Industry Professionals Optimistic about N. Sea Future -Study

- Industry Professionals Optimistic about N. Sea Future -Study

Wednesday, September 07, 2011
GL Noble Denton

Oil and gas industry professionals are optimistic that there will be increased investment activity in the North Sea next year, according to a poll conducted Tuesday at the Offshore Europe conference in Aberdeen. 57% of participants believe that activity will increase, while 22% think that activity will decrease in the region. 21% of survey respondents had no opinion on the matter.

The poll forms part of a survey being conducted by the Economist Intelligence Unit and commissioned by global independent technical advisor GL Noble Denton. It will contribute to a comprehensive report on the outlook for the sector, to be published in January 2012. The report will gather the opinions of oil and gas professionals and provide a complete view of the challenges the sector expects to face next year and beyond.

Pekka Paasivaara, Member of the GL Executive Board, said, "The result of this poll clearly shows that recent concerns over hefty taxes, aging assets and increased operating costs have not dampened optimism for further investment in North Sea oil and gas operations next year.

"This finding will be valuable to the research that GL Noble Denton has commissioned the Economist Intelligence Unit to undertake, and it will be interesting to see whether this optimism for investment in North Sea operations is reflected in other regions."

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About to Buck The Trend

- About to Buck The Trend

Friday, August 05, 2011
Rigzone Staff
by Trey Cowan

Looking back to the second quarter, the jackup dayrate trend is down 2 percent to $106k/day versus 1Q11 rates. Floaters on the other hand did not experience any change in pricing from one quarter to the next, holding steady at $378k/day.

Commodity jackup dayrates suffered the most, down 5.6 percent to an average of $70k/day during 2Q. Standard jackup rates fell 2.2 percent to 96k/day and premium jackup rigs fell at the slowest pace of 1.6 percent to $135k/day, all on a quarter-over-quarter basis.

While the chart shows an ongoing downward trend, the future actually looks good for jackup rate improvement, based on recent activity. Jackup rates for July improved 1 percent to $107k/day, up $1,000 from June's average of $106k/day. When looking at capabilities and water depths served, premium jackups grew at a faster pace (3 percent to 139k/day) during the month. We continue to hear commentary pointing to a bifurcated marketplace with higher demand for premium rigs relative to standard 300' rigs or commodity rigs that serve in 250' waters or less.

Based on contracts already booked, dayrates for premium jackups are likely to improve 8 percent during the second half of 2011. This compares favorably to 4 percent overall growth in dayrates anticipated for jackups, which translates into an average increase of 5,000/day for jackups during the second half of 2011.

Looking solely at the rig counts, global offshore activity improved during the month of July when compared to June. There are now 543 rigs under contract around the world, up ten from last month (as both floaters and jackups added 5 rigs-a-piece to their respective rolls). The overall fleet size also grew during the month by a net five rigs (3 floaters and 2 jackups) to 756 rigs marketed globally.

Permitting in the Gulf of Mexico Year to Date

In water depths of less than 500 feet, there have been 41 "New Well" permits issued by the BOEMRE year-to-date. "Revised New Well" permits number 64 that have been issued since January 3rd 2011. The average pace for New Well and Revised New Well permit approvals appears to be 15 per month in shallow waters. In water depths of more than 500 feet there have been 12 New Well permits issued by the BOEMRE year-to-date. Since Jan. 3, 52 Revised New Well permits have been issued by the BOEMRE. Thus, the average pace for New Well and Revised New Well permit approvals for deepwater projects is 9 per month.

To put all this into perspective, combine the two averages together and you see that the BOEMRE is averaging 24 approvals per month. This is an anemic pace considering that the inspection staff of the BOEMRE is ~50 individuals and growing. That means at the current staff levels the BOEMRE's inspectors are approving either a "New Well" or "Revised New Well" at a pace of one every two months.

