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Oil and Gas Energy News Update

Wednesday, August 17, 2011

Oil & Gas Post - All News Report for Wednesday, August 17, 2011

Wednesday, August 17, 2011

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Commodity Corner: Oil Rises on Bullish Gasoline Stocks

- Commodity Corner: Oil Rises on Bullish Gasoline Stocks

Wednesday, August 17, 2011
Rigzone Staff
by Saaniya Bangee

Light, sweet futures held gains of almost 2 percent Wednesday after the EIA reported a sharp decline in U.S. gasoline inventories.

September crude gained nearly a dollar to settle at $87.58 per barrel on the New York Mercantile Exchange. Its European counterpart settled at $110.60 a barrel, up $1.47.

The U.S. Energy Information Administration (EIA) reported a higher than expected drop in gasoline stockpiles, pushing oil prices higher early on in Wednesday's trading session. The EIA said gasoline stockpiles declined by 3.5 million barrels last week to 210.1 million barrels. An increase in gasoline demand suggests refineries require more oil. Meanwhile, the market pared gains when the EIA reported an increase of 4.23 million barrels in oil inventories.

Benchmark West Texas Intermediate traded between $86.65 and $89.00 Wednesday. Brent benchmark peaked at $111.74—the highest since Aug. 4.

In other NYMEX trading, front-month natural gas futures settled at $3.93 per thousand cubic feet after fluctuating between $3.89 and $3.98 Wednesday. Gasoline for September delivery gained 1.65 cents ending the session at $2.89 a gallon. Reformulated gasoline traded as high as $2.93 and as low as $2.86 Wednesday.

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Sheen Seen Emanating from BP Thunderhorse Platform in US Gulf

- Sheen Seen Emanating from BP Thunderhorse Platform in US Gulf

Wednesday, August 17, 2011
Dow Jones Newswires
by Ryan Dezember

A band of silvery sheen was spotted emanating from BP's Thunderhorse platform Tuesday in the U.S. Gulf of Mexico, though the company said that it has taken action to prevent further discharges, according to a government filing.

A two-foot-wide band of sheen stretching 30 feet from the platform, which is located in deep water south of the Mississippi-Alabama state line, was reported to the National Response Center on Tuesday.

BP told federal pollution regulators that the unspecified substance came from a discharge pipe and that it was adjusting waste treatment chemicals on the platform to remediate the problem, according to the filing.

A BP spokesman did not immediately respond to a request for comment.

Copyright (c) 2011 Dow Jones & Company, Inc.

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Range Resources Challenges South Fayette's Drilling Law

- Range Resources Challenges South Fayette's Drilling Law

Wednesday, August 17, 2011
Knight Ridder/Tribune Business News
by Mike Wereschagin, The Pittsburgh Tribune-Review

A natural gas company has asked South Fayette's zoning board to overturn a 2010 law it says enacts a de facto ban on drilling in the township.

Range Resources petitioned the board on Tuesday, saying the restrictions strip the company's right to drill on 4,000 acres it has leased in the township. South Fayette's ordinance, enacted on Nov. 15, bans drilling within certain distances of homes, schools, streams, ponds, gas stations, mobile home parks, day cares, hospitals and nursing homes. The distances range from 300 feet to 2,500 feet.

Add each restriction together -- plus the requirement that the land on which drilling takes place be at least 10 acres -- and it covers the town's entire land mass, Range spokesman Matt Pitzarella said.

"You can't (drill in South Fayette). It can't be done," Pitzarella said.

One of the law's chief supporters said the legislation leaves land open to drilling -- just not some of the land Range has leased.

"Their problem is they bought their way into some land that's right in the middle of the community," said Keith McDonough, head of the anti-drilling group Friends of South Fayette. McDonough said he wanted to ban drilling in the town, but state law forbids it. "The entire western border (of South Fayette) that borders Cecil Township, which is heavily drilled, is all permissible. I wish that weren't the case, to be honest with you, but it is."

The conflict arises as municipalities around the state are crafting their own drilling regulations -- something Range worries will lead to an unpredictable and costly patchwork of restrictions on its business. There are 2,565 municipalities in Pennsylvania.

The Pennsylvania State Association of Township Supervisors in December published a model zoning ordinance for towns to use, although it doesn't recommend the size of buffer zones.

Just across the state line, a Morgantown judge struck down that city's drilling ban on Friday, saying it illegally pre-empted state law. Range says in its complaint to the South Fayette zoning board that Pennsylvania law also doesn't allow towns to ban drilling.

But the Pennsylvania Supreme Court has allowed municipalities to restrict drilling to certain areas by using zoning ordinances, said Myron Arnowitt, state director of environmental group Clean Water Action.

Arnowitt called South Fayette's ordinance "one of the best ... in the region." He said he wasn't sure whether it was legal to use zoning rules to ban drilling, and said he didn't know whether South Fayette's law amounts to such a de facto ban.

According to one South Fayette commissioner, "it's arguable" that it does.

"By limiting drilling to a very limited amount of zones, as South Fayette does, it does severely impact drilling operations," said Sue Caffrey. She said the ordinance was an emotional reaction to widespread drilling opposition in the town. Rather than solving difficult problems about how to safely regulate drilling, she said, "it kind of skirts that issue through zoning."

"I voted for it, and it is the one vote in my 12 years I regret making," Caffrey said.

The zoning board operates independently of the five-member board of commissioners. Whichever side the zoning board takes on Range's petition, the decision could wind up in the Court of Common Pleas.

Copyright (c) 2011, The Pittsburgh Tribune-Review

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Marcellus Shale Driller Fighting South Fayette Ordinance

- Marcellus Shale Driller Fighting South Fayette Ordinance

Wednesday, August 17, 2011
Pittsburgh Post-Gazette
by Erich Schwartzel

Range Resources made a significant move Tuesday in what is likely the first step in a legal challenge to the wave of small-town regulations on natural gas drilling in the Marcellus Shale.

The Fort Worth, Texas-based company filed an appeal to the zoning hearing board of South Fayette that calls its drilling ordinance an "illegal" infraction against the company's business pursuits.

Range Resources says the township's zoning ordinance enforces buffer zones around schools, hospitals and certain commercial areas that force a de facto moratorium on drilling throughout the entire township.

That violates the portion of Pennsylvania's Municipalities Planning Code that requires all municipalities to "allow for reasonable development of minerals" as part of any zoning ordinance, the company said.

The matter is before the zoning hearing board because the drilling regulations involved the township's zoning ordinance.

A date for the zoning hearing has not been set, but Range Resources spokesman Matt Pitzarella said his company will take the issue to the Court of Common Pleas and up the legal ladder if it is rejected by the South Fayette authorities.

If Range Resources wins a ruling in a higher court, it could create a precedent and threaten to overturn scores of small-town ordinances across Pennsylvania.

Throughout Western Pennsylvania, townships have passed ordinances that further regulate drilling beyond state law or take steps to mitigate side effects like road damage or noise control.

