Hess Continues Push for Board Nominees in Proxy Fight

Hess Corp. stepped up an ongoing push for its director nominees Monday after two proxy advisory firms last week recommended shareholders back the board slate put forth by dissident holder Elliott Management Corp.

Hess's five director nominees released a letter to shareholders defending their role, while Hess separately accused proxy advisory firm Institutional Shareholder Services Inc. of having an "institutional bias toward activist shareholders," an allegation the firm denied.

The proxy battle between the oil company and Elliott, a hedge fund that owns about 4.52% of Hess's shares, has gone on for months.

Elliott has argued Hess's board has sat by, allowing management to pursue costly and ineffective strategies that have eroded the company's value. Meanwhile, Hess has said it is on track to transform itself into a more focused exploration and production company, and Elliott is pursuing a destructive and flawed plan to break up the company.

Hess shareholders will vote on the board composition at the annual meeting May 16 in Houston.

In Monday's letter, the Hess nominees solicited the support of shareholders, saying Elliott's characterization that Hess's board members are required to support the company's strategic plan as a precondition for serving on the board "is simply false."

In response, Elliott Management called Hess's plea "desperate," adding, "rather than address the real operational and governance issues that have plagued the company for nearly two decades, Hess has decided to attack the independent shareholder advisory services."

Meanwhile, Hess said ISS has "adopted a pervasive policy of bias in favor of the activist," citing a recent New York Times survey that shows the advisory firm has backed the insurgent slate in 73% of cases so far in 2013.

Hess cited prior proxy contests in which ISS has backed the insurgent slate, including battles between AOL Inc. and Starboard Value LP, Motorola Solutions Inc. and Carl Icahn, Actelion Ltd. and Elliott, and Target Corp. and Pershing Square Capital Management.

ISS disputed the charge, saying it has recommended shareholders vote in favor of management nominees in 45% of cases since 2011 and only fully backed a board slate from a dissident shareholder in 12% of circumstances.

In its report last week, ISS cited the company's "significant underperformance," and what it said are signs that the board's "new-found attentiveness to the business is a response to the proxy contest," adding Hess's transformation appears to have occurred only on the surface and a slate of board members already aligned with the company's management isn't in the best position to oversee the company.

Two other proxy firms have weighed in. Glass Lewis & Co. on Wednesday sided with the dissidents, concluding that while the shift toward becoming a pure exploration and production company may be the right one, "we find little cause to suggest that the current board is best suited to oversee that change."

Egan-Jones Proxy Services, however, said Hess's efforts at transformation are translating into lower spending and driving production growth, and the dissidents haven't offered a persuasive strategy.

Copyright (c) 2013 Dow Jones & Company, Inc.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

View the original article here

Government Could Broaden Definition of State-Owned Companies

OTTAWA - The federal government is poised to pass Investment Canada amendments that will broaden its definition of "state-owned enterprises" and could subject SOEs' acquisitions of minority stakes in Canadian companies to investment reviews to determine whether they represent a net benefit to Canada.

The measures are contained in a budget omnibus bill, tabled by Minister Jim Flaherty last week, and expected to be passed into law before the Commons recesses for the summer next month.

In a written analysis, lawyers at Osler Hoskin & Harcourt LLP say the amendments will add considerable uncertainty to the foreign investment review process for companies that have close ties to foreign governments--even if they are not state-owned--and go beyond what Ottawa promised last December when it first announced heightened foreign-investment scrutiny for state-owned enterprises.

The budget bill "introduces a new level of uncertainty into the federal government's treatment of proposed investments by SOEs which was not anticipated in December 2012," the Osler lawyers write.

Osler partner Shuli Rodal said the proposed amendments remove "safe harbor" assurances that allow foreign companies to acquire less than one-third of voting shares, or a minority interest in a trust, partnership or joint venture, without triggering Investment Canada review. Companies in the cultural sector already have to demonstrate that they are not gaining de facto control through the purchase of minority shares, and now state-owned enterprises will face that same hurdle, Ms. Rodal said in an interview.

At the same time, Ottawa is giving itself broad discretion to decide who is state controlled.

