By NJ Watson and Tom Nicholls P RESIDENT Thabo Mbeki of South Africa opened the 18th World Petroleum Congress in Johannesburg last night with an impassioned speech urging delegates to convey a “message of hope” to the world at a time of great uncertainty. Endorsing statements by World Petroleum Council president-elect Randy Gossen, Mbeki said the big issue facing the industry is its reputation and credibil- ity with stakeholders, including con- sumers, non-governmental organisations, international institutions, host communi- ties and governments. Mbeki also said the problem of high fuel prices needs to be debated vigor- ously because, quoting a recent World Bank report, the poor suffer from high energy prices twice as much as higher- income groups. Reciting the lyrics of the bleak jazz classic Mood Indigo to illustrate the despair felt by much of the world, Mbeki said it was important for the Congress to deliver an upbeat message – especially in light of the failure last week of the United Nations to find a way of successfully con- cluding its Millennium Development Goals, which include the alleviation of poverty, world peace and security and reform of the UN. “To speak frankly, the summit did not succeed in its aims as well as it should have,” said Mbeki. Good news for Africa, however, came with yesterday’s statement by UK finance minister Gordon Brown that the International Monetary Fund has agreed a deal to approve the G8’s debt-relief pro- gramme by the end of 2005 for 18 of the world’s poorest countries. “For us, this represents one of the most positive developments in a global situation that otherwise seems to be dominated by negative developments,” said Mbeki, adding: “We hope the Congress will succeed in communicat- ing other items of good news to the peo- ples of the world.” A brighter future In an opening ceremony based around the prospects for a brighter future for Africa, several high-profile speakers, including Lindiwe Hendricks, South Africa’s ener- gy minister, put the continent firmly at the top of the Congress agenda. The importance of international co- operation as a way of finding solutions to the world’s growing energy crisis was also repeatedly emphasised. Nigeria’s oil minister, Edmund Daukoro, said the Congress’ theme – shaping the energy future: partners in sustainable solutions – could not have come at a better time. “It is clear to me that market realities are moving beyond the control of producing countries and that we must look to events like this to bring together produc- ers sand consumers.” 1 18WPC News Issue 1 Monday, 26 September 2005 www.wpc-news.com Host Sponsor: Co-Host Sponsors: NOC Libya Sonangol Angola Sonatrach Algeria NNPC Nigeria Mbeki’s message to delegates: hope not ‘mood indigo’ Schlumberger Visit us on stand 2/88 Schlumberger Visit us on stand 2/88 African dancers convey President Mbeki’s message of hope with a spectacular display President Thabo Mbeki addresing the dele- gates at last night’s opening ceremony Johannesburg Congress is a first for Africa THIS IS the first time in the 72-year history of the World Petroleum Council that the tri-annual World Petroleum Congress has been held in Africa. And the Southern African International Oil & Gas Exhibition, which is running in parallel, is the largest of its kind to be held on the continent. The Council’s theme for the Congress is “shaping the energy future: partners in sustainable solu- tions” and it hopes that this week’s events will foster greater co-operation between the energy industry and other relevant international bodies. Says Randy Gossen, chairman of the Congress programme committee: “The international petroleum industry recognises its role both in terms of meeting society’s growing demand for energy, as well as tackling the main technical social, economic and environmental challenges in partner- ship with others.” The Congress focuses on global issues, but there is a particular empha- sis on Africa, and on environmental and social responsibility. Taking part are high-level government and indus- try delegations from the Council’s 65 member countries, together with par- ticipants from many non-member countries, more than 500 speakers, 2,000 executives, 250 students and 400 journalists.
Transcript
By NJ Watson and Tom Nicholls
PRESIDENT Thabo Mbeki ofSouth Africa opened the 18thWorld Petroleum Congress inJohannesburg last night with an
impassioned speech urging delegates toconvey a “message of hope” to the worldat a time of great uncertainty.
Endorsing statements by WorldPetroleum Council president-elect RandyGossen, Mbeki said the big issue facingthe industry is its reputation and credibil-ity with stakeholders, including con-sumers, non-governmental organisations,international institutions, host communi-ties and governments.
Mbeki also said the problem of highfuel prices needs to be debated vigor-ously because, quoting a recent WorldBank report, the poor suffer from highenergy prices twice as much as higher-income groups.
Reciting the lyrics of the bleak jazzclassic Mood Indigo to illustrate thedespair felt by much of the world, Mbekisaid it was important for the Congress todeliver an upbeat message – especially inlight of the failure last week of the UnitedNations to find a way of successfully con-cluding its Millennium DevelopmentGoals, which include the alleviation ofpoverty, world peace and security andreform of the UN. “To speak frankly, the
summit did not succeed in its aims as wellas it should have,” said Mbeki.
Good news for Africa, however, camewith yesterday’s statement by UK financeminister Gordon Brown that theInternational Monetary Fund has agreed adeal to approve the G8’s debt-relief pro-gramme by the end of 2005 for 18 of theworld’s poorest countries.
“For us, this represents one of themost positive developments in a globalsituation that otherwise seems to bedominated by negative developments,”said Mbeki, adding: “We hope theCongress will succeed in communicat-ing other items of good news to the peo-ples of the world.”
A brighter future
In an opening ceremony based around theprospects for a brighter future for Africa,several high-profile speakers, includingLindiwe Hendricks, South Africa’s ener-gy minister, put the continent firmly at thetop of the Congress agenda.
The importance of international co-operation as a way of finding solutionsto the world’s growing energy crisis wasalso repeatedly emphasised. Nigeria’soil minister, Edmund Daukoro, said theCongress’ theme – shaping the energyfuture: partners in sustainable solutions– could not have come at a better time.“It is clear to me that market realities aremoving beyond the control of producingcountries and that we must look toevents like this to bring together produc-ers sand consumers.”
1
18WPC News
Issue 1 Monday, 26 September 2005 www.wpc-news.com
African dancers convey President Mbeki’s message of hope with a spectacular display
President Thabo Mbeki addresing the dele-gates at last night’s opening ceremony
Johannesburg Congressis a first for AfricaTHIS IS the first time in the 72-yearhistory of the World Petroleum Councilthat the tri-annual World PetroleumCongress has been held in Africa. Andthe Southern African International Oil& Gas Exhibition, which is running inparallel, is the largest of its kind to beheld on the continent.
The Council’s theme for theCongress is “shaping the energyfuture: partners in sustainable solu-tions” and it hopes that this week’sevents will foster greater co-operationbetween the energy industry and otherrelevant international bodies. SaysRandy Gossen, chairman of theCongress programme committee:“The international petroleum industryrecognises its role both in terms ofmeeting society’s growing demandfor energy, as well as tackling themain technical social, economic andenvironmental challenges in partner-ship with others.”
The Congress focuses on globalissues, but there is a particular empha-sis on Africa, and on environmentaland social responsibility. Taking partare high-level government and indus-try delegations from the Council’s 65member countries, together with par-ticipants from many non-membercountries, more than 500 speakers,2,000 executives, 250 students and400 journalists.
By NJ Watson
THE PRICE of oil fell by nearly $1 a bar-rel yesterday as it became clear that mostof the refineries around Houston hadescaped serious damage from HurricaneRita. At a special weekend session onLondon’s International Petroleum
Exchange, Brent futures fell by $2.16/bto $62.44/b.
The US Department of Energy report-edly said it was “cautiously optimistic”that refineries in Houston had sufferedminimal damage, after the hurricaneweakened to a category three storm andveered away from Houston’s oil infra-structure as it neared land. Altogether, 16refineries in the area, which producearound 25% of the nation’s gasoline, wereclosed last week as the storm approached.
Damage appears more limited than thatinflicted by Hurricane Katrina on four ofthe big refineries in Louisiana, which willbe out of commission for the long term.Nonetheless, news trickling out fromGulf coast operators indicates there willbe significant delays in restarting some ofthe plants located in the hurricane’s path.
