GAO: Water Supply Poses Obstacle to Green River Oil Shale Dev't

- GAO: Water Supply Poses Obstacle to Green River Oil Shale Dev't

Thursday, September 08, 2011
Rigzone Staff

The Green River formation – an assemblage of more than 1,000 feet of sedimentary rocks that lie beneath parts of Colorado, Utah and Wyoming, is estimated to contain up to 3 trillion barrels of oil – or an amount equal to the world's proven oil reserves. However, extracting these oil shale resources is expected to require substantial amounts of water and could impact groundwater and surface water.

The U.S. General Accountability Office (GAO) reported that, while U.S. oil shale development could have significant impacts on the quality and quantity of water resources, the magnitude is unknown because technologies are not yet commercially proven, the size of a future industry is uncertain, and knowledge of current water conditions is limited.

Commercial oil shale development requires water for numerous activities throughout its life cycle, but estimates vary widely for the amount of water needed to commercially produce oil shale primarily because of the unproven nature of some technologies and because the various ways of generating power for operations use differing quantities of water.

The thickest and richest oil shale within the Green River formation exists in the Piceance Basin of northwest Colorado and the Uintah Basin of northeast Utah. GAO reported that water is likely to be available for the initial development of an oil shale industry but that the size of an industry in Colorado or Utah may eventually by limited by water availability.

"Water limitations may arise from increases in water demand from municipal and industrial users, the potential of reduced water supplies from a warming climate, the need to fulfill obligations under interstate water compacts, and decreases on withdrawals from the Colorado River system to meet the requirements to protect threatened and endangered fish species," said Anu K. Mittal, director of GAO's natural resources and environment team, in testimony before the House of Representatives' subcommittee on energy and mineral resources in Grand Junction, Colo. on Aug. 24.

Some analysts project that large scale oil shale development within Colorado could require more water than is currently supplied to over 1 million residents of the Denver metro area and that water diverted for oil shale operations would restrict agricultural and urban development. Potential water demand is further complicated by the past decade of drought in the West and projections of a warming climate in the future, GAO noted.

In the absence of effective mitigation measures, water resources could be impacted by disturbing the ground surface during the construction of roads and production facilities, withdrawing water from streams and aquifers for oil shale operations, underground mining and extraction, and discharging waste waters produced from or used in such operations, Mittal said.

About 72 percent of this oil shale is located beneath federal lands managed by the Department of the Interior's Bureau of Land Management, making the federal government a key player in potential development of this resource. The federal government through the Department of Energy and Interior sponsors research on the impacts of oil shale on water resources.

However, nearly all the officials and experts that GAO contacted said that there are "insufficient data to understand baseline conditions of water resources in the oil shale regions of Colorado and Utah and that additional research is needed to understand the movement of groundwater and its interaction with surface water," GAO reported. Federal agency officials also told GAO that they seldom coordinate water-related oil shale research among themselves or with state agencies that regulate water.

Interest in oil shale as a domestic energy source has waxed and waned since the early 1900s. The Energy Policy Act of 2005 directed BLM to lease its lands for oil shale research and development. In June 2005, BLM initiated a leasing program for research, development and demonstration (RD&D) of oil shale recovery technologies; by early 2007, six small RD&D leases had been awarded, including five in the Piceance Basin and one in Uintah Basin.

Another significant challenge to oil shale development is the technology to economically extract oil from oil shale. The rock needs to be heated to temperatures between 650 and 1,000 Fahrenheit to extract the oil, or retorting. Retorting can be accomplished either by mining oil shale, bringing it to the surface, and heating it in a vessel known as a retort. While this process is done to a limited extent in Estonia, China and Brazil, a commercial mining operation with surface retorts has never been developed in the U.S. because the oil it produces competes directly with conventional crude oil, which historically has been less expensive to produce.

The other method, the in-situ process, involves drilling holes into the oil shale, inserting heaters to heat the rock, and then collecting the oil as it is freed from the rock. Some in-situ technologies have been demonstrated on very small scales, but other technologies have yet to be proven, and none has been shown to be economically or environmentally viable.

GAO's review of available studies indicates that expected total water needs for the entire life cycle of oil shale production range from about 1 barrel (or 42 gallons) to 12 barrels of water per barrel of oil produced from in-situ operations, with an average of about five barrels, and from about two to four barrels of water per barrel of oil produced from mining operations with surface heating, with an average of about three barrels.

Additional economic challenges include transporting oil produced from oil shale to refineries because pipelines and major highways are not prolific in the remote areas where oil shale is located, and the large-scale infrastructure needed to supply power to heat oil shale is lacking. Average crude oil prices also have been lower than the threshold necessary to make oil shale development profitable over time. The influx of workers associated with such projects, as well as their environmental impact, also are issues.

While industry has focused primarily on overcoming technological challenges and trying to develop a commercially viable operation, "the uncertainties associated with the impacts that a commercially viable oil shale industry could have on water availability and quality that should be an important focus for federal agencies and policymakers going forward," Mittal said.

Colorado Reps. Scott Tipton and Doug Lamborn testified at the oversight field hearing that the Obama Administration has repeatedly delayed and hindered oil shale development to the detriment of local economies, job creators and "American families struggling with high energy costs."

"The United States is blessed with tremendous oil shale resources – and we have appropriately been called the 'Saudi Arabia' of oil shale," said Lamborn, noting that the Western U.S. may hold more than 1.5 trillion barrels of oil, enough to supply the U.S. with energy for the next 200 years.

Dan Whitney, heavy oil development manager for Shell Exploration and Production Company, said that the lack of policy and regulatory consistency from one administration to another makes the investment climate even more risky and potentially untenable.

Gary Aho, representing the National Oil Shale Association, said that industry " needs a clear, consistent federal program and a national commitment to develop oil shale. Access to lands and regulatory certainty are crucial to companies starting a new, capital intensive industry."

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Lufkin Industries Announced It Signed Agreement To Acquire All Assets Of Quinn's Oilfield Supply Ltd

- Lufkin Industries Announced It Signed Agreement To Acquire All Assets Of Quinn's Oilfield Supply Ltd



Sep 6, 2011

Lufkin Industries (NASDAQ:LUFK) announced it has signed an Asset Purchase Agreement to acquire substantially all of the assets of Quinn's Oilfield Supply Ltd., including certain affiliates, for about $303 million in cash subject to certain adjustments.

John F. Glick, President and Chief Executive Officer of Lufkin, stated, "The acquisition of Quinn's continues our strategy of expanding our product portfolio in artificial lift systems, while at the same time extending our sales and service network in the increasingly active oil provinces of the United States and Western Canada. The integration of Lufkin's surface beam pump unit with Quinn's downhole rod pump will enhance Lufkin's ability to package complementary products and allow us to better optimize the rod lift system to the benefit of our customers. Quinn's is well positioned to benefit from the large increase in unconventional oil plays as oil shale wells generally transition to artificial lift approximately 18 to 24 months after completion. Quinn's downhole rod pumps and PCPs are also a clear fit with our Automation strategy of integrating downhole devices and instrumentation to monitor and control production."

