Oil and gas journal volume 109, issue 1

American refiners 34 Texas leads North Dakota in 2009 oil reserves hike Beyond Macondo: Industry faces range of issues in 2011 FWS clarifies polar bear designation; Alaska ponders EPA as

International Petroleum News and Technology | www.ogjonline.com

JAN 3, 2011 | USD 10

EU REFINERS SQUEEZED

US UNCONVENTIONALS: PRICE FACTORS

US POLITICAL

OUTLOOK

PLAQUEMINES SHALLOW GAS

FORECAST &

REVIEW

PIPELINE COST EQUATIONS

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EQUIP./SOFTWARE/LITERATURE 126SERVICES/SUPPLIERS 127STATISTICS 129

Suncor Energy Inc.’s refi nery in Commerce City, Colo., has a capacity

of 90,000 b/d Total US operable refi ning capacity was slightly down in

2010 but input to crude stills was up 2.9% See p 37 for more mation on US refi nery runs, supply and demand, pricing, and produc- tion in the 2011 Forecast & Review special report Photo courtesy of Suncor Energy

infor-WATCHING THE WORLD Baghdad’s Brave New World

32

Mixed outlook seen in ’11for N American refiners

34

Texas leads North Dakota

in 2009 oil reserves hike

Beyond Macondo: Industry

faces range of issues in 2011

FWS clarifies polar bear

designation; Alaska ponders

EPA assumes GHG authority

in eight states as carbon regulation begins

Nick Snow

29

IHS Herold outlines 2011 outlook for oil services, drillers

Paula Dittrick

29

Iraq promotes al-Shahristani;

appoints Luaibi as oil minister

Eric Watkins

30

Chevron: No scientific basisfor $113-billion Ecuador claim

Eric Watkins

31

37 24

US, worldwide energy demand growth rates to slow in 2011

Marilyn Radler, Laura Bell

We’re perfecting it.

We didn’t invent

the compressor.

Ariel Corporation

35 Blackjack Road Mount Vernon, OH 43050 www.arielcorp.com

Case study from Grand

Bay gas prospects

Andy Clifford, Elizabeth Goodman

50

Greenland awards seven

licenses in Baffin Bay

71

New USGS report

confirms big Caspian

Ruud Weijermars

74

Downhole tests show benefits of distributed acoustic sensing

Mathieu Molenaar, David Hill, Vianney Koelman

82

CLOSED-LOOP CIRCULATING—2:

Manual pressure management enhances safety, efficiency

David Pavel, Brian Grayson

86

TRANSPORTATION

National lab uses OGJ data to develop cost equations

Daryl Brown, Jim Cabe, Tyson Stout

108

Approach allows for robust, flexible valve protection

Jaime Farinas, Gary Nunez

112

ASSET INTEGRITY—1: New model predicts internal corrosion likelihood

Fengmei Song, John McFarland, Barron Bichon, Luc Huyse, Fraser King, Laurie Perry, Mark Piazza

90

DCS advanced control improves Chinese ethylene cracker operation

Honggang Wang, Zhenlei Wang, Hua Mei, Feng Qian, Zhiwu Tang

96

GUIDE TO WORLD CRUDES: Updated Cusiana assay reveals lighter crude oil

104

Nelson-Farrar monthly cost indexes

105

NELSON-FARRAR QUARTERLY COSTIMATING: Refinery fuel indexes since 2007 show unsteady track

Editor Bob Tippee, bobt@ogjonline.com

Chief Editor-Exploration Alan Petzet, alanp@ogjonline.com

Chief Technology Editor-LNG/Gas Processing Warren R True, warrent@ogjonline.com

Production Editor Guntis Moritis, guntism@ogjonline.com

Pipeline Editor Christopher E Smith, chriss@ogjonline.com

Senior Editor-Economics Marilyn Radler, marilynr@ogjonline.com

Senior Editor Steven Poruban, stevenp@ogjonline.com

Senior Writer Sam Fletcher, samf@ogjonline.com

Senior Staff Writer Paula Dittrick, paulad@ogjonline.com

Survey Editor/News Writer Leena Koottungal, lkoottungal@ogjonline.com

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Vice-President/Group Publishing Director Paul Westervelt, pwestervelt@pennwell.com

Vice-President/Custom Publishing Roy Markum, roym@pennwell.com

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OGJ

International News

for oil and gas professionals

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

Jan 3, 2011

GENERAL INTEREST Q U IC K TA K E S

US court denies NPRA-API challenge of RFS changes

The federal appeals court for the District of Columbia rejected

the National Petrochemical & Refiners Association’s and

Amer-ican Petroleum Institute’s petition to set aside changes the US

Environmental Protection Agency made in the federal

renew-able fuels standard

NPRA and API argued the changes violated 2009 and 2010

biomass-based diesel fuel requirements, were impermissibly

retroactive, and did not comply with statutory lead time and

compliance provisions for renewable fuels established by the

2005 Energy Policy Act and expanded by the 2007 Energy

In-dependence and Security Act

“EPA had clear albeit implicit authority under EISA to

ap-ply both the 2009 and 2010 volume requirements in the 2010

calendar year in order to achieve the statutory purpose,” Judge

Judith W Rogers wrote in her Dec 21 opinion “The structure

of EISA demonstrates that Congress anticipated the possibility

of some retroactive impacts in the first year of the expanded

renewable fuel program.”

NPRA President Charles T Drevna expressed

disappoint-ment and concern over the ruling “The legal petition before

the court did not seek to challenge or call into question the

im-portant role biofuels play in our nation’s transportation policy,”

he said “Rather, the issue is one of fundamental fairness in

EPA’s rulemaking process This retroactive regulation by a

fed-eral agency establishes a deeply troubling and potentially

far-reaching precedent.”

“This is a disappointing decision Setting requirements to

blend certain biofuels for the previous year is a legally

ques-tionable retroactive action,” said Patrick Kelly, a senior policy

advisor in API’s downstream fuels issues group

API supports a realistic and workable RFS and its

mem-bers are committed to meeting the regulatory requirements,

he continued “This decision significantly complicates

compli-ance and may set a dangerous precedent allowing retroactive

requirements for past compliance periods,” Kelly said

Sasol to buy stake in Montney shale gas

Sasol Ltd agreed to buy a 50% stake in Talisman Energy Inc.’s

Montney shale gas play in the Farrell Creek project in

north-eastern British Columbia for $1.05 billion (Can.), and the two companies plan a Farrell Creek area partnership that Talisman will operate

Talisman Pres and Chief Operating Officer John A Manzoni said Sasol’s expertise will help Talisman decide whether to build

a gas-to-liquids plant in western Canada Terms of the tion call for an economic feasibility study regarding a GTL plant

transac-“This could provide a strategic alternative to traditional North American pipeline or liquefied natural gas marketing,” Talisman said Sasol uses its Fischer-Tropsch technology to transform natural gas into gasoline and diesel in South Africa and Qatar

“The outlook for GTL could be very positive if North can natural gas prices continue to decouple from oil prices,” Talisman said

Ameri-Closing, subject to regulatory approval, is expected during the first half of 2011

The 51.6 acre site holds an estimated 9.6 tcf, said Sasol, which agreed to pay $260 million upon closing and carry 75%

of Talisman’s future capital commitments in Farrell Creek up to

$790 million total

Farrell Creek production is expected to reach 40-60 MMcfed

by yearend Previously, Talisman expanded its Farrell Creek processing facilities to 120 MMcfd

Talisman and Sasol also agreed to collaborate on certain other western Canadian natural gas opportunities

EXCO buying Marcellus assets from Chief

EXCO Resources Inc will acquire Marcellus shale interests from Chief Oil & Gas LLC and related parties for $459.4 mil-lion, subject to price adjustments at closing Both companies are based in Dallas

The deal includes properties with gross production of 40 MMcfd of gas (16 MMcfd net) from 15 wells, 11 wells awaiting completion, and more than 50,000 net acres in northeastern Pennsylvania, primarily Lycoming and Sullivan counties

BG Group, a partner of EXCO in an Appalachian basin joint venture, has the right to buy 50% of the acquisition

Big Chief recently said that its Marcellus basin production had reached 100 MMcfd of gas equivalent from 42 wells and that it expected output to reach 115 MMcfd by yearend (OGJ Online, Nov 10, 2010)

CLEAN INNOVATION

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Dec 22 Dec 23 Dec 24 1 Dec 27 Dec 28 1

Dec 22 Dec 23 Dec 24 1 Dec 27 1 Dec 28 1

Dec 22 Dec 23 Dec 24 1 Dec 27 Dec 28 1

Dec 22 Dec 23 Dec 24 1 Dec 27 Dec 28 1

Dec 22 Dec 23 Dec 24 1 Dec 27 Dec 28 1

Dec 22 Dec 23 Dec 24 1 Dec 27 Dec 28 1

WTI CUSHING / BRENT SPOT

NYMEX NATURAL GAS / SPOT GAS - HENRY HUB

IPE GAS OIL / NYMEX HEATING OIL

NYMEX GASOLINE (RBOB)2/ NY SPOT GASOLINE3

IPE BRENT NYMEX LIGHT SWEET CRUDE

PROPANE - MT BELVIEU /BUTANE - MT BELVIEU

1 Not available 2 Reformulated gasoline blendstock for oxygen blending

3 Nonoxygenated regular unleaded

Jan 10 Feb 10 Dec 09 Sept 10 Oct 10 Nov 10 Nov 09 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10

1,000 800

1,400 1,600 1,800

1,200

400 200 0

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

Note: End of week average count

BAKER HUGHES RIG COUNT: US / CANADA

Note: Monthly average count

311

12/11/09 11/20/09 12/4/09 12/18/09 10/9/09 10/23/09 11/6/09

12/25/09

1,714

12/24/10 10/15/10 10/29/10

11/13/09 11/27/09 11/12/10 11/26/10 12/10/10

11/19/10 12/3/10 12/17/10 10/8/10 10/22/10 11/5/10

268 1,178

Latest week 12/17 average year ago 1 % average 1 year ago 1 %

Product supplied, 1,000 b/d

Futures prices5 12/24 Change Change %

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

Source: Energy Information Administration, Wall Street Journal

10 Oil & Gas Journal | Jan 3, 2011

Range Resources responds to EPA

Range Resources Corp.’s activities have not had any impact on

the water aquifer in southern Parker County, Tex., the

com-pany said in a news release regarding the US Environmental

Protection Agency’s expressed concerns about possible natural

gas migration

EPA officials have noted methane contamination of two

wa-ter wells in southwest Parker County The Texas Railroad

Com-mission scheduled a Jan 10 hearing on the issue

Range said it has been working with the Texas Railroad

Commission staff, engineers, and field inspectors for several

months and has conducted extensive testing of both

Range-operated gas wells and the water wells of concern

“We’ve provided those findings to the landowner, the

Rail-road Commission and the EPA,” Range said “Range’s wells are

completed in the Barnett shale formation, which is over a mile

below the water zone The investigation has revealed that

meth-ane in the water aquifer existed long before our activity and

likely is naturally occurring migration from several shallow gas

zones immediately below the water aquifer.”

