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18WPC News

Issue 3 Wednesday 28 September 2005 www.wpc-news.com

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Saudi’s Al-Naimi: deliverability,not availability, is oil’s problemBy Tom Nicholls

CCONSTRAINTS in the globaloil-supply chain are the root ofthe oil industry’s problems andthe cause of high oil prices, not

the availability of crude oil, SaudiArabia’s oil minister, Ali Al-Naimi, saidhere yesterday.

“There is no shortage of petroleumresources left to be developed and pro-duced,” said Al-Naimi. “The resourcebase is more than sufficient to meet pro-jected demand. The problem we face isnot one of availability; it is a problem ofdeliverability.” He added: “Prices areunder pressure because the petroleumindustry’s infrastructure is stretched thin.”

The constraints, he said, apply alongthe chain of business activities in the oilindustry – development, production,

transportation, refining and delivery toend consumers.

Addressing yesterday’s plenary session– entitled “the global oil perspective” –he said the upstream business, particular-ly in Saudi Arabia, has good prospects.Al-Naimi said the kingdom will lift itsoil-production capacity to 12.5m barrels aday (b/d) by 2009, maintain a sparecapacity buffer of at least 1.5m-2m b/dand could take production capacity as faras 15m b/d if there is enough demand.

And Riyadh claims Saudi Arabia will“soon” boost its proved reserves –presently estimated at 264bn barrels – bya further 200bn barrels thanks toadvances in upstream technology. TheSaudi oil supremo added that there are“vast areas of the kingdom that have yetto be explored. This leads us to say withconfidence that Saudi Arabia’s proved

reserves will expand significantly in theyears and decades ahead.”

Speaking at the same session, RexTillerson, president of the world’s largestprivate-sector oil company, ExxonMobil,agreed that there is plenty of oil left andsaid supply has not yet peaked. He referredto the US Geological Survey’s estimatethat there are more than 2 trillion barrels ofconventional oil still to be recovered –twice what has so far been produced – andadded that the figure is “probably on thelow side”. He also pointed to the world’smassive reserves – more than a trillion bar-rels – of unconventional oil as an impor-tant element in future supply.

As oil traded at around $65 a barrel, Al-Naimi laid most of the blame for theworld’s “deliverability difficulties” on thedownstream sector, saying refineryupgrading capacity worldwide “has notkept pace with the growth in demand forhigh-quality, environmentally friendlytransportation fuels”. The erosion ofspare upstream capacity was also a factorbehind high prices, he said. But he fore-cast that “spare crude-oil productioncapacity will grow sufficiently in the nextthree to four years to restore some marginof safety to world crude markets” andpointed out that Saudi Arabia is planningto add significantly to its refining capa-bility over the next few years.

But while high energy prices will boostupstream and downstream investments,he also stressed the need to reduce oil-price volatility because of the disruptiveeffect it has on Continued on p2

The rhythms, the beat and power of Africa at last night’s spectacular Africa Night party

Al-Naimi laid most of theblame for the world’s‘deliverability difficulties’on the downstream sector

A cure for feverishoil marketsSaudi Arabia’s medicine for worldoil markets includes: ● Additional crude supplies if needed; ● An “aggressive” exploration pro-gramme; ● A rise in output capacity from 11mb/d to 12.5m b/d by 2009 and main-taining a capacity buffer of “at least”1.5m-2m b/d; ● Building new export refineries inthe kingdom to handle heavy and sourcrudes; and ● Investment in technology andinfrastructure.

Saudi Arabia’s oil minister, Ali Al-Naimi. ‘Theproblem we face is not one of availability; itis a problem of deliverability’

Issue 3 Wednesday 28 September 2005 News

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long-term investment decisions. And hecalled for a reinvigoration of dialoguebetween producers and consumers toremove bottlenecks in the industry andimpediments to growth.

Said Al-Naimi: “Very low prices andvery high prices are not sustainable.“We all have a stake in encouraging astable price environment.” He called forthe international community, under theauspices of the International EnergyForum (IEF), to undertake a study ofthe global oil-supply system, identify-ing bottlenecks and proposing solu-tions. The IEF, which is due to open itssecretariat building in Riyadh this year,is focused on encouraging producer-consumer dialogue in an effort to pro-mote stable oil markets.

Al-Naimi rubbished suggestions thatthe world is running out of oil, pointingout that since the 1970s, when oil scarci-ty was also a “popular topic”, world oilreserves have more than doubled.

He also said the growth in contributionsto the energy-supply mix from other ener-gy sources would not diminish oil’s con-tribution. In transportation, where oilaccounts for 95% of the energy consumedglobally, there are “no competitive alter-natives to petroleum-derived fuels”, hetold the Congress. “There is every reasonto believe that oil will remain the fuel ofchoice for transportation.”

Neither, he added, is the desire for acleaner environment a threat to oil’s dom-inance, arguing that the industry hasresponded to calls for cleaner-burningtransport fuels and that further advances intechnology would continue this process.

Editor Tom Nicholls; ProductionEditor Euan Soutar; Reporter NJWatson; Design Isabelle Lipprandt;Contributors Martin Clark, AyeshaDaya, Anne Feltus, Matt Garber,James Gavin, Isabel Gorst, RobertOlsen, Alex Price, Martin QuinlanCartography Kevin Fuller, PeregrineBush;Managing Director CrispianMcCredie; Marketing and TrainingManager Joe Larcher BusinessDevelopment Manger Julian AdamsSales Administration ExecutiveElizabeth Banks Director Edouardde Guitaut

The Petroleum Economist Ltd, NestorHouse, Playhouse Yard, LondonEC4V 5EX, Tel +44 (0)20 7779 8800Fax +44 (0)20 7779 8899www.petroleum-economist.com

By Tom Nicholls

ALGERIA hopes to double its gas-export capacity in the next 15years and to boost oil output byabout 50% in the next five years,

Mohamed Meziane, chairman and CEOof state-owned Sonatrach, said yesterday.

Present gas exports are some 60bncubic metres a year (cm/y) and Algiers isaiming to reach 85bn cm/y by 2010 and100bn cm/y by 2015 as new projects inthe Berkine Basin come on stream. Butthe Sonatrach chief added: “There ispotential to go beyond 100bn cm/y – pos-sibly to 120bn cm/y by 2020.”

There is also considerable scope toexpand the oil business. The country ispumping 1.35m barrels a day (b/d) fromcapacity of 1.4m b/d. But capacity willreach 1.5m b/d by the end of year, as mar-ginal fields are brought on stream and, by2010, Algiers wants to reach 2m b/dthrough marginal-field developments andnew discoveries.

LNG and pipeline expansions

The gas expansions, meanwhile, willcome through an ambitious mix of lique-fied natural gas (LNG), pipeline expan-sions and new pipeline projects. Flows of8bn cm/y through the Medgaz pipeline toSpain, expandable to up to 16bn cm/y,will start in 2008, Meziane said.Pipelaying has already begun on theAlgerian side and work on the subsea sec-tion will start early next year.

Meanwhile, an economics and techni-cal study on the proposed 8bn cm/y Galsipipeline to Italy, which would also beexpandable to up to 16bn cm/y, is “welladvanced”. A final investment decisionwill be taken around the end of 2006, orthe start of 2007, Meziane said, addingthat the chances the pipeline will goahead are good, despite the claims ofsome observers. “There were expertswho said there was no need for addi-

tional gas in Europe, but it seemsdemand is growing.”

There are also plans to expand thecapacity of the 26bn cm/y Enrico Matteipipeline to Italy by a further 6.5bn cm/y,he said. However, expansions to theMaghreb-Europe Gas pipeline (also calledPedro Durán Farell) – which connects thegiant Hassi R’Mel gasfield with Spain,through Morocco – will take second placeto the Medgaz and Galsi projects.