The hurricane veered east as itapproached land, putting the refineriesnear the state line between Texas andLouisiana – in Port Arthur, Texas, andLake Charles, Louisiana – in the hurri-cane’s path. Valero Energy said it wouldtake between two weeks and a month torestart its 250,000 b/d Port Arthur refinery.Royal Dutch Shell said its 285,000 b/drefinery had sustained wind damage, butdid not say when the facility would restart.
However, ExxonMobil said itsBaytown refinery, which is located fur-ther west and is the country’s largest,with a capacity of around 0.58m b/d,escaped serious damage. The companysaid the refinery had already reopened itsterminals and pipelines, although effortsto restart operations had not yet begun.
Prices fall as Houston escapes major damage
Issue 1 Monday 26 September 2005 News
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By James Gavin and Tom Nicholls
EARLIER this year, investmentbank Goldman Sachs made head-lines by forecasting that crude oilprices could break through the
$100 a barrel barrier in the event of amajor supply shock.
The devastating effect of HurricaneKatrina, which caused spot gasoline priceson the US Gulf coast to rise by more than$0.60 a gallon (USG) to $2.85/USG on theday of the hurricane – the equivalent,Barclays Capital noted, of $120/b –appeared to confirm the potential for sup-ply disruptions to send prices on the kindof trajectory Goldman was talking about.
While Gulf of Mexico upstream opera-tors and refiners struggle to bring facilitiesback on stream – a time-consuming andcomplicated process that will provide pricesupport over the next few weeks – theyremain vulnerable to more hurricanes.Thankfully, Hurricane Rita does not seemto have had the devastating effect on USoil infrastructure that many had feared. OnFriday, the weakening hurricane shiftedaway from the Houston area, home to alarge percentage of the country’s refiningcapacity, and US light crude futures endedthe day down by $2.31/b at $64.19/b.
For the longer term, meanwhile, invest-ment banks have been raising price fore-casts. There has even been talk of $75/b
oil before year-end, despite Opec’s com-mitment to cool down oil markets.Deutsche Bank expects crude prices toaverage $70/b over the next six months,amid tightening market fundamentals andextreme weather conditions. For 2006,the bank is forecasting $60/b oil.
Goldman recently raised its five-yearoil-price target from $45/b to $60/b. Italso raised its US oil price forecast for therest of 2005 by more than $13/b to $67/band its 2006 forecast by $13/b to $68/b.
One of the reasons given for the bull-ish stance is that oil companies havebeen slow to reinvest profits in newcapacity. Oil companies are said to besitting on a cash pile of nearly $0.5 tril-lion, which they have refrained fromploughing into new projects, mainlybecause of uncertainty over the prof-itability of individual projects.
Most analysts have followed Goldman’slead in upping price forecasts. The mostconservative projection of London-basedCentre for Global Energy Studies (CGES)sees prices at around $65/b in the lastquarter of the year and in the first quarterof next year. Its latest monthly report saysit would take “a dramatic slowdown in oildemand growth to undermine prices”.
Merrill Lynch has also recently raisedits price forecasts, although it is moreconservative than Goldman. While it hasincreased its 2006 forecast for US lightsweet crude to $52/b – a rise of $10/b onthe previous estimate – it sees $60/b oil asunsustainable in the long-term andexpects prices to retrench. “Recentstrength has been driven by short-termsupply disruptions and renewed geopolit-ical tensions,” it says.
Other analysts share Merrill’s moreconservative instincts. Barclays Capitalcommodities analyst Kevin Norrishexpects oil prices to decline by $10/bfrom September to around $55/b by year-end 2005, as traders take on board the
prospect of lower demand in the secondquarter of next year.
One factor underlying the generallybullish assessments of oil-price trends fornext year is that the global economyappears better able to absorb higherprices. Also, oil prices in real terms arestill some way short of all time highs. AGoldman research note issued earlier thisyear suggested the high prices of the firstthree months of 2005, if sustained, wouldshave as much as 45 basis points fromreal growth among the Group of Seveneconomic powers and boost inflation by75 bp – not a negligible effect, but notenough to derail the global economy.
However, there are mounting fears thathigh oil prices are starting to underminethe global economy. Last week, G7finance ministers said oil prices are agrowing threat to world economic growthand called for sustained increases in oiloutput, more energy-conservation meas-ures and greater investment in alternativeenergy sources. CGES, meanwhile, says“high oil prices have already started toundermine oil’s future market”.
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By Tom Nicholls
RANDY Gossen was elected pres-ident of the World PetroleumCouncil today. He said he woulduse the post to improve the oil
industry’s reputation and to encouragedialogue between the industry and essen-tial partners such as governments, NGOsand international organisations.
“We as the petroleum industry have tofind ways of producing oil in an eco-nomically viable, environmentallyacceptable and socially responsibleway,” said Gossen. “The big issue is
around our reputation and credibility.The WPC can’t solve the world’s prob-lems, but it can facilitate and catalysedialogue between the industry and itsvarious stakeholders. That is, and willcontinue to be, my focus.”
The outgoing president, Eivald Røren,had a similar message. “Listen to theindustry and listen to the public and pro-vide a meeting place for both,” he said.“We must be conscientious about thefuture. Oil is a finite resource – we are intransition and we must prepare ourselvesfor a new future.”
Gossen, vice-president for safety,environment and social responsibility atCanada’s Nexen, was chairman of thecongress programme committee for thepresent Congress. Gossen, elected bythe Council’s 62 member countries,holds the post until the next WorldPetroleum Congress – in Madrid inthree years’ time.
In a separate ballot, Pedro Baridón waselected as the Council’s senior vice-pres-ident for the next three years. In the samemeeting, applications from Sierra Leone,Azerbaijan and Japan to join the WorldPetroleum Council were approved, bring-ing the total number of members to 65.
Gossen takesthe top job
Randy Gossen was elected president of theWorld Petroleum Council yesterday
By NJ Watson
A NEW price level for oil has been estab-lished and will be sustained for years tocome, Eivald Røren, president of theWorld Petroleum Council, said yesterday.
Speaking at a press conference ahead ofthe opening ceremony of the 18th WorldPetroleum Congress, Røren said: “Wewill hardly see those days of $18-20/bcome back soon and we will have to livewith this new level for many years.”
He put much of the blame for higherprices on the bottleneck in the globalrefining industry – a problem that hasbeen exacerbated by the hurricanes in theUS. “The lack of refining capacity meansthe price of oil will be felt by the worldthrough gasoline prices,” he said.
The high price of oil and its effect onordinary people was touched on by theother participants in the press conference– South African energy minister LindiweHendricks, chairperson of the SouthAfrican National Committee AyandaMjekula and PetroSA CEO SiphoMkhize. They said the Congress mustproduce outcomes that engage the man,and woman, in the street.
“The debate over the price of oil rageson and it is something the world isincreasingly concerned about,” said
Mjekula. “The Congress offers a realchance to deliberate on some of the solu-tions to this global dilemma.”
Hendricks stressed that the Congress –which is being staged in Africa for thefirst time – must find lasting solutions to arange of problems, especially those relat-ed to the environment, HIV/Aids, corpo-rate governance and revenue transparen-cy. Røren said revenue transparency hasbeen given special attention in the pro-gramme and the Congress and wouldexamine the extent to which governmentsand countries are telling the public abouthow much money is changing hands.
WPC president: high oilprices are here to stay
From left to right: Lindiwe Hendricks, SouthAfrica’s minister of minerals and energy;Eivald Røren, president, World PetroleumCouncil; and Ayanda Mjekula, chairperson,South African National Committee, WPC
West Africa Monday 26 September 2005 Issue 1
5 www.wpc-news.com
Angola: Finds forBP, start-up forExxonMobilBy Martin Quinlan
BP ANNOUNCED its eighth oildiscovery in the ultra deep-waterBlock 31 last month, just weeksafter making its seventh.
