How to ensure safer drilling What is fracking and why is it so controversial? - Edition Four - July 2012
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Edition Four – July 2012 How to ensure safer drilling What is fracking and why is it so controversial?
1 OilVoice Magazine JULY 2012
Adam Marmaras
Manager, Technical Director
Issue 4 – July 2012
Welcome to the 4th edition of the OilVoice
OilVoice
magazine. This month we bring you another
Acorn House
selection of quality articles from our stable of
381 Midsummer Blvd
featured writers.
Milton Keynes
MK9 3HP
The magazine is still free of charge to read, and
presented in a way specifically designed to be
Tel: +44 208 123 2237
read on your screen. We've tweaked and refined
Email: press@oilvoice.com
the format and we're now confident that we've
Skype: oilvoicetalk
got it right. So whether you are on your iPad,
phone or PC, the OilVoice magazine is easy on
Editor
the eyes.
James Allen
Email: james@oilvoice.com
Would your company like to advertise in our next
edition? As the magazine is still quite young our
Advertising/Sponsorship
rates are very competitive. Your advert will
Adam Marmaras
appear sandwiched between the industry's best
Email: adam@oilvoice.com
content, and our other premium advertisers like
Tel: +44 208 123 2237
TGS and RPS. Get in touch to learn more.
Social Network
As always, we're on a constant lookout for
Facebook:
quality content from the industry. If you'd like to
https://www.facebook.com/oilvoice
contribute articles to OilVoice you know what to
Twitter:
http://www.twitter.com/oilvoice do!
Google+:
https://plus.google.com/118419367014 Adam Marmaras
120616513/
Linked In: Managing Director
http://www.linkedin.com/groups/Oil OilVoice
Voice-3162868
Read on your iPad
You can open PDF documents, such
as a PDF attached to an email, with
iBooks. When you view a PDF email
attachment, simply tap "Open in
iBooks," located in the upper-right
corner of the screen. iBooks will
open and you'll be able to view your
PDF using the iBooks app.
press@oilvoice.com | +44 208 123 2237
2 OilVoice Magazine JULY 2012
Contents
Featured Authors
Biographies of this months featured authors. 3
Sometimes the oil industry just makes money - no matter what it does
By Larry Wall 6
Insight: Free is the way...
By David Bamford 8
Review: Don't steal from us Argentina...
By Richard Etherington 9
Recently added companies
The latest companies added to the OilVoice database 11
Review: Is there any oil offshore East Africa?
By David Bamford 12
Insight: Finding more UKCS oil...
By David Bamford 15
Clearing the air - Oil, subsidies, imports, exports, ownership, alternatives and
more
By Larry Wall
18
What is fracking and why is it so controversial?
By Matt Rawlings 26
Bowleven plumbing 2009 lows... Material undervaluation provides a potentially
very attractive buying opportunity
By Richard Jennings
27
Ithaca Energy - Recent takeover collapse now offers opportunity to the bulls
By Richard Jennings 29
Featured University
This month we are featuring University of Ibadan 40
Understanding U.S. gasoline prices
By Larry Wall 41
Heritage Oil - Unloved, forgotten and materially undervalued
By Richard Jennings 44
How to ensure safer drilling
By Richard Kluth 53
Exploration: How to find more oil
By David Bamford 54
Significant changes taking place in U.S. Oil & Gas industry
By Larry Wall 56
Fund raising CFO's are vital outside the FTSE 250
By Kris Hicks 60
Fracking - Gas drilling and environmental threat
By Keerthana Karthik 61
Due diligence in the oil industry
By Michael Littlechild 63
press@oilvoice.com | +44 208 123 2237
3 OilVoice Magazine JULY 2012
Featured Authors
OilVoice is always on the lookout for quality, original content. We receive submissions
from people in the industry on a regular basis, who in turn benefit from our large user
base. You get a chance to broadcast to the industry and spread the word, and we get
fantastic original content. Get in touch for more details!
Richard Etherington
OilEdge
Richard Etherington, 24, works as a freelance journalist. Richard, a BA
Hons Political Science graduate, is also a fully trained sub-editor and
reporter. He is a former equities reporter and columnist, who specialised
in small cap drilling and mining companies – during which time he built up
an impressive portfolio of industry contacts.
David Bamford
OilEdge
David Bamford is non-executive director of Tullow Oil, and a past head of
exploration, West Africa and geophysics with BP.
Matt Rowlings
McLaren Software
Matt Rawlings, an experienced journalist currently working with McLaren
Software.
Richard Kluth
Pulse Monitoring
Richard has been working in the upstream oil and gas sector since 1994
and has extensive experience in monitoring and measurements both in
the subsea and down-hole domains and across multiple disciplines
including drilling and production.
Kris Hicks
AVA Energy
Kris has spent the last 13 years working with senior talent in the energy
and infrastructure sectors, initially with a large global FTSE organisation,
where he progressed to become one of their leading consultants.
Keerthana Karthik
GAJ Industrial Supply
Keerthana Karthik is a blogger who writes on industrial supply products.
She at present blogs for Gajindustrialsupply, a global ecommerce retailer
of high heat pump, jet pumps, Monoblock pumps, ac motor, three phase
induction motors, water pumps, air compressor and more.
press@oilvoice.com | +44 208 123 2237
4 OilVoice Magazine JULY 2012
Richard Jennings
Spreadbet Magazine
Richard Jennings' background is as an equities fund manager, being
responsible for in excess of half a billion pounds at a local authority fund.
He qualified as a CFA in 2000 and has been an active personal investor
over the last 10 years, recently starting Spreadbet Magazine to enhance
traders understanding of the markets with quality and thought provoking
features.
Michael Littlechild
GoodCorporation
Michael takes responsibility for the delivery and quality of
GoodCorporation's on-site assessment work. He has led assessments in
Europe, the Middle East, Asia, Africa and the US and specialises in the oil
and gas sector and in anti-corruption policies and systems. He frequently
writes on business ethics and anti-corruption measures.
Jobs
The OilVoice Jobs board is fast becoming the place candidates look for their next move in
the industry. Featuring adverts from top draw recruiters, CV upload capability, and an
easy application process. New jobs are appearing every day, so be sure to bookmark it.
