BP to 'Vigorously' Defend Itself in Deepwater Horizon Civil Trial

BP insisted Tuesday that it will defend itself "vigorously" against gross negligence allegations during the Deepwater Horizon civil liability trial, which starts next Monday.

The first phase of the civil trial – to be held in the U.S. District Court for the Eastern District of Louisiana – will be focused on the causes of the Deepwater Horizon accident and will examine who should be held responsible and to what degree.

"We have always been open to settlements on reasonable terms, failing which we have always been prepared to defend our case at trial. Faced with demands that are excessive and not based on reality or the merits of the case, we are going to trial," said Rupert Bondy, Group General Counsel of BP. "We have confidence in our case and in the legal team representing the company and defending our interests."

The court will ultimately determine whether BP or any other party was grossly negligent, but BP strongly disputes this charge.

"Gross negligence is a very high bar that BP believes cannot be met in this case,” said Mr Bondy. “This was a tragic accident, resulting from multiple causes and involving multiple parties. We firmly believe we were not grossly negligent."

Last November, BP and the U.S. government agreed to resolve all Federal charges and all Securities and Exchange Commission claims connected to the April 2010 disaster in return for $4.5 billion settlement paid by BP.

As part of the deal, BP agreed to plead guilty to 11 felony counts of "misconduct or neglect of ships officers" relating to the loss of the lives of 11 people as a result of the accident. It also agreed to plead guilty to one misdemeanor count under the Clean Water Act, one misdemeanour count under the Migratory Bird Treaty Act and one felony count of obstruction of Congress.

The Deepwater Horizon explosion on April 20, 2010 resulted in the largest offshore spill in U.S. history.

A former engineer, Jon is an award-winning editor who has covered the technology, engineering and energy sectors since the mid-1990s. Email Jon at jmainwaring@rigzone.com.

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SandRidge Shareholder Questions Related-Party Transactions

WCT Resources, a company owned and controlled by trusts established by SandRidge Energy CEO Tom Ward to benefit his children, controls approximately 475,000 acres adjacent to SandRidge in the Mississippi Lime play, TPG-Axon Capital reported Tuesday.

Investment firm TPG-Axon, which owns 7 percent of SandRidge's outstanding shares and is seeking to replace the company's current board of directors and change the company's bylaws, made the finding in a review conducted of 22 counties in Oklahoma and Kansas, saying in a Feb. 19 presentation that it had found an "undeniable pattern" of conflicted related-party transactions of large proportions with entities related to Ward and his family.

WCT's acreage position in the Mississippi Lime would make WCT the fifth largest exploration and production company in the Mississippian play, behind only SandRidge, Chesapeake Energy, Royal Dutch Shell plc and Devon Energy Corp., a direct competitor of SandRidge, TPG-Axon said in a statement.

"TPG-Axon is concerned not only by the scale of WCT Resources' involvement in the Mississippian, but by the suspicious timing of the company's purchases," TPG-Axon commented, noting that it had discovered that, in many instances, WCT and SandRidge actively acquired acreage within weeks and months of each other.

"Contrary to SandRidge's claims, based on the data TPG-Axon has reviewed, this pattern of activity is not rare; it is now clear that the degree of overlap and competition is truly massive," TPG-Axon noted.

TPG-Axon has previously stated it believes SandRidge stockholders may have been disadvantaged by the actions of entities related to Ward or his immediate family members. The company is asking shareholders to vote in favor of amending SandRidge's bylaws and replacing its entire board of directors.

SandRidge's current management received a vote of confidence from independent proxy advisory firm Egan-Jones Proxy Services, which recommended shareholders back the company's current board in connection with TPG-Axon's current proxy fight.

"We believe that voting to revoke consents to the TPG-Axon's consent solicitation is merited and in the best interest of the company and its shareholders," Egan-Jones said in a statement.

The firm reached its decision to back SandRidge's current board based in part on its belief that TPG-Axon has provided no specific plans and no substantive new ideas or valid reasons to change the company's strategic direction that will enhance the company's stockholder value.

Egan-Jones also does not believe TPG-Axon's proposed board of directors would work to the benefit of shareholders, the firm said in a statement.

