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Edition nineteen – October 2013

Interview with Paul Edmunds, MD at Island GIS Who are the foreign oil & gas companies in US shale plays? Illinois Basin's New Albany Shale: The next big U.S. horizontal oil play? Cover image by Clinton Steeds


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OilVoice Magazine | OCTOBER 2013

Adam Marmaras Chief Executive Officer Issue 19 – October 2013 OilVoice Acorn House 381 Midsummer Blvd Milton Keynes MK9 3HP Tel: +44 208 123 2237 Email: press@oilvoice.com Skype: oilvoicetalk

Welcome to the 19th edition of the OilVoice magazine. This is another 'bumper' edition, with a total of 10 articles from our roster of chosen opinion writers. The most read item of the month is our interview with Paul Edmunds, MD from Island GIS, which you will find inside this edition.

Chief Executive Officer Adam Marmaras Email: adam@oilvoice.com

A few years ago we were getting around one opinion piece a month. We now average 2 per day, and it is growing. This thought provoking content is one of the main highlights on OilVoice, and we know for a lot of people it's the only reason they stop by. We're always on the lookout for more authors, so if you have something to say about the industry (that isn't a blatant sales pitch!) then we'd love to have you on board.

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Cover image by Clinton Steeds

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OilVoice Magazine | OCTOBER 2013

Contents Featured Authors Biographies of this months featured authors

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Interview with Paul Edmunds, MD at Island GIS by Paul Edmunds

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Insight: why do major projects fail? by David Bamford

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Uncertain future for Syrian risk premium on oil by Andrew McKillop

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Discontinuity ahead - oil limits will adversely affect the economy by Gail Tverberg

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Illinois Basin's New Albany Shale: The next big U.S. horizontal oil play? by Keith Schaefer

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Who are the foreign oil & gas companies in US shale plays? by Mark Young

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Foreign investors shun Iraq's emerging civil war by Andrew McKillop

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Insight: Managing health in the oil and gas sector by Angela Whitehead

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Insight: Value of Stress Field Detection technology in early-stage exploration by George Liszicasz

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The need for differentiation in UK oil & gas recruitment by Damien McCawley

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OilVoice Magazine | OCTOBER 2013

Featured Authors Andrew McKillop AMK CONSULT Andrew MacKillop is an energy and natural resource sector professional with over 30 years’ experience in more than 12 countries.

Gail Tverberg Our Finite World Gail the Actuary’s real name is Gail Tverberg. She has an M. S. from the University of Illinois, Chicago in Mathematics, and is a Fellow of the Casualty Actuarial Society and a Member of the American Academy of Actuaries.

Paul Edmunds Island GIS For the past 10 years Paul has worked on GIS projects across the Energy and Environmental sectors, developing a comprehensive understanding of the analytical and technical application of this fast changing industry. Paul has a BSc in Geography and an MSc in Geographical Information Systems from the University of Edinburgh.

David Bamford Finding Petroleum David Bamford is a non-executive director at Tullow Oil plc and has various roles with Parkmead Group plc, PARAS Ltd and New Eyes Exploration Ltd, and runs his own consultancy.

Keith Schaefer Oil & Gas Investments Bulletin Keith Schaefer, editor and publisher of the Oil & Gas Investments Bulletin.


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OilVoice Magazine | OCTOBER 2013

Mark Young Evaluate Energy Evaluate Energy is a leading provider of efficient data solutions for oil & gas company analysis. Services include annual and quarterly financial data, M&A, worldwide E&P assets, Refinery and LNG databases and an emerging US/Canadian Shale Gas & Liquids offering.

Angela Whitehead PetroMall Angela is an experienced occupational health adviser who has worked in the field for over 30 years. She has gained experience in a wide range of settings including, engineering, technology, service industries and communications.

George Liszicasz NXT Energy Solutions Inc. Mr. George Liszicasz has been the Chairman and Chief Executive Officer at NXT Energy Solutions, Inc., since January 1996 and has been its President since July 2002. Mr. Liszicasz serves as the President of Energy Exploration at NXT Energy Solutions, Inc.

Damien McCawley Simpson Crowden Managing Partner in London based international Oil and Gas executive search and selection company. Over 20 years experience recruiting at senior to middle management levels around the world.


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UNLOCK THE POTENTIAL IN YOUR FIELD | #4 IN A SERIES

OCTOBER 2013

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LA CHIA N

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What lies beneath

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In Appalachia, geo-hazards revealed with new clarity

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YL V A NIA

HIGHLIGHTS For millions of years, Appalachian gas has migrated toward the surface along naturally occurring faults. Frequently, it gets trapped in shallow structures

KEY TECHNOLOGIES:

difficult to see on seismic images. Abandoned and

HYPERSPECTRAL

MAGNETIC

pocket en route to the Marcellus or Utica Shale can

ACTIVE-SOURCE EM

throw a wrench in operations, forcing a producer to set

PASSIVE-SOURCE EM

undocumented wellbores, some a century old, compound the problem. Drilling into a shallow gas

a string of casing and adding up to $250,000 per well in unexpected cost. Fracing near an orphaned wellbore Resistivity slice in a gas dominant area of the near surface. Oil seeps (green) and gas plumes (magenta) on the surface are superimposed.

or unknown fault is every operator’s worst nightmare.

AREA: Appalachian Basin, Pennsylvania CUSTOMER: Supermajor

Responsible operators want to know the challenges they face “ahead-of-the-bit,” so they can avoid geo-

hazards and design their drilling and hydraulic fracturing programs with utmost regard for the environment. To address

FOCUS: Eco-Assurance TYPE: Unconventional

these challenges, NEOS GeoSolutions has introduced Eco-Assurance , a program based on its proprietary Multi™

measurement Interpretation (MMI) methodology. A combination of airborne magnetic, hyperspectral and electromagnetic (EM) measurements helps to locate orphaned wellbores, reservoir-to-surface fault zones and trapped shallow gas pockets. NEOS was engaged to conduct a 30-square-mile, basement-to-surface Eco-Assurance survey in Western Pennsylvania. Airborne-acquired hyperspectral data revealed surface oil seeps and gas plumes, along with wetlands, waterways and the condition of local botany. Sensors were calibrated to the hyperspectral signatures of hydrocarbons unique to the area, and anomalies were verified via ground truthing.

KEY INTERPRETIVE PRODUCTS: ≥ Shallow gas geo-hazard detection ≥ Fault detection ≥ Aquifer mapping ≥ Orphaned wellbore detection ≥ Oil seep and gas plume detection

Magnetic data helped identify fault zones, orphaned wellbores and other iron-based infrastructure. By overlaying the magnetic data on top of maps of known infrastructure, like farms, well pads and pipelines, NEOS was able to locate dozens of previously unknown sites potentially associated with orphaned oilfield infrastructure. A comparison of these

CUSTOMER BENEFITS:

sites and the hyperspectral data indicated if any previously unknown sites were also associated with trace hydrocarbons.

Helps producers protect the integrity of

EM data provided insight into trapped shallow pockets from the surface down toward the target shale intervals. NEOS used

drilling and completion operations with

both active- and passive-source airborne acquisition with proprietary signal processing to generate detailed 3D voxels that

detailed data for avoiding geo-hazards

could be analyzed both in cross section and in depth slices. An analysis of the EM and magnetic data suggested that

and environmentally sensitive areas.

hydrocarbons had naturally migrated along fault planes into some areas of the near-surface over the course of geologic time. Cost-effective Eco-Assurance is proving its worth not just in Appalachia, but anywhere E&P activities are ongoing. Integrating multiple airborne geophysical datasets can inform a road map for environmentally sound and commercially efficient operations. To learn more about this project or others in the Unlock the Potential series, visit: www.ThePotentialUnlocked.com