Lufkin Industries has a potential upside of 62.3% based on a current price of $58.83 and an average consensus analyst price target of $95.5.

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GAO: More Action Needed to Secure Maritime Energy Supply

- GAO: More Action Needed to Secure Maritime Energy Supply

Friday, August 26, 2011
Rigzone Staff
by Karen Boman

The Coast Guard and the Federal Bureau of Investigation (FBI) have made progress implementing prior recommendations made by the U.S. General Accountability Office (GAO) to enhance energy tanker security, but further action is needed to secure maritime energy supply, GAO said in an Aug. 24 report.

GAO in 2007 made five recommendations to ensure effective response by federal agencies to protect tankers and implement response plans. Two recommendations have been implemented, including the development of protocols by the Coast Guard and U.S. Customs and Border Protection to facilitate the recovery and resumption of trade following a disruption to the maritime transportation system. The Coast and the FBI have participated in local port exercises that executed multiple response plans simultaneously.

The Coast Guard also has made progress on a third recommendation through work on a national strategy for the security of certain dangerous cargoes. The Coast Guard plans to develop a resource allocation plan, starting in April 2012, which may help address the need to balance security responsibilities.

"However, the Coast Guard and the FBI have not yet taken action on a fourth recommendation to develop an operational plan to integrate the national spill and terrorism response plans," GAO reported.

The Department of Homeland Security (DHS) plans to revise the National Response Framework, but no decision has been made regarding whether the separate response plans will be integrated. DHS also has not yet taken action on the final recommendation to develop explicit performance measures for emergency response capabilities and use them in risk-based analyses to set priorities for acquiring needed response resources. According to DHS, it is revising its emergency response grant programs, but does not have specific plans to develop performance measures as part of this effort.

While the Coast Guard has taken steps to assess the security risks to offshore infrastructure, including Outer Continental Shelf (OCS) facilities and deepwater ports, the agency faces complex and technical challenges in assessing risks. The Coast Guard has used its Maritime Security Risk Analysis Model (MSRAM) to examine security risks to offshore facilities, but does not have the data on the ability of an OCS facility to withstand an attack.

GAO has determined that as of May 2011, the Coast Guard had not assessed security risks for 12 of the 50 security-regulated OCS facilities that are to be subjected to such assessments. Coast Guard officials later added these facilities to MSRAM for assessment and have completed the required assessments. However, current Coast Guard policies and procedures do not call for Coast Guard officials to provide an annual updated list for regulated OCS facilities to MSRAM analysts.

"Given the continuing threat to such offshore facilities, revising its procedures could help ensure that the Coast Guard carries out its risk assessment requirements for security-regulated OCS facilities," GAO said.

Stephen L. Caldwell, director on Homeland Security and Justice Issues, testified before the House of Representatives in Houston on Aug. 24 that Al-Qa'ida and other groups with malevolent intent continue to target energy tankers and offshore energy infrastructure because of their important to the nation's economy and national security.

In May of this year, DHS reported that intelligence information showed that; throughout 2010, there was continuing interests by members of al-Qa'ida in targeting oil tankers and commercial oil infrastructure at sea. "While a terrorist attack on energy tankers or offshore energy infrastructure has not occurred in the United States, other countries have experienced such attacks."

While the Deepwater Horizon incident in April 2010 was not the result of an attack, it showed that the "consequences of an incident on offshore energy infrastructure could be significant."

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Oliver Valves Seals Supply Deal with Brazilian Co

- Oliver Valves Seals Supply Deal with Brazilian Co

Friday, August 26, 2011
Oliver Valves

Oliver Valves has secured a £7.2m deal to supply two projects for Brazil's leading oil and gas firm.

The deal, which is the biggest single contract in the firm's 30-year history, is for delivery of 391 valves, ranging in size from 2" to 12" in diameter.

Delivery of the first units has already begun and all installations are scheduled to be completed by September 2012.

The valves will be used on two Floating Production, Storage and Offloading (FPSO) vessels operating of the coast of Rio de Janeiro.

David Cornwell, managing director of Oliver Valves, said, "This is a landmark contract for the business as it is not only the biggest we have ever secured but it also represents a major success in an international market that is relatively new to us.

"Just five years ago, Brazil was hardly even on our radar in terms of sales, but this year it will generate more revenue for the business than any other territory.

"We secured this project on the basis of our technical ability, rather than by beating our competitors commercially.

"We undertook nine months of specification work before securing the project and we committed the time up front to ensure we would be delivering the best possible solution.

"This approach has clearly paid off and this demonstrates that it is possible for British manufacturers to compete internationally by outperforming others in terms of quality, if not always on price."

The win follows a series of other international contract wins in 2011 including a £1 million order to supply subsea valves for a project in the Gulf of Mexico, a separate £800,000 order from a major Brazilian oil company, and Oliver Valves' first subsea contract in Chinese waters – worth £400,000.

David Cornwell said, "We have achieved a lot of success in securing new orders in the past six months, and delivering these projects will mean increasing the capacity of the business through significant recruitment."

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Commodity Corner: Irene Supply Fears Propel Oil, Gasoline

- Commodity Corner: Irene Supply Fears Propel Oil, Gasoline

Thursday, August 25, 2011
Rigzone Staff
by Matthew V. Veazey

Light sweet crude oil gained 14 cents Thursday amid fears that Hurricane Irene could diminish gasoline supplies along the East Coast.

The WTI ended the day at $85.30 a barrel after fluctuating from $83.01 to $86.56. The major hurricane, which is expected to hit North Carolina's Outer Banks Saturday evening, could cause widespread power outages, flooding, and wind damage from the Carolinas to New England. Six refineries with approximately 1.3 million barrels of processing capacity lie within the storm's projected path. Pipelines and terminals serving those facilities could also be impaired should Irene remain on her current track.

As of 5 p.m. EDT Thursday, Hurricane Irene was packing maximum sustained winds of 115 miles per hour. The storm, centered over the Bahamas at press time, was moving north-northwestward at 14 mph.

The Brent contract price also settled higher Thursday, gaining 47 cents to end the day at $110.62 a barrel. It peaked at $111.38 and bottomed out at $109.05.

Buoyed by the threat of Irene, gasoline for September delivery rose nine cents to end the day at $2.97 a gallon. It traded within a range from $2.88 to 2.97.

September natural gas edged upward by one cent to settle at $3.93 per thousand cubic feet. The front-month contract fluctuated from $3.87 to $3.98.

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Oil Demand to Increase; Supply Less Certain -Study

- Oil Demand to Increase; Supply Less Certain -Study

Thursday, August 04, 2011
Ernst & Young LLP

Oil demand and prices should continue to rise in the third quarter of 2011 according to indicators, even with ongoing uncertainty with respect to the economic recovery, deficit reduction initiatives in the US and the debt crisis in Europe.

