FROM THE EDITOR’S DESK No 18
Sep-Oct, 2011
CRUDE REALITY!
Economic mayhem seems to reign once again. The month of August has seen metals (apart from gold) crumbling and crude prices collapsing, with stocks of course going into a complete tailspin.
CONCEPT & CONTENT Akshay Bhatnagar Sunil Fernandes
The myriad global problems just seem to linger on. While the commodities market had shrugged off the Euro zone crisis and inflation in emerging economies; it has taken the US downgrade more seriously. The final nail in the coffin seems to have come from fears of a double dip recession, which saw stocks and crude oil plunging.
DESIGN Senior Art Director Sandesh S. Rangnekar Senior Designer Shameer Moideen Senior Photographer Rajesh Burman Photographer Motasim Abdulla Al Balushi Production Manager Ramesh Govindraj MARKETING Business Heads Jacob George, Kush Gupta Senior Advertising Manager Avi Titus Advertising Managers Sanjeev Rana Arif Abdul Bari CORPORATE Chief Executive Sandeep Sehgal Executive Vice President Alpana Roy Vice President Ravi Raman
Morgan Stanley has warned the global economy is on the brink of recession as the US investment bank slashed its growth forecasts. Stoking fears of the dreaded double dip, the banking giant said the world’s economy is “dangerously close to a recession” and cut its global growth forecast for this year from 4.2 per cent to 3.9 per cent. And now all eyes are on the Quantitative Easing III (QEIII), which many believe will see a relief rally. However, if past precedent is any indication, then one may not see a major impact from QEIII. WTI Crude has now fallen to $82 per barrel, as against $98 in the month of July. Analysts believe that crude could drop further even as economic chaos continues. Closer to home, Oil and Gas Review has done a cover story on Petrogas and the company’s plans to grow its business – both organically and inorganically.
Senior Business Support Executive Radha Kumar Business Support Executive Zuwaina Said Al-Rashidi
Oil and Gas Review has many more insightful articles for readers. We do hope you enjoy reading the edition.
Distribution United Media Services LLC
Sunil Fernandes
Published by United Press & Publishing LLC PO Box 3305, Ruwi, Postal Code - 112 Muscat, Sultanate of Oman Tel: (968) 24700896, Fax: (968) 24707939 Email: publish@umsoman.com All rights reserved. No part of this publication may be reproduced without the written permission of the publisher. The publisher does not accept responsibility for any loss occasioned to any person or organisation acting or refraining as a result of material in this publication. OER accepts no responsibility for advertising content. Copyright © 2011 United Press & Publishing LLC Printed by Oriental Printing Press Correspondence should be sent to: Oil & Gas Review United Media Services LLC PO Box 3305, Ruwi 112, Sultanate of Oman Fax: (968)24707939 Email: akshay@umsoman.com
Read the E-Mag: www.ogronline.com An
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Presentation
Sep-Oct, 2011
CONTENT Cover Story
Exclusive interview with Jean Bouvier, CEO of Petrogas E&P
20 28 Company Report BP Oman plans to invest $15 bn in block 61 to tap natural gas potential
42
Insets:
Market Round-Up
08 30
INDUSTRY SCAN
A complete news round-up on the latest in Oman’s oil and gas industry
Economic chaos saw crude prices dropping sharply in August, with no signs of recovery
A new cold war over the Arctic
The Arctic has generated enormous amount of interest with substantial amounts of oil and gas reserves
56
The potential of renewables
BP believes that renewables – specifically Biofuels – have an important role to play in any future energy mix
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Sep-Oct, 2011
Technical Supplies International Company has been providing a comprehensive range of products and services to the Oil and Gas industry within the Sultanate of Oman since 2007
OIL & GAS DIVISION MECHANICAL AND PIPELINE Pipes (Seamless and Welded) • Pipe Fittings & Flanges • Barred Tees, Hot Tapping Split Tees, Repair Clamps • Stud Bolt and Gasket • CPVC, Upvc- Pipes, Fittings, Strainers, Valves • Valves (Gate, Check, Globe, Ball) • ButterÁy Valves • Turbine by Pass Valves & Pressure Regulators • Dual Plate & Non-slam Check Valves • ESD and Control Valves • Safety Relief Valves • SBB, DBB & MonoÁanges • Strainers • Expansion Joints • Tools • Safety Equipments • Marine Products • Pressure Vessels, Heat Exchangers • Chemical Injection Skids • Pigs and Pig Signallers • Pig Traps and Enclosures • Isolation Joints
SERVICES Hot Tapping and Line Stopple • On-site Machining • Pipe Freezing • On-line Safety Relief Valve Testing • Under Pressure Leak Sealing • On-line Valve Maintenance
Shibu Mathew, Divisional Manager GSM: (+968) 99881378, E-mail: shibu@tecsintl.com
ELECTRICAL AND INSTRUMENTATION Pumps, Motors & Drives • Explosion Proof Junction Boxes • Explosion Proof Lightings Explosion Proof Glands • Explosion Plugs & Sockets • Cable Trays & Ladders • Weather Proof Plugs & Sockets • Explosion Proof Control Stations • Lighting Poles, Power, Instrumentation & Special Cables • Overhead Line Accessories and Overhead Line Warning Equipments • High Voltage Switchyard Connectors • Lighting Distribution Boards • Electro Magnetic Flow Meters • Venturi Flow Meter • Restriction OriÀce Plates • V-cone Meters • Pressure, Temperature Gauges • Calibration Equipments & Test Benches • Uninterruptable Power Supply (AC UPS & DC UPS)
SERVICES Design, Supply Installation & Commissioning of Flow Metering Skids • Continuous Emission Monitoring Systems • Design, Supply, Installation & Commissioning of Analytical Systems With Shelters • Design, Supply, Installation & Commissioning of Air Quality Station • Cable Laying and Jointing
Joseph Antony, Divisional Manager GSM: (+968) 92828096, E-mail: jantony@tecsintl.com
TECS DIVISIONS: Electrical Mechanical Oil & Gas Electrical Power System Muscat: Tel: (+968) 24503915, Fax: (+968) 24503920, Sohar Branch: Tel: (+968) 26750641, Fax: (+968) 26753007 P.O. Box 1827, P.C 130 - Al-Athaibah, Sultanate of Oman, E-mail: sales@tecsintl.com, Web: www.tecsintl.com
CONTENT Biofuels:
Biofuels have the potential to transform the global economy, though they are expensive
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Shale Gas: The keys to unlocking its full potential
Jack Williams, President, XTO Energy says that there is a need to educate and collaborate when it comes to tapping the potential of shale gas
Insets:
36
SPECIAL REPORT
Carl-Henric Svanberg, Chairman, BP gives a corporate perspective for an energy company
61
Job Opportunities
Tender Watch
66
EVENTS CALENDAR
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TENDER WATCH
The latest job opportunities from around the globe
A calendar of events in the local oil and gas industry
Latest tenders from around the globe
FORGING A STRONG ALLIANCE
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A report on Hydratight’s operations in Oman
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Sep-Oct, 2011
58
Global Round-Up
A round-up of the latest global events
LOCAL NEWS
A new generation of trucks and fuel tankers arrive in Oman
A new range fuel tankers has arrived in the Middle East, with the launch of Oryx/ Focal’s 51 tonne Aluminum fuel tanker. Focal, established in 1995 in Malaysia and its Middle East’s strategic partner Oryx Metal Industries have introduced a new design of aluminum fuel tanker to the Middle East transportation industry. Focal’s aluminum road tanker enables bigger payload due to the aluminum being generally lighter compared to the conventional steel tanker. With unladen weight of 7.2 tonne, the design enables payload capacity to be increased up to 45,000 liters capacity. The tank body is manufactured with auto-longitudinal and Lloyd’s Register approved manual welding. Hence, the tank body is without circumferential welding with each compartmental baffle custommanufactured. Its special sealing-ring fitted at every compartment supported by inlet/outlet plug has made product crossover and contamination impossible. Aluminum road tankers are lighter and hence it lengthens its lifespan and turnaround of wear and tear. In comparison to conventional steel tankers, an aluminum tank carries a life span of 15-20 years if it being maintained according to best practices.
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Sep-Oct, 2011
PDO to sponsor women’s training scheme in Shaleem and Juzor Al Halaniyyat
In line with its social-investment programme for this year, Petroleum Development Oman (PDO) has announced that it is sponsoring the training of more than 20 women from the Shaleem and Juzor Al Halaniyyat area in skills related to tailoring and embroidery. A Memorandum of Understanding (MoU) was signed recently by HE Sheikh Bakheet Bin Salim Al Ma’shany, Wali of Shaleem and Juzor Al Halaniyyat, and Sulaiman Bin Muhammad Al Mantheri, External Affairs and Communications Manager on behalf of PDO. Participants in the training programme will include ladies
from Shaleem and Juzor Al Halaniyyat, and neighbouring areas. The sponsorship will fund the hiring of a specialised training institute to run the six-month programme. HE the Wali of Shaleem and Juzor Al Halaniyyat hailed PDO efforts in taking part in the local development “PDO’s role developing local communities and its cooperation in raising living standards supports the government efforts to maintain sustainable development throughout Oman and we appreciate these efforts and look forward to working more closely with PDO to benefit the community,” he said.
Agreement for Block 40 signed The Government of the Sultanate of Oman and Petrotel Oman Offshore have signed an exploration and production sharing agreement for Block 40. The Block is an offshore block situated in the Musandam area and covers an area of 6,120 sq km. His Excellency Dr Mohammed bin Hamad Al Rumhy, Minister of Oil and Gas signed the agreement on behalf of the Government of the Sultanate of Oman. Dr Anil Chopra, Chairman of Petrotel Oman Offshore signed on behalf of the company. The commitments of Petrotel under this agreement are to conduct geological and geophysical studies, reprocess old seismic and acquire 2D seismic. Based on the result of geological, geophysical work and seismic project the company will drill wells during the exploration period.
LOCAL NEWS
Oman Oil and Gas directory launched
The fifth edition of “Oman Oil And Gas.Com”, the first specialised oil and gas directory of its kind in Oman, was recently launched. Nick Pattison, CEO, OPAL presented a personalised copy of the directory to H.E. Nasser Khamis Ali Al Jashmi, Under Secretary, Ministry of Oil and Gas.This user friendly directory
at a glance provides information about the product/brand, services and a brief company profile. Pattison said, “Oman Oil and Gas.Com provides comprehensive information about the oil and gas industry in Oman. We are therefore delighted to be associated with it. In its endeavour to make the directory more user
friendly, the directory is also available online at “OmanOilAndGas.Com”. The directory also contains information about the petrochemical sector not only of Oman, but also the other GCC countries like Bahrain, Qatar, Kuwait, Saudi and UAE. “The endeavour to provide the Oman oil and gas industry with an accurate, concise and user friendly directory has become a successful reality through the proactive response of our clients,” said Milan Chatterjee, General Manager, Potential Advertising & Publishing. “A great deal of diligence has gone into making this directory as accurate as possible, however, opinions and suggestions shall always be priceless as it shall help us go a long way in keeping this publication as an authentic and reliable source of information for the oil and gas sector,” he added. The directory is distributed free of cost to all the oil and gas companies, corporate houses, embassies and commercial organisations associated with oil and gas sector.
GPS management receives award Petroleum
Development Oman selects GlassPoint
Gulf Petrochemical Services & Trading along with its partners Green Line Company and Vadnais Micro-tunnelling celebrated five million man-hours without LTI in their Contract A’Seeb Wastewater Project (C2) for Haya Water. The scope of work in A’Seeb Wastewater Project (C2) included one of the longest micro-tunnelling activities ever undertaken in the country. The banquet meeting was attended by dignitaries including Omar Al Wahaibi, CEO of Haya Water and officials from the Muscat Municipality, Royal Oman Police along with the senior management 10
Sep-Oct, 2011
of Haya Water and Parsons International & Company. On the occasion Wahaibi expressed his appreciation on the completion of five million man-hours safely and congratulated the entire project team for their successful efforts and presented awards. Director of GPS, Cecil Abreo, Senior Area Manager of Haya Water Mohammed El Gemaiey, Project Manager of Parsons Demetrios and Resident Engineer Sajeev also spoke on the occasion. Corporate HSE Manager of GPS, P.S. Solanki presented the outline of the project and its core activities.
Building on the launch of its solar enhanced oil recovery (EOR) project with Berry Petroleum earlier this year, GlassPoint Solar has now been awarded a contract to build a 7 MW solar EOR system for Petroleum Development Oman (PDO), the national oil company of Oman. PDO, the largest producer of oil and gas in the Sultanate, will use the GlassPoint system at an existing thermal EOR project in southern Oman. The goal of solar EOR is to reduce the amount of natural gas burned for thermal EOR, releasing gas for higher value applications, including power generation, desalination, industrial development and export.
LOCAL NEWS
PDO supports Oman Hereditary Blood Disorder Association Petroleum Development Oman (PDO) will sponsor training programmes for employment created to cover a number of blood disorder patients under the umbrella of Oman Hereditary Blood Disorder Association (OHBDA). At a special ceremony held on July 26 a Memorandum of Understanding (MoU) was signed by PDO Human Resources Director Mundhir Bin Salem Al Barwani and Deputy Chairman of Oman Hereditary Blood Disorder Association, Thuraya Bint Saif Al Hosni. The training programme will cover 40 patients around the Sultanate aiming to develop their skills in order to improve the quality of their life and enable them to find additional sources of sustainable income. OHBDA is a non-profit organisation that was formed in 2009 according to Ministerial Decision No.75/2009, with the aim of raising awareness among the public on how to avoid the spread of hereditary blood disorder diseases.“PDO is pleased to help OHBDA carry out its work in support of the patients and their families,” Mundhir Al Barwani said. “The programme is being funded as one of PDO’s Social Investment projects, which aim to help the wider Omani society.” Thuraya al Hosni hailed PDO’s initiative being the first organisation to support the association in this field. “PDO’s support is highly appreciated taking into account that blood disorders pose a big challenge in the country.”
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Sep-Oct, 2011
Al Hassan Engineering Abu Dhabi awarded certifications Al Hassan Engineering Co Abu Dhabi (AHECAUH), a subsidiary of Oman based Al Hassan Engineering Co (AHEC), a leading EPC contractor has been awarded certification to ISO 14001: 2004 - Environment Management System Standard and OHSAS 18001: 2007Occupational Health and Safety Management System Standard. In April 2010, AHECAUH was certified to ISO 9001:2008certified Quality Management System (QMS). AHEC-AUH is now one of the few contractors in the Gulf region to hold these three certifications - a real testament to the company’s unwavering commitment to global standards and continuous improvement. AHEC-AUH initiated the ISO 14001:2004 & OHSAS 18001:2007 registration process in mid 2010. The company demonstrated to Vincotte
International, an enterprise-wide understanding of both the standards and sound, documented health, safety and environmental policies and management processes. Vincotte conducted certification audits in June 2011, yielding the certifications recognition. “AHEC takes a very serious approach towards the impact of our activities on the environment,” said Peter Hall, AHEC’s Chief Executive Officer. “As concerns about global climate change grow, an increasing number of our customers are demanding that our processes and systems are demonstrably respectful of the environment. The OHSAS 18001:2007 and ISO 14001:2004 certifications are evidence of our commitment to continually improving our HSE performance and surpassing our customers’ expectations.”
