worldoil-july2014

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August 12, 2014San Antonio, Texas

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OFFSHOREADVANCES

MPD FOR DEEP WATERCollaboration adds managed pressure

drilling to newbuild drillship

MARINE SEISMICRegional 3D seismic reveals

trends offshore Congo

SHALETECH: INTERNATIONALActivity ramping up at a slow,

but steady rate

JULY 2014 / DEFINING TECHNOLOGY FOR EXPLORATION, DRILLING AND PRODUCTION / WorldOil.com


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Committed to your success

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4/183World Oil / JULY 20143

CONTENTS

JULY 2014 / VOL. 235 NO. 7

55 88 99

SPECIAL FOCUS:

OFFSHORE ADVANCES

37 Collaboration adds MPDfunctionality to deepwater rig

G. Feasey / N. Richard / G. BuyersM. Tindle / B. Garrett

47 Lightweight risers increase

rigs water depth ratings

J. Lehner / T. Marvel

OFFSHORE RIG INNOVATIONS

55 Meeting offshore challenges

with new rig designs

E. Ball

COMPLETION TECHNOLOGY

63 Acoustical determination

of cement thickness in cased

oil wells

G.M. Wiercinski / M. LudenaD.E. Gore

MARINE SEISMIC

73 Building understanding of

offshore Congo regional

geology through 3D seismic

P. Coole / S. Baer / A. R. Ngoula

PETROPHYSICAL TECHNOLOGY

81 Whats new in well logging and

formation evaluationPart 2

S. Prensky

REGIONAL REPORT: UKCS

88 A series of recent tax breaks

is reviving activity in all UK

offshore basins, but technical

challenges remain

C. Plowden / Z. HasanA. Gorman / A. Sharma

COLUMNS

9 First oil

Getting into (and out of)

the Gulf of Mexico

17 Energy issues

Same game, different questions

19 Whats new in exploration

Demand for better explorationtechnology continues to grow

21 Drilling advances

The errors in human error

23 Whats new in production

Ill take Sand for $50, Alex

25 Offshore in depth

Offshore forecasts see moregrowth, increased spending

27 Oil and gas in the capitalsIraq: Dj vu

29 Executive viewpoint

Geoscientists are doing goodthings for the world

31 Innovative thinkers

Presidential characterization:

D. Nathan Meehan

178 The last barrel

Pipe dumping trade caseproceeds in U.S.

NEWS AND RESOURCES

11 World of oil and gas

33 Industry at a glance

171 People in the industry

172 Companies in the news

173 New products and services

174 Marketplace /Advertising sales offices

175 Advertisers index

176 Meetings and events

SPECIAL REPORT: NORWAY

99 Riding a high tide, Norway

plans for the future K. Abraham

SHOW PREVIEW: ONS

111 ONS: Changes lie ahead,

and below, for the oil

and gas industry

M. Cruthirds

SHALETECH: INTERNATIONALSHALES

116 Race to production

steadily ramping up

M. Cruthirds

SPECIAL SUPPLEMENTS:

SHALE TECHNOLOGY

REVIEW 2014S123 Best practices from across

the shale technology

spectrum, from geoscience

and horizontal drilling, to

multi-stage fracing and water

management.

PROPPANT TABLES 2014P151 World Oilpresents a detailed

set of proppant tables, with

information on the suppliers,

products and specifications.

ABOUT THE COVERA Hybrid Riser Tower (HRT) streamlines

the riser layout and enables progressive

deployment. The Subsea 7 HRT technology

was used at BPs Greater Plutonio project.Image courtesy of Subsea 7.


5/1834 JULY 2014 / WorldOil.com

Mailing Address: PO Box 2608Houston, TX 77252-2608, USAPhone: +1 (713) 529-4301Fax: +1 (713) 520-4433WorldOil.com

President/CEOJohn RoyallVice PresidentRon HigginsVice President, ProductionSheryl StoneBusiness Finance Manager Pamela Harvey

Part of Euromoney Institutional Investor PLC. Other energy group titles include:Hydrocarbon ProcessingandPetroleum Economist

Publication Agreement Number 40034765 Printed in USA

PUBLISHERRon Higgins

EDITORIALEditor-in-Chief Pramod KulkarniExecutive EditorKurt AbrahamNews EditorMelanie CruthirdsAssociate Editor Roger JordanContributing EditorsDayse Abrantes, Brazil Saeid Mokhatab, LNGDr. A. F. Alhajji, Middle East Dr. Jeffrey M. Moore, Asia-Pacific

Eldon Ball, Offshore Mauro Nogarin, Latin AmericaDr. Roger Bezdek, Washington Dr. ystein Noreng, North SeaRon Bitto, At Large Dr. William J. Pike, ExplorationDavid Blackmon, Reg. Affairs Jim Redden, DrillingRobert Curran, Canada Dr. Jacques Sapir, FSUDon Francis, At Large Mike Slaton, At LargeWilliam (Bill) Head, Exploration Henry Terrell, ProductionRaj Kanwar, South Asia Russell Wright, At LargeIan Lewis, EAME

MAGAZINE PRODUCTION/ +1 (713) 525-4633Vice PresidentProductionSheryl StoneManagerAdvertising ProductionCheryl WillisManagerEditorial ProductionAngela BatheAssistant ManagerEditorial ProductionAshley SmithArtist/IllustratorDavid Weeks

ADVERTISING SALESSee Advertising sales offices

CIRCULATION/ +1 (713) 520-4440 / [email protected] Suzanne McGehee

EDITORIAL ADVISORY BOARDChairmanDr. William J. Pike,

Managing Consultant and Contractor to theNational Energy Technology Laboratory, U.S. Department of Energy

Ben Bloys, Manager, Los Alamos Technology Alliance, Chevron

Franklin Boitier, Technical Communications Manager, Total

Paul Coppinger, President, Pressure Pumping, Weir Group plc, and Chairman,Petroleum Equipment Suppliers Association

Deepak M. Gala,

SME, Well Control Engineering and Relief Well Planning, Shell

William Donald (Donnie) Harris III,

President and CEO,Forrest A. Garb and Associates

Alexander G. Kemp,

Professor of Petroleum Economics, University of Aberdeen

Keith Lynch, Global Completions Chief, ConocoPhillips

Dr. D. Nathan Meehan,Senior Executive Advisor, Baker Hughes

Douglas C. Nester,

COO, KOGAS Akkas BV

David A. Pursell,

Managing Director and Head of Macro Research,Tudor, Pickering, Holt and Co.

John T. Rynd,

President and CEO, Hercules Offshore, Inc., and Chairman, National

Ocean Industries AssociationArt J. Schroeder, Jr.,CEO, Energy Valley, Inc.

Svein Tollefsen, Petroleum Technology Manager, Statoil

Doug Valleau,Director, Unconventional Technology, Hess Corporation

Robert E. (Bob) Warren,

President, Baclenna, Inc.

World Oilis indexed by Business Periodicals Index, Engineering Index Inc., andEnvironmental Periodicals Bibliography. Microfilm copies are available throughUniversity Microfilms International, Ann Arbor, Mich. The full text of World Oilisalso available in electronic versions of the Business Periodicals Index.

World Oil(ISSN 0043-8790), est. in 1916 as The Oil Weekly, is published monthly byGulf Publishing Company, 2 Greenway Plaza, Suite 1020, Houston, TX 77046. Periodi-cals postage paid at Houston, Texas, and at additional mailing offices. World OilandThe Oil Weeklyare registered trademarks of Gulf Publishing Company.

Subscriptions:World Oilis available on a complimentary Request Subscription basis topersons actively engaged in the exploration/drilling/producing phase of the oil and gasindustry who are in a position to recommend, specify or approve the purchase or useof equipment or services used in their operations. (When requesting subscription, statetitle, company name and nature of business as initial qualifications.) Persons who donot recommend, specify or approve the purchase or use of equipment or services (or

persons in a related field of service or industry) can order subscriptions at the followingrates: one year $299, two years $525, three years $674. AIRMAIL DELIVERY: OutsideNorth America additional, $175/year. Single copies: $35 each, prepaid. PAYMENT MUSTACCOMPANY ORDER (make checks payable to World Oil).

Postmaster:Send address changes to World Oil, PO Box 2608, Houston, TX 77252-2608.

Subscription services/address changes:World Oil, Circulation Dept., PO Box 2608,Houston, TX 77252-2608. Phone: +1 (713) 520-4440. E-mail: [email protected].

Article reprints:World Oil, Cheryl Willis, Gulf Publishing Company, Advertising Produc-tion Manager. 2 Greenway Plaza, Suite 1020, Houston, Texas 77046. Phone: 713-525-4633. Fax: 713-525-4615. Email: [email protected].

Copyright 2014 by Gulf Publishing Company. All rights reserved.