LNG, meanwhile, will account forabout half of the country’s expansion ingas-export capacity. Sonatrach saysreconstruction of the part of the SkikdaLNG plant that was destroyed in anexplosion last year should be complete byNovember, raising output from 2.6bncm/y to 4bn cm/y. A further expansionwill bring the total plant capacity to10.5bn cm/y over the next few years.

In partnership with Repsol YPF and GasNatural, Sonatrach is also developing a 4mtonnes a year LNG plant to commercialisegas from the Gassi Touil gasfield. Theplant should be on stream by 2009/10.

Algeria: Gas giant plansanother growth spurt

By Tom Nicholls

THE REACTION of oil firms, govern-ments and commodity markets to the

severe disruptions caused by HurricanesKatrina and Rita demonstrate the“resilience” of the oil industry and showedworld markets functioning perfectly, RexTillerson told delegates yesterday.

Tillerson said it was “too early” to drawdefinitive conclusions from HurricaneRita, but said “several refineries remainclosed and much production is suspended”.

However, he told delegates importantlessons can be drawn from Katrina, whichdestroyed and damaged infrastructure andstopped 95% of Gulf of Mexico oil pro-duction and nearly 90% of gas outputwhen it hit the US Gulf coast last month.

Although that caused an immediate oil-price spike, Tillerson said there was a“rapid, market-driven recovery”, withprices quickly dropping to pre-storm lev-els and trading volumes returning to nor-mal. “Within two weeks, all major importfacilities and product pipelines were oper-

ating at full or only slightly reduced rates.All but about 5% of US refining capacityhad returned and all but 15% of oil and6% of gas production had been restored.”

He attributed the successful reaction to acombination of advance preparations bycompanies, effective market mechanismsand a successful collaboration betweengovernments and industry, as, for example,the US Strategic Petroleum Reserve and

the International Energy Agency releasedextra oil onto the market from strategicreserves. “Under this extraordinary cir-cumstance, markets worked,” he added.

The crisis demonstrated the “true extentof our global interdependence”, saidTillerson. “Net energy-importing countriessuch as the US cannot escape their depend-ence on foreign supply. And net exportingcountries cannot escape their dependenceon foreign demand.” But he also said thatthe way the industry has coped with the cri-sis is an encouraging sign in terms of itsability to satisfy the world’s rapidly grow-ing appetite for energy.

That will be achieved through invest-ment, technology, faith in market forcesand “leadership from all segments of theglobal energy community – industry,investors and governments”. And it willmainly come through investments in oiland gas, he said. Despite the growth ofalternative energies, “fossil fuels are real-istically the only energy sources with thescale and versatility to meet the challengeof growing demand”, he said.

Battered industry and markets show resilience

Saudi’s Al-Naimi:deliverability, notavailability, is oil’sproblemcontinued from page 1

Rex Tillerson, president of ExxonMobil. Thecrisis demonstrated the ‘true extent of ourglobal interdependence’

Mohamed Meziane, chairman and CEO,Sonatrach. Algeria’s gas exports could reach120bn cm/y by 2020

SPE launches recruitment driveThe Society of Petroleum Engineers(SPE) will today unveil a series of ini-tiatives to attract and retain youngpeople in the upstream energy indus-try. New programmes offering devel-opment opportunities for upstreamprofessionals under the age of 35include special regional workshopsdedicated to issues of interest toyoung members, networks to providesupport and career-developmentactivities for young professionals andan on-line system for connectingexperienced members with youngmembers. “SPE recognises that the oiland gas industry has an urgent need torecruit young people to replace thelarge number of professionals whowill be retiring in the next decade,”Eve Sprunt, the SPE’s president for2006, will tell delegates today.

Investment in research needed now Crucial oil and gas technologies cantake 10-20 years from concept toimplementation, so investment isneeded now to develop the productsand services that will sustain theindustry into the future. That was theurgent call from Craig Beasley, pres-ident of Society of ExplorationGeophysicists (SEG) and part of around table discussion on upstreamtechnology. Panel members listed 3-D seismic imaging, downhole sen-sors and IT as examples of recentgame-changing upstream technolo-gies – enablers of real-time datadelivery and modern visualisationtechniques. All required tremendousinvestment and industry collabora-tion to develop, the panel pointedout. The roundtable comprised repre-sentatives from international techni-cal organisations – SEG, SPE,American Association of PetroleumGeologists and European Associationof Geoscientists and Engineers.

News in brief

Al-Naimi rubbished suggestions that theworld is running out of oil

It took us 125 years to usethe first trillion barrels of oil.

We’ll use the next trillion in 30.

CHEVRON is a registered trademark of Chevron Corporation. The CHEVRON HALLMARK and HUMAN ENERGY are trademarks of Chevron Corporation. ©2005 Chevron Corporation. All rights reserved.

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So why should you care?

Issue 3 Wednesday 28 September 2005 News

www.wpc-news.com 4

By Alex Price

GAS WILL play an increasinglyimportant role in supplying rap-idly rising Indian energy

demand, India’s vice-minister for petro-leum and natural gas, Sushil ChandraTripathi, said today.

Speaking at the India country presenta-tion, Tripathi said oil and gas use accountfor 51% of primary domestic demand,but that gas use will rise well above itspresent share in the next 20 years. “By2025, 20% of India’s primary energy willcome from gas, compared with 10%now,” he said.

He said India is planning to build twofurther liquefied natural gas (LNG)regasification plants. It will also create anational gas pipeline grid and speed uptalks on trans-national gas-importpipelines. “We have two regasificationterminals now and many more are like-ly,” Tripathi told delegates.

Gas pipeline imports are being lined upwith Qatar – which also supplies LNG –as well as Iran, Turkmenistan and, to theeast, Bangladesh and Myanmar (Burma).Tripathi said India’s rejuvenated domes-tic exploration sector was already yield-ing good targets, especially in the easternoffshore areas, which he said would leadto an “exponential” increase in domesticgas production from the present 74mcubic metres a day.

India looks to gasas energy-demandgrowth stays strong

By Alex Price

MOROCCO’s new oil agency,ONHYM, has claimed that thecountry has sizeable oil and nat-

ural gas potential, even though explo-ration has so far failed to yield anycommercial discoveries.

One oil discovery made in the Tarfayaarea in the late 1960s tested 2,400 bar-rels a day of heavy oil, which, at thetime, was deemed uneconomic.However, Mahmoud Zizi, an official atONHYM, said the agency is studyingthe area again, in partnership with aninternational company, with the aim offirming up drillable prospects.

With no commercial oil or gas pro-duction of its own, the pressure is on tolocate indigenous hydrocarbonsreserves in order to lighten the coun-try’s annual $2.6bn energy-import bill.Morocco operates two oil refineries, butstill imports 87% of the refined prod-ucts it requires.

The country’s investment terms arecertainly competitive. ONHYM hassweetened the terms of its hydrocarbonscode over recent years in an effort toencourage new investors to explore itsonshore and offshore areas and Zizisays the fiscal regime is “attractive onany global comparison”.

Morocco talks upoil and gasprospects in bid tolure explorers

By NJ Watson

PAUL Boateng, the British HighCommissioner to South Africa,has called on Opec to becomemore transparent in its operations

to help bring down oil prices.In what appears to be a co-ordinated

appeal to the cartel by the UK govern-ment, Boateng said that at times of highoil prices, like today, it is especiallyimportant for the industry to be open withthe public and show greater transparency.

