Exploration

Brazil plans Round 8

Brazilian energy regulator ANP will offer 284 blocks in seven basins in its eighth licensing auction on Nov. 28 this year as it pinned down a date after an earlier delay. The organization originally planned to offer 1,153 blocks in 18 basins but the government's CNPE energy policy council decided to focus on areas with more focused potential.

Permian Basin targeted

Anadarko Petroleum Corp. signed on with Chevron USA Inc. to explore some 200,000 net mineral acres in the Delaware in the Permian Basin of west Texas. Anadarko already has gas properties in the area, including its growing Haley field. Haley field production jumped from none in 2003 to 175 MMcf/d. The new arrangement allows Anadarko, as operator, to earn up to 100% of the Chevron acreage, leaving Chevron with a royalty payment and an option to take up to 25% of each new well. Pennsylvanian formations in the area already have produced 2 Tcf of gas, and Anadarko said it could contain another 10 Tcf of gross resource. It will have 13 rigs in the area by the end of this year.

CNPC wants investors

China National Petroleum Corp. (CNPC) will open its doors on nine controlled properties in the prolific Tarim Basin to foreign investors under cooperation agreements. The blocks cover some 42,471 sq miles (110,000 sq km). Under the plan, foreign investors will assume all early risk for exploration but CNPC will have the right to back in for a share of production. This will be the first time the blocks in the southwest, central and eastern part of the basin have been opened to outside investment.

Deepwater fields discovered

Gulf of Mexico operators chalked up seven discoveries in deep water in the first half of 2006, according to the US Minerals Management Service. Discoveries include:

•Total's Gotcha in 7,600 ft (2,318 m) of water in Alaminos Canyon 856;

•Murphy Oil's Thunder Bird in 5,673 ft (1,730 m) of water in Mississippi Canyon 819;

•Kerr-McGee's Caesar in 4,457 ft (1,359 m) of water in Green Canyon 683;

•Kerr-McGee's Claymore in 3,700 ft (1,128 m) of water in Atwater Valley 140;

•Hess Corp.'s Pony in 3,497 ft (1,066 m) of water in Green Canyon 468;

•Noble Energy's Raton in 3,400 ft (1,037 m) of water in Mississippi Canyon 248; and

•Noble Energy's Redrock in 3,334 ft (1,017 m) of water in Mississippi Canyon 204.

Drilling

US drilling best in 20 years

Fueled by high oil prices, US drilling activity topped the past 2 decades and doubled the level of the early to mid-1990s, according to the American Petroleum Institute. The organization said operators completed 24,729 oil and natural gas wells and dry holes in the first half this year. Second quarter completions reached 12,681. In spite of prices, natural gas remains the primary drilling target with an estimated 14,784 gas wells completed in the first half and 7,489 of those completed in the second quarter. Total completions climbed 14% in the first half, compared with the same period a year earlier. Operators drilled 136,806 ft (41,726 m) of hole in the first half.

Petrobras signs six rigs

Petrobras committed US $4.8 billion to lock up six deepwater drilling rigs for periods between 5 and 7 years. The rigs belong to Brazil's Construtora Norberto Odebrecht, Petroserv, Queiroz Galvao Perfuracees and Schahin Engerharia. Under this contract, the rigs will start operations in 2010. According to Ogilvie's E&P Daily, at least one of the rigs can drill in water up to 9,800 ft (3,000 m) deep.

JIP seeks well stability

Houston-based Knowledge Systems Inc. has formed a net joint industry project (JIP) to reduce wellbore collapse, lost circulation and other wellbore stability problems. The group will try to identify worldwide best practices in wellbore integrity and stability. The "Practical Wellbore Stability Prediction" JIP will develop guidelines to assess the relative priority of data types and the minimum data needed for effective modeling by examining and analyzing some 250 well bores in five world regions including the Gulf of Mexico deep water and shelf, western Canada, Australia's Northwest Shelf and the North Sea.

Peak Group fills rig gaps

Peak Well Management Ltd. is lining up rigs already contracted by major operators for a win-win situation in which the Aberdeen company will use the rigs during gaps in major oil company drilling schedules. It will line up the rigs to drill for independents that might otherwise have to wait more than a year for a rig.

Production

Development hits exploration

Despite high product prices exploration and appraisal drilling will drop to 63 wells in the UK sector of the North Sea this year, down from an 8-year high of 87 wells last year, according to a Wood Mackenzie report titled "UKCS-2006 Exploration Review & Outlook." The reason, according to the report, is that operators are drilling full steam ahead on development wells to get product to market quickly, and that activity occupies the limited number of rigs available in the North Sea. The seven discoveries made this year with an average field size of 15 million boe equates to less than month of current production from the UK Continental Shelf.

Hurricane damage lingers

In a final report the damage inflicted on Gulf of Mexico operations last year by hurricanes Katrina and Rita, the US Minerals Management Service said about 9.4% of daily gas production remained shut in shortly before mid-year 2006. The regulatory agency estimated 3,050 of the 4,000 platforms in the Gulf of Mexico were in the path of the hurricanes, along with 22,000 (35,200 km) of the 33,000 miles (52,800 km) of pipeline. The storms also affected 47 gas processing plants and 17 gas liquids fractionation sites in 70 counties and parishes along the Gulf Coast. Those facilities could handle 22.8 Bcf/d of gas. All but two of those plants are back in operation.