In the first quarter of this year, with expectations for continued economic improvement and as a result of the supply disruptions from the Middle East, oil prices rose to over $100/barrel. But after peaking in the second quarter, crude prices fell back slightly, in spite of the announced stock release by the International Energy Agency (IEA), as the economic recovery lost some steam.

Oil

The bright spot in the oil outlook is the increasing activity in the Gulf of Mexico since the oil spill last year, with the first new production out of the Gulf coming in the second quarter. While overall production remains below pre-2010 levels, the application and permitting process is substantially improved, and increasing production will create jobs and increase domestic energy supplies at a time of expected strong demand growth. Oil production elsewhere in the Americas continued to increase as well, notably from the Bakken formation in the Upper Midwest, as well as from the Canadian oil sands and Brazil.

The big unknowns for oil producers are the short-term effects of the IEA's release of 60 million barrels from emergency supplies and OPEC members' disagreement over supply increases. The IEA's release announcement brought prices down temporarily and is expected to fill the void of Libyan supplies. However, as the market moves into the high-demand season, the IEA release will not meet that increased demand, and the market will need more supply from OPEC at a time when its spare capacity is at its lowest level in more than 20 years. Beyond the short-term, over the next three to five years, pressures on OPEC to increase capacity and production are expected to increase substantially.

"Oil prices are dictated by supply and demand, and all signs point to modest oil demand growth and uncertain supply," said Marcela Donadio, Americas Oil and Gas Leader, Ernst & Young LLP. "Barring a strong economic shock, continued strong oil prices seem to be in order over the next three to five years."

Gas

US natural gas production continues to grow, with the latest production figures reaching the highest point in almost 40 years. Shale gas is driving the growth and is now approaching about 30% of US total gas production, even as gas-directed drilling has slowed and issues surrounding the economic feasibility and potential environmental impacts of the resource are raised.

"We maintain that natural gas is a sound solution to the nation's need for domestic, cleaner-burning fuel," said Donadio. "We have the resource in abundance and we know how to produce it safely. We need to put any questions around that to rest and focus on creating more opportunities to increase natural gas demand."

Oilfield services

Oilfield service activity is dictated by upstream spending. Spending is expected to continue to grow by about 15 to 20% in 2011, returning close to the peak 2008 levels. Service capacity is being strained by the unconventionals boom. Cost increases and staffing shortages are appearing. This resurgence of the oilfield service segment is being driven by fit-for-purposes technology such as rotary steerable rigs and directional/horizontal drilling; strong oil prices; and the efficient application of shale gas technologies including multi-stage fracking and horizontal drilling.

Transactions

The second quarter was another fairly strong quarter for oil and gas transaction activity, marking seven consecutive quarters of deal growth. Deal activity in Americas continues to dominate the global transactions landscape.

Looking into the second half of year, transaction activity should stay fairly strong, boosted by the expected continued high oil prices and the ever-high geopolitical risk, tempered only by the still reasonably high levels of economic uncertainty, particularly in the US and Europe.

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Havila Shipping to Take Ownership of 5 Platform Supply Vessels

- Havila Shipping to Take Ownership of 5 Platform Supply Vessels

Tuesday, June 28, 2011
Havila Shipping ASA

Havila Shipping has entered into an agreement with its controlling shareholder Havila AS and Havila AS' wholly-owned subsidiary Havvåg AS for the purpose of transferring Havila AS' indirect ownership interests in the five platform supply vessels MV Havila Fortune, MV Havila Aurora, MV Havila Borg, MV Havila Commander and MV Havila Crusader (the "PSVs") to the Company (the "Transaction").

The transfer of the ownership interest in the PSVs to the Company will be carried out through a transfer of the shares in subsidiaries of Havila AS and interests in Havila PSV DIS as contribution in kind against the issue of shares in the Company.

Havila AS' ownership interests in the PSVs are primarily held by private limited companies, wholly- or partly-owned subsidiaries of Havila AS, which in turn hold ownership interests in the partnerships owning the PSVs, provided, however, that Havila AS holds some interests directly in Havila PSV DIS (the "SPVs").

Following completion of the Agreement, the Company will, indirectly, be the owner of 40% in MV Havila Crusader and MV Havila Commander, 49% in MV Havila Borg and 50% in MV Havila Aurora and MV Havila Fortune. MV Havila Aurora, MV Havila Borg and MV Havila Fortune are currently managed by the Company (commercial and technical management), while MV Havila Commander and MV Havila Crusader are on 8-year bareboat charters to the Company. All PSVs are currently operational and on contracts of variable lengths, with remaining duration between two months and five years, offering a balanced market exposure.

The acquisition of a controlling stake in the two PSVs currently leased, MV Havila Commander and MV Havila Crusader is expected to improve earnings significantly through a reduction of net leasing costs, which is currently approximately NOK 100 million annually, and improving the overall financial structure of the Company through replacing leasing with traditional financing.

The acquisition of three additional PSVs, MV Havila Aurora, MV Havila Borg and MV Havila Fortune, is also considered favourable as the Company already operates all of these PSVs, with solid operating performance. These PSVs have remaining contract durations of approximately two months, one year and five years (plus options), respectively, providing Havila Shipping with growth at a favourable
entry point for expansion in the supply market, and at the same providing balanced contract mix.

The financing of all PSVs will be continued under new ownership.

As part of the transactions, the Company will cancel the Total Return Swap on approximately 1.05 million shares. The reason for this, is that the Company having such financial exposure to its own share price is outside the key business scope of the Company.

The SPVs and the PSVs

The Company's acquisition of ownership interests in the PSVs will be carried out through the transfer of Havila AS' shares and interests in the following companies:

