January 2007
News & Resources

World of Oil

International news in the oil and gas industry

World of Oil 
Vol. 228 No. 01  

Click Here for Kurt's Opinion

Saudi Aramco sets record operating plan

The Executive Committee of Saudi Aramco�s Board of Directors met Dec. 6 and approved a very aggressive 2007 Operating Plan that also includes a greater emphasis on safety in all activities. In a conference call to the meeting, chaired by President and CEO Abdaallah S. Jum�ah, the company�s senior vice president for E&P, Abd Allah S. Al-Saif, described the plan as �maximizing Saudi Aramco�s contribution to the Kingdom�s revenues while focusing on the effective management of an unparalleled workload in a challenging business environment.� The plan includes record drilling requirements, continued high production and development �of new increments.� �We are executing the largest capital program in the company�s history,� said Al-Saif. �We must rely upon our own skills, on technology, on innovation, and on a fully prepared and resilient workforce to achieve our corporate goals and objectives.�

Final days of GOP-led Congress yield GOM expansion

One of the more significant achievements of the lame duck Republican majority in Congress was the passage last month by both houses of a compromise bill that expands offshore drilling in the eastern Gulf of Mexico (GOM). This victory was only possible, however, after Republican leaders inserted the drilling provision into a tax bill that was hard for legislators to oppose. Thus, the House approved the measure on Dec. 8, and the Senate gave its nod a day later. President Bush signed the bill, part of which was shaped by the attitude of his brother, then-Florida Gov. Jeb Bush. The drilling agreement is a compromise in every sense of the word. Yes, it helps the US industry by opening 8.3 million acres of the eastern GOM to leasing; this is an area thought to contain 1.26 billion bbl of oil and 5.8 Tcf of gas. This includes 2 million acres of Lease Sale 181 that were withdrawn from leasing in 2001 after Jeb Bush led complaints about it. While designing the bill, Republicans courted favor with the Florida congressional delegation by agreeing to put a 125-mi buffer around the state�s coastline. In addition, the bill increases the share of oil and gas royalties (37.5% from new production) that the states of Louisiana, Texas, Mississippi and Alabama receive. Unfortunately, it also places a majority of the eastern GOM�an area thought to contain 21 Tcf of gas�under a drilling ban until 2022, to appease Floridians worried about their sandy beaches and cherished tourism industry.

OPEC cuts output again, welcomes Angola to the group

Meeting in Nigeria, OPEC ministers on Dec. 14 agreed to cut their collective oil production by another 500,000 bpd, effective Feb. 1, 2007. �We do not have any intention to starve the world oil market, but we must ensure that we protect our interests as oil producers,� said Acting OPEC President Edmund Daukoru to reporters, Daukoru is also Nigeria�s Junior Minister of Petroleum Resources. Ministers agreed to hold off implementation of the cut until February after requests from northern countries to wait until most of the winter season is over. Back in October, OPEC cut 1.2 million bopd from its production ceiling to prop up prices. Also in Abuja, Daukoru announced that Angola will become the 12th OPEC member after three-quarters or more of current members voted approval. In addition, a Libyan, Salim Abdallah, was named �substantive� Secretary General of OPEC for two years.

Oil and gas prices rise, at least temporarily

News of OPEC�s latest production cut sent the futures crude price above $63/bbl on Dec. 15 at the New York Mercantile Exchange. Oil prices rose slowly but steadily in response to OPEC�s October reduction. Several industry analysts said that the group has implemented more than half of October�s reduction. On the natural gas side, a report from the US EIA said that there was a 168-Bcf net storage withdrawal for the week of Dec. 8, prompted by cold, blustery weather. The price peaked at $7.91/Mcf, but warmer weather afterwards sent the price back down below $7.60/Mcf. Even after the 168-Bcf withdrawal, stocks were still 245 Bcf higher than the same time in 2005.

Hydro�s oil and gas to merge with Statoil

The Boards of Directors of Norwegian firms Hydro and Statoil have agreed to merge Hydro�s oil and gas activities with Statoil, creating the world�s largest offshore operator. The new company will have a combined production of 1.9 million bopd in 2007, and proven oil and gas reserves of 6.3 billion boe. The remainder of Hydro will continue as a global aluminium company. �The industry faces an increasingly challenging international landscape. To merge now makes perfect sense,� said Jan Rein�s and Jannik Lindb�k, chairmen of Hydro and Statoil, respectively, in a joint statement.