Company Directory
3330 company profiles, 5208 offices and 10765 people - all searchable by keyword and
location. You can even export your results as an excel file. So the next time you are
searching for a company or person, be sure to give it a try.
Advertise
OilVoice traffic numbers continue to climb and climb. If you'd like to reach a global
audience of oil and gas professionals then it's easy to run an advert with us. We have
solutions for every budget, so get in touch with us to discuss how we can help promote
your business now.
Events
Let's face it, there are a lot of events in the oil and gas industry. It can be hard to keep
track. The OilVoice Events Board contains hundreds of upcoming events, complete with
descriptions and calendar bookmark functionality.
Training Courses
You can never stop learning about the oil and gas industry. How do you find the course
that's right for you? By visiting our Training Courses section.
Free Membership
Over the past ten years we've grown to over 30,000 members. If you're not a member
then you should start now, it only takes a second. Then you'll be free to post job adverts,
events and press releases.
press@oilvoice.com | +44 208 123 2237
6 OilVoice Magazine JULY 2012
Sometimes the oil
industry just makes
money - no matter
what it does
Written by Larry Wall from Larry Wall
Sometimes, a business cannot help but make money. This is the case with the oil
industry today. Because of speculation, uncertainty in the Middle East and increased
global demand, oil is nearing record highs.
The consumers do not like that because it means the price of gasoline is increasing
and they blame the U.S. Oil companies of making unfair profits.
This is one of the cases where you cannot help but make money, mainly because of
laws that are on the books in the United States. Let's walk through the steps.
Oil Company CESB produces oil in the United States, onshore and in the Gulf. They
do not necessarily send it to the refineries they own, they send it to the nearest
refinery that can handle that grade.
However, people want lower prices and suggest that all the oil companies agree to
lower their prices. Well if they all come together and decide as a group to lower the
price, they have just violated the anti-trust laws. Oil companies cannot and do not
discuss prices with each other.
But say we get pass that hurdle, and the price of U.S. produced oil is lowered.
They are going to then get sued.
First, the federal government will sue for the underpayment of royalties on oil
produced in federal waters. Even if the oil sells for less than market value, the
federal government is going to demand that royalties be paid on market value and
not sale price. So the oil companies have to pay royalties on income they never
made.
If the oil is produced onshore, in Louisiana for example, the state is going to sue for
the underpayment of severance taxes. The tax is levied on the value of the oil and
not necessarily the price of oil.
The state and individual landowners are also going to sue over the royalty issue
again.
press@oilvoice.com | +44 208 123 2237
7 OilVoice Magazine JULY 2012
So we get pass all of that and the oil goes to the refinery. But the refinery also has to
buy foreign oil to meet its demand. How do you convince the foreign producers to
lower their prices--you do not.
So, the refineries agree to average the price of domestic and foreign crude and give
up some profit.
The refineries make the gasoline and it goes to the distributors. Now, the distributor
is not required to pass on the savings to the gasoline stations, because the
distributors are not owned by the oil companies and most gasoline stations are not
owned by oil companies.
So, there is no guarantee that the savings will ever get to the pump.
However, if some gasoline stations do get the savings and pass that savings on to
the consumer, other stations may not. Then you get into the issue of below cost
selling laws. Yes, there are laws in most states that prevent a gasoline station from
selling gasoline below its cost. So, the stations that cannot get the cheaper gasoline
sue those stations that can.
Along the way, the unfair trade laws will come up--but that gets really complicated.
Then as the end of the year nears, and the corporate income tax returns are
prepared, the government said that the oil companies underpriced the value of its oil
and therefore made less than they should have and then levies additional taxes and
fines.
Some People Will Lose Money
Finally, the stockholders in all of the major oil companies are going to see their
dividends decrease and maybe the stock value go down. They will then sue the
corporate leaders for not achieving maximum return on its investment. Thus, you end
up spending a ton of money on legal fees.
You see all those ads on televisions about class action lawsuits and how you may be
entitled to a monetary settlement. I was involved in one of those suits. I had financed
some home improvements and the finance company overcharged a large group of
customers. I received a check for $1.27. I never cashed it. I just hung it on my wall
(real wall and not Facebook wall).
The price of oil is controlled by the world market. The OPEC nations still control a
major portion of the supply and still set prices. The speculators and day traders react
to the slightest event and the price goes up.
It has been reported in the news recently that oil production in the U.S. has
increased since President Obama has been in office. Most of that increased
production is coming from projects started during the Bush administration and are
just now coming on line. It can take six to seven years to bring a deepwater well on
line.
So, my point is that oil companies are making money. Thus the stockholders are
press@oilvoice.com | +44 208 123 2237
8 OilVoice Magazine JULY 2012
making money, which means a lot of 401K accounts, pension plans and bond
holders are making money. It means that people are working, making good wages
and paying taxes and supporting businesses in the communities where they work.
Oil prices will eventually come down and so will gas prices. The oil industry has a
consistent history of ups and downs. We just have to wait it out. If we try to
manipulate the market, we will be doing a great disservice to capitalism and probably
do more harm than good.
As usual, as a matter of full disclosure, I worked for the oil and gas industry as PR
director of a trade association for 22 years. In December 2010 I was told my position
was being eliminated and my services were no longer needed. That action did not
put the industry on my list of favourite groups. However, the scenario I have
presented is one I mapped out years ago and I believed then, just as much as I
believe it today.
View more quality content from
Larry Wall
Insight: Free is the
way...
Written by David Bamford from OilEdge
To everybody who has just returned from the EAGE in Copenhagen, I hope
you enjoyed yourselves, especially considering how much it cost you and
your company:
So, you took what, 4 days away from the office? Call that a week and let's divide the
typical built up cost of a FTE of 200-250,000 Euros (do we still have them!) by 50 to
get a cost of 4-5,000 plus your hotel and travel - hmm, another 1000 at least - plus
registration, somewhere between 500 and 750 depending on your timing. So let's
agree on ~ €7000 in total?
