Gould: Oilfield Services Spending Likely to Increase

- Gould: Oilfield Services Spending Likely to Increase

Thursday, September 08, 2011
Rigzone Staff
by Karen Boman

Schlumberger CEO Andrew Gould said he believes that integrated oilfield service companies will play an even more important role in extracting the full potential of existing and new hydrocarbon resources, and that the share of future spending on oilfield services will likely increase.

Oilfield services companies that best help their customers to de-risk and drive project financial performance will ultimately be the most successful, Gould said, adding that the company's approach of applying its unique scientific platform and technical abilities to all parts of its business – supported by its research by development investment of over one billion dollars per year.

Speaking at the Barclays Capital CEO Energy-Power Conference in New York on Sept. 7, Gould said his company has not seen its customers' activity plans impacted by the significant downward revisions of 2011 and 2012 growth forecasts for the major OECD countries, as well as inflation pressure in some key non-OECD countries that is causing concern. However, the company is monitoring the situation closely and is ready to adjust its plans if needed.

"In the past two years, our industry has seen significant volatility, with the largest year-on-year fall in global energy demand in two decades followed by the largest recovery ever seen," Gould said, noting that the world and the energy industry have faced major natural disasters and political unrest and the financial markets have been significantly impacted by both the sovereign debt crisis in parts of the Eurozone as well as the U.S.

The importance of higher exploration activity is best illustrated by the growing supply challenge the industry is facing with the International Energy Agency estimating that around 40 percent of the oil production needed by the end of this decade has yet to be found or developed, Gould said. By 2030, this figure will likely be about 60 percent; natural gas resources show similar trends.

"Adding future reserves is becoming more complex and technologically intense, and is associated with additional cost and risk. With more than half of reserves discovered worldwide offshore and new reserves often located in deepwater and hidden below complex salt structures, the ability to de-risk exploration prospects prior to drilling becomes more and more important," Gould said.

However, statistics show that, on average, two out of three frontier exploration wells today are unsuccessful, indicating that, in spite of advances in seismic technology, the industry still fails to properly manage exploration risk, Gould said. "While seismic technology advances have made significant contributions to better evaluate trap and reservoir risks, almost three-quarters of dry exploration wells are due to inadequate understanding of seal and charge risk."

The last decade has seen a doubling of the number of land and offshore rigs operating worldwide in more difficult, complex and expensive situations, but the general approach to drilling optimization has changed little since the 1980s. "Over the past decades, we have seen excellent examples of advances in individual drilling technologies such as top drives, rotary steerable systems and PDC cutters," Gould noted. "We believe that in order to create the next step change in drilling performance, we need to take a systems approach and move the entire drilling process from being partly an art form to becoming a full-fledged science."

While conventional gas will continue to play a central role in the global supply picture in the next five years, making up more than 85 percent of total gas supply, shale gas development activity continues to grow in the U.S. and worldwide. The U.S. Energy Information Administration estimates that international shale resources are six times higher than those of the U.S. At this time, international shale gas activity remains focused on exploration and pilot projects, but Gould said activity will increase in the coming years and shale gas will begin to have an impact on international supply towards the end of this decade.

Schlumberger's CEO said that the current industry approach to shale development in North America is sub-optimal, as it involves significant cost and resource waste. Thought the energy industry drills horizontal wells spread evenly over acreage, with the entire horizontal section completed and fractured with massive amounts of water proppant and hydraulic horsepower, shale reservoir quality varies both vertically and laterally. "And the standard logging measurements interpretation techniques and modeling workflows used in sandstones and carbonates cannot be directly applied."

Gould noted that the company is seeing signs that the scientific approach to shale developments is gaining momentum and as the international oil companies continues to build their positions in the shale basins both in the U.S., and overseas this trend will only strengthen. "The scientific approach will also be critical overseas as the industry faces more public pressure to minimize the operational footprint and adapt to less available infrastructure compared to North America," said Gould.

Besides investing heavily in the development of new individual drilling technologies that combine the capabilities of its various drilling product lines and creating a powerful technical community by co-locating its GeoMarket drilling experts into drilling support centers, Schlumberger has some of its brightest minds working on creating numerical models able to predict the behavior of the entire drill string as a function of changing surface and downhole parameters, Gould said. The company will have 10 drilling support centers established by year-end; that number will increase to 30 by the end of 2012.

