Drilling

Colombia’s hydrocarbons regulator Agencia Nacional de Hidrocarburos (ANH) starts an exhaustive schedule of road shows this week, promoting “Open Round Colombia 2010.”

ANH will offer data rooms and presentations in five cities from February 1 to May 16: Calgary, Houston, London, Rio de Janeiro, and Shanghai. Presentations alone are schedules for eight additional cities, presumably for financial analysts and management: Toronto, Dallas, New York, Madrid, Edinburgh, Sydney, Perth, and Singapore.

Colombia is offering three types of blocks in this open round:
Type 1: 74 blocks totalling 4.347 million hectares, containing 192 wells, in E&P “Miniround” for mature basins.
Type 2: 31 blocks totalling 8.458 million hectares, containing 147 wells, in E&P round for basins with new potential.
Type 3: 63 blocks totalling 39.058 million hectares, containing 50 wells, in TEA round, for frontier basins.
[TEA = special technical evaluation agreements]

Financial capacity test for a single Type 1 block is US $2 million; for Type 2 block it’s $20 million, and for a Type 3 block, it’s $200 million. The ANH additionally states that “ Those participants appearing in the last issue of “The Energy Intelligence Top 100: Ranking the World’s Top Oil Companies” are understood as qualified.”

E&P contracts are for 30 years, defined as 6 years of exploration and 24 years of production. New seismic and well data will be kept confidential for 5 years.

Offers are due to ANH by June 21.

Another oil spill on the Texas-Louisiana coast? Off with their heads! (as the Queen of Hearts says in the new “Wonderland” musical at Houston’s Alley Theatre).

News of the massive oil spill in the Sabine Neches Waterway at Port Arthur, Texas is another blow to the image of the oil industry and bad news for the coastal wetlands of Texas and Louisiana. Port Arthur is near the mouth of the Sabine River, the natural boundary between Texas and Louisiana.

The flora and fauna of coastal estuaries support a large Gulf of Mexico fishing industry, support millions of migrating birds that move throughout the Americas, and support the tourist industry in local communities through birding, fishing,  hunting, and other recreation.

The Gulf of Mexico shorelines are constantly under threat from hurricanes, red tides, industrial pollution and accidents such as this one. The Texas coast stretches 367 miles between the borders with Mexico and Louisiana, but it has an estimated 3,300 miles (5,310 km) of shoreline (including islands, bays, and river mouths), administered by 18 coastal counties. The Texas General Land Office (GLO) is responsible for managing the coast, protecting natural resources through initiatives such as Recycling, Adopt-A-Beach and Oil Spill Prevention and Response programs.

The Great Texas Coastal Birding Trail attracts many visitors from around the world to see a rich variety of species on annual migration routes, and includes 41 Texas counties. Oil spills have a decidely negative effect on any natural environment and images of oil spills, however localized, may significantly deter tourism. The birds, however, have no choice.

Just as we suspected, “there is no credible evidence that expanded oil and natural gas exploration and development in the Eastern Gulf would adversely affect military missions in that area.”

Such was the conclusion reached in a paper released yesterday by Securing America’s Future Energy (SAFE), with an analysis of the potential impact of expanded oil and natural gas exploration in the Eastern Gulf of Mexico on military activities, including training and weapons testing.

The paper, “Eastern Gulf of Mexico Oil and Gas Exploration and Military Readiness,” was produced in collaboration with Commonwealth Consulting Corp., led by Col. Martin Sullivan, USMC (Ret.)

SAFE and its Energy Security Leadership Council (ESLC) conducted a media conference call when they released the report.

Based on the US Department of the Interior’s Minerals Management Service (MMS) mean estimates, the Eastern Gulf contains 3.9 billion bbls of oil and 21.5 tcf of natural gas. A confirmed discovery in Destin Dome contains enough natural gas to supply 1 million households for 30 years.

General Charles F. Wald, USAF (Ret.), former Deputy Commander, United States European Command, said. “If expanded energy production in the Gulf put our armed forces or our nation’s readiness in danger, we would never support it. But this report makes clear that there is no conflict in the overwhelming majority of cases.  We can improve our energy security and remain at peak military readiness at the same time.”

Senator Byron Dorgan (D-ND), a member of the Senate Energy and Natural Resources Committee, said the report “shows that it is possible to expand production in the Outer Continental Shelf without compromising our need for military training and readiness.”

