Governors Ask Nominee Jewell to Open Atlantic Waters for Exploration

The governors of North and South Carolina and Virginia have asked Interior Secretary nominee Sally Jewell to revise the Obama administration's current policy and open the waters offshore their states for oil and gas exploration.

"As governors, we strive to pursue policies that help create jobs and make energy more affordable while protecting our states' natural resources," said North Carolina Gov. Pat McCrory, South Carolina Gov. Nikki Haley and Virginia Gov. Bob McDonnell in a Feb. 14 letter to Jewell in care of the U.S. Department of the Interior.

A number of governors have expressed interest in reforming offshore energy policy to allow states to pursue exploration on the Outer Continental Shelf. McCrory, Haley and McDonnell told Jewell they would be "listening intently" to Jewell's answers during her nomination hearings regarding offshore exploration.

The three governors also urged Jewell to consider the policy recommendations outlined by the Republican Governors Public Policy Committee in 2012, "An Energy Blueprint for America." The recommendations include empowering U.S. states to make offshore exploration restrictions specific to local considerations and revenue sharing measures for all offshore energy projects.

The governors said they were heartened to see the recent release of Senate Energy and Natural Resources Committee Ranking Member Lisa Murkowski's (R-AK) "Energy 20/20" blueprint that recommends expanding OCS leasing to the Eastern Gulf of Mexico and parts of the Atlantic OCS, including Virginia, North Carolina and South Carolina.

These proposals build on past legislative action from the 112th Congress, including the bipartisan Offshore Petroleum Expansion Now Act of 2012, sponsored by Sen. Mark Warner (D-Va.) and former Sen. Jim Webb (D-Va.) and a suite of bills passed by the House of Representatives.

"It's estimated that energy production from the Atlantic OCS could create more than 140,000 new jobs within the next 20 years, and we hope you will ensure that the Administration is a partner with the states on this issue," the governors commented in the letter.

American Petroleum Institute (API) President and CEO Jack Gerard commended the governors "for their vision and leadership in recognizing this game changing opportunity to produce more American energy."

"We have an opportunity to lead the world on energy, and through safe and responsible development of our own oil and natural gas resources we can continue our path as a global energy superpower," Gerard noted.

Gerard also called for the U.S. government to update information about oil and gas resources in the Atlantic Ocean offshore the United States, which is over 30 years old and out of data.

"It would be irresponsible of our government leaders not to allow exploration and development utilizing the latest technologies to learn exactly how much energy we have."

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com.

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US Crude Oil Futures Drop 1.5% on Disappointing Data

U.S. oil futures prices tumbled 1.5% Friday as concerns about a stalling European economy sparked some profit-taking ahead of the long weekend, traders and analysts said.

News from overseas gave the market little reason to hope for an improving economy and more oil demand. Retail sales in the U.K. fell 0.6% in January, the biggest monthly decline in nine months and well short of expectations for a 0.6% increase. A decline in euro-zone imports and exports in December added to the pessimism, analysts said.

The weak European data inspired selling among traders who had ridden the oil market rally that brought prices to a two-week high of $97.31 Thursday, said Gene McGillian, broker and analyst at Tradition Energy.

"The market had a significant rally the rest of this week and...seemed ready" for a selloff, said Andy Lebow, analyst at Jefferies

"WTI finally came under some liquidation pressures," Mr. McGillian added.

The situation wasn't helped by lower-than-expected U.S. industrial production data for January. Output dropped 0.1%, versus expectations of a 0.2% gain.

Light, sweet crude oil for March delivery on the New York Mercantile Exchange settled lower by $1.45, or 1.5%, at $95.86 a barrel. Brent futures on the IntercontinentalExchange settled 19 cents, or 0.2%, lower at $117.66 a barrel.