Prime Minister Stephen Harper announced late last year that Ottawa would not allow additional foreign-government investment in the oil sands, even as he allowed CNOOC Ltd.'s C$15.3 billion acquisition of Calgary-based Nexen Inc. and a C$6 billion takeover of natural gas-rich Progress Energy by Malaysia's Petronas. While insisting Ottawa welcomes investment by state-owned enterprises elsewhere in the Canadian economy, the prime minister signaled a clear preference for their acquisition of minority stakes and said Ottawa would assess whether an investment would leave the Canadian firm under the influence of a foreign government, even if it did not involve a majority interest.

Prior to the Nexen decision, the investment banking community expected a wave of new deals involving state-owned enterprises in Canada, but very few have materialized.

Many critics, including the opposition New Democrats, urged Ottawa to clarify Investment Canada rules so that potential foreign investors would know what hurdles they faced before they attempt to do business in Canada. But the December policy announcement and proposed Investment Canada amendments create more, not less, ministerial discretion and greater uncertainty.

"Until somebody tests it, we won't know for sure how it will be applied," said Paul Boothe, a University of Western Ontario business professor and former senior official at Industry Canada. "So someone who wants to do their deal and thinks they're in good shape will test this, and if it works, then we'll have a little more evidence no how this is being applied. But right now, people are going to be unsure about it."

In determining with an investment by a foreign company should be reviewed under SOE guidelines, the minister can look at whether it has minority government investment, commercial relationships with foreign governments or significant relationships with officials within government. So for example, Brazil's Vale SA is a publicly traded company but the Brazilian government exercises considerable influence and holds a "golden share," so Vale could be considered a state-owned enterprise under the new Investment Canada rules.

Copyright (c) 2013 Dow Jones & Company, Inc.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

View the original article here

GE Awarded for New Technology Addressing Deepwater Drilling Challenges

GE Oil & Gas has received Spotlight on New Technology awards from the 2013 Offshore Technology Conference (OTC) for two new products that address the challenges of deepwater drilling. The awards showcase the latest and most advanced hardware and software technologies that are leading the offshore exploration and drilling industry into the future.

The two GE products honored are:

RamTel Plus System and ROV Subsea Display Panel. Blowout preventers (BOP) are critical components to drilling operation safety and are used on all wells, both on and offshore. GE's RamTel Plus System and Remotely Operated Vehicle (ROV) Display provide the industry with real-time, electronic measurements of the BOP's ram position and the pressure required to actuate the blades and/or sealing elements. This proven technology provides new data on the operational performance of the BOP that can be used in trending and prognostics in a way that mechanical systems cannot provide.

Deepwater BOP Blind Shear Ram. GE Oil & Gas has developed next-generation technology for shearing and sealing wellbore tubulars (casings and pipes). The patent-pending 5K Blind Shear Ram is designed for use in GE's ram BOPs for offshore drilling and has demonstrated the capability to shear 6-5/8 inch S-135 drill pipe tool joints while achieving a wellbore seal at 15,000 psi pressure differential. The technology was developed by GE to address an industry need to shear and seal today's large diameter, advanced metallurgy (strength, thickness and ductility) drilling tubulars.

"We are very honored to be recognized by the OTC for our development of these two new products," said Chuck Chauviere, president of Drilling for GE Oil & Gas. "They are among the latest examples of how GE continues to seek and develop innovative solutions for the challenges faced in today's complex drilling programs."

In total, OTC presented 15 Spotlight on New Technology awards to exhibitors at this year's show. GE Oil & Gas was one of only two companies to receive two awards.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

View the original article here

Brazil's HRT Buys 60% Stake in Offshore Polvo Oil Field from BP

RIO DE JANEIRO - Brazilian oil start-up HRT Participacoes em Petroleo SA said Monday it would acquire a 60% stake in the offshore Polvo heavy oil field from the local unit of BP Plc for $135 million.

The deal, which is subject to regulator approval, would mark HRT's transformation from a pure exploration play into a small oil producer. Polvo produces about 13,000 barrels of heavy crude oil a day, according to HRT. The Brazilian unit of Denmark's Maersk Oil holds the remaining 40% of Polvo.