Following the two discoveries, the firmsays it is “evaluating development con-cepts” for the block’s southeast area,where two other finds have been made.Meanwhile, BP is understood to be near-ing a development decision for the fourfields that make up the block’s NortheastDevelopment Area (NDA) – likely tobecome the first development in thecountry’s ultra deep-water areas.
Last month’s find was made with theAstraea-1 well, drilled by the Jack Ryandrillship in 1,496 metres of water. Thewell, which tested 6,513 barrels per day(b/d), was drilled only 10 km southeast ofthis year’s Palas discovery. In late-Julythe firm announced a discovery withJuno-1, located 10 km northwest of Palas.Juno-1, also drilled by the Jack Ryan andlying under 1,601 metres of water, floweda mechanically-restricted 2,676 b/d. Theother discovery in this part of the block,made in March, is Ceres-1 at a location31 km northeast of Palas.
The NDA fields – Plutão, Saturno,Marte and Venus – are likely to be devel-oped using a floating production, storageand offloading (FPSO) vessel, with firstoil flowing in 2008-2010. Interests inBlock 31 are BP, 26.67%, ExxonMobil,25%, Sonangol, 20%, Statoil, 13.33%,Marathon, 10% and Total, 5%.
Meanwhile, production from Angola’sdeep-water licences is mounting. In July,ExxonMobil brought its Kizomba Bdevelopment on stream in Block 15 –remarkably, for a $3.5bn project, fivemonths ahead of schedule. Kizomba B,tapping 1bn barrels of reserves in theKissanje and Dikanza fields, should raiseproduction from the block to 0.550m b/dby the end of the year. Water-depth at thefields is 1,010 metres.
ExxonMobil attributes the project’searly start-up to the firm’s “design one,build multiple” approach. The Kizomba Bscheme is virtually identical to KizombaA, brought on stream in August last yearand tapping the Hungo and Chocalhofields. Both developments use FPSOswith 2.2m barrels of storage capacity,together with tension-leg platforms. Bothschemes are designed to flow 250,000 b/dfrom subsea and surface wellheads.Kizomba A took 36 months to bring onstream, while Kizomba B took only 31months. ExxonMobil says it has achieved“the lowest unit development costs for
projects of this size and complexity”. Production from Block 15 started in
December 2003, when the Xikomba fieldcame on stream through an FPSO.Participants in Block 15 areExxonMobil, 40%, BP, 26.67%, Eni,20% and Statoil, 13.33%.
Angola’s next big start-up, due laterthis year, will be the first phase ofChevron’s $2.2bn Benguela-Belize-Lobito-Tomboco (BBLT) development,in Block 14. The Benguela and Belizefields will be brought on stream througha compliant tower platform, standing in381 metres of water. Lobito andTomboco will be tied-in to the develop-ment using subsea facilities next year,allowing combined BBLT production torise to over 200,000 b/d in 2008.
Another large increment will come inthe second half of next year, when Total isdue to bring its Dália field on stream.Dália, in the firm’s prolific Block 17, willflow 225,000 b/d through an FPSO, at adevelopment cost of $3.4bn. Because theoil is relatively heavy (at about 23°API),a total of 67 wells will be needed – 34producers, 30 water-injectors and threegas-injectors. Water-depth over Dália isin the range of 1,200-1,500 metres.
Total’s Block 17 production started in1996 when the ground-breaking Girassoldevelopment came on stream. Productionthrough the FPSO Girassol, moored in1,350 metres of water, increased to anaverage of 243,000 b/d last year follow-ing the tie-in of the Jasmim field inNovember 2003. Rosa, to be the secondtie-in, is under development for start-upin 2007. Total says Rosa’s productionwill be fed-in as processing capacity onthe FPSO becomes available, maintain-ing an output of about 250,000 b/d.
In 2007, BP’s Greater Plutonio devel-opment in Block 18 should be flowing.The six-field development, in water1,200-1,500 metres deep, will use anFPSO to flow 220,000-240,000 b/d – andsubsequently will supply gas to the coun-try’s planned liquefaction plant at Soyo.
Angola’s production averaged just over1.0m b/d last year. Although output fromsome of the older, shallow-water fields isdeclining, the new deep-water productionshould take the country’s total to over2.0m b/d in 2008.
By Martin Quinlan
THE OFFER of 63 blocks in the 2005licensing round – a mix of deep-water, onshore and up-country
acreage – is the first real test of the attrac-tion of Nigerian operations in recenttimes, especially offshore. In view of thecosts and technology involved, officialswant to license the deep-water blocks tothe majors or other large foreign compa-nies, although their appetite for this typeof acreage remains uncertain.
In comparison with Angola – Nigeria’smain competitor in the Gulf of Guineadeep-water race – exploration has beenslow and development work even slower.Latterly, projects in emerging producerssuch as Equatorial Guinea andMauritania have been achieving shortercycle-times than Nigeria’s.
Political risks
There is no single explanation. The1993 PSCs – drawn up when the firstdeep-water blocks were offered – areregarded as reasonably attractive andcompanies have been keen to move off-shore to avoid conflicts with local pop-ulations. Although President OlusegunObasanjo is credited with better man-agement than his military predecessors,it seems the country’s well-known prob-lems are at work: investments are per-ceived as running political risks becausegovernment policies towards the indus-try lack stability; corruption is rife;
costs are inflated; local services areoften of poor quality, necessitating sup-ply from overseas; and infrastructurecan be inadequate.
After 12 years of deep-water explo-ration, there is just one relatively smallfield on stream, the 30,000 b/d AboCentral. Further work could raise outputto 45,000 b/d. The start-up of Shell’sBonga field, scheduled for this yearthough lagging behind, will give thedeep-water industry a boost. The $2.7bnscheme, in a water-depth of 1,000-1,100metres, has been held up in part by thesize and complexity of the project and inpart because of the need to complete, onlocation, topsides work that should havebeen done at contractor Amec’s UK yard.
Further developments
A stream of other developments are in thepipeline. In early 2006 – and only slight-ly behind schedule, if there are no addi-tional delays – ExxonMobil is due tobring its Erha field on stream, to flow atan expected 150,000 b/d.
Another field that, according to earlierplans, should have been on streamalready is Chevron’s Agbami, discoveredin 1999. It has been held up by a legal dis-pute over ownership, which, despite anorder for the field’s $1.1bn FPSO, stilldoes not appear to have been fullyresolved. Also delaying Agbami – nowdue early 2008 – has been a disagreementover local content, a topic that may stillunsettle deep-water investors.
Nigeria: looking for explorers
The Kizomba A hybrid development, in Block15, uses a TLP and an FPSO
ExxonMobil attributes the Kizomba B project’searly start-up to the firm’s ‘design one, build multiple’ approach
Issue 1 Monday 26 September 2005 Africa
www.wpc-news.com 6
MANY sub-Saharan countries facecomplex development challenges.
They fill the news today more than ever.Often this news is bleak and obscures theexistence of a multitude of initiatives thatare having a positive impact on socio-economic development on the continent.
Business can make a positive contribu-tion to this effort, but is just one part of thesocio-economic system. The ability ofbusiness to innovate and create productivecapacity depends in large part on the stabil-ity and capacity of the system to encouragethe application of talent and ideas.
As a leading innovator of oilfield serv-ices technology, Schlumberger is “com-mitted to the idea that education, particu-larly in science and engineering, is criticalnot only to meeting the energy challengesof the future, but also to contributing tothe long-term development of nations. Itspotential in Africa is as great as it has beenanywhere else,” says Schlumberger chair-man and CEO Andrew Gould.
“In addition to our investment in train-ing and developing our people, whom werecruit where we work, a number of not-for-profit education initiatives have beenimplemented to help build capacity in thesciences at secondary and tertiary levels,”says Johana Dunlop, SchlumbergerFoundation manager. “These efforts areintended to complement, but not replace,government educational programmes.”
Women form only 15% of the scientificfield in Africa and only 1% are in leader-ship positions. Of the 22% of African girlswho get as far as secondary education,only 10% study science-related topics,says the Association for the Developmentof Education in Africa and the Forum forAfrican Women Educationalists.
