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Oil and gas journal volume 109, number 7

CLEAN INNOVATION

Announcing the world’s
first hydraulic fracturing
system made from
ingredients sourced
from the food industry.

How ingredients sourced exclusively from food industry
suppliers are helping produce more natural gas
The world asked for cleaner fracturing chemistry and Halliburton
delivered it. The new CleanStim™ formulation provides an extra
margin of safety to people, animals and the environment. Laboratory
testing indicates that it also produces higher retained conductivity than
conventional fracturing fluids under many conditions. The CleanStim
recipe is designed for downhole use, not dinner tables. But it will help
satisfy the world’s appetite for natural gas. See if it’s right for you.
Learn more at Halliburton.com/cleanstim.

Solving challenges.™
© 2011 Halliburton. All rights reserved.


Hallib_OGJ_110103 1

12/28/10 1:35 PM


International Petroleum News and Technology

5 NEWSLETTER
28 STATISTICS

|

www.ogj.com

Feb. 14, 2011

10 LETTERS / CALENDAR

12 JOURNALLY SPEAKING

14 EDITORIAL

31 MARKETPLACE

34 EDITOR’S PERSPECTIVE / MARKET JOURNAL

|

Volume 109.7

27 EQUIPMENT
27 ADVERTISERS’ INDEX

GENERAL INTEREST
16 Industry seeks new
offshore rigs, longer
onshore laterals in shale
Paula Dittrick


Oil and natural gas companies are asking
oil service contractors for sophisticated
technology to drill longer horizontal wells in
onshore shale plays and for new offshore rigs
that can fulfill increasingly stringent deepwater
drilling safety standards and regulations.

17 Ensco to acquire Pride
in $7.3 billion deal

22 API: Congress, not EPA,
should direct GHG policy
Paula Dittrick

22 EIA: Oil demand to rise
by 1.5 million b/d in 2011
24 WATCHING THE WORLD
Israel reconsiders new taxes

24 New areas could expand Arctic’s oily component
25 EXPLORATION/DEVELOPMENT BRIEFS

Paula Dittrick

Ensco PLC agreed to buy Pride International
Inc. for $7.3 billion, marking the biggest
consolidation in the offshore drilling industry
since Transocean Ltd. announced plans to
acquire GlobalSantaFe Corp. in July 2007.

18 Supply, demand trends still drive
oil prices, Senate panel told
Nick Snow

The video below, courtesy of Range Resources Corp., Fort Worth, features a virtual
field tour of the company’s Appalachian division.

CLICK TO VIEW VIDEO

Visit our video library
www.ogj.com/index/video.html

20 WATCHING GOVERNMENT
Canadian oil choices

21 GOP energy leaders float draft
bill to halt EPA’s GHG effort
Nick Snow

110214OGJ_1 1

2/10/11 1:11 PM


we are the people
of Baker Hughes.
and we’re ready for
anything.

Tauseef Salma, Chief Engineer

Whatever your challenge, count on Baker Hughes to build dependable

We deliver what’s promised and stand behind

solutions tailored to your specific needs.

our performance. To see how Tauseef and

From reliable equipment to disciplined personnel, our ongoing commitment

the Baker Hughes team integrate reliability

to best practices, consistent procedures, and repeatable performance gives

throughout our culture, starting with the

you the capability you need to manage your risks and make the most of

technology design process, please visit us

your assets.

at www.bakerhughes.com/tauseef

www.bakerhughes.com
©2011 Baker Hughes Incorporated. All Rights Reserved.

110214OGJ_2 2

2/8/11 3:08 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
Chief Technology Editor-LNG/Gas Processing
Production Editor
Pipeline Editor
Senior Editor-Economics
Senior Editor

Northeast / Texas / Southwest
Mike Moss, 1455 West Loop South, Suite 400, Houston,
TX 77027; Tel: (713) 963-6221, Fax: (713) 963-6228;
E-mail: mikem@pennwell.com

Louisiana / Canada
Stan Terry, 1455 West Loop S. Ste. 400, Houston, TX
77027; Tel: (713) 963-6208, Fax: (713) 963-6228;
E-mail: stant@pennwell.com

United Kingdom / Scandinavia / Denmark /
The Netherlands
Roger Kingswell, 9 Tarragon Road, Maidstone,
ME16 0UR, United Kingdom; Tel. 44.1622.721.222;
Fax: 44.1622.721.333; Email: rogerk@pennwell.com

France / Belgium / Spain / Portugal /
Southern Switzerland / Monaco
Daniel Bernard, 8 allee des Herons, 78400 Chatou,
France; Tel: 33(0)1.3071.1119, Fax: 33(0)1.3071.1119;
E-mail: danielb@pennwell.com

Germany / Austria / Northern Switzerland /
Eastern Europe / Russia / Former Soviet Union
Sicking Industrial Marketing, Kurt-Schumacher-Str. 16,
59872, Freienohl, Germany. Tel: 49(0)2903.3385.70,
Fax: 49(0)2903.3385.82; E-mail: wilhelms@pennwell.
com; www.sicking.de Andreas
Sicking

Japan
e.x.press sales division, ICS Convention Design Inc.
6F, Chiyoda Bldg., 1-5-18 Sarugakucho, Chiyoda-ku,
Tokyo 101-8449, Japan, Tel: +81.3.3219.3641, Fax:
81.3.3219.3628; Kimie Takemura, Email: takemurakimie@ics-inc.co.jp; Manami Konishi, E-mail: konishimanami@ics-inc.co.jp; Masaki Mori, E-mail: masaki.
mori@ics-inc.co.jp

Brazil
Grupo Expetro/Smartpetro, Att: Jean-Paul Prates and
Bernardo Grunewald, Directors, Ave. Erasmo Braga
22710th and 11th floors Rio de Janeiro RJ 20024-900
Brazil; Tel: 55.21.3084.5384, Fax: 55.21.2533.4593;
E-mail: jpprates@pennwell.com.br and bernardo@
pennwell.com.br

Singapore / Australia / Asia-Pacific
Michael Yee, 19 Tanglin Road #05-20, Tanglin Shopping
Center, Singapore 247909, Republic of Singapore; Tel: 65
9616.8080, Fax: 65.6734.0655; E-mail: yfyee@singnet.
com.sg

India
Rajan Sharma, Interads Limited, 2, Padmini Enclave,
Hauz Khas, New Delhi-110 016, India; Tel: +91.11.
6283018/19, Fax: +91.11.6228 928; E-mail: rajan@
interadsindia.com

Italy
Ferruccio Silvera, Viale Monza, 24 20127 MILANO Italy;
Tel:+02.28.46 716; E-mail: info@silvera.it

110214OGJ_3 3

Senior Writer
Senior Staff Writer
Survey Editor/News Writer
Publisher
Vice-President/Group Publishing Director
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Paul Westervelt, pwestervelt@pennwell.com
Roy Markum, roym@pennwell.com

PennWell, Tulsa office
1421 S. Sheridan Rd., Tulsa, OK 74112
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Charlie Cole
Shirley Gamboa

Washington
Tel 703.533.1552
Washington Editor
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Oil Diplomacy Editor
Eric Watkins, hippalus@yahoo.com

OGJ News
Please submit press releases via e-mail to: news@ogjonline.com

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PennWell Corporate Headquarters
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Chairman
President/Chief Executive Officer

P.C. Lauinger, 1900-1988
Frank T. Lauinger
Robert F. Biolchini

Member Audit Bureau of Circulations & American Business Media
Copyright 2011 by PennWell Corporation (Registered in U.S. Patent & Trademark Office). All rights reserved. Oil & Gas Journal or any part thereof
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2/10/11 1:19 PM


World GTL Trinidad Limited (In Receivership)
Investment Opportunity
Trinidad, West Indies

Offers are invited for the purchase of a Gas to Liquids plant and other assets of World GTL Trinidad Limited (In
Receivership) which are located in Pointe-a-Pierre, Trinidad, West Indies.
This Gas to Liquids plant is the first commercial gas to liquids facility in the Americas and is designed to produce
between 2,050 to 2,400 barrels per day of ultra-low sulphur diesel and naphtha based on the conversion of used methanol
plants to Fischer Tropsch GTL plants. The major process units of the plant are a Steam Methane Reformer, an Amine
Unit, a Hydrogen Prism unit, 2 Fixed Bed FT Reactors and a Hydrotreating unit.
The Gas To Liquids plant is being constructed by using equipment relocated from Methanol Plants located in the United
States of America and Guatemala supplemented by new equipment to convert the process from methanol synthesis to
Fischer Topsch synthesis. One of the assets is a gas to liquids technology with proprietary FT catalysts developed
through extensive testing in pilot plants.
The Gas to Liquids plant is now in the completion phase with significant construction completed.
The Receiver is in the process of selling the plant and other related assets on an AS IS WHERE IS basis subject to the
payment by the purchaser of all outstanding rates and taxes and the purchaser obtaining certification from the Trinidad
and Tobago Ministry of Energy.
Interested parties can make arrangements for viewing and/or inspecting the plant and other assets and receiving additional
information from the Receiver at the under mentioned address. Offers must be communicated in writing to the Receiver
and submitted in a sealed envelope addressed as shown below.
The Receiver is under no obligation to accept any of the offers received.
All correspondence and inquiries should be directed to:
World GTL Trinidad Limited (In Receivership)
c/o PricewaterhouseCoopers Limited
GTL Drive, Petrotrin, Pointe-a-Pierre
Trinidad, West Indies
Attention: Mr. Varune Mungal
Email: varune.mungal@tt.pwc.com
Tel: 1 (868) 658-7980 or 1 (868) 623-1361 ext 162
Fax: 1 (868) 623-6025

110214OGJ_4 4

2/8/11 4:54 PM


OGJ
Newsletter

Feb. 14, 2011

®

International News
for oil and gas professionals

GENERAL INTEREST Q U IC K TA K E S
Chevron to sell fuels, aviation business in Spain
Chevron Corp. agreed to sell its Spanish fuels, finished lubricants, and aviation business to Cia. Espanola de Petroleos SA
(CEPSA).
The companies being sold are Chevron Espana SA and
Chevron Estaciones de Servicio. The sale is subject to regulatory approvals. CEPSA plans to buy 62 Texaco-branded service
stations in the Canary Islands and its aviation supply agreements at 11 airports. The transaction also includes the Valencia
lubricants blending plant.
Chevron will retain its marine lubricants business in Spain.

BOEMRE announces EIS for 2012-17 lease sales
The US Bureau of Ocean Energy Management, Regulation, and
Enforcement began environmental reviews for proposed Gulf of
Mexico oil and gas lease sales during 2012-17 by announcing
it would prepare an environmental impact statement (EIS) for
the offerings.
The US Department of the Interior agency said it will propose a single, multi-tiered EIS for all proposed sales in the gulf’s
central and western planning areas during the next 5-year
planning period for the US Outer Continental Shelf.
It said federal, state, and local government agencies, and
other interested parties can submit comments to help BOEMRE
determine significant issues and alternatives which need to be
analyzed in the EIS. The agency also has scheduled public scoping meetings in Houston on Feb. 15, New Orleans on Feb. 16,
and Mobile, Ala., on Feb. 17 in conjunction with similar meetings for preparation of the overall programmatic EIS for the entire 2012-17 federal OCS oil and gas leasing program.

PTTF recommends against regulation of CO2 network
The Pipeline Transportation Task Force’s (PTTF) research into
options for a future national US carbon dioxide pipeline system found the current state-based regulatory system sufficient
to handle CO2 transportation needs for the foreseeable future.
PTTF presented the findings in its final report, “A Policy, Legal, and Regulatory Evaluation of the Feasibility of a National
Pipeline Infrastructure for the Transport and Storage of Carbon
Dioxide.”

