Drilling

Economic times are shaky. Joe Biden, U.S. Vice President says, “It’s going to get worse before it gets better.” Really? I wasn’t sure. It’s no secret and many of us in the oil and gas industry are aware that business is getting tighter. Companies are scaling back and budgets are being reviewed to find ways to survive that uncertain time ahead. Apparently, Petrobras didn’t get the memo.

Brazil’s state-owned Petrobras released its 2009-2013 business plan on Friday. The company’s board of directors approved the plan which calls for US $174.4 billion in investment, which is $62 billion more than the company’s previous plan. The majority of the spending – $104.6 billion – will be focused on E&P efforts. The remainder will go for downstream ($43.3 billion), gas and energy ($11.8 billion), petrochemicals ($5.6 billion), distribution $3.2 billion, and biofuels ($2.8 billion).

In 2009, the company plans to invest $28.6 billion, a number that is based on the company’s strategic position laid out in the 2020 strategic plan. The 2009-2013 plan maintains aggressive growth goals and incorporates the company’s resources at exploring and developing recent oil discoveries made in the pre-salt cluster. Production goals in Brazil are 2.68 million b/d in 2013, 3.34 million b/d in 2015, and 3.92 million b/d in 2020.

Currently, the Tupi pilot system is scheduled to go on stream in 2010. In addition, three other systems are expected come online in the Santos Basin’s pre-salt area: the Tupi and Guara 1 in 2012 and the Iara 1 in 2013. In addition to domestic production, Petrobras expects its international production to increase to 341,000 boe/d in 2013. Total production is expected to reach 3.65 million b/d.

The company stated in its report that it would invest an average of $34.9 billion per year with 90% being spent in Brazil and the remaining 10% ($16.8 billion) invested abroad. Compared to the company’s previous plan (2008 – 2012), the E&P investment was increased by 71%. Total E&P spending is expected to reach $92 billion, or 53% of the current $174.4 billion approved for the 2009 – 2013 period.

The company will make a significant effort to assess and develop its pre-salt discoveries over the next four years. The company’s 2013 pre-salt oil production target has been set at 219,000 b/d in 2013. By 2015, the operator hopes to reach 582,000 b/d. Natural gas production is expected to be commercial in 2013 with production at 7 MMcf/d. By 2020, Petrobras targets oil and gas production to be at 1.82 million b/d and 40 MMcf/d respectively. With an average Brent price of $37 in 2009, the company is charged with raising an additional $18.1 billion in funding to meet its $28.6 billion goal. However, it has already secured the majority of this amount from BNDES and other sources.

In this economic climate it’s relieving to see an operator with conviction. Boom and bust cycles are not new to the oil business, and investing in future prospects serves as a reminder that the business always bounces back.

It’s not what you think. Although Israel is mentioned often in the main stream press, rarely is the news related to a burgeoning offshore industry – much less in the growing deepwater subsalt sector. Noble Energy has had more than a decade of experiencing operating in the Mediterranean Sea, offshore Israel. The company holds a 47% working interest in the Mari-D, one of its key international assets. Mari-B was the first offshore natural gas production facility. In 2007, gross field deliverability was 600 MMcf/d from six wells.

As early as 2004, the company began selling gas to the Israeli Electric Corp. and has steadily increased as Israel’s natural gas infrastructure continues developed. In addition to producing gas for onshore use in Israel, the company has continued its exploration efforts as well. As of December 2007, Noble Energy held 123,552 gross developed acres and 1.18 million gross undeveloped acres.

The company has discovered more natural gas at the Tamar prospect in the Matan license. The Tamar #1 well lies in 5,500 ft of water. It was drilled to a total depth of 16,076 ft to test a subsalt, lower-Miocene structure in the Levantine Basin. Formation logs identified approximately 460 ft of net pay in three high-quality reservoirs. The company reported the reservoirs encountered were greater than anticipated at the well. This was Noble’s first offshore well in Israel in five years. And, according to CEO Charles D. Davidson, is one of the largest discoveries in the company’s history. Early indications for the well show an estimate of more than 3 Tcf of natural gas.

The Tamar well will undergo further testing after it is completed and Noble Energy and its partners may drill up to two additional wells in the basin. Noble operates the well with a 36% working interest. Its partners include Isramco Negev 2 (28.75%), Delek Drilling (15.625%), Avner Oil Exploration (15.625%), and Dor Gas Exploration (4%).

