Oil and gas journal volume 109, issue 3

AraSer_OGJ_110110 1/3/11 3:16 PM International Petroleum News and Technology NEWSLETTER 27 STATISTICS | www.ogj.com Jan 17, 2011 10 LETTERS / CALENDAR 12 JOURNALLY SPEAKING 14 EDITORIAL 30 MARKETPLACE 32 EDITOR’S PERSPECTIVE / MARKET JOURNAL | Volume 109.3 26 EQUIPMENT 26 ADVERTISERS’ INDEX GENERAL INTEREST 16 Spill panel seeks overhaul of safety culture, regulation Bob Tippee The report by a presidential commission studying last year’s Macondo well disaster in the Gulf of Mexico calls for overhaul both of the oil and gas industry’s safety culture and of offshore regulation 19 Stronger-than-expected demand to drive oil prices, experts say Nick Snow 20 EIA: Global oil markets to tighten in next years 22 WATCHING THE WORLD Outlooks in four states 23 NTSB recommends safety actions in San Bruno line blast probe Nick Snow 24 Talisman to grow in high-return shale plays Alan Petzet 25 EXPLORATION/DEVELOPMENT BRIEFS 25 WATCHING GOVERNMENT Is Iraq going nuclear? Nick Snow 21 Chamber to fight EPA’s GHG program, excessive reform Nick Snow The video below, courtesy of Range Resources Corp., Fort Worth, features a virtual field tour of the company’s Midcontinent division CLICK TO VIEW VIDEO 110117OGJ_1 Visit our video library www.ogj.com/index/video.html 1/13/11 1:34 PM 110117OGJ_2 1/13/11 1:35 PM ADVERTISING SALES Houston U.S Sales Manager, Marlene Breedlove; Tel: (713) 9636293, E-mail: marleneb@pennwell.com Regional Sales Manager, Mike Moss; Tel: (713) 963-6221, E-mail: mikem@pennwell.com PennWell - Houston, 1455 West Loop South, Suite 400, Houston, TX 77027 Fax: (713) 963-6228 South / Southwest / Texas / Northwest / Midwest / Alaska Marlene Breedlove, 1455 West Loop South, Suite 400, Houston, TX 77027; Tel: (713) 963-6293, Fax: (713) 963-6228; E-mail: marleneb@pennwell.com PennWell, Houston office 1455 West Loop South, Suite 400, Houston, TX 77027 Telephone 713.621.9720 / Fax 713.963.6285 Web site: www.ogj.com Editor Chief Editor-Exploration 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http://www.ogj.com (Vol 109, No 3) Printed in the US GST No 126813153 Publications Mail Agreement Number 602914 Return Undeliverable Canadian Addresses to: P.O Box 1632, Windsor, ON N9A 7C9 1/13/11 1:34 PM CONFERENCE & EXHIBITION today’s tomorrow’s maintenance performance September 20 – 22, 2011 Moody Gardens Hotel & Convention Center Galve ston, Texa s w w w.ogmtna com Owned & Produced by: 110117OGJ_4 Flagship Media Sponsors: 1/13/11 1:36 PM OGJ Newsletter Jan 17, 2011 ® International News for oil and gas professionals GENERAL INTEREST Q U IC K TA K E S Marathon Oil to spin off refining, pipeline assets Marathon Oil Corp will spin off its downstream business, forming an independent refiner to be named Marathon Petroleum Corp based in Findlay, Ohio The parent company, Marathon Oil, will remain in Houston Gary R Heminger, now Marathon Oil downstream executive vice-president, will be president and chief executive officer of Marathon Petroleum Clarence P Cazalot Jr remains Marathon Oil president and chief executive officer Marathon Oil expects the transaction to be effective June 30 Refinery locations and capacities to be operated by the spunoff company are Garyville, La., 464,000 b/d; Catlettsburg, Ky., 212,000 b/d; Robinson, Ill., 206,000 b/d; Detroit, 106,000 b/d; Canton, Ohio, 78,000 b/d; and Texas City, Tex., 76,000 b/d Crude capacity of the Detroit refinery is being expanded by 15,000 b/d in a project that will increase heavy-oil processing capacity by about 80,000 b/d Marathon Petroleum also will operate wholesale and retail operations, including the Speedway retail chain, and Marathon Pipe Line LLC Through the pipeline subsidiary, the new company will own, operate, lease, or have ownership interests in about 9,700 miles of oil and product pipelines Marathon Oil’s core exploration and production areas are the US, Equatorial Guinea, Libya, and the North Sea Other areas in which the company is active include Angola, Indonesia, the Iraqi Kurdistan region, and Poland The upstream company also holds a 20% interest in the Athabasca Oil Sands Project, a joint venture with Shell (60%) and Chevron (20%) that includes the Muskeg River and Jackpine mines, the Scotford upgraders, and more than 215,000 acres of potentially mineable land Marathon Oil also has an integrated gas unit that includes a 60% interest in a 3.7-million-tonne/year LNG plant and 45% in a methanol company in Equatorial Guinea Before the spinoff, Marathon Petroleum plans to borrow $2.5-3 billion to establish a cash balance of at least $750 million It will use cash above that level repay intercompany debt with Marathon Oil Remaining proceeds will be distributed to Marathon Oil before the spinoff date JP Morgan and Morgan Stanley will provide a $2.5 billion, Oil & Gas Journal 110117OGJ_5 For up-to-the-minute news, visit www.ogjonline.com 364-day bridge facility The firms also will provide Marathon Petroleum a $2 billion, 4-year revolving credit facility Before the spinoff, Marathon Oil will reduce its long-term debt by about $2.5 billion through cash on hand and proceeds of the debt repayment from Marathon Petroleum It will continue servicing the remaining $5 billion in long-term debt after the spinoff Cheaspeake Energy to cut spending, sell assets Chesapeake Energy Corp announced plans to reduce its longterm debt by 25% by substantially reducing leasehold spending and by reducing its 2-year production growth rate to 25% from its previously planned growth rate of 30-40% for 2011-12 Aubrey K McClendon, Chesapeake’s chief executive officer, said the latest plan is a shift from Cheaspeake’s “aggressive asset accumulation of the past few years.” The growth plan reduction will be achieved “through asset monetizations,” a news release said Chesapeake said its 2011-12 strategic plan update will not involve issuing any common or preferred stock to achieve its debt reduction objective Chesapeake reported net debt of $11.4 billion as of Sept 30, 2010 The company did not specify which assets it might sell Chesapeake of Oklahoma City said its full-year 2010 production of 2.8 bcfd of gas equivalent marked a 14% increase over its 2009 production US starts 2011 with 1,700 rigs drilling US drilling activity increased slightly during the first week of 2011, up by rotary rigs to 1,700 working, compared with 1,220 at work a year ago, Baker Hughes Inc reported The US rig count exceeded 1,700 units drilling in of the last weeks of 2010, finishing the year with 1,694 working the final week Land operations accounted for the bulk of the latest gain, up by units to 1,661 working Offshore drilling increased by rig to 25, all in the Gulf of Mexico Inland waters activity was unchanged with 14 rigs drilling Of the US rigs working, 914 were drilling for natural gas, fewer than the previous week The number drilling for oil increased by 12 to 777 There were rotary rigs unclassified Horizontal drilling increased by 19 to 966 Directional drilling dropped to 211 Among the major producing states, Oklahoma and Colorado 1/13/11 1:34 PM IPE BRENT / NYMEX LIGHT SWEET CRUDE $/bbl 97.00 95.00 93.00 91.00 89.00 87.00 85.00 83.00 US INDUSTRY SCOREBOARD — 1/17 wk average Latest week 12/31 Jan Jan Jan Jan 10 Motor gasoline Distillate Jet fuel Residual Other products Jan Jan Jan Jan 10 2.8 3.8 –3.1 13.4 9.7 4.4 9,105 3,774 1,409 491 4,498 19,277 8,741 3,546 1,540 498 4,430 18,755 4.2 6.4 –8.5 –1.4 1.5 2.8 Crude production NGL production2 Crude imports Product imports Other supply2, TOTAL SUPPLY Refining, 1,000 b/d 5,594 2,036 8,423 2,429 2,228 20,710 5,517 2,068 7,965 2,510 1,762 19,822 1.4 –1.6 5.8 –3.2 26.4 4.5 5,500 2,028 9,112 2,555 1,903 21,098 5,507 2,048 8,355 2,597 1,861 20,368 –0.1 –1.0 9.1 –1.6 2.3 3.6 Crude runs to stills Input to crude stills % utilization 14,954 15,463 87.9 14,450 14,380 81.3 3.5 7.5 –– 14,604 15,041 85.4 14,336 14,639 82.8 1.9 2.7 –– Jan 11 Latest week 12/31 Latest week Previous week1 335,266 218,146 162,107 44,088 38,900 339,427 214,857 160,959 43,613 39,933 Stock cover (days)4 Jan Jan Jan Jan 10 Jan 11 Change Same week year ago1 Change Change, % Stocks, 1,000 bbl Crude oil Motor gasoline Distillate Jet fuel–kerosine Residual –4,161 3,289 1,148 475 –1,033 327,337 219,701 159,048 41,668 37,181 7,929 –1,555 3,059 2,420 1,719 Change, % Crude Motor gasoline Distillate Propane Futures prices5 1/7 22.4 23.7 41.7 34.5 22.7 23.1 41.6 36.1 89.53 4.53 90.97 4.27 2.4 –0.7 1.9 5.8 4.6 Change, % –1.3 2.6 0.2 –4.4 23.7 24.5 42.5 31.6 –5.5 –3.3 –1.9 9.2 Change Light sweet crude ($/bbl) Natural gas, $/MMbtu Change –1.44 0.26 79.07 5.77 % 10.46 –1.24 13.2 –21.5 Based on revised figures 2OGJ estimates 3Includes other liquids, refinery processing gain, and unaccounted for crude oil 4Stocks divided by average daily product supplied for the prior weeks 5Weekly average of daily closing futures prices Source: Energy Information Administration, Wall Street Journal Jan Jan Jan Jan 10 Jan 11 PROPANE - MT BELVIEU / BUTANE - MT BELVIEU ¢/gal 172.00 169.00 166.00 BAKER HUGHES INTERNATIONAL RIG COUNT: TOTAL WORLD / TOTAL ONSHORE / TOTAL OFFSHORE 3,900 3,600 3,300 3,000 2,700 2,400 2,100 1,800 1,500 300 3,226 2,898 328 Dec 09 Jan Jan Jan Jan 10 Jan 11 NYMEX GASOLINE (RBOB)1 / NY SPOT GASOLINE2 ¢/gal 248.00 246.00 244.00 242.00 240.00 238.00 236.00 234.00 Change, % Supply, 1,000 b/d IPE GAS OIL / NYMEX HEATING OIL 137.00 135.00 133.00 131.00 YTD avg year ago1 8,956 3,746 1,509 464 4,517 19,192 Jan 11 NYMEX NATURAL GAS / SPOT GAS - HENRY HUB ¢/gal 260.00 257.00 254.00 251.00 248.00 245.00 242.00 239.00 YTD average1 9,204 3,887 1,462 526 4,956 20,035 TOTAL PRODUCT SUPPLIED $/MMbtu 4.55 4.50 4.45 4.40 4.35 4.30 4.25 4.20 Change, % Product supplied, 1,000 b/d WTI CUSHING / BRENT SPOT $/bbl 98.00 96.00 94.00 92.00 90.00 88.00 86.00 84.00 wk avg year ago1 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Sept 10 Oct 10 Nov 10 Dec 10 Note: Monthly average count BAKER HUGHES RIG COUNT: US / CANADA 1,70 1,800 1,600 1,400 1, 220 1,200 1,000 800 422 342 400 200 Jan 1Reformulated Jan Jan Jan 10 gasoline blendstock for oxygen blending 2Nonoxygenated regular unleaded 110117OGJ_6 Jan 11 10/30/09 11/13/09 11/27/09 10/23/09 11/6/09 11/20/09 12/11/09 12/4/09 12/25/09 12/18/09 1/8/10 1/1/10 10/29/10 10/22/10 11/12/10 11/5/10 11/26/10 12/10/10 12/24/10 11/19/10 12/3/10 12/17/10 1/7/11 12/31/10 Note: End of week average count Oil & Gas Journal | Jan 17, 2011 1/13/11 1:34 PM had the biggest increases in their rig counts, up each to 164 and 64, respectively Texas and Wyoming gained rigs each with respective counts of 733 and 47 North Dakota increased by to 151 Pennsylvania, New Mexico, California, and Arkansas were unchanged at 103, 69, 38, and 37, respectively West Virginia and Alaska were down rig each to 20 and Louisiana reported the biggest loss, down rigs with 168 still drilling EXPLORATION & DEVELOPMENT Q U IC K TA K E S Shell Todd plans comprehensive review of Maui field Shell Todd Oil Services Ltd plans a major review of the Maui gas field region in the Taranaki basin off New Zealand The JV contracted drillship Noble Discoverer to drill an exploration well, Ruru-1, on the edge of the field in February to March It also engaged Electromagnetic Geoservices ASA of Norway to conduct an electromagnetic survey (New Zealand’s first) across the Maui field itself The Ruru prospect, previously known as Hohonu, was delineated in recent years and is believed to have potential to add large reserves—1 tcf was mentioned unofficially—to the Maui development Depending on the result of the wildcat well, it may be developed as a separate project or as an adjunct to the existing Maui system Ruru is a fault trap prospect on the southeast boundary of the Maui production lease and crosses into adjoining permit PEP 381203, also operated by Shell Todd and in which Australian company OMV has an interest The Eocene-age Kapuni formation reservoir target is the same as the producing horizon at Maui The multimillion dollar electromagnetic survey is being run by the Boa Galatea vessel and is expected to take