Range said it remains committed to working with

regula-tors and residents to determine the cause and to assist with

any remediation the Texas Railroad Commission determines is

warranted Range also will offer to provide drinking water to

residents in the area while the investigation continues

The company said it is working with the Railroad

Commis-sion to perform soil gas surveys that may lead to additional

environmental investigation activities and to assist with

moni-toring gas concentrations

EXPLORATION & DEVELOPMENT Q U IC K TA K E S

Statoil awarded four licenses off Newfoundland

The Canada-Newfoundland and Labrador Offshore Petroleum

Board has awarded Statoil interests in four new licenses off

eastern Canada

The board awarded a Significant Discovery Licenses in an

extension area of Statoil’s Mizzen discovery in the Flemish Pass

basin to Statoil as operator with 65% interest and Husky Energy

Inc 35%

The board awarded two exploration licenses in the Flemish

Pass basin/Central Ridge area 500 km off Newfoundland One

near the Mizzen license went to Statoil and Husky at the same

interests as the SDL extension license The other license, in the

northern part of the basin, went to Statoil 75% and operator

and Repsol E&P Canada Ltd 25%

The fourth license, in the Jeanne d’Arc basin 250 km off

Newfoundland, went to Husky Energy operator with 50%

in-terest and Statoil 50%

Statoil is partner in the ongoing drilling of the Suncor

En-ergy operated Ballicatters M-96Z exploratory well in the Jeanne

d’Arc basin Statoil plans to drill one well on its Mizzen

discov-ery and another on its Fiddlehead license in the Jeanne d’Arc

basin in 2011-12

Statoil is a partner in Terra Nova and Hibernia producing fields and in the pending Hibernia Southern Extension and He-bron field developments

Mitsubishi commits to Canning basin 2011 program

Japan’s Mitsubishi Corp has exercised an option to participate

in Buru Energy Ltd.’s 2011 exploration program in the Canning basin of Western Australia

Mitsubishi joined Perth-based Buru earlier this year by mitting to spend $22.4 million (Aus.) to fund 80% of the 2010 work program (OGJ Online, June 15, 2010) It had until Nov 30

com-to decide whether com-to take the partnership further

Under the extended deal, Mitsubishi has committed to fund

$40 million (Aus.) of a planned $50 million (Aus.) exploration program in the Canning region next year and up to $50 million (Aus.) of Buru’s development costs for any major oil and gas development infrastructure

The 2010 program has seen a successful appraisal of the leroo gas discovery and lent credence to Buru’s broader vision

Yul-of a Canning Superbasin as a significant supplier Yul-of energy

The 2011 program is still subject to review, but is likely to include appraisal of the Pictor oil and gas discovery in permit EP431, two more wells in the Yulleroo exploration province

as direct appraisals of Yulleroo-2 or wildcats on the Yulleroo trend There will also be two wells in the Acacia field explora-tion area targeting oil prospects and a well to evaluate one of Buru’s unconventional play types in the region

As well as earning an equal interest to Buru in the majority

of Buru’s permits, the new deal also gives Mitsubishi the right

to earn an interest in the unconventional program by carrying out a further $40 million (Aus.) of unconventional exploration costs in 2012

In addition, Mitsubishi has the right to acquire a 50% est in Buru’s production permits in exchange for another cash payment priced by an independent expert and based on proved and probable reserves

inter-Buru will continue as operator in all its permits, but subishi will lead any LNG commercialization plans

Mit-Falkland log results disappoint Desire

Desire Petroleum PLC plans to drill the 100% interest Dawn/Jacinta prospect in the North Falkland basin as the company expressed “extreme disappointment” at log results from the 14/15-2 Rachel North well that it had proclaimed as an oil dis-covery

Desire will plug and abandon Rachel North as an oil show well It summarized the latest log results as follows:

• Preliminary results from interpretation of initial log data indicated that the well had encountered a 349-m gross interval

of sands and shales with hydrocarbons, of which 57 m was net pay in multiple zones However, sampling of the main sand has shown that the hydrocarbons are residual and that the mobile fluid is water

• Analysis of the formation water recovered by sampling

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12 Oil & Gas Journal | Jan 3, 2011

indicates much lower salinity than anticipated, and when this

value is incorporated into a revised log interpretation it is

con-firmed that the sands are water-bearing The salinity impacts

the resistivity of the formation water that is used to calculate

the saturation of hydrocarbons in sands

• Using industry standard procedures, the initial

interpre-tation was based on a calculated value from a clear water sand

only 55 m above the target sand of the same stratigraphic age

and depositional setting This calculated value was consistent

with measurements from other wells in the basin

Unexpect-edly, the actual resistivity value in the sample taken from the

main sand turned out to be markedly different, and that sand is

now interpreted to be water-bearing

• Formation pressures and sampling confirm the presence

of good reservoir quality in the upper sands A deeper target is

still interpreted to be oil-bearing, but the interval is thin and

reservoir quality is poor

The wells Desire drilled in the Rachel area have identified

five fan systems of varying areal extent and reservoir

proper-ties Good reservoir development has been recorded in a

num-ber of the fans Some of the sands are of a similar age to the

sands in Rockhopper Exploration’s Sea Lion discovery

All fans will be remapped incorporating data from the wells

to identify areas where better quality reservoir can be expected

and stratigraphic traps developed As these fans can only be

mapped on 3D seismic, final mapping will await the new 3D

survey, to start shortly

The Dawn/Jacinta prospect in Tranche I is independent of

Rachel Targets are sands at a number of levels The well will

explore the prospectivity on the southern margin of the basin

immediately updip from the main oil source rock (see map,

OGJ, Nov 1, 2010, p 61)

After Dawn/Jacinta, Desire is likely to drill another well at

a location to be decided The forward drilling schedule is still

to be finalized

POL encounters oil and gas in Makori well

Pakistan Oilfields Ltd (POL) encountered both oil and gas in

its exploratory Makori East-1 well in Tal Block

The upper 50 m of the drilled section in the Lockhart

forma-tion produced 3,209 b/d of 37° gravity oil and 10.7 MMcfd gas

during an open-hole DST at 32∕64-in fixed choke size at flowing

wellhead pressure of 3,179 psi, POL executives said

Drilling will continue to test deeper prospective horizons,

the company said It is expected to reach the planned total

depth within 3 months MOL Pakistan is operator POL’s

work-ing interest is 25%

The initial test was more encouraging with oil and gas flows

at 3,209 b/d and the gas flow at 10.7 MMcfd The well would

increase POL’s oil production to 5,800 b/d, the highest level

since December 2007

The Makori East-1 well was spudded Aug 30 with a target

depth of 4,169 m in Tal block in the North-West Frontier

Prov-ince Other joint venture partners include Oil & Gas

Develop-ment Corp (OGDC) and Pakistan Petroleum Ltd (PPL) both having 27.7% stakes

DRILLING & PRODUCTION Q U IC K TA K E S

Guara extended well test starts off Brazil

Petroleo Brasileiro SA (Petrobras) on Dec 25 started the Guara area extended well test from the presalt layers of Block BM-S-9

in the Santos basin, 300 km off Brazil’s Sao Paulo state

The company expects the test on Well SPS-55 to last 5 months and produce a 30° gravity oil at 14,000 b/d to Dynamic Producer, a dynamically positioned floating, drilling, produc-tion, storage, and offloading vessel

Petrobras estimates that the Guara area contains 1.1-2 lion boe of recoverable oil and gas

bil-Following the test, the company will start a pilot project that will connect Guara wells to the Cidade de Sao Paulo floating production, storage, and offloading vessel It expects produc-tion from the pilot to start by 2013 at 120,000 bo/d and 5 mil-lion cu m/day of gas

Petrobras is the operator and holds a 45% interest in Block BM-S-9 Its partners are the BG Group 30% and Repsol-YPF

SA 25%

Contract awarded for Ekofisk platform

ConocoPhillips has conditionally awarded a contract for the topsides module of the Ekofisk 2/4 Z production platform in the Norwegian North Sea

Subject to approvals by license partners and the Norwegian government, Aker Solutions will perform engineering, procure-ment, and construction

Ekofisk production this year is expected to average 176,000 b/d of oil with gas totaling 1.72 billion standard cu m and gas liquids totaling 230,000 tonnes

The field, in 70-75 m of water, has produced since 1971 from Paleocene and Late Cretaceous Ekofisk and Tor chalk at 2,900-3,250 m below sea level It has been on waterflood since 1987

Another new installation, the Ekofisk VB template for water injection wells, is planned

Indonesia approves Abadi development plan

Indonesia has approved the Inpex development plan for its Abadi natural gas field on Masela block in the northern Ara-fura Sea The field was discovered in 2000 Six appraisal wells prompted Inpex and partners to report estimated reserves of more than 10 tcf in the field

Inpex and joint venture partner PT Energi Mega Persada will move into the front-end engineering and design phase of the project The plan calls for a floating LNG facility capable of pro-ducing 2.5 million tonnes/year of LNG, which is considerably less than the original concept of 4.5 million tpy

Inpex said the project size was reduced to benefit from the technical references available from other similar-sized FLNG projects Inpex holds 90% of the Masela block

14 Oil & Gas Journal | Jan 3, 2011

PROCESSING Q U IC K TA K E S

Turkmen gas project starts second phase

State-owned Turkmengas has begun the $3.4 million second

phase of its South Yoloten project, according to international oil

and gas service company Petrofac, London Petrofac will

per-form the engineering, procurement, and commissioning on the

project The work follows completion of the first phase

When complete, South Yoloten field, which lies about 250

miles southeast of the Turkmen capital of Ashgabat, will export

20 billion cu m/year Under the 32-month second phase of the

lump-sum contract, Petrofac will provide a 10 bcm/year gas

processing plant along with infrastructure and pipelines for the

entire 20-bcm/year development

Feed gas from the field contains up to 6% hydrogen sulfide,

said the Petrofac announcement, and development will include

gas treatment and sulfur handling, along with well pad,

gather-ing, infrastructure and utilities, condensate processgather-ing, storage,

and export

Sipchem announces EPC for new plant

Saudi International Petrochemical Co (Sipchem) announced

earlier this month that affiliate International Polymers Co has

awarded the engineering design, procurement, and

construc-tion work for an ethylene vinyl acetate (EVA) plant to G.S

En-gineering & Construction Corp., South Korea

The 200,000-tonne/year plant will produce EVA and

low-density polyethylene at the industrial complex in Jubail

Indus-trial City The plant is to start operation in second-quarter 2013

and cost an estimated 3 billion Saudi riyals ($800 million)

The Saudi Ministry of Petroleum and Minerals said the

an-nouncement has allocated the main ethane feedstock for the

project to be cracked and treated to ethylene by one SABIC

company and vinyl acetate monomer, as secondary feedstock,

to be supplied by International Vinyl Co., a Sipchem affiliate

International Polymers was founded in 2009 with Sipchem

owning 75% and Hanwha Chemicals–Korea owning 25%

Marcellus play to get gas plant

Magnum Hunter Resources Corp., Houston, announced earlier

this month that it will build a 200-MMcfd cryogenic natural

gas processing plant to serve production moved on its Eureka

Hunter pipeline in northwestern West Virginia A company

spokesman declined to pinpoint the plant’s planned location

Installation and hook-up of the plant will begin once it is

delivered in October 2011 The spokesman also declined to

dis-close the construction cost or what construction contracting

company is in charge of engineering and construction

Gary C Evans, Magnum Hunter chairman and chief

execu-tive officer, noted that natural gas produced from its 50,000 net

acres in the Marcellus shale in northwestern West Virginia and

Ohio is “highly liquids rich,” 1,200-1,400 btu

He said the company intends to drill at least “horizontal

Marcellus shale wells in fiscal year 2011.”

