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TOPIC: 2010 THE INDUSTRY GRASSROOT NEWS..............JAN.7 ,2010

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2010 THE INDUSTRY GRASSROOT NEWS..............JAN.7 ,2010


FEED pact let for Venezuelan ethylene plant
By OGJ editors

HOUSTON, Jan. 5 -- A Brazilian-Venezuelan joint venture has let a reimbursable front-end engineering design (FEED) contract to Technip for a 1.3 million tonne/year ethylene plant at Jose, Venezuela. The JV is Polimerica, owned 49% each by Venezuela’s state-owned Pequiven and Braskem of Sao Paulo, Brazil. Coramer, Caracas, and Sojitz, Tokyo, hold 1% each. The ethylene plant is to be part of a petrochemical complex Pequiven and Braskem plan to build at Jose through two JVs they agreed to form in 2007 (OGJ Online, Apr. 19, 2007). One JV is to build the ethane cracker covered by the new contract as well as a 1.1 million tpy polyethylene plant. The other JV is to build a 450,000 tpy polypropylene plant. Technip said FEED activities for the ethylene plant are to be completed by second quarter 2011.

E&P Employment Levels to Remain Stable in 2010
According to a new study by BDO, one of the nation's leading accounting and consulting organizations, 65 percent of chief financial officers (CFOs) at oil and gas exploration and production companies say employment levels will remain stable at their company in 2010. Another 27 percent said they plan to hire more people. "Given continued tough market conditions, tightened credit access and lower demand, it's somewhat surprising that only eight percent of CFOs expect their companies to decrease employment levels in 2010," said Charles Dewhurst, a partner and National Energy Industry Practice Leader at BDO. "Apparently, the industry experienced such steep cuts to price, demand and personnel in 2009, there is really nowhere to go but up." This sentiment holds true when looking at other expectations for 2010 as well, such as demand for oil and gas. Generally, CFOs have a positive outlook. They expect:

Global (21%) and domestic (13%) demand for oil will increase "substantially"
Global (51%) and domestic (52%) demand for oil will increase "some"
Global and domestic demand for natural gas will increase "substantially" (both 30%)
Global (55%) and domestic (48%) demand for natural gas will increase "some"
These findings are from the BDO 2010 Energy Outlook Survey, which examined the opinions of 100 chief financial officers at U.S. oil and gas exploration and production companies. Some of the major findings of the BDO 2010 Energy Outlook Survey include:

Legislative Changes Carry Weight. Almost half (45%) of CFOs say legislative changes will be the most important factor impacting the industry in 2010. Others cite the demand for oil and gas (28%), access to capital or credit (16%), new production technologies (7%) and mergers and acquisitions (3%) as the most important factor. Last year, CFOs thought the most important factor driving growth in the year ahead was increasing demand for both oil and gas.
Oil and Gas Drilling Outlook. The total number of oil and gas drilling rigs operated by companies are expected to stay relatively stable in 2010 (44% versus 24% last year); 30 percent say the number of rigs will increase "some" and 10% say they will increase "substantially" in comparison to 2009. Numbers are slowly increasing, as some companies look to take advantage of the increased availability of rigs and other drilling equipment. A majority of respondents (59%) expect costs for oil and gas drilling and exploring for their company to increase in 2010, compared with 52 percent last year. More than one-quarter (26%) say costs will stay the same, compared with 14 percent last year.
IFRS on the Backburner for Most CFOs. Few CFOs say they are planning for a transition to IFRS in 2010 -- 59 percent are "not thinking about IFRS at all" and 33 percent intend not to do anything with IFRS until things become clearer or until the changeover from GAAP is required. Only three percent are actively planning a transition to IFRS.
Mixed Feelings on SEC's Oil and Gas Reserve Disclosure Rules. Less than half (41%) of respondents believe the SEC's revised oil and gas reserve disclosure rules will provide investors with better information about the optional disclosure of probable and possible reserves -- a drop from 58 percent last year. An additional 29 percent say they "don't know," compared with 19 percent last year.
"More CFOs in the industry are attuned to the requirements for the SEC's modernization of oil and gas reserve disclosure rules, which went into effect on December 31, 2009" said Rocky Horvath, assurance partner in the National Energy Industry Practice at BDO. "However, it appears some may be questioning whether disclosure of probable and possible reserves is ultimately beneficial to their investors."
The BDO 2010 Energy Outlook Survey is a national telephone survey conducted by Market Measurement, Inc., an independent market research consulting firm, whose executive interviewers spoke directly to chief financial officers, using a telephone survey performed within a scientifically developed, pure random sample of U.S. oil and gas exploration and production companies. It is the second annual survey. The survey was conducted in November of 2009.
BDO is the brand name for BDO Seidman, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 37 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 1,138 offices in 115 countries. BDO Seidman, LLP, a limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