Range Resources owns approximately 4,000 acres in South Fayette but has not drilled any Marcellus wells. The ordinance was approved last November after more than a year of public hearings and input from energy companies, including Range Resources.

South Fayette solicitor Jonathan Kamin said the ordinance still allows drilling in "many zoning districts" throughout the township -- they just might not be in the convenient areas that Range Resources would prefer.

"Everyone has recognized that this is a use that cannot be banned," said Mr. Kamin.

Local communities like South Fayette have drafted conditional use ordinances to deal with natural gas drilling, which require every well site to undergo an approval process prior to drilling.

Energy companies say the site-specific requirements make as much sense as requiring a new driver's license in every town, and that the process slows predictability in an industry that plans years in advance.

"It's death by a thousand paper cuts," said Mr. Pitzarella.

The South Fayette ordinance enforces regulations that are already in place as part of the Pennsylvania Oil and Gas Act, and Range Resources says that regulatory double-dipping is illegal.

"[South Fayette] unlawfully seeks to achieve the same purposes and to regulate the same features of the development of oil and natural gas which are regulated exclusively and comprehensively by the Commonwealth," the appeal states.

Range Resources said the conditions of the ordinance are a "de facto taking" of land that make it impossible to drill. The company says this violates the Fifth Amendment of the U.S. Constitution, which says private property cannot be taken for public use "without just compensation."

With the ordinance in place, Range Resources calculated the potential loss to the company and its leaseholders in South Fayette to be nearly $200 million.

Range Resources has already challenged local ordinances that it interprets as going too far. During deliberations for a conditional use ordinance in Mount Pleasant last April, the company sent a letter to residents threatening to move into "more cooperative communities" should the ordinance pass.

That ordinance did pass in June, and Range Resources has kept its promise to not drill any new wells in Mount Pleasant as long as it stays in place.

The appeal filed Tuesday in South Fayette is the latest in a series of recent challenges to local drilling regulations. Earlier this month, Pittsburgh Mayor Luke Ravenstahl refused to sign a city council measure that would have banned drilling within Pittsburgh city limits, and a similar ban in Morgantown, W.Va., was overturned by a judge last Friday.

Copyright (c) 2011, Pittsburgh Post-Gazette

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Fort Worth Council Wants Best Practices for Gas Drilling

- Fort Worth Council Wants Best Practices for Gas Drilling

Wednesday, August 17, 2011
by Bill Hanna
Fort Worth Star-Telegram, Texas

The City Council signaled its desire Tuesday to require best practices for the oil and gas industry to increase oversight of drilling in the city.

Possible best practices include vapor recovery units, increased inspections of well pads and more research on formaldehyde and acrolein emissions.

"I think we definitely want to adopt best practices," Mayor Betsy Price said. "And we definitely want to send the message to [the Texas Commission on Environmental Quality] that we want those inspections done and to maintain that oversight."

That was echoed by Councilman Jungus Jordan."We've had enough study; it's time to take some action," Jordan said, referring to the city's $1 million natural gas air-quality study.

At a three-hour gas drilling workshop, members also discussed the city gas drilling ordinance and possible amendments regarding setbacks, well sites and multiple-well sites.

Price said many issues remain "murky" and need further study by the city staff and council.

But council members appear to be moving toward lifting the city five-year moratorium on saltwater injection wells. They extended it by 90 days at the end of July just as it was about to expire.

Currently, wastewater from hydraulic fracturing must be trucked to sites outside the city, a process that officials say increases truck traffic and wear and tear on roads.

The council has been leery of allowing saltwater injection wells because of concerns that the waste could contaminate groundwater.

But a presentation from the Texas Railroad Commission eased members' concerns about allowing wastewater from large gas drilling sites to be injected into the ground. The state said it normally requires the chemical-laced wastewater to be injected into the Ellenberger formation, which is deeper than the Barnett Shale.

After the presentation, Councilman Sal Espino suggested allowing only large-volume injection wells so as to guarantee that the wastewater would be placed in the Ellenberger Shale.

Price said the discussion shows that the council is leaning toward lifting the moratorium when it expires in October, but she said it is unclear whether it will be lifted just for pilot sites in the Brentwood Stair area and the Alliance Corridor.

The city's only saltwater disposal site is the Brentwood well, and Hillwood Development would like to add one in the Alliance Corridor to reduce truck traffic and stress on roads.

"That's something that didn't get discussed and needs to be talked about," Price said.

Copyright (c) 2011, Fort Worth Star-Telegram, Texas

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American Petro-Hunter Starts Drill Site Ops at N. Oklahoma Proj.

- American Petro-Hunter Starts Drill Site Ops at N. Oklahoma Proj.

Wednesday, August 17, 2011
American Petro-Hunter Inc.

American Petro-Hunter announced that drill site operations have commenced in preparation for the next horizontal oil well at the Company's North Oklahoma Mississippi Project development.

Site arrangements are underway including permitting and requisite documentation in advance of the spud of the newly designated NOW-2H well. The directional drilling contractor has been secured and the Company expects a spud date shortly.

The well is a direct offset to the NOM-1H well, which began production in July and will involve a similar lateral drilling operation into the recently discovered Mississippi reservoir. The Company has purchased full working interest participation in up to 11 additional horizontal wells within the play with the NOW-2H becoming the 2nd well implemented under the planned development program.

The leases in the horizontal play are being developed on 80 acre parcels, however the well spacing will be evaluated after each well is put into production for a period of 30-45 days prior to engineering any additional infill wells. This prudently engineered plan will ensure the maintenance of reservoir integrity over the life of the proposed 24 month drilling schedule. The program is envisioned to involve the drilling of approximately one horizontal Mississippi formation well every 30 to 60 days.

Given the dramatically increased levels of activity in the area, rig availability has become a key scheduling issue. As a result, the Company and partners have accelerated the spud date of the NOW-2H and have further determined that the previously announced vertical NOS-2-22 required a shift to October based on current rig logistics which ultimately provides greater overall benefits allowing for improved operational efficiency across both wells.

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Fluor Lands Caspian Pipeline Expansion Contract

- Fluor Lands Caspian Pipeline Expansion Contract

Wednesday, August 17, 2011
Fluor Corp.

Fluor has been awarded a contract by Chevron Neftegaz—one of three project managers engaged by the Caspian Pipeline Consortium—for its recently announced expansion project. Fluor will provide project services for the marine terminal and supervisory control and data system (SCADA) portions of the Caspian Pipeline Expansion project. The pipeline begins in western Kazakhstan and runs 1,510 kilometers west to the terminal in Novorossiysk, Russia, on the Black Sea. Fluor booked $100 million into backlog in the second quarter.

"This pipeline expansion is a vital first step to pave the way for numerous additional crude oil production expansion projects in the region," said Peter Oosterveer, president of Fluor's Energy & Chemicals Group. "As the original program management contractor for the first phase of the Caspian Pipeline project—which involved refurbishing more than 700 kilometers of pipeline and building an additional 740 kilometers—we're pleased in the confidence the client consortium has again placed in us. This expansion of the Caspian pipeline and terminal to increase oil transportation capacity is crucial to Russia, Kazakhstan and European economic stability and to meet energy demand."