TRANSPORTATION Q U IC K TA K E S

Chevron, Shell let contract for JSM export line

Amberjack Pipeline Co LLC, a partnership between Chevron Pipe Line Co and Shell Pipeline Co LP, let a contract to Saipem for the Walker Ridge export pipeline, which will transport crude from the offshore Jack and St Malo (JSM) fields about

280 miles south of New Orleans

Scope of work includes transportation and installation of a 24-in OD oil export pipeline, extending 136 miles from a max-imum water depth of 7,000 ft and connecting the JSM float-ing production unit to a Shell-owned and operated platform on Green Canyon Block 19 (OGJ Online, Dec 15, 2010)

Marine activities will be performed by the newbuild pipelay vessel Castorone starting first-quarter 2013

The contract is the first award for Castorone, which rently under construction The 1,083-ft dynamically positioned vessel is designed to lay pipes up to 60-in OD

cur-Shell invites tenders for CSG-LNG project

A joint venture of Royal Dutch Shell PLC and Petrochina has vited tenders for the front-end engineering and design (FEED) phase of its proposed CSG-LNG project at Curtis Island near Gladstone in Queensland

in-Invitations to tender were sent to four Australian and national consortia The successful group will be responsible for carrying out FEED for the LNG plant A decision on who will construct the plant is to be made at a later date

inter-Shell and Petrochina completed a $3.4 billion (Aus.) over of Arrow Energy Ltd earlier this year to secure CSG re-serves for the planned four-train, 16 million tonne/year capac-ity plant on Curtis Island

take-Stage 1 includes construction of two trains of 4 million tonnes/year each A final investment decision is scheduled for

2012, leading to the project being brought on stream in 2017

Tenders for the FEED phase close in February

Australian officials support James Price Point LNG

The Western Australian Department of State Development mitted a draft report recommending approval of the planned LNG-natural gas hub at James Price Point 60 km north of Broome on the Kimberley coast

sub-The draft report covers 3 years of scientific investigations, studies, and consultations into developing a multiuser LNG hub on the site

The document points out that a single LNG hub would imize the environmental footprint of LNG gas processing in the Kimberley with a single shipping channel and port

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16 Oil & Gas Journal | Jan 3, 2011

jacobfleming.com, site: www.jacobfleming.

web-com 2-3.

East African Petroleum Conference & Exhibi- tion (EAPCE), Kampala, +256 414 320714, _256

414 320437 (fax), e-mail: eapce11@

petroleum.go.ug website:

rica.com/en/eventdetail.

www.petroleumaf-php?Eventld=522 2-4.

NACE Northern Area Western Conference, Regina, Sask., (281) 228-6200, (281) 228-6300 (fax), e-mail:

firstservice@nace.org, website: www.events.

617, website: ictechnologyconference.

www.arct-org/ 7-9.

Pipeline Coating national Conference, Vienna, +44(0)117 924

info@clarion.org, website:

www.clarion.org 14-17.

World Heavy Oil gress, Edmonton, Alta., (888) 799-2545, (403) 245-8649 (fax), website: www.worldheavyoilcon-

Con-gress.com 15-17.

Russia Offshore Annual Conference & Exhibition, Moscow, +44 207 067

Con-gress.com 15-17.

IPAA International Forum, Houston, (202) 857-4722, (202) 857-

4799 (fax), website:

www.ipaa.org 16.

NAPE Expo, Houston, (972) 993-9090, (972) 993-9191 (fax), e-mail:

info@napeexpo.com, website: www.napeexpo.

com 16-18.

Laurance Reid Gas Conditioning Confer- ence, Norman, Okla., (405) 325-2248, (405) 325-7164 (fax), e-mail:

GEO India Conference

& Exhibition, New Delhi,

API Inspection Summit

& Expo, Galveston, Tex., (202) 682 8000, (202) 682-8222 (fax), website:

www.api.org 24-27.

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

Pro-24-28.

Shale Gas Symposium, Calgary, Alta., (877) 927-7936, (877) 927-

z.nathan@theenergyex- exchange.co.uk/3/13/

http://www.theenergy-articles/214.php 25-27.

API/AGA Joint Committee

on Oil and Gas Pipeline Welding Practices, Fort Worth, Tex., (202) 682

8000, (202) 682-8222 (fax), website: www.api.

org 26-28.

Pipe Tech Americas Summit, Houston, (416) 214-1144, e-mail: lau- rence.allen@wtgevents.

c.pallen@theenergyex-www c.pallen@theenergyex- exchange.co.uk/3/13/

www.theenergy-articles/135.php Jan

30-Feb 2.

Offshore Production Technology Summit, London, +44 (0)20

com Jan 31-Feb 1.

SPE Middle East ventional Gas Conference and Exhibition, Muscat, +971 4 390 3540, +971

1945, (713) 292-1946 (fax), e-mail: info@iadc.

org, website: www.iadc.

org/conferences 1-2.

Topsides Conference &

Exhabition, Galveston, Texas, (918) 831-9160, (918) 831-9161 (fax), e- mail: wendyl@pennwell.

com, website: www.

topsidesevent.com/index.

html 1-3.

Global LNG Forum, Barcelona, +421 257

272 112, +421 255

Oil & Gas Journal | Jan 3, 2011 17

SPE European

Confer-ence on Health Safety

and Environment in Oil

and Gas Exploration,

Annual Petcoke

Con-ference, San Diego,

Middle East Downstream

Week Annual Meeting,

Confer-0480, (202) 457-0486 (fax), e-mail: info@npra.

org, website: www.npra.

org 1-2.

Annual Arctic Gas Symposium, Calgary, Alta., (877) 927-7936, (877) 927-1563 (fax), website: www.arcticgas- symposium.com/index.

APPEX/AAPG Property &

Prospect Expo, London, +44 (0) 207 434 13

99, e-mail: Europe@

aapg.org website: www.

europetro.com 1-3.

Turkmenistan Asia Oil &

Gas Summit, Singapore, +44 (0) 20 7328 8899, +44 (0) 20 7624 9030 (fax), e-mail: info@

summittradeevents.com, website: www.summit- tradeevents.com/Hold-

ingA2011.php 3-4.

API Spring Committee

on Petroleum ment Standards Meeting, Dallas, (202) 682 8000, (202) 682-8222 (fax), website: www.api.

Measure-org.7-10.

CERA Week, Houston, (713) 840-8282, (713) 599-9111 (fax), e-mail:

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18 Oil & Gas Journal | Jan 3, 2011

2010-2011 EVENT CALENDAR

info@cera.com, website:

www.cera.com 7-11.

Renewable Energy World

Conference & Expo

North America, Tampa,

AIChE Spring Meeting

& Global Congress on

Process Safety, Chicago,

NACE Corrosion

Confer-ence & Expo, Houston,

org, website: www.npra.

org 20-22.

MEOS/SPE’s Middle East Oil & Gas Conference &

Exhibition, Manama, +44 (0)20 7840 2139, +44 (0)20 7840 2119 (fax), e- mail: meos@oesallworld.

com, website: www.

meos2011.com 20-23.

GASTECH International Conference & Exhibition, Amsterdam, +44 (0)

1737 855000, +44 (0)

1737 855482 (fax), mail: info@gastech.co.uk, e-mail: www.gastech.

e-co.uk 21-24.

GPA Europe at GasTech Conference & Exhibition, Amsterdam, +44 (0)

1737 855000, +44 (0)

1737 855482 (fax), mail: info@gastech.co.uk, e-mail: www.gastech.

e-co.uk 21-24.

IADC Drilling HSE Asia Pacific Conference &

Exhibition, Singapore, (713) 292-1945, (713) 292-1946 (fax), e-mail:

Mediter-219418, e-mail: ence@omc.it, website:

confer-www.omc.it/2011

23-25.

SPE Production and Operations Sympo- sium, Oklahoma City, (800) 456-9393, (972) 952-9435 (fax), e-mail:

spedal@spe.org, website:

www.spe.org 27-29.

NPRA International rochemical Conference, San Antonio, (202) 457-

Pet-0480, (202) 457-0486 (fax), e-mail: info@npra.

org, website: www.npra.

org 27-29.

Howard Weil Annual Energy Conference, New Orleans, (504) 582-

org 29.

GIOGIE Georgian national Oil & Gas Energy and Infrastructure Con- ference, Tbilisi, +44 207

or call 214.768.7676 In association with Maguire Energy Institute

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Oil & Gas Journal | Jan 3, 2011 19

2010-2011 EVENT CALENDAR

Pipe Line Contractors Association of Canada Annual Convention, Maui, (905) 847-9383, (905) 847-7824 (fax), e-mail: placa@pipeline.

6625, e-mail: lew@marcusevansch.

spedal@spe.org, website:

www.spe.org 5-6.

SPE/IADC Managed Pressure Drilling & Un- derbalanced Operations Conference, Denver, (800) 456-9393, (972) 952-9435 (fax), e-mail:

spedal@spe.org, website:

www.spe.org 5-6.

Atyrau North Caspian Regional Oil, Gas and Infrastructure Exhibi- tion, Atyrau, +44 (0) 20

AAPG Annual Convention

& Exhibition, Houston, (918) 560-2679, (918) 560-2684 (fax), website:

www.aapg.org 10-13.

APPEA Conference and Exhibition, Perth, +61 (7) 3802 2208, +61 (7)

3802 2209, website:

www.appeaconferences.

com.au 10-13.

GITA’s Geospatial Infrastructure Solutions Conference, Grapevine, Texas, (303) 337-0513, (303) 337-1001 (fax) website: www.gita.org/

events/futconf.asp

10-14.