• Havship I AS - MV Havila Fortune
  • The Company will acquire 100% of the shares of Havship I AS ("Havship I"), which in turn holds 50% of the outstanding ownership interests in P/R Havship DA, a Norwegian partnership with apportioned liability and business registration number 993 442 003 ("PR Havship I").
  • PR Havship I owns the PSV MV Havila Fortune. MV Havila Fortune is a PSV MT6009 MkII (3,205 dwt), which was built in 2008. It is on contract with Maritime Logistic Services AS until August 2011, and has an option for 3 further wells.
  • The board of directors of Havship I comprises Per Sævik as chairman and sole board member and Njål Sævik as deputy board member. Per Sævik is also the general manager. There are no employees in Havship I.
• Havila Aurora AS - MV Havila Aurora
  • The Company will acquire 100% of the shares of Havila Aurora AS ("Havila Aurora"), which in turn holds 50% of the outstanding ownership interests in P/R Havship II DA, a Norwegian partnership with apportioned liability and business registration number 894 084 782 ("PR Havship II").
  • PR Havship II owns the PSV MV Havila Aurora. MV Havila Aurora is a PSV MT6009 MkII (3,205 dwt), which was built in 2009. It is on contract with Total until March 2016, with an additional option for 2 years.
  • The board of directors of Havila Aurora consists of Per Sævik (chairman), Njål Sævik, Hege Sævik Rabben and Vegard Sævik. Per Sævik is also the general manager. There are no employees in Havila Aurora.
• Havila Borg AS - MV Havila Borg
  • The Company will acquire 100% of the shares of Havila Borg AS ("Havila Borg"), which in turn holds 49% of the outstanding ownership interest in P/R Havship III DA, a Norwegian partnership with apportioned liability and business registration number 994 760 890 ("PR Havship III").
  • PR Havship III owns the PSV MV Havila Borg. MV Havila Borg is a PSV Havyard 832 (4,000 dwt), which was built in 2009. It is on contract with Shell until July 2012 with a 1 year option.
  • The board of directors of Havila Borg consists of Per Sævik (chairman), Njål Sævik and Kjell Rabben. Njål Sævik is also the general manager. There are no employees in Havila Borg.
• Havila PSV AS and Havila PSV DIS - MV Havila Commander and MV Havila Crusader.
  • The Company will acquire 37%, and indirectly (through its wholly owned subsidiary Havila PSV AS ("HPSV AS")) an additional 3%, of the outstanding ownership interest in Havila PSV DIS, a Norwegian silent partnership ("HPSV").
  • HPSV controls the PSVs MV Havila Commander and MV Havila Crusader. MV Havila Commander and MV Havila Crusader are both PSV VS485 (4,900 dwt), which were built in 2010. MV Havila Commander is on contract with ConocoPhilips until mid July 2011, then three months with Maersk Oil & Gas and MV Havila Crusader is on contract with Talisman until November 2011 with two six-month options.
  • The boards of directors of HPSV AS and HPSV consist of Svein Sandvik (chairman), Njål Sævik and Richard Jansen. There are no employees in any of these companies.

PR Havship I, PR Havship II, PR Havship III and HPSV are jointly referred to as the "Partnerships".

Further, the Company intends to increase its ownership in the PSVs to 100% of MV Havila Fortune, Havila Aurora and Havila Borg and 74% of the ownership interests in Havila PSV DIS (MV Havila Commander and MV Havila Crusader) through an acquisition from the third party owners of Partnerships against cash consideration, provided, however, that Mavi VX shall transfer its shares in the partnerships owning MV Havila Aurora, MV Havila Borg and MV Havila Fortune to Havila Shipping as contribution-in-kind against shares in Havila Shipping. The calculation in these acquisitions shall be calculated on the same basis as the consideration in this Transaction.

[No agreements have been, or will be, entered into in connection with the Agreement for the benefit of the parties' board members or management.]

The consideration and settlement

The consideration in the Transaction comprises the aggregate value of the shares transferred to Havila Shipping, which for each of the SPVs is calculated on the basis of (i) the market value of the PSVs as of December 31, 2010 (based on shipbroker valuations as of March 31, 2011, and for MV Havila Commander and MV Havila Crusader also reflecting the Company's purchase options starting in
2012), (ii) value adjusted equity related to the other assets and liabilities in the relevant Partnerships as of December 31, 2010, and (iii) the net profit excluding depreciations of the relevant Partnership in the period from January 1, 2011 to July 19, 2011. The purchase price will comprise the total value of each Partnership adjusted for the percentage of ownership interests not transferred to Havila Shipping.

Based on the above and an agreed total value for the 5 PSVs in the amount of NOK 1,503 million on a 100% basis, the aggregate value of the shares transferred to Havila Shipping is expected to amount to NOK 149.7 million, which is subject to adjustments for the actual net profit in the period up to July 19, 2011.

The subscription price for each share issued to Havila AS against contribution in kind will be equal to the subscription price in the Company's contemplated private placement announced on June 27, 2011. The indicative price range in the private placement is between NOK 52.50 and NOK 57.50, and the final subscription price will be determined by the Board of Directors after completion of the book-building period, expected to end on July 1, 2011.

The number of shares to be issued to Havila AS as consideration for the contribution-in-kind with an aggregate value of NOK 149.7 million and a subscription price at the mid-point of the price range (i.e. NOK 55), is 2,721,203 shares.

The shares will be issued by the Board of Directors pursuant to its authorization to increase the share capital of the Company granted by the general meeting held on April 28, 2011.

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Shell Awards FMC Technologies Supply Contract for Prelude Field

- Shell Awards FMC Technologies Supply Contract for Prelude Field

Monday, June 27, 201
FMC Technologies Inc.

FMC Technologies has signed an agreement with Shell Development (Australia) Pty. Ltd. to supply subsea production and associated topside systems for the Prelude field development. The companies also announced an aftermarket agreement that will result in FMC Technologies Australia Ltd. performing installation and commissioning services for the project. Orders associated with this award will be received throughout the remainder of 2011.

The Prelude field is located in the Browse Basin, northeast of Broome Western Australia, in water depths of approximately 820 feet (250 meters). It will become Shell's first field development to utilize a floating liquefied natural gas (FLNG) facility. FMC's scope of supply includes seven large bore subsea production trees, production manifolds, riser bases, subsea control systems and other related equipment. All subsea equipment will be delivered from FMC's Asia-Pacific operations.

"Prelude is a landmark project, being the first floating LNG development, and we are proud to support Shell with this project," said Tore Halvorsen, FMC's Senior Vice President of Global Subsea Production Systems.

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Dril-Quip Scores Supply Contract Offshore Malaysia

- Dril-Quip Scores Supply Contract Offshore Malaysia

Wednesday, June 22, 2011
Dril-Quip Inc.

Dril-Quip announced that Dril-Quip Asia Pacific PTE Ltd, its wholly owned subsidiary located in Singapore, has been awarded a contract valued at approximately US $39 million by Murphy Sabah Oil Company, Ltd. to supply drilling and production equipment for the Kikeh Dry Tree Spar Platform which is located offshore Malaysia in approximately 1,330 meters of water.

Dril-Quip will provide a drilling riser, top tensioned production risers, tensioners, tieback connectors, specialty joints, surface wellheads and production trees to the project. Delivery of these systems is scheduled to begin in 2012.

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Ohio's Established Supply Chain for Shale Gas Maximizes ROI

- Ohio's Established Supply Chain for Shale Gas Maximizes ROI

Thursday, June 02, 2011
Ohio Business Development Coalition

Costs associated with accessing markets, shipping products and supplies, and support services can be a considerable business expense for energy companies involved in the extraction and distribution of natural gas. In addition, having efficient access to an established energy supply chain and natural gas delivery system can advance or hinder a project.