“At Opec, there are no minutes of themeetings, nor does it even list thereserves of its members,” he said.Speaking to delegates at yesterday’s ple-nary session on sustainability, Boateng’scomments echoed those of his formerboss, Gordon Brown. A day earlier, at theLabour Party’s annual conference, the

UK finance minister had urged theworld’s oil producers to support a UKrequest, backed by European Unionfinance ministers last weekend, for oil-producing nations to ramp up production.Opec has responded by offering to raiseoutput by 2m barrels a day (b/d).

The UK government is especially con-cerned that high fuel prices will sparkprotests similar to those in 2000, whichbrought the country to a near standstill.

At the same session, Christophe deMargerie, president of exploration andproduction at Total, also said the energyindustry has “a responsibility” during thistime of high oil prices to keep costs undercontrol and not to overspend on econom-ically dubious projects.

Stay out of politics

The issues of sustainable developmentand corporate social responsibility(CSR) were a particular focus of theCongress yesterday. At a seminar onsocial responsibility, several CSR execu-tives from leading oil companies reiterat-ed the stance of most of the industry thatoil companies should not becomeinvolved in the political development ofthe host country.

“We recognise that we are importantplayers in the country and interact withmany stakeholders but we don’t want tointerfere or put ourselves in politics,” saidJean-Michel Gires, executive vice-presi-dent of sustainable development at Total.

Randy Gossen, president-elect of theWorld Petroleum Council, agreed that oilcompanies should not involve themselvesin politics, but stressed there are positiveactions companies can take, such as lead-ing by example and providing communi-ties with social services in the hope that thegovernment might eventually follow suit.

Boateng calls onOpec to open up

Paul Boateng, the British High Commissionerto South Africa. The UK government hasurged oil producers to ramp up production

By Matt Garber

ALMOST half of China’s oil is uncon-ventional, according to a recent study.The study estimates in-place reservesfrom marginal – low-permeability andheavy-oil – reservoirs amount to 40bntonnes (around 290bn barrels), or about45% of the nation’s total original oil in-place estimate of 89bn tonnes.

And Zhao Wenzhi, deputy president ofChina’s Research Institute of PetroleumExploration and Development, said out-put from the country’s marginal reser-voirs has reached 41.6m tonnes a year –24% of total production.

Wenzhi said mature technologies –such as cyclic steam stimulation, steamflooding, deep-penetrating perforationsand horizontal drilling – have helpedincreased production and recovery rates,but the development of new technologieswill be critical in order to stabilise pro-duction decline in China. These new sta-tistics were presented as part of a round-

table discussion on small and marginalfields at the Congress yesterday.

Anatoly Zolotukhin, technical director,Statoil, estimated that production fromhis company’s small fields in theNorwegian North Sea should reach125,000 barrels of oil equivalent a day(boe/d) by 2010. Recoverable reserves inthe entire area’s small fields are estimat-ed at between 2bn and 5bn boe. He alsostressed the importance of new technolo-gies in small-field development. Theseimportant fields help lower the cost ofproducing oil and gas from satellite fieldsand provide valuable experience to helpextend the production life on other Statoilassets, Zolotukhin said.

Also part of the panel, Kleber Galvãode Oliveira, production asset managerwith Petrobras, said that cyclic steaminjection, super-heated steam injectionfrom cogeneration plants and 3-D seismicimaging has substantially increasedrecovery factors in the onshore heavy-oilfields operated by Petrobras.

China: nearly half reservesare in marginal reservoirs

Russia Wednesday 28 September 2005 Issue 3

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Rosneft sets sights on Russian crownBy Isabel Gorst

RUSSIA’S state-owned oil com-pany, Rosneft, has demonstratedthe scale of its ambitions by say-ing it plans to usurp Lukoil as the

country’s biggest producer within thenext three years.

Only last year, Rosneft occupied amodest sixth place in the ranking ofRussian producers, with output of 21.4mtonnes of oil. But its acquisition lastDecember of Yukos’ 50m tonnes a year(t/y) Yuganskneftegaz unit more thantripled the company’s output overnight.Having jostled Yukos out of the numbertwo slot in the Russian oil hierarchy,Rosneft has set its sights on the top of thetree, declaring it will be Russia’s numberone producer by 2007 or 2008, a positionLukoil has held for over a decade.

Rosneft’s ambitions were outlined bythe company’s chief, SergeiBogdanchikov, who was invited to meetPresident Vladimir Putin on the presi-dent’s 48th birthday, on 10 August.

Rosneft’s targets call for annual pro-duction to climb from 75m tonnes in2005 to 104m tonnes in 2010 and to125m-128m tonnes in 2015, at whichpoint the company would account forover 25% of total Russian output.However, Putin said Rosneft should onno account aspire to monopoly status.

Bogdanchikov claimed Rosneft will notgo after any more of Yukos’ still sizeableupstream oil assets. Analysts are not sosure. Rosneft already has claims againstYukos and its subsidiaries worth over$10bn. If approved in court these couldbe settled with Yukos in assets rather thancash. Many of Yukos’ bank accounts havebeen frozen by court orders pendingrepayment of billions of dollars of taxarrears allegedly owed by the company.

Rosneft controls 200 fields with esti-mated reserves of 2.4bn tonnes of oil and1.4 trillion cubic metres of natural gas.The acquisition of Yuganskneftegaz hasadded huge, high-quality reserves toRosneft’s western Siberian portfolio.Other areas that will underpin growthinclude blocks offshore Sakhalin Islandin the Russian far east, eastern Siberiaand the Caspian Sea.

In July, after years of negotiations,

Rosneft finalised a production-sharingagreement for the Kurmangazy block inthe Kazakhstani sector of the northeastCaspian. Kazakhstan’s KazMunaiGaz,another state company now buildingproduction rapidly, is Rosneft’s partnerin the project.

Kurmangazy is one of the most prospec-tive blocks in the Caspian. It is thoughtthat reserves may be as high as 1bntonnes. The structure is one of three northCaspian projects designated for jointRussian/Kazakhstan development underterms of an offshore boundary accord

signed by the two countries in 2002. Offshore Sakhalin, Rosneft is a partner

in the ExxonMobil-operated Sakhalin-1project, which is expected to begin pro-ducing oil within a year. Output will buildto 250,000 barrels a day. Large gasreserves await development on theSakhalin-1 block.

Sakhalin output

The outlook for production fromSakhalin-5, where Rosneft is exploring ina partnership with BP, is believed to be

good. Last year, the two companies’Elvary Neftegaz venture struck oil at afirst wildcat in Pela Lech the KaiganVasugansk area. A second well to investi-gate the separate Udachnaya structure inthe same area was spudded in July.

Rosneft plans to play an active role inthe development of eastern Siberia, wherea big new oil and gas province will openup in the coming decade. The company isalready tackling the Vankor group offields in the far north of Krasnoyarskregion. Vankor is expected to produce15m t/y of oil.

President Vladimir Putin: Rosneft should notaspire to monopoly status

Issue 3 Wednesday 28 September 2005 Features

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Iran: Oilministry inlimboBy James Gavin

TEHRAN’s plans for its oil and gas sec-tor have come unstuck following par-

liament’s rejection of President MahmoudAhmadinejad’s proposed candidate as oilminister, Ali Saeedlou. The former deputyoil minister, Kazem Vaziri-Hamaneh, hasassumed the role temporarily until areplacement is found. The veto has under-mined the president’s authority at the out-set of his first term of office.

The ministerial candidate delivered aspeech to parliamentarians proclaimingthat “oil money should be delivered tothe table of the people”. Saeedlou pro-posed that a share of revenue beyond thatalready agreed in the national budget bedistributed to provincial governors toinvest in local industry.