Ten years ago, Schlumberger decided tobring the same focus to gender diversityas it had brought to nationality diversity –with a target of one in four of recruitsbeing a woman. “But we can only recruitfrom the available talent pool,” saysDunlop. “While ability is not an obstacle,research shows a lack of role models is abarrier to the uptake of the physical sci-ences by women. Last year, we launchedour Faculty for the Future programmesupporting female academics committedto pursuing university teaching careers.”
This year, the programme awarded fel-lowships to five African women academ-ics to pursue doctoral studies in the US,France, UK, Netherlands, Denmark andSouth Africa. “The greater the number ofwomen teachers, the more likely youngerwomen will be attracted to these disci-plines. In this sense, the programmeserves as a catalyst,” says Dunlop.
Building a partnership with the Institutdes Hautes Études Scientifiques (IHES), aleading research centre for mathematicsand theoretical physics, is a first step inSchlumberger’s strategy to support educa-tion in the sciences in sub-Saharan coun-tries. “Last year we awarded a five-yeargrant to IHES, which has created a newprogramme enabling African researchersto receive greater support at home and tovisit IHES regularly,” Dunlop explains.
“The grant enables African scientists tolearn about the latest trends and discover-ies in their fields,” says Jean-PierreBourguignon, director of IHES. “Theirinvolvement increases their knowledgeand gives them additional credibility.”
Keys to unlocking development potential
By Martin Quinlan
AFRICA IS opening up. While theestablished deep-water provincesof Angola, Nigeria and Egypt arethe hunting-grounds of the
majors, the push into new areas is beingled by much smaller frontier specialists.There are operators from Australia, theUK, the US, Canada, Ireland and else-where, including China, keen for moreupstream involvement.
The rise of the frontier specialistsshould give Africa a new producing coun-try in the first quarter of next year, whenMauritania’s first oil is due to flow fromthe Chinguetti field. The Mauritanianexperience is typical of the new explo-ration and production scene. The majorshad explored there in the past, but, whenthe country’s entire deep-water offshorewas offered for licensing in the late-1990s, all eight blocks were snapped upby new entrants. A group led byAustralia’s Woodside Energy holds fiveof the blocks and a group led by the UK’sDana Petroleum holds three.
Chinguetti discovery
Woodside made the Chinguetti discoveryin 2001, with a well 90 km offNouakchott in 800 metres of water. Thefirst phase of the Chinguetti development,to cost $0.625bn, will tap reserves esti-
mated at 120m barrels. An initial flow of75,000 barrels a day (b/d) is expectedfrom six producing wells supported byfour water-injectors and one gas-injector.The second phase of the development,likely to be implemented in 2008-09, willadd four more wells.
Other African countries set to join theranks of oil exporters in recent yearsinclude Chad and Sudan, while gas isbeing exploited in Tanzania for domesticpower use. The momentum is pullingother countries along.
Also with prospects of emerging as agas producer – but in the hands of a fron-tier specialist, now that the majors havepulled out – is Namibia. The country’sKudu gasfield, in 170 metres of water,some 180 km offshore, was discoveredin 1974 and later taken up by EnergyAfrica – which, last year, was acquiredby Tullow Oil.
Power possibility
The majors had been defeated initially bythe lack of a local market for Kudu’s gasand later by the failure to prove up suffi-cient reserves for an LNG scheme – Shellhad been considering the field for the firstapplication of its floating LNG technolo-gy. Tullow, however, says a gas-to-powerproject could work, to meet rising demandfor electricity in Namibia and SouthAfrica. The firm is studying the construc-
tion of an 800 megawatt power station forthe Oranjemund area of southern Namibia,with electricity purchased by state utilityNamPower for distribution locally and inSouth Africa. The start-up target is 2009.
In August, Ivory Coast joined Africa’sdeep-water producers when the Baobabfield started flowing. Baobab, operatedby Canadian Natural Resources (CNR),lies 25 km offshore in 970 metres ofwater. Production is expected to build
up to 60,000 b/d of relatively heavy23°API crude, from recoverablereserves of 200m barrels.
Ivory Coast has also experienced thetransition from majors to frontier spe-cialists: the Espoir field was discovered,and produced from 1982-88, by Phillips,which abandoned it because of produc-tion disappointments. Ranger – subse-quently acquired by CNR – took overthe licence and a two-year redevelop-ment was completed in February 2002,when the field started flowing again. Itnow flows 35,000 b/d, with just under1.0m cm/d of gas.
There are more speculative plays com-ing into focus. The continent’s westerncoast provides a range of opportunitiesfor frontier specialists, with the offshoresof Morocco, Western Sahara, Senegal,Guinea Bissau, Sierra Leone, Liberia andGhana all seeing some recent activity.
Unlocked interest
Along the eastern coast, gas production inMozambique, and now Tanzania, hasunlocked interest elsewhere. Kenya hasrecorded greater interest from frontierexplorers, and even landlocked Ugandahas had a number of exploration wellsdrilled in the past year or so. Most recent-ly, ExxonMobil declared its interest in thearea, taking a stake in a block offMadagascar.
Land of emerging producers
Vanco’s Shark B-1 well – Morocco’s firstdeep-water well – drilled by the Saipem10000 drillship, was unsuccessfulPhoto courtesy Eni
This article was contributed by Schlumberger
Africa Monday 26 September 2005 Issue 1
7 www.wpc-news.com
South Africapins hopes ondeep waterBy Tom Nicholls
SOUTH AFRICA may be a minor oil andgas producer, but Petroleum Agency SA(PASA), the upstream regulator, hopesgrowing interest in frontier offshoreacreage will soon boost the country’sreserves and production profile.
Although the country’s global pre-eminence in the synthetic-oil businesssignificantly reduces its import bill,present production of about 39,000 b/daccounts for less than 10% of the oilSouth Africa consumes. But that may beabout to change. Upstream spending ison the rise – excluding block 9, wherethe country’s producing fields are locat-ed, it is expected that R900m ($150m)will be spent on exploration this year,compared with R100m in 2004.
Appraisal is continuing at one signifi-cant discovery – Forest Oil’s Ibhubesigasfield in the Orange Basin, which mayhold up to 15 trillion cubic feet (cf).Other explorers include BHP Billiton andCanadian Natural Resources.
Neighbouring Namibia’s Kudu gasfield,where it is thought that reserves may be asgreat as 283bn cubic metres – enough fora liquefied natural gas scheme – bodeswell for exploration offshore SouthAfrica’s west coast, while exploration suc-cess offshore Mozambique is also encour-aging for prospects to the east, in SouthAfrica’s barely explored Durban andZululand basins.
Equatorial Guinea: developing high-margin LNG By Martin Quinlan
EXPORTS OF liquefied natural gas(LNG) are on target to start in late
2007 from a $1.4bn venture that will be“one of the highest-margin LNG opera-tions in the Atlantic basin”, according toMarathon Oil, the firm implementing theproject. It estimates operating, capitaland feedstock costs will total “$1/m Btuat the loading flange” of the plant.Marathon has contracted to sell 3.4mtonnes a year (t/y) of LNG, though capac-ity of the plant will be in excess of this,at about 3.8m t/y.
Japanese investment
The facility is being built on the north-west side of Bioko island and close to thecapital, Malabo. The initiative is ownedby Equatorial Guinea LNG, which groupsMarathon with state-owned CompañíaNacional de Petroleos de GuineaEcuatorial (GEPetrol) and a group ofJapanese investors. Marathon is fundingits investment from its own resources,without loans, while GEPetrol is drawingon its cash from oil production.
Marathon is exploring the constructionof a second train. “There is a great deal ofgas in a small area around Bioko islandand we see potential to develop a gas hubfor the area,” says a spokesman.
The source of the gas for the exportplant is the Alba field, 25 km off Bioko in76 metres of water, one of many to be dis-covered off the island in recent years.