The slide in oil prices contrasted with further gains in the benchmark U.S. gasoline contract. March reformulated gasoline blendstock futures, or RBOB, on the Nymex exchange settled 1.79 cents, or 0.5%, higher at $3.1345 a gallon. The price is up 15% from the front-month low for 2013 hit Jan. 15.

The RBOB gains came as many refineries were scaling back production amid maintenance work. Much of the price increases could be chalked to the upcoming switch to costlier summer-blended grades of gasoline in April, said Phil Flynn, analyst with Price Futures Group. Gasoline formulas are adjusted seasonally under the Clean Air Act to reduce smog formation when the weather warms up.

Heating oil futures were down 0.4% to $3.2104 a gallon.

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Transocean: US Judge Approves Criminal Settlement with DOJ

A federal judge in New Orleans approved Transocean Ltd.'s $400 million criminal settlement with the U.S. Justice Department over the 2010 Deepwater Horizon accident, a spokesman for the company said Thursday.

Judge Jane Triche Milazzo accepted Transocean's guilty plea to one criminal misdemeanor violation of the Clean Water Act for failing to properly monitor the well at the time of the deadly 2010 blowout in the Gulf of Mexico, the spokesman said.

The company will pay a $100 million fine within 60 days and $150 million each over the next three to five years to the National Fish and Wildlife Foundation and the National Academy of Sciences for oil-spill response and habitat rehabilitation.

Transocean has also agreed to pay $1 billion in fines for civil violations of the Clean Water Act, but that settlement must be approved separately by another judge. The settlement agreements were announced in early January.

Transocean was the owner of the drilling rig that exploded in April 2010, killing 11 workers and triggering the largest offshore oil spill in U.S. history.

Oil giant BP PLC, which was leasing the rig to drill an exploratory well, agreed to pay $4.5 billion in November to settle all criminal and some civil charges in the case.

BP still faces what could be many billions of dollars in fines for violating the Clean Water Act, as well as billions of dollars in payments under the Natural Resources Damages Assessment process. The first phase of a civil trial over culpability in the accident is scheduled to begin before a federal judge in New Orleans on Feb. 25.

Transocean is also a party in that civil lawsuit, but only faces claims from Gulf Coast businesses and individuals who previously settled with BP. Transocean has argued it is indemnified by most of those claims through its drilling contract with BP.

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Circle Oil Updates Production Activities in Egypt

Circle Oil Plc announced the following update regarding the Al Amir SE field ("AASE") and the Geyad field.

Infill production well AASE -14X, located centrally in the field midway between AASE-1X ST1 and AASE-12X ST1 was spud Nov. 26, 2012. The well was planned as a Shagar and Rahmi sand producer and was sidetracked for geological reasons Jan. 4 as AASE-14X ST1. The well has encountered 20 feet measured depth (MD) of gross Shagar sand (9,610-9,630 feet MD) with 16 feet MD net pay, plus 15 feet MD of gross Rahmi sand (9,680-9,695 feet MD) with 13 feet MD net pay, with a total depth of 10,000 feet MD. The well is now planned to be completed as a producer and an update will issue once flow testing is completed.

Production from the AASE and Geyad fields averaged 9,091 barrels of oil per day (bopd) (gross) through January 2013. Cumulative production from the NW Gemsa Concession has now exceeded 10.4 million barrels of 42 degree API Crude oil.

The 12 inch gas pipeline has now been tied in and gas production started up Feb. 12. The initial flow rate at start-up was 8 million square cubic feet per day (MMscf/d), or 1,456 barrels of oil equivalent per day (boepd), and is currently 9 MMscf/d (1,638 boepd). The gas is rich in extractable liquids that will add significantly to the income stream for Circle. Gas processing is expected to provide an additional 140 - 150 bocd and 35 tonnes (c. 400 boepd) of LNG per day.

Work on finalizing the development and day to day operations of the AASE and Geyad fields will continue through 2013. The 2013 work program includes the drilling of 4 further wells (1 producer and 3 injectors) in the first half of the year.