MPs appeared unimpressed, not least bySaeedlou’s lack of experience. He is anindustry outsider and was previously incharge of Tehran’s finances. Saeedlou hasalso not endeared himself to his critics bymaking comments that cast doubt on thefeasibility of proposed gas-exportschemes and on the forecasts of seniorministry officials that the country willhave the capacity to produce 7m b/d in 10years’ time, up from around 4m b/d now.

Prospective candidates for the vacancyinclude National PetrochemicalCompany supremo Mohammad RezaNematzadeh and the deputy oil ministerfor international affairs, Hadi Nejad-Hossainian. Vaziri-Hamaneh, mean-while, has held several posts within theoil ministry and at National Iranian OilCorporation. He is also said to be an allyof leading conservatives who are close toAyatollah Mahdavi Kani, the head of theTehran Militant Clergy Association.Under the national constitution, the pres-ident has up to three months to proposeanother candidate, which could mean theoil sector being left in a state of limbo.

A stack of problems

Ahmadinejad, meanwhile, faces a stackof other problems. The looming threat ofUN sanctions over Iran’s refusal to aban-don its nuclear programme could have aserious effect on the oil and gas sector andwould oblige international oil companiesto withdraw from upstream projects.

China and India, however, seem deter-mined to pursue any commercial oppor-tunities available in the country. India’soil minister, Mani Shankar Aiyar, con-firms the country’s commitment to ambi-tious cross-border energy co-operationprojects with the Islamic Republic.

China’s Sinopec has a small upstreampresence in Iran, but has an agreement toacquire half of the onshore field inYadavaran. Insiders estimate the fieldcould produce 300,000 b/d. India’sONGC holds an option for 20% of theYadavaran field and for complete owner-ship of the Juffair field. Washington hasexerted strong pressure on India to pullback from energy deals with Tehran,offering assistance in New Delhi’s ownnuclear generation plans as recompense.

By Isabel Gorst

AFTER SEVERAL years of rapid expan-sion, growth in Russian oil production andexports have begun to slow down. Thanksto high world oil prices, export revenuesare soaring, but producers are not seeingmuch benefit – most of the windfall endsup in tax coffers. Output totalled 229.9mtonnes in the first half of 2005, 2.7% morethan in the same period of 2004. The min-istry of economy forecasts output growthwill be 2.5-3.3% in 2005 with full-yearproduction totalling 470m-474m tonnes.

In recent years, oil exports have risen farfaster than production. But this year, for-

eign sales have hardly climbed. Some115.65m tonnes of crude, just over 50% ofproduction, was exported in the first halfof the year, says the federal customs serv-ice. Markets in the far abroad – any areabeyond the boundaries of the FSU –imported 105.53m tonnes and theCommonwealth of Independent States(CIS) 10.12m tonnes. Although exportschanged little in volume terms, earningson foreign sales leapt by over 40% to total$34.21bn. Of this, $31.74bn was generatedin the far abroad and $2.47bn in the CIS.

The ministry admits production is likelyto climb only slowly from now on. Mosteasily recoverable oil at existing develop-

ments has been produced. Investment inadvanced technology is required to extractthe rest. Even more expensive will be theadvance into new fields, which must betackled soon if production is not to sinkinto decline in the next decade.

Russian oil firms have neglected explo-ration. In the 1990s oil prices were lowand cash, particularly for long lead-timeinvestment in projects, was scarce. Whenprices started to rise after 1999 they con-tinued to focus on the quick gains fromboosting yields at existing fields.

To encourage exploration, the govern-ment is organising more exploration ten-ders than previously.

Russia: Oil exports flat, but earnings soar

Latin America Wednesday 28 September 2005 Issue 3

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Brazil’s deep-water drive stays on trackBy Robert Olson

THE BREAKNECK pace of thedevelopment of Brazil’s offshoreoil resources shows few signs ofslowing down, despite surging

costs and daunting technical problems. Petrobras, Brazil’s state-controlled oil

company, has not stepped back from itsambitious target of raising its Braziliancrude oil production from 1.637m barrelsa day (b/d) to 2.3m b/d by 2010.

Maintaining this pace of developmentforced the company to announce a 63%increase in its upstream budget in late

August as it tried to get to grips with soar-ing prices for steel, cement, drilling rigsand offshore services. Petrobras has beenhit on both sides of its cost equations,with global industry price increasesinflating the cost of dollar-priced goodsand services, while the appreciation of theBrazilian real has increased the real costof Brazilian services and labour.

Upstream spending in Brazil is nowexpected to amount to $27bn in 2006-10,up from the $15.3bn that had been bud-geted in the older version of the compa-ny’s business plan. Petrobras has main-tained its production targets, but several

projects – worth $2.5bn under the oldbusiness plan – have been cancelled dueto excessive cost rises. Production targetswill be met, however, by speeding upsome developments and broadening thescope of others, Petrobras’ managers saidwhen unveiling the plan.

The struggle with rising costs has notput off the company from its goal of push-ing the limits of deep-water exploration.Petrobras announced in late August that awell drilled this summer on the BM-S-10block in 2,038 metres of water was thedeepest well drilled on the Brazilian con-tinental shelf. The well, which reached6,407 metres below sea level, found oil,although the company has not yet dis-cussed the extent of the discovery.

The engineering challenges facingPetrobras in ultra-deep discoveries suchas BM-S-10 are common to most of itsupstream portfolio and continued growthin Petrobras’ Brazilian oil output willrequire the development of innovativesolutions to a number of technical prob-lems. At present, considerable effort isbeing focused on developing new designsfor risers – the tubes that connect thewellheads with production platforms, or,as is increasingly the case in Brazil, mas-sive floating production storage andoffloading (FPSO) vessels.

The technical difficulties of operatingin deep water are not the only ones facingoperators. Many of the discoveries made

in Brazil in recent years have been heavyoil, which is not only harder to produce,especially from deep, cold waters, but isless attractive to refiners.

All three major upstream projects beingled by foreign operators – Shell, Chevronand Devon Oil – involve bringing veryheavy oil to market. However, innovationsin offshore engineering in recent yearshave helped to bring the cost of producingheavy crude down and, with oil pricesclimbing to previously unexpected levels,very heavy conventional crude oil hasbegun to look more viable, even fromfields located in more than 1.5 km of water.

Reducing flaring

Operators in Brazil are likely to have tocontinue to innovate, though, not leastbecause the government seems likely tochange its policy on gas flaring.Petrobras’ drive to raise oil productionhas led to a significant increase in off-shore gas flaring, which officials say nowexceeds 10m cubic metres a day (cm/d),compared with only 3m cm/d in mid-2004. With Brazilian gas demand expect-ed to double by 2010 and uncertaintyover the stability of supply from neigh-bouring Bolivia, some politicians arebeginning to call for action to force off-shore operators to develop the necessaryinfrastructure to ship offshore gas that isbeing flared to the domestic market.Operations on the deep-water Marlim field © Petrobras Photo File

Argentina dodges energy crisis, butthe root of the problem remainsBy Robert Olson

ARGENTINA’S government is claim-ing a victory in the country’s efforts

to avoid the second successive naturalgas crisis in as many years after passingthrough the coldest weeks of the SouthAmerican winter. Although factories andother businesses that had so-called inter-ruptible contracts with natural gas suppli-ers suffered some cuts in supplies, thewidespread shortages that had been pre-dicted failed to materialise.

Government action to help privatelyowned gas pipeline companies invest$0.5bn in the network between March andSeptember was instrumental in avoidingshortages, according to planning ministerJulio De Vido. The investments added 708km of new pipelines and reduced bottle-necks within Argentina’s vast natural gastransmission network. The governmenthopes to see a further 20m cubic metres aday (cm/d) of transmission capacity addedover the next year.