Of course if your company wanted to exhibit; well, my brain isn't agile enough to
figure it all out but I did hear that one well-known oil field services contractor figured
that all-up it was going to spend ~$800,000 on the EAGE in Barcelona, and decided
to give it a miss!
press@oilvoice.com | +44 208 123 2237
9 OilVoice Magazine JULY 2012
And apart from having a 'good time' what do you expect to get out of it that you
couldn't find by browsing companies' web-sites where all their papers, products and
services appear anyway, and for free?
Before I go any further, I should say that I don't mean this as an attack on the EAGE.
There are plenty of other entities, noticeably commercial companies, that charge
amounts getting well into four figures - in €, £ or $ - to attend one of their events.
My point is, to repeat:
We are increasing living in a world where you can download more or less anything,
certainly more or less anything that conference presenters and exhibitors are willing
to stand up and talk about and put on a slide, for free, more or less instantly - well, if
you have decent broadband that is. And from the comfort of your own desk or study
at home - without having to fight your way through LHR, ABZ or IAH!
As the author of this article in the Telegraph points out 'All sorts of things we used to
pay large sums of money for are now nearly or completely free.'
View more quality content from
OilEdge
Review: Don't steal
from us Argentina...
Written by Richard Etherington from OilEdge
The dust is no closer to settling on Argentina's highly-controversial decision
expropriate one the country's largest oil and gas firm, YPF. Six weeks have
passed since the Argentine Senate approved the bill to renationalise the
industry giant on April 26, yet the fallout from the move continues to make
headlines.
While President Cristina Fernández de Kirchner's restoration of 51% of the
company's ownership to the state may have won plaudits at home with its
appeal to nationalist sentiment, outside the South American nation the story is
very different.
press@oilvoice.com | +44 208 123 223710 OilVoice Magazine JULY 2012
By bringing sister company Repsol's 57.4% majority control in the company to an
abrupt end, the Fernández administration has provoked political outcry from a
number of different sources. Unsurprisingly at the front of the queue calling foul play
is the Spanish oil giant itself, which has held majority control over YPF since the
1990s. The Madrid-based firm has also been supported by both the Spanish
government and the European Union (EU), which have threatened to bring a World
Trade Organization (WTO) suit against Argentina.
So, what caused Argentina to act? In short, lack of investment. Members of the
Argentinian parliament have argued that since Repsol took over YPF, its production
and investment levels have declined rapidly leaving Argentina in a position where it
is being forced to import gas for the first time in twenty years. But upon closer
inspection, there appears to be more to Buenos Aires' decision. With a basket full of
economic problems to deal with (including rampant inflation, commodity prices
moderating and domestic demand declining), the Fernández administration is
becoming increasingly desperate in its attempts to protect Argentine industry and to
maintain the level of economic growth it has enjoyed over recent years.
With its protectionist policies, however, Argentine is more likely shooting itself in the
foot than protecting its interest. Indeed, in the aftermath of the takeover of YPF, the
country's investment climate is likely to remain depressed over the coming quarters.
As Pablo Longueira, Chilean Economy Minister, recently noted, 'protectionist
practices' result in lower investor confidence in the region, and shuffles investments
towards more favourable places such as Asia. Given this, Argentine may soon find
itself struggling to raise the substantial investment it requires to develop its promising
shale potential; a move which may see the nation relying even more heavily upon
imports in the long term. What is more, it is not just investors that will be giving
Argentine a wide berth: by adopting such a strategy the Fernández administration is
likely to trigger a backlash from some of the country's main trade partners - most
notably the EU.
After the loss of its subsidiary, Repsol has unsurprisingly taken Buenos Aires' actions
personally and has already taken retaliatory action. On May 18 the firm terminated
its contract to supply liquified natural gas (LNG) to Argentina. Repsol pointed the
finger that state-run firm Enarsa (Energia Argentina) for breach of several terms of
their contract, including non-payments. Repsol also noted that Enarsa had changed
delivery schedules and wanted to discuss the prices of shipments for LNG. On top of
that, Repsol has been quick to initiate legal proceedings under international law
against the Argentina government over the seizure of YPF. Repsol is hoping to
received payment of up to US$10 billion via arbitration - a judgement which will be
decided by the World Bank's International Centre for Settlement of Investment
Disputes, should the two sides fail to find a resolution within six months.
View more quality content from
OilEdge
press@oilvoice.com | +44 208 123 223711 OilVoice Magazine JULY 2012
Recently Added Companies
Rift Energy
The OilVoice database has a diverse Oil and Gas
selection of company profiles, covering
Rift Energy Corp is an upstream oil and
new start-up companies through to gas company currently focused on
multi-national groups. Each of these exploration and development opportunities
profiles feature key data that allows in Africa.
users to focus on specific information or http://www.oilvoice.com/Description/1e3421e1.aspx
a full company report that can be
accessed online or printed and reviewed
later. Start your search today! Ambassador Oil & Gas
Oil and Gas
MCW Energy Group Ambassador Oil & Gas Limited was
established to participate in the exploration
Fuel Distribution
and development of oil and gas projects.
MCW's strategic plan is to integrate a Ambassador has assembled a balanced
steadily-growing, but low profit margin fuel portfolio of prospective exploration targets
distribution enterprise with an emerging, in the South Australian sector of the
proven oil sands extraction technology Cooper / Eromanga Basin.
company. http://www.oilvoice.com/Description/4ea99ada.aspx
http://www.oilvoice.com/Description/f079bcac.aspx
Quest Petroleum NL
Yaterra Ventures Oil and Gas
Oil and Gas
Quest Petroleum is an oil and gas
Yaterra Ventures Corp. is an oil and gas exploration company focused on South
exploration and exploitation corporation Sumatra, following the grant of the Ranau
focused on acquisition and production in PSC. Ranau covers 2,123km2 of the
and around the Permian Basin and the prolific South Sumatra Basin.