Shortages prompt Scottish firms to focus on home

High oil prices, coupled with shortages of equipment and personnel, have prompted Scottish operators to concentrate more of their activities within the North Sea, said a survey by the Scottish Council for Development and Industry (SCDI). Total sales by Scottish service/supply companies hit a record �11.7 billion in 2005, up �1.6 billion from 2004�s level. However, for the first time since 1999, international sales fell as a proportion of total business. Produced in conjunction with Scottish Enterprise, the survey shows that total sales grew 150% since SCDI first conducted the survey in 1997. Domestic sales increased 23.6% to �7.9 billion, the largest increase since the survey was begun.

Abu Dhabi�s expansion may cost $1.5 billion

During the next 10 years, Abu Dhabi will boost output from its offshore Upper Zakum oil field by about 50%, but this will cost at least $1.5 billion and maybe more, according to several published reports. Zakum Development Co. operates the field, in which ExxonMobil holds a 28% equity share. Zakum has invited engineering consulting firms to help manage the new project. The expansion would raise output to 750,000 bopd by 2016 from about 500,000 bopd now. The project will help national oil company Adnoc offset a decline in other fields and increase overall emirate production.

Iraqi draft low on oil gets closer to reality

Last month, a group of Iraqi ministers and political leaders drew closer to finishing a draft of a national oil law. Officials told reporters that the authors reached agreement on how revenues from the oil industry would be distributed. The working draft called for the central government in Baghdad to collect oil revenues and re-distribute them to provinces or regions, based on population. The law could also encourage foreign investment in the oil sector. However, security would be a major factor for any foreign firm, particularly a Western company, that operates anywhere in Iraq outside of the region of Iraqi Kurdistan.

China pours money into alternatives

The National Development and Reform Commission (NDRC) said that China will invest more than one trillion yuan ($127 million) to develop an alternative coal-based energy source to ease the nation�s dependence on imported oil. The project�s goals are to produce 30 million tons of liquefied coal and 20 million tons of dimethyl ether by 2020. Some of the money will be spent to build seven so-called industrial bases nationwide to produce coal-based energy on a large scale. The largest of these will be in the lower Yellow River.

New governor likes Alaskan pipeline talks

Last month, new Alaskan Gov. Sarah Palin (Rep.) said that talks held with oil companies over the proposed Alaska Gas Pipeline were going well. She noted that Shell and Chevron showed particular enthusiasm. �They showed a lot of excitement at being invited to the table,� Palin told reporters. With Alaska seeking to develop its stranded gas reserves and the US Lower 48 states in need of more gas, such a project has appeared as a win-win situation. Palin�s predecessor, Frank Murkowski, tried to shove a 4.5-billion-to-6-billion-cfd project through the legislature, but it was rejected as being too favorable to the projected developers, ExxonMobil, BP and ConocoPhillips. Palin will consider a wider range of proposals.

Total vows to reduce gas flaring globally

After previously introducing a zero flaring policy for new projects in 2000, French firm Total said it will reduce gas flaring by 50% at all its operated facilities worldwide by 2012. In 2001, Total made a commitment to carefully manage its greenhouse gas emissions. Associated gas flaring contributed 23% of the greenhouse gas emissions in 2005. Despite noticeably higher production, the amounts of gas flared in Total-operated facilities declined by 40% between 1998 and 2005. Total joined the Global Gas Flaring Reduction Partnership in March 2004, after the World Bank encouraged its set-up in August 2002.

Iraq, Iran and Kuwait meet on cross-border fields

Last month, Iraqi officials met with representatives from Iran and Kuwait to discuss potential sharing of oil production contracts for cross-border fields. Prior to meeting with Iran, Iraqi Oil Minister Hussein al-Shahristani said that the two countries would meet in a joint committee to assess data on several fields. He told reporters that the countries would then �select a company in a bidding round to assess the reserves.�

Ecopetrol stake to be sold

Colombia�s congress authorized government officials to sell up to 20% of national company Ecopetrol as a means of boosting investment in the country�s upstream sector. Shares in Ecopetrol will be sold on the local stock market to finance the company�s expansion. This sale is expected to commence in third-quarter 2007. In allocating shares, officials will likely give priority to the company�s workers, labor unions, cooperative associations, privately owned pension funds and Colombian citizens. The country�s oil output is now under 530,000 bpd.