As the project services contractor, Fluor is providing oversight assistance for the deepwater marine terminal expansion in Novorossiysk as well as the SCADA system for the entire pipeline. The project is scheduled to be completed at the end of 2014.

Fluor completed the first phase of this pipeline project with the first crude oil loaded onto a tanker at the marine terminal in October 2001.

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Oil, Freight Prices Lift Denmark's Moller-Maersk

- Oil, Freight Prices Lift Denmark's Moller-Maersk

Wednesday, August 17, 2011
Knight Ridder/Tribune Business News
by Lennart Simonsson, dpa, Berlin

Higher oil prices and more freight volumes lifted Danish shipping and oil group Moller-Maersk's six-month net profit to 2.7 billion dollars, the group said Wednesday.

The net profit was up 8 percent on the first half of 2010, the conglomerate said.

Turnover, measured in dollars, rose 9 percent year-on-year to 29.9 billion dollars.

The group that operates Maersk Line, the world's biggest container shipper, said it expected global demand for seaborne containers to grow by 6 to 8 percent in 2011.

In the short term, it said freight prices were not expected to rise due to addition of new tonnage, especially on routes between Asia and Europe. Higher oil prices could also weigh on profit.

The group repeated its earlier statement that it expected full-year results to be lower than in 2010.

The group's total fleet counted 621 container vessels at the end of the six-month period, of which 376 were chartered.

AP Moller-Maersk Group operations include sea transport, offshore oil and gas activities and retail and shipyard operations.

Year-on-year the oil price was 44 percent higher but production decreased 11 percent, mainly as a result of a lower production share in Qatar and lower output in the Danish and British section of the North Sea, the group said.

During the January-June period the group was also involved in exploration in Angola, Brazil, Denmark, Norway, Qatar, Britain and the United States. Exploration costs almost doubled to 355 million dollars.

Copyright (c) 2011, dpa, Berlin

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Pacific Mistral Wins 3-Year Contract for Petrobras

- Pacific Mistral Wins 3-Year Contract for Petrobras

Wednesday, August 17, 2011
Pacific Drilling S.A.

Pacific Drilling announced that its ultra-deepwater drillship the Pacific Mistral has been awarded a three-year contract by Petróleo Brasileiro S.A. (Petrobras) for operations in Brazil. The contract is expected to commence in the fourth quarter of 2011, and estimated maximum contract revenues, including mobilization and client requested modifications, are expected to be approximately $536 million.

Pacific Drilling Chief Executive Officer Chris Beckett stated, "We are pleased to announce the beginning of a core, strategic relationship with Petrobras. This contract for the Pacific Mistral underscores our commitment to work with the best operators in the industry and also expands our operating presence in the Atlantic Basin, a region of focus for our activities."

The Pacific Mistral was delivered by Samsung Heavy Industries in June 2011. The rig is equipped for and capable of operating in water depths of up to 12,000 feet and drilling wells 37,500 feet deep.

With its best-in-class drillships and highly experienced team, Pacific Drilling is a fast growing company that is dedicated to becoming the preferred ultra-deepwater drilling contractor. In addition to three ultra-deepwater drillships delivered to date, Pacific Drilling expects delivery of an additional drillship during the fourth quarter of 2011 and has two drillships on order at Samsung for delivery during 2013.

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BOEMRE Confirms Fatality at Platform Offshore Tx.

- BOEMRE Confirms Fatality at Platform Offshore Tx.

Wednesday, August 17, 2011

The Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) has confirmed that agency personnel responded on August 16 to a report of a fatality at Energy Resource Technology's High Island (HI) Block A557 Platform A. This is an oil and gas production platform approximately 75 miles offshore Texas, in about 224 feet of water.

According to the operator's report, an incident occurred early on the morning of August 16 during a crane lift in which a large piece of equipment was being loaded from the platform to a workboat. An apparent failure of the boom hoist cable led to a collapse of the crane, which set off a series of events in which the crane's harness struck and fatally wounded an employee. There was no production ongoing at the time of the accident.

BOEMRE inspectors traveled to the platform yesterday and have begun an independent investigation into the cause of the accident.

"This was a tragic accident. Our thoughts and prayers are with the family of the deceased employee, as well as his colleagues and friends. This incident provides the most dramatic possible reminder of what is at stake as we work with industry to ensure the highest safety standards on offshore facilities and do everything possible to minimize the risk of such accidents," said BOEMRE Director Michael R. Bromwich.

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SPE Names New Chairman

- SPE Names New Chairman

Wednesday, August 17, 2011
Society of Petroleum Engineers

Society of Petroleum Engineers (SPE) Aberdeen Section has appointed Masud Javaid as chairman. Mr. Javaid takes over the role from Chris Nussbaum and will hold the chair from July 2011-June 2012.

With over 12 years of experience in the energy industry, Mr. Javaid is currently a senior economist within the strategy and economics team for TOTAL E&P UK and is SPE Aberdeen chairman on a voluntary basis.

Mr. Javaid said, "I want to thank the outgoing chair, Chris Nussbaum, for the great work that he has done and I hope to continue where he left off. I feel extremely privileged to have been selected by my peers as chairman of the Aberdeen Section. The aim of SPE as an organization is to provide opportunities for our members and all industry professionals to enhance their technical and professional abilities and to promote lifelong learning."

As a volunteer organization, SPE Aberdeen works closely with the oil and gas industry, Scottish universities and local schools, institutes and academia to advance the learning and technical excellence in all aspects of the industry; offshore, onshore and internationally.

Mr. Javaid continued, "In my role as chairman, I aim to continue to raise the profile of SPE in the local energy community and highlight the excellent technical programs that we offer I also want to ensure, with the help of our Careers Guidance committee, that we continue to provide a lot of support to north-east schools in order to promote the Energy Industry as a potential career path for the pupils.

"Through our Student Development committee we will ensure that we maintain excellent links with local Universities by providing Scholarships for students and support local SPE student chapters in any events that they may organize."

SPE Aberdeen is run entirely by volunteers and has members from across a range of age, gender and nationality, with four student Chapters at five Universities in Scotland.

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Ford To Sell Solar Panel System Alongside With Electric Cars

- Ford To Sell Solar Panel System Alongside With Electric Cars

Aug 17, 2011

Ford Motor Company (NYSE:F) is joining forces with SunPower to offer a rooftop solar system option, which will be sold alongside the upcoming Ford Focus EV. The "Drive Green For Life" program, as its being called, includes mounting solar panels on a customer's home.

Pricing and an exact launch date for the new 2012 Ford Focus isn't available yet, but the car will go on sale first in California and New York in Q4 2011.

Ford also plans to launch 5 other electric or hybrid-electric models in 2012 in North America, and in Europe by 2013.