To meet the challenges of more complex, more expensive and more difficult projects, Gould told attendees at the SPE Offshore Europe conference in Aberdeen, Scotland earlier this week that project management skills need to dramatically improve. "Great project managers cannot be created overnight as it's a combination of leadership and technical skills, with the ability to constantly evaluate options. The need to train rand season project managers is becoming acute."

The talent war within the oil and gas industry will be "inflationary and disruptive" as the industry is chasing the same workers and not necessarily adding to the same population at the same rate. Engineers in the U.S. and western Europe can be recruited based on the industry's technology, but only after defending company ethics, proving that the energy industry is not a sunset industry a clear position on climate change. "In the rest of the world, this is unnecessary as oil and gas companies get the pick of students because an oil and gas career is coveted," Gould said.

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Report: E&P Capital Spending to Rise 12% in 2011

- Report: E&P Capital Spending to Rise 12% in 2011

Tuesday, August 02, 2011
Rigzone Staff
by Karen Boman

Capital spending on exploration and production (E&P) by 139 publicly traded oil and gas companies is expected to rise by 12 percent to $406 billion in 2011. Spending growth this year is largely fueled by strong oil prices and builds on gains of 19 percent in 2010, according to a new report by IHS.

While the increase is less than the 19 percent increase seen last year, oil and gas companies, which spent considerably less during the economic downturn of two years ago, are continuing to increase their upstream portfolio investments, particularly for oil-weighted projects, said Aliza Fan Dutt, senior analyst at IHS and author of the IHS Herold Global E&P CAPEX Review.

"Despite recent volatility and a wobbly economy recovery, oil prices remain relatively strong, which supports higher capital spending. In addition, investments in oil and unconventionals continue at a rapid clip, which conventional gas outlays remain relatively depressed."

The shift to drilling on oil and liquids-rich properties that began in 2010 accelerated through the year and continues today, according to the report. According to Fan Dutt, "those companies that shifted their portfolios earlier will benefit more than those that moved more slowly." Fan Dutt cited EOG Resources as an example of such a company. EOG, a natural gas producer, shifted to the oil side much earlier than most of its peers. AS a result, oil now contributes 60 percent of the company's revenues; EOG is posting strong earnings growth."

"Cost inflation will continue to be a key issue, with more companies competing for oil services and equipment during a time of elevated oil prices," said Fan Dutt. "Cost containment will be particularly important for natural gas-weighted producers as they struggle to achieve strong margins amid weak natural gas prices."

Mid-size U.S. E&P companies should increase spending by 25 percent, while U.S. integrated oil companies are expected to reduce their spending rate to 14 percent this year. However, as a group, integrated oils are planning to continue their massive investments in oil and gas projects worldwide.

Marathon Oil Corp., the most aggressive of the integrated U.S. companies, is ramping up spending by 37 percent as it drills on expanded U.S. acreage in the Anadarko Woodford play, the Niobrara play in the Denver-Julesberg Basin in Colorado and Wyoming and in its Bakken shale position.

The largest North American E&Ps will increase capital outlays by only three percent, which will be buttressed by spending on unconventional resources in shale basins, according to the report. "For example, Pioneer is increasing its spending by 53 percent, with its expansive holdings in the Spraberry field and Eagle Ford shale play, where it was an early entrant."

Global integrated oil companies will continue to make massive investments in oil and gas projects worldwide with a "muted" nine percent spending increase, down slightly from last year. Canadian integrated oil companies are slightly more eager to spend with a planned increase of 13 percent. Husky Energy leads this group with a 44 percent increase on operations mainly in Western Canada and offshore Canada's east coast.

Spending by integrated oil companies outside North America is expected to rise by 13 percent in 2011, the same growth rate seen last year. IHS attributed the increase to strong spending in Latin America and Russia. Colombia's state-owned oil company Colombia will spend 56 percent more this year on top of a 34 percent increase last year. Brazil's state energy company Petrobras also continues to invest heavily on its upstream portfolio with an estimated 24 percent increase. Additionally, Russia's Lukoil is expected to spend 55 percent more this year.

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U.S. Consumer Spending Stalled In June

- U.S. Consumer Spending Stalled In June



Aug 2, 2011

U.S. consumer spending stalled in June as a drop in hiring caused households to cut back, according to the Commerce Department in a report on Tuesday.

In June purchases June rose 0.1% after not much change, while personal incomes likely increased 0.2% in June, the smallest gain in seven months.

Because of the lack of jobs in combination with wage gains have failed to keep pace with inflation, it raises the risk of further cut backs on consumer spending that accounts for 70% of the world's largest economy.