While improvements in transmissioninfrastructure have long been needed tohandle the surge in demand for naturalgas in Argentina, producers are now

beginning to worry whether there will beenough natural gas to fill the newpipelines. Investment in exploration fornew gas reserves and developing existingfields has been stagnant amid poor eco-nomics for gas producers despite hugeincreases in gas demand.

Falling output

Natural gas production fell by 1.97% inthe first half of 2005, the first time gasoutput has dropped since late 2001,according to the Argentine Institute of Oiland Gas (IAPG). And while some of thefall in output is linked to normal mainte-nance at several gas plants, proved gasreserves have also fallen. At the end of2004, Argentina had 19.5 trillion cubicfeet of proved gas reserves, down bynearly 9.5% from a year earlier. RepsolYPF, the largest producer of oil and gas inArgentina, expects its output to fall by9% by 2009 as the result of naturaldecline at its mature fields.

Compounding the headaches forArgentina’s energy planners, a proposal toimport 20m cm/d of gas from Bolivia hasstalled amid plans in Bolivia to raise taxesand royalties on gas production to 50% ofthe wellhead value of the gas produced.

Gas demand has also been curbed,somewhat, by industrial users with inter-ruptible supply contracts investing inalternative fuel sources for use duringoutages. But with gas prices still belowthose for liquid fuels, any increase in sup-ply is likely to be met with a correspon-ding increase in demand.

Compounding theheadaches for energyplanners, a proposal toimport 20m cm/d of gasfrom Bolivia has stalled

Customer satisfaction is paramount to Statoil, being the world’s

third largest net seller of crude oil. Just as important is our

commitment to preventing harm to the environment. Increased

water production from mature oil fi elds represents a challenge

to the industry. Statoil is developing and implementing different

technologies to counter this. Our fi rst preference is to inject the

produced water. Other solutions are injecting it together with

seawater to provide pressure support for improved oil recovery

or into an aquifer for permanent storage. Despite a 30 per cent

increase in discharges of produced water from 2000 to 2006,

the environmental risk is expected to decline by more than 80

per cent over the same period. The quantity of residual oil in such

discharged water is set to fall by almost 60 per cent annually.

In this way not only the customers benefit from Statoil’s

technology development.

The quality of oil we produce is our main concern.

And so is the quality of the water we leave behind.

www.statoil.com

Issue 3 Wednesday 28 September 2005 Unconventional oil

www.wpc-news.com 8

By Tony Reinsch, UpstreamGroup, PFC Energy

NON-conventional crude oil(NCO) falls into two categories– extra-heavy oil and naturalbitumen. Although worldwide

in occurrence, single deposits in each cat-egory are dominant: the extra-heavyresource of Venezuela’s Orinoco oil beltrepresents nearly 90% of known reserves;and the bitumen deposits (oil sands) ofWestern Canada account for some 85% ofthe global resource. Together, thesedeposits represent some 3.7 trillion bar-rels of oil in place.

NCO production from Canada andVenezuela is projected to reach 4.2m-4.4m barrels a day (b/d) in 2015, requir-ing investment of up to $75bn – althoughhistory suggests costs will probablyexceed these estimates. Output growth isexpected to be greater in Canada becauseof a more transparent upstream environ-ment and a more stable political climate.

Competitive costs

The maturity of producing technologiesand the experience gained of projectdevelopment have brought costs for fullyupgraded synthetic crude (syncrude) intothe $22-28/b range (and low-mid teensfor bitumen extraction processes), com-petitive with conventional reserves-acquisition costs.

Minimal exploration risk, long-life (25years plus) production and proximity to theNorth American market have made NCOdevelopments an increasingly desirableportfolio addition for the majors, as theyface daunting reserves replacementrequirements.

Venezuela: heavy oil

The first production from extra-heavy oilresources began in January 2001 with thePetrozuata project. There are four syncrudeprojects operating in the Orinoco region,with production of 0.53m b/d of syncrudeat the end of 2004. Output is expected toreach 0.56m b/d by the end of the year.Estimated supply costs range from$25,000-27,000 per barrel of capacity(slightly lower for Hamaca, at $23,000/b).

There is potential for up to four addi-tional projects by the middle of the nextdecade, pushing combined capacity toabout 1.3m b/d. This includes the poten-tial for conversion of the Bitor Orimulsionfacility – owned by China’s CNPC (49%)

and PdV (51%) – to an upgrader project.The Sincor II project would probablyinvolve the same working-interest partici-pants, but with PdV holding 51%.

An expansion at the Hamaca projectcould see Repsol YPF working withChevron and PdV. The Spanish compa-ny recently entered a joint-ventureagreement with Chevron for projectdevelopment in Venezuela, includingheavy-oil exploitation and large-scalegas development. A second project atPetrozuata would possibly involveIndia’s ONGC, together withConocoPhillips and PdV.

A challenge to future capacity expansionlies in the fiscal volatility and contractualinstability under the administration ofPresident Hugo Chávez. The revoking ofthe royalty holiday on syncrude produc-tion, a retroactive increase in income taxrates, continued changes to the structure ofOperating Service Agreements, and therequirement for PdV to hold a 51% stake inall future expansion projects, create uncer-tainty for incumbents and new entrants.

Canada: oil-sands

The pace of development of WesternCanada’s oil sands is in stark contrast tothe situation in Venezuela. Total’sannouncement in August that it wouldpay $1.1bn for Deer Creek Energy and its84% stake in the Joslyn oil-sands projectis just the latest indication of commitmentby the majors and large independents tothe oil sands.

Milestones for oil-sands exploitationwere: the oil price retrenchment of 1986,which forced the then-fledgling integrat-ed mined oil-sands developments(Syncrude and Suncor) to focus on effi-ciency improvements to the productionprocess, driving down operating costs;and the pilot testing and commercialapplication of in situ production tech-nologies in the 1990s, which promise tounlock the majority of the oil-sandsresource base.

The Alberta Energy and Utilities Board(AEUB) estimates around 140bn barrelsare amenable to surface mining, with theremaining 2.4 trillion barrels amenable toin situ recovery or underground miningmethods. Initial established reserves areestimated by AEUB at 178bn barrels –35bn barrels in surface-mineable areasand 143bn barrels in situ.

Western Canadian bitumen differs fromVenezuelan extra-heavy oil in a numberof ways. Bitumen has lower permeability,lower porosity and oil saturation, and

slightly lower formation compressibility.The depositions also have lower averagegas contents and higher clay content. Theimportant implication is in mobility of theoil. Extra-heavy oil can be produced withthe application of single-, double- andmulti-lateral horizontal wells, and electricsubmersible and progressive cavitypumps – conventional extraction tech-niques. Production from the oil sands hasrequired development of novel extractionand upgrading processes.

Oil-sands production capacity is around1.02m b/d, comprised of 0.75m b/d ofsyncrude and 270,000 b/d of bitumen.This is expected to reach about 3m b/d by2020. The supply cost for oil-sandsexploitation is estimated at $10-19/b forbitumen extraction and $22-28/b for fullyupgraded syncrude production.

Despite the acceleration of investment,the Canadian NCO sector faces significantobstacles. Natural gas use is forecast torise from 0.6bn cubic feet a day (cf/d) in2005 to 1.4bn-1.6bn cf/d in 2015 – around10% of Canadian marketable gas produc-

tion and exceeding the planned capacityof the proposed Mackenzie Valley GasPipeline project. Consequently, theNexen-Opti Long Lake project is attract-ing attention with its potential to eliminategas use in syncrude production.

Capital cost over-runs continue toplague the sector, averaging 50% to dateand environmental challenges remain,including water requirements.