The country’s largest producing oilfieldis ExxonMobil’s Zafiro, lying about 70km west of Malabo, but in much deeperwaters. Zafiro, together with a number ofsatellites, flows 300,000 b/d of light, low-sulphur crude. The supermajor saysrecoverable reserves exceed 400m bar-rels, but other estimates for the wider arearise to 1.2bn barrels.
But while Zafiro has been expanding,the field that first pointed to Equatorial
Guinea’s larger oil potential – Ceiba, dis-covered in 1999 by Triton and now oper-ated by Amerada Hess following itsacquisition of that firm – has been a dis-appointment. The field is a low-energystructure and initial hopes for its produc-tion and reserves have not been met.
Ceiba was the first discovery in a newoil province – offshore Rio Muni, on theAfrican mainland. The field, 35 km offthe coast and in water 670-800 metresdeep, was brought on stream through anFPSO-based early production system in2000. Production is flowing at a rate of40,000 b/d.
The Alba field will supply gas feedstock forthe country’s first LNG export plant
Issue 1 Monday 26 September 2005 Recruitment
www.wpc-news.com 8
By Claire Markwardt, partner, Accenture
THE ENERGY industry haschanged significantly since theearly 1980s, when many of today’sapproaches to talent management
were developed. To meet rising energydemand, in a high-price environment,most exploration and production (E&P)projects will be in frontier territories andwill require bolder investments, as tradi-tional E&P areas are mature and no longeryielding significant discoveries.
A geographic re-balancing of reservesand production to frontier regions is tak-ing place – in mid-2005, of the 50 largestoil and gas fields under development,only nine are in traditional plays, mainlyin North America and Europe. The restare in frontier basins in Africa, the deep-water Gulf of Mexico, the Caspian, theMiddle East and Asia.
High prices and demand pressures alsomean more unconventional resource playsare becoming necessary and viable, forexample, heavy-oil and oil-sands, as wellas deep-water reserves. In turn, this cre-ates the need for a larger and more techni-cally competent workforce. Technologicaladvances mean many workforce functionscan be operated better, faster and cheaper.
As the industry moves into frontierregions, many companies face new chal-lenges in terms of how they develop andmanage their workforces. Many, eitherthrough necessity or choice, are rethink-ing traditional approaches to talent man-agement and are building a local work-force with the capability to develop E&Pprojects that will run well into the 21stcentury. There are several reasons whyenergy firms must recruit and developlocal workforces in frontier markets:
The size of the expatriate workforce isshrinking while the size of the frontierworkforce is increasing – Nearly half ofthe petroleum professionals in Westernenergy firms will reach retirement age inthe next 10 years and the AmericanGeological Institute reports low enrol-ments in geosciences programmes in UScolleges. Consequently, there will befewer expatriates available for frontierassignments. In addition, because thissmaller pool of professionals is ageing,there is less willingness to relocate toremote areas.
The cost of importing skilled labour isrising and becoming prohibitive – Whena resource becomes scarcer, its price rises;so it is with the expatriate pool.
Governments in frontier markets wantenergy companies to use local work-forces and support the growth of sus-tainable local businesses – Frontier mar-kets are often in remote regions with lim-ited technologies and infrastructures, andtypically have complex government regu-lations. Usually the local workforce doesnot have the technical capabilities andmanagement skills required to operate,support and supply a sophisticated andcomplex industry, but governments wantenergy firms to utilise their people.Historically, frontier countries have pro-vided raw materials and semi-skilledlabour to the industry, but, as they devel-op, it is appropriate that those countriesbecome involved in a broader range ofbusiness activities.
Development of the local workforceimproves economics and host-countryrelations – Developing the local work-force is not simple altruism: it is goodbusiness. Developing and using localsuppliers of goods and services con-tributes to lower operating costs.
High-performing businesses create anddevelop sustainable local workforces –The ability of oil companies to create andsustain local workforces will increasinglydifferentiate competitors in the next fewyears. Our analysis of high-performingenergy companies shows that a distinc-
tive feature of the best performers is theirability to consistently demonstrate excep-tional organisational and governancemanagement capabilities, no matterwhere they are located.
You’re hired
Developing local workforces
By Tom Nicholls
UNLESS oil and gas companies can startto boost the number of graduates joiningthe technical side of the business, theindustry may lack the manpower to meetworld demand for energy within a fewyears. To solve the problem, companiesmust make themselves appealing to awider potential workforce and put humanresources (HR) management at the centreof their thinking, say industry experts.
According to research by the Booz AllenHamilton consultancy, around 50% of pro-fessional E&P staff are aged 40-50, whileonly around 15% are in their early 20s tomid-30s. Booz Allen says up to half of theworkforce will retire within 10 years andthat technical segments of the industry,where staff shortages are acute, are likelyto feel the most pressure to replace skills.
Chakib Sbiti, executive vice-presidentof Schlumberger, a company whose busi-ness is highly dependent on recruitingskilled engineers and technicians, agreesthat human resources has become “one ofthe most vital components” of the oilindustry’s future – a view echoed bymany other industry professionals andexperts. “Every ounce of ingenuity andexpertise will be required to produce thehydrocarbons demanded by an expandingmarket. Increasing our collective expert-ise in production engineering is key.”
Worryingly, there is plenty of evidenceto suggest that interest among graduatesin petroleum-industry careers remainslow, at least in the developed world.Ignorance is partly to blame. ChristopherBox, senior manager of HR consulting atPricewaterhouseCoopers (PwC) says theconsultancy’s recent experience at gradu-ate-recruitment fairs in the US has beenthat few students understand what a careerwith an oil company involves. And inrecent years, recruitment to the oil indus-
try suffered as more glamorous-soundingsectors, such as the internet business,siphoned off the talent. Graduates are alsofearful of the perceived risks of workingin a cyclical industry.
Yet with demand at an all-time high andproduction struggling to keep pace, manyoil and gas executives argue that there hasnever been a better time to join the indus-try. But communicating that point seemsto be a struggle. PwC’s Box says compa-nies must appeal to a wider public – reach-ing out to women, part-time workers and awider range of cultures – and emphasisethe variety of jobs they can offer.
Recruiting from areas of the world thathave not traditionally been thought of assources of talent for the oil industry maygo a long way to solving the industry’sstaffing problem. Mark Rubin, executivedirector of the Society of PetroleumEngineers (SPE), argues that while thenumber of graduates entering the industryfrom Western engineering schools maygive the impression of an industry strug-gling to attract graduates, globally that isnot the case. “If you look at worldwideenrolment in petroleum engineeringschools – in China, Russia and the MiddleEast – you get a different picture.”
Schlumberger has already gone downthat route, recruiting in the countrieswhere it operates, allowing it, says Sbiti, totap a rich seam of talent. (The firm is try-ing to reap similar benefits by encouragingmore women to work in the business).
Rubin agrees. “Schlumberger is amodel for recruiting young people fromround the world.” Rubin also remainsoptimistic that even in US engineeringschools, graduate enrolments are set topick up. “If a graduate is interested inworking internationally, working in ahigh-technology industry or taking on alot of responsibility at a young age, thenoil is a great industry to work in.”
Tracking well-service operations in the RockyMountains. Removing prejudice is only part ofthe problem companies face in building up thenumber of female workers in technical jobsPhoto courtesy Halliburton
When you knowyour risk,
you can producesuccess.
When you knowyour risk,
you can producesuccess.
05-OF-252
Caspian region Monday 26 September 2005 Issue 1
9 www.wpc-news.com
By NJ Watson
LUKOIL’S admission in August thatanother of its Caspian projects hadfailed to find oil or gas was a salu-tary reminder of the hype that once
surrounded the region’s resources. Lukoiland its partner, Kazakhstan’s state-ownedKazMunaiGaz, abandoned exploration inthe Tyub-Karagan Block, in the CaspianSea, after drilling to the planned depth of2,500 metres without success.
