Oil & Gas Journal - January 10, 2011

  

     


  
     
  
  
       

 

 
 
  

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International Petroleum News and Technology

5 NEWSLETTER 29 STATISTICS

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www.ogj.com

Jan. 10, 2011

10 LETTERS / CALENDAR

14 JOURNALLY SPEAKING

16 EDITORIAL

32 MARKETPLACE

34 EDITOR’S PERSPECTIVE / MARKET JOURNAL

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Volume 109.2

28 EQUIPMENT 28 ADVERTISERS’ INDEX

GENERAL INTEREST 18 API-funded study quantifies benefits of access, harm of taxes Nick Snow

Increased access to US oil and natural gas resources currently off-limits could, by 2025, create 530,000 jobs; deliver $150 billion more in tax, royalty, and other sources of revenue; and boost domestic production by 4 million boe/d, a study commissioned by the American Petroleum Institute concluded.

19 BOEMRE may exempt 13 deepwater firms from NEPA reviews Nick Snow

19 Full impact of Salazar’s ‘wild lands’ order still uncertain NIck Snow

20 BLM lifts suspensions of 45 Montana oil, gas leases

22 Gulf Keystone faces claim from Excalibur on Kurdish assets Eric Watkins

23 Noble Energy makes gas find with Leviathan off Israel Eric Watkins

23 WATCHING THE WORLD A Mediterranean hotbed

24 IHS: Global upstream sales hit record $107 billion in 2010 25 Pioneer Natural Resources to apply Tunisian proceeds to US plays 25

EXPLOR ATION / DEVELOPMENT BRIEFS

The video below, courtesy of Range Resources Corp., Forth Worth, features executives discussing the company’s drilling plans in the Marcellus shale play.

CLICK TO VIEW VIDEO

Visit our video library www.ogj.com/index/video.html

Nick Snow

21 Marathon ends contract for Noble’s Jim Day semi Paula Dittrick

21 WATCHING GOVERNMENT Early House signals

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1/6/11 11:31 AM

Advancing Reservoir Performance

70%

How we cut NPT by and added 36 wells to an Eagle Ford operator’s drilling plan

©2010 Baker Hughes Incorporated. All Rights Reserved. 30182

An Eagle Ford operator was losing valuable time waiting for frac-water tanks to fill to required volumes, forcing a substantial reduction in the drilling plan. The operator considered drilling five new frac-water supply wells, at a cost of USD 1.25 million, to solve this problem.

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Baker Hughes had a better idea. We installed a high-volume Centrilift electric submersible pumping (ESP) system and tripled the frac-water supply well production rate. Downtime between completions dropped from 50 to 17 days. A second Centrilift ESP on another water-supply well quadrupled its production rate and cut completion wait times to less than 12 days. The operator regained its original drilling plan and scheduled to add 36 more wells per year. To learn how we can help you produce more profits from your shale operations, contact your Baker Hughes representative or visit us online. You’ll find that partnering with us to maximize the value of your Eagle Ford assets is a very good idea. www.bakerhughes.com

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ADVERTISING SALES Houston U.S. Sales Manager, Marlene Breedlove; Tel: (713) 9636293, E-mail: [email protected]. Regional Sales Manager, Mike Moss; Tel: (713) 963-6221, E-mail: [email protected]. PennWell - Houston, 1455 West Loop South, Suite 400, Houston, TX 77027. Fax: (713) 963-6228

South / Southwest / Texas / Northwest / Midwest / Alaska Marlene Breedlove, 1455 West Loop South, Suite 400, Houston, TX 77027; Tel: (713) 963-6293, Fax: (713) 963-6228; E-mail: [email protected]

PennWell, Houston office 1455 West Loop South, Suite 400, Houston, TX 77027 Telephone 713.621.9720 / Fax 713.963.6285 Web site: www.ogj.com Editor Chief Editor-Exploration Chief Technology Editor-LNG/Gas Processing Production Editor Pipeline Editor Senior Editor-Economics Senior Editor

Northeast / Texas / Southwest Mike Moss, 1455 West Loop South, Suite 400, Houston, TX 77027; Tel: (713) 963-6221, Fax: (713) 963-6228; E-mail: [email protected]

Louisiana / Canada Stan Terry, 1455 West Loop S. Ste. 400, Houston, TX 77027; Tel: (713) 963-6208, Fax: (713) 963-6228; E-mail: [email protected]

United Kingdom / Scandinavia / Denmark / The Netherlands Roger Kingswell, 9 Tarragon Road, Maidstone, ME16 0UR, United Kingdom; Tel. 44.1622.721.222; Fax: 44.1622.721.333; Email: [email protected]

France / Belgium / Spain / Portugal / Southern Switzerland / Monaco Daniel Bernard, 8 allee des Herons, 78400 Chatou, France; Tel: 33(0)1.3071.1119, Fax: 33(0)1.3071.1119; E-mail: [email protected]

Germany / Austria / Northern Switzerland / Eastern Europe / Russia / Former Soviet Union Sicking Industrial Marketing, Kurt-Schumacher-Str. 16, 59872, Freienohl, Germany. Tel: 49(0)2903.3385.70, Fax: 49(0)2903.3385.82; E-mail: wilhelms@pennwell. com; www.sicking.de Andreas Sicking

Japan e.x.press sales division, ICS Convention Design Inc. 6F, Chiyoda Bldg., 1-5-18 Sarugakucho, Chiyoda-ku, Tokyo 101-8449, Japan, Tel: +81.3.3219.3641, Fax: 81.3.3219.3628; Kimie Takemura, Email: [email protected]; Manami Konishi, E-mail: [email protected]; Masaki Mori, E-mail: masaki. [email protected]

Brazil Grupo Expetro/Smartpetro, Att: Jean-Paul Prates and Bernardo Grunewald, Directors, Ave. Erasmo Braga 22710th and 11th floors Rio de Janeiro RJ 20024-900 Brazil; Tel: 55.21.3084.5384, Fax: 55.21.2533.4593; E-mail: [email protected] and bernardo@ pennwell.com.br

Singapore / Australia / Asia-Pacific Michael Yee, 19 Tanglin Road #05-20, Tanglin Shopping Center, Singapore 247909, Republic of Singapore; Tel: 65 9616.8080, Fax: 65.6734.0655; E-mail: yfyee@singnet. com.sg

India Rajan Sharma, Interads Limited, 2, Padmini Enclave, Hauz Khas, New Delhi-110 016, India; Tel: +91.11. 6283018/19, Fax: +91.11.6228 928; E-mail: rajan@ interadsindia.com

Italy Ferruccio Silvera, Viale Monza, 24 20127 MILANO Italy; Tel:+02.28.46 716; E-mail: [email protected]

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Senior Writer Senior Staff Writer Survey Editor/News Writer Publisher Vice-President/Group Publishing Director Vice-President/Custom Publishing

Bob Tippee, [email protected] Alan Petzet, [email protected] Warren R. True, [email protected] Guntis Moritis, [email protected] Christopher E. Smith, [email protected] Marilyn Radler, [email protected] Steven Poruban, [email protected] Sam Fletcher, [email protected] Paula Dittrick, [email protected] Leena Koottungal, [email protected] Jim Klingele, [email protected] Paul Westervelt, [email protected] Roy Markum, [email protected]

PennWell, Tulsa office 1421 S. Sheridan Rd., Tulsa, OK 74112 PO Box 1260, Tulsa, OK 74101 Telephone 918.835.3161 / Fax 918.832.9290 Presentation/Equipment Editor Associate Presentation Editor Statistics Editor Illustrators Editorial Assistant Production Director Production Manager

Jim Stilwell, [email protected] Michelle Gourd, [email protected] Laura Bell, [email protected] Mike Reeder, Kay Wayne Donna Barnett, [email protected] Charlie Cole Shirley Gamboa

Washington Tel 703.533.1552 Washington Editor Nick Snow, [email protected]

Los Angeles Tel 310.595.5657 Oil Diplomacy Editor Eric Watkins, [email protected]

OGJ News Please submit press releases via e-mail to: [email protected]

Subscriber Service P.O. Box 2002, Tulsa OK 74101 Tel 1.800.633.1656 / 918.831.9423 / Fax 918.831.9482 E-mail [email protected] Audience Development Manager Tommie Grigg, [email protected]

PennWell Corporate Headquarters 1421 S. Sheridan Rd., Tulsa, OK 74112

Chairman President/Chief Executive Officer

P.C. Lauinger, 1900-1988 Frank T. Lauinger Robert F. Biolchini

Member Audit Bureau of Circulations & American Business Media Copyright 2011 by PennWell Corporation (Registered in U.S. Patent & Trademark Office). All rights reserved. Oil & Gas Journal or any part thereof may not be reproduced, stored in a retrieval system, or transcribed in any form or by any means, electronic or mechanical, including photocopying and recording, without the prior written permission of the Editor. Permission, however, is granted for employees of corporations licensed under the Annual Authorization Service offered by the Copyright Clearance Center Inc. (CCC), 222 Rosewood Drive, Danvers, Mass. 01923, or by calling CCC’s Customer Relations Department at 978-750-8400 prior to copying. Requests for bulk orders should be addressed to the Editor. Oil & Gas Journal (ISSN 0030-1388) is published 12x per year - monthly the first Monday of each month in print and other Mondays in digital form by PennWell Corporation, 1421 S. Sheridan Rd., Tulsa, Okla., Box 1260, 74101. Periodicals postage paid at Tulsa, Okla., and at additional mailing offices. Oil & Gas Journal and OGJ are registered trademarks of PennWell Corporation. POSTMASTER: send address changes, letters about subscription service, or subscription orders to P.O. Box 3497, Northbrook, IL 60065, or telephone (800) 633-1656. Change of address notices should be sent promptly with old as well as new address and with ZIP code or postal zone. Allow 30 days for change of address. Oil & Gas Journal is available for electronic retrieval on Oil & Gas Journal Online (www.ogj.com) or the NEXIS® Service, Box 933, Dayton, Ohio 45401, (937) 865-6800. SUBSCRIPTION RATES in the US: 1 yr. $89; Latin America and Canada: 1 yr. $94; Russia and republics of the former USSR, 1 yr. 2,200 rubles; all other countries: 1 yr. $129, 1 yr. premium digital $59 worldwide. These rates apply only to individuals holding responsible positions in the petroleum industry. Single copies are $10 each except for 100th Anniversary issue which is $20. Publisher reserves the right to refuse non-qualified subscriptions. Oil & Gas Journal is available on the Internet at http://www.ogj.com. (Vol. 109, No. 2) Printed in the US. GST No. 126813153. Publications Mail Agreement Number 602914. Return Undeliverable Canadian Addresses to: P.O. Box 1632, Windsor, ON N9A 7C9.

1/6/11 11:31 AM

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1/5/11 2:49 PM

OGJ Newsletter

Jan. 10, 2011

International News for oil and gas professionals

GENERAL INTEREST Q U IC K TA K E S NPRA asks court to overturn EPA’s E15 waiver The National Petrochemical & Refiners Association and two other oil and gas associations petitioned a federal appeals court on Jan. 3 to review and overturn the US Environmental Protection Agency’s decision allowing fuels with up to 15% ethanol to be used in model year 2007 or newer vehicles. The Western States Petroleum Association and Independent Liquid Terminals Association joined NPRA in the legal challenge. “The organizations challenging EPA’s decision believe the agency has acted unlawfully in its rush to allow a 50% increase in the amount of ethanol in gasoline without adequate testing and without following proper procedures,” NPRA Pres. Charles T. Drevna said on Jan. 3. “As a result, we had no choice but to take this issue to court.” EPA issued the waiver on Oct. 13, 2010, in response to a petition by Growth Energy, an ethanol advocacy group. The US Appeals Court for the District of Columbia upheld EPA’s action on Dec. 21. NPRA said it and the two other groups will argue in their lawsuit that EPA does not have legal authority under the Clean Air Act to approve a partial waiver allowing the use of E15 in some engines but not in others. It said that it also will argue that EPA based its partial waiver decision on new data submitted to the public rulemaking docket on the day before it announced the partial waiver decision, thereby providing no time for stakeholder review or meaningful public comment which the federal Administrative Procedure Act requires. NPRA, along with recreational, work equipment, and transportation engine manufacturers, have expressed concern that E15’s introduction without more complete tests potentially could damage engines.

Newfield, EOG terminate Marcellus shale deal Newfield Exploration Co. and EOG Resources Inc. mutually agreed to terminate a deal for Newfield to buy Marcellus shale development assets in Bradford County, Pa., from EOG for $405 million. The original sales agreement was announced last month, and the termination announcement came Dec. 22 (OGJ, Nov. 22, 2010, Newsletter).

Oil & Gas Journal

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For up-to-the-minute news, visit www.ogjonline.com

Newfield formerly had planned to acquire 50,000 net acres estimated to contain 1.5-2 tcf of gas equivalent net unrisked recovery potential. The companies did not elaborate on what prompted them to call off the transaction.

OPI Gas buys Shell Gas LPG Pakistan OPI Gas (Pvt) Ltd. completed its acquisition of Shell Petroleum Co.’s 67.91% stake in Shell Gas LPG Pakistan Ltd. Khalid Mumtaz Malik, chief executive of OPI Gas, said, “Given the rising demand for LPG in the country, we are confident that this acquisition will help maximize value for shareholders.” The acquisition gives OPI Gas horizontal integration with a firm experienced in Pakistan’s LPG marketing, he said. The original share purchase agreement between OPI Gas and Shell Petroleum was signed June 16.

Japan’s November oil imports rise 10.8% on year Japan’s Natural Resources and Energy Agency (NREA) said the country’s imports of crude oil in November rose 10.8% from a year earlier to 122.09 million bbl. It also marked the first sequential increase in 2 months, officials said. Oil shipments from the Middle East accounted for 86.2% of Japan’s total imports, down 3.8%, said NREA, a division of the Ministry of Economy, Trade, and Industry. Saudi Arabia remained Japan’s chief supplier of oil, exporting 38.24 million bbl, down 0.4%. The UAE followed with 22.14 million bbl, down 3.8%, while Qatar, which supplied 15.1 million bbl, rose 24.6%. NREA earlier reported Japan’s oil imports in October fell 5.8% from a year earlier to 105.23 million bbl, marking the first decline in 4 months. It said oil shipments from the Middle East still accounted for 86.3% of total imports, down 3.5%. Saudi Arabia remained Japan’s biggest oil supplier, exporting 28.12 million bbl, down 4.5%; with the UAE second at 22.33 million bbl, down 19.3%; followed by Qatar, with 11.01 million bbl, down 20.1%. According to the US Energy Information Administration, Japan was the second-largest net importer of oil in the world after the US in 2009, having imported about 4.7 million b/d.