Faced with large annual reserves-replacement requirements and unable toaccess the roughly 70% of global oilreserves held by national oil companiesand closed to foreign equity investment,the stable, long-life production profilesassociated with oil-sands projects are anincreasingly attractive portfolio fit for themajors and large independents alike.

05-OF-254

When you knowyour risk,

you can producsucces

When you knowyour risk,

you can producsucces

Manufacturing anenergy future

Source: PFC Energy

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Refining Wednesday 28 September 2005 Issue 3

9 www.wpc-news.com

By Martin Quinlan

REFINING profitability has risento new heights this year, build-ing on the upturn of 2004 and,some say, shutting the door on

three decades of poor performancedownstream. The optimists point out thatpresent strong refining margins are theresult of different economic drivers fromthose of previous upturns. In the past,periods of strong margins have been theresult of a fall in crude prices, buttoday’s strong margins come at a time ofhigh crude prices.

Instead of being crude driven, theupturn is the result of rising demand forrefined products and high prices – par-ticularly for gasoline and gasoil.Conversion units – the costly facilitiesthat process low-value fuel oil into high-value transport fuels – are being operat-

ed at capacity, but prices are still attrac-tive enough for refiners to want to makemore transport fuels.

They can do this by running more crudebut, with conversion capacity fullyutilised, the additional crude squeezedthrough the refinery reverts to ahydroskimming yield – with much morefuel oil and a lower proportion of lightproducts than a complex yield.Consequently, refiners want light crudes– hence the rising prices for crudes suchas Brent Blend and West TexasIntermediate, and the wide marginbetween the prices of these crudes andheavier grades.

The rise in world oil demand is sub-stantially exceeding the growth in worlddistillation capacity (up by 0.8% lastyear), so utilisation of capacity hasimproved considerably. According to datain the BP Statistical Review of World

Energy, world distillation capacity wasutilised at 87.1% in 2004 – up from84.9% the previous year, and the highestachieved since the early 1970s.

The world average conceals a widespread of rates. In 2004, the refineries ofthe European Union operated at an aver-

age utilisation of 92.8%, with Asia-Pacific capacity showing 92.3% andNorth American capacity showing 91.9%.Refineries of the Middle East and Southand Central America ran at 84.5% and81.8%, respectively. The former SovietUnion and Africa hold the largest vol-umes of unutilised capacity.

Despite historically high utilisationrates of the EU, Asia-Pacific and NorthAmerica, there is still significant sparedistillation capacity. Much of this doubt-less lies in older and more-remote refiner-ies, but it seems the best refineries – like-ly to be those of the major companies –also have spare capacity. ExxonMobil,for example, says that in 2004 its UScapacity operated at 95% and itsEuropean capacity at 93%, with a worldaverage of 90%.

Rising prices

These figures indicate that – contrary tosome analyses – the rise in productsprices, which started at about the begin-ning of 2004, is not the result of a short-age of distillation capacity. The “percep-tion” that there is a shortage of capacitywas addressed by Edward G Galante,senior vice-president of ExxonMobil,earlier this year. “Despite the number ofrefineries in the US dropping more than50% – from [a peak of] 325 in 1981 toabout 150 today – total capacity hasdecreased by only 10%”, he said.Further, “over the same period, refineryoutput is up by about 25%.”

Galante points out that, as well as anincrease in utilisation rates, “conversioncapacity has been creeping up – in theUS, for example, by about 2% a year.That is greater than the long-term growthin demand.” As a result of the 2004increase in global demand for light prod-ucts, “conversion capacity utilisationincreased and the market became tighterfor light products. In tighter markets, onecan expect higher margins – but the mar-ket worked. There were no run-outs. Thereality is that light products supply has

been more than adequate to meet lightproducts demand.”

According to Galante, there is “anunderlying, long-term downward trend inrefining margins”, partly because of pro-ductivity gains including advances intechnology, and partly because “long-

term incremental refining capacitygrowth has generally been sufficient tomeet demand growth in mature markets.The industry will continue to find ways toincrease incrementally distillation – andmore importantly, conversion – capacitythrough low-cost methods.”

The latest Petroleum Economist con-struction survey finds that 3.373m b/d ofnew or expanded primary distillationcapacity is either under construction orreasonably firmly planned, worldwide.The figure is up by 15.7% over the2.916m b/d from last year’s survey,which in turn was up from the 1.726mb/d of 2003 – the lowest total recordedfor decades.

Middle East resurgence

New this year is a resurgence of plans forcapacity in the Middle East. Coupled withdowngrading of prospects for some proj-ects in Asia, the resurgence results inthese two regions sharing the limelightfor refinery construction projects. Of theworld total of project capacity, 31.6% isin the Middle East and 39.7% is in Asia.

The most notable development inother regions is the plan to build the firstnew refinery in the US for 30 years.Arizona Clean Fuels (ACF), a privatelyowned company, is aiming to constructa refinery of 150,000 b/d capacity inYuma county, southwest of Phoenix, notfar from the Mexican border. The firmplans to have the refinery – being billedas the most advanced in the US – oper-ating in 2009.

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 our commitment to QHSE led to a highly effective malaria prevention

program. Designed to avert serious malaria incidents, the program features

a hot line and unique curative kit. Since January 2003 more than 9,000 kits have

been distributed to employees and more than 4,000 to operators. This is just one

of the ways we are working to understand risk and produce success.

www.oilfield.slb.com/wpc

w

cess.

w

cess.

Big profits,big decisions

Eni wants to build a 30,000 b/d hydrocrack-ing unit at Sannazzaro and an 18,000 b/d unitat Taranto Photo courtesy Eni

Table 1: World refining capacity, primary distillation capacity

% share % share of 2004 of project

‘000 b/d 2002 2003 2004 capacity capacityEurope and Eurasia 25,045 25,176 25,194 29.8 0.0of which: EU25 14,810 14,831 14,851 17.6 0.0

FSU 8,350 8,390 8,390 9.9 0.0Africa 3,294 3,313 3,311 3.9 15.9Middle East 6,814 6,944 7,109 8.4 31.6Asia-Pacific 21,732 21,566 21,930 25.9 39.7North America 20,143 20,316 20,459 24.2 8.2South and Central America 6,534 6,615 6,589 7.8 4.6Total 83,562 83,930 84,592 100.0 100.0

Source: First three columns taken from BP Statistical Review of World Energy 2005, fromwhich the utilisation rate data in the text are also calculated. Final column from data in survey

Despite the number ofrefineries in the US drop-ping more than 50% …total capacity hasdecreased by only 10%

Features Wednesday 28 September 2005 Issue 3

11 www.wpc-news.com

Statoil: pursuing opportunities Interview with Helge Lund, chief exec-utive, Statoil

Q Statoil maintains a strong profile inthe Norwegian Continental Shelf(NCS) with numerous projects underway. Is this still your primaryupstream focus area?A The NCS has been the backbone ofStatoil’s upstream business and willremain the dominant part of our produc-tion for years to come. We still see growthin our production from the NCS and ourlong-term ambition is to maintain an NCSplateau level of around 1m boe/d for asmany years as possible.Q To what extent have the higher oilprices and profits allowed you tounlock additional upstream opportuni-ties in the NCS?A So far this year we have sanctionednine new upstream projects on the NCSand several more are on the cards inmonths to come. Favourable oil and gasmarket conditions have been a factor inthis record number of projects, at least forsmall projects that can be developed rap-idly. However, this is a long-term indus-try and we base our activities on an oil-price assumption of $25-$30 per barrel.Q What are your oil and gas produc-tion targets for the next few years andhow do you plan to achieve these?A In the years 2004-2007 we expect aver-

age annual production growth of 8%. Weare aiming for total production of 1.4mboe/d in 2007, of which 1.1m boe/d willcome from Norwegian fields and 300,000boe/d from international assets.Q What is the significance of theSnøhvit LNG project and could itpotentially encourage other gas-exportschemes nearby?