Bend Arch-Fort Worth Basin. http://www.oilvoice.com/Description/154c4dd7.aspx
http://www.oilvoice.com/Description/e0617b6e.aspx
Pétrolia
Enterprise Energy Oil and Gas
Resources
Petroleum and Natural Gas Pétrolia is the only active oil and gas
exploration company in Quebec to see its
Currently, the Company's principal activity
stock price go up this past year. Pétrolia is
is petroleum and natural gas exploration,
the only active oil and gas exploration
development, and production.
company in Quebec to see its stock price
http://www.oilvoice.com/Description/c859f69e.aspx
go up this past year.
http://www.oilvoice.com/Description/d518f1fa.aspx
Brixton Energy
Oil and Gas List your business free of charge on
OilVoice in a few simple steps.
Brixton Energy Corporation is a Canadian
domestically focused oil and gas
exploration company. Exploitation and
acquisition plan is to attain high netback
assets with high interest controlled pro
http://www.oilvoice.com/Description/77847407.aspx
press@oilvoice.com | +44 208 123 223712 OilVoice Magazine JULY 2012
Review: Is there any oil
offshore East Africa?
Written by David Bamford from OilEdge
The emergence of East Africa as a petroleum province has been spotted by the
media, especially the UK press where a headline such as 'Improved
technology helps to oil the wheels for East Africa' (The Times, 7th January
2012) is but one of many.
As a recent Finding Petroleum Forum revealed, it is certainly true that improved
technology has had an impact, whether satellite imagery, aero-magnetics, gravity
gradiometry or plate tectonic modelling, but where the oil is - and whether the gas
that has been discovered is commercial - requires more careful thought.
I am grateful to Alastair Bee at Richmond Energy Partners, Chris Matchette-Downes
at MDOil and Oswald Clint & Robert West at Bernstein Research for helping me
summarise the current status.
If we go back let's say 10 years, East Africa was completely disregarded by
petroleum explorers. Only a handful of wells had been drilled and there wasn't very
much data but source rocks were generally believed to be absent or poor; the
prevailing view was that there would only be small amounts of gas, if anything.
Actually, this was based on 'Myths, Myopia, Misinformation' as pointed out by Chris
Matchette-Downes in 2005(1). In particular, he identified evidence for contiguous
source rocks, for example in the Early and Mid-Jurassic, which could be in the oil
window offshore. And of course, persistent seeps were known both offshore and in
the lakes of the East African Rift System.
Since 2008, there has been significantly more exploration activity and Richmond
Energy Partners have analysed the current discovery position as summarised in the
table on the next page.
press@oilvoice.com | +44 208 123 223713 OilVoice Magazine JULY 2012
Courtesy of Richmond Energy Partners
New well results are being announced all the time but the essence is still the same:
Oil has been discovered
onshore in the Albertine
Graben of Uganda (and very
recently in Kenya) - see the
Finding Petroleum
presentation by Shane Cowley
of Tullow Oil(2).
Large amounts of gas have
been discovered offshore - in
both Mocambique and
Tanzania - but no oil as yet.
What has been proposed so
far offshore is that the
youngest source rock is an
Early/Mid-Jurassic marine
shale and so one model is that
this may have been buried
under more sediment than
previously anticipated and is
now in the gas window.
However, this source rock has not been sampled and an alternative explanation is
press@oilvoice.com | +44 208 123 223714 OilVoice Magazine JULY 2012
that the gas derives from an area of this source rock that has had high terrigenous
input and so is gas prone.
The gas volumes discovered in both Mocambique and Tanzania are significant and
as a distant observer one's immediate response is to think that they are both
candidates for LNG schemes. However, as Monica Enfield of Energy Intelligence
pointed out in her Finding Petroleum presentation(2), this perspective ignores the
focus both host governments will have on domestic issues such as creating a local
market and providing employment in the relatively short term.
As Bernstein Research has noted, a combination of successes - for example shale
gas onshore in the USA, conventional gas in the Eastern Mediterranean and on the
NW Shelf of Australia - have led to there being a large number of global LNG
opportunities, for gas to move to either Europe or SE Asia, which may mean that
somewhat more costly East African LNG will have to wait its turn in the queue. Whilst
the Majors may be content to 'bank' gas for the longer term, ready for the day the
price rises and it is needed, as pointed out above this may not at all be in line with
the hopes and expectations of the governments of Tanzania and Mocambique.
The attraction of offshore oil would be that the global price is probably going to
remain high and that a discovery of a few hundred million barrels can be developed
fairly rapidly with an FPSO and shuttle tankerage (indeed many tankers pass this
way as they go around the Cape of Good Hope!).
So where might there be oil offshore?
Explorers now have vast amounts of data - from satellites, airborne surveys, field
geologists, seabed cores, national repositories, the huge number of wells drilled
(over 200,000 'wild cats' alone since 1965), publications - to sift through to identify
basins and plays which might work or, in the question I have just posed, might work
in a particular way.
The ability of explorers to spot the next big play depends on their ability to deal with
this veritable Niagara Falls of data, to solve what some have referred to as the 'Big
Data'(3) problem - or opportunity, perhaps?
Deploying a deep understanding of plate tectonics and chrono-stratigraphy -
understanding what gets deposited where and when - is the key process by which
press@oilvoice.com | +44 208 123 223715 OilVoice Magazine JULY 2012
this is achieved, whereby opportunity is accessed.
It's just my opinion but we explorers may be guilty of laziness, believing - or at least
giving the impression of believing - that offshore exploration nowadays simply
consists of dropping in a regional/exploration 3D seismic survey and then 'no dry
holes' will result. This is far from the truth!
1. East Africa Petroleum Conference, 2005
2. Finding Petroleum Forum, 17th April 2012
3. http://www.findingpetroleum.com/video/385.aspx
View more quality content from
OilEdge
Insight: Finding more
UKCS oil...
Written by David Bamford from OilEdge
Now diving into the website of the Bank of England is not a normal activity for
me, you understand, but I was searching for a copy of their latest Quarterly
Bulletin in which, according to the Times this week, they attribute part of the
UK's drop in productivity to the decline in output from the North Sea; and sure
enough I read:
'Norway is similar to the United Kingdom; both have seen falls in energy and
utilities productivity over both the recession and recovery periods. This is not
a surprise as they extract oil from common waters - the North Sea. The
absolute fall at the aggregate level is larger in Norway, as extraction and
utilities are a larger share of GDP (Table A).(4) As the decrease in oil
production from the North Sea is likely to be structural rather than cyclical in
nature, this evidence points to a fall in the level and growth rate of aggregate
underlying labour productivity
(Chart 8).'
press@oilvoice.com | +44 208 123 223716 OilVoice Magazine JULY 2012
For a moment there, I thought The Old Lady of Threadneedle Street was getting into
exploration geology and was perhaps suggesting we should pursue more
stratigraphic traps or perhaps even fractured basement! However, 'structural' here
means - I take it - that the decline is inevitable (actually driven by the rocks) and
there's nothing we can do about it.