Ford Motor (NYSE:F) has a potential upside of 81.1% based on a current price of $11.07 and an average consensus analyst price target of $20.05.

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Magnum Hunter Closes Credit Facility for Eureka Hunter Pipeline

- Magnum Hunter Closes Credit Facility for Eureka Hunter Pipeline

Wednesday, August 17, 2011
Magnum Hunter Resources Corp.

Magnum Hunter's wholly-owned subsidiary, Eureka Hunter Pipeline, has closed a new credit facility totaling $150 million. The Eureka Hunter Finance Facility is comprised of two tranches: (i) a revolving credit facility in the aggregate principal amount of up to $100 million secured by a first lien on the assets of Eureka Hunter Pipeline ("Revolver") with an initial committed amount of $25 million; and (ii) a $50 million term loan secured by a second lien on such assets ("Term Loan"). All of the Term Loan must be drawn before any of the Revolver is drawn and $31 million of the Term Loan was drawn at closing yesterday. Both the Revolver and the Term Loan are "non-recourse" to the parent company, Magnum Hunter.

The proceeds from the Revolver and the Term Loan will be used to finance capital expenditures for the construction of the Eureka Hunter Pipeline system located in northern West Virginia and Ohio. Advances under the Term Loan will be limited to 60% of the project's "Total Capital" including equity and debt invested. As of August 15, 2011, Magnum Hunter has invested approximately $52 million of equity capital in the Eureka Hunter Pipeline project.

In addition, Magnum Hunter has received $21 million of net proceeds from the Term Loan Closing to repay existing indebtedness. As of August 16, 2011, Magnum Hunter had total liquidity including cash and availability under its credit facilities, including the Term Loan, of approximately $75 million, of which $55 million is available to fund its upstream capital program focused on the Company's high growth resource plays.

The applicable interest rate margin of the Revolver ranges from LIBOR plus 2.25% to LIBOR plus 3.50%. The Term Loan accrues interest at a rate of 12.50% per annum; of which 2.75% is payable in cash or Magnum Hunter restricted common stock at the sole option of Magnum Hunter. The Revolver and the Term Loan contain other terms and conditions customary for financings of this type. The Revolver has a maturity of five years from date of closing and the Term Loan has a maturity of seven years from date of closing. SunTrust Robinson Humphrey, Inc. has served as the "Lead Arranger" and SunTrust Bank will serve as "Administrative Agent" for the Revolver. PennantPark Investment Corporation is the "Lender" for the Term Loan.

Management Comments

Mr. Ronald D. Ormand, Executive Vice President and Chief Financial Officer of Magnum Hunter, commented, "The closing of the Eureka Hunter Finance Facility for the Eureka Hunter midstream assets completes one of our primary financial goals for fiscal year 2011. Eureka Hunter Pipeline now has its own primary source of financing, provided on a non-recourse basis to Magnum Hunter, and the capital necessary to complete construction and expand operations of the pipeline through fiscal year 2012. In addition, with the return of $21 million in capital from the Eureka Hunter Finance Facility, Magnum Hunter has further increased its overall financial liquidity to in excess of $75 million. The additional liquidity provides Magnum Hunter with the necessary capital to fund the Company's capital expenditure plan through the end of fiscal year 2011 and into fiscal year 2012."

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Shell: 660 Tons of Oil Remain in Leaking Pipeline in North Sea

- Shell: 660 Tons of Oil Remain in Leaking Pipeline in North Sea

Wednesday, August 17, 2011
Dow Jones Newswires
by Alexis Flynn

Some 660 tons of oil is still inside a leaking Shell pipeline in the U.K. North Sea, the Anglo-Dutch major said Wednesday, explaining that efforts to stop the relatively light flow of crude oil are taking a long time so as to minimize the risk of the remaining oil spilling out.

Shell has been attempting to stop a leaking flowline from its Gannet Alpha platform for the last seven days amid mounting public criticism of its perceived lack of transparency about the spill.

"I cannot stress enough the need to undertake detailed risk assessments and ensure any work considered is undertaken safely," Glen Cayley, technical director of Shell's exploration and production activities in Europe, told journalists at a joint press conference with a U.K. government representative.

Scottish Environment Secretary Richard Lochhead said Shell had been made aware of the need for better communication about what happened and what it was doing to address the leak.

"I have spoken with both Shell's senior management and the U.K. government's offshore-incident representative and I stressed, once again, the importance of clear communication on the current operation and the expectation people have for complete openness and transparency on the situation. I was assured by both that this point had been taken on board, and I'm pleased to see that steps have now been taken to put more information in the public domain. This must continue," said Lochhead.

Shell has estimated that around 216 tons--or 1,300 barrels--of oil have spilled from the Gannet Alpha platform since last week. By Wednesday afternoon, oil was continuing to leak at a rate of less than a barrel a day.

Shell declined to say how long it would take to finally close the leak.

If oil continued to leak from the pipeline, Cayley said, it was "inevitable" that it would cross the median line into the Norwegian North Sea. He said Shell had informed the Norwegian government of the possibility.

The Norwegian Petroleum Safety Authority wasn't immediately available for comment.

The Department of Energy and Climate Change official assigned to liaise with Shell and monitor the company's response to the spill said that, in his view, "the leak is under control and has now been greatly reduced." Hugh Shaw said the DECC and the Health and Safety Executive will thoroughly investigate the causes of the incident, after which a full report will be sent to Scottish Procurator Fiscal, or public prosecutor.

The Gannet platform will be shut down from Thursday, said Cayley, although he stressed that this was a long-planned maintenance halt. However, inspections would be carried out on the rest of Gannet's pipeline in light of this incident, he added.

Crude oil from the Gannet system is taken to Teesside, U.K., through the Fulmar pipeline as part of Ekofisk blend.

Copyright (c) 2011 Dow Jones & Company, Inc.

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Swift Energy to Sell Stakes in Six U.S. Fields

- Swift Energy to Sell Stakes in Six U.S. Fields

Wednesday, August 17, 2011
Swift Energy Co.

Swift Energy has signed a purchase and sales agreement with a private oil and gas company to sell Swift Energy's interests in six fields in South Louisiana, two in Texas and one in Alabama for approximately $53.5 million. Swift Energy will use net proceeds from this transaction to fund a portion of its 2011 capital expenditures.

Production attributable to the fields being sold averaged 10.6 million cubic feet of gas equivalent per day during the first quarter of 2011 with aggregate proved reserves of 92.2 billion cubic feet equivalent (19% proved developed producing and 65% natural gas) at year-end 2010. This sale is expected to close within the next 60 days, with an effective date of August 1, 2011. The total acquisition sale price is subject to post-closing adjustments.

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Bill Barret Finalizes DJ Basin Acquisition

- Bill Barret Finalizes DJ Basin Acquisition

Wednesday, August 17, 2011
Bill Barrett Corp.