a month to complete It will begin with laying a grid of receivers on the seabed across production lease PEP 381012 before transmitting electromagnetic waves during the survey Maui field, discovered in 1969, had initial gas reserves of tcf and once supplied 90% of New Zealand’s demand that exceeded 200 petajoules/year The field now supplies only about 30% of the current annual market of 150-170 petajoules However the new exploration initiative indicates Shell Todd thinks more reserves can be found to prolong the field’s life and lead to renewing the production lease before it expires in June 2015 Tweneboa appraisal well confirms potential The Tweneboa-3 appraisal well on the Deepwater Tano block off Ghana encountered gas-condensate and confirmed the Greater Tweneboa area’s resource base potential The group led by Tullow Oil PLC plans to evaluate development options for Tweneboa and Enyenra, formerly Owo, fields Tweneboa-3 well was drilled with two deviated boreholes The first leg was drilled to calibrate the potential of an area that had a weak seismic response This leg encountered 29 ft of gascondensate pay, in line with expected results Oil & Gas Journal | Jan 17, 2011 110117OGJ_7 The well was then sidetracked 1,808 ft west to test an area of strong seismic response This leg encountered a gross vertical reservoir interval of 214 ft and penetrated 112 ft of net gascondensate pay in high-quality stacked reservoir sandstones in two zones Tweneboa-3 well is 7.5 miles southeast of the Tweneboa-1 discovery well The Deepwater Millennium dynamically positioned drillship drilled Tweneboa-3 to a total depth of 12,816 ft in 5,253 ft of water The well will be suspended for potential future use in field development The drillship will remain on the block to drill the top-hole section of the Tweneboa-4 appraisal well and suspend it Then the drillship will drill the Enyenra-2A well, which will appraise the Owo-1 discovery well Deepwater Tano block interests are Tullow Oil 49.95%, Anadarko Petroleum Corp and Kosmos Energy Inc 18% each, Sabre Oil & Gas Holdings Ltd 4.05%, and Ghana National Petroleum Corp has a 10% carried interest Multizone gas find gauged off Mauritania A group led by Korea National Oil Corp subsidiary Dana Petroleum has tested gas from one of four separate gas columns in an exploratory well in the Atlantic off Mauritania Cormoran-1 is in Block about km south of the late 2003 Pelican-1 gas discovery (see map, OGJ, Oct 23, 2006, p 38) Cormoran-1’s main purpose was to test the Cormoran prospect, which adjoins but lies at a greater depth than Pelican A secondary objective was the Petronia prospect beneath Cormoran A further objective was to provide appraisal data on the Pelican gas discovery Cormoran-1 went to 4,695 m below sea level in 1,630 m of water It encountered generally thin but good quality gasbearing sands in the Upper Pelican Group at 3,376-3,420 m true vertical depth subsea (TVD ss) and in the Lower Pelican Group at 3,691-3,711 m TVD ss The well also encountered good quality gas-bearing sands in the Cormoran prospect in the gross interval from 4,351 m to 4,471 m TVD ss and at the top of the Petronia prospect in the gross interval from 4,660 m to 4,695 m TVD ss Drilling stopped at 4,695 m due to elevated pore pressures, and the well was still in gas-bearing reservoir at total depth The well stabilized at 22-24 MMscfd of gas on a 32∕64 -in choke on a drillstem test of the Lower Pelican Group at 3,6793,712 m TVD ss The flow rate was constrained by the need to avoid sand production Substantially higher flow rates could have been achieved if not for this operational constraint, Dana Petroleum said The company plugged and abandoned the well so that it can be reentered Participating interests in Block are Dana Petroleum (E&P) Ltd 36%, GDF Suez Exploration Mauritania BV 27.85%, Tullow Petroleum (Mauritania) Pty Ltd 16.2%, PC Mauritania Pty Ltd 15%, and Roc Oil (Mauritania) Co 4.95% 1/13/11 1:34 PM DRILLING & PRODUCTION Q U IC K TA K E S BP, CNPC increase production from Iraq’s Rumaila field Output at Iraq’s giant Rumaila oil field has increased by more than 10% above the 1.066 million b/d target established in December 2009, when BP PLC and China National Petroleum Corp (CNPC) signed a technical service contract to expand production “This production increase is an important step for Iraq and demonstrates the success of the contracts awarded,” said Iraq’s oil minister Abdul Kareem Luaibi, referring to the contract awarded to the two firms, along with Iraq’s State Oil Marketing Co (SOMO) Management of the field’s development has been carried out by the Rumaila Operating Organization (ROO), which was originally staffed by 4,000 employees from Iraq’s state-owned South Oil Co along with 100 technical experts and managers from BP and CNPC BP said that the pace of activity on Rumaila has built steadily over the past year, with 20 new rigs now mobilized in the field Altogether over the past year, BP said 41 wells have been drilled, 103 workovers completed, and 122 km of flowlines laid Employment has more than doubled to 10,000 workers On signing the TSC in 2009, BP and CNPC said they planned to invest $15 billion in cash over the 20 year lifetime of the contract with the intention of increasing plateau production to 2.85 million b/d during 2005-10 “Once production has been raised by 10% from its current level of about million b/d, costs will start to be recovered, and fees of $2/bbl earned on the incremental oil production,” BP said at the time “Increasing production at Rumaila, the world’s fourth largest oilfield, has been a massive undertaking,” said BP Chief Executive Bob Dudley this week, adding that “We look forward to working with our partners to make Rumaila the world’s second largest oil field.” In April 2010, BP let contracts worth about $500 million to three firms for drilling Schlumberger, in partnership with Iraqi Drilling Co., received a contract for three rigs; Daqing Drilling a contract for three rigs; and Weatherford a contract for one rig (OGJ Online, Apr 5, 2010) The Rumaila consortium is comprised of BP, 38%, CNPC 37%, and SOMO, 25% Petrobras approves more FPSOs for Santos basin Petroleo Brasileiro SA (Petrobras) approved the installation of two floating production, storage, and offloading vessels for installation on Guara Norte and Cernambi presalt Santos basin oil fields off Brazil Cernambi previously was known as the Iracema area The company said the FPSOs are part of the first production development phase of Guara Norte (Block BMS-09) and Cernambi (Block BMS-11) and will enable early production from 110117OGJ_8 these areas to start in 2014 compared with the previously proposed start of after 2014 Each of the vessels will be designed to handle 150,000 bo/d and million cu m/day of gas The company expects to have the units converted and the modules built and integrated in Brazil with a target local content index above 65% Petrobras is the operator for both blocks and has a 45% interest in BMS-9 and a 65% interest in BMS-11 BG Group 30% and Repsol Brasil SA 25% are its partneres in BMS-9 Its partners in BMS-11 are BG Group 25% and Galp Energia 10% PROCESSING Q U IC K TA K E S Albemarle, Petrobras to build HPC plant in Brazil Albemarle Corp., Baton Rouge, and Brazil’s Petroleo Brazileiro SA (Petrobras) have signed a memorandum of understanding to construct a world-scale hydroprocessing catalyst (HPC) production plant in Santa Cruz, Brazil The new facility, to be constructed on the site of the two firms’ existing joint venture Fabrica Carioca de Catalisadores SA (FCC SA), will complement existing production of fluid catalytic cracking (FCC) catalysts The two firms said the new plant will be constructed ahead of “significant demand growth for hydroprocessing catalysts” as Brazil begins to implement more stringent specifications for ultralow-sulfur diesel and Petrobras begins to introduce new hydrotreaters to existing and new refineries Albemarle said it will provide FCC SA with its leading technology for the manufacture of HPC, enabling the production of STARS catalysts, which have enabled the broad implementation of the most stringent sulfur specifications in fuels in North America, western Europe, and Japan “The plant will be ideally placed to serve growing needs for HPC in South America,” the two firms said Petrobras and Albemarle said they also are enhancing their partnership by engaging into a joint technical cooperation aimed at the further development of advanced hydroprocessing catalysts In 2008, UOP LLC signed a technology cooperation agreement with Petrobras and Albemarle Corp to demonstrate and further commercialize its catalytic crude upgrading (CCU) process technology (OGJ Newsletter, Oct 13, 2008) Last October, Albemarle said it completed the R&D laboratory facilities and begun construction on its Yeosu, South Korea manufacturing facility, which will begin intermediate commercial operations in mid-2011, with the commercial facility being fully operational in 2012 Albemarle said the new site will produce finished catalysts, activators like methylaluminoxane (MAO) and metallocene components, as well as “High Purity Metal Organics for the HBLED market.” Oil & Gas Journal | Jan 17, 2011 1/13/11 1:34 PM Dominion secures plant site for Marcellus gas Dominion, Richmond, Va., has reached agreement with PPG Industries on an option for Dominion to buy land at PPG’s Natrium, W.Va., site for construction of a 300 MMcfd natural gas processing plant Dominion Transmission, Dominion’s natural gas pipeline and storage subsidiary, plans to process gas and separate NGLs at the 56-acre site as part of its previously announced Marcellus 404 Project (OGJ, June 7, 2010, p 52) Engineering design and project planning for the plant are under way, said the Dominion announcement; financial terms were not disclosed The plant will also have fractionation capacity for up to 38,000 b/d of NGLs Natrium, on the Ohio River in Marshall County about miles north of New Martinsville, W.Va., is close to Dominion’s TL-404 pipeline, an existing transmission line in Ohio and West Virginia that Dominion plans to convert into wet-gas service Natrium is also close to rail, pipeline, and barging for marketing NGLs Canada’s Montney shale to get gas plant AltaGas, Calgary, has let a contract to IMV Projects, a Wood Group company also based in Calgary, for the engineering, procurement, and construction management for the $235 million (Can.) Gordondale sour gas processing plant and associated gas gathering The 120-MMcfd plant will lie about 100 km northwest of Grande Prairie in the Gordondale area of the Montney shale gas play It will include deep-cut liquids extraction to recover NGL before the gas enters the sales gas pipeline and will be on stream by fourth-quarter 2012, following regulatory approval IMV Projects has been involved with development of the project since its inception, performing the original scoping study and the front-end engineering design, said the company’s announcement IMV Projects also designed the expansion of AltaGas Ante Creek processing plant, currently under construction, that includes a new amine train, refrigeration, and gathering Flint Hills to buy ethanol plants in Iowa Flint Hills Resources LP plans to buy two ethanol plants in Iowa from Hawkeye Renewables LLC, which last year restructured its finances under bankruptcy protection Flint Hills will buy a 100-million-gal/year plant in Iowa Falls and a 115-million-gal/year plant in Fairbank The company, part of Koch Industries Inc., has more than 800,000 of distillation capacity in refineries in Texas, Alaska, and Minnesota The refiner already owns ethanol plants with capacities of 110 million gal/year each in Menlo and Shell Rock, Iowa In Iowa, it operates a fuel terminal and asphalt plants at Algona, Davenport, and Dubuque It also distributes fuels in the state Flint Hills didn’t disclose the purchase price Oil & Gas Journal | Jan 17, 2011 110117OGJ_9 TRANSPORTATION Q U IC K TA K E S Alyeska restarts TAPS while readying bypass Alyeska Pipeline