A few months earlier, Lukoil suffered asimilarly expensive setback when its firstwell in the Yalama block, in theAzerbaijani sector of the Caspian Seaalso failed to strike oil.
Lukoil’s recent experiences stand instark contrast to the mood following thedisintegration of the Soviet Union in
1991. At that time, the US estimated theCaspian basin – defined by the EnergyInformation Administration (EIA) as thelittoral states of Azerbaijan, Kazakhstan,Turkmenistan, and parts of Russia andIran, as well as Uzbekistan – held some200bn barrels of oil and large volumes ofgas. The region became a target forinvestment by international oil firms andWestern governments looking for alterna-tive sources of oil as a way to reducereliance on the Middle East.
By the turn of the century, however, itwas becoming clear the region wouldnever live up to early expectations. TheEIA now estimates proved oil reserves tobe a more modest 17bn-33bn barrels ofoil, with gas amounting to 6.5 trillioncubic metres (cm). And although thecountries in the region continue to sign
exploration deals with major companies,many experts claim it is unlikely thatfuture discoveries will match depositssuch as the offshore Azeri-Chirag-Guneshli (AGC) oilfields and Shah Denizgasfield in Azerbaijan, and the onshoreTengiz and Karachaganak blocks, and theKashagan offshore fields in Kazakhstan.
“Azerbaijan is increasingly dependenton one major project to fuel oil-outputgrowth, meaning the country’s oil boomcould be short-lived,” says Andrew Neff,a senior energy analyst with GlobalInsight, a consultancy.
In addition, as prospects in the regiondiminish, the majors are finding the costsof exploration and production (E&P)keep rising. In February, Lukoil andAzerbaijan’s state-owned oil company,Socar, terminated a deal to develop the146m barrel Govsany-Zykh oil depositbecause of an extra $100m due in envi-ronmental costs, which would have madethe $250m-300m project uneconomic.
Western oil firms are also finding thatthey are not as welcome as they once were.Uzbekistan, which has estimated gasreserves of 1.9 trillion cm, has made clearits dissatisfaction with Washington overcriticism of its recent bloody crackdownon protesters. In May, Uzbekneftegaz saidit would sign an oil deal worth $0.6bn withChina’s CNPC and, in July, the govern-ment gave US forces six months to vacatetheir Karshi-Khanabad air base.
Looking beyond the West
Likewise, Kazakhstan has been lookingto replace Western partners with Asianones since the late 1990s. The most recentexample of this was the authorities’relentless campaign against Canada’sPetroKazakhstan, which included crimi-nal charges levied against several execu-tives over allegations of monopolisticoperating practices. PetroKazakhstan putitself up for sale in June and, in August,said it would be taken over by CNPC.
The high price CNPC was willing topay shows how important Asian partiesstill view opportunities in the region.China and India especially are willing tospend the money and take risks to securethe energy supplies they need to meet ris-ing domestic demand.
However, the region’s resources are notbeing left solely for the Asians to squabbleover, as many niche players are exploringin places such as Kyrgyzstan andTajikistan. In Kyrgyzstan, Cambrian Oil& Gas, a small exploration company list-ed on London’s Alternative InvestmentMarket, is working on two projects – a
production venture with state-ownedKyrgyzneftegaz and an exploration proj-ect in the Tash Kumyr exploration-licencearea, where the firm has just completed ageochemical survey over the SouthKaragundai and Shink Sai prospects.
Cambrian says the survey revealed“clear hydrocarbons indications” andplans to start an extensive seismic surveyto define drillable targets. “We havebetween a one in two or one in threechance of finding 20m barrels of recover-able oil, which is a pretty good chance ofsuccess,” says Neale Taylor, Cambrian’sCEO. Cambrian is looking to expand itsoperations in the region, specifically in theadjoining countries of the Fergana basin –Uzbekistan and Tajikistan – which havesimilar geology and operating conditions.
Cambrian is not alone. On 5 August, theAustralian oil and gas producer, Santos,said it expanded its exploration interestsinto Kyrgyzstan by taking an 80% interestin 10 exploration licences belonging toCaspian Oil & Gas.
What attracts smaller firms such asCambrian and Santos to the rugged land-scape of Kyrgyzstan is a combination of anattractive fiscal regime, a reasonably welltrained workforce and – typically – smallerfields, which means there is not so muchcompetition. Needless to say, there areproblems to overcome. Says Taylor: “InKazakhstan, Western companies have beenoperating for a long time so every industryservice is available within a short distanceand in short order, but if you move just afew hundred kilometres away the industrybecomes a little more agricultural.”
The lack of development also meansfew local firms have much experience ofworking with Western firms. “One focusarea for us in the region is relationshipbuilding. State-owned Kyrgyzneftegazhas not dealt with many Western compa-nies before so we are learning how tosolve problems together and introduceWestern techniques,” says Taylor.
To boldly goThe prospects for oil and gas in the Caspian wereundoubtedly exaggerated, but recent events show theextent to which the region remains a magnet for Asianand small to medium-sized energy companies
Country Low case High caseAzerbaijan 7.0 12.5Iran* 0.1 0.1Kazakhstan 9.0 17.6Russia* 0.3 0.3Turkmenistan 0.5 1.7Total 16.9 32.2
* includes only those reserves located inCaspian Sea basin
Source: US EIA
THE CHALLENGES FACING THE E&P INDUSTRY IN AFRICAARE MULTIPLE—with new production in the complex deepwater areas
of West Africa, established production in the mature fields of North Africa, and
growing exploration activity across the continent. Schlumberger has been working
throughout Africa for more than 50 years. We know Africa, and we know how to
produce success.
Success means asking the right questions and acquiring the precise data to help
define your risks. When you can define risk, you can mitigate it, and you can make
informed decisions. It takes knowledge, technology, and processes, all of which
are available to you through our global network.
Success also comes from valuing local ingenuity. We live where we work—hiring
locally, developing talents, contributing to economic development, and gaining
an intimate understanding of your environment. As a result, we have a long-term
commitment to solving the challenges in your region.
Visit us at the 18th World Petroleum Congress, September 25–29, booth 2/88, and
see how the Schlumberger Excellence in Educational Development (SEED)
program has provided computers and Internet access to 34 schools, helping to
educate 30,000 students in 9 African countries. This is just one of the ways we
are working to produce future success.
www.oilfield.slb.com/wpc
North Africa Monday 26 September 2005 Issue 1
11 www.wpc-news.com
Libya: a new lease of lifeBy Tom Nicholls
NINE MONTHS ago, Libya’sunder-performing oil sector wasgiven a fresh lease of life when
foreign investors flocked to the country’sfirst upstream licensing round since USsanctions were lifted. Competition wasintense for acreage that is consideredhighly prospective, where big discoveriesare a distinct possibility and where pro-duction costs tend to be low.
On 2 October, the appetite of investorsfor Libya risk will again be tested as bidsare opened for acreage offered under thesecond licensing round conducted underthe Epsa-4 model. National OilCorporation (NOC) has put 26 licences upfor auction, covering 44 blocks in theCyrenaica, Ghadames, Sirte, Murzuq andKufra basins. There are a mixture of estab-lished and frontier areas, covering 100,000square km of acreage, and – reflecting thegrowing role of the country’s offshore – 10blocks in the Mediterranean.
Analysts expect competition to remainintense. Says Craig McMahon, a Libyaanalyst at Wood Mackenzie: “Indications
are that there will be a similar level ofenthusiasm to the first round – 63 compa-nies have expressed an interest.”
In what amounts to an auction ofacreage, victory is secured by companiesprepared to cede the highest share of futureoil production to NOC, with signaturebonuses settling tied bids. While this sys-tem secures the best terms for Tripoli, thedrawback is that NOC cannot pick the win-ner. One headache for the firm when bidsopen next week are, therefore, that themajors may walk away empty-handed, asthey mostly did in January.