Bill Barrett has closed its previously announced acquisition of properties in the Denver-Julesburg (DJ) Basin from an affiliate of Texas American Resources Company.

The DJ Basin acquisition includes a preliminary estimate of 7 million barrels of oil equivalent (MMBoe) net proved reserves, approximately 650 Boe per day net production and approximately 28,000 net acres of mineral leasehold, primarily on fee lands. The acquired properties currently have producing wells in the Wattenberg Field with production from the Codell, Niobrara and J Sands formations. Acquired exploration acreage is located predominantly in the Chalk Bluffs area just north of the Wyoming-Colorado border, neighboring the Hereford area just south of the border, where the Company intends to target oil in the Niobrara formation.

The DJ Basin acquisition was completed for approximately $150 million, subject to post-closing adjustments. The Company plans to initiate exploration and development of the Chalk Bluffs and Wattenberg areas, respectively, with a one-rig program beginning in October 2011.

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Melrose Sees 23% Increase in 1H11 Production

- Melrose Sees 23% Increase in 1H11 Production

Wednesday, August 17, 2011
Melrose Resources plc

Melrose announced its interim results for the six month period ended 30 June 2011.

Operational highlights
  • average production increased by 23 percent to 20.2 Mboepd on a net entitlement basis (equivalent to 38.0 Mboepd on a working interest basis)
  • 3D seismic interpretation completed on the South East Mansoura concession (Egypt) confirming Cretaceous oil play potential
  • 2D seismic acquisition completed on the Mesaha (Egypt) and Rhône Maritime (France) frontier exploration concessions
  • operations on the South West Kanun (Turkey) exploration well are nearing completion with no oil shows yet encountered
  • Concession Agreements signed for the Muridava and Est Cobalcescu licenses (Romania)
  • entered into a two year extension on the Galata Block exploration concession (Bulgaria)

Financial highlights
  • revenue increased to $155.8 million (H1 2010: $110.0 million)
  • EBITDAX increased to $134.4 million (H1 2010: $86.3 million)
  • profit after tax increased to $33.2 million (H1 2010: $4.1 million)
  • net debt reduced to $367.3 million (H1 2010: $459.6 million)
  • financial gearing of 107 percent (H1 2010: 140 percent)

Robert Adair, Executive Chairman commented, "The first half of 2011 represented an important turning point for the Company, with the production revenues from our two core areas in Egypt and Bulgaria allowing us to progress a number of high potential exploration initiatives.

"The Company has delivered a strong financial performance and our underlying profitability has continued to improve while we have made a major step towards reducing financial gearing.

"We look forward to making further progress in continuing to grow as a diversified, well balanced exploration and production company."


The first half of 2011 has been a period of strong financial performance for the Company as we began to see the benefits from our new Bulgarian gas field developments which came on stream late last year. Coupled with production from our existing Egyptian assets, the new fields have helped generate significant post tax profits and operating cash flow of $33.2 million and $104.9 million, respectively, and we are on track to reduce our financial gearing towards 100 percent by year end.

The Company achieved an average production rate of 20.2 Mboepd on a net entitlement basis (equivalent to 38.0 Mboepd on a working interest basis) during the first half of 2011. This was somewhat below forecast due to a number of operational factors in Egypt which we are addressing through a remedial drilling and work-over program. While these considerations should have a minimal impact on reserves, we feel it prudent to reduce our full year production guidance to 36.0 Mboepd on a working interest basis pending completion of the rig activities.

During the period we made good progress on a number of exploration initiatives as we strengthen the Company's focus on high growth opportunities. We completed the interpretation of the 3D seismic data which we acquired over the South East Mansoura concession in Egypt last year and were pleased to confirm significant oil potential in the Cretaceous exploration play. We plan to drill our first test well on this play later this year on a prospect called Al Hajarisah. We also completed the acquisition of key 2D seismic surveys over our high potential frontier exploration blocks in Egypt (Mesaha) and offshore France (Rhône Maritime). Detailed interpretation of these surveys is still ongoing but the preliminary analysis indicates that both blocks contain numerous large structures which could form the basis for hydrocarbon traps. We plan to drill our first well on Mesaha next year and envisage 3D seismic acquisition or drilling on the Rhône Maritime block within the same timeframe.

During the period, the Company announced the Concession Agreements for the Muridava and Est Cobalcescu concessions offshore Romania had been signed and we are looking forward to acquiring seismic surveys over these blocks in 2012 with a view to starting a drilling campaign in 2013. In addition, the Company has exercised its option to enter a two year extension of the Galata exploration permit in Bulgaria. Both these shallow water western Black Sea areas are highly prospective, containing a number of plays and have the potential to make a significant contribution to the Company's growth plans.

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Venezuela, Iran to Hold Talks; Seek to Boost Ties Within OPEC

- Venezuela, Iran to Hold Talks; Seek to Boost Ties Within OPEC

Wednesday, August 17, 2011
Dow Jones Newswires
by Kejal Vyas

Venezuela will host a summit for bilateral talks with Iran next month as the two member states of the Organization of Petroleum Exporting Countries look to strengthen their alliance.

In a statement, the Venezuelan Foreign Ministry said President Hugo Chavez spoke to Iran's President Mahmoud Ahmedinejad to organize the summit and "agreed on the need to boost the levels of coordination within OPEC" in a bid to combat "the adverse effects of the economic crisis faced by the world's dominant powers."

Chavez and Ahmedinejad also spoke on the implications of "imperial aggressions" against countries such as Libya and Syria, the ministry's statement said.

Both Venezuela and Iran are fierce critics of the U.S. and other western nations and have looked to strengthen political and economic ties in recent years.

In June, Iran and Venezuela, both known to be fierce oil-price hawks, worked together to block an OPEC agreement to raise oil output, while opponents, including Saudi Arabia, said they planned to increase production to meet higher demand.

Within Venezuela, Iran is helping with financing and construction of housing units, part of an initiative by Chavez as he prepared to bid for another six-year term in next year's elections.

Earlier this month, the two countries signed a $1 billion deal to build 10,000 houses in the South American country over the next 18 months but they didn't say how much each side would be contributing.

Copyright (c) 2011 Dow Jones & Company, Inc.

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Drilling Operations Started at DJ-Basin Wattenberg Field

- Drilling Operations Started at DJ-Basin Wattenberg Field

Wednesday, August 17, 2011
Synergy Resources Corp.

Synergy provided an operating update on its previously announced Pratt drilling program and has also begun drilling operations on the DeClar Oil & Gas farm-in acreage in the Wattenberg Field.

Synergy has successfully completed and reported initial production rates on three of its Pratt wells. Initial production rates on the three wells include the following:
  • The Pratt 24-29D Codell formation had an initial production rate that totaled 129 barrels of oil, 374 thousand cubic feet of natural gas and 66 barrels of water in the 24 hour period.
  • The Pratt 14-29D Codell formation had an initial production rate of 136 barrels of oil, 439 thousand cubic feet of natural gas and 66 barrels of water in the initial 24-hour period.
  • Pratt 13-29D J Sand formation produced 238 thousand cubic feet of natural gas in the initial 11 hour period.

