFJ.com▶

71 Co./Ad Index

OGFJ associate editor Mikaila Adams wraps up another successful year profiling various energy industry companies, individuals, and associations in their efforts to help improve the lives of those in their communities. Take a look back at 2010’s Charities and Champions.

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FEATURED STORIES Updated daily, OGFJ.com brings you

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the latest information from the industry. Get details on Energy XXI’s $1.01 billion acquisition of certain shallow-water Gulf of Mexico shelf interests from ExxonMobil affiliates, read Wood Mackenzie’s report on the trends in upstream global spending, and more. Track management changes at companies like Societe General, Northern Tier Energy, Concho Resources, and others.

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UR CENTER Take a look at the new UR Center on OGFJ.com. North American shale plays such as the Eagle Ford, Barnett, Haynesville, Marcellus, Bakken, and Woodford are all noteworthy formations, but unconventional resources extends also to tight gas, coalbed methane, oil sands, and heavy oil. Get up-to-date information, including maps, on the most talked about formations in the unconventional resources space––all in one place.

DEAL MONITOR Visit OGFJ’s Deal Monitor. Brought to you in collaboration with The Rodman Energy Group, the Deal Monitor provides highlights of certain oil and gas transactions. Recent transactions include

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Chevron’s $4.3 billion purchase of Marcellus Shale veteran Atlas Energy and Denbury Resources’s divestiture of its ownership interests in Encore Energy Partners LP to Vanguard Natural Resources LLC for $380 million.

www.ogfj.com • Oil & Gas Financial Journal December 2010

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Editor’s Comment

Shale gas assets offer acquirers rich reserves, stable production Don Stowers Editor-OGFJ

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hevron’s announcement last month that it is acquiring Atlas Energy, a large acreage holder in Pennsylvania’s gas-rich Marcellus shale play for $4.3 billion, is another sign that the long-term outlook for natural gas is positive. Although several billion dollars isn’t a huge investment by the standards of a company the size of Chevron, oil majors don’t make a move of this type until they have thoroughly measured the risk against the reward potential and concluded that the upside outweighs any possible negative consequences. In late 2009, ExxonMobil struck a $41 billion deal to acquire XTO Energy, one of the largest US shale gas developers and a producer in half a dozen or so US shale plays. It is widely held that Exxon decided that the best way to develop expertise in these emerging plays was to acquire one of the leading players. So why are the majors acquiring independent natural gas producers when gas prices seem chronically depressed? Let’s examine, starting with the current year. Crude oil prices have held at around $80/bbl or more for several months, while natural gas prices remain low due to higher-than-expected production and modest demand. Some refer to this as a “glut” – simple supply-and-demand economics. Currently, gas storage is filling up for the winter months, but unless the US has an unusually cold winter in the Midwest and East Coast, gas usage will remain anemic, keeping prices low.

Short term, the outlook remains rather gloomy for North American gas producers, many of whom prefer to drill wells in wet gas areas to take advantage of better prices for NGLs. Others are acquiring assets in oil-producing areas, both conventional and unconventional. In the midst of these poor conditions for natural gas development, the majors and global companies like CNOOC, Total, Statoil, Eni, and others are acquiring gas reserves and producing assets, acquiring companies with these reserves, and partnering with them, in part to develop expertise that the smaller independents acquired over years of learning how to extract gas and oil efficiently and economically. What do these larger companies know and why are they moving into unconventional gas plays in North America, Europe, and elsewhere? Robert Gillon, director of energy company research at IHS, thinks he knows. He says these types of assets have been missing from the larger companies’ portfolios and they offer stability and reduced risk. “Large projects such as Gorgon or those in the deepwater Gulf of Mexico are great, but the incremental production is lumpy,” says Gillon. By acquiring Atlas, Chevron smoothes its production profile and obtains access to significant proved reserves and resource potential, he adds. Deutsche Bank believes current low prices could actually be beneficial for natural gas producers. In a report released Nov. 17, the bank says that lower natural gas prices have already helped raise the proportion of US electricity generated from the fuel from 20% to 23% in the past two years. As coal costs rise, the percentage of natural gas in power generation could rise to 35% by 2030, says the report. Natural gas as a fuel for power gen-

eration is good from an environmental perspective as well. With Republicans taking control of the US House of Representatives in January, it appears unlikely that Congress will pass broad measures on renewable energy and climate change. But progress on emissions can still be made because natural gas is a much cleaner-burning fuel than coal, releasing about half as much greenhouse gases as coal. IHS and Deutsche Bank aren’t the only groups with a positive outlook for natural gas. Wood Mackenzie, the Scotland-based energy research firm, says that global upstream spending will return close to peak levels achieved before the economic recession by 2011. “This is primarily due to the restoration of confidence and an impressive renewal of activity in unconventional resources, particularly shale gas,” says Wood Mac. In a report released in early November, Ernst & Young notes that, “International and national oil companies are beginning to invest heavily in unconventional gas. With gas prices depressed, investors are looking for gas plays with high liquid content, such as the Eagle Ford, Bakken, and Granite Wash.” As uncertainty clouds energy development plans in the Gulf of Mexico and some projects are delayed or abandoned, it appears at least some of the investment capital is shifting onshore to unconventional gas and oil plays. Improved economics for extraction and better economies of scale by the larger companies will make it easier for low-priced natural gas to continue to displace coal as a source for generating power. Except for the coal industry, that is good news for all of us. OGFJ Have an opinion about this? Visit www.ogfj.com to comment.

December 2010 Oil & Gas Financial Journal • www.ogfj.com

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Capital Perspectives

Water: Greatest challenge for shale gas. . . and the next investment opportunity Leif André Skare, Energy Ventures, Houston Dr. Vikram Rao, Energy Ventures, Research Triangle Park, North Carolina

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here is no doubt that the somust be determined and made clear to use in operations and disposal of both called “Shale Gale” has taken industry participants. flowback and produced water. Some hold in the US and is on the It’s a landscape filled with many of these concerns may themselves be brink of spreading worldwide. Barnett, questions and uncertainties, but one exaggerated. The data shows that while Marcellus, Haynesville, and Eagle fresh water use has become a poputhing is certain: water stands to be the Ford have become household terms industry’s biggest hurdle to productive, lar public challenge for the industry, for many, and in recent months, the producing shale natural gas requires efficient, profitable and more environindustry has seen greater interest from less water than many other options (see mentally friendly operations. overseas players in domestic Table 1). Table 1: Fresh water usage in energy industry shale fields and in Europe’s These concerns have Range of gallons of water used per shale resources. driven home to regulaMMbtu of energy produced Despite all the excitement Energy resource tors, the public, and some 0.60 – 1.80 around shale plays in the US Shale natural gas sectors of the industry that Natural gas 1- 3 and overseas, and the techusing fresh water resources nological advances that have to frac and treat shale wells Coal (no slurry transport) 2–8 enabled the industry to proand improve production in Coal (with slurry transport) 13 – 32 duce this difficult resource, mature fields might not be Nuclear (processed uranium ready many challenges remain in our best interests in the to use in plant) 8 – 14 before even the known shale Conventional oil long term. As a result, in the 8 – 20 reserves can truly deliver on US, New York has imposed Synfuel – coal gasification 11 – 26 their potential. However, a moratorium on activity in Oil shale petroleum 22 – 56 underneath these obstacles the portion of the Marcellus Tar sands petroleum 27 – 68 lies great opportunity for Shale within its borders until Synfuel-Fisher Tropsch (coal) 41 – 60 entrepreneurs, innovators a study of the environmenand investors to play a key tal effects of shale producEnhanced Oil Recovery (EOR) 21 – 2,500 role in moving the industry tion is complete. Congress Fuel ethanol (from irrigated corn) 2,510 – 29,100 forward to a more producalso introduced legislation Biodiesel (from irrigated soy) 14,000 – 75,000 tive future. to amend the Safe Water Source: Tudor Pickering, Chesapeake Energy 2009 presentation to the Ground Water Protection Drinking Act in the US and Council, citing Chesapeake well estimates for shale gas and a US DOE water use report. Public & political repeal the exemption previchallenges Shale is the most recent high-profile ously made for hydraulic fracturing. The obstacles standing between shale’s example of the public relations confuture as a long term resource and its A bright spot for investing cerns, regulatory issues and general current promise are all over the headchallenges the industry faces regarding Underneath what sounds like an awful lines. In the natural gas markets, availlot of gloom and doom is, in fact, a trewater use and production. This is in able supply is growing much faster than large part because US shale operations mendous opportunity to drive positive demand. Bringing this situation into and widespread change through the have brought oil and gas exploration balance is largely a political battle where and production much closer to the industry. All of the factors mentioned the level of encouragement and supgeneral public than ever before, setting above point to a critical need for the port for transitioning to natural gas as development and rapid adoption of up shop in suburban neighborhoods a base or bridge fuel must be decided. technologies that will allow the indusand dense farming communities. Environmental concerns around fractry to meet and exceed the current and This amplified visibility has opened ing and water disposal also need to be expected regulations on water use in the door to increased scrutiny and led addressed, and the required regulation to widespread anxiety over fresh water shale operations.

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www.ogfj.com • Oil & Gas Financial Journal December 2010

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Capital Perspectives Fig. 1: Monitoring fracing stage production in real time

119.5 119 118.5 118 117.5 117 116.5 116 115.5 115 114.5

Temperature (degrees Celsius)

hence, more efficient water management. Ingrain’s technology also stands to inform the refracturing operations now becoming popular in shale plays by helping operations identify promising new production zones. Fotech Solutions’ Helios distributed acoustic monitoring system and 3800 4000 4200 4400 4600 4800 5000 Ziebel’s Z-system, which allows for Fibre length (m) logging in highly deviated and horiWhile oil and gas is an industry that fit for its purpose, and technologies zontal wellbores, also provide operators that work to efficiently and safely treat is traditionally reticent to adopt new with a more accurate and informed innovations, regulation and simple eco- flowback and produced water. look at their reservoirs. The technoloThe first category examines the nomics will mandate both development gies were recently used together to amount of water input into a shale and implementation in the next few analyze a tight gas well undergoing a operation. The challenge of reducing years. In short, the industry must find multi-stage fracing job. As production the demands fracing places on fresh was reviewed in real time, it was easily a way to economically meet changing water resources can be accomplished seen that just over half of the fracing water requirements or risk bottleneckin two ways. One is to simply use less stages were producing. This type of ing its most promising plays. water per frac operation. The other service can lead to cost savings for the Many energy investors have been is to use water that is not classified as looking to shale plays and the techoperator by allowing them to produce fresh. gas with less fracing, and concomitantly nology to produce them as profitable Several technologies currently in less water. (See Figure 1.) investment areas in recent years, leading development aim to reduce the water On the cutting edge of technology us to our current tipping point. As we input into a fracing operation. Incorpo- development are innovations that allow look ahead, water related technologies rating nano-technology, Oxane Materi- fracing operations to be conducted will be the next industry hot spot for als has created an ultra light ceramic with saline water. A large amount of both innovation and investment. proppant. Using Oxane’s OxFrac, the existing investment and technology Reduce, reuse and recover operators can transmit more proppant addressing water use challenges in shale new resources farther along a frac, with less water than operations has addressed desalination. Within the large category of water use required by other proppants. However, a new target for investment in shale plays, there are three key areas Approaching the problem from and technology development is coming that are expected to show the most another angle is digital rock physics lab to the forefront. Many experts are now promise for technology development Ingrain. Ingrain’s imaging technology examining how to better use waters of and investment. Those are, technoloreveals physical properties and flow convenience in shale production. That is, gies that can reduce the amount of characteristics of reservoir rocks at the the closest available water resource fit for water required for a production opera- nanoscale. The result is better underthe purpose at hand - either economition from the start, technologies that standing of a reservoir, more strategic cally or physically. For many operators make water injected into a play more planning of fracing operations and the nearest resource is a saline aquifer.

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www.ogfj.com • Oil & Gas Financial Journal December 2010

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Capital Perspectives Already, fracing operations can be conducted with saline water measuring 40,000 ppm (lakes and streams are generally under 1,000 ppm). Further innovation can be expected to double that number, making the use of saline aquifers, as well as recycled and treated flowback water a promising option. Desalination will not fade away. Only about one third of water input into a fracing operation returns as flowback, so additional water supplies will always be necessary. Especially in light of the fact that the water associated with shale gas operations tends to be much more saline than average, up to 350,000 ppm in some cases. However, when these tracks of technology development are combined, they stand to cumulatively reduce overall water use of shale operations and decrease their pull on fresh water resources.

Conclusion In conclusion, shale gas is a game changer and the most important development in petroleum production in decades. It has paved the way for North America to move from its position as a net importer of hydrocarbons to operating self sufficiently for a hundred years – and it is likely to have similar effects worldwide. But, the viability of this play is potentially compromised by water use and disposal issues. Consequently, innovative solutions to these comprise an excellent investment opportunity. OGFJ About the authors Leif Andre Skare is a partner in Energy Ventures’ Houston office and sits on the boards of Energy Ventures’ portfolio com-

panies PanGeo, DeepFlex, and Reality Mobile. Skare brings strong experience in energy and business development to his work from former positions with Melberg Partners a.s., Kverneland ASA and Esso Norge AS. Vikram Rao serves on the Energy Ventures Advisory Board. In addition, he serves as the executive director at the Research Triangle Energy Consortium. He was formerly senior VP and CTO at Halliburton, where he led the company’s technology efforts and intellectual asset management. He has authored more than 40 publications and holds 26 patents in the fields of non-ferrous metal refining, alloy formulations, and oil and gas technology.

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Upstream News Chevron buys Atlas Energy in $4.3B deal, enters shale business

incremental production is lumpy. This Marcellus-type play smoothes their production profile and gives them access Deal will bring production growth, to significant proved reserves of 0.9 tcf and resource needed balance to portfolio potential estimated by Chevron at nine tcf.” And as far as the price paid for the net-acquired ollowing recent shale asset acquisitions in Poland, resources, Gillon said the metrics are in-line with what Romania, and Canada, Chevron Corp. has made other new entrants have been paying despite looking a large grab at the North American shale industry, “relatively expensive on a proved basis,” particularly given particularly the gas-rich Marcellus shale. The Californiapresent low natural gas prices. He noted, too, that one based company holding the title of world’s fifth-largest oil should look also at the acreage acquired and think more company has agreed to pay $3.2 billion in cash to acquire long term. Atlas Energy in addition “Presumably,” he said, to assuming pro forma net Atlas’ Marcellus acreage “They have an advantage over debt of approximately $1.1 latecomers to the Marcelbillion. lus,” because Atlas has been The acquisition gives involved in the area for many Chevron an attractive natuyears, so “the acreage may be ral gas resource position, better situated than what othprimarily in southwestern ers have amassed.” Pennsylvania’s MarcelUnder the terms of the lus Shale–one of the most agreement, Atlas shareholders sought after shale plays. will receive a package worth “This acquisition is $43.34 per share, a 37% the right opportunity for premium to the company’s Chevron,” said George closing price on November L. Kirkland, Chevron vice 8, the day before the deal chairman. “We are acquirwas announced. The packing a company that has age includes $38.25 in cash one of the premier acreage for each outstanding share positions in the prolific and a pro-rate distribution of Marcellus. The high quality over 41 million units of Atlas resource, competitive cost Pipeline Holdings. structure in the Marcellus, Atlas plans to sell its strong growth potential of controlling interest in Atlas the asset base and its proxPipeline Holdings before the imity to premier natural gas Chevron deal is completed. markets make this targeted acquisition a compelling Atlas assets investment for Chevron.” Chevron will gain Atlas Some may say Chevron Energy’s estimated 9 tcf of Map courtesy of Atlas Energy is acquiring the shale acrenatural gas resources, which age a little late in the game includes approximately 850 as other big energy players–Total, Shell, ExxonMobil, BP, bcf of proved natural gas reserves with about 80 MMcf and Statoil–have already snapped up acreage and interest of daily natural gas production. The assets in the Appain major shale plays, but analysts at IHS say the purchase lachian basin consist of 486,000 net acres of Marcellus brings production growth opportunities, delivers key Shale; 623,000 net acres of Utica Shale; and a 49% interassets, and brings a balance to the company’s portfolio. est in Laurel Mountain Midstream LLC, a joint venture In a research note, Robert Gillon, director of energy that owns over 1,000 miles of intrastate and natural gas company research at IHS, called the deal sensible, but gathering lines servicing the Marcellus. Assets in Michiexpensive. And necessary. gan include Antrim producing assets and 100,000 net “This type of asset was missing from Chevron’s portacres of Collingwood/Utica Shale. folio,” Gillon said. “Large projects such as Gorgon or In April 2010, Atlas Energy entered into a joint venthose in the deepwater Gulf of Mexico are great, but the ture to develop its Marcellus assets with a wholly owned

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Upstream News affiliate of India’s Reliance Industries Ltd. Atlas sold a 40% undivided working interest in roughly 300,000 net acres for $1.7 billion ($14,100 per acre). Upon closing, Chevron will assume Atlas Energy’s role as operator with 60% participation in the joint venture. Reliance will continue to fund 75% of the operator’s drilling costs, up to $1.4 billion. Pending Before the deal is completed, Atlas Energy will acquire a 49% interest in Laurel Mountain Midstream LLC from Atlas Pipeline Partners LP for a cash consideration of $403 million and sell all interests in existing investment partnerships, 175 bcf of proved natural gas reserves, and certain other energy assets to AHD for a consideration of $250 million, comprised of $30 million in cash and $220 million in newly issued AHD units. On November 10, Standard & Poor’s Ratings Services placed its “B+” corporate credit rating and its “B” issuelevel ratings on Atlas Energy Resources’ senior unsecured notes on CreditWatch with positive implications, reflecting the potential that the ratings agency may raise or affirm those ratings when the buyout is complete. As of Sept. 30, Atlas Energy Resources had outstanding $400 million principal amount of 10.75% senior unsecured notes due 2018, $200 million principal amount of 12.125% senior unsecured notes due 2017 and $76 million under a revolving credit facility, S&P said. The acquisition is subject to certain Atlas Energy restructuring transactions, approval by Atlas Energy shareholders, and regulatory clearance. While it may only be a minor pebble in Chevron’s path, at least one Atlas shareholder is unhappy with the proposed merger. On Monday, November 15, an Atlas shareholder filed a compliant in Delaware’s Chancery Court (while headquartered near Pittsburgh, Atlas is incorporated in Delaware) in hopes of blocking the acquisition saying, “The timing of the proposed sale of Atlas to Chevron appears opportunistically timed to take advantage of the current economic downturn, and is grossly unfair, inadequate, and substantially below the fair or inherent value of the company.” Citing a statement from Chevron, Reuters reported Chevron as saying it believes it made a fair offer for Atlas and that the lawsuit is without merit. Goldman, Sachs & Co. is acting as financial advisor to Chevron in the Atlas acquisition. Skadden Arps Slate Meagher Flom LLP is acting as legal advisor to Chevron. Jefferies & Co. Inc. and Deutsche Bank Securities Inc. are acting as financial advisor to Atlas Energy. Wachtell Lipton Rosen Katz is acting as legal advisor to Atlas Energy.

Newfield buys Marcellus acreage from transitioning EOG Resources Company to reallocate Gulf of Mexico dollars to develop Appalachian assets

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ewfield Exploration Co. has agreed to purchase nearly 50,000 net acres in the Marcellus Shale from EOG Resources Inc. for $405 million, or $8,100 an acre. Nearly all the acreage associated with the deal is located in Bradford County, Pennsylvania, in the Susquehanna River Basin. Five wells on the properties generate gross production of nearly 7 MMcf/d and 11 wells sit uncompleted. Current gathering capacity is 25 MMcf/d with capability to expand to 95 MMcf/d in early 2011. Newfield estimates that more than 400 gross operated well locations exist on the acreage and that net unrisked reserve potential is 1.5 - 2.0 tcfe. EOG in transition “The sale of this Marcellus acreage is a part of EOG’s previously announced tactical plan to sell certain producing and non-producing natural gas assets in North America. These sales will add liquidity to partially fund EOG’s liquids weighted capital expenditure program,” said Mark G. Papa, chairman and CEO of EOG Resources. In early August, Houston-based EOG Resources announced its plan to sell roughly 180,000 acres in US shale plays as part of an effort to refocus its portfolio as liquids-rich. According to EOG, this divestiture, along with others signed and expected to be signed by year-end 2010, will generate proceeds of nearly $1 billion. The properties represent less than one-half of one percent of EOG’s total North American production and the company will retain nearly 170,000 net acres in the Marcellus in northwestern Pennsylvania following the transaction’s close, which is expected before year-end 2010.

Newfield’s plan Newfield plans to finance the transaction using the company’s undrawn $1.25 billion revolving credit facility and then pay down the borrowings by selling certain nonstrategic assets. The company also plans to curtail deepwater Gulf of Mexico drilling in 2011 and re-allocate nearly $70 million to its $100 million Appalachian development program. Ten wells are expected to be drilled by year-end 2010 and two operated rigs are planned in 2011 to substantially hold the acreage by production. “This transaction doubles our footprint in the Marcellus and adds core acreage with attractive development drilling opportunities,” said Lee K. Boothby, Newfield –Mikaila Adams chairman, president, and CEO. A November 16 report

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Partnership Is More Than Just Money. As one of the energy industry’s leading private equity firms with over $2 billion raised since 1996, Energy Spectrum Capital has proven itself as a valuable, reliable partner to our portfolio companies seeking to build businesses in the midstream value chain.

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Upstream News “This transaction doubles our footprint in the Marcellus and adds core acreage with attractive development drilling opportunities,” said Lee K. Boothby, Newfield chairman, president, and CEO.

years. We are looking forward to working with Woodside on important new growth projects where we are partners. However, with Shell’s recent portfolio progress in Australia, our worldwide push to simplify the company and to improve our capital efficiency, we will increasingly focus our investment in Australia through direct interests in assets and joint ventures, rather than indirect stakes. We will manage our remaining position in Woodside over time in the context of our global portfolio.”

Petrobras, partners sign $3.46B contract for pre-salt production hulls by Global Hunter Securities noted that, based on the location of the acreage, the transaction “potentially high grades” Newfield’s current acreage position. Newfield entered the Appalachian Region in October 2009 through an operated 50/50 joint venture with Hess Corp. in Wayne County, Pennsylvania. Three exploratory wells have been drilled in the county to date. Newfield operates the venture with a 50% interest.

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etrobras states that, together with partners BG, Galp Energia, and Repsol, and through its Tupi-BV and Guará-BV affiliated companies, it signed today two contracts totaling $3.46 billion with the Brazilian outfit Engevix Engenharia SA for the construction of eight hulls for the platforms to be used in the first phase of the production development for the pre-salt area in the Santos Basin. –Mikaila Adams Each platform, all of which FPSOs (floating, production, storage and offloading units) will be able to process Shell to sell Australian assets for $3.3 billion up to 150,000 barrels of oil and 6 million cubic meters of gas per day. All units are expected to start operating by hell has agreed to sell part of its stake in Australia’s 2017 and to reach the production targets set in Petrobras’ Woodside Petroleum Ltd. to equity investors for Business Plan for the pre-salt area. The expectation is that US$3.3 billion. these platforms will add about 900,000 barrels of oil per Shell’s subsidiary, Shell Energy Holdings Australia day to domestic production when operating at maximum Limited (SEHAL), has entered into an underwriting agree- capacity. The hulls will be built at the Rio Grande Naval Pole ment with UBS AG, for the sale of 78.34 million shares in Woodside, representing 29.18% of its interest in Woodside (state of Rio Grande do Sul), with local content expected to reach around 70%. The first steel shipments will take and 10.0% of the issued capital in Woodside at a price of place in January, and hull constructions will start in $42.23 (Australian dollars) per share. Upon completion, March. The first two hulls will be delivered in 2013, and SEHAL will continue to own a 24.27% interest in Woodthe others in 2014 and 2015. side, Australia’s largest publicly traded E&P company and Of the eight units, six will be operated by the consorone of the world’s largest producers of LNG. tium formed for Block BM-S-11, where the Tupi and As part of this transaction, SEHAL has committed to retain its remaining shares in Woodside for a minimum of one year, with limited exceptions, including a sale to a strategic third party of an interest greater than 3% in Woodside provided the purchaser agrees to be bound by the same escrow restrictions to which SEHAL is subject or in pursuit of an acceptance to a bona fide takeover offer for Woodside. Eight hulls for platforms Shell CEO, Peter Voser, commented, “Our Australian to be used in LNG portfolio has developed rapidly in recent years, with the pre-salt exploration success around Gorgon and Prelude, and area will be our entry into coal bed methane plays through the joint built at the Rio Grande Naval acquisition of Arrow Energy. This is a strong platform for Pole. Photo new growth.” courtesy of Voser added, “Our stake in Woodside has been an Petrobras important part of Shell’s portfolio in Australia for many

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Upstream News Iracema areas are located. The two others will be operated by the consortium formed for Block BM-S-9, where the Guará and Carioca fields are located. The Block BM-S-11 consortium is operated by Petrobras (65%), in partnership with BG E&P Brasil Ltda. (25%), and Galp Energia (10%). The Block BM-S-9 consortium is operated by Petrobras (45%), in partnership with BG E&P Brasil Ltda. (30%), and Repsol Brasil S.A. (25%). In October, operations went on stream at the first definitive production system (FPSO Cidade de Angra dos Reis) installed in Tupi, on the Brazilian coast. In a webcast held after the company’s 3Q10 results announcement, Petrobras’ CFO and chief investor relations office, Almir Guilherme Barbassa noted the potential of the pre-salt region. “In the pre-salt region we have a set of blocks with potential to produce more than 20 billion barrels, something almost unique in the world. We will have many opportunities to optimize costs and income in the future,” he said. The company reported a net profit of R$8.566 billion in the third quarter, 3% more than 2Q10 noting the higher sales volumes on the Brazilian market (+10%) and the improved financial results.

ko’s previously announced Venus discovery. Anadarko holds an interest in more than 4.6 million acres on five deepwater blocks offshore Sierra Leone and Liberia, and has identified more than 17 prospects and leads on 3-D seismic on this acreage. Once operations are complete at the Mercury well, the company has committed to mobilize the drillship to Ghana to accelerate the appraisal program at the Owo and Tweneboa fields, which the company anticipates sanctioning in 2011. Anadarko operates block SL-07B-10 with a 65% working interest. Co-owners in the block include Repsol Exploracion Sierra Leone, S.L. (25% working interest) and Tullow Sierra Leone BV (10% working interest).