A Snøhvit is the first-ever field develop-ment in the Barents Sea and in that respectit opens up a new province that we believewill be important on a global scale. It isalso the first subsea-to-shore developmenton the Norwegian shelf and includes tech-nology that strengthens our leading role asan operator in the arctic environment. We

will pursue development opportunities inthe Barents Sea, both on the Norwegianand the Russian side. We are looking intothe possibility of a second train at theHammerfest LNG terminal.Q As a leading energy supplier toEurope, how do you see the continent’snatural gas market unfolding in thecoming years? A We have seen an upward trend indemand and prices and market signalshave led to investment in import capacityboth in the UK and in the US. UK and USspot prices are now consistently higherthan German border prices and the UKforward curve illustrates fear over supplyavailability in the next two winters. Weexpect that, as new projects come onstream, prices will converge in order tobalance supply and demand in the markets. Q Statoil’s international oil and gasproduction increased 77% in the sec-ond quarter over the previous year.What are your overseas productiontargets going forward?A We reached a milestone this summer,when we had a week with average pro-duction of over 200,000 boe/d from inter-national assets. This will not be constantfrom week to week, but the upward trendhas solid foundations. We target interna-tional production in 2007 of 300,000boe/d. That represents a 40% annual pro-duction growth from 2004-2007.

By Ian Lewis

THE STAKES are high for devel-opers of electromagnetic (EM)surveying equipment. The tech-nology, which can detect the com-

position of subterranean rocks, may gen-erate more accurate results than seismicsurveys, they claim.

“Seismic took 10 years to grow from3-D in the early 1980s to become a$5bn industry. I don’t see why in 10years this industry couldn’t be that big,”says Leon Walker, chief executive ofMTEM, an Edinburgh-based EM tech-nology company. This view presuppos-es that EM will eventually be as irre-placeable as seismic has become in theindustry’s exploration armoury. Buthow realistic is that proposition?

Firms developing the technology pro-mote EM as an adjunct to seismic ratherthan a replacement. But that may change.“Looking five years down the road, thereare still a lot of areas in the world thathave not been surveyed with seismic, butthat are very hot prospects. I don’t seewhy you can’t use EM before seismic,”Walker says.

Others are more cautious, but do seeEM as a possible replacement fordetailed 3-D seismic in some cases, oncepotential exploration areas have beenidentified using other techniques, such as2-D seismic. “The technique will have asbig an effect as 3-D seismic had. It isgoing to be that significant,” says DavePratt, head of Offshore HydrocarbonsMapping, the EM spin-out from the UK’sUniversity of Southampton.

The basics of EM surveying are wellknown. Controlled-source EM surveying(CSEM), the version most widely used,involves the transmission of a low-fre-quency signal from a subsea sourcetowards the seabed above potential oildeposits. The signal returned is thenpicked up by receptors just above theseabed, at differing distances from thesource. The results vary according to theresistivity of the matter through whichthe EM waves have travelled.

This enables geologists to distinguishbetween a hydrocarbons-filled reservoir,which has high resistivity, and one filledwith water or shale, with lower resistivi-ty. Seismic surveying, which is based onsound waves, can usually reveal only theexistence of a potential reservoir, but not,with much certainty, what is in it.

With the cost of drilling in deep off-shore fields sometimes reaching $50m,oil companies could be willing toembrace any technology that improvestheir chances of success. Certainly, theinitial success rate of EM usage appearsto be encouraging.

MALARIA is one of the most complexand life-threatening health issues

facing the oilfield population travelling inand out of malaria high-risk countries insub-Saharan Africa, Latin America andSouth East Asia. Around 2 million peopledie from the disease annually.

In late 2002, a Schlumberger employeeworking in Africa died of malaria whileon vacation at home in Mexico.Investigation into both this and previouscases showed the company had lost atleast one employee or contractor frommalaria in each of the previous threeyears. All such fatalities had occurredwhile the individual was away on leavefrom the high-risk area.

Preventive approach

The preventive approach commonly usedin the oilfield industry was judged notsufficient to overcome a problem withmany complex factors, which includetravel in and out of infested areas, vari-able incubation periods from seven to 60days, fatalities occurring outside infestedareas, poor knowledge of malaria byphysicians in non-infested areas andreluctance to take preventive medication.

As a result, Schlumberger formed aMalaria Task Force to design an innova-tive programme to make the companybecome “malaria-fatality free”. “The mainfinding of the team was that people weredying because they were misdiagnosedwhile on holiday or after transferring toanother location,” says Chris Fox,Schlumberger QHSE manager for Europe,CIS and Africa. “They were seeking healthcare for what appeared to be the flu incities where doctors, colleagues and fami-

ly were not thinking malaria could be thecause of their illness.”

The task force created a comprehensiveMalaria Prevention Programme based on asystematic application of the SchlumbergerQHSE Management System to malariarisk. As part of the programme, a numberof dedicated resources were developed thatincluded mandatory malaria training, amalaria arrival and departure quiz, a malar-ia hotline and a curative kit.

“The QHSE Management System – avery robust and effective tool – works notjust for QHSE, but for all aspects of ourbusiness,” says Fox. “The elements of theQHSE Management System form a struc-ture by which we conduct our operationsworldwide, and guided the task force asthey developed ideas for dedicatedresources, such as the malaria hotline andcurative kit,”

The kit was conceived in brainstormingsessions and created by Alex Barbey,international health co-ordinator forSchlumberger. Employees who have lefthigh-risk areas can test and easily treatthemselves for deadly falciparum malaria

using a highly innovative, curative anti-malarial medication. “This is essential incountries where testing may be unavail-able, as was the pattern with all previousfatalities on record,” says Barbey.

The malaria hotline operates 24-hours aday, seven days a week, providing spe-cialised advice in many languages toSchlumberger people around the worldwho are in doubt as to whether they havecontracted the disease.

“The kits are working the way weplanned,” says Serge Wamba Fosso,Schlumberger QHSE manager for westand South Africa. “There are at least 20documented cases of the kits being used.Some of these cases surely would haveended in tragedy without them.”

The programme was rolled-out in areasof high risk in January 2003. Since itsimplementation, there have been nomalaria fatalities among Schlumbergeremployees and contractors. The curativekits are the key innovative feature of thisprogramme and more than 8,000 of themhave been distributed to date.

The programme has been recognised bymuch of the industry to be the most effec-tive approach to reducing the risk ofmalaria fatality and has been adopted bymany Schlumberger clients as well asmedical organisations, such as theInternational SOS. Today, Schlumbergeris continually approached by its clientsfor guidance on how to implement similarprogrammes in their own organisations.As a result, the curative kits can beordered directly from the commissionedmanufacturer.

Saving lives in the oilfield

With the cost of drilling indeep offshore fieldssometimes reaching$50m, oil firms could bewilling to embrace anytechnology that improvestheir chances of success

Explorationrevolution

Construction of Snøhvit LNG © Statoil

Malaria curative kit

This article was contributed by Schlumberger

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Features Wednesday 28 September 2005 Issue 3

13 www.wpc-news.com

Modernising oil and gasreserves disclosuresBy David Hobbs, CambridgeEnergy Research Associates

THE 2005 reporting season for oilcompanies was notable for itsconflicting signals. Someannounced record profits, but at

the same time failed to replace produc-tion with new reserves. However, theyquoted two, or even three, differentreserves figures. These announcementsdetailed the differences between thereserves they were permitted to discloseunder Securities and ExchangeCommission (SEC) rules and their owninternal estimates, based on Society ofPetroleum Engineers’ (SPE) definitions.