Oh really!
To repeat myself, there is an old adage that runs "The best place to find oil is in an
oil field!"
As global exploration gets more difficult, there is a major prize to be gained by
increasing flow rates and improving recovery factors in existing fields. In any
petroleum province which is very mature in exploration terms, such as the North
Sea, it would be better for companies to stop 'wildcat' exploring and focus on
enhancing production in and around existing oil & gas fields.
Increasing recovery factors depends on a range of technologies - surveillance,
'smart' wells, EOR etc. Nevertheless, worldwide, just a 1% increase in the global
recovery factor represents almost 90 billion barrels of oil, equivalent to replacing
roughly 3 years of production at current levels.
Wherever serious studies have been undertaken, truly astonishing volumes of oil can
be contemplated from increasing recovery factors using technologies that are known
today.
Certainly, it seems reasonable to believe that the current ~10% of all existing
discovery volumes that has actually made it to production is very much a lower limit.
In many instances, a rising oil price will ensure that primary/secondary/tertiary
recovery projects are economic although in some instances it may be necessary for
governments to give tax incentives to help improved recovery projects, for example
those based on CO2-EOR, to bring them into existence.
As an example, Gluyas has estimated, by comparing the UKCS with West Texas,
that an additional 2.7 - 8 billion barrels of technical reserves could result from CO2
injection, corresponding to an increase of recovery factor in the range of 4 to 12%. In
addition there are long term, indeed historic, estimates that improved reservoir
modeling - and monitoring - could add 10% or more to recovery factors.
I'm for a bit of 'cyclicity' where we push the recovery factor for every UKCS oil field
up to 70%!
View more quality content from
OilEdge
press@oilvoice.com | +44 208 123 223718 OilVoice Magazine JULY 2012
Clearing the air - Oil,
subsidies, imports,
exports, ownership,
alternatives and more
Written by Larry Wall from Larry Wall
While gasoline prices have been declining recently, they are still higher that some
American consumers would like. In addition, there has been a growing movement to
find alternatives to crude oil, for environmental reasons and at one time the fear that
the U.S. was growing too dependent upon foreign sources of oil.
With the discoveries of vast amounts of natural gas and crude oil in shale formation,
there is the belief by some that the United States can achieve energy independence
if it can find an alternative to crude oil. Also the recent decrease in the global price of
crude oil and the increased reserves is going to hamper or at least slow efforts at
finding alternative motor fuels.
Ideas such as wind turbines and solar panels have been around for a long time and
are in real-situation use. Electric cars are on the road, but have limited mileage
before the good old internal combustion engine takes over.
There has been talk that all of the "subsidies" received by the oil and gas industry
should be taken away and use to develop the alternative fuel industry.
People believe that a few people own the big oil companies and they are making
obscene profits.
It is time to take a closer look at these issues. As a former Public Relations Director
for a Louisiana-based oil and gas trade association for 22 years, I learned a lot about
the industry. One of my jobs was research, finding sources and verifying the
statements they were making or the information they was presenting. Some of it was
accurate and we used it. Some of it was not and we discarded it. Now, it must be
noted that the industry I worked for also fired me after my 22 years of service. So it is
press@oilvoice.com | +44 208 123 223719 OilVoice Magazine JULY 2012
possible that I am trying to get back in the industry good graces, or trying to get back
for being fired. Neither is the case. I was laid off, to use a nicer term, because the
trade group was going in a different direction that did not include me. Despite that, I
still have great respect for the industry. Thus as the old saying goes, "I have no dog
in this hunt." I am just trying to get the facts out and clear up some of the confusion.
There Are No Subsidies-There Are Tax Incentives
There is more to oil than gasoline and BTUs. The most gasoline you can get from a
42 gallon barrel of oil is 21 gallons, usually a little less and in some cases, depending
on the quality of the oil a lot less. If you cannot make gasoline, then you make other
things. The typical barrel of oil can be turned into 19.4 gallons of gasoline, 10.5
gallons of diesel fuel and heating oil, 4.1gallons of jet fuel, 1.7 million gallons of
heavy fuel oil. 1.5 gallons of propane, 1.3 gallons of asphalt and road oil, 1.1gallons
of petrochemical feedstocks and 5 gallons of other products.
The list of products that are connected with oil is almost endless. However, the first
order of business is to clear up the confusion about subsidies
A subsidy is when the government or some other group gives money to help
someone. In the context being discussed here a subsidy would be money given up
front by the government to help a company develop or improve a product, such as
alternative fuels. If the project does not work, it is unlikely that the subsidy will be
repaid.
A tax break, usually referred to as an incentive when it is first granted, is the first step
the government will take to lower the tax burden, help it be more competitive with
foreign industries or compensate it for certain business expenses.
Individuals get tax breaks. When you file your tax return you can take a deduction for
charitable contributions, for losses you incurred in case your home burned down, a
portion of the medical expenses you incur and so on down the line. If you are over
65 you get an extra deduction just for being old. If you are blind, you get another
deduction.
After a tax incentive becomes or proves its success, it is then referred to as a tax
break and then, when the economy goes down the tubes, as it does frequently, the
tax break becomes a tax loophole or giveaway and therefore there is usually an
press@oilvoice.com | +44 208 123 223720 OilVoice Magazine JULY 2012
immediate call to end it. Those receiving the incentive will usually fight it and not very
much happens.