PXP completes Eagle Ford acquisition

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lains Exploration & Production Co. has closed its previously announced acquisition of interest in nearly 60,000 net acres in the oil and gas condensate window in the Eagle Ford shale play. In early October, the Houston-based company announced it would pay $578 million in cash for the South Texas assets. Of the 60,000 net acres, approximately 20,400 net Anadarko hits oil pay offshore Sierra Leone acres are located in a joint operating area between PXP and EOG Resources Inc. A Dahlman Rose & Co. nadarko Petroleum Corp. has encountered research report dated October 12 put PXP’s working roughly 135 net feet of oil pay in two Cretaceous- interest at 100% in 40,000 acres of the acquired properage fan systems from its Mercury-1 exploration ties, and a 50% working interest in 40,800 gross acres that well offshore Sierra Leone. are included in its joint venture with EOG. Mercury is the company’s second deepwater test in The properties are located primarily in Karnes County the Sierra Leone-Liberian Basin and was drilled to a total of South Texas and PXP estimates the net resource potendepth of approximately 15,950 feet in about 5,250 feet of tial to be roughly 140 to 175 MMboe, projected net production capability of approximately 2,000 boe/d and water by Transocean’s Deepwater Millennium. “The Mercury well demonstrates that the stratigraphic a year-end 2011 production target exit rate of approxitrapping systems we’ve identified are working, and that mately 5,000 boe/d net to PXP. the petroleum system is generating high-quality oil,” JP Morgan provided financial advisory services related to the acquisition. Anadarko senior vice president, Worldwide Exploration The October report by Dahlman noted PXP, at the Bob Daniels said. “In the primary objective, the Mertime, was trading at 5.5x 2011 EV/EBITDAX, a discury well encountered approximately 114 net feet of light sweet crude oil with a gravity of between 34 and 42 count to its peer group average of 6.5x. The company degrees API, with no water contact. An additional 21 net estimated PXP PXP “should trade in line with its peer feet of 24-degree gravity crude was encountered in a shal- group due to the growth potential of its assets in the Eagle Ford, Granite Wash, and Haynesville Shale and the lower secondary objective.” The company is preserving the wellbore for potential exploration/monetization potential in the GoM.” re-entry, DST (drillstem testing) or a down-dip sidetrack In late September, PXP sold its Gulf of Mexico shelf to further delineate the reservoir s areal extent, quality properties to McMoRan Exploration (MMR) for $75 and deliverability, continued Daniels. The plan going million in cash and 51 million McMoRan shares ($818 forward is to “continue working with the government of million total consideration using McMoRan’s stock price Sierra Leone and our partnership to accelerate exploration of $14.57 on September 17, 2010), executing its previand appraisal activity in the area in 2011,” he concluded. ously announced plan to divest its Gulf of Mexico assets, The Mercury discovery is located in offshore block SL- while maintaining some the Gulf of Mexico’s upside 07B-10 approximately 40 miles east-southeast of Anadar- potential. OGFJ

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AN INTERVIEW WITH MALONE MITCHELL, CHAIRMAN OF TRANSATLANTIC PETROLEUM LTD

TransAtlantic finding ‘enormous’ upside potential in Turkey, elsewhere Don Stowers, Editor, OGFJ

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All photos courtesy of TransAtlantic Petroleum LTD

EDITOR’S NOTE: A native of Sanderson in Terrell County in West Texas and a graduate of Oklahoma State University, Malone Mitchell developed Riata Energy into a hugely successful oil and gas company before selling controlling interest in the company in 2006. The company was subsequently renamed SandRidge Energy. After stepping down from SandRidge, he founded Mitchell Group, a privately held oil and gas company that includes Riata Management and Longfellow Energy. Mitchell also serves as chairman of TransAtlantic Petroleum Ltd., which has assets in Turkey, Romania, and Morocco. OGFJ Editor Don Stowers recently caught up with Mitchell to discuss his plans for TransAtlantic. CEO Matt McCann also sat in on the conversation.

OIL & GAS FINANCIAL JOURNAL: TransAtlantic Petroleum’s story begins with Malone Mitchell. How has your proven track-record of success throughout your oil and gas career, especially with entrepreneurial projects such as Riata Energy, led to your decision to form TransAtlantic Petroleum? MALONE MITCHELL: Don, it all starts with a love for the oil and natural gas industry. Identifying key prospects, developing your core assets, and building value are just a few of the basic skill sets required for success. And even that sometimes isn’t enough. In the case of Riata Energy, we started out with $500 and a razor-sharp focus on the Permian Basin. We studied the geology. We identified key prospects. And, we acquired properties that provided strong upside potential. In the months and years that followed, we applied our technical expertise and know-how to drive production and grow reserves. We also expanded and purchased additional assets in the Permian – assets that were contiguous with our legacy properties. Before long the play started to blossom. Companies of all sizes began purchasing and developing properties in and around our acreage in West Texas and in the Piceance Basin in Colorado. The long-term outlook was so strong that we contemplated a public offering in 2006. However, before we filed for an offering, Tom Ward (chairman and CEO of what is now SandRidge Energy) approached us. He made us an offer that we accepted. At the time of the deal, Riata Energy was the largest private US land driller. While TransAtlantic Petroleum is a vastly different company than Riata Energy, we’re seeing many of the same opportunities in countries around the world and the ability to implement the same strategy we used in building Riata. OGFJ: Through the years, you have implemented a vertically-integrated strategy with your E&P companies by acquiring oilfield service companies and equipment. How does Viking International, TransAtlantic’s service arm, complement your international exploration efforts?

MITCHELL: To start, a lot of E&P companies shy away from vertical integration. Many operators find it too difficult to manage or don’t believe the returns justify the investment. At TransAtlantic Petroleum, however, Viking International and our vertical integration strategy are critical. The strategy delivers strong returns and is core to our operations. Much of our success in this arena stems from Turkey’s limited access to key equipment, rigs and other services. In fact, only two oil service companies in Turkey are able to drill below 8,000 feet. The vast majority of wells have never been exposed to fracture stimulation equipment. And the costs for many of these services are prohibitively expensive. Upon learning this, we quickly assessed the situation. We studied the issues, and in December 2008 we began purchasing rigs and equipment to deploy and service our operations overseas. Almost immediately, we started to see positive results. On the E&P side, we saw a significant reduction in finding and development costs. On the rig side, we have strong demand for our own accounts and are starting to see demand for third party opportunities. And, on the equipment leasing-side, we gained access to equipment that very few companies in Turkey, Romania, or Morocco have. We’ve even received tremendous support from agencies within the Turkish government. OGFJ: TransAtlantic Petroleum has E&P operations and holds interests in 12.6 million gross acres split between Turkey, Romania, and Morocco. However, your core focus and investment lie in Turkey. What potential does Turkey offer TransAtlantic, its shareholders and potential investors? MITCHELL: The upside potential in Turkey is enormous. Modern 3D seismic, re-entry into shallow wells, fracture stimulation possibilities, and the near-term

A successful pump of the first modern fracture stimulation in Turkey on the Kepirtepe-1 well in the Thrace Basin in October 2010.

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potential for horizontal drilling all provide opportunities to significantly increase production, grow reserves, and generate cash-flow. In fact, Don, the majority of the wells that have been drilled in Turkey have never even been exposed to fracture stimulation. And unlike other operators that don’t have access to the equipment required to fracture stimulate these wells, TransAtlantic Petroleum does. Our fracture stimulation equipment just arrived in Turkey this past October. While it is true that the majority of our efforts remain with conventional and re-entry projects, we have near-term plans to explore for unconventional natural gas in the Thrace Basin. We will also continue to seek strategic acquisitions that add to our footprint and drilling inventory in Turkey.

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valuable rigs and service equipment have been acquired to assist us in our drilling, completion and 3D seismic efforts in Turkey. Last, the acquisitions have increased our acreage footprint opening up large, multi-year drilling inventories across our vast acreage in Turkey. OGFJ: Tell us about your exploration joint venture with TPAO, the Turkish National Oil Company. Will you be evaluating and developing unconventional fields?

MITCHELL: Yes. The partnership with TPAO will focus on unconventional projects in two onshore blocks – 3791 and 3165 where we will re-enter four old TPAO wells, as well as begin drilling four new wells on the two blocks. These wells will target tight sand and shale forOGFJ: The Thrace Basin in Turkey is the country’s mations that do not produce under normal conditions. largest producing gas province providing opportuniOur access to oilfield services equipment, combined ties for both conventional and unconventional gas with the partnerships’ joint exploration expertise, will exploration. Tell us allow us to exploit Yilmaz SAKALLIOGLU, geophysical coordinaa little about your and develop additor, on location for a seismic shoot at its Edrecently announced tional natural gas irne project on License 4350 in Central Turkey. acquisitions and how production that will they add to your be used in Turkey. growth efforts. TransAtlantic has a 30% interest in MITCHELL: Acquisithe Thrace Basin tions are a key growth and a 40% intercomponent at Transest in southeastern Atlantic Petroleum. Turkey. Just last month, we In October announced the potential 2010, we successacquisition of Thrace fully pumped the Basin Natural Gas for first modern single $100.0 million in cash fracture stimulation and 18.5 million of our with TPAO on the common shares. Upon Kepirtepe-1 verticlosing, the acquisical well on License tion would add 600,000 net onshore acres and 25.0 3791 in the Thrace Basin and recorded IP rates of 4.0 MMcf/d to our current Thrace Basin natural gas proMMcfe/d with a small water cut. We expect to complete duction of 10.0 MMcf/d. We would acquire 35% of the the vertical well by year-end and will continue to test acreage and production for the stock. Private investors additional old wells with non-developed gas flows in the would acquire 65% of the production and acreage for area. the cash. In addition, our company will acquire 100% of TBNG’s oil field service equipment and five additional OGFJ: Are you working on any other partnerships rigs. or joint ventures? In October, we closed on our Zorlu acquisition in which we purchased between 50% to 100% working MITCHELL: Yes. We have several large tertiary basins interests on 18 exploration licenses and one production where we own 100% where we are now seeking partners. lease from Zorlu Petrogas and Amity Oil and Gas. In In these plays we prefer to hold closer to a 50% working total, our company received nearly 1.0 million net acres interest. That approach worked very well for us and our in the Thrace basin and 730,000 gross and net acres in partners in West Texas. Central Turkey. To put it simply, our recent acquisitions have really OGFJ: What is it like working in Turkey? Does the done three things for our company. One, we have been government want to help companies develop their able to add producing assets to our portfolio. Second, natural resources or do they put up roadblocks?

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MITCHELL: In my view, the Turkish government gets bad press in the West. We have found them very prodevelopment and progressive. Some of the laws and procedures are different than we have in the US, but it just takes a little time to learn them. We have found access to the energy minister and other government officials to be very easy, and those folks are really interested in changing a situation where they are only producing 3% to 5% of their energy needs. OGFJ: Local natural gas prices are nearly $8.00 per Mcf. What will you do with the gas produced in the Thrace Basin, which is closer to European markets? Will you export some of it, or is it all for domestic consumption in Turkey? MATT MCCANN: Turkey imports more than 95% of its gas consumption – more than 3 bcf per day. So any gas produced in the Thrace Basin is going to be used domestically. Several large gas pipelines that come in from Bulgaria run right through our acreage and continue to Istanbul and elsewhere in Turkey. However, we’re free to market the gas anywhere we like. Turkey is in the process of privatizing its LDCs (local distribution companies). The main gas grid is government owned, but it’s open

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access. And it’s got, by US standards, very low transportation rates. You have a very dynamic bid process, and you can actually take your gas out of the country if you wanted to, but since there is such a large demand inside the country, we don’t really see this as a factor. OGFJ: The arrival of the company’s fracture stimulation equipment has the potential to unlock significant unconventional as well as horizontal drilling targets in the Thrace Basin. How does owning your own service equipment benefit your unconventional operations? MITCHELL: It’s absolutely essential. As mentioned previously, efficient access to oilfield services in Turkey is difficult. Many of the services simply don’t exist, or if they do, they are prohibitively expensive. We are using our own oilfield services equipment to complement our E&P initiatives. We are re-entering wells that have lain dormant for decades. We’re fracture stimulating existing wells to enhance production. And we’re using our 3D seismic services to identify basins that are conducive to hydrocarbon accumulation. Our seismic equipment not only helps us to identify new and potential prospects, but it also helps our E&P division to drive down costs and operate more efficiently.

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We have utilized 3D seismic in nearly all of our field prospects in Turkey, Romania, and Morocco. Our company has shown its ability to acquire seismic very quickly and efficiently. A few months ago, we shot almost 100 km2 in nearly three months at our exploration prospect in the Malatya Basin, Turkey. OGFJ: Your company also has oil development operations in Southeast Turkey. Can you tell us a little about the oil potential in Turkey and how TransAtlantic is growing its oil assets?

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MITCHELL: The Dadas shale is an exciting shale oil play in Southeast Turkey that covers an area about the size of the Barnett Shale in Texas. It is Silurian age and the equivalent of the Woodford or Marcellus here in the states. It sits on top of the Bedinan sandstone that we have been producing oil from on our Paleozoic trend acreage. Surrounded by our producing Arpatepe oil assets, the area looks prone to formations that could be very conducive to fracture stimulation jobs. Recent core samples taken from wells in the area show the Dadas is very rich organic shale which we plan to test with our Goksu-1 well. This prospect creates an additional catalyst for gas and oil production potential that our modern fracture stimulation equipment can potentially unlock.

MITCHELL: The majority of the southeastern area is predominantly oil, whereas the majority in the Thrace Basin, which is on the north and west side of the country, is mainly gas. We have active seismic crews and active rigs OGFJ: In addition to your prospects in Turkey, can running in both areas. We also have quite a bit of acreage you describe what you’re doing currently in Romania scattered out through a number of other basins that are and Morocco? much more under-explored and where there has not been MITCHELL: In Romania, significant past production. we – along with Sterling The exploitation techResources – have one of niques we’re using are the more prospective shale driving production rates and blocks. We’ve got 1.4 million leading to increased rates contiguous acres in the Siluof return. For example, we rian Shale, which is like the recently performed an acid Woodford Shale in the US. job on one of our Arpatepe There’s a lot of opportunity. wells in Southeast Turkey. People talk a lot about EuroThe first acidized well was pean shale prospects, but I producing at 30 bo/d before can tell you that without the our re-entry. After completfrac equipment and without ing the acid pumping job, horizontal drilling equipthe Arpatepe well came ment, all it’s going to be is online at 500 bo/d. To date, talk. We’ve actually built the the well is producing about equipment and hired people, 300 bo/d. Again, 3D is playso we are farther along than ing an important role in field most. It’s kind of early – development as we are 85% we’ve just started pumping complete with a 270 km2 our first fracs – but there 3D seismic shoot covering are shales and tight sands. A view from the drilling rig derrick on Rig I-9, located in the Arpatepe Field in the Everything we have here in Southeast Turkey. Paleozoic trend where we are the States, you have over targeting the Bedinan sandstone. there. Our Viking Drilling group is bringing in rigs that The Selmo Oil Field, to the northwest of the Paleozoic are capable of drilling horizontal wells, and this will begin trend, provides locations where we can perform acidizing in December. We intend to pad-develop a lot of these jobs as well as grow our operations with the drill bit. We fields, and there are a number of reservoirs that appear to recently added a second drilling rig with which we hope to be good horizontal candidates. drill 16 wells by year-end 2010. Our Selmo Oil Field is currently producing more than 2,000 bo/d from 35 wells. OGFJ: Will you be doing horizontal drilling in Turkey as well? OGFJ: In addition to unconventional opportunities in the Thrace Basin, TransAtlantic is exploring the MITCHELL: Really in all three countries – Turkey, Dadas Shale in Southeast Turkey. Please provide us an Romania, and Morocco. We’ve not had much success update on what you are seeing in the area and what in Morocco until just recently, and we still don’t know potential may lie in the Dadas Shale. enough about how significant that is or isn’t. We still have

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to determine our long-term plans there. But Romania has a world-class petroleum system and the Romanians have been producing oil and creating new technologies for extracting oil for a long time. We like our prospects there. OGFJ: Can you talk a little about the impact of well stimulation? MITCHELL: The Thrace Basin has been the focus of our early stimulation. There you have a number of main horizons that exist in the basin where you start encountering gas as shallow as 1,000 feet and go all the way down through 18,000 feet. It’s not unusual to have as much as 5,000 feet of apparent pay. There are giant rich shales and sand sequences. Our efforts to date are to understand how to pump the right stimulations, get the fluid right, and understand pad sizes and geometry. This year we’re going in and generally pumping single-stage jobs in each of the main formations. We’re evaluating how those wells do and gaining an understanding what’s going on with the belief that by next year we’ll be pumping 6 to 10 to 15 fracs back to back at these same wells, very similar to what we are doing in the States. You have to understand that many of these structures only have one or two wells that were drilled as long as 50 or 60 years ago by Texaco or Huffco. So you know where the gas is. You know what your down-

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hole pressure is. You know what your gas quality is. And you know what your unstimulated flow rates are. We just have to go to where the gas has already been found and figure out how you take a well that’s capable of making 200,000 or 600,000 or 900,000 unstimulated and get the right frac recipe and the right frac jobs to take that up to much bigger levels. As obvious as this is to all of us, if you go somewhere where this technology has not been applied, it opens up tremendous opportunities for you. OGFJ: Are there any final comments you would like to make? MITCHELL: Our team will diligently continue to implement our key corporate strategy which is to implement the old lessons we have collectively learned in the past and apply those to our expansion efforts with TransAtlantic in Turkey, Morocco, and Romania. Investors should remain steadfast in evaluating the company’s ability to capitalize and execute on its drilling programs, acquisition opportunities and growing our service business. Tremendous oil and natural gas upside potential lies in Turkey, and TransAtlantic is focused on conventionally and unconventionally exploiting those resources. OGFJ: Thanks very much for your time. OGFJ

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Studies show further guidance needed on revised oil and gas disclosure rules Marc Folladori, Mayer Brown LLP, Houston Jeff Dobbs, Mayer Brown LLP, Houston

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The completion of the first round of reporting under the new rules in 2010 provides an opportunity to examine how companies applied the rules and analyze whether their application was congruent with the SEC’s expectations. The initial returns were not favorable, at least in the SEC’s eyes. In April 2010, H. Roger Schwall, assistant director in the SEC’s division of corporation finance, stated at a financial reporting session of the United Nations Economic Commission for Europe in Geneva that the SEC wanted more detail in year-end petroleum reserves disclosures and that it may issue additional guidance in 2010. Under the new disclosure rules regarding the use of reliable technology to determine “proved undeveloped reserves” (PUDs), some companies were able to increase the amount of PUDs booked, especially companies

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n late December of 2008, the Securities and Exchange Commission (SEC) modified the oil and gas disclosure rules for the first time in three decades. Given their greater similarity to industry standards than under the old rules, the changes were initially heralded as modernizing and liberating, but questions quickly began to develop regarding the lack of clarity for some critical provisions. The SEC’s Division of Corporation Finance issued Compliance & Disclosure Interpretations (CDI) in October 2009 in an attempt to clarify the new rules and address the industry’s questions and concerns. For details of the modified disclosure rules, please reference the Mayer Brown article dated Mar. 2, 2009 (http://www.mayerbrown.com/publications/article. asp?id=6212&nid=6). _______________

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Today, Tomorrow and Beyond… One Unique Approach and One Simple Solution OpenLink supports virtually all energy and commodity asset classes including cross-market structured/hybrid products, crude oil, refined products, natural gas, gas liquids, electricity, coal, weather derivatives, emissions, base and precious metals, agricultural products, biofuels and chemicals. Experience the OpenLink difference:                                         

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having large reserves of shale gas. The new five-year limitation rule forced other companies to remove PUDs that had been previously booked as PUDs. Generally, the change in pricing assumptions to 12-month average prices and the significantly depressed oil and natural gas prices early in 2009 negatively impacted the economic calculations for determining reserves. A survey conducted by Ryder Scott found that less than 2% of public companies in US markets booked material reserves additions for year-end 2009 based on the use of “reliable technology” as defined by the SEC. Of the 111 surveyed 10-K filers, 20 companies provided statements on the impact of technology on the estimation of their proved reserves as of Dec. 31, 2009. Of those 20, 15 companies, without disclosing magnitudes, stated that reliable technology had no or minimal effects. Three companies reported 2% or less increases in proved reserves. Two filers disclosed material proved reserves additions. Mayer Brown examined the annual reports on Form 10-K of 25 public oil and gas companies in a nonscientific sampling to gain a general understanding of how these companies were affected by the rules and how the rules were interpreted and implemented. Mayer

of oil and 1,115,334 MMcf of natural gas resulting from the application of reliable technologies in determining reserves. The company stated that the calculations of new PUDs were based on analogy to producing wells within the same area exhibiting similar geologic and reservoir characteristics, combined with volumetric methods. The volumetric estimates were based on geologic maps and rock and fluid properties derived from well logs, core data, pressure measurements, and fluid samples. Proved undeveloped locations were limited to areas of uniformly high-quality reservoir properties between existing commercial producers. EOG Resources Inc. increased PUDs by about 135% from 2008 to 2009 but did not disclose how much of the increase was based on the use of reliable technology. The company did provide an explanation of the technology used to calculate PUDs, which suggests that some portion of the increase was related to the use of reliable technology. EOG reported that studies were conducted employing numerous data elements and analysis techniques, including a combination of seismic data and interpretation, as well as comprehensive sets of wireline logs and/or core data and transient analysis techniques applied to pressure and production data from existing producing wells. The company found these studies to be proven effective based on application in analogous reservoirs. “A survey conducted by Ryder Scott found that Chesapeake Energy Corp. reported about a 50% less than 2% of public companies in US markets increase in PUDs from 2008 to 2009, which was parbooked material reserves additions for year-end tially attributable to the company’s use of reliable tech2009 based on the use of “reliable technology” nologies, and reported that it had utilized both public as defined by the SEC… Mayer Brown’s examiand proprietary data in its calculations. The technologies nation yielded similar results.” included seismic data and interpretations, open hole log information, and petrophysical analysis of the log data, mud logs, gas sample analysis, drill cutting samples, Brown’s examination yielded results similar to the Ryder measurements of total organic content, thermal matuScott survey in finding that only a minority of companies rity, sidewall cores, whole cores and data measured from increased PUDs in 2009 based on the use of reliable internal core analysis facilities. The analysis required data technology. from a statistically significant number of producing wells within the defined geologic area. This data was then Reliable technology tested for confidence by insuring that the variance in Used to calculate PUDs results over time, area and distance was evaluated. The implementation of the new rules ushered in new Pioneer Natural Resource Co. disclosed that it disclosures of methods used to calculate PUDs. Comrecorded four proved undeveloped locations and 2 panies are no longer restricted to the use of actual MMboe of PUDs in the United States that would not production or flow tests, but instead can prove reserves have been recorded under the old rules. The company through the use of “reliable technology.” The SEC was used reliable technologies to establish additions to its intentionally vague when defining reliable technology as reserve estimates, including a combination of seismic technology that has been field tested and demonstrated data and interpretation, wireline formation tests, geoto provide “reasonably certain” results with consistency physical logs and core data. and repeatability. Defining reliable technology in this The increases in PUDs discussed above contrast with manner allows companies the opportunity to develop some larger-cap reporting companies. BP plc, Anadarko new methods for determining reserves or to use existing Petroleum Corp. and Royal Dutch Shell plc all reported proprietary methods. increases of approximately 1% or less of proved reserves Petrohawk Energy Corp. reported an approximate based on reliable technology. 200% increase over the previous year’s total reported Overall, approximately one-third of the companies PUDs, including additional PUDs totaling 1,771 Mbbls examined disclosed that they had utilized reliable tech-

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www.ogfj.com • Oil & Gas Financial Journal December 2010

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nologies under the new rules to increase PUDs. Of the companies surveyed that disclosed that they had utilized reliable technologies under the new rules, the average increase was approximately 16%, which led to an aggregate average increase of approximately 9.4% for total PUDs examined. Used to prove development spacing locations more than one development spacing location away from economic producers The SEC also adopted revisions that permit a company to claim proved reserves beyond those development spacing locations that are immediately adjacent to developed spacing locations if the company can establish with reasonable certainty that these reserves are economically producible. Several companies reported PUD increases within such spacing locations by calculating the PUDs using reliable technology. Bill Barrett Corp. added 170.0 bcfe of PUDs in the Gibson Gulch area of the Piceance Basin at Dec. 31, 2009, of which 86.3 bcfe was attributed to the addition of second offsetting spacing locations from economic producers. The company reported that its decision to report increased reserves was supported by geologic, engineering and economic data in addition to well productivity across the area and the basin. Chesapeake Energy stated that it utilized and developed reliable geologic and engineering technology to book PUD reserves more than one location offsetting production locations in the Barnett Shale and Fayetteville Shale without disclosing the specific technology employed. CNX Gas Corp. disclosed that “[e]xtensions and discoveries also include 120,933 MMcfe [approximately 13.9% of PUDs as of Dec. 31, 2009] as a result of initially applying the amendments of [accounting guidance on mineral rights conveyances and related transactions] related to capturing proved undeveloped locations more than one location away if reliable technology can be demonstrated.” However, the company did not describe in detail the reliable technology it utilized. Greater detail required by SEC in reporting use of reliable technology A challenge facing companies and the SEC in the reporting of reliable technologies utilized concerns the disclosure of proprietary and confidential technological information of companies. While the SEC allows companies to utilize proprietary methods, and companies may be eager to do so, they are reluctant to report those technologies in public documents. This reluctance creates a predicament for the SEC because one impetus in developing the new rules was to allow companies to use their technological developments to determine reserves. However, full and complete financial reporting disclosures require an understanding of the technology employed to calculate the reported reserves.

