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International Petroleum News and Technology

5 NEWSLETTER 29 STATISTICS

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Feb. 28, 2011

12 LETTERS / CALENDAR

14 JOURNALLY SPEAKING

16 EDITORIAL

32 MARKETPLACE

33 EDITOR’S PERSPECTIVE / MARKET JOURNAL

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Volume 109.9

28 EQUIPMENT 28 ADVERTISERS’ INDEX

GENERAL INTEREST 18 Investment fervor continues for US, Canadian shale gas plays National oil companies, international oil companies, and others are investing in US and Canadian shale gas plays in an accelerating trend that analysts expect will continue to drive North American merger and acquisition activities throughout 2011.

20 Hess plans to double its Bakken production by yearend

24 Salazar orders fresh look at first round of oil shale leases Nick Snow

25 BOEMRE budget request grows amid cutbacks elsewhere in DOI Nick Snow

26 WATCHING GOVERNMENT Government’s R&D focus

27 Judge finds DOI in contempt for imposing second deepwater ban Nick Snow

Paula Dittrick

20 MWCC completes, tests interim deepwater containment system Paula Dittrick

21 IOCs departing Libya ahead of stepped-up violence

The video below highlights Enid, Okla.-based Continental Resources’ use of its ECO-Pad® in the Bakken in North Dakota. Video courtesy of Continental Resources.

Eric Watkins

CLICK TO VIEW VIDEO 21 WATCHING THE WORLD Cybercrooks target IOCs

22 Aramco launches products trading unit Eric Watkins

23 Deutsche Bank: Pipelines explain WTI discount to Brent Marilyn Radler

24 Congressman to reintroduce bill to federally regulate fracing Nick Snow

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

MINISTRY of MINES and ENERGY

::

G E N E R A L D I R E C T O R AT E f o r H Y D R O C A R B O N S

S O C I E T E N AT I O N A L E D ’ O P E R AT I O N S P E T R O L I E R E S

::

DE LA COTE D’IVOIRE

CALL FOR EXPRESSION OF INTEREST Supply of Liquefied Natural Gas (LNG) On the basis of studies assessing the national Natural Gas supply security, the Government of the Republic of Côte d’Ivoire (“GoCI”) has elected to procure additional supply sources beyond its domestic gas fields. The objective of this call for expression of interest is to identify companies which could provide the GoCI through the stateowned national hydrocarbon company PETROCI Holding, the following energy supply and/or services: With respect to energy supply (the “Supply”) :: Delivery of Liquefied Natural Gas (“LNG”); :: Supply requirement are estimated to amount at a minimum of 100 Billion BCF/Year over a time horizon of 10 years renewable.

With respect to services and infrastructure (the “Services”) :: Transportation, storage and re-gasification of LNG; :: Deliveries into PETROCI pipeline system to be

effected at the Vridi Canal zone – Abidjan.

Submission Process Companies with appropriate experience in these fields are invited to register their interest. NB: The application entitled “Prequalification Document” will be downloaded from PETROCI website: www.petroci.ci The candidate submissions must be labeled: To the Attention of the Managing Director of PETROCI Holding “Expression of Interest for the supply of LNG to Côte d’Ivoire”

Four (4) copies of the submission shall be delivered in a sealed envelope no later than Friday March 19, 2011 at 5:00 pm at the following address: PETROCI HOLDING Mrs. KATIA METAN 14 Boulevard Carde, Abidjan Plateau, Immeuble les Hévéas, 9ème étage, face porte 919 BPV 194 Abidjan, Côte d’Ivoire

Evaluation A short list of candidates offering the best credentials will be established. These pre-selected candidates will then be invited to make both a technical and a financial offer in response to a competitive Request for Proposal (the “RFP”). The winning candidate(s) will be selected based on the selection criteria specified in the RFP.

Expression of Interest Inquiries Candidates should consider the Call for Expression of Interest and request any required clarifications in writing not later than 3 days before the Due Date. All inquiries shall be submitted in writing to: Mister CHARLES ANOH EZOUA, Supervisor of Natural Gas Technical Activities, at the following email address: [email protected] Kassoum FADIKA

The Office of the CEO

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

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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

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

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]

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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. 9) 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.

we are the people of Baker Hughes. and we’re known collaborators.

George Vassilellis, Lead Reservoir Engineer

The best ideas never happen in a vacuum. They’re the result of

As part of our new Reservoir Development

listening, understanding, and getting to the heart of your challenge.

Services group, George works with

From reservoir planning through every phase of recovery and

customers like you in evaluating their

processing, we’ve found that working with the people we’re working

unconventional hydrocarbon assets to help

for is essential to crafting a fit-for-purpose solution and delivering

them improve efficiency and increase

flawless performance. Because when we’re all on the same team,

recovery. Learn about his model for shale

we’re pretty hard to beat.

resources at www.bakerhughes.com/george

www.bakerhughes.com © 2011 Baker Hughes Incorporated. All Rights Reserved. 31651

OGJ Newsletter

Feb. 28, 2011

®

International News for oil and gas professionals

GENERAL INTEREST Q U IC K TA K E S Judge orders BOEMRE to act on permit applications A federal district judge in New Orleans ordered the US Bureau of Offshore Energy Management, Regulation, and Enforcement to decide whether to issue five pending Gulf of Mexico offshore drilling permit applications to Ensco Offshore Co. within 30 days. The Dallas offshore drilling contractor applied for four of the five permits during the 5-month deepwater drilling moratorium imposed by US Interior Sec. Ken Salazar following the Macondo well blowout, which destroyed the Deepwater Horizon semisubmersible rig on Apr. 20 and set off a massive oil spill. DOI said it was reviewing the ruling. Judge Martin L.C. Feldman, of Louisiana’s eastern district, wrote in his Feb. 17 order that drilling permits were processed in about 2 weeks time before the Macondo accident. “In stark contrast, the five permits have been pending from 4 to some 9 months,” Feldman said. “These delays have put off indefinitely drilling in the Gulf of Mexico. Ensco has incurred significantly reduced standby rates on its rigs and has been forced to move some…to other locations around the world.” He rejected the federal government’s argument that Congress, when it passed the Outer Continental Shelf Lands Act in 1953, decided not to impose a time limit and consequently left the matter to the DOI agency responsible for managing the OCS. That view, said Feldman, “would produce autocratic discretion.” He noted DOI argued delays are inevitable in a more regulated environment, and conceded that in the spill’s wake, some delays are understandable. “But now, nearly a year after the spill occurred, delays, particularly those of the length at issue here, become increasingly unreasonable,” Feldman continued. “The permitting backlog becomes increasingly inexcusable.”

BHP Billiton to buy Chesapeake Fayetteville assets BHP Billiton Petroleum agreed to buy all of Chesapeake Energy Corp.’s interests in the Fayetteville shale gas play in Arkansas for $4.75 billion. The company will acquire 487,000 acres, from which net production averages about 415 MMcfd of gas equivalent, and 420 miles of pipeline and gathering assets. It said the acquisi-

Oil & Gas Journal

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

tion includes “development options that will support substantially higher production over a 40 year operating life.” It’s BHP Billiton’s first investment in the US shale gas business. Chesapeake agreed to provide essential services related to the properties for up to 1 year, for which it will collect a fee. BHP Billiton will become operator of the properties.

Alberta’s ERCB responds to pipeline risk report Alberta’s Energy Resources Conservation Board (ERCB) responded to the Natural Resources Defense Council (NRDC), Pipeline Safety Trust, National Wildlife Federation, and Sierra Club report “Tar Sands Pipeline Safety Risks,” describing it as misleading regarding pipeline safety in Alberta and on the characteristics of diluted bitumen. NRDC’s report described tar sands crude as having 5-10 times as much sulfur as conventional crude and more chloride salts. The report also characterized the crude pipeline system in Alberta as newer but carrying more tar sands oil than the US system, before stating the Alberta system had experienced 16 times more safety incidences due to internal corrosion than the US system, which it saw as a strong indicator of the corrosive nature of raw tar sands oil (OGJ Online, Feb. 17, 2011). ERCB described these statements as factually inaccurate. “The NRDC’s comparison of ERCB data with that collected in the US is flawed, as it selected data from a much broader array of ERCB pipelines than those included in US data as hazardous liquid pipelines,” according to ERCB. “Additionally, the NRDC did not recognize that the ERCB requires all incidents to be reported, regardless of whether or not any product is spilled, and also regardless of spill volume, whereas in the US only spills of 5 bbl of liquids or more are required to be reported.” According to ERCB, in the category identified by NRDC— pipelines shipping bitumen and blends of bitumen—ERCB identified only three spills resulting from internal corrosion between 1990 and 2005. ERCB places the resulting average failure frequency at 0.03/1,000 km/year, lower than the US rate it cites from the NRDC study of 0.08/1,000 km/year. ERCB also noted that “analysis of pipeline failure statistics in Alberta has not identified any significant differences in failure frequency between pipelines handling conventional crude versus pipelines carrying crude bitumen, crude oil, or synthetic crude oil.” ERCB noted the tariff specification for the Keystone XL

5

IPE BRENT / NYMEX LIGHT SWEET CRUDE $/bbl 102.00 99.00 96.00 93.00 90.00 87.00 85.00 84.00

US INDUSTRY SCOREBOARD — 2/28 4 wk. avg. year ago1

Change, %

8,629 3,816 1,389 648 4,803 19,285

8,630 3,717 1,370 647 4,631 18,995

0.0 2.7 1.4 0.2 3.7 1.5

8,682 3,744 1,413 568 4,822 19,229

8,644 3,717 1,343 575 4,613 18,892

0.4 0.7 5.2 –1.2 4.5 1.8

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

5,524 2,063 8,894 2,734 2,078 21,293

5,445 2,087 8,296 2,891 1,725 20,444

1.5 –1.1 7.2 –5.4 20.5 4.2

5,477 2,061 8,912 2,723 2,108 21,281

5,447 2,098 8,436 2,818 1,668 20,467

0.6 –1.8 5.6 –3.4 26.4 4.0

Crude runs to stills Input to crude stills % utilization

14,159 14,614 83.1

13,421 14,152 80.5

5.5 3.3 —

14,284 14,710 83.6

14,283 14,593 82.6

0.0 0.8 —

Latest week 2/11

4 wk. average

YTD average1

YTD avg. year ago1

Change, %

Product supplied, 1,000 b/d

Feb. 16

Feb. 17

Feb. 18 Feb. 21 1

Motor gasoline Distillate Jet fuel Residual Other products

Feb. 22

TOTAL PRODUCT SUPPLIED

Supply, 1,000 b/d

WTI CUSHING / BRENT SPOT $/bbl 105.00 102.00 99.00 96.00 93.00 90.00 87.00 84.00

Feb. 16

Feb. 17

Feb. 18 Feb. 21 1

Feb. 22

Latest week 2/11

NYMEX NATURAL GAS / SPOT GAS - HENRY HUB $/MMbtu 4.05 4.00 3.95 3.90 3.85 3.80 3.75 3.70

Crude oil Motor gasoline Distillate Jet fuel-kerosine Residual

Feb. 16

Feb. 17

Feb. 18 Feb. 21 1

Feb. 22

24.2 27.9 44.1 20.7

Change, %

860 205 –3,096 –1,503 304

334,503 232,065 153,255 42,676 37,851

11,414 9,031 8,015 –1,241 1,600

Change, %

Change, %

0.8 0.0 –4.1 –6.8

24.6 26.9 41.2 19.6

–0.8 3.7 2.7 –1.5

Change 85.34 3.91

86.69 4.02

3.4 3.9 5.2 –2.9 4.2

Change

–1.35 –0.10

73.91 5.37

%

11.43 –1.46

15.5 –27.1

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

Feb. 16

Feb. 17

Feb. 18 Feb. 21 1

Feb. 22

BAKER HUGHES INTERNATIONAL RIG COUNT: TOTAL WORLD / TOTAL ONSHORE / TOTAL OFFSHORE 3,900 3,600 3,300 3,000 2,700 2,400 2,100 1,800 1,500 300 0

3,437 3,100

336

Jan. 10

Feb. 16

Feb. 17

Feb. 18 Feb. 21 1

Feb. 22

Feb. 10

Mar. 10

Apr. 10

May 10 Jun. 10

Jul. 10

Aug. 10

Sept. 10

Oct. 10

Nov. 10

Dec. 10

Jan. 11

Note: Monthly average count

BAKER HUGHES RIG COUNT: US / CANADA 1,713

1,800 1,600 1,345

1,400 1,200 1,000 800

636

570

600 400 Feb. 16

Feb. 17

Feb. 18 Feb. 21 1

Feb. 22

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

6

24.4 27.9 42.3 19.3

Same week year ago1 Change

Change

1

NYMEX GASOLINE (RBOB)2 / NY SPOT GASOLINE3

1Not

345,057 240,891 164,366 42,938 39,147

Crude Motor gasoline Distillate Propane Futures prices5 2/18 Light sweet crude ($/bbl) Natural gas, $/MMbtu

¢/gal 180.00 175.00 170.00

¢/gal 262.00 260.00 258.00 256.00 254.00 252.00 250.00 248.00

345,917 241,096 161,270 41,435 39,451

Stock cover (days)4

PROPANE - MT. BELVIEU / BUTANE - MT. BELVIEU

141.00 139.00 137.00 135.00

Previous week1

Stocks, 1,000 bbl

IPE GAS OIL / NYMEX HEATING OIL ¢/gal 283.00 282.00 280.00 278.00 276.00 274.00 272.00 270.00

Latest week

200

12/11/09

12/4/09

12/25/09

12/18/09

1/8/10

1/1/10

1/22/10

1/15/10

2/5/10

1/29/10

2/19/10

2/12/10

12/10/10

12/3/10

12/24/10

12/17/10

1/7/11

12/31/10

1/21/11

1/14/11

2/4/11

1/28/11

2/18/11

2/11/11

Note: End of week average count

Oil & Gas Journal | Feb. 28, 2011

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

Owned & Produced by:

Flagship Media Sponsors:

project was virtually the same in regards to water content and solids contents as that specified for other heavy oil pipelines, concluding that there is no reason to expect this product to behave in any substantially different way than other oil pipelines.

EXPLORATION & DEVELOPMENT Q U IC K TA K E S Continental, Jordan seek France shale permits Continental Resources Inc., Enid, Okla., said it initiated a process in the fourth quarter of 2010 to secure permits to develop four blocks totaling 67,000 net acres in the Paris basin in France. Continental said it is pursuing the Paris basin opportunity in an 80-20 joint venture with Jordan Oil & Gas, Healdsburg, Calif. The two companies have worked together on several projects in North Dakota, and Jordan Oil & Gas has operating experience in France and other international oil and gas plays. If awarded the 5-year permits, Continental and Jordan together would commit to invest at least $13.8 million over 4 years. The French government is expected to rule on the permit applications by yearend. Continental said it believes it could recover large oil reserves from the permits using technology it has developed in the Bakken formation in North Dakota and Montana.