Salazar to Toughen US Drilling Rules
Interior Secretary Ken Salazar is expected to announce Wednesday that his agency will require oil and natural-gas companies to clear more regulatory hurdles before they are allowed to drill on federal lands.
Mr. Salazar's action is likely to make it more difficult for the U.S. Bureau of Land Management to fast-track the permitting of oil and gas projects on federal land. BLM field staffers would be required to seek additional approvals from their supervisors and to undertake more visits to areas where energy companies are seeking access, according to people familiar with the matter.
The BLM manages more than 260 million acres of federal land, and with it, a significant chunk of U.S. energy supplies. Domestic production from federal onshore oil and gas wells accounts for 11% of U.S. natural-gas supplies and 5% of the nation's oil.
The Obama administration is already locked in a bitter fight with the oil and gas industry over proposals to raise billions of dollars in additional taxes from energy companies, and to cap the emissions of gases caused by burning fossil fuels, which have been linked to global warming.
Mr. Salazar's action follows litigation from some environmental groups and criticism from the Government Accountability Office that the BLM has often misinterpreted and violated a 2005 federal law. The legislation was designed to speed oil and gas drilling in the West by allowing federal land managers to waive extensive environmental reviews normally required.
Part of the problem, the GAO said, is that the 2005 law fails to clearly spell out the conditions under which such waivers, or exclusions, can be granted.
Business groups fear the administration's action will discourage domestic energy development, by adding new red tape to the permitting process for oil and gas drilling. In a letter to Mr. Salazar last week, the Industrial Energy Consumers of America, a lobbying group that represents manufacturers, credited the 2005 law with reducing drilling-permit backlogs and boosting natural-gas production.
"At a time when we should be working to enhance our energy supplies here at home, we believe it would be a mistake to pursue policies that would make it more expensive or difficult to access critical natural-gas resources," the group said. Republican lawmakers also have urged Mr. Salazar not to do away with the practice of granting categorical exclusions altogether, saying better guidance to BLM staff is needed.
"We are concerned that the [U.S.] Department of the Interior is prepared to use a sledgehammer where a scalpel would suffice," four Republican lawmakers, led by Rep. Doc Hastings of Washington, said in a letter to Mr. Salazar last fall.
But some congressional Democrats and environmental groups say the BLM has abused its authority in too many cases, and the rules need to be tightened.
Spokesmen for the Interior Department declined to comment Tuesday, except to say that Mr. Salazar would hold a teleconference Wednesday to announce "several initiatives to reform the onshore oil and gas leasing program" administered by the BLM. In addition to reining in the practice of granting categorical exclusions, Mr. Salazar is expected to assign Assistant Interior Secretary Wilma Lewis to lead a broad internal review of the BLM's permitting practices.

Cramped on Land, Big Oil Bets at Sea
Big Oil never wanted to be here, in 4,300 feet of water far out in the Gulf of Mexico, drilling through nearly five miles of rock.
It is an expensive way to look for oil. Chevron Corp. is paying nearly $500,000 a day to the owner of the Clear Leader, one of the world's newest and most powerful drilling rigs. The new well off the coast of Louisiana will connect to a huge platform floating nearby, which cost Chevron $650 million to build. The first phase of this oil-exploration project took more than 10 years and cost $2.7 billion -- with no guarantee it would pay off.