Energy companies are looking at both the Marcellus and Utica Shale natural gas reserves to supplement the nation's energy supply and to keep customer utility rates in check. The Marcellus Shale formation stretches from the edge of Maryland to New York, Pennsylvania, West Virginia and Appalachian Ohio along the Ohio River. The boundaries of the deeper Utica Shale formation extend under the Marcellus Shale region and beyond. Experts estimate the Marcellus Shale formation has the potential to produce the energy equivalent of 87 billion barrels of oil -- enough to meet total U.S. natural gas demand for 20 years.

A recent Penn State University study indicates companies involved in the Marcellus Shale gas development plan to increase their investment to more than $11 billion in 2011, up from $4.5 billion in 2009 and $8.8 billion in 2010. The study reported that the next wave of investment would focus on creation of the energy industry supply chain supporting Marcellus Shale gas extraction and distribution.

Already Ohio companies are leveraging ease-of-access to market and a well-developed logistics infrastructure to service the natural gas supply chain at the speed of today's business environment and achieve the fastest return on their investment.

Everything that made Ohio the ideal location choice for suppliers to the automotive industry is in place for Tier I and II suppliers to efficiently and affordably supply the Marcellus and Utica Shale gas industry: central location, logistics infrastructure, skilled workforce and a favorable state tax structure. Like the auto industry, shale gas supply chain companies are finding Ohio is the ideal location choice to achieve the fastest return on their start-up investment and that they will benefit from the state's manufacturing know-how and world-class logistics infrastructure.

Extracting and distributing shale gas requires a lot of supplies from drill bits, pipes and fixtures, machinery, sand, water, containers, measurement tools and safety equipment. And, every well is unique, making it important to have fast access to a full range of support services to ensure commercial success.

Supply chain companies that locate operations in Ohio to support the Marcellus and Utica Shale natural gas industry will find the state's central location places their company in close proximity to all five primary states spanned by the Marcellus Shale Formation. And Ohio's world-class transportation infrastructure makes it fast and easy to service customers. Ohio is within 600 miles of 60 percent of the U.S. and Canadian population and is within a one-day drive of 70 percent of North America's manufacturing capacity, so components and finished goods quickly reach their destination anywhere in North America.

V&M Star, a pipe maker for the oil and natural gas industries in Youngstown, recognized the potential for Marcellus and Utica Shale reducing U.S. dependence on foreign energy sources. In 2010, V&M Star's parent company, Vallourec, invested $650 million in a new pipeline mill, directly attributed to pipeline expansion for the Marcellus and Utica Shale natural gas. V&M Star President and COO Joel Mastervich attributes the company's location in Ohio's Enterprise Appalachia has a key factor to the investment in Marcellus and Utica Shale natural gas.

"Our proximity to the Marcellus and Utica Shale formations was a key factor in our decision for the new pipe mill," said Mastervich. "And, since construction began, we've come to appreciate the emerging potential of the Utica shale, which is even closer to our operations."

In addition, Dearing Compressor & Pump Co., a Boardman-based manufacturer of industrial pumps and compressors used in natural gas drilling, recently announced an investment of about $3 million in a new assembly plant to expand its production capacity.

"We recognized the need for expansion about a year ago, and I would say 99 percent of it was driven by the Marcellus Shale," notes Becky Wall, co-owner of Dearing Compressor & Pump Company, in an interview with the Youngstown Vindicator. "We were able to start reacting to the business potentials in the Marcellus Shale sooner than other companies."

Energy companies have a growing need for engineers, researchers and skilled manufacturing workers, which are readily available in Ohio. Ohio's universities and colleges are ready to meet the need for new technologies and skilled green collar workers through new research, degrees and training specific to the advanced energy industry through programs such as The University Clean Energy Alliance of Ohio (UCEAO) and investments through Ohio Third Frontier.

"We have a skilled and productive workforce in our existing mill and we knew we could find high quality employees for the new mill here," continued Mastervich. "There is an established center of pipemaking expertise in Youngstown. Also, the project received- and continues to receive- a high level of cooperation from local, county, state and federal governments."

In addition, supply chain companies can reduce operating costs with Ohio's favorable business climate, because there is no tax on inventory or corporate income - and boost the return on investment with no tax on purchases of machinery and equipment.

Yet, perhaps the most significant tax benefit that supply chain companies that locate in Ohio can obtain is there is no tax on inventory.

Ohio's comprehensive supply chain is just one of the key benefits for energy companies involved in the commercial development of Marcellus and Utica Shale gas, according to Ed Burghard, executive director of the Ohio Business Development Coalition, the nonprofit organization that markets the state for capital investment.

Ohio promises a perfect balance that allows business owners, their employees and their families the opportunity to achieve both their professional and personal aspirations without having to sacrifice one for the other. Ohio offers businesses an environment that makes it easy to foster work-life balance. The convenience of travel, with short commutes from work to home, lower stress and give more time to priority family activities.

"In Ohio, work-life balance is more than a buzzword; it's the way we do business," said Burghard. "Companies are trying harder to help their employees achieve better work-life balance because this positively impacts a company's bottom line. Ohio's Low-cost, low-stress communities and short commutes create the State of Perfect Balance, where you can achieve both professional and personal success without sacrificing one for the other."

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FMC Technologies to Supply Workover System at Statoil's Statfjord Field

- FMC Technologies to Supply Workover System at Statoil's Statfjord Field

Wednesday, June 01, 2011
FMC Technologies Inc.

FMC Technologies has signed an agreement with Statoil for the manufacture and supply of a workover system to support the Statfjord field. The award has a value of approximately $70 million in revenue to FMC Technologies.

Statfjord is one of the oldest producing fields on the Norwegian continental shelf and one of the largest oil discoveries in the North Sea. Statoil will use the workover system to perform intervention activities on their subsea wells in order to increase performance and enhance oil recovery. It will be the first standardized workover system supplied to Statoil by FMC.

"This workover system is designed to support Statoil's rig scheduling program and its standardized subsea equipment," said Tore Halvorsen, FMC's Senior Vice President of Global Subsea Production Systems. "As a result, rig time can be more efficiently allocated, reducing costs and enhancing productivity."

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Aker to Supply Subsea Production Control Umilicals for Chevron

- Aker to Supply Subsea Production Control Umilicals for Chevron

Tuesday, May 31, 2011
Aker Solutions

Aker Solutions has been selected to supply three subsea production control umbilicals for the Chevron operated Jack & St. Malo field developments in the Gulf of Mexico. Contract value is undisclosed.

The production control umbilicals will provide hydraulic, electrical and fiber optic service to the Jack and St. Malo subsea fields. Scope of work includes three electro-hydraulic steel tube production umbilicals totaling 40 miles (65 kilometers). Engineering, project management, and manufacturing will take place at Aker Solutions' state-of-the-art umbilical facility in Mobile, Alabama. The three umbilicals will be used at Chevron's Jack & St. Malo field, located in the Walker Ridge Area of the Gulf of Mexico in water depths of approximately 7,000 feet (2,100 meters).