“Allowing oil production in the Eastern Gulf of Mexico is included in the comprehensive energy legislation that has already passed out of the Senate Energy Committee in a bipartisan fashion,” added Dorgan. “We need to finish the job by passing an energy bill this year. It is time for Democrats and Republicans alike to come together and act to strengthen our nation’s energy security.”

So let’s get drilling.

As more shales are exploited for natural gas, demand grows for locally sourced sand to use as a proppant during hydraulic fracturing operations. Shipping tons of sand cross-country is costly, so developing local sources in or near the new shale plays can improve the bottom line.

While new sand mining and processing operations ostensibly create local jobs–and that’s a good thing in a down-economy–not everyone wants a soon-to-be abandoned quarry in their back yard (NIMBY).

I read recently about new frac sand mining proposals in Arkansas’ Izard County.
Arkansas resident Jennifer Bove, in “The View from My Boots” blog, wrote about frac sand mining threatening the Arkansas Ozarks.

Bove published a letter from Gene Dunaway of a group called “Friends of the North Fork and White Rivers.” Dunaway said that Fayetteville shale operations are driving the development of new frac sand quarries, such as a site near Calico Rock, and expansion of existing ones, such as the Guion sand plant, established in 1909 by the Arkansas Silica Sand Corp., now controlled by Connecticut-based Unimin Corp., an international industrial mineral producer.

[In April 2009, Unimin announced a major capital expansion at its Guion plant that will increase by 700% the plant's capacity to produce ISO/API 40/70 frac sand. The expansion will add an additional 250,000 tons of 40/70 to the company's existing 40/70 capacity in Arkansas and be completed by end of 2009. The company's action is in response increased demand for ISO/API 40/70 grades in the Fayetteville, Haynesville and Barnett basins, where 40/70 is the preferred proppant to efficiently extract gas from shale reservoirs. Guion is ideally situated to serve these production fields via truck and Union Pacific rail direct service. The plant, located in Izard County, AR, has 48 employees.]

“Quarry mines usually become big holes in the ground,” Dunaway writes.
Evident after 100 years of operations at Guion.

“Large-scale quarry mining could change the entire character of our area.”
Agreed. Not sure what the Calico Rock area looks like now, but tourism is apparently one of Izard County’s chief industries.

“Quorum Court should take action immediately to…assure there is no risk to our water and property.”
One hopes that municipalities and governing bodies have professional standards for environmental protection.

[Arkansas, to its credit, had one of the first programs to register and license geologists in this area of the country. When I first started working on the Gulf Coast, it was the only state to offer this, so for a number of years, I was a licensed Arkansas geoscientist. Texas has since added registration.]

On December 3, 2009, the Arkansas Department of Environmental Quality (ADEQ) held a public meeting and hearing in Mount Pleasant, AR, to take comments regarding a construction permit for a process water recycling pond for Bluebird Sand LLC, in Izard County.

Bove wrote separately about the Calico Rock sand quarry, “Calico can do better than frac sand mining.” She’s opposed to unrestricted development and questions the large volumes of water used in mining operations, contamination of discharge water, road traffic, and air-quality issues. She wrote later blogs up on the dangers of silica dust at the mine site and along he haul roads, providing an exhaustive list of resources on silicosis.

Aside:
Geology of two parallel mountain ranges in western Arkansas, the Ozarks and the Ouachitas, is strikingly different. One has incredible mineralogy and the other…doesn’t.

 
Related news from disparate sources piqued my interest over the holidays.

On Dec. 22, Evan Ramstad, Korean correspondent for the Wall Street Journal, wrote that “Pain awaits Korean Shipyards,” which was differently titled on wsj.com as “Seoul Frets Over Shipyards.”

The gist of the article is that the global downturn is now beginning to affect shipyards, and South Korea, home to 7 of the world’s 10 largest shipbuilders, experienced a plunge in orders in 2009.

 According to Clarksons PLC, a London-based shipping brokerage and consulting firm, 2005-07 were the biggest years ever for shipbuilders, reaching a peak of 90 million compensated gross tons ordered worldwide in 2007. This plummeted to less than 10 million ordered in 2009, and China nearly tied South Korea in new orders.