The Gross domestic product increased to a 1.3% annually rate from April in the course of June after a 0.4% gain in the previous quarter that was less than what was earlier expected. Household spending increased 0.1%, the weakest performance since the Q2 of 2009, the end of the last recession.

Federal Reserve Chairman Ben S. Bernanke said in semi-annual testimony to Congress on July 13, "Wages are very stagnant and that's affecting consumer spending and consumer confidence. There is also ongoing uncertainty about the durability of the recovery."

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Analysis: Shale Boom, Independents Drive U.S. Reserves, Capital Spending

- Analysis: Shale Boom, Independents Drive U.S. Reserves, Capital Spending

Wednesday, June 15, 2011
Rigzone Staff
by Karen Boman

The U.S. shale oil and gas drilling boom boosted U.S. oil and gas reserve growth to a five-year high in 2010, while upstream spending more than doubled from 2009 to 2010 largely due to producers' acquisitions of shale properties, according to Ernst & Young's fourth annual U.S. E&P Benchmark Study.

The survey of the 50 largest oil and gas companies by end-of-year reserves found that end-of-year oil reserves grew 11 percent from 16.1 billion barrels in 2009 to 17.8 billion barrels in 2010, and natural gas reserve grew 12 percent from 156.2 Tcf in 2009 to 174.3 Tcf in 2010, the strongest combined annual growth posted from 2006 to 2010.

Shale Rock

The oil production replacement rate for U.S. oil reserves from all sources, including extensions and discoveries, improved recovery, revisions, purchases and sales of proved reserves, was 234 percent in 2010, compared with a 158 percent replacement rate in 2009. The U.S. natural gas production replacement rate from all sources was 252 percent last year, compared with 156 percent in 2009.

Production replacement rates for 2010 that excluded purchases and sales were 205 percent for oil, 249 percent for gas, and 232 percent on a combined BOE basis.

The study found that independent oil and gas producers led in terms of oil production replacement rates for 2010, with independents replacing 601 percent of oil production from all sources last year and, excluding purchases and sales, replacing 433 percent of oil production.

Large independents replaced 241 percent of production from all sources, and 290 percent of production from sources other than purchases and sales. Meanwhile, integrated oil and gas companies replaced 141 percent of oil production from all sources, and 111 percent of production from sources excluding purchases and sales.

Integrated companies had a gas production replacement rate of 436 percent from all sources; however, this replacement rate reflects ExxonMobil's acquisition of XTO Energy, which was completed in June 2010. When purchases and sales were excluded, integrated companies had a gas production replacement rate of 111 percent.

Independents replaced 408 percent of gas production from all sources in 2010, or 375 percent when purchases and sales were excluded. Large independents recorded a negative gas production replacement rate of 34 percent, largely due to the ExxonMobil/XTO transaction, as XTO is classified as a large independent. Excluding purchases and sales, large independents had a gas production replacement rate of 263 percent in 2010.

Reserve replacement costs on a total basis, including proved property acquisitions, were up once again, increasing to $15.26 per BOE in 2010 from $12.78 per BOE in 2009. Reserve replacement costs on a finding and development basis, excluding proved property acquisitions, increased to $17.84 per BOE, up from $13.01 per BOE in 2009.

Upstream spending more than doubled from $72.8 billion in 2009 to $177.9 billion in 2010. ExxonMobil's acquisition of XTO Energy accounted for 51 percent of proved property acquisition costs of $42.2 billion and 40 percent of unproved property acquisition costs of $59.3 billion in 2010. Apache Corp.'s acquisition of Mariner Energy and assets from Devon Energy and BP contributed significantly to proved and unproved property acquisition costs, as did acquisitions by Chesapeake Energy and Denbury Resources.

Exploration costs increased eight percent from $14.3 billion in 2009 to $15.5 billion in 2010, while development spending increased 36 percent from $44.8 billion in 2009 to $60.8 billion in 2010, primarily due to shale oil and gas development. The increase in exploration and development spending was primarily driven by ExxonMobil, Chesapeake Energy and EOG Resources. Of the 50 companies surveyed, only four decreased their exploration and development spending in 2010 – BP, ConocoPhillips, Loews and Plains Exploration & Production.

The companies' plowback percentage, or total upstream spending as a percentage of netback, increased to 170 percent in 2010, the highest of the five-year period from 2006 to 2010, as companies reinvest in shale activity. In 2006, the plowback percentage reached 121 percent as a result of an increase in investment activity driven by a relatively high priced commodity environment.