Oil & Gas Journal

110214OGJ_5 5

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

The report noted that in response to demand for CO2 for enhanced oil recovery and other uses, the private sector had successfully constructed and is operating about 4,000 miles of CO2
pipelines in the US. The task force recommended the status quo
model of private sector pipeline development and state regulation be continued. The report explicitly stated that “no federal
role is required in order to develop CO2 pipeline projects.”
It said, “The assumption that a federal mandate will produce the desired result (capture, transportation, and storage
of nationally produced CO2) may not follow. Other state-based
regulatory solutions should be carefully considered before pursuit of an untested federal strategy that could prove harmful to
future CO2 pipeline construction.”
The report also urged care be taken to ensure pipelines
transporting CO2 for storage-only purposes are not viewed
less favorably by the public then pipelines transporting CO2
for EOR.
The Interstate Oil & Gas Compact Commission and the
Southern States Energy Board assembled regulators, policymakers, and industry representatives to form PTTF. The PTTF
study focused on identifying various pipeline regulatory and
business development models and the opportunities and difficulties associated with each of them.

EXPLORATION & DEVELOPMENT Q U IC K TA K E S
Statoil to develop find near Gullfaks South
Statoil plans to develop a gas and condensate discovery in the
Norwegian North Sea via tieback to facilities on nearby Gullfaks South field.
The 34/10-53 S well confirmed about 300 m of gas pay in
the Middle Jurassic Brent Group. The Odfjell Drilling Deepsea
Atlantic semisubmsersible rig drilled the well to 3,847 m vertical depth below sea level in 136 m of water.
The well, 2 km west of Gullfaks South in an area called Rimfaks Valley, bottomed in the Early Jurassic Statfjord formation,
which yielded no hydrocarbons.
Statoil did not formation-test the well. It estimated recoverable oil equivalent hydrocarbons at 19-75 million bbl.
Statoil said the rig will plug the discovery well and drill a
sidetrack, 34/10-53 A, to test a Brent Group prospect called
Opal west of Rimfaks Valley.

5

2/10/11 1:11 PM


IPE BRENT / NYMEX LIGHT SWEET CRUDE
$/bbl
105.00
102.00
99.00
96.00
93.00
90.00
87.00
85.00

US INDUSTRY SCOREBOARD — 2/14
Latest week 1/28

4 wk.
average

4 wk. avg.
year ago1

Change,
%

YTD
average1

YTD avg.
year ago1

Change,
%

Product supplied, 1,000 b/d

Feb. 2

Feb. 3

Feb. 4

Feb. 7

Motor gasoline
Distillate
Jet fuel
Residual
Other products

8,694
3,695
1,400
491
4,704
18,984

8,644
3,705
1,360
461
4,580
18,750

0.6
–0.3
2.9
6.5
2.7
1.2

8,689
3,700
1,396
493
4,704
18,982

8,644
3,705
1,360
461
4,580
18,750

0.5
–0.1
2.6
6.9
2.7
1.2

Crude production
NGL production2
Crude imports
Product imports
Other supply2, 3
TOTAL SUPPLY
Refining, 1,000 b/d

5,417
2,057
9,073
2,713
2,151
21,411

5,431
2,262
8,432
2,790
1,646
20,561

–0.3
–9.1
7.6
–2.8
30.7
4.1

5,411
2,057
9,080
2,714
2,133
21,395

5,431
2,082
8,432
2,790
1,593
20,328

–0.4
–1.2
7.7
–2.7
33.9
5.3

Crude runs to stills
Input to crude stills
% utilization

14,374
14,766
83.9

14,126
14,070
80.0

1.8
4.9
–––

14,374
14,766
83.9

14,296
14,603
82.7

0.5
1.1
–––

Feb. 8

TOTAL PRODUCT SUPPLIED

Supply, 1,000 b/d

WTI CUSHING / BRENT SPOT
$/bbl
100.00
98.00
96.00
94.00
92.00
90.00
88.00
86.00

Feb. 2

Feb. 3

Feb. 4

Feb. 7

Feb. 8

Latest week 1/28

NYMEX NATURAL GAS / SPOT GAS - HENRY HUB
$/MMbtu
4.60
4.50
4.40
4.30
4.20
4.10
4.00
3.90

Crude oil
Motor gasoline
Distillate
Jet fuel-kerosine
Residual

Feb. 2

Feb. 3

Feb. 4

Feb. 7

Feb. 8

340,565
230,074
165,657
42,748
41,654

Same week
year ago1 Change

Change
2,594
6,154
–1,579
1,021
–1,513

328,994
228,121
156,548
43,239
39,652

Change, %

Crude
Motor gasoline
Distillate
Propane
Futures prices5 2/4

Change,
%

23.9
27.2
44.4
22.8

23.4
26.2
45.3
25.9

90.68
4.37

87.27
4.44

14,165
8,107
7,530
530
489

4.3
3.6
4.8
1.2
1.2

Change, %

2.1
3.8
–2.0
–12.0

24.0
26.4
42.3
20.7

Change

Light sweet crude ($/bbl)
Natural gas, $/MMbtu

–0.4
3.0
5.0
10.1

Change

3.41
–0.07

74.03
5.35

%

16.65
–0.98

22.5
–18.3

1

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 4 weeks. 5Weekly average of daily closing futures prices.
Source: Energy Information Administration, Wall Street Journal

Feb. 2

Feb. 3

Feb. 4

Feb. 7

Feb. 8

¢/gal
168.00
166.00
164.00

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
0

3,226
2,898

328

Dec. 09

Feb. 2

Feb. 3

Feb. 4

Feb. 7

Feb. 8

NYMEX GASOLINE (RBOB)1 / NY SPOT GASOLINE2
¢/gal
250.00
248.00
246.00
244.00
242.00
240.00
238.00
236.00

343,159
236,228
164,078
43,769
40,141

Stock cover (days)4

PROPANE - MT. BELVIEU / BUTANE - MT. BELVIEU

134.00
133.50
133.00
132.50

Previous
week1

Stocks, 1,000 bbl

IPE GAS OIL / NYMEX HEATING OIL
¢/gal
278.00
275.00
272.00
269.00
266.00
263.00
260.00
257.00

Latest
week

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
1,739

1,800
1,600
1,335

1,400
1,200
1,000
800

626

557

600
400
Feb. 2

1Reformulated

Feb. 3

Feb. 4

Feb. 7

gasoline blendstock for oxygen blending
2Nonoxygenated regular unleaded

6

110214OGJ_6 6

Feb. 8

200

11/27/09

11/20/09

12/11/09

12/4/09

12/25/09

12/18/09

1/8/10

1/1/10

1/22/10

1/15/10

2/5/10

1/29/10

11/26/10 12/10/10

11/19/10

12/3/10

12/24/10

12/17/10

1/7/11

12/31/10

1/21/11

1/14/11

2/4/11

1/28/11

Note: End of week average count

Oil & Gas Journal | Feb. 14, 2011

2/10/11 1:12 PM


Newfield adds oil area to Arkoma Woodford play
Newfield Exploration Co. has begun producing oil from the
Woodford shale on the far west side of its predominately dry
gas play in the Arkoma basin in southeastern Oklahoma.
The company, which has drilled six wells in Coal County,
Okla., reported a peak initial rate of 1,400 b/d of oil equivalent,
35% oil. Four wells averaged 950 boe/d the first 30 days on
production, 840 boe/d the first 60 days, and 760 boe/d the first
90 days. The oil is 41° gravity.
Newfield plans to run two to three rigs and drill 12-18 wells
in the oily part of the play in 2011. It has identified 100 potential well locations so far.
Practically all of the company’s 172,000 net acres in the
overall play are held by production. The leases are in Atoka,
Coal, Hughes, and Pittsburg counties.

pressure gas” that precluded logging.
“Based on an initial analysis of the major step change in
pressure encountered and the interpretation of the seismic, it
is considered that the well may have encountered a significant
hydrocarbon column in the Cretaceous.
“Further analysis of mudlogging and wireline data, together with gas chromatograph ratio analysis, has confirmed
oil shows were encountered within thin sands in the upper
part of the Cretaceous Epsilon Complex. Further interpretation and calibration of the well and seismic data is required
to assess fully the implications for Cretaceous volumetrics,”
Bowleven said.

DRILLING & PRODUCTION Q U IC K TA K E S
Shell drops plans for Beaufort Sea drilling in 2011

Realm Energy builds European shale acreage
Realm Energy International Corp., White Rock, BC, is building a portfolio of shale gas and shale oil acreage in continental
Europe, holding acreage in Poland and Germany and with more
under application in other basins.
The company holds 465,000 net acres on two permits in the
Baltic basin in northern Poland and one permit in the Podlasie
basin in southeastern Poland. It is completing first-year work
commitments that include a geologic assessment of existing log
and seismic data and designing three seismic programs.
It holds 15,888 acres southwest of Hanover in the middle
of Germany’s Lower Saxony basin where a regional geological
study should be finished by the end of February. It targets two
prospective organic rich shale units. Also, several wells had oil
and gas shows in tight sandstones.
The company has applied for more than 2.4 million acres
in two basins in France, of which 1.65 million acres are on
nine exploratory permits in the Paris basin. Realm Energy is
in discussions with an undisclosed integrated North American
energy company and leading shale player to join it in developing the Paris basin shale oil play.
Realm Energy and Halliburton Consulting are evaluating
shale gas and oil opportunities in other European basins. This
subsurface work has resulted in additional, large-scale shale exploration opportunities in respect of which Realm Energy has
either submitted or is in the process or submitting new exploration permit applications.

High-pressure Cretaceous gas hit off Cameroon
Bowleven PLC has cemented off the lower portion of the
Sapele-1 exploratory well off Cameroon after encountering a
high-pressure gas reservoir in the Cretaceous.
Sapele-1 went to a total depth of 4,733 m on Block MLHP-5
of the Etinde Permit in the Douala basin. The company plans to
test the well’s Tertiary discoveries and drill three firm Tertiary
and Cretaceous appraisal wells and one contingent well in 2011
using an additional rig expected to arrive late this month.
Bowleven halted drilling due to a “rapid influx of very high

Oil & Gas Journal | Feb. 14, 2011

110214OGJ_7 7

Shell Alaska dropped its plans to drill in the Beaufort Sea this
year, Shell Alaska Vice-Pres. Peter Slaiby said during a Feb. 3
news conference in Anchorage. The announcement came after
a ruling last month revoked federal clean air permits to allow
the drilling.
A federal environmental appeals board in January ruled
the US Environmental Protection Agency needs to do more
extensive analysis of nitrogen dioxide emissions from vessels
involved in drilling operations. The ruling was based upon appeals from Alaska Native and conservation groups.
Slaiby said Shell’s decision to delay Beaufort exploratory
drilling stemmed from “continuous regulatory delays.” Royal
Dutch Shell PLC has worked for 5 years and invested more than
$50 million pursuing air permits to drill in Arctic waters off
Alaska, he said.
Shell intends to work closely with the EPA to identify an improved process for delivering air permits for 2012, Slaiby said.
“Shell has dedicated significant time and resources to commencing a world-class, environmentally responsible exploration program for Alaska, and the loss of another drilling season
is extremely disappointing,” he said.
Previously, Shell Alaska had planned exploratory drilling
during 2010 in both the Chukchi and Beaufort seas, but those
plans were put on hold following the oil spill in the Gulf of
Mexico from the deepwater Macondo well operated by BP PLC.
Sen. Lisa Murkowski (R-Alas.) issued a statement after
Shell’s announcement. Murkowski said the government’s decision could “result in all of us paying more for gasoline—not to
mention the loss of jobs and revenue that responsible development brings.”
“We talk a lot about the economy, but rarely do our actions
match our rhetoric,” Murkowski said. “That’s unfortunate.”
Shell Offshore Inc. last year submitted an application to the
US Bureau of Ocean Energy Management, Regulation, and Enforcement for a permit to drill an exploration well in the Beaufort Sea in 2011. The application was for the shallow waters of
Camden Bay (OGJ Online, Oct. 7, 2010).