South Korea previously garnered 10% of its GDP from shipyard exports, and Korean policy makers expect the loss of orders to lead to steep job losses and financial difficulties for shipyards. In December, they began to propose steps to cope with the changes in coming years. This may include restructuring troubled companies and providing subsidies to encourage shipyards to enter new businesses, primarily building platforms for oil and gas and wind turbines.

There are now 37 drillships under construction: 34 at shipyards in South Korea, and only 3 in Singapore. The most recent contract announced (Dec. 18) is the US $1.1 billion order with South Korea’s Daewoo Shipbuilding to build two new drillships for delivery in 2012.

Contracts for new semisubmersible drilling rigs are more widely distributed and there are 38 under construction worldwide: 17 in Singapore, 10 in China, 5 in South Korea, 3 in the UAE, 2 unspecified (potentially Brazil?), and 1 in Italy (according to RigZone).

Yards will stay busy for several years, working off this order backlog, but orders for new rigs have slowed. Which makes a January 4 report in the Moscow Times (provided by Marinelink.com) all the more curious.

Russian Prime Minister Vladimir Putin announced that the state-run United Shipbuilding Corp. would invest $7 million in two joint projects:

- Create a new yard on Chazhma Bay to build drilling platforms with Singapore’s Yantai Raffles.

- Add a new drydock to the Zvezda factory in Bolshoi Kamen to make tankers (LNG and other) with South Korea’s Daewoo.

Putin said the Russian government would spend $5 billion on new civilian ships and related technology in the Far East through 2020. It is a curious time to invest in infrastructure projects, one possibility being that Putin wants construction money spent on infrastructure improvements within Russia, rather than giving it to neighboring South Korea, China, or Singapore.  

(And with a nod to the cold front about to pummel the Gulf coast tomorrow, a photo in the Houston Chronicle this week showed that über-athlete Putin prefers SCOTT ski goggles, while Russian President Dmitry Medvedev prefers Bogner. Last January, the Huffington Post showed Putin in a similar pair of old SCOTT goggles –and hat– but he has wisely switched to wearing a svelte, safe ski helmet this season. Throwing caution to the wind, Medvedev is still in a hat.)

Follow-up, 12 Jan 2010, from marinelink.com:

“According to a Jan. 12 report from The Chosum Ilbo, Korean shipbuilders won new orders worth over $1 billion in the first 10 days of the new year, in a complete reversal of the situation last year. STX Offshore & Shipbuilding and Hanjin Heavy Industries delivered the good news on Jan. 11, and Daewoo Shipbuilding & Marine Engineering and Sungdong Shipbuilding & Marine Engineering won new orders earlier. Industry insiders said an overseas marketing drive in the second half of last year finally paid off. “

Among the week’s top news is ExxonMobil’s announcement that it would buy reserve-rich, Ft. Worth, Tex.-based XTO Energy for the equivalent of US $41 billion in an all-stock transaction. XTO holds about 45 tcf in unconventional resources, primarily North American natural gas, so ExMob is apparently betting big on the play concepts and the natural gas markets. Will this level of investment be a game-changer for the service companies?

Many of today’s hot unconventional plays have been developed by smaller, regional oil companies that developed into niche players. Working in a single field, or small group of fields, small-to-medium independents have had to operate with different constraints than majors with deeper pockets. A small company will necessarily make different decisions regarding cost-effective development. Scale of development, local availability, and cash flow may dictate supplier choices.

Doug Sheridan, at EnergyPoint Research Inc. in Houston, told E&P there will be winners and losers as companies consolidate. He believes the larger E&P companies will gravitate toward suppliers with strong health, safety, and environmental (HSE) records, low-levels of non-productive time (NPT), high reliability, and job quality — and not necessarily rock-bottom invoices. Sheridan says larger-cap customers [such as ExMob] tend to prefer higher levels of service and professionalism, specifically flexibility and responsiveness to customer needs and accountability in solving problems and disputes.

EnergyPoint’s research showed that major operators favored suppliers that invest in their people, emphasize and reward their staff’s communication and interpersonal skills, and work to develop and maintain strong professional relationships with client companies. Sheridan cited two drilling contractors: Helmerich & Payne (HP) and Parker Drilling (PKD) as companies that are best-positioned to benefit from large operator buyouts. Among the oilfield service companies and equipment suppliers, Sheridan thinks Smith International (SII), Dril-Quip (DRQ), and M-I SWACO (jointly owned by Smith Intl. and Schlumberger) are most likely to pick up additional market share.

