Oil & Gas Journal - December 27, 2010

International Petroleum News and Technology

4 NEWSLETTER 25 STATISTICS

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www.ogj.com

Dec. 27, 2010

10 LETTERS / CALENDAR

12 JOURNALLY SPEAKING

14 EDITORIAL

28 MARKETPLACE

30 EDITOR’S PERSPECTIVE / MARKET JOURNAL

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Volume 108.49

24 EQUIPMENT 24 ADVERTISERS’ INDEX

GENERAL INTEREST 16 Two accidents increase pipeline safety awareness Nick Snow

Pipeline accidents in Michigan and San Bruno, Calif., raised public awareness about pipeline safety issues that companies and regulators already were trying to address

20 Chevron suspends pipeline use in Nigeria as ExxonMobil, Shell resume operations Eric Watkins

21 Chevron claims forged signatures in Ecuador lawsuit Eric Watkins

18 Government sues to recover costs from Macondo blowout, spill

21 WATCHING THE WORLD Pipeline diplomacy in Asia

Nick Snow

The US Department of Justice and Environmental Protection Agency jointly sued to recover damages from the Apr. 20 Macondo well accident, which claimed 11 lives, and subsequent crude oil spill into the Gulf of Mexico.

18 Court refuses to block EPA’s GHG regulation Nick Snow

22 Flow rate tops 10,000 b/d at Llanos discovery 22 EXPLORATION/DEVELOPMENT BRIEFS

CLICK TO VIEW VIDEO

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

19 FGE-FACTS: Chinese, India expand refining capacities 19 WATCHING GOVERNMENT Bromwich isn’t done

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

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

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

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

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

United Kingdom / Scandinavia / Denmark / The Netherlands Roger Kingswell, 9 Tarragon Road, Maidstone, Kent, ME 16 OUR, United Kingdom; Tel. 44.1622.721.222; Fax: 44.1622.721.333; Email: [email protected]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Chairman President/Chief Executive Officer

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

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OGJ Newsletter

Dec. 27, 2010

International News for oil and gas professionals

GENERAL INTEREST Q U IC K TA K E S Producers to see strong cash flows in 2011 North American oil and gas producers can expect another year of “robust” cash flows supported by strong oil prices, stable though depressed gas prices, and modestly improving economic conditions, according to Fitch Ratings. The discount of the gas price to the energy-equivalent price of oil will continue, the crediting-rating service said in an annual outlook. “Few indicators point to a resurgence in natural gas pricing, which would likely require a sustained improvement in demand combined with an industry-wide reduction in natural gas-focused drilling,” the firm said. “While Fitch would anticipate drilling to maintain leases will begin to slow in 2011, current natural gas rig counts far exceed the level required to only maintain existing supply levels.” Other Fitch expectations for 2011: • High merger and acquisition activity. • Strong liquidity for companies focused on oil. • The possible need for small gas-focused producers to redetermine their borrowing bases. • Rising costs. • Regulatory uncertainty related to the Gulf of Mexico and to shale drilling. • Increased share repurchases and dividends for integrated and large producers. Fitch’s base price assumptions for 2011 are $75/bbl for West Texas Intermediate crude and $4/Mcf for Henry Hub gas. Its 2012 price projections are $65/bbl for oil and $4.50/Mcf for gas. Its long-term price assumptions are $60/bbl and $5.50/Mcf. The firm said it raised its oil price assumption modestly to reflect concerns about inflation after the recent monetary easing by the US Federal Reserve. Strong demand in China and India also is supporting the crude price. Fitch lowered its gas price outlook because of concerns about oversupply and cost-structure improvements related to efficiency gains in most new US shale plays. A threat to creditworthiness of the US producing industry—not part of Fitch’s base-case outlook—is a “significant double-dip recession” and consequent reduction in oil demand by China and India.

Oil & Gas Journal

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

Cabot, DEP reach accord for Dimock area Cabot Oil & Gas Corp. agreed to pay $4.1 million in a settlement with Pennsylvania’s Department of Environmental Protection that will allow the Houston independent producer to resume Susquehanna County well completion operations in early 2011. The Dec. 15 agreement and consent order superseded previous orders and modifications. It set out specific obligations related to claims by 19 households in the area, including the establishment of escrow accounts for the households. Cabot also agreed to pay the Pennsylvania DEP $500,000 to offset the state’s expense of investigating stray gas migration complaints in the area for 2 years, DEP said. DEP Secretary John Hanger said each householder will receive twice the value of his or her home, with a minimum $50,000 payment. Cabot also said it would install mitigation devices in each house, he said. “In addition to the significant monetary component of this settlement, there is a requirement that Cabot continue to work with us to ensure that none of their wells allow gas to migrate,” said Hanger. DEP also is dropping its plan to construct a 5.5mile pipeline from the Lake Montrose water treatment plant to the residences after the proposed project encountered significant opposition from local governments and from Cabot, which DEP planned to bill for the project. “This agreement provides a reasonable and pragmatic way forward for all parties,” said Dan O. Dinges, Cabot’s chairman, chief executive, and president. “The common ground we found to settle provides the right balance of regulations, financial payments, timely execution, and operational safeguards that in the end will protect the resources of Pennsylvania.” Dinges said Cabot’s well completion operations in the Dimock-Carter Road area would resume during the first quarter 2011, and new drilling could begin during the second quarter 2011.

BOEMRE issues additional drilling guidance The US Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE) issued additional deepwater drilling guidance. The information contained no new regulatory requirements, but was designed to assist offshore oil and gas producers in complying with recently issued rules, the US De-

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IPE BRENT / NYMEX LIGHT SWEET CRUDE $/bbl 92.00 91.00 90.00 89.00 88.00 87.00 86.00 85.00

US INDUSTRY SCOREBOARD — 12/27 4 wk. average

Latest week 12/10

Dec. 15

Dec. 16

Dec. 17

Motor gasoline Distillate Jet fuel Residual Other products

Dec. 15

Dec. 16

Dec. 17

0.6 3.9 –3.9 –0.8 11.3 3.2

9,102 3,765 1,409 488 4,470 19,234

9,063 3,608 1,403 539 4,236 18,849

0.4 4.4 0.4 –9.5 5.5 2.0

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

5,581 2,022 8,553 2,404 2,020 20,580

5,514 2,058 8,315 2,767 1,666 20,320

1.2 –1.7 2.9 –13.1 21.2 1.3

5,494 2,028 9,140 2,561 1,886 21,109

5,310 2,048 9,163 2,762 1,732 21,015

3.5 –1.0 –0.3 –7.3 8.9 0.4

Crude runs to stills Input to crude stills % utilization

14,569 15,111 85.9

13,807 14,334 81.0

5.5 5.4 —

14,584 15,017 85.3

14,336 14,639 82.8

1.7 2.6 —

Dec. 20 Dec. 21 1

Latest week 12/10

Latest week

Previous week1

346,018 214,773 161,305 43,763 39,774

355,872 213,964 160,211 45,749 40,143

–9,854 809 1,094 –1,986 -369

Stock cover (days)4 Dec. 15

Dec. 16

Dec. 17

Dec. 20 Dec. 21 1

Same week year ago1 Change

Change

Change, %

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

332,387 217,213 164,363 41,013 36,474

13,631 –2,440 –3,058 2,750 3,300

Change, %

Crude Motor gasoline Distillate Propane Futures prices5 12/17

23.8 23.7 43.3 50.4

24.7 23.9 43.0 56.8

88.25 4.20

88.50 4.47

–3.6 –0.8 0.7 –11.3

Change, % 23.9 24.1 45.8 39.9

–0.4 –1.7 –5.5 26.3

Change

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

Change

–0.25 –0.27

4.1 –1.1 –1.9 6.7 9.0

71.53 5.09

16.72 –0.89

% 23.4 –17.5

1

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

Dec. 15

Dec. 16

Dec. 17

Dec. 20 Dec. 21 1

PROPANE - MT. BELVIEU / BUTANE - MT. BELVIEU ¢/gal 172.00 171.00 170.00

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

3,233 2,891

342

Nov. 09

Dec. 15

Dec. 16

Dec. 17

Dec. 20 Dec. 21 1

NYMEX GASOLINE (RBOB)2 / NY SPOT GASOLINE3 ¢/gal 242.00 240.00 238.00 236.00 234.00 232.00 230.00 228.00

Change, %

Supply, 1,000 b/d

IPE GAS OIL / NYMEX HEATING OIL

132.00 131.00 130.00 129.00

YTD avg. year ago1

9,003 3,588 1,490 518 4,167 18,766

Dec. 20 Dec. 21 1

NYMEX NATURAL GAS / SPOT GAS - HENRY HUB

¢/gal 248.00 246.00 244.00 242.00 240.00 238.00 236.00 234.00

YTD average1

9,054 3,727 1,432 514 4,638 19,365

TOTAL PRODUCT SUPPLIED

$/MMbtu 4.20 4.15 4.10 4.05 4.00 3.95 3.90 3.85

Change, %

Product supplied, 1,000 b/d

WTI CUSHING / BRENT SPOT $/bbl 92.00 91.00 90.00 89.00 88.00 87.00 86.00 85.00

4 wk. avg. year ago1

Dec. 09

Jan. 10

Feb. 10

Mar. 10

Apr. 10

May 10 Jun. 10

Jul. 10

Aug. 10

Sept. 10

Oct. 10

Nov. 10

Note: Monthly average count

BAKER HUGHES RIG COUNT: US / CANADA 1,709

1,800 1,600 1,400

1,193

1,200 1,000 800

50 0

3 68

400 200 Dec. 15

1Not

Dec. 16

2Reformulated

Dec. 17

Dec. 20 Dec. 21 1

available. gasoline blendstock for oxygen blending 3Nonoxygenated regular unleaded

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0

10/2/09

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

10/9/09 10/23/09

11/6/09

11/20/09

12/11/09

12/4/09

10/1/10

10/15/10

12/18/09 10/8/10

10/29/10 11/12/10

10/22/10

11/5/10

11/26/10 12/10/10

11/19/10

12/3/10

12/17/10

Note: End of week average count

Oil & Gas Journal | Dec. 27, 2010

12/22/10 10:42 AM

partment of the Interior agency said. “As we continue to strengthen oversight and safety and environmental protections, we must ensure that the oil and gas industry has clear direction on what is expected,” BOEMRE Director Michael R. Bromwich said on Dec. 13. BOEMRE said that the issues addressed in the information document include compliance issues relating to the Drilling Safety Rule (or Interim Final Rule), NTL-6 (including Worst Case Discharge calculations), and NTL-10, as well as further information on BOEMRE’s inspections of blowout preventer testing, oil spill response plans, and environmental assessments for deepwater drilling plans.

BOEMRE develops programmatic EIS The US Bureau of Ocean Energy Management, Regulation, and Enforcement has begun work to develop the first geological and geophysical programmatic environmental impact statement for areas of the US Outer Continental Shelf off the South and MidAtlantic coasts. It said that the PEIS would evaluate environmental effects of seismic surveys and other G&G activities to gather information about potential oil, gas, and renewable energy development on the OCS. US Interior Secretary Ken Salazar said seismic surveys along the South and Mid-Atlantic coasts possibly could take place. He removed the area from the 5-year OCS program that BOEMRE is developing for the 2012-17 period in response to questions arising from the Apr. 20 Macondo well blowout. BP PLC operated Macondo. The blowout resulted in an explosion and fire on Transocean Ltd.’s Deepwater Horizon semisubmersible and a Gulf of Mexico crude oil spill. Industry sources have expressed skepticism to OGJ that any such seismic studies will occur because producers customarily don’t pay for them without firm assurances that they will lead to development of identified resources, and Congress probably would not authorize what would be new funding in a climate emphasizing cutting costs and reducing the federal budget deficit.

interests in East Kalimantan. Coalbed methane from the newly awarded Sanga Sanga CBM production sharing contract, if successful, could be liquefied at Bontang. That VICO CBM Ltd. joint venture is operated by Eni 50%, and BP PLC owns the other 50%.