After he first took office, President Obama had a budget plan that was going to be
tough on the oil and gas industry. I happened to be assigned the task of reviewing
that plan. The key points regarding the oil and gas industry are as follows:
Repealing the expensing of Intangible Drilling Costs
Repeal of Percentage Depletion
Repeal Marginal Well Tax Credit
Repeal Enhanced Oil Recovery Credit
Increases Geological and Geophysical Amortization Costs
Excise Tax on Gulf of Mexico Production
Repeal of Manufacturing Tax Deduction
Implementation of $4/acre fee on Gulf leases designated as non-producing
(use or lose)
Repeal Passive loss exception for working interests in oil and gas properties
Abandoned Mine Lands Payment in Certified States
Repeal Energy Policy Act fee prohibition and mandatory permit funds
reinstatement of Superfund (oil industry pays 57 percent)
Repeal Last In First Out reserve accounting
Attempt to repeal the ability to defer foreign income (subject companies to
double taxation-here and abroad.
If you repeal all of these tax breaks, it was going to cost the industry $34 billion over
10 years. Most would say the industry could afford it. Others would say that the
government would just waste it. Both may be true, but you need to look at some of
these issues.
For instance, the repeal of the manufacturing tax deduction affects more than the oil
industry. That is a tax break that every manufacturing entity in the country receives.
Yet, the plan called for just repealing it for the oil and gas industry. That did not seem
quite fair.
The second item, repeal of the percentage depletion, only applies to independent
producers, and not the major oil companies. So, is that necessary?
Adding an excise Tax on Gulf of Mexico Production really does not make any sense.
The government receives a lease payment every year for the offshore tracts.
Companies pay huge bonuses up front to try and win the tracks and the government
receives a royalty for all the oil and gas produced from that leased. So, where is the
logic or fairness of adding an excise tax to that production? Also, keep in mind,
producing oil in the Gulf of Mexico is not easy or cheap. By the way, royalty income
press@oilvoice.com | +44 208 123 223721 OilVoice Magazine JULY 2012
is the second largest source of revenue for the United States Government. The
personal income tax is the largest.
The idea of implementing a $4 per acre fee on Gulf of Mexico leases that are
designated as non-producing does not make sense. First, because a lease does not
have a well on it, does not mean it is not producing. With new drilling techniques in
place, a well on one lease can produce oil from several adjacent leases, thus
reducing the industry footprint in the Gulf. If a lease really is a non-producing lease, it
reverts back to the government after a certain period of time, but the lease payments
are made during that time period. Again, there is no rationale.
Next there was going to be an attempt to repeal the ability to defer foreign income. In
other words, when a U.S. based company makes money in another country, it pays
taxes in that country, and normally defers that income when paying its federal
income taxes. The Obama plan would have the companies paying foreign taxes and
then paying federal taxes on that same barrel of oil, even though it was produced in
another country. That did not seem to make any sense.
The other items in the Obama plan are more technical and would take too much
space to explain them. Nothing was ever done with the plan. So for now the status
quo on that item remains the same. However, it is important to remember, that none
of these issues give money to the industry. They provide tax breaks. If the tax breaks
are repealed, the cost of doing business will increase and just like any business, you
pass on your higher operating cost to the consumer. Therefore, if this plan was
enacted, the federal government would get $3.4 billion more each year in income
and consumers would pay another $3.4 million each year for gasoline, diesel and all
the oil and gas products we use each day. The planning was not very good.
Ownership and Profits
If you compare the profit margins for major manufacturing sectors, you will find that
the major integrated oil and gas companies have an average profit margin of 7.9
percent. Wineries and distillers have a 17 percent profit margin, internet information
providers have a 23.8 percent profit margin and magazine publishers have a 58.1
percent profit margin, according to FuelFix by StatOil, Oct. 27, 2011.
One company that has been mentioned frequently is Exxon, which had about $40
billion in profits during 2011.
However, what does not get mentioned is that Exxon spent $412 billion during the
year. That is a little less than a 10 percent return. That may be a little better than the
overall average of the industry, but close to other types of industry operating in the
United States. It is a very simple law of economics, if you know what you are doing
and you spend a lot of money doing it, you are probably going to make a lot of
money.
However, with success come criticism and the argument that big oil companies are
owned by other big oil companies and by the executives who make millions of
dollars.
press@oilvoice.com | +44 208 123 223722 OilVoice Magazine JULY 2012
Oil companies have joint ventures, where two companies will go in together to do a
project, with one company being the operator and the other supplying cash, access
to a pipeline, access to leases, use of boats, barges, helicopters, etc. It is something
called cooperation. It works in the industry. Perhaps Congress could give it a try.
The actual ownership of oil companies may be surprising. The basic breakdown is
that 20.6 percent are owned by asset management companies, 21.1 percent owned
by individual investors, 31.2 owned by pension funds, 17.7 owned by IRAs, 2.88 by
corporate management of oil companies and 6 percent by other investors. Simply
stated, there is No Mr. Exxon or Mr. Chevron who is making all the money.
We Can Do It Ourselves
With the discovery of the new shale plays for oil and gas, an attitude is developing
that we can provide our own oil at our own price and not be "held hostage" by foreign
countries. That is not going to happen anytime soon. Saudi Arabia has 17.7 percent
of the world's crude oil supplies. Other nationalized oil companies hold lesser
amounts, but far less than the major oil companies.
U.S. dependency has dropped to 35 percent, after being as high as 60 percent or
more. However, we cannot drill the wells and produce the shale oil and gas quickly
enough to meet our daily needs. In fact, the concern over "fracking", a technique that
has been used for years in drilling vertical wells and is now being used in the
directional wells that produce the shale oil and gas, is coming under attack, which
may slow that process.,
Natural gas prices have dropped dramatically, because we never had to import
natural gas from the other side of the world. We did get some from Canada, but that
was for convenience purposes more than anything else. Thus the abundance of
shale gas has created an excess supply. When supply exceeds demand, the price
goes down. That is why Liquefied Gas Terminals are being built or reactivated, in an
attempt to find a market for the excess natural gas.
Even if the United States could produce enough oil to meet daily needs, the oil
companies are going to charge the global market price. This is not to be greedy. This
will be done to meet the demands of all those shareholders in the previous graph.
They are going to want the maximum return on investments so the value of their
stocks will grow and dividends can be paid.
