DOI: Shell Failed to Finalize Key Components of Alaska Program

Royal Dutch Shell plc's failure to finalize key components of its 2012 Alaska Arctic drilling program, including its oil spill containment system Arctic Challenger, led to Shell's failure in receiving needed permits to drill into oil-bearing zones in the Chukchi and Beaufort seas, according to the findings of a U.S. Department of Interior (DOI) review released Thursday.

Secretary of the Interior Ken Salazar called for a high-level, expedited review of Shell's program Jan. 8, including Shell's preparations for last year's drilling season and its maritime and emergency response operations – to identify the challenges Shell faced in its Arctic drilling plans and future lessons to be learned from that experience.

The review examined Shell's safety management system and the company's ability to meet the stringent standards set by the Department of the Interior for Arctic development. It focused on Shell's inability to obtain certification for the Arctic Challenger on a timely basis, the difficulty Shell encountered in deploying the vessel, and the marine transport issues Shell faced with the Noble Discoverer (mid-water drillship) and Kulluk drilling rigs, including the Kulluk's grounding offshore Kodiak Island, Alaska while being towed. Both rigs are en route to Asia for repairs.

Shell's failure to monitor contractor progress on key components of its Arctic drilling program, including the Arctic Challenger, was a pervasive theme in the review's findings. The contractor that Shell used to design and build the Arctic Challenger, had extensive experience working in the Gulf of Mexico, but ultimately, Shell ran into problems bringing the containment system online. The vessel failed to receive its U.S. Coast Guard certification, and the deployment of the system itself failed.

"Working in the Arctic requires thorough advanced planning and preparation, rigorous management focus, a close watch over contractors, and reliance on experienced, specialized operators who are familiar with the uniquely challenging conditions of the Alaska offshore," Salazar commented during a conference call Thursday with reporters.

Shell fell short in this area, Salazar noted, which contributed to many of the problems it faced, including the inability to deploy a functioning containment system, as well as the violation of air emissions requirements Shell encountered.

DOI Deputy Secretary David J. Hayes said the review confirmed the importance of strong coordination of among federal agencies in connection with permitting and exploration activities. This coordination has been an initiative through Executive Order 13580. Established in July 2011, the working group was created to coordinate efforts of federal agencies responsible for overseeing safe and responsible development of onshore and offshore energy in Alaska.

These agencies include the Bureau of Ocean Energy Management (BOEM), the Bureau of Safety and Environmental Enforcement (BSEE), the U.S. Coast Guard, the National Oceanic and Atmospheric Administration (NOAA), and the U.S. Environmental Protection Agency (EPA).

The review also reinforces the Obama administration's commitment to ensuring oil and gas exploration activities maintain safety at all levels, said BSEE Director James Watson.

"We will continue to maintain rigorous oversight of drilling and hold anyone operating in public waters to the highest environmental and safety standards."

Watson noted the administration looks forward to learning more from the findings of the Coast Guard's current investigation into the Kulluk grounding incident.

Shell should submit to DOI a comprehensive, integrated plan describing all phases of operation, from preparations through demobilization, when the company resumes exploratory drilling in Alaska's Arctic offshore region. This plan will go one step beyond the current recommendations for plan submissions, including not only details of drilling plans but for maritime operations as well.

The review also recommended Shell complete a full third party management system audit to confirm the capability of the company's management system, including oversight of key contractors, are tailored for Arctic operations, and that Shell has addressed the issues it faced in the 2012 drilling season.

Additionally, the review findings confirmed the necessity of an Arctic-specific model, and recommends continuing work on safety and environmental practices appropriate for the Arctic.

"We must recognize and account for the unique challenges of this region, which holds significant energy potential, but where issues like environmental and climate conditions, limited infrastructure, and the subsistence needs of North Slope communities demand specialized planning and consideration," said Principal Deputy Assistant Secretary for Land and Minerals Management Tommy Beaudreau, who led the review team.

The review, which involved the efforts of BSEE James Watson and staff, Alaska regional staff for BSEE and the BOEM, as well as input from NOAA and the EPA, which oversaw Shell's Alaska activity. The Coast Guard also provided technical assistance. Additionally, DOI officials met with Alaska state legislators, native Alaskan organizations, and environmental groups, as well as marine contractors and oil and gas companies.

When asked whether Shell's Alaska program highlighted any changes that needed to be made to the government process, Salazar noted government officials had learned a great deal from Shell's 2012 effort and still had a lot to learn.