Low-volume New York Marcellus fracs tap gas Montreal independent Gastem obtained gas flows from Utica shale and two members of the Marcellus shale using permitted low-volume frac jobs in a vertical well in Otsego County, NY. Gastem ran separate fracs on the Chittenango and Union Springs members of Marcellus at the Ross-1 well. Both succeeded, and the company completed the well for 200 Mcfd of gas. Current flow is 150 Mcfd after 4 weeks of flow. BJ Services ran the fracs. Gastem also put a frac on Utica in November 2009 and tested that interval at more than 100 Mcfd. The frac involved a fluid volume under the state’s existing Supplemental Generic Environmental Impact Statement guidelines with a maximum volume of 80,000 gal. The company said, “The combined economics of the multilayer targets (Utica, Oneida, and Marcellus) will provide development opportunities until the NYSDEC (Department of Environmental Conservation) completes their review process for horizontal shale wells now scheduled for release on June 1, 2011.” Gastem is completing a seismic program on existing leased property and plans to initiate development wells targeting “local gas for local use” in the area by mid-2011. Gastem is operator with 80% working interest in 33,000 acres.

Eni to operate Poland Baltic basin shale blocks Italy’s Eni SPA said it plans to start drilling for shale gas in the Baltic basin in northeastern Poland in 2011. The company will purchase Minsk Energy Resources and become operator of three licenses totaling 1,967 sq km. The exploration commitment is for six wells. Eni will apply knowledge and expertise acquired through its North Texas Barnett shale joint venture. Poland is Eni’s first venture into unconventional gas in Europe.

EXPLORATION & DEVELOPMENT Q U IC K TA K E S DRILLING & PRODUCTION Q U IC K TA K E S East Kalimantan find exceeds 1.4 tcf of gas Three wells drilled off Indonesia’s East Kalimantan confirm more than 1.4 tcf of gas in place in Jangkrik field on the Muara Bakau permit, said operator Eni SPA. Jangkrik-3, in 416 m of water 70 km off eastern Borneo, went to 2,849 m and encountered more than 60 m of net gas pay in excellent quality reservoir Pliocene sands. Further exploration is planned nearby in 2011, Eni said. Permit interests are Eni 55% and GDF Suez 45%. The joint venture is studying fast-track development through the Bontang LNG plant, where Eni owns spare capacity. Eni operates six of the 12 permits in which it has working

Oil & Gas Journal | Dec. 27, 2010

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Chevron to spend $4 billion on Big Foot field Chevron Corp. plans to spend $4 billion to develop Big Foot oil and gas field in the deepwater Gulf of Mexico. Big Foot field lies in 5,200 ft of water about 225 miles south of New Orleans. Discovered in 2006, Chevron estimates Big Foot field contains more than 200 million boe of total reserves. Chevron plans to use an extended tension-leg platform with an onboard drilling rig and production capacity of 75,000 b/d of oil and 25 MMcfd of natural gas. Oil production is scheduled to start in 2014. Primary pay sands are Middle to Upper Miocene. Three exploration and ap-

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praisal wells with multiple sidetracks have been drilled. Chevron USA Inc. has a 60% working interest in the Big Foot project.

Mobile nitrogen rejection unit takes the field EQT Corp., Pittsburgh, has placed in service the world’s first mobile nitrogen rejection unit for nitrogen frac flowback at a Devonian Huron shale well in eastern Kentucky. Developed by private IACX Energy, Dallas, the unit covers 158 ft by 38 ft on five trailers at the wellsite and employs nitrogen sponge technology. In eastern Kentucky, the lower-pressured Huron shale has responded especially well to nitrogen fracturing treatment, but large volumes must be flowed back and vented until the hydrocarbon gas reaches pipeline quality. The clean-up period can last as long as 2 months, depending on reservoir quality. Nitrogen frac flow-back applications are especially challenging because of the ever-changing composition of the gas entering the system. After a nitrogen frac, the percentage of nitrogen in the gross gas stream follows a steep gradient downward until most or all of the injected nitrogen is blown back. The mobile iron sponge units yield 99+% recoveries of C3+ hydrocarbons, which contributes significantly to project economics where natural gas liquids are extracted and sold. All of the unit’s processes function at lower volumes and pressures and do not utilize chemicals or other environmentally undesirable materials, IACX noted.

Saudi Aramco to boost Shaybah production Saudi Aramco let contracts worth nearly $500 million to GE Energy for equipment to expand Shaybah field’s oil production and natural gas-processing capacities. The expansion is expected to boost crude oil production capacity to 1 million b/d compared with Shaybah’s current capacity of 750,000 b/d. Shaybah, in southeastern Saudi Arabia, has undergone various expansions. An upgrade completed in June 2009 boosted its crude capacity from 500,000 b/d to its current capacity. Aramco also is working to boost its natural gas capacity at Shaybah by building an NGL plant to process 2.4 bscfd of lowsulfur, sweet gas and extract 264,000 b/d of NGLs. GE agreed to supply 11 gas turbine-generators, 44 compressors, and motors. With the latest contracts, GE has supplied a total of more than 110 GE gas turbines to Saudi Aramco and nearly 100 GE centrifugal compressors.

PROCESSING Q U IC K TA K E S Enterprise, Chesapeake outline Eagle Ford plans Enterprise Products Partners LP has entered into 10-year agreements to handle a substantial portion of Chesapeake Energy Corp.’s liquids-rich natural gas production in the Eagle Ford shale. Chesapeake’s gross acreage position currently includes more

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than 625,000 acres in and around the oil and NGL-rich areas of the Eagle Ford shale in the South Texas counties of Dimmit, LaSalle, McMullen, Webb, and Zavala. The agreements provide Chesapeake with firm commitments for gas transportation, processing, and NGL transportation and fractionation services. Chesapeake’s natural gas initially will be gathered, compressed, and moved by Chesapeake Midstream Development LLC for eventual transportation and processing by Enterprise at its existing facilities while a previously announced natural gas processing plant in Texas is completed. Enterprise expects the new cryogenic processing facility to be completed early in 2012, at an initial processing capacity of 600 MMcfd and an initial NGL extraction capacity of 75,000 b/d. The NGL production from Chesapeake’s gas ultimately will be transported from this processing plant to Enterprise’s previously announced 127-mile NGL pipeline, extending to its NGL fractionation complex in Mont Belvieu, Tex. Earlier this month, Enterprise began operations at its fourth NGL fractionator at Mont Belvieu at 75,000 b/d, increasing nameplate capacity at the facility to 305,000 b/d (OGJ Online, Dec. 1, 2010). The new NGL pipeline, scheduled for completion in early 2012, will have an initial capacity of more than 85,000 b/d and would be readily expandable to over 120,000 b/d, according to Enterprise. Activity in the Eagle Ford Shale continues to increase as 115 rigs working in the play have drilled more than 330 wells completed to date, Enterprise says. Enterprise estimated total current production from the play at about 425 MMcfd natural gas and 35,000 b/d crude oil and condensate.

Oneok to invest in Woodford shale Oneok Partners LP plans to invest $180-240 million by firsthalf 2012 for NGL projects in the Cana-Woodford shale and Granite Wash plays. The projects will add 75,000-80,000 b/d of raw, unfractionated NGL to the partnership’s existing gathering systems. Oneok’s investment includes: • Building more than 230 miles of 10-in. and 12-in. OD NGL pipelines that will expand the partnership’s existing gathering system by connecting to three new third-party natural gas processing facilities being constructed with total capacity of 510 MMcfd and to three existing third-party natural gas processing facilities undergoing expansion. • Installing additional pump stations on the Arbuckle Pipeline to increase capacity to 240,000 b/d. Arbuckle is a 440-mile NGL pipeline running from southern Oklahoma through the Barnett shale of north Texas to the partnership’s fractionation and storage facilities at Mont Belvieu on the Texas Gulf Coast. Oneok expects these projects to be completed during firsthalf 2012. The additional raw NGLs from the expanded natural gas processing capacity will be fractionated at either the partnership’s fractionation facilities or by third parties. Oneok already announced $1.3-1.6 billion in other projects

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in 2010, including: • Construction of two 100 MMcfd natural gas processing facilities in the Bakken shale and related infrastructure. • Construction of a 525- to 615-mile NGL pipeline to transport unfractionated NGL produced in the Bakken to the Overland Pass Pipeline, a 760-mile NGL pipeline extending from southwestern Wyoming to Conway, Kan. • Related capacity expansions for Oneok Partners’ 50% interest in the Overland Pass Pipeline to transport the additional unfractionated NGL volumes from the new Bakken pipeline. • Expansion of the partnership’s fractionation capacity at Bushton, Kan., by 60,000 b/d to accommodate the additional NGL volumes from Overland Pass Pipeline. • Installation of seven additional pump stations along the existing Sterling I NGL distribution pipeline, increasing its capacity by 15,000 b/d. • Other investments in the Woodford shale in Oklahoma, in both the natural gas gathering and processing and the natural gas liquids segments.

Qatar Petroleum, Shell to develop petchem project Qatar Petroleum and Shell have signed a memorandum of understanding to study development of a large petrochemicals complex in Ras Laffan Industrial City, Qatar. The agreement was signed Dec. 21 in Doha by Abdulla bin Hamad Al-Attiyah, deputy prime minister and minister of energy and industry for Qatar, and Shell CEO Peter Voser. Under consideration is a monoethylene glycol plant of up to 1.5 million tonnes/year using Shell’s proprietary OMEGA (Only MEG Advantaged) technology and other olefin derivatives to yield more than 2 million tpy of finished products. In Qatar, Qatar Petroleum and Shell are jointly building the Pearl gas-to-liquids project and Qatargas LNG Train 4 in Ras Laffan.

TRANSPORTATION Q U IC K TA K E S

in 2007, pegged the project at $16 billion. In addition to Imperial, the Mackenzie Valley Aboriginal Pipeline LP, ConocoPhillips Canada (North) Ltd., Shell Canada Ltd., and ExxonMobil Canada Properties hold shares in the project. If the proponents decide to build the Mackenzie Gas Project, they would also be required to obtain various permits and authorizations from other boards and government agencies before construction could commence. Imperial filed a letter with the NEB in March stating it would not decide whether to proceed with the project until late 2013, citing administrative delays in the approval process and subsequent difficulties keeping the project adequately staffed.

Koch Pipeline shareholders approve Eagle Ford line Koch Pipeline Co. LP received final shareholder approval to build a pipeline into Karnes County, Tex., that will transport 120,000 b/d of Eagle Ford shale crude by late 2012. Engineering for the line to connect Eagle Ford producers to Corpus Christi, Tex., has begun, with construction pending permitting. The 16-in. OD line will be expandable to more than 200,000 b/d and includes direct pipeline connections to producer tank batteries in Karnes and DeWitt counties. A new station, likely near Helena, Tex., will connect into Koch Pipeline’s existing crude system in Pettus and Refugio. By yearend 2011, Koch plans to have completed several projects adding more than 140,000 b/d of pipeline capacity in South Texas. The company is already building a line to expand delivery capability to Flint Hills Resources’ Ingleside waterborne terminal. It has also leased 30,000 b/d capacity from NuStar Logistics on a line from Pettus to Corpus Christi (OGJ Online, Oct. 19, 2010). In August, in conjunction with Arrowhead Pipeline LP, Koch announced an agreement and joint tariff to add 50,000 b/d of oil and condensate capacity during 2011 from the western counties of the Eagle Ford trend.

NEB approves Mackenzie Gas Project

NEB export application filed for BC LNG plant

Canada’s National Energy Board approved applications for the construction and operation of the Mackenzie Gas Project through northern Canada. The proposed project includes the 1,196-km Mackenzie Valley Pipeline, three onshore natural gas fields, a 457-km pipeline to carry natural gas liquids from Inuvik, NWT, to an existing oil pipeline at Norman Wells, NWT, and other related facilities. The Mackenzie Valley Pipeline, which would run from the Beaufort Sea to northwestern Alberta, is designed to carry up to 1.2 bcfd. The NEB attached 264 conditions to the project’s approval in areas including engineering and safety provisions that must be met if the project is to be built. If the federal cabinet approves NEB’s decision, the agency will issue appropriate approvals, including a certificate of public convenience and necessity. Project operator Imperial Oil’s latest cost estimate, released

KM LNG, an affiliate of Apache Corp., Houston, applied to Canada’s National Energy Board for approval to export LNG from the Kitimat LNG terminal planned for Bish Cove, BC. The application requests permission to export as much as 10 million tonnes/year of LNG for 20 years. The quantity matches the two-phased capacity design of the plant. KM LNG is the operator of the proposed plant. All LNG exported under the applied-for license will be produced by KM LNG. In November, said the company’s announcement, members of the Haisla Nation approved a lease of reserve lands required for construction and operation of the plant. Federal and provincial environmental authorizations for initial design of the plant have also been obtained. The plant is owned by affiliates of Apache Canada Ltd. (51%) and EOG Resources Canada Inc. (49%).