7

2/10/11 1:12 PM


Eni starts Nikaitchuq oil field off Alaska
Eni SPA has started oil production from Nikaitchuq field off
Alaska’s North Slope. The company, with 100% interest, expects production to peak at 28,000 b/d and last 30 years. It
estimates reserves at 220 million bbl.
At full development, the field will have 26 producing wells,
21 water injectors, and 5 water source and disposal wells.
Twenty-two of the wells will be onshore and the rest offshore,
drilled from an artificial island. The field lies in an average 3
m of water. Eni has completed the processing facility and 12
onshore wells. It plans to drill the remaining wells by 2014.
The wells have vertical depths of 4,000 ft and vertical reaches up to 20,000 ft. The operator says the under-seabed pipeline
bundle connecting the on and offshore facilities is the heaviest
ever installed in the Arctic.
The processing facility can treat 40,000 b/d of heavy crude
with sand and as much as 120,000 b/d of water, enabling Eni to
ship sales-quality crude through the Trans-Alaska oil pipeline
with no further processing.

Range hikes Marcellus resource, pursues Utica
Range Resources Corp., Fort Worth, said its unproved resource
potential rose to 35-52 tcf of gas equivalent at the end of 2010
compared with 24-32 tcfe a year earlier.
The company said its Marcellus shale resource potential rose
to 20-31 tcfe due to higher per-well reserves. It also included for
the first time the unproved resource potential for the overlying
Upper Devonian shale in the Appalachian basin. That figure is
10-14 tcfe.
The remainder is attributable to the Nora area in Virginia
and the Permian and Midcontinent areas where Range holds
more than 560,000 net acres.
Range said its first Utica shale well in Pennsylvania averaged
an encouraging 4.4 MMcfd of gas equivalent on a 7-day production test. No Utica shale resource potential is included in the
yearend estimate, but that issue will become clearer as Range
and others drill more Utica wells in 2011.

PROCESSING Q U IC K TA K E S
Fire extinguished at Mont Belvieu complex
Enterprise Products Partners LP, Houston, said Feb. 9 that it
found the contract worker missing since a Feb. 8 fire at the west
storage network at the company’s Mont Belvieu, Tex., complex
about 35 miles east of Houston (OGJ Online, Feb. 8, 2011). The
worker did not survive the fire.
Much of the residual product in lines around the storage network burned off, and Enterprise cut off all flow of any product
that was feeding the fire, a spokesman said Feb. 9.
Cause of the fire will be investigated, the spokesman said,
adding that the company also is evaluating the damages to the
complex.
Previously, Enterprise reported that the main facilities at the
Mont Belvieu complex “were not damaged” and “remain op-

8

110214OGJ_8 8

erational.” These unaffected systems include “the natural gas
liquids fractionators, the propylene fractionators, the butane
isomerization units, the octane enhancement facility, north and
east facilities, and the import-export terminals on the Houston
Ship Channel.”

Aramco taps KBR for Jazan refinery work
Saudi Aramco has let a front-end engineering and design and
project management services contract to KBR for a grassroots
refinery in the Jazan area of southern Saudi Arabia.
KBR reported crude capacity of the refinery, to be built in
conjunction with a marine terminal on the Red Sea, at 400,000
b/d. Aramco earlier has described capacity as 200,000-400,000
b/d.
Aramco says the refinery ultimately will be integrated with
a world-scale power and water facility. The terminal will be
able to receive very large crude carriers. The refinery will have
berths to support product exports.
The refinery will be able to process Arabian crude oils and
to yield about 75,000 b/d of gasoline, 100,000-160,000 b/d of
ultralow-sulfur diesel, and 160,000-220,000 b/d of fuel oil, according to Aramco.

UAE refinery expansion contracts awarded
Engineering and construction contractors for Abu Dhabi Oil
Refining Co. (Takreer) have awarded contracts for mass-transfer equipment to GTC Technology Korea Co. Ltd., a unit of
Houston-based GTC Technology International LP, as part of an
expansion of the 350,000-b/d refinery at Ruwais.
The project is to be completed in 2013. No contract amount
was announced.
The South Korea company will provide mass-transfer equipment for the crude distillation unit, saturated gas plant, and
residue catalytic cracking unit under the subcontracts awarded
by South Korean engineering and construction companies GS
Engineering & Construction Ltd. and SK E&C Co. Ltd.
The scope includes engineering and fabrication of a variety
of mass-transfer equipment including high-performance valve
trays, structured packing, grid packing, vapor horns, and FCC
feed distributors.
The RCCU is, according to the GTC Technology announcement earlier this month, the largest single unit of its kind in the
world. The contract includes a “giant‐sized pre-flash column,
crude column, and residue fluidized catalytic cracking main
fractionator.” The expansion includes 21 process units, off sites,
and utilities, it said.

TRANSPORTATION Q U IC K TA K E S
TransCanada begins Keystone oil deliveries to Cushing
TransCanada Corp. has begun commercial deliveries of crude
oil to Cushing, Okla., on the second phase of its $12 billion
Keystone Pipeline system. The second phase is a 298-mile extension from Steele City, Neb., to Cushing and increases Key-

Oil & Gas Journal | Feb. 14, 2011

2/10/11 1:12 PM


stone’s nominal capacity to 591,000 b/d, of which 530,000 b/d
is contracted.
The next phase of expansion for the Keystone Pipeline system is the proposed US Gulf Coast Expansion (Keystone XL)
project. Keystone XL is a 1,661-mile, 36-in. OD oil pipeline
beginning at Hardisty, Alta., and extending southeast through
Saskatchewan, Montana, South Dakota, Nebraska, and Oklahoma to delivery terminals near Port Arthur, Tex.
Keystone XL needs approval by the US Department of State
before construction can begin (OGJ Online, Jan. 27, 2011).
TransCanada expects Keystone XL to enter service in firstquarter 2013, pending approval.
TransCanada concluded on open season in January for its
Bakken Marketlink and Cushing Marketlink projects to deliver
US-sourced crude from Baker, Mont., to Cushing and the US
Gulf Coast. Bakken Marketlink secured 65,000 b/d of firm,
term contracts. Cushing Marketlink will have capacity to move
150,000 b/d from Cushing to the US Gulf Coast. Both Bakken
Marketlink and Cushing Marketlink will use pipeline facilities
forming part of TransCanada’s Keystone XL system. Combined
the two projects will transport up to 250,000 b/d of US crude
oil production to the Gulf Coast (OGJ Online, Jan. 27, 2011).

LNG terminal and an interconnection with Pemex Gas y Petroquimica Basica. This segment will be bidirectional and capable
of transporting as much as 320 MMcfd of gas.

TransCanada’s Horn River pipeline receives NEB OK

Egyptian gas supplies to Israel to resume Feb. 17

Canada’s National Energy Board approved TransCanada Corp.’s
Horn River natural gas pipeline project. The pipeline will connect British Columbia shale gas supplies to TransCanada’s Alberta System. TransCanada anticipates bringing Horn River
into service second-quarter 2012.
The $310 million, 155-km Horn River line consists of a new
36-in. OD line and acquisition of an existing 24-in. OD line.
The project will provide firm service for Alberta System gas
transportation contracts exceeding 630 MMcfd by 2014.
TransCanada expects British Columbia shale gas supplies
to climb to more than 5 bcfd by the end of the decade and
the Horn River pipeline is the company’s second major pipeline connecting its Alberta System to these supplies. The first
extension of the Alberta System into British Columbia was the
Groundbirch pipeline, which came into service in December
2010. Horn River and Groundbirch shippers have committed to
Alberta System contracts reaching 1.9 bcfd by 2014.
TransCanada plans to bring its Keystone Phase 2 crude pipeline and Guadalajara gas pipeline in Mexico into service during
2011. Keystone Cushing (Phase 2) extends 36-in. OD pipe from
Steele City, Neb., to Cushing, Okla. TransCanada commenced
commercial operation on the 435,000 b/d Keystone Phase 1,
June 30, 2010. Phase 2 will boost capacity to 591,000 b/d.
The Guadalajara Pipeline will move gas from an LNG terminal under construction near Manzanillo on Mexico’s Pacific
Coast to both Guadalajara and the CFE CT Manzanillo power
plant. The pipeline’s first segment consists of about 6 km of
24-in. OD pipeline capable of transporting 500 MMcfd to the
power plant. The second segment will consist of a 30-in. OD
pipeline extending roughly 295 km between the Manzanillo

East Mediterranean Gas Co. (EMG) advised Ampal-American
Israel Corp. that Egyptian National Gas Co. (Egas) expects to
be supplying pipeline gas to EMG and therefore to EMG’s Israeli
clients by Feb. 17. Ampal owns a 12.5% interest in EMG.
Ampal announced Feb. 6 that an explosion and fire in a metering station along the 10.3 billion cu m/year Arab Gas Pipeline from Egypt to Jordan, owned and operated by Egas subsidiary GASCO, had interrupted these supplies. The affected
GASCO station is about 30 km from the EMG line into which
it feeds. GASCO is repairing a 200-m long segment of its line
which was damaged by heat from the explosion.
Neither EMG’s interconnect site its pipeline were damaged.

Oil & Gas Journal | Feb. 14, 2011

110214OGJ_9 9

Plains All American plans Shafter LPG expansion
Plains All American Pipeline LP reported plans to construct its
Shafter Expansion Project, consisting of a 10,000 b/d LPG pipeline system and related upgrades to its Shafter LPG processing
facility near Bakersfield, Calif. A 5-year transportation agreement with a unit of Occidental Petroleum Corp. underpins the
project, currently expected to cost about $50 million. Oxy also
has a general partner ownership stake in Plains All American.
The pipeline will link the Shafter facility with Oxy’s Elk
Hills gas processing plant and related infrastructure. Plains has
targeted a third-quarter 2012 in-service date.
The Shafter expansion involves building a 15-mile LPG
pipeline system as well as enhancing Plains’ storage and rail
capabilities at the Shafter facility. The facility currently includes
roughly 200,000 bbl of NGL storage and a processing facility
with 14,000 b/d butane isomerization capacity and 12,000 b/d
NGL fractionation capacity. Plains expects to spend $30 million
on the Shafter project in 2011 and the balance during 2012.

Venezuela orders crude tankers from Itochu Corp.
Itochu Corp. has won an order to supply four Aframax tankers to a subsidiary of Venezuela’s Petroleos de Venezuela SA
(PDVSA) and has commissioned Sumitomo Heavy Industries
to build the vessels.
The ships will have a capacity of 104,300 dwt each and are
scheduled for delivery in 2012. The four new vessels are likely
to be added to a group of PDVSA tankers that transport oil produced in Venezuela to its refineries in the US and Europe.
Construction of the tankers will cost ¥25 billion with funding to be provided by the Japan Bank for International Cooperation, which reportedly agreed to provide ¥20 billion.
The agreement follows earlier ones in 2009, when Venezuela
signed 12 energy-related agreements with Japan. At the time,
PDVSA signed an MOU with Itochu, Mitsubishi, Itochu, Mitsui,
and Marubeni regarding possible cooperation on the Mariscal
Sucre LNG project.