"The Arctic is a difficult environment, and Shell is one of the most resource-capable companies in the world. Just because Shell encountered problems there doesn't mean that exploration shouldn't occur," Salazar commented, noting that 30 exploration wells have previously been drilled in both the Beaufort and Chukchi seas. "We allowed Shell to move forward cautiously with limited activity in the Arctic because Shell didn't meet the requisite permit requirements," Salazar said.

Hayes noted that Shell had been cooperative with the review process, and has acknowledged the issues it faced in terms of contractor timing with the Arctic Challenger.

"They put a lot of effort late into the game to get it certified, but not in time for the 2012 season."

Salazar said Shell should use its planned pause of its Alaska drilling plans for 2013 to learn the lessons from its 2012 drilling season. Hayes noted that Shell would use the time to conduct more testing of the Arctic Challenger to ensure all of its systems are in place so they will not be pressed for time the same way they were pressed for time for the 2012 season. 

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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Statoil Secures Rig for Angola Exploration

Statoil announced Friday that it has secured the Stena Carron (UDW drillship) vessel for a three-year contract that will see the rig use for exploration drilling in two pre-salt blocks in the Kwanza Basin, offshore Angola.

The contract, managed by Stena Drilling, has an estimated value of $700 million. Statoil has also secured two one-year extensions.

In Angola, Statoil will test the pre-salt potential of the Kwanza blocks by drilling wells in blocks 38 and 39.

Statoil said that it has also allocated the Discoverer Americas (UDW drillship) to East Africa to perform exploration drilling in Statoil-operated blocks in Tanzania and Mozambique. There, the firm plans to drill three-to-four wells that will test for further potential in Block 2, Tanzania and explore blocks 2 and 5 in Mozambique.

Statoil Executive VP for Exploration Tim Dodson commented in a statement:

"Statoil has now secured rig capacity for its planned global exploration program in 2013 and 2014. We have drilled four successful wells in Tanzania over the last year, and are now committed to drilling additional wells in Tanzania as well as in Mozambique and Angola.

"Together with a three-well campaign in the Gulf of Mexico, three Statoil-operated wells in Canada, and a one-year drilling campaign in the Barents Sea, this demonstrates an ambitious exploration program."

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Statoil Secures Rig for Angola Exploration

Statoil announced Friday that it has secured the Stena Carron (UDW drillship) vessel for a three-year contract that will see the rig use for exploration drilling in two pre-salt blocks in the Kwanza Basin, offshore Angola.

The contract, managed by Stena Drilling, has an estimated value of $700 million. Statoil has also secured two one-year extensions.

In Angola, Statoil will test the pre-salt potential of the Kwanza blocks by drilling wells in blocks 38 and 39.

Statoil said that it has also allocated the Discoverer Americas (UDW drillship) to East Africa to perform exploration drilling in Statoil-operated blocks in Tanzania and Mozambique. There, the firm plans to drill three-to-four wells that will test for further potential in Block 2, Tanzania and explore blocks 2 and 5 in Mozambique.

Statoil Executive VP for Exploration Tim Dodson commented in a statement:

"Statoil has now secured rig capacity for its planned global exploration program in 2013 and 2014. We have drilled four successful wells in Tanzania over the last year, and are now committed to drilling additional wells in Tanzania as well as in Mozambique and Angola.

"Together with a three-well campaign in the Gulf of Mexico, three Statoil-operated wells in Canada, and a one-year drilling campaign in the Barents Sea, this demonstrates an ambitious exploration program."

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Aker Wins Exxon Umbilicals Supply Deal

Norwegian oilfield services firm Aker Solutions announced Friday that it has won a deal with ExxonMobil for the supply of subsea umbilicals to the Erha North Phase 2 development, offshore Nigeria.

Erha North Phase 2 is an extension of the existing Erha subsea system and infrastructure, located approximately 60 miles off Nigeria in water depths of between 3,300 and 3950 feet.

The scope of the work includes the delivery of two dynamic and two static steel tube umbilicals of a total length of approximately 10 miles. The umbilicals will be delivered in 2014.

"We are pleased to extend our global footprint and support ExxonMobil in Nigeria. Aker Solutions provides cost effective and technically advanced subsea umbilicals worldwide and we look forward to execute another deepwater project," Tove Roskaft, head of Aker Solutions' umbilicals business area, commented in a statement.