Apache finds gas with Zola off W. Australia A group led by Apache Energy Ltd. made a natural gas discovery with its Zola-1 wildcat well in the primary Triassic-age Mungaroo formation target on permit WA-290-P off Western Australia. The find is on trend with Gorgon gas field, the group said. Data obtained while drilling indicate the presence of gas from the top of this primary reservoir, which is the same as that at Chevron Australia’s Gorgon field, about 40 km to the north. The Zola prospect is a large tilted fault block that has been delineated by high-quality, newly reprocessed 3D seismic data. The structure’s size suggests a range of recoverable reserves of 1-2 tcf of gas. The group said the Mungaroo section will be drilled through before wireline logs are run to confirm the extent and thickness of the gas column. The well is being drilled by the Stena Clyde semisubmersible rig. Apache is operator with 30.25%. OMV AG has 20%, Santos Ltd. 24.75%, Nippon Oil Exploration 15%, and Tap Oil Ltd. 10%.

of giant-size structures capable of holding several hundred million barrels of oil on its southern licenses, the company said. Detailed processing will take 2 months. The presence of a potential Middle Jurassic salt layer may point to a further subsalt play in the area, Bahamas Petroleum said. The company is considering a 3D seismic survey, and several vessels are available. Bahamas Petroleum posted the consulting studies on its web site. It said they provide the first structure maps that document the size and extent of closure of the features, based on 1,120 km of seismic data, and demonstrate the consistency of fold formation, the continuity of folds along the structural trend, the ability to seismically map internal continuity of reservoir-seal strata across the folds, and the geometric form of the folds. The extent and style of structural geometry of the large-scale folds was not possible from historical seismic data, said Dr. Paul Crevello, chief executive officer of Bahamas Petroleum. Nonexecutive Chairman Alan Burns said, “These structures are exceptional in the size and extent of the four-way closure, indeed I am not aware of any anticlines of this size in the Gulf of Mexico-Caribbean region.”

Strat test cores oil on Llanos CPO-17 block A stratigraphic well on Hocol SA’s CPO-17 block in Colombia’s Llanos basin has cored oil shows in several formations, said 50% partner Maurel & Prom, Paris. The first well, drilled to a depth of 864 m, has shown the presence of in situ oil in Basal Oligocene sands. Hocol recovered 96 m of cores of which 27 m have oil impregnation and 9 m show significant oil saturation. Further analysis is being carried-out to determine reservoir parameters. There were also oil indications during drilling in the C5 and C7 formations. The work program for this prospect includes more stratigraphic wells and a regular exploration well, Merlin-1, with a main Oligocene objective to allow for possible production testing. Other large prospects have been defined from 680 line-km of 2D seismic shot in 2010. CPO-17 covers 2,103 sq km 200 km southeast of Bogota between Castilla and Rubiales oil fields. It was awarded in 2008.

DRILLING & PRODUCTION Q U IC K TA K E S Manifa drilling sets new Saudi well length record

Seismic indicates large structures off Bahamas Preliminary onboard processing of 2D seismic in southern Bahamas waters shows numerous structures with four-way dip closure much larger than previously expected, said Bahamas Petroleum Company PLC. Independent consulting geological analyses of the January 2011 2D seismic preliminary mapping results and June 2010 fully processed prestack time migration data provide evidence

8

Saudi Aramco reported that a recent well in Manifa oil field, drilled to 32,136 ft TD, set a new length record for wells drilled in Saudi Arabia. This length surpassed the previous 30,850 ft in an earlier Manifa well. A Precision Drilling Corp. land rig drilled both wells. Discovered in 1957, Manifa field is in shallow waters southeast of Tanajib, about 200 km northwest of Dhahran. Aramco is developing the field from 27 drilling islands con-

Oil & Gas Journal | Feb. 28, 2011

unconvent ional

resources WHERE FINANCE

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nected by a 47-km long causeway, in addition to 16 onshore drill sites and 13 offshore platforms. During the May 2010 Offshore Technology Conference, Zuhair Al-Hussain, Aramco vice-president, drilling and workovers, said production from Manifa will start in mid-2013 but will not ramp up quickly to the original target of 900,000 b/d of Arab heavy oil (OGJ, May 10, 2010, p. 19).

Total begins production at Itau field Total SA has begun production at the Itau gas-condensate field on Block XX, Tarija Oeste, 400 km south of Santa Cruz city in Bolivia’s Andean Cordilleras foothills. The first phase of the development, which came on stream on Feb. 2, is designed to produce 1.5 million cu m/d of gas, which will be processed in facilities of the neighboring San Alberto field. Most of the production will be exported. Additionally, Total said that the Block XX joint venture also submitted a development plan that by mid-2013 aims to increase Itau’s production to 5 million cu m/day (cmd) from the current 1.5 million cmd. The plan is subject to approval by Bolivia’s state-owned Yacimientos Petroliferos Fiscales Bolivianos. Total declared the Itau gas-condensate field commercial in 2009, 10 years after its discovery. At the time, Total expected Itau would be bought on stream during 2010 at an initial 50 MMcfd (OGJ Online, Aug. 4, 2009).

Statoil seeks contract for less expensive rigs Statoil issued a tender for a minimum of two new type, lessexpensive rigs for drilling and completing wells in the mature areas on the Norwegian continental shelf. Statoil said that the specially-designed category D rigs should have a design for operating in 100-500 m of water and be capable of drilling to an 8,500-m depth. The rigs delivered to the NCS in recent years were first and foremost constructed for operations in deep water,” says Jon Arnt Jacobsen, chief procurement officer in Statoil. “That means that they are big and too costly for our requirements and challenges on the NCS. We are therefore taking steps to rejuvenate the rig fleet and ensure that the right rig meets the right requirements.” Statoil wants to contract the rigs for either 8 years with four 3-year options or for a 20-year firm contract period. It said that this is an unusually long contract period and will reduce the risk for the drilling contractor that will build the rigs. Statoil is also considering taking an ownership stake in the rigs. “The goal is that the new rig will drill 20% more effectively than conventional rigs,” says Jacobsen. “This will help to counteract the cost trends in the rig market.” Statoil plans to award the contract in third-quarter 2011 with delivery of the rigs set for second-half 2014.

Chevron lets Tahiti Phase 2 contract Chevron Corp. contracted Subsea 7 SA for the engineering and installation of the Tahiti Phase 2 development in about 4,000

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ft of water in the Gulf of Mexico, about 190 miles south of New Orleans. Subsea 7’s workscope includes the installation of one 7.5in. by 13,000 ft long flexible riser, one 4-in. by 4,500 ft long umbilical, five rigid well jumpers, 10 electrical flying leads, and seven steel flying leads. It also will transport the flexible riser from Le Trait, France to the Gulf of Mexico and commence immediately the engineering work at its Houston office. Plans are to install the flexible riser and umbilical in third-quarter 2011 and tie in five wells through mid 2012. For the installation work, Subsea 7 will use the Seven Oceans (pipelay) Skandi Neptune (construction/flexlay), and the Ross Candies (light construction/installation, maintenance, repair) vessels. Chevron began production from the Tahiti spar in May 2009. The field lies in Green Canyon Blocks 596, 597, 640, and 641. Chevron is the operator of Tahiti and holds a 58% interest. Its partners are Statoil Gulf of Mexico LLC 25% and Total E&P USA Inc. 17%.

PROCESSING Q U IC K TA K E S US refiners Holly, Frontier Oil to merge Inland US refiners Holly Corp. and Frontier Oil Corp. have agreed to merge in what the companies described as “an allstock merger of equals transaction.” Holly operates the 100,000 b/d Navajo refinery at Artesia, NM; a 125,000 b/d refinery in Tulsa; and a 31,000 b/d refinery at Woods Cross, Utah. It also produces and markets asphalt and has pipeline and logistics assets. Frontier owns a 135,000 b/d refinery at El Dorado, Kan., and a 52,000 b/d refinery in Cheyenne, Wyo. It also markets products along the eastern slope of the Rocky Mountains and in neighboring plains states. The new company, HollyFrontier Corp., will be based in Dallas, Holly’s headquarters. It will have an enterprise value estimated at $7 billion. Mike Jennings, chairman, president, and chief executive officer of Frontier, will be president and CEO of the combined company. Matt Clifton, Holly chairman and CEO, will be executive chairman. The new board will have seven directors each from the predecessor boards.

EPA begins air pollution study near Hovensa refinery The US Environmental Protection Agency began a 3-month study of air pollution from Hovensa LLC’s US Virgin Islands refinery and other sources. The federal environmental regulator installed air monitoring equipment to measure volatile organic compounds at three locations where the biggest air pollution impacts from the plant and other facilities in the area.

Oil & Gas Journal | Feb. 28, 2011

Hess Corp., which built the refinery in 1966, and Petroleos de Venezuela SA, Venezuela’s national oil company, jointly operate the plant. It has a 500,000 b/cd crude oil processing capacity and can store up to 32 million bbl of crude oil and products. EPA said the study will provide information on whether air quality near the three monitoring locations poses health concerns, and to help guide strategies for reducing air pollution. The Virgin Islands Department of Natural Resources monitors particulate matter on St. Croix, where the refinery is located, while the refinery tracks its sulfur dioxide emissions, EPA noted. That information also will be reviewed, EPA said. Following standard EPA monitoring protocols, air quality monitors at the three locations will collect outdoor air samples over 3 months. Results from all the locations will be analyzed to evaluate the potential for health concerns related to longterm exposure to identified pollutants, EPA said. It expects to release the preliminary monitoring data by late spring and issue a final report this summer.

Valero starts up benzene reduction at refineries Valero Energy Corp. has successfully started up advanced reformate splitters at refineries in Texas and Tennessee. The three Mobile Source Air Toxic (MSAT) II benzene concentration units are at Valero’s Port Arthur and Sunray, Tex., and Memphis, Tenn., refineries. They use advanced reformate splitter Dividing Wall Column towers conceived by Valero and designed and optimized by KBR. A fourth unit at Valero’s St. Charles refinery in Norco, La., and will be commissioned later this year. The DWC tower concentrates and removes benzene from gasoline streams to allow a refinery to meet US regulatory mandates limiting benzene content in motor gasoline.

TRANSPORTATION Q U IC K TA K E S Qatargas 4 ships first cargo of LNG to India Qatargas and Shell announced the first cargo of LNG from their Qatargas 4 (QG4) Project is bound for India’s Hazira receiving terminal aboard the Q-Flex LNG carrier Al Ruwais, owned by Qatar Gas Transport Co. QG4 produces 1.4 bsfcd of gas, delivering 7.8 million tonnes/ year of LNG and 70,000 b/d of condensate and LPG. Qatargas’s seventh train, QG4, brings the firm’s total production capacity to a record 42 million tonnes/year of LNG. Due to the increased production from QG4, Qatargas earlier this month announced it had become the world’s largest LNG producer (OGJ Online, Feb. 10, 2011). “Qatargas cements its place...as the world’s premier LNG supplier,” said Peter Voser, chief executive officer of Royal Dutch Shell PLC on Feb. 9. “Cargoes from the QG4 project will enable new customers around the world to benefit from using cleaner-burning natural gas from Qatar.” The QG4 project was constructed and is operated by Qatar-

Oil & Gas Journal | Feb. 28, 2011

gas. The project’s shareholders are Qatar Petroleum with 70% interest and Shell with 30% interest.

Enbridge books capacity for Bakken pipeline expansion Enbridge Energy Partners LP and Enbridge Income Fund Holdings Inc. finalized 100,000 b/d of open season capacity commitments with additional shippers for the Bakken Expansion Program on the Enbridge North Dakota System, owned by EEP, and the Enbridge Saskatchewan System, owned by the Enbridge Income Fund. Added capacity from this expansion will total 145,000 b/d, of which 25,000 b/d will be available by early 2011, following completion of the Portal Reversal Expansion Project, and the remaining 120,000 b/d by late 2012. The 2012 timing is earlier than the early-2013 projection that Enbridge estimated when it first announced the expansion (OGJ Online, Aug. 25, 2010). The expansion program will originate at Beaver Lodge, ND, and follow existing EEP and EIF right-of-way to terminate at and deliver to the Enbridge mainline terminal at Cromer, Man. Once on the Enbridge mainline, Bakken production will have access to multiple markets. Regulatory arrangements require a maximum of 115,000 b/d be held by committed shippers, with at least 30,000 b/d reserved for uncommitted volumes. The majority of agreements are for 10-year terms. Enbridge places the ultimate expansion capacity of the program at up to 325,000 b/d with modifications and additional facilities. Enbridge expects total cost of the program to be near $560 million, involving US projects by EEP costing about $370 million and Canadian projects by EIF costing $190 million (Can.).

Energy Transfer to build Eagle Ford pipeline Energy Transfer Partners LP will build a new 160-mile, 30-in. OD natural gas pipeline in the Eagle Ford shale. The Rich Eagle Ford Mainline (REM) will have initial capacity of 400 MMcfd, expandable to 800 MMcfd. It will originate in Dimmitt County, Tex., and extend to ETP’s Chisholm Pipeline for delivery to both existing processing plants and a new 120,000 MMcfd plant. ETP expects REM to enter service fourth-quarter 2011. The project will expand ETP’s midstream infrastructure in the Eagle Ford, which includes the recently completed Dos Hermanas pipeline and the Chisholm pipeline scheduled for completion in second-quarter 2011. The initial phase of the Chisholm Pipeline will consist of 83 miles of 20-in. OD line extending from DeWitt County, Tex., to ETP’s LaGrange processing plant in Fayette County, Tex. The pipeline will have an initial capacity of 100 MMcfd, with anticipated expansion to more than 300 MMcfd (OGJ Newsletter, Oct. 25, 2010). ETP entered into multiple long-term agreements with shippers to underpin REM and estimates total cost of the natural gas pipeline, processing plant, and additional facilities at $300 million.

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2011-2012 EVENTEVENT CALENDAR 2011-2012 CALENDAR Denotes new listing or Libya International Petro & Energy Fair, Tripoli, a change in previously 00971 4 2988144, published information. 00971 4 2987886 (fax), e-mail: [email protected], website: www. orangefairs.com. 7-10. FEBRUARY 2011 Corrosion UAE Conference, Abu Dhabi, 00 971 50 264 1202, e-mail: [email protected], website: www. www.theenergyexchange.co.uk/3/13/ articles/157.php. Feb. 27-Mar. 1.