OilVoice G E O S O L U T I O N S


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Interview with Paul Edmunds, MD at Island GIS Written by Paul Edmunds from Island GIS Island GIS, a leading independent GIS (Geographic Information Systems) consultancy and provider of innovative and integrated geospatial solutions for the oil and gas industry, recently announced that it has been chosen as a Google GEO Enterprise Partner. Paul Edmunds, Managing Director, Island GIS answers some questions from OilVoice below. OilVoice: Good afternoon, Paul. We'd like to thank you for taking the time to answer some questions for us today. Edmunds: It's a pleasure to be speaking with you. OilVoice: First of all, congratulations on being selected as a Google Enterprise Partner. We understand that the partnership will focus on enhancing Google's GEO enterprise platform with Island GIS's advanced technology solutions. Could you give us a brief introduction into the sort of technology Island GIS has to offer and how a partnership with Google will benefit, especially within the Oil & Gas sector? Edmunds: Island GIS is a leading independent GIS consultancy that provides innovative and, importantly, integrated geospatial solutions for the oil and gas sector. From a product & services perspective, this means mapping and data management, application software development as well as modelling and analytics. For companies in the oil and gas sector that are facing significant challenges and increasing operational and financial risks associated with exploration and production, GIS technology can deliver a real competitive advantage. From specific projects to an enterprise-wide solution, we can provide customers with a real-time operational picture of their physical assets and activities, so that they can continually monitor progress and development, and enable them to make informed decisions faster. Our partnership with Google provides us with access to huge quantities of data, imaging and cross platform technology, as well as enabling us to provide customers with Cloud-based services, which makes project management and the delivery of our GIS solutions incredibly effective. Essentially, Island GIS's partnership with Google will see us broaden our service offering and integrate our existing GIS technology and workflows on Google's powerful Enterprise Platform. In our view, this combined offering will deliver the most


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advanced integrated GIS solutions available, and will genuinely help organisations meet the increasing operational and financial risks associated with exploration and production. OilVoice: How does Island GIS compare to other companies providing GIS products and services? What makes you stand out from the rest? Edmunds: Primarily, we are in the business of providing customers with solutions that deliver against business and operational challenges; it is far more than just selling products. We look for long-term relationships with our customers, where we can create solutions that are integrated into their business, become part of the way that they work, and can be scaled as they develop. To do this, you must combine real industry knowledge of the oil and gas sector with specialist expertise and understanding of the GIS space and the latest technologies. As well as being a dynamic team, we believe that we have this. Our new partnership with Google validates this, in conjunction with the tangible results that we have delivered for our customers, which include Cairn Energy as well as Scottish and Southern Energy. OilVoice: You mentioned in a previous press release that the Oil & Gas sector 'lacks senior experienced operations personnel', why do you think this is? Edmunds: It's based on the real change in dynamics of the oil and gas sector, as well as the significant expansion and associated opportunities that we are seeing. When this happens, there is only a finite amount of expertise and resource available, and the operational skill-sets that are required, become spread pretty thin. This is why GIS technology is so critical, as it helps organisations, and the industry, meet this challenge. The transparency that is created on specific projects can bring together teams, no matter how dispersed, and enable decision-makers to ensure that their operations are progressed in the right way. It's about de-risking operations at the outset, rather than waiting for issues to happen, and then ensuring operational effectiveness and financial efficiency throughout the lifecycle of any given project. OilVoice: You've also mentioned that technology can 'ultimately help companies become more competitive', can you tell us how the use of advanced mapping technology can benefit a company that engages in its use, over one that doesn't? Edmunds: As I've mentioned, GIS technology provides companies with unparalleled information and insight on the current state of their physical assets and corporate infrastructure. This knowledge can be harnessed to ensure that projects and operational activities are developed in the right way, faster, and for less money. It is a compelling proposition when we live and work in a sector that is exposed to more risk - and opportunity - than we have ever seen before. OilVoice: Finally, where do you see GIS technology in the next 25 years? And will it be as important to the industry as it is today? Edmunds: Well 25 years is a tremendously long time away, and based on


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developments over the past 25 years, we're in a position whereby 'if you can imagine it, it will probably happen'! From a GIS perspective, and without future-gazing too much, and living within the realms of our current reality, I believe we will see much more integration of technology. We will see a real collaboration between, and within organisations, where there is access to far more data, bringing together, corporate, industry, technology, as well as academic information and knowledge to create real transparency and insight and the foundation for development and operational decision-making. In terms of Google, they have the scale and capabilities to create a single, powerful platform, from which GIS solutions can be delivered. This is why I believe that Island GIS and our new partnership with Google, positions us well to not only enhance our offering and the solutions that we deliver to our customers, but also to stay ahead of the curve and lead progression within GIS technology as the industry develops. OilVoice: Thanks again for taking the time to answer our questions, Paul. I'm sure our readers will enjoy hearing what you have to say.

View more quality content from Island GIS

Insight: why do major projects fail? Written by David Bamford from Finding Petroleum Given my own background, I have always been focused on exploring for deep water fields, especially those with deep water clastic reservoirs – how significant are they to recent global discovery history, which provinces have been especially successful, which regions are seeing the most activity? Exploitation of these fields once discovered is a further issue, and actually one where data, knowledge and insights are much harder to come by. However, the reality is that such deep water development projects are typically late, (way) over budget, and do not deliver the promised production profile.


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This can lead to dramatically reduced project NPVs, shrunken cash flows, and reserves downgrades. A Major or a mini-Major can survive such ‘accidents’ – they may not enjoy them but they are robust. Smaller companies – E&Ps – are not; they are fragile, and will invariably see their share price hammered in the market place. At first I thought there might be three ‘root causes’ of the problem, namely: 1. Under-appraisal of complex reservoirs. 2. Inadequate project design and concept selection. 3. Lack of QA of project execution. However, two recent Finding Petroleum Forums, one focussed on FPSO-based developments, the other specifically on deep water developments, make it clear that the above are just manifestations of a problem and that something else is to blame, something else is the “root cause”. In particular, the failures and problems are more likely caused by a single factor – the belief that “speed is of the essence” because reducing cycle times, shortening times between discovery and 1st Oil, inexorably leads toan increase in NPV. In contrast and in fact, chasing a fast schedule can lead to unintended consequences as a significant proportion of NPV is eroded if a project does not meet all targets; poorly defined projects with aggressive schedule targets have unpredictable outcomes. A significant effort is required to deliver a well-defined project, from reservoir appraisal through to concept selection and definition, to project execution. Small-medium sized companies run great risks – with their (debt) capital – if they do not access significant “Know How” in large teams. An FPSO has become the development option of choice in deep water, especially in the South Atlantic and SE Asia. In their excellent review, Tanker Operator have described the burgeoning business opportunities in the FPSO industry. Time was that FPSOs were seen as the solution when an oil field was small, too small to justify a permanent facility. And as the ‘deepwater’ era began in the Gulf of Mexico, the talk was of spars and tension leg platforms (TLPs). But now, the FPSO is the dominant floating production facility, as evidenced by the most recent report from International Maritime Associates (IMA). IMA reports that seventy-four production floaters currently are on order, 40 percent more than the backlog seen a year ago and more than double the mid-2009 backlog. These include 49 FPSOs, 6 production semi-submersibles, 3 TLPs, 4 spars plus 3 floating liquefied natural gas vessels and 9 floating storage and regasification units.


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Brazil dominates actual orders for production floaters, with 28 units, or 38 percent of the backlog, being constructed for use offshore Brazil. These statistics demonstrate the clear dominance of FPSOs, if anything showing an increasing trend from those reported a couple of years ago by Christopher M. Barton, who reviewing 209 developments over a longer period, noted that FPSOs were the preferred choice in 61% of cases whereas spars and TLPs together were 20%, the balance being made up by production semi-submersibles. AMI further reports that the number of floating production projects planned worldwide continues to grow, with 233 projects planned as of July 2012, up from 196 projects in July 2011 and the 122 projects planned five years ago. Brazil tops the list of nations with planned floating production projects at 55, followed by Southeast Asia with 46 projects and 44 planned projects in Africa, other major locations include: Gulf of Mexico – 24 projects; Northwest Europe – 17 projects; Australia – 14 projects; Mediterranean – 11 projects; Southwest Asia/India – 9 projects. IMA notes that while the number of planned floating production projects continues to grow, not all of the projects will materialize as actual orders as some discoveries prove non-commercial to develop or others are nominated as tiebacks or joint developments. The reasons for this FPSO dominance are not a matter of technology – all the technologies are basically proven – but ultimately a matter of economics. The key drivers for establishing the type and shape - and ultimately the cost - of a floating production platform include: 

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Reservoir and petroleum – what is the geometry and connectivity; what are the likely recoverable reserves; what are the rock properties; what are the fluid properties; what is the depth below mud line; is their any salt? These in turn drive choice of: Drilling & completions strategy: well count, well locations; flow assurance; intervention strategy; dry versus wet trees; leading to a production profile. Water depth, metocean conditions and distance from shore determine issues such as the type of riser; station keeping; whether a pipeline is feasible?

It is straightforward to demonstrate that FPSO option more often than not leads to an economically advantaged development, and easy to demonstrate that a really rapid FPSO development is even more economic. Delivering the desired, promised, outcome – on cost, on time, on target – is however both difficult and rare.