restarted the Trans Alaska Pipeline Jan 11 following a 4-day shut down The company’s operations control center began the start-up sequence of opening valves and bringing pumps on line at p.m local time (OGJ Online, Jan 10, 2011) Alyeska shut down the pipeline at 8:50 a.m on Jan after crews discovered a leak into containment in the basement of a booster pump building at Pump Station The restart is part of a multistep plan to restore pipeline operations The pipeline will run at reduced rates for several days while a 157-ft bypass segment is staged for installation Once staged, Alyeska will shut TAPS down again while crews complete the bypass project The restart will help increase temperatures in tanks and the pipeline, Alyeska explained, reducing the potential for wax in the oil to accumulate or for water in the oil to freeze It also allows flowing oil to move a cleaning pig from its current location between Mileposts 419 and 420 to Pump Station The pig could affect the pump station equipment if left in the pipeline too long in cold temperatures With the pipeline operating again, crews can trap the pig between two valves in the mainline and route crude oil around through bypass piping, Alyeska said Alyeska said the restart solves three problems: It avoids a more complex cold restart process, it avoids additional problems that would occur if the pig were in the line when the pipeline begins to get too cold, and it allows North Slope producers to increase production, which will help mitigate freeze concerns on the North Slope Harvest to build Eagle Ford crude oil pipeline Harvest Pipeline Co has started to construct a 25-mile crude oil pipeline from near Cotulla in LaSalle County, Tex., to an interconnect near Fowlerton, Tex., with its existing 140-mile Pearsall pipeline The lateral represents the next phase of Harvest’s continuing expansion of its Arrowhead Pipeline in an effort to increase shipments of Eagle Ford crude to refining and terminal facilities in Corpus Christi Harvest expects the Cotulla line to enter service in the third quarter The Cotulla line will be supported with volume commitments from large producers in LaSalle and Dimmit counties, according to Harvest Harvest operates pipeline systems running through the Eagle Ford trend from Maverick County to San Patricio County, Tex Harvest also operates oil and gas gathering and mainline systems across south Texas and Louisiana Koch Pipeline Co LP received shareholder approval to build a 120,000-b/d Eagle Ford pipeline to Corpus Christi in December 2010 (OGJ Online, Dec 17, 2010) 1/13/11 1:34 PM GENERAL INTEREST ploration, and development process • Interior should reduce risk to the environment from OCS oil and gas activities by strengthening science and interagency consultations in the OCS oil and gas decisionmaking process • Congress, by enacting legislation, and Interior, through its lease provision, should require the oil and gas industry to pay fees that support environmental science and regulatory review related to OCS oil and gas activities to enable cooperating agencies to carry out these responsibilities • Interior should create a rigorous, transparent, and meaningful oil spill risk analysis and planning process for the development and implementation of better oil spill response • The Environmental Protection Agency and the Coast Guard should establish distinct plans and procedures for responding to a “spill of national significance.” • EPA and the Coast Guard should bolster state and local involvement in oil spill contingency planning and training and create a mechanism for local involvement in spill planning and response similar to the regional citizens’ advisory councils mandated by the Oil Pollution Act of 1990 • Congress should provide mandatory funding for oil spill response research and development and provide incentives for private-sector research and development • EPA should update and periodically review its dispersant-testing protocols for product listing or preapproval and modify the preapproval process to include temporal duration, spatial reach, and volume of the spill • The Coast Guard should issue guidance to establish that offshore barrier berms and similar dredged barriers generally will not be authorized as an oil spill response measure in the national contingency plan or any area contingency plan • The National Response Team should develop and maintain expertise within the federal government to oversee source-control efforts • Interior should require offshore operators to provide detailed plans for source control as part of their oil spill response plans and applications for permits to drill • The National Response Team should develop and maintain expertise within the federal government to obtain accurate estimates of flow rate or spill volume early in a source-control effort • Interior should require offshore operators seeking its approval of proposed well design to demonstrate that: Well components, including blowout preventer stacks, are equipped with sensors or other tools to obtain accurate diagnostic information—for example, regarding pressures and the position of blowout preventer rams Wells are designed to mitigate risks to well integrity during post-blowout containment efforts • The Coast Guard, through the federal on-scene coordinator, should provide scientists with timely access to the re- 18 110117OGJ_18 18 sponse zone so that they can conduct independent scientific research during an oil spill response and long-term monitoring in the future • The trustees for natural resources should ensure that compensatory restoration under the natural resource damage assessment process (under the Oil Pollution Act) is transparent and appropriate • EPA should develop distinct plans and procedures to address human health impacts during a spill of national significance (statutorily defined as one “that due to its severity, size, location, actual or potential impact on the public health and welfare or the environment, or the necessary response effort, is so complex that it requires extraordinary coordination of federal, state, local, and responsible party resources to contain and clean up the discharge”) • Congress, federal agencies, and responsible parties should take steps to restore consumer confidence in the aftermath of a spill of national significance • Congress should dedicate 80% of the Clean Water Act penalties to long-term restoration of the Gulf of Mexico • Congress and federal and state agencies should build the organizational, financial, scientific, and public outreach capacities needed to put the restoration effort on a strong footing • The appropriate federal agencies, including EPA, Interior, and NOAA, and the trustees for natural resources should better balance the myriad economic and environmental interests concentrated in the gulf region going forward This would include improved monitoring and increased use of sophisticated tools like coastal and marine spatial planning Many of these tools and capacities will also be important to manage areas of the OCS outside the gulf • Congress should significantly increase the liability cap and financial responsibility requirements for offshore facilities • Congress should increase the limit on per-incident payouts from the Oil Spill Liability Trust Fund • Interior should enhance auditing and evaluation of the risk of offshore drilling activities by individual participants (operator, driller, other service companies) Interior, insurance underwriters, or other independent entities should evaluate and monitor the risk of offshore drilling activities to promote enhanced risk management in offshore operations and to discourage unqualified companies from remaining in the market • The Department of Justice’s Office of Dispute Resolution should conduct an evaluation of the Gulf Coast Claims Facility once all claims have been paid out in order to inform claims processes in future spills of national significance The evaluation should include a review of the process, the guidelines used for compensation, and the success rate for avoiding law suits • Increase and maintain congressional awareness of the risks of offshore drilling in two ways First, create additional Oil & Gas Journal | Jan 17, 2011 1/13/11 1:35 PM GENERAL INTEREST congressional oversight of offshore safety and environmental risks Second, require the appropriate congressional committees to hold an annual oversight hearing on the state of technology, application of process safety, and environmental protection to ensure these issues receive continuing congressional attention • Congress should enact legislation creating a mechanism for offshore oil and gas operators to provide ongoing and regular funding of the agencies regulating offshore oil and gas development OGJ Stronger-than-expected demand to drive oil prices, experts say Nick Snow Washington Editor Stronger-than-anticipated global demand apparently is the main reason crude oil prices began to rise late in 2010, four experts suggested Growth in China has been particularly robust, they agreed More details will emerge when the US Energy Information Administration issues its latest Short-Term Energy Outlook on Jan 11 and the International Energy Agency publishes its next Monthly Oil Report on Jan 18 But IEA Chief Economist Fatih Birol warned on Jan that a recovering global economy faces a threat from rising crude prices “Oil prices are entering a dangerous zone for the global economy,” Birol said “The oil import bills are becoming a threat to the economic recovery This is a wake-up call to the oil-consuming countries and to the oil producers.” Birol’s observation followed a recent IEA analysis that found that oil import prices for Organization for Economic Cooperation and Development member countries climbed by $200 billion to $790 billion by yearend 2010 The trend toward higher prices emphasizes the need for consuming countries to increase efforts to reduce the amount of oil they use, particularly for transportation, he suggested That would need to take place amid oil demand that was surprisingly strong last year, experts told OGJ “Contributing factors include a cold winter in the United States, and increased demand in China from diesel use restricting grid generation,” American Petroleum Institute Senior Economist Sara Banaszak said “Economies also are recovering worldwide, and demand also has been strong domestically.” ‘More pressure’ Lost production from the Gulf of Mexico following the Apr 20 Macondo well accident and subsequent oil spill also may have contributed to higher prices, but other factors were more important, Banaszak said “[US President Barack] Oil & Gas Journal | Jan 17, 2011 110117OGJ_19 19 Obama came into office with prices around $70/bbl, and his years in office gave us a break from oil price pressure Certainly, we all want the economy to recover, but it will put more pressure on oil prices,” she said David Pumphrey, energy and national security deputy director at the Center for Strategic and International Studies, said, “Certainly, on the fundamentals side, there’s been a strong economic recovery from a couple of years ago China’s economy barely stumbled before starting to recover But there also is a pretty big surplus capacity within [the Organization of Petroleum Exporting Countries], particularly in Saudi Arabia So in fundamental terms, prices should be more stable.” They have climbed, however, which Pumphrey said makes him wonder if investors are putting more money into oil “There’s still a sense of trying to separate supply/demand fundamentals from the role oil plays as a longer-term investment That’s still uncertain,” he said, adding, “On balance, I think what we’re seeing is a kind of perception that oil is a good place to put money because the supply-demand fundamentals are exerting a lot of upward pressure.” Adam Sieminski, chief energy economist at Deutsche Bank’s global markets and commodities research department, said that group’s analyst who follows China says that demand grew there by just over million b/d in 2010, compared