Consultants Friedman, Billings, Ramsey & Co., Inc. (FBR) estimates the net value of the discovery at approximately US $750 million. This find is also right on the hills of Noble’s Gunflint discovery in, which is also a subsalt prospect in the U.S. Gulf of Mexico (GoM) announced in mid-October 2008. Commenting on the subsalt potential for today’s oil and gas market, FBR said the Israeli success bodes well for the E&P investment thesis of ongoing and underappreciated international exploration. “Armed with new 3-D technology and better analytical tools, there is an international exploration renaissance taking place areas like Brazil, Israel, Ghana, Equatorial Guinea, Sierra Leon, and so on.”

According to FBR, companies with material exposure to deepwater sub-salt exploration potential are typical favorites for investors in the energy industry. While prices continue to fluctuate, it’s a good sign that many operators are moving forward into deeper water searching for unconventional resources.

Now that everyone has settled back into their seats after the holidays, it is important to spend some time reflecting on the year that has passed while determining its implications for the year ahead.

Of course, 2008 was hectic and can hardly be summed up as business as usual. From a normal start to a raucous rise in mid-summer, the oil and gas business soared through the first half of the year. By November, we were looking at possible collapse. From best to worst case scenarios, a third party perspective can be helpful to delineate exactly what went on during 2008, and how it will most likely play out in 2009.

Lucky for us (or me I should say), Allen Brooks, Managing Director of Parks, Paton, Hoepfl & Brown Energy Investment Banking LP, has put together a common thread of the financial developments that took place during the year. Published as “Musings from the Oilpatch,” the document provides a decent narrative for the preconditions of the housing market crisis and its links to stock market that inevitably had a grand effect on the energy industry over the Q3 and Q4 of 2008.

In addition, it provides a general outlook for the coming year that’s as gloomy as the evening news wants you to believe. Most importantly, Brooks points out that oil prices will most likely trade at $50 to $60 per barrel with some excursions throughout 2009. Rig count is expected to drop 500 to 600 from yearend 2008.

The report states that oil and gas service company stocks should remain somewhat stable with time and possibly an upturn in the oil and gas prices providing a catalyst for recovery. It also points out that geology is the key factor for now. “It is our belief that the geology is the key factor that is different this time. The production depletion rate, which appears to be climbing, will be our long-term earnings and stock price driver. While it is hard to imagine now, just like last year at this time, 2009 is likely to be another surprising year!”

The full report is helpful in identifying the most important factors related to our current economic situation. To access Allen Brooks’ newsletter, which provides much more detail than I have hear visit www.pphb.com (See “Musings from the Oilpatch” January 6).

Today’s headlines are rife with bad news. Failing economies, rising unemployment, lower capital investments, and company bankruptcies are all on the hot list for journalists scrambling for news.

A recent report by consulting firm Ernst & Young is claiming that the “glass is half full.” The report points out, “The US oil and gas industry has experienced all of these, not just during the current financial crisis, but at many times during its 150-year history.” It also states that the industry has continuously proven its resilience in the face of adversity, whether it’s caused by downturns in supply and demand or outside forces beyond industry control. Recent market turmoil is unprecedented and, while it spells risk for some, opportunities abound for others.

The latest report titled “The Oil and Gas Industry and Financial Market Turmoil” speaks from a positive perspective on the industry’s current status. Namely, while the short-term demand for oil and gas is softening, the long-term demand continues to look modestly strong with a challenging long-term supply structure.

The world economy will continue to depend on the industry’s ability to find reliable sources of energy at economical prices. “Many oil and gas companies are currently very well capitalized and have large cash reserves, and thus will enjoy a liquidity advantage during a time of tighter credit,” the report said.

In 1901, Spindletop tripled US production and gave birth to the modern oil industry. Since that time, it has been characterized by booms and busts. “Near-term, in response to recent developments, companies need to focus on a back-to-basics approach to their operations and balance sheet,” the report said, adding, “Looking ahead, the financial crisis presents opportunities for well-capitalized companies to enter into acquisition transactions, from partnerships, find and nurture talent, grow their business in a more rational price climate and capitalize on opportunities for long-term hedging relationships.”

E&P companies should continue to invest with an attitude that “the glass is half full.” It would not only improve their own financial viability, but also the growth prospects of the entire world economy, the report added.

“The Oil and Gas Industry and Financial Market Turmoil” report was written by Marcela Donadio and Herb Listen, Ernst & Young LLC. A full version of this report can be located at www.ey.com/us/oilandgas.

According to a recent report written by David Ivanovich for the Houston Chronicle, President-elect Barack Obama has quietly shelved his proposal to institute a new windfall profits tax on oil and gas companies.