MARCH 2011 NPRA Security Conference & Exhibition, Houston, (202) 4570480, (202) 457-0486 (fax), e-mail: info@npra. org, website: www.npra. org. 1-2. Annual Arctic Gas Symposium, Calgary, Alta., (877) 927-7936, (877) 927-1563 (fax), website: www.arcticgassymposium.com/index. html. 1-2.

API Spring Committee on Petroleum Measurement Standards Meeting, Dallas, (202) 682 8000, (202) 682-8222 (fax), website: www.api.gor. 7-10. CERA Week, Houston, (713) 840-8282, (713) 599-9111 (fax), e-mail: [email protected], website: www.cera.com. 7-11. 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.

European Fuels Conference Annual Meeting, Paris, +44 (0)207 430 9513, +44 (0)207 430 9513 (fax), e-mail: SPE/IADC Drilling Confer- e.huiban@theenergyexence, Amsterdam, +44 change.co.uk, website: 20 7299 3300. +44 20 www.wraconferences. 7299 3309 (fax), e-mail: com/2/4/articles/205. [email protected], website: php. 8-11. www.spe.org. 1-3. DEA(e) Technical Oil & APPEX/AAPG Property & Gas Conference on Well Prospect Expo, London, Control, Bad Bentheim, +44 (0) 1483 598000, +44 (0) 207 434 13 e-mail: dawn.dukes@ 99, e-mail: Europe@ aapg.org. website: www. otmnet.com, website: www.dea-europe.com. europetro.com. 1-3. 10-11. Turkmenistan Asia Oil & Gas Summit, Singapore, NACE Corrosion Confer+44 (0) 20 7328 8899, ence & Expo, Houston, (800) 797-6223, (281) +44 (0) 20 7624 9030 228-6329 (fax), website: (fax), e-mail: info@ summittradeevents.com, www.events.nace.org/ conferences/c2011/inwebsite: www.summitdex.asp. 13-17. tradeevents.com/HoldingA2011.php. 3-4. AIChE Spring Meeting & Global Congress on

12

Process Safety, Chicago, (800) 242-4363, (203) 775-5177 (fax), website: www.aiche.org/conferences/springmeeting/ index.aspx. 13-17. Offshore West Africa Conference & Exhibition, Accra, Ghana, (918) 8319160, (918) 831-9161 (fax), e-mail: [email protected], website: www.offshorewestafrica.com. 15-17. World Heavy Oil Congress, Edmonton, Alta., (888) 799-2545, (403) 245-8649 (fax), website: www.worldheavyoilcongress.com. 15-17. TUROGE Turkish International Oil & Gas Conference & Showcase, Ankara, +44 (0) 20 7596 5000, +44 (0) 20 7596 5111 (fax), e-mail: [email protected], website: www.turoge. com. 16-17. NPRA Annual Meeting, San Antonio, (202) 4570480, (202) 457-0486 (fax), e-mail: info@npra. org, website: www.npra. org. 20-22. MEOS/SPE’s Middle East Oil & Gas Conference & Exhibition, Manama, +44 (0)20 7840 2139, +44 (0)20 7840 2119 (fax), email: meos@oesallworld. com, website: www. meos2011.com. 20-23. GPA Europe at GasTech Conference & Exhibition, Amsterdam, +44 (0) 1737 855000, +44 (0) 1737 855482 (fax), email: [email protected], e-mail: www.gastech. co.uk. 21-24. GASTECH International Conference & Exhibition, Amsterdam, +44 (0) 1737 855000, +44 (0) 1737 855482 (fax), e-

mail: [email protected], Middle East Downstream e-mail: www.gastech. Week Annual Meeting, co.uk. 21-24. Abu Dhabi, +44 (0) 1242 529 090, +44 (0) 1242 529 060 (fax), e-mail: CIPPE China Interwra@theenergyexchange. national Petroleum & Petrochemical Technol- co.uk, website: www. wraconference.com. ogy and Equipment Exhibition, Beijing, +86 27-30. 10 58236588/6555. +86 10 58236567 (fax), ACS National Meeting e-mail: cippe@zhenwei- & Exposition, Anaheim, expo.com, website: www. Calif., (202) 872-4600, cippe.com.cn/cippeen. e-mail: [email protected], 22-24. website: www.acs.org. 27-31. IADC Drilling HSE Asia Pacific Conference & Purvin & Gertz InternaExhibition, Singapore, tional LPG Seminar, The (713) 292-1945, (713) Woodlands-Houston, 292-1946 (fax), e-mail: (713) 331-4000, (713) [email protected], website: 236-8490 (fax), e-mail: www.iadc.org/conferinfo@purvingertz. ences. 23-24. com, website: www. purvingertz.com. 28-31. OMC Offshore Mediterranean Conference, SPE European Well Ravenna, +39 0544 Abandonment Seminar, 219418, e-mail: confer- Aberdeen, +44 1224 [email protected], website: 495051, e-mail: jane. www.omc.it/2011. 23-25. rodger@hulse-rodger. com, website: www.speuk.org. 29. Marine Technology Society Houston Section Annual Marine/Offshore Woodford Shale Summit, Industry Outlook Confer- Norman, Okla., (405) ence, Houston, (512) 525-3556, ext. 117, 301-2744, website: www. (405) 525-3592 (fax), mtshouston.org. 24. e-mail: amy.childers@ iogcc.state.ok.us, website: www.woodfordsumSPE Production and mit.com. 29-30. Operations Symposium, Oklahoma City, (800) 456-9393, (972) GIOGIE Georgian 952-9435 (fax), e-mail: International Oil & Gas [email protected], website: Energy and Infrastructure www.spe.org. 27-29. Conference, Tbilisi, +44 207 596 5135, +44 207 NPRA International Pet- 596 5106 (fax), e-mail: rochemical Conference, ilyas.idigov@ite-exhibiSan Antonio, (202) 457- tions.com, website: www. 0480, (202) 457-0486 giogie.com/2011/. 29-30. (fax), e-mail: info@npra. org, website: www.npra. Eastern Canada shale org. 27-29. Gas Symposium, Montreal, Que., (877) 927-7936, (877) 927-1563 (fax), Howard Weil Annual Energy Conference, New e-mail: customerservice@canadianinstitute. Orleans, (504) 582com, website: www. 2500, website: www. howardweil.com/energy- canadianinstitute.com/ conference.aspx. 27-30. energy_resources/EasternShaleGas.htm. 29-30.

Offshore Asia Conference & Exhibition, Singapore, (918) 831-9160, (918) 831-9161 (fax), e-mail: registration@pennwell. com, website: www. offshoreasiaevent.com. 29-31. IRO On & Offshore Exhibition, Gorinchem, +31 523 289866, e-mail: [email protected], website: www.evenementenhal. nl/gorinchem/beurzen. 29-31. SEG Shale Gas Forum, Chengdu, Sichuan, (918) 497-5500, (918) 497-5557 (fax), website: www.seg.org. 30-31.

APRIL 2011 Middle East Downstream Week Annual Meeting, Abu Dhabi, +44 1242 529 090, +44 1242 529 060 (fax), e-mail: [email protected], website: www.wraconferences. com/2/4/articles/105. php. 3-6. GPA Annual Convention, San Antonio, (918) 4933872, (918) 493-3875 (fax), e-mail: pmirkin@ gpaglobal.org, website: www.GPAglobal.org. 3-6. Hannover Messe Pipeline Technology Conference, Hannover, +49 511 90992 22, +49 511 90992 69 (fax), e-mail: [email protected], website: www.pipelineconference.com. 4-5. ShaleCon Conference, Montreal, Q.C., (800) 882-8684, e-mail: info@ iapc.com, website: www. shalecon.com/Event. aspx?id=388398. 4-7.

Oil & Gas Journal | Feb. 28, 2011

2011-2012 EVENT CALENDAR Hannover Messe International Trade Show, Hannover, +49 511 89 0, +49 511 89 32626 (fax), website: www.hannovermesse.de/homepage_e. 4-8. SPE/ICoTA CoiledTubing & Well Intervention Conference & Exhibition, The Woodlands, Texas, (800) 456-9393, (972) 952-9435 (fax), e-mail: [email protected], website: www.spe.org. 5-6. SPE/IADC Managed Pressure Drilling & Underbalanced Operations Conference, Denver, (800) 456-9393, (972) 952-9435 (fax), e-mail: [email protected], website: www.spe.org. 5-6. OilTech Atyrau Regional Petroleum Technology Conference, Atyrau, +44 (0) 20 7596 5000, +44 (0) 20 7596 5111 (fax), e-mail: [email protected], website: www.oiltech-atyrau.com/ home.html. 5-6. Atyrau North Caspian Regional Oil, Gas and Infrastructure Exhibition, Atyrau, +44 (0) 20 7596 5000, +44 (0) 20 7596 5111 (fax), e-mail: enquiry@ite-exhibition. com, website: www. atyrauoilgas.com2011/. 5-7. AAPG Annual Convention & Exhibition, Houston, (918) 560-2679, (918) 560-2684 (fax), website: www.aapg.org. 10-13. APPEA. Conference and Exhibition, Perth, +61 (7) 3802 2208, +61 (7) 3802 2209, website: www.appeaconferences. com.au. 10-13. GITA’s Geospatial Infrastructure Solutions

Conference, Grapevine, Texas, (303) 337-0513, (303) 337-1001 (fax) website: www.gita.org/ events/futconf.asp. 10-14.

MAY 2011

IADC Environmental Conference & Exhibition, OTC Offshore Technology Trinidad & Tobago, (713) 292-1945, (713) 292Conference, Houston, 1946 (fax), e-mail: info@ (301) 694-5243, or (866) 229-2386, (972) iadc.org, website: www. 952-9435 (fax), e-mail: iadc.org/conferences. SAGEEP Information 12-13. [email protected], Exchange for New-Sur- Russia & CIS Bottom of website: www.otcnet. face Geophysics Forum, the Barrel Technology SPWLA Symposium, org.2011. 2-5. Charleston, (918) 497Conference & Exhibition, Colorado Springs, Colo., 5500, (918) 497-5557 Moscow, +44 (0) 20 (713) 947-8727, (713) GPA Permian Basin (fax), website: www.seg. 7357 8394, +44 (0) 20 Annual Meeting, Odessa, 947-7181 (fax), e-mail: org. 10-14. 7357 8395 (fax), e-mail: (918) 493-3872, (918) www.webmaster@spwla. enquiries@europetro. 493-3875 (fax), website: org, website: www.spGas Turbine Users com, website: www.euro- www.gasprocessor.com/ wla.2011.com. 14-19. International Annual Con- petro.com. 13-14. calendar.html. 3. ference (GTUI), Dubai, API Spring Refining and +971 4 8047883, +971 ISA Calgary, Calgary, Equipment Standards Antitrust and Con4 8873584 (fax), e-mail: Alta., (403) 209-3555. sumer Protection Issues Meeting, Seattle, (202) [email protected], website: (403) 245-8649 (fax), 682 8000, (202) 682in the Energy Industry www.gtui.org. 10-15. website: www.isacalgary. Conference, Houston, 8222 (fax), website: com. 13-14. (312) 988-5609, (312) www.api.org. 16-18. The Project Forum, Mos988-5637 (fax), e-mail: cow, +44 (0) 20 7357 Middle East Petroleum & patricia.harris@americanNortheast Shale Gas 8394, +44 (0) 20 7357 Gas Conference (MPGC), bar.org. website: http:// Conference, Pittsburgh, 8395 (fax), e-mail: enBahrain, 0065 6338 tinyurl.com/energyconfer- (877) 927-7936, (877) [email protected], 0064, 0065 6338 4090 ence-program. 5-6. 927-1563 (fax), e-mail: website: www.europetro. (fax), website: www. customerservice@ com. 11-12. gulfoilandgas.com. 17-19. World Renewable Energy canadianinstitute.com, website: www.canadianCongress, Linkoping, Process Safety ManDUG Developing Uncon- e-mail: info@wrec2011. institute.com/energy_reagement of Chem/ sources/NEShaleGas. Petrochem & Refineries ventional Gas Conference com, website: www. htm. 17-18. & Exhibition, Fort Worth, wrec2011.com. 8-13. Conference, Houston, (713) 280-6479, (713) (312) 540-300, ext. 583-1353 (fax), e-mail: NPRA National Safety CHINA-TECH Asian 6625, e-mail: Micheacooper@hartenergy. Technology for Gas lew@marcusevansch. Conference & Exhibicom, website: www.dug- tion, Forth Worth, Texas, Processing, Refining, com, website: www. conference.com. 18-20. (202) 457-0480, (202) Resid Upgrading & Petromarcusevansch.com/ OGJPSM. 11-13. 457-0486 (fax), e-mail: chemicals Conference & Alliance Expo & Annual [email protected], website: Exhibition, Beijing, +44 (0) 20 7357 8394, +44 Meeting, Wichita Falls, IPAA OGIS-New York, www.npra.org. 10-11. (0) 20 7357 8395 (fax), NewYorkCity, (202) 857- Texas, (940) 723-4131, e-mail: enquiries@europ(940) 723-4132 (fax), 4722, (202) 857-4799 IADC Critical Issues (fax), website: www.ipaa. e-mail: texasalliance@ Middle East Conference etro.com, website: www. europetro.com. 17-19. texasalliance.org, weborg. 11-13. & Exhibition, Dubai, site: www.texasalliance. (713) 292-1945, (713) org/index.php. 26-27. Pipe Line Contractors 292-1946 (fax), e-mail: OGU Uzbekistan Association of Canada International Oil & Gas [email protected]. Annual Convention, Oil & Gas Siberia, Novosi- website: www.iadc.org/ Exhibition & Conference, Maui, (905) 847-9383, birsk, +7 383 2106290, conferences/Critical_Is- Tashkent, +44 (0) 20 (905) 847-7824 (fax), e- +7 383 2209747 (fax), e- sues_ME_2011. 10-11. 7596 5000, +44 (0) 20 mail: [email protected], mail: [email protected], 7596 5111 (fax), e-mail: website: www.pipeline. enquiry@ite-exhibition. website: www.petroleum. International School of ca/convention.html. sibfair.ru/eng/. 27-29. Hydrocarbon Measure- com, website: www. 11-15. oguzbekistan.com/2011/. ment, Oklahoma City, 17-19. GPA Mid-continent An- (405) 325-1217, (405) API Pipeline Conference, nual Meeting, Okla. City, 325-1388 (fax), e-mail: San Antonio, (202) 682 (918) 493-3872, (918) [email protected], website: IADC Drilling Onshore 8000, (202) 682-8222 493-3875 (fax), website: Conference & Exhibition, www.ishm.info/. 10-12. (fax), website: www.api. www.gpaglobal.org/chapHouston, (713) 292org. 12-13. 1945, (713) 292-1946 ters/midcontinent. 28.

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AADE National Technical Conference and Exhibition, Houston, (281) 366-8204, e-mail: [email protected], website: www.aade.org. 12-14.