SandRidge officials praised Egan-Jones recommendation.

"Our highly qualified and independent board has taken decisive steps over the last few years to transition SandRidge to an oil focused producer with a leading position in the Mississippian play," the company said in a statement.

While SandRidge believes its current board has the right skills, experience and expertise to oversee continued execution of its strategic plan, TPG-Axon's nominees are not familiar with the company's operations, and SandRidge officials believe they do not have the needed qualifications to serve on the SandRidge board.

TPG-Axon's nominees for SandRidge's board include Stephen C. Beasley, who previously served as president of El Paso Corporation's Eastern Pipeline Group. Beasley is the founder and CEO of Houston-based executive leadership and strategic investment firm Eaton Group.

Other nominees include Edward W. Moneypenny, who retired as senior vice president of finance and chief financial officer from 7-Eleven in 2006 and was chief financial officer of Florida Progress Corporation, now Duke Energy Corporation, and Oryx Energy Corporation.

Fredric G. Reynolds, who served as executive vice president and chief financial officer of CBS Corporation from January 2006 through August 2009 and as president and chief executive officer of Viacom Television Stations Group, is also among TPG-Axon's nominees.

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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BP to 'Vigorously' Defend Itself in Deepwater Horizon Civil Trial

BP insisted Tuesday that it will defend itself "vigorously" against gross negligence allegations during the Deepwater Horizon civil liability trial, which starts next Monday.

The first phase of the civil trial – to be held in the U.S. District Court for the Eastern District of Louisiana – will be focused on the causes of the Deepwater Horizon accident and will examine who should be held responsible and to what degree.

"We have always been open to settlements on reasonable terms, failing which we have always been prepared to defend our case at trial. Faced with demands that are excessive and not based on reality or the merits of the case, we are going to trial," said Rupert Bondy, Group General Counsel of BP. "We have confidence in our case and in the legal team representing the company and defending our interests."

The court will ultimately determine whether BP or any other party was grossly negligent, but BP strongly disputes this charge.

"Gross negligence is a very high bar that BP believes cannot be met in this case,” said Mr Bondy. “This was a tragic accident, resulting from multiple causes and involving multiple parties. We firmly believe we were not grossly negligent."

Last November, BP and the U.S. government agreed to resolve all Federal charges and all Securities and Exchange Commission claims connected to the April 2010 disaster in return for $4.5 billion settlement paid by BP.

As part of the deal, BP agreed to plead guilty to 11 felony counts of "misconduct or neglect of ships officers" relating to the loss of the lives of 11 people as a result of the accident. It also agreed to plead guilty to one misdemeanor count under the Clean Water Act, one misdemeanour count under the Migratory Bird Treaty Act and one felony count of obstruction of Congress.

The Deepwater Horizon explosion on April 20, 2010 resulted in the largest offshore spill in U.S. history.

A former engineer, Jon is an award-winning editor who has covered the technology, engineering and energy sectors since the mid-1990s. Email Jon at jmainwaring@rigzone.com.

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Former Quebec PM: Dithering Discourages Oil, Gas Investors

MONTREAL - Quebec is sending a discouraging message to potential investors by dithering over development of its potentially huge oil and gas reserves, says former premier Lucien Bouchard.

Those who oppose hydraulic fracturing to extract shale gas have essentially won the battle because the government has indefinitely suspended all such activities, said Mr. Bouchard, who recently stepped down as chairman of the Quebec Oil and Gas Association after his client – Talisman Energy Inc. – withdrew from the group.

His comments add fuel to the heated battle over Quebec's energy future. While the industry pushes for the province to move quickly to set clear rules on oil and gas exploration, the government says a cautious approach is needed to deal with the environmental issues that surround hydraulic fracturing.

Fracking, as it is commonly called, uses large quantities of water and chemicals to fracture rock to release trapped gas. Opponents say fracking compromises groundwater, a claim the industry disputes.

Similar arguments are being heard in many jurisdictions, but in Quebec the topic has become particularly touchy.