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IPE BRENT / NYMEX LIGHT SWEET CRUDE $/bbl 94.00 93.00 92.00 91.00 90.00 89.00 88.00 87.00

US INDUSTRY SCOREBOARD — 1/10 Latest week 12/24

4 wk. average

Dec. 29

Dec. 30

Dec. 31

Jan. 3

Motor gasoline Distillate Jet fuel Residual Other products

YTD avg. year ago1

Change, %

9,024 3,689 1,454 498 4,425 19,090

2.9 4.9 0.1 17.7 14.4 6.1

9,110 3,775 1,409 492 4,494 19,280

9,062 3,616 1,404 536 4,245 18,863

0.5 4.4 0.4 –8.2 5.9 2.2

Crude production NGL production2 Crude imports Product imports Other supply2, 3 TOTAL SUPPLY Refining, 1,000 b/d

5,590 2,036 8,574 2,653 2,070 20,923

5,525 2,066 7,911 2,488 1,660 19,650

1.2 –1.4 8.4 6.6 24.7 6.5

5,498 2,028 9,125 2,571 1,950 21,172

5,318 2,048 9,113 2,748 1,737 20,964

3.4 –1.0 0.1 –6.4 12.3 1.0

Crude runs to stills Input to crude stills % utilization

14,933 15,439 87.8

14,307 14,370 81.2

4.4 7.4 —

14,597 15,033 85.3

14,336 14,639 82.8

1.8 2.7 —

Jan. 4

Dec. 29

Dec. 30

Supply, 1,000 b/d

Dec. 31 1 Jan. 3 1

Jan. 4

NYMEX NATURAL GAS / SPOT GAS - HENRY HUB

Latest week 12/24

Latest week

Previous week1

339,427 214,857 160,959 43,613 39,933

340,685 217,173 160,716 43,921 40,907

–1,258 –2,316 243 –308 –974

Stock cover (days)4 Dec. 29

Dec. 30

Dec. 31 1

Jan. 3

Jan. 4

Same week year ago1 Change

Change

Change, %

Stocks, 1,000 bbl Crude oil Motor gasoline Distillate Jet fuel–kerosine Residual

IPE GAS OIL / NYMEX HEATING OIL ¢/gal 261.00 258.00 255.00 252.00 249.00 246.00 243.00 240.00

YTD average1

9,283 3,869 1,456 586 5,061 20,255

TOTAL PRODUCT SUPPLIED

$/MMbtu 4.75 4.65 4.55 4.45 4.35 4.25 4.15 4.05

Change, %

Product supplied, 1,000 b/d

WTI CUSHING / BRENT SPOT $/bbl 95.00 94.00 93.00 92.00 91.00 90.00 89.00 88.00

4 wk. avg. year ago1

326,008 215,964 159,281 42,025 37,180

Change, %

Crude Motor gasoline Distillate Propane Futures prices5 12/31

22.7 23.1 41.6 36.1

23.1 23.7 42.4 42.0

90.97 4.27

90.16 4.13

4.1 –0.5 1.1 3.8 7.4

Change, %

–1.7 –2.5 –1.9 –14.0

23.5 23.9 43.2 34.7

Change

Light sweet crude ($/bbl) Natural gas, $/MMbtu

13,419 –1,107 1,678 1,588 2,753

–3.4 –3.3 –3.7 4.0

Change

0.81 0.14

75.40 5.71

15.57 –1.44

% 20.6 –25.2

1

Based on revised figures. 2OGJ estimates. 3Includes other liquids, refinery processing gain, and unaccounted for crude oil. 4Stocks divided by average daily product supplied for the prior 4 weeks. 5Weekly average of daily closing futures prices. Source: Energy Information Administration, Wall Street Journal

Dec. 29

Dec. 30

Dec. 31

Jan. 3

Jan. 4

BAKER HUGHES INTERNATIONAL RIG COUNT: TOTAL WORLD / TOTAL ONSHORE / TOTAL OFFSHORE

PROPANE - MT. BELVIEU / BUTANE - MT. BELVIEU ¢/gal 174.00 170.00 166.00 134.00 133.00 132.00 131.00

Dec. 29

Dec. 30

Dec. 31

Jan. 3

Jan. 4

NYMEX GASOLINE (RBOB)2 / NY SPOT GASOLINE3 ¢/gal 246.00 244.00 242.00 240.00 238.00 236.00 234.00 232.00 1Not

3,900 3,600 3,300 3,000 2,700 2,400 2,100 1,800 1,500 300 0

3,233 2,891

342

Nov. 09

Dec. 09

Jan. 10

Feb. 10

Mar. 10

Apr. 10

May 10 Jun. 10

Jul. 10

Aug. 10

Sept. 10

Oct. 10

Nov. 10

Note: Monthly average count

BAKER HUGHES RIG COUNT: US / CANADA 1,694

1,800 1,600 1,400

1,189

1,200 1,000 800 400

209

246

200 Dec. 29

Dec. 30

Dec. 31

1

Jan. 3

Jan. 4

available. 2Reformulated gasoline blendstock for oxygen blending 3Nonoxygenated regular unleaded

0

10/16/09 10/30/09 11/13/09 11/27/09 10/23/09

11/6/09

11/20/09

12/11/09

12/4/09

12/25/09 10/15/10 10/29/10

12/18/09

1/1/10

10/22/10

11/12/10

11/5/10

11/26/10 12/10/10 12/24/10

11/19/10

12/3/10

12/17/10

12/31/10

Note: End of week average count

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Oil & Gas Journal | Jan. 10, 2011

1/6/11 1:21 PM

“Japan is currently looking towards Russia, Southeast Asia, and Africa to geographically diversify its oil imports,” EIA said, adding 80% of Japanese oil imports originate in the Middle East, up from 70% in the mid-1980s.

Oil & Natural Gas Corp. and GAIL (India) Ltd., both controlled by the government of India, have initialed agreements for cooperation in the natural gas and petrochemicals businesses. One area of agreement includes the exclusive sale of gas produced by ONGC to GAIL for 3 years. The agreement includes the swapping of gas produced by both companies to create logistical efficiencies. GAIL also initialed agreements with ONGC Petro Additions Ltd., a joint venture, to become a copromoter of a petrochemical complex under development in the Dahej Special Economic Zone in Gujarat. The plant is to have capacity to produce 1.1 million tonnes/year of ethylene. ONGC is India’s largest exploration and production company. GAIL is the main pipeline and distribution system operator and also produces gas.

formation. Over the last 17 hr the well has produced on natural flow through a 1-in. choke, at a rate of 10,440 b/d with less than a 0.1% water cut. The company is evaluating the potential for additional Yatay follow-up locations incorporating the well results and recently completed Guatiquia 3D seismic survey. Yatay-1 is the first well into a new, seismically defined structure downdip from the Candelilla structure and across the bounding Candelilla fault. The Candelilla structure produced more than 7.3 million bbl of light oil in 2010 from the Lower Sand-3 and Guadalupe formations. The rig will move to the Candelilla-5 location targeting the Guadalupe formation that is currently producing in Candelilla-4. Meanwhile, the Cardenal-1 and Celeste-1 wells are drilling since early December 2010 on the Corcel block, and results are due by late January. Meanwhile, Petrominerales’ Borugo-1 exploratory well on the Rio Ariari heavy oil block in the Llanos basin is cased for tests after logs indicated 35 ft of potential net oil pay in the Mirador formation. Total depth si 5,260 ft. Borugo is testing a play concept distinct from the company’s Mochelo-1 and Rio Ariari-1 discovery wells.

EXPLORATION & DEVELOPMENT Q U IC K TA K E S

Desire drills another dry hole off Falklands

ONGC, GAIL initial coop agreements

Ivanhoe discovers more Sichuan gas in China Ivanhoe Energy Inc. said China subsidiary, Sunwing Energy Ltd., discovered natural gas with its Yixin-2 well in southwest China on the Zitong block. Gas flowed at rates of up to 13 MMcfd, and averaged 9-10 MMcfd during an initial 24-hr test. Gas is flowed from the Xu-4 formation, a well established gas-producing formation. Ivanhoe said the rates recorded demonstrate the discovery’s strong potential, and Sunwing plans to continue with further development of the Xu-4 formation and other structures in the Zitong block (OGJ Online, Nov. 2, 2010). Sunwing’s 659,840-acre holding on Zitong block is in the Sichuan Province. Sunwing operates the Zitong exploration block and holds a 90% contractor interest in a petroleum contract with PetroChina Co. Ltd. Japan’s Mitsubishi Gas Chemical Co. holds 10% contractor interest. Technical teams from Sunwing and PetroChina are working to develop a strategy to evaluate the Yixin structure, as well as the potential for further discoveries elsewhere on the Zitong block, Ivanhoe said.

Llanos wildcat making 10,440 b/d of light oil Petrominerales Ltd., Bogota, said its Yatay-1 exploratory well on the Guatiquia block in Colombia’s Llanos basin is making 10,440 b/d of 43° gravity oil on natural flow from the Lower Sand 3 formation. Logs at Yatay-1 indicate 114 ft of potential net oil pay in the Lower Sand-3 formation and 17 ft of potential net oil pay in the Guadalupe formation. An electrical submersible pump was installed in the well after perforating a 10-ft section at the top of the Lower Sand-3

Oil & Gas Journal | Jan. 10, 2011

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Desire Petroleum PLC said its 25/5-1 well on the Dawn/Jacinta prospect reached a depth of 1,313 m, but drilling and wireline logging data show no hydrocarbons have been found. “The well will now be drilled to the planned total depth around 1,670 m to evaluate the deeper Dawn Prospect,” Desire said, adding that the reported results are based on the work of Senergy (GB) Ltd. The announcement will likely be greeted with cheers in Argentina, which has long complained of British-led efforts to discover oil and gas in the region around the Falklands Islands, over which the two nations went to war in the 1980s. Argentina recently passed a law includes the disputed islands as part of its Tierra del Fuego province, and the Latin American nation also declared the Desire drilling illegal. In October, Desire Petroleum disappointed investors by announcing its 14/15-1 well on the Rachel prospect in the remote North Falkland basin found thick, porous reservoir rock but no hydrocarbons and would be sidetracked (OGJ Online, Oct. 15, 2010).According to industry observers, Desire’s failure on the Jacinta prospect will put pressure on Rockhopper Exploration PLC with its next well, aimed at proving an extension to the Sea Lion find reported in May. At the time, Rockhopper said its Sea Lion discovery in the North Falkland basin in the South Atlantic found an estimated 170-242 million bbl of recoverable medium-gravity crude oil as “the first contingent oil resource in the Falklands” (OGJ Online, June 7, 2010). Rockhopper plans to start drilling next month using the Ocean Guardian rig currently being used by Desire, which was named after HMS Desire, the British ship that claimed to have discovered the Falklands in 1592.

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DRILLING & PRODUCTION Q U IC K TA K E S Apache starts production from Balboa in gulf Houston independent Apache Corp. started producing oil and natural gas from Balboa field in about 3,350 ft of water on East Breaks Block 597, 130 miles south of Galveston, Tex. The field is a one-well development with a 6-mile tieback to the Anadarko Petroleum Corp. operated Boomvang spar on East Breaks Block 643. Production from the well started on Dec. 28. Apache said initial gross flow rates have stabilized at about 30 MMcfd of gas and 1,400 bo/d from an oil-bearing sandstone reservoir with a gas cap. The company noted that the well is completed near the crest of the structure to optimize overall hydrocarbon recovery and is expected to initially produce gas and liquids with increasing liquids and decreasing gas volumes throughout the life of the field. Apache assumed operatorship of Balboa with the acquisition of Mariner Energy Inc. in November 2010. The company holds a 50% interest in the block with the other 50% held by Marubeni Oil & Gas (USA) Inc., according to US Bureau of Ocean Energy Management, Regulation, and Enforcement records.

Seadrill buying two ultradeepwater semis Seadrill Ltd. agreed to acquire two ultradeepwater semisubmersibles currently under construction at Jurong Shipyard Pte. Ltd. in Singapore for $1.2 billion, Seadrill announced on Jan. 3. The SeaDragon I and Seadragon II are expected to be delivered in this year’s first and fourth quarters, respectively. The SeaDragon I had a 5-year contract, but Seadrill said the contract is under discussion because the scheduled delivery was delayed. There is no contract for the Seadragon II. The dynamically positioned rigs will be capable of drilling in 10,000 ft of water and have total vertical drilling depth capacity of up to 35,000 ft. The rigs each have a single derrick with dual pipe handling and offline stand building capabilities, Seadrill said. Vantage Drilling Co. oversaw construction services for SeaDragon I and SeaDragon II, which are nearing completion. Vantage said a customer, which it did not identify, had terminated Vantage’s management contract for the rigs. Paul A. Bragg, Vantage chairman and chief executive officer, said, his company considered buying the rigs but decided against it. “We were not prepared to take excessive risks in terms of our offer,” Bragg said. On Dec. 29, Vantage announced its Platinum Explorer ultradeepwater drillship commenced operations for ONGC in India. Platinum Explorer is contracted for 5 years with corresponding estimated revenues of $1.1 billion. Vantage owns four Baker Marine Pacific Class 375 ultrapremium jack up rigs and a drillship.

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Petrobras submits Tupi, Iracema declaration Petroleo Brasileiro SA (Petrobras) submitted to Brazil’s National Petroleum Agency (ANP) a declaration of commerciality for the presalt oil and gas fields in the Tupi and Iracema areas of Block BMS-11 in the Santos basin off Brazil. Petrobras proposed the names Lula and Cernambi for the fields in the Tupi and Iracema areas, respectively. In its commerciality declaration, Petrobras reports that Lula contains 6.5 billion boe and Cernambi contains 1.8 billion boe of recoverable oil and gas. The oil gravity is 28° in Lula and 30° in Cernambi. Petrobras notes that Lula will be the first supergiant oil field in Brazil with recoverable volumes more than 5 billion boe, while Cernambi is among the top-five giant fields in Brazil. Along with the commerciality declaration, Petrobras also submitted to ANP the final report on the evaluation plan and the development plan for the two fields. Petrobras drilled the discovery well for the area in October 2006 and since then has drilled 11 wells in the area. In April 2009, the company began an extended well test in Tupi that provided information for estimating recoverable volumes and formulating a development plan. Pilot production from the Tupi area began in October (OGJ Online, Oct. 28, 2010). Petrobras is the operator of the block with a 65% interest. Block partners are BG Group 25% and Portugal’s Galp Energia 10%.

Denbury commences CO2 flood at Hastings Denbury Resources Inc. in December completed the last section of the 24-in., 320-mile Green Pipeline for transporting carbon dioxide from Donaldsonville, La., to oil fields in Texas and on Dec. 16 started injecting CO2 for enhancing oil production from Hastings oil field in Brazoria County. The Green line has a designed capacity to transport 800 MMcfd of CO2 and at Donaldsonville the pipeline receives CO2 from Denbury’s NEJD CO2 pipeline that also transports CO2 from the company’s Jackson Dome, Miss., CO2 source field to its enhanced oil recovery projects in Mississippi and Louisiana. The company also expects to eventually tie in anthropogenic CO2 sources to the Green line. In addition, Denbury recently received a US Army Corps of Engineers permit for facility construction at Hastings and anticipates receiving a permit for facility construction at Oyster Bayou oil field, Chambers County, Tex., in January 2011. Denbury started CO2 injection in Oyster Bayou in June 2010. Denbury in a December presentation estimated that Hastings contains 70-100 million bbl and Oyster Bayou contains 20-30 million bbl of recoverable tertiary oil.

Statoil orders Vigdis North-East subsea equipment Statoil let a $75 million contract to FMC Technologies Inc. for the manufacture and supply of subsea production equipment for the Vigdis North-East development off Norway.

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Vigdis North-East is a fast-track oil and gas field in about 920 ft of water. FMC will supply and manufacture four subsea trees, one manifold, subsea and topside control systems, and an umbilical. For the equipment, FMC will base the design of its standardized solution for Statoil. FMC expects deliveries to start in third-quarter 2011. Vigdis North-East along with PanPandora, Katla, and Gygrid are the four fields in Statoil’s first wave of fast-track projects (OGJ Online, Nov. 12, 2010).

PROCESSING Q U IC K TA K E S

around activities, as well as delivery of small capital works at the site.

Sonatrach awards refinery contract in Algeria Sonatrach awarded Technip a contract for the refurbishment and revamping of the Algiers refinery. The 38-month turnkey contract for $908 million covers execution of the complete project, including the design, equipment supply, construction, and start-up. The revamp of the existing installations will enable refining capacity to be increased to 3.6 million tone/year from 2.7 tonnes/year. The new units will allow the refinery to produce gasoline at specifications similar used in Europe.

Yeosu refining complex due upgrading capacity GS Caltex, Seoul, plans to add upgrading capacity at its 760,000 b/cd refining complex at Yeosu, South Korea. It will spend $978.6 million to add 53,000 b/d of vacuum gas oil fluid catalytic cracking capacity and 24,000 b/d of gasoline hydrodesulfurization capacity. It also will add alkylation capacity of unspecified size. The upgrade will boost production of propylene by 250,000 tonnes/year at the complex to 450,000 tonnes/year. The complex currently has 61,000 b/d of resid FCC capacity and 181,000 b/d of resid hydrocracking capacity in three units. GS Caltex is a 50-50 partnership of Chevron Corp. and GS Holdings, Seoul.