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LETTERS ETHANOL MANDATES Your ethanol editorial entitled “Subsidies and incentives” is right on target (OGJ, Dec. 6, 2010, p. 24). Last week a Wall Street Journal editorial made some of the same points that were included in your excellent opinion piece. They pointed out that ethanol is the only product that enjoys 1) a federal subsidy, 2) tariff protection, and 3) federal consumption mandates. However, as I am sure you know, this is not the whole story. Neither the WSJ nor the OGJ mentioned how this ethanol “favorite nations” treatment has affected food prices. The federal mandates and subsidies have resulted in significant increases in the prices of beef, corn, breakfast cereals, and many other corn-based food products. As the federal government looks for ways to reduce unwise and unnecessary spending, the first place to look is ethanol policy. Eliminating unnecessary and unwanted subsidies and mandates would free American taxpayers of $7 billion/year of wasted expenditures. William H. Barlow Houston

2010-2011 EVENT CALENDAR Denotes new listing or ME TECH 2011, Dubai, +44 20 7357 8394, +44 a change in previously 20 7357 8395 (fax), published information. e-mail: conferences@ europetro.com, website: www.europetro.com/ JANUARY 2011 index.php?option=com_ event<emid=240. GEO India Conference & Exhibition, New Delhi, 24-26.

europetro.com, website: www.europetro.com/ index.php?option=com_ event<emid=244. 27-28.

API Exploration and Production Winter Standards Meeting, Fort Worth, Tex., (202) 682-8000, (202) 682-8222 (fax), website: www.api.org. 24-28.

Offshore Production Technology Summit, London, +44 (0)20 7202 7690, +44 (0)207 202 7600 (fax), e-mail: nathan.robinson@ wtgevents.com, website: www.offshore-summit. com. Jan. 31-Feb. 1.

Annual Gas Arabia Summit, Abu Dhabi, +44 207 067 18 00, e-mail: c.pallen@theenergyex+44 (0)20 7840 2139, API Inspection Summit change.co.uk, website: +44 (0)20 7840 2119 & Expo, Galveston, Tex., www. www.theenergy(fax), e-mail: geo@ (202) 682 8000, (202) exchange.co.uk/3/13/ oesallworld.com, website: 682-8222 (fax), website: articles/135.php. Jan. www.geo-india.com. www.api.org. 24-27. 30-Feb. 2. 12-14. Gas Transport & Storage Summit, Berlin, +44 (0)20 7202 7690, +44 (0)20 7202 7600 (fax), e-mail: richard.jones@ wtgevents.com, website: www.gtsevent.com. 19-20.

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Shale Gas Symposium, Calgary, Alta., (877) 927-7936, (877) 9271563 (fax), website: www.canadianinstitute. com/energy_resources/ ShaleGas.htm. 25-26. European Gas Conference, Vienna, +44 207 067 1800, +44 207 430 0552 (fax), e-mail: [email protected], website: http://www.theenergyexchange.co.uk/3/13/ articles/214.php 25-27.

Global LNG Forum, Barcelona, +421 257 272 11, +421 255 644 490, e-mail; beata.kyblova@ jacobfleming.com, website: www.jacobfleming. com. 2-3. East African Petroleum Conference & Exhibition (EAPCE), Kampala, +256 414 320714, _256 414 320437 (fax), e-mail: eapce11@ petroleum.go.ug. website: www.petroleumafrica.com/en/eventdetail. php?Eventld=522. 2-4.

NACE Northern Area Western Conference, Regina, Sask., (281) 228-6200, (281) 228-6300 (fax), e-mail: [email protected], website: www.events. nace.org/sarwebsites/ SPE Middle East Uncon- NorthernAreaWestern/ ventional Gas Conference conference11/index. and Exhibition, Muscat, asp. 6-8. +971 4 390 3540, +971 4 366 4648 (fax), e-mail: Arctic Technology [email protected], web- Conference, Houston, site: www.spe.org. Jan. (888) 945-2274, ext. 31-Feb. 2. 617, website: www.arct-

FEBRUARY 2011

IADC Health Safety Environment and Training Conference & Exhibition, Houston, (713) 2921945, (713) 292-1946 API/AGA Joint Committee (fax), e-mail: info@iadc. on Oil and Gas Pipeline org, website: www.iadc. Welding Practices, Fort org/conferences. 1-2. Worth, Tex., (202) 682 8000, (202) 682-8222 Topsides Conference & (fax), website: www.api. Exhabition, Galveston, org. 26-28. Texas, (918) 831-9160, (918) 831-9161 (fax), ePipe Tech Americas mail: wendyl@pennwell. Summit, Houston, (416) com, website: www. 214-1144, e-mail: lautopsidesevent.com/index. rence.allen@wtgevents. html. 1-3. com, website: www. pipetechamericas.com/ Global LNG Forum, program. 27-28. Barcelona, +421 257 272 112, +421 255 Russian & CIS Executive 644 490, e-mail; beata. Summit, Dubai, +44 kyblova@jacobfleming. 20 7357 8394, +44 com, website: www. 20 7357 8395 (fax), jacobfleming.com. 2-3. e-mail: conferences@

ictechnologyconference. org/. 7-9. Pipeline Coating International Conference, Vienna, +44(0)117 924 9442, +44(0)117 989 2128 (fax), e-mail: info@ amiplastics.com, website: www.2.amiplastics. com/Events/Even. code=C369&sec=1222. 7-9. International Gas Analysis Symposium & Exhibition, Rotterdam, +31 (0) 15 2 690 147, +31 (0) 15 2 690 190 (fax), e-mail: [email protected], website: www.gas2011.org. 9-11. SPE Project and Facilities Challenges Conference at METS, Doha, +971 4 390 3540, +971 4 366 4648 (fax), e-mail: [email protected], website: www.spe.org. 13-16.

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2010-2011 EVENT CALENDAR Pipeline Pigging & Integrity Management Conference, Houston, (713) 521-5929, (713) 521-9255 (fax), e-mail: [email protected], website: www.clarion.org. 14-17.

World Heavy Oil Congress, Edmonton, Alta., (888) 799-2545, (403) 245-8649 (fax), website: www.worldheavyoilcongress.com. 15-17. Russia Offshore Annual Conference & Exhibition, Moscow, +44 207 067 1800, +44 207 430 0552 (fax), e-mail: wra@ theenergyexchange. co.uk, website: www. theenergyexchange. co.uk/3/13/articles/179. php. 15-17.

World Heavy Oil Congress, Edmonton, Alta., (888) 799-2545, (403) 245-8649 (fax), website: www.worldheavyoilcongress.com. 15-17. IPAA International Forum, Houston, (202) 857-4722, (202) 8574799 (fax), website: www.ipaa.org. 16.

Nitrogen+Syngas International Conference & Exhibition, Dusseldorf, +44 (0) 20 7903 2438, +44 (0) 20 7903 2432 (fax), e-mail: [email protected], website: www.crugroup. com. 21-24.

www.theenergyexchange. registration@pennwell. co.uk/3/13/articles/157. com, website: www. php. Feb. 27-Mar. 1. renewableenergyworldevents.com. 8-10.

MARCH 2011

NPRA Security Conference & Exhibition, Houston, (202) 4570480, (202) 457-0486 (fax), e-mail: info@npra. SUBSEA Tieback org, website: www.npra. Forum & Exhibition, San org. 1-2. Antonio, (918) 831-9160, (918) 831-9161 (fax), Annual Arctic Gas e-mail: registration@pen- Symposium, Calgary, nwell.com, website: www. Alta., (877) 927-7936, subseatiebackforum. (877) 927-1563 (fax), com. 22-24. website: www.arcticgassymposium.com/index. SPE European Conferhtml. 1-2. ence on Health Safety and Environment in Oil SPE/IADC Drilling Conferand Gas Exploration, ence, Amsterdam, +44 Vienna, +44 (0)1224 20 7299 3300. +44 20 318088, website: www. 7299 3309 (fax), e-mail: spe-uk.org. 22-24. [email protected], website: www.spe.org. 1-3. Pipe Line Contractors Association Convention, APPEX/AAPG Property & Prospect Expo, London, Maui, (214) 969-2700, +44 (0) 207 434 13 e-mail: [email protected], 99, e-mail: Europe@ website: www.plca.org. aapg.org. website: www. 22-26. europetro.com. 1-3. GPA Europe Conference, Turkmenistan Asia Oil & Amsterdam, +44 (0) 1252 625542, website: Gas Summit, Singapore, +44 (0) 20 7328 8899, www.gpaeurope.com/ events/event/16. 23-25. +44 (0) 20 7624 9030 (fax), e-mail: info@ summittradeevents.com, Annual Petcoke Conwebsite: www.summitference, San Diego, tradeevents.com/Hold(832) 351-7827, (832) ingA2011.php. 3-4. 351-7887 (fax), e-mail:

NAPE Expo, Houston, (972) 993-9090, (972) 993-9191 (fax), e-mail: [email protected], [email protected], website: www.napeexpo. website: www.petcokes. com. 25-26. com. 16-18.

API Spring Committee on Petroleum Measurement Standards Meeting, Dallas, (202) 682 8000, Middle East Downstream (202) 682-8222 (fax), Laurance Reid Gas Week Annual Meeting, website: www.api. Conditioning Conferorg.7-10. Abu Dhabi, +44 (0) ence, Norman, Okla., (405) 325-2248, (405) 1242 529 090, +44 (0) 325-7164 (fax), e-mail: 1242 529 060 (fax), e- CERA Week, Houston, mail: wra@theenergyex- (713) 840-8282, (713) [email protected], website: change.co.uk, website: 599-9111 (fax), e-mail: www.engr.outreach. [email protected], website: www.wraconference. ou.edu. 20-23. www.cera.com. 7-11. com. 27-30. IP Week, London, +44 0 20 7467 7116, e-mail: [email protected], website: www.energyinst. org.uk. 21-23.

Corrosion UAE Conference, Abu Dhabi, 00 971 50 264 1202, e-mail: [email protected], website:

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Renewable Energy World Conference & Expo North America, Tampa, (918) 831-9160, (918) 831-9161 (fax), e-mail:

e-mail: www.gastech. co.uk. 21-24.

596 5135, +44 207 596 5106 (fax), e-mail: ilyas. idigov@ite-exhibitions. GPA Europe at GasTech com, website: www.gioConference & Exhibition, gie.com/2011/. 29-30. Amsterdam, +44 (0) AIChE Spring Meeting 1737 855000, +44 (0) Offshore Asia Confer& Global Congress on ence & Exhibition, SinProcess Safety, Chicago, 1737 855482 (fax), e(800) 242-4363, (203) mail: [email protected], gapore, (918) 831-9160, (918) 831-9161 (fax), 775-5177 (fax), website: e-mail: www.gastech. co.uk. 21-24. e-mail: registration@ www.aiche.org/conferpennwell.com, website: ences/springmeeting/ index.aspx. 13-17. IADC Drilling HSE Asia www.offshoreasiaevent. com. 29-31. Pacific Conference & NACE Corrosion Confer- Exhibition, Singapore, ence & Expo, Houston, (713) 292-1945, (713) SEG Shale Gas Forum, 292-1946 (fax), e-mail: Chengdu, Sichuan, (800) 797-6223, (281) 228-6329 (fax), website: [email protected], website: (918) 497-5500, (918) www.iadc.org/confer497-5557 (fax), website: www.events.nace.org/ ences. 23-24. www.seg.org. 30-31. conferences/c2011/index.asp. 13-17. OMC Offshore Mediter- APRIL 2011 ranean Conference, Offshore West Africa GPA Annual Convention, Conference & Exhibition, Ravenna, +39 0544 San Antonio, (918) 493219418, e-mail: conferAccra, Ghana, (918) 3872, (918) 493-3875 [email protected], website: 831-9160, (918) 831(fax), e-mail: pmirkin@ www.omc.it/2011. 9161 (fax), e-mail: gpaglobal.org, website: 23-25. registration@pennwell. www.GPAglobal.org. 3-6. com, website: www. offshorewestafrica.com. SPE Production and Middle East Downstream 15-17. Operations SympoWeek Annual Meeting, sium, Oklahoma City, Abu Dhabi, +44 1242 TUROGE Turkish Inter- (800) 456-9393, (972) 529 090, +44 1242 national Oil & Gas Con- 952-9435 (fax), e-mail: 529 060 (fax), e-mail: [email protected], website: ference & Showcase, [email protected]. 27-29. Ankara, +44 (0) 20 change.co.uk, website: 7596 5000, +44 (0) 20 www.wraconferences. 7596 5111 (fax), e-mail: NPRA International Pet- com/2/4/articles/105. enquiry@ite-exhibition. rochemical Conference, php. 3-6. com, website: www. San Antonio, (202) 457turoge.com. 16-17. 0480, (202) 457-0486 Hannover Messe (fax), e-mail: info@npra. Pipeline Technology NPRA Annual Meeting, org, website: www.npra. Conference, Hannover, San Antonio, (202) 457- org. 27-29. +49 511 90992 22, +49 0480, (202) 457-0486 511 90992 69 (fax), e(fax), e-mail: info@npra. Howard Weil Annual mail: [email protected], org, website: www.npra. Energy Conference, New website: www.pipelineorg. 20-22. Orleans, (504) 582conference.com. 4-5. 2500, website: www. MEOS/SPE’s Middle East howardweil.com/energy- ShaleCon Conference, Oil & Gas Conference & conference.aspx. 27-31. Montreal, Q.C., (800) 882-8684, e-mail: info@ Exhibition, Manama, +44 iapc.com, website: www. (0)20 7840 2139, +44 SPE European Well (0)20 7840 2119 (fax), e- Abandonment Seminar, shalecon.com/Event. mail: meos@oesallworld. Aberdeen, +44 1224 aspx?id=388398. 4-7. com, website: www. 495051, e-mail: jane. meos2011.com. 20-23. [email protected], Hannover Messe International Trade Show, website: www.spe-uk. Hannover, +49 511 89 GASTECH International org. 29. 0, +49 511 89 32626 Conference & Exhibition, (fax), website: www. Amsterdam, +44 (0) GIOGIE Georgian Inter1737 855000, +44 (0) national Oil & Gas Energy hannovermesse.de/ 1737 855482 (fax), eand Infrastructure Con- homepage_e. 4-8. mail: [email protected], ference, Tbilisi, +44 207