ExxonMobil CEO Rex Tillerson said the company would use XTO’s gas shale expertise to develop similar plays in Europe, where it holds nearly 3 million acres of shale leases. Fields in Poland, Hungary, and Germany are well-positioned to produce into a gas-hungry European market. Local suppliers that make shrewd decisions in developing additional infrastructure may be able to secure significant business with XOM and other majors.

Anti-frac activism often comes across as alarmist and shrill. And much of it betrays an uncertain grasp of geology, chemistry, and industrial processes. What most often irks me is the overzealous attention directed at oil and gas, and very little discussion of other industrial chemical production.

The New York Times published another drilling-related article this week, adding to its continuing coverage of the gas shale boom. While it’s gratifying to see our industry detailed in the pages of my hometown paper, I’m dismayed at the bias in these articles.

In “The Dark Side of a Natural Gas Boom,” authors Jad Mouawad and Clifford Krauss delve into groundwater contamination from shale gas drilling and hydraulic fracturing. Mouawad is a staff reporter who has covered the energy industry for the NYT since 2004, and hails from Beirut and Paris. Krauss is a national business correspondent for the NYT, now based in Houston, and a former Edward R. Murrow Press Fellow (1987-88).

I hoped for rational, thoughtful coverage of the topic and balanced reporting. Alas.

The piece opens with a schmaltzy vignette of a landowner in Dimock, Penn., rightfully distraught over methane in her household water well (one of 13 contaminated), ostensibly from a nearby gas well drilled by Cabot Oil and Gas. “It’s been ‘drill, baby, drill’ out here,” she laments. We learn at the end of the article that she sold drilling rights on her property for $180 (seems pretty darn low), but they didn’t drill on her land. Three gas wells were drilled on neighboring properties, however.

If folks don’t want drilling in their area, then they shouldn’t sign over mineral rights for drilling.

Is this buyers’ remorse? Her household suffers the damage, but does not benefit from any royalties? If she had received a more substantial bonus and decent royalties, would she have a different opinion about the drilling activity?

Cabot now supplies them with bottled drinking water, but says, “none of the issues in Dimock have anything to do with hydraulic fracturing.” (The authors leave the readers to wonder how the 13 local wells were contaminated by methane and why the state fined Cabot $176,650.)

The authors go on to quote oil company leaders Aubrey McClendon, CEO, Chesapeake Energy Corp. (”…we have to be in sync with people’s concerns about water”) and Rodney Waller, Senior VP, Range Resources Corp. (”It’s not going to stop us, but we do have to solve the problem in a prudent manner”)

Neither of which paint the industry in a complimentary light. Can’t we do better than this?

The oil markets are buzzing about a newly introduced benchmark for medium sour crude oil.

Crude oil benchmarks were introduced in the mid-1980s, led by West Texas Intermediate (WTI) and followed by North Sea Brent and Dubai. The WTI and Brent benchmarks are used to price about 75% of oil produced worldwide.

For years, WTI crude pricing has been the de facto oil benchmark for oil imports into the US, based on light, sweet crude futures traded on the New York Mercantile Exchange. NYMEX is the world’s most prominent platform for oil trading and WTI is the most-traded contract on NYMEX.

Two pricing agencies lead the world in assessing oil prices, using different methodogies: Platts, a unit of McGraw-Hill Cos. Inc. (since 1909) and London-based, privately owned Argus Media Group (since 1979). Oil prices fluctuate based on market speculation through futures trading, rather than strictly on supply and demand. The WTI index is based on oil delivered to Cushing, Okla., and WTI pricing can be affected by local storage and pipeline capacity issues. Another drawback of the WTI benchmark is that not all the world’s oil is high quality, light, sweet crude. Sour crude oil, containing sulfur, is produced everywhere, and BP says that as much as two-thirds of the world’s crude supply is now sour crude. It typically trades at a discount on the WTI price, depending on sulfur content.

Enter the new alternative benchmark. Argus launched its new Argus Sour Crude Index (ASCI) in May 2009, based on US Gulf coast medium-sour crude. Saudi Arabia’s national oil company, Saudi Aramco, has used the WTI benchmark to price oil destined for the US since 1994, but announced in late October that it will implement the new ASCI benchmark for oil sales to the US beginning in January 2010.