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Generally, the companies examined by Mayer Brown simply listed different technologies without discussing how those technologies were utilized for each area or how they were used in the calculations. The SEC has not indicated whether this type of reporting requires more detail or whether the need for greater detail is in response to reporting similar to that of Northern Oil & Gas Inc., which disclosed that, as of Dec. 31, 2009, about 60% of its total reported reserves calculated in accordance with the SEC pricing assumptions were PUDs. The company did not discuss the calculation procedures for deriving those figures, the length of time the PUDs had been booked or the use of reliable technology. Further guidance is necessary to determine whether this type of disclosure is sufficient for the SEC’s purposes.

Five-year rule Effects of the new rule The new disclosure rules restrict the reserves that a company can classify as PUDs. In order for reserves to be booked as PUDs, an undrilled location must have a development plan adopted and it must be scheduled to be drilled within five years of the date booked. The application of the new rule resulted in a decrease of 2.7% in total PUDs reported of the companies examined. Abraxas Petroleum Corp. reclassified 4,954 Mboe (about 44.8% of its 11,052 Mboe of PUDs as of Dec. 31, 2009) to the probable and possible categories as a result of the reserves having been included as PUDs for more than five years. Pioneer Natural Resource Co. disclosed that as of Dec. 31, 2009, the company had 4,582 proved undeveloped well locations (all of which were expected to be developed within the five years ended December 31, 2014), representing a decrease of 395 proved undeveloped locations (8%) since December 31, 2008. The company disclosed that its 4,582 proved undeveloped locations as of December 31, 2009 included 1,675 locations that had remained undeveloped for five years or more, but did not explain why these 1,675 locations continued to be included. The new rule did not affect all companies as severely. Bill Barrett Corp. removed only 7 bcfe in total PUDs reported (1.4% of its 484.6 bcfe of PUDs as of December 31, 2009) for exceeding the five-year limit. Noble Energy Inc. removed 18 MMboe in total PUDs reported (6.7% of its 270 MMboe of PUDs as of December 31, 2009) that were not scheduled to be developed within five years. Overall, approximately one-third of the companies examined reported removing PUDs based on the fiveyear rule. While only a low percentage of companies examined were affected, on average, companies that removed PUDs based on the five-year rule removed about 14.1% of their PUDs formerly booked.

www.ogfj.com • Oil & Gas Financial Journal December 2010

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WHERE INSIGHT MEETS ENERGY

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Exception to the rule The rules contain an exception to the five-year rule if “special circumstances” justify a longer interval before development will be initiated. The SEC has identified several “special circumstances,” including developments involving construction of offshore platforms and development in urban areas, remote locations or environmentally sensitive locations. The CDI states that classifying a location as having PUDs where the location’s development is scheduled to extend more than five years in the future should be the exception, not the rule. The CDI gives some guidance on the factors a registrant should consider before classifying a reserve as a PUD beyond the five-year rule. Such factors include: • the company’s history of completing development of comparable long-term projects; • the company’s level of ongoing significant development activities in the area to be developed; • the amount of time in which the company has booked the reserves without significant development activities; • the extent to which the company has followed a previously adopted development plan; and • the extent to which delays in development are caused by external factors related to the physical operating environment (e.g., land use restrictions), rather than by the company’s internal factors (e.g., developing properties having higher priority). Several companies reported PUDs with development periods exceeding five years. Of the 6,604 Mboe of PUDs disclosed by Energy Partners Ltd. as of Dec. 31, 2009, 4,178 Mboe (63.3%) had been booked for longer than five years. The company explained that its PUDs “were associated with infill exploitation reserves in proven reservoirs which generally are up-dip reserves and/or reserves where the existing wellbore is not mechanically viable, requiring a new or replacement wellbore to enable production.” The company estimates that these PUDs will be classified as proved developed within five years. The company noted in a risk factor that the SEC has released only limited interpretive guidance regarding the reporting of reserve estimates under the new rules, and that while the company’s estimates of proved reserves at Dec. 31, 2009 were prepared based on what it believed to be reasonable interpretations of the new SEC rules, those estimates could differ materially from any estimates applying more specific SEC interpretive guidance. Anadarko Petroleum also reported a substantial portion of PUDs booked beyond five years. The company reported 680 MMboe of PUDs, of which 136 MMboe (20.0%) had been booked prior to 2005. The company stated that 54% of the PUDs booked prior to 2005 are in Algeria and being developed according to an Algerian governmentapproved plan. Another 20% of the pre-2005 PUDs are associated with various phases of the Salt Creek enhanced oil recovery phased development program in the company’s Rocky Mountain properties located in Colorado,

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Utah, and Wyoming, where the company has invested $20 to $145 million per year to develop six different Salt Creek phase areas. Another 8% of the pre-2005 PUDs are associated with Gulf of Mexico sidetrack opportunities where platform well slots were not available as of the reporting date. The remaining PUDs booked prior to 2005 are scheduled for conversion by 2015. Several companies kept PUDs related to mining operations recorded even though they exceeded the fiveyear rule. Cabot Oil & Gas Corp. kept 14,029 MMcfe (approximately 1.9% of PUDs as of Dec. 31, 2009) booked that had not yet been developed based on coal mining operations. CNX Gas Corp. included in its PUDs calculation approximately 120,000 MMcfe (approximately 13.8% of its PUDs as of Dec. 31, 2009) that have been reported for more than five years that relate specifically to CONSOL Energy’s Buchanan Mine. The reserves will be developed in order to de-gas the mine ahead of longwall mining. Currently, the SEC has not provided any guidance regarding exceptions for PUDs related to mining operations. Some of the companies examined did not specifically disclose the amount of PUDs booked that exceeded the five-year rule. Harvest Natural Resources Inc., in discussing its subsidiary Petrodelta’s PUDs, stated that “all PUD locations are scheduled to be drilled by 2014. However, there are some PUD locations [amount not disclosed] that are scheduled to be drilled in the sixth year after the PUD locations were first identified.” The company stated that it had a proven track record of developing its PUDs and that the delay could be accounted for by special circumstances related to production targets and quotas set by the Venezuelan government and the Organization of the Petroleum Exporting Countries and difficulty in retaining contractors. Pioneer Natural Resource Co. stated that 36.6% of its PUD well locations have remained undeveloped for five years or more; however, the company did not specifically disclose what percentage of total PUD reserves reported are contained in those well locations. The company also did not explain why the reserves were being reported beyond the five-year rule. For surveyed companies reporting PUDs beyond the five-year rule, on average the PUDs exceeding the rule accounted for approximately 20.9% of a company’s total PUDs. In the aggregate, PUDs exceeding the five-year rule accounted for approximately 4.4% of all PUDs reported by the companies examined. With the staff’s emphasis that PUDs allowed to exceed the five-year rule should be the exception rather than the rule, it is unclear whether this 4.4% of the total reported amount will surpass the staff’s expectations for permitted exceptions.

Average pricing The new rule affecting the largest percentage of companies examined is the change in calculating reserves using a 12-month first-day average price as opposed to the

www.ogfj.com • Oil & Gas Financial Journal December 2010

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traditional end-of-the-year spot price. Of the companies examined, 60% reported being affected by the change. If traditional year-end prices were used, 2009 calculations would be based on $75.75 per barrel of oil and $5.79 per MMbtu of natural gas for the Henry Hub spot price, versus the $57.65 per barrel and $3.87 per MMbtu that were based on the 12-month first-day average prices. Due to the prevailing lower natural gas prices during most of 2009, and the low prices for crude oil in early 2009, all of the companies examined except two were negatively affected by the change. Even though more surveyed companies were affected by this rule change than any other, PUDs only decreased on average by approximately 4.0% for the surveyed companies affected by the rule change, compared to an average decrease of approximately 2.3% for all of the companies surveyed. The percentage related to the average decrease by companies affected by this rule change was skewed by a single company, Tengasco Inc. In 2008, Tengasco’s oil price used for valuation was $33.96 per barrel, low enough to cause the company to remove all previously booked PUDs. The change to average pricing in 2009 raised its oil price used for valuation to $53.81 per barrel, allowing the rebooking of all PUDs removed in 2008. Excluding Tengasco’s figures, the average decrease for companies affected by the rule change was 11.2% of PUDs booked.

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Conclusion As with most regulation changes, it will take time for companies and the SEC staff to reach a common understanding on how these changes in the reserves disclosure rules will operate. This process may be shortened if the SEC can provide specific guidance before the next reporting period. Since more guidance is necessary, companies should provide full and complete disclosure when reporting PUDs calculated by using reliable technology or PUDs exceeding the five-year rule and explain the factors used in making their determinations. OGFJ About the author Marc Folladori has over 35 years’ experience assisting corporate clients. His practice focuses on mergers and acquisitions and corporate and securities matters. He has been a corporate and securities attorney in Texas since 1974 and has extensive experience representing energy companies and firms engaged in energy investment and finance. Folladori serves as outside corporate counsel for a number of publiclyheld corporations and also provides US counsel to foreign companies doing business in the US.

OGFJ.com launches new Unconventional Resources Center

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AN INTERVIEW WITH SEAN BOLAND,VICE CHAIRMAN OF THE HOWREY LAW FIRM

Antitrust lawyer dissects recent mergers, shares concerns on costly review process Editor’s note: Sean Boland is vice chairman of the Howrey law firm in Washington, DC and co-chair of the firm’s antitrust practice, the largest private antitrust practice in the world. Boland recently spoke with OGFJ Editor Don Stowers about industry mergers and the current regulatory climate in Washington.

OIL & GAS FINANCIAL JOURNAL: Sean, you’ve been involved in numerous mergers and acquisitions in the oilfield services sector over the past 30 years. This past year, you have won antitrust clearance for several of the industry’s marquee mergers – Schlumberger and Smith International, Baker Hughes with BJ Services, and Cameron with the Natco Group. Can you explain to our readers how these mergers were good for all the companies involved, their stockholders, and their customers? SEAN BOLAND: Each one is a little different as far as

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motivation is concerned. Let me start with the smallest one first, the Cameron-Natco merger. Natco makes various types of processing equipment that are used to separate oil, gas, and water. Cameron was in that business, and Natco was a competitor, but Natco had a little different bent. Natco is a manufacturer, whereas Cameron outsourced a lot of its manufacturing. So as Cameron was expanding its product line, it also wanted to become more of a manufacturer. In some countries of the world, such as Brazil, it is crucial that companies that want to do business there have local manufacturing facilities. Having this ability was crucial to a company like Cameron that wanted to sell its products to Petrobras. This is a huge developing market for Cameron. So by buying Natco, which has a wonderful reputation as a manufacturer of products, Cameron was able to meet this requirement by Petrobras and similar requirements by countries like Mexico. Very, very important to them. So that was a main driver for the Cameron-Natco deal – extending the products offered

www.ogfj.com • Oil & Gas Financial Journal December 2010

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into new areas and gaining the ability to manufacture the products that they were already designing and engineering, but not manufacturing. Was this good for everybody? Yes, I think so. Natco was a smaller company than Cameron. They didn’t have the reach or the geographic scope that Cameron had. Now Cameron is going to be able to take Natco into areas of the world where they weren’t competing. There will be economies of scale and efficiencies from that deal, and just extra teeth. They are going to be able to tackle much larger products together than either of them could have done separately. OGFJ: And the Baker Hughes and Schlumberger deals? BOLAND: Baker Hughes and BJ Services is easy to explain. Baker Hughes’ major competitors – Schlumberger and Halliburton – are major pressure pumping companies. This is a critical service for an international oil service company to offer and was a hole in Baker’s portfolio and becoming bigger as shale plays and similar formations have become a larger part of E&P activity in North America and elsewhere. They weren’t able to participate at all in that area. It’s a marriage made in heaven and I think is going to be an excellent acquisition for them.

“I believe in antitrust enforcement. You can have a market where the concentration is too high and the entry barriers too great. In this situation, the few participants could use their market power to increase prices and diminish consumer welfare.”

Schlumberger was driven by a couple of things. It had sold its bit business to Grant Prideco and then Grant Prideco sold itself to National Oilwell Varco. I think Schlumberger probably regretted that they did that. One of the reasons they pursued the merger with Smith International is that they wanted to be able to develop integrated downhole assemblies so that they’d have the drill bits, the motors, the LWD, the MWD – all those things that are at the bottom of the drill string. They’d have all the pieces and they’d be able to develop integrated, more efficient drilling products. They had sold off their drill bits and they really needed them back. Smith also had the joint venture with Schlumberger – M-I SWACO. You know, the mud business used to be a “dumb” business but it’s now fairly sophisticated. Some people think that the Deepwater Horizon disaster was because of the failure to keep the mud in the hole and keep the pressure on hold. Obviously mud is a very, very important product for a lot of different reasons. M-I SWACO is a very strong player in the mud industry, so that was attractive to Schlumberger also. And then Smith had also developed through its WH acquisition that they did a few years ago a very attractive,

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lower cost directional drilling company that would allow Schlumberger to offer a high-end product through the Schlumberger brand and a lower-end product through the WH brand. These were the primary reasons driving that deal. OGFJ: What was the position of the customers on these deals? BOLAND: I don’t think there was a lot of customer opposition to any of the deals. I think the companies got out there and stated their positions, which were very coherent. Obviously they have very sophisticated customers who understood these positions and could judge whether or not this would create a problem for them. They basically saw these as good deals for them as well. OGFJ: And how did the market respond to the deals? BOLAND: It’s hard to tell because the market has been all over the place. The stock market response probably had nothing to do with the mergers per se, but all three deals made economic sense. What may have surprised people somewhat is the premium Schlumberger paid for Smith. It was a much larger premium than, say, Baker Hughes paid for BJ just four months earlier. But, Schlumberger considered this a critical acquisition and they had no way to acquire what they wanted to acquire other than to buy Smith. Baker Hughes was in a similar position. If they wanted to get into pressure pumping, there was really only one company left and that was BJ. We had done the Western Company-BJ deal back in the late ‘90s, and so that industry had basically consolidated into three players. Halliburton owned one; Schlumberger owned another; and BJ was the only opportunity for Baker Hughes. OGFJ: In your view, what is the public’s interest in mergers and acquisitions? And what is the proper role of the government? BOLAND: It’s really defined in economics. What you’re trying to do is improve consumer welfare, or at least ensure that consumer welfare isn’t injured. Although we don’t want to hurt the free market, it is sometimes necessary for the government to block deals that would result in an increase in price or a reduced supply of an important product or service. So what you’re really trying to measure is whether or not these firms, when they combine in a particular market or area of competition, have enough power either individually or with their competitors in the industry to raise prices and harm consumer welfare through that price hike. The statutes that govern this area – the Sherman Act and the Clayton Act and the FTC Act – don’t spell this out, but the case law that’s been developed over the last 100 years or so does spell it out fairly clearly. So the agencies know what they’re looking for when they analyze a merger, which is to protect consumer welfare.

www.ogfj.com • Oil & Gas Financial Journal December 2010

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OGFJ: How politicized are these agencies? Does enforcement of the antitrust laws vary much from administration to administration, from one party to another? Are the Republican appointees too lax and the Democrats over-zealous?

OGFJ: Quite a few companies involved in mergers are international. In the oil service business, several of the largest companies say that 70%, 80%, or even more of their business is outside the US. Does this add to the complexity of closing a deal?

BOLAND: The conventional wisdom prior to the Obama administration has always been that Republicans are very tough on antitrust laws. They can’t look like they are favoring big business. They believe in free markets and competition, and if somebody is getting too big and hurting competition, then antitrust enforcement in that area is consistent with what Republicans believe in. The CW is that Democrats talk tougher [about enforcement of antitrust laws] than Republicans, but they act about the same. This is generally true going back many, many years. In fact, when it comes to regulation and enforcement, you may remember that it was Richard Nixon, a Republican, who developed the Environmental Protection Agency. And I think he felt he felt that was the right thing to do. Similarly, Republicans have been very tough on anti-trust enforcement. However, the Obama administration came in and said some very aggressive things about what they were going

BOLAND: Let me give you an example. In the Schlumberger-Smith transaction, we made merger filings in about 20 countries. It does add to the complexity. You have to worry about one country that might hold up the entire transaction. You can usually prevent that by planning well on the front end of the deal. But sometimes what you end up doing is closing around that particular country, assuming you’re allowed to do that. In other words, you merge the parent companies but you don’t merge the two subsidiaries until they’ve finished their investigation. But there is always the risk that an agency in the US is going to do one thing and an agency in, say, Europe, will do something else.

“One of the questions they’re asking is, ‘Would these companies be too big to fail if they merge?’ I’m not sure what this has to do with antitrust, but they’re asking those questions. They’re also asking questions that relate to environmental law, so this isn’t just about antitrust anymore.” to do. In fact, President Obama himself said that the Bush administration had what might be the weakest record of antitrust enforcement of any administration in the last half century. Obama said his administration would be much tougher than Bush’s in enforcing antitrust laws, and it has been. However, economic activity is way down, so you have to take this into account when you are looking at what they’ve done. In the merger area, a “Second Request” is a “phase two” investigation. It means you get a very close look, and it means you’re going to be spending millions of dollars in producing documents and witnesses and databases. If you adjust for the number of merger filings, which is way down because of the economy, Second Requests are actually up 86% under Obama. That’s huge. They’re issuing twice as many Second Requests on a comparable number of mergers than the Bush administration. One of the questions they’re asking is, “Would these companies be ‘too big to fail’ if they merge?” I’m not sure what this has to do with antitrust, but they’re asking those questions. They’re also asking questions that relate to environmental law, so this isn’t just about antitrust anymore.

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OGFJ: A few months back, Chesapeake signed a JV agreement with the Chinese oil company CNOOC in the Eagle Ford Shale play in South Texas. Given the breadth and depth of your experience with deals of this type, do you think there will be political fallout over this simply because one of the JV participants is a Chinese company rather than, say, a British or French company? BOLAND: In any deal involving a sovereign foreign country, there will be a review to look into any possible national security implications. There are always concerns that a foreign power may want to take over a company or purchase influence. However, I can’t imagine that the Chesapeake deal, which is valued at less than $4 billion, won’t go through. This amount is pretty much a drop in the bucket when it comes to natural resources. Since it is going through review, there will be political implications. OGFJ: Are antitrust laws effective in fostering competition in the marketplace? BOLAND: I think you’ve got to have them. I believe in antitrust enforcement. You can have a market where the concentration is too high and the entry barriers too great. In this situation, the few participants could use their market power to increase prices and diminish consumer welfare. The problem is that sometimes the government wants to increase antitrust enforcement regardless of whether they have the right deal in front of them or not. That’s the problem. Even for transactions that get through, look at the millions of dollars in costs that are imposed on companies through these Second Requests and so forth. They delay the deal, tax it to death, and maybe even prevent it from being born. As a consequence, some companies are saying they don’t want to go through this whole process, and that’s unfortunate. So chilling economic activity is the biggest concern I have with the way antitrust laws are being applied today. OGFJ

www.ogfj.com • Oil & Gas Financial Journal December 2010

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Managing risk and uncertainty provides competitive advantage Scott W. Randall, Boots & Coots, Houston

T

he current preoccupation with deepwater development risks and uncertainties has an interesting parallel to the global preoccupation with emerging risks in the broader world economy. In fact, the parallels are so strong that we could consider deepwater risks as a subset of emerging risks faced by companies and governments across the globe. This article is aimed toward a petroleum industry audience, and I will draw primarily on upstream oil and gas examples. But, in addition to lessons learned for deepwater developments, we will also show how very similar our situation is to that of our risk counterparts in other industries. To do so, a recent study on emerging risks sponsored by the Financial Times, is worth summarizing. In January of this year, the Financial Times, in collaboration with the consultancy Oliver Wyman, conducted a global, multi-industry survey of 650 executives in the energy, financial, manufacturing, life science, technology, and transportation industries called “Global

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Emerging Risks Survey, Steering the Course, Seizing the Opportunity.” These emerging risks were defined as not only “new” risks, but those familiar risks in new or unfamiliar conditions. Arguably, today, deepwater risks for oil and gas exploration and production are emerging risks under this definition. In fact, because nearly 40 of the respondents to the study were from the oil and gas industry, E&P risks actually contributed to the study results.

Conclusions from Global Emerging Risks Survey The conclusions from the Financial Times study that seem to best parallel those of the upstream oil and gas industry are: Many companies are going through the motions, but their risk management systems are not very effective. • The largest portion of respondents (more than onethird) consider their biggest challenge is aligning risk

www.ogfj.com • Oil & Gas Financial Journal December 2010

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Fig. 1: Typical oil and gas company project delivery process over life cycle of well data to strategies and operations. • 62% of senior executives surveyed Decision Gate 1 Gate 2 Gate 3 Gate 4 Gate 5 gates rate their companies as only “modTechnically and Identify and economically economically Develop evaluate the Design the Build/install Plug and erately effective” or “ineffective” frame the concepts and project facilities and operate abandon opportunities create a project at integrating risk information into Phases Pre Concept Concept Feasibility Development Implementation Termination ongoing business decisions. If we were to receive anonymous and candid responses from Steps our executives, would we find that Risk management their business strategies and decisteps Interfaces between phases sions for deepwater developments Hazard Risk Risk Risk Risk Risk assessment assessment assessment assessment assessment management performed and performed and performed and performed and performed and are effectively aligned with solid risk captured in risk register risk register risk register risk register activities a register updated updated updated updated information? All previous Typical tools There is poor communication of risk types risk information across organizaMOC risk Qualitative and Qualitative Major assessment quantitative risks risks accidents Scenarios tions due to “siloing” and poor risk barriers & controls and response & events and issues information systems, and 56% of the executives cited regulatory policy risk as their second Companies in the survey rely too heavily on simplistic largest risk, after that of global economic recession. Yet, and internally generated qualitative data to make riskgovernment relations departments receive risk informarelated decisions. There is heavy reliance (69% said) on tion “infrequently.”Thus, regulatory risk information is internal subject matter experts for emerging risk inforsiloed from those who are most affected. mation. Often these in-house experts are content speIn the aftermath of the Montara and Macondo disascialists in a specific technical discipline but don’t really ters, our customers are saying that regulatory policy know how to look for and analyze market information change ranks up with commodity price change as their and know very little about strategic planning. This again largest risk. In the US, we see operators and drilling contributes to risk siloing. companies struggling to filter regulatory changes down Qualitative multivariate techniques such as scenario through the organization on issues such as blowout con- analysis, risk mapping, and decision tree analysis are tingency planning and worst-case discharge scenarios. being increasingly used. However, simulation exersizes, Executives see a huge disconnect between strategy, such as probabilistic modeling are not often used and operational planning, capital allocation, and risk manage- 20% to 30% of the respondents thought they should be. ment practices. Are we using only univariate approaches to deal with uncertainty in deepwater development? Should we be Electronic information systems (intranet) are not using more probabalistic and/or multivariate approaches? being used to communicate risk information. Only 24% To answer some of these questions and more, we will of respondents said they are posting risk information on consider current control by the asset manager of the the company intranet. risks all along the well’s life cycle. In the early stages of a Whether it is regulatory risk, or project cost and development, the asset manager is effectively its project schedule risk, how many exploration and production manager, so it is useful to examine whether the project operators maintain a “real-time” electronic risk infordelivery processes in use are adequate. mation system to share risk information across their organizations? Project delivery processes in use today Companies are not using a “fit-for-purpose” risk A review of the project delivery processes of various management approach and have been unable to cull the important from the trivial. One executive stated, “We’ve investor owned oil and gas companies shows them to be similar, whether it is BP’s Major Projects common procut down the frequency of our risk assessments because cess (MPcm), Chevron’s Project Development & Execuwe end up with too many risks on our register and not tion Process (CPDP) or Nexen’s Investment Decision enough time to do anything about them.” Process(NIDP). Thus, in Figure 1 we show what might About 25% of respondents consider insufficient time be considered a typical oil and gas company project delivand resources to be their primary challenge. In the ery process for an upstream offshore development. oil and gas industry, we may echo this, “not enough Relevant commonalities among companies in this proresources” sentiment, but in response I ask: Is it about cess are the risk analysis steps (shown in yellow), and proworking more or working smarter? Risk information integrity is suspect due to the quality cess hold points, called “decision gates” or “stage gates” (shown in red) at each phase of the process. of the data inputs. Simplistic, univariate approaches are Among the operators we have worked with, the the norm but companies see a need for more multivariate project delivery approach is surprisingly similar, deployand quantitative risk techniques. Major issues identified in an opportunity framing workshop

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December 2010 Oil & Gas Financial Journal • www.ogfj.com

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Fig. 2: Minimal structure for oil and gas company management system

tems in place. This is despite the fact that all operators had hazard and/or risk management as one of the eleElectronic management ments in their management system. reporting and oversight They also all included hazard/risk Activities (ISO 72) Plan workshops and analysis among the % >  ;  steps in their project delivery process. Management   %  



 Act Do Scenarios and decision trees are not system   ;  < =* often used, a parallel to the Financial Check Times study cited earlier. <  In contrast to common practice, a Information Procedures  Organization Policy Process system and standards

 risk-based management system is one      built from the ground up, forming each element and requirement of the management system from either a barrier or a control that is part of a major event’s threat line. Threat lines in turn form parts of a particular This basic structure, or one similar, would establish the foundation for a more effective project delivery process. scenario approach called “bow-tie” diagrams. ing different teams at each life-cycle phase (pre-concept, Since the Piper Alpha accident in the UK North Sea, concept, etc.) using various management tools to deliver bow-tie diagrams have been used for scenarios in the what is called project risk “artifacts” at the end of each oil and gas industry to support safety cases for offshore phase. As shown in Figure 1, examples of these artifacts could exploration and production. In spite of their use, bow-tie practitioners generally use bow-ties to demonstrate that range from risk registers in the concept phase to checklists, protocols, and forms for the management of change their existing management systems are effective rather than use bow-ties as the basis for effective design of their during the implementation phase. Operators’ project management systems. What if we were to pare down our delivery processes are similar, yet our market research management system to only those requirements that we shows their lack of success in execution is largely due to what they are not doing. What is lacking is a supportcould support through a risk analysis? How much more ing risk-based management system underpinned by an efficient and effective could they then be? electronic risk information infrastructure that allows realOperations risk professionals at oil and gas compatime monitoring of the project’s risk profile. nies studied do not rely on integrated electronic risk information systems. This is in stark contrast to their Empirical support for the parallels counterparts in the finance or the trading and marketing in emerging risk management departments where SAP, JD Edwards, OpenLink, Triple A survey performed by Boots & Coots in April 2010 of Point Technology, or other enterprise-wide management oil and gas company operators’ HSE management sysinformation applications are common. tems concluded the following: There is no upstream oil and gas industry standard Conclusions concerning minimum (i.e. best practice) for HSE Risk Management Syselements of robust approach to oil, tems. Instead there is considerable variation in both the gas company risk management In summary, what is often lacking is a management structure and the content of HSE management systems among operators. Among those surveyed, the HSE man- system that is risk based, consistent with international best practice, underpinned by an electronic information agement systems usually have either 11,12, or 15 elements, they follow an ISO management system structure, system and maintained over the entire life-cycle of an oil and gas well or field. As mentioned before, though and are consistent with the Occupational Health and the delivery processes are similar, poor execution at the Safety Assessment Series (OHSAS)18000 management interfaces between phases often causes problems because system guidelines. risk information is not adequately handed off to the next The American Petroleum Institute (API) and the Oil team. and Gas Producers (OGP) Exploration and Production One way to resolve this is to require the teams in Forum have frameworks for Management Systems, and ISO17776 contains an excellent description of tools and each phase to feed risk information into a common risk information system throughout the project life cycle. hazards for offshore development. These are industry One of the first risk standards where this need was accepted guidelines, but they are not consistently used. There are few, if any, truly risk-based management sys- highlighted was in the Canadian Guideline CSAQ850 17776:72 @%UY

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www.ogfj.com • Oil & Gas Financial Journal December 2010

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CONFERENCE & EXHIBITION

September 20 – 22, 2011 Mo ody Gardens Hotel & Convention Center Galve ston, Texa s w w w.ogmtna .com

SAVE THE DATES! Join us in Galveston next year!