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12/21/10 9:33 AM

JOURNALLY SPEAKING

News alarms trouble industry

SAM FLETCHER Senior Writer

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“We live in the midst of alarms; anxiety beclouds the future; we expect some new disaster with each newspaper we read.” Abe Lincoln said that in the days leading up to the American Civil War, but it could just as easily have come from any oil man following political developments from the Macondo blowout earlier this year. Seems every news report brings details of new moves by elected and appointed government officials to ensure what never happened before in decades of deepwater drilling will never happen again. As a veteran newspaper reporter, I know daily news is “history in a hurry.” It would be interesting to see what conclusions future historians will draw from current news reports. For instance, on Dec. 15 the Associated Press reported the US Justice Department filed a civil suit against BP PLC and eight other companies to recover billions of dollars as a result of the Macondo blowout. The suit would hold companies liable for crude removal costs and damages under the Oil Pollution Act and for civil penalties under the Clean Water Act. That’s in addition to the government’s uncompleted criminal investigation, of course. Damages sustained by the US are not yet determined, and BP has already waved existing limitations on the dollar amount of its liability and is paying out billions of public and private claims. More than 300 lawsuits have been filed in federal court in New Orleans by individuals and groups seeking financial redress from the blowout that also killed 11 workers aboard the rig. Other defendants in the case are Anadarko Exploration & Production LP and Anadarko Petroleum Corp., MOEX Offshore 2007 LLC, Triton Asset Leasing GMBH, Transocean Holdings LLC, Transocean Offshore Deepwater Drilling Inc., Transocean Deepwater Inc.; and Transocean’s insurer, QBE Underwriting Ltd., Lloyd’s Syndicate 1036. Anadarko Petroleum and MOEX are minority partners in the well. Transocean, which owned the rig destroyed in the blowout, keeps pointing out it is indemnified under a standard drilling contract with BP against any costs resulting from

the blowout. It told AP, “No drilling contractor has ever been held liable for discharges from a well under the Oil Pollution Act of 1990.” AP reported QBE/Lloyd’s can be held liable only up to the amount of insurance policy coverage under the Oil Pollution Act and is not being sued under the Clean Water Act.

Hardline reaction Considering the government’s hardline reaction to a deepwater oil spill in the Gulf of Mexico, this country’s most prolific source of oil and gas, future historians might marvel at another Dec. 15 AP report of President Barack Obama meeting with 20 business leaders to discuss how to boost the anemic US economy and improve “their own testy relations.” In that meeting, Obama talked of overhauling the tax system, although he wants to strip the oil industry of tax breaks common for other businesses. He spoke of easing business regulation while increasing regulation of oil and gas at a time other countries are seeking the US industry’s expertise. AP reported, “With US unemployment at 9.8% and weak home prices and tight credit placing a drag on growth, the president was looking to shake loose more than $1.9 trillion in untapped corporate cash to help the recovery.” Maybe he should build a fire under the US Bureau of Ocean Energy Management, Regulation, and Enforcement that is sitting on drilling permits for even shallow-water projects. Offshore companies are ready to spend money and put people back to work if only the government would release its chokehold on the industry. Meanwhile, BOEMRE is drafting new offshore regulations before investigation of the cause of the blowout is completed. Director Michael Bromwich claims safety regulation can’t wait, which will seem ironic if historians read another Dec. 15 AP report. The US government finally outlawed traditional drop-side cribs “after the deaths of more than 30 infants and toddlers in the past decade and millions of recalls.” A new standard for fixedside cribs takes effect next June.

Oil & Gas Journal | Dec. 27, 2010

12/22/10 10:40 AM

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12/20/10 4:40 PM

EDITORIAL

A compromised tax bill A last-minute tax bill, hailed for the bipartisan compromise that produced it, leaves the oil and gas industry with much to fear. Perfection, of course, was never in prospect for legislation passed during the administration of President Barack Obama that extends tax cuts enacted during the administration of George W. Bush. Especially with its provisions on energy, however, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 sets new standards for imperfection. The best feature of the law is bipartisan recognition that something had to be done. With the nation’s economic health still unsure, lawmakers could not allow tax rates to jump back to where they were before reductions of 2001 and 2003. They also could not allow the alternative minimum tax to smack millions more middle-class taxpayers. Both major political parties would have shared blame for the consequent economic pounding. Party leaders, therefore, compromised.

Who yielded what Democrats yielded on their insistence that rate-cut extensions apply only to taxpayers with incomes below thresholds said to distinguish the wealthy from the otherwise. And many of them must have loathed the need to sustain any product of an administration they continue to portray as thoroughly wicked. Largely for these reasons, most Republicans claimed a political victory. But they compromised, too. The bill extends the tax-rate reductions only for 2 years. As more Republicans than Democrats understand, tax-rate cuts designed to stimulate the economy must be permanent. Now, anyone planning investments must accommodate the threat of higher taxes at the end of the extension period. The new law further salutes the notion of stimulus through tax reduction with a lower payroll-tax rate for employees. But that cut lasts only 1 year. To reach full force as a tool of economic stimulus, a tax-rate cut should be not only permanent but also accompanied by cuts in federal spending. By that standard, the new bill technically fails. It increases spending—directly with, for example, extended jobless benefits and investment aid for

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wind-energy projects and indirectly with tax credits for businesses and individuals. But the dollar amount looks small in comparison with a separate $1 trillion spending bill the Senate killed as the tax compromise became law. On balance, neither political party can gloat. Both sides saw the urgent need for action, and both compromised to make it happen. Both will fight another day over taxes and spending. Meanwhile, neither party seems to have learned anything about the problems a government creates by making energy choices best left to markets. In addition to extending by a year a program under which wind-power developers receive taxpayer funding for as much as 30% of their projects, the tax bill reauthorizes tax credits for mandated, tariff-protected biofuels. A government that heaves public money at noncommercial energy—even after public support wanes, as it has for fuel ethanol—can’t be expected to deal responsibly with the economic energy on which prosperity depends. The oil and gas industry thus has no reason yet to think Republican gains in Congress last November mean a prompt end to one of its most trying political periods in modern memory. A test will come when lawmakers get serious about funding their spending spree. When Congress needs money, oil and gas companies should hide the cash box.

Obama’s vision Without question, Republican control of the House and gains in the Senate lower chances for realization of Obama’s vision for oil and gas taxation, with its repeal of producer incentives, denial of tax breaks available to other industries, and other such horrors. But Republicans aren’t yelling “Never!” about those ideas. When tax-cut push comes to deficitreduction shove, something will have to give. The tax bill averts economic disaster without providing sufficient stimulus, leaves in place a costly and ineffective approach to energy, and lets Obama claim new political footing characterized by compromise without having made him compromise much at all. It isn’t a triumph.

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GENERAL INTEREST

Two accidents increase pipeline safety awareness Nick Snow Washington Editor

Pipeline accidents in Michigan and San Bruno, Calif., raised public awareness about pipeline safety issues that companies and regulators already were trying to address, officials of three trade associations told OGJ. A July 26 crude oil leak on Enbridge Energy Partners Ltd.’s Line 6B generated public inquiries about the system’s age and integrity (OGJ Online, July 29, 2010). The Line 6B spill reached Talmadge Creek and 25 miles of the Kalamazoo River in Michigan. A Sept. 9 explosion of Pacific Gas & Electric Co.’s natural gas gathering system in San Bruno raised the issue of encroachment—residential and business development over existing lines in previously rural areas. Eight people died in the San Bruno accident (OGJ Online, Dec. 15, 2010). The National Transportation Safety Board has yet to release its findings on those two accidents. “San Bruno was an awful accident with a silver lining: it helped generate public consideration of encroachment’s effects,” said Andrew J. Black, president of the Association of Oil Pipelines. Christina Sames, vice-president of operations and engineering at the American Gas Association, said, “We can’t stop people from building, but we want them to build responsibly.” AGA, which has primarily local distribution companies (LDCs) as members, urges local governments issuing building permits to consider requiring that an apartment building’s parking lot be placed closer to a pipeline than the apartment building itself, she said.

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Enbridge Inc. crews continued cleaning up crude oil in the Kalamazoo River on Oct. 14. Oil leaked from its Line 6B into nearby Talmadge Creek on July 26. As of Nov. 17, more than 7,000 people had worked in response to the pipeline rupture with more than 30 local, state, and federal agencies. Photo from Enbridge.

Donald F. Santa, president of the Interstate Gas Pipeline Association of America, said pipeline safety is a shared responsibility between industry and regulators at various levels of government. “The industry needs to keep its systems in top shape, but San Bruno also showed that local government has a role in recognizing a pipeline is there and letting everyone know about it,” Santa said.

Wrong questions Martin E. Edwards, INGAA’s vice-president for government affairs, said many questions raised after the San Bruno explosion did not take into account that the pipeline was laid a decade before the community grew over it. The US Department of Transportation on Dec. 16 released recommendations developed by the Pipelines and Informed Planning Allowance to address issues raised by development near pipelines. DOT offered nearly 50 recommended practices for local communities, developers, and pipeline operators. The recommendations suggest ways land-use planning and development decisions can protect existing pipelines and growing communities, said DOT. It also provided recommendations on how communities can gather information about local transmission pipelines, and how local planners, developers, and pipeline operators can communicate during development phases to understand pipeline risks and minimize pipeline damage from excavation and construction. Edwards said the goal is to help local governments evaluate the risks associated with developments near pipelines and make more informed decisions as they set zoning rules

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and issue building permits. Santa noted some officials do not recognize that placing both sewer and water lines near gas lines can increase thirdparty excavation risks. AGA’s Sames said the goal was not to increase regulations but rather to emphasize to local governments the importance of education about building along pipeline routes.

Integrity management She said federal lawmakers and DOT, through its US Pipeline and Hazardous Materials Safety Administration, have been working for years to address integrity management (IM) issues. Witnesses testifying during 2010 congressional hearings to reauthorize the federal pipeline safety act noted a 2006 law imposed IM requirements on LDCs after a 2002 law placed IM requirements on interstate oil and gas lines, Sames told OGJ. Lawmakers pushed reauthorization of the pipeline safety act into 2011 while Congress focused on the Macondo deepwater well accident and subsequent crude oil spill, Sames added. Pipeline integrity involves more than age, she emphasized. Factors can include whether the pipe is plastic or steel (and, if it’s steel, whether it is coated), if it is cathodically protected, if it’s in dry or wet soil, and whether there is a nearby power line, she said. In-line inspections are improving, she said. “They can be used on more sizes of pipe and over a broader range. Some pigs can even go through tight turns.” Black said pipeline safety advocates recognize that pipeline integrity involves more than the age of the pipeline. “There are questions about how the pipeline was constructed and laid, particularly the specific techniques and practices of the time, and how it has been maintained,” he told OGJ. Corrosion is a key integrity issue for oil pipelines, Black said. “Internal corrosion is a major cause of pipeline failures, most of which are not as dramatic as the accidents which capture the public’s attention,” Black said.