The NW Gemsa Concession, containing the Al Amir and Geyad Development Leases, covering an area of over 100 square miles (260 square kilometers), lies about 186 miles (300 kilometers) southeast of Cairo in a partially unexplored area of the Gulf of Suez Basin.

The concession agreement includes the right of conversion to a production license of 20 years, plus extensions, in the event of commercial discoveries. The NW Gemsa Concession partners include: Vegas Oil and Gas (50% interest and operator); Circle Oil Plc (40% interest) and Sea Dragon Energy (10% interest).

Prof Chris Green, CEO, said:

"Circle is very pleased that the AASE-14X ST1 well has encountered pay intervals as prognosed in the Shagar and Rahmi sands and will be completed as a producer to complement the production levels from the AASE field.

The start up of gas flow through the 12" pipeline from our Geyad and AASE fields is another significant step forward as this production is expected to add approximately 2,000 boepd to the daily gross production."

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Halliburton Bags Statoil Work Offshore Norway

Halliburton has been selected by Statoil to provide multilateral technology (MLT) for two mature fields offshore Norway. The three-year frame agreement includes two optional periods of two years each and has an estimated value of more than $200 million.

The new FlexRite Multibranch Inflow Control (MIC) junction and the FlexRite Intelligent Completion Interface junction, of which Statoil has installed approximately 150, will form the basis of this frame agreement. Together, these sealed junction MLT systems enable flow control capability of all laterals in multiple legged MLT wells.

In addition, Halliburton's MLT solutions offer both environmental and safety benefits by reducing the number of templates needed and the amount of drilling time to reach the reservoir—ultimately enabling greater reserve recovery.

Together with other Improved Oil Recovery projects Halliburton's MLT technology has contributed to Statoil's increased oil production from the Troll field. The current drilling plan for these fields is estimated to include 119 new junction installations or about 75 percent of the planned multilaterals offshore Norway.

"Previously, technology provided by Halliburton to Statoil, has proven to be an innovation solution for the Norwegian sector of the North Sea," said Luis Mera, Halliburton's Scandinavia Area Vice President. "We are proud to be part of some of the most complex multilateral solutions being installed in the world."

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North America Oil, Gas Resources Main Focus of 2012 M&A Activity

Upstream oil and gas assets remained the focus of merger and acquisition (M&A) activity in 2012, with the total value of energy deals done last year rising to $321.5 billion from $300.6 billion in 2011, according to Deloitte's year-end 2012 report on M&A activity in the oil and gas sector.

Rosneft's $61.6 billion acquisition of BP-TNK drove buyers' focus on upstream assets, but excluding this deal, North American unconventional and deepwater oil and gas plays remained the focus of M&A activity in 2012. A few major transactions near the end of 2012 bumped total M&A deal value higher, but the number of overall deals completed declined from 698 to 576 in most segments except downstream.

National oil companies and other larger international buyers remained active in North America and other markets as they continue to expand their resource base, said John England, leader of Deloitte's U.S. Oil & Gas and vice chairman of Deloitte LLP, in the report. These companies found the North American market attractive in 2012 due to:

North America's political stability and mature investment environmentInvestment opportunities in well-known North American resource plays with predictive resultsAccess to technology and workforce expertise which has driven the exploration and production boom in unconventional and deepwater resources in North AmericaPotential continued growth that could to an export market for North American resources

Global upstream oil and gas activity grew 50 percent to $253.4 billion last year, compared with $167.9 billion in 2011, while the number of deals grew 11 percent from 518 to 461. The hunt by international companies for North and South American properties should continue as countries such as China and India address their growing energy demands and diversify their portfolios. Large integrated companies should also be active buyers as they look to the market for new properties to offset production declines that have been prevalent among the majority of supermajors.

While M&A activity in the upstream sector remained brisk last year, the oilfield services sector was quiet, partly due to the steadily declining U.S. rig count during 2012. M&A transactions totaled $17.9 billion, a 54 percent decline from 2011, and the number of deals also declined from 97 in 2011 to 57 in 2012.