"Aker Solutions is excited to see Chevron come back to us with a repeat order and is proud to contribute to this very important project for Chevron and for the Gulf of Mexico region," said Erik Wiik, President - Subsea North America, Aker Solutions.

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Aker to Supply Offloading Systems in Brazil

- Aker to Supply Offloading Systems in Brazil

Thursday, May 26, 2011
Aker Solutions

Aker Solutions has won two similar contracts, together worth approx. 120 million NOK, from CQG Oil & Gas Contractors Inc. and CCI Oil & Gas Contractors Inc., for the supply of Pusnes offloading systems (TM) to two FPSOs in the Brazilian market.

The offloading systems will be installed on the two FPSOs P-58 and P-62, which are being converted and built for Petrobras.

The two FPSOs are spread moored FPSOs, and will use the field proven Pusnes offloading system (TM) at both bow and aft ends. These offloading systems include tanker mooring and crude oil transfer components as well as emergency offloading stations. Crude oil from the FPSOs will be loaded on to dedicated dynamic positioned shuttle tankers. Aker Solutions last year secured the mooring contracts for the same FPSOs.

The Pusnes offloading system (TM) is recognized by the industry for having established an environmentally responsible, safe and secure connection from the FPSO via a crude oil hose to the dynamic positioned shuttle tanker's bow loading system. In the event of an emergency, the oil flow can be quickly stopped and the vessels disconnected rapidly and safely.

"Aker Solutions' mooring and loading systems have attained a unique position in Brazil. We have signed more than a dozen contracts for various clients in Brazil," said Leif Haukom, head of Aker Solutions' mooring and loading systems business.

As previously communicated, Aker Solutions is also supplying Pusnes mooring systems (TM) to P-58 and P-62, under the terms of a contract with Petrobras.

Delivery of the offshore loading systems to P-58 and P-62 FPSOs will take place in 2011/2012. The contract party for Aker Solutions is Aker Pusnes AS.

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Farstad Shipping Orders 2 Platform Supply Vessels

- Farstad Shipping Orders 2 Platform Supply Vessels

Friday, May 20, 2011
Farstad Shipping ASA

Farstad Sipping ASA has declared their options for building 2 platform supply vessels (PSV) at STX OSV. One of the vessels will be built at the STX Yard in Vietnam and one at the STX Yard in Tomrefjord, Norway (Langsten).

The newbuilds are part of Farstad Shipping's continuous fleet renewal and represent an investment of approx. NOK 600 mill. Delivery of the vessels will take place during first half of 2013.

The vessels ordered are of the STX PSV 08 CD design, identical to three of the vessels ordered in November 2010. This design is a newly developed, medium sized, diesel electric PSV with a net deck area of approx. 800 m².

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GE O&G Selected to Supply HPHT Equipment Offshore Vietnam

- GE O&G Selected to Supply HPHT Equipment Offshore Vietnam

GE O&G's drilling & production business has been selected to supply high-pressure, high-temperature (HPHT) equipment to Bien Dong Petroleum Operating Company, a subsidiary of the state-run Vietnam Oil and Gas Group (PetroVietnam), for the development of gas fields, offshore Vietnam.

Under a contract of approximately $30 million, GE will provide 16 sets of HPHT surface wellheads and subsea production trees, along with associated equipment and services, for deployment in phase one of the development campaign for blocks 05.2 and 05.3 of the Hai Thach and Moc Tinh gas fields. This marks the largest single contract for surface wellheads and subsea trees in Vietnam by any equipment manufacturer.

Sam Aquillano, vice president—drilling & production, GE Oil & Gas said, "We are honored to supply high-tech equipment to Bien Dong Petroleum Operating Company to support Vietnam's offshore drilling and production operations. This is the largest single contract for surface wellhead and subsea trees in Vietnam, and GE hopes to build on this contract award by continuing to support Vietnam's burgeoning oil and gas industry with high-tech, high-performance equipment and services from across our integrated oil and gas portfolio."

The high-tech equipment, with the capability to operate at 350°F and 15,000 psi, is a first for Vietnam and reinforces GE's position as a leading supplier of surface HPHT and ultra HPHT wellheads and subsea trees in Asia. The contract follows GE's recent agreement with Total Malaysia to supply ultra HPHT equipment (450° F and 15,000 psi).

GE Oil & Gas has a strong local presence in Vietnam for turbomachinery and drilling and production equipment and services support. Last year, GE signed a memorandum of understanding (MOU) with PetroVietnam, paving the way for the future supply of advanced oil and gas equipment, services and spare parts to optimize the total life-cycle value of key oil and gas projects in Vietnam.

This contract further affirms GE's position as a significant wellhead and subsea production tree supplier for surface HPHT and ultra HPHT equipment in Asia and follows a recent award with Total Malaysia for ultra HPHT equipment (450°F and 15,000 psi). GE Oil & Gas has a local presence in Hanoi for turbomachinery equipment and services and in Ho Chi Minh City for VetcoGray subsea equipment and services. GE Oil & Gas also provides advanced technology equipment and services to other high-profile projects in Vietnam, such as the BP Pipeline, Dung Quat Refinery, Phu My Refinery, Camau Fertilizer and Vietsovpetro. Last year, GE Oil & Gas successfully signed an MOU with PetroVietnam outlining the principles and basis of long-term collaboration regarding the supply of advanced oil and gas equipment, services and spare parts to optimize the total life-cycle value of key oil and gas projects.

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Cook Inlet Drilling Still Lags Pace Needed to Sustain Gas Supply

Cook Inlet Drilling Still Lags Pace Needed to Sustain Gas Supply

Monday, May 09, 2011
Alaska Journal of Commerce
by Tim Bradner

More drilling is under way in Cook Inlet natural gas fields, but the pace is still short of the number estimated to needed to forestall shortages of gas in the region.

Still, there are glimmers of hope. Although the quantities are still small, new gas is coming into Enstar Natural Gas Co.'s pipeline system from a new producer, Armstrong Oil and Gas.

Also, explorers drilling for gas in Southcentral appear to be finding some, although it is too early to know whether the wells can be commercially produced.

The overall pace still falls short of what is needed.

Firms operating producing fields in Southcentral Alaska this year plan four new production wells. Independent companies also have drilled three exploration wells this winter. The last one, being drilled near the city if Kenai, is now being completed.

However, seven new gas wells in total drilled this year are less than half the 18 new wells estimated to be needed each year if the region's gas reserves are to be sustained.

The estimate was done for the regional utilities in 2010 by Petrotechnical Resource Alaska, an Alaska-based petroleum-consulting firm.

Meanwhile, Southcentral electric utilities have kicked off construction of a number of new gas-fueled power generation facilities, but there are questions about where the gas for these new plants will come from.

Chugach Electric Association and Municipal Light and Power have the new $369 million Southcentral Power Project plan underway in south Anchorage.