with IEA’s 880,000 b/d estimate “We think demand in China is likely to be up 880,000 b/d in 2011, while the IEA is only looking for 450,000 b/d It’s key because it’s so big There were internal policies there which encouraged more consumption,” he said “The good news, from the consumer’s standpoint, is that there‘s plenty of spare capacity in OPEC and spare inventory,” Sieminski continued “That said, demand was higher in 2010 than expected and is fairly robust at the beginning of 2011 OPEC’s supply, while solid, looks as if it’s going to be plateauing in the next 3-5 years.” That perception could be affecting global crude markets, which respond more to what could lie ahead than what’s happening now, he said “I think it’s reasonable to assume that markets will be tighter They don’t wait for supplies to tighten; they react now, and this economic reality always seems to surprise politicians,” Sieminski said Weakening US dollar Christopher Guith, vice-president for policy at the US Chamber of Commerce’s Institute for 21st Century Energy, also noted that China did not feel the recession as much as the rest of the world did and it began to recover sooner But he also suggested that the US has used monetary policy to make the dollar more liquid, which has reduced its global purchasing power “China, which is not tied to the US dollar, could buy the same amount of oil for less My economist friends tell me the dollar is becoming more stable and it should be less of 19 1/13/11 1:35 PM GENERAL INTEREST an issue,” he told OGJ “They also seem to generally believe we won’t see the kind of oil-price spikes we saw in 2008 because we’re in better supply shape and OPEC is more likely to keep incremental production at its marginal sweet spot.” Sieminski also did not consider the current situation similar to 2008 “There was no spare production capacity then Most of it had been used up between 2004 and 2008, and there also was very little spare refining capacity,” he explained “To be more precise, there was spare production capacity but it was largely heavy oil and there were no refineries to take it In the first half, everyone seemed to think we were in a new era of no recession and demand was growing “That seems to contradict charges of rampant speculation,” he maintained “With everybody thinking that demand would move up continually, the markets responded accordingly Then the recession solved the problem of spare capacity—in a very nasty way.” Sieminski said OPEC may need to be careful now to not let the global oil market get too carried away “The Saudis EIA: Global oil markets to tighten in next years Nick Snow Washington Editor The US Energy Information Administration anticipates that global crude oil markets will tighten over the next years as annual consumption grows by an average 1.5 million b/d and growth in supplies outside the Organization of Petroleum Exporting Countries increases less than 100,000 b/d yearly, EIA said in its latest Short-Term Energy Outlook “Consequently, EIA expects the market will rely on both inventories and significant increases in production of crude oil and non-crude liquids in OPEC member countries to meet world demand growth,” it said “While onshore commercial oil inventories in the Organization for Economic Cooperation and Development (OECD) countries remained high last year, floating oil storage fell sharply in 2010, and EIA expects OECD oil inventories will decline over the forecast period.” Many significant uncertainties could push oil prices higher, the report suggested They include OPEC’s not increasing production as demand growth recovers, uncertain economic recovery rates domestically and globally, Chinese government efforts to address growth and inflation concerns, and unforeseen production issues, it said The Jan 11 forecast, which was the first by EIA to cover periods through December 2012, raised its prediction of spot West Texas Intermediate crude prices by $7/bbl from a month earlier to about $92/bbl after WTI prices averaged more than $89/bbl in December, about $5/bbl more than November’s average It said that WTI spot prices could average $93/bbl during 2011, reaching an average $99/bbl in the fourth quarter, and average $98/bbl in 2012 It expects non-OPEC crude and liquids production to rise by 160,000 b/d in 2011 and 20,000 b/d in 2012, with increases concentrated in a few countries, notably China, Canada, and Brazil EIA anticipates that each of these overseas producers’ output will grow by 120,000-150,000 b/d in 2011 and 2012 Ghana became a new non-OPEC producer in December with the startup of its Jubilee field, it noted 20 110117OGJ_20 20 Non-OPEC declines Other non-OPEC countries’ production will decline, EIA predicted It expects Mexico’s production to drop by 200,000 b/d in 2011 and 80,000 b/d in 2012 “Similarly, the United Kingdom is expected to see production declines of an average 120,000 b/d in both 2011 and 2012 since oil production and the discovery of new reserves have not kept pace with the maturation of existing fields,” it said It said that while OPEC is not scheduled to meet until June to discuss its production targets, EIA anticipates that the cartel and its members will continue to increase production to accommodate growing demand, especially since non-OPEC supplies’ growth will be limited OPEC’s total production could grow by 500,000 b/d in 2011 and million b/d in 2012, while its non-crude liquids production, which is not subject to targets, could climb by 700,000 b/d this year and 400,000 b/d next year, it indicated EIA said that it expects OPEC’s surplus crude oil production capacity to fall from about 4.7 million b/d at the end of 2010 to 4.3 million b/d at the end of 2012 Domestically, it said that preliminary data indicate that US consumption of petroleum and non-petroleum liquid fuels grew by 350,000 b/d, or 1.9%, during 2010 Most of the increase came with distillate fuel oil, where demand climbed by 130,000 b/d, or 3.7%, and motor gasoline, where demand rose by 60,000 b/d, or 0.7%, it said EIA projected that total US liquid fuels consumption would grow by 160,000 b/d, or 0.8%, in 2011 and 170,000 b/d, or 0.9%, in 2012, reaching an average 19.4 million b/d at the end of that year It said that it expects US crude oil production, which grew by 150,000 b/d in 2010 to 5.51 million b/d, to decline by 20,000 b/d in 2011 and 130,000 b/d in 2012 The 2011 forecast includes declines of 50,000 b/d in Alaska and 220,000 b/d in federal Gulf of Mexico production, which are almost offset by a projected 250,000 b/d increase in non-gulf production in the Lower 48 states, it said In 2012, EIA said that it expects Lower 48 non-gulf output to grow by 70,000 b/d, Alaskan production to fall by 20,000 b/d, and output in the gulf to decrease by 180,000 b/d Oil & Gas Journal | Jan 17, 2011 1/13/11 1:35 PM GENERAL INTEREST can turn the spare production on now, but people may be thinking that in more years, we’ll be back in the same boat we were in back in 2008,” he said, adding, “Even though speculators may have had something to with the forward momentum, other major forces, essentially the economy driving demand and investment cycles driving supply, are much more significant.” Overseas production The production growth outlook outside North America appears mixed, the experts said “Russian production has been coming back up It recently set a record for the post-Soviet period It hasn’t been below expectations,” Pumphrey observed “Venezuelan expectations have been written down for a while It seems to be producing as much as it can The Saudis seem to be very strong OPEC behavior matters as well Most statements, particularly from the Saudis, say they don’t benefit from a price runup How quickly they can accommodate increased demand is another issue.” Sieminski surmised, “Venezuela and Nigeria have obvious internal political problems As far as Russia is concerned, they’ve actually been an up-side surprise in 2010, starting at the beginning of the year, and could continue that way in 2011 EIA has Russian production down 150,000 b/d in 2011 We believe it will be flat-to-up.” Guith told OGJ: “Over the long run, Venezuela, Russia, and Nigeria always pose production risks because of their reliability On the other hand, countries like Brazil are making their production grow, and there’s much more exploration off Southeast Asia as well They’re more expensive to produce, but as North America grows more and more inaccessible, that’s where companies are going.” That trend has accelerated since US Interior Sec Ken Salazar removed most of the US Outer Continental Shelf from the next 5-year program because of concerns emerging from the Macondo accident, Guith said “Ultimately, it could become a political issue, but if you look at what America spent on imports last year, it rose by $72 billion,” he said “The more we take domestic supplies off-line, make them inaccessible, or delay their production for decades, the more we have to import at a time when we can least afford it from an economic standpoint.” The question of what resources actually will be available onshore as well as offshore may have a long-term effect on prices, Pumphrey said “Investors may hesitate, especially since the presidential commission report indicates there are still issues with regulatory processes,” he said The Iraq question Oil markets also aren’t certain about Iraq’s production prospects, particularly since production there hasn’t changed much in the last years, Pumphrey told OGJ, while Sieminski separately observed, “We need stability in Iraq to have stability in the oil markets.” Oil & Gas Journal | Jan 17, 2011 110117OGJ_21 21 Sieminski maintained that if any single force was responsible for oil prices rising so much in 2010, the simplest explanation is that global oil demand grew by more than 2.5 million b/d—“a huge climb.” He said, “No one was talking about an oil shortage, but the growth was about twice the level of what people were talking about a year ago.” He added that the seemingly inexorable rise in OPEC’s market power is also closer “People who thought things would be tight around 2015 at the beginning of 2010 now see a year’s faster-than-expected growth in demand, so now it seems more like years instead of the years it would have been if demand hadn’t been so strong,” Sieminski said “OPEC can produce the oil, but in the next years, the world will need Iraq’s capacity to grow to keep OPEC’s spare capacity from shrinking.” OGJ Chamber to fight EPA’s GHG program, excessive reform Nick Snow Washington Editor The US Chamber of Commerce will continue efforts to keep the US Environmental Protection Agency from implementing greenhouse gas emission regulations under the Clean Air Act, Chamber Pres Thomas J Donahue said in his annual State of American Business address Chamber also plans to fight excessive financial reforms that would unduly restrict use of derivatives, he added The rules are part of a federal “regulatory tsunami” that poses the biggest single threat to jobs, US global competitiveness, and the future of American enterprise, Donahue maintained “At the federal level alone, regulations already fill 150,000 pages of fine-print text and cost Americans $1.7 trillion/ year,” he said “Many of these rules are necessary and business strongly supports them Yet in recent years, we have seen an unprecedented explosion of new regulatory activity Furthermore, the [Obama] administration is likely to turn increasingly to the regulatory agencies now that getting legislation out of Congress could be more difficult.” Donahue said the nation’s largest business organization would go on fighting what it considers unilateral regulation of GHGs under the CAA, which EPA began to develop following a 2007 US Supreme Court ruling that the federal agency has that authority The regulations began to go into effect at the beginning of 2011 with a tailoring rule which initially targets refiners, chemical plants, and other major industrial facilities believed to be the largest GHG emitters The regulations, if unchecked, eventually