Pacific Rubiales Sees 55% Increase in Prospective Resources

Pacific Rubiales Energy Corp. announced Monday the results of an independent resource assessment for certain of the Company's exploration blocks in Colombia, Peru, Brazil, Guyana, Guatemala and Papua New Guinea (PNG). The 2012 resource assessment was prepared by Petrotech Engineering Ltd. with an effective date of September 30, 2012.

The 2012 Resource Report shows that the best case estimate of total gross Prospective Resources attributed to the Company has grown to 4.3 billion barrels of oil equivalent (Bboe) from 2.8 Bboe in 2011, and the best case estimate of total gross Contingent Resources has grown to 168 MMboe from just 4 MMboe booked in 2011.

"We look at the 2012 Resource Report as a clear demonstration of the Company's strategy to increase its resources using strategic acquisitions of exploration opportunities in selected countries where we see a balance of above- and below-ground risk.  Resources drive future reserves which in turn represent the future production of the Company," Jose Francisco Arata, president of the Company, commented.

Highlights on the best case estimates of total gross Prospective Resources and total best case Contingent Resources (see the heading below entitled "Resources" for further information) from the 2012 Resource Report include:

4,291 MMboe of total gross Prospective Resources (prospects plus leads), an increase of 55 percent from 2,774 MMboe in 2011.The total gross Prospective Resources are contained in 123 opportunities (74 prospects and 49 leads) on 40 assessed blocks in six countries.The total gross Prospective Resources are estimated to include 3,520 MMbbl of oil and natural gas liquids (82%), and 4.5 Tcf (772 MMboe) of natural gas (18%).1,302 MMboe of the total gross Prospective Resources are in prospects (30%), an increase of 226 percent from 399 MMboe in 2011, largely reflecting new exploration blocks acquired in 2012 and successful exploration drilling.2,989 MMboe of the total gross Prospective Resources are in leads (70%), a 26 percent increase from 2,375 MMboe in 2011, largely reflecting new exploration blocks acquired in 2012 and new leads defined on seismic surveys.46 percent of the total gross Prospective Resources are in Colombia, 41% in Peru, 9% in Brazil, 3% in Guyana, and the remainder are in Guatemala and Papua New Guinea .168 MMboe of total gross Contingent Resources, up substantially from 4 MMboe in 2011, mainly due to acquisitions and advancement from Prospective Resources through successful exploration drilling.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.

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BSEE Finishes Final Offshore Workplace Safety Rule

The Bureau of Safety and Environmental Enforcement (BSEE) has completed the Safety and Environmental Management Systems (SEMS) II final rule, which enhances the original SEMS rule, or Workplace Safety Rule issued in October 2010.

SEMS II, which was made available Thursday in the Federal Register Reading Room, is the latest step in BSEE's efforts to further identify, address and manage operational safety hazards and impacts, with the goal of enhancing both human safety and environmental protection on the U.S. Outer Continental Shelf, BSEE Director Jim Watson said in a statement.

Since the Deepwater Horizon incident in April 2010, the Obama administration has implemented a number of regulatory reforms to enhance safety and environmental protection.

"Offshore oil and gas safety starts with a robust positive safety culture, and BSEE's workplace safety rules are designed to promote that culture by eliminating complacency and making sure that companies are looking at the human factors that underlie too many accidents," Watson commented. "This effort takes another important step towards protecting workers and the environment from preventable accidents."

The SEMS II final rule will take effect June 4, but does not affect an operator's first audit cycle.  Except of the auditing requirements, operators have until June 4, 2014 to comply with the provisions of SEMS II. All SEMS audits must be in compliance with the SEMS II Rule by June 4, 2015.

SEMS II will supplement operators' SEMS programs with greater employee participation, empowering field level personnel with safety management decisions, and strengthening oversight by requiring audits to be conducted by accredited third-parties, Watson said.

The Workplace Safety Rule, which took effect Nov. 15, 2010, encompasses all offshore oil and gas operations in federal waters and made mandatory the previously voluntary practices in the American Petroleum Institute's Recommended Practice 75. Operators were required to implement a SEMS program by Nov. 15, 2011 and must still submit their first completed SEMS audit to BSEE by Nov. 15, 2013.

Additional safety requirements contained in SEMS II that were not covered in previous regulations include:

Developing and implementing a stop work authority that creates procedures and authorizes any and all offshore industry personnel who see an imminent risk or dangerous activity to stop workDeveloping and implementing an ultimate work authority that requires offshore industry operators to clearly define who has the ultimate work authority on a facility for operational safety and decision-making at any given timeRequiring an employee participation plan that provides an environment that promotes participation by offshore industry employees and management to eliminate or mitigate safety hazardsEstablishing guidelines for reporting unsafe working conditions that enable offshore industry personnel to report possible violations of safety, environmental regulations requirements, and threats of danger directly to BSEEEstablishing additional requirements for conducting a job safety analysisRequiring the team lead for an audit be independent and represent an accredited audit service provider

BSEE is now analyzing comments received on the Draft Safety Culture Policy Statement prior to the release of the final Safety Culture Policy Statement. Released last December, the draft statement was created to provide a common definition by everyone working offshore. The policy statement outlined BSEE's approach to safety culture and was meant to inform the offshore community of BSEE's safety expectations.