6/183

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10/183

Getting into (and out of)the Gulf of Mexico

FIRST OIL

PRAMOD KULKARNI, EDITOR

World Oil / JULY 20149

IN THIS ISSUE

55Offshore rig advances. Asoffshore operations contin-ue their advance to deeper waters and

harsher environments, shipbuilders are

meeting the new challenges with innova-

tive rig designs. Offshore Editor Eldon Ball

reports on GustoMSCs Magellan-class

drillship that is designed for 20,000-psiwell control, and both managed-pressure

and dual-gradient drilling. MPD is now

considered so essential, that our spe-

cial focus article describes how Repsol,

Rowan Companies and Weatherford col-

laborated to provide full managed pres-

sure and closed loop drilling capabilities

to the Rowan Renaissance drillship, as it

was coming out of the shipyard.

99

Special Report: Norway

riding a high tide. In ad-

dition to the UKCS regional report by

Deloitte authors,World Oilis pleased to

present a special report on Norway. Based

on Executive Editor Kurt Abrahams trip to

Stavanger, where he conducted exclusive

interviews with government officials, and

senior executives with operators and ser-

vice companies, the report explains how

the Norwegian government and industry

are working together to plan future up-

stream growth, while keeping costs under

control, as the operators push E&P activ-

ity close to record highs.

116ShaleTech: Internationalrace to production ramp-ing up.While North American operators

jumped on the shale trail like rabbits, in-

ternational operators are progressing at

a turtle-like slow, but steady, rate. News

Editor Melanie Cruthirds reports that

even where regulatory, social or techno-

logical challenges exist, as is the case in

the UK, Spain, Russia and China, steady

progress is being made to, in the very

least, survey and estimate the presenceof shale oil and gas.

There are more ways than one to skin acat. An expression originating in Englandin the 1840s.

My apologies to cat lovers everywhere,but there was no better expression avail-able to describe how oil and gas operatorshave found success in the Gulf of Mexicothrough a variety of E&P strategies.

Some operators are doing well by hug-ging the shallow-water area of the con-

tinental shelf. A few others are bringinginto production the discoveries made inthe 1990s, in the deepwater Miocene play.Still others are going to extreme deep water(9,000-ft depth and beyond) to start pro-ducing from the Lower Tertiary Paleogeneformation. Meanwhile, several operatorshave sold off their producing propertiesin the Gulf and shifted their E&P focus toNorth American shale plays.

Supermajors. Operators, such asChevron, Shell, BP and Exxon Mobil, arecomfortable with both the scale and timespan of major deepwater projects. A de-cade is the typical time span for many ofthe projects, from prospect evaluation andlease bidding, to first oil. Chevrons Jack/St.Malo is scheduled for start-up during 2014,

with a capacity production of 177 Mboed,with Big Foot to follow during 2015 at acapacity of 79 Mboed. In February 2014,Shell completed its Mars B extension toadd peak capacity of 100 Mboed, and is de-

veloping its Stones FPSO-based project atan ultra-deepwater depth. While Shell has

sold off its properties in the North Ameri-can shale plays, the rest of the supermajorshave planted their feet firmly on both sidesof the deepwater/shale divide.

Major independents.Among the largeindependents, operators such as Anadarkoand Noble Energy have also diversifiedtheir E&P basket between the deepwaterGulf of Mexico and shale plays. Anadarkois expecting first oil from its Lucius sparduring the second half of 2014, and is ontrack to produce from the Heidelberg fa-cility in 2016. Yet, Anadarko has strong

positions in the Eagle Ford, Marcellus andWattenberg plays, and is also operating

fields offshore West Africa and Mozam-bique. Noble Energy also holds a similarlydiverse portfolio, divided between thedeepwater Gulf of Mexico, U.S. shales andthe Eastern Mediterranean. Meanwhile,

Apache and Devon have made more of acommitment to their shale assets. Devonhas sold all of its Gulf properties and haseven moved its headquarters from Hous-ton to Oklahoma City. With some shale

operators reporting return on investmentabove 100%, perhaps there is merit inDevons shale-only strategy.

Independent newbies. In February2014, Fieldwood Energy acquired proper-ties from Sandridge along the shelf, as wellas the deepwater Bullwinkle field. Mean-

while, well-funded Cobalt Internationalhas staked its fortunes on the deepwaterLower Tertiary plays, in partnership with

Anadarko, as well as on its own. An inter-esting addition to this category is VenariResources, which bills itself as the non-operating partner-of-choice in the Gulf ofMexico. Backed by more than $1.25 bil-lion in private equity, Venari is focusing onsubsalt prospects in deep water.

New home for the NOCs.While Totaland Eni have been operating in the Gulf ofMexico for several years, two interestingNOC additions are Petrobras and Statoil.Priding itself on its deepwater expertise,Petrobras was the first to initiate FPSO-

based production in the Gulf of Mexicofrom the ultra-deepwater Cascade and Chi-

nook fields. Statoil has started wildcattingin earnest in the Miocene plays, and hopesto make major discoveries in the next fewmonths. Locals tend to carp about theBSEE, but the reliable regulatory regime isattracting interest from the large NOCs.

More the merrier.According to WoodMacKenzie, 9 Bboe have been producedin the Gulf of Mexico, thus far. In addition,24 Bboe have been discovered, but are yetto be produced, and future discoveries areestimated at 14 Bboe. As such, there areplenty of opportunities for operators of all

shapes and sizes in the Gulf of Mexicomother of all oilfield bonanzas.


11/183

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WORLD OF OIL AND GAS

MELANIE CRUTHIRDS, NEWS EDITOR


IEA: U.S. shalerevolution tospread by 2019

In its annual, five-year oil marketoutlook, released in June, theInternational Energy Agency(IEA) said it is likely that theunconventional supply revolutionseen in North America over thepast several years will expandoutside those borders by 2019.The groups report also projecteda slowdown in global oil demandgrowth and OPEC capacitygrowth facing headwinds. TheIEA report, Medium-Term OilMarket Report 2014,goes on topoint out that a handful of coun-

tries are seeking to play catch-upwith the U.S. as a producer ofshale and light, tight oil (LTO). By2019, it estimates, tight oil sup-plies outside of the U.S. could hit650,000 bpd, including 390,000bpd from Canada, 100,000 bpdfrom Russia and 90,000 bpdfrom Argentina. In the sameperiod, however, the IEA forecaststhat the U.S. will double its LTOoutput to 5 MMbpd. In additionto ongoing technical challengesrelating to field development andproduction in the shale arena,some OPEC producers are also

facing surface security concerns,the report stated, with questionssurrounding how realistic it isto expect three-fifths of OPECsgrowth to come from Iraq by 2019,with ongoing military upheavalsthroughout the country.

Total starts production

at CLOV, boosts Block 17output to 700,000 bpdTotal, operator of Block 17 offshore Angola, hasstarted up CLOV, a major deepwater develop-ment 140 km offshore Luanda, in line withthe initial project schedule. With a productioncapacity of 160,000 bopd, CLOV will developproven and probable reserves of over 500MMbbl. After Girassol, Daliaand Pazflor, CLOVis the fourth FPSO unit on Block 17. Developingfour fields (Cravo, Lirio, Orquidea and Violeta),the project comprises 34 wells and eight mani-folds connected by 180 km of subsea pipelinesto an FPSO unit at water depths of 1,100 mto 1,400 m. Measuring 305 m long and 61 mwide, the FPSO has a storage capacity of 1.8

MMbbl of oil. The gas produced on CLOVwillbe exported via a subsea line to the onshoreAngola LNG liquefaction plant. Along withTotal (40%), partners in the block are Statoil(23.33%), Esso Exploration Angola (Block 17)Limited (20%) and BP (16.67%). Sonangol isthe concessionaire for Block 17.

Statoil, PTTEPcomplete agreementto divide Canadian oil

sands interestsStatoil and Thailands PTT Explorationand Production (PTTEP) havecompleted an agreement to dividetheir respective interests in the KaiKos Dehseh (KKD) oil sands projectin northeastern Alberta, Canada.Following the satisfaction of allconditions precedent and the closingof this transaction, Statoil now owns100%, and continues as operator ofthe Leismer and Corner developmentprojects, with PTTEP owning andoperating 100% of the Thornbury,Hangingstone and South Leismer areas.Statoil paid $200 million to PTTEP, plusa working capital adjustment amountof approximately $222 million.

Qatar Petroleum to invest nearly $11 billion in BulHanine re-developmentQatar Petroleum (QP) reportedly has plans to invest nearly $11 billion in the re-development of Bul Hanineoffshore oil field, approximately 120 km east of the Qatari coastline. The project, which is at the pre-FEED

stage, is one of the largest to be managed and executed by QP. It is designed to prolong the fields life bycountering its output decline and doubling its oil production rate. Major reservoir and field-wide studieshave been undertaken to re-assess reserves and the long-term production prospects for each field. Theplanned project scope includes new offshore, central production facilities and a new onshore gas liquidsprocessing facility at Mesaieed. Also included is a drilling campaign of about 150 new wells, scheduled forbetween now and 2028. New wells will be drilled from the existing/modified wellhead jackets, as well asfrom 14 new wellhead jackets.