Mr. Bouchard, a senior partner at law firm Davies Ward Phillips & Vineberg, says environmentalists, farmers and others in the province reacted viscerally to the sudden appearance in their backyards of English-speaking exploration crews, mostly from Western Canada and the United States, doing test drilling.

"Overnight, derricks were being put up on the banks of the Richelieu River. It was almost a repeat of the 1837 troubles, when British troops went there to put down the rebellion," he said, jokingly, though he acknowledged that industry officials went ahead hastily with test drilling without fully educating the public.

The upshot is that well-organized opposition groups capitalized on the initial confusion, and the debate became highly emotional, Mr. Bouchard said.

The minority Parti Quebecois government of Pauline Marois isn't shutting the door on oil and gas development, but Mr. Bouchard warns it will take some time before the first well starts commercial production.

In the interim, the uncertainty in the province over what rules will apply to oil and gas extraction isn't helping Quebec's image, he says.

"The reaction of investors can't be good. This isn't how you go about attracting investors, that's for sure," he said.

Meanwhile, a province that is struggling under a massive debt load is losing precious time by not tapping into the rich source of funding to be had from oil and gas taxes and royalties, Mr. Bouchard contends.

Quebec environment minister Yves-Francois Blanchet counters that the province's natural resources will always be sought after, and says that government's job is to strike a balance between economic and environmental objectives.

"If it was only up to the association, there would be very few rules, and if it were only up to the environmentalists, there would be no oil development at all. Our role is to make sure reasonable action is taken, to be the referee," he said in an interview.

Asked about the criticism that Quebec is missing the boat, he said: "If you look around at surrounding jurisdictions, most of the activity is occurring in the United States and you see that there, since the economic crisis, they haven't softened the rules. In fact, they've become more vigilant."

It's not clear how many companies have halted activity because of the province's stand on hydraulic fracturing. Low natural gas prices may have also deterred activity.

Calgary-based Talisman, once a high-profile player in shale-gas exploration in Quebec, has stopped capital spending plans in the province but says the decision was made for business reasons and not because of the government's planned moratorium on shale-gas activities.

Peter Dorrins, president and chief operating officer at oil and gas exploration company Junex Inc., says his company has kept its options open by investing in oil plays in the province.

"The government has essentially taken a fairly strong position on the whole subject," he said. "At the same time, the government has shown more openness to oil exploration.

"That means shale gas will be on the back burner until the dust settles. We hope the government will eventually proceed with some demonstration projects to show it can be done safely. The general population needs that comfort factor." 

Copyright (c) 2012 Dow Jones & Company, Inc.

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North Carolina Bill Aims to Send Signal on Future Shale Development

North Carolina hopes recent legislation introduced into its general assembly will send a "very clear signal" to oil and gas companies that the state wants shale gas exploration in the state, a state representative told Rigzone in an interview Monday.

State Sen. E.S. "Buck" Newton, the sponsor of Senate Bill (SB) 76, the Domestic Energy Jobs Act, told Rigzone that, while the ban on horizontal drilling and hydraulic fracturing has been lifted, the state hopes to provide certainty to the energy industry by fixing a specific date in which permits for shale gas drilling can be pulled.

Newton, who represents Johnston, Nash and Wilson counties in eastern North Carolina, introduced the bill last week. SB 76, which would authorize the state's Department of Environment and Natural Resources to issue permits for oil and gas exploration and production, including horizontal drilling and hydraulic fracturing, on or after March 1, 2015.

North Carolina officials hope to send a signal in two ways – one, that the legislature is very serious about pursuing shale exploration, and two, that the state is working "with all deliberate and purposeful speed" to get itself ready to issue permits.

Early indicators show North Carolina to have shale gas reserves that may be on the order of the Fayetteville play in Arkansas, with approximately 1.4 million surface acres with shale deposits of an average thickness of 200 feet. North Carolina has three basins with shale potential. The Deep River Basin, the one that is most talked about, has wet gas reserves.