View more quality content from Finding Petroleum


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OilVoice Magazine | OCTOBER 2013

Uncertain future for Syrian risk premium on oil Written by Andrew McKillop from AMK CONSULT THE PRESENT PREMIUM IS HIGH Analysts are divided on the level and sticking power of the premium. Dr Kent Moors (Moneymorning) places the premium at $4/bbl, as of 18 September while others like Phil Flynn at Pricegroup place it higher. My own guesstimate is well above $15/bbl. Looking at charts for crude oil for September to date, we can clearly see the major impact of uncertainty around Syria. Crude oil started dropping after Russia offered to help out - or muscled in to put Syria's chemical weapons under international control. Russia's action raised the chance that a U.S. and French military strike will be delayed or averted. Following upward blips in oil price, most recently 17-18 September, traced investor worries about the capacity of diplomatic efforts to eliminate Syria's chemical weapons averting military action able to disrupt oil supplies from the Middle East. The real worry, openly warned by Russia and a large number of analysts, is that a U.S. and French strike could unleash further Islamic extremist attacks and spill the country's bitter civil war over Syria's borders. For a large number of finally geopolitical reasons, and the staying power of ragtag Islamic djihadist fighters in Syria, the endgame scenario of the civil war spilling over to Iraq, Saudi Arabia and other Gulf states, harming oil infrastructures, is increasingly admitted as lowprobability. PRICE EROSION Another key factor driving oil prices is the climb-down on US Federal Reserve tapering. For many analysts no surprise given US economic, financial and fiscal reality today, some commentators called it the 'biggest retreat since Napoleon quit Russia'. Taper down is now off the menu. Gold prices surged by record amounts for a single day's trading, towards $1400 per Troy ounce as of 19 September. With Nymex WTI futures trading at around $107/bbl this sets the gold-oil premium at a very low 13.08. For some, this means oil should ride up with gold as it recovers to a likely $1500, or higher, but for oil the fundamentals point to prices well below $100. The scene is set for a perfect symmetrical reverse-video shift of yellow metal and


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black gold trading. Both commodities declined in the week to 13 September. Light crude then rebounded and erased over 60% of its decline - but gold extended its decline, dropping to a five-week low. When we reverse this video, we get a print for the likely gold-oil trend to end-September, noting the recent decline in crude oil was smaller than the previous one, suggesting an upcoming larger decline this time. To be sure, the US Fed's climb down and reversal of policy was an epic policy shift underlining the real weakness of the USA's long-hailed but never delivered economic recovery, the weakest in decades now mirrored by Europe's hailed, but never appeared 'soft recovery'. Outline data from oil demand trackers in Europe, including Platts shows the continent's hard decline of oil demand, the long term trend of shrinking oil demand in place since 2006, is still in place. Demand-side drivers of oil price decline are so many they almost do not need listing. Like the US Fed which found out that QE is similar to a stay at the Hotel California you can check out when you like but you can never leave - oil demand contraction is a long term process in a widening number of developed nations. These start with the EU countries, Japan and Australia, and now include a budding trend in surprise candidate countries like India, Brazil and China. Oil demand contraction can only mean lower oil prices - at least for anybody who unfashionably, perhaps, continues to believe that falling demand means lower prices. Even the Syrian war - where the estimated 45 000 insurgent Islamic fighters are funded by Saudi, Qatari, Kuwaiti, and Emirati petrodollars - means the Gulf states have to keep pumping oil! Any sudden decline in Mid East oil production would be catastrophic, to be sure, but the Sunni Gulf states will have to keep pumping to pay for their grandiose 'geopolitical adventure' in Syria. Russia and Iran will be certain to pick up any customers they can't supply.

View more quality content from AMK CONSULT


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OilVoice Magazine | OCTOBER 2013

Discontinuity ahead oil limits will adversely affect the economy Written by Gail Tverberg from Our Finite World What will the world economy be like ten years from now? Or fifty years from now? Is it something that we can forecast by looking at the past, assuming that past tends will continue?

Figure 1 Most economists today seem to think we can rely heavily on past patterns. If we can really assume that the economy will grow at 3% per year (over and above inflationary increases), then in 50 years, GDP (Gross Domestic Product) will be 4.38 times as high as it is today. Economists might assume a 3.0% growth rate in a developed country, like the US, and a higher annual growth rate in a country like China, India or Brazil. It seems to me that this standard view is incorrect. There is a substantial chance of a sudden shift toward a less favorable growth pattern (which I refer to as a “discontinuity�). This possibility is not obvious though, if a person bases his models on the growth that took place between 1940 and 2000, as economists today often seem to. In this post, I describe an alternate view showing how such discontinuities can occur.


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OilVoice Magazine | OCTOBER 2013

The Current (or Recent Past) “Standard” View of the Economy Most economists today seem to believe a whole collection of theories and models that basically support the view that humans (and in particular, politicians and Federal Reserve Officials) are in charge of the economy. With this view, natural resources are not very important. If there is a shortage, either (a) alternatives will take over quickly or (b) prices will rise for a short time, leading to more extraction, thereby eliminating the shortage. Productivity is expected generally to trend upward. In other words, the expectation is that there will be increasing output per unit of input. Part of this increase in output comes from improvement in technology. This improvement in productivity is expected to lead to increased profits for companies and higher wages for workers. If the economy is not performing optimally, demand (that is, the ability and willingness to buy more “stuff”) can be increased through deficit spending or by very low interest rates, or both. For example, deficit spending might be used to give a worker who has been laid off unemployment benefits, so he can buy food, clothing, and other goods and services. (Without money, the laid-off worker has no demand, according to the standard economic definition.) Very low interest rates tend to make a new car or new home more affordable, or might allow an oil and gas producer to drill more wells inexpensively. Debt, or “leverage” as it is often called, seems to be seen as beneficial. Debt is seen to being able to increase indefinitely. The primary measure of how the economy is functioning, GDP, completely ignores debt. For example, if a person goes to college for a year, tuition will be part of GDP, whether or not the individual takes out a loan to pay tuition, room, and board. If the college builds a football stadium, the amount paid to the contractors for building the stadium is part of GDP, but the loan the college takes out to finance the stadium is not considered in the calculation. Needless to say, if politicians want to increase GDP, the easiest way to do so is to encourage everyone to “max out all their credit cards,” or do the equivalent with other types of loans. Of course, doing this in the early 2000s helped lead to the subprime debt bubble–not exactly the effect one wants. With the foregoing view of the economy, economists can talk about substituting one energy source for another over a very long time frame. The reason economists can think in these very long time frames is because the economy is seen to always be growing, thanks to productivity growth, more human laborers, technology growth, and occasional stimulus, if needed. In this model, there is nothing to challenge the growth of the economy, so no turning points are anticipated. Thus, we can undertake very long projects, such as trying to swap low-carbon energy sources for other energy sources. Discontinuity: Why might economic growth “misbehave” going forward? We are aware of many situations in the physical world where there is a sudden change of behavior. We pull on a rubber band for a while. At first it stretches; then it breaks. We skate on thin ice for a while. At first the skating goes fine; then we fall


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OilVoice Magazine | OCTOBER 2013

through the ice, into the water. We throw a ball up in the air. It rises for a while; then it stops and falls back to the ground. Another example is a little closer to the economic growth model we are looking at here. Yeast transforms sugars in grape juice into alcohol. Alcohol is in fact a waste product, made by the yeast, as it metabolizes the sugar. At some point, the concentration of alcohol in the wine becomes too high for the yeast to survive, and the yeast die off. Growth of yeast population, instead of continuing to rise rapidly, suddenly turns negative and the population falls to zero. In a model such as the wine and yeast model, it is not until the pollution level becomes too high that the adverse effects are seen. We can encounter somewhat of a similar problem with our economy, with pollution of various kinds. A similar turning point can appear with resource extraction of various kinds, such as oil. When we begin extracting resources, the cost of extracting those resources is not very high. In fact, the cost of extracting the resource may even fall, with greater use of fossil fuels and improved technology. This growing productivity enables a rising standard of living. At some point, however, the cost of extraction begins to rise, because the easy-toextract resource (such as oil) has already been extracted. This higher cost of extraction may set up negative feedback loops, throughout the economy. This occurs partly because resources must be diverted toward oil extraction, rather than being used for other productive purposes. From the point of view of the worker, he finds it necessary to lower his standard of living, because he spends more of his total income on the same (or a lesser amount) of oil, leaving less income for other purchases. The original factors of production were land, labor and capital. This simplified model did not consider natural resources, or pollution caused in extracting and using the natural resources, or the role of debt. It also did not consider the fact that we live in a finite world, so that even if growth can go on for a while, there are likely to be barriers at some point. If the economic model economists are using misses important variables, it is easy for the model to miss problems that haven’t come up to date, but can be expected to come up in the future. The model may have, in fact, worked well in the 1940 to 2000 period, because resource limits did not start raising resource prices significantly until after the year 2000. A related issue is that if economists are overly convinced that their models are correct, they may miss seeing important trends that suggest their models are incomplete.