Eni, Repsol, PDVSA agree to develop Perla field

Officials representing PDVSA; its president, Rafael Ramirez; Eni and Repsol have signed strategic agree-ments concerning the exploitation of Perla field, one of the worlds largest discoveries in the last decade.The first agreement is a memorandum of understanding for the creation of a new company (mixed enter-prise), which will develop and produce Perlas condensate reserves. The new company will be run jointlyby CVP (PDVSAs affiliate, 60%), along with Eni (20%) and Repsol (20%). The second agreement is a termsheet, which establishes the key elements required for an up-to-$1 billion investment structure to financePDVSAs (CVPs) share in the Perla development. Eni and Repsol will contribute up to $500 million, each.Both agreements are subject to the signing of final contracts, and to the approval of local authorities.

Gazprom Neft launches

production drilling at BadraGazprom Nefthas begun drillingproduction wells atBadra field in Iraq.Drilling work beganin May 2014, witha well more than4,800 m long, undera contract withChinese companyZPEC, which pro-

vided for the drilling of six wells in total. Two developmentwells have now been tested successfully and switched toproduction status, making it possible to launch commercialoil output at Badra. The development of a third well is still

underway. On May 31, Gazprom Neft began production atBadra, and the central gathering station (CGS) is undergo-ing testing of its crude oil processing system. Testing willbe completed in three months, once enough oil has beenaccumulated for commercial production. The field will thenbe ready to reach planned production levels of 15,000bopd. Photo courtesy of Gazprom Neft.

Maersk Oil UK gets approval to develop Flyndre, CawdorMaersk Oil UK has received approval from UK and Norwegian authori-ties to develop Flyndre and Cawdor fields. The fields lie approximately

293 km southeast of Aberdeen in Blocks 30/13 and 30/14 of the UKNorth Sea (Flyndre and Cawdor) and Block 1/5 of the NorwegianNorth Sea. The fields will be co-developed as a subsea tie-back to theClyde platform (pictured), operated by Talisman Sinopec Energy UK.Flyndre will be developed with a single production well, while Cawdorwill be developed, initially, with a single production well, with potentialdevelopment of two further wells, based on field performance. Flyndreis expected to peak at around 10,000 bopd, with first oil expected in2016, and Cawdor should peak at around 5,000 bopd, with produc-tion beginning in 2017. Total recoverable resources are expected to beapproximately 30 MMboe for the initial development phase, with furtherupside depending on performance and additional development phases.Photo courtesy of Talisman Sinopec Energy UK.

PRODUCTION /////////////////////////////////////////////////////////////////////////////

BUSINESS ////////////////////////////////////////////////////////////////////////////////


13/183

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Sampling with 3D radialprobe recovers fluidsfrom tight dolomite.

Read the case study at

slb.com/saturn

3D RADIAL PROBE

Saturn

Switching from an extralarge-diameter

conventional sampling probe to the

Saturn 3D radial probe, an operator in the

Middle East acquired uids from a low-

permeability dolomite at 6.5 the ow rate

and1/ of the drawdown to conrm mobile

oil where openhole logs were inconclusive.

Repsol strikes Russias largestdiscovery in two yearsRepsol made two new discoveries in Russias Karabashsky

Blocks, in Ouriyinskoye field, West Siberia. Recoverableresources from the Gabi-1 and Gabi-3 wells are estimated, bythe Russian Federations Ministry of Natural Resources andEnvironment, at 240 MMboe. According to Minister of NaturalResources and Environment Sergei Donskoi, the find is thebiggest made in Russia in the last two years. Repsol has beenexploring the Karabashsky 1 and 2 Blocks since 2010, and, in2011, it created a JV with Alliance Oil, called AROG, to carryout development work in the country. During 2013, Russianactivity contributed 14,600 boed to Repsols production. Thishas risen to 17,640 boed in 2014, with the start-up of newgas wells at Syskonsyninskoye field.

Exxon Mobil awarded leases in Gulf boundary areaSecretary of the Interior Sally Jewell and Bureau of Ocean Energy Management (BOEM) ActingDirector Walter Cruickshank have announced the award of the first three oil and gas leases in the Gulfof Mexico boundary area, subject to the U.S.-Mexico Transboundary Hydrocarbons Agreement. Theleases were awarded to Exxon Mobil, which submitted bids for the blocks within (or partially within)three statute miles of the maritime and continental shelf boundary with Mexico at Western PlanningArea Sale 233, held in August 2013. BOEM opened the three sealed bids, totaling $21,333,850, duringthe Eastern and Central Planning Area Sales on March 19. The leases are in the Alaminos Canyon

Area, and will be subject to the terms of the U.S.-Mexico agreement, effective July 18.

Draft bill seeks 35%local content in Mexico

According to reports out of Mexico, a groupof legislators within the country is seekingto raise the proposed local content provisionfor oil and gas projects to 35%, up from the25% recommended by Mexican PresidentEnrique Pena Nieto. The draft bill, proposedby the heads of Mexicos Senate committeeson energy and legislative studies, wouldexempt deepwater projects from the 35%local content requirement. Additional lawsrelating to the countrys energy industrywere scheduled to come under discussionsoon after the bills proposal.

UK energy ministerannounces new shale terms

UK Energy Minister Michael Fallon has said he willmove forward with updated rules for shale develop-ment. In June, he introduced a new flexibility tolicenses, whereby landholders can retain greaterareas than before. The new system will involveproduction plans, which will govern acreage usedfor production, and retention agreements, whichoutline work plans agreed upon between thelicense-holder and the Department of Energy &Climate Change (DECC). Fallon said that the DECCwill reduce the confidentiality period on informationsubmitted about hydraulically fractured shale wellsfrom four years to six months.

BG, Ophir Energyhit gas off Tanzania

Ophir Energy (20%) said thatit and BG Group (60%, opera-

tor) have discovered gas at theTaachui-1 well, and subsequentTaachui-1 ST1 well, in Block 1offshore Tanzania. Ophir and BGGroup are partners in Blocks 1, 3and 4. Taachui-1 was drilled nearthe western boundary of Block1. The well was sidetracked foroperational reasons, to completeas the Taachui-1 ST1 well, and wasdrilled to a TMD of 4,215 m. Thewell encountered gas in a singlegross column of 289 m within thetargeted Cretaceous reservoirinterval; net pay totaled 155 m.Estimates for the mean recover-

able resource from the discoveryare approximately 1 Tcf. Photocourtesy of BG Group.

GDF SUEZ discovers gas insouthern North Sea

GDF SUEZ hasreported a new gasdiscovery in theUK Southern NorthSea. The Cepheus44/12a-6 explorationwell encountered agas column within thePermian Lower Lemansandstone, whichwas the primaryreservoir target. The

well was spudded March 9, and drilled to a TMD of 12,125 ft.It was deviated to the northeast, from a top hole location inBlock 44/12a, to the target location in Block 44/12b (License

P1731). The GSF Monarchrig, which drilled the well, wasscheduled to move off location May 29, after plugging andabandonment operations. Photo courtesy of Transocean.

DISCOVERIES //////////////////////////////////////////////

GOVERNMENT/REGULATORY ///////////////////////////////


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Statoil drilling Martin prospect in deepwater GOM

As part of an ambitious effort to expand its E&P portfolio in North America, Statoil is in the midstof drilling a wildcat well as an operator in the deepwater Gulf of Mexico (GOM). Statoil is using

the Maersk Developer, a sixth-generation semisubmersible, to drill the well on the Martin prospectacross Blocks 717, 718 and 761 in the Mississippi Canyon area. Installed at a 3,000-ft water depth, thewell is expected to reach TD during third-quarter 2014. The operator said it is fairly confident of suc-cess at Martin. Fields under production in the area include Mars and Ursa (Shell), and Thunder Horse(BP), which are some of the largest producing fields in the GOM. For Martin, Statoil is the operator(42.5%), with partners Nexen (25%) and LLOG (26%).

Total sells interest

in Shah DenizTotal has signed an agreementto sell its 10% interest in the ShahDeniz field, offshore Azerbaijan,and the South Caucasus pipelineto TPAO, the Turkish, state-ownedE&P company. The transaction isvalued at $1.5 billion and is sub-ject to customary approvals. ShahDeniz field is approximately 100km southeast of Baku, Azerbaijan,in the Caspian Sea, and coversapproximately 860 km2, inwater depths up to 550m.Phase One of the field started

up in 2006 and is producing200,000 boed. A second phasewas sanctioned in 2013.

