Oil Futures Weighed by Demand Worries, OPEC Output

Oil futures settled lower for the third straight session, weighed by concerns over weakening demand in China and robust global production.

Futures headed lower after data released Monday showed Chinese industrial output in April came in at 9.3% above last year's level--an improvement over a tepid March reading but under the 9.5% forecast by analysts surveyed by The Wall Street Journal.

The report was the latest underscoring slowing economic growth in China, which in turn has left the oil market worried demand for crude-oil is slowing there, too. China is the world's fastest-growing large economy and the boom has fueled a rise in oil prices over the last several years.

"The Chinese data today started us off on the defensive," said Andy Lebow, senior vice president of energy futures at Jefferies Bache in New York. "We're going to really need some demand growth in the second half [of the year] to suck up the increased crude production."

Light, sweet crude for June delivery settled 87 cents, or 0.9%, lower at $95.17 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange recently settled $1.09, or 1%, lower at $102.82 a barrel.

Monday's fall is the latest decline in crude prices, as signs of strong supply in the U.S. and elsewhere keep a lid on gains. Year to date, crude futures have barely budged, up just 3.65% since the start of 2013.

On Monday, the Organization of the Petroleum Exporting Countries raised its strongest concerns yet this year about weakening oil demand in China. It cut its estimate for Chinese oil demand growth in the first quarter by 20,000 barrels a day, saying weaker-than-expected economic growth in China "may dent oil demand consumption."

Research service Platts estimated OPEC raised crude output by 25,000 barrels a day to 30.5 million barrels a day in April. The increase marked the end of a recent trend of lower production. The service said output had fallen by nearly a million barrels a day between October and March.

Platts said the increase was driven by higher output from Saudi Arabia, the biggest producer, and Iraq, the No. 2 producer. The group's next meeting in Vienna scheduled for May 31

Meanwhile, many oil-market observers remained concerned about the effect of a wind-down of monetary stimulus measures at the U.S. Federal Reserve. The Wall Street Journal reported on Friday that Fed officials had mapped out a strategy for winding down its $85 billion-a-month easing program.

An end to the measure would likely entail more support for the U.S. dollar, which typically weakens oil prices by making the commodity more expensive to global buyers.

The ICE Dollar Index, which tracks the greenback against a basket of currencies, was recently up 0.1% at 83.340.

Front-month June reformulated gasoline blendstock, or RBOB, settled 3.93 cents, or 1.4%, lower at $2.8210 a gallon. June heating oil settled 1.52 cents, or 0.5%, lower at $2.8910 a gallon.

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BP Withdraws Staff from Libya

BP is withdrawing some of its staff from Libya amid potential violence in the country.

BP said in a statement Sunday that it was withdrawing non-essential overseas staff out of Libya "as a precautionary measure" following advice given to it by the UK Foreign and Commonwealth Office. However, BP said that its Libyan staff remain in its office in the country.

Last week, the Foreign Office noted that armed groups were disrupting access to a number of government ministries in Tripoli, Libya's capital city, and that there was potential for violence and clashes between rival armed groups. The FCO advised Friday UK citizens against all but essential travel to Tripoli and against all travel to the rest of the country. It has also withdrawn a small number of its own staff who work at the British Embassy.

Also last week, Italy's ENI – the international oil major with the biggest operations in Libya – said it expects unrest to continue in the country. On Friday, ENI Chief Executive Paolo Scaroni was quoted as saying that he is optimistic that the situation in Libya will eventually improve as the country embraces democracy.

The latest violence is likely to delay further BP restarting its operations in the country. The company indicated several times in 2012 that it was looking to restart its operations after it suspended them during Libya's civil war in 2011, but even before the recent violence differences between the Libyan government and foreign firms over the use of foreign security forces in oil zones within the country are already thought to have been an obstacle to BP resuming operations.

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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Statoil, Total Agree to Barents Sea Asset Swap

Statoil reported Monday that it has agreed on an asset swap with France's Total in the Barents Sea.

Statoil said that it will acquired a 10-percent interest in Norwegian production license 535 in exchange for Total taking a 10-percent equity in PL395.

The two production licenses are situated on the Bjarmeland Platform in the central Barents Sea, where both companies have found gas resources: the Ververis discovery on PL395 in 2008 and the Norvarg discovery in PL535 in 2011.

"The Bjarmeland area has an interesting resource potential which may become important for future gas developments in the Barents Sea. We believe that this transaction creates an interesting platform for future opportunities in this area," Gro Haatvedt, Statoil’s senior vice president for exploration in Norway, commented in a company statement.