Softening demand in the second half of the year also put pressure on margins and on public company stock prices, making companies less capable or interested in doing transactions. The shift by producers from dry gas to liquids also forced oilfield companies to relocate resources and services, creating inefficiencies and overcapacity in some areas and a struggle to reposition resources and labor to emerging liquids areas.

However, "2013 may be a year when M&A activity rebounds in the onshore oilfield services sector, as sellers become more realistic about pricing and consolidation," England commented.

Midstream M&A also slowed from the rapid 2011 pace, but activity remained at historically high levels, and continued to focus on transactions that will facilitate serving of the North American shale plays. Midstream M&A total value reached $35.6 billion in 2012, down from $84.5 billion in 2011.

"Growth in the midstream pipeline and processing infrastructure has not kept pace with growth in the unconventional resource plays, providing many opportunities for capital investment that we expect to lead to more midstream deal activity in 2013," England noted, adding that Deloitte believes that some bigger players could enter the market, some consolidation to take place, or a combination of both, if the midstream segment is going to continue supporting shale and tight oil activity in the United States.

Downstream M&A activity held steady, with the value of deals rising to $14.6 billion for 2012 from $11 billion in 2011. The downstream sector has been through a major reshuffling in the past two years, with the spinoff of downstream businesses of two large integrated oil companies and two significant refinery dispositions by BP. Independent companies now mainly dominate North America's refining industry after once being controlled by large integrated firms.

"U.S. refiners in general have seen their underlying business fundamentals greatly improve over the last two years, as a result of fundamental prospects and valuations being highly dependent upon geographic location and access to cheap crude and pipeline capacity," England noted.

Crude oil prices, which have settled into a stable range, set the stage for greater confidence around upstream oil investments. U.S. natural gas prices, which have traded at historic lows thanks to the U.S. shale gas exploration boom which has significantly increased supply, are not expected to rebound significantly in 2013, but deal activity may grow in the exploration and production and service areas.

"At some point the valuations in the natural gas area become so attractive that buyers with a long-term strategy could make a good deal of money," said Roger Ihne, principal with Deloitte Consulting LLP, in the report.

Thanks to technological advancements in drilling and production, the number of completions in North American fields has risen, and Deloitte expects to see improvements not only in cost effectiveness but in safety as well.

However, industry executives and other deal market participants should keep an eye on regulatory direction in the upcoming second term of the Obama administration, England noted. The oil and gas industry has been targeted by some groups in Washington looking for sources of new tax revenues, and whether they achieve the desired results could affect activity in the coming year.

"As the U.S. oil and gas industry and its activities become larger and more publicly visible across the multiple shale and tight oil basins, it is incumbent upon companies to be particularly diligent in following the evolving regulations and be sensitive to environmental concerns as these new plays are developed," England commented.

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com.

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Nexen-CNOOC Tie-Up Gets Green Light From US Government

Nexen Inc. said early Tuesday that the Committee on Foreign Investment in the U.S. has approved CNOOC Ltd.'s $15.1 billion acquisition of Nexen, clearing the last significant hurdle in the deal--China's biggest overseas acquisition to date.

The Canadian government approved the deal in December, after an extensive review of its own foreign investment rules and its policy toward state-owned enterprises in particular. Britain also green lighted the deal. U.S. and British authorities needed to sign off because Nexen controlled significant assets in the Gulf of Mexico and the North Sea.

Calgary, Alberta-based Nexen said it expects CNOOC to close the acquisition the week of Feb. 25.

The U.S. approval came after the companies agreed to resubmit their application in front of the committee, a multi-agency group in Washington that vets significant foreign investment in the U.S. The approval marks a significant milestone for CNOOC, which had pushed hard into the U.S. energy patch in the middle of the last decade, bidding for Unocal Corp.