could involve million entities, including small businesses, hotels, 21 1/13/11 1:35 PM WATCHING GOVERNMENT NICK SNOW Washington Editor | Blog at www.ogj.com Outlooks in four states State oil and gas associations headed into the 2011 legislative season cautiously optimistic as Republicans took control or increased majorities in several houses and senates They also expect governors and lawmakers to grapple with budget questions as revenue growth remains elusive But when OGJ asked four state association executives how they planned to proceed, they sounded strikingly like their national counterparts despite facing sometimes different situations “The industry and the businesses which support it supply very good jobs for many people in California,” said Catherine Reheis-Boyd, president of the Western States Petroleum Association in Sacramento She noted that Democrat Jerry Brown, who is back as governor after 28 years, expressed support for a green economy as long as it didn’t imperil existing businesses “If he’s serious, we’ll have a lot to talk about,” she said, adding, “We need to encourage [exploration and production] and refining abilities to produce cleaner fuels.” She also expects WSPA to begin serious outreach in the state’s assembly, and hopes to get support from moderate Democrats there Republicans gained ground in the legislatures of Pennsylvania, Kansas, and Montana, but state association leaders there aren’t resting easy Louis D’Amico, president of the Pennsylvania Independent Oil & Gas Association in Wexford, noted that Republican Tom Corbett clearly ap- 22 110117OGJ_22 22 pears less likely to raise taxes as governor than his predecessor Republicans also took control of the House and increased their majority in the Senate, he said Talk of a fee “However, there’s been a lot of media campaigning for a severance tax,” D’Amico said, adding, “Although the governor-elect has said he’s against it, there’s been talk of some sort of fee.” Edward P Cross, president of the Kansas Independent Oil & Gas Association in Topeka, said the group built good relations with new Gov Sam Brownback when he was a US senator “There probably will be some spending cuts when the budget is released Our industry wants any tax question addressed fairly We don’t want to be singled out,” Cross said David A Galt, executive director of the Montana State Petroleum Association in Helena, sounded the most optimistic “There’s an overwhelming majority of new state representatives who have put support of natural resourcebased industries at the top of their agendas,” he explained While the state was one of the few to finish 2010 with a positive balance, Galt expects lawmakers to look closely at budgets and spending “I think we just have to be thoughtful in our submissions,” he said “A lot of members are trying to find ways to make Montana as active in oil and gas as North Dakota, and we’ll try to find ways to help them.” warehouses, and churches, Donahue warned “Before any of these facilities could build or expand, they would have to get preconstruction permits that take 6-9 months to obtain at a cost in excess of $100,000/permit,” he said “Even then, the permits could be challenged in court This could seriously disrupt construction activity across our nation and throw a lot of people out of work.” He said Chamber would support bipartisan legislation that would delay or stop EPA’s current GHG program and return efforts to address global climate change to Congress Dodd-Frank reforms Donahue said Chamber also is heavily involved in the regulatory rulemaking triggered by passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act He noted that the new law contains 259 mandated rulemakings, 188 suggested rulemakings, 63 reports, and 59 studies, adding, “My grandchildren will be old and retired before it is all implemented.” “We are particularly concerned that the new Consumer Financial Protection Bureau does not use its broad authority in ways that deny small businesses and consumers the credit and financial products they need,” he said “We want to make sure that Main Street end-users are still able to use derivatives in an effective way to manage their legitimate business risk—without sidelining billions of dollars in productive capital and costing tens of thousands of jobs “And although our pending litigation against the [US Securities and Exchange Commission] over its proxy access rule has delayed its implementation, that battle is far from over,” Donahue said “We’ll continue to oppose proposals that would expand the ability of special interest shareholders such as unions to exploit proxy access rules to the detriment of companies, jobs, and all shareholders.” He said Chamber would use a broad Oil & Gas Journal | Jan 17, 2011 1/13/11 1:35 PM GENERAL INTEREST array of tools to address these and other regulations that it considers excessive, including efforts to limit funding and more applications of the Congressional Review Act “Yet the time has come to reform the regulatory process itself—to restore some badly needed balance and accountability to the system This could be done by giving Congress the right to vote up or down on major rules before they take effect, and by strengthening the burden of proof that all agencies would have to demonstrate in court when they are imposing major rules,” he suggested Donahue said new regulations also provide new opportunities for lawsuits “The need for legal reform as well as courtroom advocacy on behalf of business will be greater than ever in the coming year and beyond,” he said “Our Institute for Legal Reform and our law firm, the National Chamber Litigation Center, will therefore play a critical role in the Chamber’s ongoing program of work.” Chamber also will form a new group of regulatory experts to tell policymakers, the media, and the public the story of massive impacts of regulations on business, he said NTSB recommends safety actions in San Bruno line blast probe Nick Snow Washington Editor The National Transportation Safety Board issued seven safety recommendations, six of them classified as urgent, as a result of its investigation of the Sept 9, 2010, natural gas pipeline rupture and explosion in San Bruno, Calif., which killed eight people It also scheduled a hearing for Mar 1-2 as part of its inquiry “This accident has exposed issues that merit further attention and have implications for the pipeline infrastructure throughout the country,” said NTSB Chairwoman Deborah A.P Hersman “The hearing will gather additional factual information for the investigation and will also provide the pipeline industry, state, and federal regulators, and our citizens with an opportunity to hear more about this accident and important safety issues as the investigation progresses.” NTSB noted in a Dec 14, 2010, investigation update that while records of the gas distribution pipeline’s operator, Pacific Gas & Electric Co., showed the line in the rupture area was seamless, it at least partially was constructed of longitudinal steel pipe Some of the seams in this pipeline section were welded from both the inside and the outside, while others were welded only from the outside, it added “It is critical to know all the characteristics of a pipeline in order to establish a valid [maximum allowable operating pressure (MAOP)] below which the pipeline can be safely Oil & Gas Journal | Jan 17, 2011 110117OGJ_23 23 operated,” the independent federal agency said in letters to PG&E, the California Public Utility Commission (CPUC), and the US Pipeline and Hazardous Materials Safety Administration “NTSB is concerned that these inaccurate records may lead to incorrect MAOPs.” Recommendations for PG&E NTSB said it issued three safety recommendations, two of which were urgent, to PG&E as a result It urgently recommended that the utility intensify the search of its records to identify all of its gas lines that have not undergone a testing regiment to validate a safe operating procedure It urgently recommended that the utility determine the maximum operating pressure (MOP) based on the weakest section of pipeline or component identified in that records search And if PG&E is unable to validate a safe operating procedure in this manner, it should determine one by a specified testing regimen Kirk Johnson, PG&E’s vice-president of gas engineering and operations, said the company was giving NTSB’s recommendations “close and serious attention.” He said PG&E has been intensively reviewing all of its pipeline records, scrutinizing and verifying thousands of documents to confirm the data’s accuracy “We are managing this process across PG&E’s entire system as part of our ongoing commitment to place the highest priority on safety,” he indicated PG&E has been working closely with NTSB on its investigation as well as thoroughly reviewing its own records to confirm their accuracy, according to Johnson “PG&E will continue to work closely with the NTSB, CPUC, and PHMSA to ensure we fully understand and are responsive to their recommendations,” he said The independent federal agency also expressed concern other gas pipeline operators may have similar discrepancies in their records that could compromise safety It urgently recommended PHMSA expeditiously inform the pipeline industry of the San Bruno accident’s circumstances and investigative findings so pipeline operators can quickly implement corrective measures PHMSA advisory bulletin PHMSA issued an advisory bulletin on Jan 4, reminding operators of gas and liquid pipelines of their responsibilities under federal integrity management regulations to perform detailed threat and risk analyses that integrated accurate data and information from their entire pipeline system, especially when calculating MAOP and MOP, and to use these analysis methods to identify appropriate assessment methods and identify prevention and mitigation steps NTSB also directed three urgent recommendations to the CPUC, which regulates intrastate pipelines in California It asked the CPUC to ensure that PG&E “aggressively and diligently” search documents and records to determine which pipeline segments have not gone through the testing regi- 23 1/13/11 1:35 PM GENERAL INTEREST men it recommended to the utility, and to provide oversight of any testing by PG&E if a documents and records search can’t be satisfactorily completed CPUC also was asked to immediately notify other California intrastate gas pipeline operators of the San Bruno accident’s circumstances so they might implement corrective measures on their own systems Paul Clanon, CPUC’s executive director, immediately sent letters to Southern California Gas Co., San Diego Gas & Electric Co., and Southwest Gas Corp as well as PG&E directing the companies to report steps they are taking in response to NTSB’s recommendations to him by Feb In a Jan statement, the American Gas Association, which has primarily gas utilities as members, said it is encouraged by NTSB’s recent focused recommendations on operators’ need to have accurate records to ensure pipelines are operating at a proper pressure “As this process continues, we look forward to learning more about the possible causes of this tragic incident, as well as additional recommendations for improving the gas utility industry’s already strong record of safety,” it said OGJ Talisman to grow in high-return shale plays Alan Petzet Chief Editor-Exploration Talisman Energy Inc plans to hike production and reserves in the Montney, Marcellus, and Eagle Ford shale plays in North America and will explore for shale gas in northern Poland in 2011 Rob Broen, president of the US shale business unit based in Pittsburgh, said, “We have enough lands and resource to support production growth to bcfd for the company in each one of these plays.” At 760,000 net acres the company also has the largest contiguous land position in a shale play initially targeting Ordovician Utica shale in Quebec’s St Lawrence Lowlands, where it is working with government and industry to establish a regulatory system, service sector, and infrastructure