World of Oil

BP cuts Prudhoe loss

BP initially estimated the fire that broke out Oct. 6 at Gathering Centre 2 at the Prudhoe Bay oilfield in Alaska would cut output by 30,000 bpd for two weeks. BP has decreased the amount of oil output it expects to lose to 20,000 bpd. The company has not changed its estimate for the repair of the facility and continues to expect output to be restored two weeks from the fire.

Kurdish government signs more oil contracts

Government authorities in the autonomous region of Kurdistan in northern Iraq have approved four new oil contracts and two planned refineries. Canadian Heritage Oil Corp unit Heritage Energy Middle East Ltd has signed a production-sharing contract for the Minran block in the Souleimaniyeh province. Perenco Group unit Perenco SA signed a second contract with the authorities for the Sindi/Amedi block, near the Iraqi Turkish border. Two further production-sharing contracts will be signed soon with foreign firms.

Belarus to import 21 Bcm of Russian gas next year

Alexander Ozerets, energy minister of Belarus, said his country will import 21 billion cubic meters of Russian natural gas in 2008. “In the first quarter 6.5 Bcm of gas will be delivered; in the second, 4.55 Bcm; in the third, 4.39 Bcm; and in the fourth, 6.18 Bcm,” Ozerets said at a cabinet meeting. He also expects 6.35 Bcm of Russian natural gas will be sold to Belarus in the fourth quarter of this year.

Alberta looks to Chinese investment 

Alberta’s Minister of Employment, Immigration and Industry, Iris Evans, hopes more Chinese investments will be made in Alberta, home of rich oil sands reserves. “In all our meetings, we have been encouraging Chinese investment in Alberta,” said Evans. Evans met with government officials discussing cooperation between the two nations on oil sands and other projects, and the issues of immigration and labor. According to Evans, China has been investing in Alberta since 2004, led by companies including China’s three oil giants, Sinopec, CNPC and CNOOC.

 US oil giants sue Canada 

ExxonMobil and Murphy Oil plan to sue Canada for at least $50 million for breaching the North American Free Trade Agreement. The companies state that Newfoundland has required them to spend millions of dollars on research in the province; this violates existing agreements on offshore oil projects. The two companies, partners in the Hibernia and Terra Nova oil developments off the Newfoundland coast, claim the Canada-Newfoundland and Labrador Offshore Petroleum Board (CNLOPB), regulator of offshore projects, adopted guidelines in 2004 that require investors to spend millions of dollars on research and development within the Atlantic province. This disregards a Canadian commitment when NAFTA was enacted in 1994 where it agreed not to impose any new local spending requirements on companies developing offshore energy projects. ExxonMobil and Murphy Oil said the new regulation would cost them $40 million and $10 million respectively. “The government of the province has increasingly encouraged the (CNLOPB) to put into place more robust local content requirements,” the documents allege.

 Kazakhstan fines Chevron for violations at Tengiz Field 

On Oct. 3 the Kazakh government hit Chevron Corp.-led Tengizchevroil oil venture with a lawsuit seeking $610 million in damages, citing environmental and other violations at Tengiz field. This fine comes amidst the unresolved dispute between the Kazakh government and Italian oil company Eni and their work and alleged environmental violations at Kashagan Field. Kazakhstan’s Ecology Minister Nurlan Iskakov said the lawsuit was the result of various violations including what the government saw as the company’s slow progress in dealing with vast sulfur stocks at Tengiz. “Any company that does not fulfill ecological requirements will be dealt with in the harshest way,” Iskakov said. Todd Levy, general director of the Tengizchevroil consortium, denied the accusations saying, “We store it (sulfur) completely in alignment with international standards and completely in alignment with (Kazakh) environmental legislation.” Tengizchevroil was previously fined $71 million for open air sulfur storage, but that was reduced on appeal in 2003 to $7 million by the Supreme Court. On Oct. 12, a court decision by the Atyrau Economic Court halved the damages claims and turned them into a fine of $307 million. Tengiz is Kazakhstan’s largest oil-producing field, with output running at 300,000 bpd and set to increase to between 460,000 bpd and 550,000 bpd by the end of 2008.

 Ecuador intends to increase control over oil industry 

Private-sector oil companies were surprised in October when Ecuador’s government revealed plans to tighten its grip on the oil sector. President Rafael Correa signed an executive decree increasing the state’s share of oil revenues, increasing the government’s share of the companies’ extraordinary oil profits to 99% from 50%. Also, the country’s top energy official said the government wants to take back full ownership of oil resources and production. “The service provider contract will allow the oil companies to maintain a reasonable range of profits. Indeed, they have been (profitable) up to now and with the change of contract this will improve,” said Energy and Oil Minister Galo Chiriboga. He added that oil companies won’t be able to challenge the decree, “We aren’t changing the contract; we are changing the terms of the sharing of the extraordinary revenues that were laid down in the law last year.” Extraordinary revenues are those earned when crude prices rise above the benchmark price in effect when the contracts were signed. No oil company representatives appeared for the Oct. 8 meeting called by Chiriboga to discuss the renegotiation of contracts. On Oct. 15, Ecuador told foreign oil companies they have two weeks to pay $317 million for the extraordinary oil revenues that they received.