SAGEEP Information Exchange for New-Sur- face Geophysics Forum, Charleston, (918) 497-

5500, (918) 497-5557 (fax), website: www.seg.

org 10-14.

Gas Turbine Users International Annual Con- ference (GTUI), Dubai, +971 4 8047883, +971

SEG Shale Gas Forum,

Middle East Downstream

Week Annual Meeting,

Hannover Messe

Inter-national Trade Show,

CoiledTub-ing & Well Intervention

Conference & Exhibition,

The Woodlands, Texas,

JOURNALLY SPEAKING

2011: E&P spending on the rise

STEVEN PORUBAN

Senior Editor

With worldwide capital spending budgets of ration and production companies expected to rise 11% in 2011 to $490 billion from $442 billion—ac-cording to the 402 oil and gas firms surveyed by Barclays Capital—this year will undoubtedly be an exciting one on which to report

explo-Barclays most recent research note on the topic,

“The Original Oil Services & Drilling Monthly:

December 2010,” released Dec 23, 2010, stated that the strongest gains in capital spending year-on-year are expected outside North America

Here, spending is expected to rise by 12% to $363 billion vs $324 billion in 2010

“The largest part of the increase is due to higher capital spending from the supermajors (up 17%) and select national oil companies,” Barclays ana-lysts said, adding, “This is a change from recent years where the NOCs drove spending growth.”

Among the selected NOCs expected to show the largest increases internationally are Mexico’s Petroleos Mexicanos, Brazil’s Petroleo Brasileiro

SA, India’s Oil & Natural Gas Corp., Indonesia’s Pertamina, Malaysia’s Petronas, Kuwait’s Kuwait Oil Co., Libya’s National Oil Corp., and Algeria’s Sonatrach

(partic-by as many as 150 rigs in the first half of 2011, although this is expected to be mostly offset by

an increase in the oil-directed rig count over the course of the year.” Of the 210 companies surveyed with spending in the US, the largest increases in

2011 are expected from companies that spend less than $50 million, the analysts said, which is up 63% year-on-year

“However, these companies (107 in total) only represent 2% of total 2011 estimated spending,” they said, adding, “As company size grows larger the magnitude of the increase lessens.”

The firms spending more than $1 billion have indicated a 5.2% increase in spending in 2011

“These 28 companies represent roughly 71% of

2011 forecast US E&P spending,” they said

Among the larger firms that Barclays analysts timate will have “significant” E&P budget increases

es-in the US es-in 2011 vs 2010 are ConocoPhillips, up 60%; Hess Corp., up 43%; Pioneer Natural Re-sources Co., up 26%; EOG Resources Inc., up 21%; Noble Energy Inc., up 13%; Plains Exploration & Production Co., up 11%; and Petrohawk Energy Corp., up 7% All of these firms are expected to spend $1 billion or more in 2011

Conversely, large firms that are expected to duce their 2011 US capital spending budgets in-clude Encana Corp., down 21%; Southwestern En-ergy Co., down 12%; Devon Energy Corp., down 10%; Williams Cos Inc., down 8%; and Range Re-sources Corp., down 6%

re-Canadian E&P spending

Canadian E&P spending in 2011 is expected to increase only modestly from 2010 levels, Barclays analysts said In 2011 Canadian E&P capex is slat-

ed to rise by 4.8% to $32.6 billion in 2011 from

$31.1 billion in 2010, according the 126 companies surveyed

“We believe this is primarily due to lower ral gas prices and reduced vertical, dry-gas drill-ing, offset by increased drilling related extraction

natu-of hydrocarbons from oil sands and shales,” they said

In contrast to previous years, the analysts said they expect the US dollar/Canadian dollar exchange rate to have only a “minimal impact,” roughly 1%, on next year’s spending increase

“As is the case in the US, the smallest of the companies are planning the largest increases,” they said

Global Energy and

OMC is organised in Association with

Under the Hign Patronage of

Supporting Industry Associations

22 Oil & Gas Journal | Jan 3, 2011

EDITORIAL

land needs to be rendered untouchable? How much land can the US afford to treat this way? To these questions the environmentalist agenda answers,

“As much as possible, whatever the cost.” Through Interior, the Obama administration has acceded once again to extremist demands

On the same day Interior acted on wild lands, the Environmental Protection Agency advanced its legally questionable program to control energy de-cisions by regulating emissions of greenhouse gas-

es (GHGs) under the Clean Air Act It announced

a plan for proposing next year GHG standards to take effect in 2012 for fossil-energy power plants and refineries The move followed its November decision to impose permitting requirements based

on GHG emissions from large industrial sources

on Jan 2

With the latest proposal, EPA acted under settlement agreements in lawsuits filed by states and environmental groups It thus sidestepped normal regulatory procedures, under which the regulated industries could have commented on technical feasibility and other concerns This ma-neuver made a mockery of its plans for “listening sessions” preceding the setting of standards

Not listening

EPA apparently hasn’t been listening to public pressions of reluctance to incur higher energy costs for doubtful global-warming remedies Those ex-pressions take form in the Senate’s failure to pass cap-and-trade legislation and in the November re-pudiation of Obama’s state-centered policy push The agency also didn’t listen to an important energy state’s protests when it took over GHG permitting for refineries and power plants in Texas, deciding unilaterally that a flexible permitting program was deficient

ex-The Obama administration is not chastened

by the setback its political party sustained in vember It is pushing ahead an aggressive envi-ronmental and energy program that lacks support outside the far-left wing of its political base and that can only hurt the economy, notwithstanding incessant prattle about mythical “clean-energy” jobs Republicans now hold oversight reins that were out of hand before November They need to jerk them soon and hard

No-US President Barack Obama feinted toward the litical center as 2010 ended, but no one in the oil and gas industry should be fooled This president remains dangerously resistant to the development and use of hydrocarbon energy His administration won’t be discouraged by the harsh message voters delivered to it in congressional elections last No-vember

po-In December, Obama acted as though ready to move away from the leftist agenda voters rebuked

in November When he signed last-minute tion to extend Bush-era tax cuts for all taxpayers,

legisla-he disappointed his liberal supporters, who

want-ed to exclude taxpayers with incomes above tain thresholds On the basis of this compromise,

cer-he received media credit for having redressed tcer-he excesses of his first 2 years in office He then par-layed the goodwill into two legislative victories dear to liberals: repeal of the “don’t ask, don’t tell”

policy on homosexuality in the military services and ratification of an arms-reduction treaty with Russia

Swift recovery

The president now is said to have reclaimed cal ground lost with November’s rout of Democrats from Congress If real, this swift recovery should worry the oil and gas industry Aggressive moves by two key agencies in his administration, made in the news lull just before the Christmas holiday, show Obama has no intention of moderating his activ-ism

politi-On Dec 23, the Department of the Interior opened a new mechanism for preventing eco-nomic activity on federal land It authorized the Bureau of Land Management to manage onshore acreage not designated by Congress as wilderness, off-limits to development, as “wild lands” to pre-serve “wilderness values.” The move provides for the withdrawal of public land from economic use

by fiat

Interior Sec Ken Salazar said this power grab verses a policy established in 2003, in a settlement between Interior and Utah, that blocked expansion

re-of wilderness acreage That land area is slightly larger than California, about 5% of the total US

There surely remains land not designated ness that should be Ultimately, though, how much

wilder-An unchanged agenda

A d v a n c i n g R e s e r v o i r P e r f o r m a n c e

to an Eagle Ford operator’s drilling plan

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

Baker Hughes had a better idea We installed a high-volume Centrilift electric submersible pumping (ESP) system and tripled the frac-water supply well production rate Downtime between completions dropped from 50 to 17 days A second Centrilift ESP on another water-supply well quadrupled its production rate and cut completion wait times to less than 12 days The operator regained its original drilling plan and scheduled to add 36 more wells per year

To learn how we can help you produce more profits from your shale operations, contact your Baker Hughes representative or visit us online You’ll find that partnering with us to maximize the value of your Eagle Ford assets is a very good idea

24 Oil & Gas Journal | Jan 3, 2011

GENERAL INTEREST

Beyond Macondo: Industry

faces range of issues in 2011

Nick Snow

Washington Editor

The Macondo well accident clearly was the biggest event

shaping US energy politics in 2010 It sent shock waves

through Congress and the Obama administration, which

continued to reverberate as the year wound down But it was

not the only game in town Other policy and regulatory

ini-tiatives loom large in 2011, industry association leaders told

OGJ in early to mid-December

“Voters sent a message in the November elections that

jobs are the number-one issue,” American Petroleum

Insti-tute Pres Jack N Gerard observed “The US oil and gas

in-dustry already employs 9.2 million people and has the

po-tential to create hundreds of thousands more with the right

policies.”

Independent Petroleum Association of America Pres

Bar-ry Russell said, “Whenever you have an emergency, there’s

always a potential to overreact We’ve had our hands full

the past 6 months.” He nevertheless suggested that the US

could be poised for a major economic and energy

renais-sance “There have been some real supply game-changers

which have caused many people to reassess policies and strategies,” Russell said

Whether the Obama administration recognizes this and adjusts its energy strategy or doggedly continues to empha-size encouraging alternative fuels with subsidies and dis-couraging fossil fuel development and consumption with punitive taxes and moratoriums could be 2011’s primary question, several of the industry association officials said

“Energy should not be a partisan issue; unfortunately, over time, that’s how it has been perceived,” said Gerard “It could be a good economic starting point for the new Con-gress The challenge will be to bridge political philosophies and come together to create a comprehensive energy policy.”

Two major concerns

Industry association officials expressed concern over the Environmental Protection Agency’s plan to regulate green-house gas (GHG) emissions under the Clean Air Act early next year Several also suggested that US Interior Sec Ken Salazar may have gone further than necessary following the Macondo well accident and spill with withdrawals and new regulations which unduly delay exploration and develop-ment on federal land onshore as well as offshore

“Our frustration has been that instead of learning lessons,

SPECIAL

REPORT

US President Barack Obama and Environmental Protection Agency Adminis- trator Lisa Jackson will be key figures in the energy politics of 2011 They’re shown here receiving a briefing last May from US Coast Guard Commandant Adm Thad Allen following the Macondo blowout in the Gulf of Mexico, which reshaped the political climate Allen was national incident commander Of- ficial White House photo by

Pete Souza.

Oil & Gas Journal | Jan 3, 2011 25

the secretary has taken an overly cautious approach,” said

Daniel T Naatz, IPAA’s vice-president of federal resources

and political affairs “We’ve moved backward as a result of

what happened, and that will hurt our economy

domesti-cally and our competitive position globally.”

The industry is “trying to adjust to a ‘new normal’ in

off-shore oil and gas production,” said National Ocean

Indus-tries Association Pres Randall B Luthi “One of the biggest

challenges is simply getting back to work The secretary’s

deepwater moratorium covered 33 rigs, and as far as we

know none are back on track to resume operations

Shallow-water operations also have been delayed, and seismic work

was even delayed for a period of time.”