(fax), e-mail: info@iadc. org, website: www.iadc. org/conferences. 19. Algeria Energy Week, Oran, +213 (0) 21 60 00 62, e-mail: ouhila. djebari@ite-exhibitions. com, website: www.sea5algeria.com. 21-25. Annual World Congress of Well Stimulation & Enhanced Oil Recovery, Dalian, China, 0086 411 84799609, ext. 836, 0086 411 84799609 823 (fax), e-mail: austin@ bitpetrobio.com, website: www.bitpetrobio.com/ wseor2011.program.asp. 22-25. Oil and Gas Pipeline in the Middle East (MEPIPES) Annual Meeting, Abu Dhabi, 00 971 50 264 1202, e-mail: [email protected], website: www.theenergyexchange. co.uk/3/13/articles/170. php. 22-25. API International Oil Spill Conference, Portland, Ore., (202) 682 8000, (202) 682-8222 (fax), website: www.api.org. 22-26. EAGE/SPE EUROPEC Conference & Exhibition, Vienna, +31 88 995 5055, +31 30 634 3534 (fax), e-mail: eage@eage. org, website: www.eage. org. 23-26. Iranian Pipe & Pipeline Conference, Tehran, +9821 88556492 6, +9821 88719960 (fax), e-mail: [email protected], website: www.iranpipetech.com/ pipe2010/enindex.php. 24-25.

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JOURNALLY SPEAKING

No shortage of strange news With all the momentous, world-changing events taking place in the news recently—from the escalating civil unrest in Libya to the breakdown of long-standing ruling governments of other North African nations—it’s amazing to see that there remains no shortage in news of the weird and wacky variety to break up some of the seriousness. Of course, it’s the job of OGJ editors to cull through news and report on events that most affect the oil and gas industry, therefore actively preventing many if not all of these less-than-hardhitting tidbits from ever reaching the journal’s pages. But sometimes strange news just beckons to be heard. What follows are just a few recent gems.

ings material. Following an extensive review of the commercial, ASC agreed CAPP’s reference to yogurt referred only to the apparent physical consistency of tailings material. Janet Annesley, CAPP vice-president, communications, said, “Tailings reclamation technology is a game changer. The tailings reclamation proof point will go back on air minus reference to yogurt, just to remove any potential misunderstanding.” CAPP’s environmental performance claims have not been challenged. CAPP’s French translation of the ad says “consistants comme du yoghurt” and received no complaints, the Canadian producers’ organization said.

Rain check, please STEVEN PORUBAN Senior Editor

Last month in a daily energy brief, analysts with Raymond James & Associates Inc. noted that Dallas independent Pioneer Natural Resources Co. reported a few unusual net gains in its fourth-quarter 2010 earnings filing, one being a favorable $140 million cash settlement related to an insurance claim for the reclamation and abandonment of the company’s East Cameron 322 facility in the Gulf of Mexico that was destroyed by Hurricane Rita in 2005. Pioneer stated, “Operations to reclaim and abandon the East Cameron 322 facility began in 2006 and are substantially complete, with only minor activities remaining to be completed during 2011.” This item makes the “strange” news list, of course, because of the number of years it has taken for Pioneer to recover the loss. The company stated that it planned to use the proceeds of insurance settlement “to further support oil-related drilling in the Spraberry, Eagle Ford shale, and Barnett shale combo play.” Good on them, finally.

Uncultured advertising In November, Advertising Standards Canada (ASC) ruled that a Canadian Association of Petroleum Producers’ television advertisement highlighting environmental performance was not misleading. Earlier in 2010, activist group Sierra Club complained to ASC about CAPP’s use of the phrase “essentially like yogurt” in a TV ad about tailings pond reclamation. CAPP used the reference to yogurt to describe the consistency of oil sands tail-

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Chimp vs. NOAA Just before the start of the 2010 Atlantic hurricane season, Washington, DC-based think tank National Center for Public Policy Research thought of an unusual way to predict the number of storms during the season better than the National Oceanic and Atmospheric Administration. NCPPR said NOAA’s track record in predicting the number of hurricanes was “so abysmal” that “a trained chimp could do better.” (You can probably see where this is going.) “NOAA’s May outlooks have been wrong 3 out of the last 4 years—or 75% of the time,” said David Ridenour, NCPPR vice-president. “We think our chimp can do better. He hasn’t been wrong so far. Of course, this is his very first hurricane season forecast.” NCPPR videotaped the chimpanzee—“Dr. James Hansimian”—making a prediction of 6-8 Atlantic hurricanes in 2010. “The video isn’t intended to needle NOAA for its erroneous forecasts, but to make a larger point about our current understanding of climate,” NCPPR said. Ridenour posed this challenge to NOAA: “If, at the end of the hurricane season, Dr. Hansimian’s forecast turns out to be more accurate than NOAA’s, we challenge the agency to make him an honorary member of NOAA’s hurricane specialists unit. In return, if NOAA’s forecast is more accurate, we’ll include a prominently displayed mea culpa on our web site.” Needless to say, Dr. Hansimian is not an NOAA card-carrying member. Not yet, at least.

Oil & Gas Journal | Feb. 28, 2011

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EDITORIAL

Going broke going green Spending by governments on “green energy jobs” as a cure for economic ills makes no sense. Governments create such jobs by spending unprofitably some of the money they siphon from profitable parts of their economies. The transaction moves labor from economic to uneconomic work, with obvious inefficiency. The inefficiency erodes wealth and, by association, the economy’s ability to support employment. This is simple logic. To fans of green energy, however, it represents untested theory meriting little or no attention. But test results are rushing into view. They don’t favor costly green energy as a way to create jobs or stimulate economies.

Subsidies cut As has been reported in this space earlier, Spain’s strong commitment to renewable energy didn’t keep the country’s economy off the rocks or its unemployment rate out of the stratosphere (OGJ, Jan. 10, 2011, p. 16). In fact, the financially stressed government cut green-energy subsidies last year and relaxed controls on retail energy prices, just when Spanish households didn’t need the added cost. Other European countries, once eager to show leadership in energy greenness, are lowering their ambitions under fiscal duress. A new report by Kenneth P. Green, resident scholar at the American Enterprise Institute (AEI), describes problems not only in Spain but also in Italy, Germany, and Denmark: • In Spain, Green says, the adventure with renewable energy and green jobs didn’t just become unsustainable, it fostered corruption as well. According to news reports, an audit of solar-powered generation disclosed nighttime production of electricity from sunlight. And electric power fueled by diesel seems to have been sold as solar power at rates several times that of power generated from fossil energy. • In Italy, researchers at the Bruno Leoni Institute found the capital required to create a job in renewable energy to be nearly five times that required in the general economy. Furthermore, renewableenergy jobs tended to be temporary. Green added that corruption spawned by government handouts to renewable energy involved organized crime. • In Germany, aggressive subsidies encouraged

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investment in wind and solar energy but raised household energy costs and pushed the price of carbon emissions to levels far above those of the European trading system. Green cites a study by Manuel Frondel concluding the country received no compensating benefits related to emissions, employment, security, or technical innovation. The German government is trimming subsidies. • In Denmark, wind turbines generate the equivalent of 19% of electricity demand, but wind energy actually meets an average of only 9.7% of the country’s power needs. A study by the think tank CEPOS, cited by Green, notes the convenient proximity to Denmark of Norway and Sweden, which have interruptible hydro capacity and thus can absorb power produced in excess of Danish needs in windy periods. Because Danish electricity prices are the highest in the European Union, public opposition to wind energy is surging. And the study found damage to the country’s economy from the subsidized shift in employment from productive to less-productive activities.

More-supportive studies Studies can be found, of course, that reach conclusions about green-energy jobs more supportive than those published by the conservative AEI. But they have problems, according to a recent review by Gurcan Gulen, senior energy economist at the Center for Energy Economics at the University of Texas at Austin’s Bureau of Economic Geology. Large among them are inconsistent definitions of “green jobs,” failure to distinguish between temporary construction and longer-lasting operational jobs, and inattention to employment losses elsewhere in the economy. Other flaws noted by Gulen, in a study published by the Copenhagen Consensus Center, include aggressive assumptions about growth in renewable power, insufficient attention to cost, and frequent failure to consider the opportunity costs of green investment. Gulen concludes, “Adding ‘net jobs’ cannot be defended” as a benefit of investment in green technologies. Money spent on money-losing ventures instead of on profitable ones cannot produce net gains in employment. Governments can spend themselves broke pretending otherwise.

Oil & Gas Journal | Feb. 28, 2011

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GENERAL INTEREST

Investment fervor continues for US, Canadian shale gas plays Paula Dittrick Senior Staff Writer

National oil companies, international oil companies, and others are investing in US and Canadian shale gas plays in an accelerating trend that analysts expect will continue to drive North American merger and acquisition activities throughout 2011. In one of the most recent deals, BHP Billiton Petroleum of Australia agreed to buy all of Chesapeake Energy Corp.’s interests in the Fayetteville shale in Arkansas for $4.75 billion (OGJ Online, Feb. 22, 2011). The acquirer acknowledged wider aspirations. J. Michael Yeager, BHP Billiton chief executive, said his company is obtaining an operated position in 487,000 net acres in the Fayetteville to “immediately make BHP Billiton a major North American shale gas producer. Longer term, the expertise we gain here will be usable elsewhere as we continue to grow our business.” Chinese oil companies and Japanese trading companies have invested millions in shale plays abroad in recent years with the most recent Asian NOC transaction coming from PetroChina Co. Ltd. PetroChina plans to acquire half of Encana Corp.’s stake in Cutbank Ridge, a Montney resource play straddling the British Columbia and Alberta boundary, for $5.4 billion (Can.) (OGJ Online, Feb. 11, 2011). The Encana transaction marks PetroChina’s first major Canadian acquisition since 2009 when it acquired a 60% stake in northeastern Alberta’s MacKay River and Dover oil sands projects for $1.9 billion from Athabasca Oil Sands Corp.

Deals accelerating Christopher Sheehan, IHS Inc. director of energy merger and acquisition research, expects to see Chinese companies forming more partnerships and joint ventures with US and Canadian oil companies. “PetroChina’s deal with Encana is China’s initial acquisition into the Canadian shale gas marketplace, and its largest Canadian upstream transaction to date, highlighting China’s accelerated pursuit of North American unconventional resources to secure supply and feed growing Asian energy de-

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mand,” Sheehan said. Partnerships involving Chinese companies are “more palatable to the North American consumers and to their governments, which have resisted previous Chinese attempts to acquire entire companies” in the US and Canada, he said. Sheehan referred to CNOOC’s foiled $19.5 billion bid for Unocal Corp. in 2005, which was blocked by political opposition in the US. During 2010, the Canadian government blocked BHP Billiton’s hostile takeover offer for fertilizer giant Potash Corp. of Saskatchewan. Acting under authority of the Investment Canada Act, Industry Minister Tony Clement recently said federal authorities will consult with officials from the provinces involved to determine if the proposed PetroChina investment into Canadian natural gas assets would provide a “net benefit” to Canada. Michael Collier, US leader of PwC’s energy M&A practice, believes transactions involving US shale plays could outnumber asset deals involving the deepwater Gulf of Mexico during 2011. PwC formerly was known as PricewaterhouseCoopers LLP. “The huge supply of shale gas in the continental US was a key driver for increased M&A activity in 2010 and will continue to fuel the industry’s movement towards upstream assets,” Collier said in a recent PwC report on oil and gas transactions. “Average deal size increased 141% from $10 billion in 2009 to $24.1 billion in 2010, largely a reflection of major shale gas investments by nonUS oil companies looking to play large in the US shale,” Collier said. Wood Mackenzie Ltd. notes unconventional oil and gas asset deals helped drive 2010 activity, and that trend is expected to continue this year (OGJ Online, Jan. 26, 2011). WoodMac’s report “2010 in Review and the Outlook for 2011” showed $183 billion was spent on upstream M&A deals worldwide last year. US shale gas transactions reached $39 billion, said the independent research firm of Edinburgh. Luke Parker, manager of WoodMac’s M&A research, said NOCs gained the most attention last year as the big buyers

Oil & Gas Journal | Feb. 28, 2011

INTERNATIONAL INVESTMENTS IN US, CANADA GAS ACREAGE US acreage Barnett shale partners Eni SPA, Quicksilver Resources Sumitomo Corp., Carrizo Oil & Gas Inc. Total SA, Chesapeake Energy Corp. Eagle Ford shale partners Statoil, Enduring Resources CNOOC International Ltd., Chesapeake Talisman Energy Inc., Statoil Reliance Industries Ltd., Pioneer Natural Resources Co. Fayetteville shale partners BHP Billiton Petroleum, Chesapeake

Marcellus shale partners Statoil, Chesapeake Mitsui, Anadarko Petroleum Corp. Reliance Industries, Atlas Energy Inc.* Sumitomo, Rex Energy Corp. Canadian acreage Cordova embayment partners Mitsubishi Corp., Penn West Energy Trust Montney resource play partners PetroChina Co. Ltd., Encana Corp.

*Chevron Corp. acquired Atlas Energy Inc. Source: Compiled from company news releases, Mayer Brown LLP list

of unconventional assets, yet he believes the IOCs also will continue to make acquisitions when assets fit their business plans.

Buyer’s motivations Toshi Yoshida, a partner in the Houston law office of Mayer Brown LLP, said independents developed the shale plays while majors and national oil companies are stepping up the pace at which they enter these plays. He spoke to an energy M&A forum hosted by Mergermarket in Houston on Feb. 2. The type of acquisitions between international investors and independents usually involve an foreign investor buying a nonoperated stake in a project and agreeing to pay much of the drilling and development costs for a certain period, and sometimes the deals take the form of joint ventures. IOCs typically gain holdings in shale plays through corporate acquisitions such as ExxonMobil Corp. buying XTO Inc., Yoshida said. NOCs are interested in more than making a profit from their shale holdings, Yoshida said. They also are looking to gain expertise from US and Canadian shale players in hopes of subsequently developing shale plays in their home countries and elsewhere. Statoil executives have indicated an interest at becoming the operator in North American shale plays in the future, Yoshida said. Separately, Statoil executives have said they are examining shale opportunities in China. Paris-based International Energy Agency estimates China has some 26 trillion cu m of shale gas resources. Shale gas deposits are known in several European countries. Separately, Africa, Australia, and India are examining their potential shale assets. So far, US producers have the most operating expertise for developing and producing shale gas plays. Yoshida said most foreign investors deliberately acquire nonoperated positions because they are unfamiliar with US oil and gas leases, particularly in shale projects that can in-

Oil & Gas Journal | Feb. 28, 2011

volve thousands of parcels. Many foreign investors do not want the responsibility of making the operating decisions because they are learning about hydraulic fracturing and other shale gas technologies. US and Canada operators are gaining operating efficiencies and financing by agreeing to these partnerships and joint ventures, Yoshida said.