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in the mid1980s – well before the widespread use of corporate PCs to access and communicate management information. Yet today, outside of financial risk, the oil and gas industry is still not consistently using enterprise-wide risk information systems in spite of our more sophisticated computer capabilities. In today’s world of web portals, relational databases and iPod apps, there is no excuse to not have such a system. Figure 2 illustrates one basic concept for such a system as developed by Boots & Coots.

Focus on big picture, but track the critical details Stage gate processes are a good start for looking at the big picture, but when they are ineffective, it is because they fail to manage the interfaces between phases. Here is where the asset manager must provide the leadership to ensure the information is transferred between phases, during the “crew changes.” Even with one person guiding the process, risk information is lost if a common risk register is not transferred from one crew to another across the stage gate. This is particularly prevalent between pre-concept and concept phases, and between installation and operations. When information is lost between phases, the operator does not have a current risk profile and is driving in the dark with their headlamps off. To mitigate against this loss of risk information, oil and gas companies should establish a perpetual risk register at the beginning of the pre-concept phase enabling it to maintain, capture and communicate the risk profile at any time over the lifecycle of the well or field. Some operators, such as Shell have attempted this perpetual risk register approach with some success during the feasibility, development, and implementation phases by instituting an electronic, web-based risk register, but there are no operators who maintain such an artifact over the entire life-cycle, from pre-concept through termination. Beyond a stage gate approach, leading-edge operators should consider the well or the field as an enterprise, with its own structure for accountability as a business entity (including “enterprise risk management”). To facilitate this perspective, one approach I have developed involves an icono-graphic method called Enterprise Value Chain Mapping, which captures scenarios and issues at an early stage in the project’s life cycle and then relates them to the broader corporate risk profile. More detail can be found on Enterprise Value Chain Mapping in an earlier work dealing with corporate risk management in the energy industry (Energy, Risk & Competitive Advantage: The Information Imperative, published by PennWell Corp. in 2008). Risk information integrity is often suspect due to the quality of the data inputs. Univariate approaches are the

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norm, but we should consider more multivariate and probabilistic techniques. Though it seems counterintuitive that quantitative techniques would not be as useful as qualitative approaches under conditions of uncertainty, the opposite is true. Where there are high uncertainties (as with deepwater E&P) and capital expenditures are significant, this is precisely where probabilistic quantitative techniques such as Monte Carlo simulations using fairly inexpensive, commonly available software tools, should be used more often. In fact, probabilistic tools have already been advocated by petroleum industry experts such as Dr. James Murtha and others for real-time support of decisions. In spite of this, in the area of catastrophic HSE risks, Monte Carlo tools have yet to be adopted extensively. This is largely due to the misperception of “needing better data” to support any type of quantitative analysis.

Optimize risk/reward, improve stakeholder assurance, and create competitive advantage Thus far we have dealt with what may be lacking in the industry, but what would it take for risk management to become a game-changer for a new breed of energy company in the 21st Century? Historically, risk management has been regarded as primarily threat avoidance or consequence mitigation. In fact, the existence of maritime uncertainty before the benefit of mathematics meant that ancient shipping, prior to the 13th century was little more than gambling against the hazards and perils of an evil outcome. Today, even with the advantage of probability theory, the concept of risk still carries an overwhelmingly negative connotation, and hazards and perils for the upstream oil and gas industry still fall primarily into the following areas: • Running afoul of regulatory or legal requirements • Fear of catastrophic consequences • Non-compliance with internal company standards or board-level directives • Upsetting of public and shareholder relations Yet just as the foundations of risk management were built upon mathematics and games of chance (implying the possibility of an upside), modern risk management should also look at opportunities in addition to threats, in order to maximize reward as a legitimate goal of risk management. In fact, leading-edge risk management today in the fields of project risk and enterprise risk, consider not only the threat, but the opportunities side of the risk matrix when evaluating development prospects. Leading-edge oil and gas operators, through better risk management, can optimize the cost/benefit relationship of expenses they could be wasting on well control risk activities that do little to reduce, mitigate or transfer the risk of blowouts. We have already seen examples of this involving

www.ogfj.com • Oil & Gas Financial Journal December 2010

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decreasing the Operator’s Extra Expense insurance premiums through better quantification of their exposure to blowouts and fires. This desire among its customers for expense reduction is a key driver for the growth of our WellSure services group, which links risk management to reduced insurance premiums and lower blowout response service fees. An analogous trend has occurred over the past 12 years in the refining and petrochemical industry as risk-based cost savings are the motive to develop and implement risk management systems inspection and mechanical integrity of static equipment using API Recommended Practice 580. The upstream industry has begun to adopt API 580/581 as well, with Petrobras applying these concepts to its Floating Production Storage and Offloading (FPSO) units. Marine class societies have also widely advocated its use in recent years. In both cases, money is saved through the efficient management of identified threats, not just through the avoidance of possible consequences. Better risk information and systems create cost savings, and cost savings create competitive advantage. Finally, improved stakeholder relations through diligent risk management can provide a benefit in itself, if properly managed. Competitive advantage over others in bidding rounds, as well as minimizing the expense

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of protracted permitting and payment delays can result from superior risk processes, if properly designed and executed. In this post-Macondo environment, improved risk management and public transparency could create a significant competitive advantage to oil and gas companies of the early 21st century, just as the race for cheaper raw materials and automation aided manufacturers in the early 20th century. About the author Scott Randall is the technology delivery leader for Boots & Coots in Houston. He is a corporate risk manager with more than 25 years of experience across the fields of operational and financial risk management, international marketing, strategic planning, and infrastructure project development. Randall holds a BS degree in civil engineering from Michigan Technological University, an MBA in international management from Thunderbird, and has done post graduate work in energy risk management at the University of Houston and Rice University. He is the author of the PennWell book on enterprise risk management, Energy, Risk and Competitive Advantage: The Information Imperative (ISBN-13:978-1-59370-134-5).

Energy Industry Conference Proceedings Just because you missed the conference doesn’t mean you have to miss out on the information from the leading industry experts. PennEnergy Research now offers current and archived conference proceedings from PennWell energy-related events and conferences such as Deep Offshore Technology, Unconventional Gas International, and more. PennWell conferences and exhibitions bring together industry leaders to address the most relevant and important issues facing the energy industry today. It is information critical to how you do your job.

Don’t miss out on this valuable information just because you couldn’t make it to the conference this year. For more information: www.PennEnergy.com/index/conference.html

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AN INTERVIEW WITH CHOO CHIAU BENG, CEO OF KEPPEL CORP.

Keppel aims to become the provider of choice for offshore and marine

EDITOR’S NOTE: Keppel Corporation Ltd. is one of Singapore’s largest and most diversified conglomerates. The offshore and marine business unit is the company’s largest component and is a leader in the construction of jack-up rigs for the offshore petroleum industry. Choo Chiau Beng, formerly head of the company’s rig and shipbuilding arm, was named CEO in January 2009. This interview was conducted by the editors of Focus Reports LLC exclusively for Oil & Gas Financial Journal.

OIL & GAS FINANCIAL JOURNAL: Thank you for receiving us today. After spending many years in the offshore and marine division, you were appointed CEO nearly two years ago. The past 24 months have been marked by a very tough economic climate, which did not leave the oil and gas industry untouched. In spite of this, Keppel has managed to perform well. What is the secret to your success and which divisions have performed best for the company? CHOO CHIAU BENG: The global financial crisis hit Singapore at the same time as my appointment in early 2009. The first priority was to review all the cash flows and cash commitments to ensure that the company could remain a sound ship. In the five years preceding the slow-

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down, Keppel performed very well and was able to build up a lot of financial reserves. The strong cash position and promising order book for the offshore and marine division made the company decide to focus on the execution element, making sure that the projects in the pipeline could be delivered on time and within budget. As a result, Keppel successfully delivered 14 rigs, 14 specialized vessels, and 6 major conversions and upgrades for various customers. Of course there were also some weaker clients that could not complete their contracts, but, overall, 2009 was a strong year for the Keppel Group. When PetroChina pushed to buy Keppel’s share in SPC, Keppel decided to proceed with the sale. PetroChina had specific targets for its oil and gas activities and the refining sector in particular. With the sale, SPC would go into stronger hands and enjoy better growth. Since then, PetroChina has taken the company private by acquiring the rest of the shares. Effectively, SRC currently has two major shareholders – PetroChina owns 30% via SPC, and Chevron owns 50%. In the meantime, Keppel has been able to capture some of the value that the company invested in SPC over the past 10 years. This has helped to further strengthen the balance sheet of the group. Next, the company has issued rights for Keppel Land in order to strengthen the balance sheet of that division

www.ogfj.com • Oil & Gas Financial Journal December 2010

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further. Several investments were also made to strengthen Keppel’s footprint in the environmental engineering business. Keppel took over two waste-to-energy plants from the Singapore government. In line with this, a water and district cooling plant was also acquired. Keppel continues to look to invest into its core business which remains to be offshore and marine. The company firmly believes that it is able to position itself in its different markets. This is reflected in the company’s results last year when record profits were reached. OGFJ: Last year you declared that with the sale of SPC you would seize new opportunities in the market. But by looking at the market, we see that many companies seem to be waiting to invest… CHOO CHIAU BENG: First of all, the European crisis has had an obvious impact on the industry. Nevertheless, Singapore managed to recover very sharply following the negative growth last year thanks to its ability to respond very quickly to the market, both in terms of consumption and supply. Opportunities will continue to arise in many locations, but for Keppel it is more important to pursue the right opportunities. In the backlog of the Deepwater Horizon catastrophe, Keppel sees itself well positioned in the Gulf of Mexico, Brazil, the North Sea, the Middle East, and the Caspian region. OGFJ: You didn’t mention West Africa. Isn’t it the future of the deepwater industry in the next 10 years? CHOO CHIAU BENG: Keppel is looking at Africa as well and planning its strategy on how to take advantage of the developments in this continent. Nevertheless, Keppel is less familiar with Africa. There may be an opportunity for Keppel’s activities in Brazil to take advantage of potential in Angola and Mozambique. At the end of the day, West Africa continues to be a challenging operating area, and Keppel does not intend to expand there at this time.

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ing years. Despite your international presence, you are still a Singaporean company. Do you concur with the prime minister’s view? CHOO CHIAU BENG: It is very likely that human talent will be the biggest challenge because in order to go forward, the company needs motivated and talented people. Whether they are Singaporean or not does not really matter. What is essential is that they have the same values to drive the company forward in a safe manner without generating too much risk. OGFJ: For the offshore and marine sector in particular, we see more and more demand for tailor-made, highly-specialized solutions. Keppel has built its success on its ability to respond to these specific consumer needs. As the company grows bigger, how will you manage to continue offering such individually tailored solutions to your clients? CHOO CHIAU BENG: This philosophy and the capability to specialize will remain present within Keppel because of the company’s “near market, near customer” strategy for its offshore and marine business. This strategy has worked very well in the past and will continue to do so. The oil-producing countries have become more nationalistic and increasingly encourage local content. Keppel’s success in Brazil is a sign that the company has the capabilities to pursue this strategy. Korean shipyards, for example, are remarkably strong because of their strong discipline. Nevertheless, outside Korea they are much more limited. Whatever special advantage these companies have disappears when they have to operate in a level playing field. Keppel has experi-

OGFJ: Keppel and Singapore have an image of pragmatism, efficiency, and fast reaction to market changes. These values are hard to put in place in locations with a different culture. How do you deal with this? CHOO CHIAU BENG: Singapore is small, which gives the country the ability to be more agile. For Keppel in particular, the key ingredient is having the right talent and people to ensure the continuity of the company. There is a strong focus on renewal, succession, and careful planning while maintaining a long-term view. The future will be a question of making the best out of new opportunities. OGFJ: Just yesterday, the prime minister once again commented that renewing human resources would probably be Singapore’s biggest challenge for the com-

Seamless integration - After a successful preconversion at Keppel Shipyard in Singapore, FPSO P-57 had her newly fabricated topsides installed and integrated at Keppel FELS Brasil’s BrasFELS yard. Photo courtesy of Keppel Corp.

December 2010 Oil & Gas Financial Journal • www.ogfj.com

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its learning curve, Keppel is able to become increasingly efficient and squeeze cost out of its projects. The results are a reflection of this hard work. OGFJ: When we look into renewable energy and your core expertise in offshore…

Through its near market, near customer strategy, Keppel brings its expertise to the doorsteps of its customers and markets. Photo courtesy of Keppel Corp.

ence working within different cultures and local environments for more than 30 years. The company has been present in the Philippines for 35 years, in Brazil for more than 10 years, in the USA for 20 years, and so on. By working in local markets with local talent, Keppel has acquired the flexibility to respond to local demand and has been able to respond to the need for customization.

CHOO CHIAU BENG: Crucial to this diversification is the joint venture with the Seafox Group, which led to the only vessel that can reliably install wind farms in more than 60 meters of water. No one had done that before us. The announcement of Keppel servicing this new niche led to numerous inquiries from various players interested in such products. One of the challenges of installing a wind farm is to find suitable equipment – thus it is important to develop the right tools for this market. The important areas to expand into for this niche will be the UK and Germany. The entry into this niche is one of the largest projects for Keppel at present. The design is ready and the company is now ready to start building. As soon as Keppel is required to build more, it will not hesitate to do so. OGFJ: The company has always been diversified. For example, Keppel has made a foray into waste-to-energy (biomass) with a key project in Tanjin, China. Did you ever consider that Keppel’s knowledge in offshore equipment, fabrication, design, etc. could lead to a chance of Keppel moving into oil production?

OGFJ: Is this a trend that will continue in the industry?

CHOO CHIAU BENG: The acquisition of SPC reflected Keppel’s aspiration for this sector, but did not CHOO CHIAU BENG: The industry has no choice lead to satisfactory results. As a rule of thumb, the oil because each environment has different requirements. industry requires scale. Therefore, Keppel needs to work Even though these requirements are not always that pretogether with the right partners on the right kind of projdictable, they will always play an important role. A critical ects to find good leverage and come up with a winning success factor is to have the right team in place. And for formula. Thus, the company will look out for the right Singapore in particular, there is no room to make miskind of projects that can use the expertise of the Keppel takes. Keppel Corporation is a small company and needs Group. Together, the company can build expertise in the to make sure to do the right thing. oil and gas industry to create value for all stakeholders, which is not so easy to find. Keppel partners with suppliOGFJ: You describe yourself as a small company, but ers, customers, and so on, to see how it can create value you are the leader in your market. Keppel’s reported for shareholders and customers. Keppel is always looking results for the first half of 2010 were generally encour- for new opportunities. aging and demonstrated growing profits. Nevertheless, there is some concern about declining offshore and OGFJ: You mentioned it will be tougher and tougher marine revenues. How do you explain this discrepancy, for Keppel’s offshore and marine division, with and do you see a change soon? increasingly specialized and novel solutions in new niches. Does this mean that the O&M division will CHOO CHIAU BENG: Keppel has been quite clear decrease within your portfolio, in favor of infrastructhat a repetition of the earlier order book will not happen ture and property as you look into higher margin very soon. While there is some decrease, the growth areas markets? will be specialized markets such as Brazil and the niche for sustainable development. The company is not too rigid CHOO CHIAU BENG: Not necessarily. The offand is in fact more flexible than most people expect. Prof- shore and marine division still constitutes a substantial its have been very good because of good margins on most amount of Keppel’s business and employs a large number projects during the peak period. Additionally, because of of people. Offshore and marine currently contributes

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OGFJ: A big difference between both divisions must be the end customer. In terms of red tape, private companies tend to be very fast and efficient. With infrastructure on the other hand, you deal with govOGFJ: Speaking about the infrastructure division, the ernment, administration, and so on. This seems like a synergy between this division and the offshore leg is totally different ballgame. probably expertise in engineering solutions and close relationships with customers. What other synergies do CHOO CHIAU BENG: I agree, but Keppel has done you see between these two activities? this with its property business as well. And in fact, in many cases in the offshore business, you still face the environCHOO CHIAU BENG: The main synergy is the mental bodies, local authorities, etc. people. In addition to this, the financial strength of Keppel Corporation helps to make large projects happen. We see OGFJ: Where is the growth for Keppel coming from that the growth of infrastructure will be there for many in the coming years? years. Today, China has caught up well with infrastructure, but there are many countries with potential, such as CHOO CHIAU BENG: If Keppel can find the right Vietnam, Indonesia, India, and so on. Even the USA has business, the right contracts, the right customers, and the not spent enough money on infrastructure, which is now right partners, the growth will come from all three legs of becoming increasingly older. One day, the US will need the business. to wake up and increase building activity for new infrastructure. France and the rest of Europe have already been OGFJ: What has been the main focus of your work rebuilding and improving their infrastructure over the since you became CEO? years. Of course, also Latin America and Africa offer a vast amount of opportunities. approximately two-thirds of the company’s profit. So in many ways, the long-term target will be to grow all the legs of the business.

OGFJ: But Africa is a very challenging environment. China, however, is currently very active in building infrastructure there. CHOO CHIAU BENG: That is true. Keppel’s people do not understand the culture, and we do not have people that feel comfortable working there. China’s presence is very much related with that country’s goal to secure long-term resources in that region. One of the things that Keppel learned from working with China is that very soon, your knowhow becomes their knowhow. They are able to rapidly obtain the right people and resources to execute projects without you. For example, with wind turbines in particular, China started developing its own technology based on European knowhow. OGFJ: In Singapore, the infrastructure is already in place and there is not much room for expansion. You mentioned different geographical regions offering high potential for the infrastructure division. What is your strategy to replicate the success that you had when internationalizing the offshore and marine business? CHOO CHIAU BENG: In order to understand how things work in a particular country, you do not need to re-invent the wheel. This is something that can already be done by other divisions. It takes some time to learn about the culture and rules of the game in a new market. With infrastructure, this is especially important, as you are not flexible to move away after investing.

“One of the things that Keppel learned from working with China is that very soon, your knowhow becomes their knowhow. They are able to rapidly obtain the right people and resources to execute projects without you.”

CHOO CHIAU BENG: It has been to maximize value for the shareholders and to continue to develop existing and additional customers for the business. The customers, the shareholders, and the employees are three very important stakeholders for the company. OGFJ: Do you have a final message for the readers of Oil and Gas Financial Journal? CHOO CHIAU BENG: Demand for energy will continue to grow – in particular in the developing world – and oil and gas will remain a very important component in this energy mix. Renewables will not replace oil and gas in the next 20 years. In Keppel’s area of oil and gas, the easy reserves are largely found onshore but there is a need to learn to address more difficult areas such as deepwater, harsh environments, and the arctic. Singapore is a service hub that helps grow the industry globally. The point to take away about the company is that Keppel is a service provider as well as a manufacturer. The company’s main focus is to become a provider of choice for offshore and marine, sustainable environment, and urban living solutions. OGFJ: Thank you very much for your time today.

December 2010 Oil & Gas Financial Journal • www.ogfj.com

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Deal Monitor

US transactions rise in past month

T

wo of the larger deals from mid-October to midNovember were the Chevron Corp. acquisition of Atlas Energy for $4.3 billion ($3.2 billion in cash and the assumption of about $1.1 billion in debt) and Newfield Exploration’s purchase and sale agreement with EOG Resources in which Newfield acquired about 50,000 net acres in the Marcellus Shale in a transaction valued at roughly $405 million. Read more about both transactions and the significance of each in this month’s Upstream News, beginning on p. 10. Therefore, we will move on to other deals in this edi-

tion of Deal Monitor. In another large transaction, Houston-based EnerVest Ltd. and its affiliated partnerships, including EV Energy Partners LP, agreed to purchase certain Barnett Shale properties from privately-held Talon Oil & Gas LLC, a Dallas-based E&P company, for $967 million. The deal is expected to close before the end of the fourth quarter. The majority of the 20,207 gross acres are in the core of the Barnett Shale in north Texas, and the properties produce 87 MMcfe/d from 212 active wells, with 1.1 tcfe in reserves.

Rodman & Renshaw - Deal Monitor – Select transactions

10/16/10 - 11/15/10

US Transactions Date Announced

Buyer

Seller

17-Nov-10

Newfield

EOG

Asset Location Appalachia

15-Nov-10

Williams

Undisclosed

Rocky Mountains

9-Nov-10

Chevron Corporation

Atlas Energy Inc

Appalachia

9-Nov-10

Atlas Pipeline

Atlas Energy

Multi State

8-Nov-10

Legacy Reserves

Concho Resources

Mid Continent

5-Nov-10

Oasis Petroleum

Undisclosed

Rocky Mountains

4-Nov-10

W&T Offshore

Royal Dutch Shell

Gulf of Mexico

3-Nov-10

PDC Energy

Undisclosed

Mid Continent

1-Nov-10

KKR Natural Resources

Undisclosed

Gulf Coast Onshore

1-Nov-10

Approach Resources

Undisclosed

Mid Continent

1-Nov-10

Undisclosed

Ram Energy

Mid Continent

1-Nov-10

Energen

Undisclosed

Mid Continent

27-Oct-10

EnerVest Ltd

Talon Oil & Gas LLC

Mid Continent

26-Oct-10

EV Energy Partners

Talon Oil & Gas

Mid Continent

25-Oct-10

Marubeni Oil and Gas

BP

Gulf of Mexico

25-Oct-10

Berry Petroleum

Undisclosed

Mid Continent

21-Oct-10

Sun River Energy

Katy Resources

Gulf Coast Onshore

20-Oct-10

Sanchez Resources

TriDimension Energy

Gulf Coast Onshore

19-Oct-10

Kodiak Oil & Gas

Undisclosed

Rocky Mountains

International Transactions Date Announced

Buyer

Seller

Asset Location

2-Nov-10

Touchstone Exploration

Cirrus Energy

Carribean

28-Oct-10

Undisclosed

Kallisto Energy

Canada

28-Oct-10

Pinecrest Energy

Undisclosed

Canada

19-Oct-10

Petrobank

Baytex Energy

Canada

Source: The Rodman Energy Group. Validity of data is not guaranteed and is based on information available at time of publication. Prepared by Jason Reimbold, Vice President, Rodman Energy Group. For more information, email to [email protected]. Rodman & Renshaw LLC (Member FINRA, SIPC) is a full-service Investment Bank with offices in New York and Houston.