9

2/10/11 1:12 PM


2011-2012
EVENTEVENT
CALENDAR
2011-2012
CALENDAR
Denotes new listing or 1483 598000, e-mail:
dawn.dukes@otmnet.
a change in previously
com, website: www.deapublished information.
europe.com. 17-18.
Laurance Reid Gas
Conditioning ConferFEBRUARY 2011
ence, Norman, Okla.,
SPE Project and Facilities (405) 325-2248, (405)
Challenges Conference 325-7164 (fax), e-mail:
bettyk@ou.edu, website:
at METS, Doha, +971
www.engr.outreach.
4 390 3540, +971 4
366 4648 (fax), e-mail: ou.edu. 20-23.
spedub@spe.org, website: www.spe.org. 13-16. IP Week, London, +44
0 20 7467 7116, e-mail:
jwarner@energyinst.org,
Pipeline Pigging &
website: www.energyinst.
Integrity Management
org.uk. 21-23.
Conference, Houston,
(713) 521-5929, (713)
521-9255 (fax), e-mail: Nitrogen+Syngas Interinfo@clarion.org, website: national Conference &
www.clarion.org. 14-17. Exhibition, Dusseldorf,
+44 (0) 20 7903 2438,
+44 (0) 20 7903 2432
Unconventional Oil &
(fax), e-mail: conferGas Europe, Prague, 1
(888) 299-8016, 1 (888) ences@crugroup.com,
299-8057 (fax), e-mail: website: www.crugroup.
com. 21-24.
registration@pennwell.
com, website: www.
unconventionaloilandgas- SUBSEA Tieback
europe.com/index.html. Forum & Exhibition, San
Antonio, (918) 831-9160,
15-16.
(918) 831-9161 (fax),
Russia Offshore Annual e-mail: registration@penConference & Exhibition, nwell.com, website: www.
subseatiebackforum.
Moscow, +44 207 067
com. 22-24.
1800, +44 207 430
0552 (fax), e-mail: wra@
SPE European Confertheenergyexchange.
ence on Health Safety
co.uk, website: www.
and Environment in Oil
theenergyexchange.
co.uk/3/13/articles/179. and Gas Exploration,
Vienna, +44 (0)1224
php. 15-17.
318088, website: www.
spe-uk.org. 22-24.
IPAA International
Forum, Houston, (202)
Pipe Line Contractors
857-4722, (202) 857Association Convention,
4799 (fax), website:
Maui, (214) 969-2700,
www.ipaa.org. 16.
e-mail: plca@plca.org,
website: www.plca.org.
NAPE Expo, Houston,
(972) 993-9090, (972) 22-26.
993-9191 (fax), e-mail:
Shale Gas Asia Conferinfo@napeexpo.com,
website: www.napeexpo. ence, New Delhi, 1 (800)
721-3915, 1 (800) 714com. 16-18.
1359 (fax), e-mail: info@
american-business-conEPNanoNet Forum on
ferences.com, website:
Advanced Materials for
www.shale-gas-asia.com.
E&P, Houston, +44 (0)
23-24.

10

110214OGJ_10 10

AOG Australasian Oil &
Gas Exhibition & Conference, Perth, +61 3 9261
4500, +61 3 9261 4545
(fax), e-mail: aog@divexhibition.com.au, website:
www.aogexpo.com.au.
23-25.

aapg.org. website: www.
europetro.com. 1-3.

Turkmenistan Asia Oil &
Gas Summit, Singapore,
+44 (0) 20 7328 8899,
+44 (0) 20 7624 9030
(fax), e-mail: info@
summittradeevents.com,
GPA Europe Conference, website: www.summittradeevents.com/HoldAmsterdam, +44 (0)
ingA2011.php. 3-4.
1252 625542, website:
www.gpaeurope.com/
Libya International Petro
events/event/16. 23-25.
& Energy Fair, Tripoli,
00971 4 2988144,
Annual Petcoke Con00971 4 2987886 (fax),
ference, San Diego,
e-mail: nafees@orange(832) 351-7827, (832)
fairs.com, website: www.
351-7887 (fax), e-mail:
orangefairs.com. 7-10.
petcokes@jacobs.com,
website: www.petcokes. API Spring Committee
com. 25-26.
on Petroleum Measurement Standards Meeting,
Corrosion UAE ConferDallas, (202) 682 8000,
ence, Abu Dhabi, 00 971 (202) 682-8222 (fax),
website: www.api.gor.
50 264 1202, e-mail:
7-10.
c.pallen@theenergyexchange.co.uk, website:
CERA Week, Houston,
www. www.theenergy(713) 840-8282, (713)
exchange.co.uk/3/13/
599-9111 (fax), e-mail:
articles/157.php. Feb.
info@cera.com, website:
27-Mar. 1.
www.cera.com. 7-11.

NACE Corrosion Conference & Expo, Houston,
(800) 797-6223, (281)
228-6329 (fax), website:
www.events.nace.org/
conferences/c2011/index.asp. 13-17.

mail: info@gastech.co.uk,
e-mail: www.gastech.
co.uk. 21-24.

GASTECH International
Conference & Exhibition,
Amsterdam, +44 (0)
1737 855000, +44 (0)
AIChE Spring Meeting
1737 855482 (fax), e& Global Congress on
mail: info@gastech.co.uk,
Process Safety, Chicago, e-mail: www.gastech.
(800) 242-4363, (203) co.uk. 21-24.
775-5177 (fax), website:
www.aiche.org/conferCIPPE China Interences/springmeeting/
national Petroleum &
index.aspx. 13-17.
Petrochemical Technology and Equipment
Offshore West Africa
Exhibition, Beijing, +86
Conference & Exhibition, 10 58236588/6555.
Accra, Ghana, (918) 831- +86 10 58236567 (fax),
9160, (918) 831-9161
e-mail: cippe@zhenwei(fax), e-mail: registraexpo.com, website: www.
tion@pennwell.com,
cippe.com.cn/cippeen.
website: www.offshore- 22-24.
westafrica.com. 15-17.
IADC Drilling HSE Asia
World Heavy Oil ConPacific Conference &
gress, Edmonton, Alta., Exhibition, Singapore,
(888) 799-2545, (403) (713) 292-1945, (713)
245-8649 (fax), website: 292-1946 (fax), e-mail:
www.worldheavyoilcon- info@iadc.org, website:
gress.com. 15-17.
www.iadc.org/conferences. 23-24.
TUROGE Turkish
International Oil & Gas
OMC Offshore MediterRenewable Energy World Conference & Showcase, ranean Conference,
MARCH 2011
Ankara, +44 (0) 20 7596 Ravenna, +39 0544
Conference & Expo
North America, Tampa, 5000, +44 (0) 20 7596 219418, e-mail: conferNPRA Security Confer5111 (fax), e-mail: enence@omc.it, website:
(918) 831-9160, (918)
ence & Exhibition,
quiry@ite-exhibition.com, www.omc.it/2011. 23-25.
831-9161 (fax), e-mail:
Houston, (202) 457website: www.turoge.
registration@pennwell.
0480, (202) 457-0486
com. 16-17.
com, website: www.
SPE Production and
(fax), e-mail: info@npra.
renewableenergyworldOperations Sympoorg, website: www.npra.
events.com. 8-10.
NPRA Annual Meeting, sium, Oklahoma City,
org. 1-2.
San Antonio, (202) 457- (800) 456-9393, (972)
European Fuels Confer- 0480, (202) 457-0486 952-9435 (fax), e-mail:
Annual Arctic Gas
(fax), e-mail: info@npra. spedal@spe.org, website:
ence Annual Meeting,
Symposium, Calgary,
org, website: www.npra. www.spe.org. 27-29.
Paris, +44 (0)207 430
Alta., (877) 927-7936,
org. 20-22.
9513, +44 (0)207 430
(877) 927-1563 (fax),
9513 (fax), e-mail:
NPRA International Petwebsite: www.arcticgase.huiban@theenergyex- MEOS/SPE’s Middle East rochemical Conference,
symposium.com/index.
change.co.uk, website:
Oil & Gas Conference & San Antonio, (202) 457html. 1-2.
www.wraconferences.
Exhibition, Manama, +44 0480, (202) 457-0486
com/2/4/articles/205.
(0)20 7840 2139, +44
(fax), e-mail: info@npra.
SPE/IADC Drilling Conferphp. 8-11.
(0)20 7840 2119 (fax), e- org, website: www.npra.
ence, Amsterdam, +44
mail: meos@oesallworld. org. 27-29.
20 7299 3300. +44 20
com, website: www.
DEA(e) Technical Oil &
7299 3309 (fax), e-mail:
Gas Conference on Well meos2011.com. 20-23. Howard Weil Annual
spelon@spe.org, website:
Control, Bad Bentheim,
Energy Conference, New
www.spe.org. 1-3.
+44 (0) 1483 598000, GPA Europe at GasTech Orleans, (504) 582e-mail: dawn.dukes@
Conference & Exhibition, 2500, website: www.
APPEX/AAPG Property &
otmnet.com, website:
howardweil.com/energyAmsterdam, +44 (0)
Prospect Expo, London,
www.dea-europe.com.
conference.aspx. 27-30.
1737
855000,
+44
(0)
+44 (0) 207 434 13
10-11.
1737
855482
(fax),
e99, e-mail: Europe@

Oil & Gas Journal | Feb. 14, 2011

2/8/11 3:08 PM


2011-2012 EVENT CALENDAR
Middle East Downstream
Week Annual Meeting,
Abu Dhabi, +44 (0) 1242
529 090, +44 (0) 1242
529 060 (fax), e-mail:
wra@theenergyexchange.
co.uk, website: www.
wraconference.com.
27-30.
ACS National Meeting
& Exposition, Anaheim,
Calif., (202) 872-4600,
e-mail: help@acs.org,
website: www.acs.org.
27-31.
Purvin & Gertz International LPG Seminar, The
Woodlands-Houston,
(713) 331-4000, (713)
236-8490 (fax), e-mail:
info@purvingertz.
com, website: www.
purvingertz.com. 28-31.
SPE European Well
Abandonment Seminar,
Aberdeen, +44 1224
495051, e-mail: jane.
rodger@hulse-rodger.
com, website: www.speuk.org. 29.

+31 523 289866, e-mail:
antoinettehulst@evenementenhal.nl, website:
www.evenementenhal.
nl/gorinchem/beurzen.
29-31.
SEG Shale Gas Forum,
Chengdu, Sichuan,
(918) 497-5500, (918)
497-5557 (fax), website:
www.seg.org. 30-31.

The Woodlands, Texas,
(800) 456-9393, (972)
952-9435 (fax), e-mail:
spedal@spe.org, website:
www.spe.org. 5-6.
SPE/IADC Managed
Pressure Drilling & Underbalanced Operations
Conference, Denver,
(800) 456-9393, (972)
952-9435 (fax), e-mail:
spedal@spe.org, website:
www.spe.org. 5-6.

APRIL 2011
Middle East Downstream
Week Annual Meeting,
Abu Dhabi, +44 1242
529 090, +44 1242
529 060 (fax), e-mail:
c.pallen@theenergyexchange.co.uk, website:
www.wraconferences.
com/2/4/articles/105.
php. 3-6.

OilTech Atyrau Regional
Petroleum Technology
Conference, Atyrau, +44
(0) 20 7596 5000, +44
(0) 20 7596 5111 (fax),
e-mail: enquiry@iteexhibition.com, website:
www.oiltech-atyrau.com/
home.html. 5-6.