Japanese investing Japanese trading companies are among investors looking for shale gas plays to help secure energy supply. Yoshida foresees trading swaps involving shale gas and LNG. Mitsubishi Corp. formed a 50-50 joint venture with Penn West Energy Trust to develop shale gas assets in the Cordova embayment area in eastern British Columbia (OGJ Online, Aug. 24, 2010). Mitsui’s subsidiary Mitsui E&P USA LLC bought part of Anadarko Petroleum Corp.’s interest in 100,000 net acres in the Marcellus shale in Pennsylvania for $1.4 billion (OGJ Online, Feb. 16, 2010). Sumitomo Corp. subsidiary Summit Discovery Resources LLC acquired acreage in the Marcellus shale in Pennsylvania from Rex Energy Corp. (OGJ Online, Sept. 1, 2010). Previously, Sumitomo entered the Fort Worth basin Barnett shale play by acquiring interest in a project from Carrizo Oil & Gas Inc. (OGJ Online, Dec. 15, 2009). Several dozen Marcellus transactions, most involving US buyers and sellers, preceded the Sumitomo Summit deal (see table, OGJ, Feb. 1, 2010, p. 35). Itochu Corp. agreed to buy a 25% stake in the emerging Niobrara shale oil play in Wyoming from MDU Resources Group Inc. Itochu became the first Japanese company to participate in a US shale oil project In October 2010, MDU said its subsidiary Fidelity Exploration & Production Co. agreed to sell a stake in about 88,000 acres to Itochu.

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GENERAL INTEREST

Hess plans to double its Bakken production by yearend

included an after-tax charge of $72 million related to dry hole costs associated with Sabia and Azulao exploration wells.

Paula Dittrick Senior Staff Writer

Hess Corp. produced 20,000 boe/d from North Dakota’s Bakken oil play as of yearend 2010, and it expects to double production there by yearend 2011, executives said during an earnings conference call. Greg Hill, president of Hess worldwide exploration and production, said the company plans to invest $1.8 billion, or 33% of its 2011 budget, on drilling and associated infrastructure to boost Bakken production to 40,000 boe/d. John Hess, chairman and chief executive officer, forecast the company’s 2011 production could average 425,000 boe/d compared with 420,000 boe/d in the fourth quarter 2010, up from 415,000 boe/d for the fourth quarter 2009. The company reported 2010 fourth-quarter net income of $58 million, or 18¢/share, compared with $358 million, or $1.10/share, for the same period last year. Capital and exploratory expenditures, including acquisitions, reached $2.46 billion for the latest quarter compared with $992 million for the same period a year earlier. Hess reported a marketing and refining loss of $261 million in the fourth quarter 2010 compared with net income of $17 million for the same period of 2009. The 2010 refining report included a $289 million aftertax charge to reduce the carrying value of the company’s equity investment in Hovensa LLC, which plans a partial shutdown of its 500,000-b/cd refinery at St. Croix, US Virgin Islands. Petroleos de Venezuela SA and Hess jointly own Hovensa. Hess executives said the partial shutdown is expected to make Hovensa more competitive (OGJ Online, Jan. 26, 2011). Hill said Hess has acquired 90,000 acres in the Eagle Ford oil and gas play in south Texas where it continues working to acquire more acreage.

International drilling Hess and its partner, Toreador Resources Corp., plan to spud their first vertical well in France’s Paris basin during the first quarter. Plans call for drilling six wells, both vertical and horizontal, for shale oil there this year. In China, Hess is working with Sinopec to study unconventional oil and gas plays. Hill noted that recently the company signed two joint study agreements with Sinopec. Hess already had a memorandum of understanding with PetroChina to examine possibilities in Daqing field. Off Brazil, Hess said the Sabia well found “noncommercial quantities of oil,” marking the second dry hole that Hess has drilled on Block BM-S-22. Fourth-quarter 2010 results

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MWCC completes, tests interim deepwater containment system Paula Dittrick Senior Staff Writer

Marine Well Containment Company (MWCC) announced it completed and tested an initial well containment response system available for a well control incident in the deepwater Gulf of Mexico. The interim system can operate in 8,000 ft of water and has processing capacity of 60,000 b/d of liquids. The capping stack has a maximum operating pressure of 15,000 psi. The final expanded system will be capable of operating in 10,000 ft of water with capacity to process up to 100,000 b/d of liquids. MWCC spokesmen estimate the interim system could be fully deployed in 2-3 weeks if all parts of the available system were needed. They said deployment would start within 24 hr of an incident. The system was developed after the April 2010 blowout of the deepwater Macondo well operated by BP PLC off Louisiana. The blowout caused an explosion and fire on Transocean Ltd.’s Deepwater Horizon semisubmersible that killed 11 crew members. A massive oil spill resulted. The interim system involves a subsea capping stack that can shut in oil flow or divert leaking oil via flexible pipes and risers to surface vessels. The system also includes subsea dispersant injection equipment, hydraulic manifolds, and vessels for surface processing and storage. The equipment is stored in Texas and Louisiana. Officials with the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE) witnessed a test of the interim system in Houston on Feb. 16. Previously, MWCC had done testing over several days before hosting BOEMRE to observe. MWCC is developing an expanded system, which is expected to be completed in 2012. BOEMRE is reviewing the information that it gathered after watching the Feb. 16 test. MWCC spokesmen believe they successfully provided all the information and equipment that the government agency requested. Oil companies are expected to refer to the availability of MWCC equipment and response plans in drilling permit applications filed with BOEMRE. ExxonMobil Corp., in partnership with Chevron Corp., ConocoPhillips, and Royal Dutch Shell PLC, are the origi-

Oil & Gas Journal | Feb. 28, 2011

WATCHING THE WORLD nal sponsors of MWCC. BP later joined the consortium (OGJ, Sept. 20, 2011, Newsletter). Marty Massey, MMCC chief executive officer, said the interim system “fulfills a commitment set forth by the four sponsor companies to deliver a rapid containment response capability within the first 6 months of launching the marine well containment project.” Membership in MWCC is open to all companies operating in the US gulf. Members will have access to the initial well containment response system and to the expanded system upon completion of its construction. Nonmembers also will have access to the systems through a service agreement and fee.

IOCs departing Libya ahead of stepped-up violence Eric Watkins Oil Diplomacy Editor

International oil companies (IOCs), led by Italy’s Eni SPA, are either evacuating or making plans to evacuate Libya as increased violence in the North African country heralded the possible end to the 41-year rule of the country’s leader, Muammar Qaddafi. “Italy and particularly Eni are heavily exposed in Libya and stand to lose a great deal if things fall apart,” said Nicolo Sartori, an energy and security researcher at Rome’s IAI Institute for International Affairs. “Eni’s production and exploration interests in the area are considerable.” “The market is naturally jittery given the fact that Eni has 10-year contracts that could suddenly become scrap paper if the people that negotiated and signed them are gone,” said a fund manager at RMJ Sgr in Milan. Apart from concerns about the impact of the violence on the share pric-

Oil & Gas Journal | Feb. 28, 2011

ERIC

WATKINS

Oil Diplomacy Editor | Blog at www.ogj.com

Cybercrooks target IOCs The oil and gas industry experienced a shock last week on learning from a US cyber security firm that hackers based in China had compromised the computer networks of at least five international oil companies (IOCs). Indeed, according to executives at the Santa Clara, Calif.-based McAfee Inc., there could be up to a dozen or more oil and gas companies involved, with attacks on their networks dating as far back as 2007. In case you don’t know the firm, McAfee creates what it calls “best-ofbreed computer security solutions” that prevent intrusions on networks and protect computer systems from the next generation of blended attacks and threats. If you are in the oil and gas business, then this very clearly is a firm you will want to know about as oil and gas companies represent the primary target of hackers the world over, but especially those based in China.

Computer data stolen That’s the view of Dmitri Alperovitch, McAfee’s vice-president for threat research, and his colleague Pamela Warren, a cybercrime strategist whose career includes time in the US intelligence community. The process of stealing data out of your computer can seem a little arcane, a bit of hocus pocus to people who have little or no experience of the inner workings of these complex electronic networks. But, as Alperovitch points out, the attacks launched from China are “not

the most sophisticated” his firm has seen. Yet, the hackers still have what he calls “remote functionality” in their effort to conduct industrial espionage. In a word, the China-based hackers are actually able to work inside computers operating all the way around the world. And, most chilling of all, they can operate inside these computers even as their owners also are at work on them.

Social engineering According to Warren, it all starts with what she calls “social engineering”— something that happens wherever networking takes place, such as a conference or trade fair. There, individuals continually trade business cards, routinely handing out their e-mail addresses—along with the usual complimentary conversation. Soon after, according to Warren, executives receive e-mails from the people they met—including e-mails with attachments to be opened. Once opened, the attachment releases spyware into the executive’s computer, and the chase is on for information. In the case of at least one US firm, that chase has resulted in a Chinese company taking over their entire address book. The firm now complains that its longtime clients are being approached by total strangers—and ones based in China. Warren states the matter succinctly: “The reality is that you are a target, if you are in the oil and gas industry.”

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GENERAL INTEREST es of individual firms, analysts said the situation in Libya was creating uncertainty—and therefore higher prices—on global oil markets. “The reinjection of political uncertainty is likely to still be a concern for the market,” said Barclays Capital in a research note. More ominously, Edoardo Liuni a financial analyst in Rome at IlNuovoMercato.it, said, “Certainly all the oil majors will be shaking if the new leaders decide to nationalize everything.” Christine Tiscareno, an analyst at Standard & Poor’s in London, was more sanguine in her outlook. “It looks like the protesters are pragmatists, not idealists,” Tiscareno said, adding, “If they overthrow the regime, they’re still going to need revenue from foreign oil companies.”

US reaction Meanwhile, in an effort to undermine economic support for the Qaddfi regime, US Sen. John Kerry (D-Mass.) urged all IOCs to immediately cease operations in Libya. All IOCs should stop operations “until violence against civilians ceases,” said Kerry, chairman of the Senate Foreign Relations Committee, who also suggested that the Obama administration “should consider” reimposing US sanctions on Libya. Ahead of Kerry’s call, Eni said it has already begun to evacuate nonessential staff and dependants, but insisted that its oil production in Libya is continuing as normal. Eni produces 250,000 b/d of oil in Libya, or about 14% of the firm’s total production. Oil industry and shipping sources said there was no sign of disruption to exports from Libyan ports, but several sources said that Eni’s flow of natural gas through Greenstream Mediterranean pipeline is slowing. Austria’s OMV AG and Repsol-YPF SA of Spain are also affected by the events in Libya. OMV, which produces 12% of its output from Libya, is withdrawing all nonessential staff, while Repsol-YPF, which relies on Libya for 3.8% of its total output, is suspending its exploration and production operations. “We are doing our maximum to ensure the safety of our employees,” said a spokesman for Total SA, which reported production capacity of 60,000 b/d in Libya out of its global production of 2.28 million b/d. Wintershall said it was preparing to wind down oil production in Libya and fly out 130 people of varying nationalities and their families to ensure their security. Wintershall also is taking steps to suspend its production in the country, currently about 100,000 b/d. A BP PLC spokesman noted that the firm has about 40 people in the country, mostly there to help prepare an onshore rig to start drilling in the west of the country. “We are looking at evacuating some people from Libya, so those preparations are being suspended but we haven’t

22

started drilling and we are years away from any production,” the BP spokesman said. A spokesman for Royal Dutch Shell PLC said that the firm, whose operations in Libya are also limited to exploration, temporarily relocated the dependents of expatriate staff outside the country. A spokesman for Norway’s Statoil, which participates in onshore oil production and exploration in Mabruk field and in the Murzuk basin with Repsol-YPF, said the firm has closed its office in Tripoli and that “a handful” of its foreign workers are leaving the country.

Aramco launches products trading unit Eric Watkins Oil Diplomacy Editor

Saudi Aramco, as part of a previously announced program of diversification, said it has established a wholly owned products trading subsidiary, Saudi Aramco Product Trading Co. Said A. Al-Hadrami, Aramco Trading president and chief executive officer, said the new firm would engage only in products trading, and that the decision to establish the firm came in response to changing trade patterns. “The shift in trade patterns will bring both challenges and opportunities that can be leveraged by the company in balancing its system and create value through the continuous market participation,” said Al-Hadrami, who noted that Aramco Trading will be based in the kingdom and will commence trading operations by yearend. Stephen Schork, president of Villanova, Pa.-based Schork Group Inc., underlined the Saudis’ rationale in setting up the new firm, saying that they have made significant investments in downstream capacity over the last 5 years, and the new trading unit marks a natural extension to maximize that value. Aramco’s management team has indicated the firm’s new directions in recent speeches. In Singapore in November 2010, Aramco Chairman Ali I. Al-Naimi, who also serves as the kingdom’s oil minister, noted the growing demand for oil products in East Asia. At the time, Al-Naimi also noted the efforts made by Aramco to meet the projected increased demand for energy coming from the Far East. “Last year, Saudi Aramco completed the largest capital program in company history at a cost exceeding $100 billion and spanning megaprojects in oil, gas, natural gas liquids, refining, and petrochemicals,” Al-Naimi said. In December, Aramco Pres. and Chief Executive Officer Khalid al-Falih said the Persian Gulf region’s petrochemical

Oil & Gas Journal | Feb. 28, 2011

GENERAL INTEREST enterprises had been built largely on the competitive advantage derived from gas-based feedstocks, “with refinery petrochemical integration only now starting to emerge.” Al-Falih went on to say, “This area of the business, which offers many opportunities for product diversification and value addition has significant room for growth in the gulf— and Saudi Aramco intends to take an active role in realizing those opportunities.” At the time, Al-Falih said Aramco is investing $40 billion in three refining and petrochemical projects that will add more than 8 million tones of domestic production capacity. Al-Falih said the investments include $20 billion on a facility Aramco is building jointly with Dow Chemical Co. and up to $8 billion to expand Rabigh Refining & Petrochemicals Co., a venture with Sumitomo Chemical Co. At the same time, Aramco and Total SA are progressing with a $12 billion refinery at Jubail on the Persian Gulf coast. Aramco recently let a front-end engineering and design and project management services contract to KBR for a grassroots refinery in the Jazan area of southwestern Saudi Arabia (OGJ Online, Feb. 9, 2011). Aramco said that new refinery, which will have export berths for ships, will be able to process Arabian crude oils and to yield about 75,000 b/d of gasoline, 100,000-160,000 b/d of ultralow-sulfur diesel, and 160,000-220,000 b/d of fuel oil.