BP, meanwhile, sheds an asset that held very little interest for the company after its acquisition in 2011. BP bought Polvo as part of a larger, $3.2 billion deal to acquire the Brazilian assets of Devon Energy Corp. BP had actively sought to sell off its stake in Polvo, looking toward exploring other deep-water prospects acquired from Devon.

HRT, which had a cash position of about $500 million at the end of 2012, said that it would finance a large part of the purchase price via a loan with Credit Suisse.

Given HRT's focus on conserving its cash to fund its exploration plans, the deal likely increases the chance HRT will be nothing more than a bit player in Brazil's upcoming 11th-round auction of oil and natural gas exploration concessions set for May 14-15. In March, HRT Chief Executive Marcio Rocha Mello said in an interview that the company was in talks with several companies about partnerships to participate in the auction, but "without using cash."

HRT recently started drilling its first well of the coast of Namibia. The West African nation is the crown jewel of HRT's portfolio of oil and natural gas exploration blocks. Geologists believe the highly prospective region off Namibia's coast could hold billions of barrels of oil under similar conditions to Brazil's subsalt, where oil was discovered trapped under a thick layer of salt. The two areas were connected millions of years ago.

The company plans to drill three wells off the coast of Namibia this year, while negotiating with other companies to sell an additional stake in the blocks to fund a fourth well.

HRT operates 21 blocks in the Solimoes Basin of Brazil's remote Amazon region with a 55% stake, while Russian partner TNK-Brasil holds the remaining 45%. The two firms have joined forces with state-run energy giant Petroleo Brasileiro to find a strategy to generate cash from natural gas discoveries made in the region.

Copyright (c) 2013 Dow Jones & Company, Inc.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

View the original article here

Quickflange Increases GOM Footprint with INTEGRA Partnership

Quickflange AS, one of the industry's leading providers of high performance pipe connection systems, has appointed Texas-based INTEGRA Services Technologies as a local North American partner for nominated customers. The move comes as Quickflange continues to increase deployment of its leading Quickflange pipe connection solution onshore and in the Gulf of Mexico. The announcement was made at the Offshore Technology conference currently taking place in Houston.

The partnership between Quickflange and INTEGRA will provide a local support and manufacturing base to selected onshore and Gulf of Mexico-based operators with the storing, maintaining and deployment of the full range of topside Quickflange pipe connection solutions in addition to the provision of local support through qualified technicians.

"We are delighted to be partnering with INTEGRA as we continue to increase our Gulf of Mexico footprint," said Quickflange CEO, Rune Haddeland. "With safe, cost effective, flexible and quick pipe connection solutions so vital to Gulf of Mexico operators today, we are confident that our partnership with INTEGRA will provide real value and we look forward to continuing to build up our North American partner network over the coming months."

Quickflange is one of the industry's leading providers of total pipeline and piping solutions to the oil & gas sector and has deployed its topside piping solutions in over 2,900 activations worldwide in regions, such as the UK, Norway, Belgium, Denmark, the Netherlands, Brazil, the Middle East and Australia. Quickflange counts BP, BG Group, ConocoPhillips and Exxon among its customers.

The Quickflange pipe connection solution provides a fast, convenient, safe and highly cost effective piping solution equivalent in strength to a welded or mechanical connection. As it takes place within a 'cold-solutions' environment, the Quickflange solution doesn't require heat sources in the same way that welding does.

Benefits of the Quickflange include:

Ease of Execution & Reduced Costs. Traditional welding requires significant resources and comes with costs, permits, access issues and potential production shut-down through the welding habitats. The simplicity and speedy installation of the Quickflange solution, however, with a single Quickflange technician overseeing deployment, ensures piping connections equivalent in integrity to welding but at a fraction of the costs and disruption. Furthermore, with a reduction in personnel requirements, no system hydro tests and delivery within hours, the cost savings compared to welding are substantial.Increased Safety. The Quickflange dispenses completely with the gases, ignition sources, flames and hot work associated with traditional welding, while providing every bit as robust a connection. The Quickflange also removes the need to use radioactive isotopes offshore to X-ray the in-field pipe joints.Increased Flexibility. The Quickflange can be deployed in contained areas with no impact on production, covers a wide variety of piping diameters, and is compatible with all materials, such as carbon steel, stainless steel 316, 6Mo and Monel, duplex, super duplex and copper nickel (CuNi ). The Quickflange can also be combined with already popular cold-work systems, such as pipe cutting and spark-free grinding.