Sharing experiences US corrosion-related oil pipeline failures dropped 74% from 2001 to 2008, partly due to IM rules DOT imposed in 2001, Black said. Oil pipeline operators try to continuously improve operations through an American Petroleum InstituteAOPL best-operating practices team where they share experiences with problems and compare operations with their peers, he said. While requirements exist nationwide for developers to call a central pipeline information center before they begin to excavate, the 811 system is not yet in place everywhere, officials of the three associations indicated.

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Santa said INGAA suggested the pipeline safety reauthorization bill include federal support for states to adopt programs with minimal exemptions and strong enforcement. “It’s incumbent on pipelines and PHMSA to remind policymakers that regulation and practices governing pipeline safety have been in place for a long time,” said Edwards. “It has encouraged improvement, which has made it relatively safe over the last 50 years.” Santa said pipeline safety involves sound engineering, risk principles, and technology. “It clearly would be judged to be a prudent investment. There may be issues about how costs would be recovered, but never about whether they would.” He noted 14,000-15,000 miles of interstate gas pipeline were constructed during the last decade, the bulk of it in the last 2 years. That compares with 700 miles of new highvoltage electrical transmission, he added. Sames said DOT and PHMSA moved from regulations built on prescriptions over specific intervals to risk-based rules that require operators to continuously identify potential problems and address them. “This lets companies put resources where they have the most impact,” she explained. “Where once you might have been in a desert environment having to inspect for corrosion every 7 years, now you can redirect your efforts to damage prevention and education instead.” She believes DOT has taken steps that helped improve pipeline safety in the last 10 years using in-line inspections, hydrostatic tests, direct assessments, and pressure testing.

Assessing corrosion Sames said direct assessments, developed by the National Association of Corrosion Engineers, examine opportunities where corrosion could exist and determines what steps could be taken. One unfortunate idea to emerge following the San Bruno accident was the notion that government and industry always should remain separate, she said. “That’s not always the case, especially with integrity management and excavation notification. Both of these work best when government and industry work together,” Sames said. Black said restoring public confidence and securing funding for adequate enforcement are equally important. “The record for oil pipelines has improved, but we don’t want any accidents to occur at all,” Black said. “We don’t believe there are any regulatory gaps.” He pointed out that PHMSA does extensive investigations and asks questions during its audits. Santa called pipeline safety a bipartisan issue. “An accident can occur in a district represented by a Democrat or a Republican,” Santa said. “Still, the incidents which happened in 2010 will frame the debate in 2011, although Congress not trying to act immediately has provided time to look more closely for the best solutions.”

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GENERAL INTEREST

Government sues to recover costs from Macondo blowout, spill Nick Snow Washington Editor

The US Department of Justice and Environmental Protection Agency jointly sued to recover damages from the Apr. 20 Macondo well accident, which claimed 11 lives, and subsequent crude oil spill into the Gulf of Mexico. DOJ and EPA filed a civil action in US District Court in New Orleans naming nine defendants, including the well’s operator, BP Exploration & Production Inc.; partner Anadarko Exploration & Production LP; offshore drilling contractor Transocean Holdings LLC; and insurers QBE Underwriting Ltd./Lloyd’s Syndicate 1036. The complaint alleges violations of federal safety and operational regulations, including failures to take necessary precautions to secure the well before the blowout and explosion, use the safest drilling technology to monitor the well’s condition, maintain continuous surveillance of the well, and use and maintain equipment and materials necessary to protect personnel, property, natural resources, and the environment, US Atty. Gen. Eric Holder said. “We intend to prove that these violations caused or contributed to this massive oil spill, and that the defendants are therefore responsible—under the Oil Pollution Act—for government removal costs, economic losses, and environmental damages,” he told reporters. Holder said the federal government also is seeking fines under the Clean Water Act, which prohibits unauthorized discharges of oil and similar substances into US waters. “We allege that the defendants named in this lawsuit were in violation of the act throughout the months that oil was gushing into the Gulf of Mexico,” he said. “We intend to hold them fully accountable for their violations.” He said DOJ launched both civil and criminal probes into the accident and spill as initial response efforts were under way, and that lawyers and investigations from the department closely coordinated their efforts with local US attorneys’ offices and states’ attorneys general.

Investigations continue “While today’s civil action marks a critical step forward, it is not a final step,” Holder declared. “Both our criminal and civil investigations are continuing. Our work to ensure that the American taxpayers are not forced to bear the costs of restoring the gulf area—and its economy—goes on. As I have said from the beginning, as our investigations continue, we will not hesitate to take whatever steps are necessary to hold

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accountable those responsible for this spill.” DOJ worked with EPA, the US Coast Guard, the National Oceanic and Atmospheric Administration, and the US Department of Interior’s Fish and Wildlife Service and Bureau of Ocean Energy Management, Regulation, and Enforcement in its investigations for the civil suit, he noted. In a response, BP said that the lawsuit “is solely a statement of the government’s allegations and does not in any manner constitute any finding of liability or any judicial finding that the allegations have merit,” adding, “BP will answer the government’s allegations in a timely manner and will continue to cooperate with all government investigations and inquiries.”

Court refuses to block EPA’s GHG regulation Nick Snow Washington Editor

A federal appeals court rejected a request by the oil and gas industry and others to delay the US Environmental Protection Agency’s plans to begin regulating greenhouse gas emissions on Jan. 2. The request did not meet “stringent standards required for a stay pending court review,” the appellate court for the District of Columbia circuit ruled on Dec. 10. The National Petrochemical & Refiners Association was among business groups that had filed a motion for a partial stay of EPA’s greenhouse gas regulations. Charles T. Drevna, NPRA president, said, “Today’s action means Charles T. Drevna that EPA’s invasive and misguided NPRA president regulations will be imposed on our nation’s businesses and manufacturers at the beginning of 2011.” Quentin Riegel, vice-president of litigation and general counsel at the National Association of Manufacturers, added, “EPA’s agenda places unnecessary burdens on manufacturers, drives up energy costs, and imposes even more uncertainty on the nation’s job creators. We will continue our efforts to stop the EPA from pursuing its job-destroying agenda.” Environmental organizations were elated. “This is a victory for every American who wants better gas mileage and cleaner cars,” said David Doniger, policy director at the Natural Resources Defense Council’s climate center.

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WATCHING GOVERNMENT Responding to an OGJ inquiry, EPA said in a Dec. 13 statement that the court’s ruling confirmed what the agency “has been saying all along: that [EPA’s] reasonable actions to address carbon pollution will unfold in a manageable and sensible way.” EPA added, “Yet again, the doomsday predictions of special interest lobbyists have been proven wrong.” The groups filed their motion in August to prevent EPA’s implementation of its June 3 Prevention of Significant Determination and Title V Greenhouse Gas Tailoring Rule, which would begin federal GHG emissions regulation by targeting refineries, chemical plants, and other large industries.

FGE-FACTS: Chinese, India expand refining capacities Refineries for national oil companies (NOCs) in China and India continued to expand capacities as 2010 closed. Japanese refiners, on the other hand, headed into a second round of capacity reductions. These are among the conclusions in a study of Asian refining by FGEFACTS Global Energy, Honolulu. The study also said up to 5 years will pass before any new major capacity will be commissioned by Asian refiners, securing crude from the Middle East is becoming more important for Asian refiners, and conversion capacity is added far more quickly than primary distillation capacity in the Asia Pacific. FGE-FACTS said China will add about 6 million b/d of new refining capacity from the start of 2010 to yearend 2020. Chinese NOCs’ investment in refining is not entirely driven by refining economics, and they have the financial resources and strategic intentions to make their planned refineries become reality.

Oil & Gas Journal | Dec. 27, 2010

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NICK

SNOW

Washington Editor | Blog at www.ogj.com

Bromwich isn’t done As the US offshore oil and gas industry tried to adjust to new federal regulations in the wake of the Macondo well accident and crude oil spill, the US Bureau of Ocean Energy Management, Regulation, and Enforcement’s director signaled that more reforms are ahead. “While we have already put in place significant pieces of our comprehensive reform agenda, our work is far from complete,” Michael R. Bromwich told the First International Oil & Gas Law Conference in New Orleans on Dec. 8. He said that BOEMRE soon will move through the standard rulemaking process to implement further safety measures, including establishing additional requirements for blowout preventers and remotely operated vehicles. The agency that formerly was the US Minerals Management Service also will consider additional workplace safety rules that will include requirements for independent third-party verifications of operators’ programs, he indicated. Bromwich said that since BOEMRE announced its new rules at the end of September, “we have heard from countless companies, trade associations, and members of Congress of the significant anxiety that currently exists in the industry that we will soon change the rules of the permitting process significantly, thereby creating further uncertainty about what is required to conduct business on the OCS. “This is not the case,” he contin-

ued. “Barring significant, unanticipated revelations from the ongoing investigations into the root causes of the [Macondo well] incident, I do not anticipate further emergency rulemakings.

‘Must keep pace’ “But at the same time, we can no longer accept the view that the appropriate response to a rapidly evolving, developing, and changing industry [that] employs increasingly sophisticated technologies is for the regulatory framework and the applicable rules to remain frozen. Over time, the regulatory framework and the specific requirements must keep pace,” Bromwich said. He said that BOEMRE will continue to analyze information that becomes available, including findings and recommendations of the ongoing investigations into the causes of the Apr. 20 accident and subsequent spill. It also will implement reforms to provide stronger worker and environmental protection offshore, he maintained. “In developing these reforms, we will balance the need for regulatory certainty against the need to act on new insights and adapt to changing technology. And, importantly, the processing of drilling permit applications and proposed drilling plans will not be delayed while these additional reforms are developed,” he declared. Bromwich said that industry groups sometimes have reflexively opposed new rules in the past.

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GENERAL INTEREST Indian state refiners also have firm plans to expand refining capacities to meet domestic demand growth, said the study, while Essar Oil, a key Indian private company, will carry out its Vadinar Phase II expansion for export. On the other hand, Japanese refiners JX Group, Idemitsu, and Showa Shell have announced plans to close 600,000 b/d of refining capacity to meet an ordinance from Japan’s Ministry of Economy, Trade, and Industry promulgated under the July 2009 law. The ordinance requires refiners to meet a cracking/crude-distillation-unit capacity ratio of 13% or higher by March 2014. TonenGeneral Group (ExxonMobil) and Cosmo Oil’s strategies to meet the ordinance are key to the country’s industry reorganization, says the FGE-FACTS study. If all refiners follow the METI ordinance, 1.1-1.3 million b/d of refining closures in Japan are likely by 2014. The study also says that 4-5 years’ breathing space is in store for Asian refiners, since no new major capacity is scheduled for commissioning before 2015. As a result, the refining surplus in Asia will shrink. Refining margins, how-

ever, will drop sharply again as new large complex Middle Eastern export refineries start to come on line after 2015.

Supply source Indeed, says the study, securing crude supplies from the Middle East is becoming increasingly important for Asian refiners’ profitability and survival. A large mismatch between Asian refiners’ designed crude slates and additional availability of Middle Eastern crudes, especially after 2015, is likely, as Middle East export refineries start to come on line. Asian refiners may need to compete with each other for Middle Eastern crudes; some will be forced to use suboptimum crudes. Also, the light, heavy, and sweet-sour crude differentials will narrow. Conversion capacity is being added far more quickly than primary distillation capacity among Asia-Pacific refiners. As a result, light-heavy product and light-heavy crude differentials will be lower. A larger surplus in transportation fuels and larger deficit in fuel oil will create opportunities for trading companies based in Singapore.