Oil and gas plant in Musandam Nasser Bin Khamis Al Jashmi, Chairman of Oman Oil Company (OOC) has said that work is under way to construct an oil and gas processing plant in the Governorate of Musandam through OOC for exploration and production at a cost of $600 million. The plant is expected to
commence operation in 2013, he said. HE Al Jashmi stated that company has 35 investments in energy related fields inside and outside Oman particularly in exploration and production, mining, refining and petrochemical, oil products marketing, electricity generation and marine shipping sectors.
LOCAL NEWS
Qalhat LNG “Gift to the Nation” initiative completed
to Qalhat LNG for their pioneering sense of corporate social responsibility. The initiative is a clear testimony that the company is fully aware of its corporate social responsibility
Qalhat LNG, in continuation of its “Gift to the Nation Initiative” that was announced in November 2010, to commemorate the Sultanate’s 40th glorious National Day, recently presented seven fully-equipped ambulance vehicles to the Ministry of Health. The presentation ceremony took place at the Ministry Headquarter and was attended by HE Dr Darwish Bin Saif Bin Said Al Maharbi,
within the community. These ambulance vehicles will no doubt enhance the health services in the willayats that they will serve in. Our thanks and appreciations go to Qalhat LNG’s management and all staff for such an effective social programme initiative that achieved sustainable development for communities and Omani individuals,” added HE Dr Al Maharbi.
Undersecretary for Administrative and Financial Affairs, Ministry of Health. These seven donated ambulances complimented Qalhat LNG’s earlier donation of 17 other ambulance vehicles to the Ambulance Unit, Royal Oman Police. HE Dr Darwish Al Maharbi expressed his appreciation at the presentation ceremonies of Qalhat LNG for their exceptional initiative and commented, “Our gratitude
CEO of Royal Dutch Shell plc attends Shell Oman’s safety day
Shell Oman Marketing Company and Shell Development Oman celebrated Shell Safety Day, which was an annual event where all Shell employees and contractors got together 14
Sep-Oct, 2011
to focus on safety and make plans for the next steps in the journey towards achieving zero incidents. Shell Oman was honoured with the participation of Peter Voser, CEO of Royal
Dutch Shell plc as part of the Shell leadership engagement plan during the Shell Safety Day. While this year’s Safety Day theme was “Do the Right Thing”, Shell in Oman gave a higher focus on road safety following the directions of His Majesty the Sultan to improve road safety in Oman. This is the 5th year that Shell conducted its Safety Day, as every year the learning journey continues to build a proactive safety culture across the entire organisation. The main event was held at Crown Plaza hotel where several engagement activities and presentations were planned for Shell staff, dealers, contractors and other stakeholders who participated. The event focused mainly on sharing ideas and best practices for continuous improvement in safety performance and to reflect on each one’s personal commitment to safety. A number of staff were also awarded for their outstanding HSSE performance.
FACTSHEET
Daily average oil production in the Sultanate Companies/products
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
PDO
648.0
-
-
-
642.1
689.2
709.5
-
843.4
904.6
904.3
Crude Oil
552.7
-
-
-
588.8
630.7
660.7
-
771.3
831.2
839.8
Condensate
95.2
89.3
77.3
48.2
53.3
58.5
48.8
60.4
72.1
73.4
64.5
Occidental Oman
78.4
74.6
71.6
67.8
68.1
64.8
55.2
46.4
44.5
41.0
39.1
Crude Oil
69.8
66.3
64.5
60.2
61.9
58.3
51.7
46.4
44.5
41.0
39.1
Condensate
8.6
8.3
7.1
7.6
6.2
6.5
3.5
ــ
ــ
ــ
0.0
RAK Petroleum
9.0
5.7
0.5
0.9
1.1
1.3
1.5
1.8
1.9
2.3
2.6
Crude Oil
8.8
5.7
-
-
-
-
-
-
-
-
-
Condensate
0.2
0.0
0.5
0.9
1.1
1.3
1.5
1.8
1.9
2.3
2.6
Oxy Mukhaizna
99.2
65.0
28.3
12.8
9.6
2.6
ــ
ــ
ــ
ــ
0.0
Daleel Petroleum
26.3
21.7
18.0
15.4
15.0
15.0
11.7
6.3
4.9
5.6
6.6
Petrogas
1.2
1.6
1.7
1.7
1.6
1.8
1.9
2.5
2.6
2.3
2.3
CCED Oil
0.4
-
-
-
-
-
-
-
-
-
-
PTTEP Oman (Condensate)
2.1
2.3
2.7
2.5
-
-
-
-
-
-
-
864.6
-
-
-
737.5
774.7
779.8
-
897.3
955.8
954.9
Daily Average Production (000b/d)
Note: Figures may not add up due to rounding
Items
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
Number of Production Oil Fields
145
138
127
125
124
124
124
116
115
114
113
Number of Production Wells
4624
4173
3836
3388
3234
3018
2869
2843
2700
2546
2525
Natural gas production 2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
Associated
6,173
5,882
6,255
6,180
6,869
7,647
8,129
7,504
7,956
7,716
7,057
Non-Associated
27,086
25,140
23,975
24,082
23,340
18,291
15,974
16,577
14,366
12,992
8,192
Total
33,259
31,022
30,230
30,261
30,209
25,937
24,104
24,082
22,322
20,709
15,248
Unit: Million M3 16
Sep-Oct, 2011
Courtesy: Ministry of Oil & Gas, Oman
Oil fields and productions wells
Beware of the polythene menace. Say no to plastic bags before it’s too late.
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ALTERNATE ENERGY
POTENTIAL TO TRANSFORM THE GLOBAL ECONOMY BIOFUELS:
After years of existing largely as an environmentalist’s fantasy, commercial production of biofuels for the world civil aviation industry is slowly becoming a fact, with production starting up across three continents investigating the possibilities. While little is certain in the emerging picture, it is increasingly clear that despite the United States being one of the leading producers currently of renewable energy in the form of ethanol, that the United States nevertheless will be an also-ran in these developments. In January 2010, Qatar Airways revealed plans to work with Airbus and other Qatari state entities to draw up “a detailed engineering and implementation plan for economically viable and sustainable biofuel production.” At an event marking the launch of the Qatar Advanced Biofuel Platform consortium, Airline Chief Akbar Al Baker hailed its European project partner as “more proactive than Boeing in experimenting with alternative fuels.”
S
lowly but surely, an extraordinarily important new industry is taking shape, with the potential to transform the global economy. Biofuels would continue to play a significant role in the years to come and have the capacity to replace present day fuels.
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Sep-Oct, 2011
The leading contenders for biofuel feedstocks are jatropha and camelina, both of which have their fervent supporters. While currently neither is capable of production at a price approaching that of Jet A1 civil aviation fuel derived from hydrocarbons, research and extensive investment are nevertheless
Fast forward to this March, when a European consortium of Airbus, Romanian state-owned airline Tarom, Honeywell’s UOP and CCE (Camelina Company España) announced plans to establish a bio-fuel production center in Romania to manufacture civil aviation fuel, using camelina as a feedstock. Farther east, last month China National Petroleum Corp (CNPC) announced that it had delivered 15 tonnes of jatropha oil to help Air China operate the country’s maiden biofuel-powered test flight,
tentatively scheduled for later this year. According to a posting on its website, CNPC, Asia’s largest oil producer, is proving that it has the ability to produce biofuel from non-grain feedstocks to clean up the environment. Recently, Mozambique’s Agencia Informacao Mocambique news agency announced that Sun Biofuels Mozambique, a subsidiary of UKbased Sun Biofuels, has exported the first batch of 30 tonnes of jatropha oil produced from its fields in the central Mozambican province of Manica to Germany’s Lufthansa airline. The biggest single impetus to the development of biofuels for civil aviation occurred on June 8, when the international standards certifying body ASTM International announced its approval of its BIO SPK Fuel Standard, to be made official later in the year, allowing the use of hydrotreated renewable jet (HRJ) Jet A-1 fuel in commercial aviation. Currently these biofuels are “drop ins,” and must be blended in a 50-50 mixture with Jet A-1 fuel derived from traditional fossil fuel kerosene. The biggest single independent meant at present to a wide scale production of jet biofuel is its inordinate cost. Biojet fuel delivered last year to the US armed forces for evaluation cost more than $70 a gallon to produce, a price which obviously makes it at present supremely uncompetitive with fuel derived from traditional hydrocarbon sources. Supporters of biofuel production argue that processing costs will decrease in direct proportion to rising volumes of production. Both Brazil and the United States have viable biofuel production in the form of ethanol, in the case of Brazil derived from sugar cane, in the United States, produced from corn. Ironically it is the very success of this production in the United States that will limit the near term growth of an alternative renewable
fuels industry, because the ethanol lobby has ensured the farmers not only receive significant subsidies, but crop insurance as well, neither of which is available to other farmers wishing to dabble in the production of biofuel from camelina or other assorted feedstocks. These limitations exist despite the fact that the U.S. is the world leader in camelina research. What is clear at this juncture however is the fact that renewable biojet fuels have been certified, and furthermore, that production is beginning, albeit at on a limited scale with relatively high production costs. As noted earlier in this article, a critical momentum is building on three continents to advance production of biofuels, and when major players such as Airbus become involved, the viability of such projects is no longer in question, only the timeline. Last but not least, an additional benefit of biofuels in a world concerned about
global warming and emissions of greenhouse gases is that biofuels reduce carbon emissions by jet aircraft by up to 80 per cent. The technology is in place, the product has been certified, and at the end of the day, one is talking about an agricultural product which, depending on where it is sown, can produce one or even two harvests a year. While discussion rages about the production of biofuels in poorer nations having the possibility of diverting land needed for food production, in terms of energies impact on the environment, biofuels are certainly more benign than other more traditional forms of energy as evidenced in the 2010 BP Gulf of Mexico oil spill, or more recently, in the March nuclear debacle in Japan. Biofuels are clean, green, and... for the moment, expensive. By John C.K. Daly of OilPrice.com For more information on oil prices and other commodity related topics please visit: www.oilprice.com Sep-Oct, 2011
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COVERSTORY
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Sep-Oct, 2011
PETROGAS E&P:
AN IMPRESSIVE ACHIEVEMENT, BUT THE BEST IS YET TO COME Petrogas E&P has an enviable track record when it comes to maximising value from mature, undeveloped and underdeveloped fields. Jean Denis Bouvier, Chief Executive Officer of Petrogas E&P, speaks to Sunil Fernandes on Petrogas’ success stories, focus areas, technology, people, future plans and more PETROGAS HAS COME A LONG WAY SINCE IT ACQUIRED BLOCK 7 IN 1999 We acquired Block 7 in 1999 at a time when production from this asset was declining sharply and the price of crude oil was a mere $10 per barrel. Block 7 was operated by a major international oil company and had become naturally too small to warrant its focus in terms of manpower and governance, or to carry the overheads associated with an IOC. Our Chairman, Dr. Mohammed Al Barwani who is a reservoir engineer by background, always wanted to venture into Exploration and Production and this was the opportunity to fulfill his ambition. Today, Petrogas produces over 50,000 barrels of oil per day (bopd) with activities in Oman, Egypt and India. And we have a pipeline of organic growth opportunities which will add material reserves, production and revenue growth in the next five years. We are very active on the new venture front and there is no doubt that several assets will be
added in future. All of this vindicates Dr. Mohamed Al Barwani’s vision for Petrogas to become an international exploration and production player. WHAT DID PETROGAS ACHIEVE AS OPERATOR OF BLOCK 7 ? When we took over Block 7, the field was producing around 2,500 bopd. For the next few years we increased production to 3,000 bopd and have since produced some nine million barrels of oil from the concession adding two producing fields and drilling several exploration, appraisal and development wells. You should realise that this Block is relatively remote at the edge of the empty quarter and production is from some of the deepest oil zones in Oman. This means that the cost of new wells is correspondingly high. Most of the wells and the facilities are also 20 to 30 years old and need loving care and attention to keep them going. Petrogas is now focusing on cost control and operational efficiency in order to squeeze the last Sep-Oct, 2011
21
COVERSTORY
created an operating company called Daleel Petroleum and this company is jointly managing the block on behalf of shareholders.
technically recoverable barrels from these fields. There is unfortunately not universal appreciation for the work that has been done because the profits generated are modest, but Petrogas is enormously proud of its achievements at Sahmah and the work we are doing sets the scene for oil and gas activities in Oman in the decades to come when many other fields will be approaching the end of their productive lives. 22
Sep-Oct, 2011
WHAT ARE THE OTHER ASSETS THAT YOU SUBSEQUENTLY ADDED TO PETROGAS’ PORTFOLIO ? After acquiring Block 7, Petrogas had an opportunity to bid for Block 5 where the previous partners found it difficult to invest in secondary recovery. We won the bid and invited China National Petroleum Corporation (CNPC) to become a 50 per cent partner. We
I UNDERSTAND YOU HAVE BEEN ABLE TO CONSIDERABLY INCREASE PRODUCTION FROM BLOCK 5 You are correct. When Daleel Petroleum took over Block 5 operations, it was producing 5,000 bopd. Today, production exceeds 32,000 bopd, and I believe that the best from Daleel Petroleum is yet to come. Year-on-year, we have added reserves on account of excellent water injection and artificial lift performance, successful appraisal and new satellite discoveries. With more than 100 million barrels of remaining reserves reaching a production level of 50,000 bopd within the next few years is feasible. YOU ALSO BEGAN TO LOOK AT OPPORTUNITIES GLOBALLY In 2006, realising that we probably
COVERSTORY
could not secure growth from operating in Oman only, we ventured into India and acquired 20 per cent equity in 3 Exploration blocks offered by the Government of India under its National Exploration Policy VI. In addition to finding commercial oil and gas, there were other considerations underpinning this venture, namely acquiring the experience and credentials as an Offshore Operator and accessing the talent pool of highly qualified Indian E&P engineers and geoscientists. While the jury is still out on the first objective as the first three of the nine commitment wells have come in dry, Petrogas has operated its first two offshore wells without incident and with all geological objectives conclusively tested, giving us offshore operator credentials. This is particularly important for our future growth as we are now qualified to pursue offshore assets opening up a wider portfolio of 24
Sep-Oct, 2011
international opportunities. And we have also been extremely fortunate with our recruitment effort as several national recruits have become, in the meantime, major contributors to Petrogas’ success. WHAT ABOUT PETROGAS’ EGYPT OPERATIONS ? In 2007, we acquired a 30 per cent interest in a service contract, operated by Kuwait Energy Egypt, to redevelop several old fields and carry out exploration in Area A, onshore Gulf of Suez. Production was at the time 2,500 bopd, but a year or so later through a combination of astute workovers in existing fields and fast track development of an exploration discovery, production had risen to 7,000 bopd. This success combined with our offshore track record in India has definitely put Petrogas on the map as an international exploration and production company.