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Figure 2. US Ten Year Average Real GDP growth, based on BEA data. If we look at the trend line related to US GDP growth (Figure 2), we see that there is a decided downward trend to it. While an estimate of 3% per year going forward might have made sense based on the experience through 2000, this estimate seems increasingly less likely, based on recent experience. In fact, if experience since 2010 were included, it would further emphasize the downward trend. The IMF projects that US economic growth in 2013 will amount to 1.7%, and for advanced economies together will amount to 1.2%. Besides slower than expected economic growth, there are many other parts of the theory that are not holding up very well now, either. Wages of the common worker have not been rising as planned. Oil prices have not come down, even with considerable success in US oil production. The Federal Reserve has needed to keep interest rates very low, and even with that, the economy is limping along. The Federal Reserve keeps printing money. In fact, it announced today that it is continuing its Quantitative Easing at $85 billion a month, because the economy is not yet doing well enough to get along without it. What is Missing in Economic Models What is missing is a broader view of how the economy really works. The economy is far more than land, labor, and capital. The economy includes a huge number of players–governments, businesses, and individuals, each deciding what action to take based on how the system behaves at a given time–for example, what products and services are available at a given time, at what prices. Resources of many different types play a role in this system, as does pollution, and the cost of mitigating this pollution. This complex economy has been built up over the years, by the gradual addition of new layers of businesses, governments, government rules, and


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consumers. Unneeded older parts drop out, as new parts are added. A system such as this is sometimes referred to as a Complex Adaptive System. There are two parts of this system that play a special role. One part is energy products that are needed to make anything “happen.” These energy products are of many different types, including oil, natural gas, coal, geothermal energy, captured wind energy, even food. For example, if goods are to be transported, some sort of energy product is needed. It might be oil used to fuel a car or truck. Or it might be food fed to a horse pulling a cart. It might even be food fed to a human being, who is then able to carry the goods as he walks. As another example, if heat is to used for some process such as baking, some energy product is required. It might be heat from burning oil or coal, or it might be heat from the sun captured by a solar cooker. Energy for heat might even come from food. For example, a chicken, after eating appropriate food, is able to sit on an egg and provide heat to incubate it. Another critical part of the system, besides energy resources, is the financial system. The financial system ties everything else together through its pricing mechanism. By knowing prices, we can tell how society values many very different types of resources and products (such as a bushel of wheat, a barrel of oil, and an hour of a common laborer’s time). Because of its tie to all of the other resources, the financial system is likely to be one of the systems that is stressed earliest, if there is a major change to the system. Besides tying the system together, money produced by the financial system also acts a “pseudo resource”. It is not the money itself that has value–it is the fact that it can be exchanged for a resource of real value, such as a bushel of wheat, a barrel of oil, or an hour of a common laborer’s time. When the amount of resources is not expanding rapidly, printing money can temporarily inject pseudo resources into the system, making things temporarily look better than they are. Of course, when this money printing stops, the temporary improvement is likely to disappear. Oil Has Caused Recent Stresses to the Financial System When recession hits, the financial system gives a hint that this networked system of businesses, governments, consumers, and resources is being stressed. What causes this stress on the financial system? Recently, evidence seems to suggest that rising oil pricesare a major contributor. For one thing, economist James Hamilton has shown that 10 out of the last 11 US recessions were associated with oil price spikes. He has also directly shown that the oil price in the run-up in the 20052008 period was sufficient to explain the Great Recession. I have also written an academic article called, Oil Supply Limits and the Continuing Financial Crisis. Oil is part of the constellation of energy resources that allows things to happen within this complex networked system. It is not easy to substitute away from oil in the short term, because the cost of the vehicles and other equipment that we have today is extremely high. If we were to transition to other types of vehicles (say natural gas operated or electric), the cost of building new fueling stations and vehicles would be very high, and take many years. Customers would also find the new vehicles


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unaffordable, unless the old ones could be phased out as they wore out. What Can Go Wrong In This More Complex System? The problem with this more complex system is that everything depends on everything else. Things that seem obvious, such as how much oil reserves a company can expect to extract in the future, no longer are obvious, because the prices of resources can go down as well as up. This happens because prices of resources depend upon (a) the amount buyers can afford to pay for these resources, as well as (b) how much it costs to extract the resources. If the cost of extracting resources increases, the question is whether workers will really be able to afford the cost of higher-priced resources. There can also be conflict between the amount of debt outstanding and the amount of products (made from resources) available to repay that debt. There is no limit on debt issued, but the amount of resources extracted in a given year eventually slows down, as the inexpensive to extract resources are depleted. Interest rates on debt are important as well. If interest rates remain very low, interest payments do not “squeeze” prospective buyers of goods too much, so they can afford additional goods. But if interest rates rise, then the financial situation changes at many points in the system. The cost of buying homes and cars increases. The resale value of homes likely drops. Another issue with the networked system that we are operating in is that shortages in one area tend to get transferred to other parts of the system, stressing the system as a whole. For example, when we discovered a few years ago that oil supply could not grow as rapidly as desired, we started using food crops (primarily corn and sugar) to produce ethanol, as a substitute for oil. When we did that, the additional demand for food tended to raise food prices. Thus the stresses from one part of the system were spread more broadly. This can be a temporary help to oil prices, but it can eventually lead to widespread system failure. Because of the interlinkages in the system, we should not be surprised if what looks like a problem in one part of the system–high oil prices–has an adverse impact on other parts of the system. The financial system, since it connects everything else together, would be especially likely to be stressed. Governments, because they act as a safety system for unemployed workers, would also seem to be at risk. We have many real-life examples of civilizations that grew for a time, then reached limits and collapsed. These civilizations were agricultural civilizations, so admittedly not exactly like ours. But the symptoms prior to collapse were disturbingly similar to the symptoms we are seeing today. As I have discussed previously, there was a growing disparity of wages between the common workers and the elite, and increasing use of debt. Food prices often spiked. Eventually, it was the inability of governments to collect enough taxes from increasingly impoverished workers that brought the system down. Workers also became more subject to disease, because low pay and high taxes did not allow for adequate nutrition. The collapse came over a period of years–typically 20 to 50 years.


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We don’t know exactly what kind of discontinuity we are headed for, but we have some clues, based on the risks we are facing and on what happened in the past. The discontinuity will likely play out over a period of years. Financial systems and political systems are likely to be involved. Because of the networked nature of the system, it will not be just one type of energy that will be in short supply–more likely, there will be problems affecting nearly all types of energy.

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Illinois Basin's New Albany Shale: The next big U.S. horizontal oil play? Written by Keith Schaefer from Oil & Gas Investments Bulletin If you were on the hunt for the next big horizontal oil play in the U.S., where would you be inclined to look? Texas? That makes sense; Texas is the top oil producing state in the country. California? That also makes sense, California has been a top oil producing state for decades. But Illinois? Well, would you believe it has produced 4 billion barrels already, and 4Tcf (that would be Trillion cubic feet) of natural gas? It’s true. And now, there are rumblings of something very significant happening again in the Illinois oil patch–rumblings of a big horizontal oil play. Companies in the region are keeping their cards close to their vest, but there is


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enough information in the public domain to know that some oil companies think the Illinois Basin’s New Albany Shale could hold a sizable shale prize. In fact, I’m very surprised we haven’t heard a lot more about this basin yet. History of the Illinois Basin – It’s Right Under the Industry’s Nose

The Illinois Basin is an oval depression that’s roughly 60,000 miles in the United States Mid-Continent—southern Illinois, southwest Indiana and northwest Kentucky. Drilling in the Illinois Basin goes back to 1853—and like many things, it was discovered accidentally; by drilling that was being done in a search for saltwater. (Early settlers needed saltwater for preserving food and agriculture.) But it wasn’t until the early 1900s that the first Illinois basin oil boom truly occurred when well casings were used to manage all the water. (Most retail investors have no idea how much water the oil industry produces—it’shuge.) In the 1930s a second boom started when seismic technology became available and helped to pinpoint oil pools. This made oil a lot easier to find, and this oil boom lasted through the 1940s and 1950s. Production peaked in 1940 at 147.6 million barrels. After World War II, production rates fell because all of the easy targets had been drilled. During the boom the Illinois basin was the third largest producing oil basin in the United States. Since then production has declined with no new oil targets to drill. That historical production of 4 billion barrels of oil and 4 trillion cubic feet of natural


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gas was all done with vertical wells in old-style, “conventional” oil pools; not today’s shale or “unconventional” plays. All that oil had to come from somewhere. Underneath all those conventional oil pools is the New Albany Shale—and oil and source rock analysis indicates that’s where the oil came from. Given the success of all these other shale plays in the US under very similar geology, those source rocks could provide a re-birth for oil production in a region that has been in decline for more than half a century. The New Albany Shale Looks Just Like The Bakken The New Albany Shale is Devonian age and was formed roughly 350 million years ago in a shallow sea that once covered the eastern half of the United States.