An aide for the transition team acknowledged the policy shift Tuesday, Dec. 2, after a small-business group discovered the proposal had been dropped from the incoming administration’s Web site, Ivanovich said.

“President-elect Obama announced the policy during the campaign because oil prices were above $80 per barrel,” the aide said. “They are below that now and expected to stay below that,” Ivanovich reported.

I hate to say “I told you so…,” but it simply didn’t make sense at the time of the election that Obama would seal his fate as the new Commander in Chief by instituting taxes on one of the most active industries in the U.S.

The question now is: what windfall?

Crude has fallen more than $100/bbl in the last five months and, with the current global financial crisis, there doesn’t seem to be any pot of gold at end of the rainbow. From its July high of $145, light sweet crude settled at just above $42 today according to NYMEX. Oil and gas companies are continuing to push forward, but it is uncertain what transformation will take place over the course of 2009.

Part of the fuel for Obama’s fire on the windfall profits tax plan arose from the pressure applied from record high gas prices coinciding with the oil price. In Houston, the Chronicle cited the average price for gasoline is down to $1.66/gal from its July record of $3.96/gal.

Now, we’re paying less for gas, but at what cost? The Washington, D.C.-based American Petroleum Institute (API) argued that a similar tax plan in 1980 cost the industry $38 billion in revenue. The nation also lost 1.3 billion barrels of domestically produced oil. Companies stopped operating in the U.S. and moved overseas to avoid the tax.

Ivanovich quoted Thomas Pyle, president of the Institute for Energy Research, “The president-elect’s decision to reverse course on imposing this Carter-era burden on those who explore for and produce American energy is a heartening development — both for consumers and an economy struggling to claw its way out of a recession.”

So it seems the inherent instability of the upstream oil and gas industry has stabilized current tax regimes. This is a good thing.

With exploration bans now lifted for many offshore areas in the U.S., companies are more likely than ever to drill domestically. Time will tell if Congress is willing to play along. Achieving energy independence is a difficult enough, but an increase in taxes on those companies working domestically combined with limited resource areas to explore would make energy independence unattainable under any circumstance.

The accounting and consulting firm, BDO Seidman, LLP, released its findings from a study in which the organization interviewed 100 chief financial officers (CFO) at U.S. oil and gas E&P companies.

The BDO Seidman Natural Resources 2009 Outlook Survey was conducted in October and November of 2008. Most respondents (63%) expect to maintain their current levels of field personnel with 29% stating they will increase levels and 8% plan to decrease field staff.

Potential growth drivers for 2009 were identified as increases in demand both internationally and domestically. Others cited new production technologies (17%), adoption of alternative energies (12%), and increased oil and gas exploration (10%) as primary modes of industry growth over the next twelve months.

The report also shows only a portion of CFOs view access to capital (19%) and uncertain political climates (16%) as major barriers to international growth. Only 5% cited international tax or environmental regulations as a significant deterrent. Other financial challenges include recruiting or retaining skilled employees of which 12% of CFOs interviewed claimed this to be a problem in the coming year.

However, a majority (57%) of CFOs interviewed said that credit capacity restraints and access to capital would be the greatest financial challenge in 2009. Nearly a quarter (21%) placed lower oil and natural gas prices as the second biggest challenge. Three-quarters of the respondents (72%) expect the economic crisis in the U.S. to impact their ability to borrow money or to extend bank debt in 2009. Of those interviewed, only 26% reported delayed or terminated E&P projects in the last 12 months with 80% of those stating “lack of capital funding” as the cause.

Charles Dewhurst, a partner of the firm stated, “Energy companies have remained relatively unscathed by the downturn this year and continued with record profits. However, a storm front is gathering for 2009.” The survey was conducted as oil prices and demand continued to drop – and this volatility, combined with the state of the economy – has energy companies treading more cautiously, added Dewhurst.

Any thoughts?

Maybe I’m a cynic, but it seems that many people have trouble connecting reality with the ideal. Energy, as an issue, is a top of priority worldwide. However, it’s a small part of a larger cycle.

Industrialized economies rely on a consistent interworking of supply and demand. Successful economies are incrementally matched with rises in demand for goods and services, i.e. energy.

As of July, with record high oil prices, the term “green” became volatile. Green energy and green collar jobs became part of the vernacular, especially among politicos in the United States.

The City of San Jose, Calif., is now calling itself the “capital of America’s clean tech revolution.” Mayor Reed claims to have a “green vision,” and the city is now pursuing the country’s top green companies to locate within San Jose.