Chinese gas plant installs treating in eastern plant Sinopec’s 1.27-bcfd Puguang natural gas plant in China’s eastern Sichuan province is using Black & Veatch’s Interstage Cooling technology to remove H2S and CO2 from feed gas produced from Puguang field. The Puguang gas plant produces up to 8,400 tonnes/day and 3 million tonnes/year of sulfur. The processing plant removes virtually all the H2S, which comprises nearly 15% of the raw gas, and converts it to elemental sulfur. It also reduces CO2 to 3 vol % from 10 vol %, according to the Black & Veatch announcement. The company is providing process design engineering, technology licensing, and field support services as part of a sour-gas purification and sulfur-recovery scheme. The giant gas field, with proven original gas in place of more than 12.5 tcf, was discovered in 2003 in the eastern Sichuan basin. In addition to the Puguang gas plant, Black & Veatch says it has recently provided process engineering and technology licensing for PetroChina’s Longgas sour-gas field development in Sichuan province, a field discovered in 2006.

NARL lets contract for refinery turnaround North Atlantic Refining Ltd. (NARL) has let a 3-year contract to Jacobs Engineering Group Inc. for the provision of turnaround and small capital work services at the company’s 115,000-b/d refinery at Come By Chance, Newf. Under the contract’s terms, Jacobs will provide turnaround planning and execution, including preplanning and post turn-

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TRANSPORTATION Q U IC K TA K E S Pipeline advances in Abu Dhabi gas project Abu Dhabi Marine Operating Co. (ADMA-OPCO) has completed the first phase of an offshore pipeline in the Integrated Gas Development of its parent company, Abu Dhabi National Oil Co., according to press reports. The 38-km pipeline will be able to carry 1 bscfd of gas from giant Umm Shaif oil field to Das Island for handling by another ADNOC operating company, Abu Dhabi Gas Liquefaction Ltd. From Das, gas will move 212 km to an Abu Dhabi Gas Industries Ltd. (GASCO) gas processing complex at Habshan. There, GASCO is building a plant, Habshan 5, with capacity to process 2.15 bscfd of gas. In addition to the feed from Umm Shaif field via Das, Habshan 5 will process associated gas from onshore oil fields undergoing expansion and sour nonassociated gas from Habshan fields. Main units of the Habshan 5 plant will be two trains for feed-gas compression, one train for condensate stabilization, four trains for gas sweetening and dehydration, two rich-gas NGL recovery trains, and four sulfur-recovery units. The plant is designed to produce 750 MMscfd of sales gas, 12,000 tonnes/day of NGL, and 5,200 tonnes/day of sulfur. The offshore part of the project includes production of an additional 1 bscfd of gas for injection at Umm Shaif (OGJ Online, Oct. 1, 2009). The full project is scheduled for completion in the third quarter of 2013.

Tokyo Gas, Hokkaido Gas sign LNG supply deal Tokyo Gas Co. signed a heads of agreement for the sale and supply of LNG to Hokkaido Gas Co. under which Tokyo Gas will supply Hokkaido Gas with LNG for 11 years starting in fiscal year 2012. The gas will be delivered to Hokkaido Gas’ Ishikari LNG terminal, now under construction in Ishikari Bay New Port. Completion is set for yearend 2012. In March, Tokyo Gas signed two agreements for the purchase of LNG, one with BG Group PLC’s Queensland Curtis LNG Project in Australia and the other with Energy World Corp.’s Sengkang Project in Indonesia (OGJ Online, Apr. 6, 2010).

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2011-2012 EVENT CALENDAR Denotes new listing or [email protected], website: a change in previously http://www.theenergypublished information. exchange.co.uk/3/13/ articles/214.php 25-27.

FEBRUARY 2011

IADC Health Safety Environment and Training Conference & Exhibition, JANUARY 2011 Houston, (713) 292API/AGA Joint Committee 1945, (713) 292-1946 on Oil and Gas Pipeline (fax), e-mail: info@iadc. GEO India Conference & Exhibition, New Delhi, Welding Practices, Fort org, website: www.iadc. Worth, Tex., (202) 682 +44 (0)20 7840 2139, org/conferences. 1-2. 8000, (202) 682-8222 +44 (0)20 7840 2119 (fax), website: www.api. Topsides Conference & (fax), e-mail: geo@ oesallworld.com, website: org. 26-28. Exhabition, Galveston, www.geo-india.com. Texas, (918) 831-9160, Pipe Tech Americas 12-14. (918) 831-9161 (fax), eSummit, Houston, (416) mail: wendyl@pennwell. Gas Transport & Storage 214-1144, e-mail: laucom, website: www. rence.allen@wtgevents. topsidesevent.com/index. Summit, Berlin, +44 com, website: www. (0)20 7202 7690, +44 html. 1-3. (0)20 7202 7600 (fax), pipetechamericas.com/ program. 27-28. e-mail: richard.jones@ Global LNG Forum, wtgevents.com, website: Barcelona, +421 257 Russian & CIS Executive 272 112, +421 255 www.gtsevent.com. Summit, Dubai, +44 19-20. 644 490, e-mail; beata. 20 7357 8394, +44 kyblova@jacobfleming. ME TECH 2011, Dubai, 20 7357 8395 (fax), com, website: www. +44 20 7357 8394, +44 e-mail: conferences@ jacobfleming.com. 2-3. europetro.com, website: 20 7357 8395 (fax), www.europetro.com/ e-mail: conferences@ Global LNG Forum, Bareuropetro.com, website: index.php?option=com_ celona, +421 257 272 event<emid=244. www.europetro.com/ 11, +421 255 644 490, index.php?option=com_ 27-28. e-mail; beata.kyblova@ event<emid=240. jacobfleming.com, webAnnual Gas Arabia 24-26. site: www.jacobfleming. Summit, Abu Dhabi, +44 com. 2-3. 207 067 18 00, e-mail: API Inspection Summit & Expo, Galveston, Tex., c.pallen@theenergyexEast African Petroleum (202) 682 8000, (202) change.co.uk, website: Conference & Exhibi682-8222 (fax), website: www. www.theenergytion (EAPCE), Kampala, exchange.co.uk/3/13/ www.api.org. 24-27. +256 414 320714, _256 articles/135.php. Jan. 414 320437 (fax), API Exploration and Pro- 30-Feb. 2. e-mail: eapce11@ duction Winter Standards petroleum.go.ug. website: Offshore Production Meeting, Fort Worth, www.petroleumafTechnology Summit, Tex., (202) 682-8000, rica.com/en/eventdetail. London, +44 (0)20 (202) 682-8222 (fax), php?Eventld=522. 2-4. 7202 7690, +44 (0)207 website: www.api.org. 202 7600 (fax), e-mail: NACE Northern Area 24-28. nathan.robinson@ Western Conference, Shale Gas Symposium, wtgevents.com, website: Regina, Sask., (281) www.offshore-summit. Calgary, Alta., (877) 228-6200, (281) com. Jan. 31-Feb. 1. 927-7936, (877) 927228-6300 (fax), e-mail: 1563 (fax), website: [email protected], www.canadianinstitute. SPE Middle East Uncon- website: www.events. com/energy_resources/ ventional Gas Conference nace.org/sarwebsites/ and Exhibition, Muscat, NorthernAreaWestern/ ShaleGas.htm. 25-26. +971 4 390 3540, +971 conference11/index. 4 366 4648 (fax), e-mail: asp. 6-8. European Gas Conference, Vienna, +44 207 [email protected], website: www.spe.org. Jan. 067 1800, +44 207 Arctic Technology 430 0552 (fax), e-mail: 31-Feb. 2. Conference, Houston,

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2011-2012 EVENT CALENDAR (888) 945-2274, ext. 617, website: www.arctictechnologyconference. org/. 7-9. Pipeline Coating International Conference, Vienna, +44(0)117 924 9442, +44(0)117 989 2128 (fax), e-mail: info@ amiplastics.com, website: www.2.amiplastics. com/Events/Even. code=C369&sec=1222. 7-9. International Gas Analysis Symposium & Exhibition, Rotterdam, +31 (0) 15 2 690 147, +31 (0) 15 2 690 190 (fax), e-mail: [email protected], website: www.gas2011.org. 9-11. SPE Project and Facilities Challenges Conference

at METS, Doha, +971 4 390 3540, +971 4 366 4648 (fax), e-mail: [email protected], website: www.spe.org. 13-16. Pipeline Pigging & Integrity Management Conference, Houston, (713) 521-5929, (713) 521-9255 (fax), e-mail: [email protected], website: www.clarion.org. 14-17.

theenergyexchange. co.uk, website: www. theenergyexchange. co.uk/3/13/articles/179. php. 15-17.

Laurance Reid Gas Conditioning Conference, Norman, Okla., (405) 325-2248, (405) 325-7164 (fax), e-mail: [email protected], website: www.engr.outreach. ou.edu. 20-23.

World Heavy Oil Congress, Edmonton, Alta., (888) 799-2545, (403) 245-8649 (fax), website: IP Week, London, +44 www.worldheavyoilcon- 0 20 7467 7116, e-mail: gress.com. 15-17. [email protected], website: www.energyinst. IPAA International org.uk. 21-23. World Heavy Oil ConForum, Houston, (202) gress, Edmonton, Alta., 857-4722, (202) 857Nitrogen+Syngas Inter(888) 799-2545, (403) 4799 (fax), website: national Conference & 245-8649 (fax), website: www.ipaa.org. 16. Exhibition, Dusseldorf, www.worldheavyoilcon+44 (0) 20 7903 2438, gress.com. 15-17. NAPE Expo, Houston, +44 (0) 20 7903 2432 (972) 993-9090, (972) (fax), e-mail: conferRussia Offshore Annual 993-9191 (fax), e-mail: [email protected], Conference & Exhibition, [email protected], website: www.crugroup. Moscow, +44 207 067 website: www.napeexpo. com. 21-24. 1800, +44 207 430 com. 16-18. 0552 (fax), e-mail: wra@

SUBSEA Tieback Forum & Exhibition, San Antonio, (918) 831-9160, (918) 831-9161 (fax), e-mail: [email protected], website: www. subseatiebackforum. com. 22-24. SPE European Conference on Health Safety and Environment in Oil and Gas Exploration, Vienna, +44 (0)1224 318088, website: www. spe-uk.org. 22-24. Pipe Line Contractors Association Convention, Maui, (214) 969-2700, e-mail: [email protected], website: www.plca.org. 22-26.

1252 625542, website: www.gpaeurope.com/ events/event/16. 23-25. Annual Petcoke Conference, San Diego, (832) 351-7827, (832) 351-7887 (fax), e-mail: [email protected], website: www.petcokes. com. 25-26.

Middle East Downstream Week Annual Meeting, Abu Dhabi, +44 (0) 1242 529 090, +44 (0) 1242 529 060 (fax), email: [email protected], website: www.wraconference. com. 27-30.

Corrosion UAE Conference, Abu Dhabi, 00 971 GPA Europe Conference, 50 264 1202, e-mail: Amsterdam, +44 (0) c.pallen@theenergyex-

Captains of Enterprise–Give your global energy perspective a whole new perspective. Our 2011 program. Register early. Space is limited. February 21-25, 2011. SMU James M. Collins Center Dallas, Texas Visit www.exed.cox.smu.edu/global or call 214.768.7676. In association with Maguire Energy Institute.

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2011-2012 EVENT CALENDAR change.co.uk, website: www.theenergyexchange. co.uk/3/13/articles/157. php. Feb. 27-Mar. 1.

Renewable Energy World Conference & Expo North America, Tampa, (918) 831-9160, (918) 831-9161 (fax), e-mail: registration@pennwell. com, website: www. renewableenergyworldevents.com. 8-10.

GASTECH International Conference & Exhibition, Amsterdam, +44 (0) 1737 855000, +44 (0) 1737 855482 (fax), email: [email protected], e-mail: www.gastech. co.uk. 21-24.

[email protected], website: www.spe-uk. org. 29.

shalecon.com/Event. aspx?id=388398. 4-7.

Hannover Messe International Trade Show, GIOGIE Georgian InterHannover, +49 511 89 national Oil & Gas Energy MARCH 2011 0, +49 511 89 32626 and Infrastructure Con(fax), website: www. NPRA Security Conferference, Tbilisi, +44 207 hannovermesse.de/ ence & Exhibition, 596 5135, +44 207 596 homepage_e. 4-8. Houston, (202) 457GPA Europe at GasTech 5106 (fax), e-mail: ilyas. 0480, (202) 457-0486 AIChE Spring Meeting Conference & Exhibition, idigov@ite-exhibitions. OilTech Atyrau Regional (fax), e-mail: info@npra. & Global Congress on Amsterdam, +44 (0) com, website: www.gioPetroleum Technology org, website: www.npra. Process Safety, Chicago, 1737 855000, +44 (0) gie.com/2011/. 29-30. Conference, Atyrau, +44 org. 1-2. (800) 242-4363, (203) 1737 855482 (fax), e(0) 20 7596 5000, +44 775-5177 (fax), website: mail: [email protected], Offshore Asia Confer(0) 20 7596 5111 (fax), Annual Arctic Gas e-mail: www.gastech. www.aiche.org/conference & Exhibition, Sine-mail: enquiry@iteSymposium, Calgary, co.uk. 21-24. ences/springmeeting/ gapore, (918) 831-9160, exhibition.com, website: Alta., (877) 927-7936, index.aspx. 13-17. (918) 831-9161 (fax), www.oiltech-atyrau.com/ (877) 927-1563 (fax), IADC Drilling HSE Asia e-mail: registration@ home.html. 5-6. website: www.arcticgas- NACE Corrosion Confer- Pacific Conference & pennwell.com, website: symposium.com/index. ence & Expo, Houston, Exhibition, Singapore, www.offshoreasiaevent. SPE/ICoTA CoiledTubhtml. 1-2. (713) 292-1945, (713) com. 29-31. (800) 797-6223, (281) ing & Well Intervention 228-6329 (fax), website: 292-1946 (fax), e-mail: Conference & Exhibition, SPE/IADC Drilling Confer- www.events.nace.org/ [email protected], website: SEG Shale Gas Forum, The Woodlands, Texas, ence, Amsterdam, +44 conferences/c2011/inwww.iadc.org/conferChengdu, Sichuan, (800) 456-9393, (972) 20 7299 3300. +44 20 dex.asp. 13-17. ences. 23-24. (918) 497-5500, (918) 952-9435 (fax), e-mail: 7299 3309 (fax), e-mail: 497-5557 (fax), website: [email protected], website: [email protected], website: Offshore West Africa OMC Offshore Mediter- www.seg.org. 30-31. www.spe.org. 5-6. www.spe.org. 1-3. Conference & Exhibition, ranean Conference, Ravenna, +39 0544 APRIL 2011 Accra, Ghana, (918) SPE/IADC Managed APPEX/AAPG Property & 831-9160, (918) 831219418, e-mail: conferGPA Annual Convention, Pressure Drilling & UnProspect Expo, London, 9161 (fax), e-mail: [email protected], website: San Antonio, (918) 493- derbalanced Operations +44 (0) 207 434 13 www.omc.it/2011. registration@pennwell. 3872, (918) 493-3875 Conference, Denver, 99, e-mail: Europe@ 23-25. com, website: www. (fax), e-mail: pmirkin@ (800) 456-9393, (972) aapg.org. website: www. offshorewestafrica.com. gpaglobal.org, website: 952-9435 (fax), e-mail: europetro.com. 1-3. 15-17. SPE Production and www.GPAglobal.org. 3-6. [email protected], website: Operations Sympowww.spe.org. 5-6. Turkmenistan Asia Oil & TUROGE Turkish Inter- sium, Oklahoma City, *Middle East DownGas Summit, Singapore, national Oil & Gas Con- (800) 456-9393, (972) stream Week Annual Atyrau North Caspian +44 (0) 20 7328 8899, ference & Showcase, 952-9435 (fax), e-mail: Meeting, Abu Dhabi, Regional Oil, Gas and +44 (0) 20 7624 9030 [email protected], website: +44 1242 529 090, Ankara, +44 (0) 20 Infrastructure Exhibi(fax), e-mail: info@ +44 1242 529 060 7596 5000, +44 (0) 20 www.spe.org. 27-29. tion, Atyrau, +44 (0) 20 summittradeevents.com, 7596 5111 (fax), e-mail: (fax), e-mail: c.pallen@ 7596 5000, +44 (0) 20 website: www.summitenquiry@ite-exhibition. NPRA International Pet- theenergyexchange. 7596 5111 (fax), e-mail: tradeevents.com/Holdcom, website: www. rochemical Conference, co.uk, website: www. enquiry@ite-exhibition. ingA2011.php. 3-4. turoge.com. 16-17. San Antonio, (202) 457- wraconferences. com, website: www. 0480, (202) 457-0486 com/2/4/articles/105. API Spring Committee atyrauoilgas.com2011/. on Petroleum Measure- NPRA Annual Meeting, (fax), e-mail: info@npra. php. 3-6. 5-7. ment Standards Meeting, San Antonio, (202) 457- org, website: www.npra. Hannover Messe Dallas, (202) 682 8000, 0480, (202) 457-0486 org. 27-29. Pipeline Technology AAPG Annual Convention (fax), e-mail: info@npra. (202) 682-8222 (fax), Conference, Hannover, & Exhibition, Houston, org, website: www.npra. Howard Weil Annual website: www.api.org. +49 511 90992 22, +49 (918) 560-2679, (918) org. 20-22. Energy Conference, New 511 90992 69 (fax), e7-10. 560-2684 (fax), website: Orleans, (504) 582mail: [email protected], www.aapg.org. 10-13. CERA Week, Houston, MEOS/SPE’s Middle East 2500, website: www. website: www.pipeline(713) 840-8282, (713) Oil & Gas Conference & howardweil.com/energy- conference.com. 4-5. APPEA. Conference and 599-9111 (fax), e-mail: Exhibition, Manama, +44 conference.aspx. 27-31. Exhibition, Perth, +61 ShaleCon Conference, [email protected], website: (0)20 7840 2139, +44 (7) 3802 2208, +61 (7) Montreal, Q.C., (800) (0)20 7840 2119 (fax), e- SPE European Well www.cera.com. 7-11. 3802 2209, website: mail: meos@oesallworld. Abandonment Seminar, 882-8684, e-mail: info@ www.appeaconferences. iapc.com, website: www. com, website: www. Aberdeen, +44 (0) com.au. 10-13. meos2011.com. 20-23. 1224 49495051, e-mail:

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GITA’s Geospatial Infrastructure Solutions Conference, Grapevine, Texas, (303) 337-0513, (303) 337-1001 (fax) website: www.gita.org/ events/futconf.asp. 10-14. SAGEEP Information Exchange for New-Surface Geophysics Forum, Charleston, (918) 4975500, (918) 497-5557 (fax), website: www.seg. org. 10-14. Gas Turbine Users International Annual Conference (GTUI), Dubai, +971 4 8047883, +971 4 8873584 (fax), e-mail: [email protected], website: www.gtui.org. 10-15.

The Project Forum, Moscow, +44 (0) 20 7357 8394, +44 (0) 20 7357 8395 (fax), e-mail: [email protected], website: www.europetro. com. 11-12. IPAA OGIS-New York, NewYorkCity, (202) 8574722, (202) 857-4799 (fax), website: www.ipaa. org. 11-13. Process Safety Management of Chem/ Petrochem & Refineries Conference, Houston, (312) 540-300, ext. 6625, e-mail: Michelew@marcusevansch. com, website: www. marcusevansch.com/ OGJPSM. 11-13. Pipe Line Contractors Association of Canada Annual Convention, Maui, (905) 847-9383, (905) 847-7824 (fax), e-mail: placa@pipeline. ca, website: www. pipeline.ca/convention. html. 11-15.

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CONFERENCE & EXHIBITION

today’s tomorrow’s maintenance performance September 20 – 22, 2011 Moody Gardens Hotel & Convention Center Galve ston, Texa s w w w.ogmtna .com

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JOURNALLY SPEAKING

Spec FPSOs prove too risky

PAULA DITTRICK Senior Staff Writer

The offshore oil and gas industry has long envisioned floating production, storage, and offloading vessels (FPSOs) working on deepwater Gulf of Mexico oil fields. This still has yet to happen, although Petrobras America Inc. stands ready to use an FPSO in the gulf. BW Offshore installed the FPSO BW Pioneer to handle production from Cascade and Chinook fields in the Walker Ridge area 180 miles off Louisiana. Production was expected in early 2011. BW Offshore will operate the FPSO for Cascade-Chinook development operator Petrobras and partner Total E&P USA Inc. Shuttle tankers will transport the oil. The BW Pioneer is moored in 853 ft of water. FPSO owners and contractors face uncertainties going into 2011, FPSO consultant Peter M. Lovie told IBC’s floating production systems (FPS) conference in London last month. He previously worked for FPSO contractors and also worked for Devon Energy Corp. before it slashed its deepwater gulf exposure. Devon was a partner in Cascade field. Lovie is cautious about the near-term FPSO business. BP PLC is selling assets following the deepwater Macondo well blowout in the gulf. Separately, Royal Dutch Shell PLC plans to divest some of its FPSO-based developments worldwide, Lovie said. Changing ownership will delay developments of these fields. “The Macondo spill logically indicates it may not make…an immediate difference on FPSO business, but who knows the minds of the oil companies in looking at their capital allocations and how much they want to put off spending for a bit,” Lovie said.

Idle FPSOs He reports “a disquieting sign” in the number of FPSOs without contracts. As of December 2010, Lovie counted 15 available FPSO candidates compared with a working fleet of 152 FPSOs. Of the 15, 3 were incomplete FPSOs at shipyards that had been started on speculation, 8 were idle or about to be idle, and 4 had owners and were expected to be on the market soon.

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“Each oil field is different, and each FPSO may need more modification and far more investment for the next assignment than typically happens with a drillship or a semisubmersible,” Lovie said. Operators might find it cheaper to build an FPSO than to adapt an idle FPSO, he said, noting that shipyard and service rates plunge during economic downturns. FPSO spec builds generally haven’t worked out, resulting in a couple FPSO suppliers going bankrupt, Lovie said. He believes spec builds represent too much of a niche business. “A spec build is a very risky business in the FPS world, don’t do it,” Lovie advocates. FPSOs tend to be field specific and are hired for the life of a field. Spec mobile offshore drilling units can be used on many wells in numerous locations worldwide during a 3-5 year initial drilling contract.

Nexus 1 Spec FPSOs have “struggled against the effects of a much thinner market than MODU speculations in the same era,” Lovie said. “It is relatively rare to find a field development where the FPS spec build is right on availability, matching the timing for the operator’s decision making and has the right specification.” Nexus Floating Production Ltd. started to build its harsh environment FPSO, the Nexus 1, without a contract. Nexus Floating Production had trouble finding a buyer, reportedly selling it at a loss to Brazilian EBX’s unit Centennial Asset in 2009. “Deflating values in 2009-10 was a trap for the likes of the Nexus 1 spec build.” Despite a good basic design and builder, no oil company had a project available for which the Nexus 1 fit. Nexus Floating Production put its Nexus 2 plans on hold until a customer is found. Lovie said MPF Corp. Ltd. provides another example of an incomplete spec. The company started to build a multipurpose floater having the combined capabilities of a drillship and FPSO. But MPF Corp. filed for Chapter 11 bankruptcy when the MPF 1 was partially built.

Oil & Gas Journal | Jan. 10, 2011

1/6/11 11:32 AM

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1/5/11 2:50 PM

EDITORIAL

Look at Spain Good economic news comes, finally, from Spain. The number of workers without jobs fell in December for the first time in 5 months. At 4.1 million, it was down by a quarter of a percent, according to the Labor Ministry. But that won’t much help the unemployment rate, which in October, according to Eurostat, was 20.7%. A country widely regarded as a leader in development of renewable energy should not, in the popular view, have a joblessness rate twice the euro-zone average. Governmental spending on energy other than commercial hydrocarbons is supposed to create green jobs. And all that green employment is supposed to compensate for the lavish government aid on which renewable energy depends. Or so the argument goes. The argument is wrong. Other countries aspiring to clean-energy leadership should learn from Spain’s woes.

Standard mistake The country began with the standard mistake. It set a numerical target for energy-market penetration by solar, wind, and other renewable energy: 20% by 2020, the European Union goal. Consumption targets, whether they’re market shares or absolute energy amounts, create the impression of policy resolve. But they’re inevitably arbitrary and nearly impossible to enforce. Example: the increasingly messy fuel ethanol program in the US. Spain pursued its targets aggressively by allowing above-market prices for producers of renewable energy while controlling electricity prices to consumers. The government covered the resulting tariff deficit by selling bonds, a practice that became especially problematic after the global financial crisis of 2007. Producers responded enthusiastically to the price incentives. By 2005, growth rates of installed solar and wind capacity in Spain were among the highest in the world. Now, however, the tariff deficit has reached an estimated $26 billion while economic recession has lowered tax receipts and threatened overall fiscal health. In 2009, Spain’s public-sector debt rose to 53.2% of gross domestic product from 39.8% in 2008. The maximum specified for euro-zone countries is 60%. The financially strained Spanish government last year trimmed subsidies for wind power gen-

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erators and photovoltaic solar projects. The moves came after months of deliberation, during which investment in renewable energy projects faded. Renewable-energy market shares may have stalled at about 2009 levels, estimated in a recent report by the Wharton School of the University of Pennsylvania at 25% of Spanish electric power generation and 12% of gross energy consumption. But adjustment to the cost of subsidization continues. In December, the government announced a 9.8% increase in the price of electricity for 17 million households still buying power under controlled prices—tough medicine for a struggling economy. The Spanish government’s lunges and reversals illustrate the problems of managing energy by fiat. And current unemployment numbers throw doubt on promises about creating green jobs by spending public money on uneconomic energy in a recession. Gabriel Calzada Alvarez, associate professor at King Carlos University in Madrid, in August 2009 testimony before the US Senate Committee on Environment and Public Works, summarized findings of a study he and colleagues conducted of employment effects of the Spanish renewable energy program. His said: • For every green job financed by Spanish taxpayers, 2.2 jobs were lost as an opportunity cost. • Only 1 of 10 green job contracts were in maintenance and operation of installed plants; the rest were working positions sustainable only in an expansive environment related to high subsidies. • Since 2000, Spain had committed $753,778 for each green job. • Those programs resulted in the destruction of nearly 110,500 jobs. • Each green megawatt installed destroyed 5.39 jobs elsewhere in the economy.

Core insight Methods of the King Carlos study have been criticized by renewable energy supporters. But the critiques ignore the core insight: that the costs of subsidies for noncommercial energy must be paid with money that would support jobs in more economically efficient activities elsewhere. Heavy spending on renewable energy that can’t otherwise compete hurts more than helps the economies in which it occurs. Just look at Spain.

Oil & Gas Journal | Jan. 10, 2011

1/6/11 11:32 AM

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GENERAL INTEREST

API-funded study quantifies benefits of access, harm of taxes Nick Snow Washington Editor

Increased access to US oil and natural gas resources currently off-limits could, by 2025, create 530,000 jobs; deliver $150 billion more in tax, royalty, and other sources of revenue; and boost domestic production by 4 million boe/d, a study commissioned by the American Petroleum Institute concluded. Raising taxes on the industry without making more federally controlled oil and gas resources available, by comparison, could reduce US production by 700,000 boe/d (in 2020), sacrifice as many as 170,000 jobs (in 2014), and reduce revenue to the government by billions of dollars annually, according to the Wood Mackenzie study, “Energy Policy at a Crossroads: An Assessment of the Impacts of Increased Access vs. Higher Taxes on US Oil and Natural Gas Production, Government Revenue, and Employment.” Another 1.7 million boe/d in potential production, which now is economically marginal, would be less likely to be developed under the study’s modeled tax increase, the study said. The study assumed $5 billion more in annual taxes for the industry, less than the amount the Obama administration sought in its proposed fiscal 2011 federal budget, API

said. The increased access assumption was based on the eastern Gulf of Mexico, portions of the Rocky Mountains, the Arctic National Wildlife Refuge, and the Atlantic and Pacific Outer Continental Shelf being opened to development. “US oil and gas companies are a major force in our economy and, with the right policies in place, could drive even greater economic benefits,” said API Pres. Jack N. Gerard as API released the WoodMac report during a Jan. 4 “State of American Energy” event in Washington, DC. “These companies produce most of the nation’s energy, put millions of people to work and deliver billions in taxes and royalties to our government,” Gerard said. He said, “The study shows increased access to areas currently off-limits would create jobs, grow the economy, and dramatically increase revenues to the federal treasury at a time when the US deficit is of national concern. We urge Congress and the administration to promote energy policies that will aid our economic recovery and reduce our debt. This study shows that increased taxes would take us backwards.” In his address, Gerard said US voters sent a clear message in November that economic recovery and job creation are the most pressing national issues. “Today, after a year in which we faced and ultimately met unprecedented chalIMPACTS OF THE OIL AND GAS INDUSTRY lenges, I’m glad to say that the state of ON THE US ECONOMY IN 2007 Labor income Value added American energy has been strong, but Industry Employment (Million $) (Million $) it will remain strong only if policymakDirect impact of the oil and gas industry 2,123,291 199,344 456,971 ers chart a course of opportunity and Indirect and induced impacts on other industries 7,114,090 358,916 580,089 certainty,” he declared. “With the right Services 3,399,474 149,462 181,720 policies in place at all levels of governWholesale and retail trade 1,174,762 49,711 80,915 Finance, insurance, real estate, ment, our industry stands ready to be rental, and leasing 828,904 47,487 73,322 Manufacturing 680,834 49,936 73,322 the engine of economic growth and reTransportation and warehousing 276,492 13,892 18,746 Construction 220,923 11,185 13,722 covery this country needs in 2011, and Information 165,859 15,206 29,324 for decades to come.” Agriculture 122,542 2,193 5,197 Utilities 26,272 4,309 14,652 Gerard urged Congress and PresiMining 10,898 1,037 2,068 Other 207,130 14,499 16,122 dent Obama to discuss energy realities ––––––––– ––––––– ––––––––– that inevitably include a major oil and Total impact 9,237,381 558,260 1,037,060 As a percentage of US total 5.2% 6.3% 7.5% gas contribution for decades to come. Source: PricewaterhouseCoopers, “The Economic Impacts of the Oil and Natural Gas Industry on the US Economy,” “We believe, for example, that we’ll be September 2009. forced to live with the consequences of

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Oil & Gas Journal | Jan. 10, 2011

1/6/11 11:31 AM

BOEMRE may exempt 13 deepwater firms from NEPA reviews Nick Snow Washington Editor Thirteen US offshore producers whose deepwater operations were suspended last year during US Interior Sec. Ken Salazar’s moratorium may be able to resume previously approved activities without having to submit new exploration and development plans for supplemental National Environmental Policy reviews, the US Bureau of Offshore Energy Management, Regulation, and Enforcement announced. The companies will be required to comply with BOEMRE’s new policies and regulations before continuing those activities without an additional NEPA review, the US Department of the Interior agency said on Jan. 3. It said notices have gone to ATP Oil & Gas Corp., BHP Billiton Petroleum (GOM) Inc., Chevron USA Inc., Cobalt International Energy, Eni US Operating Co. Inc., Hess Corp., Kerr-McGee Oil & Gas Corp., Marathon Oil Co., Murphy Exploration & Production Co. USA, Noble Energy Inc., Shell Offshore Inc., Statoil USA E&P Inc., and Walter Oil & Gas Corp. The notices outline steps the operators must take before restarting previously approved operations, including compliance with information requirements in Notices to Lessees N06 and N10, which were issued in June, and the subsequently issued interim final safety rule, BOEMRE said. An operator will not need to revise a previously submitted exploration plan or development operations coordination document if the worst-case discharge estimated for the project, as calculated under NTL-N06, is less than the worst-case discharge which it estimated under its original oil spill response plan, the agency continued. Further reviews will be required if the new worst-case discharge estimate is higher, it added.

delaying offshore development 5-7 years for several years beyond that,” Gerard said. He said the US Bureau of Offshore Energy Management, Regulation, and Enforcement’s Jan. 3 announcement that 13 deepwater Gulf of Mexico producers that had their operations suspended last year may possibly resume previously approved activities without having to submit new exploration and development plans was a positive step. “But it’s only part of the solution,” he added. “The thing to keep an eye on is how many new deepwater drilling permits have been issued. The number is none to date.” Gerard said aggressive regulation by the administration, such as the US Environmental Protection Agency’s beginning to regulate greenhouse gas emissions from refineries