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www.ogfj.com • Oil & Gas Financial Journal December 2010

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Deal Monitor “We are excited to add the Barnett Shale as our fourth core operating area, joining the Austin Chalk, the San Juan Basin, and Ohio,” said John B. Walker, EnerVest president and CEO. “The production from these wells is 29% natural gas liquids/71% natural gas, and we plan to maintain an active drilling program.” On Oct. 25, Japan’s Marubeni Corp. agreed to pay $650 million for stakes held by a unit of BP in four oil and natural gas wells in the Gulf of Mexico. Marubeni will buy the production interests held by BP Exploration & Production in the Nansen, Magnolia, Merganser, and Zia wells, which can produce a total of 15,000 boe/day. BP is looking to sell up to $30 billion in assets to pay for costs related to the largest accidental oil spill in history.

Price ($MM)

Non Proved Reserve Value ($MM)

Reserves (MMBoe)

Production (Boe/D)

In another Gulf of Mexico sale involving a large international oil company, W&T Energy VI, a subsidiary of Houston-based W&T Offshore Inc., will pay $450 million for Royal Dutch Shell’s interest in six GoM fields. Shell says the sale is part of its plan to shed up to $8 billion in assets this year and next to invest in growth opportunities. The acquired interests are in the Tahoe, SE Tahoe, Marlin, Dorado, and Droshky fields located in the deepwater GoM. The sixth field is a shelf property along with associated assets. Combined production, net to Shell’s interest, in the six fields is currently about 6,840 barrels of oil per day and 69.8 MMcf of natural gas per day, or roughly 18,000 boe/day. OGFJ

Reserves ($/Boe)

Production ($/Boe/d)

Reserves ($/Mcfe)

Production ($/Mcfe/d)

405.0

—

NA

NA

NA

NA

NA

NA

238.6

686.4

185.0

3,300

1.29

72,303

0.21

12,051

3,200.0

—

NA

NA

NA

NA

NA

NA

250.0

—

29.2

5,833

8.57

42,857

1.43

7,143

105.0

—

5.8

1,419

18.10

73,996

3.02

12,333

49.9

—

NA

300

NA

166,333

NA

27,722

450.0

—

25.7

18,000

17.51

25,000

2.92

4,167

40.0

—

NA

330

NA

121,212

NA

20,202

40.0

—

NA

NA

NA

NA

NA

NA

21.5

—

1.9

470

11.32

45,745

1.89

7,624

43.8

—

4.4

939

9.94

46,592

1.66

7,765

75.0

—

7.6

NA

9.87

NA

1.64

NA

967.0

—

183.3

14,500

5.28

66,690

0.88

11,115

300.0

—

54.8

4,517

5.48

66,416

0.91

11,069

650.0

—

NA

15,000

NA

43,333

NA

7,222

180.0

—

NA

2,200

NA

81,818

NA

13,636

8.5

—

2.8

NA

3.00

NA

0.50

NA

28.0

—

NA

NA

NA

NA

NA

NA

110.0

—

NA

500

Median Mean

Number of Transactions 19

NA

NA

NA

NA

$9.22 $9.04

$66,553 $71,025

$1.54 $1.51

$11,092 $11,837

Production ($/Mcfe/d)

Price ($MM)

Non Proved Reserve Value ($MM)

Reserves (MMBoe)

Production (Boe/D)

Reserves ($/Boe)

Production ($/Boe/d)

Reserves ($/Mcfe)

7.6

—

NA

300

NA

25,333

NA

4,222

3.7

—

NA

55

NA

67,273

NA

11,212

65.8

—

NA

NA

NA

NA

NA

NA

15.0

—

NA

NA

NA

NA

NA

NA

NA NA

$46,303 $46,303

NA NA

$7,717 $7,717

Number of Transactions 4

Median Mean

December 2010 Oil & Gas Financial Journal • www.ogfj.com

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Industry Briefs Antero Resources closes Oklahoma midstream sale to Cardinal

acquisition with a $175 million acquisition term loan led by BNP Paribas, RBC Capital Markets, Credit Agricole Antero Resources has closed the and Citi, in addition to borrowings previously announced sale of its under its senior secured credit facility, midstream assets, located in the and up to $80 million of Vanguard Woodford Shale area of the Arkoma common units valued at $25.50 (up Basin, to Cardinal Midstream LLC to approximately 3.1 million comfor $270 million. The sale included mon units) which may be issued, a 60% membership interest in Cenat Vanguard’s option, to Denbury. trahoma Processing LLC, which is a Denbury plans to use the proceeds to joint venture with MarkWest Energy repay outstanding bank debt and to Partners LP that operates two cryofund any shortfall between its anticigenic processing plants in the Arkoma pated cash flows from operations and Basin with 100 MMcfd of natural planned capital expenditures during gas processing capacity. In addition, 2011. Wells Fargo Securities LLC acted as advisor to Denbury. RBC Antero sold to Cardinal roughly 50 Capital Markets is acting as exclusive miles of gathering pipeline and an amine treating plant with 42 MMcfd financial advisor to Vanguard and of capacity. Following the midstream Vinson & Elkins LLP is acting as closing and application of proceeds to legal counsel to Vanguard. the repayment of bank debt, Antero has $532 million of available and CNOOC, Chesapeake close undrawn borrowing capacity under its Eagle Ford shale deal new bank credit facility and $49 mil- Chesapeake Energy Corp. and lion of cash on hand resulting in total CNOOC Ltd. have closed on the liquidity of $581 million. project cooperation that gives CNOOC International Ltd. a 33.3% Denbury sells Encore undivided interest in Chesapeake’s interests to Vanguard 600,000 net oil and natural gas leaseDenbury Resources Inc. has agreed hold acres in the Eagle Ford Shale in to sell its ownership interests in South Texas. CNOOC paid $1.08 Encore Energy Partners LP (ENP) billion in cash, plus an additional to Vanguard Natural Resources LLC $40 million payment adjustment at for $380 million. Denbury is selling closing. CNOOC Ltd. will fund 75% its interest in the entity which owns of Chesapeake’s share of drilling and 100% of ENP’s general partner’s incompletion costs up to $1.08 billion, terest and roughly 20.9 million ENP which Chesapeake expects to occur common units, or approximately 46% by year-end 2012. Chesapeake’s deal of ENP’s outstanding common units. with CNOOC in the Eagle Ford By virtue of Denbury’s ownership shale was announced in October. The of 100% of ENP’s general partneracreage is located primarily in the oil ship interest, Denbury consolidates window (roughly 85%) in Dimmitt, 100% of ENP’s financial results with LaSalle, Zavalla, Frio and McMullen Denbury’s financial results, even counties. Lower reservoir pressure has some skeptical about the value of the though Denbury’s aggregate ownercompany’s lease position, but results ship represents only approximately from the company and the industry 46% of ENP’s common ownership. Production attributable to ENP aver- paint a different picture, according to aged 8,630 boe/d during 3Q10, and an October 14 report from Jefferies & Co. Inc. The company went on its proved reserves at December 31, 2009 were roughly 43 MMboe (67% to say that Chesapeake’s Eagle Ford oil). Vanguard expects to fund the results are “impressive” and that the

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area “appears to be solidly economic at $70 oil” citing its review of public data. Chesapeake’s advisor on the transaction was Jefferies & Co. Inc., and CNOOC Ltd. advisor was Tudor, Pickering, Holt & Co. Securities Inc.

Institution to invest $2M in Dejour Enterprises Dejour Enterprises Ltd. has agreed to sell 7,142,858 common shares and 4,642,858 share purchase warrants to a New York-based institutional investor, resulting in expected gross proceeds of nearly CAD$2 million. The warrants have an exercise price of CAD$0.40 per share and a 5 year term from the closing date of the transaction. Dejour intends to use the net proceeds to accelerate the previously announced waterflood program at its Woodrush oil project in northeastern British Columbia, retire certain debt obligations and supplement working capital.

El Paso Pipeline Partners to issue $750M senior notes El Paso Pipeline Partners Operating LLC, a wholly owned operating subsidiary of El Paso Pipeline Partners LP, plans to issue $750 million of senior notes of varying maturities. Net proceeds are expected to be used as partial consideration for the previously announced acquisition of the remaining 49% member interests in both Southern LNG Co. LLC (SLNG) and El Paso Elba Express Co. LLC (Elba Express) and an additional 15% interest in Southern Natural Gas Co. (SNG) from El Paso Corp., to repay the Elba Express project financing term loan, and to reduce outstanding borrowings under its revolving credit facility. Following the acquisition, El Paso Pipeline Partners will own 100% of SLNG and Elba Express and a 60% interest in SNG. RBS, BNP PARIBAS, Deutsche Bank, and JP Morgan are acting as joint book-running managers of the offering.

www.ogfj.com • Oil & Gas Financial Journal December 2010

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Industry Briefs Transocean buys jackup rig for $195 million

liquefaction project would be designed and permitted for up to four Transocean Ltd. has agreed to modular LNG trains, each with a purchase a Pacific Class 400 design peak processing capacity of up to apjackup for $195 million. The highproximately 0.7 bcf/d of natural gas specification jackup is under construc- and an average liquefaction capacity tion at PPL Shipyard Pte Ltd. The of approximately 3.5 mtpa. The initial jackup rig is capable of operating project phase is anticipated to include in water depths up to 400 feet and two modular trains and the capacity constructing wells 30,000 feet deep. to process on average approximately A November 17 research report from 1.2 bcf/d of pipeline quality natural Global Hunter Securities, citing a gas. Cheniere said it intends to enter Transocean fleet status, noted four into contracts for at least 0.5 bcf/d additional Transocean rigs were idled. of natural gas liquefaction capacity The deepwater semi Sovereign Exper train in support of reaching a plorer off Brazil is stacked, midwater final investment decision regarding semi GSF Rig 135 offshore Gabon is the development of the project. The company believes that the time and idle, while 2 jackups off the coast of Egypt are now without work: 350’ cost required to develop its proposed ILC jackup GSF Adriatic X is idle liquefaction project would be materiwhile GSF Key Singapore is stacked. ally lessened by Sabine Pass LNG’s existing large acreage and infrastrucIdle rigs continue to be marketed, generally incurring full daily cost. The ture. Development costs incurred stacked/idle count now stands at 47: during the assessment of this project 5 deepwater, 7 midwater, 34 jackups will be funded by Cheniere using and 1 barge. existing funds. LNG exports could begin as early as 2015.

Cheniere signs MOU with Morgan Stanley Cheniere Energy Partners LP subsidiary, Sabine Pass Liquefaction LLC, has entered into a non-binding memorandum of understanding (MOU) with Morgan Stanley Capital Group Inc. in connection with the potential acquisition by Morgan Stanley of certain import capacity and approximately 20% of a proposed 7.0 million tonnes per annum (mtpa) of LNG liquefaction capacity at the Sabine Pass LNG terminal located in Cameron Parish, Louisiana. Consistent with the MOU, definitive agreements would provide Morgan Stanley the ability to export or import 1.7 mtpa of LNG from the proposed facility. Cheniere Partners owns 100% of the Sabine Pass LNG terminal located in western Cameron Parish, Louisiana on the Sabine Pass Channel. The terminal has sendout capacity of 4.0 bcf/d and storage capacity of 16.9 bcfe. As currently contemplated, the

provided by expected increases in operating cash flows and expected cash on hand. Currently, there are three rigs operating on these properties. Williams expects to double the current level of drilling activity to six rigs by 2012 and expects the new leases to be producing more than 20,000 b/d by the end of 2012.

Eagle Ford Gathering enters services agreement with Chesapeake Energy

Eagle Ford Gathering LLC, a 50/50 joint venture between Kinder Morgan Energy Partners LP and Copano Energy LLC, has executed a definitive long-term agreement to provide services to Chesapeake Energy Marketing Inc., an affiliate of Chesapeake Energy Corp., in the Eagle Ford. Chesapeake will commit a significant quantity of natural gas production from multiple counties in South Texas over a 14-year term. Eagle Ford Gathering will gather Chesapeake’s gas from major delivery points and provide transportation, processing Williams diversifies interests and fractionation services. Eagle Ford Gathering’s previously announced with Bakken acquisition 30-inch pipeline in the western Eagle Williams has agreed to purchase roughly 85,800 net acres from private Ford Shale play is under construction owners for $925 million. The acreage and is expected to begin full service in the 3Q11; however, certain segis located entirely on the Fort Berments are expected to be available thold Indian Reservation, located in the Williston Basin. The company es- for service in the first half of the year. timates that these properties represent Kinder Morgan and Copano will invest roughly $175 million to construct approximately 185 MMboe in total 111 miles of pipeline facilities to serve net reserves potential in the Middle Eagle Ford Shale production from Bakken and the Upper Three Forks Chesapeake and from SM Energy Co., formations. The assets also include 3,300 b/d of net oil production from with which the JV executed a gas ser24 existing wells. In addition to the vices agreement in July 2010. Copano purchase price, Williams expects to serves as operator and managing meminvest additional funds for drilling ber of Eagle Ford Gathering. and development costs totaling nearly $60 million in 2010 and $200 million New management consulting firm opens in Houston to $300 million in 2011. The comThree ex-Big Four partners and direcpany expects to fund the acquisition tors have formed Trenegy Inc., a full and 2010 capital expenditures with service consulting firm in Houston. cash on hand, including proceeds from the Piceance asset drop down to Gordon Sorrells, Bill Aimone, and Peter Purcel founded Trenegy to WPZ. The funding for 2011 will be

December 2010 Oil & Gas Financial Journal • www.ogfj.com

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Industry Briefs provide consulting services to growing middle market companies. Aimone, managing director, will lead Trenegy’s performance, finance and organization improvement service line. Purcell, managing director, is responsible for the information technology and strategy service line. Prior to forming Trenegy, Sorrells served as a director at Deloitte & Touche, was a managing director of the energy group at the investment banking firm Harris Webb & Garrison, CFO of First Seismic Corp., and was an executive officer managing a multi-state energy lending division for several regional banks. Aimone previously served as the leading partner for the finance consulting practice in the Gulf Coast Region for Deloitte Consulting. He was instrumental in launching Deloitte’s oil and gas practice and building the global performance management methods for the firm. Purcell was a director at Deloitte Consulting and led the National IT Strategy Consulting Practice in energy. He helped launch Deloitte Consulting’s oil and gas practice and built global IT strategy methods for the firm.

Cornerstone acquires interests in Citation assets Cornerstone Acquisition & Management Co. LLC, a sub-advisor to Centaur Performance Group, has acquired a portfolio of royalty interests in producing oil and gas properties located in Southern Oklahoma, operated by Houston-based Citation Oil and Gas Corp. Cornerstone builds and manages portfolios of private energy assets and currently manages in excess of $100 million of oil and natural gas royalty interests diversified across 21 states and several hundred counties. According to company management, Cornerstone targets properties located 100% onshore within conventional basins and reservoirs.The transaction closed in October, and terms were not disclosed.

Gastar acquires Marcellus Shale assets in West Virginia

Gastar Exploration Ltd. has acquired roughly 59,000 net acres of leasehold in the Marcellus Shale from undisclosed private sellers. The properties are concentrated in Preston, Tucker, and Pendleton Counties, West Virginia. Terms of the acquisition were not Stone Energy offers disclosed. Prior to executing the agree$100M senior notes ment, Gastar had obtained an excluStone Energy Corp. intends to sive option on the leasehold with the publicly offer $100 million aggregate right to conduct operations to test the principal amount of its 8.625% Senior Marcellus Shale potential on the propNotes due 2017. The Senior Notes erties to be acquired. Gastar deepened are an additional issuance of Stone’s an existing well to the Marcellus Shale outstanding 8.625% Senior Notes and tested that vertical well at over 1.1 due 2017, which it issued in JanuMMcf/day from the lower Marcellus. ary 2010 in an aggregate principal Gastar also re-completed another examount of $275 million. Net proceeds isting vertical well in the Marcellus and are expected to be used for general tested that well at rates as high as 1.0 corporate purposes, which will include MMcf/day from the lower Marcelthe repayment of borrowings under lus formation. The assets also include a gathering system consisting of 41 its bank credit facility and the paymiles of pipeline, a salt water disposal ment of amounts due related to the well, and 7 producing conventional acquisition of additional lease acreage wells making approximately 500 Mcf/ in Appalachia. Merrill Lynch, Pierce, day. Gastar’s joint venture partner in Fenner & Smith Inc. is acting as sole book-running manager for the Senior its existing Marcellus Shale assets has the right to participate in this acquisiNotes offering. tion on pre-determined terms. In

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September, the company entered into a $70 million Marcellus shale joint venture agreement with an affiliate of Seoul, South Korea-based investment firm Atinum Partners Co. Ltd.

Regency Gas Services selects Triple Point to manage risk Triple Point Technology, a provider of multi-market commodity and enterprise risk management software solutions, has been selected by Regency Gas to provide counterparty credit risk and credit scoring software to manage credit risk processes for its growing natural gas and natural gas liquids (NGLs) business. Regency Gas Services is a midstream natural gas services provider that specializes in the gathering and processing, contract compression, and transportation of natural gas and NGLs.

Weatherford approved for Swiss Exchange listing The Swiss Exchange (SIX) has approved the listing and trading of shares of Weatherford starting November 17, 2010, under the stock ticker WFT. The inclusion of the 758,446,637 registered shares of Weatherford into the benchmark SPI Index is expected to occur in a staggered manner over five trading days. Based on the company’s size as measured by free float market capitalization and volume traded on the SIX, the Swiss Exchange is considering adding WFT to the SMI Index, an index of the 20 largest and most liquid shares on the Exchange. SIX is expected to make its decision regarding WFT’s inclusion in the SMI Index in the first quarter of 2011. If WFT meets the SIX criteria, the earliest date WFT would enter the SMI Index would be after close of trading on the Eurex monthly expiration date of March 18, 2011, for effect as of March 21, 2011. Weatherford shares continue to be listed on the New York Stock Exchange and the NYSE Euronext.

www.ogfj.com • Oil & Gas Financial Journal December 2010

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DEVELOPING NEW RESOURCES Developing hydrocarbon resources from shales, tight sands and coals has the potential for providing Europe with vast new sources of fuels to meet its increasing energy demands. The experience from North America demonstrates the huge potential that could transform the energy mix within Europe.

WHY YOU SHOULD ATTEND Unconventional Oil & Gas Europe will bring together senior level decisionmakers from across major production and exploration companies so you can: • Analyze the growing opportunities across Europe • Examine the newest technological advancements • Receive the latest updates on the European Energy Policy • Network with your peers and industry professionals

WHY YOU SHOULD EXHIBIT Put your products in front of the people that matter enabling you to: • Position yourself as a market leader • Meet face-to-face with qualified buyers • Launch, introduce and demonstrate your new products and services • Stay ahead of your competition If your organization is looking to raise or increase its profile in this exciting field, then a presence at the Unconventional Oil & Gas Europe Conference and Exhibition is essential. For more information visit: www.unconventionaloilandgaseurope.com For exhibition and sponsorship opportunities contact: Peter Cantu North America T: +1 713 963 6213 E: [email protected]

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Energy Players Lamoreaux joins new Siemens Financial energy finance office

US Steel Tubular Products degree from Villanova University and a honors McClendon with Chief master’s degree from Widener UniverRoughneck Award sity. He also completed Harvard Uni-

Siemens Financial Services Inc. (SFS Inc.), the US unit of Siemens Financial Services, has appointed Scott Lamoreaux as vice president, Energy Finance. Lamoreaux will establish Lamoreaux a Houston office to better service existing and potential oil and gas clients. Lamoreaux joins SFS Inc. from DZ Bank, where he led upstream origination activities in the Houston oil and gas marketplace. He focused on providing project finance, structured finance, and other related services throughout the energy sector. Prior to DZ Bank, Lamoreaux was with El Paso Energy Finance Group as a managing director for the structured finance business.

US Steel Tubular Products Inc., a subsidiary of United States Steel Corp., has awarded Aubrey K. McClendon, chairman of the board and CEO of Chesapeake Energy Corp., McClendon its Chief Roughneck Award for 2010. The announcement was made at the 81st annual meeting of the Independent Petroleum Association of America. US Steel executive vice president and COO John H. Goodish presented McClendon with the traditional Chief Roughneck bronze bust and hard hat. The award was created in 1955 to honor the lifetime achievements of petroleum industry leaders.

Northern Tier Energy names Murphy CFO

Rex Energy names Churay CEO Northern Tier Energy Rex Energy Corp. has appointed Daniel J. Churay as its president and CEO. Churay has served as a director of the company since 2007, including as chairman of the Churay Compensation Committee. He has also served on the Audit and Governance Committees. He will remain a member of the board. Churay began his career with Fulbright & Jaworski LLP advising clients in the oil and gas industry. He then served as deputy general counsel and assistant secretary of Baker Hughes. He served as an acting general counsel and secretary during a year-long CEO transition at Baker Hughes and managed the legal affairs of Baker Hughes Solutions. For the past eight years, he has served as executive vice president, general counsel and secretary of YRC Worldwide Inc. He earned his bachelor’s degree from the University of Texas and his JD from the University of Houston.

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LLC has named Neal E. Murphy as its CFO. Northern Tier Energy LLC was formed recently when ACON Investments and TPG Capital announced Murphy their agreement with Marathon Oil Corp.’s wholly owned subsidiary, Marathon Petroleum Co. LP, to acquire the majority of Marathon’s Minnesota downstream assets. Northern Tier was formed to operate the assets. The transaction is expected to close before year-end, subject to customary closing conditions. Most recently, Murphy was vice president and CFO of Sunoco Logistics Partners LP. Sunoco Logistics is a $7-billion, publicly held company engaged in the transport, terminalling, and storage of refined products and crude oil and the purchase and sale of crude oil. Prior to joining Sunoco Logistics, Murphy held CFO positions with Quaker Chemical Corp. and with International Specialty Products. He received a bachelor’s

versity’s 11-week International Executive Advanced Management Program. He is a Certified Public Accountant.

Regency Energy Partners makes management changes Regency Energy Partners LP has made several management changes, including the appointment of Michael J. Bradley as president and CEO. Bradley, an industry Bradley veteran with nearly 30 years of natural gas pipeline and midstream experience, has been an independent director of Regency since January 2008. Bradley succeeds Byron Kelley who has Long retired from his positions as president and CEO and as an officer and director of Regency. Kelley has served as president and CEO and a director of Regency since April 2008. Bradley previously served as president and CEO of Matrix Service Co. since November 2006. Prior to joining Matrix, he served in various leadership positions at both DCP Midstream Partners and Duke Energy Field Services. Kelley will assist Regency on a consulting basis for three years. Regency has appointed Thomas E. Long as executive vice president and CFO. Long will also assume the role of principal financial officer for SEC purposes. He has more than 30 years of experience in the industry. He also joins Regency from Matrix Service Co., where he has served as vice president and CFO since April 2008. Prior to joining Matrix, Long served as vice president and CFO of DCP Midstream Partners and other executive positions for subsidiaries of Duke Energy. The company has appointed Jim Holotik as executive vice president and chief commercial officer.

www.ogfj.com • Oil & Gas Financial Journal December 2010

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Energy Players Holotik, who has more than 30 years of experience, joins Regency from Energy Transfer Partners LP where he most recently led its merger and acquisition efforts and also served as president of Transwestern Pipeline Co. LLC. Regency has promoted Shannon A. Ming to senior vice president of finance and investor relations. Ming, who joined Regency in April 2006 as director of investor relations, most recently served as vice president of investor relations and corporate finance support. A. Troy Sturrock, who has served as vice president and controller for Regency since February 2008, has been designated principal accounting officer for SEC reporting purposes. Sturrock joined Regency in June 2006 as assistant controller and director of financial reporting and tax.

LNG names Begley new executive VP William (Bill) E. Begley has joined LNG Energy Ltd. as executive vice president. Begley has more than 25 years of energy industry and finance experience and began his career with BP. Begley has held senior positions in energy banking and was recently president of Stone & Webster Management Consulting. Begley has been involved in over $100 billion in global energy related mergers and acquisitions, initially with Salomon Brothers and more recently on an independent basis through WEB Gruppe LLC. Begley’s JD/MBA studies are in International Business & Energy Law, and his undergraduate studies were at St. Michaels’ College in Vermont.

David Muse joins P2 Energy Solutions David Muse has joined P2 Energy Solutions’ leadership team as senior vice president of Global Sales & Marketing. Muse will be responsible for continuing P2 Energy Solu-

Muse

tions’ North American and international growth, and the development of comprehensive solutions to better serve the needs of energy clients. Muse previously ran Global Energy Consulting at SAIC. He has executive leadership and sales experience with Aspen Technology, IBM, and Honeywell. Muse served as partner, Upstream Consulting Practice leader, and North American lead for a management consulting firm where he led numerous reengineering, ERP, and best practice implementation projects within the oil and gas industry. He has a degree from Texas A&M and an MBA from the University of Texas.

Former Smith International executive Chandler joins Jones Day in Houston Richard E. Chandler, Jr., formerly senior vice president, general counsel and corporate secretary of Smith International Inc., has joined the Houston office of Jones Day as Chandler a partner in the Energy Practice. He will focus on transactional, governance, and compliance issues. At Smith, which is a Jones Day client, Chandler led the negotiating team in over 35 acquisitions around the world, including its $11 billion merger with Schlumberger earlier this year and its $3.2 billion tender offer for W-H Energy Services in 2008. In addition to the positions he held at Smith since 2005, Chandler served as senior vice president, general counsel, and secretary of M-I SWACO. He began his legal career with Halliburton.