Matanuska Electric Association's new $250 million gas-fired generation plant in Eklutna is in the early stages of permitting.

Homer Electric Association also has two new, smaller power generation projects, one that has started construction.

The Regulatory Commission of Alaska has approved Chugach's request to pass its share of the Southcentral power plant costs, about $200 million, on to its customers. A similar request is anticipated from ML&P for its one-third share, RCA chairman Bob Pickett said.

Although the turbines in the new facilities will be more efficient, typically using a third less gas to generate power than older equipment now used, the net result may still be an increase in total gas use.

It isn't clear where the gas will come from. A gas pipeline from the North Slope is years away, if it can even be built. Several utilities, including the regional gas utility, Enstar Natural Gas Co., are working on possible imports of liquefied natural gas.

"There's not much we can say about it right now," Enstar spokesman John Sims said.

Jim Posey, ML&P's general manager, said about the same.

"I'm much more encouraged about this than I was three months or six months ago," Posey said. He said he hopes to be able to talk in more detail sometime in the summer.

Pickett, at the RCA, said the regulatory commission wants to know about this, however.

The commission will ask the utilities to tell it where things stand on possible LNG imports in a meeting in late May or early June, Pickett said.

Although the pace of drilling isn't enough, there are some positive developments for the regional gas supply pictures.

Enstar is now taking delivery of gas from the small North Fork gas field on the Kenai Peninsula near Homer, Enstar said.

Armstrong Oil and Gas, a Denver-based independent company that owns the North Fork field, began deliveries in early April, Enstar spokesman Sims said.

The utility is taking about 15 million to 25 million cubic feet of gas daily, although this is expected to increase. Enstar's contract with Armstrong calls for the company to deliver 1 billion cubic feet of gas per year.

Enstar built a $21 million, 21-mile, eight-inch pipeline from an existing pipeline from Ninilchik to Anchor Point, where it has linked with two four-inch pipelines built by Armstrong from the North Fork field.

Armstrong is now producing from two wells at North Fork and has drilled two more wells, Sims said.

Companies operating producing fields in the region have four new production wells planned. Marathon Oil Co. plans one well in the Ninilchik gas field on the Kenai Peninsula. Marathon also plans two new production wells on the Steelhead platform in Cook Inlet. Marathon owns the platform, which produces gas, although Chevron Corp. manages production operations.

One new production well is planned for the Beluga gas field, according to Municipal Light & Power, which owns a third of the field.

Exploration wells drilled this winter meanwhile have found some gas, although it is too early to know if they can be produced.

Linc Energy, an Australian independent, reported finding gas at its test well drilled in the Matanuska Susitna Borough late last fall, although testing is now under way on possible production.

Nordaq Energy completed an exploration well on the Kenai Peninsula in April, and although results weren't announced the company said it is working on permits for surface facilities, a good sign.

Buccaneer Energy Ltd. is now completing its exploration well, also on the Kenai Peninsula. The well has encountered gas shows but whether these can be produced remains to be seen.

There are also plans for two jack-up rigs to be operating in deeper waters of Cook Inlet this summer. One rig is now being transported to the Inlet by Escopeta Oil and Gas, another independent.

Buccaneer Energy plans to bring a second, larger jack-up rig to the Inlet this summer.

Both companies own leases with prospects that will be tested by the two jack-up rigs.

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SBM Offshore Secures LOI for EPCI Supply

SBM Offshore Secures LOI for EPCI Supply

Wednesday, March 30, 2011

SBM Offshore N.V.

SBM Offshore has executed a Letter of Intent (LOI) with OSX 2 Leasing BV, an indirect subsidiary of OSX Brasil and part of the EBX Group. This LOI will permit SBM to start project activities, including early engineering and procurement up to $25MM, relating to the future conversion, supply and installation of a floating production, storage and offloading vessel to OSX (FPSO OSX-2). The full EPCI contract for FPSO OSX-2 is expected to be executed within a month.

FPSO OSX-2 will be chartered by OSX to its customer OGX Petróleo e Gás Ltda. (OGX), also a company of the EBX Group, and will be deployed on oil fields in the Campos basin offshore Brazil. First oil is targeted by 3Q 2013.

Today's Trends: Natural Gas Funnelling

Tuesday, March 22, 2011

Rigzone Staff

by  Trey Cowan

The cylinder sections in the graph above represent a range of, plus-to-minus one, standard deviation surrounding the average annual natural gas prices for the corresponding years. Trading patterns over the last three years indicate that the price volatility of natural gas has diminished significantly. Specifically, the range has narrowed from $4.28 in 2008 to just $0.58 at present.

If the cylinders were to be placed concentrically side by side, the resulting effect would be a funnel. Proceeding from the wide-end of the funnel to present day prices, it appears that natural gas has reached a period of price stability.

While much has been written about oversupply issues, the normal corrective mechanisms (i.e. participants leaving) appear to be taking root in the natural gas markets. Specifically, since October 2010, the US land gas rig count has fallen from 950 to 856 rigs, a 10% decline. Taking the conservative assumption that each rig could drill 10 wells per year implies that 940 (10 wells x 94 rigs) fewer natural gas wells will be drilled over the next twelve months.

Given the dramatic decline curves associated with shale gas, such as the depleting 70% during the first year in the Marcellus; the downward trend in rig count implies that future reserve replacement will not likely keep pace with existing production. Such a scenario points to a rebalancing of supply and demand in the U.S.
The discipline we are seeing with regards to a lower natural gas rig count is not occurring in a vacuum. These rigs that were drilling for natural gas are now drilling for oil. In fact, the US land oil rig count has increased by 153 rigs over the same time frame (i.e. from last October until now). E&P firms have made it clear that the incremental return per unit of $11, favoring oil, is a strong incentive to continue shifting resources. Thus, additional drilling to reinvigorate gas production will not resume quickly once prices begin to improve because the equipment will likely not be available.

With prices stabilizing and production normalizing, we can now envision a point in the future months where price improvement rather than price destruction can be seen as the ensuing trend. Other factors that are starting to play to the natural gas market's hand are strengthening industrial demand and a trend towards more electricity generation using natural gas as the fuel. Given the recent nuclear crisis in Japan, the backlash on nuclear energy will only make burning natural gas even more desirable.

So, even with the +7% recent surge in natural gas prices last week, we still see reasons to get more bullish on the commodity in the near future.

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Allies Expand Libya Air Campaign, Debate Chain of Command

Allies Expand Libya Air Campaign, Debate Chain of Command

March 22, 2011, 8:34 AM EDT

(Updates with oil prices in fifth paragraph, Erdogan in seventh, Turkish offer in 13th. For more on Middle East turmoil, see EXTRA and MET.)