Oil & Gas Journal | Jan. 10, 2011

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and other large industrial sources under the Clean Air Act, is a mistake. “We will support any means necessary to have Congress make this decision because its economic consequences are so far-reaching,” he said during a press conference following his address. The regulations’ tailoring rule already has been legally challenged, and other lawsuits could follow, he warned. He said the Macondo well accident and crude oil spill were a wakeup call for the oil and gas industry, but added that the general public generally believes that it was an isolated incident in an area where 42,000 other wells have been safely drilled over 60 years. “We believe the energy reality will require the US to look for other domestic oil and gas sources,” Gerard said. “We still hold out hope that through conversations and dialogue, we’ll find a middle ground and address this reality.” OGJ

Full impact of Salazar’s ‘wild lands’ order still uncertain Nick Snow Washington Editor

One week after US Interior Sec. Ken Salazar directed the US Bureau of Land Management to conduct an inventory of its holdings and designate areas with wilderness characteristics as “wild lands” to be managed accordingly, it still wasn’t clear what the order’s full impact would be. It was not certain, for example, whether Secretarial Order 3310 would affect a decision, which BLM’s Wyoming state office announced on Dec. 21, rejecting all but two protests of leases awarded in an August 2009 oil and gas lease sale. At least one of the protests cited an area’s wilderness characteristics. The order restores wilderness management guidance which then-Sec. Gale A. Norton revoked in 2003 as part of an out-of-court settlement with the State of Utah and other interested parties, Salazar and Bureau of Land Management Direct Robert V. Abbey said on Dec. 23. Abbey said the “wild lands” would be designated through a public process and managed to protect wilderness characteristics unless or until a new public process modifies the designation. “The new policy affirms BLM’s authorities under the law—and our responsibility to the American people—to protect the wilderness characteristics of the lands we oversee as part of our multiple use mission,” he maintained. Abbey said because it can be modified, the classification differs from wilderness areas, which Congress establishes and potentially can modify with legislation, and wilderness study areas, which BLM typically manages as wilderness un-

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1/6/11 11:31 AM

GENERAL INTEREST

BLM lifts suspensions of 45 Montana oil, gas leases Nick Snow Washington Editor The US Bureau of Land Management has lifted suspensions on 45 Montana oil and gas leases it issued in 2008, its Montana state office announced on Dec. 28. Suspensions will continue on six leases and be maintained in certain areas within two leases where the suspensions were lifted, it added. The 53 leases were among 61 that were issued 2 years ago and suspended this past March as a result of an agreement settling a lawsuit involving parcels that the US Department of the Interior agency offered in Montana during four 2008 sales. The eight other leases were terminated. BLM said that its Dec. 22 action affects 25,329 acres which were suspended, while another 6,667 acres will remain suspended, primarily to analyze sage grouse and Yellowstone cutthroat trout issues that will be analyzed in resource management plans that currently are being written. When those RMPs are completed, the suspensions will be reexamined, it indicated. “I appreciate what BLM is doing. It’s trying to move forward,” David A. Galt, executive director of the Montana Petroleum Association in Helena, told OGJ by phone on Dec. 30. “But I’m waiting to see what the environmental organizations which were involved decide to do.”

til Congress decides to protect them permanently as wilderness or modify their management. The new order does not affect management of either federal wilderness or wilderness study areas, Abbey emphasized.

‘High priority’ “Simple principles guide this commonsense policy,” said Salazar. “First, the protection of wild lands is important to the American people and should therefore be a high priority in BLM’s management policies. Second, the public should have a say in designating certain public lands as ‘wild lands’ and expanding those areas or modifying their management over time. And third, we should know more about which American lands remain wild so we can make wise choices, informed by science, for our children, grandchildren and future generations.” One of the organizations that protested tracts awarded in that August 2009 oil and gas lease sale in Wyoming applauded Salazar’s move. “The secretary has given an early Christmas present to the American people, and particularly to Wyoming residents who love our great outdoors,” Erik

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Molvar, a wildlife biologist with the Laramie-based Biodiversity Conservation Alliance (BCA), said in a Dec. 23 statement. Kathleen Sgamma, government affairs director at the Western Energy Alliance (formerly the Independent Petroleum Association of Mountain States) in Denver, was more critical. “It’s arbitrary government, not the rule of law. It’s a move away from economic development and multiple land use to arbitrary conservation,” she told OGJ by phone in a Dec. 28 interview. She suggested that Salazar’s order was a way to circumvent the Federal Lands Policy and Management Act (FLPMA), BLM’s established planning process which already involves state and local governments, property owners, oil and gas producers, recreational groups, environmental organizations, and other stakeholders in multiple land use policy decisions. Sgamma said that Salazar’s order “definitely ignores the multiple use mandate in BLM’s own organic act” and “essentially ignores elected officials’ wishes,” adding, “It’s an additional step in the wrong direction.” The agency already has deferred leasing in the proposed Red Rocks Wilderness Area, “even though the bill which would authorize it hasn’t passed Congress for two decades,” she noted.

Wyoming decision In the 37-page Dec. 21 announcement dismissing all but two of the protests in the August 2009 lease sale, Larry Claypool, deputy director for minerals and lands in BLM’s Wyoming state office, said that BCA, in one of its protests, argued that oil and gas development has led to and will continue to fragment wildlife habitats that otherwise might “serve as quiet, serene places of natural beauty, and provide excellent recreational opportunities.” He noted that FLPMA requires BLM to require public lands and resources under the multiple use and sustained yield concept. That includes “a combination of balanced and diverse resource uses taking into account the long-term needs of future generations for renewable and nonrenewable resources including, but not limited to, recreation, range, timber, minerals, watershed, wildlife and fish, and natural scenic, scientific, and historical values,” he indicated. Claypool said FLPMA also requires BLM field offices to develop and maintain a resource management plan. “During preparation of the RMP, and prior to issuing any oil and gas leases, BLM performs an environmental analysis under [the National Environmental Policy Act] which discloses anticipated impacts that can result from leasing and subsequent oil and gas development on the environment, including the public lands and its resources. As a result, BLM develops appropriate mitigation and protection measures, such as lease stipulations, before [it] issues any oil and gas lease,” he said. “FLPMA does not require BLM to analyze every aspect of

Oil & Gas Journal | Jan. 10, 2011

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WATCHING GOVERNMENT a transaction to make sure any actions by BLM will protect the long-term viability of the public lands,” Claypool continued. “Nevertheless, BLM has prepared an environmental assessment of the impacts of the lease sale and we disagree with the protesters’ argument that BLM has not performed sufficient NEPA analysis to disclose the potential impacts of oil and gas development before issuing an oil and gas lease.” A BLM spokesman said in a Jan. 3 e-mail that the agency does not expect the order to have an impact on decisions that were announced previously. Molvar of the BCA concurred. “Any decision that is made after the secretary’s order will require a hold on development until the inventory is complete is subject to that policy,” he told OGJ by phone from Laramie. “I would think any protest or decision before the order was issued would not be affected.” OGJ

Marathon ends contract for Noble’s Jim Day semi Paula Dittrick Senior Staff Writer

Marathon Oil Co. confirmed it cancelled its contract to lease the Jim Day deepwater semisubmersible from Noble Corp. The news came more than 2 months after the Obama administration lifted its ban on drilling in the deepwater gulf following the Macondo well blowout. BP PLC operated Macondo. Marathon said it remains committed to its exploration program in the gulf and worldwide. “Numerous options are available to access the necessary qualified drilling rigs,” Marathon said in an e-mail statement to OGJ. Noble Chief Executive David W. Williams said his company was disap-

Oil & Gas Journal | Jan. 10, 2011

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NICK

SNOW

Washington Editor | Blog at www.ogj.com

Early House signals It’s a safe bet that US House committees will look closely at Obama administration activities now that Republicans are in the majority. It’s even more apparent that the US Environmental Protection Agency’s effort to regulate greenhouse gas emissions under the Clean Air Act is near the top of the House GOP leadership’s list of concerns. “We’re not going to let this administration regulate what [it’s] been unable to legislate,” incoming Energy and Commerce Committee Chairman Fred Upton (R-Mich.) said during a Jan. 2 appearance on “Fox News Sunday.” Upton said the CAA contains a requirement that the administration, in any regulation, must look at the rule’s impacts on jobs and the economy. “We’re going to have early, early hearings on this. We’re going to see exactly what their analysis is on its impact on jobs,” he indicated. Upton also noted that the Congressional Review Act allows up-and-down votes in Congress of a new regulation within 60 days of its rules being published, and that it can’t be filibustered if it comes up in the Senate. “It can be vetoed by the president, but already we’ve seen a number of powerful Democrats indicate that they have real, real qualms about what EPA is intending to do,” he said. When Upton designated him chairman of the committee’s Energy and Power Subcommittee on Dec. 16, Rep. Ed Whitfield (R-Ky.) said that EPA’s plan to limit carbon emissions circumvents Congress’s role, that the rules

don’t consider economic consequences, and that EPA has not provided compelling scientific evidence to support its effort.

‘Wild lands’ order Doc Hastings (R-Wash.), the Natural Resources Committee’s new chairman, also suggested that the Obama administration tried to use its regulatory powers to achieve a goal it couldn’t reach legislatively when US Interior Secretary Ken Salazar issued his Dec. 23 “wild lands” directive to the Bureau of Land Management. “There are ways to protect our lands without designating them as de factor wilderness areas,” Hastings maintained. A hearing appears likely, but its atmosphere could depend on which subcommittee holds it. Hastings named Doug Lamborn (R-Colo.) chairman of the Energy and Mineral Resources panel and Rob Bishop (R-Utah) chairman of the National Parks, Forests, and Public Lands panel on Dec. 29. “We will be vigorously reviewing numerous policies from the Department of the Interior that impede domestic energy production. These include the offshore drilling moratorium and other efforts to close off public lands for energy and mineral use,” Lamborn said as his appointment was announced. Bishop did not issue a statement, but if the “wild lands” question winds up before his subcommittee, the proceedings could get even livelier.

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GENERAL INTEREST

Gulf Keystone faces claim from Excalibur on Kurdish assets Eric Watkins Oil Diplomacy Editor

Marathon Oil Co. confirmed it cancelled its contract to lease the Jim Day deepwater semisubmersible from Noble Corp. Photo from Noble.

pointed by Marathon’s decision. “Fortunately, the Noble Jim Day is one of the most capable rigs in existence, and there are already a number of potential customers interested in a unit of this caliber,” Williams said. In December 2010, Noble had said Marathon might terminate the contract if the semi was not ready for work in the gulf by yearend. The semi can drill in 12,000 ft of water. “Marathon’s stated reason for the termination was that the rig had not been accepted by Marathon by Dec. 31, 2010,” Noble said in a Jan. 3 release. “Noble believes the rig is ready to commence operations and should have been accepted by Marathon.” Noble also reported that an independent third-party affirmed the rig’s readiness and that the unit’s subsea system, including the blowout preventer, has received its certificate of compliance. Marathon’s 4-year contract had a day rate of $515,000, and the day rate could have been as high as $550,000 depending upon cost escalators and revenues outlined in the contract, said John Freeman, an analyst with Raymond James & Associates. “Moreover, the rig is currently in the Gulf of Mexico, where no deepwater work is being allowed,” Freeman said. “Bottom Line: The rig is now idle and we expect much lower rate as the company tries to secure work.” He suggested the day rate could be $400,000 with at least 3 months of downtime. OGJ

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Excalibur Ventures LLC has gone to court in New York and London with claims of entitlement to a 30% stake in Gulf Keystone Petroleum’s oil assets in Iraq’s northern Kurdistan region. Gulf Keystone said Excalibur began proceedings in New York Dec. 23 to assert claims that it introduced Gulf Keystone’s management to opportunities in the Kurdistan region and had a contract to develop the area together 3 years ago. Excalibur also filed the claims in London on Dec. 21 where it sought a “worldwide freezing” of Gulf Keystone’s assets. The London court refused Excalibur’s request on the grounds that it did not consider there was any risk that the firm’s assets would be dissipated. Excalibur, described on its web site as offering advisory services related to Iraq from project finance to translators and security, is run by Rex Wempen, cofounder of the US-Iraq chamber of commerce and former security consultant. Observers in London said that Gulf Keystone is expected to argue that it never had a contract with Excalibur, but will acknowledge its Chief Executive Todd Kozel had worked with Wempen through a firm called Texas Keystone. Texas Keystone has a commercial relationship with Gulf Keystone, providing professional management and administrative services. Texas Keystone also initially led the pursuit of opportunities for oil exploration in Kurdistan, from which Gulf Keystone later profited. In particular, Texas Keystone is said to have negotiated Gulf Keystone’s contract with the Kurdistan Regional Government (KRG) for the Shaikan oil field, which is estimated to hold as much as 4.2 billion bbl of oil. Kozel said his firm will contest Excalibur’s actions in both courts, saying, “We believe we have very good grounds to vigorously challenge these claims.” In Kurdistan, Gulf Keystone holds interests in four blocks: • Shaikan, 85 km northwest of Erbil, covering 283 sq km. Interests under the production-sharing contract are Gulf Keystone 75% (operator), MOL 20%, and Texas Keystone 5%. • Akri-Bijeel, adjacent to Shaikan block. Interests in PSC are MOL 80% (operator) and Gulf Keystone 20%. • Sheikh Adi, northeast of Dihok and to the west and on trend with the Shaikan structure. Gulf Keystone, operator, holds an 80% interest in the PSC. KRG holds 20%. • Ber Bahr, north of Dihok on a trend with Shaikan and Sheikh Adi blocks. Ber Bahr PSC is operated by Genel Ener-

Oil & Gas Journal | Jan. 10, 2011

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WATCHING THE WORLD gy International Ltd., 40%. Gulf Keystone holds 40% and KRG holds 20%. In August, Gulf Keystone reported a stable test rate of 1,250 b/d of 19.7° gravity oil at the Shaikan-1 discovery in Iraq Kurdistan, up from 128 b/d on a test in 2009 (OGJ, Aug. 11, 2010). OGJ

Noble Energy makes gas find with Leviathan off Israel Eric Watkins Oil Diplomacy Editor

Noble Energy Inc. reported an apparently major natural gas discovery with its Leviathan exploration prospect it operates off Israel. “This discovery has the potential to position Israel as a natural gas exporting nation,” said Nobel Pres. and Chief Operating Officer David L. Stover. Noble and its partners made three natural gas discoveries in the Levantine basin amounting to 25 tcf, according to Charles D. Davidson, the firm’s chairman and chief executive officer. Noble officials said the new well, drilled in the Rachel license, encountered a minimum 67 m of net gas pay in several subsalt Miocene intervals. “Apparent reservoir quality is very good, and the intervals discovered are geologically similar to those intersected at Tamar,” they said. Leviathan-1 in 1,645 m of water is 130 km off Haifa and 47 km southwest of the Tamar discovery. Noble officials said results from the well confirm the predrill estimated resource range, with a gross mean for Leviathan of 16 tcf. Leviathan field is estimated to cover 325 sq km and, as a result of its size, will require two or more appraisal wells to define total gas resources. Noble said drilling at Leviathan-1 will continue to a planned total depth of 7,200 m to evaluate two additional

Oil & Gas Journal | Jan. 10, 2011

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ERIC

WATKINS

Oil Diplomacy Editor | Blog at www.ogj.com

A Mediterranean hotbed The eastern Mediterranean Sea is the scene of stepped-up interest on the part of governments in the region, most of them piqued by recent discoveries of oil and gas off Israel. Cyprus is the latest to step into the ring, so to speak, saying that it will proceed with a second licensing round for offshore oil and gas exploration later this year—a decision that could heighten tensions with Turkey. The tensions have little or nothing to do with oil or gas. Turkey last month criticized a maritime border agreement between Cyprus and Israel, saying it disregards the rights and jurisdiction of Turkish Cypriots on the island. That “disregard” is based on the 1974 division of Cyprus into an internationally recognized Greek Cypriot south opposed by a Turkish Cypriot north following Turkey’s invasion of the island after an alleged coup attempt by supporters of a union with Greece.