THE SERVICE AGREEMENT WITH PDO FOR THE DEVELOPMENT OF THE RIMA SMALL FIELDS IN OMAN HAS BEEN YET ANOTHER SUCCESS STORY Absolutely, as it turned out it has been an unmitigated success. In 2008, Petrogas was awarded this service agreement for the redevelopment of nine small producing fields and nine unconnected accumulations located in South Oman. Oman Oil Company is our partner with a 25 per cent interest. When we took over operations, the Rima cluster of fields was producing 2,200 bopd. After assembling and studying the subsurface data and contracting all the required services, Petrogas Rima began drilling late in 2008. Over a period of two years more than 50 new wells have been drilled raising production to over 13,000 bopd. Three unconnected accumulations have also been brought on-stream producing oil that had been stranded for two decades. What is even more exciting
is that the new well results have generated over a hundred further well locations which should allow still higher levels of production. We believe that production in excess of 20,000 bopd may be achievable in the next couple of years. HOW DO YOU EXPLAIN THAT PETROGAS HAS DONE SO WELL IN THESE PROJECTS ? The E&P lifecycle often commences with large IOCs or NOCs undertaking costly high risk exploration and, upon success, investing in building infrastructure to develop the fields. Eventually production declines and new discoveries become smaller, rendering further activities immaterial for them as they need large discoveries or Enhanced Oil Recovery projects to replace their reserves. Such large discoveries or EOR projects require significant investment and technology that only large IOCs and NOCs possess and
which increasingly command their full attention to the detriment of chasing conventional tail-end production, thus creating opportunities for smaller independent companies. That is where Petrogas comes in with less process and more focus on squeezing out the last remaining barrels from these “mature� fields and undeveloped resources. We will continue to produce material quantities of conventional cheap oil in the near future, wherever we are given a chance, while creating employment as well as developing and retaining in the region we operate competence, experience and technology specific to late-life assets. GOING FORWARD WHAT ARE YOUR PLANS IN OMAN ? We continue to look for exploration opportunities as and when they are offered by the Ministry of Oil and Gas. Given
the success of Petrogas Rima, we hope that PDO and The Ministry will find encouragement to offer more service agreements of this type in the future. Petrogas will be a bidder if we think the assets offer opportunities for value creation. WHERE WOULD THE NEXT LEG OF GROWTH IN PRODUCTION COME FROM ? With a production target of 50,000 bopd for Block 5 and 20,000 bopd from PDO Rima cluster of small fields and possibly 10,000 bopd from Egypt, our gross production from current assets could reach 80,000 bopd within the next few years. However, for further growth, we will need to add production either through exploration success or by the acquisition of reserves and production. DO YOU HAVE ANY PARTICULAR COUNTRIES IN MIND ? Yes, Petrogas is focusing its search for
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COVERSTORY
new assets in North Africa, the Middle East, the Indian subcontinent and Asia building on the presence of MB Holding sister companies active in these regions. Geographical focus, building on local expertise to identify assets, carrying out technical due diligence and appropriate project economics are pre-requisite steps for successful acquisitions. Since the beginning of the year, Petrogas has established a New Venture group, whose specific scope of work is to implement this process in a systematic manner to maximise the chances of adding new ‘jewels’ to the Petrogas portfolio.
ARE YOU SATISFIED WITH YOUR OWN HSE PRACTICES ? Since the inception of Petrogas we have focused year on year on improving our HSE record. I could not say that I am happy with where we are, as long as we still have incidents. We are certainly taking steps towards goal zero and will continue to work hard until we get there. COULD YOU ELABORATE ON PETROGAS HUMAN RESOURCES DEVELOPMENT AND OMANISATION ? Omanisation across the board for all Petrogas affilaites and subsidiaries is at
PETROGAS IN NUMBERS (MID 2011)
26
Production Gross
54,000 bopd
Production Working Interest
28,000 bopd
Reserves (2010)
Approx. 100 MM bbls
Expenditure (2010)
USD 170 MM
Staff
+/- 400
Sep-Oct, 2011
some 80 per cent, with Petrogas LLC (Block 7) and Petrogas Rima at around 90 per cent. We are very proud to have recruited and developed a good number of fresh Omani graduates in geosciences, petroleum engineering, engineering, HSE and HR, and all have shined in their roles. Yet our Omanisation effort is not externally driven but because up to say 90 per cent, with an appropriate development and training program in place, Omanisation serves the business best. For example our accounting department is 100 per cent Omanised, though I often hear skeptics completely arguing against this possibility. Yet, I would like to state once more that as an International company Petrogas will always need and benefit from an element of diversity in its workforce to develop creative and innovative processes and solutions. HAVEN’T HIGH OIL PRICES AIDED A COMPANY LIKE YOURS ? I am very aware that Petrogas has benefited from the oil price increase since its inception. It has benefited all companies in the petroleum sector,
E&P upstream and oil & gas service companies, and yet a number have failed. What I can say is Petrogas business model focused on acquiring and producing reserves with an appropriate level of Fairway Exploration, with all financial commitments covered by production cash flows and modest financing combined with superior investment and expenditure discipline has served us well. ARE YOU HAPPY WITH OIL PRICES IN THE RANGE OF USD 80100 PER BARREL OF OIL ? As CEO of an exploration and production company, it makes one’s life much easier than if it was much lower. Yet, the main question is: Is this price range appropriate for the global economy ? The Petroleum industry has grown to be highly adaptable as we had to live through many “boom and bust” cycles. But volatility is inefficient and costly to manage. What we need is
HUMAN RESOURCES: SETTING A BENCHMARK
their own success as professionals and individuals. The company lives by its motto, “Grow with us”, which is why employees of Petrogas have grown with the company as professionals and individuals.
Petrogas has an unparalleled record when it comes to human resources development, which is why the company has an annual labour turnover that is low. Unlimited growth opportunities, excellent skills development, superior mentoring and training, have all facilitated the growth of human resources at the company.
Thanks to Petrogas’ continuous growth, employees have been given the opportunity to take on more and more responsibilities, which has forced them to constantly acquire new skills and competence while gaining in experience and material benefits. This has given them and their families the opportunity to adopt higher standards of living, but, most importantly, they can now afford good education for their children who, in turn, will contribute to raising the standards of Oman’s human resource capability.
Petrogas sees its employees as the largest enablers of its success. It is a source of pride and a key success factor at Petrogas to have achieved a work environment basically devoid of politics ensuring that its employees sincerely contribute to both the success of the company and, by inference, to stability around a price range that can support the highs and lows of the global
economy and allow for investments in sustainable energy resources.
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Head OfÀce: Qurum, Muscat, P.O. Box 495, Postal Code 131, Sultanate of Oman, Tel: (+968) 24568202 • Fax: (+968) 24568208 E-mail: cpisepma@omantel.net.om • Website: www.cpioman.com
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Factory: Sohar Industrial Estate, Road No 9, P.O. Box 30, Postal Code 327, Sultanate of Oman Tel: (+968) 26751992/3/4/5 • Fax: (+968) 26751996 E-mail: cpisohar@omantel.net.om
COMPANY REPORT
BP PLANS TO INVEST $15BN IN BLOCK 61 The investment will target part of the estimated 30 trillion cubic feet (tcf) of tight gas trapped in deep reservoirs at depths of between 4,500 — 5,000 metres within BP’s Block 61 concession
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BP is expected to invest an estimated $15 billion in the full field development of its gas-rich Block 61 concession, which includes the Khazzan and Makarem fields, in north central Oman. The proposed investment, which is subject to a declaration of commerciality slated before the end of next year, will boost total gas production by a third, thereby opening up a potentially prolific supply of natural gas as fuel and feedstock for industry. According to the head of BP’s operations in Oman, the proposed project promises to have immense benefits for the Sultanate’s industrial and economic development. “This will be a very large project — the largest project in for quite some time — and will require approximately $15 billion in capital investment from BP to make that happen. About $10 billion of that will go into the drilling of wells and the rest will go for surface facilities,” said Dr Jonathan Evans, General Manager of BP Oman. Significantly, the investment will target part of the estimated 30 trillion cubic feet (tcf) of tight gas trapped in deep reservoirs at depths of between 4,500 — 5,000 metres within BP’s Block 61 concession. In the first phase of the massive scheme, the project will develop about 7-8 tcf of gas, with other reserves within the concession planned for development in subsequent phases. With projected output averaging 1.2 billion cubic feet (bcf) per day, the Khazzan project has the potential to significantly scale up Oman’s total gas supply currently pegged at around 3 bcf per day. Recently, BP Oman celebrated the completion of the construction of its Extended Well Testing (EWT) facility — a pilot plant that channels test gas from early wells already drilled at Block
61. The appraisal wells, compression stations, and other infrastructure facilities are part of an investment of $600 million already made by BP over the past four years as part of the appraisal phase of its exploration and development programme. “We have already drilled eight wells and a ninth one is being drilled at the moment. The stimulation and testing of the first three wells have been completed, and they are now connected into the facility, which is a pilot plant to take gas from the early wells, look at the performance of the wells and assess rate of decline in order to allow us to determine the viability of a much larger development, called the Khazzan project, which will be first phase of the Full Field Development in Block 61,” said Dr Evans. According to the executive, the results of the drilling programme and well testing have been “very encouraging,” The EWT facility currently produces about 60 million cubic feet (mcf) per day of gas from the three wells in question. With the planned connection of a further two more wells later this year, production will be upped to the plant’s capacity of 70 mcf per day. “So the good news is that we are supplying a bit of gas to Oman. This is not a commercial project at this stage, but a test project to see whether we can demonstrate the long term viability here.” Full Development calls for the establishment of a major gas processing plant with a capacity of about 1.2 billion cubic feet (bcf) of gas per day. Some 330 mostly horizontal wells will also be drilled and connected by an elaborate gathering system involving more than 600 kilometres of flowlines and other infrastructure. The project will be mostly based in the southern part of Block 61 covering an area of around
We will start with around 60 wells and then add about 20 wells per year for a period of about 10 years, to keep a relatively long plateau
1,000 sq kilometres, said Dr Evans, adding that first gas from the full field development is targeted during the 2016 - 2017 timeframe. According to the executive, full field development is envisioned over a period of 10 years. “We will start with around 60 wells and then add about 20 wells per year for a period of about 10 years, to keep a relatively long plateau. The government is interested in having a 10-15 year plateau period for this gas production which would allow it to attract new industry, for example, to consume the gas. As you can appreciate, the big agenda right now is around job creation. This gas could play an important part in helping create new industries and new jobs in Oman.” Under the terms of the Exploration and Production Sharing Agreement signed in January 2007, BP is required to submit a full field development plan to the government. “We plan to do this early next year, and on the basis of that, we will then negotiate commercial terms.” While BP currently has a 100 per cent interest in Block 61, the Omani government has a right to take 20 per cent equity in the project at the time of commerciality, Dr Evans added. Source: BP Sep-Oct, 2011
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SPECIAL REPORT
A NEW COLD WAR OVER THE ARCTIC The Arctic has generated enormous amount of interest with substantial amounts of oil and gas reserves. Saji P Moolan reports
A
Russian expedition team descended to the depths of the Arctic Ocean and he team, composed of six explorers, took water and soil samples for analysis. In the seabed, they planted a Russian flag. But, the four other Arctic states refused to accept Russia’s erecting the flag as part of its ongoing expedition in the far north. The mission was, in fact, collecting additional evidence needed to substantiate their claim over the Siberian continental shelf. The flag part, nevertheless, did definitely send wrong signals. Russian Foreign Minister Sergey Lavrov, in an attempt to downplay planting the flag, tried to explain, “The goal of this expedition is not to stake Russia’s claim, but to prove that our shelf spreads to the North Pole.” But, other claimants in the region had already got the message. The four other states with territories inside Arctic Circle began to feel the pressure to react. The first reaction was, of course, to voice their objection followed by staking counter claims. On September 14, 2007 following a revelation by the European Space Agency, things began to get faster in the Arctic. The agency said defreezing in the region due to global warming 30
Sep-Oct, 2011
had opened up the Northwest Passage leaving it “fully navigable”. Leaders of some countries, who had earlier refused to own up their carbon emissions, apparently began to praise global warming and its positive impacts on economies. The revelation set off a rat race to claim the share of Arctic pie. Arctic seabed has now become a bone of contention for nations that lie along the Arctic Ocean and beyond. The five Arctic states, Norway, Canada, Denmark (through Greenland), the United States and Russia, are at odds over how to divide up the seabed. What triggered this interest suddenly? The
Arctic is an enormous area, sprawling over one sixth of the earths’ landmass; more than 30 million km2 and twenty-four time zones. The area is estimated to contain 30 per cent of the world’s untapped, but recoverable, gas resources and about 13 per cent of the world’s undiscovered oil. Over 80 per cent of those resources lie offshore. Also, the opening up of the Northwest Passage would cut east-west travel by one-third, increasing the prospects of international shipping and commerce through the passage. Oil drilling, fishing, and mining looked more feasible. Drillers could now explore
the previously inaccessible oil reserves that were buried under hundreds of metres of ice. As the ice caps began to thaw in the North Pole, tensions began to build up among the coastal states. Their worry was how to share these enormous bounties. North American neighbours, the United States and Canada, still wrangle over the boundaries in the Beaufort Sea, which is known as a sweet spot for oil drillers. Then, there is this unresolved dispute between Canada and Denmark over the ownership of Hans Island, and also on the control line in the straits between Greenland and Ellesmere Island. Control of North West Passage, which Canada claims to have sovereignty over, is another contentious issue. The US sees this sea route as a potential area of open water and believes to have the right of passage. May be because of this, Americans never sought Canadian permission to sail through this passage a few times in the past inviting the neighbour’s ire. Russia, however, resolved its differences with Norway when they signed a deal over who owns what in the Barents Sea. But, with the US the former Soviet republic still has disagreement over the exact maritime border from the Bering Sea, that separates Alaska from Russia’s Far East, into the Arctic Ocean. While, Canada and Denmark reject Russia’s claim that the geographical formation called Lomonosov Ridge, which stretches 1800km across the Arctic Sea, is a part of its own Eurasian landmass. But, talks are on between Russia and Denmark to reach an agreement. The real geo-political war, therefore, is waged by the trio - the United States, Russia, and Canada. Russia has already gone into an overdrive to carve out a bigger chunk of this resource-rich
territory. Russian Prime Minister Vladimir Putin recently said his country would finish the mapping of its Arctic shelf by 2013, and submit its application to the UN Commission on its claim to the Lomonosov Ridge by 2014. This is expected to be a more scientifically-grounded application than the one Russia submitted in the year 2001 to the Commission which was neither rejected nor accepted. But, it was returned with a recommendation to provide more proof to support their claim. In March, 2010 Russian President Dmitry Medvedev warned that his country was prepared to defend its stake. “We have seen attempts to limit Russia’s access to the exploration and development of the Arctic mineral resources. That’s absolutely inadmissible from the legal viewpoint and unfair given our nation’s geographical location and history,” he said. Russian tactics and aggressive diplomacy are weighing down on Ottawa to legitimise its own claim over the Arctic. Canada, like Russia, is particularly adamant about their claim. Prime Minister Stephen Harper reiterated his point during his election campaigns saying that “the north has never been more important to our country.” Canada is mulling over to submit a claim application to the UN in 2013. Nevertheless, according to the United Nations Convention on the Law of the Sea, no country has the right to establish unilateral control over the Arctic. At the same time, countries that have direct access to Arctic Ocean can claim an area that stretches 200 nautical miles from their shoreline as their exclusive economic zone. This zone can further be extended for another 150 nautical miles if the country proves that the Arctic shelf is an extension of its landmass.