Tesla Motors, a manufacturer of high end electric sports cars, recently moved to San Jose bringing with it 1,000 new “green collar jobs.”

What exactly defines a “green collar” job? The most likely answer is any manufacturing position concentrated on so-called sustainable energy systems or components. Solar and wind energy are the big ones. For transportation purposes, biofuels, hydrogen, and electricity are most often proposed as alternatives to fossil fuels.

Wait a second…did someone say electricity? What generates electricity? Would it be coal? Or, even crazier, could it be natural gas? Aaah, so what comes first…the chicken or the egg?

The important point here is that alternative forms of energy are good. At some point in the future, fossil fuels will no longer be profitable to find or to produce. While experts disagree on exactly when this might take place, both sides of the energy industry must stay on course to determine a safe path to the future. The oil industry is the only bridge we have to the ideal world proposed as the “green revolution.”

Our modern scenario is much like the early 19^th century when wood provided most economies with a major source of energy. One would wonder if a “peak wood” theory was devised from this era? However, the introduction of coal supplanted wood as a much better source of energy. Later oil would do the same, and is now the highest net energy resource we know.

Technology and innovation will improve our means of reaping more benefit from all known sources of energy in the future. For now, we must concentrate our efforts on oil and natural gas. The problem with a “green revolution” is that many of its supporters are under a false impression that alternative forms of energy will supplant our current demand for fossil fuels. Many tout this change as if its possible right now. It’s not.

What are the current drivers of improved infrastructure and mass manufacturing in today’s industrial environment? The answer is fossil fuels.

Green energy will have a place in today’s market as long as the oil and gas industry is healthy. At $147/bbl, wind and solar are feasible endeavors, but at $58/bbl investors are wise to proceed with caution. The expectation of a wide availability for investments and job creation within the “clean tech” industry will be short lived if the price of oil remains low.

Could “green tech” be the next big bubble? Hopefully, it won’t suffer the same fate as many of the previous examples like the dot.com or the sub-prime real estate markets. It is possible that an extended slump in the oil and gas market could prevent many “clean tech” start ups from getting off the ground.

To provide sustainable energy sources for the future, industries should understand that it will take collaboration between those who wish to break away from the dependence on fossil fuels and the operators and service companies who currently produce these resources. It is very unlikely that the former will survive without the continued performance of the latter.

On May 29, 2006, the island of Java, the most populated island in the World, experienced a mud volcano that has since displaced an estimated 40,000 residents. It currently vents 5.2 MMcf of hot mud per day. The eruption has been named LUSI, a compendium of “lumpur” (the Indonesian word for mud) and Sidoarjo, the town near where the eruption occurred.
The causes of the eruption have not been unanimously decided although a vocal group of scientists have attributed the event to the drilling of Lapindo Brantas Inc.’s Banjar Panji-1 nearby.

The event has been labeled as one of the world’s most significant natural disasters in recent years. New facts presented at the Geological Society of London is casting doubts on the premise that drilling provided a trigger for the catastrophe.

History
According www.mudvolcano.org, a Web site devoted to the event, Lapindo Brantas began drilling the Banjar Panji-1 well to target gas reserves in the Kunjung formation, which is a deep sedimentary basin located 1.9 miles (3 km) below the surface. The site is in Sidoarjo, East Java, Indonesia.

At 5:54 a.m., on May 27, 2006, an earthquake occurred, which measured 6.3 on the Richter scale. The tremor was felt on the drilling rig and approximately seven minutes later the well experienced a “loss” of 20 bbl of mud. The drilling team controlled the situation to industry standards before continuing operations.

On May 29, 2006, a sudden eruption of hot mud and steam began near the well. The initial event was reported as an intermittent hot water eruption with a maximum height of 25 ft (7.6 m) with an elapsed five minute period between the bursts in a distinct geyser-like cycle of active and passive periods.

Due to time of occurrence and its close proximity – 656 ft (200 m) – from the drillsite, general public opinion speculated that the mud flows were triggered by an underground blowout of the Banjar Panji-1 well.

New evidence
Presented in London’s Geological Society on October 23, a paper titled, “East Java Mud Volcano (LUSI): Drilling Facts and Analysis” (Control ID 472920), Bambang P. Istadi, Nurrochmant Sawolo, et al, examines the drilling data from the Banjar Panji-1. According to its authors the objective of the paper is to, “clearly and transparently set out the drilling engineering data and analysis to correct the technical record and to provide a platform for further analysis.” The analysis focuses on key drilling pressure measurements and drilling facts to investigate the early speculation that drilling was the trigger of LUSI.

