OilVoice Magazine | July 2014

Edition Twenty Eight – July 2014

Iraq unrest tests U.S. 'energy independence' MENA war fever and the Iraq oil price spike Why the crisis in Iraq has the global oil industry on edge Cover image by William John Gauthier

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OilVoice Magazine | JULY 2014

Adam Marmaras Chief Executive Officer Issue 28 – July 2014 OilVoice Acorn House 381 Midsummer Blvd Milton Keynes MK9 3HP Tel: +44 208 123 2237 Email: press@oilvoice.com Skype: oilvoicetalk Editor James Allen Email: james@oilvoice.com Director of Sales Mark Phillips Email: sales@oilvoice.com

Welcome to the 28th edition of the OilVoice Magazine.

With the recent activities in Iraq over the last couple of months, this edition of the OilVoice Magazine has turned out to be an ‘Iraq Special’.

This month we have great articles from 30 Point Strategies, Worldwide Recruitment Solutions and ThinkProgress. We'd also like to welcome back some of our regular authors, including Andrew McKillop.

If you're interested to know more about seeing your articles featured on OilVoice, please get in touch.

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

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Cover image by William Gauthier

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Contents Featured Authors This month’s featured authors

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Iraq unrest tests U.S. 'energy independence'

by Loren Steffy

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Iraq: Why it's worse than you think

by Keith Schaefer

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America energy independence

by Euan Mearns

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Kurt Mix case a cautionary tale for employees

by Loren Steffy

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There is no act three to the American horizontal oil boom

by Keith Schaefer

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MENA war fever and the Iraq oil price spike

by Andrew McKillop

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The Bakken gets bigger - likely a LOT bigger

by Keith Schaefer

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Should the West save Iraq?

by Andrew McKillop

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Canada moves ahead with new pipeline project as Keystone languishes

by Loren Steffy

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Upward trend for South East Asia's investment in worldwide oil and gas industry

by Dan Saleh

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TransCanada's credibility dented by Keystone defects

by Loren Steffy

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Why the crisis in Iraq has the global oil industry on edge

by Ari Phillips

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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.

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

Euan Mearns Energy Matters Euan Mearns has B.Sc. and Ph.D. degrees in geology.

Dan Saleh Worldwide Recruitment Solutions Dan Saleh is the Oil & Gas Team Manager at Worldwide Recruitment Solutions.

Ari Phillips ThinkProgress Ari Phillips is reporter for ClimateProgress.org.

Loren Steffy 30 Point Strategies A senior writer for 30 Point Strategies and a writer-at-large for Texas Monthly.

Loren worked in daily journalism for 26 years, most recently as an awardwinning business columnist for the Houston Chronicle, and before that, as a senior writer at Bloomberg News.

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Iraq unrest tests U.S. 'energy independence' Written by Loren Steffy from 30 Point Strategies The idea of U.S. “energy independence” is getting its first real test as a militant uprising in Iraq raises a serious threat to the future of OPEC’s second-largest producer. West Texas Intermediate crude prices have rallied as much as 5 percent, or $4.45 a barrel this month. That’s a significant gain given the relative calm of the oil markets during the past year, but the most surprising thing about the price spike is that it hasn’t been higher.

Although no Iraqi exports or production have been affected yet, there has been some impact on the country’s oil infrastructure, as Bloomberg reported: The group that calls itself the Islamic State in Iraq and the Levant, know as ISIL, seized Mosul this week, forcing a halt to repairs at the main pipeline from the Kirkuk oil field to the Mediterranean port of Ceyhan in Turkey. There were conflicting reports that Baiji, the site of Iraq’s biggest refinery, had been captured.

Working against these fears: rising production from U.S. shale plays, which has smoothed the markets’ reaction to geopolitical upheaval in recent years. As I noted last year, unrest in Syria and a potential nuclear showdown with Iran had little impact on oil prices, largely because of increased production from the U.S. But the events in Iraq pose a greater test of the notion that the U.S. can drill its way to energy independence. The upheaval in Iraq comes as seasonal demand for gasoline is picking up and two other OPEC members, Iran and Libya, are producing below their capacity – Iran because of sanctions and Libya because of its own political turmoil.