The agreement is subject to approval by the Norwegian Ministry of Petroleum and Energy.

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Canada Minister Sees Better Prospect of Change to EU Oil-Sands Law

OTTAWA - Canadian Natural Resources Minister Joe Oliver said the possibility of changes to a proposed European Union law that seeks to treat Canadian oil-sands crude as dirtier than conventional fuel have improved, because the law would increase costs and threaten the competitiveness of European refineries at a time when the continent's economy is struggling.

The European Commission, the EU's executive body, is considering singling out crude from Alberta's oil sands as being dirtier than other fuel types in a revision to its Fuel Quality Directive, or FQD, a law designed to lower carbon emissions from transportation fuels.

"We believe that the prospects for an improvement--for fundamental change here--are better than they were a year ago," Mr. Oliver told reporters on a conference call from the U.K., adding that "the issue of competitiveness, including in the refinery industry "are really very much top of mind."

He said Ottawa would consider taking action against the EU at the World Trade Organization as a "very last resort."

Canadian officials, who have long lobbied against the proposed law, say it discriminates against oil-sands crude and isn't based on science. The issue was re-ignited recently as Canada and the EU try to conclude a free-trade agreement that's been four years in the making. Officials from both side have repeatedly said the FQD and trade negotiations are being kept separate. A decision on the FQD is expected later this year.

Mr. Oliver said oil-sands opponents are unrealistic in lobbying for a world powered by alternative energy, and their message could "hurt the economy in a significant way." He said Canada wants its approach to climate change "to be based on reality" and will focus on reducing greenhouse gas emissions while continuing to invest in green energy and technology.

Meanwhile, Mr. Oliver said opponents of TransCanada Corp.'s proposed Keystone XL pipeline are getting "desperate," as U.S. decision on the controversial project nears, hence "the shrillness of their arguments, the hyperbole and the exaggeration that we're hearing from some sources."

Mr. Oliver said the project would be "very positive" for Canada and the U.S, creating jobs on both sides and contribute to economic growth.

The Obama administration is expected to make a decision on Keystone later this year.

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Dejour Energy Reaches TD at Kokopelli Well

Dejour Energy Inc., an independent oil and natural gas exploration and production company operating in North America's Piceance Basin and Peace River Arch regions, announced it has now reached total depth of 8130 feet in the Federal 6-7-15-21, the fourth and final well in the current Kokopelli drill program targeting production from multiple horizons of the NGL-rich Williams Fork in this 2Q 2013 drilling operation. Again, ample gas shows, as expected, were observed. The hole has now been cased and cemented.

Following demobilization of the drilling rig and completion of the gas sales line tie in to our facilities, Haliburton will begin turnkey operations to stimulate and complete all four wells for production. Initial production (IP) is scheduled to commence prior to the end of 2Q 2013.

Dejour operates this Kokopelli project and enjoys a 72 percent WI in the initial well drilled in 4Q 2012 and a 100 percent WI in the three wells currently being drilled, all subject to a previously announced agreement with a Denver based drilling fund.

With the realization of firmer gas prices to date in 2013, Dejour is now modeling Kokopelli for the next wave of development targeted for 4Q 2013. The Company estimates the potential to drill at least 27 deeper Mancos/Niobrara wells and more than an additional 200 Williams Fork wells on its two leases that comprise a total of 2200 gross acres.

The Company will report its 1Q 2013 financial results after the market close on May 15, 2013.

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OTC Exhibitors: Technologies Trending Toward Deeper Water But Also Land

Based on a quick sampling of insights from a few of the more than 2,700 exhibitors at the Offshore Technology Conference (OTC) 2013 in Houston this past week, applications of innovations developed to expand the frontiers of the offshore oil and gas industry are broadening. However, they pointed out that larger companies stand to benefit from this trend.

"I think there is more emphasis on the higher pressures and higher temperatures that the wells, that the equipment, have to accommodate," said Paul Taylor, sales director with Trelleborg Sealing Solutions UK.

Trelleborg, which produces sealing systems for offshore applications such as seismic guns and well head connectors, is modifying how it manufactures and configures these parts so that they can endure these increasingly extreme conditions, Taylor said.

"We're looking at polymers technology to make sure that our product can accommodate the higher temperatures and the higher pressures," Taylor said.

Although the offshore industry is demanding seals and myriad other products that can withstand higher temperatures and pressures, Taylor added that it is seeking more evidence to substantiate the claims made by manufacturers.