Last year, the General Assembly passed a bill -- over the veto of then Democratic Gov. Beverly Purdue's veto a bill -- that would authorize and legalize hydraulic fracturing and horizontal drilling. General Assembly ratified the Clean Energy and Economic Security Act, which reorganized the state's Mining Commission as the North Carolina Mining and Energy Commission, and directed the commission and other state regulatory agencies to develop a modern regulatory program for the management of oil and gas activity in the state, including horizontal drilling and hydraulic fracturing.

Historically, horizontal drilling had been effectively illegal in the state because of fears that landowners might use horizontal drilling to drill into a neighboring property and steal another landowners water supply, said Bill Weatherspoon, executive director of the North Carolina Petroleum Council, a division of the American Petroleum Institute, in an interview with Rigzone. The law, which dated to the 1940s, forbade drilling to vary more than 3 degrees off center when a well was drilled.

The bill will rewrite existing North Carolina oil and gas legislation in part to modernize the tax structure.

"We wanted to give companies an incentive to come earlier rather than later," Newton commented.

The legislation includes a severance tax, which will be 1 percent in the first year of production, 2.5 percent in the second year, and then will go to a floating rate that would adjust with natural gas prices, ranging from 2.5 percent to 6 percent. Energy industry officials, in early discussions with state officials, really like the proposed severance tax, which gives them flexibility, Newton said.

SB 76 will also attempt to create a one stop shop for pulling permits so that companies will not have to go to different agencies. One thing North Carolina officials want to make clear is that oil and gas companies will not have to pay local taxes or impact fees, other than regular property taxes, to ensure that local governments can't use impact fees as a means to create barriers.

"Not having any experience in the oil and gas industry, we get to draw on the experiences of other states that have been in the industry for a long time and to cherrypick the best of the best," Newton said, adding that the bill not only covers regulatory changes for onshore drilling, but changes that could govern offshore drilling down the road.

"We're trying our best to introduce standards and practices the industry finds helpful and familiar."

The state has no horror stories of environmental problems related to oil and gas, and has a clean slate which state officials hope to keep clean through the use of technological standards, said Weatherspoon.

"The state is trying to take a very calm, study-type approach," said Weatherspoon of the two-year timeframe to accomplish the revisioning of rules and regulations before 2015.

While the counties Newton represents are not among the 10 to 12 counties that have shale gas resources, Newton's familiarity with what oil and gas exploration and development have done for other U.S. state economies – and the need to create jobs and new sources of revenue within North Carolina – prompted him to introduce the legislation.

The legislation is also part of Newton's effort to help North Carolina Gov. Pat McCrory frame his plans to bringing the oil and gas industry for North Carolina. During his election campaign last fall and his inaugural speech, the newly elected governor expressed his desire to get North Carolina into the energy business.

The new Republican-dominated leadership in the state not only is showing interest in developing the state's onshore shale resource, but its offshore interests as well. McCrory already is working with the governors of South Carolina and Virginia to re-open the Atlantic Outer Continental Shelf for exploratory drilling.

Newton doesn't anticipate the bill not passing, due to the fact that McCrory and North Carolina's General Assembly – with Republicans now controlling both for the first time in more than a century – favor bringing oil and gas development to the state. Newton said he hadn't briefed McCrory on SB 76, but saw no reason to think he wouldn't fully back the legislation.

Other than some coal mining activity, the state has not had a significant oil and gas exploration and production industry. North Carolina has been well-known for its tobacco, textiles and furniture-making industries, but the state's economy has been in transition for the past 50 years, with banking, pharmaceutical and life sciences and transportation now major industries in the state.

To date, 125 oil and gas wells have been drilled in the state, but all were capped and abandoned, said Weatherspoon. However, a discovery in near the central North Carolina town of Sanford in Lee County indicated the state could have shale gas potential.

Some leasing activity offshore North Carolina for exploratory drilling did take place in the 1970s, when Mobile Corp. bid $103 million for one offshore tract 40 miles offshore Cape Hatteras, N.C., Weatherspoon noted. While geologists believe there might be a natural gas play offshore the state, drilling never took place due to political opposition.

The effort to update North Carolina's oil and gas regulations are all about jobs and revenue, said Weatherspoon, noting that the state ranks among the top U.S. states in terms of unemployment.

"Politically, there's strong motivation for state officials to do everything they can to create jobs."