The New Albany Shale was formed at the same time as four other major U.S. oil resource plays that include:    

The Williston Basin / Bakken Shale The Anadarko Basin / Woodford Shale The Appalachian Basin / Marcellus Shale The Michigan Basin / Antrim Shale

So it was deposited at the same time as some of the most prolific source rocks in North America—that’s certainly a great pedigree! If the other source rocks have borne major horizontal resource plays why wouldn’t the New Albany Shale? A 2002 study estimated that the New Albany Shale was deep enough to have generated up to 300 billion barrels of oil—that’s what the industry calls OOIP— Original Oil In Place. With that much oil in place, the New Albany shale has the potential to be another big—very big—horizontal oil play–even if only a small percentage can be recovered.


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That conventional production has come from 140,000 wells that were drilled into the Illinois Basin. 32,000 of those wells are still producing! The drilling and production from these wells have allowed oil companies sniffing around the New Albany Shale to gather a lot of evidence. The industry calls that “well control.” What these companies and their geologists have found has been encouraging as it has led them to conclude that the best analog for the New Albany Shale appears to be the Elm Coulee Bakken of Montana—which has produced 123 million barrels of oil from horizontal wells so far. The New Albany and Elm Coulee are similar in age, porosity and size. No two shale plays are exactly alike, but there is good reason to believe that a short learning curve with horizontal wells could move the New Albany Shale from being a potential shale oil play to the real deal. How The Play Gets Proved Up

The New Albany Shale is developing the same as the Bakken, Eagle Ford and other horizontal plays.


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First you find a basin that has produced a lot of oil already. Step two: identify thesource rock that still contains huge quantities of oil; usually a bit deeper. Step three then is to “crack the geological nut” and figure out how to get enough of that huge amount of oil left in those source rocks out at profitable rates—that requires fracking. Step one and step two are already complete for the New Albany Shale. How close we are to step three is hard to tell. The companies operating in the region have drilled a few wells, but the results have been kept very quiet to date. Companies don’t promote bad results, and good results are kept even quieter since letting that information would immediately drive acreage prices through the roof. What we know for sure is that the oil is in the ground in the New Albany Shale. Decades of conventional production tells us that. What we also know is that enormous tracts of land have been leased over the past couple of years in the basin and we know that prices per acre have already at least quintupled over that time. Someone wants to lock down that land. Horizontal drilling combined with multi-stage fracturing may again be the miracle that releases the oil trapped in the New Albany Shale. The potential of this play is exciting, and still quite early stage. And I just found the one junior explorer that has some incredible leverage to this new play.

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Who are the foreign oil & gas companies in US shale plays? Written by Mark Young from Evaluate Energy Over the past few years, M&A headlines have been dominated by foreign companies acquiring US shale acreage positions. How has this affected the overall landscape of the industry, and which countries, other than the US, exert the greatest influence over it?

Source: Evaluate Energy Shale Play Database It is clear that European companies have a great influence on the industry. A very high percentage of the foreign owned lands are split between three companies, powerhouses of global oil and gas: BP, Royal Dutch Shell and Norway’s Statoil. BG Group, French major Total and Itailan giant ENI also have interests, but it is the aforementioned group that have made the most significant mark. The other point to note here is that a high majority of these positions are operated, so their control over their acreage is higher. This is something you will not find with the majority of other foreign investors, who have mainly moved into non-operated positions to gain experience for their own domestic ambitions – something Poland’s PKN Orlen is attempting to achieve in Canada with its acquisition of TriOil Resources. If we now remove the European contingent from the results, we can get a clearer


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picture of the other companies from other countries that have entered the industry.

Source: Evaluate Energy Shale Play Database The high profile, multi-billion dollar deals that have been struck over the past 18-24 months with Chinese and Indian companies made big headlines, and will probably be among the first things that come to mind when the topic of “Foreign owners in US Shale” is brought up. However, the countries are not very prominent this chart as a whole, and in China’s case, hardly on the left hand side at all, i.e. the five more established, producing plays in the chart. It is in fact Canadian and, perhaps more surprisingly, Australian companies that appear to hold the greater influence, and cover a greater spread of the plays on offer. China, mainly via CNOOC and Sinopec, does have large positions in the more undeveloped plays, Niobrara, Tuscaloosa Marine and the Utica, but of the established plays, it only has a position in the Eagle Ford. Perhaps having arrived a bit late into proceedings, the goal for China is to be there at the beginning when the next big oil play really takes off. India, via four of its own bigger companies (GAIL, Indian Oil Corp, Reliance and Oil India), holds a combined medium-sized position in the Marcellus and Eagle Ford, but in the whole picture displayed by the above chart, Indian companies’ acreage holdings are small. Australian companies have positioned themselves almost exclusively where the production is, the plays on the left hand side of the chart. Of course, as the Top 10 table below shows, a large proportion of this is made up by BHP Billiton alone. However, it is the other Australian companies that are really interesting, as they are a bit different to your “typical” non-American shale acreage owner, making Australia a very unique entity in this study. The Australian companies involved, with the exception of BHP Billiton, are much smaller than the other companies in the study, and the motivation is solely to boost profit margins. China and India, for example, are both represented by their biggest


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and arguably “more famous” companies and there are only a few of them with reasonably large positions (see Top 10 table below). Australia is represented by a grand total of eight companies other than BHP. Six of these are present in the Eagle Ford, holding roughly 16% of Australian-controlled acreage in the play (~64,000 acres), and only one – Aurora – has a market cap of over US$1 billion, standing the countries representatives in stark contrast to their Chinese and Indian counterparts.

Source: Evaluate Energy Shale Play Database

This report was created using Evaluate Energy’s North American shale play database. The shale play database has a comprehensive list of publicly available company acreage holdings, capex budgets, drilling plans and average well costs, as well as play-related metrics such as production per day and undeveloped land cost per acre. Evaluate Energy provides clients with efficient data solutions to oil and gas company analysis, with its 20+ years of financial and operating data, and its


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extensive M&A and global assets databases. Notes: 1) The plays included in this study are the Bakken (US), Eagle Ford, Fayetteville, Haynesville, Marcellus, NIobrara, Tuscaloosa Marine (TMS) and Utica (US). The Barnett in Texas has not been included, foreign ownership is not high here, and Total, one of the major foreign players, do not report their acreage position. 2) BP does not report Haynesville acreage, despite having a position in the play.

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Foreign investors shun Iraq's emerging civil war Written by Andrew McKillop from AMK CONSULT WIDENING GAPS IN THE OFFICIAL STORY Iraq's oil and gas potential has been vaunted from the run-up stage to the 2003 war, a war justified or rationalized by Colin Powell's false claims at the UN Security Council that the country had 'huge stocks' of chemical and biological weapons of mass destruction. The IEA continues to vaunt Iraq's oil potential as 'OPEC's coming star', making it a transmitter of upbeat news concocted at Iraq's all-powerful and secretive MOO or Ministry of Oil, headed by Abdul Krim Luaibi. Today, Iraq suffers from a critical shortage of gas, and therefore electricity production. This is due to lack of investment in gas resource development and infrastructures. Power shortages are themselves also curbing the economy and foreign investment. Iraq desperately needs a huge increase in gas production to fuel power plants - but like investment in oil, that may not be forthcoming. Newswires regularly post encouraging news on Iraqi oil, for example Iraq's rising