Chevron sells interests in Chad, CameroonChevron Corporations subsidiary, Chevron Global Energy Inc., has sold its 25% non-operated inter-est in an oil-producing concession in southern Chad, and the related export pipeline interests, to theRepublic of Chad for approximately $1.3 billion. The transaction includes the sale of the subsidiarysinterests in seven fields in Chads Doba basin, which, in 2013, had an average net crude oil produc-tion of about 18,000 bpd. The sale also includes pipeline interests.

Lukoil, NewAge farm into block

offshore CameroonBowleven, an Africa-focusedoil and gas exploration group,intends to sell part of its interestin the Etinde permit, offshoreCameroon, by entering into aconditional agreement withLukoil and NewAge. The com-pany will reduce its interest in thepermit from 75% to 25%, and willreceive aggregate considerationof approximately $250 million.Lukoil will acquire a 37.5%interest, and NewAge will acquirean additional 12.5% interest in

the Etinde permit to increase itsgroup holding from 25% to 37.5%.Photo courtesy of Bowleven.

Eni buys 40% stake in Sasol field off South Africa

Eni has concluded an agreement with Sasol to acquire a 40% interest and operatorship inExploration Right permit 236 (ER236) offshore South Africa. The permit grants the right to explorefor hydrocarbons in a wide, unexplored area of 82,000 km2off South Africas east coast (Durbanand Zululand basins), Kwazulu-Natal province. The permit was granted to Sasol by South Africanregulator, Petroleum Agency of South Africa (PASA), in late 2013.

AWE abandons Oi-1 explorationwell offshore New ZealandAWE, operator of Petroleum Mining Permit 38158offshore Taranaki, New Zealand, has advised that dueto operational challenges in managing near-surfaceunconsolidated formations, the Oi-1 exploration well hasbeen abandoned, and a new well, Oi-2, will be drilledfrom an adjacent location. The Kan Tan IVsemisubmers-

ible has been moved 150 m to the new well location,and preparations are being made to commence drillingOi-2. Oi-1 was drilled to a planned depth of 1,507 m ina 17-in. hole. Installation of 13 -in. casing was notcompleted, due to wellbore instability at a shallowdepth. Subsequent attempts to sidetrack the wellwere unsuccessful and, consequently, the JV decidedto abandon Oi-1. AWE said it has revised the drillingprogram for Oi-2 to further mitigate risks, and to thencontinue the program as previously planned.

INPEX wins permitto explore WesternAustralian block

INPEX (40%) said that it and Santos(operator, 60%) were awarded anexploration permit for Release AreaWA-504-P, offshore Western Australia.

This is the 11th block in which INPEXholds exploration permits or retentionleases in the vicinity of Ichthys gas-condensate field, where the company,as operator, is developing the IchthysLNG project. This latest block isapproximately 500 km off the coast ofWestern Australia. It covers an 83-km2

area, where the water is approximately400 m deep.

EXPLORATION /////////////////////////////////////////////

ACQUISITIONS /////////////////////////////////////////////


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Same game, different questions

ENERGY ISSUES

DR. WILLIAM J. PIKE, EDITORIAL ADVISORY BOARD CHAIRMAN


In the U.S., oil production hit a 27-year high during May, increasing to 8.3MMbpd. Natural gas output continuesto rise also, topping 86 Bcfd in March,the highest U.S. gas production figurein history. This presents a conundrumto us old guys. We have to change theconversation.

You see, for the last five decades orso, we seniors have been discussing one

question almost all of the timeone oiland gas question, that is. Where are wegoing to find enough oil and gas? Thetopic has dominated conferences, lun-cheon discussions, learned papers and

bar talk. It has been our quest, our rai-son detre. Now, thanks to shale, we havemore oil and gas than we ever imagined

we might have. And, now, the questionsbecome, W hat do we do with it? Howdo we find a market for it, and how do wesustain reasonable prices?

It is not that we mind these new ques-tions. Not in the least. In fact, we arequite proud of them, since we helped cre-ate them. Its just that we have to comeup to speed on a new topic to replace thisone, and we dont learn as fast as we usedto. But, we have a few options, whichappear below as a sort of primer to thedeveloping discussion and the primarydifficulty involved.

First, we have to get it out of the do-mestic market or suffer an internal glutof oil and gas, and a descent into unac-

ceptable oil and gas prices. In short, wehave to export the excess. That should beeasy enough, right? Sure it should be, if

we had the infrastructure, if we had thewill, and if we could keep politics out ofit. We can build the infrastructurewesurely have the willbut the jury is outon the political hurdles.

Lets start with the infrastructure.We need transportation to move oil andgas from the field to processing/refiningpoints, and from there to export facilities

(if they do not coexist, as they do alongthe Gulf Coast). That would be some-

thing likesaythe Keystone XL Pipe-line. But that pipelines route throughthe U.S. is under eternal review, and itscompletion before we open the first Mc-Donalds on the moon is questionable.The current administration has beenreluctant to sign off on it, for environ-mental reasons. Could it be, that thereare politics involved?

Of course, we could transport more

oil and gas by rail, but Washington isspooked by the tank car derailments andfatal explosions in Quebec (the tragic re-sult of rail issues and not of the cargo),and is reluctant to support further railtransport of oil as is currently practiced,although we have an exemplary record ofdoing so for decades. But, that probablyis not politicalright?

Given that long-haul truck transportis not economic, that leaves one otheroptionshut it in to restrict supply andraise prices. That may not be industrysoption, but it could be a politically ac-ceptable option.

Lets say that, somehow, we get theoil and gas transported, processed and toan export point. At the moment, tankermovement is still the acceptable way tomove oil over long stretches of water. Itshould beor could befor gas also, orso it would seem. But

A winding way forward.With the U.S.oil and gas industry chomping at the bit

to get on with LNG exports, to offloadburgeoning shale gas production and sta-bilize prices at reasonable levels, a gameof political football has emerged betweenthe U.S. Department of Energy (DOE)and the U.S. Congress. In early June, DOEissued a Notice of Procedures (NPP) forLiquefied Natural Gas Export Decisions.The notice, which outlines proposedchanges in the way LNG export permits

would be issued, would result in the sus-pension of conditional approvals for LNGexports to non-Free Trade Agreement

(FTA) countries until the completion ofa full environmental review under the Na-

tional Environmental Policy Act, signifi-cantly slowing the approval process.

Under DOEs prior policy, to allowthe issuance of conditional approvalsfor non-FTA countries, only CheniereEnergy Inc., which is building a lique-faction and export plant in Louisiana(scheduled to begin operations in 2015),has obtained all the permits necessary toexport natural gas.

DOEs reasoning for the change isthat it will prioritize approval for proj-ects that are ready to go forward, andthat clearing the review process will en-able better decisions to be made. And,despite reservations on many fronts,some in industry agree with DOE thathigher costs up front would weed outthose projects that were high on thelist for conditional approval but ex-tremely questionable in terms of actualexecution capability.

Regardless of its merit, the DOEplan has suffered sharp criticism, espe-cially from Republican leaders of theHouse Energy and Commerce Com-mittee. Chairman Fred Upton and 60co-sponsors introduced H.R. 6, the Do-mestic Prosperity and Global Freedom

Act (really!!!) that would give a 30-daytime limit (following a National Envi-ronmental Policy Act review) for a DOEapproval decision on LNG exports toany World Trade Organization country.The U.S. House of Representatives was

set to vote on H.R. 6 in the last week ofJune. Democrats, needless to say, are notin accord with H.R. 6. Obviously, thereare no politics here.

And there you have it. Unlike thequestion of where can we find, and howcan we produce, the oil and gas we need,the question of what we do with the oiland gas that we produce is clear-cut.

You dont have to agonize over itjustask a politician, and be sure to use all ofthe acronyms.

[email protected] / Bill Pike has 47 years experiencein the upstream oil and gas industry, and serves as Chairman of the

World Oil Editorial Advisory Board.


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20/183

Demand for better explorationtechnology continues to grow

WHATS NEW IN EXPLORATION

WILLIAM (BILL) HEAD, CONTRIBUTING EDITOR


Exploration technology has beenchanging since its inception. We use it,cuss it, and improve it. The folks who de-pend on technology spend a lot of moneyto make it better, and lower-risk.

However, lets face our intent plainly. If adivining rod made from a young apple tree

would work more than 50% of the time tofind oil, that first piece of apple tree would

be in a museum. Today, vendors would be

selling rods with GPS.The truth is that no matter what we

use, we still see dimly into the subsurface.Billions of dollars spent to date, and westill do not clearly have an image of thesubsurface in sufficient detail to preventrisk altogether. A RPSEA study, funded inFebruary 2009 with Knowledge Reservoir(07121-1701), looked at just how effectiveexploration and delineation methods werein predicting drilling locations and reser-

voir size, compared to actual production.The study showed that poor volumetric

forecasts occurred across most operators inthe Gulf of Mexico. The study pointed outthat a large gap exists between predictiontools and practices. This was especiallytrue in predicting flow. The result?

Over-drilling was more of a problemthan under-drilling; most of us were dis-appointed by the last one or two wells ina development.