Gov. McCrory has made revitalizing the state's economy his No. 1 priority. With the fifth-highest employment rate in the country, McCrory said he hoped that Republicans and Democrats from all areas of the state can work to help turn North Carolina's economy around. These efforts include better matching the talents and expertise of the state's workforce with opportunities available through educational programs.

In December of last year, North Carolina's unemployment rate rose to 9.2 percent from 9.1 percent in November. The state started 2012 with a 10.2 percent unemployment rate.

While early indicators show the state to have good potential for gas reserves, environmentalists have worked hard to play upon the fear of the unknown, said Newton, who pointed to the lively debate between environmentalists and legislators when the bill was introduced.

Newton expects debate to continue, but also believes that people in the state are hungry for economic growth and jobs, noting that, "The more people learn about it, the more excited they are."

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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Gas Bonanza On Horizon for Broke Cyprus

In the depths of an economic crisis, the islanders of Cyprus are looking out to sea for the promise of a gas bonanza on the horizon to come to their rescue.

The promise is centered on an empty lot leading down to the sea, sandwiched between a power station and naval base, that is to be home to a gas liquefaction plant which will net tens of billions of dollars.

Cypriot authorities are dangling the promise of salvation for an economy desperately in need of an EU bailout through a gas bonanza.

"As a country, we are committed to it. It will be built," said Charles Ellinas, executive president of Cyprus National Hydrocarbon Company, a privately run but government-financed structure set up in January to manage and develop the sector.

In December 2011, US major Noble Energy announced the discovery of gas reserves of up to 8.0 trillion cubic feet (226.5 billion cubic meters) in a field named Aphrodite, with an estimated value of 100 billion euros.

Cyprus has in the space of a few weeks signed additional agreements with French energy giant Total and a consortium between ENI of Italy and South Korea's Kogas for oil and gas exploration in its eastern Mediterranean waters.

"There is still work to do to prove that the gas is here, but we are very optimistic. Why would major companies like Total invest so much money in drilling if there was nothing to be found?" asked Ellinas.

Last week, Energy Minister Neoklis Sylikiotis said: "At last our lenders must realize that this economy has prospects and there cannot be any doubt about whether the debt will be sustainable... as a result... of our natural wealth."

Located just a few miles (kilometers) from the resort of Limassol on the south coast, the Vassilikos site also aims to treat gas from Israeli and Lebanese waters, with initial output of five billion cubic meters (176 billion cubic feet) a year.

Ellinas said the figure would be more than tripled.

The target date for completion of the first phase of the project -- estimated to cost almost $10 billion (7.4 billion euros) -- is 2015, with construction starting next year and exports in 2019.

The government says the work will create between 5,000 and 10,000 jobs, mostly for specialized foreign staff, and also generate four times more indirect jobs, a boon for a country with only 840,000 residents.

But Peter Wallace, a British consultant on LNG projects, is skeptical, regarding the timetable as too ambitious for such a small nation.

"Here they have no concept of the scale of things. There are too many people who want to put their hand on the pie and don't know anything about the matter," according to Wallace.

"Cypriot people are more concerned about what they can get for themselves than the good of the island. They are more interested in making the wrong decision than in making any decision at all, as we saw with the explosion. And they've got no money."

An arms cache blast in July 2011 at the nearby Mari naval base left 13 dead and knocked out the main power station, sparking political rows and adding power cuts to a banking and financial crisis on a holiday island long used to its affluent status.

Growth has since been replaced by recession and unemployment has more than doubled to more than 14 percent, leaving Cyprus at
the mercy of an EU bailout plan which is conditional on harsh austerity measures.

Apart from the technical challenges, the Greek Cypriot administration of divided Cyprus faces the ire of neighboring giant Turkey as it presses ahead with its ambition of becoming a regional energy hub.

Turkey has angrily protested against Nicosia's energy search, despite the involvement of US and Israeli firms, branding it illegal and beginning its own exploratory drilling off the breakaway north of the island.

But all three main candidates in Sunday's presidential election have thrown their full weight behind the gas project.

"Everybody wants this to succeed, because there is nothing else. This is our future," Ellinas said. 