That deal ultimately died amid political opposition in the U.S., and Chevron Corp. eventually bought Unocal.

CNOOC started up a new push into North America in recent years, but focused on Canadian assets. In 2011, it agreed to buy bankrupt Canadian producer OPTI Canada Inc., a rare move by a Chinese state owned entity to go after 100% of a North American energy company. Then last year, it went a step further, offering to buy the much larger and much more financially healthy Nexen, an oil-sands operator with petroleum assets around the world, including in the strategic--and sometimes politically sensitive--Gulf of Mexico.

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Unconventional Oil, Natural Gas is the 'Sweet Spot' for US

Unconventional oil and gas activity is already revolutionizing America's energy future and bringing enormous benefits to its economy, Director of Consulting Energy and Natural Resources at IHS Jerry Eumont said. Net petroleum imports have fallen from 60 percent of total consumption in 2005 to 42 percent in October 2012.

The recent surge in unconventional oil and gas and its effect in the United States was the topic of discussion at the American Petroleum Institute’s (API) Houston Chapter luncheon Tuesday.

U.S. oil production, which has risen 25 percent since 2008, reached about 8.5 million barrels per day in 2012, Eumont said.

Tight oil is contributing the most to this increase due to recent advances in energy development. Unconventional natural gas is also contributing to the transformation in the natural gas market. A dozen years ago, shale gas production was only 2 percent of the nation's total natural gas production but represents 37 percent today.

This "renaissance" in the nation's unconventional market means an increase in employment – about 1.7 million jobs were created in 2012, Eumont noted. This number is projected to increase to 2.9 million jobs by the end of the decade and 3.4 million in 2035.

"Job creation in the shale plays is occurring in the oil company and service side, but is also occurring throughout the regions that have active plays," said Eumont. "Hotel, restaurants, construction, etc. are all benefiting from this activity. The impact as it trickles down is tremendous."

Unlocking unconventional energy will generate millions of jobs and billions in government receipts, Eumont added.

This energy renaissance is expected to make significant contributions to the U.S. economy through direct employment, its many and diverse connections with supplier industries, the amount of spending this direct and indirect activity supports throughout the economy, and the revenues that flow to federal and state and local governments.

IHS expects substantial growth in capital expenditures and employment to occur in support of the expansion of production within the unconventional sector:

More than $5.1 trillion in capital expenditures will take place between 2012 and 2035 across unconventional oil and natural gas activity, of which: Over $2.1 trillion in capital expenditures will take place between 2012 and 2035 in unconventional oil activityAbout $3 trillion in capital expenditures will take place between 20102 and 2035 in unconventional natural gas activityOn average, direct employment will represent about 20 percent of all jobs resulting from unconventional oil and natural gas activity with the balance contributed by indirect and induced employmentBy 2020, total government revenues will grow to just over $111 billionIn 2012, unconventional energy activity supported over 360,000 direct jobs, over 537,000 indirect jobs in supplying industries, and over 850,000 induced jobs – a total of more than 1.7 million jobs in the lower 48 U.S. states

With more than 10 years of journalism experience, Robin Dupre specializes in the offshore sector of the oil and gas industry. Email Robin at rdupre@rigzone.com.

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Raisama Withdraws from Farm-In Agreement Offshore New Zealand

New Zealand Oil & Gas (NZOG) revealed Wednesday that Raisama Energy is withdrawing from its farm-in agreement to participate in drilling the Kakapo structure in PEP 51311, offshore Taranaki Basin.

NZOG noted in its statement that Raisama acquired the opportunity to earn a ten percent interest in the prospect by paying 20 percent of drilling costs up to $3.1 million (AUD 3 million) and 10 percent after that.

"As the well has not yet been drilled, Raisama's withdrawal means it will not incur these costs," NZOG said in its disclosure.

NZOG is at present, seeking further farm-in partners and a drilling rig on suitable terms.

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