Based on their analysis of the drilling evidence, the annular pressure was too low to fracture the wellbore. There was no sustained pressure to propagate fractures. Most importantly, the wellbore was open and totally dead while mud erupted at a rate of more than 300,000 b/d only 656 ft (200 m) from the well. The paper questions data and facts relied on for other papers citing drilling as the cause.

The paper also points the mud volcanoes are numerous in the area, namely the Porong collapse northeast of LUSI among others. The authors claim that LUSI is a special case that allows observation of the ongoing geological processes from the volcano’s controversial beginning. The paper also points other viable hypotheses including mud volcanism due to remobilization of over pressured shale through a reactivated fault as the conduit and geothermal activities where superheated hydrothermal fluids at high temperature and pressure are through fault zones or fracture networks as the conduit.

An open letter
Bambang Istadi and Nurrochmat ‘Rocky’ Sawolo have published an open letter describing their current effort to dispel the “drilling caused” scenario for LUSI. The letter emphasizes the earlier earthquake, which killed more than 6,000 people and rendered an estimated 1.5 million homeless after striking Yogakarta, Java, approximately 161 miles (260 km) from LUSI only two days before the mud volcano erupted.

The letter asserts that new facts make it clear that drilling could not have triggered LUSI. “We do not know where they got their original data, we only know that their findings are incorrect,” Istadi and Sawolo said in response to the vocal minority of scientists that continue to stand by the view that drilling caused the event.

In an effort to sustain their hypotheses, the authors took out an advert in the New Scientist to ask that facts and the official data should drive findings of the causes of LUSI. They also openly invited interested parties to scrutinize their data adding, “To find the real trigger of LUSI we need good science, not unsubstantiated hypotheses.”

They closed their letter with the hope that LUSI could serve as a watershed moment for the science and geology communities stating, “Either we base our conclusions on the facts and complete official data or we don’t.”

A full description of LUSI and the various research attempts it has inspired can be found at www.mudvolcano.org. For the full version of Istadi’s and Sowalo’s paper visit click here.

As a rule, children are not political animals. When they do have political slants they are typically derived from verbal and nonverbal queues displayed by the adults around them – namely parents.

It was 1980, and I had just started the second grade. We were returning to school the day after Ronald Reagan had secured a landslide defeat of the incumbent Jimmy Carter. As a seven year old boy, I officially didn’t have a dog in that fight although, according to my father’s reaction to the election results the evening before, it was obvious that I shouldn’t be celebrating.

My father is a life long union democrat who espoused on many occasions that anyone claiming to be a “republican” while wearing a hardhat and carrying a lunch pail to work was undoubtedly a moron, point taken. Today, I understand the difference between facts and opinions, but as a young boy I assumed my parents were right about everything.

The next day at school we filed into the classroom just after the first bell. One of my classmates was a bit overzealous at Reagan’s success the night before. He was jumping up and down and attempted to high five me on the way to his seat. I wasn’t sure if my dad could beat up his dad, but I saw first hand that his dad’s president had given a good beating to ours.

I wasn’t much for debating in those days. Besides, how many talking points does a seven year old know? I used the only form of rebuttal I knew (thanks to three older brothers), and I punched him in the eye. He fired back with equal force and it was only minutes before Mrs. Fisher had us both by the ear marching us down the hall to the principal’s office.

If memory serves me correctly, one of us showed up with a shiner the next day. I’d like to say it was “the other guy” but quite honestly there have been too many scuffles in the last thirty years to recount the damage associated with each. Fortunately for me, that was the first and last time I ever came to blows over politics.

The point of this story is not to examine the validity of any specific political party. This week will present us with a new President – Barack Obama or John McCain. Regardless of how you vote, opportunities for change exist in either platform.

I’ll admit that the Reagan years were tough on my family. “Trickle down economics” was more aptly described as “trickle from.” Nevertheless, we survived and things improved over time. The lesson I’ve learned is that the US is best characterized as a diverse and robust endeavor.

Where the oil and gas industry is concerned, 2008 has been a very good year. Although things are now cooling due to a looming financial crisis and warnings of a coming recession, the industry will subside. July brought record high prices for crude. It was a time when every official in Washington could be found – soapbox in hand – proclaiming the need to “do something about these high prices!”