Craig Rasmuson, Head of Field Operations for Synergy Resources, said, "These initial results, combined with our previous successes in the play, are encouraging. Management believes that the Company's inventory of low-cost, prospects will bode well for the Company. We anticipate placing the remaining five wells onto the sales pipeline before the month's end. Regarding Pratt 13-29D, we will continue to produce in the J-Sand formation until we capture the incremental drilling costs, at which time, we'll move up-pipe to produce the Codell formation and book the subsequent reserves."

On the DeClar Oil & Gas farm-in acreage, announced earlier this month, the company has drilled two wells and is presently drilling the third well of its six (directional) wells to be drilled. The wells are targeting the J Sand, Codell and Niobrara Formations in the oily and liquid-rich region of the Wattenberg Field. All six wells are on schedule to be drilled by mid-September.

Synergy continues to grow its acreage, the majority of which is located in the DJ-Basin. As of August 12, 2011, Synergy Resources has approximately 170,000 gross acres and 149,000 net acres under lease.

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BMT Secures 5-Year Service Contract for Cascade & Chinook Fields

- BMT Secures 5-Year Service Contract for Cascade & Chinook Fields

Wednesday, August 17, 2011
BMT Group Ltd.

BMT Scientific Marine Services (BMT), a subsidiary of BMT Group, has been contracted by Petrobras America Inc., a subsidiary of Petrobras, to provide support maintenance and repair for the Cascade and Chinook Free Standing Hybrid Riser Tower (FSHR) Monitoring System.

This agreement includes five years of operation to support maintenance and repair of the FSHR monitoring system, including equipment replacement, change-out of batteries, repair of equipment, preventative maintenance, equipment refurbishment, freight and transport.

The monitoring system was originally supplied by BMT with subsea installation completed in 2010. It was designed to monitor the stabilizing uplift forces on five Riser Towers and record Riser, Turret Buoy and FPSO position, motion and mooring data.

The BMT Service Team has provided service to platforms and vessels around the world that utilize its monitoring and control systems. BMT offers pro-active maintenance, unscheduled or emergency service visits, remote support, and both onsite and shore-based training.

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Woodside Reports Strong Performance for 1H11

- Woodside Reports Strong Performance for 1H11

Wednesday, August 17, 2011
Woodside Petroleum Ltd.

Woodside reported a first-half profit after tax of US $828 million, underpinned by continued strong performance of the North West Shelf and higher revenues. The underlying net profit after tax of US $842 million was up 3.6%.

Woodside Chief Executive Officer Peter Coleman said, "Our focus on operational excellence continues to deliver outstanding results and today's financial result highlights the ongoing strength of the company's base business.

"Woodside's extensive production facilities are performing well and delivering strong revenues. With around US $2.9 billion in cash and undrawn facilities, together with continued strong cash flows from the underlying business, we enter the second half of 2011 well positioned to fund our growth plans.

"We will continue a disciplined approach to investment to maximise, deliver and capture value from our existing business, our LNG growth options and select opportunities."

Key Points

Reported net profit after tax was $828 million ($901 million 1H 2010), down 8.1%, largely due to last year's first-half being positively impacted by a gain on the sale of Woodside's Otway assets and a lower income tax expense.
  • Underlying net profit after tax was $842 million, up 3.6% ($813 million 1H 2010) and represents our second highest first-half profit.
  • Strong revenue of $2,253 million up 7.2% ($2,102 million 1H 2010). The recent period of higher commodity prices continues to positively impact profit performance.
  • First-half production of 31.9 MMboe (36.7 MMboe 1H 2010), down 13.1% compared to 1H 2010 primarily due to planned maintenance and project outages (-4.3%), cyclone interruptions (-3.6%), average field decline (-3.4%) and divestments (Otway, GOM shelf; -3.4%), partially offset by increased reliability (+1.6%). This was a solid result and keeps us on track for the FY 2011 target of 62 to 64 MMboe.
  • Operating cash flow of $1,391 million, up 38.1% ($1,007 million 1H 2010).
  • Robust balance sheet to fund growth with $2.9 billion in cash and undrawn debt facilities.
  • Capital expenditure# of $1.5 billion, down 6%, as Pluto nears completion.
  • Interim dividend of US55 cents per share (cps) fully franked (US50 cps 1H 2010).
  • LNG Growth Projects:
    • Pluto LNG Foundation Project – production and cash flow commencing in 2012.
    • Pluto Expansion – Carnarvon Basin drilling and discussions with other resource gas owners continue.
    • Browse – front-end engineering and design (FEED) underway and land access secured.
    • Sunrise – actively re-engaging with government stakeholders.


A fully-franked interim dividend of US55 cps (2010: US50 cps) was declared. The record date for determining entitlements to the interim dividend is 26 August 2011 with the ex-dividend date being 22 August 2011. The interim dividend will be paid on 30 September 2011. The dividend reinvestment plan (DRP) will remain activated and will be fully underwritten.


North West Shelf

The first half of 2011 has seen continued strong performance from the North West Shelf (NWS) facilities. Woodside delivered 132 cargoes of LNG on behalf of the NWS Venture, compared to 127 in the first half of 2010. The increase is primarily attributed to increased production from LNG Train 5 following the completion of remedial work on the main heat exchangers during planned maintenance in May 2010.

Australia Oil

Enfield: Production of 2.1 MMbbls (3.3 MMbbls 1H 2010) benefited from additional volumes from the Horst and Main West infill wells, which were completed during 2H 2010. However production was disrupted at the start of the year as a result of high levels of cyclone activity.

Vincent: Production of 1.5 MMbbls (2.3 MMbbls 1H 2010) was reduced at the start of the year due to cyclone interruption and a scheduled maintenance shutdown of the floating production storage and offloading vessel (FPSO) to reinstate gas compression. The rate of production has increased since gas compression was restored. Two Phase III production wells were spudded during 1H 2011and are expected to contribute to production in 2H 2011.

Stybarrow: Cyclone activity also impacted production but this was more than offset by high production rates from the Stybarrow North production well, which came online at the end of 2010. Production for the half was 1.9 MMbbls (1.2 MMbbls 1H 2010).


Pluto LNG Project

During 1H 2011 the project achieved significant commissioning milestones including the introduction of commissioning gas to the onshore plant. This milestone facilitated start up of the gas turbine generators, which provide electrical power to test all equipment in preparation for a safe start up. Offshore, the Pluto A platform was readied for use with the successful completion of the pressurisation of the trunkline, pipelines and flowlines using commissioning gas. During 2H 2011 onshore and offshore commissioning work will continue.

On 17 June 2011, Woodside revised the expected cost and schedule of the Pluto LNG Project following its regular review of the progress of the project. The first LNG cargo is now estimated for March 2012 and the revised estimate now expected to result in a A $900 million cost increase to a total of A $14.9 billion (100% project). This estimate includes arrangements with customers affected by the delay.