Unwilling to compromise
The majors are generally not keen on auc-tions because they are unwilling to com-promise their strict investment hurdlesand are hard pushed to compete withsmaller, more flexible firms. Chevron wasthe only successful supermajor inJanuary’s bid round, while European oilcompanies, including Total, Eni andRepsol YPF, failed to pick up any acreage.
Indeed, January’s winners were medi-um-sized companies – notably the US’
Occidental Petroleum (Oxy) andAustralia’s Woodside Energy. While thereare no doubts about the operating skills ofOxy and Woodside – both are widelyregarded as highly competent oil firms –NOC is also understood to be keen to seethe supermajors return to Libya.
As a result, direct negotiation looks setto continue to run in parallel with thelicensing rounds as a way of gainingaccess to the country’s coveted upstreamsector. That system has already workedfor Shell, which, earlier this year, agreeda deal with NOC that will see the majorspend hundreds of millions of dollars onexploration projects and on revampingthe country’s under-performing LNGplant at Marsa El Brega. Shell’s expendi-ture would rise significantly if, as ithopes, it is able to find enough gas tobuild a new liquefaction terminal.
BP looks like it will go down the sameroute. Company officials have been in dis-cussions with NOC for nearly a year on amulti-billion-dollar integrated gas project,which is likely to involve exploration andexport schemes. Chief executive JohnBrowne visited Muammar Qaddafi in
Tripoli in June. ExxonMobil has also beentightening its links with Tripoli.
Momentum in the process of revitalis-ing Libya’s oil sector is being maintainedin other ways too. At the end of July, Oxysaid it reached an agreement with NOC toresume operations at properties in theSirte Basin, which it abandoned in 1986because of US sanctions.
However, the Oasis Group – consistingof Amerada Hess, ConocoPhillips andMarathon – has still not been authorised toresume production licences that pre-datesanctions. There have been suggestionsthat the failure to agree terms is partlypolitical. Much to Qaddafi’s annoyance,Washington has still not removed Libyafrom its list of state sponsors of terror.That might be what is needed to tip thebalance in the US trio’s favour.
By Ayesha Daya
IT TOOK five years to make it onto thestatute books, but Algeria’s hydrocar-bons law was finally ratified in late
July. The government hopes that it willaccelerate the pace of exploration andallow the country to get the most out ofits prodigious gas reserves.
Algeria is the world’s sixth-largest gasproducer, with flows of 82bn cubicmetres (cm) last year. It is also a majorgas exporter to Europe and the world’sthird-largest liquefied natural gas (LNG)exporter, after Indonesia and Malaysia.
In addition, with 4.55 trillion cm of gasin the ground, its reserves are the world’seighth-largest. Yet exploration licensinghas been disappointingly sluggish.Despite a few major projects – such as theBP-led In Salah gas project – only about10 contracts a year have been signed withforeign firms since 2002. That is betterthan the average of two a year in the1990s, but well short of what the govern-ment would like to see.
The slow pace of investment meansAlgeria has “missed out” on the recentworld LNG boom, says David Drury, ananalyst at Gas Strategies. Sales have beenstatic since 1997, while LNG trade hasgrown by 63%. The new 4m tonnes a year(t/y) facility at Gassi Touil, expected to beon stream in 2009, will be the first to bebuilt since 1981. Also, the country’scapacity was cut by 4.7m t/y because ofthe explosion at the Skikda plant lastyear, which destroyed three of six trains.As a result, Algeria lost its position as theworld’s second-largest LNG producer in2004 to Malaysia.
But Algiers’ ambitions in LNG have notbeen dimmed. It wants to raise nationalLNG-export capacity from 67.2bn cm/yto around 140bn cm/y by 2020.
Part of the growth in LNG exports willresult from the reorganisation of existing
export contracts. Several long-term LNG-supply deals with southern Europeanbuyers are due to expire over the next fewyears. Sonatrach is expected to renegoti-ate deals with the same buyers, but tosupply the gas by pipeline, freeing upproduction for liquefaction. Among themarkets Sonatrach has set its sights on arethe UK – likely to be the largest LNGmarket in Europe by 2015 – and the US.
But the government also wants to seethe pace of upstream activity intensify ata time when large producers such as theUS, the UK and Canada are experiencingoutput declines and world gas demand issoaring. It hopes that the new hydrocar-bons law, pushed through by energy min-ister Chakib Khelil despite considerableopposition from trade unions and thepublic, will make Algeria a more attrac-tive destination for foreign dollars.
Sonatrach: a new role
Although Khelil was forced to retract plansfor the partial privatisation of Sonatrach,the law will weaken Sonatrach’s controlover the energy sector. Sonatrach will nolonger automatically become the majorityequity holder in upstream developmentsand it will be stripped of its regulatoryfunctions. Private-sector companies willbe allowed to conduct exploration inde-pendently of Sonatrach, while two inde-pendent agencies – a contracting authorityand a regulator – will take on Sonatrach’sregulatory role.
Greater operational flexibility shouldsee Sonatrach itself become more effi-cient and competitive, but the firm willalso retain the privileges of a state-ownedchampion. Although the national oil com-pany will have to compete for acreagelike any other company, it will have 30days to back into an agreement for up toa 30% stake if a company makes a decla-ration of commerciality.
Algeria: All changeBy Ayesha Daya
THE BOOMING Egyptian gas industrypassed another milestone in
September when the second train of theEgyptian LNG (ELNG) export plantcame on stream. Start-up was ninemonths ahead of schedule, although thatsuccess hardly seemed surprising for anindustry that has experienced suchremarkable growth in recent years.
Since 1984, proved reserves havesoared to 66 trillion cf from 8.4 trillion cf,transforming the country into a net gasexporter. The government says there maybe scope to double that figure in the nextfew years, which would make Egypt oneof the richest gas nations in the world.
However, fast-rising domestic demandmay limit the scope for further exportschemes. Domestic demand has trebledsince 1998, as power generators and otherparts of the economy switched from oil togas. Gas consumption in Egypt continuesto soar. The Economist Intelligence Unit(EIU) estimates consumption will rise by0.1 trillion cf/y between now and the end ofthe decade, rising from an average of 1.1trillion cf in 2005 to 1.5 trillion cf by 2009.
Threat to export plans
In 2007, after fulfiling gas demand, thefigures suggest around 0.5 trillion cf offorecast production would be left forexport. That would be more than the gasrequired by existing LNG commitmentsfrom ELNG and Segas – which produce acombined 0.6 trillion cf/y (12.7m t/y). ButEgypt’s gas-export commitments are notlimited to LNG: it is also committed tosupplying gas by pipeline to Israel (60bncf/y) and Jordan through the Arab gaspipeline.
Nevertheless, international oil firmsremain optimistic about Egypt’s gaspotential and, in particular, the prospec-tivity of the deep waters of the
Mediterranean. In addition to ELNG’stwo trains, which have a combined pro-duction capacity of 7.2m t/y, BG is keento develop a further two trains and issearching for new commercial discover-ies from which these could be supplied.
There is also interest in doubling the out-put of the Unión Fenosa-led Segas LNGplant at Damietta, to 10m t/y. In March, anMOU was signed between BP, Egas andInternational Egyptian Oil for the develop-ment of a second liquefaction train.
In addition, various exploration pro-grammes are well advanced, suggestingfurther discoveries may be possible thisyear. BP’s deep-water Raven well, drilledin 650 metres of water, flowed wet gasand is to be appraised at the end of 2005.Analysts say geological studies from theformation are encouraging.
Past success rates also bode well forfuture exploration efforts. BG’s explo-ration record is particularly impressive.Its gross reserves in Egypt are estimatedat 13-14 trillion cf. Until its most recenttwo wells, which came up dry, it had animpeccable drilling record – making dis-coveries with each of its 15 wells. Thecompany plans to spud two deep-waterexploration wells later this year in itsWest Delta Deep Marine concession.