March 22 (Bloomberg) -- Allied forces expanded their air campaign over Libya to thwart Muammar Qaddafi’s fighters and enable rebels to regain control of cities, as leaders debated who should be in overall control of the operation.
Aerial strikes enabled rebel forces to push out from their eastern stronghold of Benghazi as the United States Africa Command indicated that an F-15E jet crashed because of technical difficulties. At the same time, Norway is keeping its fighters grounded until there is clarity on the chain of command as France, the U.K. and allies including Turkey and the Arab states struggle to agree on whether NATO should guide the operation.
“The biggest obstacle to the Libyan intervention right now isn’t the Arab world but rather differences among France, the U.K. and the U.S. about who’s in charge,” Jan Techau, director of the Carnegie Endowment for International Peace in Brussels and former NATO defense analyst, said by telephone.

The conflict, which began in February in Benghazi, is the bloodiest in a series of uprisings that have spread across the Middle East this year and ousted the leaders of Egypt and Tunisia. Five members of the UN Security Council abstained from last week’s resolution that authorized the military operation, which is intended to limit civilian casualties.

Oil Markets

Oil traded near the highest price in more than a week as the airstrikes threatened to prolong a supply disruption. Crude for April delivery on the New York Mercantile Exchange was at $102 a barrel, down 33 cents, at 11 a.m. London time, after rising as high as $102.67. Yesterday, it gained $1.26 to $102.33, the highest settlement since March 10. Tension in the region is adding a risk premium of $15 to $20 a barrel to Brent oil prices, according to Societe Generale SA.

Libyan rebels in Benghazi said they have created a new national oil company to replace the corporation controlled by Qaddafi. Its assets were frozen by the United Nations Security Council. Libya has the largest oil reserves of any country in Africa, according to the BP Statistical Review of World Energy.

The option of the North Atlantic Treaty Organization taking charge of military operations may hinge in part on the extent of reservations expressed by Turkish Prime Minister Recep Tayyip Erdogan. Dialogue with the Libyan regime must continue, the premier said today in a speech to his party in parliament. Turkey has doubts over whether military intervention is justified, he said.

NATO Debate

Both Britain and Italy supported giving leadership to NATO, which requires unanimous approval from its member countries, including Turkey. The Italian Foreign Ministry said in a statement yesterday that NATO should “take on the command and control” of military operations.

Complicating matters, Arab League countries, who called for the no-fly zone, may not want to operate under NATO’s leadership, U.S. Defense Secretary Robert Gates said at a news conference March 20.
U.S. Vice Admiral Bill Gortney said Spain, Belgium, Denmark and Qatar have joined the coalition. The U.S., the U.K., France, Italy and Canada have at least 25 ships off the coast of Libya, including the French aircraft carrier Charles de Gaulle and the Italian carrier Giuseppe Garibaldi
The U.K. and U.S. were angered by France’s decision to launch the first attack March 20 without fully consulting its allies, the London-based Financial Times reported today, citing unidentified diplomats.

[Oil and Gas Post] - Oil Slips From Two-Week High on Speculation Mideast Risk Limited to Libya

Oil Slips From Two-Week High on Speculation Mideast Risk Limited to Libya

By Grant Smith and Ann Koh - Mar 22, 2011 4:22 PM GMT+0700

Crude oil retreated from its highest price in almost two weeks amid speculation that supply disruptions from political unrest in North African and the Middle East may be confined to Libya.
Futures slipped after climbing as much as 0.3 percent as demonstrators in Yemen spent the night on streets to maintain pressure on President Ali Abdullah Saleh, who is facing a growing internal revolt. Tension in the region is adding a risk premium of $15 to $20 a barrel to Brent oil prices, according to Societe Generale SA.

“The unrest in Libya seems to be priced in almost completely by now,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said in an interview with Bloomberg television. “The price will stay at elevated levels of around $110 to $120 for several months and will drop back to $90 by the year-end.”

Crude for April delivery on the New York Mercantile Exchange was at $102.05 a barrel, down 28 cents, at 9:15 a.m. London time, after rising as high as $102.67. Yesterday, it gained $1.26 to $102.33, the highest settlement since March 10. The April contract expires today. The more-actively traded May futures were down 22 cents at $102.87 a barrel. Brent oil for May settlement was at $114.65, down 31 cents, on the ICE Futures Europe exchange in London after rising as much as 0.5 percent. The spread between the two May contracts narrowed to $11.80 a barrel from $11.87 yesterday.

Regional Unrest

Regional turmoil has toppled the leaders of Tunisia and Egypt and reached Yemen, Bahrain and Syria. Societe Generale raised its forecast for Brent by $11 to average $109 a barrel this year as political risks increased, analysts led by Michael Wittner said in a report dated yesterday.

Allied forces are expanding their air campaign over Libya in an effort to thwart Muammar Qaddafi’s fighters and enable rebels to control cities, such as the opposition capital of Benghazi, which had been under attack by troops loyal to the regime. The Libyan leader denounced the coalition allied against him, which includes the U.S., the U.K. and France, as “the party of Satan.”

Libyan output has fallen to fewer than 400,000 barrels a day, Shokri Ghanem, chairman of Libya’s National Oil Co., said on March 19. The country produced 1.59 million barrels a day in January, according to estimates compiled by Bloomberg. Exports may be halted for “many months” because of sanctions and damage to facilities, the International Energy Agency said.

Libyan oil production is likely to remain disrupted for the rest of this year, said Lawrence Eagles, head of commodities research at JPMorgan Chase & Co. in New York.

Protest in Yemen

Thousands of Yemenis spent the night on streets across the country to maintain pressure on President Ali Abdullah Saleh, who is facing a growing internal revolt by army leaders, ministers and diplomats. Yemen produced about 298,000 barrels of oil daily in 2009, according to BP Plc data.

Military officers including Ali Muhsin al-Ahmar, commander of the first armored division, and Mohammed Ali Muhssein, commander of the eastern region, abandoned the regime yesterday. Their move was a result of the crackdown three days ago that left dozens dead, said Mohammed al-Sabri, an opposition leader.

Bahrain’s government declared a three-month state of emergency on March 15 after troops from Saudi Arabia and other Arab Gulf states arrived to help in quelling more than a month of protests.

Japan is delivering more relief supplies in areas hardest hit by the March 11 earthquake as workers restored power to two reactors at a crippled Fukushima Dai-Ichi nuclear power plant yesterday, prompting Prime Minister Naoto Kan to say there was “light at the end of the tunnel.”

Short-Term Drop

“The recent tragic events in Japan will result in a sharp short-term drop in economic activity but is likely to be followed by a strong recovery driven by reconstruction and replacement of durables which would boost the demand for many commodities,” Societe Generale’s analysts said.

Japan was responsible for 5.2 percent of global oil demand in 2009, according to BP, which publishes its Statistical Review of World Energy each June. Japan is the third-biggest crude- consuming country, after the U.S. and China.

To contact the reporters on this story: Ann Koh in Singapore at akoh15@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net

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