This should surprise no one. World-wide, we are a group of optimists. If explora-tionists want to drill, then super-cali-fra-gil-

istic-ex-pi-ali-do-cious to everything! Haveengineers never had a drilling budget thatwas not inflated for safety and internal com-fort? The end result is that as an industry,

we have spent a lot of money drilling wherewehopedwe would find oil, more than drill-ing where we knewwe would find oil.

The historical truth is that all explora-tion technology was once owned by oilcompanies. Then, over time, that technol-ogy was transferred to independent par-ties. GSI and Schlumberger were born.Drilling rigs and ships were sold. The

Mertz brothers moved across the streetin Ponca City, Okla. All oil company seis-

mic crews were disbanded. Some sciencedid remain inside oil. When Sir John gavethe industry AMOCOs tech, the reactioninside oil was recognition of the obvi-ous. Vendors with incentives to improvetechnology would be the ones who had tomake those changes. Folks within oil be-came managers of technology.

Science consortiums, universities, na-tional labs and 501(c)3s were the rising

tech centers. DeepStar, as a group JIP, wasone. Battelle, a 501 with 22,000 employ-ees, is another. RPSEA working with con-gressional funding, finding technologyfor its 189 members, is yet another. Today,I see an effort by some oil companies toonce again own exploration technology.

Whats new? Companies, such as BPand Statoil, have divisions to search for, andpurchase breakthroughs in, explorationtechnology. Oil companies have learnedthat not owning seismic data, except multi-client sets, was not the best idea on whereto look, since others are looking there, too.Oil companies are re-learning that usingtechnology that everyone else is using maynot be the best path, either.

AAPGs annual convention this yearcertainly demonstrated that a lot of peo-ple are in business to have oil companiesfall in love at first byte. There are now

bolt-on software products to differenti-ate individual companies explorationprograms. OTC 2014 held an open paneldiscussion, where Statoil talked about

finding the next-generation E-tool set forinternal consumption. They might be in-terested in sharing later. That fellow wasswamped after the session closed. Privateownership is, again, a developing trend.

The RPSEA model requires public dis-semination up front. RPSEA receives hun-dreds of ideas and requests for funding.The talent and demand for better explora-tion technology exists and is growing. Weshould see some awesome breakthroughsin technology, and new ideas to challengeconventional concepts.

Tech news. In Mays issue, this columnreported RPSEAs announcement that it

is pursuing a JIP to further develop a fi-ber optic VSP tool that can be deployedon drill pipe for either deepwater wells orlong horizontal wells. The workshop was asuccess, and major oil is in discussion withPaulsson, Inc.

SEGs SEAM will begin to study porepressure prediction as a joint private-public partnership with RPSEA andabout 14 interested oil companies and

vendors. The intent is to show our in-dustry what current practice will pro-duce, when compared to a perfectlyknown geologic and fluid setting, whenthe data used to determine pore pressureare as perfect as they will ever be. Then,opportunity exists to improve how wepredict pore pressure from seismic, andhopefully create suggestions to advancethe science for a better, safer outcome.

The consortium will provide a col-laborative forum, where industry expertsprioritize current challenges in the useof seismic velocity models to constructpre-drill pore pressure forecasts for wellplanning. These challenges will be usedto design a comprehensive earth modeland to acquire, through state-of-the-artcomputer simulation, benchmark datasets. These sets will be used by industry toquantify risk and uncertainty associated

with velocity models derived from bothcurrent and future state-of-the-art seismicacquisition, processing and imaging.

The focus will be the deepwater

GOM. However, resultant advancesin pressure prediction technology andmethodology will be more broadly rel-evant. SEAM Pressure Prediction willcommence in late 2014 and is expectedto last two to three years.

[email protected] / W ILLIAM (Bill) HEAD is a project managerfor RPSEAs Ultra-Deepwater program. As a senior technologist,

he has worked over 38 years in U.S. and international exploration,

exploitation and production. Mr. Head has been instrumental to

several new international ventures, coordinating local and global

operations, and has managed one of the industrys largest computer

facilities. His positions of increasing responsibility have included

V.P. of technology for a large independent and V.P./COO of reservoirimaging for a major service company.


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23/183

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24/183

Ill take Sand for $50, Alex

WHATS NEW IN PRODUCTION

HENRY TERRELL, CONTRIBUTING EDITOR


The year was 1983, and I was working asan editorial assistant at a petroleum maga-zine. One of my jobs was to mark up themanuscripts for typesetting, then send theprinted galleys to the proofreaders. One par-ticular article came back with a testy note.

THERE IS NO SUCH WORD! theproofreader had written. IT IS NOT IN

ANY DICTIONARY.The word, circled in red every place it

occurred, was proppant.By the early 1980s, the term had actu-

ally been around for over 15 years, but itsnot surprising that a proofreader couldntfind it in the old musty dictionaries fromthe company library. Before mid-1960s,the operative phrase was propping agent.I cant discover who coined the wordproppant, but the term seems to appearall at once in several magazines in 1966.

Keeping the cracks open. Fracturingwith explosives and other forms of appliedpressure has been used in wells of all kindssince the late 19th century, including oil,gas and water wells. The deeper the well,the more insistent an induced fracture

will be about closing back up. Methods ofkeeping fractures open, with both acid andsand, have existed since the 1930s.

Proppants have always been a requiredcomponent of hydraulic fracturing, buttheir use has evolved steadily since thefirst experimental frac job in 1947, whichutilized sand from the Arkansas River. Idont know how good the sand was on that

first frac, but theyve improved since then.Some varieties of silica (quartz) sand makean almost ideal proppant. The highest-quality sand tends to be naturally spheri-cal, corrosion-resistant, extremely strongand as cheap as sand.

Ordinary, angular sands dredged up inrivers or scooped up from beaches are not

very useful as proppant, however. The bestnatural frac sand is produced from high-purity sandstone. It can be sorted into sizesranging from 0.1-mm diameter to over 2mm, depending on requirements, although

most of the proppant sand used today isbetween 0.4 and 0.8 mm in diameter.

Potential sources of good-qualityproppant sand are St. Peter sandstone,Oil Creek sandstone, Jordan sandstoneand Hickory sandstone, among others.These particular stones are composed ofquartz grains that have been through many

weathering and erosion cycles, which hasremoved almost all minerals other thanquartz, and produced grains of particular-ly round shape. They are usually soft and

poorly cemented, which allows them to beexcavated and crushed with minimal dam-age to the quartz grains.

Traditionally, Wisconsin and Texas sup-plied much of the proppant sand used inhydraulic fracturing. However, surging de-mand has inspired many companies fromdifferent regions to get into the sand busi-ness. Most of the more recent players arelocated in the central U.S., particularly theMidwestern states, where St. Peter sand-stone deposits are close to the surface andeasily mined. Today, almost 60% of fracsand is produced in the Midwest.

Manufactured, uncoated ceramic prop-pant was first used in 1983. The particlesmade from sintered aluminum ore dis-played many improved qualitiesgreatercrush resistance, improved spherical shapeand uniformity. They were also more ex-pensive, but improved well production dueto better interparticle (interstitial) space,

which usually justified the added cost.The very qualities that make proppant

flow easily are the same ones that make it

flow back out again. Proppant flowbackcan begin immediately, along with fluidflowback, as soon as fracturing pressure isreleased, and may continue throughout thelife of the well. This is bad for two reasons:reduction of hydrocarbon flow, leadingto decreased well revenue, and potentialequipment damage, leading to increasedintervention cost. Damaged tubulars, well-head assemblies and valves can add consid-erably to the overall cost of a well.

Resin-coating was introduced to prop-pants to help mitigate flowback, but did

not find widespread use until the mid-1980s. Both sand and ceramic proppants

can be resin-coated, but in general, resin-coated sand occupies a middle position

between raw sand and ceramics, offeringperformance improvement over the for-mer and cost advantages over the latter.

Proppant uprising.As the shale revo-lution rolls forward, demand has grownfrom modest to strong to truly staggering.U.S. demand for well stimulation materials,including frac sand, is forecast to rise over

10%12% a year during the next severalyears. Estimates of total proppant demandin North America by 2017 range from 55

billion lb to 100 billion lb per year. Sand isexpected to continue dominating volumesales, with faster increases in resin-coatedproducts. Demand for ceramic proppants

will also continue to grow rapidly, althoughtraditional manufacturers of ceramic prop-pants have faced increasing competitionfrom China, where cheap bauxite is plen-tiful. There is also competition from light-

weight proppant types, such as walnutshells and crosslinked thermoplastics.

High oil prices have caused the fastestgrowth to be in regions with the most liq-uids potential, including the Permian ba-sin and the Eagle Ford shale in Texas, theMarcellus shale in the East and Utica shalein Ohio, and the Bakken region of NorthDakota. Longer-term, as natural gas pricesstrengthen (with the growing possibility offuture U.S. LNG exports) then proppantdemand will increase in the more fallowgas-prone areas of the Haynesville and

Woodford shales.Perhaps the biggest question mark liesover Californias Monterey shale, consid-ered by many experts to hold very largereserves of light oil. A major push to de-

velop these unconventionals will put evengreater pressure on both natural and manu-factured proppants in coming decades.