Copyright 2013 Plus Media Solutions Private Limited All Rights Reserved

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BHP Billiton CEO Marius Kloppers to Retire

MELBOURNE - BHP Billiton Ltd. Wednesday said Marius Kloppers is retiring as chief executive after more than five years, in the latest leadership change among the world's biggest mining companies as they grapple with slowing commodities demand and falling profits.

Mr. Kloppers will be succeeded in May by Andrew Mackenzie, a 56-year-old Scot who was lured away by Mr. Kloppers from rival Rio Tinto PLC and has run BHP's non-ferrous division since joining in 2008.

South Africa-born Mr. Kloppers has been dogged by criticism for failed acquisitions attempts, including a bid for rival Rio Tinto PLC, and hefty writedowns including against U.S. shale gas assets bought on his watch in 2011.

Mr. Mackenzie's appointment adds to a flurry of changes at the world's top mining companies after Rio Tinto last month replaced chief executive Tom Albanese with Sam Walsh, the head of the company's big iron ore division, after more than $14 billion in writedowns pushed the company to its first full-year loss. Anglo American PLC's chief executive Cynthia Carroll is also preparing to stand down and hand control to AngloGold Ashanti Ltd.'s Mark Cutifani, having faced criticism from shareholders for cost overruns and delays at a key iron ore development in Brazil and troubles at its South African platinum operation.

BHP in November said it had begun searching for a replacement for Mr. Kloppers and was using a recruitment agency to look outside the company for possible candidates.

"Marius was appointed chief executive just prior to the global financial crisis," Chairman Jacques Nasser said in a statement Wednesday. "Despite an exceptionally difficult economic environment during his tenure, Marius and his team have delivered for shareholders, significantly outperforming our peers in terms of total shareholder returns."

Mr. Mackenzie will take over from Mr. Kloppers on May 10 and join the company's board on that date. He has strong oil and gas experience as well a background in minerals at a time when BHP is emphasizing its broad asset base and growing petroleum business.

"He has an impressive resume," said Tim Schroeders, a fund manager at Pengana Capital in Melbourne, which owns shares in BHP. "But we'll have to wait and see what he brings to the table compared with what Marius [Kloppers] did."

Mr. Schroeders said the company's focus is likely to remain on containing costs that have risen sharply for mining companies in recent years as they have sought to expand production to meet growing demand from China and other developing economies, and on investing in more profitable businesses.

Mr. Mackenzie grew up in the industrial town of Kirkintilloch near Glasgow, Scotland, at a time when nearby coal mines were in decline. He began his career as a geologist and geochemist, before spending 22 years with BP PLC where he rose to vice president of petrochemicals in the U.S. He moved to Rio Tinto in 2004 as chief executive of industrial minerals.

"One of the first decisions I made when I became CEO was to bring Andrew into BHP Billiton, and I look forward to working closely with him," Mr. Kloppers said.

The leadership change was announced by BHP alongside a 58% fall in its first-half profit to $4.24 billion following a sharp fall in commodity prices. However, BHP tempered the weaker earnings with a 3.6% rise in its interim dividend payout.

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Russia May Develop Heavily Sanctioned Iranian Oil

Facing embargoes from the U.S. and the EU, Iran allows Russian oil companies into its market.

Under sanctions from the United States and the European Union, Iran is looking to Russian oil companies for investments, inviting them to participate in various energy-related projects. So far, only Zarubezhneft has responded; others are more wary, believing the risks are too high, experts believe. Experts predict the move will not affect world oil prices.

Iran has invited Russian companies to take part in developing some of its oil and gas fields, Energy Minister Alexander Novak said after a mid- February meeting of the Russian-Iranian intergovernmental commission, RBC news agency reported. Iran may even be prepared to adopt necessary amendments to the law, in order to facilitate the entrance of Russian companies into its market.

Russian companies have worked in Iran before, though not for long.

In 2008, Gazpromneft and the National Iranian Oil Company signed a memorandum on the development of the Azar and Shangule fields located in the Anaran Exploration Block. In 2011, the Gazprom subsidiary had to leave the country, after being accused of being behind schedule in developing the field. Another theory has it that, for fear of U.S. sanctions, Gazpromneft was dragging its feet over the project.