Chevron came here, an hour-long helicopter ride south of New Orleans, because so many of the places it would rather be -- big, easily tapped oil fields close to shore -- have become off-limits. Western oil companies have been kicked out of much of the Middle East in recent decades, had assets seized in Venezuela and seen much of the U.S. roped off because of environmental regulations. Their access in Iran is limited by sanctions, in Russia by curbs on foreign investment, in Iraq by violence.
So, Chevron and other major oil companies are moving ever farther from shore in search of oil. That quest is paying off as these companies discover unexpectedly large quantities of oil -- oil that only they have the technology and financial muscle to find and produce.
In May, the first wells from Chevron's latest Gulf of Mexico project came online. The wells are now pumping 125,000 barrels of oil a day, making the project one of the gulf's biggest producers. In September, BP PLC announced what could be the biggest discovery in the gulf in years: a field that could hold three billion barrels.
Beyond the Gulf of Mexico, companies have announced big finds off the coasts of Brazil and Ghana, leading some experts to suggest the existence of a massive oil reservoir stretching across the Atlantic from Africa to South America. Production from deepwater projects -- those in water at least 1,000 feet deep -- grew by 67%, or by about 2.3 million barrels a day, between 2005 and 2008, according to PFC Energy, a Washington consulting firm.
The discoveries come as many of the giant oil fields of the past century are beginning to dry up, and as some experts are warning that global oil production could soon reach a peak and begin to decline. The new deepwater fields represent a huge and largely untapped source of oil, which could help ease fears that the world won't be able to meet demand for energy, which is expected to grow rapidly in coming years.
For oil companies, the discoveries mean something more: After a decade of retreat, large Western energy companies are taking back the lead in the quest to find oil. "A lot of people can get the very easy oil," says George Kirkland, Chevron's vice chairman. "There's just not a lot of it left."
There are challengers to Big Oil's deepwater dominance. Brazil recently has moved to give a larger share of its offshore oil to its state-run oil company, Petrobras. A handful of smaller companies, such as Anadarko Petroleum Corp. and Tullow Oil PLC, have had success offshore, particularly in Ghana, where giants like BP and Exxon Mobil Corp. are now playing catch-up.
The enormous investments of time and money required for such projects have made many experts skeptical that they can ease the long-term pressure on global oil supplies. The scale of the projects means that few smaller companies have the resources to take them on. Devon Energy Corp., an independent producer based in Oklahoma City, recently announced plans to abandon its deepwater-exploration business to focus on less-expensive onshore projects, which is says will produce a better return.
"This is technology capable of going to the moon," says Robin West, chairman of consulting firm PFC Energy, involving "extraordinary uncertainty, immense levels of information processing, staggering amounts of capital."
Offshore drilling is almost as old as the oil industry itself. In the 1890s, companies began prospecting for oil from piers extending off the beach near Santa Barbara, Calif. Gulf Oil drilled the world's first fully offshore well from cedar pilings on a shallow lake near Oil City, La., in 1911.
From there, the industry pushed gradually outward, from the Louisiana bayous in the 1920s into the Gulf of Mexico, where Kerr McGee drilled the first well out of sight of land in 1947.
The push into deeper water has come in the past decade.
"What has enabled us to do that is technology," says David Rainey, BP's head of exploration for the Gulf of Mexico. "We have been pushing the limits of seismic-imaging technology and drilling technology."
Perhaps a bigger reason for the recent emphasis on deepwater exploration is that companies had few other places to go. In the early decades of oil exploration, Western companies were the only ones with the technology to manage big oil projects. But as technology spread and state-run oil companies became more sophisticated, foreign governments have relied less on outside help and have demanded greater control of their own oil resources.
With a few exceptions, state-run companies have largely stayed out of the deep water, with its enormous technical challenges and multibillion-dollar investment requirements. Western companies have steadily pushed farther offshore, not just in the Gulf of Mexico but in places like Nigeria, Malaysia, Norway and Australia.
At the same time, traditional oil fields have begun to dry up. In Mexico, the world's seventh-largest oil producer, daily production has dropped 23% since 2004 as output from its giant Cantarell field fell sharply. Other countries have seen their own, mostly smaller, declines.
Falling output from old fields has stoked fears that world-wide production could be nearing its peak. Global oil reserves -- a measure of oil that has been found but not yet produced -- fell in 2008 for the first time in a decade, according to BP's annual statistical review. Moreover, there are signs demand could soon catch up to supply. Global oil consumption has risen by 5.4 million barrels a day in the past five years, while production has risen by just 4.8 million barrels a day.