Sterling makes management, board changes Sterling Energy plc has made changes to its board of directors and management. Angus MacAskill has been appointed CEO and a director of Sterling; Alastair Beardsall who has been undertaking the role of CEO will continue to be Sterling’s executive

chairman. MacAskill graduated from Edinburgh University with a bachelor’s degree. He began his career with Schlumberger. He then earned a master’s degree from Heriot-Watt University, Edinburgh, after which, he joined Mobil Oil and served at the company for 10 years. During that time, he earned an MBA from Aberdeen University. Angus joined Enterprise Oil in 1997 where he rose to the position of vice president for business development (USA). In 2002, he was appointed vice president with Waterous & Co. In 2004, Angus was appointed an executive director of Elixir Petroleum. He joined Emerald Energy in 2006 as COO and later was appointed CEO. Richard Stabbins intends to retire and will step down from the board effective December 31, 2010. Malcolm Pattinson has been appointed a nonexecutive director of Sterling effective immediately. Pattinson is a geoscientist with 40 years of experience. Until 2001 he was the vice president of exploration for Ranger Oil (which became CNR); and prior, was exploration vice president for Hamilton Oil (which became BHP). He is the chairman of GTO Ltd. and recently stepped down as a director from Aurelian Oil and Gas Plc.

IMV Projects appoints new president IMV Projects, a Wood Group project execution company for the energy industry, has appointed Kevin O’Brien as president, effective January 1, 2011. Ivan Velev, founding presi- O’Brien dent of IMV Projects, will continue to serve the company as chairman of the board. O’Brien has more than 15 years of experience in Alberta’s oil and gas sector and previously served as COO. He holds a bachelor’s degree from Queen’s University in Kingston, Ontario. O’Brien joined the company in 2001.

December 2010 Oil & Gas Financial Journal • www.ogfj.com

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Energy Players White joins Union Drilling as VP, safety and training Forth Worth, Tex.-based Union Drilling Inc. has named Craig L. White as vice president of safety and training. White joins Union after serving seven years as a senior consultant and key account manager at Moody International. Prior to Moody, White served in various consultant and management roles in the field of health, safety and the environment since 1993. He has a degree from the University of New England QLD Australia.

Swire Oilfield names Hardwick president Swire Oilfield Services has named Steve Hardwick president, North America. He will manage all aspects of Swire’s operations in the US, Canada, and Mexico. Hardwick has 30 years experience in the industry. Most of this time has been with TETRA Technologies, an oil and gas service company based in Houston, Texas, where he most recently held the position of vice president and general manager of the US Gulf of Mexico and global vice president of business development. He earned his bachelor’s degree through Texas A&M and Liberty University. Swire Oilfield Services, part of the London based Swire Group, is a large supplier of specialty offshore cargo carrying units to the global energy industry and is a specialist in pressurized units, helicopter fuel systems and chemical handling services.

Societe Generale adds Herrlin to head US Energy Research Societe Generale Corporate & Investment Banking has hired John P. Herrlin Jr. to head its oil and gas equity research in the US where he will cover US integrated energy companies as well as North American independents (E&Ps). He will be based in New York. Herrlin joins Societe Generale Cross Asset Research department as the firm begins to create a targeted US equity

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research platform focusing on key global areas of coverage, including oil, gas and natural resources companies, and financial services companies. Herrlin joins from Alpha One Capital Partners. Prior to that he spent 14 years at Merrill Lynch as an oil and gas analyst where he followed US and Canadian E&Ps since 1999, and US integrated energy companies since 2004. He has also covered the oil and gas industry at Lehman Brothers and Smith Barney. Herrlin has an undergraduate degree from the University of Montana, conducted graduate studies at the University of Montana and Colorado School of Mines, and earned an MBA from the University of Denver.

Heerema Marine names interim CFO Following the departure of Jan-Hein Jesse as Heerema Marine Contractors (HMC) CFO, the company has named Frans van de Werff interim CFO. van de Werff has been working for the Heerema Group for 25 years in various financial management and other positions.

BP appoints two directors BP plc has named Brendan Nelson and Frank L. “Skip” Bowman as non-executive directors. Nelson will succeed Douglas Flint as chairman of BP’s Audit Committee when Flint retires from the board at the conclusion of the 2011 BP Annual General Meeting. Nelson was admitted as a partner of KPMG in London in 1984. He served as a member of the UK Board of KPMG from 2000 to 2006 following which he was appointed vice chairman until his retirement in 2010. He is a non-executive director of The Royal Bank of Scotland Group plc where he is chairman of the Group Audit Committee. Bowman served for more than 38 years in the US Navy rising to the rank of Admiral. He was director of the Naval Nuclear Propulsion Programme and, concurrently, deputy administrator - Naval Reactors in the National

Nuclear Security Administration at the US Department of Energy. Following his Navy career, Bowman was president and CEO of the Nuclear Energy Institute. He served as a member of the BP Independent Safety Review Panel and the BP America External Advisory Council. He is a director of Naval & Nuclear Technologies LLP and president of Strategic Decisions LLC.

Miller to lead Williams’ midstream business Williams and Williams Partners LP have elected Rory Miller as senior vice president of Williams and senior vice president-midstream and director of Williams Partners, effective Jan. 3, 2011. He most recently served as vice president of the company’s onshore gathering and processing business. Over the past 20 years with Williams, Miller has served in various onshore and offshore supply-area leadership roles. Before joining Williams, he held similar positions with Tennessee Gas Pipeline and Delhi Gas Pipeline. He earned a bachelor’s degree from Utah State University and a master’s degree in organizational development from Case Western Reserve University’s Weatherhead School of Management.

James Stutts to retire as Dominion general counsel Dominion’s senior vice president and general counsel, James F. Stutts, will retire from the company, effective Jan. 1, 2011. Subject to board approval, Robert M. Blue will be promoted to senior vice president-Law, Public Policy & Environment, and Carter M. Reid will become general counsel and vice president-Governance and corporate secretary. Stutts joined Dominion in 1997. Prior to his tenure at Dominion, Stutts was a partner at McGuire, Woods, Battle & Boothe (now McGuireWoods LLP) and McSweeney, Stutts & Burch (now McSweeney & Crump). Before earning his law degree, Stutts served as vice president-Corporate Finance for Wheat First Securities

www.ogfj.com • Oil & Gas Financial Journal December 2010

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Energy Players in Richmond, Va. Blue is senior vice president-Public Policy & Environment. He joined Dominion in 2005. Reid is the company’s vice presidentGovernance and corporate secretary. She came to Dominion in 1996.

Concho Resources promotes Wright, Harper Concho Resources Inc. has promoted E. Joseph Wright to senior vice president and COO and Jack F. Harper to senior vice president and chief of staff. Wright has been with the company since its inception in 2004, most recently as senior vice president, engineering and operations. He holds a bachelor’s degree from Texas A&M University. Harper has been with the company since 2006, most recently as senior vice president, business development and capital markets. He holds a bachelor’s degree from Baylor University.

was most recently with Eckert Seamans Cherin & Mellott in Pittsburgh and prior to that was an associate in the Commercial and Corporate Litigation Group with Thorp Reed. He earned his undergraduate degree from Bowdoin College in Brunswick, Maine, and his JD from the Moritz College of Law at Ohio State University.

April 2010, initially running the New Ventures area. He joined PGS in 2001 from Norsk Hydro where he served as chief professional, geophysics. He holds a master’s degree from the University of Oslo, and a master’s degree from MIT/NTH.

Total names new chief purchasing officer

The Artificial Lift Co. Ltd. (ALC), an artificial lift service company in the oil and gas industry, has appointed David Malone, chief technology officer for Shoaibi Group, as a board member. At Shoaibi Group, Malone manages group oil and gas technology investments, as well as assists joint venture partners and portfolio companies in their technology and business development activities. Prior to joining Shoaibi Group, Malone worked at Schlumberger for more than 26 years. Malone has a bachelor’s degree from the University of Kentucky. He holds 22 patents in the MWD, LWD, Directional Drilling, Seismic and Completions domains.

Total SA has appointed Sonia Sikorav chief purchasing officer. Sikorav is a graduate of École Normale Supérieure and an associate professor of physical sciences. She holds a PhD and an MSM from the MIT Sloan School of Management (Sloan Fellow Program). She began her career at RhônePoulenc and served as assistant to the head of chemicals research. She then joined Saint-Gobain, where she managed industrial development and steel operations for the technical ceramBurleson Cooke adds lawyers ics business, later becoming head of to Pittsburgh office companies in two branches: ceramics Burleson Cooke has added three new and plastics, and packaging. In 2000, attorneys to the energy law firm’s Pitts- she was tasked with creating and heading Saint-Gobain’s new Purchasburgh office. Three lawyers – Andrew ing Department. In 2005, Sikorav Jenkins, Kevin Barley, and Samuel Stoller – have expertise in a number of became senior vice president, Products practice areas that will enable Burleson and Strategy for Alstom Transport. In 2007, she joined an executive reCooke to deliver a more comprehencruitment firm as a senior consultant sive range of services to companies working in the Marcellus Shale. Barley specializing in industry and procurecomes to Burleson Cooke from Babst, ment. She became a member of Total’s Corporate Purchasing management Calland, Clements and Zomnir in team in early October and will replace Pittsburgh, where he practiced in the Jean Bié as senior vice president of the Litigation Services and Construction Services Groups. He earned his department effective January 1, 2011. undergraduate degree from SusquePGS selects new VP hanna University and his JD from the Oslo, Norway-based Petroleum GeoUniversity of Pittsburgh School of Services ASA (PGS) has accepted the Law. Jenkins joins Burleson Cooke resignation of Rune Eng as execufrom Thorp, Reed & Armstrong in tive vice president Marine Contract. Pittsburgh. He will concentrate his Eng has accepted a position as CEO practice in the areas of business litigation, energy law, construction law, and of Spectrum ASA. Per Arild Reksnes, executive vice president and head of business and contract law. He earned PGS’ Business Area New Ventures will his undergraduate degree from Penn take over the position as EVP Marine State and his JD from the University Contract. Reksnes became EVP in of Pittsburgh School of Law. Stoller

Artificial Lift names Malone to board

eCORP International names Harris COO eCORP International LLC has added Thomas G. Harris to the senior management team as COO and a member of the eCORP Board of Managers. Harris comes to eCORP from his most recent engagement as founder in 2008 of BlackRock Exploration & Production LLC. Before founding BlackRock, Harris, as president, co-founded Kerogen Resources Inc. Harris spent the first 12 years of his career with Amoco Production Co., followed by a period with Canadian Hunter Exploration in Calgary. After leaving Canadian Hunter, Harris led ResTech Inc. for seven years as president and CEO. Following his time at ResTech, and prior to forming Kerogen, Harris served as president and CEO of PetroSolutions. Harris has a bachelor’s degree from Michigan State University and a master’s degree from the University of South Carolina.

December 2010 Oil & Gas Financial Journal • www.ogfj.com

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f you go downtown to the business district, the theatre district, you can see it is well kept... handsome buildings, lots of theatres, plays, musicals, arts, along well-kept streets. There is a certain civic pride and confidence and a thrust to a better tomorrow, and I think that is the way Singapore should be”. Advocated by one of Singapore’s most respected politicians, these words marked Singapore Prime Minister Lee Hsien Loong and his delegation’s visit to Houston, USA, in July 2010. Given the 24 percent trade growth between Houston and Singapore in 2009, and Singapore’s ambition to diversify its economy, it should come to no surprise that Lee aims to attract more foreign investment to the Lion City. What might be surprising is the fact that the island country of less than 275 square miles in surface is specifically looking to attract investors in the energy business, despite having zero natural reserves of oil and gas.

Singapore: Leadership in Pro-Active Thinking This sponsored supplement was produced by Focus Reports. Project Director: Léa Boubon. Editorial Coordinator: Koen Liekens. Support: Anne-Lyse Raoul and James Waddell. For exclusive interviews and more info, please log onto www.energy. focusreports.net or write to [email protected]

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Lee Hsien Loong, Prime Minister of Singapore

Lawrence Wong, Chief Executive at EMA

Commenting on the investment potential in Singapore, chief executive Chong Lit Cheong of International Enterprise (IE) Singapore, the government’s agency spearheading the development of Singapore’s external economy, says that “the word arbitrage is sometimes used to describe Singapore’s position, because it is central to the flow of values, money, information and people”. Lawrence Wong, chief executive of the Energy Market Authority (EMA), the body that acts as energy industry regulator, systems operator and industry developer, agrees that Singapore is an attractive location for new investments in the energy space. “Singapore and EMA certainly welcome collaboration with the private sector because these are areas where the government does not have all the expertise and would welcome the competencies and capabilities of private compa-

nies”, Wong finds. The visit of Prime Minister Lee to Houston is only one example of Singapore’s outward-looking and proactive policy. The remarkable extent of Singapore’s proactiveness has allowed the nation to grow into its current hub status, servicing an integrated part of the oil and gas value chain. “Singapore has proven to the world that it has the infrastructure and technology as well as the management skill set to be able to help companies and businesses in this sector”, comments Tan Poh Teck, deputy executive director of the global business division of the Singapore Business Federation (SBF).

Supplying the World’s E&P Markets If jack-up rigs would have a “made in” tag, it would immediately illustrate one of the key products that Singapore has been vigorously developing in-house. Following the latest statistics of its Ministry for Trade and Industry, Singapore holds a 70 percent manufacturing share of the world’s jackup rigs. With the addition of an equal share of the world’s Floating Production, Storage and Offloading (FPSO) units being converted on its grounds, Singapore today has risen to become the world leader in this niche. The two local flagship companies bringing the majority of these contracts to the Republic are the well-established Sembcorp Industries Ltd and Keppel Corporation Limited. With heavily diversified operations, roughly 60 percent of Sembcorp’s and 67.5 percent of Keppel’s group turnovers were attributable to their

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Basic facts and figures on Singapore Population 4.8 million GDP

$182bn

GDP per capita

$37597 i.e. among the top 5 in the world after Qatar, Luxembourg & Norway

GDP Growth

15.5% for Q12010 on a year to year basis, forecast of 7-9% growth for 2010

GDP by sector Main industries

Exports

26.8% industry, 73.2% services Electronics, chemicals, financial services, oil drilling equipment, petroleum refining, rubber, ship repair, offshore services & platform construction, life sciences Machinery & equipment, consumers’ goods, pharmaceuticals & chemicals, mineral fuels

Export partners

Hong Kong (11,6%) Malaysia (11,5%) USA (11,2%) Indonesia (9,7%) China (9,7%) Japan (4,6%)

Imports

machinery & equipment, mineral fuels, chemicals, foodstuffs, consumer goods

Import partners

USA (14,7%) Malaysia (11,6%) China (10.5%) Japan (7,6%) Indonesia (5.8%) South Koroa (5,7%)

respective marine divisions in 2009. Despite last year’s global downturn, the two giants were able to draw on the construction boom of preceding years to perform well nonetheless. “As a result, Keppel successfully delivered 14 rigs, 14 specialized vessels and six major conversions and upgrades for various customers in 2009”, says Choo Chiau Beng, CEO of Keppel Corporation. S. Iswaran, Senior Minister of State for Trade & Industry, and Education Looking at how Singaporebased companies are able to export their expertise and gain market share on the international platform, most seem to have the ability to enter overseas markets quickly and efficiently. Ranked as the most globalised country by management consultant firm A.T. Kearney, Singapore’s internationally-exposed companies are consequently more adaptable when operating abroad. “The society is more understanding of local cultures because of the differences in cultures around Singapore from Thailand to Malaysia, Vietnam and Taiwan”, says Francis Wong, CEO of the USD 400 million Singapore EPIC contractor Swiber Holdings Limited. Exporting the groundbreaking expertise from leaders such as Sembcorp and Keppel, as well as smaller players such as Swiber, has been crucial in putting Singapore on the global oil and gas map, a progress that is set to continue.

Moving Towards a Safety-Case Regime: the Right Equipment Looking back at early 2010, the blowout on the Transocean / BP platform has become an adverse factor impacting the oil and gas industry worldwide. Concerns have been raised over

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Energy usage Oil Consumption (2002E)

722,000 barrels per day (bbl/d) (all imported)

Crude Oil Refining Capacity (1/1/02E)

1.3 million bbl/d

Natural Gas Consumption (2000E)

53 billion cubic feet (Bcf) (all imported)

Electric Generation Capacity (1/1/00E)

6.7 gigawatts (all thermal)

Electricity Generation (2000E)

27.9 billion kilowatt hours

the new and stricter safety standards that are to be imposed as the industry moves forward. However, as Singapore has grown into an engineering center renowned for its high standards, many of its oil and gas related businesses do not necessarily perceive this trend as a major threat. Quite the opposite, several of the Singaporebased players see the event as an opportunity to export their Chong Lit Cheong, CEO of IE Singapore trusted brands. “Given that Prosafe is already positioned at the premium end of the offshore accommodation market, we know that we are well-placed to meet the high standards of the industry”, proclaims Robin Laird, managing director of Singapore-based Prosafe Offshore, the leading owner and operator of semi-submersible accommodation and service rigs. David Ong, CEO of process automation and safety systems solutions provider Excel Marco, sees the implications of the unfortunate tragedy as a growth opportunity for his Singaporean company. “Such events increase the market size, causing demand to go up. As new regulations come along, capital investments need to take place accordingly”, Ong concludes.

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The country accounts for 3.37% of the APAC region oil demand in 2010, and 2.16% of the gas demand but does not contribute to any supply.

Choo Chiau Beng, CEO of Keppel Corporation Limited

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In view of these additional investments that may arise, many of the operators will be extra cautious when allocating their scarce resources. With shallow water oil reserves depleting and E&P companies increasingly moving into deepwater and harsher environments, cost management will become even more important. “Designing and constructing a drilling rig, you have to make certain critical decisions which involves accepting a number of compromises with respect to cost, weight, size, operational capabilities etc.” comments Simen Skaare Eriksen, CEO of Frigstad Offshore, the international drilling contractor headquartered in Singapore. Expected to be delivered by late 2010, the prestigious Frigstad D90 design lays the groundwork for ultra deepwater semi-submersible drilling rigs with the ability to cover 95% of the world’s deepwater areas. “One of the decisions that were taken in the design process was to focus on the worldwide deepwater market except Norway and the Barents Sea niche, because of its “ultra harsh environment” and special regulatory regime. This automatically takes away some essential cost-driving and capacity-hampering factors which would reduce the competitiveness of the rig when operating outside of these niche areas” Eriksen points out. Olivier Chapuis, co-founder and present director at rig designer firm Moonpool Consultants, concurs that contemporary rig design must focus on the following key principles: “easy to operate, easy

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Courtesy of Frigstad Offshore.

to maintain, as simple as possible but with modern technology, comfortable and safe life on board, innovation but costs under control”. Moving away from projects to day-to-day operations, stricter regulations in the oil and gas industry will in fact benefit many of the Singapore-based maintenance firms, anticipating an increase in demand for additional work on some of the older equipment out there. Robert Dompeling, Group CEO of EPC and EPCm provider PEC Ltd., explains that while the company is also involved in project work, the maintenance business is the backbone providing revenue stability. Specialist in plant and terminal engineering, PEC sees most growth potential in projects and maintenance services that require more specialized expertise. “We are already working with all the key players in the industry, and have won numerous awards from clients and Singapore government bodies for our ability to plan in advance and maintain safety and quality control standards at all times”, the CEO argues. Dompeling further points out that “Singapore companies have a competitive advantage in certain specialized areas when entering new markets, as they tend to have a deeper level of knowledge compared to many engineering companies outside Singapore”. When asked about PEC’s growth potential in Singapore’s booming FPSO projects, Dompeling concludes that PEC sees opportunities in offshore work, as he is convinced its expertise is transferable. “After all, work done in a petrochemical plant on land is not so different from doing work on an offshore platform”, Dompeling finds.

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Wood Group Australia

Moving Towards a Safety-Case Regime: the Right People Singapore’s FPSO market has already attracted a plethora of well-integrated international players and today houses “some of the best shipyards in the world to perform FPSO conversion and integration work”, comments recently appointed CEO of Global Process Systems (GPS) Ian Prescott. “With GPS’ fabrication facility only a 40-minute ferry ride away in Batam,

𰁐𰁅𰁃𰀠 𰁌𰁔𰁄𰀮

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Indonesia, the company can do all the design in Singapore and have the fabrication done in Batam, before the finished products are brought back to the Singapore shipyards for implementation”, explains the CEO of this Dubai-based provider of technology-based -design and build- process facilities for the upstream sector. Prescott further praises his company for adhering to outstanding safety standards which, he says, “is being achieved by profiling GPS as a local company. In terms of HSE performance, GPS is locally driven but only because the company has the confidence in these people and sees that they are at the right level to manage the business”. If the industry will raise its standards following the Deepwater Horizon incident, more work for companies such as PEC and GPS will automatically follow. Having the right people in place will therefore become ever more important. However, some might wonder where to find this human capital. Following an influx of expatriates, there now seems to be a recurring trend to progressively rely on indigenous workforces to Robert Dompeling, Group CEO of PEC Ltd spread knowledge across the