Chevron suspends pipeline use in Nigeria as ExxonMobil, Shell resume operations Eric Watkins Oil Diplomacy Editor

Chevron suspended operations of the Dibi-Abiteye oil pipeline in Nigeria’s Niger Delta in an effort to minimize potential environmental damage while investigating damage caused to the line after militant attacks on oil flow stations. The line feeds the 123,000 b/d Escravos oil export stream, according to loading programs. The Niger Delta Liberation Force (NDLF), a militant faction in Nigeria’s oil-producing wetlands region, claimed attacks on three oil flow stations operated by Chevron and Eni SPA. “We have suspended production to minimize environmental impact and have informed relevant government agencies and other stakeholders,” Chevron said. “The breach is being investigated and we are reviewing our operations.” The attack on Chevron and Eni coincided with separate announcements by Royal Dutch Shell PLC and ExxonMobil Corp. that they also had resumed operations at sites earlier attacked by militants. ExxonMobil resumed production of 15,000 b/d of Nigerian Oso condensate that was shut in following a militant raid on an offshore platform last month (OGJ, Nov. 22, 2010). “We have restarted 15,000 b/d of condensate from the Oso field. No firm time for restart of Natural Gas Liquids (NGL) production is available at this time,” Exxon said of

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Oso, which produces 75,000 b/d from eight platforms. Nigeria’s main militant group, the Movement for the Emancipation of the Niger Delta (MEND), claimed responsibility for the November attack in which eight Exxon workers were reported kidnapped and later rescued. Shell also resumed shipments of oil from a key export terminal in southern Nigeria after repairing a leak on the Trans-Niger pipeline which feeds the terminal. “The force majeure on Bonny Light exports was lifted effective Dec. 14 following the repairs of the supply pipeline and stabilization of production,” said Shell, which declared force majeure on Nov. 19. Earlier this year, the Shell Petroleum Development Co. (SPDC) of Nigeria-operated Joint Venture raised an alarm over the recent increase in sabotage attacks on its pipelines around Bonny in Rivers State. During Aug. 1-12, SPDC recorded three separate sabotage incidents on its Cawthorne Channel—Bonny and Alakiri— Bonny pipelines, where suspected crude thieves drilled holes or inflicted hacksaw cuts to siphon oil. “Last year, 98% of the oil spilled from SPDC operations was caused by sabotage,” said Babs Omotowa , Shell vicepresident for health, safety, and environment and infrastructure and logistics in Africa. Nigerian militants claim to be fighting against the region’s endemic poverty and pollution which they say is

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WATCHING THE WORLD caused by 50 years of oil production. The militant groups typically blame the Nigerian National Petroleum Corp. (NNPC)—and its IOC partners—for failing to address the region’s problems.

ERIC

WATKINS

Oil Diplomacy Editor | Blog at www.ogj.com

Chevron claims forged signatures in Ecuador lawsuit Eric Watkins Oil Diplomacy Editor

Chevron Corp. said litigation against the firm in an Ecuadorian court should be terminated because a forensic specialist discovered many forged signatures on the document that initially authorized the legal action. “The Ecuadorian authorities cannot continue to ignore the mounting evidence of fraud in the Lago Agrio litigation without violating their duties under the Ecuadorian constitution and international law,” said R. Hewitt Pate, Chevron vice-president and general counsel. Forensic document examiner Gus R. Lesnevich said at least 20 of the 48 signatures were faked on the document that purported to ratify the 2003 complaint and appoint Ecuadorian lawyer Alberto Wray as plaintiffs’ counsel , Chevron said. Lesnevich compared plaintiffs’ signatures on the legal document with their signatures from national identification cards. In addition, an electrostatic detection device revealed the legal document bore indentations “consistent with someone practicing the writing of a signature.” The forensic analysis was filed in the Provincial Court of Sucumbios along with a motion calling on Judge Nicolas Zambrano to declare the lawsuit null and void. Chevron also asked

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Pipeline diplomacy in Asia The international oil and gas industry understands the need for diplomacy, a skill that is coming to dominate the matter of constructing and operating pipelines. That is certainly the emphasis of a recent study published by the Seattlebased National Bureau of Asian Research entitled “Pipeline Politics in Asia: The Intersection of Demand, Energy Markets, and Supply Routes.” “The scramble for resources and transport has had uniquely important implications across East Asia and Eurasia while powerfully influencing regional energy market dynamics and geopolitical relationships,” said Mikkal Herberg, one of five authors of the report. “At the nexus of these dynamics is a growing competition to develop a number of major Asian and Eurasian oil and gas pipelines to move oil and gas across the region,” Herberg said, citing three facts that drive the trend.

Three drivers The first of these, according to Herberg, involves the fact that an increasing share of Asia’s oil and liquefied natural gas supplies will have to transit the Indian Ocean, Malacca Strait, and the South China Sea. Herberg cited figures from the International Energy Agency that indicate Asia’s oil imports passing through the Malacca Strait could double over the next 2 decades to 22 million b/d from the current 11 million b/d. “This has raised new concerns,

particularly for China, over the growing risk of major maritime supply disruptions, as well as over US control of these vital sea lanes,” Herberg said, noting that this concern is “driving China’s efforts to diversify supply lines with new overland pipeline routes.” Asia’s scramble for oil and gas has also been triggered by the break-up of the former Soviet Union, which Herberg said freed up “enormous new potential reserves of oil and gas in Central Asia” as well as “scaled up production” from Russia, especially fields in East Siberia.

Zero-sum competition The rise of China and the country’s booming oil and gas needs in particular represent the third main drive behind the region’s scramble for supplies, touching off what Herberg called “a zero-sum competition over energy supplies and transit.” The essays in this report take up the broad geopolitics of cross-border pipeline development, the progress in development of new oil and gas pipelines from Russia’s Eastern Siberia to China and Northeast Asia, and prospects for Central Asian oil and gas pipelines to East Asia. Also included are essays on India’s gas pipeline dilemmas and challenges, as well as the implications of new oil and gas pipelines being built by China across Myanmar into Southeast China. This gives a heads up of what’s in the pipeline, so to speak.

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GENERAL INTEREST the judge to forward the matter to Ecuador’s Prosecutor General’s Office for criminal investigation. “We intend to seek full redress against the harm that has been done in the name of the Ecuadorian plaintiffs and to hold accountable all of those who have knowingly participated in this unlawful scheme,” said Pate. In responding to Chevron’s allegation of forgery, Pablo Fajardo, the lead Ecuadorian lawyer on the case, said most of the signatories on the lawsuit have no formal education and have signed via a fingerprint only a handful of documents in their entire lives. “It should thus not be surprising that any two signatures a person makes over the course of an entire life would look different, but it does not suggest fraud as Chevron claims,” Fajardo said. Chevron denies allegations it was responsible for environmental and social harms in Ecuador’s Amazon region. The oil company said it never conducted oil production operations there, and Texaco Petroleum Co. fully remediated its share of environmental impacts arising from oil production operations before 1992. After the remediation was certified by all responsible agencies of the Ecuadorian government, Texaco received a complete release from Ecuador’s national, provincial, and municipal governments before Chevron acquired Texaco in 2001, Chevron said. “All legitimate scientific evidence submitted during the litigation in Ecuador proves…remediation was effective and that the sites it remediated pose no unreasonable risks for human health or the environment,” Chevron said.

Flow rate tops 10,000 b/d at Llanos discovery A discovery well on the Corcel block in Colombia’s Llanos basin has tested light oil at the rate of more than 10,000 b/d, said Petrominerales Ltd., Bogota. Logs at the Caruto-1 well indicated 47 ft of potential net oil pay in the Lower Sand formation. The well flowed at more than 10,000 b/d of light, 32° gravity oil on an initial 7-hr production test with no water on an electric submersible pump at 75% capacity. Petrominerales, a 65% owned subsidiary of Petrobank Energy & Resources Ltd., Calgary, turned off the ESP due to facility and storage limits at the wellsite and has been producing the well on natural flow at 5,600 b/d. Total depth is 13,024 ft measured depth. Petrominerales said, “We are installing temporary facilities and expect to have the well producing at a controlled rate of 12,000 bbl of fluid per day within the following

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week. Additional facility capacity is expected to be available in mid-January.” Meanwhile, the Boa-2 well encountered the Lower Sand formation 10 ft structurally higher than in Boa-1 and is on production at an initial oil rate of 600 b/d of oil. Corcel-E2 is drilled to 13,180 ft MD, and logs are being run. A third rig is drilling in the area temporarily. The first rig is moving from Caruto-1 to drill the Cardenal-1 prospect, and the second rig is drilling the Yatay-1 exploratory well on the Guatiquia block southwest of Corcel. The third rig is to move from Corcel-E2 to the Amarillo well pad to drill a new exploratory prospect, Cobea-1 or Amarillo-2. Petrominerales will incorporate the Caruto-1 well results into its geological model and adjust the drilling order as required. Arion remains a firm prospect for either a sidetrack or redrill. Meanwhile, the Asarina-1 well on the Llanos basin Rio Ariari heavy oil block cut 79 ft of potential net pay in several Lower Mirador sands and was cased as a potential oil producer. An initial testing program targeting four separate sands began Oct. 30. The first Mirador test recovered 120 bbl of 10° gravity heavy oil at a maximum rate of 100 b/d with 85% water cut. The second Mirador test in a stratigraphically higher sand recovered 10 b/d of 10° gravity heavy oil at 98% water cut. The final two tests from two separate Mirador sands recovered water with trace amounts of oil. The presence of oil in the Asarina well encouraged the company, which is considering alternatives including horizontal wells to evaluate the optimal completion, testing, and production techniques for future heavy oil wells. The next well at Rio Ariari, Mochelo-1, spudded Oct. 29 and reached 5,309 ft measured total depth Nov. 18. Logs indicate 69 ft of net potential pay in the Mirador formation. We cased the well and plan to perform a multi-interval test program. The next well in the program, Borugo-1, is to spud in early-December. The nine-well Rio Ariari exploratory drilling program is designed to target new exploration prospects and playtypes that could result in the identification of multiple large resource opportunities. Petrominerales expects to run this program continuously into 2011.

EXPLOR ATION / DEVELOPMENT BRIEFS

Brazil A Petrobras group said early tests confirmed light oil potential of the western extent of the Tupi-Iracema accumulation in the deepwater Santos basin off Brazil. Wireline tests at the Tupi W well, in 2,139 m of water on

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GENERAL INTEREST the BM-S-11 block 11 km northwest of the Tupi discovery well, confirmed 28° gravity oil in presalt reservoirs at the western extreme of the Tupi Evaluation Plan Area. The reservoir is 90 m thick at this location. If formation tests scheduled in coming months meet with success, the group will consider dedicating a floating production, storage, and offloading vessel to the Tupi W area. The final evaluation of volumes for the Tupi-Iracema area was being formulated and was to be released at the end of December. Petrobras is operator with 65% interest. BG Group has 25%, and Portugal’s Galp Energia has 10%.

Colombia Alange Energy Corp., Toronto, will appraise and may horizontally drill an unexpected heavy oil accumulation in the Cretaceous Lower Rumiyaco formation at the Topoyaco-2 exploratory well on the 60,034-acre Topoyaco block in Colombia’s Putumayo basin. A zone at 7,532-7,624 ft that appears to be the Rumiyaco tested at 310 b/d of 10.5° gravity oil with 20% basic sediment and water on an electric submersible pump. Rumiyaco has 48 ft of net pay. TD is 8,700 ft. The company will drill a new well to the deeper Villeta and Caballos, the intended targets in Topoyaco-2. Overall, Topoyaco-2 cut 114 ft of net pay sand and 125 ft of oil-saturated carbonates. The definitive stratigraphic model will have to be validated by a thorough geological evaluation to encompass correlations with blocks to the south and northeast, Alange Energy said. The company will start drilling Prospect D, the block’s most important objective, late in the 2011 first quarter targeting the subthrust. Topoyaco-1 on Prospect B penetrated the whole sedimentary column of interest, reaching the Saldana formation in the Paleozoic. Alange Energy, operator with 50% working interest, plans to run an ESP to start production testing in the next week. Pacific Rubiales Energy Corp. has the other 50%.

China The ZJS-02 well in the downthrown block of the 175,000acre Zijinshan gas asset in China’s Ordos basin intersected 68 bcf of gas in place, according to consulting engineers and in-house estimates, said Camac Energy Inc., Hartsdale, NY. Camac, which owns 100% of the foreign contract interest in the block in partnership with PetroChina CBM Co., plans to drill the ZJS-03 well late in the 2011 first quarter on the larger upthrown block. The block is in Shanxi Province near the West-East and Ordos-Beijing gas pipelines.