Atyrau North Caspian
Regional Oil, Gas and
GPA Annual Convention, Infrastructure ExhibiSan Antonio, (918) 493- tion, Atyrau, +44 (0) 20
7596 5000, +44 (0) 20
3872, (918) 493-3875
7596 5111 (fax), e-mail:
(fax), e-mail: pmirkin@
enquiry@ite-exhibition.
gpaglobal.org, website:
www.GPAglobal.org. 3-6. com, website: www.
Woodford Shale Summit,
atyrauoilgas.com2011/.
Norman, Okla., (405)
Hannover Messe Pipeline 5-7.
525-3556, ext. 117,
Technology Confer(405) 525-3592 (fax),
AAPG Annual Convention
ence, Hannover, +49
e-mail: amy.childers@
& Exhibition, Houston,
511
90992
22,
+49
511
iogcc.state.ok.us, website: www.woodfordsum- 90992 69 (fax), e-mail: (918) 560-2679, (918)
560-2684 (fax), website:
fandrich@eitep.de,
mit.com. 29-30.
www.aapg.org. 10-13.
website: www.pipelineconference.com. 4-5.
GIOGIE Georgian
APPEA. Conference and
International Oil & Gas
Exhibition, Perth, +61
Energy and Infrastructure ShaleCon Conference,
(7) 3802 2208, +61 (7)
Conference, Tbilisi, +44 Montreal, Q.C., (800)
207 596 5135, +44 207 882-8684, e-mail: info@ 3802 2209, website:
596 5106 (fax), e-mail:
iapc.com, website: www. www.appeaconferences.
ilyas.idigov@ite-exhibicom.au. 10-13.
shalecon.com/Event.
tions.com, website: www. aspx?id=388398. 4-7.
giogie.com/2011/. 29-30.
GITA’s Geospatial
Infrastructure Solutions
Hannover Messe InterOffshore Asia Conference national Trade Show,
Conference, Grapevine,
& Exhibition, Singapore, Hannover, +49 511 89 0, Texas, (303) 337-0513,
(918) 831-9160, (918)
+49 511 89 32626 (fax), (303) 337-1001 (fax)
831-9161 (fax), e-mail:
website: www.hannover- website: www.gita.org/
registration@pennwell.
messe.de/homepage_e. events/futconf.asp.
com, website: www.
10-14.
4-8.
offshoreasiaevent.com.
29-31.
SAGEEP Information
SPE/ICoTA CoiledTubExchange for New-Suring & Well Intervention
IRO On & Offshore
Conference & Exhibition, face Geophysics Forum,
Exhibition, Gorinchem,
Charleston, (918) 497-

Oil & Gas Journal | Feb. 14, 2011

110214OGJ_11 11

5500, (918) 497-5557
(fax), website: www.seg.
org. 10-14.

Russia & CIS Bottom of
the Barrel Technology
Conference & Exhibition,
Moscow, +44 (0) 20
7357 8394, +44 (0) 20
Gas Turbine Users
International Annual Con- 7357 8395 (fax), e-mail:
enquiries@europetro.
ference (GTUI), Dubai,
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omar@dugas.ae, website:
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ISA Calgary, Calgary,
Alta., (403) 209-3555.
The Project Forum, Mos- (403) 245-8649 (fax),
website: www.isacalgary.
cow, +44 (0) 20 7357
8394, +44 (0) 20 7357 com. 13-14.
8395 (fax), e-mail: enquiries@europetro.com, Middle East Petroleum &
website: www.europetro. Gas Conference (MPGC),
com. 11-12.
Bahrain, 0065 6338
0064, 0065 6338 4090
(fax), website: www.
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agement of Chem/
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Conference, Houston,
DUG Developing Uncon(312) 540-300, ext.
ventional Gas Conference
6625, e-mail: Miche& Exhibition, Fort Worth,
lew@marcusevansch.
(713) 280-6479, (713)
com, website: www.
583-1353 (fax), e-mail:
marcusevansch.com/
acooper@hartenergy.
OGJPSM. 11-13.
com, website: www.dugconference.com. 18-20.
IPAA OGIS-New York,
NewYorkCity, (202) 857- Alliance Expo & Annual
4722, (202) 857-4799
Meeting, Wichita Falls,
(fax), website: www.ipaa. Texas, (940) 723-4131,
org. 11-13.
(940) 723-4132 (fax),
e-mail: texasalliance@
texasalliance.org, webPipe Line Contractors
site: www.texasalliance.
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org/index.php. 26-27.
Annual Convention,
Maui, (905) 847-9383,
(905) 847-7824 (fax), e- Oil & Gas Siberia, Novosimail: placa@pipeline.ca, birsk, +7 383 2106290,
website: www.pipeline.
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mail: welcome@sihfair.ru,
11-15.
website: www.petroleum.
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API Pipeline Conference,
San Antonio, (202) 682 GPA Mid-continent An8000, (202) 682-8222 nual Meeting, Okla. City,
(fax), website: www.api. (918) 493-3872, (918)
org. 12-13.
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Exhibition, Houston,
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website: www.aade.org. OTC Offshore Technology
12-14.
Conference, Houston,
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(866) 229-2386, (972)
952-9435 (fax), e-mail:
registration@spe.org,
website: www.otcnet.
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Annual Meeting, Odessa,
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493-3875 (fax), website:
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calendar.html. 3.
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Congress, Linkoping,
e-mail: info@wrec2011.
com, website: www.
wrec2011.com. 8-13.
NPRA National Safety
Conference & Exhibition, Forth Worth, Texas,
(202) 457-0480, (202)
457-0486 (fax), e-mail:
info@npra.org, website:
www.npra.org. 10-11.
IADC Critical Issues
Middle East Conference
& Exhibition, Dubai,
(713) 292-1945, (713)
292-1946 (fax), e-mail:
conferences@iadc.org.
website: www.iadc.org/
conferences/Critical_Issues_ME_2011. 10-11.
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(405) 325-1217, (405)
325-1388 (fax), e-mail:
lcowley@ou.edu, website:
www.ishm.info/. 10-12.
IADC Environmental
Conference & Exhibition,
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292-1945, (713) 2921946 (fax), e-mail: info@
iadc.org, website: www.
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12-13.
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(713) 947-8727, (713)
947-7181 (fax), e-mail:
www.webmaster@spwla.
org, website: www.spwla.2011.com. 14-19.

11

2/8/11 3:08 PM


JOURNALLY SPEAKING

Obama stirs memories of Mom

SAM FLETCHER
Senior Writer

12

110214OGJ_12 12

US President Barack Obama is a lot like my mama.
Mother, bless her, had a good heart, but if she ever
did anything for me and my brothers—advance us
money, loan us her car, give us birth—we’d hear
about it forever. “Look at all I’ve done for you,” she’d
sob, “and this is the thanks I get.” Although she
loved us, the implication was clearly that my brothers and I were not the sons she deserved and likely
never would be.
So Obama’s Feb. 7 speech to the US Chamber of Commerce generated a déjà vu feeling of a
visit with Mom when he essentially told business
executives: Look at all the tax breaks the government has given you, and this is the thanks I get.
You sit there on your fat assets of $2 trillion and
won’t build new plants or hire more workers just
because the economy is still uncertain.
Guess they’re not the business leaders the president feels he deserves, either. Apparently Obama
figures if they would just hire workers they don’t
need and pay salaries they can’t afford, eventually
there will be more demand for the surplus products they would turn out. That’s the same reasoning that is pushing auto manufacturers to build
fleets of vehicles powered by electricity or natural
gas when there is yet no network of retail refueling
outlets for them. It’s also the reason for government loans and subsidies that triggered a rash of
construction of ethanol distillation plants, many
of which independent refiner Valero Energy Corp.
has since bought for pennies on the dollar from
the financially strapped original owners. Those
underfunded projects failed as increased demand
pushed the cost of corn to new highs, diminished
food supplies, and set the stage for riots in North
Africa against despots who had held power for
decades. Just proves business can be risky even
when the government favors one industry over another and also can have unforeseen effects.
That’s another way Obama is like Mom—she
didn’t know a thing about economics either. Unlike Obama, however, Mother was founder and

chief executive of her own small business—a nursery for preschoolers—and knew what it meant to
meet payrolls, invest in equipment, comply with
government regulations, and cope with insurance,
workman compensation claims, and other issues
while maintaining a strict budget so outlays didn’t
exceed income.

Does Obama get it?
Obama told chamber members, “I understand the
challenges you face. I understand that you’re under incredible pressure to cut costs and keep your
margins up. I understand the significance of your
obligations to your shareholders. I get it.”
But he really doesn’t. That was plain in his earlier State of the Union address when he said, “I’m
asking Congress to eliminate the billions in taxpayer dollars we currently give to oil companies.
I don’t know if you’ve noticed, but they’re doing
just fine on their own. So instead of subsidizing
yesterday’s energy, let’s invest in tomorrow’s.”
Maybe a behemoth like ExxonMobil Corp.
can survive anything but a meteor strike like the
one that killed the dinosaurs. But there are a lot
of smaller producers and service companies out
there it wouldn’t take much to drive under. What’s
more those oil industry tax breaks and “subsidies” Obama sneers at weren’t bestowed out of the
goodness of the federal government’s heart. There
were economic and energy security reasons for
those so-called loopholes that were as important
to the government as to the companies.
But if Obama wants to turn his back on “yesterday’s energy” and “invest”—which will deepen
the deficit just as much as spending—in tomorrow, then where will the energy come from to
power the US economy today? That’s something
he should consider as the oil and gas wells necessary to hold down energy prices in 2012 when he
seeks reelection are not being drilled today due to
his ban in the Gulf of Mexico.
Mama warned there would be days like that.

Oil & Gas Journal | Feb. 14, 2011

2/10/11 1:13 PM


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2/8/11 3:10 PM


EDITORIAL

Reining in EPA
Hearings began last week on legislation that would
derail the US Environmental Protection Agency’s
regulation, under the Clean Air Act, of greenhouse
gas emissions. They represent a triumph of public
discourse and participatory government.
Not long ago, any initiative purporting to resist
global warming would have had clear sailing. The
popular view was that greenhouse gases released
into the atmosphere by human activity inexorably
and unquestionably warmed the planet and that
catastrophe would ensue unless people radically
changed behavior, especially by slashing their use
of fossil fuel. The science was said to be settled.
Contrary views were rejected on sight as the wicked fulminations of unholy deniers.
How things do change.

Alarm waning
Public alarm has waned in response to questions
about the scientific basis for predictions of calamitous warming and to projections about the huge
costs of remediation. Political support for urgent
response has weakened. Opinion polls show global
warming ranks very low among things about which
people worry.
The issue has momentum, nevertheless,
pushed along by factions for which it long ago became a secular religion. Those factions include the
unyielding environmental groups that President
Barack Obama, since taking office, has been loath
to upset. The Environmental Protection Agency
therefore has plowed forward with its program of
regulating greenhouse gases under the Clean Air
Act.
Last month, EPA began phasing in rules requiring permits for large new and expanding greenhouse-gas emitters. Later this year, it will begin
regulating emissions from existing large facilities.
Now Congress, with its Republican constituency
newly fortified, has balked.
The House Energy and Commerce Committee
held a hearing Feb. 9 on legislation that would
block EPA implementation of its greenhouse gas
regulations and declare that the Clean Air Act was
not intended to address climate change. Committee Chairman Fred Upton (D-Mich.) authored the
bill, which was matched in the Senate by legislation introduced by James Inhofe (R-Okla.). Sen.
John Barrasso (R-Wyo.) introduced a similar bill

14

110214OGJ_14 14

Jan. 31. Early last year, Sen. Jay Rockefeller (D-W.
Va.) proposed a 2-year delay in implementation of
the EPA program.
The new bills represent progress from the
Rockefeller bill, which purportedly was designed
to give Congress time to debate the issue. The
problem isn’t a rushed Congress. The problem is
wildly misguided regulation.
The lesser of two large problems with EPA’s
greenhouse gas initiative is the imposition of cost
with no hope for meaningful benefit. In testimony
prepared for the Feb. 9 hearing, Margo Thorning, senior vice-president and chief economist
of the American Council on Capital Formation,
said EPA’s program “will slow investment and job
growth and have no significant impact on reducing global GHG emission growth.” So why does
EPA press ahead? “It makes little economic or environmental sense for EPA to regulate GHGs under the Clean Air Act,” Thorning said.
The even larger problem is constitutional. The
proposition of sharply increased energy costs, inescapable under any effort to lower emissions of
the benchmark greenhouse gas, carbon dioxide,
needs legislative deliberation. People exposed to
the cost increases should have a voice in the outcome through representatives they elect. To impose the costs through regulation would be inappropriate. To try to impose them after Congress
failed to enact climate-change legislation last year
is preposterous.