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Time to Look for Unconventional Gas in the Middle East

The most worrying problem of all in the Middle East and North Africa (MENA) region is also the most ironic. In a region with an estimated 1,496.2 trillion cubic feet (Tcf) of natural gas, according to the latest BP Statistical Review of World Energy, there appears to be scarce supplies of gas to the countries in the region mainly because of the rapidly growing population which is placing ever increasing demands on gas for electricity generation and water desalination.

The numbers mentioned above says half the truth, as the majority of reserves are hard to extract and requires advanced technologies, which means that the cost of extraction will be high.

In addition to the important conventional reserves, results from recent gas exploration and appraisal activities indicate that the region holds substantial resources of unconventional gas, especially tight gas and shale gas.

Regardless of the existing highly productive conventional gas fields and reserves in this region, shale gas and tight gas-related exploration and appraisal activities in several countries in the region have increased and are expected to pick up pace going forward, with the goal of identifying the potentials first, rather than proceeding to the development.

Algeria is taking the lead in this domain, and Algerian Energy Minister Youcef Yousfi revealed that he believes that his country's reserves of shale gas are equal to that of the United States. Algeria's state energy company, Sonatrach, has signed a cooperation agreement with Italian company Eni SpA, for the development of unconventional gas in Algeria, with a particular focus on shale gas.

"We have launched four studies to evaluate the potentials of shale gas and liquids, in partner with Eni, Talisman, Shell and Anadarko, and we are in discussion with other companies for similar projects. All these studies will go through a pilot project either in partnership or with our proper efforts," said Abdelhamid Zerguine, chief executive office of Sonatrach.

Sonatrach has also drilled first shale gas well using its own resources, Abdelhamid Zerguine said.

"Using our own efforts, we have finished the drilling of the first shale gas in the central part of the Sahara. The initial interpretation of the data of these wells showed that the potential of gas are similar to those basins [known] around the world. The well has completed, and we will be conducting a simulation test by end 2012. A second drilling is currently underway," he added.

In the neighboring country, Libya, technically recoverable shale gas is estimated at about 290 trillion cubic feet according to data from the U.S. Energy Information Administration.

"Gas has never been a priority for us, but it is now. We may have some of the most important shale gas deposits in the world," National Oil Co. Chairman Nuri Berruien said during a North Africa Gas Summit held in Vienna last year.

"Right now we are evaluating the reserves and talking to our partners," Berruien said. "The potential is definitely there."

In Egypt, because of the absence data of unconventional gas resources in the country, it has formed a committee composed of representatives from all government entities that can contribute to exploration of shale gas.

The committee is tasked with gathering all possible relevant data, including assessing what the country has in terms of shale gas, looking at reports and research conducted in other countries on a regional level, and looking at what producing countries have done to reach the stage of production.

It also collaborates with companies like Halliburton Co. and Schlumberger Ltd. to gather data related to the shale gas exploration. Local media reported that discussions over investments in unconventional resources are set to take place in early 2014. Authorities are also working on the terms and conditions of operations at shale gas fields, as the current conditions don't encourage investors to explore unconventional resources.

In Saudi Arabia, U.S. oilfield services company Baker Hughes estimates Saudi Arabian shale gas reserves at 645 Tcf, the fifth largest such reserve in the world. The country's conventional gas reserves are estimated to be around 279 Tcf.

Saudi Aramco has begun pilot projects using high-end technology to extract unconventional gas, including tight gas and shale gas. The first unconventional gas wells are planned for this year.

"Saudi Arabia's unconventional gas reserves resource base is large. The numbers are in the hundreds of Tcf, which are recoverable," Khalid Al-Falih, president and chief executive officer of Saudi Aramco said, cautioning: "Until we do the exploration and pilots, we will not be able to bank on them, so to speak."

Oman is also investigating exploration for shale gas, as the Sultanate looks to ease the gas squeeze holding back its industrial and petrochemical sectors.

"At the moment we are not drilling. It is just a study," said Khalifa Mubarak Al Hinai, advisor at the Ministry of Oil and Gas, according to the Times of Oman.

BP said that it is considering going ahead with a $20 billion (AED 73.45 billion) project to produce tight gas reservoirs deep under the Khazzan and Makarem fields in the north-central region. Negotiations are continuing.

The United Arab Emirates (UAE), instead, opted for the development of sour gas fields. It is currently developing the Shah Gas field in joint venture with Occidental Petroleum Corporation (Oxy). The $10 billion project is being developed by Alhosn Gas, a joint venture between Abu Dhabi National Oil Company and Oxy which holds a 40 -percent participating interest in a 30-year contract.