American Exploration & Production Council (AXPC)

Pres V Bruce Thompson said his association’s members

re-port that processing of federal onshore drilling permits “has

slowed to a snail’s pace.” He said many independent

pro-ducers suspect the administration is trying to accomplish

by regulation what it couldn’t by legislation with EPA’s GHG

effort

Voters rejected congressional attempts to regulate

ener-gy markets with a carbon cap-and-trade program,

accord-ing to National Petrochemical & Refiners Association Pres

Charles T Drevna “Now, EPA needs to realize what

hap-pened and recognize that the Clean Air Act is not the right

mechanism,” he said “It looks as if we’re going to have to

live with what it comes up with until cooler heads prevail

or the courts decide We’re not saying that environmental

rules and regulations aren’t necessary, but they need to be

balanced.”

Investment chill

Gerard similarly suggested that the EPA’s push to regulate

GHGs conflicts with the message voters sent in November

“They made it very clear they want Congress focused on job

creation and economic recovery,” he told OGJ “EPA’s

bur-densome regulatory approach creates uncertainty which will

chill any investment recovery Further, it expects elected

officials in Congress to determine a policy of such

conse-quence—and not unelected bureaucrats.”

Oil and gas associations’ first task following the election

was to begin educating new members of Congress and their

staffs about energy issues in general and oil and gas in

par-ticular, the officials said “We and other trade associations

work together,” said Luthi “We’re preparing energy

informa-tion sheets for each state to provide new members of

Con-gress.”

Thompson said the oil and gas industry’s ability to send a

consistent message to federal lawmakers despite its diversity is

probably its biggest single improvement in Washington in the

last 30 years “We try to get everyone on the same page where

possible and support one another There’s plenty to do and no

shortage of opportunities,” he said “The more times we can go

to the Hill with the same message, the better off we are.”

He said he expects concerns over the growing federal budget deficit to drive the 2011 congressional agenda but was not certain what the impact might be on oil and gas Other officials said they expect the White House to use this

in its annual effort to remove tax incentives ranging from the intangible drilling cost exemption to denying oil and gas companies use of the manufacturer’s tax deduction available

to other industries

Russell said the recent emphasis on reducing the deficit could intensify attacks on tax incentives because new pro-grams require funding “On the other hand, more economic activity is needed to help state and local governments,” he said “We have a good case there because we show positive impacts independent producers provide.”

Punitive agenda

Gerard said some members of Congress and the Obama ministration will probably continue to push a punitive agen-

ad-da, including taxes, at the industry “Recent studies

conclud-ed that increasconclud-ed oil and gas taxes over time will cost the Treasury revenue,” he told OGJ “In contrast, opportunities

to develop domestic oil and gas will generate billions of lars to assist in deficit reduction It is clear the best approach

dol-is to encourage development of America’s vast oil and gas resources.”

He added that the Obama administration moved in the wrong direction when it dramatically changed course on its offshore oil and gas policy following the Macondo accident and spill “Studies show access to areas currently off-limits has the potential to create hundreds of thousands of jobs and generate billions of dollars in federal revenue,” the API president said “We believe the administration should re-view its announcement and focus on producing American oil and gas as a significant spark to job creation and eco-nomic recovery.”

That won’t be easy, warned NOIA’s Luthi, a former US Minerals Management Service director Lease sales are the trigger for generating more offshore oil and gas revenue; so many of them have been canceled that the next one won’t occur until late in 2011 at the earliest, he pointed out “Take

a look at what other countries are doing in the meantime,”

he said “They aren’t curtailing their efforts In fact, they’re increasing them.”

AXPC’s Thompson said he’s encouraged by “an ing on the part of Congress to our industry’s economic con-tributions, and how punitive legislation has implications be-yond hurting our members.”

awaken-Drevna of NPRA, calling himself “cautiously optimistic,” said, “2011 and the 112th Congress give us an opportunity

to have the debate on where policies come from, what they’re going to do, and how they’re going to be corrected I’m still naive enough to think that common sense will prevail The American public is smarter than many politicians think It’s growing tired of this anticarbon fallacy.”

GENERAL INTEREST

as part of its independent investigation, “yet the BOP nation process is being carried out in a manner that favors potentially liable parties over [CSB’s] independent investiga-tors,” he added

exami-Moure-Eraso said Transocean and Cameron personnel must be removed from any hands-on role in the BOP’s ex-amination immediately; the contract with DNV needs to be terminated or modified to place any DNV employees con-ducting the examination under a neutral third party’s su-pervision; all technical working group members should re-ceive a full narrative and photo and video documentation

of activities and changes involving the BOP when they were not present; and full resolution photo and video documen-tation to technical working group members should not ex-clude CSB

“Finally, the CSB, JIT, and other interested parties must agree to the appointment of a neutral third party to supervise examination of the BOP, or a court of competent jurisdiction should designate a special master to oversee the impartiality and fairness of the examination,” he maintained

FWS clarifies polar bear designation; Alaska ponders suit

Nick Snow

Washington Editor

The US Fish and Wildlife Service clarified for a federal court its 2008 designation of the polar bear as a threatened but not endangered species after Alaska said it is considering a legal challenge to FWS’s designation of more than 187,000

sq miles in the state as critical polar bear habitat under the Endangered Species Act

The law defines an endangered species as one “in ger of extinction” and a threatened species as one likely to become endangered in the foreseeable future Following a hearing in a suit brought by environmental organizations that challenged the designation, the US District Court for the District of Columbia asked in October for further ex-planation of how the US Department of the Interior agency interpreted the two definitions

dan-In its memorandum, FWS said its biologists concluded

in 2008 that the polar bear was not facing sudden and strophic threats, was still a widespread species not restricted

cata-to a critically small range or critically low numbers, and was not suffering ongoing major reductions in numbers or range

It accordingly was not in danger of extinction when the ing was being determined and did not warrant listing as an endangered species, the agency said

list-It added that FWS biologists also found in 2008 the polar bear faced serious threats in the foreseeable future from the

The US Chemical Safety and Hazard Investigation Board

can’t meaningfully examine the Macondo well’s blowout

preventer as long as the BOP’s owner, Transocean Ltd.,

and manufacturer, Cameron International Inc., “have been

granted unique access to the testing process,” CSB told the

US Bureau of Ocean Energy Management, Regulation, and

Enforcement

“Given the well-publicized history of improper

relation-ships between the former Minerals Management Service and

members of the oil industry, one would have expected that

extraordinary care would be taken to conduct the BOP

test-ing above reproach,” CSB Chairman Raphael Moure-Eraso

said in a Dec 23 letter to BOEMRE Director Michael R

Bromwich

“One would have expected an independent, second set

of eyes like [CSB] to be welcomed Regrettably, this has not

been the case,” he continued

A US Department of the Interior spokeswoman told OGJ

by e-mail Dec 27 the CSB chairman’s letter, “which was sent

to reporters before it was sent to us in the afternoon of [Dec

23] before a federal holiday, will be responded to in due

course as has every other letter.”

Moure-Eraso said problems that CSB investigators have

observed are endemic in the testing’s design and

manage-ment He said problems range from the selection of

Norwe-gian certification organization Det Norske Veritas (DNV)

as lead examiner, to “the excessive and disturbing access of

multiple Cameron and Transocean personnel to the

equip-ment itself, which continues to this day,” and to a systematic

exclusion of CSB from any meaningful testing role

DNV’s earlier work

The joint investigation team (JIT) from the US Coast Guard

and Department of the Interior jointly contracted with DNV

on Oct 6 to lead the examination of the recovered BOP

from the deepwater Gulf of Mexico oil well which blew out

and exploded on Apr 20, killing 11 people CSB

previous-ly expressed concerns about DNV’s selection because the

Norwegian firm audited the Deepwater Horizon’s safety in

2007 and was a consultant to Transocean on BOPs’ efficacy,

Moure-Eraso said in his letter

“In addition, DOI could be perceived as having its own

interest in the outcome of the testing because of [its]

previ-ous role in overseeing the safety of the drilling rig and

ef-fectiveness of the BOP,” he said The JIT previously stated

that they respect CSB’s interest in evaluating the BOP stack

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28 Oil & Gas Journal | Jan 3, 2011

Let others condemn a certain

belea-guered multinational oil company’s

chief executive for letting his guard

down for a few moments and saying

something he quickly regretted late

last spring For the past few years at

this time, this column has tried to

recognize, with its annual “Watchy”

awards, others in and around

govern-ment who have said memorable things

about oil and gas that otherwise might

have been overlooked

The signature event for 2010

obvi-ously was the Apr 20 Macondo well

accident and subsequent crude oil spill

in the Gulf of Mexico Several of the

latest Watchy recipients won as they

commented about it Others simply—

yet stunningly—went about their

business as usual

There was US Sen Orrin G Hatch

(R-Utah), who wins a “Nice Try”

Watchy for his May 27 suggestion that

the Obama administration reconsider

its decision to cancel onshore leases

awarded at a December 2008 US

Bu-reau of Land Management sale in Salt

Lake City after it suspended US

deep-water exploration in the gulf following

the accident and spill

“I fear the president is laying the

foundation for our nation’s next energy

crisis, higher fuel prices, and a greater

dependence on foreign oil,” Hatch

ar-gued, apparently to little avail as BLM

decisions in subsequent months

clear-ly showed

US Rep Lois Capps (D-Calif.)

makes no secret of her opposition to

offshore oil and gas activity She

nev-ertheless receives a “Freudian Slip”

Watchy for thanking US Interior Sec

Ken Salazar during a July 20 House Energy and Commerce subcommit-tee hearing for deciding to exclude California’s coastline “from oil and gas leaking…er, leasing.”