Sovereign rights Turkey said countries in the region should not back moves that would have an adverse impact on “the comprehensive settlement negotiations”— a reference to talks aimed at reunifying the island that began over two years ago. But a spokesman for the Greek Cypriot side, recognized internationally as the island’s legitimate government, shrugged off the Turkish criticism saying his country has a sovereign right to search for oil and gas.

In fact, building on the maritime border agreement with Israel, Cyprus has licensed Noble Energy to explore a block bordering Israeli waters where massive gas fields have been found, including one thought to hold up to 16 tcf of gas. The licensing of Nobel is noteworthy, of course, since the Houston-based firm has taken the lead in the recent discoveries offshore Israel. Altogether, Noble and its partners claim discoveries offshore Israel of 25 tcf of gas. The Cypriots and Turks are not alone in eyeing the potential revenues offshore Israel. So, too, are the Lebanese.

Israelis ‘stealing’ gas Ali Bazzi is a member of the Lebanese parliament who has called on the government to pass the draft law on exploration of Lebanon’s oil reserves believed to be off Lebanon. “What happened to the governmental decree regarding the law passed by the Parliament on the exploration of Lebanon’s oil and gas off shore?” asked Bazzi. “While our government has been absent from passing laws, the Israelis have been continuously stealing from our oil resources,” Bazzi said. Meanwhile, an Israeli energy committee last week recommended that the government nearly double tax rates on natural gas discoveries after Noble’s new, sizable gas discoveries, a measure that could bring billions of dollars in revenues for the government. Oh, that shark bites.

23

1/6/11 11:31 AM

GENERAL INTEREST intervals. Current well depth is 5,170 m. “Results from the deeper tests, which have a low chance of success, are expected over the next couple of months,” said Noble. The firm added that its second contracted rig will arrive in the eastern Mediterranean in early 2011 to spud a Leviathan appraisal well 13 km northeast of the discovery well. The Noble consortium began drilling its Leviathan gas prospect in October (OGJ Online, Oct. 19, 2010). Noble operates Leviathan with a 39.66% stake. Its partners are Delek Drilling LP and Avner Oil Exploration LP, each with 22.67%, and Ratio Oil Exploration Ltd. with 15%. OGJ

IHS: Global upstream sales hit record $107 billion in 2010 Worldwide sales of upstream oil and gas properties reached a record $107 billion in 2010, a 160% increase above 2009 transactions, according to preliminary figures by IHS Inc., Englewood, Colo., for its 2011 review of mergers and acquisitions. This increase was driven by spending by national oil companies; major divestiture programs by BP PLC, ConocoPhillips, Suncor Energy Inc., and Devon Energy Corp.; as well as major joint ventures focused on North American unconventional resource plays, IHS said. Value of total upstream merger and acquisition transactions, including corporate mergers, rose by $16 billion to $160 billion, although there were no corporate mergers greater than $10 billion in 2010. Corporate transaction value retreated to about $53 billion in 2010 after spiking on the ExxonMobil Corp.–XTO Inc. and Suncor Energy–PetroCanada mergers in 2009. Three primary drivers led to the record asset deal value, said Christopher Sheehan, director of M&A research at IHS. These were: “sustained strength in oil prices reinforced by growing confidence in the economy, large packages of attractive producing assets on the market, and low natural gas prices in North America.” He said, “In 2010, many oil and gas companies moved to restructure, refocus, or expand their portfolios as an improving global economy engendered confidence in steady high oil prices. [NOCs] seized the opportunity to purchase hard assets in a strategic expansion of their global natural resource holdings.” Sheehan said, “In addition, continued low North American natural gas prices provided attractive opportunities for well-financed new entrants to invest in shale and tight sands plays. At the same time, rising equity prices made the pursuit of corporate acquisitions more expensive.” According to IHS, upstream asset sales more than dou-

24

110110ogj_24 24

bled to $59 billion in North America in 2010, although the region’s share of total global upstream transaction value slipped to 54% in 2010 from 68% in 2009 when the value was inflated by corporate mergers. North American activity in 2010 was dominated by shale resource investment, including more than 150% year-on-year increase on US asset deal spending. Regulatory uncertainty in the Gulf of Mexico following the deepwater Macondo blowout last April “led to only sporadic transaction flow there,” IHS reported.

LatAm M&A soared IHS reported the biggest increase in upstream transaction value was in Latin America where deal value soared to $29 billion. That milestone was “fueled by Chinese [NOCs] expanding their upstream footprint in the Americas, including gaining access to Brazil’s immense deepwater presalt resources,” IHS analysts said. “To put this phenomenal growth in perspective, Latin America accounted for 18% of the worldwide upstream transaction value in 2010, skyrocketing sixfold above the 2009 transaction value that represented just 3% of the global total.” In Asia-Pacific, total transaction value more than tripled to $18 billion, while activity was flat or lower in Europe, Africa, the Middle East, and the former Soviet Union. “The volume of distressed assets on the market dampened deal pricing gains in 2010 compared with the previous year,” IHS said. “Weighted, average oil and gas proved-reserve deal pricing rose to $10.59/bbl of oil equivalent in 2010 from $9.72/boe in 2009. Deal pricing for proved, oil-weighted transactions increased to $9.78/boe in 2010 from $8.48/boe in 2009.” In the US, deal pricing for proved, oil-weighted transactions increased sharply to $16.51/boe last year from $12.72/ boe in 2009. “Despite persistently weak natural gas prices, gas-weighted, proved-reserve deal pricing in the US (the world’s most liquid upstream M&A market) actually rose slightly from $11.26/boe in 2009, to $11.79/boe in 2010,” IHS said.

Robust unconventionals Unconventional resources represented more than one third of total worldwide upstream transaction value, or $57 billion, in 2010. “This high figure is steady with 2009 values, which included more than $30 billion attributable to the ExxonMobil–XTO merger,” said IHS. The major trends surrounding unconventional resources last year were a near doubling of deals focused on tight gas plays and more than a tripling of transactions focused on Canadian oil sands. “The Canadian oil sands assets,” Sheehan said, “were more attractive to international investors due to the combination of improved project economics boosted by higher crude oil prices and a welcoming climate for cross-border M&A by the Canadian government.” NOCs and sovereign wealth funds (SWF) dramatically

Oil & Gas Journal | Jan. 10, 2011

1/6/11 11:31 AM

GENERAL INTEREST increased acquisitions of global upstream properties to feed their rapidly growing economies. Total NOC and SWF transaction value reached $32 billion or 20% of the global total in 2010, up from 13% of worldwide transaction value in 2009. Total global purchases by Chinese NOCs increased from $14 billion in 2009 to $26 billion in 2010. IHS will present a comprehensive analysis of 2010 transactions and forward-looking insight into 2011 and beyond in its IHS Herold 2011 Global Upstream M&A Review, to be released in early March. OGJ

Pioneer Natural Resources to apply Tunisian proceeds to US plays OMV AG will pay $866 million for the Tunisian oil and gas properties of Pioneer Natural Resources Co., Dallas, which plans to redeploy the proceeds to its Eagle Ford shale and Spraberry plays in the US. The deal, expected to close in the 2011 first quarter retroactive to Jan. 1, is subject to normal closing adjustments. Net production from Pioneer’s Tunisian subsidiaries averaged 5,400 b/d of oil equivalent in 2010, 90% oil. OMV said Pioneer Tunisia’s acreage has 38 million boe of proved and probable reserves and 21 million boe of possible reserves. It said the acreage offers considerable exploration upside and will complement OMV’s existing south Tunisian assets, Jenein Sud and Nawara. Substantial field operating synergy is possible. Also, Pioneer Tunisia and OMV are partners in the South Tunisia Gas Project to build a 320-km gas pipeline from the Adam production concession to the city of Gabes by 2014. The Pioneer acquisition will facilitate the STGP decision-making process, OMV said. Pioneer Tunisia’s interest in the Anaguid exploration permit and in the Mona/Durra production concession is subject to a preemption right of Pioneer Tunisia’s partner under the respective Joint Operating Agreement. Anaguid and Mona/ Durra account for 13% of the purchase price. If Pioneer’s partner exercises the preemption right, the purchase price will be adjusted. Pioneer said its most recent drilling program called for 30 rigs to be operating in the Spraberry in 2011, but with the sale to OMV it will hike that to 35 rigs by midyear. Joint venture partners have approved an Eagle Ford acceleration plan that will result in an average 12 rigs operating during 2011 and more rigs the next 2 years. The initial plan called for a ramp-up to 10 rigs by the end of 2011. The company expects the accelerated Eagle Ford program to boost its current compound annual production growth target of 15+% for 2011 through 2013 while maintaining a

Oil & Gas Journal | Jan. 10, 2011

110110ogj_25 25

strong financial position. Tunisia’s state ETAP and the Tunisian government are “one of the best joint-venture partners and host governments that Pioneer has had the privilege to work with,” said Pioneer Chairman and Chief Executive Officer Scott D. Sheffield. OGJ

EXPLOR ATION / DEVELOPMENT BRIEFS

Colombia Petroamerica Oil Corp., Calgary, will acquire participating interests from a Talisman Energy Inc. unit in four Llanos basin exploratory blocks in Colombia. Cepsa Colombia SA operates the Los Ocarros, El Sancy, El Porton, and El Eden blocks, which cover more than 441,000 acres gross in a prospective trend. In El Porton, results from the Calatea-1 well are expected by early 2011. Petroamerica will pay Talisman (Colombia) Oil & Gas Ltd. $18 million to earn a 25% participating interest in El Porton and 50% interests in Los Ocarros and El Sancy. Petroamerica will earn its 25% interest in El Eden, excluding the Chiriguaro-1 discovery, after paying Talisman’s 50% share to a cap of $7.85 million to drill one exploratory well at a future date. Transfer of rights in all four blocks is subject to approval by the Colombian National Hydrocarbon Regulatory Authority ANH.

Colombia Repsol Exploracion Colombia will assume a 30% share in the 4 million acre Tayrona exploration block in the Caribbean off Colombia. Petrobras Colombia Ltd., which has 40% interest, will continue as operator. Colombia’s state Ecopetrol SA has 30%. Repsol’s inclusion is subject to National Hydrocarbon Agency approval. Ecopetrol said the block “comprises a part of the projects under way off Colombia’s Caribbean coast, where Ecopetrol is moving forward with exploration activities with other partners.” The Tayrona block is covered by a hydrocarbon exploration and exploitation contract signed with ANH in mid2004.

Falkland Islands Desire Petroleum PLC plugged the 25/5-1 exploratory well on the Dawn/Jacinta prospect after it encountered gas shows in the North Falkland basin in the South Atlantic. The well went to a total depth of 1,697 m in prerift sediments. The well found gas shows around 1,434 m. Lithology

25

1/6/11 11:31 AM

GENERAL INTEREST at 1,313-1,697 m is mainly claystone and good quality sandstone with 71 m of net reservoir based on initial log analysis. The Dawn well tested a large fault block at the main basin southern margin 28 km from previous well control and had primary reservoir targets in the synrift and prerift (see map, OGJ, Nov. 1, 2010, p. 61). These targets are stratigraphically older than the reservoirs in the East Flank play. The implication of the well results for remaining prospectivity in this part of the basin will be assessed once the new data has been integrated and all postwell studies are completed, Desire said. The rig will transfer to Rockhopper Exploration PLC to drill one or two wells, subject to regulatory approval, before returning to Desire to drill a well at a location still to be finalized and subject to regulatory approval.

Greenland Cairn Energy PLC has secured two rigs to handle its 2011 exploratory drilling program off Greenland, where the company plans to drill as many as four wells (see map, OGJ, Aug. 24, 2009, p. 38). The dynamically positioned units are the Leiv Eiriksson fifth generation semisubmersible the Ocean Rig Corcovado sixth generation drillship. To provide the immediate liquidity required to enable the group to sign the contracts, Cairn entered into a $900 million standby secured revolving debt facility that will also provide funding for general corporate purposes.

Morocco Circle Oil PLC said its KSR-10 well on the Sebou permit in Morocco’s Rharb basin is a multipay gas discovery that is available for production when needed. The well sustained 10.6 MMscfd on a 20∕64 -in. choke from the Main Hoot. The perforated Main Hoot zone of 8.4 m at 1,736.6-1,728.2 m measured depth plus a 1.5- m zone at 1,720.0-1,718.5 m MD has 9.9 m of calculated net gas pay. The Mid Hoot zone was then perforated and flowed gas at a sustained 2.39 MMscfd on a 16∕64 -in. choke. The perforated Mid Hoot zone at 1,650.5-1,649.7 m MD plus 1,647.61,646.8 m MD has 1.6 m of calculated net gas pay. The well also logged gas pay zones of 4.4, 3.1, and 1.4 m in the Lower, Middle, and Upper Guebbas. Testing of the Lower Guebbas encountered problems and was inconclusive. The three Guebbas zones be tested later. The rig is moving to drill ADD-1, fourth well in the planned five-well program in the area. Then the KSR-11 well will be drilled and the DRJ-6 well from the previous drilling campaign will be tested. Weather permitting, the KAB-1 well, drilled in September 2010, will be reentered for logging or be redrilled.

26

110110ogj_26 26

Norway Eni Norge AS, operator of Production License 489 in the Barents Sea off Norway, will plug the 7120/12-5 wildcat as a dry hole even though it encountered rocks of reservoir quality. The well, in 187 m of water 50 km west of Goliat field and 115 km northwest of Hammerfest, was drilled to search for hydrocarbons in Jurassic and Triassic reservoir rocks of the Sto, Snadd, and Kobbe formations. It encountered rocks of medium reservoir quality in the Sto and Snadd formations, but the Kobbe formation was poorer than expected. The well, first on the license, was classified as dry. Comprehensive data acquisition and sampling have been carried out, said the Norwegian Petroleum Directorate. The well went to a true vertical depth of 3,605 m below sea level. Drilling stopped 60 m into the Kobbe formation. The Polar Pioneer rig will move to PL 488 in the Barents where Statoil Petroleum AS will drill the 7119/12-4 wildcat.

Pakistan Pakistan Petroleum Ltd. issued a letter of award to NXT Energy Solutions Inc., Calgary, for a stress field detection airborne survey in Pakistan. Total estimated value of the survey, which is to begin in the first quarter of 2011, is $2.66 million. NXT did not disclose the location or extent of the survey. Award of the contract is subject to execution of a definitive contract and submission by NXT of a 10% performance bond.

Russia TGS NOPEC Geophysical Co. has signed a 3-year sales, marketing, and 2D seismic cooperation agreement with Dalmornefte Geophysica Yuzhno-Sakhalinsk in the Arctic region east and west of the Bering Strait off Russia. The agreement includes industry-funded 2D operations performed in Russian waters in the third quarter of 2010 that will serve as a foundation for additional work in 2011 and 2012. It is important for TGS to return to the Arctic region and add data coverage in an area that is believed to hold huge hydrocarbon volumes, TGS NOPEC said.

Tunisia Cooper Energy Ltd. has spud the Menzel Horr-1 exploratory well on the Bargou block onshore Tunisia. The prospect is a thrust-related, dip-closed structure that has the potential for hydrocarbons at multiple reservoir horizons, said Jacka Resources Ltd., which is earning a 15% equity interest in the block via a farm-out from Cooper En-

Oil & Gas Journal | Jan. 10, 2011

1/6/11 11:31 AM

GENERAL INTEREST ergy. The well is expected to encounter the key target formations 10-25 days after spud. The Hammamet West-3 appraisal well is to be drilled on the block in mid-2011. 110104-ap-Ukraine-Karlavskoye-AD

Ukraine Transeuro Energy Corp., Vancouver, BC, is drilling the Karl101 sidetrack well in Karlavskoye field in Ukraine’s western Crimea area. Discovered in 1966, the field is developed with nine wells that produced gas-condensate from multiple Upper Cretaceous reservoirs at 2,700-3,500 m. Seismic data suggest the field area extends 10 by 3 km. Transeuro drilled the Karl-101 well to 3,500 m in 200708 but a well control incident led to the reservoir section being abandoned and the well was suspended in November 2008 at 2,750 m. More than 100 m of net gas-bearing reservoir was identified from logs and gas samples at 2,800-3,500 m. The company will test five intervals.