"There's becoming an increasing emphasis on the certification of the parts," he explained.

"I think everybody has learned from the Deepwater Horizon that the industry is becoming perhaps a little bit more conservative on insisting the parts that they purchase are endorsed and validated with certificates of conformity."

The increased level of scrutiny – driven in part by more attention from government authorities – applies to constituent parts, measurements and testing, said Taylor. In addition, he believes this trend will benefit larger suppliers such as Trelleborg.

"I think what it will do is probably reinforce what has been done by the larger, more innovative companies that are going with the trends," Taylor noted.

He explained that smaller companies unable to validate the sources of their raw materials, conduct research and development, perform testing and take sundry other steps will be at a disadvantage.

"I think they'll get less and less business and the bigger companies, the bigger original equipment manufacturer end users, will use the bigger, more efficient companies," predicted Taylor. "So there may be a rationalization of competition in our industry as a consequence."

Jeffrey Lavers, vice president and general manager of 3M Mining's Oil and Gas Solutions Division, noted that the oil and gas industry's quest to exploit reserves in deeper waters off West Africa and other regions demands continual innovation from companies such as his.

"Just the basic pressure and force of going that deep in the water, from an engineering standpoint, changes a lot of dynamics of the project," said Lavers. "It's a much more challenging environment in a host of different ways, primarily just because of the heat and the pressure."

"What we have to do is adjust some of our products and we think, candidly, it puts us in a good position because we have the capabilities" to make those adjustments, he added.

Lavers said that 3M is also responding to oil and gas industry needs in mature offshore provinces such as the Gulf of Mexico and North Sea. Although many depleted wells in these areas still contain significant volumes of hydrocarbons and boast well-developed infrastructure, inadequate flow rates from these wells prevent the economic exploitation of the remain resources. 3M is also working to tailor some of its products to perform in these types of situations.

"We're gearing up a lot of technology to see if we can go back to these brownfield wells and make them productive," Lavers said.

Another company aiming to re-purpose existing technology is Tesco Corp., which provides drilling and tubular services technologies for land, offshore and deepwater operations.

Jeff Foster, senior vice president of Tesco's Top Drive business segment, said that more offshore technology is being transferred to land applications in the area of automation and rig mechanization. He explained that "iron roughnecks," which connect and disconnect drill pipe, and top-drive drilling systems are two examples of offshore technologies that are being adapted for onshore use.

Foster said the automation, preventive and predictive maintenance trend offers Tesco and other service providers an opportunity to reduce non-productive time.

"It's an add-on for us," he said.

Late Thursday, OTC organizer Society for Petroleum Engineers (SPE) reported that attendance at the 2013 event hit 104,800 – a 17-percent increase from last year's conference and the second-highest since the show began in 1969.

"We had a terrific conference with deep and broad technical coverage, supported by excellent panels and executive keynote presentations," OTC chairman Steve Balint said in a written statement. "Technology is at the heart of the offshore industry and it was all here on display at OTC 2013."

Houston's Reliant Park will again be the venue for the next OTC, which will run from May 5-8, 2014.

Matthew V. Veazey has written about the upstream and downstream O&G sectors for more than a decade. Email Matthew at mveazey@downstreamtoday.com. Twitter: @Matthew_Veazey

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Nigeria, South Africa Sign MOU to Boost Trade in Oil, Gas Sector

Nigeria and South Africa have signed a memorandum of understanding aimed at boosting the volume of oil and gas trade between the two countries, Diezani Alison-Madueke, Nigeria's oil minister, said Wednesday.

In a statement issued Wednesday by the Nigerian National Petroleum Corp., or NNPC, in Abuja, Ms. Alison-Madueke was quoted as saying on the sidelines of the Nigeria and South Africa Business Forum in Cape Town that the MOU would also "reinforce and strengthen the existing symbiotic relationship between the two largest economics in Africa."

Ms. Alison-Madueke is on the delegation of President Goodluck Jonathan who began a state visit to South Africa on Monday.

Nigeria, Africa's largest oil producer, has in the last six years unsuccessfully tried to pass in its National Assembly a bill meant to transform its inefficient and corruption-ridden oil and gas sector.

Oil thefts and pipeline vandalism are rising in the nation's oil-producing Niger Delta region while the uncertainty created in Nigeria's oil and gas sector due to the bill's failure to pass has compelled international oil companies to hold back further investments in the sector.