Ahead of the curve

To be fair, however, Capps and Rep

Edward J Markey (D-Mass.) deserve

an “Ahead of the Curve” Watchy for introducing a bill to give US President Barack Obama’s independent oil spill commission subpoena power weeks before the commission actually asked for it

Numerous witnesses offered shore safety recommendations to sev-eral panels of government investiga-tors A “Hitting the Nail on the Head”

off-Watchy goes to John Clegg, a retired chief executive of Australia’s National Offshore Petroleum Safety Author-ity, for suggesting to the US Chemical Safety Board during its Dec 15 hear-ing on the Macondo well accident that producers and regulators may tend to try simply to meet requirements more than actually improve safety

Finally, EPA, BLM, and CSB each deserve an “Across the Bough and Out the Door” Watchy for making major announcements the afternoon of Dec

23 as nearly everyone was trying to leave for the Christmas holiday It in-dicated that even an administration supposedly committed to clarity and responsiveness wasn’t above using an old, but annoying, federal bureaucrat-

ic trick

projected destruction, modification,

or curtailment of its sea ice habitat or range due to global climate change and

a lack of sufficient regulations to tail this threat

cur-FWS said it concluded the mental sea ice habitat loss over time would limit polar bears’ ability to sat-isfy essential life-history requirements and result in their likely being in dan-ger of extinction within the foresee-able future, making it appropriate to list them as threatened

des-The designation, which FWS nounced Nov 24, covers nearly 200,000 square miles of barrier is-lands, onshore denning areas, and off-shore sea ice as critical polar bear habi-tat under the Endangered Species Act

an-It includes areas of oil and gas where consultation with FWS now will be re-quired before any activity occurs, the notice indicated

The letter to Salazar triggered a day period in which the secretary may withdraw the designation or correct violations of the ESA the state listed

60-in its correspondence Alaska can ceed with its litigation if no action is taken

pro-The state contended in its letter that FWS disregarded federal law by in-cluding geographical areas in the des-ignation in which there is little or no evidence of physical or biological fea-

Oil & Gas Journal | Jan 3, 2011 29

GENERAL INTEREST

In its announcement, EPA said it has worked closely with states to make sure GHG regulation under the Clean Air Act, which it proposed after the US Supreme Court ruled in 2007 that the agency had that authority, goes smoothly It said it would continue to work with the affected states to enable them to begin issuing GHG permits

Environmental organizations applauded EPA’s actions

“Carbon pollution poses serious threats to Americans’ health, our economy, and our future We’re pleased that EPA

is working to deliberately bring this dangerous pollution der control, focusing on the biggest polluters first,” Sierra Club President Michael Brune said

un-“By setting timetables for issuing standards to cut ous carbon pollution from power plants and oil refineries, EPA is doing precisely what is needed to protect our health and welfare and provide businesses certainty at a time when some would prefer to roll back the clock,” added David Doniger, policy director at the Natural Resources Defense Council’s Climate Center

danger-IHS Herold outlines 2011 outlook for oil services, drillers

Paula Dittrick

Senior Staff Writer

Rising oil prices, unconventional gas drilling in the US and Canada, along with offshore projects worldwide appear like-

ly to drive recovery for oil and gas service providers during

2011 despite the major setback of the 2010 drilling rium in the Gulf of Mexico, analysts said

morato-A special IHS Herold report, entitled “Review on the Oil Field Services Sector,” forecasts a healthier growth outlook for oil and gas service companies in 2011 than what those companies faced in 2010 The review compared key oil com-pany financial performance against performance for service companies and offshore drilling contractors

“Many of the service companies, and in particular the shore drilling companies, took a financial beating following the gulf drilling moratorium,” said John B Parry, principal energy analyst at IHS and author of the special review

off-A federal moratorium on offshore drilling temporarily was imposed after the Apr 20 Macondo well blowout and subsequent oil spill in the gulf BP PLC operated Macondo

An explosion and fire on Transocean Ltd.’s Deepwater rizon semisubmersible resulted in the deaths of 11 workers.The wellhead in 5,000 ft of water was temporarily capped on July 15 A relief well was drilled and the well permanently sealed The moratorium has been lifted but the return to drilling in the gulf is expected to be slow

Ho-as operators and drilling contractors fulfill new federal

tures that are essential to conservation of polar bears It said

mapping of Norton Sound, which was included as critical

sea ice habitat, does not show the area even within the range

of polar bears By designating nearly the entire geographical

area that can be occupied by the animal, FWS violated the

ESA, according to the state

“Federal officials also disregarded comments submitted

by the state and failed to fully consider the economic impact

and national security implications of the critical habitat

des-ignation,” Parnell said “Once again, we are faced with

fed-eral overreach that threatens our collective prosperity We

don’t intend to let this stand.”

EPA assumes GHG

authority in eight states as

carbon regulation begins

Nick Snow

Washington Editor

The US Environmental Protection Agency issued its initial

greenhouse gas regulation implementation plans, giving it

authority to issue permits in seven states until state and local

agencies can revise their regulations EPA also disapproved

Texas’ clean air permitting program and said it will begin to

issue GHG permits there

EPA’s action covered Arizona, Arkansas, Florida, Idaho,

Kansas, Oregon, and Washington In a separate order, it

is-sued final rules to ensure no federal laws are in place

requir-ing any state to issue GHG permits below levels outlined

in the tailoring rule, the provision designed to curb carbon

emissions from refineries, chemical plants, and other large

industrial facilities first

Oil and gas groups responded critically “In

unprecedent-ed fashion, EPA is now coercing some states to relinquish

their authority and is directly usurping state regulatory

au-thority in Texas,” said Howard Feldman, the American

Pe-troleum Institute’s regulatory and scientific affairs director

He noted the agency’s stationary source GHG regulations are

to take effect Jan 2, with court review still pending, and that

EPA and state programs are still works in progress “EPA is

cramming too much in too short of a time,” he said

“EPA’s proposals would carry tremendous costs but no

benefits for the American people—all pain and no gain,”

de-clared National Petrochemical & Refiners Association

Presi-dent Charles T Drevna “Regulations can’t create technology

that doesn’t exist or change the laws of physics and

econom-ics, so the only way to comply with EPA’s proposals would

be to inflict massive increases in energy costs and massive

increases in unemployment on families across our nation.”

GENERAL INTEREST

certification requirements

IHS CERA previously said six deepwater rigs have

de-parted the gulf and the number of new wells drilled in

shal-low water fell sharply

Major firms faring better

Major service providers fared better than offshore drillers,

who either saw declines in revenue or marginal revenue

growth, Parry noted

“Current forward earnings estimates suggest a potential

restoration to prior peak 2008 stock price levels by 2012,”

Parry said

For instance, Baker Hughes Inc reported $9.9 billion in

revenues for the first 9 months of 2010 compared with $7.2

billion in revenue during the same period of 2009

Hallibur-ton reported revenues of $12.8 billion compared with $10.9

billion for the same periods

Cameron International said its revenues were $4.3 billion

for the first 9 months of 2010 compared with $3.7 billion for

the first 9 months of 2009

Shifting resources to meet strong demand for US onshore

drilling and other international projects helped many

ser-vice companies keep their earnings on a positive flow, Parry

said

In its mid-year 2010 earnings conference call, Baker

Hughes said it responded to the gulf drilling moratorium

by redeploying people and equipment to US land operations

and to international offshore markets

Baker Hughes noted high demand for hydraulic

fractur-ing crews in the US and Canada and risfractur-ing frac prices has

led to a strong backlog for pressure pumping, with wait

times of 90-180 days for customers Operators also have

re-ported frustration with the cost and availability of fracing

services (OGJ, Dec 6, 2010, p 40)

In its third-quarter 2010 earnings call, Halliburton said

the shift toward liquid-rich plays will lead to continued

growth in overall activity for its US land business

Hallibur-ton transferred 400 people from the gulf to other regions

worldwide

Halliburton also said it “hired over 6,500 new employees

in the US since the beginning of the year, creating a

signifi-cant number of new jobs.”

Iraq promotes al-Shahristani;

appoints Luaibi as oil minister

Eric Watkins

Oil Diplomacy Editor

Iraq’s Oil Minister Hussain al-Shahristani was promoted to

the country’s deputy prime minister for energy, with current

deputy oil minister Abdul Kareem Luaibi being designated

as his successor

“In the cabinet formation list submitted by Prime ister Nuri al-Maliki, Hussain al-Shahristani is nominated as deputy prime minister for energy and Abdul Kareem Luaibi

Min-is the oil minMin-ister,” said Iraq’s former Prime MinMin-ister him al-Jaafari

Ibra-The new oil minister was born in Baghdad in 1959 and holds a BA degree in oil engineering from the University of Baghdad Luaibi began his career in 1983 with Iraq’s state-owned South Oil Co., and he held several posts within the ministry before reaching his latest position

As senior deputy in the ministry of oil, Luaibi is said to have been instrumental in the country’s recent oil and gas contracts with international oil companies and other agree-ments with neighboring countries

Altogether, Iraq has awarded 15 oil and gas contracts since 2008 to international energy companies, representing the first major investment in the country’s energy industry for more than 30 years

“[Luaibi] means good continuity for the oil companies,” said Samuel Ciszuk, Mideast energy analyst with IHS Global Insight “He was very much involved in the negotiations of the contracts He was very much involved in the talks with the oil companies.”

Despite the appointment of Luaibi as minister, observers said that al-Shahristani would remain the dominant figure

in the country’s oil and gas industry

“Hussain al-Shahristani asked for broader authority in the oil industry, especially with the issues of the contracts

in the country’s bidding rounds, and to have a say in ning Iraq’s energy sector,” said a senior official “When he got these assurances he accepted the post of deputy prime minister for energy.”

run-Al-Shahristani led the oil ministry through a series of agreements with IOC’s that could increase Iraq’s production capacity to 12 million b/d from the current 2.5 million b/d, subject to approval by the Organization of Petroleum Ex-porting Countries

Observers suggested that al-Shahristani’s continued trol over the oil sector will be seen as assurance that con-tracts he agreed with IOC’s will be honored in the absence

con-of formal guarantees, given the country’s lack con-of a new drocarbons law

hy-Some observers said that al-Shahristani would have only accepted his new position on condition he retained overall control of oil, which provides around 95% of Iraq’s budget revenues

The promotion of al-Shahristani, a nuclear scientist by profession, also followed last week’s decision by the United Nations Security Council to grant Iraq permission to devel-

op a civilian nuclear program after 19 years of restrictions aimed at preventing the country from developing atomic weapons

Oil & Gas Journal |Jan 3, 2011 31

GENERAL INTEREST

According to Chevron, Douglas len testified that the plaintiffs’ repre-sentatives said that he should use the Cabrera Report as a “starting point.”

Al-Chevron, quoting consultant than Shefftz, said his finding likewise depends upon “data and cost figures from the Cabrera Report.”

Jona-Shefftz admitted to Chevron’s

law-port the plaintiffs’ absurd financial claims,” the firm said

Chevron said there were a number

of flaws with the damages assessment, but most obvious was the consultants’

reliance on the so-called Cabrera port, which was allegedly written by Richard Stalin Cabrera, a mining en-gineer

Re-Following the UNSC

announce-ment, al-Shahristani told the Aswat

al-Iraq news agency that his country

“is striving to develop and activate the

nuclear energy for peaceful purposes,

with local potentials and efficiencies,

because it possesses a very special

pro-gram, compared with other

develop-ing nations.”