The field's high H2S content - 23 percent in the well fluid – means that in addition to key HSE design and implementation considerations, it will pose certain unique challenges due to the sheer scope of work to be done. The SGD project will also have a total of four trains – the largest in the world - for the massive Sulphur Recovery Units (SRU) that would process the 1 billion cubic feet per day of sour gas. The SRUs will have a capacity of 2500 T/D.

Kuwait is also tapping the development of the Jurassic field, and has signed a technical cooperation contract with Royal Dutch Shell plc.

While OPEC members are assessing their unconventional resources, with a particular focus on unconventional gas rather than unconventional oil, because of the abundance of conventional oil, Jordan - which suffers from the absence of hydrocarbon reserves - aims to extract 40,000 barrels of oil per day from its huge shale oil reserves by 2016 to meet the increasing local demand, said Bassam Gagish, chief executive of The Jordan Oil Shale Energy Company.

While countries in the region are evaluating their shale gas reserves, they don't expect to start the development of these wells any time soon, due to the absence of clear environmental legislation related to the exploration of these resources.

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Greene's Energy Group Opens New Texas Facilities

Greene's Energy Group, a leading provider of integrated testing, rentals and specialty services, has opened two new facilities in Alice and Pleasanton, Texas, announced Chief Executive Officer (CEO) Bob Vilyus.

These facilities serve Central and South Texas with emphasis on the Eagle Ford Shale. As state-of-the-art facilities, each are outfitted with warehouse and office amenities designed to accommodate the needs of the industry in the region.

The Alice facility is the headquarters for the Greene's Well Testing Services. The facility is comprised of a three-bay warehouse on three acres of land with a wash rack, large conference room, break room and five offices.

The facility in Pleasanton has a five-bay warehouse on ten acres that is equipped with a wash rack, break room, large conference room and five offices and is the base for Greene's Well Testing and Torque and Testing Services.

"Because both facilities are centrally located in South Texas and can easily access the Eagle Ford Shale region, we see a strong growth potential for both facilities," said Vilyus. "As we look to expand to other geographical regions, these facilities will serve as blueprints for future expansions."

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Crude-Oil Futures Settle 42 Cents Higher

Crude-oil futures prices settled at a three-week high Friday amid mixed signals on a sustained economic recovery in the world's biggest oil consumer.

U.S. benchmark crude mustered a modest gain, but ended well below the high of the trading session as market participants weighed fresh data. The Federal Reserve said U.S. industrial production rose 0.7% in February, exceeding economists' forecasts and eclipsing concerns over a sharp drop in consumer confidence and a rise in consumer prices.

The Thomson-Reuters/University of Michigan consumer sentiment index fell to 71.8 in mid-March, its lowest level since December 2011 and down from 77.6 in February. Economists have expected the reading to move up to 78. Also Friday, the Labor Department said the consumer price index in February rose 0.7%, the biggest gain since June 2009, led by higher gasoline prices.

"We are seeing some strong signs, but whether they are strong enough is still up in the air," said Gene McGillian, analyst and broker at Tradition Energy. He noted that oil prices have recovered from two-month lows below $90 a barrel hit early this month, but said it's unclear whether economic and oil-market fundamentals can sustain a further rally.

Light, sweet crude oil for April delivery on the New York Mercantile Exchange settled 42 cents higher, at $93.45 a barrel. That's the highest price since Feb. 20, but well below the session high of $93.84 a barrel.

ICE North Sea Brent for May delivery, in its first day as the front-month contract, settled 86 cents higher, at $109.82 a barrel. Traders said the contract found buyers after front-month prices hovered near the 200-day moving average price, a key indicator for chart-based trading, near $109.40 a barrel in recent days.

News that Norwegian oil producer Statoil shut its North Sea Oseberg oil field on Thursday after a power outage and gas leak also kept Brent supported. Oseberg is expected to supply 3.6 million barrels of crude during April, and analysts said they will be watching developments for signs of any shortfall. The output snag comes as North Sea flows have recovered from earlier operating problems.

U.S. crude oil gained as market participants ignored lofty crude oil stocks and sluggish oil-demand growth. The latest data from the Energy Information Administration show refinery maintenance has slowed crude oil processing to a two-year low and pushed crude oil inventories to more than 40 million barrels above the five-year average. Inventories of 384 million barrels are sufficient to cover more than 27 days of refiner needs, the highest level in 21 years.