 Alberta royalty review receives much criticism

A public review of royalties, taxes and fees received by Alberta from oil and gas companies has come under much scrutiny from the industry, as well as from within the government. As a result of the royalty review controversy, companies are threatening to pull out of the Alberta area. Crescent Point Energy Trust announced that it will direct $150 million in investments to Saskatchewan instead of Alberta. “Increased royalty rates in Alberta would decrease the rates of return on projects in the province, making investments in other jurisdictions more attractive,” said Crescent Point President and CEO Scott Saxberg. EnCana Corporation, North America’s largest national gas producer, has also made a public statement threatening to cut spending in Alberta by about $1 billion for 2008 if the proposed changes in the Alberta Royalty Review Panel Report were enacted. Statements made by EnCana’s president and CEO, Randy Eresman, appear to reflect the thoughts of other companies in the area. “We will have no choice but to slow down our Alberta-based activity and move investments to other areas in Canada and the US that are more economically attractive,” said Eresman. “If the Royalty Panel’s recommendations are adopted in full, many of Alberta’s new and emerging resource plays will simply not be economically viable."

 Fears increase over Russian foreign investment law 

On Oct. 15, Russia’s parliament asked for clarification of a draft law that would establish ground rules for foreign investors in strategic industries, including the country’s upstream sector, raising fears that adoption of the law could be postponed. “It is necessary to clarify the list of activities deemed strategic. At the moment, such clarification is de facto lacking,” said Martin Shakkum, head of parliament’s industry committee. The parliament has asked the government to submit amendments to the existing subsoil law, which should now define “strategic” natural resource deposits. The new foreign investments law would then apply curbs to exploration of such deposits. Investors are increasingly worried that the law could be shelved or changed if it is not passed soon. The cabinet had promised that the investment law would be passed by parliament this year, but with six weeks left before parliamentary elections, time is growing short. Foreign companies face uncertainty as Russia seeks to regain control over strategic assets, since the nation’s economy has been boosted by high commodities and energy prices. Notably, gas export monopoly Gazprom was able to buy half of the Sakhalin 2 offshore project from Shell and partners last year after months of pressure from state environmental officials.

 CNOOC examines new exploration targets

China National Offshore Oil Corporation (CNOOC) has set new exploration and production targets to investigate both deepwater and shallow-water opportunities. “China’s offshore region boasts untapped resources of up to 53 billion barrels of oil equivalent, with only one-third of that discovered. The potential is great,” said Zhu Weilin, executive vice-president of CNOOC. New blocks in Bohai Bay and the South China Sea offer great potential for CNOOC, Zhu said. Deep-sea areas to the south of the Liwan 3-1 oil field could offer opportunities, he added, while the new blocks in Bohai Bay are the company’s priority for shallow-water exploration. CNOOC intends to double its output from the Bohai Bay field to more than 198 million barrels in five to six years as new fields come onstream and CNOOC expects it to become China’s second-largest oil field.

UK to claim strip of Antarctic seabed

The United Kingdom is preparing to lodge a submission with the United Nations claiming rights to over 386,102 square miles of Antarctic seabed, reported London’s Guardian newspaper. This move could see the country acquire potentially vast hydrocarbon reserves trapped under the ice, according to reports. The UK’s claim would contradict the spirit of the 1959 Antarctic treaty the country signed, which was drawn up to prevent territorial disputes and states that no new claims shall be asserted on the continent. The Foreign Office said that data is being collected for a proposal to the UN which could expand British oil, gas and mineral exploitation rights up to 351 mi into the Southern Ocean.

Rowan pleads guilty to environmental violations

Rowan Companies entered guilty pleas to three felony counts in a United States District Court, in connection with environmental violations related to maintenance and operations of the offshore drilling rig Rowan-Midland during the period from 2002 through 2004. As part of the plea agreement, the company will be on unsupervised probation for two years, and has agreed to commit no further criminal violations of federal, state, or local laws or regulations and continue to execute its environmental management system in a ongoing effort to detect and deter future violations. Rowan also agreed to fines totaling $9 million, of which $7 million is a fine and $2 million is a community service payment to environmental funds.