Al-Shahristani studied in Britain,

Russia and Canada before reaching

the position of senior scientific adviser

at Iraq’s Atomic Energy Commission

during the 1970s He was arrested in

1979 by agents of Iraq’s former

presi-dent Saddam Hussein for his alleged

activities against the regime He was

eventually sentenced to 20 years and

spent 11 in prison

Al-Shahristani escaped the

infa-mous Abu Ghraib prison during the

1991 Gulf War and fled to Iran He

re-turned to Iraq in 2003, turning down

an opportunity to head the interim

government before being made oil

Oil Diplomacy Editor

Chevron Corp said admissions during

court-ordered depositions of the

plain-tiffs’ own consultants confirm there is

no scientific basis for the $113-billion

claim for damages in litigation

pend-ing in Lago Agrio, Ecuador

The firm said its attorneys

ques-tioned consultants credited with the

latest damage assessment and, after

fil-ing deposition transcripts to the court,

called for the damages assessment to

be rejected in its entirety

“Under direct questioning from

Chevron attorneys, the five plaintiffs’

consultants conceded that their work

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32 Oil & Gas Journal | Jan 3, 2011

WATCHING THE WORLD

ERIC

WATKINS

Oil Diplomacy Editor | Blog at www.ogj.com

Baghdad’s Brave New World

Iraq’s new Oil Minister Abdulkarim

al-Luaybi wasted precious little time in

making his presence felt Indeed, just

a day after being installed as minister,

al-Luaybi made some interesting

dec-larations

“Today, our production is over 2.6

million b/d,” al-Luaybi told reporters

after the installation ceremony,

add-ing, “This figure has not been reached

for more than 20 years.”

Al-Luyabi also expressed his aim of

increasing Iraq’s production capacity,

saying that developing the country’s

economy and providing funds to

fin-ish projects and create jobs for people

“all depend on revenue from oil.”

With those clear needs in mind,

al-Luyabi said his ministry would

“reac-tivate the role of the exploration teams

and geological surveys in order to

strengthen national production.”

Expansion plans, but…

The new minister also reiterated plans

announced earlier to expand oil

sys-tems, including “projects to expand oil

and gas pipelines, and make good use

of the gas that comes out with the

ex-traction of oil.”

Projected pipeline expansion is to

include three new lines to Syria, one

of 1.5 million b/d capacity, another of

1.25 million b/d capacity, and a third

for natural gas Southern Iraq will also

see new oil pipelines aimed at

boost-ing exports via Basra to 4.5 million b/d

from the current 1.8 million b/d

And, in a completely new

depar-ture, al-Luyabi said the Iraqi

govern-ment will build several refineries in

an effort to transform the country into one that exports products instead of just crude

Altogether, four refineries are to

be constructed in 3-5 years’ time: one with a 300,000 b/d capacity in Nasiri-yah, a 140,000 b/d facility in Karbala,

a third in Maysan with 150,000 b/d pacity, and a fourth in Kirkuk with a capacity of 150,000 b/d

ca-…Kurdish problem remains

Speaking of Kirkuk, which is the tal of semiautonomous Kurdistan, the new minister also gave assurances that Baghdad would soon come to terms with the Kurdish Regional Govern-ment

capi-Altogether, the KRG has signed a reported 37 contracts with 40 interna-tional oil companies, amounting to an investment of $10 billion when com-pleted, deals that Baghdad has long bobbed and weaved over

Two weeks ago, al-Luaybi that Iraq would recognize those Kurdish con-tracts, but a week later was corrected

by spokesman who said: “The try has not yet discussed the issue of recognizing the Kurdistan contracts.”

minis-For the moment, the spokesman said that “Kurdistan will hand over 150,000 bbl to the ministry of oil, the ministry will export this oil, and the government and finance ministry will pay the real costs of the production to the companies.”

Real costs? Hmmm One can only wonder who will determine those costs and by what formula

yers that he “was not engaging in any exercise to verify [Cabrera’s] data se-ries or his cost figures I was just using them in my report.”

Shefftz went on to acknowledge that he did not “know one way or the other whether they’re [Cabrera’s data] correct or not,” conceding that his “re-sults depend, in part, on the accuracy

of [Cabrera’s] data series and ra’s] cost figures.”

[Cabre-Lawrence Barnthouse told ron’s lawyers that much of the infor-mation he used was “only available from the Cabrera Report” and that he did nothing to assess the validity of any of the assumptions made in the report

Chev-Barnthouse told the lawyers that he simply “assume[d] that [Cabrera] was correctly characterizing” relevant en-vironmental standards

“It is now indisputable that the plaintiffs’ lawyers’ Sept 16, 2010, fil-ing with the Lago Agrio Court is an at-tempt to whitewash their prior, unlaw-ful collusion with the court-appointed

‘independent’ expert,” Chevron said

The firm said that the new, $113 billion “assessments” are “even more extreme and scientifically unreliable than the fraudulent $27.3 billion Ca-brera Report from which they admit-tedly are derived.”

As a result, R Hewitt Pate, Chevron vice-president and general counsel, said these “new assessments are an at-tempt to bring the plaintiffs’ lawyers’ false evidence back into the Lago Agrio Court under the cover of new names and indefensible numbers.”

Pate added, “At this point, the plaintiffs’ lawyers have no legitimate evidence to advance their claims, so they’ve resorted to a shell game.”

Meanwhile, Chevron noted that “by ignoring the role of Petroecuador…the new reports continue the joint ef-forts of the plaintiffs and the govern-ment of Ecuador to deflect attention from the state-owned oil company that bears sole responsibility for all remain-ing environmental impacts outside the scope of Texaco’s remediation in the

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during the driving season, especially from Europe

Capacity utilization, while improving, remains low, Fitch said

“Looking forward, Fitch anticipates further gradual provements in industry profitability in the form of higher utilization rates and/or better margin generation,” it said

im-Quality differentials have recovered after collapsing in

2009 and likely will widen further as oil demand recovers and members of the Organization of Petroleum Exporting Countries raise production Incremental OPEC flows will tend to be lower-grade crudes, output of which exporters cut first when they trim total production to meet OPEC quo-tas

Texas leads North Dakota

in 2009 oil reserves hike

Texas’ Permian basin topped North Dakota’s Bakken play as contributors to a 9% increase in US crude oil and conden-sate reserves in 2009 as shale plays drove gas reserves to the highest since 1971

Wet gas reserves climbed 11% in 2009 to 284 tcf, and oil and condensate reserves hit 22.3 billion bbl, said the US En-ergy Information Administration

“Unlike the situation for natural gas,” EIA said, “where proved reserves grew robustly despite lower wellhead prices, the rise in proved reserves of crude oil was supported by a 37% increase in the crude oil prices used to estimate re-serves.”

Louisiana, Arkansas, Texas, Oklahoma, and nia were the leading states that added proved reserves of shale gas in 2009, EIA said

Pennsylva-Louisiana led the US in additions of natural gas proved reserves with a net increase of 9.2 tcf or 77%, owing mainly

to development of the Haynesville shale Arkansas with the Fayetteville shale and Pennsylvania with the Marcellus shale nearly doubled their reserves with net increases of 5.2 tcf and 3.4 tcf, respectively

Shale development in Texas and Oklahoma gave the two states increases of 3.2 tcf and 2.1 tcf, respectively

The increases occurred despite a 32% decline in the ral gas wellhead prices used to assess economic viability for

natu-2009 reserves as compared to the prices used in reserves reporting for 2008, EIA said

Proved reserves increased in each of the five largest oil and condensate areas: Texas, the Gulf of Mexico federal off-shore, California, Alaska, and North Dakota Nearly all of Texas’ 11% gain of 529 million bbl was in the Permian basin North Dakota was up 83% or 481 million bbl

Overall shale gas reserves climbed to 60.6 tcf from 34.4 tcf at the end of 2008 Conventional and tight gas reserves

1990’s.”

According to Chevron, the plaintiffs’ consultants

con-ceded under oath that Petroecuador’s role in oil production

should not have been overlooked and that, had it been

con-sidered, it would have affected their reports

Chevron said recently that litigation against the firm in

the Ecuadorian court should be terminated because a

foren-sic specialist discovered many forged signatures on the

doc-ument that initially authorized the legal action (OGJ Online,

Dec 27, 2010)

Mixed outlook seen in ’11

for N American refiners

North American refiners, while benefiting from slow

recov-ery of the global economy, remain vulnerable to pressures

from global overcapacity, relatively expensive crude oil, and

high US unemployment rates, says Fitch Ratings

In 2011, refineries with “high-quality, deep-conversion

assets” will perform “reasonably well,” Fitch said in an

an-nual outlook Marginal refineries will struggle

Fitch rated creditworthiness of half the US refiners it

tracks as “stable” and half as “negative.”

In general, refining performance will depend mainly

on the speed of economic recovery in the US, Fitch said

Refiners able to export high-specification distillates to

Asia and Latin America recently have experienced

mar-gins higher than those of competitors focused on US

gaso-line markets

Major trends cited by the credit monitoring service

in-clude the primacy of distillates over gasoline; deepening

discounts for heavy, sour, high-acid crudes; and demand

growth constrained by regulation

“The industry as a whole faces stiff regulatory headwinds

from the mandate for increased renewable fuel use in the US,

rising fuel efficiency standards across the US vehicle fleet,

and pending carbon regulation on the state and potentially

national levels,” Fitch said

A “significant double-dip recession” would hurt credit value

of all the refining industry but isn’t part of the Fitch outlook

“A second risk for North American refiners would be the

possibility of a sharp and sustained spike in crude oil prices

based on a rapidly depreciating dollar, which would

sharp-ly raise prices for US end users and choke off domestic

de-mand,” Fitch said

Crack spread recovery

The firm noted a recent recovery in benchmark crack spreads

to “reasonable levels,” although regional differences persist,

with East Coast spreads wider than those on the West Coast

East Coast refiners remain vulnerable to gasoline imports

Oil & Gas Journal | Jan 3, 2011 35

GENERAL INTEREST

Suncor-operated Fort Hills mining project, the

Total-operat-ed Joslyn mining project, and the Suncor-operatTotal-operat-ed Voyageur upgrader project

All assets are in Alberta’s Athabasca region Under the liance, the companies will pool their combined interests in these projects, with the respective operator holding 51% and the other partner 49% Total will pay Suncor $1.75 billion

al-Total is acquiring 19.2% of Suncor’s interest in the Fort Hills project, giving it an overall 39.2% interest after its ac-quisition of UTS Energy Corp, finalized in October 2010 Suncor, as operator, will hold 40.8%, while Teck Resources Ltd holds 20% Suncor is acquiring 36.75% of Total’s inter-est in the Joslyn project, operated by Total with a 38.25% stake along with Occidental Petroleum Corp holding 15% and Inpex 10%

Total also is acquiring a 49% stake in the

Suncor-operat-ed Voyageur upgrader project near Fort McMurray The cility will have a capacity of 200,000 b/d of upgraded prod-ucts and will process Total’s Fort Hills and Joslyn bitumen production Construction, suspended in 2008, will resume when the front-end engineering design is updated in 2011

fa-Suncor and Total agreed to develop Fort Hills and geur in parallel so that both come on stream early 2016 En-gineering and procurement contracts for the projects are ex-

Voya-climbed to 283.9 tcf from 255 tcf, with most of the increase

occurring in the Lower 48 onshore Coalbed methane

re-serves fell to 18.6 tcf from 20.8 tcf

US crude and condensate reserves in 2009 grew 1.5

bil-lion bbl from discoveries and 2.1 bilbil-lion bbl from revisions

mostly the result of extensions to existing fields Production

was 1.8 billion bbl in 2009

US lease condensate proved reserves grew 14% to 1.633

billion bbl, primarily from extensions US natural gas plant

liquids reserves were up 5 million bbl to 178 million bbl in

2009 US plant liquids production was up 7% to 714 million

bbl in 2009

Total, Suncor sign $1.75 billion

Canada oil sands deal

Eric Watkins

Oil Diplomacy Editor

Total E&P Canada Ltd and Suncor Energy Inc said they

will form a strategic oil sands alliance encompassing the

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Official Media Partner

GENERAL INTEREST

that we felt that the bid did not meet our benchmark and as a result we have decided that we will not award the block but would keep the block in the Ministry of Energy where it can

go out for bids sometime in the future.”