𰁁𰀠 𰁌𰁥𰁡𰁤𰁩𰁮𰁧𰀠 𰁓𰁥𰁲𰁶𰁩𰁣𰁥𰀠 𰁐𰁲𰁯𰁶𰁩𰁤𰁥𰁲𰀠 𰀦𰀠 𰁐𰁲𰁥𰁦𰁥𰁲𰁲𰁥𰁤𰀠 𰁂𰁵𰁳𰁩𰁮𰁥𰁳𰁳𰀠 𰁐𰁡𰁲𰁴𰁮𰁥𰁲

𰁆𰁲𰁯𰁭𰀠 𰁡𰀠 𰁬𰁯𰁣𰁡𰁬𰀠 𰁰𰁬𰁡𰁹𰁥𰁲𰀠 𰁩𰁮𰀠 𰀱𰀹𰀸𰀲𰀠 𰁴𰁯𰀠 𰁡𰀠 𰁭𰁡𰁩𰁮𰁢𰁯𰁡𰁲𰁤𰀠 𰁬𰁩𰁳𰁴𰁥𰁤𰀠 𰁦𰁩𰁲𰁭𰀠 𰁯𰁮𰀠 𰁴𰁨𰁥𰀠 𰁓𰁩𰁮𰁧𰁡𰁰𰁯𰁲𰁥𰀠 𰁓𰁴𰁯𰁣𰁫𰀠 𰁅𰁸𰁣𰁨𰁡𰁮𰁧𰁥𰀠 𰁩𰁮𰀠 𰀲𰀰𰀰𰀹𰀬𰀠 𰁐𰁅𰁃𰀠 𰁌𰁔𰁄𰀮𰀠 𰁨𰁡𰁳𰀠 𰁥𰁳𰁴𰁡𰁢𰁬𰁩𰁳𰁨𰁥𰁤𰀠 𰁩𰁴𰁳𰁥𰁬𰁦𰀠 𰁡𰁳𰀠 𰁡𰀠 𰁲𰁥𰁬𰁩𰁡𰁢𰁬𰁥𰀠 𰁰𰁬𰁡𰁮𰁴𰀠 𰁡𰁮𰁤𰀠 𰁴𰁥𰁲𰁭𰁩𰁮𰁡𰁬𰀠 𰁥𰁮𰁧𰁩𰁮𰁥𰁥𰁲𰁩𰁮𰁧𰀠 𰁳𰁰𰁥𰁣𰁩𰁡𰁬𰁩𰁳𰁴𰀠 𰁰𰁲𰁯𰁶𰁩𰁤𰁩𰁮𰁧𰀠 𰁐𰁲𰁯𰁪𰁥𰁣𰁴𰀠 𰁗𰁯𰁲𰁫𰁳𰀬𰀠 𰁍𰁡𰁩𰁮𰁴𰁥𰁮𰁡𰁮𰁣𰁥𰀠 𰁓𰁥𰁲𰁶𰁩𰁣𰁥𰁳𰀠 𰁡𰁮𰁤𰀠 𰁯𰁴𰁨𰁥𰁲𰀠 𰁲𰁥𰁬𰁡𰁴𰁥𰁤𰀠 𰁳𰁥𰁲𰁶𰁩𰁣𰁥𰁳𰀠 𰁴𰁯𰀠 𰁴𰁨𰁥𰀠 𰁯𰁩𰁬𰀠 𰁡𰁮𰁤𰀠 𰁧𰁡𰁳𰀬𰀠 𰁰𰁥𰁴𰁲𰁯𰁣𰁨𰁥𰁭𰁩𰁣𰁡𰁬𰀬𰀠 𰁯𰁩𰁬𰀠 𰁡𰁮𰁤𰀠 𰁣𰁨𰁥𰁭𰁩𰁣𰁡𰁬𰀠 𰁴𰁥𰁲𰁭𰁩𰁮𰁡𰁬𰁳𰀬𰀠 𰁡𰁮𰁤𰀠 𰁰𰁨𰁡𰁲𰁭𰁡𰁣𰁥𰁵𰁴𰁩𰁣𰁡𰁬𰀠 𰁩𰁮𰁤𰁵𰁳𰁴𰁲𰁩𰁥𰁳𰀠 𰁩𰁮𰀠 𰁁𰁦𰁲𰁩𰁣𰁡𰀬𰀠 𰁁𰁳𰁩𰁡𰀬𰀠 𰁅𰁵𰁲𰁯𰁰𰁥𰀠 𰁡𰁮𰁤𰀠 𰁴𰁨𰁥𰀠 𰁍𰁩𰁤𰁤𰁬𰁥𰀠 𰁅𰁡𰁳𰁴𰀮𰀠 𰁗𰁩𰁴𰁨𰀠 𰁡𰀠 𰁳𰁩𰁺𰁥𰁡𰁢𰁬𰁥𰀠 𰁰𰁯𰁯𰁬𰀠 𰁯𰁦𰀠 𰁳𰁫𰁩𰁬𰁬𰁥𰁤𰀠 𰁬𰁡𰁢𰁯𰁲𰀠 𰁦𰁯𰁲𰁣𰁥𰀬𰀠 𰁡𰁳𰀠 𰁷𰁥𰁬𰁬𰀠 𰁡𰁳𰀠 𰁡𰀠 𰁬𰁡𰁲𰁧𰁥𰀠 𰁡𰁮𰁤𰀠 𰁧𰁲𰁯𰁷𰁩𰁮𰁧𰀠 𰁦𰁬𰁥𰁥𰁴𰀠 𰁯𰁦𰀠 𰁣𰁯𰁮𰁳𰁴𰁲𰁵𰁣𰁴𰁩𰁯𰁮𰀠 𰁥𰁱𰁵𰁩𰁰𰁭𰁥𰁮𰁴𰀬𰀠 𰁐𰁅𰁃𰀠 𰁩𰁳𰀠 𰁡𰁢𰁬𰁥𰀠 𰁴𰁯𰀠 𰁰𰁲𰁯𰁶𰁩𰁤𰁥𰀠 𰁳𰁩𰁮𰁧𰁬𰁥𰀭𰁳𰁯𰁵𰁲𰁣𰁥𰀠 𰁦𰁵𰁬𰁬𰀠 𰁴𰁵𰁲𰁮𰁫𰁥𰁹𰀠 𰁥𰁮𰁧𰁩𰁮𰁥𰁥𰁲𰁩𰁮𰁧𰀬𰀠 𰁰𰁲𰁯𰁣𰁵𰁲𰁥𰁭𰁥𰁮𰁴𰀬𰀠 𰁣𰁯𰁮𰁳𰁴𰁲𰁵𰁣𰁴𰁩𰁯𰁮𰀠 𰁡𰁮𰁤𰀠 𰁭𰁡𰁩𰁮𰁴𰁥𰁮𰁡𰁮𰁣𰁥𰀠 𰁳𰁥𰁲𰁶𰁩𰁣𰁥𰁳𰀮𰀠 𰁐𰁲𰁯𰁪𰁥𰁣𰁴𰀠 𰁗𰁯𰁲𰁫𰁳𰀠 𰁅𰁮𰁧𰁩𰁮𰁥𰁥𰁲𰁩𰁮𰁧𰀬𰀠 𰁐𰁲𰁯𰁣𰁵𰁲𰁥𰁭𰁥𰁮𰁴𰀠 𰁡𰁮𰁤𰀠 𰁃𰁯𰁮𰁳𰁴𰁲𰁵𰁣𰁴𰁩𰁯𰁮𰀠 𰁍𰁡𰁮𰁡𰁧𰁥𰁭𰁥𰁮𰁴𰀠 𰀠 𰀠 𰀨𲀜𰁅𰁐𰁃𰁭𲀝𰀩𰀠 𰀦𰀠 𰁅𰁮𰁧𰁩𰁮𰁥𰁥𰁲𰁩𰁮𰁧𰀬𰀠 𰁐𰁲𰁯𰁣𰁵𰁲𰁥𰁭𰁥𰁮𰁴𰀠 𰁡𰁮𰁤𰀠 𰁃𰁯𰁮𰁳𰁴𰁲𰁵𰁣𰁴𰁩𰁯𰁮𰀠 𰀨𲀜𰁅𰁐𰁃𲀝𰀩 𰁐𰁲𰁯𰁪𰁥𰁣𰁴𰀠 𰁭𰁡𰁮𰁡𰁧𰁥𰁭𰁥𰁮𰁴𰀠 𰁣𰁯𰁮𰁳𰁵𰁬𰁴𰁡𰁮𰁣𰁹 𰁃𰁯𰁮𰁳𰁴𰁲𰁵𰁣𰁴𰁩𰁯𰁮𰀠 𰁯𰁦𰀠 𰁡𰀠 𰁣𰁥𰁲𰁴𰁡𰁩𰁮𰀠 𰁰𰁡𰁲𰁴𰀠 𰁯𰁦𰀠 𰁡𰀠 𰁰𰁬𰁡𰁮𰁴𰀯𰁴𰁥𰁲𰁭𰁩𰁮𰁡𰁬 𰁍𰁡𰁩𰁮𰁴𰁥𰁮𰁡𰁮𰁣𰁥𰀠 𰁓𰁥𰁲𰁶𰁩𰁣𰁥𰁳 𰁍𰁡𰁩𰁮𰁴𰁥𰁮𰁡𰁮𰁣𰁥𰀬𰀠 𰁴𰁵𰁲𰁮𰁡𰁲𰁯𰁵𰁮𰁤𰀠 𰁡𰁮𰁤𰀠 𰁲𰁥𰁶𰁡𰁭𰁰𰀯𰁵𰁰𰁧𰁲𰁡𰁤𰁩𰁮𰁧𰀠 𰁳𰁥𰁲𰁶𰁩𰁣𰁥𰁳𰀠 𰁦𰁯𰁲𰀠 𰁰𰁲𰁯𰁣𰁥𰁳𰁳𰁩𰁮𰁧𰀠 𰁰𰁬𰁡𰁮𰁴𰁳𰀠 𰁡𰁮𰁤𰀠 𰁴𰁥𰁲𰁭𰁩𰁮𰁡𰁬𰁳𰀮 𰁓𰁰𰁥𰁣𰁩𰁡𰁬𰁴𰁹𰀠 𰁳𰁥𰁲𰁶𰁩𰁣𰁥𰁳𰀠 𰁩𰁮𰁣𰁬𰁵𰁤𰁩𰁮𰁧𰀠 𰁨𰁥𰁡𰁴𰀠 𰁴𰁲𰁥𰁡𰁴𰁭𰁥𰁮𰁴𰀬𰀠 𰁬𰁥𰁡𰁫𰀭𰁦𰁲𰁥𰁥𰀠 𰁡𰁳𰁳𰁵𰁲𰁡𰁮𰁣𰁥𰀬𰀠 𰁰𰁡𰁩𰁮𰁴𰁩𰁮𰁧𰀠 𰀦𰀠 𰁢𰁬𰁡𰁳𰁴𰁩𰁮𰁧𰀬𰀠 𰁩𰁮𰁳𰁵𰁬𰁡𰁴𰁩𰁯𰁮𰀠 𰀦𰀠 𰁲𰁥𰁦𰁲𰁡𰁣𰁴𰁯𰁲𰁹𰀬𰀠 𰁨𰁩𰁧𰁨𰀠 𰁰𰁲𰁥𰁳𰁳𰁵𰁲𰁥𰀠 𰁪𰁥𰁴𰁴𰁩𰁮𰁧𰀠 𰁡𰁮𰁤𰀠 𰁴𰁥𰁳𰁴𰀠 𰁰𰁬𰁵𰁧𰀠 𰁨𰁹𰁤𰁲𰁯𰁴𰁥𰁳𰁴𰁩𰁮𰁧𰀮 𰁔𰁹𰁰𰁩𰁣𰁡𰁬𰁬𰁹𰀬𰀠 𰁷𰁥𰀠 𰁯𰁦𰁦𰁥𰁲𰀠 𰁯𰁵𰁲𰀠 𰁭𰁡𰁩𰁮𰁴𰁥𰁮𰁡𰁮𰁣𰁥𰀠 𰁳𰁥𰁲𰁶𰁩𰁣𰁥𰁳𰀠 𰁩𰁮𰀠 𰁴𰁨𰁥𰀠 𰁦𰁯𰁲𰁭𰀠 𰁯𰁦𰀠 𰁡𰀠 𰁬𰁯𰁮𰁧𰀭𰁴𰁥𰁲𰁭𰀠 𰁳𰁥𰁲𰁶𰁩𰁣𰁥𰀠 𰁣𰁯𰁮𰁴𰁲𰁡𰁣𰁴𰀬𰀠 𰁵𰁳𰁵𰁡𰁬𰁬𰁹𰀠 𰁦𰁯𰁲𰀠 𰁡𰀠 𰁦𰁩𰁸𰁥𰁤𰀠 𰁴𰁥𰁲𰁭𰀠 𰁯𰁦𰀠 𰁴𰁷𰁯𰀠 𰁴𰁯𰀠 𰁦𰁩𰁶𰁥𰀠 𰁹𰁥𰁡𰁲𰁳𰀮

𰀲𰀱𰀠 𰁓𰁨𰁩𰁰𰁹𰁡𰁲𰁤𰀠 𰁒𰁯𰁡𰁤𰀠 𰁓𰁩𰁮𰁧𰁡𰁰𰁯𰁲𰁥𰀠 𰀶𰀲𰀸𰀱𰀴𰀴𰀠 𰁼𰀠 𰁔𰁥𰁬𰀺𰀠 𰀫𰀶𰀵𰀠 𰀶𰀲𰀶𰀸𰀠 𰀹𰀷𰀸𰀸𰀠 𰀠 𰁼𰀠 𰁆𰁡𰁸𰀺𰀠 𰀫𰀶𰀵𰀠 𰀶𰀲𰀶𰀸𰀠 𰀹𰀴𰀸𰀸𰀠 𰁼𰀠 𰁅𰁭𰁡𰁩𰁬𰀺𰀠 𰁩𰁮𰁦𰁯𰁀𰁰𰁥𰁣𰁥𰁮𰁧𰀮𰁣𰁯𰁭𰀠 𰁼𰀠 𰁗𰁥𰁢𰁳𰁩𰁴𰁥𰀺𰀠 𰁷𰁷𰁷𰀮𰁰𰁥𰁣𰁥𰁮𰁧𰀮𰁣𰁯𰁭𰀠 _________

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A global energy services company - delivering market leading services in Asia Pacific Wood Group has recently expanded in Asia Pacific to offer clients a wide range of services in engineering design, production enhancement and support for the oil & gas, coal seam methane and power generation industries. We add value to our customers’ operations with world leading, highly differentiated services and products, bringing expertise from around the world. We also offer a range of renewable energy solutions.

www.woodgroup.com Wood Group, 100 Beach Rd, Shaw Tower #28-09, 189702, Singapore T: +65 6396 3626 F: +65 6396 5362 Wood Group House, 432 Murray Street, Perth, WA 6000 T: +61 (8) 6314 2900 F: +61 (8) 6314 2901

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Prosafe’s Accommodation Rig, the Safe Caledonia

Prosafe’s Accommodation Rig, the Safe Caledonia

ing ships into oil rigs and converting specialized vessels, was the need to justify higher labor costs following a talent drain driven by Singapore’s emerging electronics industry in the 1980s. At that time, both South Korea and China increased their shipbuilding and -repairing capacities. “These countries obviously faced lower labor costs, leading to Singapore losing market share”, executive director David Chin of the Singa-

region. “Asia Pacific is an attractive place for engineering graduates...the role of the company is therefore to ensure that opportunities are given to young people across all its operations”, comments regional director of Wood Group Production Facilities Asia Pacific, Bob Beavis. With an international track record of onshore and offshore oil & gas projects, the Aberdeen headquartered energy services provider offers a range of engineering, production support, maintenance management and industrial gas turbine overhaul & repair services worldwide. Today, the growth of the group is driven by Beavis’ region, who describes it as “the growth engine for Wood Group, where the Group’s ambitions are directly related to economic activity”. “Asia Pacific is not opportunity constrained”, Beavis adds. In Asia Pacific, the company interprets the group’s strategy as “step out and step up”. Explaining this dual strategy, Beavis clarifies that “Step out involves broadening the customer base and the services of the Group. Step up is increasing the intelligence and effectiveness of the group as well as pushing the range of capability to new areas”. When asked about the short term plans of the company in his region, he envisions that “throughout the divisions in Wood Group there is opportunity for growth and the role of Singapore is therefore to help in this development”.

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From Traditional Shipbuilding and Repair to A Centre of Maritime Expertise What drove Singapore shipyards from repairing and build-

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pore Maritime Foundation (SMF) recalls. Constant innovation towards high-end solutions is what kept Singapore’s maritime sector fundamental. Taking a closer look at Singapore’s fleet shows a diversity of capital-intensive anchor handling tug supply (AHTS) vessels, offshore support vessels (OSVs), seismic survey vessels, platform supply vessels (PSVs), and ROV support vessels amongst many others, most of which are chartered to support the region’s oil and gas industry.

The Value of a Diversified Fleet GBP 103.5 million (roughly USD 163.5 million) is the staggering amount John Giddens received in early 2010 to sell off Hallin Marine’s diversified assets to Superior UK, most of which consists of purpose-designed vessels, ROVs and saturation diving systems. Exemplifying how Singapore’s fleet has become so diverse, Giddens looks back at what drove him to set up the company in Singapore in 1998. “Fraser Diving [his previous employer] was a great company, but very single-product focused”, he says. Hence, “at that time, I saw the opportunity to move into vessels, ROVs and diving”, Giddens recalls. In the meantime, Hallin Marine has been a lead example of Singapore’s high end innovative maritime solutions, launching a series of “cost-effective fit for purpose” vessels from its modern facilities in Loyang, located just six miles from Singapore’s Changi International Airport. Looking ahead, Giddens is of the opinion that “innovation will come

𰁓𰁵𰁭𰁭𰁡𰁲𰁹𰀠 𰁯𰁦𰀠 𰁂𰁵𰁳𰁩𰁮𰁥𰁳𰁳𰀠 𰁁𰁣𰁴𰁩𰁶𰁩𰁴𰁩𰁥𰁳 𰁗𰁥𰀠 𰁡𰁲𰁥𰀠 𰁡𰀠 𰁌𰁯𰁧𰁩𰁳𰁴𰁩𰁣𰁳𰀠 𰁃𰁯𰁭𰁰𰁡𰁮𰁹𰀠 𰁰𰁲𰁯𰁶𰁩𰁤𰁩𰁮𰁧𰀠 𰁍𰁡𰁲𰁩𰁮𰁥𰀬𰀠 𰁁𰁩𰁲𰀠 𰁡𰁮𰁤𰀠 𰁌𰁡𰁮𰁤𰀠 𰁔𰁲𰁡𰁮𰁳𰁰𰁯𰁲𰁴𰁡𰁴𰁩𰁯𰁮𰀠 𰁓𰁥𰁲𰁶𰁩𰁣𰁥𰁳𰀮𰀠 𰁏𰁵𰁲𰀠 𰁰𰁲𰁯𰁦𰁥𰁳𰁳𰁩𰁯𰁮𰁡𰁬𰀠 𰁴𰁥𰁡𰁭𰀬𰀠 𰁦𰁡𰁣𰁩𰁬𰁩𰁴𰁩𰁥𰁳𰀬𰀠 𰁳𰁰𰁥𰁣𰁩𰁡𰁬𰁩𰁳𰁥𰁤𰀠 𰁶𰁥𰁳𰁳𰁥𰁬𰁳𰀠 𰁡𰁮𰁤𰀠 𰁥𰁱𰁵𰁩𰁰𰁭𰁥𰁮𰁴𰀠 𰁷𰁩𰁬𰁬𰀠 𰁥𰁮𰁳𰁵𰁲𰁥𰀠 𰁨𰁩𰁧𰁨𰀠 𰁱𰁵𰁡𰁬𰁩𰁴𰁹𰀠 𰁳𰁥𰁲𰁶𰁩𰁣𰁥𰁳𰀠 𰁦𰁯𰁲𰀠 𰁡𰁬𰁬𰀠 𰁹𰁯𰁵𰁲𰀠 𰁴𰁲𰁡𰁮𰁳𰁰𰁯𰁲𰁴𰁡𰁴𰁩𰁯𰁮𰀠 𰁡𰁮𰁤𰀠 𰁰𰁲𰁯𰁪𰁥𰁣𰁴𰀠 𰁮𰁥𰁥𰁤𰁳𰀮𰀠 𰀠 𰁔𰁨𰁥𰀠 𰁦𰁩𰁲𰁳𰁴𰀠 𰁯𰁦𰀠 𰁴𰁨𰁥𰀠 𰁁𰁭𰁳𰁢𰁡𰁣𰁨𰀠 𰁇𰁲𰁯𰁵𰁰𰀠 𰁯𰁦𰀠 𰁃𰁯𰁭𰁰𰁡𰁮𰁩𰁥𰁳𰀠 𰁷𰁡𰁳𰀠 𰁦𰁯𰁵𰁮𰁤𰁥𰁤𰀠 𰁩𰁮𰀠 𰀱𰀹𰀷𰀳𰀠 𰁴𰁯𰀠 𰁳𰁵𰁰𰁰𰁯𰁲𰁴𰀠 𰁯𰁩𰁬𰀠 𰁥𰁸𰁰𰁬𰁯𰁲𰁡𰁴𰁩𰁯𰁮𰀠 𰁶𰁥𰁮𰁴𰁵𰁲𰁥𰁳𰀠 𰁩𰁮𰀠 𰁴𰁨𰁥𰀠 𰁆𰁡𰁲𰀠 𰁅𰁡𰁳𰁴𰀮𰀠 𰁔𰁯𰁤𰁡𰁹𰀬𰀠 𰁁𰁭𰁳𰁢𰁡𰁣𰁨𰀠 𰁨𰁡𰁳𰀠 𰁥𰁸𰁰𰁡𰁮𰁤𰁥𰁤𰀠 𰁩𰁴𰁳𰀠 𰁯𰁦𰁦𰁳𰁨𰁯𰁲𰁥𰀠 𰁡𰁮𰁤𰀠 𰁰𰁲𰁯𰁪𰁥𰁣𰁴𰀠 𰁳𰁵𰁰𰁰𰁯𰁲𰁴𰀠 𰁷𰁯𰁲𰁬𰁤𰁷𰁩𰁤𰁥𰀮𰀠 𰁔𰁨𰁲𰁯𰁵𰁧𰁨𰁯𰁵𰁴𰀠 𰁴𰁨𰁥𰀠 𰁹𰁥𰁡𰁲𰁳𰀬𰀠 𰁷𰁥𰀠 𰁨𰁡𰁶𰁥𰀠 𰁢𰁥𰁥𰁮𰀠 𰁳𰁴𰁲𰁩𰁶𰁩𰁮𰁧𰀠 𰁴𰁯𰀠 𰁩𰁭𰁰𰁲𰁯𰁶𰁥𰀠 𰁯𰁵𰁲𰀠 𰁣𰁯𰁭𰁰𰁥𰁴𰁩𰁴𰁩𰁶𰁥𰁮𰁥𰁳𰁳𰀠 𰁡𰁮𰁤𰀠 𰁳𰁥𰁲𰁶𰁩𰁣𰁥𰁳𰀠 𰁴𰁯𰀠 𰁯𰁵𰁲𰀠 𰁣𰁵𰁳𰁴𰁯𰁭𰁥𰁲𰁳𰀮𰀠

𰁁𰁦𰁦𰁩𰁬𰁩𰁡𰁴𰁥𰁤𰀠 𰁃𰁯𰁭𰁰𰁡𰁮𰁩𰁥𰁳𰀠 𰀠

𰁓𰁩𰁮𰁧𰁡𰁰𰁯𰁲𰁥 𰁁𰁭𰁳𰁢𰁡𰁣𰁨𰀠 𰁏𰁦𰁦𰁳𰁨𰁯𰁲𰁥𰀠 𰁓𰁥𰁲𰁶𰁩𰁣𰁥𰁳𰀠 𰁐𰁴𰁥𰀠 𰁌𰁴𰁤 𰀠 𰁍𰁡𰁬𰁡𰁹𰁳𰁩𰁡 𰁁𰁭𰁳𰁢𰁡𰁣𰁨𰀠 𰁍𰁡𰁲𰁩𰁮𰁥𰀠 𰀨𰁍𰀩𰀠 𰁓𰁤𰁮𰀠 𰁂𰁨𰁤𰀠

𰁉𰁮𰁤𰁯𰁮𰁥𰁳𰁩𰁡 𰁐𰀮𰁔𰀮𰀠 𰁓𰁥𰁡𰀠 𰁈𰁯𰁲𰁳𰁥 𰁐𰀮𰁔𰀮𰀠 𰁓𰁡𰁲𰁡𰁮𰁡𰀠 𰁎𰁩𰁡𰁧𰁡𰀠 𰁁𰁮𰁴𰁡𰁲𰀠 𰁃𰁡𰁲𰁧𰁯𰀠 𰁐𰀮𰁔𰀮𰀠 𰁁𰁭𰁳𰁢𰁡𰁣𰁨𰀠 𰁍𰁵𰁴𰁩𰁡𰁲𰁡𰀠 𰁉𰁮𰁤𰁯𰁮𰁥𰁳𰁩𰁡 𰁐𰀮𰁔𰀮𰀠 𰁎𰁵𰁳𰁡𰀠 𰁐𰁲𰁩𰁭𰁡𰀠 𰁋𰁯𰁮𰁳𰁵𰁬𰁴𰁡𰁮

𰁐𰁡𰁰𰁵𰁡𰀠 𰁎𰁥𰁷𰀠 𰁇𰁵𰁩𰁮𰁥𰁡 𰁓𰁥𰁡𰀠 𰁈𰁯𰁲𰁳𰁥𰀠 𰁐𰁡𰁣𰁩𰁦𰁩𰁣

𰁁𰁭𰁳𰁢𰁡𰁣𰁨𰀠 𰁍𰁡𰁲𰁩𰁮𰁥𰀠 𰀨𰁓𰀩𰀠 𰁐𰁴𰁥𰀠 𰁌𰁴𰁤 _________

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𰀱𰀵𰀠 𰁓𰁣𰁯𰁴𰁴𰁳𰀠 𰁒𰁯𰁡𰁤𰀬𰀠 𰀣𰀰𰀹𰀭𰀰𰀸𰀯𰀰𰀹 𰁔𰁨𰁯𰁮𰁧𰀠 𰁔𰁥𰁣𰁫𰀠 𰁂𰁵𰁩𰁬𰁤𰁩𰁮𰁧 𰁓𰁩𰁮𰁧𰁡𰁰𰁯𰁲𰁥𰀠 𰀲𰀲𰀸𰀲𰀱𰀸𰀠

𰁔𰁥𰁬𰀠 𰀺𰀠 𰀫𰀶𰀵𰀠 𰀶𰀷𰀳𰀴𰀠 𰀹𰀰𰀵𰀲𰀠 𰀯𰀠 𰁆𰁡𰁸𰀠 𰀺𰀠 𰀫𰀶𰀵𰀠 𰀶𰀷𰀳𰀲𰀠 𰀲𰀰𰀴𰀵 𰁅𰁭𰁡𰁩𰁬𰀺𰀠 𰁧𰁥𰁮𰁥𰁲𰁡𰁬𰁀𰁡𰁭𰁳𰁢𰁡𰁣𰁨𰀮𰁣𰁯𰁭𰀮𰁳𰁧𰀠 𰀠 𰀠 𰀠 𰀠 𰀠 𰀠 𰀠 𰀠 𰀠 𰀠 𰀠 𰀠 𰀠 𰁭𰁡𰁲𰁫𰁥𰁴𰁩𰁮𰁧𰁀𰁡𰁭𰁳𰁢𰁡𰁣𰁨𰀮𰁣𰁯𰁭𰀮𰁳𰁧𰀠

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The propeller for the Royal Navy’s new Queen Elizabeth class aircraft carrier measures almost seven metres in diameter and weighs 33 tonnes.

from how we use the combination of our assets: using vessels in an innovative way”. As group chief executive, John Giddens will take Hallin Marine further into international waters, targeting markets such as Australia, West Africa and Brazil. The fact that Giddens himself is staying on board also illustrates that, contrary to assumptions, things have not changed for the group. “Now, we are simply innovating from a stronger position. Being part of a stronger parent company with good funding is important in the current climate” he concludes. Naturally, key to a successful diversification strategy is the potential for cross-divisional expertise which is what made the Amsbach Group of Companies a success. “There is a relationship between the different activities Amsbach focuses on”, explains the Group’s President Peter Blumbach. “Even though the company is a shipowner,

John Giddens, Chief Executive Hallin Marine

David S. S. Chin, Executive Director of Singapore Maritime Foundation

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in order to meet our clients’ needs we have to provide integrated turnkey solutions as well”, he adds. This means that the company may, for example, be required to purchase parts and equipment, load a vessel, deliver the cargo and take care of the complete documentation. “At the end of the day”, Blumbach concludes, “our main niche is to provide specialized services for the various sectors of the offshore oil and gas business” and in the meantime “the company will continue to work within its niche of specialized services and vessels in Singapore because of the convenience of the infrastructure and supporting services here”.

Dealing with Equipment Oversupply Held by Hong Kong quoted Swire Pacific Limited, Swire Pacific Offshore owns 73 vessels today and with 17 more under construction, this offshore marine operator is one more example of the range of vessels found in Singapore. From its inception in 1976, the company has learned valuable lessons from the several crises faced. “By having all the eggs in one basket which is attached to the exploration market, a vessel provider becomes very vulnerable. A little bit of diversification based on solid foundations works quite well”, its managing director Brian Townsley argues. Today, we see the company active in a range of activities beyond the core business of providing marine services to the offshore industry, such as oil spill response services, offshore wind activities and salvage services. While continuous innovation and diversification remains essential for Singapore operators to stay competitive, many have raised concerns over the current oversupply of vessels on the market and some started looking in taking apt measures. “The offshore construction boom lead to many orders in 2007, attracting new entrants to the market and causing support vessel oversupply as a result”, Townsley adds. He feels it is now important for established players “to try to push the entry barriers higher which can be facilitated by more regulatory standards, more capitalization and increasing difficulty for

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new entrants to obtain the commercial security to get involved in the industry”. John Paterson, president of the prestigious manufacturer Rolls-Royce Marine, is of the same mindset when it comes to the current cycle, saying that “there is no doubt that the industry is approaching the end of the new build cycle and as we go forward and look into the future, clearly the demand for new vessels is coming down”. Enthusiastic about the division’s recent relocation of its headquarters to Singapore, Paterson is positive about the growth in the aftermarket to compensate for the decrease in demand.