However, the Convention on the Law of the Sea has limits especially in areas such as how the Arctic maritime space should be divided among all these claimants. But, maritime issues can also be discussed and resolved within the London-based International Maritime Organisation (IMO), a specialised UN body that develops and maintains a comprehensive regulatory framework for shipping. At least some nations want an Arctic treaty, in the lines of the Antarctic Treaty, to resolve a political crisis in the making. However, the Arctic nations are not keen on that lest such an international agreement would curtail their freedom. They would rather discuss the matter within the Arctic Council, which is a high level intergovernmental forum to promote co-operation among the Arctic states. The Council has eight members - besides the five Arctic states the council is constituted by Sweden, Finland and Iceland. But, it has not made any major breakthroughs in tackling a crisis looms large over the Arctic. A recent summit of the Council yielded only two relatively minor agreements – one on the future oil spill cooperation and the other on the combined search and rescue operations. Obviously, this time around Russia is out there to fight a great battle regardless of the discussions within a world body like the United Nations or a regional co-operation like the Arctic Council. The country is in no mood to give in on the Arctic wealth. Russia is even ready to confront the problem militarily. The flag Moscow planted in a Cold War fashion in the seabed beneath the North Pole is not just a national flag. Those Russian bombers in the Arctic sky and warships in the Arctic Ocean are not just symbols of power. They send a clear message to other contenders in the fray. If it argues its case effectively in the UN, it will be more a political victory for Russia over the United States and Canada. Sep-Oct, 2011
31
UNCONVENTIONAL GAS
SHALE GAS:
THE KEYS TO UNLOCKING ITS FULL POTENTIAL Jack Williams, President, XTO Energy says that there is a need to educate and collaborate when it comes to tapping the potential of shale gas
E
stimates show that the world’s remaining recoverable gas resource is estimated at 22,600 TCF. Based on our (ExxonMobil’s) Energy Outlook numbers, by 2030, we expect that natural gas will supply more than 25 per cent of the world’s energy needs. Gas demand alone will increase more than 60 per cent by 2030 versus 2005. Asia Pacific, for example, nearly triples in demand growth over this Outlook period. This projected global increase makes sense. Natural gas is flexible. It’s the cleanest burning fossil fuel. When used for power generation, it emits up to 60 per cent less CO2 than coal. And communities experience job growth, increased government revenues and more economic activity due to growing natural gas production.
Much of this demand will be met by the growing unconventional supply, as the combination of horizontal drilling with hydraulic fracturing have opened up new supplies of natural gas, once thought to be unrecoverable. These resources are vast. Most have not 32
Sep-Oct, 2011
been explored or evaluated to a great extent. The keys to unlocking these resources will be: the specific geology of the resource and distance to market; the available upstream development infrastructure in terms of rigs, fracing crews, proximity to existing pipelines; and the regulatory and environmental framework in the area. Let me highlight a few areas where we see global unconventional resources expanding.
In Germany, ExxonMobil has licenses covering several million acres where we are currently drilling and evaluating coal bed methane and shale gas resources. ExxonMobil also is drilling and evaluating shale gas resources in southeastern Poland. There are also large coal bed methane and shale gas resources in Ukraine that have not seen much exploration or evaluation. And although we are further along
back in the U.S., the benefits of shale gas development have only begun to be realised. With resources already identified and being developed, we have the natural gas supply to meet more than 100 years of current demand. And the supply is likely to grow further, especially with advances in technology. We’ll need to continue improving the ways we discover, extract and produce natural gas through new technologies and techniques. It’s something we’ve done for years. Dating back to the 19th century, advances in technology enabled gas to be safely and reliably used for cooking and heating homes. Years later, with the advent of the gasturbine generator, power generation was made possible. And in the past 70 years, advances in gas liquefaction and transcontinental pipelines enabled long-distance transport. Gas became a globally traded energy supply. All of this was due to technology. The same holds true today as we move forward in the unconventional field. As an industry, we’ve worked to improve our recovery rates and overall efficiency, making new wells more profitable. For example, in the Barnett XTO has managed to significantly reduce drilling times, from 28 to 14 days…and that’s even with longer horizontal laterals. This has provided great benefit to our operations and reduced our overall costs. We’ve also made great strides in shrinking our environmental footprint. Multi-well pad drilling has reduced the number of well sites needed for development, and has provided improved efficiencies in drilling and hydraulic fracturing stimulation operations while reducing location costs. Plus we’re continuing to work on ways to be better neighbours, finding more efficient methods ways to move
water, reduce truck traffic and lower noise levels in the urban play setting. One of the tremendous upsides to the merger with ExxonMobil has been the combining of a diverse research portfolio with the wealth of data from more than 35,000 producing wells. So we’re integrating a wide variety of ExxonMobil technologies with our data and knowledge in order to enhance shale gas development and production. For example, as many of you know, ExxonMobil was responsible for Multizone stimulation technology, which was developed in the late 1990’s specifically for the Piceance Basin in northwest Colorado to enable significantly greater access to the Basin’s “tight gas” deposits. Now, working with the research company, XTO is examining ways to take this technology horizontal and utilise it in some of our existing plays, such as the Fayetteville. Geophysics is one of the largest areas of research at ExxonMobil. One area of focus continues to be predicting faults to aid horizontal drilling. If you look at the Woodford Shale play, early well costs were being driven higher by sidetracks and drilling difficulties related to faults. XTO geoscientists and engineers are now routinely using enhanced seismic interpretation techniques to plan and monitor well paths in order to avoid faults. And finally there is our work to optimise fracture stimulation in both new and existing wells to enhance productivity. ExxonMobil is making a significant effort in this area — ranging from numerical modeling to predict fracture geometries, to controlled, large-scale experiments in our Houston research facility. As you can see from the amount of time and effort that ExxonMobil companies have dedicated to this issue, we strongly believe technology will be critical to solving many
of our unconventional challenges. But it’s just one of the challenges facing the industry today. An even more significant one right now is the changing public perception of our industry. There’s been growing skepticism and concern by the general public over unconventional resource development. A general lack of understanding and familiarity of what we do, coupled with distortion of science and facts by some industry opponents, have made it increasingly difficult and sometimes impossible to conduct operations in some areas. It has become commonplace to see press articles stating that another city, state, province or country has either placed a moratorium on hydraulic fracturing or banned it: New York state, Pittsburgh, Quebec, France, Germany, and South Africa to name a few. In April, XTO experienced our own setback in the city of Southlake, TX. Our plan was to develop three sites in the area and connect them with one pipeline. We presented our plan, along with data on the economic benefits the project would provide to the city. The opposition, though, proved that fear-based propaganda could win over the City. Two of the well sites were denied, making the project economically unfeasible. And more than 5,200 lessors won’t receive royalties. The City now has a temporary moratorium on the issuance of new permits. The opposition has been out in front of the shale gas issue, and has gained numerous community, media and political allies in the process. Their points of attack range from groundwater contamination, spillage and disposal issues, to air emissions and property values. Most of it is based on misinformation. Take, for example, hydraulic fracturing. We think of fracturing as the well stimulation technique that takes less than one week
UNCONVENTIONAL GAS
to complete. The public, though, has come to view the term to encompass the entire process of natural gas development. And, even worse, they believe the process is new and untested. We have not done a very good job explaining where and how hydraulic fracturing fits into the shale gas development process, that it’s not a new technology but one that been around for more than 60 years and has been used in more than one million wells. SO HOW DO WE EDUCATE? The bottom line: We must work together. This is a collaborative effort that starts with clear, consistent and coordinated messages. ExxonMobil is aggressively pursuing efforts on this issue through industry associations, such as API and ANGA, and individually on the national, regional and local levels, to enable grassroots support. We’re also involved in current national ad campaigns. These ads talk about responsible operations as well as the benefits that natural gas brings to communities. As many of you know, we’re taking steps forward to disclose the ingredients used in hydraulic fracturing fluids via the voluntary registry, FracFocus.org. The site is a step in the 34
Sep-Oct, 2011
right direction, particularly because it involves state regulators, who make up the leadership of the site’s owners, the Groundwater Protection Council and Interstate Oil and Gas Compact Commission, who are best positioned to handle this important information. XTO plans to have all our wells back to the beginning of the year in the registry by the end of the summer. Finally, it’s critical, more than ever, to practice what we preach to our communities. There’s no doubt our industry has made a tremendous economic impact in the U.S. and there is plenty of data to prove it: $385 billion to the U.S. economy in 2008… 111,000 Barnett Shale jobs supported in 2008…50,000 new jobs in Pennsylvania in 2009…137,000 jobs supported in Colorado. It’s impressive. However, when it comes to our messaging on health and safety, we struggle to communicate information regarding industry incidents, such as when fracturing fluid and flowback water have been inadvertently released on the surface due to well bore integrity or water handling issues. We, as an industry, know that none of these incidents were directly related to the actual hydraulic fracturing process.
But the public believes that hydraulic fracturing is the drilling process. That’s why it’s so vital that we work to avoid these incidents through proper well design and construction techniques, and prudent operational practices. The bottom line: We have to show the public that our operations are a collaborative effort among landowners, mineral owners, regulators, and communities. Our success as an industry is linked to the success of the communities where we do business. Every time we talk to a councilman, attend a public meeting, or talk to our neighbors, we have to show them that safety, theirs and ours, is of paramount importance. Our employees don’t just work in their community; they and their families live there as well. We must do all we can to restore the public’s trust and prove to our neighbors that we can develop these resources in a safe and responsible manner. Our industry depends on it. In closing, ExxonMobil is looking forward to meeting the future demand for natural gas, both in the U.S. and globally. We’re excited about continuing innovation not just at ExxonMobil with our new XTO subsidiary, but within the industry as a whole. Well-defined challenges tend to unleash human ingenuity, which can bring far-reaching technological advances that transform the economy, protect the environment and increase energy security. We must also do a better job communicating with and educating the public to ensure we have the opportunity to develop these resources, providing this nation and others around the world the benefits of abundant, affordable, clean burning natural gas. (Excerpts from a speech by Jack Williams, President, XTO Energy, who was speaking at the SPE Unconventional Gas Conference in Houston)
SPECIAL REPORT
A CORPORATE PERSPECTIVE ON WORLD ENERGY
Carl-Henric Svanberg, Chairman, BP gives a corporate perspective, including risk management and responsibilities of an energy company WHAT IS DISTINCTIVE ABOUT A CORPORATE PERSPECTIVE? Quite simply, it is our job to deliver. We turn plans into products. Capital into value. We invest billions to build projects that last for decades. And the returns provide savings and pensions for millions of people as well as tax revenues for governments. So we have two roles; to produce the energy which the world wants, safely and to provide long term returns for our owners. But doing this involves working with risks - financial risks, environmental risks and the safety and operational risks associated with discovering, producing and processing hydrocarbons. So when I bring you a corporate perspective as a chairman, it is also the perspective of the people who have to manage those risks every day at the frontline throughout the company’s global operations. We are all part of one team. And together we are very aware of our responsibilities. And of course in BP, that awareness has deepened after the tragedy in the Gulf of Mexico last year. We will never forget that event and our Chief Executive, Bob Dudley, is taking a large number of new steps 36
Sep-Oct, 2011
to further reinforce safety and risk management in BP. These changes include creating a central Safety & Operational Risk organisation; and a single group responsible for drilling wells worldwide. We are committed to sharing the lessons learned from the Gulf with our colleagues in the industry and with regulators around the world. These included lessons for the Board and I will return to these later on. The Board will also be keeping a close eye on ensuring that we deliver on our commitments in the US. So when I think about the corporate perspective, I believe the fundamental
The 2030 Outlook contains what we call a ‘base case’, looking at what we believe is most likely to happen, based on the drivers of demand and supply including economic, policy and technology trends role of a company is to create value for shareholders by delivering what society needs - and we must carry out our work in a responsible way worldwide. HOW DO WE DO THAT? First we make some judgements about the future of energy - and then we choose where and how to participate, all the time assessing and managing the risks. So I will divide my remarks into two sections: first, the energy challenge - and then the corporate response. THE ENERGY CHALLENGE Let me spend just a little time on the energy challenge as it is set out by economic analysis, highlighting what I see as the most important trends. In BP we base our plans on many sources of data. And we summarise these in two main documents - first our own Energy Outlook 2030 - which obviously looks ahead to 2030... and second, our Statistical Review of World Energy. This looks back on the previous year - and we have just published the 2010 review. The 2030 Outlook contains what we call a ‘base case’, looking at what we believe is most likely to happen, based on the drivers of demand and supply including economic, policy and technology trends. This is not ‘business as usual’. It is more optimistic than that because we factor in policy decisions which have a good chance of being taken. We also present what we call a ‘policy case’, based on
what could happen with even tougher environmental policies. The striking data point is that in the most likely scenario we believe the world will require 40 per cent more energy in 20 years’ time than it consumes today. That’s equivalent to adding two times the consumption of the United States to today’s total. Over 90 per cent of this growth is expected to come from emerging economies as they transform their economies from agriculture to industry On one hand we can be pleased that in North America and Europe we have stabilised energy consumption despite economic growth. But on the other hand, the projected growth in Chinese demand is staggering, although I should add that per capita emissions in China in 2030 are still likely to be well below OECD levels. The same explosion in demand can be seen in India and other emerging markets. Looking at the global picture - fuel by fuel - demand for oil is set to rise by around 0.7 per cent per year. This does not sound dramatic, but production in existing basins shows a natural decline of some 4 per year and to fill the gap to the increase in demand, the world needs to add a Saudi Arabia’s worth of production capacity every two years through enhanced recovery in existing basins and the development of new fields.
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SPECIAL REPORT
A positive point is that the cleanest hydrocarbon, natural gas, is expected to grow by 2.1 per cent a year.
emerging economies and people may ask if the demand could grow faster than expected.
But the more disappointing news is that coal is also expected to keep on growing - at around 1.2 per cent annually. We published those projections in January so it was interesting to see what actually happened in 2010 when we published our Statistical Review this month.
The second headline was that China had overtaken the US as the world’s largest energy user. It was already the largest energy producer and the largest emitter of carbon dioxide. And as we know China is on track to become the world’s largest economy in the next decade.
There were two big headlines. First global energy demand grew by 5.6 per cent last year - the highest rate since 1973 - and well above the anticipated long run trend of 1.7 per cent per annum. A large part of this can be attributed to a cyclical economic rebound in the OECD world after the downturn. But it is also reflecting the continuing structural growth in the 38
Sep-Oct, 2011
This is a phenomenon we all need to understand and address in business and international relations. China alone will have a profound influence on the future of energy. China is well aware of its challenge and makes big strides in energy efficiency and energy mix towards a higher proportion of gas and non-fossil fuels. But the challenge is vast.