Ms. Alison-Madueke said the MOU on the oil and gas sector "is to basically help in the transfer of knowledge, skills, capabilities and technology."

She said when passed into law, oil bill would help to open the entire spectrum of the Nigerian oil industry to investors from all over the globe.

The bill is currently being debated in the National Assembly in Abuja where there is a sharp division among legislators from the southern and northern parts of the country on the provisions of bill and it is not clear when it will be passed into law.

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NATO Won't Up Presence In The Arctic

OSLO - The North Atlantic Treaty Organization has no plans to increase its presence in the Arctic, Secretary General Anders Fogh Rasmussen said Wednesday despite numerous countries' keen interest in the region's vast natural resources.

"NATO has no intention of increasing its presence and activities in the Far North," Fogh Rasmussen said in Oslo after spending two days visiting northern Norway.

The Arctic is believed to hold some 90 billion barrels of oil and 30% of the world's yet-to-be discovered natural gas resources.

Those riches have become increasingly accessible as the Arctic ice shrinks. Not only countries bordering the Arctic Ocean are keen to claim the resources but also other nations further afield, such as China, are looking on with interest.

Several states, including Russia, Canada and the United States, have already announced a reinforcement of their military presence to defend their claims.

Norway, which shares a border with Russia, has made the Far North its top priority and has in recent years tried to draw the attention of NATO and the European Union to the region.

"Norway has, like all other allies, a legitimate expectation that NATO's collective defense should cover all of NATO's territory, including of course the north of Norway," Fogh Rasmussen said at a joint press conference with Prime Minister Jens Stoltenberg.

"The Arctic is a hard environment. It rewards cooperation, not confrontation. I trust we'll continue to see cooperation," the NATO chief wrote on Tuesday evening on Twitter.

The foreign ministers of the Arctic Council, an international forum for the eight states bordering the Arctic, are to meet on May 15 in Kiruna, in northern Sweden.

Among other things, they are to consider a request from several other nations and bodies--China, India, Italy, Japan, Singapore, South Korea, and the EU--to be granted observer status on the Council.

The U.K., France and Germany are among those who already hold observer status.

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California Postpones Oil, Gas Lease Auctions

California's Monterey Shale is continuing to be the talk of the industry after the U.S. Bureau of Land Management (BLM) recently announced plans to postpone upcoming federal lease auctions in the state. The prolific play, that holds more shale oil than anywhere else in the country, has the potential to pull the state out of its downward debt spiral but has been caught in a tug of war between proponents and environmentalists since the shale boom occurred in the nation.

The federal land managers postponed an auction scheduled for later this month that would have put more than 1,300 acres of prime public lands up for bids. Another auction scheduled in Colusa County, about 75 miles northwest of Sacramento auctioning about 2,000 acres was put on hold until the end of this year.

"Our priority is processing permits to drill that are already in flight rather than work on new applications," Interior Secretary Sally Jewell told reporters Tuesday after a Senate budget hearing in Washington.

The Monterey Shale, which stretches from Central California down through Southern California is estimated to hold more than 15.4 billion barrels of recoverable crude oil, according to the U.S. Energy Information Administration.

"We want to get the greenhouse gas emissions down, but we also want to keep our economy going," said Governor Jerry Brown (D, California), during a March 13 press conference to discuss the issue. "That's the balance that is required."

The decision to postpone the auctions is loosely based on a recent federal judge ruling that BLM had violated a key environmental law when the energy auctioned the drilling rights for other parcels near the Salinas River Valley. The judge cited that the agency failed to review the impacts on water, wildlife and air quality. A group of environmentalists sued the bureau for not properly reviewing the environmental risks associated with hydraulic fracturing and other types of oil and gas development.

"America has a game changing opportunity to build a stronger economy and to secure a brighter energy future thanks to our vast supplies of newly accessible oil and natural gas," said John Felmy, American Petroleum Institute chief economist in a conference all to reporters Thursday.

"Full development of these resources could mean millions more jobs, stronger and more rapid economic growth, and trillions in added tax revenue, all while strengthening our position vis-à-vis the geopolitics of oil and natural gas markets. Unfortunately, current federal policy continues to prevent our nation from taking full advantage of this opportunity. The most recent example of this is BLM's decision to postpone oil and natural gas lease sales in California until the fall, at the earliest."  

Postponing the leasing auction does not mean that drilling on existing leases will stop, stated BLM spokesman David Christy in a release. The agency is concentrating its limited resources on enforcement on existing leases and other priorities, such as granting renewable energy permits, he said.

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

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