Wayward path
EPA, acting under authority of a loopy decision
in 2007 by the Supreme Court, started down this
wayward path in part to press Congress into action
on climate change. Lawmakers should consider
that an institutional affront. In the face of last year’s
collapse of cap-and-trade legislation in the Senate,
in fact, they should see EPA’s persistence as the potential for a constitutional crisis.
This is an Executive Branch agency claiming
control of a major dimension of the US economy
in contradiction of the will of the people as expressed through Congress. Congress must stop
it. Congress must set clear and permanent limits
on the maverick agency’s authority and behavior.
Congress must act soon.

Oil & Gas Journal | Feb. 14, 2011

2/10/11 1:15 PM


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2/8/11 3:11 PM


GENERAL INTEREST

Industry seeks new offshore rigs,
longer onshore laterals in shale
Paula Dittrick

into deepwater drilling practices.
Ongoing delays in US offshore drilling permits mean
deepwater drilling activity in the gulf is unlikely to pick up
Oil and natural gas companies are asking oil service contracsignificantly until this year’s second half, executives for both
tors for sophisticated technology to drill longer horizontal
contractors and operators repeatedly stated in recent earnwells in onshore shale plays and for new offshore rigs that
ings conference calls.
can fulfill increasingly stringent deepwater drilling safety
Barclays Capital analyst James C. West said, “Drilling
standards and regulations.
contractors begin to real“The growing abundance
ize that older assets have
of shale gas and liquids, the
become somewhat obsolete
NUMBER OF WORLD FLOATER FLEET
Table 1
continued pursuit of oil in
or are nearing obsolescence
BY CLASSIFICATION
Rig class
Number of rigs
increasingly complex enviin a post-Macondo world”
ronments, and a rapid esbecause older equipment is
Drillship < 2,500 ft
5
Drillship 2,500-5,000 ft
7
calation of service intensity
“becoming much less desirDrillship > 5,000 ft*
71
Semisubmersible 2nd gen
55
cannot be understood withable” to oil and gas compaSemisubmersible 3rd gen
47
in the constraints of normal
nies.
Semisubmersible 4th gen
45
Semisubmersible 5th gen
15
energy industry cyclicality,”
For instance, ODS PetSemisubmersible 6th gen*
62
––––
FBR Capital Markets anarodata
reported last year
Total floaters, Oct. 26, 2010*
307
lyst Robert MacKenzie said
that 18% of the floater fleet
*Includes newbuilds under construction.
in a Feb. 7 research note.
worldwide
second-genSource: Barclays Capital after ODS Petrodata
Fourth-quarter
2010
eration semisubmersibles
earnings reports “proved
vs. 20% of the fleet being
SERVICE INTENSITY INDICATORS BY SHALE PLAY
Table 2
stellar” for most large sersixth-generation semisubShale
Year
Avg. hp
Lateral length, ft
Stages
vice providers, MacKenzie
mersible. The 20% includes
Marcellus
2008
6,000
3,000
7
said, adding that he expects
newbuilds under construc2010
30,000
5,000
15
this trend will continue
tion (Table 1).
Bakken
2008
12,000
6,500
5
through 2012 based in part
West foresees continuing
2010
14,000
8,500
17
on robust land drilling acgrowth
in the deepwater
Eagle Ford
2008
18,000
N/A
3
2010
36,000
6,000
14
tivity in the US focused on
worldwide, noting “major
liquids-rich shale plays.
oil companies are starting
Source: FBR Capital after Halliburton 2011 analyst day presentation
An offshore rig constructo express concerns about
tion cycle also appears to be
rig capacity in 2012-13 and
gaining momentum, parbeyond.” He expects more
tially because oil companies demand new, high-specification
than 100 new offshore rigs will be ordered during an ongoequipment from drilling contractors given regulatory uncering rig build cycle that started in late 2010.
tainties following the 2010 deepwater well blowout and massive oil spill in the Gulf of Mexico.
Subsea demand
An April 2010 blowout of the deepwater Macondo well,
West said, “New rig construction is a powerful driver of
operated by BP PLC, resulted in an explosion and fire on
backlog and earnings for the equipment suppliers, primarily
Transocean Ltd.’s Deepwater Horizon semisubmersible, killNational Oilwell Varco and also for Cameron.” Cameron has
ing 11 crew members and prompting numerous inquiries
reported accelerating demand for subsea equipment.
During January, Brazil’s Petroleo Brasileiro SA (Petrobras)
Senior Staff Writer

16

110214OGJ_16 16

Oil & Gas Journal | Feb. 14, 2011

2/10/11 1:15 PM


ordered $74 million in subsea trees and related equipment
from Cameron with deliveries scheduled to start this year
and continue over a 4-year period. The trees will feature enhanced drill-through capability to save time and money during drilling and completion, said Jack B. Moore, Cameron
president and chief executive officer.
Separately, China National Offshore Oil Corp. ordered
$85 million in subsea production equipment from FMC
Technologies Inc. to be used for CNOOC’s Liuhua 4-1 development that will involve eight subsea trees and tieback to
the existing Liuhua 11-1 field.
Liuhua 4-1 is in 850-1,000 ft of water in the South China
Sea about 130 miles off Hong Kong. Delivery of the FMC
equipment is scheduled to begin in the fourth quarter.

Shale drilling
The US land drilling market has experienced a move toward
horizontal drilling and subsequently longer lateral lengths.
“Horizontally directed rigs currently account for 56% of
the total US land rig count, up from 17% in 2005 and 6%
in 2000—and 34% of those are in shale plays (Barnett, Fayetteville, Woodford, Haynesville, Marcellus, Eagle Ford, and
Williston Bakken),” MacKenzie said.
Operators in the Bakken are pressing for more than 40
stages per well while lateral lengths in the Eagle Ford are in
some cases approaching 10,000 ft, MacKenzie said (Table 2).

Meanwhile, revenue per rig in the US and Canadian markets
continues to rise, the major service providers report.
“In 2011, we expect North American land services to
continue surprising investors, many of whom are currently
anticipating a peak in the market,” MacKenzie said. “Our
supply-demand analysis suggests, however, that the market
will remain healthy into 2012.”
He said the question is how much increases in oil and
liquids activity can offset potential declines in gas drilling
activity given low gas prices.
“Simply put, our analysis shows a rig count held stable by
an exodus to the liquids-rich shale basins from the dry gas
basins, a substantial (and growing) backlog, a tight supply of
in-demand equipment, little chance of a near-term oversupply due to new capacity additions,” among other factors that
indicate a long-term trend toward increased service intensity, MacKenzie said.
Noting a correlation between the demand for drilling rigs
and the demand for oil service providers, FBR forecasts a
growing average US rig count with 1,689 rigs in 2011 and
1,789 rigs in 2012.
“Based upon our numbers, development of the Bakken,
Eagle Ford, Granite Wash, and Permian basins should be
enough demand to offset any near-term decline in other basins such as the Haynesville and the Barnett,” MacKenzie
said.

Ensco to acquire Pride in $7.3 billion deal
Paula Dittrick
Senior Staff Writer

Ensco PLC agreed to buy Pride International Inc. for $7.3
billion, marking the biggest consolidation in the offshore
drilling industry since Transocean Ltd. announced plans to
acquire GlobalSantaFe Corp. in July 2007 (OGJ Online, July
23, 2007).
The transaction would create the second-largest offshore
driller worldwide with 74 rigs. The largest offshore drilling
fleet belongs to Transocean, which has 136 rigs. After closing, Ensco will have 21 ultradeepwater and deepwater rigs.
Analysts predicted consolidation among offshore drilling contractors, citing regulatory and market uncertainties
since the April 2010 Macondo well blowout in the Gulf of
Mexico. BP PLC operated Macondo. The blowout prompted
an explosion and fire on Transocean’s Deepwater Horizon
semisubmersible, killing 11 crew members and resulting in
a massive oil spill.
Following the Pride acquisition, Ensco plans to maintain
its headquarters in London. Pride has been looking for a
buyer since last year, analysts have said. Norwegian Seadrill
Ltd. owns 9.5% of Pride, which is based in Houston.

Oil & Gas Journal | Feb. 14, 2011

110214OGJ_17 17

Terms of the stock and cash transaction call for Pride
shareholders to receive 0.4778 share in Ensco and $15.60 for
each Pride share. Closing, subject to shareholder approval
and other customary closing conditions, is expected for the
second quarter, the companies said.
After closing, current Pride shareholders would own
about 38% of Ensco’s equity. Terms of the transaction call
for Ensco’s eight directors to be joined by two Pride directors. Ensco expects the combined company to realize pretax
expense savings of at least $50 million for full year 2012.
“Our rig types, markets, customers, and expertise complement each other with minimal overlap,” said Dan Rabun,
Ensco’s chairman, president, and chief executive officer.
“Pride has gained valuable expertise building and operating
ultradeepwater semisubmersibles and drillships.”
Pride has customers in Brazil and West Africa, two of the
world’s fastest-growing deepwater markets. Ensco provides
premium jack ups and ultradeepwater semis with a strong
presence in the North Sea, Southeast Asia, North America,
and the Middle East.

17

2/10/11 1:15 PM


GENERAL INTEREST

Supply, demand trends still drive
oil prices, Senate panel told
Nick Snow
Washington Editor

Political unrest across North Africa may have fueled shortterm global crude oil price increases but likely won’t have
the same long-run impacts as supply and demand changes
in response to economic growth, experts told the US Senate
Energy and Natural Resources Committee on Feb. 3.
“The turmoil in Egypt has raised anew the concerns
about the geopolitical stability of world oil supplies,” said
James Burkhard, managing director of IHS Cambridge Energy Research Associates’ global oil group. The Suez Canal
and Suez-Mediterranean (Sumed) Pipeline make the country
a major transit point with combined oil flows of 1.7-3.3 million b/d in recent years, or up to 3.8% of total world production, he conceded.
But Burkhard also noted that the pace and distribution of
worldwide economic growth has created what CERA terms a
“global redesign” affecting the balance of economic, political,
and economic power. Oil demand, supply, and price will be
key variables that shape this redesign, he said.
“Oil prices are in a range considerably higher than in
the past,” Burkhard stated. “There are many reasons, but
the most important reason of all is the change of the world
economy and rise of major new, dynamic growth centers.
Oil is our largest source of energy—about 37% of total US
energy—and is essential to personal mobility, commerce,
and trade. Its price reflects the global economy—the ups
and downs, the surprises, and shifting expectations about
geopolitics, technology, and economic growth.”