As Mark Twain said, “be careful what you wish for…you just might get it.” Today, the price of oil is less than half of its July peak. Gas prices in Houston are down to $2.20/gallon. Politicians have lost their grip on the debate; finger pointing is no longer a valid response to the nation’s major oil companies. This is a positive development. In spite of public perception, those of us who work in this industry understand the importance of independent oil companies. They are fighting a good fight when compared to the amount of available resource areas. More than three-fourths of the world’s hydrocarbons are controlled by national oil companies.

Offshore drilling is now gaining ground in parts of the US that have been closed off for nearly two decades. As a point of interest for political intervention, it should be noted that the first President Bush instituted the original ban on these areas – a Republican.

While it’s easy to assume that most candidates will toe the party line once in office, where energy is concerned we should keep an open mind. The basis of this industry is cyclical. High prices are good, too high prices become a problem. The object is to find a balance that sustains a profitable margin for operating companies while providing consumers with a market that doesn’t appear to be spiraling out of control.

The numbers show that $4/gallon kills demand for transportation fuel. Some of this demand will be lost forever. Now we have to be concerned about low prices. How will they affect industry projects and related job markets? What will become of the move toward alternative sources of energy? Time will tell.

Our new president could be democrat or republican. There’s no reason to assume that one is right and one is wrong for our industry. Energy is a big issue within our modern political discourse. Provided that a candidate is rational with some degree of common sense, the oil and gas industry will maintain its growth in the years to come. There should be no reason to come to blows over the election’s outcome.

Drilling makes the difference

How many times have you heard “we can’t drill our way to energy independence?” For many years now, legislators in the US have continually fought to prevent drilling operations from appearing in many of the country’s most prolific regions for natural resources like oil and gas – from onshore federal lands to offshore regions on the West, East, and Eastern Gulf Coasts.

The Energy Information Administration has published comprehensive US proved reserves data since 1977. The 2007 Annual Report of U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves (issued October 16, 2008) marks the thirty-first installment and shows record-high growth for dry natural gas and an addition to crude oil reserves for the first time in four years.

In 2007, the US recorded additions in proved reserves of dry natural gas – 46.1 Tcf, which is more than double than the amount of dry natural gas actually produced in 2007 (19.5 Tcf). The year-end total of proved reserves of dry natural gas in the US rose 13% above 2006 levels to 237.7 Tcf. This is the highest level in 31 years. Rapid development of unconventional resources such as coalbed methane and shale gas from tight, low permeability formations proved to add most of the additions.

The EIA estimates are based on a snapshot of what can be produced with reasonable certainty. Estimates can change as new discoveries and improving technologies increase. Changing prices can also alter estimates of proved reserves. If the reserves additions are greater than production, reserves increase, if they are less then estimates are reduced.

According to the report, 2007 was the ninth consecutive year that US natural gas proved reserves rose. The important point is that this year the rate of increase was more than twice as any year in the history of EIA data reporting. The proved reserves additions were developed through two broad categories: total discoveries (accounting for 63% or 29 Tcf of gas additions) and net revisions.

The report also noted additions to crude oil in the US for the first time in four years. Year end reserves for crude oil were 21.3 billion bbl, about 2% higher than at the end of 2006. Alaska saw the largest 2007 increase of 7% (284 million bbl) over 2006. This was followed closely by Texas with a 5% increase (251 million bbl) for the year. North Dakota, home to the Bakken formation, had the third largest increase of 70 million bbl of crude oil – up 17% from its 2006 reserves. Total discoveries of crude oil for 2007 in the US equaled 790 million bbl, which was 28% lower than the prior 10-year average (1.1 billion bbl) although it was 37% greater than in 2006 (577 million bbl). The majority of reserves additions to crude oil came form field extension operations however new field discoveries doubled in 2007 over 2006 (66 million bbl). Additionally, new reservoir discoveries in old fields were 70% higher in 2007 than in 2006.

This has been attributed to more aggressive drilling programs in many regions throughout the US. According to Baker Hughes, about 80% of the wells being drilled in the US have been for natural gas, which sheds light on the major increase in reserves.

Another hackneyed line you may be tired of hearing claims that the US contains 3% of the world’s reserves and consumes 25% of its resources. The EIA report shows the capacity for the US to up its reserves despite the fact that for 26 years approximately 85% of the country’s most vital lands have locked from exploration. With the offshore drilling ban now lifted it will be interesting to see how much increase will be shown in the EIA’s next Annual Report.

To see the full report visit http://www.eia.doe.gov/pub/oil_gas/natural_gas/data_publications/advanced_summary/current/adsum.pdf