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Williams Raises Bid for Southern Union to About $5.6B

- Williams Raises Bid for Southern Union to About $5.6B

Thursday, July 14, 2011
Dow Jones Newswires
by Ben Lefebvre

Williams Cos. raised its bid for Texas pipeline company Southern Union to about $5.6 billion in cash in the latest round of a takeover battle with Energy Transfer Equity.

Williams latest bid tops Energy Transfer's previous $5.1 billion cash-and-stock offer and its own previous bid of $5 billion in cash. The two companies have been competing to merge with Southern, with the winner of the competition expected to become the country's largest natural-gas pipeline company.

Williams said it hopes to have an agreement hammered out with Southern by Tuesday, which it maintains is enough time to share business data with Williams and hold the necessary management meetings to get approval.

"It's fairly simple as to what we have to offer," Williams Chief Executive Allan Armstrong said in an interview. "We don't think the decision process is real complex."

Representatives of Southern and Energy Transfer were not immediately available to comment.

Williams all-cash bid might be simple, but in the end it might not be as compelling as the company is portraying, said Morningstar equities analyst Jason Stevens said. Morningstar values Energy Transfer's cash-and-stock offer at $46 a share--higher than William's $44 a share offer--because of tax benefits and dividends the stock portion of the deal would offer. A merger with Southern might also force Williams to sell some of its pipeline assets in Florida to win over antitrust regulators, Stevens said.

"They'd have to sell their premiere assets," Stevens said. "It's just not as compelling an offer."

It might be difficult for Williams to go any higher than its current 10% premium to Energy Transfer's current offer, said BMO Capital Markets analyst Carl Kirst.

"Williams paying more than $44 would start facing investor blowback given the premium involved," Kirst said in an investors note.

Energy Transfer and Southern Union last week set a deal initially valued at $40 a share, four dollars lower than Williams's latest bid. Energy Transfer also agreed to sell some assets in order for the deal to pass muster with antitrust regulators.

The companies also raised the breakup fee for their agreement to $162.5 million from $92.5 million in the original agreement, another indication that a higher bid was expected. Williams in its latest bid said it would pay the breakup fee and related expenses for Southern.

Both companies had expressed willingness to assume Southern's debt, totaling $3.7 billion.

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

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Shell Executive Is Optimistic about Alaska Drilling

- Shell Executive Is Optimistic about Alaska Drilling

Wednesday, July 13, 2011
Houston Chronicle
by Jennifer A. Dlouhy

The Obama administration moved Tuesday to synchronize work by more than a dozen agencies with roles in vetting drilling in Alaska, as a top Shell executive said he is optimistic the company will be able to drill there next summer.

The administration's move seeks to quell complaints by oil companies and their advocates in Congress who say the permitting process is broken and has stalled promising exploration projects in Alaska and nearby waters.

The administration launched a working group, headed by Deputy Interior Secretary David Hayes, that will bring together seven Cabinet-level departments and other agencies. Hayes said the panel would "facilitate safe and responsible development in Alaska."

"We are committed to proceed in a balanced, science-driven way that addresses the needs of industry, of the environment and of local communities," he said during a forum on Arctic drilling sponsored Tuesday by the Center for Strategic and International Studies.

The new government working group won't replace the host of state and federal permits that oil companies must secure before they begin drilling in the region. And Hayes rejected the notion that the move constituted "streamlining" of environmental safeguards or other requirements that govern oil and gas exploration in Alaska.

But, at the same time, he said, "this is a one-stop shop for coordination of permitting. This group will ensure that there is good coordination in that regard."

'A positive step'

Sen. Lisa Murkowski, R-Alaska, called the administration's move "a positive step."

"A broken federal permitting process has for years held up responsible development of our offshore oil and natural gas resources in Alaska," she said. Murkowski added that she hopes the panel is "successful at closing what has been an endless loop of approvals, appeals and delays."

Sen. Mark Begich, D-Alaska, said the group could go a long way to "untying the procedural knots that have stalled development" in offshore Alaska and the National Petroleum Reserve.