As the Financial Times points out, these issues are compounded by production outages from South Sudan, Colombia and Kazakhstan.

In other words, the available supply of oil on the world market could tighten quickly.

The U.S., despite surging domestic production, remains a net oil importer, which means it remains vulnerable to global supply shortages. Fracking is a buffer to oil price volatility, but it isn’t immunity.

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Iraq: Why it's worse than you think Written by Keith Schaefer from Oil & Gas Investments Bulletin Everyone knows that Iraq is an important oil producing country. But Iraq is more than just important, it is critical.

Iraq is so important that in October of 2012 the International Energy Agency (IEA) released a report called “World Energy Special Outlook On Iraq”.

In that report the IEA concluded that in 2035 oil prices would be $215 if Iraq could increase its oil production by 266% from 3 million barrels per day to 8 million barrels per day. (Could–not couldn’t)

Source: IEA – World Energy Special Outlook On Iraq Drink that in for a moment. $215 per barrel is the IEA’s scenario if everything goes swimmingly well in Iraq over the next 20 years. Given the long history of instability here, the IEA’s vision seems like a very optimistic one.

Last week’s violence in Iraq, the IEA scenario seems almost absurd. If oil is expected to be $215 per barrel in 2035 if Iraqthrives, what will the oil price be if Iraq falls apart or just keeps production steady?

It won’t be pretty, especially for poorer countries.

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Now, I’m the first to say any prognostication that goes 20 years into the future is as useful as screen doors on a submarine. But let’s look at the two main reasons why the IEA says the world needs a lot more oil production by 2035.

The first great call on new oil production comes from the relentless thirst for oil that belongs to the emerging middle class of the billions of people in emerging countries.

China and India lead this group that also includes all of Africa, Southeast Asia and Latin/South America. The people in this part of the world use on a per capita basis a tiny fraction of the oil that Westerners do, and every day they are fighting to live a more Western lifestyle.

The second great call on new oil production is that currently producing oil fields across the globe produce less and less oil every month. All in, these fields decline in production at 6% per year, which means that the world will require an additional 40 million barrels of new production to just replace those declines by 2035. To put that in context, it means the world needs to bring on new oil production equal to four Saudi Arabia’s.

How important the IEA believes Iraq’s contribution towards meeting global oil demand needs to be is shocking. The Agency has earmarked Iraq to provide 45% of the global growth in oil production by 2035.

Source: IEA – World Energy Special Outlook On Iraq Yes, Iraq, a country that has been in a state of chaos for virtually its entire existence, is the key piece in the energy supply puzzle for the future of the entire globe. Alice, pass me the gravol.

Historical Iraqi oil production won’t calm your stomach either. Recent Iraq oil production has been bouncing back and forth between 3.3 million and 3.5 million barrels per day. That level is the highest production has been in 30 years dating back to 1976.

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As you can see in the graph above that 3.5 million barrel per day figure has been approached a couple of times in the past 30 years–but never stays there for long.

The world needs a lot more than for Iraq to just deliver 3.5 million barrels per day consistently. The world needs Iraq to more than double that all time high level of production and then grow some more from there.

There is nothing in the history of this country to lead us to believe that a long sustained run of big–unprecedented even–production growth is possible. And the news coming out of the country certainly provides no reason to believe the future would be any different.

The Good News – Most Of Iraq’s Oil Production is Not Currently In Harm’s Way The IEA’s vision for Iraq production growth is certainly questionable. The good news is that the group calling themselves theIraq/Syria Islamic State (ISIS) is actually not likely to materially disrupt Iraq oil production in the near term.

ISIS is an extreme Sunni group that is small in number (Iraqi officials estimate the group has 6,000 soldiers) and that doesn’t have much popular support. The headlines the group has been making by gaining control of cities have been in regions divided by religion like Mosul and Tikrit that were extremely unstable to begin with.

These are not regions with significant oil production.