To meet the demands of the comingdecades, the proppant industry will re-quire both improved materials and smart-er engineering. But the operative word isstill going to be volume.

[email protected]


25/183

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26/183

Offshore forecasts see more growth,increased spending

OFFSHORE IN DEPTH

ELDON BALL, CONTRIBUTING EDITOR


Over the next several years, the NorthAmerican offshore market should see ex-penditures increase 51%, compared to theprevious five-year period, according to arecent forecast by energy analysts at InfieldSystems. Historically, North America has

been dominated by U.S. Gulf of Mexico(GOM) developments, and this trend willcontinue, with the GOM accounting for90% of regional capital expenditures.

As shallow-water reserves decline, op-erators have expanded their explorationefforts into ever-deeper waters, with Ca-pex forecast to increase 86% for projects in

water depths greater than 1,000 m, Infieldsays. Key deep- and ultra-deepwater devel-opments expected to feature significantlyover the period through 2017 include:

Anadarkos Heidelberg and Luciusdevelopments

Shells Stones and Appomattox ul-tra-deepwater developments

Exxon Mobils Hadrian North proj-ect, although some uncertainty sur-rounds it, and there may be somere-design.

During the forecast period to 2017,Infield expects Canada to increase Capexspending. Seen as a new frontier for devel-opment, the Arctic region has been attract-ing increasing operator and media interest.However, significant challenges exist foroperators wanting to work in these highlyprotected waters, with environmental op-position remaining strong.

Among operators, Shell is expected toaccount for the highest Capex during theforecast, directing 97% of its offshore ex-penditures toward GOM developments.Here, the operator is expected to developits second-most capital-intensive develop-ment globally after West Africas BongaSouthwest, with the Stones and Appomat-tox projects accounting for a significantshare of Shells spending through 2017.The largest proportion, 44%, of the cost

will be directed toward a newbuild semi-submersible. The forecast, Offshore North

America Oil & Gas Market Report, can beaccessed from the Infield Systems website.

Key operators. Other important op-erators include Anadarko and ExxonMobil79% of Anadarkos Capex will berequired by field developments in waterdepths greater than 1,499 m. The great-est depths will be seen on the Lloyd RidgeCheyenne East prospect, where subsea ex-penditure is expected through 2014. Themost capital-intensive project for the U.S.independent after Lucius is finished is ex-

pected to be Heidelberg, with its subseaelement and spar installation.

Exxon Mobil is forecast to direct Capexto both U.S. and Canadian assets, with re-cent project sanctions including the giant

Julia tie-back within the GOMs WalkerRidge area. Exxon Mobil remains unde-terred by Shells Arctic hiatus, directing 5%of its projected expenditures toward Cana-dian Arctic assets. Chevron should see low-er levels of offshore expenditure over theforecast, with Capex targeted at a smallernumber of fields than previously. However,Chevrons average expenditure per fielddevelopment is forecast to increase.

Subsea completions are likely to see thehighest investment over the forecast pe-riod, driven by deepwater GOM develop-ments. With exploration in deeper watersincreasing, subsea completion expendi-tures will inevitably rise. Offshore North

America, satellite wells continue to domi-nate market Capex.

The pipeline market will continue toattract significant Capex, with the GOM

accounting for around 82% of the mar-kets expenditures. SURF lines accountfor the largest proportion of the market,as a result of GOM deepwater activity,

with a large number of subsea tie-ins tofloating platforms required. In terms oftrunk lines, the forecast increase in expen-ditures is due to the increasing number ofinstallations expected offshore the U.S.and Canada.

Almost 75% of offshore platform ex-penditures will relate to floating facilities,mainly associated with GOM projects.

Regarding fixed platforms, 80% of Capexis forecast to be directed toward fields in

Canada, with one of the largest projectsbeing Exxon Mobils Hebron platform off-shore Newfoundland. Historically, the U.S.has dominated the fixed platform market,

but as shallow-water development oppor-tunities have declined, Canada is likely toovertake the GOM.

Helicopter services totaling $24 bil-lion. Energy analysts at Douglas-West-

wood, meanwhile, forecast $24 billion in

expenditures for offshore helicopter ser-vices between 2014 and 2018, a 57% in-crease in comparison to the preceding five-

year period. Western Europe will continueto account for the largest share of expendi-tures, driven by the extensive North Sea in-frastructure and operators preference forlarge helicopters.

This is DWs first edition of the WorldOffshore Oil & Gas Helicopters MarketForecast, which says that a major driverfor growth in offshore helicopter servicesis the field development lifecycle. Duringdrilling, helicopter requirements are short-term, requiring flexibility from the helicop-ter operator. During production, long-termcrew transfer support is required. As pro-duction continues to ramp up, the driversfor a larger fleet of helicopters strengthen.

While Western Europe continues tounderpin the overall market, DW expectsfaster growth rates in Africa, Asia, Austral-asia and Latin America. Globally, the me-dium-sized class accounts for close to 60%of total offshore helicopter service expen-

ditures. Western Europe and Australasiaare exceptions, as customers in these mar-kets favor larger helicopters with increasedrange and carrying capacity.

The next five years will be important, asa new generation of medium-class helicop-ters, such as the EC175 and AW189, are in-troduced. DW notes that these models arehighly efficient, with the most advancedsafety systems, and are expected to per-form well offshore.

[email protected] Eldon Ball has more than 35 yearsof experience in business-to-business writing and editing, technical

and economics communications, media relations, marketing, and events

management, specializing in oil and gas and high-tech businesses.


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28/183

Iraq: Dj vu

OIL AND GAS IN THE CAPITALS

DR. ANAS F. ALHAJJI, CONTRIBUTING EDITOR, MIDDLE EAST


Oil is he source of Iraqs problems. In2003, afer Iraq was invaded, I wroe an ari-cle eniled, The fuure of Iraq: Democracyor Oilocracy.1I argued hen, ha he Bushadminisraion had an hisoric opporuniyo diversify Iraqs economy and remove isoil dependency. Wihou economic diversi-ficaion, a new Saddam Hussein sneaks into

power. Diversification is the kind of preemptivestrike that will prevent future dictators from

taking over Iraq.Wihou economic diver-sificaion, In a few years, people will look atOperation Iraqi Freedom as one of the biggestblunders in U.S. history.Now, we know howrue hese predicions were: Iraq becamecompleely dependen on oil revenues, andanoher dicaor snuck ino power.

If dependence on oil revenues is heproblem, hen removing Prime MinserNouri Al-Maliki, or forming a uniy gov-ernmen, will no solve he curren crisis,or any of Iraqs long-erm problems. Fromhe above argumen, one migh concludeha he main reason for he U.S. invasionof Iraq was o gain conrol of he counrysoil resources.

A he end of 2002, jus abou fourmonhs before Iraq was invaded, I wroea piece in his column eniled, Will heU.S. invasion of Iraq fi he objecives ofBushs energy policy?2 The aricle con-cluded, No, the invasion is not about oil.Now, we know ha mos oil conracswen o Europe and China.

This opic was discussed

again in June 2003, under heile, The U.S. energy policyand Iraqs Invasion: Does oilmaer?3 My conclusion washa U.S. conrol of Iraqi oilproducion did no fi heBush adminisraions energypolicy objecives, which werechampioned by hen-VicePresiden Dick Cheney. Ifoil was not he occupaionsobjecive, hen what was oilsrole? The main conclusion

was ha oil is not the objectiveof the invasion, but it is one of

the main tools to achieve its objectives, whichinclude regime change.

Ironically, he U.S. and he Sunni rebelsin Iraq share he same sraegic objecives,when i comes o conrolling oil reservespreven he enemy from he source of hissrengh and finance a new regime of yourliking from oil revenues. Now, we can seehe vicious cycle ha brings us back o hebeginning of his columnif everyone

wans o conrol Iraqi oil o fund a fuuregovernmen of is liking, Iraq will remaindependen on oil and remain in urmoil, ashe counry is ruled by dicaor afer dica-or, wih no end in sigh. I is an oil curse.

The above argumen means eiher con-inuous urmoil, as dicaors are deposed,one afer he oher, or a srong ruler, whowill bring sabiliy o Iraq bu hreaenneighboring counries.

The impact of current events onglobal oil markets.Back in 2010, in hiscolumn, I wroe abou an in-house sudya NGP Energy Capial Managemen, haprediced an increase in Iraqs produciono only 4.9 MMbopd by 2018.4While hapredicion was considered pessimisic,as various groups alked abou 6.0-plusMMbopd, recen evens prove ha eventhat prediction was too optimistic.