ExxonMobil's acquisition of XTO and similar deals are part of the trend of major oil and gas companies following the lead of independent oil and gas companies, who were first movers in North American shale plays. This trend is occurring as integrated majors are finding it difficult to replace reserves organically. The rise of national oil companies overseas has made it more difficult for the companies to access foreign reserves, as have restrictions placed U.S. offshore drilling. U.S. independents and oil service companies have been at leading edge of technology, including developments in horizontal drilling, which have changed the oil and gas industry.

Horizontal drilling

Strong oil prices and weak, but stable, gas prices in 2010 encouraged investment in shale exploration efforts and production technology. The shift from gas to oil-focused drilling has created a drilling renaissance in the Permian Basin that has operators looking at plays nobody thought was possible.

However, consistency in commodity prices, as well as companies' abilities to find enough skilled employees and addressing issues surrounding hydraulic fracturing, are needed to allow companies to capitalize on shale properties. Despite controversy over hydraulic fracturing, the practice will likely continue, said Marcela Donadio, Americas Oil & Gas Leader for Ernst & Young, noting that companies are taking efforts to conduce fracing responsibly.

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Barclays: Worldwide Spending to Pass Half Trillion Mark in 2011

- Barclays: Worldwide Spending to Pass Half Trillion Mark in 2011

Monday, June 13, 2011
Rigzone Staff
by Karen Boman

Worldwide exploration and production (E&P) spending in 2011 is expected to rise to 16 percent to $529 billion, compared with $458 billion in 2010, with strong year-over-year improvement in spending driven by large increases inside and outside North America, Barclays Capital today reported in its global E&P capital spending update.

E&P spending in North America is now forecast to be up 16.2 percent in North America and 15.5 percent outside of North America, compared with forecast increases in December 2010 of 11 percent globally, including seven percent in North America and 12 percent outside of North America. Barclays reports budgets have been revised dramatically higher in the U.S. and internationally for U.S. and European based independents, Southeast Asian companies and companies focused on the Middle East.

Spending increases this year will be led by North America, where high oil prices and the continued shift towards drilling in oil and liquids rich plays have resulted in solid growth. E&P capital spending for North America is expected to increase by 16.2 percent from $127.6 billion in 2010 to $148.3 billion in 2011.

Latin America, Europe and the Middle East are expected to be the strongest regions internationally for E&P spending. Petrobras' multi-year pre-salt development offshore Brazil and ambitious plans by Colombian state energy company Ecopetrol are driving the forecast increase in capital spending by Latin American companies, with spending in the region expected to be up 26 percent in 2011 to $65.5 billion from $52.1 billion in 2010, Barclays reported.

Spending increases of roughly 23 percent are anticipated both in Europe and the Middle East, with spending estimated at $39.9 billion this year in Europe and $22.1 billion in spending in the Middle East. India, Asia and Australia spending will be up 15 percent this year to $79.3 billion. Russian spending is expected to rise by three percent to $36.1 billion this year from 2010.

Capital expenditures for North Africa, where the "Arab Spring" of political demonstrations and civil war across the region has affected government and the economy, are anticipated to be down by over 16 percent to $25.2 billion this year due to sizable spending reductions by Egyptian General Petroleum Corp. and National Oil Corporation, as well as a reduction by Sonangol and lower spending for Nigeria National Petroleum Corp. as an election cycle concludes in Nigeria.

The U.S. continues to attract the majority of worldwide E&P spending at 21 percent; however, this percentage has continued to fall each cycle. Internationally, the India, Asia and Australia region absorbs the largest share of spending, which is being driven by large investments by Chinese national oil companies and Southeast Asian companies such as Malaysia's Petronas and Indonesia's Pertamina. In India, ONGC and Reliance are making significant investments in the region.


U.S. and European independents are stepping up spending internationally, with U.S.-based independents now forecasting international spending increases of 23 percent, up from four percent in December, while the European independents are anticipating spending growth of 23 percent versus 12 percent at the end of 2010. "We believe this is in part due to higher oil prices, higher cash flows, new exploration programs, and recent exploration success," Barclays said.

Spending among supermajors is expected to rise by 16 percent this year, led by Total, BP and Shell, compared with average spending growth of eight percent over the past five years. This increase is due to engineering and construction-related spending for several large liquefied natural gas projects, increasing Iraq spending, and increased deepwater drilling, especially in West Africa and Brazil.