RISING FUEL CONSUMPTION Looking at particular fuels, gas consumption rose by over 7 per cent globally last year - and over 20 per cent in countries like China and India. And coal consumption grew even faster and made up nearly 30 per cent of all energy used. As a result, worldwide carbon dioxide emissions from energy use went up by 5.8 per cent. Although this was partly the result of the economic rebound, it is nevertheless way above our base case long run trend projection of 1.2 per cent per annum, which is itself a matter of concern. I have to add that our projections are just that - projections - and not a proposition. This is not what we want to happen, but what we regard as most likely to happen. In the next two decades, the most powerful way to reduce emissions
SPECIAL REPORT
will be to shift from coal to gas and to focus on energy efficiency. Over time renewables will also play an important role. They start from a low base. They are however the fastest growing source of energy and in some countries they are already a material part of the mix. In Denmark, renewable energy meets more than 13 per cent of the country’s energy needs. And here, in Sweden, 30 per cent of energy comes from renewables, largely because of our opportunities for hydro-electric generation. Transitional incentives are needed to support renewables before they can compete at scale. This is a fine balance for policy makers. MANAGING RISK First let us look at risk. The scale of demand for energy clearly demonstrates the scale of the business opportunities that are ours to grasp. But these opportunities come with huge risks attached. Let us be clear. In the business of working with hydrocarbons there will always be risk: Risk from the products themselves; risk in the way they are produced and processed; and risk in working in the countries where they are found. Operational risks arise from the need to go to new frontiers such as deepwater, shale gas and eventually the Arctic. Last year’s accident tragically demonstrated the risks that are inherent in that frontier activity. The environmental challenges are also very clear and these are of a different order of magnitude. Here it is not only individual lives but the global environment and civilization that are at risk. Policymakers hold the levers of change in this area. But we have a major role to play in delivering environmentally sustainable energy in a way that is also commercially sustainable. Our generation has to get this right. The challenges are clear and they won’t 40
Sep-Oct, 2011
Operational risks arise from the need to go to new frontiers such as deepwater, shale gas and eventually the Arctic. Last year’s accident tragically demonstrated the risks that are inherent in that frontier activity. The environmental challenges are also very clear and these are of a different order of magnitude
go away. We must continue to take steps to better manage risks within our operations. Beyond these risks there are financial risks, regulatory risks, political and security risks. Companies have been assessing risk as long as there have been companies. But today our shareholders and regulators are rightly demanding greater levels of transparency about how we manage them. So the Board identifies the major areas of risk. Thus, it sets the ‘risk appetite’ for the company. It sets the parameters within which risks are identified, assessed and managed. Oversight of these risks is allocated between the Board and its main monitoring Committees, which are the Audit committee and the Safety committee. And last year we also created a Gulf of Mexico Committee to oversee the activities of our Gulf Coast Restoration Organisation and the risk associated with the clean up, claims, investigations and litigation from the Gulf of Mexico accident. These structures provide a formal system for managing risk, but we also have to be agile in the day to day management of particular risks. Last year that meant we were engaged in real-time risk management at Board level. Much of this work was not done in the public eye but it was an incredibly
intense and critical period. We met 28 times as a full Board with around 50 committee meetings as well. We spoke daily. We stayed united and resilient. We had to make a large number of big decisions:
• setting up the 20 billion dollar
trust fund with its independent adjudicator;
• cutting the dividend; • selling assets worth 30 billion dollars;
• changing the company’s leadership • reorganising the company; • and agreeing on a new strategy. In fact, we probably undertook six years’ work in six months. At least, that’s how it felt. And when I represented the company and its Board in meeting President Obama at the critical moment in re-establishing trust with the American government and people, the crucial issue was establishing a trust fund for claims. Our firm agreement to set aside the 20 billion dollars marked the turning point. It stabilised our relations with the administration - and it stabilised the company. (Excerpted from a speech by Carl-Henric Svanberg at the International Association for Energy Economics, Stockholm, Sweden)
0&3 T $PNQBOZ 4QFDJBM PO 0NBO 0JM .BSLFUJOH $P
4DBMJOH /FX )FJHIUT 1
MARKET REPORT
SHARP DROP
Economic chaos saw crude prices dropping sharply in August, with no signs of recovery
T
he OPEC Reference Basket moved within a narrower range of $106.5-$113.6/b in July as market volatility diminished. After having lost a total of more than $9 in May and June, the Basket posted a monthly gain of $2.58 or 2.4 per cent, to stand at $111.62/b. Futures prices also recovered early in July, on the back of a weaker US dollar and improving macroeconomic sentiment. However, the gains were short lived as prices plunged in the first week of August with both Nymex WTI and ICE Brent falling to a five-month low on deteriorating macroeconomic sentiment due to Euro-zone debt concerns and the slowdown in the US economy. The Basket stood at $102.37/b on August 8. World economic growth has been revised down to 3.7 per cent in 2011 and to 4 per cent in 2012.
This was mainly due to revisions in the US forecast, which was cut to 1.8 per cent from 2.5 per cent in 2011 and to 2.3 per cent from 2.9 per cent in 2012. The forecast for Japan and the Euro-zone remained unchanged in 2011 at minus 0.8 per cent and 2 per cent respectively. Japan’s forecast for 2012 remained at 2.5 per cent, while the Eurozone’s forecast was changed to 1.4 per cent from 1.5 per cent previously. Developing Asian countries continue to be the main drivers of growth. The forecasts for China remain unchanged at 9 per cent in 2011 and 8.5 per cent in 2012. India’s forecast for 2011 was revised down from 8.1 per cent to 7.9 42
Sep-Oct, 2011
per cent, while the forecast for 2012 was unchanged at 7.7 per cent. World oil demand is forecast to grow by 1.2 mb/d in 2011, representing a downward revision of 0.15 mb/d. Economic worries have affected OECD oil demand, leading to weaker-than-expected consumption during the summer driving season. Oil demand in the OECD is expected to continue its contraction after a temporary rebound last year. In 2012, world oil demand is forecast to reach 1.3 mb/d, representing a slight downward revision from the previous report. Non-OPEC supply in 2011 is expected to increase by 0.6 mb/d, following a downward revision, mainly due to lower-than-expected supply from Canada, Norway, UK, Malaysia, Vietnam, and Brazil, as well as historical adjustments. In 2012, non-OPEC oil supply is forecast to grow by 0.7 mb/d, unchanged from the previous report, supported by projected increases in Brazil, Canada, Colombia, and the US. OPEC NGLs and nonconventional oils are projected to increase by 0.4 mb/d in 2011 and 2012, unchanged from the previous assessment. In July, total OPEC crude oil output averaged 30.07 mb/d, according to secondary sources, representing a gain of 0.40 mb/d over the previous month. Product market sentiment showed a moderate recovery last month, with product cracks moving upwards across the globe supported by stronger Latin American import requirements. The news of the release of strategic stocks also provided support for product margins. However, gasoline demand has been weaker than expected in the Atlantic Basin, pressured by poor end-user demand. As a result, US inventories of motor fuel have started to rise again. The tanker market was bearish in July,
Since 2009, the world economy has been performing above pre-recession trend levels, with average growth of more than 4 per cent. This has been primarily due to the unprecedented government-led stimulus in the developed countries and dynamic growth in the emerging economies. However, most recent economic data and indicators point to a significantly higher risk of a broadening weakness in the OECD
with VLCC and Aframax rates decreasing while Suezmax spot freights were steady. Asian refinery maintenance and high tonnage availability resulted in lower freight rates. Product spot freight rates decreased slightly in July from the previous month, partially on refinery maintenance and closed arbitrage. OPEC sailings remained steady in July while fixtures increased. US commercial inventories rose 22.1 mb in July. The build was attributed to products which increased by 25.7 mb, as US crude stocks fell 3.6 mb. With this build, US commercial oil inventories stood at 19.5 mb above the historical average. By the end of July, US SPR declined by 6.8 mb to stand at 719.8 mb, due to the IEAcoordinated release of strategic reserves. In Japan, the most recent data for June showed that commercial oil inventories dropped by 4.5 mb, with crude and products showing a decline of 3.4 mb and 1.1 mb respectively. Japanese oil inventories stood some 4.6 mb below the historical trend. The demand for OPEC crude in 2011 is estimated at 30.0 mb/d, unchanged from the previous assessment and about 0.2
mb/d higher than the 2010 level. In 2012, the demand for OPEC crude is expected to average 30.2 mb/d, about 0.2 mb/d higher than the 2011 level and 0.1 mb/d lower than in the previous report. DARK CLOUDS OVER THE ECONOMY IMPACTING MARKET DIRECTION Since 2009, the world economy has been performing above pre-recession trend levels, with average growth of more than 4 per cent. This has been primarily due to the unprecedented governmentled stimulus in the developed countries and dynamic growth in the emerging economies. However, most recent economic data and indicators point to a significantly higher risk of a broadening weakness in the OECD, with inevitable implications for the developing countries and the world economy as a whole. Industrial activity is evidently slowing down at the global level, and many OECD economies are struggling with rising sovereign debt and high unemployment. Given current escalated debt levels, further government-led stimulus appears to be straining its limits. In light of these challenges, the market has seen a visible shift towards bearish sentiment, with a Sep-Oct, 2011
43
MARKET REPORT
significant slide in equity and commodity prices which has gather pace over the last few days. The recent revisions to US GDP data have been rather surprising. They reveal that absolute GDP has not grown since
2007 and that growth in the first half of this year now stands at an annualized rate of barely 1 per cent. The slowdown is worrying, considering the fact that monthly consumption growth in the US has decelerated since February and even turned negative in June. This trend could
The recent revisions to US GDP data have been rather surprising. They reveal that absolute GDP has not grown since 2007 and that growth in the first half of this year now stands at an annualised rate of barely 1 per cent
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have a serious impact on global growth, given that US private consumption accounts for around one seventh of global GDP. Elsewhere, despite efforts to avoid the contagion risks from the Greek sovereign debt-crisis, serious concerns have emerged about a worsening situation in Italy and Spain. This has pushed the risk-spreads of these countries higher, which has the potential to further damage growth expectations for the Euro-zone. Meanwhile, Japan is trying to recover, with the most recent leading indicators showing a rebound is likely in the second half of the year. In the emerging economies, the challenge comes from overheating and rising inflation, given the continued
strong growth. As expected, central banks in major developing countries have increased nominal interest rates to dampen the higher inflationary pressure. Nevertheless, real interest rates remain negative in many of these countries, potentially intensifying the overheating process, as this creates an incentive for investment, consumption and speculative activity. However, most leading indicators point to a continued slowdown in industrial output, a scenario that would cool overheating and therefore be supportive for these economies as long as growth does not fall far below target levels. This remains a risk, given the fact that developed economies continue to be the main markets for developing country goods. The slower expansion of the global economy and trade, particularly in the US and other OECD countries, has resulted in a downward revision in oil demand growth. The increase in world oil demand for this year has been lowered by 0.15 mb/d to stand at 1.2 mb/d. Expected higher demand in the US during the peak driving season has not materialized, and gasoline consumption in July decreased while the decline in total products reached nearly 0.5 mb/d versus a year ago. OECD oil demand is now forecast to continue its contraction after a temporary rebound last year. The fall in Chinese apparent oil demand in June, for the first time in eight months, also confirms a weakening of manufacturing activities worldwide. Much deeper uncertainties and increasing risks to real growth are indications of a more prolonged economic recovery period than earlier anticipated. Crude oil production of the OPEC Member Countries has surpassed 30 mb/d in July, the highest so far this year, and markets at present
are benefitting from sufficient oil supply. However, dark clouds over the economy are already impacting the market’s direction, and the potential for a consequent deterioration in market stability requires higher vigilance and close monitoring of developments over the coming months. OPEC REFERENCE BASKET The OPEC Reference Basket moved within a narrower range of $106.5$113.6/b in July as market volatility diminished, posting the first gain after having lost a total of more than $9 in May and June. The Basket reversed the downward trend seen over the three last weeks of June to follow an upward trend in July. It ended the first week of the month at $109.14/b, up $4.08 from the previous week to add almost $3 in the second week as an improvement in macroeconomic sentiment and the US dollar weakness lifted futures prices. However, the recovery in the OPEC Reference Basket slowed down in the second half of July where respective gains of the third and the fourth weeks of the month fell to 96¢ and 10¢. In monthly terms, the OPEC Reference
Basket averaged $111.62/b in July, representing a gain of $2.58 or 2.4 per cent over the previous month. All Basket components strengthened in July, particularly Latin American crudes Oriente and Merey, which rose by 4.6 per cent and 3.3 per cent respectively as the transatlantic spread widened further in favour of Brent. Middle Eastern crudes saw gains ranging from 2 per cent for Murban and Arab Light to 3 per cent for Basrah Light. However, despite the recovery in Middle Eastern crudes values, market sentiment remained generally bearish due to growing supplies. The shutdown of a 200,000 b/d crude distillation unit at the Dalia refinery after a fire in the third week added more bearishness to the market. African grades experienced lower percentage gains than the other components. Saharan Blend rose just $1.55 or 1.3 per cent, the lowest gain among the components and Girassol and Bonny Light increased by around 2.1 per cent versus 2.4 per cent for the Basket. The relatively small gains in African crudes were attributed to pressure from the high level of the Brent benchmark.
NATURAL GAS
FUELLING THE FUTURE
The Sultanate has adopted an aggressive natural gas exploration programme to ensure that it meets the rising demand for gas from industry and domestic consumers. OGR reports
N
atural gas remains one of the leading base-load power generation and heating sources, due to its cleanliness, abundance and reasonable cost. Natural gas drives industry, desalination plants and power plants in the Sultanate, apart from being used for domestic purposes. Over the years there has been a sense of urgency in boosting production of natural gas to meet domestic requirements, and to power industrial projects in the Sultanate. The last couple of years has seen a steady trend in natural gas production in the country. Oman’s natural gas production rose by 7.2 per cent in 2010 to reach 1,176.8 billion cubic feet compared to 1,097 billion cubic feet in 2009. The associated and non-associated gas production rose by 5 per cent and 7.7 per cent in 2010. The Sultanate’s proven reserves amount to 13.14 trillion cubic feet, while potential reserves are estimated at 18.66 trillion cubic feet. Bob Dudley, Chief Executive, BP
PRODUCTION OF NATURAL GAS – UNIT: MILLION M3 ASSOCIATED NON-ASSOCIATED TOTAL
2000 7,057 8,192 15,248
2001 7,716 12,992 20,709
2002 7,956 14,366 22,322
2003 7,504 16,577 24,082
2004 8,129 15,974 24,104
2005 7,647 18,291 25,937
2006 6,869 23,340 30,209
2007 6,180 24,082 30,261
2008 6,255 23,975 30,230
2009 5,882 25,140 31,022
2010 6,173 27,086 33,259 Courtesy: MOG
POWERING AHEAD The nation’s largest producer of both oil and gas, Petroleum Development Oman (PDO), is doing its utmost to boost gas production. “We continue with an intensive gas exploration programme, including development and seismic. But in addition to that, we have gone 46
Sep-Oct, 2011
significantly into tight and unconventional gas,” Raul Restucci, Managing Director of Petroleum Development Oman said at his annual media briefing held earlier this year. PDO’s search for new gas is focused on deep tight gas exploration in all of Oman. In northern Oman, up to 30 tight gas wells will be drilled and tested
over the next four years and extensive 3D seismic data will be acquired by the company. In southern and central Oman, PDO plans to drill new wells to test new gas play concepts, and will acquire additional 3D seismic data. Apart from this, the company will carry out in-depth geological studies. Already in 2010, three
EXPORTS OF LNG COMPANIES OMAN LNG YEAR
LNG
NGL
QALHAT LNG LNG
(MILLION MT)
(MILLION MT)
(MILLION MT(
2000
2.32
0.03
-
2001
5.81
0.16
-
2002
6.54
0.16
-
2003
7.03
0.20
-
2004
6.90
0.21
-
2005
6.90
0.22
-
2006
6.80
0.21
2.3
2007
6.56
0.20
2.5
2008
6.33
0.25
2.4
2009
5.78
0.26
2.7
2010
5.55
0.25
3.3 Courtesy: MOG
new gas fields at Burhaan West, Mabrouk and Harmal were brought onstream on schedule, giving an important boost to PDO’s ability to sustain gas production over the coming years. And new natural gas discoveries continue. In 2009, it was Khulud South and in 2010 it is Khulud West. “PDO’s exploration well at Khulud West has encountered a gas column of more than 150 metres in the Amin reservoir at a depth close to 5,000 metres. Although indications are that the reservoir is better quality than Khulud South, it remains challenging being tight, with low permeability and at high pressure and high temperature. The exploration well is planned to be tested in 2011 and the field will require additional operations and studies to demonstrate commerciality,” the company has stated in a release issued at its annual media briefing. Clearly, the gas story at PDO remains huge, and the company is intensifying efforts to ensure that production is increased and then sustained. British Petroleum (BP) recently celebrated delivering the first gas from its extended well test project to the Governmentowned plant at Saih Rawl, at a ceremony held in the presence of Bob Dudley, BP’S Chief Executive. “With the commitment and hard work of all BP Oman staff, we
were able to deliver our first gas exports safely and sustainably to the Government of the Sultanate,” Dudley said. Darwish bin Isma’eel Al Balushi, Minister responsible for financial affairs and Dr Mohammed bin Hamad Al Rumhy, Oil and Gas Minister separately received Dudley during his visit to the Sultanate. Rumhy stressed the importance of the project. He pointed out that the success of gas fields’ explorations in KhazzanMakrim gas field has an effective role in developing the oil and gas sectors in the Sultanate. BP leads in exploring low permeability gas reservoirs. Apart from BP, Malaysian energy giant Petronas will also add to gas production in the years to come. Petronas had inked an exploration and production sharing agreement with the government of Oman to explore gas in the 3,709 sqkm block at the Natih/West Raba concession in the west of the Sultanate Oman Oil Company’s subsidiary Oman Oil Company Exploration and Production (OOCEP) will also explore for natural gas in Block 60 in central Oman. The company is expected to invest $1 billion in the first phase to produce 90 million cubic feet of natural gas per day from this block. According to the plan,
the potentially prolific Block 60 will be developed in two different phases — first phase for the southern region or Abu Butabul gas field and the second phase for the northern side of the concession area. Apart from existing and planned gas production, the Sultanate is also receiving gas from Dolphin Energy which had agreed to supply the Sultanate with up to 200 million standard cubic feet a day of Dolphin Gas from Qatar for a period of 25 years. Clearly, all of these developments augur well for the Sultanate, which has spared no efforts in increasing gas production. GAS INFRASTRUCTURE Oman Gas Company (OGC), the Sultanate’s major gas distribution company has built a robust infrastructure in the last 10 years. OGC has already built a pipeline network in excess of 2,500 kms and has ambitious targets for the future. The company continues on the rapid growth path, to power the rising demands of industry, desalination plants and domestic consumers. Clearly, the Sultanate is doing its utmost in ensuring that the country meets the insatiable demand for natural gas. In the years to come, industries here in the Sultanate are sure to see renewed growth propelled by adequate gas supplies. Sep-Oct, 2011
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COMPANY REPORT
FORGING A STRONG ALLIANCE Hydratight’s operations in Oman are making the global joint integrity and engineering services specialist many friends. OGR reports on how Hydratight’s partnership with Khimji Ramdas is making a difference to the oil and gas industry
T
he partnership between Hydratight and leading Oman business group Khimji Ramdas (KR) has proved exceptionally fruitful over the past decade. For example, newer projects have been successful and the company’s engineers have been strongly commended for their attention to detail and general skills. The combination of world-class bolting and machining expertise and Khimji Ramdas’ deep roots within Oman’s
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Sep-Oct, 2011
business community has meant major benefits for both companies. Hydratight has brought Oman its market-leading products and has in the process been a significant factor in the remarkable growth of the local company. Indeed Hydratight — a $200million, worldwide business — recently presented Khimji Ramdas with a special award to mark not only 10 years together, but also significant landmarks along the way, and look forward to future joint projects.