One of those delayed projects is Shell Oil Co.'s plan to drill exploratory wells in the Beaufort and Chukchi seas. The company had hoped to launch work on its first Beaufort well after ice cleared this summer but scrapped the plans in February, after a federal Environmental Appeals Board rejected two essential air permits issued by the Environmental Protection Agency.

The EPA just issued new draft air quality permits for Shell's proposed Arctic drilling, and EPA officials say they are confident that the documents will withstand the legal challenges that derailed last year's permits.

Shell Alaska Vice President Pete Slaiby said he too is optimistic. He predicted the company will have working air quality permits by mid-October and then will prevail in any legal challenges before the appeals board.

Shell is asking federal regulators for permission to drill up to five wells in both the Beaufort and Chukchi seas during next year's three-month drilling season, with those projects sharing some of the same assets and infrastructure. If federal regulators don't approve drilling in both seas, the company might not pursue either project next year, Slaiby said, because it wants the efficiencies of doing both at once.

Although the Bureau of Ocean Energy Management, Regulation and Enforcement is now reviewing Shell's proposed Beaufort exploration plan, its separate drilling blueprint for the Chukchi Sea is on hold, pending the outcome of a court-mandated review of the government's sale of drilling leases where that work is planned.

The Interior Department is facing a court-ordered Oct. 3 deadline to decide whether to affirm that lease sale, after updating environmental assessments. The government cannot approve drilling on those leases unless the sale is affirmed.

Warning from activists

Environmentalists have warned that it could be difficult to clean up any oil spilled in slushy Arctic waters. Cold, icy conditions also mean it could take far longer than in the much warmer Gulf for spilled oil to naturally break up in the water. And they insist the risks are too great for animals in the region as well as the native communities that live off those resources.

In response, Shell has bolstered its Arctic drilling proposals with new emergency equipment and plans for responding to a blowout. For instance, the company would use two drillships in the region, ensuring one would be on hand to drill a relief well if necessary. Shell also has committed to developing a containment system that could be deployed to trap and siphon off gushing crude.

Copyright (c) 2011, Houston Chronicle

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Musings: Natural Gas Is So 2010; Now It's All About Liquids-rich Shale

Musings: Natural Gas Is So 2010; Now It's All About Liquids-rich Shale

Tuesday, April 26, 2011

Parks Paton Hoepfl & Brown

by G. Allen Brooks

Last week the Baker Hughes U.S. active drilling rig count hit 1,800, up 1.6% from the prior week and up 21.5% over the past year. These were notable achievements. The increases reflect the exploration and development fever that is gripping oil and gas companies. This should be good news for the country's oilfield service industry, but maybe even better news for consumers as the increased drilling should lead to higher oil and gas production, and maybe lower fuel prices. More production means the nation's economy need not import as much oil and gas from abroad, which could have a significant impact on our balance of trade and payments, and the value of the dollar.

The most notable bit of data about last week's rig count was that for the first time in nearly 16 years, the oil and gas industry is employing more rigs targeting crude oil prospects (913 rigs) than drilling for natural gas wells (878 rigs). Analysts and investors, keen to see higher natural gas prices, have seized on this switch in drilling focus as a signal that future gas production will soon stop climbing. Assuming that the nation's natural gas consumption continues to rise, the drilling switch portends a shrinking of the oversupply of natural gas. That should mean higher natural gas prices – the only question is when.

Those E&P companies that are leading the charge into the gas shale plays around the country will be happy to see higher natural gas prices. They continue to claim that they can be profitable drilling these gas shale plays at natural gas prices in the $4.00 to $5.00 per thousand cubic feet (Mcf) of gas. Their financial results suggest something different. They still proclaim the success of the gas shale revolution, a movement that is beginning to spread globally.