While ExxonMobil remains the largest capital spender worldwide for oil and gas this year, Petrobras is quickly catching up; Petrobras and PetroChina may overtake ExxonMobil in spending in the next few years. Ninety percent of the top 20 spenders are expected to increase capital expenditures this year, with the exception of Russia-based Gazprom, which Barclays believes is primarily currency-related due to currency fluctuations in 2012, and Sonangol in Angola.

Barclays noted that the correlation between increased E&P spending and inflation-adjusted oil prices is significant, and expects a higher oil price environment to persist over the next several years driven by accelerating decline curves, continued difficulty finding and developing large reserves, increased demand in emerging markets, and tight spare capacity.

"Based on our view of a continued high oil price environment, we expect 2011 to mark the first year of multi-year double-digit spending growth internationally," Barclays said.

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Petrobras Predicts $73B in Plansal Spending

Petrobras Predicts $73B in Plansal Spending

Monday, May 02, 201
Petrobras

Petrobras on Monday presented the annual review of the Integrated Development Master Plan for the Santos Basin Pre-Salt Area (Plansal) to the Board of Directors. The Master Plan is reviewed annually, incorporating information from newly drilled wells and from the implementation of different commercial strategies.

Plansal's current review strengthens the trend of reducing the investments necessary to develop the area, today estimated at 45% with regard to the original Master Plan of 2008 and around 32% with regard to last year's Master Plan, which is the result of the optimization achieved in the conception of the production projects, mainly due to higher well productivity (average increase of around 20%) and better understanding of the areas with production potential. Additionally, the expectation of the recoverable volume potential for the Lula and Cernambi areas was extended beyond 8 billion barrels. There was also a significant increase considering the 5 billion barrels of recoverable oil equivalent (broe) recently acquired in the Transfer of Rights, which will enable Petrobras to take advantage of great synergies with projects which are under development.

The current vision allows Petrobras to predict that the total investments to develop the projects present in the Santos Basin Pre-salt Area, through 2015, will reach 73 billion dollars, of which 74% will be carried out directly by Petrobras. These investments will lead to significant pre-salt production increases and will create the basis for the production increase in the post-2015 period. As a result of this great company effort, the company expects the contribution of the areas, operated by Petrobras, in terms of total production, to reach 613 thousand barrels of oil per day in 2015, an increase of 108 thousand barrels per day with regard to the previous plan. Of this total, around 60% belongs to Petrobras and the remaining 40% belongs to non-partners. In 2017, the previously disclosed production target of 1 million barrels of oil per day will be surpassed.

Another highlight of Plansal was Petrobras's high performance capacity. Many of the initiatives established in the first Master Plan, in 2008, have already become reality in 2011, with highlight to the start of operations of:

• two FPSOs (BW Sao Vicente and Dynamic Producer) to perform Long-Duration Tests (LDTs) programd for the area;
• a higher number of drilling rigs (8 are currently in operation and another 5 will begin activities in the next 3 months);
• the first definitive production system, installed in Lula field (FPSO Cidade Angra dos Reis);
• the gas pipeline between Lula Pilot and the Mexilhao platform (200 km of submarine pipelines in ultra-deep waters);
• the gas pipeline between Caraguatatuba and Taubate (Gastau).

Besides the events above, also representative are the start of construction of eight FPSOs at the Rio Grande Shipyard, the contracting for the construction of up to 28 drilling rigs in Brazil, the first batch of seven rigs of which has already been defined and the development of studies for a Gas FSO, designed to provide a new alternative for the flow through its liquefaction in the open sea. With regard to the development of the Transfer of Rights areas, the Inhama Shipyard is already being fitted out for the construction of the first four units, to be installed by 2016.

The need to implement alternative routes for the flow of oil and gas of the Santos Basin Pre-salt Area, based on the forecast of the huge production volumes, was identified. These alternatives, which are in an advanced stage of maturation, will allow an adequate logistics network to take on the future forecast of the area's production.

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March Consumer Spending Grows 0.6%, Personal Income Up 0.5%

March Consumer Spending Grows 0.6%, Personal Income Up 0.5%



Apr 29, 2011

March consumer spending was better than many had feared, showing a 0.6% rise in current dollar terms according to the Commerce Department, slightly higher than the 0.5% increase economists' had expected.

When adjusted for inflation, spending increased 0.2% in the month after rising 0.5% in January.

Consumer spending in both January and February was revised higher, with February spending getting bumped to 0.9% from 0.7%, and January spending to 0.5% from an initially estimated 0.3% increase.