Deutsche Bank: Pipelines explain WTI discount to Brent Marilyn Radler Senior Editor-Economics

Increased pipeline capacity to bring crude oil to Cushing, Okla., has resulted in more oil flowing into PADD 2 than the refinery system there can handle, and therefore the landlocked crude is trading at a persistently wide discount to comparable global crudes, according to a research note released this month by Deutsche Bank Securities Inc.

The current Brent-West Texas Intermediate spread is about $15/bbl. And although the spread corrects over the life of the futures curve, the price of WTI crude has moved structurally to a discount to Brent crude in a reversal of the historic premium that WTI has enjoyed, Deutsche Bank analysts Paul Sankey, David T. Clark, CFA, and Silvio Micheloto, CFA said. The report says that since Western Canadian oil production has risen to 2.9 million b/d in 2010 from 2.2 million b/d in 2005 and will likely climb to 3.1 million b/d by 2013, and with only Kinder Morgan’s TransMountain pipeline able to transport oil to the West Coast, the vast majority of this production is landlocked. Increasing amounts of this crude as well as rising production volumes from the Bakken shale are being forced by pipeline into the US Midwest, with much of it landing in Cushing and adding pressure on PADD 2. Refineries there are enjoying the crude-cost advantage with the record price spread between Brent and WTI, while Gulf Coast refiners are exposed to more expensive crudes. Two major trunklines have added a combined 1 million b/d of capacity from Alberta to the US Midwest. Completed last year, Enbridge’s Alberta Clipper line runs at 450,000 b/d capacity, and TransCanada’s Keystone pipeline can carry 591,000 b/d of Western Canadian crude to Cushing.

Relieving pressure on WTI There are only two ways to relieve the pressure on WTI at Cushing, Deutsche Bank said: much stronger demand or more transport capacity out of Cushing. While the former is possible in an improving economy, it is unlikely to push the price of WTI back in line with Brent and other global crudes. Deutsche Bank believes the more likely pressure relief should come from additions to pipeline capacity. The Keystone XL lines—one to Cushing from Hardesty, Alba., and one to the Gulf Coast from Cushing—are scheduled to start up in 2013, pending approval, with 700,000 b/d of capacity potentially expandable to 900,000 b/d. Deutsche Bank believes that despite environmental opposition, Keystone XL will be granted its permit from the US Department of State, although startup could easily be delayed until 2014. With the current Brent-WTI spread, other potential projects to take oil to the Gulf Coast from Cushing could be

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2014

2015

TransMountain Express/Milk River/Rangeland Enbridge Mainline Enbridge Alberta Clipper Keystone Base Keystone Extension Keystone XL

Vancouver, BC PADD 4 PADD 2 PADD 2 PADD 2 PADD 2 Gulf Coast

225 485 1,870 — — — — ––––– 2,580

300 485 2,055 — — — — ––––– 2,840

300 485 2,055 110 218 — — ––––– 3,168

300 485 2,055 450 435 156 — ––––– 3,881

300 485 2,055 450 435 156 — ––––– 3,881

300 485 2,055 450 435 156 700 ––––– 4,581

300 485 2,055 450 435 156 700 ––––– 4,581

300 485 2,055 450 435 156 700 ––––– 4,581

Total Trunkline Capacity Source: Deutsche Bank, EnSys Energy, CAPP

Oil & Gas Journal | Feb. 28, 2011

23

GENERAL INTEREST pushed forward, the analysts said. These include the potential reversal of the Seaway crude line that runs between Freeport, Tex., and Cushing. Nameplate capacity of Seaway is 350,000 b/d, but apparent capacity when running heavy crudes to the Gulf would be 200,000 b/d, according to the report. Enbridge’s proposed Monarch project, which would move crude to Houston from Cushing, is another possibility to relieve pressure on PADD 2. Monarch would have a light oil capacity of 370,000 b/d, expandable to 480,000 b/d, with a possible completion date of 2014, Deutsche Bank said. There are multiple proposed pipeline projects that could take Western Canadian oil to the west coast for export to Asia or California, but all are either on hold or delayed due to opposition to licensing. These include Kinder Morgan’s TMX-1 expansions, Kinder Morgan’s North Leg, and Enbridge’s Northern Gateway projects. Deutsche Bank said that none of these are likely to be built before the last few years of this decade. “The net effect has been a blow out in the differential between global crudes and WTI. We argue that Brent is the more representative crude. Although supply issues have affected that price to the upside, we believe that it is primarily global demand strength that has driven Brent to over $103/ bbl, with less widening of differentials between that crude grade and other internationally traded grades,” the report said.

(D-Colo.) cosponsored similar legislation during the 111th Congress’s first and second sessions. Ruffalo, who lives in Hinchey’s district, has starred in “Just Like Heaven”, “The Brothers Bloom”, and other movies. Fox directed “Gasland”, which has been nominated for an Academy Award as best documentary. In a response, Daniel Whitten, America’s natural Gas Alliance executive vice-president for communications, said that the group disagrees with Hinchey’s statement that federal fracing regulation is needed. “We continue to believe that state regulatory agencies have the appropriate expertise and on-the-ground experience to conduct effective oversight of natural gas production activities specific to their local geology,” Whitten said. “Additionally, the natural gas community has stepped forward and pledged its support for public disclosure of the chemical components used in the hydraulic fracturing process. This is a new and positive development since this legislation was last introduced,” Whitten continued. “This disclosure will occur through a public online registry being developed by state regulators who are responsible for protecting local water and ensuring responsible development of gas in their communities. It is expected to launch next month.”

Salazar orders fresh look at first round of oil shale leases Congressman to reintroduce bill to federally regulate fracing Nick Snow Washington Editor

US Rep. Maurice D. Hinchey (D-NY) said he will reintroduce legislation to federally regulate hydraulic fracturing under the Safe Drinking Water Act. Reps. Rush D. Holt (D-NJ) and Jared Polis (D-Colo.), who are cosponsors, attended a news conference with Hinchey, who was joined by movie actor Mark Ruffalo and documentary filmmaker Josh Fox. “If hydraulic fracturing is so safe, why is the industry so afraid of letting the EPA make sure? If the chemicals they are using aren’t seeping into people’s drinking water, why is the industry so afraid of a requirement that they tell us what they are injecting into the ground?” said Hinchey. “This is the same industry that lied about their use of diesel fuel in the fracing process, and there is no reason to expect that they’ll change their ways anytime soon.” Hinchey said the bill would require disclosure of chemicals used in the fracing fluid. He and Rep. Diana DeGette

24

Nick Snow Washington Editor

The US Bureau of Land Management will take a fresh look at commercial oil shale rules and plans that the Bush administration issued in 2008 to determine if they need to be updated to reflect the latest research and technologies, to account for expected water demands in the arid US West, and to ensure they provide a fair return to the taxpayer, said US Interior Sec. Ken Salazar. Salazar said the US Geological Survey also will analyze baseline water resource conditions in the Colorado River basin where an estimated 2 trillion bbl of oil equivalent is locked in massive western Colorado, eastern Utah, and southern Wyoming formations. The purpose will be to improve the understanding of groundwater and surface water systems which could be affected by commercial-scale oil shale development, as the US Government Accountability Office recommended in a November report, the secretary said. “I think water has to be a part of the dialogue,” he maintained during a Feb. 15 teleconference with reporters. “We’re looking at limited water resources, and from every-

Oil & Gas Journal | Feb. 28, 2011

GENERAL INTEREST thing we’ve seen, there are significant questions about how much water will need to be used to commercially produce oil shale.” BLM Director Robert V. Abbey, who also participated, said the agency, which recently solicited and received a second round of nominations for research, development, and demonstration (RD&D) leases for oil shale on public land in Colorado and Utah, is committed to helping companies develop their technologies to determine if they are viable commercially, to determine what their water and power needs might be, and to ascertain their potential environmental impacts.

‘Window to consider’ “As companies apply their bench-scale technologies on those RD&D leases, we need to ensure that our commercial oil shale regulations and plans keep pace with the latest information,” Abbey said. “With commercial development of oil shale several years down the road, we have a window in which to consider how we might improve the 2008 regulations and plans for commercial development.” Both officials emphasized that the US Department of the Interior is committed to eventual development of the oil shale resources in the three states, but added that it must take place with a full understanding of conditions ranging from water availability and environmental consequences to the necessary economics and best technologies. “Our country needs to move forward and build a successful oil shale development program,” Salazar said. “We need to know if technologies are being developed which work on a commercial shale. We need to understand impacts on western watersheds and land. We need to understand the economics of development. We need to know how much water will be required for commercial oil shale production. These basic questions are why we need to support a robust RD&D program. It also shows why we have to be cautious.” Water is a particularly crucial question since it has become increasingly apparent that allocations to the seven states which signed the Colorado River Compact in the 1930s were overly optimistic, he continued. “Anyone who has visited Lake Mead in the last year, as I have, and seen the water levels there can see there’s a problem,” Salazar said. “Another issue which has to be on the table is that the change in weather patterns due to climate change could reduce the amount of water available in the region by as much as 20%.”

2008 actions Abbey said the Bush administration amended eight of BLM’s land use programs in Colorado, Utah, and Wyoming in November 2008 to make public land available for commercial oil shale development, and two other land use plans to expand acreage available for tar sands development in Utah.

Oil & Gas Journal | Feb. 28, 2011

These actions made nearly 2 million acres available for potential development, he noted. BLM also issued regulations at that time which set the oil shale royalty rate at 5% for the first 5 years of commercial production, and raised it 1%/year thereafter until it reached a maximum 12.5%, he said. “BLM’s RD&D program has laid the foundation for companies to begin research, demonstration and development projects on public land, and to help determine how and whether their technologies might be viable on a commercial scale,” Abbey said. The public will have the opportunity over the coming months to comment as DOI considers whether the royalty rates should be fixed after more is known about emerging oil shale technologies, whether future applications to lease should include specified resource protection plans, and whether aspects of the existing regulations should be clarified, he indicated. BLM also has resolved two lawsuits which were filed in federal court after the 2008 actions were taken, Abbey said.

BOEMRE budget request grows amid cutbacks elsewhere in DOI Nick Snow Washington Editor

The US Bureau of Ocean Energy Management, Regulation and Enforcement would receive 50% more in fiscal 2012 than its enacted 2010 budget, which continued into 2011, under the Obama administration’s proposed federal budget. The increase, which contrasts with other US Department of the Interior agencies where funding would be cut, is designed to implement organizational and regulatory reforms following the 2010 Macondo well accident and massive crude oil spill into the Gulf of Mexico. “This bureau has not had sufficient resources to provide an appropriate level of regulatory oversight of offshore oil and gas development. These shortcomings have become more pronounced as operations have moved into deeper and deeper waters,” BOEMRE Director Michael R. Bromwich said on Feb. 14 as the agency’s proposed budget was announced. “The president’s budget request would, if enacted, provide us with the resources—including personnel, technical expertise, and equipment—needed to remedy that situation,” he continued. “We look forward to working with leaders in Congress to ensure that these critical resources are provided.” Funding would be $358.4 million, which is $119.3 million, or 50%, more than its current annual budget, after ad-

25

WATCHING GOVERNMENT NICK

SNOW

Washington Editor | Blog at www.ogj.com

Government’s R&D focus Disregard the Obama administration’s elimination of oil and gas research and development from its proposed fiscal 2012 budget for the US Department of Energy. Christopher A. Smith, deputy assistant US energy secretary for oil and gas in DOE’s fossil energy office, still has plenty of work to do. After joining DOE in October 2009 following 11 years with Chevron Corp. and Texaco Inc. working primarily on upstream business development and LNG trading, Smith said his first few months on the job were spent largely on examining questions about gas shale resource development. That all changed on Apr. 20, 2010, when someone came into a meeting he was attending and handed him a note to call a BP PLC executive because one of the company’s deepwater oil wells had caught fire and exploded in the Gulf of Mexico, he continued. “Eleven workers lost their lives that night,” Smith told the American Gas Association’s Natural Gas Roundtable on Feb. 22. “They worked in an industry with a previously exemplary safety record, but they would not be going home to their homes and families. It was imperative for the government to learn why.” US President Barack Obama formed an independent commission soon after to investigate the accident’s causes and its implications for US offshore oil and gas policies. Smith, whose office already was involved in technical R&D, participated as one commission subcommittee considered whether or how sophisticated technol-

26

ogy had failed. “Some subcommittee members forgot to use their inside voices,” he recalled, referring to instructions parents and teachers give small children. “They were passionate because they cared.”

‘Collective risk’ What eventually emerged, he said, was a sense that while various phases of the offshore exploration and production process employed fully tested processes and technologies, little consideration had been given to what could go wrong once everything was put together. “The industry needs to address this collective risk question so it can continue to operate offshore,” Smith said. “There are a lot of smart people working in it. They need to identify specific problems and offer solutions. The government is ready to listen to them.” That also applies to shale gas, he said. “In many cases, activity is returning to parts of the country where it hasn’t been for a generation,” said Smith. “It’s an economic opportunity for communities, but it also poses challenges which need to be discussed and addressed.” In the meantime, he said, a research program created under the 2005 Energy Policy Act which uses some federal oil and gas revenue is turning its attention to questions raised in the Macondo well accident and subsequent crude oil spill.

justing for funding transferred to the US Interior secretary’s office as part of the ongoing reorganization of the former US Minerals Management Service. Interior Sec. Ken Salazar began the process soon after the Apr. 20 well blowout and explosion of the Deepwater Horizon semisubmersible rig and subsequent massive oil spill from the deepwater Macondo well, operated by BP PLC. One of his early moves on May 19, after renaming the agency, was to order the transfer of its revenue collection responsibilities to DOI’s Office of the Assistant Secretary for Policy, Management, and Budget. Bromwich was sworn in as its new director of June 21.