“We started as a supplier of tools for KR’s industrial machine tool division, and knew the partnership was bound for success when major orders — the first was a 300,000-dollar order for tools — started to arrive within months,” explained PCA Mohan, Managing Director of Hydratight Middle East. “Khimji Ramdas was soon signed up as Hydratight’s rental and service agent in Oman.” Today the partnership allows the companies to offer a growing list of products in bolting and machining,
as well as countrywide joint integrity services — all from local bases with local resources. “At first we supported the operation from our rental centres in neighbouring states, but when KR management realised that enhanced oil recovery projects, the expansion of liquefied natural gas production, and new industrial investment in areas such as Sohar and Salalah, warranted developing an oil and gas division, we decided to expand in the region together,” explained Mohan. Hydratight imported a large cache of rental products, so the new oil and gas division could supply from within Oman. This led to successful joint operations, such as the Harweel EOR project and several large-scale maintenance operations during plant shutdowns — ultimately resulting in Hydratight awarding its partner a special recognition award for ‘Excellence in Business Growth’. “We have a great business partner in Khimji Ramdas: the company’s management shares our passion to be the leading joint integrity solution provider in the country,” said Mohan. The partnership continues: Khimji Ramdas recently formed a new engineering services division — Al Qadeer Engineering Services — in a dedicated facility in Muscat, in which Hydratight runs specialised courses in bolting and machining and stores rental equipment. “The timing couldn’t have been better,” explained Mohan. “Soon after the facility opened we won a contract through KR to train 160 Petroleum Development Oman personnel in specialised bolting techniques. It was by far the largest single training order for Hydratight in the region with the
expectation of more to come, so the facility was ideal. “We continue to invest in Oman through Khimji Ramdas, which is highly respected throughout the country and beyond. In the next few months we will be able to offer enhanced core bolting, onsite machining, leak-sealing, hot-tapping, pipe freezing and online valve testing, all to our existing high standards of health, quality and safety, as we do elsewhere in the world. “Our partnership means we are in an enviable position to understand the local market and are able to supply it with world-class tools and services in a very short timescale from the new Al Qadeer facility, which will serve us both very well for several years to come.” NS Vijaya Kumar, CEO of the infrastructure group for Khimji Ramdas and the man instrumental in the partnership between the two companies, believes the relationship with Hydratight is valuable to their growth in Oman. “The relationship will be nurtured in the years to come, with a mutually beneficial structure and participation from both companies,” he confirmed. Meanwhile Hydratight has been receiving praise in other quarters too. The company’s renowned attention to detail, professional approach, safe working practices and 100 per cent leakfree start-up performance so impressed senior Petrofac staff that a senior engineer sent a letter of commendation following a recent project in Kuwait. Hydratight was asked to assist in Petrofac’s two-year Kuwaiti construction project for the Kuwait Oil Company — a 40 in gas pipeline from KOC’s North Kuwait Gas Booster Station to the Mina Ahmadi Refinery in South Kuwait.
Construction is now complete and the pipeline ready for commissioning. Though Petrofac’s main sub-contractor was responsible for bolting and tensioning work on the pipeline, the company awarded Hydratight a contract for fixing several hundred joints on 30in, 36in and 40in lines directly. “We were in touch with Petrofac from the early stages of the project and made it clear that not committing sufficient resources to jointing and tensioning could be a false economy,” explained Murali Narasimhan, Hydratight’s Kuwait and India Manager. “We suggested what the right specification should be and the potential cost of getting it wrong, and the company’s engineers agreed.” In a letter of appreciation, Petrofac project construction manager K Pradeep wrote, “Hydratight demonstrated a professional approach from the start and handled the job with professional work practice and the deployment of a capable team. Safe work practices resulted in zero safety issues and contributed to our overall safety objectives. We believe this is an important reference installation for Hydratight in Kuwait.” Petrofac has since suggested other projects on which Hydratight might help, and is also showing interest in Hydratight’s innovative joint-integrity management system, to manage jointing maintenance on a major water injection project in 2012-13. “It was extremely kind of Pradeep to take time to commend us for our work — especially since we offer the same level of service to all our clients. We look forward to working with Petrofac in Kuwait again.” Hydratight is now looking forward to joining Khimji Ramdas in growing its operations and partnership and pleasing many more clients in Oman in the coming years.
The questions have been long brewing
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It’s time now, to let the steam out.
Oman’s biggest national debate of 2011, gearing up to tackle many crucial topics that have been steaming up since the Arab Spring. > Job creation > Raising salaries > Omanisation > Oman's future Don’t miss to log in to the website to stay tuned with the event: speakers, panelists, topics and all that make Oman Debate 2011 unmissable.
Celebrating Excellence Oman’s top companies in 2010 will be honoured at this illustrious event. An ongoing endeavour to ascertain our giants are on the right track.
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It’s all happening on 31 October 2011
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OFFICIAL MEDIA
SPECIAL REPORT
CLEAR ROLES, CLEAR RESPONSIBILITIES, CLEAR RESULTS Marvin Odum, Odum President of Shell Oil Company and Upstream Americas Director, Royal Dutch Shell on how to work together and emerge from the current economic situation
I
want to talk with you what I see as the clear and distinct roles for government and for businesses as we think about how we can work together to emerge from our current economic situation. We all tend to use metaphors in talks like these. Today I’ll use three:
• • •
You never know where the next one’s going to come from or how fast it’s going to come. And sometimes lots of them pop up at once.
system is more focused on the prescriptive and the methodical…less focused on setting goal-oriented, outcome-based regulations – and then challenging businesses to figure out how to get there. This is a clear opportunity.
Unfortunately this feels a lot like parts of our regulatory system.
I know we are not alone in this, but in the energy business this is especially true.
• • •
Let me give you an example.
an old arcade game the year 1948 and the college graduating class of 2012.
Let’s start with the arcade game. Most of you probably remember a game called “whack-a-mole.” A player holds a giant mallet and the object is to hit as 52
many moles as you can while they pop-up from all over the game surface.
Sep-Oct, 2011
Reactionary… Often overburdened… And, regardless of how valid the reason, often more concerned with batting down, rather than lifting up.
From my point of view, and from the perspective of my colleagues in other parts of the world, the American regulatory
Everyone here knows that the world’s population is on the rise – to nine billion by mid-century. At the same time, the number of people ascending from poverty and into the consumer class is rising at a very rapid rate – hundreds of millions in the coming
decades. Globally, we will have more people expressing more demand for everything from food to utilities to cars. The current recession shouldn’t be an excuse to ignore the impacts of this enormous global hunger for energy – perhaps twice as much energy as today by the middle of this century. An outcome-based regulatory system would say to energy companies, “Find a way to produce more energy. Make it more efficient. Make it cleaner burning. Make it more affordable for people.”
but we all recall that President Kennedy didn’t tell the space community how to get to the moon. He just said “get there.” (and come back!) But today, regulators are in danger of letting process trump performance. This often means putting up roadblocks, the consequences of which we won’t see for years to come. As businesses we can do one of two things. We can complain or we can work collaboratively to change things. Of course, we choose the latter.
This summer there has been a lot of attention on NASA and our space program, particularly as the Space Shuttle Program came to a bitter-sweet end this month. I don’t often quote Presidents,
Right now at Shell we are facing a situation in which a consortium of environmental groups is suing the Department of the Interior charging that
the agency didn’t conduct the appropriate environmental reviews when it issued a permit for a new well in the Gulf of Mexico. We are not named in the suit, but we have an interest in how it is resolved – as does every energy consumer in this country. This suit has the potential to virtually halt exploration in the Gulf, serving as a backdoor moratorium. We’ve petitioned the court to allow us to join the suit, as have most of the Gulf Coast states and others. We’re doing this in support of the regulator as it defends its decision to issue the permits.
Sep-Oct, 2011
53
SPECIAL REPORT
In fact, we prefer – we want and we need healthy working relationships with agencies like DOI to help develop regulations that are both appropriate and defensible in court. Because we know legal challenges will happen and the last thing an overburdened system needs is legal challenges that could have been avoided. Many of us here today may have different opinions on the drilling moratorium in the Gulf after last year’s oil spill. But it was long and painful both in terms of jobs and economic losses. The moratorium was lifted in October of last year, but it wasn’t until March of this year – six months later – that the government issued its first postmoratorium offshore exploration plan approval. It was granted to Shell for our Cardamom project, which is 225 miles southwest of New Orleans in 2700 feet of water.
creating capital projects. There are many more “Cardamoms” out there, with tens of billions in investment opportunity that can lift our economy, increase our supply of secure energy and create much needed jobs. Turning from the future to the past, the second metaphor is the year 1948. This was the year hydraulic fracturing (or fracking) was put to commercial use for the first time. Since that time, countless innovations – some large, some small have helped us make every frack job more efficient and effective with less of an environmental impact. I bring up fracking because this process and the technologies that have been developed around it are a huge part of what is spurring natural gas development all around the world, but especially in this country.
We just announced a multi-billion dollar investment in the project and it will produce significant volumes of secure oil production to the US.
It has dramatically changed the energy outlook for the US.
The rapid progress from the discovery of the deposit to the launch of these development plans represents the private sector’s ability to advance important, job-
Technology and innovation have produced a tight and shale gas boom that has doubled our gas resource base in just the past three years.
Let me share a few numbers with you.
I happen to believe that being transparent about what we do and how we do it is the best possible way to create an environment that is more favorable to this energy source – energy that this country so desperately needs
54
Sep-Oct, 2011
It is estimated that the US now has enough natural gas resources to meet our demand for the next 100 years. One study predicts that natural gas’ share of the US energy market will double – from 20 percent to 40 percent by 2040. By next year, Shell globally will produce more natural gas than oil. And that’s not by accident. And despite the large amount of misinformation out there, we as an industry know how to develop this gas safely and responsibly. I happen to believe that being transparent about what we do and how we do it is the best possible way to create an environment that is more favorable to this energy source – energy that this country so desperately needs. That’s why last month Shell released new onshore gas principles that establish how natural gas development can be done the right way in terms of how we:
•
design, construct and operate our wells in a safe manner
•
protect groundwater and reduce overall water use
• •
protect air quality
•
and, importantly, how we work with the communities to help them take full advantage of this economic stimulus that is happening within their reach.
reduce our overall operational footprint
Is there a place for strong regulation in this equation? Absolutely. It is the regulator’s job to set the minimum standards and then enforce against them.
Our job as a business is to push for even better performance because we know where the opportunities are and we know what technology says we should be able to do. We should hold ourselves to that standard even when there isn’t a law that says we have to.
While there is certainly room for their marks – and a need for them – we have to ask whether today’s business and policy climate gives them the opportunity. Without change, the answer too often is “no.”
Natural gas:
• • •
is plentiful is accessible and, because it is cleaner burning, it also represents a huge step forward from an environmental perspective.
Penn State conducted a study last year and found that additional development in the Marcellus shale could generate:
•
more than $8 billion in economic value
•
more than $1 billion in state and local tax revenue
•
and more than 160,000 jobs.