The Quickflange stand at OTC can be found at #5055.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

View the original article here

Norway Plans to Raise Taxes on Oil Companies

OSLO - Norwegian Prime Minister Jens Stoltenberg, who faces an election in September, on Sunday laid out plans for a modest tax cut for mainland businesses while increasing taxes on oil companies and multinationals, as the small Nordic nation looks to maintain a competitive business climate.

Mr. Stoltenberg's plan, part of the government budget presentation on Tuesday, includes a reduction in the general corporate tax to 27% from 28% starting in 2014.

The move is expected to shave 2.4 billion kroner ($413 million) off the annual tax bill for mainland industry, as well as NOK500 million annually for those who are self-employed, the government said. Lawmakers will vote on the budget, but Mr. Stoltenberg's ruling coalition has enough votes to pass it.

Neighboring Sweden recently cut its corporate-tax rate to 22%, and Denmark plans to reach the same level by 2016. Finland, meanwhile, is aiming to take its tax rate at 20%.

Norway's oil-and-gas industry has helped keep unemployment low, public finances intact and wages rapidly growing. While this has insulated Norway from much of Europe's economic malaise, it has forced many companies outside the energy sector to be noncompetitive.

"Some sectors are performing very well, pushing prices and salaries higher," Mr. Stoltenberg said at a news conference. "At the same time, businesses that can't increase prices because they depend on global markets are squeezed by high costs and lower demand from abroad."

Norway's wage growth is expected to slow to 3.5% in 2013, but is still high enough to erode the competitiveness of companies in the international market.

Oil companies won't benefit from the tax cut, the government said, because it will be offset by an increase in the special petroleum tax to 51% from 50%.

Mr. Stoltenberg criticized oil companies for cost overruns on big projects, and said they would have to pay a bigger share of the investments from now on.

"We think we give a better signal to the oil companies when they must now bear a bigger share of the investments themselves, not the least because we need more cost awareness in that sector," he said.

The 24 oil projects under development offshore Norway have recorded cost overruns of NOK49 billion, government figures show. Mr. Stoltenberg said "90% of this is paid for by the society."

Oil companies would still be able to deduct most of their investment costs, but slightly less than before. By reducing a tax deduction called the "uplift," oil companies' tax bill was expected to increase by NOK70 billion in current value between 2013 and 2050, the government said, or slightly below NOK3 billion annually.

Norway's dominant oil company, Statoil ASA, wasn't available for comment Sunday.

The Norwegian Oil and Gas Association said it worried the changes could undermine Norway's reputation as a stable environment for oil-company investments, and warned that marginally profitable oil and gas projects could be shelved.

Amid a high oil price, some offshore projects "have a pretty high break-even price," association spokesman Erling Kvadsheim told The Wall Street Journal. "I don't think this measure in itself will necessarily affect those, but some of the more expensive projects to increase the oil recovery [on mature fields] may be impacted."

Some of the bill for the tax cuts would go to big corporations. The government said it planned to reduce multinational companies' ability to shift profit into low-tax countries from Norway through internal loans. Lowering interest deductions on such loans would increase tax revenue by NOK3 billion annually, the government said.

In addition, a higher tax rate on people who own more than one home would increase Norway's tax revenue by an additional 500 million kroner annually, the government said.

Copyright (c) 2013 Dow Jones & Company, Inc.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

View the original article here

Canada: The New 'Land of Job Opportunity'

Canada is being proactive in its recruiting efforts by searching the globe to fill much-needed positions in the oil and gas industry. The rapid expansion of oil sands production has made oil critical to the Canadian economy and with more than $100 billion invested in oil sands over the past 10 years, economic and political power has shifted westward to Alberta. It is estimated that production is connected to 75,000 jobs nationwide, and this number is expected to increase over the next 25 years.