Further divisions The additional requested resources would be used to complete BOEMRE’s transformation into two separate agencies: the Bureau of Ocean Energy Management, which will handle federal offshore leasing and environmental management, and the Bureau of Safety and Environmental Enforcement, which will concentrate on those regulatory responsibilities. Salazar and Bromwich have said the separation should be complete by Oct. 1, when Fiscal 2012 begins, ending the major organizational conflicts which characterized the agency when it was MMS. BOEMRE’s coastal impact assistance program is scheduled to move to another DOI agency, the US Fish and Wildlife Service, soon after. Money from BOEMRE’s proposed budget also would be used to hire new oil and gas inspectors, engineers, scientists, and other key staff to oversee industry operations; conduct detailed engineering reviews of offshore drilling and production safety systems, and develop new risk-based inspections and safety oversight strategies, including the establishment of realtime monitoring of key drilling activities; and implement more aggressive reviews of company oil spill response plans, according to the agency. Additional resources would also facilitate

Oil & Gas Journal | Feb. 28, 2011

GENERAL INTEREST the timely review of offshore oil and gas permits, it added. It said funding increases would be partially offset by $65 million in inspection fees charged to offshore producers, an increase of $55 million over 2010 enacted levels. The fees would also apply to offshore drilling rigs for the first time. BOEMRE said that US President Barack Obama’s independent oil spill commission specifically recommended the use of industry fees in its January 2011 final report so that “[r]egulation of the oil and gas industry would no longer be funded by taxpayers but instead by the industry that is being permitted to have access to a publicly owned resource.” That proposal quickly drew a protest from National Ocean Industries Association Pres. Randall B. Luthi, who warned that increased fees in US waters simply would drive offshore oil and gas investment and jobs elsewhere. “To imply that the offshore industry does not pay its fair share is simply untrue,” he said on Feb. 14. “It is worth repeating that oil and gas produced from the [US Outer Continental Shelf] provides significant revenue to the federal treasury in the form of bonus bids, royalties, rentals, and corporate taxes on overall earnings.” The offshore industry turns over almost 20% of its sales directly to the federal treasury as royalty payments, and pays corporate taxes on its overall earnings, he noted. Luthi, who was MMS director from July 2007 to January 2009, said that offshore industries in 2008 paid $8.3 billion in royalties, $237 million in rent and $9.4 billion in lease bids. In 2010, the industry paid $4 billion in royalties, $245 million in rent, and $979 million in lease bids. The funding to restructure BOEMRE and to increase personnel could be more than covered by that existing revenue, he suggested. “It is also ironic that the administration proposes a new fee to charge companies for not producing, while the agency itself is not producing the necessary permits for the companies to actually drill,” Luthi said. “The administration could generate much, if not all, of the requested revenue just by conducting offshore sales. We have gone from having at least two sales a year to possibly zero in 2011.”

Judge finds DOI in contempt for imposing second deepwater ban Nick Snow Washington Editor

Regulators acted with “determined disregard” by instituting a second ban after Judge Martin L.C. Feldman overturned the Obama administration’s first moratorium on June 22, Feldman said in a Feb. 2 ruling. He said that each step DOI took after he imposed a preliminary injunction against the first moratorium showed its defiance. “Such dismissive conduct, viewed in tandem with the reimposition of a second blanket and substantially identical moratorium, provide this court with clear and convincing evidence of the government’s contempt,” Feldman said. DOI is reviewing the judge’s decision, a spokeswoman told OGJ on Feb. 3. Hornbeck Offshore Services LLC and other offshore companies sued to overturn Interior Sec. Ken Salazar’s first deepwater drilling moratorium and continued their action when he imposed the second on July 12. Feldman also granted their request to recover their “significant” legal expenses on Feb. 2. He said Salazar issued orders on July 12 for the US Bureau of Ocean Energy Management, Regulation, and Enforcement to withdraw suspension letters it had issued to deepwater operators under the first moratorium, but also told the agency to issue blanket orders under the second, which was similar. It disabled the same rigs and activities, although it dropped the 500 ft depth standard from the first and replaced it with restraints on all rigs using subsea blowout preventers or surface BOPs on a floating facility, Feldman said. It also imposed the same Nov. 30 expiration date that was in the first moratorium, he added. Two Republican congressional energy leaders commented on Feldman’s latest ruling on Feb. 3. “While I was able to understand the administration’s initial reaction in suspending operations, the reality is that the moratorium is still in effect, and this directly violates the court’s ruling,” said US Sen. Lisa Murkowski (R-Alas.), the Energy and Natural Resources Committee’s ranking minority member. “There are billions of barrels of oil and millions of jobs, from Alaska to Louisiana, that Americans should be benefiting from. Instead, we’re losing good jobs and paying prices at a time when Americans are already tightening their budgets,” she maintained. US House Natural Resources Committee Chairman Doc Hastings (R-Wash.) said that both Feldman’s original ruling striking down the deepwater drilling moratorium and his latest decision to hold DOI in contempt of court “correctly puts the letter of the law ahead of the Obama administration’s agenda.” Hastings added, “Hopefully, this ruling takes us one step closer to ending the de facto moratorium in the Gulf of Mexico.”

A federal district court judge in New Orleans found the US Department of the Interior in contempt of his order to lift a moratorium on deepwater drilling, which DOI imposed following the Macondo well accident and oil spill last spring.

Oil & Gas Journal | Feb. 28, 2011

27

EQUIPMENT | SOFTWARE | LITERATURE SOFTWARE UPDATE HELPS IMPROVE INDUSTRY DATA QUALITY Newly released PetrisWINDS DataVera 8.31 promises new and enhanced features that help oil and gas companies improve the quality of their data across the enterprise. This version includes the ability to store projects and job results in MS SQL Server 2008 databases in addition to previously supported Oracle and JavaDB database systems. With the addition of a Quick Start Connection wizard, DataVera now provides users the ability to profile data just minutes after connecting, using prebuilt models and rules that have been verified by this firm for E&P applications data. The basic setup and industry-wide quality checks for data source types are already built so organizations can concentrate on quality requirements specific to their business, the firm notes. DataVera 8.31 helps organizations deal with high volumes of data by offer-

ing tools designed to evaluate, correlate, correct, monitor, and synchronize data across the enterprise. Source: Petris Technology Inc., 1900 St. James Pl., Suite 700, Houston, TX 77056.

sel, kerosine, and similar noxious fluids, the company points out. Proved in temperatures as high as 150o C., connectors withstand vibration up to 20G and shock to a maximum of

NEW SEALED SIGNAL CONNECTOR Here’s a fully sealed RoHS compliant high-temperature signal connector. The Metr1x Series is designed to provide 100% signal integrity in harsh environments as well as increased functionality and vibration resistance in complex thermodynamic conditions. The series is available in housing variations to suit heavy diesel or gas engines and power generating units. Connectors operate at 100 v DC with a current rating of 4A and provide complete EMI shielding. Devices conform to UL94-V0. The stainless steel design, sealed to IP69K standards, remains fully dry and functional even in conditions involving heavy salt spray, engine oil, die-

50G, protecting vital signals particularly during combustion control and regulation procedures. Available in multiple receptacle variations, the connectors feature CGK size 20 contacts. Source: ITT Interconnect Solutions, 666 E. Dyer Rd., Santa Ana, CA 92705.

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OGMTNA

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Omimex Resources

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Oil & Gas Journal | Feb. 28, 2011

STATISTICS IMPORTS OF CRUDE AND PRODUCTS — Districts 1-4 — — District 5 — ———— Total US ———— 2-11 2-4 2-11 2-4 2-11 2-4 *2-12 2011 2010 2011 2010 2011 2010 2010 ––––––––––––––––––––––––— 1,000 b/d ––––––––––––––––––––––––— Total motor gasoline ............. Mo. gas. blending comp. ..... Distillate............................... Residual .............................. Jet fuel-kerosine .................. Propane-propylene .............. Other ...................................

935 827 211 525 16 150 (260)

1,021 873 296 458 58 81 57

0 0 0 0 45 (78) 157

16 16 0 0 3 (23) 91

935 827 211 525 61 72 (103)

1,037 889 296 458 61 58 148

709 513 391 373 64 79 223

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

2,404

2,844

124

103

2,528

2,947

2,352

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

7,372

7,814

893

1,096

8,265

8,910

8,548

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

9,776

10,658

1,017

1,199

10,793

11,857

10,900

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

PURVIN & GERTZ LNG NETBACKS—FEB. 18, 2011 –––––––––––––––––––––––––––– Liquefaction plant –––––––––––––––––––––––––––––––– Algeria Malaysia Nigeria Austr. NW Shelf Qatar Trinidad –––––––––––––––––––––––––––––––– $/MMbtu ––––––––––––––––––––––––––––––––––––

Receiving terminal Barcelona Everett Isle of Grain Lake Charles Sodegaura Zeebrugge

8.47 4.01 7.19 1.83 6.14 7.76

6.10 1.68 4.59 –0.30 8.62 5.59

7.51 3.60 6.45 1.57 6.36 7.00

6.00 1.78 4.47 –0.10 8.28 5.54

6.77 2.33 5.36 0.15 7.45 6.15

7.43 4.32 6.48 2.49 5.58 7.08

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 *2-18-11 *2-19-10 Change Change, ———–—$/bbl ——–—— % SPOT PRICES Product value Brent crude Crack spread

108.98 102.01 6.97

FUTURES MARKET PRICES One month Product value 109.69 Light sweet crude 85.34 Crack spread 24.35 Six month Product value 114.49 Light sweet crude 95.27 Crack spread 19.22

85.01 75.71 9.30

23.97 26.30 –2.33

28.2 34.7 –25.0

85.47

24.22

28.3

78.30 7.17

7.04 17.18

9.0 239.7

89.58

24.91

27.8

80.37 9.22

14.90 10.00

18.5 108.6

*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 .....................................

10,339 99,119 169,240 16,236 50,982

64,636 56,015 79,317 7,206 33,922

52,301 28,714 54,070 2,335 29,912

9,865 7,906 12,308 816 10,540

57,756 33,655 53,371 3,368 13,120

12,965 1,638 20,386 204 4,259

2,896 12,408 14,722 1 885 —

Feb. 11, 2011 ........................... Feb. 4, 2011 .............................. Feb. 12, 20102 ...........................

345,916 345,057 334,503

241,096 240,891 232,065

167,332 168,838 146,838

41,435 42,938 42,676

161,270 164,366 153,255

39,452 39,148 37,851

30,911 34,805 29,642

1

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

REFINERY REPORT—FEB. 11, 2011 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 ..............................................

1,049 3,468 6,845 541 2,388

1,070 3,427 6,642 539 2,186

2,886 2,213 1,987 312 1,493

97 183 554 28 378

321 1,009 2,087 169 426

45 47 335 11 98

47 248 603 1 56 —

Feb. 11, 2011 ...................................... Feb. 4, 2011 ........................................ Feb. 12, 20102.....................................

14,291 14,907 14,107

13,864 14,344 13,772

8,891 8,891 8,428

1,240 1,355 1,276

4,012 4,262 3,433

536 543 542

954 1,039 998

17,594 Operable capacity 1

81.2% utilization rate

2

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

Oil & Gas Journal | Feb. 28, 2011

29

STATISTICS OGJ GASOLINE PRICES

BAKER HUGHES RIG COUNT

Price Pump Pump ex tax price* price 2-16-11 2-16-11 2-17-10 ————— ¢/gal ————— (Approx. prices for self-service unleaded gasoline) Atlanta .......................... 265.6 304.8 Baltimore ...................... 267.3 309.2 Boston ........................... 261.8 303.7 Buffalo .......................... 252.0 315.2 Miami ............................ 265.7 318.1 Newark .......................... 276.3 309.2 New York........................ 263.6 326.8 Norfolk........................... 265.2 303.1 Philadelphia .................. 256.5 307.2 Pittsburgh ..................... 267.5 318.2 Wash., DC...................... 276.8 318.7 PAD I avg .................. 265.3 312.2

258.4 264.2 260.3 275.6 275.5 258.1 273.7 255.6 269.1 267.7 269.7 266.2

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

285.5 262.0 272.1 272.1 269.4 265.7 270.4 257.6 263.1 267.9 261.6 262.9 274.3 263.8 257.9 267.1

343.5 308.4 312.5 326.3 322.5 301.4 311.3 297.4 314.4 313.5 297.0 309.3 310.0 299.2 301.3 311.2

292.7 282.6 257.7 284.7 275.6 252.6 265.6 253.9 273.7 257.7 232.6 256.6 244.6 230.6 242.7 260.3

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

259.2 260.7 259.3 257.8 258.6 263.2 264.4 260.5

296.4 300.0 297.7 296.2 298.8 301.6 302.8 299.1

252.7 251.8 245.8 247.8 243.8 251.9 255.7 249.9

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

264.1 267.5 258.2 263.3

296.5 307.9 301.1 301.9

252.4 275.4 257.4 261.8

Los Angeles ................... Phoenix.......................... Portland ........................ San Diego ...................... San Francisco................ Seattle........................... PAD V avg ................. Week’s avg. .................. Jan. avg......................... Dec. avg........................ 2011 to date ................. 2010 to date .................

271.6 279.9 277.0 275.3 296.2 284.1 280.7 267.2 261.9 249.1 263.3 222.9

339.0 317.3 320.4 342.7 363.6 340.0 337.2 312.5 307.2 294.4 308.6 267.7

291.8 272.9 284.9 292.9 294.9 288.0 287.6 264.1 269.7 259.2 — —

*

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 2-11-11 ¢/gal

2-11-11 ¢/gal

Spot market product prices Motor gasoline No. 2 Distillate (Conventional-regular) Low sulfur diesel fuel New York Harbor ......... 245.90 New York Harbor ......... Gulf Coast .................. 242.70 Gulf Coast .................. Los Angeles ................ Motor gasoline Kerosine jet fuel (RBOB-regular) New York Harbor ......... 263.90 Gulf Coast ..................

276.30 272.60 278.40 276.10

Propane No. 2 heating oil New York Harbor ......... 269.30 Mt. Belvieu ................. 131.10

OGJ PRODUCTION REPORT

2-18-11

2-19-10

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-4 ...................................

8 7 35 38 38 0 60 1 0 0 23 4 170 115 15 18 22 0 3 9 8 1 76 0 150 8 158 110 0 747 3 1 70 49 45 44 74 56 5 61 204 31 34 70 27 20 46 4

4 9 42 25 24 1 50 1 1 0 18 8 207 137 12 19 39 0 0 11 7 2 56 1 80 7 113 66 0 544 4 0 21 20 39 47 76 69 7 52 113 19 34 43 23 26 38 6

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

1,713 636

1,345 570

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

2,349 798 905 25 1,717

1,915 440 893 45 1,285

1

(Crude oil and lease condensate) Alabama ................................. 18 Alaska .................................... 635 California ............................... 618 Colorado ................................. 72 Florida .................................... 3 Illinois .................................... 26 Kansas ................................... 110 Louisiana ............................... 1,563 Michigan ................................ 14 Mississippi ............................. 60 Montana ................................. 68 New Mexico ............................. 174 North Dakota .......................... 350 Oklahoma ............................... 189 Texas ...................................... 1,464 Utah ....................................... 61 Wyoming ................................. 137 All others ................................ 67 Total .................................. 5,629 1 OGJ estimate. 2Revised. Source: Oil & Gas Journal. Data available in OGJ Online Research Center.

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 ...............................................

Data available in OGJ Online Research Center.