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rank inside OPEC for oil output. On Dec 28, 2012, Bloomberg reported it jumped two places to No. 2 in OPEC rankings for 2012 - because sanctions-hit neighboring Iran had dropped three spots to fifth pace. Iraq's rank was also helped by third-placed Venezuela's oil output continuing to decline - as it has, on and off since 1999 for a 25% decline in national output over 12 years. In 2012 Iraq's oil output rose 24% on 2011 to an approximate year-average 3.2 Mbd (million barrels a day), but its chance of repeating the trick for 2013 is zero. The growth of Iraqi output was almost solely due to rising supply from the BP-led Rumaila consortium operating in southern Iraq, the region producing 67% or more of Iraq's total output. Unless Iraq can sweep in more foreign investor funds, and settle rising disputes and standoffs with the major companies operating in Iraq - and in Kurdistan with the KRG or Kurdistan Regional Government - 2013 exports will be down on 2012. UNSURE AND UNCERTAIN The reliability of Iraqi exports is not only at risk due to Iraq's federal central government in Baghdad refusing to agree to KRG terms on oil revenue and contract issues. The majors, who now ignore Baghdad's strictures on either dealing with or recognizing the KRG, have firmly reacted to the MOO's attempts to force them to focus Iraq's southern fields and mount costly exploration programs in 'new and unexplored areas'. Iraq's fourth and largest energy auction since 2003, in May 2012, which was intended to add nearly 1 trillion cubic metres of natural gas and 10 billion barrels of oil to its huge reserves, flopped in major part due to the MOO writing-in conditions forbidding any deals between the majors and the KRG. The auction's financial terms for company netbacks were also rejected. Eight 'mega blocks' received no bids at all because none of the 39 approved bidders, including Royal Dutch Shell, BP, Exxon Mobil, Total, Lukoil and Chevron accepted Baghdad's terms. Apart from the KRG issue, which will not go away, and Iraq's heavily deteriorated oil infrastructures which need very heavy investment spending, oil executives, off the record, called the MOO's terms on their netback from production 'insanely greedy'. The MOO had set a netback of $5.38-$6.24 per barrel produced. Most recently in August 2013, the MOO has re-focused its ire on Shell, blaming the Anglo-Dutch energy giant for a claimed loss of about 45 million barrels or $4.6 billion due to under-production, because Shell 'wilfully under-maintained' its infrastructures at the Majnoon field it operates with Malaysia's Petronas. It also accused Shell of 'wilfully under-investing' in this struggling but giant field - with giant spending needs for rehabilitation and upgrade. Exxon Mobil, at the neighboring regional West Qurna1 field, has made it plain it wants to abandon the field and sell out, in part due to the corporation signing a six-block deal with the KRG in October 2011 that incensed the MOO, and poisoned relations with Exxon Mobil. In a statement e-mailed to AFP following the August 2013 dispute, Shell spokesman Diego Perez said he could confirm the very poor state of field infrastructures which 'indicated the need for major additional work", explaining the loss of production. He went on to state the usually-unmentioned major fear of employee security in Iraq's


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continuing civil war, saying: "The safety of our people and assets remain our top priority in Iraq'. CIVIL WAR THREAT Most foreign oil executives inside Iraq, and oil commentators say that the explosive cocktail of Iraq's unpredictable or 'freewheeling' politics, extreme and intensifying security concerns in nearly all urban areas, and often outside them, and Baghdad's peremptory rejection of oil company financial demands make it nigh-on impossible to rebuild and expand its all-important energy industry. Iraq's economic dependence on oil and gas is however almost total. According to the UN, in May and June Iraq suffered its highest rate of violent deaths since the so-called 'civil war' of 2007-2008. Many observers say the country is 'standing on the edge of an existential precipice'. In 2013, the monthly death toll has often attained 1000 and injuries 5 times that. As previously, the threat is renewed Sunni Salafist car bombing and assassination of Shia Muslims, attacks on Shia mosques and politicians, and bombings of Shia shops and commerces. In 2007-08, the US Army's "surge'' and a relentless Special Forces campaign of targeted killings gutted the Iraqi al-Qaeda movement. The military action had an essentially political goal - attack and destroy the 'mid level ranks' of alQaeda, limit the insurgents' ability to move in southern Iraq - but did not include a post-struggle 'hearts and minds' campaign, except in highly rudimentary form. With US troops gone and facing an Iraqi government that outside the MOO displays a fatal combination of incompetence, corruption, under-manning and under-financing, the 'surge' has reversed. The former AQI has been succeeded and replaced by the Islamic State of Iraq and al Sham (ISIS), also operating in Syria and Egypt. After the Syrian war, ISIS forces returning to Iraq could number 45 000 or more. ISIS and its affiliates want a full scale civil war. Their sustaining objective is unambiguous -- foster a cauldron of chaos breaking down the already-weak and divided federal government, detaching Iraqis into base-level sectarian alliances, then create a shariah-law caliphate. Sunni extremists, similar to the Muslim Brotherhood in Egypt supporting ousted president Morsi can claim that they have been robbed of legitimate power. In the 2010 parliamentary elections, the Sunni-dominated Iraq National Movement of Iyad Allawi won most seats, but Shia prime minister Nouri al-Maliki refused to accept the outcome. Instead, he promised a national unity government with Allawi, and then reneged on that offer following irreconcilable disputes on oil revenue sharing, as well as regional sovereignty and the KRG crisis. Since then, al-Maliki's armed forces have on several occassions directly massacred Sunni protestors, as well as promoting or utilising Shia militias and terrorists in tit-fortat attacks on Sunni communities, mosques, shops and commerces. For foreign oil companies, personnel security concerns and costs can only remain high. The often irrational decisions, and aggressive actions of the al-Maliki power group, who cannot be called a 'government', are inevitably most extreme in the oil and gas sector.


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In 2013, its grandiose plan to become one of the world's most powerful natural gas producers, at a time when there's an increasing global gas glut and prices can only erode, signals how far out of line with reality the power clique in Baghdad has drifted. Currently, the country is unable even to produce enough gas to run its domestic power plants. Electricity rationing on an episodic and unpredictable basis is the rule in all major urban centers. THE LIBYA MODEL Libya's oil production increased even faster than Iraq's in 2012, more than doubling from its low point during the NATO war of 2011, as operators including Total and Eni returned to the North African Arab nation after the removal of dictator Muammar Gaddafi. This was however not sustainable. The same war unleashed widespread and continuing Sunni-Salafist extremist insurgency. Libyan oil output fell about 70% in the first 7 months of 2013 to about 0.66 Mbd, close to its wartime low, according to oil minister Abdelbari al-Arusi in a Reuters interview of 27 August. Highly ironically, due to the Libyan and Iraqi situation, Iran is now seen by rising numbers of analysts and strategists as the 'new hope' for boosting world oil supply despite global output, using IEA data, increasing 2.7% in 2012-2013 compared with a global demand increase of less than 1.25%. The major fear causing the hunt for new output or replacement capacity to cover Iraqi and Libyan risk, is that Iraq's export surplus will suddenly fall, and its total output will also shrink, like Libya's, due to a fatal combination of negative factors intensified by anarchy and civil war. Iran's output has been in decline since the end of 2008, Bloomberg data shows, and has accelerated this year as US and EU sanctions were tightened, aimed at curbing the Islamic republic's nuclear program. Due to far greater social cohesion and political stability in Iran, however, an end to sanctions will rapidly trigger the return of foreign oil majors, unveiling the prospect of Iran's total oil output growing at a sustained rate. The extent to which this can cover Iraqi and Libyan risk is presently difficult to gauge, but the need for alternate and secure global oil capacity is clearly growing. The message that Iraq is now more than ever 'risk-on' seems unknown to the alMaliki power group or clique presently and shakily wielding federal power in Baghdad. The federal government is however under fast-rising pressure from insurgents, and a highly successful political standoff by the KRG, meaning that the potential for Iraq rapidly ceasing to be 'OPEC's coming star', and falling in OPEC output rankings can only be high.