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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Fitch: Struggle with Oil Production Drives Lukoil M&A

Lukoil's acquisition of a small Russian oil producer is out of step with recent merger and acquisitions (M&A) activity, and indicates that it may be struggling to sustain domestic oil output, according to Fitch Ratings. The ratings agency said that Lukoil's ability to reverse declining output and stabilize crude production in Russia is a critical rating factor.

Lukoil spent nearly $7.3 billion on M&A between 2009 and 2012, and it acquired large stakes in a number of upstream and downstream assets abroad, but only $452 million of that was spent on Russian upstream acquisitions, Fitch pointed out.

"This week's deal clearly bucks the recent trend. Lukoil will pay $2.05 billion to acquire Samara-Nafta, an oil-producer based in the Volga-Urals region with 2.5 million tons of annual oil production," Fitch said.

Unlike Rosneft and TNK-BP, Lukoil has posted declines in Russian oil production every year since 2010. By 2012, its total oil production from Russian fields had fallen by 7.7 million tons, or 8 percent, from 2009.

"We therefore consider this latest acquisition as a sign that Lukoil is willing to engage in costly acquisitions to halt the fall in oil production," Fitch said.

The company has sufficient rating headroom to finance this all-cash transaction with borrowed funds only, if needed, Fitch highlighted, adding that an aggressive acquisition program or other spending could lead to negative rating action.

"On the other hand, stabilization of crude production in Russia, and the completion of key upstream projects while maintaining solid credit metrics, would be positive for the rating," Fitch said.

At the end of 2012, Lukoil had $2.9 billion in cash and cash equivalents; its gross total debt was $6.6 billion.

"Lukoil's falling production in Russia results mainly from the depletion of the company's brownfields in Western Siberia and lower than-expected production potential of the Yuzhno Khylchuyu field in Timan-Pechora. The company managed to slow the decline in crude production in Russia to one percent in 2012 from five percent in 2011 through enhanced recovery techniques in Western Siberia (mainly horizontal drilling and hydraulic fracturing) and the development of new upstream assets in the Ural and Volga regions," Fitch said.

Lukoil's exploration and production capex in Russia increased from $3.9 billion in 2010 to $7 billion in 2012, and Fitch estimates it may average $8 billion per annum over the next three years.

Fitch also highlighted that Lukoil is considering large-scale investments in unconventional oil production from the Bezhenov Shale, Russia's colossal shale deposit in Western Siberia, which is estimated to contain up to two trillion barrels of oil. Production costs for the shale deposit are estimated at several times that of conventional oil, so oil producers would need new tax breaks from the Russian government to make production economic.

"We estimate that the contribution from Samara-Nafta to Lukoil's total output will be fairly small – equivalent to around  three percent of the 83.8 million tons it produced in Russia in 2012, excluding its share in production of equity affiliates," Fitch said.

LUKOIL's total hydrocarbon output in 2012 reached 2.17 million barrels of oil equivalent per day (MMboepd), second only to Rosneft's 2.43 MMboepd.

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OMV Starts Production at Bina Bawi-3 in Kurdistan

Austria's OMV announced Thursday that it has carried out an extended well test on its Bina Bawi-3 well Kurdistan region of Iraq, so beginning production at the well at a rate of 5,000 barrels of oil equivalent per day (boepd).

The partners in the field have also submitted a Declaration of Commerciality for the field to the Ministry of Natural Resources of the Kurdistan Regional Government.

OMV said that the initial 5,000 boepd capacity from Bina Bawi has the potential to be expanded to 10,000 boepd as future wells become available. A further extensive testing program is planned for the Bina Bawi-4 and Bina Bawi-5 wells during the course of the second quarter.

Jaap Huijskes, OMV Executive Board Member responsible for exploration and production, commented in a statement:

"We are very pleased with this result. The progress of the development of Bina Bawi as well as the Declaration of Commerciality are important milestones to further expand our business in this region.

"In accordance with our partners, Genel and KRG, we will continue our work to fully appraise the potential of this promising field. OMV sees the Kurdistan Region of Iraq as an important area for growth and the progress on the Bina Bawi field underlines our ability to execute our strategy."

The Bina Bawi field, located east of the Kurdistan city of Erbil, is operated by OMV, which holds a 36-percent stake. OMV's partners include Genel, which has a 44-percent stake, and the Kurdistan Regional Government, which has 20 percent.

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Industry’s new leaf?

Maybe the oil and gas lobby’s latest efforts should strike hope in the hearts of Coloradans. Are they turning over a new leaf and willing to balance energy development with conservation interests? Maybe … maybe not.

From Colorado Oil and Gas Association Director Tisha Shuller’s “charm offensive” to Western Energy Alliance President Tim Wigely’s “poll for the people,” oil and gas lobbyists are in high gear trying to stop a public relations mess that industry themselves created.