Turkey approves Iraq invasion

 Turkey’s parliament, in an overwhelming approval of 507 to 19, granted permission to the military to launch attacks on Kurdish separatists in northern Iraq, in a move that many think could destabilize Iraq even further and send crude oil futures to even higher records. Government spokesman Cemil Cicek said Turkey hoped military action against the outlawed Kurdistan Workers Party (PKK) would not be needed. The PKK, which seeks an independent homeland in eastern Turkey, has been operating from bases inside the Kurdish sector of Iraq and has recently performed a series of attacks on Turkish troops. Iraqi government spokesman Ali al-Dabbagh called on Turkey to be wise and patient and pursue a diplomatic, not a military, solution. Iraq’s Vice President, Tareq al-Hashemi, flew to Turkey Oct. 16 to discuss the issue of possible Turkish attacks in northern Iraq.

Motion to challenge maritime boundary rejected by Suriname

 Suriname’s National Assembly will not challenge the maritime boundary award of a United Nations Arbitration Tribunal that settled a long-standing dispute with neighboring Guyana. The parliament voted against a motion from the opposition to establish a national reviewing commission to scrutinize the UN maritime boundary in order to challenge the decision. Twenty-four out of thirty-seven members of parliament who were present voted against the motion. According to the opposition, the award is not fair and equitable, since Guyana has been awarded 65% of former area of dispute, while Suriname received the remaining 35%. The panel also argued that, since the UN Tribunal has applied equidistance as the only principle to determine the maritime boundary, a greater accuracy was very essential.

 Amazon jungle drilling prohibited by Ecuador

Ecuador will not allow oil drilling in a remote Amazon jungle area which is inhabited by unique tropical species and Indian tribes. The protected area is inside the Yasuni rain forest, which holds the country’s largest oil reserve of around 1 billion barrels. Ecuador has offered to protect the area from oil drilling in exchange for cash compensation from the international community. The move could limit the operations of Spain’s Repsol, China’s Andes Petroleum and Brazil’s Petrobras who manage oil fields in the area. “We are not going to allow oil exploitation in this area because there are international treaties that protect these tribes,” Oil Minister Galo Chiriboga said.

 Caspian Sea nations meet in Iran

Russian President Vladimir Putin, Azerbaijani President Ilham Aliyev, Kazakh President Nursultan Nazarbayev, Turkmen President Gurbanguly Berdymukhammedov and Iranian President Mahmoud Ahmadinejad met in Tehran, Iran, to discuss how the Caspian seabed would be divided. The Oct. 16 summit achieved no substantive progress on the central issue of the territorial division of the seabed, but participants seemed very pleased with the outcome. The presidents signed the conference’s concluding 25-article Caspian Declaration that outlined economic and other areas for more cooperation between the nations. They declared that “under no circumstances will they allow the use of their territories by other countries to launch aggression or other military action against any of the member states.” One of the few points of the declaration pertaining to the Caspian Sea stated that “The sides hereby announce that only Caspian Sea countries are allowed to use the resources of the sea,” and the declaration affirmed the notion that outside powers should have no role in deciding how the sea’s resources are utilized.

 StatoilHydro begins production in GOM 

StatoilHydro began production on its first well in deep GOM waters for which the company serves as operator. With 50% interest in Q field, located in the Gulf of Mexico’s Mississippi Canyon Block 961, StatoilHydro’s gas production is projected to increase by 40% for the region. “StatoilHydro is a major player in deepwater Gulf of Mexico, and I am pleased that we now have the first StatoilHydro-operated deepwater field producing in the Gulf of Mexico,” said Pete Stracke, asset manager for Independence Hub. Subsea infrastructures tie Q back to Independence Hub, making the well the 10th to tie into the world’s largest offshore natural gas processing facility.

Santos 15% shareholder cap removed

The South Australian government expects to repeal legislation that restricts any one shareholder from having a claim to more than 15% of Santos’ shares. Stephen Gerlach, Santos’ chairman, said the shareholder cap was no longer significant. “Santos has changed dramatically since it was founded in 1954 from a small explorer in the Australian outback to an international oil and gas producer,” Gerlach said. “We have long argued that removal of the shareholder cap is in the best interests of Santos and its shareholders.” The government’s decision is subject to parliamentary review and approval, followed by a transition period of 12 months before the shareholder cap would no longer be in effect. Santos Managing Director John Ellice-Flint, said removal of the shareholder cap would enable Santos to continue to pursue its strategy of becoming a leading Australian-based, Asian-focused energy company. “This decision represents the removal of an artificial brake on Santos’ growth that has been in place for almost three decades,” Ellice-Flint said. “Santos will now be able to maximize its efficiency in accessing capital markets and pursue the opportunities created by the growing demand for energy in Asia on a level playing field with other listed companies operating in the region.”

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