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Insight: Managing health in the oil and gas sector Written by Angela Whitehead from PetroMall Effective management strategy takes account of all possible risk factors, uses applicable systems to rate hazards and any associated risks, then develops strategies to eliminate, minimise and manage the processes. Dealing with health, requires exactly the same diligence. In potentially high risk environments managing the overall health of all individuals needs to be addressed in a clear simple fashion. Individuals working in remote locations which can be subject to acute climate change and are often required to make critical decisions affecting health and safety need to be operating at an optimum level of personal performance. More than any other issue affecting staff this requires guidance from occupational health professionals' very clear parameters and the engagement of the whole workforce. Health at work, does it matter? Global Health in 2013 As we move forward into the 21st century is there really any need to have a specific focus on health in the working environment? It is being suggested that children born in the new millennium may live until they are one hundred and that the standard of health they achieve will exceed anything we consider normal today. Access to quality health care globally is generally increasing and information on how to maintain personal health is readily available. This may well be the case however the hard reality of health statistics available show that there are still considerable issues to be dealt with. Using global data from the World Health Organisation (WHO)1 it is clear there remains a significant burden of ill health affecting every economy. This does vary and in some regions of the world malaria and infectious diseases are still key causes of death, in other areas mortality is linked closely to conditions associated with lifestyle factors, such as diabetes, heart disease and some cancers. WHO2 also tracks the health of children and young adults and since the early 1990's a significant increase has been noted in a range of disorders in this group, including asthma, diabetes and eczema. The cost to any national budget of providing even basic health care for individuals


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continues to increase rapidly, not only due to population numbers growing but also the sophistication and range of treatments available. It is becoming evident that a growing proportion of ill health can be directly linked to personal lifestyle factors. One of the most pertinent preventable issues is obesity, which is linked to cancer, diabetes, heart and lung disease. Smoking is also still a problem and while it can directly cause lung disease and cancer is also implicated in cardiac disorders. Obesity is also rapidly becoming a major concern for many countries. In the USA almost 40% of the nation can be classed as officially overweight. A recent survey in the UK noted that up to 30% of children under 16 are overweight. 3 What affects the whole population will be reflected in the working population. In the maritime environment the number of places in lifeboats is requiring adjustment due to the increase in size and weight of people who may need to use them. Some emergency escape craft may not be viable as the entrance space is not large enough to allow obese people to enter. Relevance to business Organisations in a competitive work environment look to making employment with them an attractive option, in some countries this includes direct funding, or at least a degree of financial cover for health care for individual and family. There are also the more usual "attractions" of company cars, bonus payments and a host of other benefits. It seems obvious to state that business recruits from the adult population and for many sectors of industry some degree of fitness for task may be required. Once recruited staff will require varying degrees of training and then many will enter into some form of on-going programme to keep skills up to date. In today's flexibly work situation it is entirely possible staff who are valued may well add additional qualifications with company sponsorship. Despite modern technology it is often stated that the real knowledge base of an organisation is in the minds of its employees, not computer databases. This comes at a significant cost, for many large organisations staff can often be the largest budget consideration. Preventative maintenance of industrial plant and systems is an integral part of business planning. In this cyber age this also includes sophisticated storage techniques and “fire walls" to prevent attacks by computer viruses which could potentially bring a company to a standstill. It would seem relevant then to look at considering preventative maintenance for individuals, personal virus prevention, therefore supporting the health of staff who are such a key part of any organisation.


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Managing health and wellbeing in the work environment It is important to state that effectively managing health at work is not intended to be a replacement of any national, or country health service already available for staff. It is based on considering what is required to support staff in carrying out their day to day duties, assisting them in maintaining and improving their existing health so they are performing at an effective level. It is already clear that while health care is becoming a very sophisticated service not all diseases or conditions can be "cured". Despite the real advances in technology more young people entering the workplace will have some form of health condition to manage and more mature staff can be at risk from developing a range of age related concerns. However many of these issues are now managed on a long term basis in a more active fashion, individuals work with specialists as a team to take control of their health in more positive, interactive way allowing them to maximise their capabilities and remain at work. As the birth rate decreases and retirement age increases businesses will need to be able to work with larger numbers of individuals with some form of health concern. While this may appear to be a challenge the changing nature of work in the millennium can make this much more achievable. The changes to technology and ability to connect by phone and computer, virtually globally, means there is far less need for many individuals to be based in one location to work effectively. The challenge for business is to be able to look at new ways of working perhaps based round flexible hubs where staff congregate on a "need to" basis. A higher degree of personal control over work hours will often allow staff with health issues manage their conditions more effectively and interact with hospitals and doctors with minimum disruption. It is also suggested that for all staff more flexibility decreases potential stressors and may increase productivity. This is not suitable for all roles, there will always be a need for some staff to be in a given place for a set number of hours. A more proactive position is to consider using the work location to promote good health, working adults spend a minimum of a third of their life in the workplace. This can be done at varying levels of commitment, simply by providing health eating options and encouraging staff to be more active is a basic starter. Larger organisations may support or provide gym membership and individual health assessments with follow up plans to manage negative lifestyle issues. Remote, or inhospitable locations can have fitness equipment in place with video link training courses. Building a strategy for health Many businesses who have clear management plans for finance, human resources, business engagement etc. etc. have difficulty in assessing what their health strategy


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should be. It is important that the leadership team is involved in this process, have some understanding of what is required and that a senior leader is closely involved. For any lasting success the final outcome should be discussed with and have agreement at board level. In some instances planning for safety is considered to also incorporate the plan for health. Safety is, of course, a paramount concern but health needs to be assessed on its own merits. This could lead to an overarching plan for managing health and safety with different streams, inputs and outputs as required. The size of the organisation will be a factor, for some the process may take a few days with some minimal expert external assistance, in other situations this will be a large undertaking, using internal health staff, or a team of external specialists. First steps follow the time honoured process of risk assessment, the who, what, why, when and where. To put it very simplistically:  

  

WHO: is in employment, age ranges, abilities, fit for task? WHAT: are employees doing, the range and nature of tasks? What legal framework will need to be complied with, health specific? What data do you need to record, where & how do you store it. WHY: time to sense check the basic operating process, is there a need for large office complexes, is there room for review? WHEN: is this a global operation communicating over time zones. Do you have staff who work shifts? WHERE: do you have staff working, remotely, globally, travelling?

NB. This is not an exhaustive list, merely brief guidance, a full risk assessment process should be conducted by experienced individuals one of whom should have a relevant qualification in occupational health. In health the "where" is often overlooked: it is relatively easy to access health support in an urban environment, much less so in a remote location which may also be additionally isolated by weather and local issues. There will be legal matters to understand, many countries have codes of practice, or employment laws with health implications which need to be complied with. Some industries have their own codes of practice and guidelines which are accepted internationally. This can be extremely useful, however local interpretation can prove interesting. Often close discussion with varying departments may be needed, for example, human resources. Absence from work on a short or long term has an impact on those staff remaining in the workplace and on the tasks they perform. In the short term this is likely to cause minor disruption however long term absence can result in


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a heavy burden on colleagues and may require additional resources at an increased cost. In service operations, internal, or external, this can lead to delays and cancellations. One key factor to appreciate is that whatever health plan, or strategy is developed that day to day management sits with the line, so the involvement in the process of a cross section of staff from all grades will be required. How this is developed depends considerably on the size and nature of the undertaking and could vary from a simple working group to a much larger project team, undertaking a serious review. Discussion Health within the work environment is often considered as a difficult topic and perhaps one to be postponed to more convenient time. In reality the health of the organisation can directly be influenced by the health and wellbeing of the staff it employs therefore the subject deserves some enlightened review. To contact Angela Whitehead, please click here or on the link at the beginning of this Review. Reference 1 Mortality/morbidity Risk factors Health systems response Reference 2

Health-related Millennium Development Goals Child health Reference 3 The Health of the Nation

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Health, Safety, Environment and Risk Management RPS Energy is a global multi-disciplinary consultancy, providing integrated technical, commercial and project management support services in the fields of geoscience, engineering and HS&E.

Contact James Blanchard T +44 (0) 20 7280 3200 E BlanchardJ@rpsgroup.com

rpsgroup.com/energy


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OilVoice Magazine | OCTOBER 2013

Insight: Value of Stress Field Detection technology in earlystage exploration Written by George Liszicasz from NXT Energy Solutions Inc. Overview of Stress Field Detection (SFD®) The SFD® system utilizes quantum-scale sensors to detect gravity field perturbations which are induced by terrestrial stress energy variations, primarily in the horizontal plane. Significant subsurface discontinuities or anomalies are inherently associated with, and dependent on, subsurface principal stresses. As a consequence, the discontinuities will distort stress fields, resulting in a unique in-situ stress pattern. SFD® has been used by oil and gas companies to identify subsurface stress-field anomalies related to trapped fluids. This technology offers a leap in cost-effective rapid reconnaissance for early-stage exploration from an airborne platform. Heuristic Explanation The subsurface geological condition required for SFD® to detect gravity field perturbations which arise due to stress variations in the horizontal direction is the occurrence of a structural and/or stratigraphic change discontinuity with sufficient difference in elastic properties. An important source of elastic variations is the presence of trapped fluids (oil, gas, or water). Other sources include faulting / fracturing, over-pressure, major lithological changes and basin boundaries. In general, all major discontinuities will evoke a distinct SFD® response. The variation of the shear component around and in reservoirs will result in the redistribution and orientation change of the stress fields (Figure 1). Figure 1. Plan view of principal horizontal stress components (SHmax and SHmin) illustrating the distortion of stress fields associated with fluids trapped in a structural thrust-fault scenario. Stresses are redistributed due to a variety of sources including porosity, trapped fluids, fracturing, faulting and reservoir pressure.