Talisman’s overall 2010 production of 415,000 b/d of oil equivalent is balanced in liquids and gas, and 50% of projected 2011 growth volumes are liquids, said Broen Of (US) $4 billion in 2011 worldwide capital spending, Talisman will invest $1.7 billion in North America, $1.3 billion of it on shale properties In the three main plays Talisman’s portfolio allows it to control the development pace, so it is not chasing land and isn’t required to spend to hold land, Broen said In the Marcellus shale in Pennsylvania, Talisman has an $800 million in 2011 capital program It will run as many 24 110117OGJ_24 24 as nine rigs, compared with 12 at present and six at the start of 2010 Production is centered on 218,000 net acres in Tioga, Bradford, and Susquehanna counties in northeastern Pennsylvania, where Talisman has identified more than 2,000 drilling locations and a tcf contingent resource The company also cites a tcf Marcellus on lands it holds in New York Talisman expects to average 350-400 MMcfd of production in 2011 compared with 181 MMcfd in 2010 It ended 2010 at 315 MMcfd It has secured up to 600 MMcfd of pipeline capacity for Marcellus gas The company had no Marcellus activity in 2008, when it was a Trenton-Black River explorer in the Appalachian basin, Broen noted Drilling and completion costs have fallen 70% to $400,000/well or a full-cycle breakeven cost of $3.50/Mcf Wells are generally on line within 3-4 days of completion Talisman drills 5,700-ft laterals and applies 16-18 frac stages to generate 30-day average initial production of 4-5 MMcfd and estimated ultimate recovery of more than bcf/well In the Montney shale in Northeast British Columbia, Talisman operates the Greater Cypress and Farrell Creek areas west of Fort St John and participates in the Shell-operated Greater Groundbirch area south of the city The company has 44 tcf of contingent resource in 271,000 net acres in the Montney, which is as thick as 1,400 ft spread over three horizons Talisman estimates full-cycle breakeven cost below $4/Mcf Talisman is moving from four rigs to eight in 2011, when it expects to average 50-60 MMcfd net production It is expanding the Farrell Creek processing plant to 180 MMcfd from 120 MMcfd and has secured 500 MMcfd of pipeline sales capacity Well metrics are MMcfd initial rates and bcf EURs, Broen said Talisman sold 50% of 52,000 net acres at Farrell Creek to South Africa’s Sasol in late 2010 for $1 billion The 5050 properties have an estimated 9.6 tcf contingent resource The companies will drill 35 wells net to Talisman in 2011, and Talisman is examining alternate marketing options including Sasol’s gas-to-liquids technology Talisman has a $300 million capital program in the Eagle Ford shale and will grow from four rigs to eight in 2011, spending a net $300 million, Broen said Talisman, operator in 50-50 partnership with Statoil, sees 1,500 locations on 135,000 net acres and a 1.1 billion boe contingent resource in the liquid-rich part of the play Well results are 1,200 boe/d initial rates and 660,000 boe projected EURs The company will drill three vertical wells in Poland’s Baltic basin in 2011 seeking gas in shales with favorable estimated technical parameters: 220-1,550 bcf/sq mile gas in place, 600-2,300 ft thickness, 8,000-14,000 ft depth, and 0.9-9% total organic carbon Talisman holds the Gdansk West, Braniewo, and Szczawno blocks OGJ Oil & Gas Journal | Jan 17, 2011 1/13/11 1:35 PM WATCHING THE WORLD EXPLORATION/DEVELOPMENT BRIEFS Kazakhstan Roxi Petroleum PLC, operator of the 1,561 sq km BNG (Ayrshagyl) block in Kazakhstan’s North Caspian basin, has spud BNG exploration well 135 on the North Yelemes structure Drilling time is estimated at 42 days to a projected to 2,950 m The block consists of steppe and transition zone near the northeastern shore of the Caspian Sea Morocco TransAtlantic Petroleum Ltd., Dallas, began oil sales in early January 2011 from the HR-33bis well on the company’s 100% owned Teslfat license in northern Morocco’s Rharb basin TransAtlantic is evaluating plans for 2011 in Morocco The evaluation will be influenced by results from the HKE-1 well, under completion on the Ouezzane-Tissa exploration permits, and the GRB-1 well, drilling on the Asilah exploration permits, both in the Rif belt in northern Morocco Turkey TransAtlantic Petroleum Ltd., Dallas, is awaiting the availability of coiled tubing units to clean out and install tubing in the Kepirtepe-1 and Habiller2R wells in the Thrace basin of Turkey The company fractured stimulated the two wells in the Oligocene Mezardere and Eocene Hamitabat formations in the fourth quarter of 2010 and said it was pleased with how the jobs were pumped (OGJ, Oct 4, 2010, p 56) Once it cleans out the wells and runs tubing, the company should be in a position to flow the wells for an extended period TransAtlantic expects to move towards multistage fracture stimulation jobs and commercial production in 2011 OGJ Oil & Gas Journal | Jan 17, 2011 110117OGJ_25 25 ERIC WATKINS Oil Diplomacy Editor | Blog at www.ogj.com Is Iraq going nuclear? Could oil-rich Iraq soon be turning to nuclear energy to power its national electricity grid? No one is speaking openly of this, but there are signs pointing in that direction One was last week’s unannounced visit of Japan’s trade minister Akihiro Ohata to Baghdad Japanese sources said that Ohata’s trip to the Middle East aimed at “promoting Japan’s infrastructure technology, such as that related to nuclear power plants, and seeking stable oil supplies.” Earlier, in Saudi Arabia, Ohata met with Hashim bin Abdullah Yamani, head of King Abdullah City for Atomic and Renewable Energy, offering to help the Kingdom nurture personnel to operate nuclear power plants as well as draw up schedules for building them According to the Nikkei business daily, Tokyo hopes that such support will help Japanese companies garner nuclear plant construction projects in the region Saudi nuclear power The Nikkei said Middle Eastern nations are introducing nuclear power generation, and that Saudi Arabia also is considering the idea Japan expects that Saudi connections will help it expand infrastructure exports to other Middle Eastern countries Ohata’s visit to Baghdad was especially timely, coming on the heels of last month’s decision by the UN Security Council to grant Iraq permission to develop a civilian nuclear program In Baghdad, Ohata met with Deputy Prime Minister Hussain Al-Shahristani, a nuclear scientist by profession, and with Oil Minister Abdul Kareem Luaibi Oil was definitely mentioned, as the Japanese want Baghdad to resume negotiations over the Nasyriah oil field A Japanese consortium reached an accord in principle with the Iraqi government in August 2009 for development rights of the Nasiryah field, but talks were suspended a year ago prior to Iraqi parliamentary elections Iraqi power station In a statement following their meeting in Baghdad, though, the two countries also announced a decision to start preparations for a feasibility study on the construction of a large-scale power station in the south for stable supply of electricity in Iraq The idea of a power station in southern Iraq also surfaced a few days before, when French power companies, Schneider Electric and AREVA, secured $52-million of power grid reconstruction contracts in Iraq Both firms, of course, are leaders in nuclear technology Basra region deputy governor Ahmed Hameed also revealed that the region was in talks with an unnamed Saudi Arabian company which could supply power turbines adding up to 150MW of the region’s generating capacity Significantly, though, no one has yet spoken about the source of fuel for this power station Could it be that the region will see the installation of a power station that is run off nuclear energy? That’s where the signs are pointing 25 1/13/11 1:35 PM EQUIPMENT | SOFTWARE | LITERATURE PRODUCT ELIMINATES BACTERIA FROM HYDRAULIC WELL FRAC A new anolyte product is designed to eliminate bacteria from the hydraulic fracturing of wells This environmentally friendly biocide contains no harmful products and is 100% biodegradable New electrochemical activation technology (ECAT) anolyte achieved a superior bacteria kill count when tested in the fracing process of 10 wells located in the Barnett shale and West Texas, the firm points out Depending on the impurities of the source water used for fracing, ECAT anolyte typically only requires 0.5 gal to gal of anolyte for each 1,000 gal of water injected into the formation The anolyte is produced via an ECAT process in the company’s Richmond, Tex., facility under license from a UKbased Medipure Ltd patented process The process utilizes cell membrane technology, which creates a pure ECAT anolyte with a shelf life that exceeds months As a result of the product’s long shelf life, the need for space formerly required for on-site manufacturing is eliminated The same technology that is proving successful in hydraulic fracturing has also been expanded to include squeeze treatments The company says that more than 20 wells to date that have experienced severe corrosion of the tubing have seen a reduction in hydrogen sulfide due to the firm’s anolyte Source: Universal Bacteria Specialist, 1117 FM 359, Suite 140, Richmond, TX 77406 NEW SOFTWARE HELPS MANAGE OFFSHORE WORK FORCE TRAINING New SkillsXP V8.0, a field-proved software application that facilitates and manages work force training and competence, is designed especially to meet the needs of offshore operations It integrates data capture, sharing, Got jobs? We’ve got people The PennEnergy JOBS process puts your recruitment message in front of the industry’s best talent whether it’s online, in print, or at an event This approach offers you the flexibility to create custom recruitment advertising campaigns best suited to meet your budget and objectives | Learn More | Visit: www.PennEnergyJOBS.com Call: 1-800-738-0134 and management requirements with comprehensive reporting tools to provide one solution for total control It has the ability to negotiate the variations in international training and safety standards The firm says that SkillsXP helps companies to mobilize personnel, safe in the knowledge that their training is up to date, their qualifications and proficiencies are compatible with the job they are expected to do, and their certification complies with the legal requirements of the company or region in which they are working Another feature of using SkillsXP is the ability to forecast the scale and nature of knowledge entering and leaving a company The retirement or departure of key personnel can create unexpected gaps in the intellectual fabric of an organization, something that SkillsXP is adept at predicting and preventing, the firm says Source: Tritanium Co BV, 5847 San Felipe, Suite 1700, Houston, TX 77057-3073 ADVERTISERS INDEX COMPANY NAME PAGE ARAMCO Digital Cover www.aramcoservices.com Baker Hughes 15 www.bakerhughes.com Oil & Gas Maintenance Technology North America www.OGMTNA.com PennEnergy 30 www.PennEnergy.com PennEnergy JOBS 26 www.PennEnergyJOBS.com PennEnergy Research 31 www.PennEnergyResearch.com Qatar www.qp.com.qa Unconventional Oil & Gas International 13 www.unconventionaloilandgas.com This index is provided as a service The publisher does not assume any liability for errors or omission 26 110117OGJ_26 26 Oil & Gas Journal | Jan 17, 2011 1/13/11 1:35 PM STATISTICS IMPORTS OF CRUDE AND PRODUCTS — Districts 1-4 — — District — 12-31 12-24 12-31 12-24 2010 2010 2010 2010 ––––––––––––––––––––––––— 1,000 b/d ———— Total US ———— 12-31 12-24 *1-1 2010 2010 2010 ––––––––––––––––––––––––— Total motor gasoline Mo gas blending comp Distillate Residual Jet fuel-kerosine Propane-propylene Other 506 462 156 138 37 90 206 768 693 251 508 40 167 135 7 27 44 (18) 78 7 35 (109) 163 513 469 156 165 81 72 284 775 700 251 543 41 58 298 784 582 289 364 102 153 323 Total products 1,595 2,562 145 104 1,740 2,666 2,597 Total crude 7,362 7,784 1,083 1,030 8,445 8,814 8,355 Total imports 8,957 10,346 1,228 1,134 10,185 11,480 10,952 *Revised Source: US Energy Information Administration Data available in OGJ Online Research Center PURVIN & GERTZ LNG NETBACKS—JAN 7, 2011 –––––––––––––––––––––––––––– Liquefaction plant –––––––––––––––––––––––––––––––– Algeria Malaysia Nigeria Austr NW Shelf Qatar Trinidad –––––––––––––––––––––––––––––––– $/MMbtu –––––––––––––––––––––––––––––––––––– Receiving terminal Barcelona Everett Isle of Grain Lake Charles Sodegaura Zeebrugge 8.79 4.75 8.16 1.87 5.94 7.57 6.19 2.55 5.81 –0.04 8.18 5.26 7.55 4.36 7.45 1.63 6.17 6.90 6.09 2.65 5.71 0.14 7.87 5.15 6.82 3.12 6.42 0.33 7.20 5.91 7.47 5.05 7.48 2.49 5.19 6.97 Additional analysis of market trends is available through OGJ Online, Oil & Gas Journal’s electronic information source, at http://www.ogj.com OGJ CRACK SPREAD *1-7-11 *1-8-10 Change Change, ———–—$/bbl ——–—— % SPOT PRICES Product value Brent crude Crack spread 103.39 95.84 7.55 90.18 79.93 10.25 13.21 15.91 –2.70 14.7 19.9 –26.3 FUTURES MARKET PRICES One month Product value 103.53 Light sweet crude 89.53 Crack spread 14.00 Six month Product value 106.21 Light sweet crude 93.41 Crack spread 12.80 90.57 12.96 14.3 82.37 8.20 7.16 5.80 8.7 70.8 94.42 11.79 12.5 85.00 9.42 8.41 3.38 9.9 35.9 *Average for week ending Source: Oil & Gas Journal Data available in OGJ Online Research Center Definitions, see OGJ Apr 9, 2007, p 57 Source: Purvin & Gertz Inc Data available in OGJ Online Research Center CRUDE AND PRODUCT STOCKS —–– Motor gasoline —–– Blending Jet fuel, ————— Fuel oils ————— PropaneCrude oil Total comp.1 kerosine Distillate Residual propylene ———————————————————————————— 1,000 bbl ————————————————————————— District PADD PADD PADD PADD PADD 9,905 97,695 160,850 16,007 50,808 53,346 49,429 77,021 7,400 30,950 42,816 24,778 53,568 2,234 26,386 8,778 8,362 15,537 735 10,676 63,699 30,369 49,576 3,682 14,781 12,741 1,387 20,223 205 4,343 4,539 21,435 25,430 1,537 –– Dec 31, 2010 Dec 24, 2010 Jan 1, 20102 335,265 339,426 327,337 218,146 214,857 219,701 149,782 146,088 134,643 44,088 43,613 41,668 162,107 160,960 159,048 38,899 39,933 37,181 52,941 55,235 49,441 Includes PADD 2Revised Source: US Energy Information Administration Data available in OGJ Online Research Center REFINERY REPORT—DEC 31, 2010 REFINERY –––––– OPERATIONS –––––– Gross Crude oil inputs inputs ––––––– 1,000 b/d –––––––– District –––––––––––––––––––––––––––– REFINERY OUTPUT ––––––––––––––––––––––––––– Total motor Jet fuel, ––––––– Fuel oils –––––––– Propanegasoline kerosine Distillate Residual propylene –––––––––––––––––––––––––––––––– 1,000 b/d ––––––––––––––––––––––––––––––– PADD PADD PADD PADD PADD 929 3,354 8,091 522 2,592 927 3,321 7,812 518 2,409 2,705 2,203 2,158 327 1,469 69 228 667 29 428 320 1,011 2,616 170 508 35 50 311 11 107 41 248 730 53 –– Dec 31, 2010 Dec 24, 2010 Jan 1, 20102 15,488 15,447 14,120 14,987 14,928 13,792 8,862 9,303 9,071 1,421 1,413 1,448 4,625 4,657 3,809 514 419 573 1,072 1,072 1,076 17,594 Operable capacity 88.0% utilization rate Includes PADD Revised Source: US Energy Information Administration Data available in OGJ Online Research Center Oil & Gas Journal | Jan 17, 2011 110117OGJ_27 27 27 1/13/11 1:35 PM STATISTICS OGJ GASOLINE PRICES BAKER HUGHES RIG COUNT Price Pump Pump ex tax price* price 1-5-11 1-5-11 1-6-10 ————— ¢/gal ————— (Approx prices for self-service unleaded gasoline) Atlanta 258.3 297.5 Baltimore 260.6 302.5 Boston 255.6 297.5 Buffalo 248.1 311.3 Miami 260.0 312.4 Newark 273.5 306.4 New York 257.1 320.3 Norfolk 259.9 297.8 Philadelphia 250.6 301.3 Pittsburgh 260.6 311.3 Wash., DC 271.3 313.2 PAD I avg 259.6 306.5 259.3 262.0 260.3 272.3 277.3 254.0 273.3 252.0 268.3 265.7 269.6 264.9 Chicago Cleveland Des Moines Detroit Indianapolis Kansas City Louisville Memphis Milwaukee Minn.-St Paul Oklahoma City Omaha St Louis Tulsa Wichita PAD II avg 279.7 255.5 264.3 261.5 260.6 254.9 259.3 254.5 253.3 261.6 251.9 254.4 261.0 253.3 341.2 264.5 337.7 301.9 304.7 315.7 313.7 290.6 300.2 294.3 304.6 307.2 287.3 300.8 296.7 288.7 384.6 308.6 297.9 284.2 261.1 287.3 278.7 250.4 266.5 250.3 276.3 266.0 235.2 259.1 245.8 233.3 245.6 262.5 Albuquerque Birmingham Dallas-Fort Worth Houston Little Rock New Orleans San Antonio PAD III avg 253.2 255.1 251.0 250.0 249.9 252.7 257.0 252.7 290.4 294.4 289.4 288.4 290.1 291.1 295.4 291.3 250.0 252.3 247.0 248.3 244.0 254.7 251.6 249.7 Cheyenne Denver Salt Lake City PAD IV avg 246.7 246.7 246.2 246.5 279.1 287.1 289.1 285.1 249.4 257.5 246.9 251.3 Los Angeles Phoenix Portland San Diego San Francisco Seattle PAD V avg Week’s avg Dec avg Nov avg 2011 to date 2010 to date 256.1 257.9 263.8 261.8 277.9 272.2 265.0 260.0 249.1 240.2 260.0 187.6 323.5 295.3 307.2 329.2 345.3 328.1 321.4 305.3 294.4 285.5 305.3 233.0 302.3 261.3 283.3 301.3 307.3 294.3 291.6 264.4 259.2 263.6 –– –– * Includes state and federal motor fuel taxes and state sales tax Local governments may impose additional taxes Source: Oil & Gas Journal Data available in OGJ Online Research Center REFINED PRODUCT PRICES 12-31-10 ¢/gal 12-31-10 ¢/gal Spot market product prices Motor gasoline No Distillate (Conventional-regular) Low sulfur diesel fuel New York Harbor 245.50 New York Harbor Gulf Coast 238.70 Gulf Coast Los Angeles Motor gasoline Kerosine jet fuel (RBOB-regular) New York Harbor 247.70 Gulf Coast 254.80 249.70 252.60 252.80 Propane No heating oil New York Harbor 254.60 Mt Belvieu 132.90 OGJ PRODUCTION REPORT 1-7-11 1-8-10 Alabama Alaska Arkansas California Land Offshore Colorado Florida Illinois Indiana Kansas Kentucky Louisiana N Land S Inland waters S Land Offshore Maryland Michigan Mississippi Montana Nebraska New Mexico New York North Dakota Ohio Oklahoma Pennsylvania South Dakota Texas Offshore Inland waters Dist Dist Dist Dist Dist Dist Dist 7B Dist 7C Dist Dist 8A Dist Dist 10 Utah West Virginia Wyoming Others—NV-5 37 38 38 64 27 168 120 13 14 21 0 69 151 164 103 733 60 47 46 46 77 58 59 194 26 37 69 25 20 47 36 26 25 43 0 21 188 126 11 12 39 0 50 67 98 66 498 20 19 33 35 73 60 12 47 106 18 33 40 23 22 38 Total US Total Canada 1,700 422 1,220 342 Grand total US Oil rigs US Gas rigs Total US offshore Total US cum avg YTD 2,122 777 914 25 1,697 1,562 427 781 42 1,205 1-7-11 1-8-10 –—— 1,000 b/d —–— (Crude oil and lease condensate) Alabama 18 Alaska 636 California 617 Colorado 72 Florida Illinois 26 Kansas 109 Louisiana 1,555 Michigan 14 Mississippi 62 Montana 68 New Mexico 171 North Dakota 335 Oklahoma 187 Texas 1,464 Utah 62 Wyoming 139 All others 67 Total 5,604 OGJ estimate 2Revised Source: Oil & Gas Journal Data available in OGJ Online Research Center US CRUDE PRICES *Current major refiner’s posted prices except North Slope lags months 40° gravity crude unless differing gravity is shown Source: Oil & Gas Journal Data available in OGJ Online Research Center WORLD CRUDE PRICES $/bbl1 SMITH RIG COUNT 1-7-11 Percent footage* 0-2,500 2,501-5,000 5,001-7,500 7,501-10,000 10,001-12,500 12,501-15,000 15,001-17,500 17,501-20,000 20,001-over Total 151 56 119 302 334 281 164 150 61 1,618 3.9 55.3 17.6 2.3 9.5 3.2 –– –– –– 6.5 INLAND LAND OFFSHORE 16 1,585 17 1-8-10 Rig Percent count footage* 85 53 134 237 240 183 177 66 31 1,206 19 1,148 39 *Rigs employed under footage contracts Definitions, see OGJ Sept 18, 2006, p 42 1.1 71.6 18.6 4.6 13.7 2.1 –– –– –– 9.2 12-24-10 United Kingdom-Brent 38° Russia-Urals 32° Saudi Light 34° Dubai Fateh 32° Algeria Saharan 44° Nigeria-Bonny Light 37° Indonesia-Minas 34° Venezuela-Tia Juana Light 31° Mexico-Isthmus 33° OPEC basket Total OPEC2 Total non-OPEC2 Total world2 US imports3 Source: Baker Hughes Inc Data available in OGJ Online Research Center Rig count 1-7-11 $/bbl* 79.13 92.25 81.10 89.85 79.28 84.00 79.50 84.50 84.50 77.50 76.50 83.50 73.25 Alaska-North Slope 27° South Louisiana Sweet California-Midway Sunset 13° Lost Hills 30° Wyoming Sweet East Texas Sweet West Texas Sour 34° West Texas Intermediate Oklahoma Sweet Texas Upper Gulf Coast Michigan Sour Kansas Common North Dakota Sweet Rotary rigs from spudding in to total depth Definitions, see OGJ Sept 18, 2006, p 42 Proposed depth, ft 19 649 615 73 24 102 1,535 17 68 65 167 240 176 1,414 60 138 72 5,436 93.75 90.40 90.03 90.05 93.21 93.85 95.85 88.25 88.14 91.08 90.22 88.61 89.54 86.67 - - Estimated contract prices 2Average price (FOB) weighted by estimated export volume 3Average price (FOB) weighted by estimated import volume Source: DOE Weekly Petroleum Status Report Data available in OGJ Online Research Center US NATURAL GAS STORAGE1 12-31-10 Producing region Consuming region east Consuming region west Total US Total US2 12-24-10 12-31-09 Change, –——––—— bcf —––——– 1,079 1,117 1,009 1,590 1,671 1,699 428 444 437 3,097 3,232 3,145 Change, Oct 10 Oct 09 % 3,847 3,810 % 6.9 –6.4 –2.1 –1.5 1.0 Source: DOE Weekly Petroleum Status Report Data available in OGJ Online Research Center 28 110117OGJ_28 28 Source: Smith International Inc Data available in OGJ Online Research Center Working gas 2At end of period Source: Energy Information Administration Data available in OGJ Online Research Center Oil & Gas Journal | Jan 17, 2011 1/13/11 1:35 PM STATISTICS INTERNATIONAL RIG COUNT ––––––– Dec 2010 –––––– Land Off Total Region WESTERN HEMISPHERE Argentina Bolivia Brazil Canada Chile Colombia Ecuador Mexico Peru Trinidad United States Venezuela Other Subtotal Dec 09 Total 61 –– –– 34 41 396 –– 54 –– 10 –– 60 20 –– 1,687 24 76 - 2,396 97 61 55 75 66 398 313 54 31 10 10 80 122 10 1,711 1,172 83 49 - 2,493 1,838 –– –– 32 82 30 45 15 –– –– –– –– –– –– –– –– 14 –– –– - 157 125 16 17 32 29 112 104 60 58 13 5 5 –– –– 12 15 14 –– –– - 282 266 24 –– –– 11 2 –– –– 15 –– –– 3 - 53 26 24 27 11 3 –– –– 16 16 11 –– –– 4 - 79 70 –– 48 –– –– –– –– –– –– 24 –– 41 –– 15 –– 52 –– –– 31 –– 12 –– - 236 31 12 10 1 57 49 –– –– –– –– –– –– 24 17 41 48 15 18 10 60 67 –– –– 31 19 12 12 - 267 251 –– –– –– –– –– –– –– –– 19 13 –– 10 –– 20 11 - 56 49 2,898 328 –– –– 2 4 19 22 13 11 20 14 13 11 - 105 84 3,226 2,509 ASIA-PACIFIC Australia Brunei China-offshore India Indonesia Japan Malaysia Myanmar New Zealand Papua New Guinea Philippines Taiwan Thailand Vietnam Other Subtotal AFRICA Algeria Angola Congo Gabon Kenya Libya Nigeria South Africa Tunisia Other Subtotal OIL IMPORT FREIGHT COSTS* Source Discharge Cargo Cargo size, 1,000 bbl Freight (Spot rate) worldscale $/bbl Caribbean Caribbean Caribbean N Europe N Europe W Africa Persian Gulf W Africa Persian Gulf Persian Gulf New York Houston Houston New York Houston Houston Houston N Europe N Europe Japan Dist Resid Resid Dist Crude Crude Crude Crude Crude Crude 200 380 500 200 400 910 1,900 910 1,900 1,750 –– 179 136 –– 145 107 39 123 59 67 –– 1.80 1.37 –– 3.00 2.44 1.64 2.07 1.84 1.67 *December 2010 average Source: Drewry Shipping Consultants Ltd Data available in OGJ Online Research Center WATERBORNE ENERGY INC US LNG IMPORTS Change Nov Oct Nov 2010 2010 2009 ————— MMcf ———— Country PROPANE PRICES Nov Dec Nov Dec 2010 2010 2009 2009 ——–—––––––––– ¢/gal —––—–––––——– from a year ago, % Egypt Nigeria Norway Peru Qatar Trinidad and Tobago Yemen 0 3,170 4,520 2,950 2,370 5,730 3,230 9,160 11,680 0 8,500 –– –– –– –– –46.8 Mont Belvieu Conway Northwest Europe 14,310 5,920 15,230 16,530 –13.4 –– Source: EIA Weekly Petroleum Status Report Data available in OGJ Online Research Center Total 27,920 38,670 36,710 –23.9 125.40 NA 129.60 NA 107.60 NA 119.00 NA NA NA NA NA Source: Waterborne Energy Inc Data available in OGJ Online Research Center MIDDLE EAST Abu Dhabi Dubai Egypt Iran Iraq Jordan Kuwait Oman Pakistan Qatar Saudi Arabia Sudan Syria Yemen Other Subtotal EUROPE Croatia Denmark France Germany Hungary Italy Netherlands Norway Poland Romania Turkey UK Other Subtotal Total MUSE, STANCIL & CO REFINING MARGINS US US US US NorthSouthGulf East MidWest west east Coast Coast west Coast Europe Asia ––––––––––––––––––––––––––––––––––– $/bbl ––––––––––––––––––––––––––––––––––– December 2010 Product revenues Feedstock costs Gross margin Fixed costs Variable costs Cash operating margin November 2010 YTD avg 2009 avg 2008 avg 2007 avg 101.73 –93.53 99.28 –93.56 99.38 –85.82 103.35 –87.95 100.37 –91.82 98.03 –93.49 8.20 –2.20 –1.54 5.72 –2.54 –1.12 13.56 –2.47 –1.39 15.40 –2.89 –2.34 8.55 –2.47 –2.00 4.54 –1.92 –1.76 4.46 3.82 4.46 3.04 9.09 12.51 2.06 2.77 1.82 1.12 3.04 6.65 9.70 9.15 8.15 5.23 11.26 18.44 10.17 7.78 9.33 10.30 13.54 20.67 4.08 4.31 3.50 2.01 7.34 5.92 0.86 1.11 0.28 –1.35 1.77 1.22 Source: Muse, Stancil & Co See OGJ, Jan 15, 2001, p 46 Data available in OGJ Online Research Center Definitions, see OGJ Sept 18, 2006, p 42 Source: Baker Hughes Inc Data available in OGJ Online Research Center MUSE, STANCIL & CO GASOLINE MARKETING MARGINS November 2010 Retail price Taxes Wholesale price Spot price Retail margin Wholesale margin Gross marketing margin October 2010 YTD avg 2009 avg 2008 avg 2007 avg MUSE, STANCIL & CO ETHYLENE MARGINS Los Chicago* Houston Angeles New York ———–———— ¢/gal ————–——— 300.75 56.85 225.89 239.76 17.92 –13.87 4.05 7.71 19.50 23.46 33.11 26.96 265.31 38.40 223.23 211.07 3.68 12.16 15.84 17.70 22.40 21.99 32.15 23.12 312.70 60.46 232.98 223.06 19.26 9.92 29.18 23.12 30.13 26.60 27.22 19.05 303.67 51.53 239.08 225.15 13.06 13.93 26.99 25.50 33.32 30.61 41.81 31.10 *The wholesale price shown for Chicago is the RFG price utilized for the wholesale margin The Chicago retail margin includes a weighted average of RFG and conventional wholesale purchases Source: Muse, Stancil & Co See OGJ, Oct 15, 2001, p 46 Data available in OGJ Online Research Center Note: Margins include ethanol blending in all markets Oil & Gas Journal | Jan 17, 2011 110117OGJ_29 29 MUSE, STANCIL & CO US GAS PROCESSING MARGINS Ethane Propane Naphtha ——–——– ¢/lb ethylene –—–——— December 2010 December 2010 Product revenues Feedstock costs 53.53 –26.80 92.25 –73.71 117.47 –125.56 Gross margin Fixed costs Variable costs 26.73 –5.38 –3.52 18.54 –6.36 –4.09 –8.09 –7.19 –5.40 Cash operating margin 17.83 8.09 –20.68 November 2010 YTD avg 2009 avg 2008 avg 2007 avg 17.42 21.98 12.93 21.00 14.41 7.27 17.34 9.63 22.89 14.14 –15.55 –5.24 –13.72 –5.91 –7.42 Source: Muse, Stancil & Co See OGJ, Sept 16, 2002, p 46 Data available in OGJ Online Research Center Gross revenue Gas Liquids Gas purchase cost Operating costs Cash operating margin November 2010 YTD avg 2009 avg 2008 avg 2007 avg Breakeven producer payment, % of liquids Gulf MidCoast continent ———–– $/Mcf —–—–— 4.07 1.35 4.53 0.07 0.83 3.72 3.65 5.00 0.15 2.22 0.84 0.67 0.41 0.45 0.44 2.14 1.73 1.14 1.61 1.48 37% 38% Source: Muse, Stancil & Co See OGJ, May 21, 2001, p 54 Data available in OGJ Online Research Center 29 1/13/11 1:35 PM MARKETPLACE DEADLINE for MARKETPLACE ADVERTISING is 10 A.M Tuesday preceding date of publication Address advertising inquiries to MARKETPLACE SALES, 1-800-331-4463 ext 6301, 918-832-9301, fax 918-832-9201, email: glendah@pennwell.com • DISPLAY MARKETPLACE: $390 per column inch, one issue 10% discount three or more CONSECUTIVE issues No extra charge for blind box in care Subject to agency commission No 2% cash discount LEASES OR DRILLING BLOCKS 650,000,000 barrel potential Oat Mountain So California 640-2000 acres available Contact George 805-432-4701 or george@gtwaterproducts.com • UNDISPLAYED MARKETPLACE: $4.00 per word per issue 10% discount for three or more CONSECUTIVE issues $80.00 minimum charge per insertion Charge for blind box service is $60.00 No agency commission, no 2% cash discount Centered/Bold heading, $12.00 extra • COMPANY LOGO: Available with undisplayed ad for $85.00 Logo will be centered above copy with a maximum height of 3/8 inch • NO SPECIAL POSITION AVAILABLE IN MARKETPLACE SECTION • PAYMENT MUST ACCOMPANY ORDER FOR MARKETPLACE AD LEASES/PROJECTS WANTED E MPL OY ME NT Texas operator with 3500 foot drilling rig looking for shallow oil and gas projects in Texas or earn by drilling Drilled 40 wells in year 2010 Principals only 713.850.0960 or ezsafeoil@aol.com SBM Atlantia, Inc in Houston, TX seeks Hydrodynamicists Qualified applicants will possess Master’s degree in Ocean Engineering or related engineering discipline and two years of experience in the job offered or two years related experience in offshore project engineering E-mail resume to Melissa.Ledoux@sbmoffshore.com Must put job code 3052007 on resume Technical Field Sales Representative Houston Oilfield Chemicals; 7+ years technical sales experience oil field 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Visit PennEnergy.com and click on “Training” for a complete listing of available programs www.PennEnergy.com 30 110117OGJ_30 30 ConocoPhillips Company in Houston, TX seeks Reservoir Engineer Qualified applicants will possess a Master’s degree in Petroleum or Chemical Engineering and two years experience in reservoir simulation modeling and the numerical modeling of methane evolution from gas hydrates through depressurization or chemical exchange To submit resume, please visit www conocophillips.com/careers Put job code 00A6Q on resume Cameron International Corporation in Little Rock, AR seeks Project Manager Qualified Applicants will possess a Bachelor’s degree in Mechanical or Aerospace Engineering or related field and years of experience administering and/or managing customer projects that are complicated and technical in scope Please email resume to Ann.Mantooth@c-a-m.com Must put job code EvPeRiN0o839 on resume CONS ULTA NT S BRAZIL: EXPETRO CAN BE YOUR GUIDE INTO THIS NEW INVESTMENT FRONTIER EFFECTIVE STRATEGIC ANALYSIS, QUALITY TECHNICAL SERVICES, COMPELLING ECONOMIC/REGULATORY ADVICE, AND REALISTIC APPROACH REGARDING BRAZILIAN BUSINESS ENVIRONMENT-120 SPECIALISTS UPSTREAM, DOWNSTREAM GAS AND BIOFUELS EMAIL: CONTATO@EXPETRO.COM.BR WEB: WWW.EXPETRO.COM.BR-RIO DE JANEIRO, BRAZIL Use OGJ Classifieds, Get Results! Oil & Gas Journal | Jan 17, 2011 1/13/11 1:35 PM COST EFFECTIVE TOOLS FOR INDUSTRY ANALYSIS ® In an easy-to-use Excel spreadsheet format, OGJ surveys are accepted standards for measuring and forecasting oil and gas industry activity PRODUCT LISTINGS Worldwide Refining Survey: Detailed information on all refineries worldwide Our most popular survey! 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Oil at $100/bbl would harm economy by Bob Tippee, Editor Here’s the deal: For $3.6 billion, Ecuador won’t develop 846 million bbl of oil Any takers? This is an offer to the world, a gesture of grand sacrifice made in the spirit of environmental righteousness Or might it be a ploy to make money without having to any work? Ecuador has set a precedent for wanting money for nothing President Rafael Correa has offered to refrain from developing oil reserves lying under Ecuador’s rainforests in exchange for half what he estimates the oil to be worth The supposition is that people in other countries will see transcendent value in not disturbing the jungle and burning the oil And they’ll send him $3.6 billion for this generous forbearance He’ll find antioil activists willing to pound that much sand down that deep a rathole But they’ll want it to be other people’s sand Most observers will see the lunacy of paying someone not to work Even if he wanted rainforest reserves to be developed, Correa would have trouble getting the work done With its record of expropriations and sign-or-leave contract restructurings favoring Petroecuador, the national oil company, his country has positioned itself low in any ranking of places in which international oil companies might want to risk money The allure glitters even less under the shimmering light of a farcical effort in Ecuadorian courts to pry $113 billion from Chevron for environmental damage the company didn’t cause In fact, Ecuador has turned itself into such a risky investment destination that Correa’s loony offer might attract more money than future oil licenses The Financial Times reports Spain has ponied up $1.3 million to prevent work in the rainforest, Chile $100,000, and Belgium’s Walloon government $390,000 Small sums, these, but proof of the witlessness that overcomes governments offered the chance to waste public money There’s no word yet about a contribution from Correa’s buddy Hugo Chavez, the socialist president of Venezuela Chavez has been busy disemboweling his own country’s oil industry by Sam Fletcher, Senior Writer Financial markets and the Organization of Petroleum Exporting Countries are repeating their 2008 mistake in assuming the world can live with $100/bbl oil, said Olivier Jakob at Petromatrix, Zug, Switzerland There is food price inflation in emerging countries, and when fuel inflation is added, domestic unrest develops If food riots become a recurring pattern, Jakob expects the US Federal Reserve to come under more pressure “to limit its policy of wealth creation through the inflation of risk assets (including commodities).” He noted, “On Dec 27, Bolivia increased the price of fuels (up 83%); on Jan it reversed the decision after street protests On Jan 1, Pakistan increased the domestic price of fuels; on Jan 6, it reversed the decision for fear of street protests.” Meanwhile, there have been riots in Algeria over food prices India needs to increase domestic fuel prices but does not dare, with food inflation already at more than 18% “Oil prices approached $100/bbl at the end of 2007 and were followed by food price riots in the first half of 2008 Oil prices approached $100/bbl at the end of 2010 and are starting to be followed by food price riots,” said Jakob Politics and prices Paul Horsnell at Barclays Capital in London expects oil to be a political issue in 2011, particularly in the UK where retail prices are at new highs due to increased taxes “In the US, the current national average of $3.07/gal for regular gasoline is still $1.04 below the peak reached in 2008,” he said Horsnell continued, “While $3/gal still has a certain sticker-shock, arguably it would be an approach towards $4 that would create a more significant political back draft However, in the UK, the 2008 peak of 119.44 pence/l was overtaken at the start of December 2010 The first data of 2011 from the UK Department of Energy and Climate Change put the average at 124.85 pence/l and since then the rate of [value-added tax] has increased from 17.5% to 20%, which, other things being equal, will take the price above 127 pence/l.” Horsnell noted two main factors for the rise in UK prices to new peaks in sterling “The first has been the strength of the dollar against sterling relative to 2008,” he said “At the 2008 peak for crude oil prices, UK gasoline prices were equivalent to $9/ gal at the then ruling exchange rate, whereas today the dollar comparison is closer to $7.50/gal.” Jakob said, “The dollar index was up strongly Jan 6, but that was mainly due to the euro falling hard on continued worries about the peripheries (the dollar to Swiss franc and to the yen was basically unchanged).” The second factor in higher prices was “first the ramping-up of excise taxes and then the latest increase in VAT,” Horsnell said “Put higher taxes together with adverse exchange rate effects and the recovery of the underlying oil market, and the momentum has been there to exceed the 2008 peak by some 7% and create a sharp and highly visible escalation in the cost of filling a gasoline tank.” In London, the February IPE contract for North Sea Brent crude traded as high as $96.12/bbl on Jan 3, the first trading session of 2011, before closing at $94.84, up 9¢ for the day On the New York Mercantile Exchange the February contract of US benchmark crude was up 17¢ to $91.55/bbl Both seesawed up and down through the week with Brent closing at $93.33/bbl on Jan and WTI at a 3-week low of $88.03/bbl West Texas Intermediate “has dislocated again, with weak prompt time spreads and extreme loss of relative value against other crudes,” Horsnell said On Jan 6, the price spread between WTI and Brent widened to $6.14/bbl in Brent’s favor But price discounting of WTI was overdone, “in part an overreaction of expectations about logistical changes that not merit so large a price response,” Horsnell said ONLINE JAN 10, 2011 | samf@ogjonline.com ONLINE JAN 7, 2011 | bobt@ogjonline.com 32 110117OGJ_32 32 Oil & Gas Journal | Jan 17, 2011 1/13/11 1:35 PM