Analysts said investors appear to be taking the view that crude inventories will decline when maintenance ends and refineries ramp up output of gasoline and diesel fuel.

Days before a trip to the Middle East, President Barack Obama said it would take Iran a year or more to build a nuclear weapon, an assessment that sets up a potential area of discord with Israel's leader. The president's timelime is longer than the more urgent one usually cited by Israeli Prime Minister Benjamin Netanyahu. The timeline, the first publicly given by Mr. Obama, appeared to be tamping down any expectations for pre-emptive action against Iran while aiming to assure its closest Mideast ally of U.S. support.

Iran had been the second-biggest oil producer in the Organization of the Petroleum Exporting Countries, but international sanctions over its nuclear program have cut flows to their lowest level in 30 years.

April-delivery reformulated gasoline futures settled up 2.25 cents at $3.1638 a gallon after falling 1.9% in the prior four days. April heating oil settled up 0.95 cent at $2.939 a gallon.

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

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HB Rentals Secures Middle East Work

Accommodations specialist, HB Rentals Dubai, a Superior Energy Services company, has secured contracts to supply 12 A60-DNV-approved eight-man linkable sleeper units onboard two Lloyd's-classes liftboats in Abu Dhabi and Saudi Arabia and four linkable A60-DNV 2.7-1-approved modules for a barge installing cables offshore Saudi Arabia, announced HB Rentals Senior Vice President of Global Operations Glenn Aguilar.

The temporary buildings were stacked two levels high for each package, and HB Rentals provided the stairways and walkways. All modules and equipment were supplied from HB Rentals' Dubai's United Arab Emirates (UAE) base in Sharjah, and HB technicians were used for installment.

"It is great for HB Rentals to extend global operations and showcase the significant work that is done overseas," said Norman Porter, Director – Eastern Hemisphere. "Our building packages are durable and reliable and ready to endure any environment so that our clients can take care of the business they set out to accomplish. No matter the continent or location, HB Rentals' standard of work will always be upheld."

HB Rentals is the world's largest supplier of temporary onshore and offshore accommodation modules, operating from two major global hubs in Broussard, La., and Aberdeen, Scotland.

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Noble Adds Tenth Board Member

Noble Energy, Inc. announced Friday that its Board of Directors elected Molly K. Williamson to its board, increasing the number of directors to ten.

Ms. Williamson is currently a scholar at the Middle East Institute in Washington, D.C. following an extensive and distinguished career in the U.S. government. She has held a unique combination of policy and leadership positions in the State Department and other cabinet departments where she specialized in Middle East policy and diplomacy. Her foreign appointments included serving as Consul General and Chief of Mission in Jerusalem. In addition to the State Department, she also held senior positions in the departments of Commerce, Defense and Energy. She lectures frequently at Johns Hopkins University and Georgetown University on U.S. foreign policy, energy and environmental policy and international demographics. She holds both M.A. and B.A. degrees, each with highest honors, from the University of Maryland.

"On behalf of Noble Energy's board, we are pleased to welcome Ms. Williamson to the Noble Energy team. Molly's unique international and foreign policy experience and perspectives will be invaluable to our company's global growth and success," Noble Energy's Chairman and CEO Charles D. Davidson commented.

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Exillon Well Ahead of Growth Target for 2P Reserves

Onshore Russia-focused junior Exillon Energy reported an update Friday in which the firm highlighted that it was well ahead target when it comes to both production and reserves.

In the statement, Exillon CEO Mark Martin said:

"The three components of our growth strategy are to increase our production, EBITDA and reserves. Our production during 2012 grew by 45 percent, our EBITDA by 137 percent and our 2P reserves by 96 percent.

"Our target was to double our 2P reserves within three years. We have done this in one year."

Exillon reported that its total proved (1P) reserves increased by 56 percent in 2012 to 196 million barrels, while its proved plus probable (2P) reserves almost doubled to 520 million barrels from 265 million barrels at the end of 2011.

At Exillon's ETP II-III field at Timan-Pechora in northern Russia, 2P reserves increased by 110 percent to 107 million barrels. At the firm's EWS I field in Western Siberia, 2P reserves increased 75 percent to 180 million barrels.

Recent acquisitions by Exillon in Timan-Pechora added seven million barrels of 2P reserves, although they also added 95 million barrels of 3P reserves, said the firm.

Exillon said that it plans to drill 24 wells this year, which represents a 50-percent increase on the firm's 2012 drilling activity.

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