The Canadian Association of Petroleum Producers estimates that Canada's current production of 3.2 million barrels of oil a day will reach 6.2 million barrels a day by 2030, with oil sands representing majority of this output. Additionally, it is estimated that $283.4 billion will be spent developing new oil sands projects by 2035, noted the Conference Board of Canada. With an increase in production, the demand for skilled employees will surge.

Essentially, conventional oil and gas producers need additional workforce to produce a barrel of oil or a cubic foot of gas today compared to 10 years ago. Canada's oil and gas industry will need to fill a minimum of 9,500 jobs by 2015, according to a report released by the Petroleum Human Resources Council of Canada.

Between now and 2015, the country's oil and gas industry is at risk of losing about 3 percent of its overall workforce because of obstinately low natural gas prices, according to the report "Canada's Oil and Gas Labour Market Outlook 2015". Two primary factors, growth in certain operations and age-related attrition across the industry, will offset most job losses and contribute to increased overall hiring needs, the report stated.

"It is a national problem," said Francis McGuire, chief executive officer of Moncton, N.B.-based Major Drilling Group International Inc., to the Globe and Mail. "It is very difficult to attract people. Salaries are very good … but they don't want to be out with the black flies and the snow and the cold and sleeping in camp and being away from home for 21 days at a time."

By 2015, employment in the oil-sands sector is projected to increase by 29 percent over 2011 levels, or about 5,850 jobs. The pipeline sector is estimated to add 530 jobs over the same period. Both sectors will need to amp recruiting efforts for turnover and replacing retiring workers. Looking forward, Canadian oil and gas employment is expected to rise to 145,000 jobs by 2035.

"This is a complex labor story," said Cheryl Knight, executive director and CEO of the Petroleum HR Council, in a released statement. "At a granular level, we're seeing high demand for, and reduced supply of, skilled workers in specific occupations, many of which are unique to the oil and gas industry. And employee turnover is the wild card that could have recruiters working to fill hundreds of additional job openings over the next four years."

In March 2012, Citizenship, Immigration and Multiculturalism Minister Jason Kenney outlined his vision for a faster, more responsive immigration system that is designed to better meet the country's economic needs.

"Immigration is playing an increasingly important role in our economy and we need a system that does a better job of attracting the people who have the skills that are in demand and getting them here quickly," said Minister Kenney in a released statement. "We have made some great strides towards an immigration system that is fast and flexible, but know that there is more work to do."

In his speech, he highlighted recent changes to the Federal Skilled Worker Program, where current applicants must have experience in one of 29 occupations in demand, or have a job offer in Canada.

One of the largest supply-chain effects associated with oil-sands investment is in the oilfield services industry. For every billion dollars of inflation-adjusted investment, 745 jobs are supported, according to the Conference Board of Canada. Total employment in the oil and gas sector has risen from 57,000 in 2001 to 96,000 in 2011.

Oil and gas well servicers, which include derrick operators, rotary drill operators, service unit operators, drillers and testers, are the high-demand occupations in Calgary, based on the "Calgary Labour Demand Forecast 2012" report. In 2010, there were an estimated 2,200 oil and gas well servicers in the Calgary labor force, but between that year and 2020, demand for these workers will increase by 40 percent, resulting in the demand for about 3,100 workers in 2020.

Also, according to current recruitment trends, employers will likely face difficulties recruiting qualified workers for both newly-created jobs and existing positions that become vacant.

"Technical personnel are the No. 1 positions I have noticed that are in demand," stated Neil Williams, general manager of Professionalcare Staffing Inc. in Calgary, to Rigzone. "The jobs have to be filled – there's no question about it. We are importing as many people as allowed. We are training and educating and filling vacant positions but the need is so great."

A portion, or if needed, a majority of the vacant positions in Calgary may need to be recruited through labor markets outside of Calgary, including international labor markets, noted the report. The Calgary Economic Development (CED) has identified the best cities and regions for recruiting workers in Canada, the United States, the United Kingdom and Ireland.