CNG partnership set

Overseas Shipholding Group Inc. and TransCanada CNG Technologies Ltd. formed a partnership under which Overseas Shipping will own and operate a new type of tanker that will move large quantities of compressed natural gas (CNG) using TransCanada designs. The target market is stranded gas anywhere in the world. By relaying ships from sources to markets, the company hopes to provide a "floating pipeline."

Shell builds Aberdeen center

Shell plans a US $45 million center of excellence in Aberdeen specifically targeting North Sea production. Construction will start next year and finish in 2009. The new facility, next to Shell's Tullos base will offer space for 1,000 employees. Shell calls it Campus Tullos, "a hub for exceptional talent."

General

Peak oil is nowhere in sight

International oil and gas liquids production capacity will continue to expand to 2015 and beyond as high prices push operations in Organization of the Petroleum Exporting Countries (Opec) and non-Opec countries, according to Cambridge Energy Research Associates (Cera) experts. Outlining results of a study titled "Global Liquids Capacity to 2015: Expansion Set to Continue," the Cera team said world production capacity will climb from 89 million b/d this year to 110 million b/d by 2015, a 25% increase. Team members based their estimates on a field-by-field global study of 360 new projects under way now and likely to reach completion during the period.

The growth includes substantial growth in unconventional liquids from less than 25% total production now to nearly 40% in 2015. Throughout the world, added Peter Jackson, director of oil industry activity for Cera, production capacity should continue to drop in the United States and Indonesia, while both the Norwegian and United Kingdom sectors of the North Sea continue to struggle for slow growth. Every other area shows strong growth with a 55% concentration of that growth occurring in 15 countries by 2015.

Opec will provide most of the growth, accounting for 12.89 million b/d compared to 8.38 million b/d from non-Opec countries.

Among major projects coming online elsewhere are BP's East Azeri offshore Azerbaijan with anticipated peak production of 260,000 b/d, BP's Thunder Horse in the Gulf of Mexico with 250,000 b/d peak production, Saudi Aramco's Khursaniyah and Hawiyah fields with 500,000 and 300,000 b/d, respectively, and Mexico's Ku Maloob Zaap with 450,000 b/d from Pemex.

Non-Opec high-growth areas are Brazil, Angola, Azerbaijan, Kazakhstan and Russia.

Vultures threaten oil deals

Vulture funds, companies that buy defaulted debt from oil- and gas-producing countries, are filing suits to garnish oil and gas sales dollars from US-based private companies to repay that government debt, according to Andrew B. Derman, Andrew Melsheimer and William M. Katz Jr. Those funds sued the Republic of the Congo to collect defaulted debt, and pending the outcome of those suits, US courts are ordering private oil and gas companies not to deliver in-kind royalty oil to SNPC, the state oil company. At the same time, Congolese courts refused to recognize US court orders and ordered oil companies to fulfill their contractual obligations to deliver the oil. In particular, vulture funds filed garnishment suits in Texas against CMS Nomeco for repayment of a default on a 1984 highway loan in Congo. It asked the US court to seize the in-kind royalty oil. The US District Court in Houston issued the garnishment orders ordering CMS Nomeco to deliver the oil to the vultures. The oil company argued that the oil is not in the United States and not subject to garnishment and that it couldn't comply with the US order without violating the Congolese order. At one point, Congolese troops threatened to detain the company's president until stored oil was released to the state oil company. Still, the US court refused that argument and demanded that the oil company post a bond of more than US $30 million, the value of the Congo's entitlement. On appeal, the US Court of Appeals stayed the federal district court order and remanded the case to Houston for further consideration. Recently, the appeals court ruled that the lower court couldn't order the garnishment of the oil if the oil was located in Congo at the time of the application for the writs of garnishment. The rulings, however, imply that garnishment is all right if the property is located in the United States and used for a commercial activity in the United States. It's not clear, however, if the fact that CMS Nomeco was headquartered in the United States is enough to establish an ownership location for the oil. Now the case has gone to the US Supreme Court for a final verdict. If the high court approves the ability to garnish in-kind oil payments, other companies may find themselves asked to pay twice - once to the vultures and once to the governments - for oil produced in countries that have defaulted on debt. Even the threat of that action could place US companies at a competitive disadvantage in competing for concessions abroad. More than 70 countries have defaulted on sovereign debt in the past 10 years.

Fears raise UK gas prices

A fear of shortages from declining production in the North Sea, equipment failures and other unforeseen events join concerns about the quality of supply and demand information to hold future prices for natural gas in the United Kingdom higher than the fundamentals support, according to a Cambridge Energy Research Associates report by Senior Director for European Energy Simon Blakey titled, "A Close-Run Thing: Winter 2006-2007 in the UK Gas Market." He added, "Nevertheless, in view of what is being built and will be ready for this winter, the balance should be made - and at lower price levels than were seen in 2005/2006." More uncertainty will occur in from November to January, since less than 60% of new pipeline capacity will be in place.