Last week, the Wall St. Journal reported that Kuwait was also considering moving to the new ASCI benchmark, quoting Kuwaiti officials who said that Kuwait is usually in line with Saudi Arabia and that ”the switch is in our favor because it relatively reduces volatility in the WTI, and it is more transparent and reflects what is happening in the market.”

How many others will follow? Venezuela is a major oil exporter to the US; on Nov. 4, oil minister Rafael Ramirez said he agreed with the Saudi decision to abandon the WTI and that Venezuela might follow suit. And several Canadian companies are interested in the Argus benchmark for oil sands crude that may be sent into the US through TransCanada Corp.’s proposed 1,980-mile Keystone XL pipeline.

The new benchmark appears to be a positive step toward stabilizing world crude pricing. It offers an alternative for sour crude trading and could lead to a more stable market and realistic pricing.

Although the Maimi Herald is not generally regarded as a prime source of information on Arctic projects, I recently came across this great example of applied drilling technology. You may enjoy reading it as well.

Drilling for Scotch whiskey on frozen continent

WELLINGTON, New Zealand — A beverage company has asked a team to drill through Antarctica’s ice for a lost cache of some vintage Scotch whisky that has been on the rocks since a century ago.

The drillers will be trying to reach two crates of McKinlay and Co. whisky that were shipped to the Antarctic by British polar explorer Sir Ernest Shackleton as part of his abandoned 1909 expedition.

Whyte & Mackay, the drinks group that now owns McKinlay and Co., has asked for a sample of the 100-year-old scotch for a series of tests that could decide whether to relaunch the now-defunct Scotch.

Workers from New Zealand’s Antarctic Heritage Trust will use special drills to reach the crates, frozen in Antarctic ice under the Nimrod Expedition hut near Cape Royds.

Al Fastier, who will lead the expedition in January, said restoration workers found the crates of whisky under the hut’s floorboards in 2006. At the time, the crates and bottles were too deeply embedded in ice to be dislodged.

The New Zealanders have agreed to try to retrieve some bottles, although the rest must stay under conservation guidelines agreed by 12 Antarctic Treaty nations.

Fastier said he did not want to sample the contents.

“It’s better to imagine it than to taste it,” he said. “That way it keeps its mystery.”

Richard Paterson, Whyte & Mackay’s master blender, said the Shackleton expedition’s whisky could still be drinkable and taste exactly as it did 100 years ago.

If he can get a sample, he intends to replicate the old Scotch and put McKinlay whisky back on sale.

“I really hope we can get some back here,” he was quoted as telling London’s Telegraph newspaper. “It’s been laying there lonely and neglected. It should come back to Scotland where it was born.

“Even if most of the bottles have to remain in Antarctica for historic reasons, it would be good if we could get a couple,” Paterson said.

This scotch was on the rocks for 100 years..

The Associated Press

Today’s news brings another example of Tenneco Oil alumni who have made their mark in the industry.

Tenneco and Cornell University alum’s Gary Christenson (Chairman & CEO) and Tom Setzer (VP-Business Development) are two of the founders of Black Gold Energy LLC (BGE), a privately held operating company founded in Sugar Land, Texas in 2006.

BGE has been active in Indonesia since its formation. BGE subsidiaries conducted 10 joint studies with the Indonesian Directorate General of Oil and Gas (MIGAS) in frontier basins from offshore West Sumatra to offshore West Papua.

In 2008 and the first half of 2009, BGE was awarded a participating interest in eight production sharing contracts (PSCs) which were generated from the original joint study areas. In September 2009, BGE was awarded an additional three PSCs, for a total of 11 Indonesian blocks in which the company participates.

Today, Calgary-based Niko Resources Ltd. announced that it is acquiring Black Gold, its partner in all of Niko’s properties offshore Indonesia, for $310 million.

Once the transaction is complete, Niko will have one of the largest holdings of deepwater exploration prospects off Indonesia, with interests in 12.1 million net acres.

Niko plans to pay for the deal with convertible debentures, which will be held by Maju Investments, a subsidiary of Singapore-based Temasek Holdings.

“Formula for success: rise early, work hard, strike oil.” - J. Paul Getty

Best of luck, guys. - Mo