Oil & Gas Journal | Dec. 27, 2010

101227ogj_23 23

Guinea Hyperdynamics Corp., Houston, has signed a nonbinding letter of intent with an undisclosed large independent oil and gas company to farm out part of its interest in a concession off Guinea, West Africa. The companies are in a period of exclusive negotiations that ends Jan. 27, 2011, unless the parties agree otherwise.

New Zealand Roc Oil Co. Ltd., Sydney, heads a group that plans to bring the Kaheru prospect on PEP 52181 just off New Zealand’s North Island to the drilling phase. The permit covers 42,379 acres in the main Taranaki basin oil and gas discovery fairway. TAG Oil Ltd., Vancouver, BC, has joined the joint venture with 20% interest in the permit. PEP 52181, 8 km offshore, contains Kaheru and numerous leads and has extensive 2D and 3D seismic coverage. Kaheru is a Miocene-aged prospect on the same thrust belt play fairway as many significant Taranaki oil and gas fields. It is just east of Kupe gas-condensate field.

Turkey Oman Resources Ltd., private UK explorer, is pursuing a gas-condensate development program on the 49,821 ha Konya Block 4077 in the Tuz Golu basin of south-central Turkey. The Gulhanim-2 well has encountered a previously unidentified but encouraging gas zone at 1,275-90 m and should reach the Lower Eocene-Upper Paleocene target by late January 2011. A workover rig was expected to reenter the Karapinar-1 well. Construction is to start shortly on a compressed natural gas bottling plant that will provide an early, commercially attractive solution to monetize gas produced from the block until a 12-km pipeline can be installed. Early interpretation of 14 lines of the 186 line-km of 2D seismic shot on the southern part of the block are supportive of further leads in the west and indicate possible structural closure to the east, said Niche Group PLC, an investor in Oman Resources.

Vietnam CGGVeritas has signed a term sheet with Petrovietnam Technical Services Corp. to create a joint venture to operate 2D and 3D marine seismic vessels, primarily in Vietnamese waters. The joint venture will provide seismic data acquisition services for the oil and gas clients operating locally in Vietnam and the region.

23

12/22/10 10:40 AM

EQUIPMENT | SOFTWARE | LITERATURE SOFTWARE ADDITION EXPANDS OIL FIELD MANAGEMENT SUITE Now available is this firm’s full operations management suite (OMS)—in conjunction with the launch of the production manager product—which provides a comprehensive, integrated data management platform to manage and optimize the life cycle of oil and gas assets from acquisition to drilling to production to divestiture. With the introduction of production manager, OMS offers a common environment for master well data management through an integrated set of five software products: Property master—serves as the central OMS solutions to define and manage all field assets, including wells, facilities, subfacilities, and equipment. AFE manager—enables work flows to handle creation, management, and tracking of approvals for authorization for expenditures (AFE). Well life cycle manager—focuses on

the life cycle of the well for drilling and completion operations, tracking of well services, and summarization of field data for daily reporting. Production manager—captures field data, supports construction of graphical delivery networks, prepares daily-monthly allocations, and generates production and regulatory reports. Material transfer manager—implements work flows to track approval and movement of operational assets and equipment. At the core of OMS is a centralized, relational database known as PetrisWINDS operations data model. OMS has support for multiple languages, different currencies, and units of measurements. The full suite is based on Microsoft SQL-Server and is written in .NET. The overall architecture of OMS makes it highly scalable, the firm says. Source: Petris Technology Inc., 1900 St. James Pl., Suite 700, Houston, TX 77056.

NEW POROUS PLASTIC POWDER Newly developed GUR X 192 macropowder is a porous plastic powder suited for production operations. The firm says that sintered products produced with this new material have excellent porosity and good strength for use in a variety of filtration applications for liquids and gases that require higher flow rates, lower pressure drops, and increased part strength. At the heart of this new polyethylene resin is a patent pending technology. It enables the material to be shaped and sintered—180-220o C. (356-428o F.)—into porous objects with improved strength and porosity. Its molecular weight is 600,000 g/ mol as determined by the German Institute for Standardization (DIN) 1628/ Margolies. Source: Ticona Engineering Polymers, 8040 Dixie Highway, Florence, KY 41042.

ADVERTISERS INDEX COMPANY NAME Elliott

PAGE 2

www.elliott-turbo.com

OGJ Surveys

4

www.PennEnergyResearch.com

PennEnergy Buyer’s Guide

10

www.PennEnergy.com

PennEnergyResearch

13

www.PennEnergyResearch.com

ONE WORLD. ONE SOURCE.

ONE HUNDRED YEARS. PUBLICATIONS • EVENTS • DIGITAL MEDIA

PennEnergy Directory Data

15

www.PennEnergyResearch.com

PennWell Corporation

24

www.PennEnergyResearch.com

www.pennwell.com This index is provided as a service. The publisher does not assume any liability for errors or omission.

24

101227ogj_24 24

Oil & Gas Journal | Dec. 27, 2010

12/20/10 4:40 PM

STATISTICS IMPORTS OF CRUDE AND PRODUCTS — Districts 1-4 — — District 5 — 12-10 12-3 12-10 12-3 2010 2010 2010 2010 ––––––––––––––––––––––––— 1,000 b/d

———— Total US ———— 12-10 12-3 *12-11 2010 2010 2009 ––––––––––––––––––––––––—

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

865 730 253 281 15 110 –68

853 701 257 436 55 146 96

10 10 10 48 15 –38 114

13 13 0 0 76 –88 80

875 740 263 329 30 72 46

866 714 257 436 131 58 176

967 716 229 330 57 179 155

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

2,186

2,544

169

94

2,355

2,638

2,633

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

6,889

7,740

801

1,313

7,690

9,053

7,772

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

9,075

10,284

970

1,407

10,045

11,691

10,405

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

PURVIN & GERTZ LNG NETBACKS—DEC. 17, 2010 –––––––––––––––––––––––––––– Liquefaction plant –––––––––––––––––––––––––––––––– Algeria Malaysia Nigeria Austr. NW Shelf Qatar Trinidad –––––––––––––––––––––––––––––––– $/MMbtu ––––––––––––––––––––––––––––––––––––

Receiving terminal Barcelona Everett Isle of Grain Lake Charles Sodegaura Zeebrugge

8.79 3.57 7.82 1.68 5.83 7.49

6.52 1.44 5.48 –0.23 8.18 5.20

7.88 3.19 7.11 1.44 6.06 6.77

6.42 1.54 5.38 –0.04 7.87 5.10

7.15 1.98 6.09 0.16 7.08 5.79

7.80 3.86 7.14 2.29 5.17 6.84

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

OGJ CRACK SPREAD *12-17-10 *12-18-09 Change Change, ———–—$/bbl ——–—— % SPOT PRICES Product value Brent crude Crack spread

99.99 91.73 8.26

FUTURES MARKET PRICES One month Product value 99.70 Light sweet crude 88.25 Crack spread 11.46 Six month Product value 102.61 Light sweet crude 90.59 Crack spread 12.02

78.53 71.89 6.64

21.46 19.84 1.62

27.3 27.6 24.4

79.40

20.31

25.6

71.77 7.62

16.48 3.84

23.0 50.3

85.37

17.24

20.2

76.70 8.67

13.89 3.35

18.1 38.6

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

9,314 92,788 173,369 16,224 54,323

54,285 49,211 73,959 7,091 30,227

43,520 24,942 49,796 1,995 25,288

9,637 7,983 15,258 700 10,185

67,497 28,697 47,572 3,568 13,971

14,027 1,444 19,884 198 4,221

5,770 26,948 27,391 1 1,717 —

Dec. 10, 2010 .......................... Dec. 3, 2010 ............................. Dec. 11, 20092 ..........................

346,018 355,871 332,387

214,773 213,964 217,213

145,541 144,409 134,199

43,763 45,750 41,013

161,305 160,212 164,363

39,774 40,143 36,474

61,826 63,063 57,441

1

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

REFINERY REPORT—DEC. 10, 2010 REFINERY –––––– OPERATIONS –––––– Gross Crude oil inputs inputs ––––––– 1,000 b/d ––––––––

District

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

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

1,113 3,369 7,789 534 2,682

1,113 3,314 7,539 528 2,480

2,920 2,283 2,283 329 1,530

70 193 695 28 397

407 1,004 2,436 182 517

55 41 249 10 140

44 232 717 1 54 —

Dec. 10, 2010 ..................................... Dec. 3, 2010 ....................................... Dec. 11, 20092 ....................................

15,487 15,392 14,136

14,974 14,903 13,804

9,345 9,338 9,097

1,383 1,402 1,445

4,546 4,494 3,726

495 516 572

1,047 1,088 977

17,594 Operable capacity 1

88.0 utilization rate

2

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

Oil & Gas Journal | Dec. 27, 2010

101227ogj_25 25

25

12/21/10 1:47 PM

STATISTICS OGJ GASOLINE PRICES

BAKER HUGHES RIG COUNT

Price Pump Pump ex tax price* price 12-15-10 12-15-10 12-16-09 ————— ¢/gal ————— (Approx. prices for self-service unleaded gasoline) Atlanta .......................... 254.1 293.3 Baltimore ...................... 256.0 297.9 Boston ........................... 251.0 292.9 Buffalo .......................... 242.8 306.0 Miami ............................ 255.0 307.4 Newark .......................... 268.5 301.4 New York........................ 251.2 314.4 Norfolk........................... 258.0 295.9 Philadelphia .................. 244.7 295.4 Pittsburgh ..................... 255.3 306.0 Wash., DC...................... 265.1 307.0 PAD I avg .................. 254.7 301.6

256.9 259.4 259.4 270.9 275.9 251.4 270.9 249.4 266.9 265.4 268.9 263.2

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

269.2 246.7 253.7 250.8 250.4 244.1 248.7 249.0 242.4 250.9 241.9 244.5 250.9 243.2 242.6 248.6

327.2 293.1 294.1 305.0 303.5 279.8 289.6 288.8 293.7 296.5 277.3 290.9 286.6 278.6 286.0 292.7

283.3 272.1 248.1 275.1 270.1 234.2 258.2 240.1 265.5 258.6 221.2 245.1 234.1 219.1 235.7 250.7

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

241.7 243.7 240.0 238.9 238.3 240.6 245.5 241.2

278.9 283.0 278.4 277.3 278.5 279.0 283.9 279.9

249.4 253.9 246.4 248.4 243.4 254.4 250.9 249.6

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

238.6 238.6 238.2 238.5

271.0 279.0 281.1 277.0

254.4 259.4 253.9 255.9

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

252.0 253.1 261.5 259.8 272.4 269.0 261.3 250.1 240.2 234.3 231.4 182.5

319.4 290.5 304.9 327.2 339.8 324.9 317.8 295.4 285.5 279.6 276.3 232.0

296.6 257.0 278.7 296.7 302.7 293.1 287.5 259.4 263.6 253.6 — —

*

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

REFINED PRODUCT PRICES 12-10-10 ¢/gal

12-10-10 ¢/gal

Spot market product prices Motor gasoline No. 2 Distillate (Conventional-regular) Low sulfur diesel fuel New York Harbor ......... 234.70 New York Harbor ......... Gulf Coast .................. 226.40 Gulf Coast .................. Los Angeles ................ Motor gasoline Kerosine jet fuel (RBOB-regular) New York Harbor ......... 237.90 Gulf Coast ..................

245.60 242.00 243.20 241.50

Propane No. 2 heating oil New York Harbor ......... 243.00 Mt. Belvieu ................. 126.30

OGJ PRODUCTION REPORT 1

12-17-10 12-18-09 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-6; VA-2 ..........................