Slightly over two weeks ago, the Energy Information Administration (EIA) released an analysis of gas shale resources around the world. It was clear from the report that the EIA believes the domestic gas shale revolution will be embraced globally. The EIA report estimates that 32 countries with known gas shale resources have added 5,760 trillion cubic feet (Tcf) of technically recoverable natural gas to the world's resources. With the addition of the U.S. gas shale resources, the global total would swell to 6,622Tcf. For comparison purposes, the world's proven natural gas reserves as of January 1, 2010, were 6,609Tcf. The world's total technically recoverable gas resources were 16,000Tcf as of the beginning of 2010, so with the new gas shale resources added in, the world now has over 22,000Tcf of gas resources.

The 32 countries with gas shale resources span the world and are likely to become energy-headline locations before long. Most people are familiar with the gas shale drilling underway in Poland and China, but those are only two of the 32 countries that span the globe. China leads the world with an estimated 1,275Tcf of gas shale resources. In Europe, Poland is in first place with an estimated 1,867Tcf of potential reserves, followed closely by France with 180Tcf. Interestingly, France has announced it is considering banning the drilling of gas shale wells until a study of possible water pollution problems associated with hydraulic fracturing are investigated and proven false. Equally surprisingly is that Norway has nearly half the gas shale resources of Poland and France.

Exhibit 1.  Gas Shales Located Around The World

Source:  EIA

In South America, Argentina is highly prospective with nearly 90% of the total gas shale resources estimated to be in the United States. Brazil has about a third of the resources of Argentina with most of the potential resources located in the area close to some of the key manufacturing sites in the country. Surprisingly, Mexico has a huge potential with almost 80% of the estimated United States gas shale resources.

In Africa, the greatest potential source of natural gas from shales lies in South Africa, which has an estimated 485Tcf of resources. Libya, the site of the current civil war involving the country's crude oil reserves and production, has an estimated 290Tcf of gas shale resources. Algeria follows with nearly 80% of Libya's estimate.

While the world has lots of gas shale resource potential, it is in North America, and primarily the United States, where the gas shale revolution is in high gear producing substantial volumes of new gas production. According to the EIA, 2010's 4.87Tcf of gas shale production represents about 23% of total U.S. output, but it is projected to account for 45% of the nation's gas supply by 2035. The huge potential of gas shales in this country was first highlighted by the 2009 report of the Potential Gas Committee (PGC) at the Colorado School of Mines. In that report, the PGC estimated that there was about 616Tcf of gas shale resource, or about a third of the country's total resource potential.

Recently, Ken Medlock, a professor at Rice University, delivered a presentation about the gas shale industry at the American Association of Petroleum Geologists (AAPG) annual meeting. In his presentation he listed a timeline of potential gas shale resource estimates beginning with the 2003 National Petroleum Council estimate of 38Tcf. Two years later the estimate was raised to 140 Tcf and then in 2008 Navigant, a consulting company, estimated there was 520Tcf of potential reserves. The next year came the PGC estimate of 616Tcf and last year, consultant ARI estimated gas shale resources of more than 1,000Tcf. Mr. Medlock said there is a Department of Energy study underway with a May release date that will contain an estimate greater than ARI's estimate, likely putting it close to China's estimated 1,275Tcf of potential reserves.

All this potential gas has led politicians, investment professionals and E&P company executives to announce that the United States has in excess of 100 years of natural gas supply. In his presentation at the AARP, Art Berman showed that by reading the PGC report it becomes clear that gas shale reserves will likely only supply about 20 years of demand at the current 23Tcf of annual consumption.

Mr. Berman's pricking of the gas shale 100-year supply bubble should be having a greater impact, but instead the air is barely slipping out of the balloon. In fact, President Barack Obama has endorsed the huge potential gas supply mantra. In a recent presentation about the nation's energy situation, President Obama said, "We have a lot of natural gas here in this county." In doing so, however, he touched on the key issue now swirling around the gas shale revolution, which is the use of hydraulic fracturing to release the trapped gas from the formation President Obama's observation was, "The problem is…extracting it [shale gas] from the ground. The technologies aren't as developed as we'd like and so there are some concerns that it might create pollution in our groundwater, for

Exhibit 2.  Gas Shale Reserves Less Than 100 Years

Source:  Art Berman

Asian stocks struggle to eke out gains as investors worry about surging oil prices

Asian stocks struggle to eke out gains as investors worry about surging oil prices

April 11 ,2011
By AssociatedPress

HONG KONG — Most Asian stock markets fell Monday as investors continued to worry about soaring oil prices and Japan’s struggle to recover from its worst-ever earthquake.