The United States, which collects sizable royalties from production in the Gulf of
Mexico and on federal lands, is going to want the royalty payments based on the
global market price. The producing states like Louisiana and others, where a
severance tax or production tax is collected, based on the price of oil, are going to
base collection of that tax on the global price.
Now does anyone want to guess how the global price is going to be set? It will be
done by the OPEC nations. If they cut back production and thus the amount they sell
to other countries besides the United States, the price is going to go up. Also, this
happened once before, they opened the taps and drove the prices so low many
produces could not afford to compete in that market and had to shut in production.
press@oilvoice.com | +44 208 123 223723 OilVoice Magazine JULY 2012
We enjoyed very cheap prices for a while, but it did not last very long. During that
time a lot of people lost their jobs and a lot of equipment was stacked and never
used again.
Looking At the Alternatives
A lot of discussion has been devoted to developing alternative forms of energy. This
is not going to be a discussion of which one is better or worse. It is going to be a
discussion regarding the practical implementation of alternative energy.
When it was decided that tetraethyl lead was dangerous and should be removed
from gasoline as an octane enhancer, it took ten years to phase in the use of that
gasoline because of the fleet of older cars on the road that could not user the newer
unleaded fuels that were being developed.
Now we are talking about cars powered by natural gas, liquefied natural gas,
electricity and numerous other ideas. The alternative fuel movement is going to have
to come together and pick a fuel that will be used for daily use. The car
manufacturers will have to design the cars and someone will have to build the
infrastructure, if the existing infrastructure that moves gasoline cannot be used.
More than likely the alternative fuel industry is going to have its hand out looking for
some type of subsidy. It would be unfair to ask the existing energy industry to finance
the new industry that is going to take away a part of their business. However, we are
probably a long way from that point. Renewable energy accounts for only 7 percent,
which includes solar energy 1, percent, hydroelectric, 34 percent; geothermal, 9
percent; biomass 53 percent and wind energy 7 percent.
Why Are We Exporting Oil and Gasoline
The United States does export some oil and a considerable amount of gasoline,
diesel and other petroleum products. The oil is exported as a convenience. Some
goes to Canada, Mexico and to Japan from Alaska.
Remember that only half of a barrel of oil can be turned into gasoline. We produce
more gasoline than we need. We buy oil by the barrel. We sell gasoline by the
gallon. Therefore, it makes sense to sell the excess refined products instead of
letting them accumulate. By selling them, the U.S. balance of trade is improved and
foreign countries also develop a greater interest in our oil and gas industry. The
Energy Information Administration, which is a branch of the U.S. Department of
Energy, maintains extensive records on imports and exports.
The EIA records show that in 2011 the United States exported 17 million barrels of
crude oil, mostly to Canada and Mexico for convenience purposes. It just makes
sense to send the oil to the nearest refinery. In the same year the U.S. exported 1.05
billion barrels of refined products, with approximately 1 billion gallons going to
Mexico, again for convenience purposes. Mexico is in the process of building new
refineries. That number will decrease in future years.
This presentation has touched on tax breaks, alternative fuels, governmental
press@oilvoice.com | +44 208 123 223724 OilVoice Magazine JULY 2012
involvement, products from a barrel of oil and other related items.
The oil and gas industry is really four industries, production, refining, pipelines and
marketing--the places where you buy your gasoline. Those are the same places that
post the price each time it changes in numerals that can be seen from a great
distance. I can assure you the grocery store or department stores do not advertise
items where they have been forced to raise prices. Gasoline prices are always
posted.
Just a few points to remember
The U.S. levies a tax of 18.4 cents per gallon of gasoline at the pump.
Most, if not all, the states levy their own gasoline tax. These funds do not go to the
oil companies. Thus, the price at the pump, in the United States, includes the taxes
that are collected by the states and the federal government.
Prices are dependent upon the cost of crude, the value of the euro against the dollar,
political unrest in the Middle East, overall economic conditions and speculation. The
oil and gas industry has no control over those factors and just like any other industry
it must react to those factors.
However, the oil industry has to react daily and the price change can show up that
day. The garment industry may have to react daily, but the prices of blue jeans do
not fluctuate like the price of gasoline.
View more quality content from
Larry Wall
press@oilvoice.com | +44 208 123 2237Doing more with data
Kuala Lumpur,
October 24-26, 2012
Finding Petroleum / Digital Energy Journal is running 3 one day conferences in Kuala Lumpur, Malaysia, on
October 24, 25 and 26 on doing more with petroleum data, covering drilling, subsurface and production data.
These 3 events will present the most exciting new technology to help manage and work with all aspects of data
in the upstream all and gas industry.
The conferences are for people who work with drilling, subsurface and production data, who want to learn about
new ideas and new technologies to make their data work harder, to improve efficiency and safety of drilling,
ability to find new reservoirs and extend existing ones, and maximise production.
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October
21-24.
Attendance is free - register now to secure your place.
October 24 - Doing more with with drilling data
October 25 - Doing more with subsurface data
October 26 - Implementing data tools faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more
about the latest new technology to help manage data, and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a
local audience during the same trip.
The events are supported by the South East Asia Petroleum Exploration Society and Energistics, and timed to
co-incide with the Energistics National Data Repositories conference in KL.
The events will be free to attend.
For days 1 and 2, we will look for financial contributions from speakers - in the range 14600 MYR / USD 4760 /
GBP 3000 for a morning slot and MYR 9750 / USD 3200 / GBP 2000 for an afternoon slot. Sponsorship
opportunities are also available.
The third day "getting data implemented faster" will be panel discussions, chaired by Jerry Hubbard, CEO of
Energistics, and participants in the first 2 days' sessions will be invited to join.
For enquiries about sponsorship and speaking please contact our sales manager John
Finder on +44 208 150 5292, e-mail jfinder@onlymedia.co.uk
Reserve your place now at FindingPetroleum.com26 OilVoice Magazine JULY 2012
What is fracking and
why is it so
controversial?
Written by Matt Rawlings from OilVoice
Without being involved in the industry or campaigning strongly either for or against
the process, fracking is just something you vaguely remember from a few science
lessons you had at school that you can't actually explain.