Argentine E&P transfer bill approved

Argentina�s lower house passed a bill that transfers property rights for hydrocarbon fields to the various provinces. Approved 110-19, the legislation is now law, since the Senate okayed the bill in November. The law excludes oil and gas reservoirs that begin 12 nautical miles offshore. These tracts will remain under national control. Provinces involved include Chubut, Formosa, Jujuy, La Pampa, Rio Negro, Santa Cruz and Tierra del Fuego. 

Dalia goes onstream

Total and Sonangol have begun production from Angola�s Dalia field in deepwater Block 17. Discovered in September 1997 about 135 km off the coast, Dalia is in water depths ranging between 1,200 and 1,500 m. The field is estimated to contain nearly 1 billion bbl of oil. It is the largest deepwater development, worldwide, to be put onstream during 2006. Dalia has 71 wells, including 37 producers, 31 water injectors and three gas injectors tied to a 240,000-bopd FPSO vessel. WO





From time to time, certain news items come across this desk that can only provoke one to say, �hmmmmmm...� One such item is a declaration by an ExxonMobil executive that daily US natural gas demand will jump nearly 40% to 90 Bcfd from 55 Bcfd by 2030, and half of that amount will have to be met by LNG imports. During a Houston industry conference, Richard Guerrant, vice president, Americas, ExxonMobil Gas & Power Marketing, said that the US will compete with industrial demand for gas supplies in emerging world markets, as well as China�s residential demand. �Europe will need twice the supply of Asia and North America,� said Guerrant. Well, that�s a scary scenario for US companies and residential consumers. And it makes one wonder whether the functional incompetents that call themselves political leaders in Washington are paying attention at all. For that matter, US manufacturers may not be paying much attention either. Once�just once�this editor would like to see US officials, producers and large corporate consumers work together and plan ahead to ensure coordinated, adequate gas supplies at sustainable prices. But that requires common sense...something in short supply right now.

Across the pond, UK Chancellor of the Exchequer Gordon Brown has actually done something right. Brown said that he will exempt those operators that re-explore old gas and oil fields in the UK North Sea from the Petroleum Revenue Tax (PRT), to foster more production. �The measure should encourage investors to consider the viability of re-opening abandoned fields to recover untapped reserves and is to be very much welcomed,� said Malcolm Webb, chief executive of the UK Offshore Operators Association. In a subtle �dig� at Brown, Webb also said, �It is a clear demonstration of how the removal of a tax could generate new production, and further tax revenues.� However, Brown is not really giving much away�the more lucrative fields, which began producing before 1993, are still subject to full PRT, including two 10% surcharges applied to it by Brown in 2002 and 2006.

As noted in the item on page 9, OPEC has voted to admit Angola as its first new member since 1975. Ironically, the last sub-Saharan member, Gabon, joined that year, but it left OPEC in 1994. Angola�s oil ministry said that joining the cartel will boost the nation�s global profile, and also produce �deep financial advantages.� This prompts two thoughts�1) High oil prices have made it fashionable again to belong to OPEC; and 2) Angola�s vague, shadowy operational style, and �foggy� financial and statistical record-keeping should fit right in with the cartel.

Last, but not least, you have to feel sorry for the folks at Dockwise. Their well-respected semisubmersible vessel, Mighty Servant 3, sank one mile off the coast of the port of Luanda, Angola, on Dec. 6 after offloading GlobalSantaFe�s Aleutian Key semisubmersible drilling rig. Fortunately, none of the 21 crew aboard were hurt, and all have been sent home. Nor was any damage/injury done to the rig and its crew. But as of mid-December, the Mighty Servant 3 was still laying on the seafloor in 62 m (203 ft) of water, although divers were finally able to make a preliminary inspection. No cause for the accident was immediately available.


Comments? Write: editorial@worldoil.com


Connect with World Oil
Connect with World Oil, the upstream industry's most trusted source of forecast data, industry trends, and insights into operational and technological advances.