It was feared higher energy prices could more severely slow consumers' spending. The personal consumption index (PCE) rose 0.4% in March after an increase of the same amount in February. Year-over-year the PCE is up 1.8%.

Core PCE, which excludes food and fuel, was up only 0.1% in March, after rising 0.2% in February, and is up 0.9% year-over-year.

Personal income for the month rose 0.5% in March, beating the expectation for a 0.3% gain.

Saudi Aramco plans $125 billion spending spree

Saudi Aramco plans $125 billion spending spree

Apr 26, 2011

Sangim Han

SEOUL // Saudi Aramco, the world's largest oil exporter, will spend about $125 billion (Dh459bn) on projects over the next five years as it seeks to increase refining capacity by 50 per cent, Chief Executive Officer Khalid al-Falih said.

The company wants to boost oil-processing capacity to 6 million barrels a day from the current 4m barrels, Mr al-Falih said in a speech in Seoul today. Aramco is building two plants in the kingdom and is considering a further four "grassroots" facilities, he said. That includes one refinery at Jaizan in Saudi Arabia and possible joint-venture projects in China, Vietnam and Indonesia, he said.

"Saudi Aramco isn't just about petroleum production," he said. "We are also one of the world's largest producers of natural gas, a major player in refining, and we are ramping up our petrochemical activities."

Aramco's domestic and international spending plans include oil exploration and production as well as natural gas, refining and petrochemical facilities, he said. Saudi Arabia plans capital expenditure of more than $450bn in the same period, according to Mr al-Falih.

All 12 members of the Organisation of Petroleum Exporting Countries including Saudi Arabia will need to provide a daily average of 29.8m barrels a day this year to satisfy global requirements, or about 600,000 a day more than they pumped in March, the International Energy Agency said April 12.

Aramco built the world's largest natural gas network about 30 years ago, and doubled its processing capacity.

The company plans to expand the network to exceed 14bn standard-cubic-feet per day of capacity in the next five years when the network will encompass seven world-scale gas plants.

For the expansion, the company continues to make natural gas discoveries in places including the Gulf, while beginning exploration in areas such as the Red Sea and the north-west region of the kingdom.

These activities are adding to the company's reserves of 275 trillion cubic feet, the world's fifth-largest proven holdings of gas, in addition to the world's biggest reserves of conventional crude oil, he estimated.

The company is also expanding its petrochemical capabilities in the kingdom, through a petrochemical project in Jubail with Dow Chemical and a planned expansion of Rabigh Refining & Petrochemicals, its joint venture with Sumitomo Chemical.

Mr Al-Falih said South Korea is now among Saudi Arabia's four largest trading partners.

The country accounts for about a fifth of Saudi Arabia's total petroleum exports, and Aramco supplies 30 per cent of South Korea's crude imports.

Aramco is holding its board meeting for the first time in South Korea this week, Mr al-Falih said.

"The Far East is the destination for two out of every three barrels of crude oil" that Aramco exports, he said.

Aramco owns 35 per cent of S-Oil, South Korea's third- largest refiner that's expanding its processing capacity in Ulsan to more than 650,000 barrels a day.

Export Import Bank of Korea and Korea Trade Insurance each signed a memorandum of understanding with Aramco on possible future project financing, according to the website of the oil and gas producer.

Gran Tierra Ups 2011 Capital Spending to Develop S. American Assets

Gran Tierra Ups 2011 Capital Spending to Develop S. American Assets

Monday, April 11, 2011
Gran Tierra Energy Inc.

Gran Tierra announced capital spending plans on the recently acquired Petrolifera Petroleum Limited ("Petrolifera") assets.

Gran Tierra Energy intends to spend approximately $55 million on the newly acquired assets with approximately $25 million in Colombia, $14 million in Peru and $16 million in Argentina. Drilling and completion costs are expected to amount to $41 million, including $14 million in Colombia, $13 million in Peru and $14 in Argentina. Seismic costs total $12 million, mostly in Colombia and facilities costs total $2 million, mostly in Argentina.

This capital program is in addition to the $299 million 2011 capital program previously announced for Colombia, Peru, Brazil and Argentina by Gran Tierra Energy, which remains unchanged. This new combined capital program of approximately $355 million for 2011 is expected to be funded from existing cash reserves and cash flow.

"Our evaluation of the new assets under management indicates that there is significant potential to grow reserves and production in the coming years. With appropriate allocation of capital, we believe we can unlock significant value from these assets," said Dana Coffield, President and Chief Executive Officer of Gran Tierra Energy.