Such fears helped drive a rapid run-up in oil prices to nearly $150 a barrel in July 2008. The global recession cooled demand, driving down prices, although many experts expect prices to rise again when the economy recovers. Already, prices have rebounded to about $80 a barrel, from under $35 in December 2008.
Rising prices have spurred offshore exploration. By 2008, about 8% of global oil production came from deepwater fields.
Yet even the biggest deepwater projects aren't enough to put a dent in global supply problems on their own. The world's largest deepwater platform, BP's Thunder Horse in the Gulf of Mexico, produces 250,000 barrels of oil a day, just 0.3% of global consumption.
"These discoveries are changing the debate," says Ed Morse, chief economist for LCM Commodities, a brokerage firm. What remains unclear, he says, is whether the deepwater projects will ensure that new discoveries continue to meet demand.
Many in the industry argue the new fields have expanded the limits of where the industry can find oil, potentially delaying a decline in global production.
"There are vast unexplored areas in deep water, so tremendous opportunities for growth," says Steven Newman, president of Transocean Ltd., which owns the Clear Leader rig.
The push into deeper water hasn't always been smooth sailing. Offshore projects are expensive, time-consuming and prone to failure. Chevron boasts of a 45% exploration overall success rate in recent years, a remarkable run by industry standards, but one that also means the company has spent billions on projects that haven't panned out.
Chevron's successes have outweighed its failures. It was expected to be the fastest-growing big oil company in 2009, as measured by oil production, in large part because of new offshore projects in the Gulf of Mexico and off Brazil. Other companies that have embraced offshore exploration, such as BP, are also seeing big growth, while those that haven't are scrambling.
Exxon, which hasn't emphasized deepwater exploration as much as competitors, recently offered $4 billion for a stake in an oil field off the coast of Ghana.
Chevron made its big offshore bet in the 1990s, when it began buying up leases in the Gulf of Mexico that were in such deep water, the technology didn't yet exist to drill there. Confident that technology would catch up, the company in 1996 bid in and won a U.S. government auction for the right to explore for oil in several areas of the gulf, in hopes that a fraction would turn into producing fields.
Chevron then spent six years analyzing its new holdings, figuring out which were most likely to hold oil. The key tool in its arsenal: seismic imaging, a sonar-like process in which sound waves are shot into the rock, and their echoes are picked up by sensors on the surface.
Adding to the challenge: The oil that Chevron was pursuing lay beneath a thick layer of salt, which disrupts seismic sound waves and blurs the images like a smudge on a camera lens. The company had to analyze the data with supercomputers to clear up that distortion.
The analysis revealed a potentially huge oil reservoir. Even so, Chevron estimated it had only a one-in-eight chance of finding commercial quantities of oil. The only way to know for sure was to drill.
So, in 2002, Chevron spent about $100 million to sink its first well in the field, which came to be known as Tahiti. That well needed to hit a 200-foot-long target from five miles away -- akin to hitting a dart board from a city block away.
"You have to roll the dice, and the dice roll now is north of $100 million," says Gary Luquette, president of Chevron's North American exploration and production division.
Chevron's first Tahiti well struck enough oil to make it worth more drilling to see how big the field might be. By 2005, the company had learned enough to go forward with the project. That required building a 700-foot-tall, 45,000-ton floating oil-production platform, and drilling a half dozen wells to feed oil to it. Tahiti produced its first commercial quantities of oil in May.
On a recent morning, the Clear Leader rolled on the waves 190 miles south of New Orleans, held almost perfectly in place by its satellite-controlled navigation system and six Korean-made engines.
In a cabin on the ship's deck, a team of drillers in coveralls monitored computer terminals as they used joysticks to control a drill bit more than 12,800 feet below. The oil they were targeting lay another 14,000 feet underground -- an easy reach for a ship that can drill down 7.5 miles.
The well is part of a second phase of the Tahiti project, which will require drilling several more wells and expanding the floating platform -- an additional $2 billion in spending, still with no guarantee of success.
Kevin Ricketts, a Chevron engineer who worked on both phases of the Tahiti project, recalled looking up at the massive platform while it was still on shore, and reflecting on how his team's analysis had led to its construction.
- If you're the smartest person in the room ... you're in the wrong room.
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