Egypt: Sink or swim
ELNG under construction. BG is keen todevelop a further two trains at the plant
Victory will be secured byfirms prepared to cede thehighest share of future oilproduction to NOC
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Features Monday 26 September 2005 Issue 1
13 www.wpc-news.com
The digital oilfieldBy Martin Clark
THE FACE of the oil and gas indus-try has altered immensely overrecent decades as technology hasopened up new possibilities along
the energy chain. Upstream, oil firms areexploring and exploiting deep-sea reser-voirs that were once technologically out ofreach or simply unknown. Downstream,state-of-the-art IT systems have pushed theboundaries of efficiency and productivity.As well as bumping up sales and produc-tion, technology has helped in other ways.The use of horizontal drilling techniques,for instance, has played a key role in reduc-ing the industry’s environmental footprint.
Although oil companies have perhapsnot committed the same level of IT fund-ing witnessed in some sectors, such asfinancial services, there is a growingawareness of its role in the industry. Theconcept of the intelligent oilfield – remote-ly capturing and using real-time data fromsmart wells, and using complex IT sys-tems to interpret and make timely andmeaningful decisions – is already here.
“There is a demand for explorationintelligence and oilfield connectivity toincrease production, reduce finding andlifting costs as well as help to betterdefine reserves and their replacements,”says Marisé Mikulis, worldwide oil andgas industry manager for Microsoft.“This is critical because petroleumreserves and the ability to optimise theirexploration and replacement are the fun-damental values of the upstream sector.”
Mikulis says collaboration will becomeincreasingly important through the indus-try, as oil companies team up with spe-cialist IT providers like Microsoft. IT ven-dors have already transformed themselvesfrom simple providers of isolated prod-ucts and services to providers of enter-prise-wide solutions and enabling infra-structure. He says: “In a global petroleumindustry more information-dependentthan ever, success is in the hands of thosethat best understand how to deploy effec-tive, proved, available and future-proofinformation technology solutions.”
In such a technology-swamped indus-try, it is no accident that exploration suc-cess rates have risen. New seismic tech-nologies, processing techniques andimaging skills have helped the explorationmanager’s understanding of reservoirs.The prohibitive costs associated withdeep-water drilling especially have meantsummoning new technologies to betterunderstand what lies beneath the surfaceand, crucially, to reduce the risk of a drywell. Statistically, it means fewer wellsneed to be drilled before oil is found.
Among the major upstream advances isthe ability to interpret ever-increasing vol-umes of data in short timescales, saysPeter Breunig, chief information officer atChevron’s energy technology group.Reservoir simulations, utilising seismicimaging to produce digitised, scale ver-
sions of an oilfield, have also improvedvastly. “You can do things with scale thatjust couldn’t be done 20 years ago,” hesays. “Computer power is enabling us toturn things around in a time we wouldn’thave dreamed of before.”
The emergence of the digital or intelli-gent oilfield, being led by services com-panies including Schlumberger andHalliburton, is a key development shapingthe upstream segment. Breunig describesit as “running the oilfield like a refinery”.Like traditional downstream facilities, theintelligent oilfield uses a complex mesh ofIT systems to promote integrated asset-management capabilities for in-well mon-itoring and automated control. The aim isto increase the visibility of oilfield opera-tions, providing smart surveillance, ulti-mately to improve performance.
Remote technology is particularly usefulin hostile terrains such as the North Sea.This year, GdF is deploying process-automation and information managementsystems at two new production platformsin the North Sea. Honeywell will providethe gasfields with software and hardwareservices with operators interfacing usingMicrosoft Internet Explorer throughHoneywell’s production control centre.
Too much IT
Another important issue is that of integra-tion. With so many technologies hittingthe market, oil companies face problemsin standardisation and compatibility. Toomuch IT can lead to an overly complexwork environment that stifles creativityand innovation. Steve Comstock, vice-president of upstream technical comput-ing at ExxonMobil Exploration, says thatto maximise the benefits of IT, there mustbe some attempt to set common standardsto confront the vast swathe of informationfacing exploration managers.
This will require significant industryco-operation, both within the oil and gassector and in the IT world. Without co-operation, he says, the industry willstruggle with complexity and find it diffi-cult to innovate to meet future challenges.
Outsourcing is another important shiftthat is taking place, says VeroniqueDurand-Charlot of the International GasUnion. “This trend is pretty new to theenergy industry,” she says. “Historically,energy players have been more reluctantthan the banking industry to outsourcemore than their IT maintenance. Now,cost reduction reasons are pushing themto outsource large parts of their non-essential business processes.”
China: Fuel shortages promptre-think on oil pricing By Martin Clark
THE COUNTRY’S insatiable thirstfor energy to feed its fast-growingeconomy is by now almost leg-
endary, yet little has been said of China’stightly controlled oil market.
In recent months, this distorted marketstructure – which keeps prices artificial-ly low – has resulted in severe gasolineshortages in certain parts of the country,including the important industrialprovince of Guangdong in the south.Now, record crude prices are puttingincreasing pressure on the government tolift controls that have shielded con-sumers from the worst effects of thesurge in the oil price.
At a time when the number of motoristsin China is soaring, pushing up thedemand for energy rapidly, the fuel equa-tion is likely to become an increasinglyhot potato for the authorities in Beijing.Under-pressure officials have alreadyconceded that the present oil-pricing sys-tem requires a little tweaking. To protectthe poor and hold back inflation, govern-ments across Asia, including China, haveeither subsidised fuel prices by usingtheir own budgets, or worse, kept themlow by twisting retailers’ arms.
Capping system
Although there are no direct subsidies,Beijing sets retail oil prices using a basketof the previous month’s global tradinglevels in London, New York andSingapore, and then allows only modestmovement. The capping system is similarto a subsidy, but instead of draining gov-ernment funds, it forces refiners to shoul-der the effect through lower profits.
The first-half profits of Asia’s largestrefiner, state-owned Sinopec, grew at theirslowest pace in three years because of theperformance of the refining segment,which made a loss of Rmb1.3bn ($160m)compared with a profit of Rmb4.3bn ayear earlier. With crude prices soaring torecord levels, Chinese refiners are payinga huge price because of the large gap inwhat they must pay for their supplies andwhat they receive from sales.
Unveiling the firm’s first-half profits,Sinopec chairman Chen Tonghai said:“During the first half of 2005, interna-tional prices of crude oil were veryvolatile and the price differential betweendomestic and overseas refined oil prod-ucts widened further because of the aus-terity price controls on domestic refinedoil products.”
One of the primary reasons for thegasoline shortages was refiners not pro-ducing enough products because of thehole it would leave in their pockets. Ineffect, refiners were being asked to sellon the domestic market at up to 35%below international prices. Not surpris-ingly, some refiners preferred to exporttheir products, or even hold back gasolinesupplies because of the artificially lowdomestic market.
Although the situation has eased, withthe government ordering smallerprovincial cities to make supply avail-able to bigger urban areas, the problemis not likely to go away. A shake-up ofthe oil market could well be on the cardsalthough these things tend to take timein China. Already, gasoline and dieselprices have been raised twice in recentmonths in an attempt to encouragerefiners to make more products avail-able and Beijing may look at introduc-ing more market-friendly reforms.However, Sinopec’s Tonghai expectsthe government to continue to controloil prices tightly during the latter part ofthis year.
Market reform could bring other bene-fits. By lowering price support, the gov-ernment may encourage consumers tocurb fuel consumption, helping to stemthe rise in crude prices and easing gaso-line shortages. China is now the world’ssecond-largest oil importer, after the US.
Eni’s Advanced Visualisation Centre employsinnovative technologies to provide users witha realistic perception of 3-D objects
With so many technolo-gies hitting the market,oil companies face prob-lems in standardisationand compatibility
With demand for energyrising rapidly, the fuelequation is likely tobecome an increasinglyhot potato for Beijing
Win a PetroleumEconomist WorldEnergy Atlas, worth$665. Entries mustbe submitted toPetroleumEconomist’s stand –1/205 – by 4pm onMonday. The witti-est caption wins andwill appear inTuesday’s newspa-per. The editor’sdecision is final.
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