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Louisiana A horizontal 3D seismic prospect at North Bayou Jack field in eastern Avoyelles Parish, La., is flowing oil and gas from Cretaceous Austin chalk despite mechanical problems. The Deshotels 20-H-1 well at Turner Bayou is flowing 600 b/d of oil and 500 Mcfd of gas through a 20∕64 -in. choke from 640 ft of perforations in a 3,755-ft horizontal leg in the chalk at 16,400 ft true vertical depth, said Pryme Oil & Gas Ltd., Brisbane, which owns 40% of the working interest. Nelson Energy Inc., private Shreveport independent, operates the well. The rate is not believed to be an indication of the well’s production potential, Pryme said. The companies planned to acidize each of 20 perforated intervals to recover residual cement and enhance communication between the perforated intervals and the oil and gas bearing fracture zones. Progress with the acidizing procedure has been impeded by the mechanical failure of packers used to selectively isolate each perforated zone and ensure that the acid is directed to the most relevant areas. As a result, Pryme said, “it appears that the perforated zones that would benefit most from acidizing have not been effectively treated and oil and gas production to date is adversely affected. The acidizing procedure has been temporarily suspended pending a revised remediation plan and the securing of appropriate services.” Meanwhile, production facilities are being installed, probably in the next 3 weeks, after which a comprehensive flow test will be carried out. OGJ

Oil & Gas Journal | Jan. 10, 2011

110110ogj_27 27

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1/6/11 11:31 AM

EQUIPMENT | SOFTWARE | LITERATURE ENHANCED-PERFORMANCE GATEWAY Here’s the new FieldConnex diagnostic gateway, which is designed to enhance interoperation between individual advanced diagnostic modules (ADMs) of a fieldbus infrastructure and the diagnostic manager in the oil field control room. It does so by allowing information to be exchanged in both directions via ethernet, enabling additional features such as remote setup of ADMs. ADMs monitor the quality of fieldbus communication for FOUNDATION fieldbus H1 and PROFIBUS PA networks. By combining the gateway with the self-configuring setup of the diagnostic manager, all ADMs are identified automatically, and the software configures itself accordingly. This results in fewer

configuration errors during installation and setup of the ADM infrastructure. The combination of the FieldConnex ethernet gateway and diagnostic manager results in an intuitive monitoring system that provides insight into the fieldbus physical layer directly from the control room. With this technology, the physical fieldbus layer becomes fully transparent and can be managed for maximum availability without the need for detailed expert knowledge, the firm notes. Source: Pepperl+Fuchs Inc., Process Automation Div., 1600 Enterprise Parkway, Twinsburg, OH 44087.

DIFFERENTIAL PRESSURE MEASUREMENT ADDED TO UNIT An addition to the nVision reference recorder enables the intrinsically safe, hand-held field calibrator to graph and record average and differential pressure data.

This most recent (and free) quarterly update now allows the nVision to display, record, and graph differential pressure to an accuracy of 0.025% of the differential reading up to 300 psi static, 0.05% up to 3,000 psi static, and 0.1% up to 10,000 psi static pressure. The nVision can also record 500,000 data points from each of its two modular sensors, simultaneously. It takes these measurements as frequently as every 0.1 sec, without any change in accuracy between –20° and 50° C. Source: Crystal Engineering, 708 Fiero Lane, Suite 9, San Luis Obispo, CA 93401.

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Oil & Gas Journal | Jan. 10, 2011

1/5/11 2:50 PM

STATISTICS IMPORTS OF CRUDE AND PRODUCTS — Districts 1-4 — — District 5 — 12-24 12-17 12-24 12-17 2010 2010 2010 2010 ––––––––––––––––––––––––— 1,000 b/d

———— Total US ———— 12-24 12-17 *12-25 2010 2010 2009 ––––––––––––––––––––––––—

Total motor gasoline ............. Mo. gas. blending comp. ..... Distillate............................... Residual .............................. Jet fuel-kerosine .................. Propane-propylene .............. Other ...................................

768 693 251 508 40 167 135

977 906 217 360 48 299 –116

7 7 0 35 1 –95 149

30 30 0 111 12 –241 322

775 700 251 543 41 72 284

1,007 936 217 471 60 58 206

753 573 237 387 65 220 152

Total products ......................

2,562

2,691

104

264

2,666

2,955

2,387

Total crude ...........................

7,784

7,732

1,030

1,008

8,814

8,740

8,027

Total imports ........................

10,346

10,423

1,134

1,272

11,480

11,695

10,414

*Revised. Source: US Energy Information Administration Data available in OGJ Online Research Center.

PURVIN & GERTZ LNG NETBACKS—DEC. 31, 2010 –––––––––––––––––––––––––––– Liquefaction plant –––––––––––––––––––––––––––––––– Algeria Malaysia Nigeria Austr. NW Shelf Qatar Trinidad –––––––––––––––––––––––––––––––– $/MMbtu ––––––––––––––––––––––––––––––––––––

Receiving terminal Barcelona Everett Isle of Grain Lake Charles Sodegaura Zeebrugge

8.79 3.54 7.73 1.70 5.94 7.50

6.19 1.47 5.34 –0.22 8.18 5.26

7.87 3.18 6.99 1.47 6.17 6.84

6.09 1.57 5.24 –0.02 7.87 5.15

7.14 2.02 5.95 0.18 7.08 5.91

7.79 3.83 7.03 2.29 5.19 6.90

Additional analysis of market trends is available through OGJ Online, Oil & Gas Journal’s electronic information source, at http://www.ogj.com.

OGJ CRACK SPREAD *12-31-10 *1-1-10 Change Change, ———–—$/bbl ——–—— % SPOT PRICES Product value Brent crude Crack spread

102.52 94.28 8.24

FUTURES MARKET PRICES One month Product value 103.10 Light sweet crude 90.97 Crack spread 12.13 Six month Product value 105.53 Light sweet crude 93.46 Crack spread 12.07

86.36 77.27 9.09

16.16 17.01 –0.85

18.7 22.0 –9.3

86.47

16.63

19.2

79.07 7.40

11.90 4.74

15.0 64.0

91.06

14.47

15.9

82.05 9.02

11.41 3.06

13.9 33.9

*Average for week ending. Source: Oil & Gas Journal Data available in OGJ Online Research Center.

Definitions, see OGJ Apr. 9, 2007, p. 57. Source: Purvin & Gertz Inc. Data available in OGJ Online Research Center.

CRUDE AND PRODUCT STOCKS —–– Motor gasoline —–– Blending Jet fuel, ————— Fuel oils ————— PropaneCrude oil Total comp.1 kerosine Distillate Residual propylene ———————————————————————————— 1,000 bbl —————————————————————————

District PADD 1 ..................................... PADD 2 ..................................... PADD 3 ..................................... PADD 4 ..................................... PADD 5 .....................................

10,644 97,369 162,439 15,753 53,221

52,650 48,269 75,939 7,083 30,916

42,482 24,017 51,117 2,056 26,416

8,893 8,178 15,467 733 10,342

64,224 29,551 49,321 3,432 14,432

13,696 1,420 20,448 193 4,176

4,638 23,095 25,951 1 1,650 —

Dec. 24, 2010 .......................... Dec. 17, 2010 ........................... Dec. 25, 20092 ..........................

339,426 340,684 326,008

214,857 217,173 215,964

146,088 146,922 133,455

43,613 43,920 42,025

160,960 160,715 159,281

39,933 40,906 37,180

55,334 57,670 52,469

1

Includes PADD 5. 2Revised. Source: US Energy Information Administration Data available in OGJ Online Research Center.

REFINERY REPORT—DEC. 24, 2010 REFINERY –––––– OPERATIONS –––––– Gross Crude oil inputs inputs ––––––– 1,000 b/d ––––––––

District

–––––––––––––––––––––––––––– REFINERY OUTPUT ––––––––––––––––––––––––––– Total motor Jet fuel, ––––––– Fuel oils –––––––– Propanegasoline kerosine Distillate Residual propylene –––––––––––––––––––––––––––––––– 1,000 b/d –––––––––––––––––––––––––––––––

PADD 1 .............................................. PADD 2 .............................................. PADD 3 .............................................. PADD 4 .............................................. PADD 5 ..............................................

1,010 3,286 7,987 526 2,638

1,010 3,281 7,693 517 2,427

3,064 2,230 2,150 304 1,555

72 208 672 31 430

342 1,039 2,577 173 526

67 39 200 8 105

40 244 730 1 58 —

Dec. 24, 2010 ..................................... Dec. 17, 2010 ..................................... Dec. 25, 20092 ....................................

15,447 15,429 14,192

14,928 14,926 13,879

9,303 9,341 9,028

1,413 1,419 1,522

4,657 4,630 3,710

419 574 593

1,072 1,044 998

17,594 Operable capacity 1

87.8 utilization rate

2

Includes PADD 5. Revised. Source: US Energy Information Administration Data available in OGJ Online Research Center.

Oil & Gas Journal | Jan. 10, 2011

110110ogj_29 29

29

1/6/11 11:32 AM

STATISTICS OGJ GASOLINE PRICES

BAKER HUGHES RIG COUNT

Price Pump Pump ex tax price* price 12-29-10 12-29-10 12-30-09 ————— ¢/gal ————— (Approx. prices for self-service unleaded gasoline) Atlanta .......................... 257.5 296.7 Baltimore ...................... 259.7 301.6 Boston ........................... 254.7 296.6 Buffalo .......................... 247.0 310.2 Miami ............................ 259.0 311.4 Newark .......................... 272.5 305.4 New York........................ 255.9 319.1 Norfolk........................... 259.8 297.7 Philadelphia .................. 249.4 300.1 Pittsburgh ..................... 259.5 310.2 Wash., DC...................... 270.0 311.9 PAD I avg .................. 258.6 305.5

256.0 258.1 257.2 269.1 274.1 250.1 270.0 248.1 265.1 263.2 267.1 261.6

Chicago ......................... Cleveland ...................... Des Moines .................... Detroit ........................... Indianapolis .................. Kansas City ................... Louisville ....................... Memphis ....................... Milwaukee ..................... Minn.-St. Paul ............... Oklahoma City ............... Omaha .......................... St. Louis ........................ Tulsa ............................. Wichita .......................... PAD II avg .................

277.4 253.6 262.0 259.2 258.3 252.4 256.9 253.3 250.8 259.1 249.7 252.3 258.7 251.0 316.7 260.8

335.4 300.0 302.4 313.4 311.4 288.1 297.8 293.1 302.1 304.7 285.1 298.7 294.4 286.4 360.1 304.9

285.9 274.7 251.4 278.0 270.4 239.5 257.8 241.0 267.0 258.1 225.8 249.4 235.7 224.0 236.9 253.0

Albuquerque .................. Birmingham .................. Dallas-Fort Worth .......... Houston ......................... Little Rock ..................... New Orleans .................. San Antonio ................... PAD III avg ................

250.1 252.1 248.0 247.0 246.2 249.0 253.9 249.5

287.3 291.4 286.4 285.4 286.4 287.4 292.3 288.1

248.1 251.2 245.1 246.2 242.1 252.2 249.1 247.7

Cheyenne....................... Denver ........................... Salt Lake City ................ PAD IV avg ................

243.0 243.0 242.5 242.8

275.4 283.4 285.4 281.4

250.4 251.8 245.9 249.4

Los Angeles ................... Phoenix.......................... Portland ........................ San Diego ...................... San Francisco................ Seattle........................... PAD V avg ................. Week’s avg. .................. Dec. avg........................ Nov. avg. ....................... 2010 to date ................. 2009 to date .................

255.3 256.8 263.4 261.4 276.7 271.6 264.2 257.5 249.1 240.2 232.3 187.6

322.7 294.2 306.8 328.8 344.1 327.5 320.7 302.8 294.4 285.5 277.2 233.0

295.1 256.0 276.2 294.2 300.2 291.1 285.5 258.8 259.2 263.6 — —

*

Includes state and federal motor fuel taxes and state sales tax. Local governments may impose additional taxes. Source: Oil & Gas Journal. Data available in OGJ Online Research Center.

REFINED PRODUCT PRICES 12-24-10 ¢/gal

12-24-10 ¢/gal

Spot market product prices Motor gasoline No. 2 Distillate (Conventional-regular) Low sulfur diesel fuel New York Harbor ......... 248.40 New York Harbor ......... Gulf Coast .................. 240.30 Gulf Coast .................. Los Angeles ................ Motor gasoline Kerosine jet fuel (RBOB-regular) New York Harbor ......... 250.00 Gulf Coast ..................

254.30 250.80 254.40 253.70

Propane No. 2 heating oil New York Harbor ......... 254.10 Mt. Belvieu ................. 133.80

OGJ PRODUCTION REPORT

12-31-10

1-1-10

Alabama............................................ Alaska ............................................... Arkansas ........................................... California .......................................... Land................................................ Offshore .......................................... Colorado ............................................ Florida ............................................... Illinois ............................................... Indiana.............................................. Kansas .............................................. Kentucky............................................ Louisiana .......................................... N. Land ........................................... S. Inland waters .............................. S. Land............................................ Offshore .......................................... Maryland ........................................... Michigan ........................................... Mississippi ........................................ Montana ............................................ Nebraska ........................................... New Mexico........................................ New York............................................ North Dakota ..................................... Ohio................................................... Oklahoma .......................................... Pennsylvania ..................................... South Dakota..................................... Texas ................................................. Offshore .......................................... Inland waters .................................. Dist. 1 ............................................. Dist. 2 ............................................. Dist. 3 ............................................. Dist. 4 ............................................. Dist. 5 ............................................. Dist. 6 ............................................. Dist. 7B ........................................... Dist. 7C ........................................... Dist. 8 ............................................. Dist. 8A ........................................... Dist. 9 ............................................. Dist. 10 ........................................... Utah .................................................. West Virginia ..................................... Wyoming............................................ Others—NV-5 ...................................

7 6 37 38 38 0 60 2 0 4 26 0 176 123 13 19 21 0 0 6 8 2 69 1 150 9 160 103 0 731 3 1 57 47 45 47 77 56 9 56 201 26 36 70 28 21 45 5

5 7 34 26 25 1 41 0 0 3 20 1 185 128 11 11 35 0 0 6 6 1 49 2 65 7 95 64 0 485 3 0 21 18 33 31 73 58 12 47 96 19 35 39 19 22 39 7

Total US ........................................ Total Canada ................................

1,694 246

1,189 209

Grand total ................................... US Oil rigs ......................................... US Gas rigs ....................................... Total US offshore ............................... Total US cum. avg. YTD .....................

1,940 765 919 24 1,539

1,398 418 759 39 1,189

1

(Crude oil and lease condensate) Alabama ................................. 18 Alaska .................................... 630 California ............................... 615 Colorado ................................. 72 Florida .................................... 2 Illinois .................................... 25 Kansas ................................... 108 Louisiana ............................... 1,547 Michigan ................................ 14 Mississippi ............................. 62 Montana ................................. 67 New Mexico ............................. 170 North Dakota .......................... 330 Oklahoma ............................... 185 Texas ...................................... 1,460 Utah ....................................... 62 Wyoming ................................. 138 All others ................................ 65 Total .................................. 5,570 1 OGJ estimate. 2Revised. Source: Oil & Gas Journal. Data available in OGJ Online Research Center.

US CRUDE PRICES Alaska-North Slope 27° ......................................... South Louisiana Sweet .......................................... California-Midway Sunset 13° .............................. Lost Hills 30° ........................................................ Wyoming Sweet ..................................................... East Texas Sweet ................................................... West Texas Sour 34° .............................................. West Texas Intermediate........................................ Oklahoma Sweet.................................................... Texas Upper Gulf Coast ......................................... Michigan Sour ....................................................... Kansas Common ................................................... North Dakota Sweet ...............................................

WORLD CRUDE PRICES

(No new data at press time) $/bbl1

0-2,500 2,501-5,000 5,001-7,500 7,501-10,000 10,001-12,500 12,501-15,000 15,001-17,500 17,501-20,000 20,001-over Total

159 62 109 307 359 275 166 145 61 1,643

5.0 53.2 16.5 3.2 10.3 2.9 — — — 6.9

INLAND LAND OFFSHORE

16 1,608 19

1-1-10 Rig Percent count footage* 89 59 124 238 248 168 171 67 32 1,196 20 1,137 39

*Rigs employed under footage contracts. Definitions, see OGJ Sept. 18, 2006, p. 42.