Block 5(d) is lies off eastern Trinidad in 450-800 m of water The block covers 684 sq km There have been several discoveries of gas in adjacent blocks: the Manakin gas dis-covery lies to the south, and Corallita and Lantana discover-ies to the west

Alaska

A unit of Miller Petroleum Inc., Huntsville, Tenn., has worked a well in the West McArthur River Unit in Alaska’s Cook Inlet with tubing configured to produce oil and to be converted for water injection without further intervention

re-Workover of the WMRU-2A well, shut in since Dec 24,

2001, involved the rigless coiled tubing method and resulted

in a test rate of 37 b/d of oil The well has produced nearly 1,000 bbl of oil, helping to offset the $500,000 workover cost The well provides back-up to Miller’s existing injection well and positions the company to implement a waterflood program

Pennsylvania

Range Resources Corp., Fort Worth, met its internal target

of doubling net production from the Marcellus shale in 2010 and expects to double output again in 2011

Output averaged 212 MMcfd of gas equivalent in the first

2 weeks of December, exceeding the 210 MMcfd goal

Flow is to start in late January 2011 from the company’s northeastern Pennsylvania Marcellus acreage as the first phase of pipeline and compression facilities is completed

The company expects production increases from western and northeastern Pennsylvania to reach the expect-

south-ed 2011 exit rate of 400-420 MMcfsouth-ed Range employs 290 people on its Marcellus team

pected to be awarded in 2011

Both companies confirmed a Joslyn North Mine timetable

calling for production of 100,000 b/d in 2017-2018, subject

to receiving the necessary permits

Suncor unveiled a 10-year growth strategy including

plans to increase oil production to more than 1 million

boe/d by 2020 Over 10 years, Suncor said it is targeting oil

sands production growth of 10%/year and companywide

production growth of 8%/year Key components of the plan

include continued development of the Firebag in-situ project

and development of the MacKay River in-situ project

Trinidad and Tobago awards

four shallow-water blocks

Curtis Williams

OGJ Correspondent

Trinidad and Tobago has announced the award of four

shal-low-water blocks in its 2010 shalshal-low-water bid round

Energy Minister Carolyn Seepersad Bachan also

an-nounced that the Caribbean twin-island nation had rejected

bids from BG Trinidad & Tobago for Block 5(d) and Gulf

Central for North Marine block even though BG and Gulf

Central were the only bidders on those blocks

Voyager Energy (Trinidad) Ltd was awarded all three

blocks it bid on, including Block 4(b) and NCMA 3, which

Voyager won on its own, and NCMA 2, which Voyager won

in partnership with RWE Dea AG

Block 4(b) lies off Trinidad’s east coast in 100-800 m of

water, just east of the Dolphin and Starfish producing fields

The block is 750 sq km and was originally offered during the

competitive bid round in 1995 and awarded to

ConocoPhil-ips, which relinquished the block in 1999

NCMA 3 covers 2,094 sq km and is in relatively shallow

water (30-100 m) off Trinidad’s north coast It is south of

Hibiscus, Chaconia, and Poinsietta gas fields, all now

pro-ducing Two wells have been drilled over the acreage, Alma

1 and HH6-1, with the latter testing gas

NCMA2 is in the North Coast Marine Area off Trinidad’s

northern coast and west of Tobago The block is 987 sq km in

30-100 m of water The block is adjacent to the Chaconia and

Hi-biscus producing fields but has no proven hydrocarbons to date

Centrica Energy was awarded NCMA 4 Block NCMA 4

covers 1,779 sq km and is in 30-160 m of water off Tobago’s

northwest coast It is east of Hibiscus, Chaconia, and

Poinsi-etta fields and contains two proven gas accumulations

Director of Resource Management at the Ministry of

En-ergy Helena Innis-King told OGJ that there were set criteria

for the blocks that BGTT did not meet She said, “While I

am not in a position to say what the criteria were, the fact is

Oil & Gas Journal | Jan 3, 2011 37

SPECIAL

REPORT

US, worldwide energy demand

growth rates to slow in 2011

Marilyn Radler

Senior Editor-Economics

The US economy and energy demand will strengthen in

2011, but persistently high unemployment will limit the

growth of each

Total demand for energy in the US will climb 1% this

year, according to Oil & Gas Journal’s annual Forecast & view Preliminary data indicate a 3% increase in US energy consumption in 2010

Re-Demand for oil, nuclear energy, hydroelectric power, and other renewable forms of energy will be up as demand for natural gas inches up and coal demand is flat

This forecast assumes warmer-than-normal winter weather across much of the southern half of the US, affect-

ing weather-sensitive demand for gas and coal

Transportation fuels will boost this year’s demand for oil products, and the US oil forecast assumes that an in-crease in production and an increase

in demand will result in zero stock change

Renewable energy sources

contin-ue to gain market share following last year’s growth spurt in biomass and wind energy OGJ forecasts that re-newable energy sources will account for almost 9% of the US energy market this year

Strong prices will keep oil demand growth in check in 2011 OGJ esti-mates that the average US wellhead price of crude oil last year was $74.75/bbl, up 33% from a year earlier

With futures prices on the New York Mercantile Exchange (NYMEX) for oil delivered throughout 2011 climbing to above $90/bbl as of this writing and barring an unforeseen col-lapse in demand, the average wellhead price of oil this year easily could ex-ceed last year’s average

Worldwide oil demand

Led by developing countries, global demand for oil will climb 1.3 million b/d to average 88.8 million b/d this year, according to the latest figures from the International Energy Agency Meanwhile, IEA estimates that this year’s average oil demand will shrink slightly in the developed countries of

WORLDWIDE SUPPLY AND DEMAND

Totals may not add due to rounding.

Source: International Energy Agency; OGJ estimate of OPEC crude supply 4Q 2010 through 2011

Laura Bell

Statistics Editor

SPECIAL REPORT

output is forecast to climb 175,000 b/d And China’s supply growth is forecast at 125,000 b/d

Worldwide production of biofuels this year will increase

by 190,000 b/d, according to IEA Ethanol production is estimated to have averaged 475,000 b/d last year in Brazil, where total biofuels output was 516,000 b/d and projected

to average 576,000 b/d this year In the US total biofuel duction is forecast to average 928,000 b/d, up from 875,000 b/d last year

pro-With processing gains unchanged from 2010 at 2.3 lion b/d, total non-OPEC oil supply will average 53.4 million b/d this year, according to IEA’s figures

mil-OGJ estimates that in 2011, OPEC crude production will average 29.4 million b/d With IEA’s forecast of average OPEC NGL production at 5.8 million b/d, worldwide supply this year will average 88.6 million b/d This will result in a 200,000 b/d decline in oil stocks, the same annual change recorded last year

OPEC’s output ceiling, excluding Iraqi production, is about 24.8 million b/d Although OPEC ministers did not formally change output targets at the organization’s Dec 11,

2010, meeting in Quito, Ecuador, the group must exceed its output allocations by a greater margin in 2011 in order to keep already-high oil prices from surging further and crip-pling OECD economic recovery

Following that recent meeting, OPEC said that it would maintain current oil production levels as its market outlook shows that in 2011 oil demand growth is likely to slow from

2010 and because there appears to be ample spare capacity throughout the oil supply chain

The organization also cited risks to global economic covery, including possible currency conflicts and fears of a second banking crisis in Europe, factors which would lower oil demand Also, the OECD still faces lower industrial out-put, lagging private consumption, and persistently high un-employment, OPEC said

re-US economy, energy

Gross domestic product (GDP) in the US this year will tinue to recover, growing 2.5%, the same amount in 2010, OGJ estimates

con-During 2009, GDP contracted by 2.6% as the economy

the Organization for Economic Cooperation and

Develop-ment (OECD), where many economies are still struggling

with recovery but have a chance to achieve energy efficiency

gains

Oil demand growth in 2010 averaged 2.5 million b/d

This was led by a surge in demand for gas oil in the third

quarter, when global oil product demand increased by 3.3

million b/d from a year earlier, IEA said

IEA forecasts that oil demand in China will jump to

aver-age 9.7 million b/d from 9.25 million b/d last year, driven by

gains in demand for jet fuel, naphtha, motor gasoline, and

diesel The Paris-based agency calls for total oil demand in

India and other Asian countries outside the OECD to climb

to 10.6 million b/d this year from 10.3 million b/d last year

Middle East demand for oil will average 7.9 million b/d,

up from the 2010 average of 7.5 million b/d, with demand

in Saudi Arabia climbing to 2.81 million b/d from last year’s

2.66 million b/d

Oil demand will increase about 200,000 b/d in both the

former Soviet Union and Latin America due to rising

de-mand in Russia and Brazil

In North America, IEA forecasts flat demand in the US,

with Canadian demand slipping to 2.22 million b/d this year

from 2.23 million b/d In Mexico, demand is forecast to

aver-age 2.16 million b/d this year vs 2.14 million b/d last year

Demand for oil in Japan will decline by about 160,000

b/d this year to average 4.22 million b/d, according to the

IEA, while OECD European oil demand slides to 14.28

mil-lion b/d from last year’s 14.37 milmil-lion b/d

Global oil production

Due to output gains in non-OECD countries this year,

worldwide supply of crude oil and natural gas liquids will

increase by 1.4 million b/d to average 88.6 million b/d,

ac-cording to IEA

Total OECD production this year will dip, as flat supply

in Europe and a small decline in North America—due in

part to drilling delays in the US Gulf of Mexico—outweigh a

small increase in production in the Pacific OECD countries

IEA forecasts that the strongest annual growth will

oc-cur in Latin America, where 2011 oil supply will grow by

295,000 b/d to 4.4 million b/d In the former Soviet Union,