Times have changed

The need for modernisation has becomeclear in recent years. In the 2005 report-ing season, the main sources of differencerelated to heavy-oil and oil-sandsreserves, which were particularly affectedby low bitumen prices on 1 January 2005.Bitumen prices recovered sufficientlyover the following few weeks, so many ofthe de-booked reserves were re-booked.

Until recently, most exploration andproduction (E&P) companies werejudged by how their SEC-compliantreserves grew over time. This is stillbroadly the case – providers of financetend to give greater weight to figuresthat are sanctioned by a regulator thanfigures that are equally compliant with adifferent standard, but lack the officialseal of approval.

Recognising the weight given to theseofficial estimates, Cera undertook amajor study, In Search of ReasonableCertainty, which examined the reasonsfor the SEC regulations, the ways inwhich the industry reality has divergedfrom the vision described by the regula-tions and ways in which the system couldbe modernised. This co-operative effortinvolved 50 organisations and more than150 individuals, drawn from E&P com-panies, financial institutions, accountingfirms, reservoir consultants, law firmsand policymakers. The resulting reportidentifies a number of ways in whichindustry realities have advanced, leavingSEC regulation behind.

Cera has begun a new phase in this

research programme, which will be pub-lished in November 2005, to examine howreserves reporting influences the actions ofE&P companies and how changes in thesystem may open new avenues.

Particular types of opportunity result inreportable reserves being proved later intheir life cycle than the more convention-al Texlahoma – a conceptual compositeof Texas, Louisiana and Oklahoma –projects that are typical of NorthAmerican onshore activities. Once a proj-ect is under way, drilling will provideadditional data to close the gap betweenultimate recovery and the volume thatcan be reported under SEC rules. Theconservatism of SEC rules does not resultin lower overall recovery from a field – itjust delays recognition. But the deficit inreported reserves occurs at the most criti-cal time for project funding.

Disadvantaged projects

The most disadvantaged projects arethose in remote locations that require sig-nificant infrastructure investment to com-mercialise the resources. Under these cir-cumstances, companies spend as little aspossible on appraising the resource to alevel of certainty that permits the devel-opment decision to be taken. These arethe circumstances in which there is thelargest discrepancy between reserves thatcan be reported and reserves a companyexpects to recover.

Furthermore, there are some classes ofreserves (mined oil-sands) that are neverrecognised because they are consideredthe product of a mining operation. Yet therefined products are indistinguishablefrom those from other sources. If one ofthe purposes of reserves disclosure is toassess a nation’s energy security, uncon-ventional resources should be included.

Recognising resources

For the largest companies, deferringreserves recognition may not be a prob-lem. But medium-sized and smaller com-panies find it very difficult to raise debtfinance unless backed by provedreserves. If the reporting regime weremodernised, it would allow undevelopedresources to be recognised sooner andimprove access to finance.

Shine onBy James Gavin

SOLAR POWER has been around forlonger than people have been aware

of climate change. Yet only recently isthere talk of tipping points for the tech-nology. Advocates see solar on the vergeof mass commercialisation. Last year,BP’s solar subsidiary made a profit forthe first time and the share prices of theworld’s 24 traded solar companies roseon average by 185%.

Solar photovoltaic (PV) power hasstarted to compete on national electrici-ty grids in the most developed solarmarkets – Japan, Germany and the US,which account for 85% of total installedOECD capacity.

Going on-grid

BP Solar is interested in on-grid projects– selling electricity into established mar-kets. Around 90% of the PV capacity itinstalled in 2003 was on-grid. “For mostof the 30 years that BP Solar has been inthe business, the market has essentiallybeen an off-grid business,” says NicoleAnderson, a spokeswoman for BP Solar.“Over the last five to 10 years, the globalsolar market has become more of an on-grid business in developed countries suchas Germany, Japan, Spain and the US.”

Some experts predict the solar PVmarket will more than quadruple invalue by 2010, from $7bn to $30bn. Themost optimistic forecasts see PV-gener-ated electricity becoming cost-competi-tive with other forms of power genera-tion in five to 15 years.

BP, which has invested $0.5bn in thesolar business over the past five years,says research is under way on a numberof next-generation PV technologies.Scientists see great potential in nano-technologies, which provide a way ofgrowing PV cells on plastic substrates,potentially enabling cells to be printedcheaply rather than assembled from sili-con parts. These technologies offer theprospect of either significant cost reduc-tions or improvements in cell efficiencyof over 30%, the company claims.

BP Solar says the cost of installed sys-tems has dropped six-fold in 20 years,

taking solar closer towards parity withconventional power. It says that in the last10 years alone, solar-power cells haverisen in efficiency by over 40%.

Despite these advances, solar’s share ofthe energy mix is still minute. Critics saysolar’s chances of becoming a source ofbase-load energy for the electricity indus-try are more fantasy than reality.

One reason cited by ExxonMobil for itsfailure to invest in solar, despite its ownprojections of a 10% annual growth ratein the business over the next 25 years, isthat it is only possible because of subsi-dies and tax breaks. BP and Royal DutchShell counter that the need for subsidiesand incentives need only be temporary.“Government support structures will beneeded until solar has achieved grid-pari-ty,” says BP’s Anderson.

At the consumer end of the market, theUS is considering tax breaks for adoptersof solar energy. But others appear to beheaded in the opposite direction. TheUK’s Renewable Power Association, anumbrella group of renewable energycompanies, accused the British govern-ment of planning to end its 2002-2012programme for solar PV prematurely, inMarch 2006.

GDP (2004E): $29.5bn Population (2004E): 5.6 million Exports: crude oil,refined petroleum products, natural gas Imports: manufactured goods, food andprimary products Petroleum minister: Fathi ben Shatwan (since March 2004)NOC: National Oil Corporation (established 1970)OilReserves: 39bn barrels (largest in Africa) Production (2004E): 1.58m b/d (to reach 2m by 2008-10, 3m by 2015) Opec quota: 1.5m b/d Consumption(2004): 237,000 b/d Exports (2004E): 1.34m b/d Refining capacity: 380,000b/d – Ras Lanuf (220,000 b/d); Az Zawiya (120,000 b/d); Tobruk (20,000 b/d);Brega (10,000 b/d); Sarir (10,000 b/d)Natural gasReserves: 1.49 trillion cm Production (2004): 7.0bn cm Consumption (2002E):5.58bn cm Pipeline exports (2004): 0.5bn cm/y to Italy through Greenstreampipeline (on stream October 2004) LNG exports(2004): 0.63bn cm to SpainLicensing rounds First round January 2005 (since US sanctions provisionally lifted). Over 100 bidsfor 58 blocks covering 126,000 square km. Second round bids due October 2005,awards to be announced late 2005, 44 blocks, 100,000 square km

Libya facts

The Nansen field in the deep-water Gulf of Mexico. Deep-water projects that require significantinfrastructure investment are disadvantaged by SEC regulations ©Kerr-McGee

Solar module production. Most PV cells pro-duce less energy in their lifetime than isrequired to make them Photo: Shell Solar Industries

T: +44 (0) 20 7779 8840 E: training@petroleum-economist.com W: www.petroleum-economist.com

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Africa night Social responsibility luncheon

The global oil perspective

Yesterday morn-ing’s plenary ses-sion. From theleft, Ali Al-Naimi,Saudi Arabia’s oilminister, SushilChandraTripathi, India’svice-minister forpetroleum andnatural gas, andRex Tillerson,president ofExxonMobil

John Watson (left), president, Chevron International Exploration andProduction, with Rilwanu Lukman, former Opec secretary-general