The top-recommended cities for recruiting these workers include:

Houston, TexasDallas-Fort Worth, TexasCorpus Christi, TexasLongview-Marshall, TexasOdessa, TexasOklahoma City, Okla.Tulsa, Okla.Bakersfield, Calif.Lafayette, La.Shreveport, La.

Nine of the top 10 recommended U.S. cities for recruitment are located in the states of Texas, Louisiana and Oklahoma. Houston offers the largest total labor force with roughly 9,300 workers, followed by Dallas-Fort Worth with 3,000 workers. Furthermore, Longview-Marshall and Odessa, Texas, as well as Oklahoma City offer a younger oil and gas labor force with high out-migration probability index scores, the report noted.

"We can't just recruit from America, we have to look elsewhere considering the shale boom that is currently going on down south," stated Williams. "Americans are busy. We have to look beyond North America but where development is booming – Angola, Brazil and Australia – these candidates are too busy with development, as well. So where do we look? That's the million- dollar question."

In addition, oil and gas well servicers in the top-recommended cities could potentially earn higher incomes by relocating to Calgary. The U.S. average salary for oil and gas well servicers was about $48,000 in 2010, while in Calgary the base pay for these workers averaged at $61,000 per year.

"With the oil sands coming on-stream more and more with every passing year, the draw of people from every sector into oil and gas is going to become stronger and stronger, making it more and more difficult for employers in other parts of the economy to find qualified people," said Richard Truscott, director of provincial affairs in Alberta for the Canadian Federation of Independent Business, to the Globe and Mail.

With so many vacant positions in Calgary, more and more Americans are relocating to Canada and dubbing it the "land of opportunity" according to a 2011 report by Citizenship and Immigration Canada. In 2010, Canada welcomed the highest number of legal immigrants in 50 years – about 280,636 permanent residents.

And there are programs in the United States that are targeting Americans to relocate to Canada. Grice Energy, recruiting specialists providing workers for the energy industry, launched a Boots to Energy project, to place veterans into the oil and gas industry. Although the program hasn't placed anyone in Canada, yet, "we are working both with the American State Department and the Canadian Consul General's office to try to lower the barriers of entry that now exist," stated Rick Grice, president of Grice Energy, to Rigzone. The American Chamber of Commerce in Calgary is also involved in this effort.

"Our mission is to connect our returning heroes with energy companies who need and respect them," he added. "If the barriers to immigration are relaxed in order to bring in the labor force needed, the effect must naturally be positive."

A condensed version of this article originally appeared March 27, 2013 on Rigzone.

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.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

View the original article here

PSA Raps BP's Knuckles over Ula Leak

Norway's Petroleum Safety Authority reported late Tuesday that it has issued an order to BP following the safety body's investigation into the hydrocarbon leak on the UIa P platform on Sep.12 2012.

The PSA said that the incident, in which an estimated 125 barrels of oil were leaked from the platform along with more than a ton-and-a-half of natural gas, had the potential to become a major accident, with the "risk that a number of lives might have been lost and substantial material damage caused". Production was shut down for 67 days as a result of the leak, although no people were injured in the incident.

The investigation revealed that the leak was caused by fracturing of bolts holding together a valve in a separator outlet. Seepage in the valve exposed the blots to produced water with a high content of chlorides and a temperature of around 120 degrees Celsius, which resulted in chloride stress corrosion in the bolts until they eventually fractured.

On Monday the PSA said it had identified a number of serious breaches of regulations. Tuesday saw the organization confirm an order that BP must carry out two reviews by September 1 this year:

BP must review its management system for the Norwegian Continental Shelf with a view to assessing whether it is adequate for identifying and dealing with the nonconformities identified in the investigation of the leak.The firm must also assess whether measures planned and initiated after an earlier fire on Valhall in 2011, and other improvement activities, are relevant and collectively adequate in light of the nonconformities identified following the leak on Ula.

Measures identified under the two items above must be implemented by Dec. 31 2013, the PSA added.

The Ula field is located in the southern North Sea and produces around 13,000 barrels of oil per day.

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.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

View the original article here

Musings: Oil Industry On Alert - Active Hurricane Season Forecast

This opinion piece presents the opinions of the author.
It does not necessarily reflect the views of Rigzone.