‘Little unrest’
Roger Diwan, partner and head of financial advisory operations at PFC Energy, also indicated that growing turmoil in
the Middle East was having an immediate bullish impact on
crude prices, but added that the Washington-based energy
policy consultancy believes it will not affect supplies.
“Protests have spread across much of North Africa, as
well as Yemen, but the major oil-producing countries of the
[Persian] Gulf states have seen little in the way of unrest,” he
said. “Bolstered by strong balance sheets routinely leveraged
to lower political unrest, and still enjoying the support of
many of its citizens, the Gulf countries will likely have no
difficulty keeping regimes, oil supply, and still ample spare
capacity intact,” he said.
Diwan added, “And even if in more oil-producing North
African states the protesters achieved a Tunisian-style victory, a lack of cohesiveness regarding the next step would
be unlikely to dislodge the state apparatus, particularly that

18

110214OGJ_18 18

associated with oil production and marketing or, in the case
of Egypt, disruption in Suez shipments.”
That spare capacity could be a significant difference between conditions now and in 2008, when crude oil prices
spiked above $100/bbl by midyear before plunging dramatically in the second half, other witnesses testified. It also
could increase the Organization of Petroleum Exporting
Countries’ influence on global markets because those producing nations are where most of that spare capacity is located, they said.
Richard H. Jones, deputy director of the International
Energy Agency in Paris, said IEA’s latest forecast projects
OPEC’s share of global supplies rising to 50% in 2035 from a
current 40% as production in most non-OPEC countries has
peaked or will soon peak.
“These trends occur against the backdrop of an industry in flux,” Jones said. “Opportunities for international oil
companies, which have historically dominated oil development, are diminishing with the growing role of national oil
companies and fewer reserves in accessible basins outside
OPEC countries. Oil market challenges are further exacerbated by the prospect of accelerating decline rates for individual oil fields, particularly in non-OPEC countries, including Mexico, a major exporter of crude oil to the United
States.”

‘Substantial levels’
To meet new demand growth and offset this declining production, gross capacity more than six times Saudi Arabia’s
present capacity will be needed by 2035, Jones said. “The
world’s total endowment of oil is large enough to support
the projected growth in output, but it will require substantial levels of investment and development of more technically challenging and unconventional resources,” he told the
committee.
Domestically, the US Energy Information Administration, in its 2011 Annual Energy Outlook reference case, expects oil production to climb from 5.4 million b/d in 2009
to 5.7 million b/d in 2035, most from more enhanced oil
recovery and oil-bearing shale plays onshore and deepwater drilling in the Gulf of Mexico, according to EIA Administrator Richard G. Newell. Cumulative production in the
Lower 48 is the same as in the 2010 AEO’s reference case,
but more oil is expected to be produced onshore and less
offshore, he added.
“Offshore oil production in AEO 2011 is lower than in
AEO 2010 throughout most of the projection period because
of expected delays in near-term projects, in part as a result
of drilling moratoriums and associated regulatory changes,

Oil & Gas Journal | Feb. 14, 2011

2/10/11 1:15 PM


GENERAL INTEREST
and in part due to the change in lease sales expected in the
Pacific and Atlantic Outer Continental Shelf, as well as increased uncertainty about future investment in offshore production,” Newell said in his written statement.
As with natural gas, applications of horizontal drilling
and hydraulic fracturing techniques have allowed significant development of oil-bearing shales, Newell continued.
“With AEO 2011 incorporating five key shale oil plays (as
opposed to two in AEO 2010), oil production rises significantly across the country where shale oil is being produced,
including the Rocky Mountains (primarily from the Bakken
shale), the Gulf Coast (primarily from the Eagle Ford and
Austin Chalk plays), the Southwest (primarily from the Avalon play), and California (primarily from the Lower Monterey and Santos plays),” he said.
EIA’s long-term outlook sees oil prices rising gradually as
global economies recover to an average real price in 2035 of
$125/bbl in 2009 dollars, Newell said. “The degree to which
non-OPEC and non-[Organization for Economic Cooperation and Development] countries restrict access to poten-

tially productive resources contributes to world oil price
uncertainty,” he observed. “Other factors include OPEC investment decisions, which will affect future world oil prices
and the economic viability of unconventional liquids.”

Breaking shales’ code
Diwan contends that higher prices actually have stimulated
development of new technologies to recover crude from previously inaccessible sources. “What we have seen in the US
in the last 5 years has been phenomenal,” he said. “Natural
gas prices increased and led producers to drill more wells.
That brought capital, resources, and technology together and
broke the code of the shales for gas. That moved to oil, where
drilling was dead onshore for 10 years in the US. Higher
prices changed this.”
Diverse supplies will be the key to improving US energy
security, starting with a more continental strategy which incorporates Canada, Burkhard suggested. “It’s clear that consistent policies matter,” he told the committee. “Some countries have successfully stimulated the development of new
technology in this way. Consistency in a long-term approach

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Oil & Gas Journal | Feb. 14, 2011

110214OGJ_19 19

19

2/10/11 1:15 PM


WATCHING GOVERNMENT
NICK

SNOW

Washington Editor | Blog at www.ogj.com

Canadian oil choices
It was hardly surprising that proponents and opponents of the proposed
Keystone XL crude oil pipeline project
said that EnSys Energy’s recent analysis for the US Department of Energy
supported their viewpoints.
TransCanada Corp., the project’s
sponsor, said on Feb. 2 that the report
confirmed the pipeline would help
reduce US oil imports from outside
North America. Environmental
groups said it showed US refineries
really don’t need the pipeline because
other routes exist.
So what, exactly, did the EnSys
report say? Apparently, it was a little
bit of both.
In its executive summary, the
report said that inadequate Western Canadian Sedimentary Basin
export capacity from 2005 to 2008
led to new export pipelines, notably Enbridge’s Alberta Clipper and
TransCanada’s Keystone Mainline and
Keystone Mainline Extension projects.
These are coming online, adding
more than 1 million b/d of capacity
and creating a surplus for moving
WCSB crudes across the border. Capacity to get the oil to the Gulf Coast
remains limited to less than 100,000
b/d, however.
“The future level of US refining activity is projected as relatively insensitive to the combination of pipelines
available to carry crude out of the
Edmonton/Hardisty area,” EnSys’s
report continued. “However, WCSB
crude routings and future levels of
WCSB imports into the US will be
[more] sensitive.”

20

110214OGJ_20 20

Asian markets
Canadian heavy oil exporters will have
the principal choice of selling to either
Asia or the US in the next 20 years, it
indicated. “Led by China, which has
bought heavily into oil sands production, Asia constitutes the major region
for future petroleum product demand
and refining capacity growth and offers Canada diversification of markets,” it said.
Transportation costs to China,
Japan, South Korea, and Taiwan via
pipeline and tanker are less than for
moving that same crude to the US
Gulf Coast through a pipeline, it added. EnSys’s study indicated that this
market could absorb at least 1 million
b/d if such a route was developed,
compared to the less than 50,000 b/d
of WCSB crudes which move to Asia
now.
Canadian Prime Minister Stephen
Harper, at a Feb. 4 joint press availability with US President Barack
Obama following their White House
meeting, said that the US clearly will
need more fossil fuels for the foreseeable future.
“The choice that the United States
faces…is whether to increase its [production] capacity; to accept such energy from the most secure, most stable,
and friendliest location it can possibly
get that energy, which is Canada; or
[acquire it] from other places that are
not as secure, stable, or friendly to
the interests and values of the United
States,” Harper observed.

that fully considers demand and supply seems like the best approach.”
Asked if adopting US President
Barack Obama’s proposal to end current federal oil tax incentives would
have serious economic consequences, Newell said that EIA is evaluating the matter and expects to issue a
report. Burhkard pointed out that US
producers have overseas competitors
which are either subsidized or fully
owned by foreign governments. All
are contending with higher costs, he
added.
“As oil prices rose and investment
in new supplies increased for much
of the past decade, so did demand for
the people and equipment needed to
find, develop, and produce oil,” he
said in his written statement. “But the
previous legacy of more than two decades of low oil prices and industry
consolidation meant a ‘missing generation’ in the energy chain—a generation of engineers, scientists, and
others who skipped entering the petroleum industry. As a result, shortages of equipment and personnel
dramatically raised the cost of developing an oil field.”
Burkhard said that IHS CERA’s Upstream Capital Costs Index, which he
described as “sort of a consumer price
index for the global oil industry,” illustrates what happened because it
doubled from 2005 to 2008. “In other words, companies had to budget
twice as much in 2008 as they did in
2005 to develop a barrel of oil,” he explained. “Adding to the cost pressure
were increasingly heavy fiscal terms
on oil investments in the former of
higher taxes and greater state participation globally in oil projects. Costs
did decline in the aftermath of the
great recession and subsequent fall
in oil prices, but since the middle of
2010, they have been on the rise again
and consequently stand close to their
peak in 2008.”

Oil & Gas Journal | Feb. 14, 2011

2/10/11 1:15 PM


GENERAL INTEREST

GOP energy leaders float draft bill
to halt EPA’s GHG effort
Nick Snow
Washington Editor

US House and Senate Republican energy leaders released a
draft of their bill aimed at keeping the US Environmental
Protection Agency from imposing carbon emissions limits
under the Clean Air Act to address global climate change.
They said they were doing so to stimulate bipartisan debate.
Democrats immediately condemned the proposal.
House Energy and Commerce Committee Chairman Fred
Upton (R-Mich.), Energy and Power Subcommittee Ed Whitfield (R-Ky.), and Senate Environment and Public Works
Committee Ranking Minority Member James M. Inhofe (ROkla.) said on Feb. 2 that their draft legislation would keep
EPA from making decisions that should be made by Congress; clarify that the CAA was not intended to address climate change; halt an indirect cap-and-trade tax that would
increase gasoline, fertilizer, and electricity prices; and protect US manufacturers from overreaching EPA regulations
that put them at a disadvantage next to foreign competitors.
EPA has said that it is implementing regulations to control gases under the CAA in response to a 2007 US Supreme
Court decision, which stated that the agency has that authority. Federal lawmakers in both parties and the Obama
administration have both said that Congress would do a
better job. The House approved a bill by a 7-vote margin
in 2009 with a provision which would have established a
carbon cap-and-trade program to address global climate
change, but the Senate did not act on it. Instead, John D.
Rockefeller IV (D-W.Va.) early in 2010 proposed a 2-year delay in EPA’s implementation to give Congress time to act,
while Lisa Murkowski (R-Alas.) tried to use a legislative maneuver to halt the program.
“With this draft proposal, we are initiating a deliberative, transparent process that we hope will prevent EPA
from imposing by regulation the massive cap-and-trade tax
that Congress rejected last year,” Upton, Whitfield, and Inhofe said in a joint statement. “We firmly believe federal bureaucrats should not be unilaterally setting national climate
change policy, and with good reason: EPA’s cap-and-trade
tax agenda will cost jobs, undermine the competitiveness
of America’s manufacturers, and, as EPA has conceded, will
have no meaningful impact on climate. In other words, [it
will be] all cost with no benefit.”

Halt, not delay
Their bill would go beyond Rockefeller’s proposal and fully
halt EPA’s effort because they believe a 2-year delay would
not provide meaningful certainty for businesses creating jobs,

Oil & Gas Journal | Feb. 14, 2011

110214OGJ_21 21

and simply punt the decision past the next election, the three
GOP federal lawmakers said. The House Energy and Commerce Committee has scheduled a hearing on the proposal
for Feb. 9. US Sen. John A. Barrasso (R-Wyo.), who serves
on the Energy and Natural Resources and Environment and
Public Works Committee, and 10 other Senate GOP members
offered another bill aimed at halting EPA’s carbon emissions
program implementation under the CAA on Jan. 31.
Democrats on the Senate Environment and Public Works
Committee responded that Upton, Whitfield, and Inhofe’s
proposal simply would roll back carbon pollution protections. “Bipartisan environmental laws are now under attack,”
said Barbara Boxer (D-Calif.), the committee’s chairwoman.
“EPA’s common-sense steps to address carbon pollution follow the law and the Supreme Court decision that the agency
must consider this threat. Congress should not turn its back
on the American people by prohibiting EPA from doing its
job to address carbon pollution.”
“These attacks on the Clean Air Act will only take us
backwards to a time when big polluters dirtied our air with
impunity and hurt the health of our children,” said Frank
R. Lautenberg (D-NJ), chairman of the committee’s Superfund, Toxics, and Environmental Health Subcommittee. “If
Republicans want to tear down the progress we have made
to make air cleaner in America, they’re going to get a fight
from those of us who are committed to the public health of
our communities.”
Reps. Henry A. Waxman (D-Calif.), the Energy and Commerce Committee’s ranking minority member, and Edward
J. Markey (D-Mass.), the Natural Resources Committee’s
ranking minority member, jointly said on Feb. 2 that Upton,
Whitfield, and Inhofe’s draft bill would legislatively repeal
the scientific determination that carbon pollution seriously
threatens public health which EPA reached before beginning its program. They cosponsored the climate change bill
which the House narrowly approved in 2009 when Waxman
chaired the full committee and Markey chaired its Energy
and Environment Subcommittee. “The Republicans have a
lot of power, but they can’t amend the laws of nature,” Waxman said on Feb. 2. “Gutting the Clean Air Act is only going
to make our problems worse. This proposal threatens public
health and energy security, and it undermines our economic
recovery by creating regulatory uncertainty.”
“The groundhog didn’t see his shadow today, signaling
that spring is on the way,” Markey added. “However, Republicans in Washington seem bound and determined to deliver
an interminable winter of environmental and economic discontent for Americans who want cleaner air, water, and more
clean-energy jobs created here in America.”

