Comments: A Timely Response

Abstract

Confidence is returning to several significant E&P provinces as strong oil prices and buoyant global demand continue to encourage upstream optimism. Several long-awaited projects are offering a timely response to concerns about oil supply availability, with several developments on the verge of production. In addition, areas such as the North Sea and Libya are attracting renewed interest. U.K. Energy Minister Malcolm Wicks underscored the credibility of the 2005 Offshore Europe Oil and Gas Exhibition and Conference in Aberdeen when he used that venue to announce the results of the latest North Sea bidding round. A record number of licenses were announced with 24 new entrants to the region, primarily small independents. The government hailed it as proof of a resurgence of interest in the North Sea, which has seen oil production plateauing or declining the past several years. A total of 152 licenses were issued, and companies have committed to drilling 17 wells, Wicks said, the highest number in a decade. Government encouragement of North Sea E&P, by offering a variety of attractive licensing terms, is largely responsible for the upsurge in interest. The government estimates that only half of U.K. continental shelf oil and gas reserves have been produced. Drilling interest is certainly on the rise, with about 70 exploration and appraisal wells expected to be drilled on the U.K. continental shelf this year. Small independents continue to flock to the region, and the strength in oil prices has slowed the recent trend of majors selling off what are now cash-generating assets. Norway is also encouraging development in the North Sea. It is now offering acreage in the Barents Sea, which, despite several large discoveries, is the most unexplored area of the Norwegian continental shelf. Two massive projects are scheduled to come on line in Norway over the next 2 years that will open new markets for gas reserves. Statoil’s Snohvit development, which includes construction of a liquefied-natural-gas facility, is scheduled to start up in October 2006. And production from Ormen Lange, the second-largest gas discovery on the Norwegian shelf, will follow the next year. Libya is also attracting renewed upstream interest after the lifting of U.N. sanctions 2 years ago and the normalization of business relations with the United States. In October, Libya awarded exploration rights in the second round of bidding for upstream properties. The winners included ExxonMobil, Eni, BP, Nippon Oil, and Pertamina. Although the contract terms in the first licensing round were stiff, that did not daunt interest in the second bid round. A total of 120 companies submitted offers. ExxonMobil had other big news in October as well, as it announced the start of production from the Sakhalin-1 Project offshore eastern Russia. The project represents one of the largest single foreign direct investments in Russia and involves construction of both offshore and onshore facilities. It includes the world’s largest land-based drilling rig using extended-reach drilling to get to reserves 6 miles from shore. Output will be 50,000 BOPD by the end of this year, rising to 250,000 BOPD by the end of 2006. Several other large upstream projects that have been in development for years have come on line or are close to startup. The inauguration earlier this year of the Baku-Tbilisi-Ceyhan oil pipeline opens an avenue for production from the BP-operated Azeri Chirag Gunashli oil field in the Caspian Sea. The pipeline will carry 1 million BOPD. Although it was damaged in a Gulf of Mexico hurricane this summer, the BP-operated Thunder Horse platform will produce 250,000 BOPD and 250 MMcf/D of gas when operational. Startup of production from the gulf’s largest oilfield was supposed to be in the fourth quarter but has been pushed back to early next year.