Earlier this month, the tropical storm forecasting team of Philip J. Klotzbach and William M. Gray, professors in the Department of Atmospheric Science at Colorado State University (CSU), released their first forecast for the upcoming hurricane season. They are calling for the season to experience "enhanced activity compared with the 1981-2010 climatology," meaning it will be an active storm season. Furthermore, the forecasters "anticipate an above-average probability for major hurricanes making landfall along the United States coastline and in the Caribbean." In other words, be prepared.

Based on the work the tropical storm forecasting team has done in conjunction with the GeoGraphics Laboratory at Bridgewater State University in Massachusetts, the model predicts that there is a 72% probability of a major hurricane making landfall along the entire U.S. coastline compared to a 52% average for the past century. For the U.S. East Coast including the Florida Peninsula, the probability of landfall is 48% versus a 31% historic record. For the Gulf Coast from the Florida Peninsula to Brownsville, Texas, the probability is 47% compared to a 30% record. The model also estimates that the Caribbean has a 61% probability versus 42% historically of experiencing a major hurricane landfall. These higher than historic probabilities will have the U.S. petroleum industry on alert during the upcoming season although even with a very low probability it only takes one storm to create serious disruption and economic hardship.

The CSU forecasters are using a relatively new April forecasting model that employs four predictors they have found to have an above-average predictive value. This is the third year the forecasters have used this model, which is built on data from 1982-2010. The model incorporates the most recent and reliable data available, which the forecasters believe helps improve the model's predictive ability. They said these four predictors helped the model to correlate with the Net Tropical Cyclone Activity (NTC) at 0.79 when all years studied are included. A drop-one cross-validation analysis yields a correlation with the NTC of 0.68. This is a more realistic view of the skill the model will have in future years. The forecasters say that this model correctly predicted above- or below-average seasons in 22 out of 31 hindcast years, a 71% average. The model's predictions have had a smaller error than climatology in 19 of 31 years for a 61% average.
The predictors used in the model include the average sea surface temperature (SST) in the Atlantic basin in the January to March period, the sea level pressure (SLP) for March in the central Atlantic Basin and the February to March SLP in the Pacific Ocean region off South America, and the European Centre for Medium-Range Weather Forecast (ECMWF) of the SLP in the Pacific Ocean along the Equator.

The CSU forecast calls for 18 named tropical storms during the season with nine hurricanes and four of them becoming intense (major) hurricanes, meaning they are storms in the intensity range of 3-4-5. They believe that 2013's activity will be similar to the 2011, 2010 and 2009 years with the exception of the number of intense hurricanes last year. This year's activity would also compare with 2008, but not as intense as 2005 when there were 26 named storms and seven intense ones and 2004 with 14 named storms and six intense hurricanes. The comparison of the April forecast with the most recent six years is displayed in Exhibit 14.

The reason for the above-average forecast this season for tropical storms, hurricanes and intense hurricanes is because the meteorological projections call for the combination of an anomalously warm tropical Atlantic basin and a relatively low likelihood of the formation of an El Niño. To modify the forecast from the output of the model, the forecasters look to analog years. In selecting the analog years, the forecasters look for those years with similar meteorological conditions as projected for this season. None of the analog years had a significant El Niño during the peak of the hurricane season, which is the condition anticipated this year. The forecasters are anticipating that 2013 will have more activity than the average of the five analog years selected – 1915, 1952, 1966, 1996 and 2004.

The next forecast update will be produced at the beginning of June and it will be interesting to see what modifications are made. The development of El Niño could alter the forecast meaningfully, but the likelihood is that this year will be more active – consistent with the more active tropical storm phase for the Atlantic basin. If the CSU forecast on landfall potential proves correct, the energy industry will need to be vigilant and is likely to have several episodes when offshore operations will need to be shut down and crews evacuated. That will mean the Gulf will produce less oil and gas this summer than potentially anticipated now by operators and forecasters. All of these possibilities need to be considered when making projections about how the domestic energy business will play out in 2013.

G. Allen Brooks works as the Managing Director at PPHB LP. Reprinted with permission of PPHB.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

View the original article here