Location, Location, Location!

John Paterson, President RollsRoyce Marine

To support the upper end of the value chain, numerous seismic operators and surveyors have set up base in Singapore to serve the regional exploration markets. “The office in Singapore has been here for forty years and this has given the company insight and experience in the region”, comments Rollin Delzer, Senior VP of Marine Acquisition for CGG Veritas Asia Pacific. His colleague, who directs SEA and Indonesia, Long Don Pham, is grateful for his stable Singaporean staff, describing them as “very intelligent, efficient and educated”, qualities that are particularly important for the CGGVeritas’ processing division in its Singapore regional headquarters. With the national oil companies (NOCs) taking larger shares of the industry year after year, Singapore’s central location for Malaysia’s PETRONAS, India’s ONGC and Indonesia’s Pertamina has been another key factor to attract seismic players to the Republic. “These NOCs are the future and in my opinion will

𰁏𰁆𰁆𰁓𰁈𰁏𰁒𰁅𰀠 𰁓𰁕𰁐𰁐𰁏𰁒𰁔𰀠

𲀦𰀠 𰁰𰁲𰁯𰁶𰁩𰁤𰁩𰁮𰁧𰀠 𰁩𰁮𰁴𰁥𰁧𰁲𰁡𰁴𰁥𰁤𰀠 𰁳𰁥𰁲𰁶𰁩𰁣𰁥𰁳𰀠 𰁴𰁯𰀠 𰁧𰁬𰁯𰁢𰁡𰁬𰀠 𰁣𰁬𰁩𰁥𰁮𰁴𰁳 𰁓𰁡𰁬𰁶𰁡𰁧𰁥

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𰁍𰁡𰁲𰁩𰁮𰁥𰀠 𰁓𰁥𰁩𰁳𰁭𰁩𰁣𰀠 𰁓𰁵𰁰𰁰𰁯𰁲𰁴

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ultimately have the lion’s share of the industry”, comments the VP for the Eastern Hemisphere of Houston headquartered geophysical services provider Geokinetics, Rick Dunlop. U.S. headquartered international surveying and mapping company C&C Technologies already set up its offshore supply base on Singapore’s territory in 2002, and consequently Rollin Delzer, Senior VP Marine saw its branch growing by 50 Acquisition, Asia Pacific Region, to 100 percent annually ever CGGVeritas since, says its regional managing director Rick Shannon. In doing so, “it is generally the big international companies that approach us while the local companies tend to work more closely with local suppliers”. And even though Shannon needs to bring in his autonomous underwater vehicle (AUV) equipment from other parts of the world, the Asia Pacific region offers excelJohn Lim Kok Min, Chairman of Gas lent potential for these prodSupply Pte Ltd ucts. Survey positioning and offshore construction support further make up a major part of the company’s regional business. “Now is the time for C&C Technologies to develop a sustainable business in the Asia Pacific region; an exciting challenge”, Shannon summarizes. Being able to offer the same quality of service will remain the key challenge for international companies operating in Dato’ Kho Hui Meng, President Vitol the region. “The bottom line Asia and most important part of doing business in Asia is the quality of service you are able to provide, from the first meeting up to the project closeout”, advocates Shannon.

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Clyde Michael Bandy, Chairman & CEO of Chemoil

tonnage handled. The fact that Singapore has additionally succeeded in oil trading is further proof of the government’s exploitation of the port’s ideal positioning, housing both local trading giants such as Hin Leong as well as international leaders like the Vitol Group. Originally founded in 1966 in Rotterdam, the Vitol Group is currently one of the largest independent energy traders in the world and has always found an ideal environment for trading in Singapore. Dato’ Kho Hui Meng, president of Vitol Asia Pte Ltd, thinks that “for foreign investors it is interesting to look at Singapore as a place where one can feel the pulse

Centuries of Trade Singapore’s role as a logistical hub results from being regarded as a regional trading hub in the first place, located in the centre of international trade routes. Already in 1819, Sir Thomas Stamford Raffles described Singapore as “an excellent harbor and everything that can be desired for a British port” when landing on the banks of the Singapore river. Today this advantage manifests itself in the nation’s distinction of the world’s busiest port in terms of shipping

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Ullswater at El Nido Photo courtesy of Hallin Marine

of a booming trading industry. The pro-active government, English as an official language and the proximity to Asian growth markets are other crucial strengths of Singapore.” Current world demand for oil lies around around 85,000 million bbl/day. Within this rather stable number of barrels, the smallest fluctuations in demand will determine whether the market will be stronger or weaker that day. “When it comes

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Photo Courtesy of the Maritime Port Authority

to the oil trading business, Asia is currently the growth area providing that last barrel defining the state of the market”, Dato’ adds. Present in Singapore since 1979, Vitol has experienced how the business has grown in this part of the world. But its Asia president is also cautious about the scarce pool of manpower the company can tap into in Singapore, of particular importance to a people-driven trading house like Vitol. “It is important to understand how people react under pressure, how they interact with their colleagues and how they carry out their trade […] This is the way in which Vitol and many other companies in its segment differentiate themselves from larger or more structured entities”, Dato’ points out. The people aspect is likely to be the hardest factor to manage in the trading business, because “it is not possible to train traders, but it is possible to train those who support trading, such as marketers, logistics specialists, finance experts and shipping professionals”, he adds. Addressing this issue, Dato’ praises public-private initiatives such as SMU’s International Trading Track (ITT). Howard Pang, general manager of the independent oil storage operator Horizon Singapore Terminals concurs that Singapore is largely driven by the oil trading market. “With liquidity centered in Singapore, many new entrants are attracted to the market. And with Singapore being a premier global port, its status as the world’s biggest bunkering hub remains unchallenged”, he says. It is therefore not surprising to see some of the most innovative and leading operators from this niche market present in Singapore,

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Mr Lim Teck Cheng, CEO of Hong Lam Marine

Howard Pang, General Manager for Horizon Singapore Terminals Pte. Ltd.

from the world’s leading tanker shipping companies such as Stena Bulk to well-established local bunker operators such as Hong Lam Marine. “There are many ports in the region that have the capability to challenge Singapore, but I do not see their government or their port authorities being as proactive as Singapore in making their ports competitive for the next 50 years”, states Clyde Michael Bandy, chairman and CEO of Chemoil. However, it needs to be said that these operators are restricted by the amount of space available in the small city-state. Waterfront land is scarce and most of the industrial land has already been used up. “The government is therefore also looking into other innovative solutions such as the caverns they are constructing right now as well as the possibility to operate with floating structures”, Pang concludes.

Cluster efficiency: Jurong Island In Singapore, JTC Corporation (JTC) is the entity that develops the dynamic industrial landscape to make the nation the choice investment location. Commenting on the underground

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Catching up on capacity Lacking natural resources has not prevented Singapore from importing raw materials and exporting them after a value-adding refining process, a system referred to as “entrepôt trade”. With year on year excess demand of oil storage space in Singapore, a vast increase in capacity has taken place in the past decade. Taking advantage of the Singapore Model, a combination of economic planning with free-market thinking, the world’s largest independent storage providers stayed ahead of the pack, entering Singapore’s oil storage market at an early stage. What’s more is that this potential was not foregone by smaller providers too, eager to grow from the excess demand. Reflecting the industry’s confidence in Singapore as a critical supply chain hub for the region, Horizon Singapore Terminals joined the leading operators on Jurong Island since 2005. In the last five years, the company invested in a gradual but rapid three-phased growth, first adding 859,081cbm of capacity in Singapore in October 2006. Recognizing further growth potential in the two subsequent years, Horizon Singapore Terminals completed its other two expansion phases leading to a present capacity of over 1.24 million cubic meters, turning Singapore into the company’s largest terminal outside the Middle East, representing one of the largest independent bulk liquid storage terminal facilities in the region as well as a key partner in Singapore’s oil logistics infrastructure development.

rock caverns (JRC) on Jurong island, JTC’s CEO Manohar Khiatani explains that “the purpose is to provide enough capacity to store what Singapore needs in order to develop the chemical industry while addressing the issue of land scarcity”.

𰁈𰁏𰁎𰁇𰀠 𰁌𰁁𰁍𰀠 𰁍𰁁𰁒𰁉𰁎𰁅𰀠 𰁐𰁔𰁅𰀠 𰁌𰁔𰁄

𰀱𰀳𰀵𰀠 𰁃𰁥𰁣𰁩𰁬𰀠 𰁓𰁴𰁲𰁥𰁥𰁴𰀠 𰀣𰀰𰀸𰀭𰀰𰀱𰀠 𰁓𰁩𰁮𰁧𰁡𰁰𰁯𰁲𰁥𰀠 𰀰𰀶𰀹𰀵𰀳𰀶𰀠 𰁉𰀠 𰁔𰁥𰁬𰀺𰀠 𰀫𰀶𰀵𰀠 𰀶𰀳𰀳𰀳𰀠 𰀶𰀵𰀷𰀷𰀠 𰁉𰀠 𰁅𰁭𰁡𰁩𰁬𰀺𰀠 𰁨𰁯𰁮𰁧𰁬𰁡𰁭𰁀𰁨𰁯𰁮𰁧𰁬𰁡𰁭𰀮𰁣𰁯𰁭𰀮𰁳𰁧

December 2010 Oil & Gas Financial Journal • www.ogfj.com

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In 2009, the qualities of Singapore as one of the world’s top bunkering ports have once again manifested itself in record deliveries of 36.4 million tonnes and an increase in bunker sales of 4.2 percent. Consequently, local bunker operators have recognized the need to increase the capacity of their vessels and upgrade their fleet accordingly. Established in 1981, homegrown Hong Lam Marine has been gradually developing newer and better tankers resulting in a notable fleet of 35 tankers with a total tonnage of 300,048 DWT today. First to deploy the largest double hull tanker in Asia in 2005 and first to launch and operate the world’s largest purpose built bunker tanker in 2009, Hong Lam Marine has positioned itself at the forefront of the innovation spectrum. Part of this success is attributable to the company’s visionary co-founder and present chief executive Mr. Lim Teck Cheng, who has been lobbying for the use of diesel-electric engines since 2005 and will soon see his plans taking shape with delivery of 3 diesel-electric powered vessels in 2011. Next on the agenda is the company’s ambition to be the first Singapore operator to offer gas bunker tankers, anticipating an increasingly gas-powered future maritime industry. This move will not go without its challenges and will inevitably require substantial amounts of capital, special crew training and, naturally, the support of the government to ensure the right safety features and latest technology are implemented. With these elements in place, gas bunkering tankers could soon become the way forward.

Photo courtesy of PSA Corporation Ltd

JTC’s focus on creating a competitive cluster of chemical and petrochemical companies in Singapore further manifests itself in the success story of Jurong Island. In an industry where service turnaround time is critical, the proximity of the 94 chemical and petrochemical companies on Jurong Island is key to increasing efficiency. John Chan, Singapore’s country manager for London-headquartered leading provider of quality and safety solutions, Intertek adds that “with strategic laboratory and office locations, Intertek serves clients in the entire Jurong Island complex”.

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Looking ahead, the Island’s landscape is deemed to change as it will see the expected completion of Asia’s first open-access multi-user liquefied natural gas (LNG) terminal by 2013. “LNG is expected to contribute about 17 percent of global gas supply in 2020, a significant increase from a mere 7 percent in 2003”, comments Mr. S. Iswaran, Senior Minister of State for Trade & Industry and Education, during his speech at the groundbreaking ceremony of the terminal in March 2010. With 80 percent the country’s electricity generated by gas of which, in turn, 80 percent is sourced from neighboring Indonesia, Singapore’s diversification strategy had led it into pursuing LNG. Moreover, the terminal may turn Singapore into a center for LNG trading in Asia. The CEO of Gas Supply Pte Ltd (GSPL), Tan Chin Tung, maintains a similar perspective stressing the fact that “even more than for oil, Singapore is ideally located on the crossroads of the producers in the Middle East, Papua New Guinea and Australia and the large consumers such as India, China, Japan, Korea, Taiwan and so on. Notwithstanding the different economics in the value chain of LNG, I foresee developments towards the use of Singapore as a physical and commercial trading hub”, Tung finds. His chairman, John Lim Kok Min, agrees and is preparing the company accordingly, adding that “the emergence of LNG in Singapore is of course something GSPL has been anticipating for a while now and, as Singapore’s largest piped natural gas importer at the moment, we must of course prepare ourselves for the advent of LNG”. The terminal, in turn, may also create opportunities for the storage operators on Jurong Island. “What is crucial is what the customers ultimately decide on their desired location to store gas. Whenever an opportunity occurs in Asia with a growing LPG and LNG market, Vopak will consider taking advantage of this potential”, states the company’s Asia Eelceo Hoekstra, President Vopak president, Mr. Eelco Hoekstra. Asia The numerous spin-off effects the LNG developments will bring are reminiscent for the nation’s business climate and only make up a snapshot of Singapore’s pro-active drive towards increasing efficiency and productivity, while further tapping into new markets and opportunities. With a promising future ahead and a strong pro-business mindset in place, there is no doubt that the Lion City will continue to roar and outperform many, if not all, Manohar Khiatani, CEO of JTC of the region’s emerging oil and Corporation gas hubs.

www.ogfj.com • Oil & Gas Financial Journal December 2010

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Companies mentioned in this issue of Oil & Gas Financial Journal are listed in alphabetical order with advertisers in boldface type. The index is provided as a service. The publisher does not assume any liability for errors or omission. COMPANY

PAGE

Abraxas Petroleum Corp. 26 ACON Investments 52 Allegro Development Corp. 31 Alpha One Capital Partners 54 Alstrom Transport 55 American Petroleum Institute 37 Amity Oil and Gas 18 Amoco Production Co. 55 Amsbach 64 Anadarko Petroleum Corp. 24 Antero Resources 48 Artificial Lift Co. 55 Aspen Technology 53 Atinum Partners Co. Ltd. 50 Atlas Energy 5,10,46 Aurelian Oil and Gas plc 53 Babst, Calland, Clements and Zomnir 55 Baker Hughes 30,52 BG 14 BHP 53 Bill Barrett Corp. 26 BJ Services 30 BlackRock Exploration & Production LLC 55 BlueRock Energy Capital 25 BNP Paribas 48 Boots & Coots 36 BP plc 24,37,47,54 Burleson Cooke 55 C&C Technologies 59 Cabot Oil & Gas Corp. 28 Cameron 30 Canadian Hunter Exploration 55 Cardinal Midstream LLC 48 Centaur Performance Group 50 Centrahoma Processing LLC 48 Cheniere Energy Partners LP 49 Chesapeake Energy Corp. 6,24,34,48,52 Chevron Corp. 5,10,37,42,46 Chief Oil & Gas 72 Citation Oil and Gas Corp. 50 Citi 48 CNOOC 5,34 CNR 53 CNX Gas Corp. 26 Concho Resources Inc. 55 CONSOL Energy 28 Copano Energy LLC 49 Cornerstone Acquisition & Management Co. LLC 50 Credit Agricole 48 DCP Midstream Partners 52 DeepFlex 9 Dejour Enterprises Ltd. 48 Delhi Gas Pipeline 54 Deloitte & Touche 50 Denbury Resources Inc. 48 Deutsche Bank 5,12,48 Dominion 54 Duke Energy Field Services 52 DZ Bank 52 Eagle Ford Gathering LLC 49 Eckert Seamans Cherin & Mellott 55 eCORP International LLC 55 El Paso Energy Finance Group 52 El Paso Pipeline Partners 48 Elixir Petroleum 53 Emerald Energy 53

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Encore Energy Partners LP 48 EnerCom Inc. 11 Energy Capital Solutions 19 Energy Partners Ltd. 28 Energy Spectrum Capital 13 Energy Transfer Partners LP 53 Energy Ventures 6 Enertia Software IFC EnerVest Ltd. 46 Engevix Engenharia SA 14 Eni 5 Enterprise Oil 53 Enterprise Products Partners LP 72 Environmental Protection Agency 34 EOG Resources Inc. 12,24,46 Ernst & Young 5 Esso Norge AS 9 EV Energy Partners LP 46 ExxonMobil 5,72 Flotech Solutions 8 Focus Reports LLC 42 Frigstad Offshore 60 Fulbright & Jaworski LLP 52 Galp Energia 14 Gas Supply Pte Ltd. 67 Gas Technology Institute 72 Gastar Exploration Ltd. 50 Global Geophysical Services 72 Global Process Systems 63 Goldman, Sachs & Co. 12 Grant Prideco 32 Ground Water Protection Council 6 GTO Ltd. 53 Halliburton 9,32,53 Hallin Marine 66 Hamilton Oil 53 Harris Webb & Garrison 50 Harvest Natural Resources Inc. 28 Harwood Capital Inc. 9 Heerema Marine Contractors 54 Honeywell 53 Hong Lam Marine Pte Ltd. 69 Horizon Singapore Terminals Pte Ltd. 68 Howrey 30 IBM 53 IHS 5,10 IMV Projects 53 IPAA 52 JD Edwards 38 Jefferies & Co. Inc. 12,48 Jones Day 53 JP Morgan 48 Keppel Corp. Ltd. 42 Kerogen Resources Inc. 55 Kinder Morgan Energy Partners LP 49 KPMG 54 Kverneland ASA 9 Laurel Mountain Midstream LLC 10 Lehman Brothers 54 LNG Energy Ltd. 53 Longfellow Energy 17 Louisiana Artificial Reefs 72 Magnum Hunter Resources Corp. 3 Marathon Petroleum Co. 52 MarkWest Energy 48 Marubeni Corp. 47

COMPANY

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Matrix Service Co. 52 Mayer Brown LLP 22 McGuireWoods LLP 54 McSweeney & Crump 54 Melberg Partners as 9 Merrill Lynch 50,54 M-I SWACO 32,53 Moody International 54 Morgan Stanley Capital Group Inc. 49 Nabors Industries 72 Natco Group 30 National Oilwell Varco 32 Natural Gas Partners BC Naval & Nuclear Technologies LLP 54 New York Stock Exchange 50 Newfield Exploration Co. 12,46 Nexen 37 Noble Energy Inc. 26 Noble Royalties Inc. IBC Norsk Hydro 55 Northern Oil & Gas Inc. 26 Northern Tier Energy LLC 52 Nuclear Energy Institute 54 Nuclear Security Administration 54 Numerical Algorithms Group 72 OPEC 28 OpenLink Financial Inc. 23,38 Opportune 27 Oxane Materials 8 P2 Energy Solutions 7,53 PanGeo 9 PEC Ltd. 61 PennWell OGMT 39 Unconventional Oil & Gas Europe 51 Unconventional Oil & Gas International 35 Petrobras 14,30,41 PetroChina 42 Petrohawk Energy Corp. 24 Petroleum GeoServices ASA 55 PetroSolutions 55 Pioneer Natural Resources Co. 24 PPL Shipyard Pte Ltd. 49 Quaker Chemical Corp. 52 Ralph E. Davis Associates Inc. 21 Ranger Oil 53 RBC Capital Markets 48 RBS 48 Regency Energy Partners LP 52 Regency Gas 50 Reliance Industries Ltd. 12 Repsol 14 ResTech Inc. 55 Rex Energy Corp. 52 Rhone-Poulenc 55 Riata Energy 17 Royal Bank of Scotland 54 Royal Dutch Shell plc 14,24,40,47 SAIC 53 Saint-Gobain 55 SandRidge Energy 17 Santos 72 SAP 38 Schlumberger 30,53,72 Scotia Capital 4 Seafox Group 44

COMPANY

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SEC Shoaibi Group Siemens Financial Services Inc. Skadden Arps Slate Meagher Flom LLP SM Energy Co. Smith Barney Smith International Inc. Societe Generale Society of Exploration Geophysicists Southern LNG Co. LLC Southern Natural Gas Co. SPC Spectrum ASA Spellman College Standard & Poor’s Ratings Services Statoil Sterling Energy plc Sterling Resources Stone & Webster management Consulting Stone Energy Corp. Strategic Decisions LLC Sunoco Logistics Partners LP Swire Pacific Offshore Swiss Exchange Talon Oil & Gas LLC Tengasco Inc. Tennessee Gas Pipeline TETRA Technologies Thorp, Reed & Armstrong Total SA TPAO TPG Capital TransAtlantic Petroleum Ltd. Transocean Ltd. Transwestern Pipeline Co. LLC Trenegy Inc. Triple Point Technology Tudor, Pickering, Holt & Co. Securities Inc. Union Drilling Inc. United Way US DOE US Steel Tubular Products Inc. Valero Energy Corp. Vanguard Natural Resources LLC Viking International Vinson & Elkins LLP Vitol W&T Offshore Inc. Wachtell Lipton Rosen Katz Waterous & Co. Weatherford International WEB Gruppe LLC Wells Fargo Securities LLC Western Company W-H Energy Services Wheat First Securities Williams Women’s Energy Network Wood Group Wood Mackenzie Woodside Petroleum Ltd. XTO Energy YRC Worldwide Inc. Zorlu Petrogas

22,53 55 52 12 49 54 30,53 54 72 48 48 42 55 72 12 5 53 20 53 50 54 52 54,65 50 46 29 54 54 55 5,55 18 52 16 49 53 49 38,50 6,48 54 72 6 52 72 48 17 48 56 47 12 53 50 53 48 32 53 54 49,54,72 72 53,62 5 14 5 52 18

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Beyond the Well

Charities and champions: the year in review 2010 Education is also paramount for oil major ExxonMobil. Among its many Mikaila Adams donations this year was a $1 Associate Editor – OGFJ million grant to Spelman College to provide scholExxonMobil arships to black women t’s December once again, time to wrap pursuing technology-related up another year at Oil & Gas Financial degrees. Journal. In a year still marked with the Supporting women in lingering challenges of the global ecothe field of energy is the nomic downturn, 2010 offered a glimmer goal of Women’s Energy of hope. Hope because some see 2010 as Network (WEN). The the year the first signs of economic recov- organization’s mission is to ery appeared, and hope because the year, provide networking oppor- WEN once again, was filled with the generosity tunities and foster career and leadership of others. development of women in, “In these challenging and looking to, the energy economic times, its more industry. important than ever to Also aiding the future have committed partners of the energy industry is like Williams,” said Brian the Numerical Algorithms Gallagher, president and Group (NAG). NAG, a CEO of United Way as he leader in high quality compuhonored Steve Malcolm, chairtational software and high performan and CEO of Williams and the mance computing services to users Tulsa-based natural gas gatherer, in major academies, Global 500 producer, and transporter for its companies, and leading supercomgiving and volunteering efforts. puting sites, marked its 40th anniAnother oil and natural gas versary this year. To celebrate, the company, privately-held Chief Oil Malcom group expanded its student awards & Gas, worked to expand its community program to nurture the next generation of efforts along with its leasehold in the Mar- leaders in science and computing. cellus Shale. A $134,000 donation to fund Another organization more wellthe expansion of a mentoring program known to the industry, Society of Explorafor at-risk youth in the Pittsburgh public tion Geophysicists, is enlisting the help of schools was just one of many donations by energy companies to grow its Geoscienthe company in 2010. tists Without Borders program. SchlumAs Nabors Industries’ berger, Global Geophysical Services, and chairman and CEO Australia’s Santos have all contributed Eugene Isenberg told me, to the program aimed at after decades of various providing assistance to comphilanthropic efforts–supmunities through projects porting hospitals, medical involving humanitarian and care facilities, and the arts– environmental applications promoting education will Isenberg of geophysics. Current always be “first and foremost.” This year projects are taking place in he created the Isenberg Scholarships to Indonesia, Australia, Honduras, and India. assist Nabors employees and their depenA little closer to home, San Antoniodents in the pursuit of post-secondary and based Valero Energy Corp. held its graduate degrees. annual Valero Texas Open and Benefit for

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Children Golf Classic. The fundraiser, one of the biggest on the PGA Tour, has consistently raised millions for various children’s charities nationwide. The year also highlighted the Louisiana Artificial Reefs Program. Pieces of decommissioned rigs are donated to the program, along with a portion of the savings over a traditional removal. The pieces become artificial reefs benefitting the coastal fisheries. This year’s columns also honored pillars of the industry. As unconventional resources are making headlines everywhere, legendary oilman George P. Mitchell was awarded the Gas Technology Institute’s Lifetime Achievement Award for Mitchell pioneering hydraulic fracturing–the technology that has unlocked shale gas and revolutionized the industry. Sadly, the industry lost another legendary oilman in 2010. Houston businessman and chairman of Enterprise Products Partners LP, Dan L. Duncan, was known as much for the millions upon million he contributed Duncan to various causes–most notably medical research and comprehensive patient care–as he was for his business acumen. Thank you to all the 2010 participants, and the many more companies, associations, and individuals working to improve the lives of others. I look forward to hearing more inspirational stories in 2011. For more information or to recommend a particular effort, please contact me at [email protected]. OGFJ

www.ogfj.com • Oil & Gas Financial Journal December 2010

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No one values the energy of America like we do.

America is a special place. We consider it a privilege to do business here. Over the last 12 years, Noble has become one of the country’s largest independent oil & gas royalty purchasers. We’re interested in acquiring more. Find out what your royalties are worth. Talk to us.

Cash for current and future cash flow Discreet, Simple, timely closings

Contact Doug Bradley – Senior Vice President, Land & Acquisitions 15601 N. Dallas Parkway, Suite 900, Addison, TX 75001 972.788.5839 | [email protected] © 2010 Noble Royalties, Inc.

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5VISL9V`HS[PLZ0UJ Committed to being America’s #1 independent royalty purchaser.

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Capital and Sponsorship for the Energy Industry Since 1988 125 E. JOHN CARPENTER FREEWAY SUITE 600 IRVING,TEXAS 75062 (972) 432-1440

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