Japan’s Nikkei 225 stock average dipped 0.5 percent to 9,717.84 while South Korea’s Kospi edged down 0.3 percent to 2,121.49. Benchmarks in Taiwan, Singapore and India also fell while Hong Kong’s Hang Seng index was nearly flat at 24,397.44.

Australia’s S&P/ASX 200 was up 0.7 percent at 4,972.70 while mainland China’s Shanghai Composite Index rose 0.7 percent to 3,051.38.

Oil prices hovered at 30-month highs near $113 a barrel Monday in Asia as traders eyed a wobbly U.S. dollar and fresh Middle East tension.

“Oil prices are now at levels that have historically acted as a marked constraint on global output,” Daragh Maher, a foreign exchange strategist at Credit Agricole CIB, said in a research note.

Benchmark oil for May delivery slipped 11 cents to $112.68 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $2.49, or 2.3 percent, to settle at $112.79 on Friday and set new 30-month highs almost every day last week.

Oil-related stocks were benefiting from the rising prices. Sinopec, Asia’s largest refiner by capacity, was up 2.4 percent to $4.10 Hong Kong dollars while PetroChina, the country’s biggest oil and gas producer, jumped 4 percent.

Companies with big fuel bills, like airlines, were suffering. Korean Air Lines Co. Ltd. dropped 3.7 percent, Qantas Airways Ltd. fell 2.7 percent, and Cathay Pacific Airways Ltd. was down 0.9 percent.

Oil moved higher as the dollar plunged against other major currencies. Oil is traded in dollars and tends to rise when the greenback falls and makes crude cheaper for investors holding foreign currency.

Some analysts were warning investors to avoid shares in Japanese automakers, whose production was severely curtailed by power outages and supply chain disruptions following the March 11 earthquake and tsunami. The twin disasters decimated the country’s northeastern coast, causing $310 billion in damage, killing up to 25,000 people and setting off a radiation leak at a nuclear power plant that was still not under control.

“We have turned bearish on the auto sector,” Citigroup Global Markets said in a report. The company said that the full extent of damage to the industry “is being underestimated by the market ... and we would avoid the sector as things stand.”

Shares of Toyota Motor Corp., the world’s No. 1 automaker, tumbled 2.5 percent. Nissan Motor Corp. drooped 2.2 percent, and Honda Motor Corp., slid 1.9 percent.

Japanese shares also fell after a report showed that machinery orders fell 2.4 percent in February, before the devastating earthquake and tsunami struck. Orders had risen 4.2 percent in January.

Chinese shares rose after the country reported a small trade surplus of $140 million in March, up from a deficit of $7.3 billion the month before.

“Chinese trade balance figures came out above analysts’ forecasts and provided some support to the Shanghai Composite, which is currently the best performer in the region,” said Chris Weston, a research analyst at IG Markets.

Oil prices are a concern in China, but there’s “still much liquidity, which means the stock market can still go higher,” said Linus Yip, chief strategist at First Shanghai Securities.

In New York on Friday, stocks were weighed down by oil prices as well as the threat of a government shutdown. But that risk was averted after the market closed when lawmakers agreed to a last-minute deal to cut about $38 billion in federal spending.

The Dow Jones industrial average lost 0.2 percent to close at 12,380.05. The Standard & Poor’s 500 index slipped 0.4 percent to 1,328.17. The Nasdaq composite lost 0.6 percent to 2,780.42.
In currencies, the dollar slipped to 84.79 yen from 84.89 yen late Friday. The euro stood at $1.4460, up from $1.4435 late Friday, its strongest level since January 2010.