This is all by 2015, and this is just in the state of Pennsylvania. The natural gas this country has been blessed with is truly a bridge to a more stable and secure energy future. This brings me to the third and final metaphor I mentioned at the beginning – the college graduating class of 2012. A little perspective on that new face you may see in your office next fall. It’s been said that, for them, ”Ctl-Alt-Delete” is as intuitive as “Stop, Drop and Roll” was when I was a kid. They were still in grammar school, maybe just starting to become aware of the world around them, when September 11
changed it forever. Of course a lot has been written about how this class is more socially conscious than others, more connected, more tech savvy. But just like every other graduating class before them, they want the same thing: a job. They want the opportunity to build a life for themselves, while also making their mark on the world. And while there is certainly room for their marks – and a need for them – we have to ask whether today’s business and policy climate gives them the opportunity. Without change, the answer too often is “no.” And fixing the regulatory environment is a big part of turning that around. Linking this to energy, I mentioned earlier that global energy demand could double by the middle of this century. The fact is, in a business-as-usual case, it could triple. This could leave a gap between supply and demand approximately equal to the size of the energy industry’s entire global output in 2000. Our Shell scenario planners describe this gap as the “zone of uncertainty.” To bridge this gap we will need to
see an enormous expansion in energy supplies, coupled with extraordinary, unprecedented moderation in demand. And as long as this zone of uncertainly exists, the decisions we make around energy use will define whether we will face a period of extraordinary opportunity for policy-makers, businesses like ours and for society at large … OR … a period of extreme hardship as price shocks and knee-jerk policy reactions impact our ability to produce and consume energy smartly. Some have estimated that with the right policies and the right regulations, the US and Canada could provide around 90 percent of America’s liquid fuel needs by 2030. Regardless of the right number, the point is that North America energy resources can have huge impacts on our energy security and on our economy. Greater access to the domestic energy resources in areas that are currently offlimits would create more than 500,000 jobs by 2025. (Marvin Odum, President of Shell Oil Company and Upstream Americas Director, Royal Dutch Shell plc, was speaking at the U.S. Chamber of Commerce National Chamber Foundation CEO Leadership Series) Sep-Oct, 2011
55
RENEWABLES
THE POTENTIAL OF RENEWABLES BP believes that renewables – specifically Biofuels – have an important role to play in any future energy mix. Excerpts from a speech by Philip New who spoke recently at the UK Energy Summit
L
iquid hydrocarbons are an exceptionally useful and efficient means of storing and moving energy, particularly for highly atomised and, by definition, mobile – applications like transport; an application which has responded through the development of the internal combustion engine. The combination of liquid fuels and increasingly efficient petrol and diesel engines will be very difficult, and very expensive, to displace. This is why over
56
Sep-Oct, 2011
60 per cent of oil production is used in transport, and still today over 90 per cent of transport energy is oil derived. This is why substitutes for transport energy have to be viable substitutes for oil, and this is why transport energy, as opposed to electricity, is absolutely a global market, and therefore any view of the UK has to be put into that context – as a relatively small – and declining – demand centre. The bad news is that the IEA believe that the number of cars on the roads of the world
will double by 2030. The good news is that we don’t believe this leads to a doubling of oil demand – increasingly fuel efficient vehicles, including hybrids, will lead to a decline in demand in OECD economies, and mitigate demand growth in Asia and South America. In aggregate, we anticipate that demand will increase from 85mbpd to 105mbpd in that time. And while non OPEC conventional supplies will decline, OPEC volumes, particularly from Iraq and NGLs, combined with non conventional
comfortably, is already a material industry, and has massive scope for expansion. By 2020 biofuels made from cellulosic sugars extracted from agricultural wastes and energy crops, will also be able to meet these hurdles. The potential for crop yield and conversion efficiency improvements is significant, as we have only started to seriously apply biotech to energy applications in the past 5 or so years. There are other innovative process and feedstock technologies – from the thermo-chemical conversion of forest residues to the use of photosynthetic and heterotrophic algae – that may provide future options post 2020.
reserves such as tar sands, will expand. But, by dint initially of regulatory push, and latterly simply because they will be economically competitive and technologically compatible substitutes, Biofuels will play an increasing role in the mix – at least 9 per cent of the total, predominantly in the Americas and Europe, where Biofuels will command at least a 20 per cent share. This implies a trebling of current capacity. Done well, we don’t think there are any resource constraints that make this an unachievable goal. The world has ample land. According to the WWF, excluding all agricultural crop land, protected and unprotected areas of forest and biodiversity, and areas not suited for rain fed agriculture, there are still 893mha of land available globally for additional agricultural use. In the US alone, there are 59m ha of abandoned agricultural land. According to the IEA, expanding Biofuels to meet 27 per cent of demand will require 100m ha. Today, Biofuels production takes
up 30m ha. We believe that if Biofuels are to meet this challenge they need to fulfil 4 criteria – they need to be able to compete with oil, without subsidy. That means production costs in the range of $60-80 boe. They need to be scalable. Putting the English wine surplus into one’s Aston Martin, or waste oil from the local chippy into the VW camper van, is admirable, but won’t trouble OPEC. They need to be sustainable – using resources efficiently, contributing positively to local communities and sustaining biodiversity. And they need to be at least 50 per cent better on CO2 performance, well to wheels, than oil. Taken in aggregate these are tough hurdles. Biofuels’ performance against these criteria is a function of the feedstocks they are made from. It explains why US corn ethanol supply is topped out, and why growth of Biofuels made from vegetable oil is likely to be constrained. Today ethanol made from sugar cane in Brazil is showing that it can meet these goals
And where are we today? The economic crisis and regulatory inconstancy have combined to bring expansion of supply to a grinding halt. Even in Brazil there will be only 3 mills opening this year, and none next year. In Europe, once the Vivergo plant is opened in Hull there is no new capacity to follow. We are facing a period of undersupply. The “hot money” has moved out. But on the other hand the industry is consolidating, with players capable of providing the balance sheets, the project management and engineering capabilities, the market knowledge and the technology now entering in force. The technology is coming through – we are already building the first commercial scale cellulosic feedstock farm in Florida, and will be breaking ground on the industrial facility in the next 6-9 months. A global commodity is starting to emerge. In summary, we are getting to grips with the challenges. A sustainable, scalable, competitive, global industry is starting to emerge can complement – indeed catalysethe expansion of the worlds agricultural capacity, and make a material contribution to the challenge of meeting our primary energy needs in the coming decades. There is a real path forward for Biofuels. Sep-Oct, 2011
57
GLOBAL ROUND-UP
ConocoPhillips acquires Niobrara Acreage from Lario Oil & Gas
Courtesy: OMV
OMV announces major re-development of the Schiehallion oil field to the West of Shetlands OMV, the leading energy Group in Central and Southeastern Europe, has signed an agreement to progress a major re-development of the Schiehallion oil field to the West of Shetlands. The Schiehallion joint venture investment of approximately EUR 3 bn represents a significant vote of confidence in the long-term potential of this important oil field. Schiehallion has produced over 300 mn bbl since production started in 1998 and an estimated 325 mn barrels of resources are still available. The redevelopment of the field will take production out to 2035 and possibly beyond. Jaap Huijskes, member of the OMV Executive Board responsible for Exploration and Production (E&P) stated, “This is a major milestone which is consistent with OMV’s strategy to develop and sustain a material, high quality business in the West of Shetlands region. The Schiehallion oil field is an established, high value asset with a strong future and this significant step will maximise the greater potential we see in this field.” The Schiehallion joint venture has gained extensive experience in the West of Shetlands over the past two decades and will use the latest technology to maximise recovery from this field. The project involves replacing the existing Schiehallion Floating Production, Storage and Offloading (FPSO) vessel with a new FPSO vessel which is scheduled to be installed in 2015. The new vessel will be 270 m long and 52 m wide and shared by the Schiehallion and Loyal field owners. It will be able to process and transport up to 130,000 bbl/d and store in excess of 1 mn bbl. There will also be a major investment in the upgrade and replacement of the subsea facilities to enable the full development of the reserves and potential drilling of additional wells. The new facilities are scheduled to commence production in 2016.
ConocoPhillips has entered into an agreement to acquire up to 46,000 net acres of leasehold from Lario Oil & Gas Company in the Colorado counties of Arapahoe, Adams, Elbert and Douglas. This agreement represents a significant investment by ConocoPhillips in this area south and east of the greater Denver metroplex. “ConocoPhillips is pleased to have this opportunity to participate in the emerging Niobrara exploration and development play,” said Larry Archibald, Senior Vice President of Exploration and Business Development at ConocoPhillips. “Building on the strong relationships developed by Lario, we look forward to working with all local stakeholders as a first step in demonstrating our commitment to act as a steward of this region’s natural resources.” ConocoPhillips will become operator of the acquired leases and will begin exploration efforts as soon as possible with the acquisition of a 3-D seismic survey and drilling of test wells. The company has a long track record of safe and environmentally prudent development of unconventional plays in North America and will leverage the knowledge and expertise it has gained in plays such as the San Juan Basin, Bakken, Barnett and Eagle Ford.
BP and JBF agree to build new co-located PET facility BP has entered into agreements with JBF RAK under which JBF RAK is to build a new 390,000 tonne per year polyethylene terephthalate (PET) production unit in Geel, Belgium, subject to required approvals. The agreements provide JBF rights to build and operate this PET unit on BP’s existing petrochemicals complex in Geel,
58
Sep-Oct, 2011
adjacent to BP’s world-class purified terephthalic acid (PTA) facility. BP will in return supply PTA directly to this new PET manufacturing unit. Startup of the unit is scheduled in 2014. Frédéric Baudry, Vice-President for BP Petrochemicals Europe said, “We are delighted that JBF has decided to invest in Geel. This new PET plant
leverages BP’s scale, technology and location advantages at Geel to deliver a competitively integrated PX-PTA-PET manufacturing complex in Europe. Such a complex will help maintain and develop BP’s position in the region and underpins BP’s long term commitment to its merchant customers.”
Marathon Oil Corporation reports seco e 2011 0 secondd qua quarter Marathon Oil Corporation has reported second quarter 2011 net income of $996 million, or $1.39 per diluted share. Net income in the second quarter of 2010 was $709 million, or $1.00 per diluted share. On June 30, 2011, Marathon Oil completed the spin-off of its Refining, Marketing and Transportation business, now reported as discontinued operations and excluded from segment income; as a result, income from continuing operations will be best suited for comparison. For the second quarter of 2011, adjusted income from continuing operations was $689 million, or $0.96 per diluted share, compared to adjusted income from continuing operations of $440 million, or $0.62 per diluted share, for the second quarter 2010.
Total confirms sale of stake in CEPSA In line with the agreement signed by Total and IPIC on February 15, 2011, Total has tendered its entire 48.83 per cent interest in CEPSA following IPIC’s takeover bid for the company, at a price of €28 per share. Total received €3.7 billion for its shares on July 29, 2011. Aligned with its active asset management strategy, the transaction allows the Group to further reduce its exposure to European refining. It has cut its European refining capacity by nearly 25 per cent or 550,000 barrels per day, since early 2007. CEPSA is Spain’s second-ranked oil company, with a refining capacity of 528,000 barrels per day, a retail network of around 1,750 service stations in Spain and Portugal, and oil and gas production of around 55,000 barrels of oil equivalent per day. CEPSA is also active in petrochemicals, natural gas marketing and power. Wholly owned by the government of the United Arab Emirates, IPIC held a 47.06 per cent interest in CEPSA before it launched its takeover bid. IPIC and Total will continue to expand their partnership, especially in the field of exploration and production.
Courtesy: MARATHON OIL
ConocoPhillips sanctions Australia Pacific LNG project ConocoPhillips has received approval of the final investment decision for the initial train of a two train liquefied natural gas (LNG) 9.0 million tonnes per annum (MTPA) project by Australia Pacific LNG in Queensland, Australia. Project sanction includes development of the necessary resources from Australia Pacific LNG’s 24 trillion cubic feet of coal seam gas (CSG) resources in the Surat and Bowen Basins to supply the first train requirements, installation of a transmission pipeline from the onshore
gas fields to the LNG facility on Curtis Island and infrastructure commitments to support a second train. LNG exports from the first train are scheduled to start in 2015 under a binding sales agreement for 4.3 MTPA with China Petroleum & Chemical Corporation (Sinopec Corp.). “This decision marks an important milestone for the Australia Pacific LNG project and ConocoPhillips,” said Jim Mulva, ConocoPhillips Chairman and Chief Executive Officer. “Australia Pacific LNG has one of the largest CSG reserve
positions in Australia and with the project sanction ConocoPhillips builds on its position as the world’s largest producer of CSG. The final investment decision reinforces our commitment to deliver safe and reliable energy to the world, and this world-class project is well placed to help meet the growing demand for LNG in Asia.” “With the strengthening LNG market and Australia Pacific LNG’s superior natural gas resource position, we expect to sanction the second train in time for early 2016 deliveries,” Mulva added.
GLOBAL ROUND-UP
Chevron forms alliance with NASA’s Jet Propulsion Laboratory to develop advanced energy solutions Chevron Corporation and NASA’s Jet Propulsion Laboratory (JPL) have formed an alliance to develop a range of technologies to improve the production and recovery of oil and natural gas resources. The alliance’s initial focus is to develop a wide range of technologies—including power transmission, signal processing and electrical actuation—for application in deepwater. “NASA and JPL are highly acclaimed national treasures, and Chevron is proud to collaborate with them to unlock new energy potential,” said John McDonald, Chevron’s Corporate Vice President and Chief Technology Officer. “This alliance is an opportunity to bridge public- and private-sector technology and research to discover oil and natural gas volumes that are found in deep remote reservoirs. In many ways, the research is akin to deep space exploration, making the missions of our two organisations highly complementary.” “We are proud that the same pool of talent that sends rovers to Mars, explores our universe and studies Earth’s environment will help contribute advanced technology towards our energy future here on Earth,” said Dr. Charles Elachi, Director of JPL.
Iraq qualifies 41 companies for 4th energy bid Iraq has qualified 41 companies to participate in its 4th energy bidding round, which is scheduled to take place in late January, Director of the oil ministry’s contracts and licensing directorate told Reuters. The 4th bidding round for 12 new exploration blocs is expected to add 29 trillion cubic feet of gas and 10 billion barrels of oil to Iraqi reserves from the auction. “We eventually qualified 41 companies,” Abdul-Mahdy Al-Ameedi said. Al Ameedi said the next step would be inviting the 41 companies to a roadshow on Sept 11 in Amman, Jordan and presenting a data package with initial tender protocol to companies on Sept 12. The announcement may lead to a clash with an Iraqi parliament energy panel chief who said in May he wanted the bidding delayed until lawmakers approve a long-delayed new hydrocarbons law.
Delmar supplies mooring components to EG Delmar Systems has been awarded a contract by Noble Energy EG to supply an eight-leg preset mooring system for use in Noble Energy’s “Aseng” Development off the coast of Equatorial Guinea, West Africa. Delmar provided Noble Energy a full compliment of mooring equipment including Delmar’s patented OMNI-Max anchors and Delmar Subsea Connectors (DSCs). All equipment has been successfully delivered to Noble Energy EG’s yard in Equatorial Guinea. The patented Delmar OMNI-Max anchor is a gravity-installed vertically loaded anchor (VLA) that offers unique performance characteristics not found in other deepwater anchor foundations. The OMNI-Max anchor is capable of being loaded in any direction 360 degrees around the axis of the anchor. This anchor technology offers a great benefit in the design of mooring systems that reduces risk to subsea infrastructure in the event of station-keeping damage or failure. This proven anchor concept has been deployed and retrieved on over 150 anchor locations.
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Sep-Oct, 2011
LDK solar to provide modules for net-metered system LDK Solar Co., (LDK Solar), a leading vertically integrated manufacturer of photovoltaic products, has signed an agreement with Advanced Solar Products, of Flemington, New Jersey, to supply 58,803 PV modules for the largest privately-owned, netmetered solar project in the Western Hemisphere at the East Windsor, New Jersey campus of The McGraw-Hill Companies (the McGraw-Hill project). Advanced Solar Products will install a 14.1 Megawatt (MW) state-of-theart, ground-mounted system, using Advanced Solar Products’ patented Solstice Mounting System. The Solstice Mounting System and the McGraw-Hill project have been approved by New Jersey’s Renewable Energy Manufacturing Incentive (NJREMI) programme, which provides rebates to New Jersey residents, businesses, local governments, and non-profit organisations that purchase and install solar panels, inverters, and racking systems manufactured in New Jersey. NJR Clean Energy Ventures (NJRCEV), a subsidiary of New Jersey Resources, plans to invest $60 million to develop and install the system. The clean, renewable energy produced by the project is expected to reduce the equivalent of about 10 per cent of McGraw-Hill’s annual carbon emissions. According to the terms of the project, all panels will be delivered by November 2011. Construction on the project commenced July 22, 2011 and the system is expected to be fully operational by the spring of 2012.