1.1 66.1 28.2 4.6 12.9 2.3 — — — 10.2

12-10-10

United Kingdom-Brent 38° ..................................... Russia-Urals 32° ................................................... Saudi Light 34° ...................................................... Dubai Fateh 32° ..................................................... Algeria Saharan 44°............................................... Nigeria-Bonny Light 37° ........................................ Indonesia-Minas 34°.............................................. Venezuela-Tia Juana Light 31° ............................... Mexico-Isthmus 33° ............................................... OPEC basket........................................................... Total OPEC2 ............................................................ Total non-OPEC2 ..................................................... Total world2 ............................................................ US imports3

SMITH RIG COUNT 12-31-10 Percent footage*

12-31-10 $/bbl* 78.21 94.25 84.40 92.45 82.63 87.25 82.75 87.75 87.75 80.75 79.75 86.75 77.50

Data available in OGJ Online Research Center.

Source: Baker Hughes Inc. Data available in OGJ Online Research Center.

Rig count

19 652 613 72 2 25 102 1,540 16 69 66 166 241 175 1,416 60 138 71 5,443

*Current major refiner’s posted prices except North Slope lags 2 months. 40° gravity crude unless differing gravity is shown. Source: Oil & Gas Journal.

Rotary rigs from spudding in to total depth. Definitions, see OGJ Sept. 18, 2006, p. 42.

Proposed depth, ft

2 12-31-10 1-1-10 –—— 1,000 b/d —–—

91.17 88.55 88.65 88.30 91.68 92.34 93.87 87.66 87.55 89.73 88.81 87.39 88.21 85.90 -

-

1

Estimated contract prices. 2Average price (FOB) weighted by estimated export volume. 3Average price (FOB) weighted by estimated import volume. Source: DOE Weekly Petroleum Status Report. Data available in OGJ Online Research Center.

US NATURAL GAS STORAGE1 12-24-10

Producing region ................ Consuming region east ...... Consuming region west ...... Total US ............................. Total US2 ............................

12-17-10

12-24-09 Change,

–——––—— bcf —––——– 1,117 1,138 1,047 1,671 1,774 1,792 444 456 455 3,232 3,368 3,294 Change, Oct. 10 Oct. 09 % 3,847

3,810

% 6.7 –6.8 –2.4 –1.9

1.0

1

Source: DOE Weekly Petroleum Status Report. Data available in OGJ Online Research Center.

30

110110ogj_30 30

Source: Smith International Inc. Data available in OGJ Online Research Center.

Working gas. 2At end of period. Source: Energy Information Administration Data available in OGJ Online Research Center.

Oil & Gas Journal | Jan. 10, 2011

1/6/11 11:31 AM

STATISTICS WORLDWIDE CRUDE OIL AND GAS PRODUCTION 10 month average Change vs. Oct. Sept ––– production ––– –––– previous year ––– 2010 2010 2010 2009 Volume % ––––––––––––––––––– Crude, 1,000 b/d –––––––––––––––––––––––– Argentina ............................ Bolivia................................. Brazil .................................. Canada ............................... Colombia ............................ Ecuador1 ............................. Mexico ................................ Peru ................................... Trinidad .............................. United States ...................... Venezuela1 .......................... Other Latin America ............

585 45 1,997 2,714 785 470 2,571 150 87 5,554 2,210 80

590 45 1,997 2,666 783 460 2,570 150 96 5,567 2,230 80

608 43 2,038 2,707 774 464 2,583 150 101 5,486 2,233 81

606 40 1,942 2,570 658 473 2,607 127 107 5,344 2,157 83

2 3 96 137 116 –9 –25 23 –7 142 76 –2

Oct. Sept Cum. 2010 2010 2010 –––––––––– Gas, bcf ––––––––––––––

0.3 6.7 5.0 5.3 17.6 –1.9 –1.0 17.7 –6.4 2.7 3.5 –2.2

113.0 47.0 43.0 420.0 33.0 1.0 220.0 30.0 125.5 1,945.0 70.0 5.5

113.0 45.0 38.0 391.9 33.0 1.0 215.0 27.0 123.0 1,883.0 70.0 5.0

1,129.00 403.00 351.50 4,184.10 330.00 10.00 2,131.00 185.50 1,223.17 18,676.00 695.00 54.10

Western Hemisphere ..........

17,248

17,234

17,267

16,715

552

3.3

3,053.0

2,944.9

29,372.37

Austria ................................ Denmark............................. France ................................ Germany ............................. Italy .................................... Netherlands ........................ Norway ............................... Turkey ................................ United Kingdom .................. Other Western Europe .........

16 247 18 50 97 21 1,952 48 1,273 4

17 233 19 48 96 20 1,637 47 1,188 4

18 244 18 51 95 21 1,868 48 1,252 5

19 264 18 56 82 26 2,062 45 1,342 3

–1 –20 –1 –5 13 –5 –194 3 –90 1

–5.4 –7.6 –3.5 –8.4 15.4 –20.6 –9.4 5.7 –6.7 42.0

5.0 20.0 2.0 37.2 24.0 150.0 328.0 — 171.7 0.0

4.5 19.3 2.2 32.4 23.0 130.0 201.5 — 153.6 0.1

49.73 221.63 20.30 370.09 235.00 2,045.00 3,015.33 — 1,773.45 9.35

Western Europe .................

3,726

3,310

3,619

3,919

–300

–7.6

737.9

566.6

7,739.87

Azerbaijan........................... Croatia ................................ Hungary.............................. Kazakhstan ......................... Romania ............................. Russia ................................ Other FSU........................... Other Eastern Europe ..........

1,000 13 13 1,650 95 10,330 400 43

1,000 13 14 1,500 95 10,240 400 45

996 13 14 1,582 87 10,186 425 44

1,035 14 14 1,485 90 9,877 440 43

–39 –1 — 97 –3 309 –15 1

–3.8 –7.4 –2.4 6.5 –3.3 3.1 –3.4 2.6

75.0 4.2 6.8 100.0 20.0 1,800.0 400.0 18.9

72.0 5.8 6.6 90.0 19.0 1,690.0 375.0 18.6

729.00 58.98 67.62 1,000.00 184.00 18,160.00 3,975.00 192.73

Eastern Europe and FSU .....

13,545

13,307

13,347

12,998

349

2.7

2,424.9

2,277.0

24,367.32

Algeria1 ............................... Angola1 ............................... Cameroon ........................... Congo (former Zaire) ........... Congo (Brazzaville) ............. Egypt .................................. Equatorial Guinea................ Gabon................................. Libya1 ................................. Nigeria1............................... Sudan ................................. Tunisia ................................ Other Africa ........................

1,270 1,680 60 28 280 740 255 250 1,560 2,200 470 71 191

1,270 1,650 60 28 280 740 255 250 1,550 2,150 470 79 191

1,253 1,798 64 28 268 740 255 245 1,548 2,052 476 80 191

1,239 1,774 74 28 240 750 260 227 1,551 1,791 500 82 196

14 24 –10 — 28 –10 –5 18 –3 261 –24 –3 –5

1.1 1.4 –13.0 — 11.7 –1.3 –1.9 7.9 –0.2 14.6 –4.8 –3.3 –2.5

250.0 6.5 — — — 120.0 0.1 0.3 46.0 70.0 — 8.5 9.4

250.0 6.0 — — — 115.0 0.1 0.3 46.0 70.0 — 10.0 8.7

2,490.00 63.80 — — — 1,169.00 0.60 3.04 460.00 700.00 — 98.05 91.50

Africa ................................

9,055

8,974

8,998

8,712

286

3.3

510.7

506.1

5,075.99

Bahrain............................... Iran1 ................................... Iraq1 ................................... Kuwait1 2 ............................. Oman ................................. Qatar1 ................................. Saudi Arabia1 2 .................... Syria ................................... United Arab Emirates1 ......... Yemen ................................ Other Middle East ...............

30 3,700 2,350 2,300 867 800 8,240 360 2,330 260 —

30 3,680 2,350 2,300 876 800 8,280 360 2,310 260 —

29 3,710 2,361 2,298 861 802 8,249 368 2,306 269 —

30 3,739 2,402 2,273 810 765 8,186 371 2,270 276 —

— –29 –41 25 51 37 63 –3 36 –7 —

–1.3 –0.8 –1.7 1.1 6.3 4.8 0.8 –0.8 1.6 –2.4 19.5

25.0 415.0 25.0 35.0 85.0 340.0 210.0 18.0 140.0 — 13.0

24.0 400.0 24.0 34.0 84.0 330.0 205.0 17.0 130.0 — 12.7

247.28 4,025.00 231.00 349.00 808.00 3,190.00 2,095.00 175.00 1,375.00 — 102.49

Middle East .......................

21,237

21,246

21,253

21,121

132

0.6

1,306.0

1,260.7

12,597.78

Australia ............................. Brunei ................................ China .................................. India ................................... Indonesia ............................ Japan ................................. Malaysia ............................. New Zealand....................... Pakistan.............................. Papua New Guinea ............. Thailand ............................. Vietnam .............................. Other Asia–Pacific ...............

415 160 4,192 778 900 14 555 48 64 20 234 320 58

405 177 4,195 772 946 13 585 51 64 20 248 320 63

429 158 4,054 732 951 15 575 54 64 22 242 318 48

466 150 3,760 661 953 16 595 49 63 38 238 296 48

–38 8 294 71 –2 — –20 5 1 –16 4 22 --

–8.1 5.7 7.8 10.8 –0.2 –3.1 –3.4 9.3 0.9 –42.3 1.7 7.4 0.6

146.7 35.0 270.0 155.0 250.0 9.0 180.0 13.0 122.6 1.0 95.0 20.0 81.7

125.8 36.0 260.0 148.0 250.0 8.4 180.0 13.0 116.8 0.9 92.0 20.0 79.7

1,331.10 348.00 2,691.91 1,472.48 2,280.00 97.21 1,824.00 122.00 1,245.96 9.80 906.00 200.00 794.80

Asia–Pacific ......................

7,758

7,858

7,661

7,333

328

4.5

1,379.0

1,330.6

13,323.26

TOTAL WORLD ....................

72,569

71,928

72,145

70,798

1,347

1.9

9,411.5

8,885.9

92,476.58

OPEC .................................. Offshore Europe ..................

29,110 3,495

29,030 3,087

29,074 3,387

28,620 3,689

454 –302

1.6 –8.2

1,608.5 564.4

1,566.0 413.2

15,683.80 5,620.93

1

OPEC member. 2Kuwait and Saudi Arabia production each include half of Neutral Zone. Totals may not add due to rounding. Source: Oil & Gas Journal. Data available in OGJ Online Research Center.

Oil & Gas Journal | Jan. 10, 2011

110110ogj_31 31

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1/6/11 11:31 AM

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THE EDITOR’S PERSPECTIVE

MARKET JOURNAL

Rising crude price threatens recovery in US, elsewhere

Oil price strengthened in 2010

by Bob Tippee, Editor If the country that led the world into recession also must lead the way back to stable growth, oil exporters must act soon to lower the price of crude oil. It’s intuitive that a recent surge in oil prices threatens the world’s halting recovery. The extra burden spreads ominously through economies, which can’t cut oil use proportionately. A recent report from the Centre for Global Energy Studies in London takes the analysis beyond those surface truisms, focusing on the world’s largest oil-consuming country and epicenter of the global financial meltdown of 2007. CGES worries about the part of the US balance of payments called the current account, which, the think tank points out, is in “perennial deficit.” The current account includes exports and imports of goods and services, the net of which is the trade balance, plus earnings from overseas investments and current transfers. Other elements of the balance of payments are the capital and financial accounts. In 2009, CGES says, the US current-account deficit was $378 billion. Of that, net oil imports accounted for $215 billion. The group cites a forecast that the country’s current-account deficit will have risen to $494 billion in 2010 before climbing to $549 billion in 2011. It projects the net oil-import contributions to those deficits at $273 billion in 2010 and $317 billion in 2011. Because the import rate is barely rising, most of those expected oil-related pushes to current-account deficits come from rising oil prices. If nothing else changes, the increased deficits imply lower economic growth. They can create currency depreciation in the absence of countervailing capital inflows. With US indebtedness to foreigners already high, more debt would lift interest rates, creating capital losses for current bondholders and slowing economic recovery. Members of the Organization of Petroleum Exporting Countries can ease this multitiered threat to the US financial system and, by extension, global economy, by producing more oil to lower the price. They have enough spare capacity. Most of it’s in Saudi Arabia.

by Sam Fletcher, Senior Writer Front-month crude prices waffled in late December, dropping below $90/bbl Dec. 30 before rebounding to $91.38/bbl Dec. 31 in the last trading session of 2010 in New York. On Dec. 23, the last trading day before Christmas, the February contract for US crudes escalated to $91.51/bbl on the New York Mercantile Exchange, its first time to top $90/bbl since October 2008. “Crude ended on a strong note as prices surged forward 1.7% to end the year up 15%,” said analysts in the Houston office of Raymond James & Associates Inc. “Natural gas gained 1.5% as forecasts showed unusually cold winter weather spreading throughout the country.” Snowstorms disrupted holiday travel in the eastern US over the last 2 weeks of the year, and the National Weather Service forecast below-average temperatures for the center of the country on Jan. 8-12. Low temperatures and heavy snowfall also hit Europe in the closing days of 2010. Olivier Jakob at Petromatrix, Zug, Switzerland, said Jan. 3, “During the holiday break the dollar was under strong pressure, with the yen and the Swiss franc being particularly strong. The Swiss franc is at a record high to the dollar and the yen is now also trending up to that status again. The strength of the Swiss franc remains a timebomb for Hungary with most of its home mortgages issued in Swiss francs. Hungary has nationalized the assets of the private pension funds to reduce the budget deficit, but it is still at risk of further downgrade in ratings while it takes over the presidency of the European Union for the next 6 months.” As investors turned from the stock market to the bond market, the US Federal Reserve bought $240 billion of Treasuries from primary dealers, sometimes the same day dealers received them.

2011 outlook Raymond James analysts reported Jan. 3, “For years now, we have been bearish on US natural gas prices and bullish on global oil prices. That was the right call, and we believe it will remain so in 2011.” Although usually overly conservative, Raymond James’ oil price forecast of an average $80/bbl for 2010 “came in just a hair above the full-year average of $77/bbl,” they said, with price moves range-bound at $70-85/bbl for most of the year as market fundamentals took a backseat to a cautious economic recovery and global currency concerns. They expect the same trends to continue in 2011. “Oil prices should move steadily higher assuming gradual economic improvement, with support coming from the combination of rising global oil demand and stagnant global oil supplies. Thus, our 2011 oil forecast is $90/bbl, rising to $100/bbl (or higher) in 2012,” they said. Raymond James analysts reported, “Our bearish US natural gas bet in 2010 was not bearish enough. At the start of 2010, our $5/Mcf forecast was 15% below consensus, but still a full dollar above the 2009 price of $4/Mcf. Directionally, our bearish outlook proved correct, but we were not bearish enough since prices in 2010 actually averaged $4.40/Mcf.” So, they said, “Our 2011 outlook is more bearish than either of the past 2 years. This is a result of continued gas supply growth due to improved production profiles and a stubbornly high gas rig count. We are going to need huge (and likely unattainable) increases in gas demand from the industrial and power generation industries in order to rebalance the gas market in 2011. As a result, we are once again slicing into our natural gas price forecasts and now expect 2011 to average $3.75/Mcf and 2012 to average $4.25/Mcf (with bias to the downside on both of these estimates). Finally, with a 2011 outlook for healthy oil prices, stagnant or depressed US gas prices, and rising rig counts, we believe that energy stocks are generally poised for additional gains in 2011. Overall, we are looking for energy indices to be up 5-20%, driven mainly by decent earnings growth.” ONLINE JAN. 3, 2011 | [email protected]

ONLINE JAN. 3, 2011 | [email protected]

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