The great majority of Iraq’s production is found away from current hostilities either in the south of the country within the borders of the Shiite majority or in the Kurdish region in the north.

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Source: Securing America’s Energy Future Iraq’s historical production has been dominated by just two super giant oil fields.

There is the Rumaila field that has produced over 14 billion barrels since the 1950s in the Shiite south and the Kirkuk field which has produced a similar amount since the 1920s in the northern Kurdish region.

A third super-giant field called The West Qurna is also located in the Shiite south and with 44 billion barrels of recoverable oil is the second largest oil field in the world.

West Qurna is targeted to be the primary driver of Iraq production growth.

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Source: IEA – World Energy Special Outlook On Iraq Iraqi oil production is now split roughly 75/25 between the Shiite south and the Kurdish north. The fighting has however already impacted some of Iraq’s key oil infrastructure, most notably a pipeline that can deliver 600,000 barrels of oil per day from Kirkuk to the city of Ceyhan in Turkey which is damaged and offline.

What the fighting also does is make Western oil companies hesitant to invest capital in Iraq. The IEA estimates that more than $15 billion needs to be invested every year in Iraq in order to generate the anticipated level of production growth. Without at least the appearance of the country moving closer to stability, it seems hard to believe companies will be willing to risk that kind of money.

Reality May Be Setting In The actual near term threat to oil production from ISIS is likely not as significant as the frightening headlines make it seem. What the headlines may be doing however is waking the world up to the fact that Iraq’s success as a growing oil producer is critical to the entire world and also to the fact that the country is in no better shape than it has been over the last 30 years when production has sputtered.

The Sad Truth is that one has to wonder if Iraq isn’t in worse shape than it has ever been. And that isn’t good considering what the IEA says its importance to global energy security.

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America energy independence Written by Euan Mearns from Energy Matters Talk of the USA becoming energy independent, even exporting oil and gas, is very much in the news. Indeed the turnaround from ever rising energy imports to declining energy imports has been spectacular (Figure 1) and on current trajectory it does indeed appear that the USA could become energy independent in a decade’s time.

Everyone knows that shale gas and shale oil have liberated the USA from dependency on Saudi crude (Figure 2). Less publicised is the fact that US energy consumption succumbed to high energy prices and has been in steep decline since 2007 (Figure 3). Indeed, 45% of the fall in energy imports is down to reduced consumption.

The USA remains the Queen of energy waste to Canada’s King. US citizens consume double the energy of those in the UK. The energy system remains dominated by fossil fuels that account for 87% of all energy consumed. New renewables account for only 2% and in electricity generation solar accounts for a mere 0.7% as reported by BP [1].

But the USA is on a new energy trajectory, arguably more sustainable and perhaps heading for Maximum Power [2].

Figure 1 The USA imports a lot of oil and some natural gas from Canada. Both oil and gas imports have declined sharply in recent years. The US has been a coal exporter since 1981 and exports have recently been on the rise as domestic electricity production has switched to natural gas.

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Data All of the energy statistics reported here are drawn from the 2013 BP statistical review of world energy [1]. The economic and population data are drawn from the United Nations National Accounts Main Aggregates Database [3] and World Bank [4]. All data sources are referenced on charts.

Figure 2 From the energy production stand point, the USA is in much better shape than Europe producing a surplus of coal and nearly self sufficient in gas. It is oil consumption that vastly exceeds domestic production. The peak in US oil production was back in 1971 standing at 11.3 mbpd compared with 8.8 mbpd in 2012 so there is still a way to go before the 197o peak is past. And with oil consumption running at 18.6 mbpd, the USA still imports 53% of oil consumed. There is a way to go before oil independence is achieved, but overall, the trend of US energy production is quite definitely up on the back of shale oil and gas production. Nuclear and hydro combined are significant but new renewables make only a negligible contribution to total energy production.

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Figure 3 USA primary energy consumption has been in decline since 2007 in part due to recession, but mainly due to the 5 fold increase in oil price since 2002 – the two factors are of course linked. This decline in energy consumption mirrors those seen in post 1974 and 1979 oil price shocks. These oil price shocks were caused by Middle East wars. This time the cause is global energy supply growth being outstripped by demand growth and energy prices are more likely to increase than decline in future.