JOB POSTINGS
Positions
Company
Location
Details
Technical Safety Engineer
Oman Oil Company Exploration and Production
Oman
www.oocep.com
Financial Controller
Oman Oil Company Exploration and Production
Oman
www.oocep.com
Technical Manager
Oman Oil Company Exploration and Production
Oman
www.oocep.com
Head of Logistics and Infrastructure
Oman Oil Company Exploration and Production
Kazakhstan
www.oocep.com
Cost Analyst
Shell
Qatar
www.shell.com
Chemical Marine Technical Advisor
Shell
United States
www.shell.com
Supply Scheduler
Shell
Indonesia
www.shell.com
Sales Manager Chemicals
Shell
Singapore
www.shell.com
Well Site Manager
Chevron
Indonesia
www.chevron.com
Sub Sea Well Intervention Engineer
Chevron
US
www.chevron.com
LAST UPDATED: AUGUST 20, 2011
Attract the best talent from around the globe. To advertise in job opportunities call: +968-99269148/99886559
GLOBAL OIL PRODUCTION
Thousand barrels daily
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Change 2010 over 2009
US
7733
7669
7626
7400
7228
6895
6841
6847
6734
7271
7513
3.2%
8.7%
Canada
2721
2677
2858
3004
3085
3041
3208
3297
3251
3224
3336
4.3%
4.2%
Mexico
3450
3560
3585
3789
3824
3760
3683
3471
3167
2979
2958
0.8%
-3.7%
Production*
Total North America Argentina
13904
13906 14069 14193 14137 13696 13732 13616 13152 13474 13808
2010 share of total
2.5% 16.6%
819
830
818
806
754
725
716
699
682
676
651
3.8%
-0.8%
1268
1337
1499
1555
1542
1716
1809
1833
1899
2029
2137
5.3%
2.7%
Colombia
711
627
601
564
551
554
559
561
616
685
801
16.9%
1.0%
Ecuador
409
416
401
427
535
541
545
520
514
495
495
•
0.6%
Peru
100
98
98
92
94
111
116
114
120
145
157
8.2%
0.2%
Trinidad & Tobago
138
135
155
164
152
171
174
154
149
151
146
4.3%
-0.2%
3239
3142
2895
2554
2907
2937
2808
2613
2558
2438
2471
1.4%
3.2%
Other S. & Cent. America
130
137
152
153
144
142
139
141
139
133
131
1.6%
-0.2%
Total S & Cent.America
6813
6722
6619
6314
6680
6898
6865
6635
6676
6753
6989
3.5%
8.9%
Azerbaijan
282
301
311
313
315
452
654
869
915
1033
1037
0.5%
1.3%
Denmark
363
348
371
368
390
377
342
311
287
265
249
5.8%
-0.3%
95
86
115
116
113
127
120
122
108
95
106
11.7%
0.1%
744
836
1018
1111
1297
1356
1426
1484
1554
1688
1757
4.4%
2.1%
Norway
3346
3418
3333
3264
3189
2969
2779
2551
2459
2358
2137
9.4%
-2.5%
Romania
131
130
127
123
119
114
105
99
98
93
89
4.7%
-0.1%
6536
7056
7698
8544
9287
9552
9769
9978
9888
10035 10270
2.2%
12.9%
144
162
182
202
193
192
186
198
207
210
216
2.8%
0.3%
2667
2476
2463
2257
2028
1809
1636
1638
1526
1452
1339
7.7%
-1.6%
Uzbekistan
177
171
171
166
152
126
125
114
114
107
87
17.8%
-0.1%
Other Europe & Eurasia
465
466
501
509
497
469
458
453
432
411
374
7.0%
-0.5%
Brazil
Venezuela
Italy Kazakhstan
Russian Federation Turkmenistan United Kingdom
Total Europe & Eurasia
14950
15450 16289 16973 17580 17542 17599 17815 17590 17745 17661
0.4%- 21.8%
Iran
3855
3892
3709
4183
4248
4234
4286
4322
4327
4199
4245
0.9%
5.2%
Iraq
2614
2523
2116
1344
2030
1833
1999
2143
2428
2442
2460
0.6%
3.1%
Kuwait
2206
2148
1995
2329
2475
2618
2690
2636
2782
2489
2508
0.6%
3.1%
Oman
959
960
904
824
786
778
742
715
754
813
865
5.9%
1.0%
Qatar
757
754
764
879
992
1028
1110
1197
1378
1345
1569
13.5%
1.7%
9491
9209
8928
10164
10638
11114
10853
10449
10846
9893 10007
0.7%
12.0%
548
581
548
527
495
450
435
415
398
375
385
2.7%
0.5%
2620
2551
2390
2695
2847
2983
3149
3053
3088
2750
2849
3.5%
3.3%
450
455
457
448
420
416
380
345
304
287
264
7.9%
-0.3%
Saudi Arabia Syria United Arab Emirates Yemen
62
Sep-Oct, 2011
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Change 2010 over 2009
48
47
48
48
48
34
32
35
33
37
38
0.6%
Production* Thousand barrels daily Other Middle East Total Middle East
23547
23120 21858 23442 24981 25488 25675 25309 26338 24629 25188
2010 share of total •
1.7% 30.3%
Algeria
1578
1562
1680
1852
1946
2015
2003
2016
1993
1818
1809
0.3%
-2.0%
Angola
746
742
905
870
1103
1405
1421
1684
1875
1784
1851
3.8%
2.3%
–
–
–24
168
173
153
144
127
118
122
3.5%
0.2%
Chad Rep. of Congo (Brazzaville)
254
234
238
217
223
245
278
228
241
270
292
8.1%
0.4%
Egypt
781
758
751
749
721
696
697
710
722
742
736
0.6%
-0.9%
91
177
230
266
351
358
342
350
347
307
274
10.8%
-0.3%
Gabon
327
301
295
240
235
234
235
230
235
230
245
6.5%
0.3%
Libya
1475
1427
1375
1485
1623
1745
1815
1820
1820
1652
1659
0.5%
2.0%
Nigeria
2155
2274
2103
2238
2431
2499
2420
2305
2113
2061
2402
16.2%
2.9%
Sudan
174
217
241
265
301
305
331
468
480
479
486
1.5%
0.6%
Tunisia
78
71
74
68
71
73
70
97
89
83
80
4.7%
-0.1%
144
134
135
138
164
154
153
166
162
155
143
8.0%
-0.2%
7804
7897
8028
8411
9336
9902
Australia
809
733
730
624
582
580
551
555
555
520
562
8.9%
0.6%
Brunei
193
203
210
214
210
206
221
194
175
168
172
2.5%
0.2%
China
3252
3306
3346
3401
3481
3637
3705
3737
3809
3800
4071
7.1%
5.2%
India
726
727
753
756
773
738
762
769
768
754
826
9.8%
1.0%
Indonesia
1456
1387
1289
1176
1130
1090
996
972
1003
990
986
0.3%
-1.2%
Malaysia
735
719
757
776
793
759
747
763
768
739
716
3.1%
-0.8%
Thailand
176
191
204
236
223
265
286
305
321
331
334
0.9%
0.4%
Vietnam
328
350
354
364
427
398
367
337
317
345
370
6.9%
0.5%
Other Asia Pacific
200
195
193
195
235
286
305
320
340
329
312
4.7%
-0.3%
7874
7811
7837
7742
7854
7959
7940
7951
8054
7978
8350
4.9% 10.2%
Equatorial Guinea
Other Africa Total Africa
Total Asia Pacifc
9918 10218 10204
9698 10098
4.2% 12.2%
Total World
74893
74906 74700 77075 80568 81485 81729 81544 82015 80278 82095
2.2% 100.0%
of which: OECD
21531
21314
21440
21174
20775
19870
19463 19w114
18414
18471 18490
0.2%
22.1%
Non-OECD
53361
53592
53260
55900
59793
61616
62266
62430
63600
61807 63605
2.7%
77.9%
OPEC
31145
30640
29261
31020
33776
34951
35098
34757
35722
33365 34324
2.5%
41.5%
‡35734
35606
35907
35556
35385
34695
34315
33991
33466
33699 34287
1.9%
41.7%
European Union
3493
3285
3339
3128
2902
2659
2422
2388
2222
1951
-6.5%
2.4%
Former Soviet Union
8014
8660
9533
10499
11407
11839
12316
12795
12827
13214 13484
2.0%
16.8%
Non-OPEC#
2088
*Includes crude oil, shale oil, oil sands and NGLs (the liquid content of natural gas where this is recovered separately). Excludes liquid fuels from other sources such as biomass and coal derivatives. • Less than 0.05. # Excludes Former Soviet Union. Notes: Annual changes and shares of total are calculated using million tonnes per annum figures.
Sep-Oct, 2011
63
REGIONAL NEWS
Emerson nets exclusive actuators deal with Shell Shell and Emerson Process Management have signed a five-year Enterprise Framework Agreement that makes Emerson the single-source supplier of on/ off valve actuators to Shell and its affiliates. Under the agreement, Emerson will provide products from its broad portfolio of valve automation technologies, including Bettis pneumatic and hydraulic actuators and EIM electric and electro-hydraulic actuators. In addition to new actuators for both new and existing facilities, Emerson will also provide ongoing support of Shell’s previously installed actuators. The relationship builds on an existing agreement under which Emerson serves as a Main Automation Contractor for Shell capital projects. Shell also recently selected Emerson as a global strategic supplier of pressure, temperature and flow field instruments. “We appreciate Shell’s confidence in our ability to help them reach their automation and business goals,” said Steve Sonnenberg, President of Emerson Process Management. “We welcome the opportunity to strengthen that confidence and our relationship through the new Enterprise Framework Agreement.”
Iran discovers new gas field A new gas field containing around 495 billion cubic meters of natural gas worth $133 billion has been discovered in eastern part of the Assaluyeh, Managing Director of the National Iranian Oil Company (NIOC), Ahmad Qalebani announced. The new gas field, named Madar has reserves of 1573 million barrels of gas condensates. “Iran discovered four gas fields in the last calendar year (ended on March 20, 2011) worth 179 billion dollars,” he said.
64
Sep-Oct, 2011
Preliminary resource evaluation of Sheikh Adi Block Gulf Keystone has announced the results of an independent preliminary evaluation of the Sheikh Adi resources by Dynamic Global Advisors (DGA), independent Houston-based exploration consultants. The DGA report, based on Sheikh Adi-1 wireline logging data, core samples, 2D and 3D seismic and regional data, has indicated a significant range of between 1 billion barrels and 3 billion barrels of gross oil-in-place volumes calculated on the P90 to P10 basis, with a P50 estimate of 1.9 billion barrels. Gulf Keystone has completed drilling of Sheikh Adi-1, the first exploration well to be drilled on the Sheikh Adi structure, to a TD (total depth) of 3,780 meters in the Triassic zone. A series of flow tests will now be performed on a number of Jurassic zones in the Sheikh Adi-1 well. Testing in the Triassic zone will not be possible due to issues relating to casing integrity at these depths. The Sheikh Adi block is located immediately to the west of the company’s Shaikan block, where a major discovery was made in 2009. Gulf Keystone is the operator of the Sheikh Adi block with an 80 per cent working interest and is carrying the Kurdistan Regional Government’s 20 per cent working interest in the block. DGA’s previous assessments of assets on behalf of Gulf Keystone included independent evaluation of the Shaikan discovery, including a major revision of the gross oil-in-place volumes (4.9 billion barrels to 10.8 billion barrels calculated on the P90 to P10 basis) announced in April 2011.
Lukoil awards West Qurna contract to Baker Hughes
Lukoil has awarded Baker Hughes a two-year contract to provide full drilling and completion services for 23 wells in the West Qurna field in southeast Iraq, 50 kms (31 miles) west of Basra. Under the terms of the contract, Baker Hughes will provide engineering and project management for the turnkey drilling and completions scope of the project. Baker Hughes will supply drilling services, formation evaluation, casing and tubing running services, completion tools and services, wellbore intervention services, and wireline logging as well as perforation operations. Baker Hughes also will contract all third-party services, equipment, personnel, tools and materials required for the project, including the provision of up to five drilling rigs and three workover rigs.
Seadrill wins long-term contracts for 2 Jack-up Rigs Seadrill has been awarded two new contracts by KJO (AL-Khafji Joint Operations) in the joint development zone between the Kingdom of Saudi Arabia and Kuwait for the jack-up rigs West Triton and Offshore Resolute. The assignments which will commence in direct continuation of their current contracts in Southeast Asia are each for a firm period of three years plus the time required to mobilise to the Arabian Gulf. Each contract also includes an option for KJO to extend the term for a further one year.
Interserve rides the Qatari Gas Train Interserve, the international support services and construction group, has won projects in two developments in Qatar through its associate company, Gulf Contracting (GCC), worth an aggregate £70 million. Both are at Ras Laffan, one for JGC and the other for Nakilat, and result from the country’s ongoing development of the huge natural gas reserves in the North Field, the world’s largest single deposit, located some 40 miles offshore.
Fluor wins utilities and offsites contract from Aramco
WesternZagros concludes PSC to spud two wells WesternZagros Resources has announced that it has finalised an agreement with the Kurdistan Regional Government of Iraq (KRG) and Talisman (Block K44) B.V. (Talisman) to amend the original Production Sharing Contract (Original PSC) that governed the company’s exploration activities in the Kalar-Bawanoor Block in Kurdistan. The agreement divides the contract area of the Original PSC into two contract areas named Garmian and Kurdamir and each will be operated under a distinct PSC. WesternZagros will continue to operate the southern contract area named the Garmian Block that covers approximately 1,780 square kilometers and is now governed under the new Garmian PSC. The Garmian Block contains the Sarqala-1 oil discovery, the Mil Qasim-1 prospect, and the other numerous prospects that contributed to a large increase in prospective resources reported by the Company on July 20, 2011. The northern contract area is named the Kurdamir Block. It covers some 340
K square kilometres and contains the Kurdamir-1 oil, gas and condensate discovery and is now governed under an amended version of the Original PSC (the “Kurdamir PSC”). The northern area is now operated by Talisman. WesternZagros production sharing terms, under both the Garmian and Kurdamir PSCs, remain unchanged from the Original PSC.
Fluor Corporation has announced that the Saudi Arabian Oil Company (Saudi Aramco) and The Dow Chemical Co. (Dow) have awarded the firm a reimbursable engineering, procurement and construction management (EPCM) contract for all of the utilities and offsites at the Al Jubail chemical complex in Saudi Arabia. The complex will be owned and operated by the Sadara Chemical Company (Sadara), a joint venture to be formed by Saudi Aramco and Dow. Fluor booked the undisclosed value in the second quarter.
Shell Global Solutions Expands Presence in ME Shell Global Solutions International (Shell Global Solutions) has signed an agreement with the South Refineries Company of Iraq, for the provision of technology licenses to a refinery in Basrah, Southern Iraq.Shell Global Solutions will provide a license for a sulphur recovery unit and visbreaker unit as part of the agreement. Together with the refinery expansion, these technologies will contribute to optimised operations at the Basra refinery, significantly boosting capacity. The sulphur recovery unit is likely to enable the refinery to meet and exceed world standards for emissions whilst the visbreaking unit will help increase overall upgrading, building a future proof solution for the long-term. The upgrading of the refinery with Shell Global Solutions’ leading technologies will contribute to fulfilling Iraq’s expected future demand for oil products.
Sep-Oct, 2011
65
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