Pluto Expansion

Woodside continues to target expansion at the Pluto LNG Park. It is planned to conduct further exploration and appraisal drilling to prove up additional gas volumes in the Carnarvon Basin. Discussions continue with other resource owners regarding development of additional trains at Pluto.

Browse LNG

During the period, Woodside successfully executed an agreement with the Goolarabooloo Jabirr Jabirr Native Title claimant group and the Western Australian Government, which will enable the establishment of the Browse LNG Precinct.

Environmental studies and approvals progress in line with expectations. Work planned for 2H 2011 includes continuing FEED studies and environmental approvals.

Sunrise LNG

Woodside is actively re-engaging with the Australian and Timor-Leste governments to obtain in-principle approval of the development concept for Greater Sunrise gas.

North Rankin Redevelopment Project

The A $5 billion project (approximately A $840 million Woodside share) will recover remaining low pressure reserves from the North Rankin and Perseus fields and is scheduled for completion in 2013. Commissioning continues on the North Rankin B (NRB) jacket in Indonesia and topsides in Korea. The transport barge, for the NRB jacket delivery to the North West Shelf, has arrived in Indonesia with load out scheduled for 3Q 2011. Modifications to the North Rankin A (NRA) platform continue on schedule, including preparations to
install the bridges linking NRA and NRB.

Greater Western Flank Development (GWF)

The GWF area is located to the south-west of the Goodwyn A platform and contains 14 fields estimated to hold approximately 3 Tcf of recoverable gas and 100 MMbbls of condensate (100% project). The first phase of the GWF Development has progressed to FEED studies as a subsea tieback to the Goodwyn A platform.

North West Shelf Oil Redevelopment Project

The A $1.8 billion project (100%) will extend production from the Cossack, Wanaea, Lambert and Hermes fields beyond 2020. First oil from the Okha FPSO is forecast for early 4Q 2011.

Production outlook

Woodside's 2011 production target is 62-64 MMboe. The company expects continued strong operational performance from the NWS facilities. To ensure ongoing reliability, a significant NWS maintenance shutdown is planned for 3Q 2011. In addition, contribution from two infill wells at Vincent and recommencement of oil production from the NWS Oil Redevelopment Project should provide additional volumes to the base business.

Production volumes are expected to increase strongly following first Pluto LNG cargoes, which are now estimated to commence in March 2012.

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Nabors Notes $700MM in Senior Unsecured Notes

- Nabors Notes $700MM in Senior Unsecured Notes

Wednesday, August 17, 2011
Nabors Industries Ltd.

Nabors Industries announced that its wholly owned subsidiary, Nabors Industries, Inc., has priced $700 million in Senior Unsecured Notes due 2021, following the private placement offering it announced earlier Tuesday. The notes will bear interest at a rate of 4.625 percent and will be fully and unconditionally guaranteed by Nabors Industries Ltd. The notes were offered at 99.654 percent of the face value, bringing the yield to 4.668 percent. The proceeds are intended to be used for general corporate purposes, including repayment of debt. The transaction is expected to close on or about August 23, 2011.

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Williams Cos Affirmed Its Strong Interest In Acquiring Southern Union Company

- Williams Cos Affirmed Its Strong Interest In Acquiring Southern Union Company

Aug 17, 2011

Williams Cos (NYSE:WMB) affirmed its strong interest in acquiring Southern Union Company (NYSE:SUG) for $44 per share in cash. The all-cash proposal represents value certainty of $44 per share to Southern Union shareholders, which is a premium of 4% over the implied value of the agreement with Energy Transfer Equity (NYSE:ETE) of $42.32.

Alan Armstrong, president and chief executive officer said, "Forty-four dollars a share, cash, for every shareholder is a superior offer for Southern Union's shareholders. Southern Union's current agreement with Energy Transfer includes illiquid partnership units whose value will be exposed to equity markets in the months until closing and beyond."

The Williams Cos has a potential upside of 25% based on a current price of $28.15 and an average consensus analyst price target of $35.2.

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UK Oil Industry Confidence Increases on Quarter

- UK Oil Industry Confidence Increases on Quarter

Wednesday, August 17, 2011
Dow Jones Newswires
by Alexis Flynn

The outlook of firms producing oil and gas in Britain improved in the second quarter from the previous three months, data from Oil & Gas U.K. showed Wednesday, although the industry body said business confidence remains "fragile" in the wake of a tax increase announced in March.

Oil & Gas U.K. said overall industry confidence increased modestly from 51 to 54 points. The index measures a number of economic indicators and gauges overall industry confidence on a 100-point scale, with a rating above 50 indicating a more positive outlook and a rating below 50 representing a more negative viewpoint.

Industry confidence fell 12 points on a quarterly basis in May after Chancellor of the Exchequer George Osborne in March imposed a large and unexpected tax rise on the sector, increasing the state's take on oil and gas profits to 32% from 20% overnight.

The government has since announced a concession to North Sea producers by offering some relief for investments in marginal fields.

Ken Cruickshank, Oil & Gas U.K.'s supply chain manager, said that while confidence had improved among the majors, the outlook among independent operators had soured further.

"While it appears that some companies may feel reassured by the Treasury's willingness to engage on ways to mitigate the negative impact of the tax increase on investment, the confidence of many independent operators in particular continued to decline in the second quarter," Cruickshank said.

Copyright (c) 2011 Dow Jones & Company, Inc.

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Matra Shuts-In Ops at Well-12

- Matra Shuts-In Ops at Well-12

Wednesday, August 17, 2011
Matra Petroleum plc

Matra announced an update on its operations and plans in the Sokolovskoe Field, Russia.

Current Operations


Well-12 has suffered from a build-up of wax in the tubing and an increase in water cut to 70% and has ceased to flow and has now been shut-in.

Prior to the increase in water cut and shut-in of the well, the Company had sought an independent review of the status of well-12. This review, which was conducted by Gaffney, Cline & Associates ("GCA"), concluded that, although there was insufficient data available to definitively determine the source of the water, the available data was not typical of an aquifer influx and that the water may be flowing behind the production liner from overlying formations. The GCA review recommended acquisition of further data in order to identify the source of the water before attempting a remedial work-over.

Following the GCA review, the directors have sourced a work-over rig (expected to be on site on August 17) that will allow the Company to pull and clean the production tubing and then to artificially place the well into temporary production, using nitrogen. This will also allow production logging over the entire liner interval and into the production casing and will provide the best opportunity to identify the source of the water production.

Following production logging, a pressure survey will be conducted before deciding on the viability of further remedial work on the well.


After establishing water-free oil production, the leased production equipment at the site was demobilized and the well shut-in. Analysis of the production and pressure data shows that the well should be expected to produce at around 100 bopd with the installation of an electrical submersible pump and surface production facilities at the site. A firm decision to install this equipment has not yet been made but the directors expect that its installation will enable well-13 to generate a positive cash flow after the deduction of production taxes and other costs. The directors have taken the decision to await the results of the well-12 work-over before committing to this expenditure.