"In Colombia, Gran Tierra Energy intends to delineate a potential gas production platform in the Lower Magdalena basin, prepare for 2012 exploration drilling in Peru, and reverse production declines in Argentina where both oil and gas prices have consistently been rising."

Colombia

Gran Tierra Energy plans to spend approximately $14 million on drilling in Colombia, including one exploration well and one delineation well with the intention of evaluating a potential gas production platform in the Lower Magdalena Basin.

Sierra Nevada Block (100% working interest and operator)

Following Gran Tierra Energy's announcement of its offer to acquire Petrolifera, GLJ Petroleum Consultants Ltd. ("GLJ") independent resource evaluators, estimated 101.5 billion cubic feet ("BCF") of United States Securities and Exchange Commission ("SEC") compliant 3P natural gas reserves (15.6 BCF 1P and 34.3 BCF 2P) at the Brillante discovery well drilled in 2010. GLJ's estimate is effective December 31, 2010.

A delineation well in the Brillante discovery is planned for the third quarter of 2011 to further define the significant potential of this discovery. A regional gas market evaluation is underway, as well as an evaluation of transportation options in the area.

The La Pinta-1 well, drilled in 2010, encountered good oil shows while drilling in the Upper Porquero reservoirs. Gran Tierra Energy plans to re-enter this well and perforate this zone to test its oil potential in the third quarter of 2011.

Gran Tierra Energy also intends to acquire approximately 170 square kilometers of 3D seismic in preparation for future exploration and development drilling on the Sierra Nevada Block.

Magdelena Block (100% working interest and operator)

Testing operations on the San Angel-1 well continue and, contingent upon successful test results, Gran Tierra Energy may acquire approximately 150 square kilometers of 3D seismic in the area.

Turpial Block (50% working interest and operator)

One exploration well is planned for the Turpial Block to evaluate the heavy oil reservoirs encountered by stratigraphic drilling in the 1970's.

Peru

In 2011, Gran Tierra Energy intends to spend approximately $13 million in preparation for drilling in early 2012.

Block 107 (100% working interest and operator)

Gran Tierra Energy believes significant resource potential exists on Block 107 in Peru. One exploration well is planned for the second quarter of 2012, with 2011 spending dedicated to planning and purchase of long lead items in preparation for 2012 drilling.

Argentina

Capital spending in Argentina will initially focus on reversing production declines on properties in the Neuquen Basin. Gran Tierra Energy plans to spend $14 million on drilling and completions in Argentina.

Puesto Morales / Puesto Morales Este (100% working interest and operator)

Gran Tierra Energy plans to conduct work-over programs on approximately 16 wells, along with drilling approximately six development wells, including three producers and three new water injectors. Gran Tierra Energy believes it can improve recovery in the existing reservoirs by minimizing water channeling in the waterflood project through the use of polymer. The budgeted work program may be adjusted to accommodate results during implementation of the program.

Production and Reserves

Including the Petrolifera assets, Gran Tierra Energy anticipates average production in 2011 to range between 17,500 and 19,000 barrels of oil equivalent ("BOE") per day, net after royalty, weighted approximately 95% to oil.

Mulva Reveals 3 Keys to ConocoPhillips' Success

Mulva Reveals 3 Keys to ConocoPhillips' Success

Friday, March 25, 2011

by  Jaime Kammerzell

Rigzone Staff

James Mulva, president and CEO of ConocoPhillips, believes that saving money, cutting capital spending, and maintaining a level of transparency in his business decisions is the key to the company's success. In 1999, when Mulva became CEO, ConocoPhillips' combined assets were about $75 billion. By the end of Q1 2004, he had secured an income of $1.9 billion for the company and brought its debt down to 32% of its capital. More recently, ConocoPhillips reported Q4 2010 earnings of $2.0 billion, compared with Q4 2009 earnings of $1.3 billion.

Mulva, whose total compensation in 2010 was $11.26 million, never dreamed of working in the oil and gas industry while growing up in central Wisconsin. He attended the University of Texas and earned his BBA in finance in 1968 and an MBA in business administration in 1969. After graduation he entered the US Navy and was stationed on Bahrain Island. That's where he learned about the oil and gas industry. "The production side of the business as well as the financial aspect intrigued me," Mulva said. When he completed his tour of duty in 1973, he searched for a financial job in the oil and gas industry.