Wha we have seen in Iraq, in recenweeks, is a Sunni revoluion agains Al-Malikis regime and Shia dominance.

Since he Sunnis canno push souh, andAl-Malikis roops canno reake los er-riories, he possibiliy of a long civil warand a de factodivision of Iraq ino hree re-gions is high. The expeced growh in pro-ducion is he firs vicim of his conflic.Iraq canno deliver he 8 MMbopd hahe governmen has been alking abou,or even 6 MMbopd.

Plans o increase producion o 6

MMbopd and above are coningen uponbuilding pipelines hrough wesern Iraq oSyria and Jordan. Now, hese areas are un-der he conrol of Sunni rebels. Produciongrowh is gone wih he revoluion.

If all, or some, of he inernaional com-panies leave Iraq, he counrys oil produc-ion will sar declining immediaely, evenif oil fields and faciliies are no aacked.However, he main winners are he Kurds.They achieved heir dream of conrollingKirkuk and is oil fields. In he mediumerm, producion and expors of 300,000-600,000 bopd from he region are feasible.Bu hese expors do no change he facha long-erm forecass of various agen-cies and groups sill coun on Iraq deliver-ing a leas 6 MMbopd, and now i canno.Kurdisans producion is already includedin hese forecass.

In conclusion, he shor-run impaccould be limied, unless Shia infighing, ashe cenral governmen is weakened, limis

producion. Bu he long-ermimpac is significan, puing

more pressure on Norh Amer-ica o produce more oil.

REFERENCES

1. htp://www.seinbergrecherche.com/fralhajji.hm

2. htp://www.worldoil.com/December-2002-Inernaional-Poliics.hml

3. htp://www.worldoil.com/June-2003-Inerna-ional-Poliics.hml

4. ht p://www.worldoil.com/June-2010-Oil-and-gas-in-he-capials.hml

ALHAJJI@NGP TRS.COM / Dr. Anas Alhajjijoined NGP Energy Capital Management, one of the

leading energy private equity firms in the industry, in

2008 as Chief Economist. He leads the firms macro-

analysis of the oil, natural gas and related markets,and the overall economic environment.

40 years of Iraqi oil production.

Sources: EIA 2014 and OPEC 2014

0

1

2

3

4

1973

Iraqioilproduction,

MMbpd

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015


29/183

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Geoscientists are doing goodthings for the world

EXECUTIVE VIEWPOINT

CRAIG BEASLEY, CHIEF GEOPHYSICIST,

WESTERNGECO, AND SCHLUMBERGER FELLOW


In 2004, shortly after my term began asSEG president, a massive undersea earth-quake off the Sumatran coast triggeredthe infamous Indian Ocean tsunami thatclaimed a quarter-million lives. I receiveda flurry of emails from SEG members

worldwide, asking what we could do tohelp, not simply as concerned citizens,

but as geoscientists.In my next presidents letter, I issued a

grand call to action for members to donateto the SEG Foundation, to fund humani-tarian-targeted geoscience projects. At thattime, however, only a smattering of peopledonated money. The whole endeavorstalled out, but it never quite went away.

The spark reignited, when I ran acrossan organization called Engineers With-out Borders, which delivers sustainableengineering programs proposed by localcommunities worldwide. I realized that wedidnt have to dream up our own projectsor manage them. We just had to raise suf-ficient seed money, and solicit proposals.

I contacted Schlumbergers CEO,whom I knew personally. Many geoscien-tists, I said, resonate with the idea of us-ing earth science theory and technologyto do good things for the world. And lets

be honest, the oil industry doesnt havea great reputation in academic circles orthe public. This could help elevate ourprofile, recruit highly motivated gradu-ates, even inspire our own employees.He committed $1 million on the spot, at

$200,000 per year.Using this as seed money, the SEGFoundation formed Geoscientists WithoutBorders (GWB) in 2008, hired a full-timeadministrator, and began soliciting pro-posals. To receive funding, a project mustmeet three criteria. It must involve earthscience, have humanitarian benefits, andengage university students. Each projectcan receive up to $50,000/year for one ortwo years.

Humanitarian projects with science.In its first five years, GWB funded initia-

tives in Australia, Benin, Brazil, Greece,Haiti, Honduras, India, Indonesia, Ja-

maica, Nicaragua, Romania, South Africa,Sweden and Thailand. Projects includedarcheological excavations, earthquake pre-paredness, landslide prediction, pollutionmitigation, tsunami preparedness, volcanopreparedness, and water management. Lastfall, SEG produced a terrific short film,entitled Geoscientists Without Borders,now posted on YouTube (www.youtube.com/watch?v=Md1185PL6dM), describ-

ing projects in Greece, Brazil, Jamaica andSouth Africa.

Many of GWBs endeavors are pro-foundly impacting thousands of men,

women and children in their respective re-gions. Consider, for example, our pollutionmapping project in Romania.

After 40 years of aggressive copper,lead and zinc mining, Zlatna is one ofEuropes most polluted areas, and has at-tracted international scientific study todetermine pollutant levels and locations.The University of Bucharest held fieldcamps in a valley that had been minedsince Roman times. Students observedlocal children swimming, and farmers

watering their livestock, in a tailings pondthat contained high concentrations of tox-ic metals. So a team of graduate studentssubmitted a proposal to GWB to fundnear-surface geophysical, geomagneticand geochemical surveys. Their goal wasto map contamination levels in the soiland aquifers along the Ampoi Valley, toidentify the least-polluted water sources,

and the safest places for planting crops.A local mayor, who was also a geochem-ist, propelled the project beyond its origi-nal scope. With field data and certified geo-chemical lab results in hand, he petitionedthe Romanian government and EuropeanUnion for fundsand won approval for apipeline to bring potable water to residentsand communities throughout the valley.Thats an impressive return on a relativelysmall investment.

Recently, GWB selected three new hu-manitarian projects to fund in Guatemala,

Cameroon, and a remote island off theAustralian coast. The Guatemalan project

involves building local capacities for moni-toring eruptive and landslide activity at thePacaya volcano. The ultimate goal is to savelives by means of early warnings in case ofa catastrophic eruption, and to reduce falseevacuation recommendations.

In northern Cameroon, students willconduct electromagnetic surveys to char-acterize a basement rock aquifer in the

Vina River catchment, to develop a fresh-

water well field. The objective is to provideaccess to, and localization of, fresh ground-

water reserves for domestic or irrigationpurposes. Remote Milingimbi Island,

Australia, has an aboriginal communityof about 1,600 persons, and groundwateris their only water source. Students andprofessors will use near-surface geophysi-cal measurements to support water supplyinvestigations and engage local communitymembers in training and use of near-sur-face instruments to help ensure a sustain-able water supply.

Geoscientists are doing amazing,wonderful things around the world to-day through GWB, supported solely byindividual donors, oilfield service pro-

viders, a few software developers, and asmall number of E&P companies. Can

you imagine what we will achieve, if weexpand the base of support?

The vision, from the beginning, was tobuild a track record of successful projectsto take our case to the oil industry. GWBnow offers a compelling business case,

worthy of broader, deeper industry sup-port. I am confident that GWB can expandto represent the entire oil industry and willcontinue to inspire both students and thepublic, as they understand that we are us-ing our science, technology and collective

brainpower to make the world a betterplace for generations to come.

CRAIG BEASLEY is chief geophysicist for WesternGeco anda Schlumberger fellow. He completed BS, MS and PhD degrees in

mathematics and then joined Western Geophysical in 1981. He served

in several capacities of growing responsibility, including V.P., Data

Processing, afer the formation of WesternGeco. He has received

numerous awards and served as the 2004-2005 SEG president. He isthe founding chair for the Geoscientists WithoutBorders committee.


31/183

2014 Baker Hughes Incorporated. All Rights Reserved. 40715 04 /2014

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INNOVATIVE THINKERS


Presidential

characterization

D. Nathan Meehan

As 2016 SPE President, Nathan Meehanwill bring nearly 30 years of experience inreservoir characterization to the role.

The beginning of an exciting new pro-fessional chapter is already underway forNathan Meehan. As the recently con-firmed nominee for 2016 SPE President,Meehan will see his calendar grow increas-ingly full as the end of 2015 nears, when he

will be preparing to assume the leadershiprole next year. In his day job as senior exec-utive advisor for reservoir and geosciencesat Baker Hughes Incorporated, Meehan

will be one of a handful of service companyprofessionals to have helmed the industrygroup since its formation in 1957.

After collecting a pair of degrees inphysics (BS) and petroleum engineering(MS), Meehan got his oil industry start

with Union Pacific Resources (UPR) in1976, which would later prove to have been

the beginning of a 24-year-career with thecompany. At the time, UPR was strugglingwith tight reservoirs and permeability chal-lenges. Applying what he had learned inschool, Meehan crafted software programsfor HP calculators that would enable en-gineers to determine fluid properties andother reservoir engineering measurements.This ability to peer below the surface

would provide the basis upon which teamscould model their hydraulic fracturing jobs.