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Differences with Conventional Gravity and FTG Conventional gravity surveys measure the vertical component of the gravitational field. Full tensor gravity (FTG) gradiometry measures the rate of change of all components of the gravity tensor. Two major advantages of FTG over conventional gravity are the increased resolution and the reduced noise contamination of the signal. Both methods rely on a large test mass to increase the sensitivity in measuring subsurface density variations. Both conventional gravity and FTG provide a static, point to point measurement. However, SFD® differs from both in that it employs particle scale sensor elements for dynamic detection, which enables selective sensitivity to directional changes in subsurface stress induced by poro-elastic anomalies. Case Studies Gulf of Mexico: Integration of Regional Geophysical Data with SFD® The Gulf of Mexico has been an area of evolving exploration: from the continental shelf to salt-controlled basins to sub-salt and ultra-deep water plays. Covering vast areas in a cost-effective manner to identify prospective acreage is an ongoing challenge. Conventional wisdom has been to conduct regional 2D seismic surveys followed-up with 3D seismic, both sparse and detailed. Although seismic data provide high-resolution subsurface images the cost is significant. Airborne SFD® can provide a cost-effective rapid reconnaissance solution that identifies prospective areas for more focused follow-up seismic efforts. In the Fall of 2012, PEMEX conducted an initial SFD® survey in onshore and offshore areas of the Gulf of Mexico region. Figure 2a shows a 2D seismic section from the Gulf of Mexico. The sub-salt structure appears to be encased in a sealing salt (purple) but there may be a breaching potential due to the marked faults. The anomaly identified on seismic is verified by the SFD® anomaly (Figure 2b). This may be indicative of the presence of both trapped fluids and an effective sealing mechanism.The correlation of SFD® with seismic poses that in areas without seismic coverage, an SFD® survey could help propose where to put in a capitalintensive high-resolution seismic program.


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Figure 2. Correlation of regional 2D seismic data with SFD速: a) Seismic anomaly PMX-2.16 and b) corresponding SFD速 signal. Furthermore SFD速 is effective irrespective of the presence of salt or bathymetry. As such, SFD速 can serve as an important complementary method to be used in conjunction with other exploration technologies.


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While seismic surveys offer excellent resolution and structural definition, they do not always easily lend themselves to identifying fluid properties in the absence of additional information. New methods, such as controlled-source electromagnetics (CSEM), are becoming more accepted tools to investigate fluid indicators on qualified prospects. Figure 3 illustrates another Gulf of Mexico example correlating SFD® with CSEM high-resistivity anomalies associated with hydrocarbons. Figure 3a is a map of CSEM resistivity overlain by an SFD® survey line. There are two high-resistivity anomalies (dashed red ovals) identified as PMX-2.44 and PMX-2.15 which have corresponding SFD anomalies (solid red bars). The SFD® profile for PMX-2.44 is shown in Figure 3b. In this example, both CSEM and SFD® have identified potential fluid anomalies.

Figure 3. Correlation of regional CSEM data with SFD®: a) CSEM resistivity anomaly map with dashed red ovals Indicating high-resistivity anomalies at PMX-


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2.44 and PMX-2.15 and b) corresponding SFD® signal over PMX-2.44. Colombia: Optimizing Lease Relinquishments with SFD A common exploration challenge is to determine the best acreage to retain within a large lease. In 2010 NXT Energy Solutions conducted an airborne SFD® survey covering 7,500km2over the Tacacho and Terecay Blocks in Colombia for Pacific Rubiales.Figure 4a shows the approximately 7,000 line km of SFD®data (red lines) which were acquired, processed and interpreted to provide an evaluation in less than two months time. As a result of this rapid turnaround, the leaseholder was able to identify the areas to be relinquished. Figure 4b shows the retained areas in red outline. The SFD® anomalies are indicated in the blue boxes and the green outlines represent the client’s assessment of anomaly areas using other technical data acquired subsequent to the SFD® survey. Figure 4. High-grading blocks for exploration: a) Blocks with flight lines (red) and existing seismic lines (black) and b) blocks containing the best SFD® anomalies and retained acreage outlined (red boxes). SFD® anomalies are identified with blue boxes and the clients assessment of anomalies using numerous G&G methods are indicated by green outlines.


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Benefits for Early Stage Exploration     

Rapid and efficient exploration reconnaissance over large areas of virgin acreage in an environmentally sensitive manner Identification of prospect areas with potential trap, reservoir quality and seal integrity Effective in both onshore and offshore environments Insensitive to both water depth and the presence of salt Prioritize exploration activity (e.g., seismic programs) on identified leads

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The need for differentiation in UK oil & gas recruitment Written by Damien McCawley from Simpson Crowden With the high and mostly stable oil price of recent times, the demand for experienced staff across all of the upstream technical disciplines has reached unprecedented levels around the world. The UK has mirrored this trend. For a generation the industry has faced the demographic challenges presented by so few graduate hires between 1986 and 1993 and then again in the late 1990's.This has had a knock on effect in the recruitment market that will last for another decade.The past few years have presented even more challenges for the oil & gas job markets in Aberdeen and south-east England. The market has become overheated, with severe skill shortages in the core oil & gas disciplines, with more jobs available than there are experienced and suitable people to fill them. Speed in


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the hiring of technical staff has become the essence and all of these factors together have led to a degree of commoditisation of both candidates and employers. Before the present boom, employers wanted the most technically competent and rounded individuals and they were prepared to wait to find them. Some employers have lowered the bar to let in candidates who would have struggled to join an oil company 10-15 years ago. Some oil companies have also reduced the level of due diligence they undertake on candidates (often having one rather than two interviews) because they fear putting candidates off.When considering multiple opportunities, many candidates have taken to choosing interview processes that require the least effort from them and some have occasionally responded by setting their own terms for the interview process. A perceptible degree of arrogance has set in, particularly amongst those who have joined the industry since the last major oil price correction in the late 1990's. In the past 12 months the recruitment market in south-east England has had some respite from the skill shortage, becoming more liquid, particularly following the announcement of the closure of the Hess London office and the Valiant Petroleum redundancies. The vast majority of these people have now been 'mopped up' by the local market. On the horizon, with RWE Dea up for sale, there may be more people coming to the market from the UK business, although rumours suggest that the intention is to sell the company in its entirety, with few if any redundancies. More important - for oil companies in the south-east - is the opening of Shell's technical hub in London in July of this year, where staffing levels are set to rise considerably.This suggests that the skill shortages are going to continue and probably become ever more acute. The present skill supply and demand imbalance has given much momentum to remuneration packages. Large sign-on bonuses have become far more common than they were 5-10 years ago and increasingly oil companies have introduced defensive tactics such as 'Golden Handcuffs', involving large retention bonuses and/or stock or stock options, in order to retain their best employees. The skills deficit has not been helped by the broad brush tightening of UK immigration policies, making it more difficult to recruit non-EU nationals. Even if employees can be mobilised from overseas, there remains the challenge of hiring people into the UK on local terms because of the relatively high cost of living. Getting onto the property ladder, particularly in the London area, presents a major obstacle. Inevitably, quality of life issues can take over the decision to accept a job offer. There is room for innovation in the formulation of overall packages here. In response to these unprecedented levels of demand, there has been a sudden proliferation in the number of recruitment companies involved in the upstream market. Many have changed direction, moving into oil & gas following the impact of the global financial crisis on other recruitment sectors, assisted by low barriers to entry.These are mostly contingency companies (who are candidate- focused) rather than retained search organisations (who are employer-focused). A key outcome of this increase is that candidates are receiving numerous calls each week, from recruiters who may or may not have a mandate from an employer, often about roles


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which are not relevant to them. Both candidates and employers have commented on a lamentable reduction in standards amongst oil & gas recruiters.This has created much fatigue amongst potential candidates, dulled to new approaches. Of course, differentiating opportunities and attracting interested candidates is just the start of a successful recruitment campaign. Establishing candidate suitability, making an offer and then closing the deal often present equal challenges to finding candidates in the first place. Simpson Crowden has a proven track record of successfully navigating these challenges, helping employers to differentiate themselves and their offering from competitors. This, allied with our market knowledge, professionalism, perseverance and enhanced customer service, enables us to fulfill even the most difficult recruitment projects, often after other recruiters have failed. We provide executive search services across all E&P functions, and up to Board level. All of our consultants have on average over 20 years oil & gas experience and professional backgrounds in recruitment, assessment, generalist HR, psychology and industry.

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OilVoice Magazine | October 2013