Clearly the effort is garnering them good press like Shuller reinventing herself as the environmentalist or Mr. Wigley taking a tired poll they rehash nearly every year and parading it as proof they want to know what Coloradans think.

Mr. Wigley makes broad claims about the support for energy development using his national poll, but he fails to take a look at what people believe in his own backyard. If industry really wants to know what Coloradans think, they don’t have too far to go far to find out. They want the health of their communities, our air, and our national parks on equal ground with energy development.

A recent poll of westerners by Hart Research Associates found that nearly two-thirds of voters (65 percent) believe that “permanently protecting and conserving public lands for future generations is very important to them personally” while less than a third (30 percent) feel that “making sure oil and gas resources on public lands are available for development” is important.

Just this week, a delegation from the North Fork Valley traveled to Washington, DC calling for balance. The group included a winery owner, local official, and agricultural representative. After officials like Colorado BLM Dir. Helen Hankins and industry failed to listen to the community, they took matters into their own hand and drafted a citizen proposal which allows for responsible energy development while protecting the booming agri-tourism economy of the North Fork.

This isn’t the first time that there have been questions about Dir. Hankins continually listening to the oil and gas industry instead of local communities and conservation interests. Industry proposals to drill near Mesa Verde National Park and place a drill rig near the visitor center of Dinosaur National Monument have faced severe backlash.

Yesterday, Boulder County Councilors decided to put a three-year oil and gas fracking ban on the ballot to give its residents an opportunity to speak and industry to listen. It’s no wonder so many local communities along the Front Range are proposing hard-lines like that after industry failed to “listen” to Coloradans and instead sided with Gov. John Hickenlooper to kill numerous bills which would have protected our water, our air, and our health.

Ms. Shuller and Mr. Wigley have one thing right. A rational conversation about oil and gas drilling is long overdue. We must put our communities, our air, and our national parks on equal ground with energy development.

It’s time for the oil and gas lobby to turn over that leaf.

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BP Finds Gas Condensate at North Uist

Faroe Petroleum reported Friday that the 213/25c-1V exploration well, at the North Uist exploration prospect west of Shetland, has found gas condensate.

The well was targeting several reservoir objectives, the most significant of which was the North Uist prospect. It reached a total vertical depth of approximately 15,400 feet and encountered gas condensate in sandstone reservoirs in the target section.

Faroe said that an extensive data set was collected, including wireline logs, pressure data and side-wall cores. A full formation and volume evaluation is now underway.

The company added that preliminary results indicate varying reservoir quality and cautioned that the commercial potential has yet to be evaluated. Traces of hydrocarbons were also found in the shallower Cardhu prospect.

The 213/25c-1V exploration well is located near to Chevron’s Rosebank oil discovery, which is also on the Corona Ridge, west of the Shetland Islands.

The drilling operation was carried out by BP using the Stena Carron drillship. The well will now be plugged and abandoned.

Faroe Chief Executive Graham Stewart commented in a statement:

"After a long period of drilling activity on this wild-cat exploration well, we are pleased to have made a discovery in the North Uist exploration well, although we had however hoped for better quality reservoir.  The result proves another working hydrocarbon system in the frontier west of Shetlands which is good news for further prospectivity in these UK waters.

"The partnership will now undertake extensive analysis of the considerable volumes of data and samples collected from the well operations before deciding on the next steps."

London-based investment bank Westhouse Securities commented: "The wording of the press release in our view suggests that the prospect does not appear to be a commercial success (at least not at present)."

Oil sector analysts had a mixed response to the news. 

Analysts at FoxDavies were more upbeat. "That this well is currently still under review is promising, and the fact that this is a frontier area must also be borne in mind as, regardless of whether North Uist is a success of not… the data will be integrated into the existing seismic and help refine the understanding of the geology."

After a disappointing drilling campaign last year, capped by the plugging and abandoning of its Rodriguez South well in the Norwegian Sea, Faroe is participating in five exploration wells that will be drilled during the remainder of 2013.

Faroe holds a 6.25-percent stake in North Uist.

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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Coast Guard: Shell Pipeline Spills Oil Into Houston Area Bayou

An estimated 50 barrels of oil spilled from a pipeline operated by a subsidiary of Royal Dutch Shell PLC into a waterway outside Houston, according to the U.S. Coast Guard.

Shell clean-up crews were working to clear the crude out of Vince Bayou, a waterway that connects to the Houston Ship Channel, which leads into the Gulf of Mexico, said Coast Guard Petty Officer Steven Lehman. The spill was contained but the total amount of oil was still being verified, Officer Lehman said.

"That's a very early estimate--things can change," Officer Lehman said.

On April 3, about 700 barrels were found to have leaked from the West Colombia pipeline because of an unknown cause, with up to 60 of those barrels emerging in the bayou, Shell spokeswoman Kim Windon said. The pipeline had been shut down and isolated on March 29 after alarms alerted the company that oil may have leaked from the line.

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

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