21

2/10/11 1:15 PM


GENERAL INTEREST

API: Congress, not EPA, should direct GHG policy
Paula Dittrick
Senior Staff Writer

Congress should direct US policy on greenhouse gas emissions rather than the Environmental Protection Agency,
American Petroleum Institute spokesmen told reporters during a Feb. 4 conference call from Washington, DC.
Khary Cauthen, API director of federal relations, said he
sees growing, bipartisan sentiment among congressional
members that EPA needs to be stopped from regulating GHG
emissions under the Clean Air Act. For instance, Cauthen
said CAA never was intended to regulate stationary source
GHG emissions.
Previously, API has asked EPA officials to reconsider using New Source Performance Standards (NSPS) under the
CAA to set GHG standards. Cauthen said API is concerned
that “overly burdensome regulations” could hinder companies from creating jobs and spurring the nation’s economic
growth.
Howard Feldman, API director of regulatory and scientific affairs, said EPA should finalize NSPS that remain under

development before setting new GHG standards.
Refiners want to improve their energy efficiency in order
to improve their own financial performance, Howard said.
API has worked with EPA to revise previous versions of the
NSPS as required by the Clean Air Act.
“Any New Source Performance Standard must be cost effective and achievable so refineries can continue to make the
changes necessary to meet the nation’s energy needs,” Howard said.
API supported EPA’s request for more time to issue a maximum achievable control technology (MACT) rule concerning air pollutants such as mercury and soot from industrial
boilers and solid waste incinerators (OGJ, Dec. 13, 2010,
Newsletter).
A US District Court for the District of Columbia rejected
EPA’s request for an extension in a court-ordered schedule
for issuing the rule. The court told EPA to finalize the rule by
Feb. 21. Refiners already invested money into technology to
make boilers highly efficient, Howard said. He suggested an
administrative stay might be imposed on a new boiler rule as
a way to give the EPA more time to work on it.

EIA: Oil demand to rise by 1.5 million b/d in 2011
Worldwide oil demand will increase by 1.5 million b/d in
2011 and by 1.6 million b/d in 2012, with continued tightening of global oil markets over the next 2 years, EIA said in
its latest Short-Term Energy Outlook (STEO). In its previous
STEO, released a month ago, EIA forecast this year’s global
oil demand growth at 1.4 million b/d.
Developing countries outside the Organization for Economic Cooperation and Development will account for almost all of the growth in consumption over the next 2 years,
with the largest contributions coming from China, Brazil,
and the Middle East. Among the OECD regions, EIA expects
that only North America will consume more oil over the
next 2 years, as demand declines in OECD Europe and Asia.
In the US, EIA expects oil demand to increase by 140,000
b/d in 2011, up 0.8% from last year, and by another 170,000
bbl/d in 2012 to average 19.5 million b/d. Motor gasoline
and distillate fuel will account for much of the growth in
consumption, the report said.

Oil supply
EIA forecasts that total oil and liquid fuels production from
nonmembers of the Organization of Petroleum Exporting
Countries will increase by 310,000 b/d this year, then decline slightly in 2012. Increases this year in non-OPEC oil
production will be concentrated in a few countries, particu-

22

110214OGJ_22 22

larly in China and Brazil, where EIA expects each to post
average production growth of 170,000 b/d.
Projected US oil production will decline by 50,000 b/d
in 2011 and by a further 190,000 b/d in 2012. EIA expects
Canadian crude production growth to average 170,000 b/d
next year, while China and Brazil grow next year by 130,000
b/d and 110,000 b/d, respectively.
Mexico’s oil production will decline by about 210,000 b/d
in 2011, followed by a further dip of 80,000 b/d in 2012.
Production from the North Sea will fall by 220,000 b/d this
year and by 160,000 b/d in 2012, according to the STEO.
EIA forecasts that OPEC crude production will increase
by 400,000 b/d in 2011, followed by a further increase of 1.2
million b/d in 2012 in response to the increase in global demand for oil and limited growth in production in non-OPEC
countries.
OPEC natural gas liquids production will increase by
700,000 b/d this year and by 400,000 b/d in 2012, and EIA
expects that OPEC surplus production capacity will remain
above 4 million b/d during the next 2 years.
Onshore commercial oil inventories in the OECD countries remained high last year, but reports indicate that volumes of floating oil in storage fell sharply, EIA said. Now that
floating storage has been reduced, EIA expects that OECD
onshore inventories will decline over the forecast period.

Oil & Gas Journal | Feb. 14, 2011

2/10/11 1:15 PM


GENERAL INTEREST
Projected OECD stocks will fall by
about 55 million bbl in 2011, followed
by an additional 60 million bbl decline
in 2012. The number of days of supply
will fall to 55 days from 57 days between December 2010 and the end of
2012, near the middle of the previous
5-year range, EIA said.

pane, flat expenditures for electricity, but lower expenditures for natural
gas. A forecast of milder weather in the
South and the West compared with
the 2009-10 winter leads to lower fuel
consumption in those areas, EIA said.

Natural gas forecast
EIA expects that 2011 US natural gas
consumption will remain flat from
2010 but grow by 1% next year to 66.8
bcfd.
An increase in gas demand by elec-

Oil price outlook
EIA expects the price of WTI crude oil
to average about $93/bbl in 2011, up
$14/bbl from last year. For 2012, EIA
projects that WTI prices will continue
to rise, averaging $98/bbl.
EIA’s forecast assumes that US real
gross domestic product (GDP) will
grow by 3% in 2011 and by 2.8% next
year, while global GDP will grow by
3.9% and 4%, respectively, in 2011
and 2012.
“There are many significant uncertainties that could push oil prices
higher or lower than current expectations. Among the uncertainties are
decisions by key OPEC member countries regarding their production response to the global recovery in oil demand; the rate of economic recovery,
both domestically and globally; fiscal
issues facing national and subnational
governments; and China’s efforts to
address concerns regarding its growth
and inflation rates,” the STEO said.
“In addition, even though Egypt
is not a major supplier of crude oil or
natural gas to world markets, the recent unrest in that country raises the
concern that unrest could spread to
other countries in the region with a
larger role in supplying world energy
markets or that key transit routes for
energy and other goods could be disrupted,” EIA said.
EIA expects regular-grade motor
gasoline retail prices to average $3.15/
gal this year, up 37¢/gal from 2010,
and to average $3.30/gal in 2012.
And EIA forecasts that average
household expenditures for spaceheating fuels will total $991 during
this 2010-11 winter season, $24 higher
than a year earlier. EIA projects higher
expenditures for heating oil and pro-

Oil & Gas Journal | Feb. 14, 2011

110214OGJ_23 23

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23

2/10/11 1:15 PM


WATCHING THE WORLD
ERIC

WATKINS

Oil Diplomacy Editor | Blog at www.ogj.com

Israel reconsiders new taxes
Government officials in Tel Aviv are
apparently reconsidering their position concerning new natural gas discoveries off Israel following an alleged attack on a major gas pipeline in
Egypt’s northern Sinai Desert.
Egyptian state media and local government officials said they
suspected sabotage in the pipeline
explosion at a gas terminal in Egypt’s
northern Sinai Peninsula that temporarily shut down flow.
The incident has Tel Aviv worried as Egypt supplies about 40% of
Israel’s natural gas. Not least, the gas
deal is a cornerstone of peaceful relations between the two countries.
But Israel fears Egyptian instability
could render the agreement worthless,
a point underlined by Israel’s National
Infrastructures Minister Uzi Landau.
“We always hope for the good, in
terms of the peace agreement that we
have and with the gas commercial
contract that we have, but we always
have to prepare ourselves for the bad
case,” Landau said.

Tax exemption…
In fact, immediately after the explosion, Landau called for the government
to exempt developers of new Israeli gas
fields—including Houston-based Noble Energy Inc.—from proposed new
taxes. His aim, of course, is to speed
up development of the offshore deposits that were discovered by Noble and
its partners. More to the point, Landau
said that Israel must become energy
independent.
Chances are that the country will

24

110214OGJ_24 24

indeed become energy independent in
due course, given the amount of gas
reported to be under Israel’s portion
of the Mediterranean Sea.
Just last month, Noble reported an
apparently major gas find with the Leviathan prospect it operates off Israel.
“This discovery has the potential
to position Israel as a natural gas
exporting nation,” said Nobel Pres.
and Chief Operating Officer David L.
Stover.

…welcomed by firms
Altogether, Noble and its partners
made three gas discoveries in the Levantine basin amounting to 25 tcf, according to Charles D. Davidson, the
firm’s chairman and chief executive officer. Landau’s call for the government
to exempt developers of new Israeli gas
fields from proposed taxes will certainly be welcomed by the firms that
intend to develop the offshore deposits.
It was just late last month that
Israel’s Cabinet approved a sharp
increase in taxes on profits from its
recently discovered gas reserves,
despite opposition from Noble and its
Israeli partners. The plan drafted by
a Finance Ministry committee would
roughly double current tax rates to
collect 52-62% of revenues from gas
and oil finds.
Now, it seems, a terrorist bomb in
Egypt suddenly has the Israeli government thinking otherwise. Now, it
seems, gaining energy independence
counts for more than a few extra
shekels in the state treasury.

tric power producers of 2.9% and a
1.2% increase by industrial users will
be partially offset by slight declines in
residential and commercial consumption, EIA said, but electric power and
industrial demand next year will grow
by 2.9% and 1.2%, respectively.
Total marketed natural gas production grew strongly throughout 2010,
with 4.4% annual growth. Production
in 2011 will slow considerably to just
0.8 %, EIA forecasts, as an increase of
1 bcfd in the Lower 48 states is partially offset by a decline of 0.4 bcfd in the
Gulf of Mexico. Increasing consumption, especially in the electric power
segment, will contribute to higher
prices and more economic incentive
for producers to resume drilling, according to the STEO.
Total US gas production will increase 1.1% in 2012, as Lower 48
production is expected to increase
throughout 2012 and federal Gulf of
Mexico production is forecast to decline by 0.4% in 2012.
The Henry Hub spot price averaged
$4.49/MMbtu in January, up 24¢/MMbtu
from the previous month. EIA forecasts that the Henry Hub spot price
will average $4.16/MMbtu in 2011,
down 22¢/MMbtu from the 2010 average. EIA said it expects the gas market to begin to tighten in 2012, with
the Henry Hub spot price increasing
to an average of $4.58/MMbtu for the
year.

New areas could
expand Arctic’s
oily component
The Arctic, thought to be natural gasdominant on the basis of limited exploration, could become more oily as
more of the region is more fully explored, delegates at the Arctic Technology Conference were told Feb. 7 in
Houston.
The oil and gas industry must over-

Oil & Gas Journal | Feb. 14, 2011

2/10/11 1:15 PM


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