Hydraulic fracturing, to give it it's proper name, is the process of drilling into the earth
and setting off a series of small explosions to shatter and make cracks in the solid
rocks, such as shale, in order to release the gas stored inside. Water is then injected
into the rock along with chemicals and sand to encourage the gas to escape to the
top of the 'mine' or 'well.'
The most common practice is performed by drilling horizontally, i.e. across the rock,
but it is also regularly performed vertically, going straight down into the ground, and
this enables the extractors to find new sources of gas, or to extend their current
pipelines. The horizontal drilling creates new channels within the rock, meaning that
the gas is actually extracted much quicker than the more traditional methods.
While this may sound like a pretty routine drilling procedure, simply extracting gas
from the ground, it is viewed as highly controversial and has produced numerous
campaigns calling it for the practice of fracking to be ceased, one high profile version
in the UK was back in 2011 after two small earthquakes near to Blackpool. The
campaigning is down, mainly, to the chemicals being used in the extraction process.
The water used in the process comes from within the well itself, but the primary
concerns among campaigners relate to the chemicals used, and the potential for
them to find their way into drinking water.
The issues, which prompted the Blackpool protests in 2011, came about after two
small earthquakes - registering 1.5 and 2.2 on the Richter scale struck inland, and
after complaints were received that fracking was to blame, the process was stopped
while a full investigation was carried out.
Those working in the industry itself have claimed that shale gas is safe, and they
have said that any incidents of polluted drinking water have been down to simple
poor practice, as opposed to accidents.
It isn't just the UK where issues have occurred, with one highly documented case in
America where a household claimed that shale gas found its way into their drinking
water pipeline and caused the tap water to actually ignite.
press@oilvoice.com | +44 208 123 223727 OilVoice Magazine JULY 2012
So if it's a potentially dangerous process with so many people against it, why have
those in the industry persisted with it, there must be some real advantages of shale
gas to make the fracturing process a worthwhile perseverance and method of
extracting gas right? Put simply, yes, there are.
Shale gas reduces the cost of gas on the market, and is actually contributing to a
worldwide flow of gas, which has halved the domestic market price in the United
States. In the UK, a number of research companies have even predicted that there
are substantial amounts currently in the rocks under South Wales, with experts
estimating the value at around £70bn.
View more quality content from
OilVoice
Bowleven plumbing
2009 lows... Material
undervaluation
provides a potentially
very attractive buying
opportunity
Written by Richard Jennings from Spreadbet Magazine
The folly of the stock market never ceases to amaze me. Below is a chart of
Bowleven over the last 5 years and you can see how the stock twice nosed a high of
over 400p, whilst in the intervening period falling to a low of 20p. For those punters
lucky enough to pick up stock during the depths of investor despair that was
prevalent in early 2009, 20 times your money could have been made at the peak
(although its a trader with cajones of steel that can carry a profit of that magnitude
without selling…) in early 2011 - just 2 short years.
press@oilvoice.com | +44 208 123 223728 OilVoice Magazine JULY 2012
At the current price, we are closing in on the very same levels touched in 2009 as
the price fell to 20p - it is worth noting that the last time the shares approached these
levels was during a period when the Company's very existence was in question due
to the court case that was ongoing at the time with Peter Garnham and where
ownership of the Company was being contested. This was later resolved with the
case being dismissed and so no longer hangs over Bowleven.
Intelligent investors can be forgiven for sratching their heads at this recent price
activity given the tentative takeover approach that was made by Dragon Oil in
February of this year when the shares sat at 75p. This very undervaluation was of
course what attracted Dragon Oil to the company in the first place and prices of 150-
250p were being bandied around by institutional holders and analysts alike as
representing 'fair value' for the company. Well ladeez and gentlemens, such is the
way with the stock market that a price of 59p has now been presented to you to pick
up shares in Bowleven. The company actually has net cash of circa 35p at the
moment (although this is diminishing) and so the entirety of its valuable exploration
portfolio is now valued at just under £60m.
Although Dragon Oil walked away from Bowleven, it was confirmed that DGO did not
in fact look at the Company's books and many pundits put the termination of the brief
flirtation down to the fact the the 'steal' basis of an acquisition was not possible given
the run up in the share price back to a more realistic discount to its NAV. This does
not detract from the deemed value in Bowlevens Cameroon licences and most
analyst estimates of core NAV actually centre around the 200p mark.
Let's not forget too that late last year Kevin Hart raised a further £80m through a
placing at 103p - when placings of this magnitude occur, the shares are typically
issued at a discount to the true worth of the Company in order to attract the fresh
institutional money on board. Well, the Company is now further advanced in their key
press@oilvoice.com | +44 208 123 223729 OilVoice Magazine JULY 2012
Sapele fields drilling program and yet you have the opportunity to pick up shares at a
40% discount to those 'savvy' institutions…
You might well be asking just how the stock market can present investors with that
appears a one way ticket? As ever, there is always a catch. In the first instance, I
doubt that the recent oil price weakness we are seeing or indeed the general stock
market torpor are the true reasons for the price weakness that has been put about by
some quarters of the press.
What the market is saying is that the cost of raising funds for such Oil explorers (as
we have seen with Xcite Energy in recent months) is rising and the debt markets are
unlikely to play ball at this point in time. This leaves another potential equity fund
raising or alternately 'farm in' (dilution of the Company's interest in its exploration
portfolio by way of a 'major' being brought in, in exchange for a share of the spoils)
as the likely options for Bowleven. The company needs to raise approximately
another $250-300m. At the current market cap,doubt that Kevin Hart will take the
more damaging route of further equity issuance but rather look to a farm in
arrangement.
At 59p, the downside looks to be almost non existent yet the upside remains 200p+,
and potentially a lot more if the drilling program scheduled for this year and next is
successful. 4th Conviction Buy for Spreadbet Magazine.
View more quality content from
Spreadbet Magazine
Ithaca Energy - Recent
takeover collapse now
offers opportunity to
the bulls
Written by Richard Jennings from Spreadbet Magazine
Ithaca Energy has been in the news for all the wrong reasons recently for those long
the stock following the aborted takeover by various unnamed suitors and that has
resulted in a few singed fingers...
press@oilvoice.com | +44 208 123 2237You can also read