Future Program

Evaluation of the Sokolovskoe Field requires two further elements before proceeding with a full field development:
  • Delineation of the full extent of the Sokolovskoe structure by means of a full field 3D seismic survey; and
  • The establishment of commercial production over an extended period and the confirmation of the geological model by the drilling of well-14.

Recent changes by the Russian authorities to the drilling approval process require the Company to complete additional environmental and ecological surveys and studies prior to approval of new wells. These studies have commenced and approval for well-14 is expected later this year.

The cost of acquiring the 3D survey would be approximately $2 million and the cost of well-14 is estimated at $5 million. These costs are subject to change due to variations in exchange rates and local market conditions. Additional funding would be required before the Company could commit to such a work program.

The Company will continue to update the market as required.

Managing Director, Peter Hind commented, "The continuing problems at well-12 are frustrating. We are, however, continuing efforts to obtain further information from the well and to see if we can continue production. Importantly, given that the well is low on the mapped structure, it is not key to the overall development of the field.

"The Aphonenski reservoir has been produced over the longer term in nearby fields and the prognosis for well-14 remains good."

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Petrobras Pumps First Oil at Marlim Sul Field

- Petrobras Pumps First Oil at Marlim Sul Field

Wednesday, August 17, 2011

Petrobras announced that semisubmersible platform P-56 began production on August 15, at Marlim Sul field, in Campos Basin (RJ). The unit began production through well 7-MLS-163HPRJS, which has a potential of approximately 16,000 barrels per day.

Installed at a water depth of 1,670 meters, the platform is designed to process up to 100 thousand barrels of oil per day when it reaches maximum capacity, expected to take place in the first quarter of 2012. Besides heavy oil of 18º API, P-56 will have the capacity to process and treat up to 6 million m³ per day of natural gas.

P-56 will be interconnected to 21 wells, of which 10 will be producers and 11 water injectors. The produced oil will be sent through oil pipeline to platform P-38, which is a FSO (floating storage and offloading vessel) type, located 20 km from the Platform. Then, the oil will be transferred to shuttle tankers and the natural gas will be delivered through gas pipeline to the Cabiúnas terminal.

P-56 is 125m long, 110m wide, 137m tall and has a total weight of more than 54 thousand tons. Construction of the integrated modules (topside) of P-56 reached a high rate of local content. The hull was built entirely in Brazil, which demonstrates the capacity of the local manufacturing sector to meet the orders of Petrobras.

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Petronas Enters SFRSC for Balai Cluster Development Offshore Malaysia

- Petronas Enters SFRSC for Balai Cluster Development Offshore Malaysia

Wednesday, August 17, 2011
Roc Oil Co. Ltd.

Petroliam Nasional Berhad (Petronas) has entered into a Small Field Risk Service Contract ("SFRSC") for the pre-development and development of the Balai Cluster Fields, located offshore Sarawak, with a contractor group comprising Roc Oil Malaysia (Holdings) Sdn Bhd, a wholly owned subsidiary of ROC, Dialog D & P Sdn Bhd, a wholly owned subsidiary of Dialog Group Bhd ("DIALOG Group") and Petronas Carigali Sdn Bhd ("Petronas Carigali"). Participating interests in the contractor group are ROC 48%, DIALOG Group 32% and Petronas Carigali 20%. ROC, Dialog and Petronas Carigali intend to form an incorporated joint venture company ("JVC") to manage the SFRSC.

Balai Cluster Fields

The Balai Cluster comprises a cluster of marginal oil and gas fields in the areas around the Balai and West Acis discoveries, which are located offshore Sarawak in water depths of approximately 60 meters.

Small Field Risk Service Contracts

A Risk Service Contract is a new petroleum arrangement Petronas is implementing in Malaysia. This model strikes a balance in sharing risks with fair returns for development and production of discovered marginal fields. In this arrangement, Petronas is the project owner while the contractor is the service provider. Upfront investment of the capital will be contributed by the contractors. The contractor group shall be compensated accordingly with reimbursement of costs plus a remuneration fee for services rendered. The remuneration fee is based on oil and gas production, as well as the contractor group meeting key performance indicators. Payment to contractors shall commence upon first production and be paid throughout the duration of the contract. The SFRSC contract duration is for 15 years.

Planned Activity

The Balai Cluster SFRSC has two distinct phases. The pre-development phase is scheduled to commence in 2H 2011 and is expected to take up to 18 months. Pre-development activities are planned to include geological and geophysical works, the drilling and testing of appraisal wells and the procurement of related facilities and equipment. The total cost of the pre-development phase is estimated to be between US $200-250 million.

ROC presently considers that future cashflows, the existing debt facility, as well as potential project financing through the JVC will adequately fund the capital costs associated with the pre-development phase for the Balai Cluster.

On the successful completion of the pre-development phase and agreement on the project viability of the fields, the contractor group will submit a field development plan for all or some of the fields and progress to the development phase. Production from all the fields in the cluster is planned to be online within 24 months from commencement of the development program. Development activities are planned to include the drilling of wells, the installation of platforms, topsides and pipelines, and the tie-in of the new facilities to existing Petronas Carigali infrastructure as appropriate. The total cost of the development phase is estimated to be between US $650–700 million.

Contractor Group Partners

DIALOG Group is one of Malaysia's leading integrated specialist technical services providers to the oil, gas and petrochemical industries. Headquartered in Kuala Lumpur, DIALOG Group has over 2,000 employees across offices and facilities located in 12 countries, and is listed on the Main Market of Bursa Malaysia with current market capitalisation of approximately US $1.8 billion. The core services and activities provided by DIALOG Group range from upstream to downstream activities and encompass: logistic services for supply base and tank terminal operations; the provision of specialist products and services; the provision of plant maintenance and catalyst handling services; engineering, construction and fabrication; and ePayment technology and solutions.

Petronas Carigali is the wholly owned exploration and production subsidiary of Petronas, Malaysia's National Oil Company. Petronas Carigali has a successful track record of working with multinational corporations to explore, develop and produce oil and gas both in Malaysia and internationally.

CEO Comment

Commenting on the SFRSC award, ROC's Chief Executive Officer, Alan Linn, stated, "This is an encouraging first step in pursuing the Company's stated strategy to grow the business in South East Asia and represents another vote of confidence in ROC's abilities as an offshore operator of small and marginal fields.

"The award of the Small Field Risk Service Contract for the Balai Cluster is also a significant milestone for Petronas in pursuing its strategy of developing Malaysian marginal fields. ROC has worked productively with Petronas and DIALOG Group throughout the process leading to the SFRSC award and looks forward to building on these established relationships in the future.

"ROC's entry into Malaysia is an important achievement and meets one of the Company's key objectives for 2011: to capture value by delivering a new production or pre-development opportunity in South East Asia or Australia."

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