In 1996, the U.S. passed a law allowing the American government to take measures against foreign companies and individuals with more than $20 million invested in Iran's energy sector. LUKOIL, which worked at Iran's Anaran Exploration Block, abandoned the project in 2010.

Economic sanctions against Tehran introduced by the EU in 2012 involve, among other things, a ban on the import, purchase and transportation of oil and its products. As a result, Iranian oil exports and oil export revenues decreased by 40 and 45 percent, respectively, between March and December of 2012.

According to Russia's energy minister, Zarubezhneft has expressed its desire to take part in hydrocarbon projects in Iran. The company is 100- percent state-owned and has no need to fear U.S. sanctions.

Zarubezhneft representatives - like the representatives of companies Gazprom Neft, LUKOIL, Bashneft and Rosneft - declined to comment.

"Most Russian companies are happy to participate in such projects [under various arrangements]," says Mikhail Loshini, an analyst at RMG Research. "The deals are generally highly lucrative...Although, in this case, the risk is very high, because extracting the oil will be possible, but it will not be clear who will buy it. The European market is closed, which leaves only Asia, where contracts are already in place."

Iran may, of course, change its laws and allow Russian companies to sign participation contracts rather than service contracts, according to Sberbank CIB analyst Valery Nesterov; however, he thinks Iran is unlikely to go for it. Russian companies would still not be interested in Iranian projects, because a large number of political risks would remain alongside the economic ones.

Iran is an OPEC member and produces about 4 million barrels of oil per day, with plans to increase output to 5 million barrels per day. Its daily production of gas stands at 60 million cubic meters (around 15.8 billion gallons).

"This deal will not affect world oil prices," says Loshini. "Even though Iran has said it intends to increase oil production, while the embargo is in place, such statements are unsubstantiated."

Copyright 2013 Russica Izvestia Information Inc. All Rights Reserved

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Reliance, BP in $5B Effort to Boost Indian Gas Production

NEW DELHI - BP PLC and Reliance Industries Ltd. plan to jointly invest more than $5 billion in the next three-five years to boost gas output in a block off India's east coast, the companies said Tuesday.

Reliance is struggling with declining output at the block in the Krishna-Godavari basin. The fall in output from India's largest gas find has affected natural-gas supplies in India, hurting plans of industries including power and fertilizer which use the fuel.

BP Group Chief Executive Bob Dudley and Reliance Chairman Mukesh Ambani met Indian Oil Minister Veerappa Moily Tuesday and informed him about their plans to develop around 4.0 trillion cubic feet of already discovered natural gas resources, a joint statement said.

Mr. Dudley is part of a business delegation accompanying British Prime Minister David Cameron, who is in India on a three-day visit.

Reliance had in 2011 sold a 30% stake in 21 oil and gas blocks in the Krishna-Godavari basin to the British company.

The companies said their plan will help increase gas production starting next year. They plan to also develop satellite projects which are awaiting government approval and start further drilling wells to test "a possible hydrocarbon pool" below the current producing field.

Moily couldn't be immediately reached for comments.

According to the statement, Mr. Moily said his ministry will do the needful to fast track approvals for the projects.

The companies also said they would accelerate the pace of exploration and development as soon as they receive the approvals.

Mr. Ambani said the companies are focusing at finding more hydrocarbons and addressing the complexities of the geology along the east coast of India, that has led to fall in the output.

The current output from the field is about 19 million standard cubic meters a day, far below Reliance's target of 80 million standard cubic meters.

Dhananjay Sinha, head of institutional research at brokerage Emkay Global Financial Services Ltd., said he is skeptical of any major investments to drastically increase output unless the government increases gas prices.

A government panel last month recommended that the government scrap its system for setting natural gas prices based on the fields from where it is produced in favor of a uniform pricing model. The government hasn't yet approved the recommendations which will lead to an increase in gas prices.

Reliance currently sells gas from the KG-D6 block at $4.2 per million British thermal unit. The price will come up for revision in April 2014. 

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