6 7 37 35 35 0 64 2 4 4 26 7 175 124 14 16 21 0 0 6 7 2 67 1 145 9 149 103 0 749 2 2 56 52 47 45 76 60 9 62 194 29 38 77 30 23 43 8

5 9 37 26 25 1 44 0 0 3 19 12 177 120 13 13 31 0 0 7 8 1 50 2 62 8 93 62 0 478 2 0 22 16 33 28 68 59 15 44 93 20 36 42 17 22 41 10

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

1,709 500

1,193 368

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

2,209 756 941 23 1,532

1,561 409 773 34 1,086

(Crude oil and lease condensate) Alabama ................................. 18 Alaska .................................... 627 California ............................... 620 Colorado ................................. 73 Florida .................................... 3 Illinois .................................... 26 Kansas ................................... 110 Louisiana ............................... 1,559 Michigan ................................ 15 Mississippi ............................. 63 Montana ................................. 67 New Mexico ............................. 170 North Dakota .......................... 329 Oklahoma ............................... 186 Texas ...................................... 1,470 Utah ....................................... 62 Wyoming ................................. 139 All others ................................ 67 Total .................................. 5,604 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

155 66 134 294 365 277 159 141 60 1,651

3.8 54.5 14.1 3.4 10.6 3.6 — — — 7.2

INLAND LAND OFFSHORE

16 1,617 18

12-18-09 Rig Percent count footage* 84 60 130 232 256 162 165 65 31 1,185 17 1,131 37

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

1.1 70.0 26.9 6.4 12.5 1.8 — — — 10.8

12-10-10

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

SMITH RIG COUNT 12-17-10 Percent footage*

12-17-10 $/bbl* 78.21 90.75 81.15 89.10 79.27 84.00 79.50 84.50 84.50 77.50 76.50 83.25 73.25

*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

19 659 616 74 2 25 105 1,502 16 67 69 168 244 179 1,420 60 141 71 5,437

US CRUDE PRICES

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

Proposed depth, ft

2 12-17-10 12-18-09 –—— 1,000 b/d —–—

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

-

1

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

US NATURAL GAS STORAGE1 12-10-10

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

12-3-10

12-10-09 Change,

–——––—— bcf —––——– 1,204 1,246 1,131 1,891 2,002 1,981 466 477 484 3,561 3,725 3,596 Change, Sept. 10 Sept. 09 % 3,500

3,643

% 6.5 –4.5 –3.7 –1.0

–3.9

1

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

26

101227ogj_26 26

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 | Dec. 27, 2010

12/21/10 1:50 PM

STATISTICS WORLD OIL BALANCE

OECD TOTAL NET OIL IMPORTS

–––– 2010 –––– –––––––––––– 2009 ––––––––– 2st 1st 4th 3rd 2nd 1st 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 ........................

19.30 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

19.10 2.20 2.06 4.73 2.31 1.97 1.52 1.73 2.58

6.88

6.85

7.00

7.08

6.94

7.09

1.42 45.47

1.39 46.03

1.42 46.21

1.41 45.26

1.40 44.79

1.37 46.66

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

9.31 4.33 0.77 9.89 16.61 40.91

8.88 4.31 0.79 9.77 15.64 39.39

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 16.06 39.22

7.72 4.09 0.77 9.43 14.95 36.96

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

86.38

85.42

85.17

84.55

84.01

83.62

SUPPLY OECD US .......................................... Canada .................................. Mexico.................................... North Sea ............................... Other OECD ............................ Total OECD ........................ NON–OECD FSU ........................................ China .................................... Other non-OECD..................... Total non-OECD, non-OPEC .....................

9.54 3.30 2.99 3.74 1.53 21.10

9.46 3.29 3.02 4.07 1.56 21.40

9.40 3.36 2.98 4.06 1.59 21.39

9.33 3.32 2.96 3.81 1.60 21.02

9.10 3.11 2.99 4.01 1.57 20.78

8.78 3.39 3.06 4.40 1.59 21.22

13.20 4.23 12.86

13.16 4.16 12.80

13.12 4.03 12.65

13.00 4.02 12.51

12.89 3.99 12.46

12.61 3.94 12.46

Chg. vs. previous Aug. July June Aug. ——– year —— 2010 2010 2010 2009 Volume % –———————— Million b/d ––——————– Canada ............................ US .................................... Mexico .............................. France .............................. Germany ........................... Italy .................................. Netherlands...................... Spain................................ Other importers ............... Norway ............................. United Kingdom................ Total OECD Europe ...... Japan ............................... South Korea ...................... Other OECD ......................

–1,482 9,973 –1,093 1,751 2,415 1,515 755 1,478 3,709 –1,639 449 10,433 4,352 2,048 811

–1,391 10,123 –1,053 1,594 2,347 1,262 854 1,435 3,895 –1,845 382 9,924 4,272 2,175 772

–1,422 10,066 –724 1,644 2,109 1,394 1,097 1,338 3,867 –1,824 153 9,778 3,880 2,163 1,320

–1,257 9,064 –856 1,790 2,113 1,206 847 1,429 3,602 –1,896 479 9,570 4,273 2,124 875

–225 909 –237 –39 302 309 –92 49 107 257 –30 863 79 –76 –64

17.9 10.0 27.7 –2.2 14.3 25.6 –10.9 3.4 3.0 –13.6 –6.3 9.0 1.8 –3.6 –7.3

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

25,042

24,822

25,061

23,793

1,249

5.2

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

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

290 5,083 10

422 5,144 30

536 5,263 7

320 4,530 21

–30 553 –11

–9.4 12.2 –52.4

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

811 525 1,082 614 834 1,175

794 362 1,129 626 826 1,218

645 317 1,172 506 756 1,144

641 395 847 643 650 947

170 130 235 –29 184 228

26.5 32.9 27.7 –4.5 28.3 24.1

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

333

272

272

259

74

28.6

30.29

30.12

29.80

29.53

29.34

29.01

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

34.65

34.45

33.87

34.26

33.60

33.37

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

86.04

85.97

85.06

84.81

83.72

83.60

Total OECD Europe .......

5,374

5,227

4,812

4,382

992

22.6

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

–0.34

0.55

–0.11

0.26

–0.29

–0.02

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

3,527 2,298

3,484 2,220

3,153 2,313

3,637 2,324

–110 –26

–3.0 –1.1

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

593

471

730

582

11

1.9

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

17,175

16,998

16,814

15,796

1,379

8.7

*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 Aug. July ——YTD—— ——– year —— 2010 2010 2010 2009 Volume % –———––––––—— 1,000 b/d ––—––––––———– Algeria.............................. Angola .............................. Kuwait .............................. Nigeria ............................. Saudi Arabia .................... Venezuela ......................... Other OPEC....................... Total OPEC ..................

565 484 251 985 1,132 1,022 644 5,083

518 374 189 1,174 1,053 1,084 752 5,144

504 419 210 1,041 1,086 1,006 747 5,013

479 494 174 740 1,042 1,117 821 4,867

25 –75 36 301 44 –111 –74 146

5.2 –15.2 20.7 40.7 4.2 –9.9 –9.0 3.0

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

2,483 1,282 57 266 339 2,831 7,258 12,341

2,534 1,289 119 351 239 2,925 7,457 12,601

2,543 1,253 99 290 257 2,534 6,976 11,989

2,468 1,228 120 247 292 2,784 7,139 12,006

75 25 –21 43 –35 –250 –163 –17

3.0 2.0 –17.5 17.4 –12.0 –9.0 –2.3 –0.1

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

Oil & Gas Journal | Dec. 27, 2010

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

171 287 133 92 719 1,402

168 280 127 95 718 1,388

170 281 133 95 724 1,403

178 284 130 96 722 1,410

–7 3 3 –4 –3 –8

–3.9 1.1 2.3 –4.2 –0.4 –0.6

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

198 1,857 597 169 115

197 1,853 598 170 116

189 1,839 597 167 120

201 1,834 610 160 111

–3 23 –13 9 4

–1.5 1.3 –2.1 5.6 3.6

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

4,338

4,322

4,315

4,326

12

0.3

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

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Oil & Gas Journal | Dec. 27, 2010

12/21/10 9:33 AM

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THE EDITOR’S PERSPECTIVE

MARKET JOURNAL

Green awards flow to governor of state deep in red

Oil to top $100/bbl again

by Bob Tippee, Editor While his state teeters financially, outgoing California Gov. Arnold Schwarzenegger is sweeping up environmental awards. On Dec. 15, Schwarzenegger received the inaugural Green Governor of the Year Award from Beautiful Earth Group, a New York solar and wind-power company. Beautiful Earth gave Schwarzenegger the award “because of his groundbreaking achievements in reducing greenhouse gas emissions and combating climate change, his push for an increase in the state’s renewable energy portfolio requirement; his ability to balance the complex interests of environmental groups, energy developers, utilities, and consumers; and, in an election year, for turning the tide against a regulatory framework that potentially supports legalized pollution.” On Dec. 2, the US Environmental Protection Agency gave the movie star its Climate Change Champion Award “in recognition of his accomplishments in green energy, clean technology, but above all for his extraordinary leadership in the struggle against global climate change.” Californians must be very proud—at least those not on the receiving end of a state unemployment rate above 12%. Schwarzenegger is proud. Accepting the Beautiful Earth award, he said, “California is showing the world that you can protect the environment and grow the economy at the same time. We are creating a new economic foundation for the 21st Century built on clean fuel, clean energy, and clean cars that is turning California into the green capital of the nation and the world, and I couldn’t be more proud of these accomplishments.” Never mind that Chief Executive magazine ranks California at the bottom of states in business climate, in part because of burdensome environmental regulations. Never mind that California in October closed a $19 billion fiscal gap with a budget that the credit-rating service Moody’s said “relies heavily on one-time measures, optimistic revenue assumptions, and the receipt of funds some of which may not materialize.” Moody’s warned of future budget gaps of at least $12 billion. The “green capital” is broke. But its governor is an environmental champion. Does anybody see a connection?

by Sam Fletcher, Senior Writer As Edmund Burke, British statesman and philosopher, famously said, “Those who do not learn from history are destined to repeat it.” Now, industry analysts are forecasting oil will again top $100/bbl in 2011. Goldman Sachs Group Inc., known for price predictions beyond the Wall Street consensus, said Dec. 13 continued overproduction will reduce the Organization of Petroleum Exporting Countries’ spare production capacity and might push crude prices above $100/bbl in the second half of 2011. That prediction came as energy prices escalated after OPEC ministers decided at their Dec. 11 meeting to maintain official production quotas at a total 24.9 million b/d although members actually are producing closer to 29 million b/d. However, Paul Horsnell, managing director and head of commodities research at Barclays Capital in London, said, “There is nothing magical about $100/bbl, nor is there anything new. It has been part of our 2011 forecast…since early 2009, and it continues to be part of that forecast.” Although he expects to see $100/bbl in 2011, he does not expect oil will average $100/bbl. He said an average of $85/bbl a year likely would involve periods of trading above $100/bbl. “Our original forecast [for an average $85/bbl in 2011] all the way back in April 2009 certainly assumed that $100/bbl would be seen at points. When the forecast was put at $95/bbl, or like the current forecast $91/bbl, those averages also embody a certainty of an intrayear high above $100/bbl,” Horsnell said. While key producers are now “somewhat on the slowish side” in reining in higher prices, Horsnell said, “We do expect that ultimately control will be re-established. An average above $100/bbl at this point would require an explosive upside that can only really be generated by an even greater injection of geopolitical concerns than the already significant escalation that we see as likely. An assumption of limited producer control over the upside generating a $100/bbl average does not seem tenable to us. The perfect storm of political and economic factors that generated a short-lived explosive upside in 2008 is no longer present.” Even in 2008, he said, “Prices did not average $100/bbl for the year, with the slide in the fourth quarter bringing the annual average for West Texas Intermediate to $99.75/bbl. Our forecast of an average lower than the all-time high but within 10% of it appears to us to be the best base case for 2011. It is in 2012 that we expect the annual record to be broken. Our 2012 forecasts are unchanged at $105/bbl for North Sea Brent crude and $106/bbl for WTI.”

Straddling $90/bbl Analysts at KBC Energy Economics, a division KBC Advanced Technologies PLC in Surrey, UK, noted crude oil futures prices “continued to straddle $90/bbl” during trading sessions of Dec. 13-17, with the February Brent contract priced just under $92/bbl and the WTI January contract just under $88/bbl on Dec. 17. “The spread between the two marker grades is currently around $3.40/bbl for February; the January ICE Brent contract went off the board at a $4/bbl premium to the US grade, the biggest gap between the two grades since May,” said KBC analysts. “The premium held by Brent reflects partly the high stocks that remain at landlocked Cushing, Okla., [storage] where tanks have been filling up as the region absorbs Canadian supply. The inversion of what for many years had been a usual premium for WTI over Brent looks increasingly structural, however, and the futures strip reflects a premium for ICE Brent right out to the back end of the forward curve,” they said. During that same week, retail gasoline prices ticked up to a new 2-year high, “although the national average stayed just a shade below $3/gal,” said Horsnell at Barclays. “The national average for regular gasoline prices rose by 2.2¢ to now stand at $2.98/gal,” he reported. ONLINE DEC. 20, 2010 | [email protected]

ONLINE DEC. 17, 2010 | [email protected]

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Oil & Gas Journal | Dec. 27, 2010

12/20/10 4:40 PM