As the industry took a sharp down-turn in the late 1980s, Meehan embracedhis desire to continue working with tech-nological applications, rather than P&Ls.Spurred by what he remembers as excitingtimes, technologically, Meehan took theopportunity to earn a PhD in petroleumengineering from Stanford University.During this time, and after, he continuedto focus on reservoir characterization, butalso worked in geosteering and, at onepoint, had a drilling department report tohim, during a time when UPR was activelydrilling 3,000-plus-ft horizontal wells.

Just over a decade later, UPR wasacquired by Anadarko, at which pointMeehan jumped briefly into a position atOccidental Petroleum, before going into

engineering consulting. Although he en-joyed the projects he undertook as a con-sultant, including field studies and arbi-tration on technical challenges, it was notlong before Meehan was drawn back intothe fold of big-time oil and gas. In 2008,he joined Baker Hughes with the goal ofhelping the company, and its customers,to better understand the reservoir. Morethan 30 years after he first built calcu-lator programs to help engineers seesubsurface properties, Meehan is inter-ested in addressing the question of how

best to quantify the value of reservoircharacterization tools.

As much as majors, independents andNOCs may be willing to spend on prod-ucts and services in todays upstream in-dustry, from Meehans perspective, thereis one concept that may be even more

valuable. Referring to the idea of a sociallicense to operate, he described a drillingparadigm in which operators work smarter,not harder (and messier, and noisier, andlarger). Pad drilling has become increas-ingly popular for cost savings and environ-mental friendliness, but Meehan said he

believes the industry can do much more,while also reducing the number of wellsdrilled and frac stages pumped.

Meehans social conscience extends be-yond the oil and gas supply chain. A littlemore than two years ago, he and his wife

returned from Hong Kong following an18-month humanitarian trip, during whichtime they performed community servicethroughout Asia. Over the coming year,Meehan will turn his focus, once again, tothe industry, as he becomes SPE president-elect this fall. Meanwhile, when he has a mo-ment of reprieve from overseeing things atBaker Hughes, he will be mulling over whichobjectives he would like to focus on duringhis tenure as head of the 124,000-memberSPE, all while continuing to learn MandarinChinese in his spare time, of course.

[email protected]


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34/183

INDUSTRY AT A GLANCE

[email protected]


010

20

30

40

50

60

70

80

$0$1

$2

$3

$4

$5

$6

$7

Monthly price (Henry Hub)12-month price avg.

Production

MAMFJDNOSAJJMAMFJDNOSAJJM2012 2013 2014

Production equals U.S. marketed production, wet gas. Source: EIA.

Monthly price (Henry Hub)12-month price avg.

Production

45

60

75

90

105

120

135

Dubai Fateh

W. Texas Inter.Brent Blend

MAMFJDNOSAJJMAMFJDNOSAJJM2013 20142012

Source: DOE

SELECTED WORLD OIL PRICES ($/BBL)

U.S. GAS PRICES ($/MCF) & PRODUCTION (BCFD)

WORLD OIL & NGL PRODUCTION Million barrels per day MAY APR

2014 2014 AVG. 2013 AVG. 2012

OPECCRUDE OIL

Saudi Arabia 9.49 9.40 9.40 9.51

Iran 2.80 2.83 2.68 3.00

Iraq 3.37 3.32 3.08 2.95

United Arab Emirates 2.65 2.69 2.76 2.65

Kuwait 2.52 2.55 2.55 2.46

Neutral Zone 0.52 0.52 0.52 0.54

Qatar 0.70 0.70 0.73 0.74

Angola 1.63 1.63 1.72 1.78

Nigeria 1.90 1.92 1.95 2.10

Libya 0.24 0.22 0.90 1.39

Algeria 1.12 1.12 1.15 1.17

Ecuador 0.56 0.55 0.52 0.50

Venezuela 2.50 2.46 2.50 2.50

NGLs & condensate1 6.41 6.41 6.33 6.28

TOTAL OPEC 36.40 36.32 36.79 37.58

OECD2

U.S. 11.42 11.25 10.31 9.17

Mexico 2.80 2.84 2.89 2.92

Canada 4.04 4.05 3.99 3.75

United Kingdom 0.93 0.91 0.85 0.94

Norway 1.88 1.92 1.84 1.91 Europe-others 0.58 0.57 0.59 0.60

Australia 0.46 0.44 0.41 0.48

Pacific-others 0.08 0.08 0.07 0.08

TOTAL OECD 22.18 22.07 20.96 19.87

NONOECD

Russia 10.95 10.89 10.88 10.73

FSU-others 2.96 3.02 3.00 2.93

China 4.21 4.17 4.18 4.17

Malaysia 0.66 0.65 0.66 0.67

India 0.89 0.90 0.90 0.91

Indonesia 0.80 0.81 0.84 0.89

Asia-others 1.15 1.14 1.14 1.17

Europe 0.14 0.14 0.14 0.14

Brazil 2.17 2.23 2.12 2.16

Argentina 0.61 0.62 0.63 0.66

Colombia 1.01 0.94 1.01 0.95

Latin America-others 0.42 0.42 0.42 0.41

Oman 0.96 0.93 0.95 0.93

Syria 0.02 0.02 0.06 0.17

Yemen 0.11 0.11 0.14 0.18

Egypt 0.68 0.68 0.70 0.72

Gabon 0.24 0.24 0.24 0.25

Africa/Middle East-others 1.67 1.67 1.59 1.48

TOTAL NONOECD 29.67 29.57 29.58 29.52

PROCESSING GAINS3 2.19 2.19 2.18 2.14

TOTAL SUPPLY 90.44 90.15 89.51 89.11

Source: International Energy Agency Note: Totals and subtotals may not add, due to rounding.1Includes condensates reported by OPEC countries, oil from non-conventional sources, e.g. Venezuelan Orimulsion

(but not Orinoco extra-heavy oil) and non-oil inputs to Saudi Arabian2Comprises crude oil, condensates, NGLs and oil from non-conventional sources.3Net of volumetric gains and losses in refining (excludes net gain/loss in China and non-OECD Europe) and marine

transportation losses.

U.S. OIL PRODUCTION1 Thousand barrels per day

MAY MAY APRSTATE 20142 20133 % DIFF. 20142

Alabama 30 29 3.4 28

Alaska 556 515 8.0 564

Arkansas 21 18 16.7 20

California 609 579 5.2 607

Colorado 191 158 20.9 190Florida 7 6 16.7 7

Illinois 22 26 15.4 22

Kansas 131 130 0.8 134

Kentucky 7 7 0.0 7

Louisiana4 1,341 1,173 14.3 1,263

Michigan 23 22 4.5 21

Mississippi 69 68 1.5 68

Montana 85 81 4.9 88

Nebraska 10 8 25.0 8

New Mexico 325 280 16.1 297

North Dakota 997 810 23.1 965

Ohio 22 13 69.2 20

Oklahoma 348 321 8.4 340

Texas4 3,189 2,768 15.2 3,087

Utah 114 93 22.6 110

West Virginia 12 12 0.0 12

Wyoming 193 173 11.6 187

Others5 29 28 3.6 29

TOTAL U.S. 8,331 7,317 13.9 8,074LOWER 48 7,775 6,802 14.3 7,510

1Includes lease condensate. 2Preliminary estimate, API.3DOEs revision, as of 10 months from current issue date, adjusted. 4Includes federal OCS production.5Includes Arizona, Indiana, Missouri, Nevada, New York, Pennsylvania, South Dakota, Tennessee and Virginia.

The rapidly deteriorating political situation in Iraq, with

Sunni insurgents gaining control of much of that countrys oil-

producing regions, sent oil futures sharply higher in early June,

with Brent Blend gliding past $110/bbl. This, along with greater

demand from China, put pressure on world oil supplies, which

rose to 90.44 MMbpd, most of that outside OPEC. Productionin the U.S. surpassed 8.3 MMbopd. Natural gas prices and pro-

duction remained fairly steady. The U.S. rotary rig count stayed

flat going into June, hovering around 1,850, while the interna-

tional count climbed modestly to 1,516 rigs running.

U.S. ONSHORE WELL COUNT

Basin Q2 2014 Q1 2014 +/ Year ago +/

Ardmore Woodford 31 66 35 49 18

Arkoma Woodford 24 25 1 13 11

Barnett 327 374 47 443 116

Cana Woodford 94 77 17 82 12

DJNiobrara 267 258 9 266 1

Eagle Ford 1,110 1,171 61 1,044 66

Fayetteville 127 129 2 157 30

Granite Wash 132 148 16 141 9

Haynesville 97 94 3 109 12

Marcellus 524 576 52 475 49

Mississippian 386 408 22 343 43

Permian 2,374 2,351 23 2,169 206

Utica 102 112 10 131 29

Willi

worldoil-july2014

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