Mulva joined Phillips Petroleum Co. in the treasury department later that year. He was soon promoted to assistant treasurer and manager of foreign exchange and investment. In 1980, Mulva was then promoted to vice president and treasurer of Europe/Africa - a position he held for four years. With a strong financial background, Mulva analyzed investments and new technologies with an eye on the bottom line. His assessments allowed him to predict the long-term financial impact of each proposal. His understanding of the global market also helped him to build up the company's long-term security and assets. This strategy paid off for Mulva as well as Phillips as he helped the company meet and exceed corporate goals through his many positions with the company.

Going Green

Mulva was known to be a hard worker and had a knack for finding profitable solutions for Phillips. While CEO at Phillips, Mulva took a hit to his reputation when a K-resin chemical tank exploded in March 2000 at a Phillips Petroleum plant in Pasadena, TX. The blast killed Rodney Gott, a 45-year-old supervisor, as well as seriously burning four employees and injuring 65 others. The fire produced a huge plume of black smoke that spread over the Houston Ship Channel as well as neighboring residential areas. The tank was out of service for cleaning at the time of the explosion, and had no pressure or temperature gauges to alert the workers to the danger. This blast was the third in 11 years at that particular plant.

Phillips paid a hefty fine to the Occupational Safety and Health Administration (OSHA) for safety violations. The explosion motivated Mulva to ramp up plant safety inspections, provide safety training for his employees, and implement stricter safety measures.

After that incident, Mulva focused Phillips' efforts on reducing its environmental impact while continuing a successful exploration and production program. Mulva worked to position Phillips as a leader in finding cleaner energy sources, and later he saw clean energy as the key to ConocoPhillips' long-term growth.

ConocoPhillips, under Mulva's leadership, believes that a secure energy future depends on utilizing a diverse mix of energy sources that are reliable, available, and environmentally responsible. This includes traditional hydrocarbon products, as well as alternative and renewable sources made available through improved technology. When considering future energy solutions, ConocoPhillips examines all the factors that impact energy -its use, cost and availability. Though new technology promises to change the future nature of energy supply, the company acknowledges that there still is work to be done to ensure minimal impact to the environment from the production, storage, and transportation of these energy sources.

Mergers and Acquisitions

Mulva knew that clean energy alone would not propel Phillips into the big leagues with supermajors ExxonMobil and ChevronTexaco. Thus, he set out to make the company more competitive through increased E&P and through mergers and acquisitions.

Phillips acquired the Alaskan production assets of the Atlantic Richfield Company (ARCO) in March 2000 for $7 billion. At the time of the announcement, Mulva said, "The acquisition of Arco's Alaskan assets represents a significant step in our strategy of growing our exploration and production business. We gain a substantial position in the two largest fields in North America, immediately form a new production center, and become a major merchant supplier of crude oil to the West Coast."

In July 2000, Phillips and Chevron merged their chemical and plastic operations to create the Chevron Phillips Chemical Company. A board of directors governs this 50/50 venture, which is composed of two members from each parent company. The company name was determined in a coin toss to settle which parent company name would be first.

Today, Chevron Phillips Chemical is one of the world's top producers of olefins and polyolefins and a leading supplier of aromatics, alpha olefins, styrenics, specialty chemicals, piping, and proprietary plastics. The company produces chemical products that are essential to manufacturing over 70,000 consumer and industrial products.

In February 2001, Phillips announced that it would acquire the Tosco Corporation, an oil refiner and retailer that marketed gasoline under the 76 and Circle K brands, for $7 billion in stock.

The transaction created the nation's second-largest refiner and fifth-largest gasoline retailer. While many other large oil companies were disposing of their refineries, Phillips under Mulva's leadership, in adding them to its oil exploration and production, made a move to become a more fully integrated oil company.

However, the most notable merger under Mulva's leadership occurred in August 2002, when Phillips merged with Conoco. In this $15.1 billion deal, ConocoPhillips became the largest refiner and the third largest energy company in the US behind Exxon Mobil Corp. and ChevronTexaco Corp. The merged company was worth about $35 billion.

At the time of the merger, ConocoPhillips controlled or had stakes in 19 refineries worldwide with a capacity of 2.6 MMb/d and joint oil reserves were about 8.7 Bbbl.

In comparison, at year-end 2009, ConocoPhillips was the second-largest refiner in the US, with crude oil processing capacity of approximately 2.0 MMb/d, and the world's fourth-largest nongovernment-controlled refiner, with crude oil processing capacity of nearly 2.7 MMb/d globally. Its total oil reserves were 8.4 Bboe and total worldwide production was 1854 Mboe/d.

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