WORLD CRUDE PRICES $/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

176 55 147 312 381 294 163 147 59 1,734

3.9 52.7 23.1 2.8 10.2 2.7 ---7.2

INLAND LAND OFFSHORE

15 1,701 18

2-19-10 Rig Percent count footage* 108 47 138 261 282 212 183 76 46 1,353 13 1,293 47

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

3.7 70.2 26.0 6.1 7.8 1.8 ---8.4

2-11-11

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 2-18-11 Percent footage*

2-18-11 $/bbl* 85.74 91.75 84.60 93.45 76.20 82.25 77.75 82.75 82.75 75.75 74.75 81.75 71.25

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

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

Rig count

17 636 617 72 4 24 111 1,544 18 65 51 166 255 182 1,430 59 139 69 5,459

US CRUDE PRICES

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

Proposed depth, ft

2 2-18-11 2-19-10 –—— 1,000 b/d —–—

98.98 96.72 97.49 96.52 101.32 102.28 102.87 91.27 91.16 97.78 97.29 94.55 96.18 90.13 -

-

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 2–11–11

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

2–11–10

Change,

–——––—— bcf —––——– 698 789 682 937 1,055 1,045 276 300 325 1,911 2,144 2,052 Change, Nov. 10 Nov. 09 %

% 2.3 –10.3 –15.1 –6.9

3,773

2–4–11

3,837

–1.7

1

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

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 | Feb. 28, 2011

STATISTICS OECD TOTAL NET OIL IMPORTS

WORLD OIL BALANCE

Chg. vs. previous Oct. Sept. Aug. Oct. ——– year —— 2010 2010 2010 2009 Volume % –———————— Million b/d ––——————–

–––––––– 2010 ––––––– ––––––– 2009 ––––––– 3rd 2nd 1st 4th 3rd 2nd qtr. qtr. qtr. qtr. qtr. qtr. ————————– Million b/d ————————– DEMAND OECD US & Territories ...................... Canada .................................. Mexico.................................... Japan .................................... South Korea ........................... France.................................... Italy ...................................... United Kingdom ..................... Germany ................................ Other OECD Europe ............................... Australia & New Zealand ............................. Total OECD ........................

19.72 2.26 2.12 4.33 2.15 1.82 1.56 1.63 2.63

19.30 2.23 2.17 4.04 2.18 1.77 1.47 1.62 2.39

19.03 2.19 2.14 4.79 2.31 1.85 1.45 1.65 2.38

19.25 2.17 2.15 4.60 2.26 1.82 1.54 1.61 2.39

18.97 2.16 2.11 4.11 2.03 1.77 1.55 1.66 2.41

18.85 2.08 2.02 4.04 2.14 1.76 1.50 1.67 2.39

7.14

6.86

6.84

7.00

7.08

6.94

1.11 46.47

1.10 45.13

1.09 45.72

1.13 45.92

1.10 44.95

1.10 44.49

NON-OECD China .................................... FSU ........................................ Non-OECD Europe .................. Other Asia .............................. Other non-OECD..................... Total non-OECD ................

8.89 4.48 0.83 9.43 17.09 40.72

9.31 4.33 0.77 9.89 16.62 40.92

8.88 4.31 0.79 9.77 15.65 39.40

8.59 4.32 0.82 9.45 15.78 38.96

8.43 4.23 0.82 9.29 16.52 39.29

8.55 4.19 0.77 9.65 16.05 39.21

TOTAL DEMAND...........................

87.19

86.05

85.12

84.88

84.24

83.70

SUPPLY OECD US .......................................... Canada .................................. Mexico.................................... North Sea ............................... Other OECD ............................ Total OECD ........................

9.67 3.48 2.97 3.33 1.53 20.98

9.56 3.47 2.99 3.74 1.53 21.29

9.45 3.32 3.02 4.07 1.56 21.42

9.38 3.36 2.98 4.06 1.59 21.37

9.32 3.32 2.96 3.81 1.60 21.01

9.09 3.11 2.99 4.01 1.57 20.77

Canada ............................ US .................................... Mexico .............................. France .............................. Germany ........................... Italy .................................. Netherlands...................... Spain................................ Other importers ............... Norway ............................. United Kingdom................ Total OECD Europe ...... Japan ............................... South Korea ...................... Other OECD ......................

–1,129 8,692 –1,028 1,240 2,376 1,424 1,019 1,386 3,729 –1,538 307 9,943 4,421 2,054 447

–1,189 9,519 –1,107 1,721 2,397 1,210 899 1,135 3,978 –1,833 370 9,877 4,105 2,322 477

–1,156 9,973 –1,093 1,751 2,415 1,515 755 1,478 3,716 –1,639 449 10,440 4,352 2,048 398

–1,321 8,655 –1,093 1,745 2,300 1,450 733 1,383 3,598 –2,204 247 9,252 4,162 2,123 765

192 37 65 –505 76 –26 286 3 131 666 60 691 259 –69 –318

–14.5 0.4 –5.9 –28.9 3.3 –1.8 39.0 0.2 3.6 –30.2 24.3 7.5 6.2 –3.3 –41.6

Total OECD ..................

23,400

24,004

24,962

22,543

857

3.8

Source: DOE International Petroleum Monthly Data available in OGJ Online Research Center.

OECD* TOTAL GROSS IMPORTS FROM OPEC Chg. vs. previous Oct. Sept. Aug. Oct. ——– year —–— 2010 2010 2010 2009 Volume % –———————— Million b/d ––——————– Canada ............................. US ..................................... Mexico ...............................

278 4,294 20

382 5,111 19

413 5,083 10

266 4,581 20

12 –287 0

4.5 –6.3 0.0

257 356 970 549 811 973

667 309 1,052 601 682 1,192

811 525 1,082 614 834 1,176

712 439 942 570 692 949

–455 –83 28 –21 119 24

–63.9 –18.9 3.0 –3.7 17.2 2.5

NON–OECD FSU ........................................ China .................................... Other non-OECD..................... Total non-OECD, non-OPEC .....................

13.21 4.31 12.89

13.16 4.23 12.86

13.12 4.16 12.80

13.12 4.03 12.65

13.00 4.02 12.51

12.89 3.99 12.46

30.41

30.25

30.08

29.80

29.53

29.34

France ............................... Germany ............................ Italy ................................... Netherlands....................... Spain................................. Other importers ................

OPEC* ........................................

34.84

34.65

34.45

34.26

34.25

33.60

United Kingdom.................

198

176

333

163

35

21.5

TOTAL SUPPLY ............................

86.23

86.19

85.95

85.43

84.79

83.71

Total OECD Europe .......

4,114

4,679

5,375

4,467

–353

–7.9

–0.53

Japan ................................ South Korea .......................

3,470 2,283

3,281 2,632

3,527 2,298

3,666 2,223

–196 60

–5.3 2.7

Other OECD .......................

466

539

593

443

23

5.2

Total OECD ...................

14,925

16,643

17,299

15,666

–741

–4.7

Stock change ............................

–0.96

–1.00

–0.10

0.31

–0.09

*Includes Angola. Source: DOE International Petroleum Monthly Data available in OGJ Online Research Center.

*Organization for Economic Cooperation and Development. Source: DOE International Petroleum Monthly Data available in OGJ Online Research Center.

US PETROLEUM IMPORTS FROM SOURCE COUNTRY Chg. vs. Average previous Oct. Sept. ——YTD—— ——– year —— 2010 2010 2010 2009 Volume % –———––––––—— 1,000 b/d ––—––––––———– Algeria.............................. Angola .............................. Kuwait .............................. Nigeria ............................. Saudi Arabia .................... Venezuela ......................... Other OPEC....................... Total OPEC ..................

451 324 215 872 1,121 930 381 4,294

543 417 172 1,174 1,093 1,008 704 5,111

503 409 429 1,037 1,090 998 483 4,949

497 481 462 770 1,032 1,103 511 4,856

6 –72 –33 267 58 –105 –28 93

1.2 –15.0 –7.1 34.7 5.6 –9.5 –5.5 1.9

Canada ............................ Mexico .............................. Norway ............................. United Kingdom................ Virgin Islands ................... Other non-OPEC ............... Total non-OPEC ........... TOTAL IMPORTS ...........

2,345 1,345 111 152 270 2,609 6,832 11,126

2,475 1,256 62 178 302 2,432 6,705 11,816

2,516 1,263 97 265 263 2,531 6,935 11,884

2,447 1,223 112 255 283 2,690 7,010 11,866

69 40 –15 10 –20 –159 –75 18

2.8 3.3 –13.4 3.9 –7.1 –5.9 –1.1 0.2

Source: DOE Monthly Energy Review Data available in OGJ Online Research Center.

Oil & Gas Journal | Feb. 28, 2011

OIL STOCKS IN OECD COUNTRIES* Chg. vs. previous Oct. Sept. Aug. Oct. ——– year —— 2010 2010 2010 2009 Volume % –———————— Million bbl ––——————– France ................................. Germany .............................. Italy ..................................... United Kingdom................... Other OECD Europe.............. Total OECD Europe .........

157 284 129 94 702 1,366

163 284 127 94 694 1,362

171 287 133 93 719 1,403

174 277 129 94 723 1,397

–17 7 –– –– –21 –31

–9.8 2.5 –– –– –2.9 –2.2

Canada ............................... US ....................................... Japan .................................. South Korea ......................... Other OECD .........................

196 1,846 599 170 112

195 1,857 582 174 112

197 1,857 597 169 115

195 1,848 607 167 109

–– –2 –8 3 3

–– –0.1 –1.3 1.8 2.8

Total OECD .....................

4,289

4,282

4,338

4,323

–34

–0.8

599

582

597

607

–8

–1.3

*End of period. Source: DOE International Petroleum Monthly Report Data available in OGJ Online Research Center.

31

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Oil & Gas Journal | Feb. 28, 2011

From the Subscribers Only area of

www.ogj.com

THE EDITOR’S PERSPECTIVE

MARKET JOURNAL

Raising tax rates doesn’t always increase revenue

Volt vehicle lags on green list

by Bob Tippee, Editor An increase in taxation is not the same as an increase in government revenue. In arguments over fiscal policy, lawmakers and journalists should choose their words carefully. A National Public Radio reporter recently fell into the trap. He described the feverish debate over US fiscal policy as a choice between cutting spending and raising revenue, by which he clearly meant hiking tax rates. His wording was prejudicial. It echoed propaganda common during arguments over the economic policies of former President Ronald Reagan in the 1980s. Reagan campaigned for and eventually won reduction by Congress of the top marginal tax rate to 28% from 70%. He based the initiative on “supply-side economics,” which emphasizes suppression of tax rates along with regulatory restraint to stimulate economic growth and broaden the tax base. A prominent symbol of supply-side economics is “the Laffer Curve,” named for economist Arthur B. Laffer, who never claimed to have invented the idea but became linked with it by a napkin sketch he drew during a discussion with administration officials. The Laffer Curve suggests that government revenue is nil at 0% and 100% tax rates and that the rate yielding maximum revenue lies somewhere in between. Laffer argued that rates, under conditions of the day, were not optimal and that lowering them would raise revenue for the government. Economists still argue about this. Reagan did lower tax rates, the economy did enter a long period of growth, and government revenue did increase. Some observers attribute the growth to other factors. Some observers also dismissed the Reagan tax cut as ineffective before it took effect. They were the ones who, euphemistically, said “revenue” when they meant “higher taxes.” The Laffer Curve’s main insight is that tax rates and government revenue can move in opposite directions. The important variable is economic response, which needs to be taken into account in decisions about fiscal policy. Higher tax rates don’t always mean more money for the government. Assuming they do can be costly. ONLINE FEB. 18, 2011 | [email protected]

Oil & Gas Journal | Feb. 28, 2011

by Sam Fletcher, Senior Writer In another indication that Chevrolet’s hybrid-electric Volt may become the next Edselsize automotive disaster, the car barely placed in the recent American Council for an Energy Efficient Economy’s (ACEEE) annual Green Book ratings of the most environmental friendly vehicles, coming in last at unlucky 13. Topping that list was the Honda Civic GX fueled by compressed natural gas. It marked the 8th year the Civic garnered the top spot “notwithstanding changes in rating methods that boosted other technologies,” ACEEE officials said. In second place was the all-electric Nissan Leaf. The hybrid-electric Toyota Prius also rated high, so ACEEE is not prejudiced against electric vehicles. However, the two-person Smart Fortwo with either conventional diesel or premium gasoline engines; Chevrolet’s conventionally powered Cruze Eco that gets 28 mpg in city, 42 mpg on highway; the Hyundai Elantra, 29 mpg city and 40 mpg highway; and Ford’s Fiesta Super Fuel Economy car were all judged greener than Volt. That knocks a hole in President Barack Obama’s call to stop “subsidizing” what he dismisses as “yesterday’s energy” in order to invest instead in new alternatives. Gas- and gasolinepowered vehicles obviously are going to be around many years yet. What dropped Volt to the bottom of the ACEEE green list is its weight, primarily the result of its large battery that reduces its fuel mileage. Volt weighs nearly 3,800 lb, 750 lb more than the similar Cruze Eco. For the purpose of the rankings, ACEEE assumed the Volt would operate on plug-in electricity 64% and on premium gasoline 36% of the time, a ratio based on a standard recommended by the Society of Automotive Engineers. Not the all-electric vehicle General Motors once promised, even when operating on electricity the Volt needs an occasional boost from its conventional engine to accelerate. A New York Times op-ed article in July 2010 calculated the amount of taxpayer money “wasted” on the Volt, starting with the $50 billion bailout of GM, another $240 million in Energy Department grants, $150 million in federal funds to the Korean firm supplying batteries to Volt, and as much as $1.5 billion in tax breaks and other consumer incentives. Much of the $14 billion loan GM got in 2008 to retool its plants went into the manufacture of the Volt, critics claim. An “investment” in energy of the future indeed!

Fueling electric cars In another government investment in future fuels, the city of Chicago earlier this month awarded a $1.9 million contract—funded by the state and federal governments under a grant from the American Recovery and Reinvestment Act—to a California firm to install 280 electric-vehicle charging stations in the city and its suburbs by the end of 2011. This is to address the chicken-or-egg dilemma of which should be built first—electric cars or the public electric outlets to recharge them. So far only Ford Motor Co. has picked Chicago as one of the initial rollout cities for the electric vehicles the company is now building. It’s hoped this will relieve drivers’ fears of running down auto batteries far from a recharge outlet. San Diego-based 350 Green LLC plans to install, own, operate, and maintain 73 plazas where drivers can plug into retail electrical power suppliers with either 440-v outlets that will recharge an electric vehicle in less than 30 min or 220-v outlets that will charge for 3-8 hr. The contract calls for retail recharge stations to be installed at airports, grocery parking lots, tollway plazas, and parking garages. The company is to offer two payment options—a monthly subscription (not to exceed $75/month) and not yet determined per-use pricing. None of that revenue is to be shared with the city or state. The company is to partner with other firms that provide sites for its rechargers. Most recharges will occur overnight at the car owners’ homes, which will require additional private investment. ONLINE FEB. 21, 2011 | [email protected]

33