Declining energy consumption has become a hallmark of OECD economies.

Figure 4 USA low carbon energy consumption grew significantly in the 1970s, 80s and 90s with the growth of nuclear power. It is rising once again on the back of new renewables although the latter still contribute very little to the whole energy mix.

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Figure 5 The breakdown of US energy consumption in 2012 shows how fossil fuels still dominate. Only 2% comes from new renewables.

Trouble in the shale patch The recent growth in US oil and gas production (Figure 2) is down entirely to shale oil and gas. The hope in the USA and globally is that this new bounty will provide the energy independence and security that is so much prized. However, some wellinformed commentators like Art Berman and Rune Likvern have been warning for some time that the shale industry may be a bubble inflated by debt. This recent report in Blomberg gives some forewarning of potential trouble brewing in the shale industry that I will return to in a future post.

Shale debt has almost doubled over the last four years while revenue has gained just 5.6 percent, according to a Bloomberg News analysis of 61 shale drillers. A dozen of those wildcatters are spending at least 10 percent of their sales on interest compared with Exxon Mobil Corp.’s 0.1 percent.

No problems here that $150 / barrel can’t fix. On the other hand, interest rates at 5% may kill the goose completely.

Electricity Figure 6 After decades of steady growth US electricity generation stalled in 2007 and has been flat to trending down since then. Higher prices will be part of the story but the trend is difficult to reconcile with a growing population and economy (Figure 8). Better energy efficiency standards may also be at work but I am left wondering to what extent Green policies may interfere with the growth of the US electricity system with conventional thermal generation in retreat.

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Figure 7 Electricity generation is dominated by conventional thermal – coal, gas and nuclear. Renewables make up only 7% of which 2% is hydro.

The USA should perhaps follow Germany’s lead and give up on this imposed energy transition sooner rather than later.

Population and economy Figure 8 One thing that sets the USA apart from European peers is that population has grown strongly since 1970 and continues to do so.

This is largely a function of immigration policy. The fact that the continent still has a lot of space combined with the knowledge that population growth may drive GDP growth is one reason why the USA has typically enjoyed a higher growth rate than European peers.

The 2008 / 09 recession is plain to see but unlike many European countries (except Germany) the US economy has recovered strongly setting new year on year highs.

Figure 9 One of the major ills of the USA that affects the whole world, is the gigantic structural trade deficit the country has run since 1975, the last year to have shown a surplus.

The cumulative deficit stands at $9 trillion. In 2012, the USA imported 9.65 m barrels oil per day costing $352 billion at $100 / barrel. The trade deficit that year was $547 billion of which oil imports made up 64%. This huge deficit and reliance on Middle East oil has created military and economic tensions globally. I have never understood why the USA did not take steps to curb oil consumption and avoid these tensions that all must live with.

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Figure 10 Another sign that all is not well in the USA is the fact that per capita GDP has been static since 2007. Per capita energy consumption is in decline from extreme high levels, which is a good thing, but the likely cause is high energy prices. Is per capita energy in decline because per capita GDP is static? Or is per capita GDP static because of high energy prices? I suspect the latter.

Figure 11 This chart cross plots the data shown in Figure 10. The expectation is that energy is required to produce GDP and GDP growth should require growth in energy consumption. Mature OECD economies appear to have escaped the thermodynamic reality that energy is required to do stuff or make things. Improved efficiency, selling imported goods and phantom GDP created by banks and city boys on Wall Street figure among the reasons the USA appears to be defying gravity. The context of this chart become clearer in Figure 12 where the USA is compared with other nations.

Figure 12 This chart remains a work of art in progress.

All interpretations may be subject to future revision. For those readers who have not been following along, each country data series is a time series beginning in 1980 and ending in 2012. In this chart I am plotting per capita gross national income (GNI) purchasing power parity (PPP) which is an adjusted form of GDP that accounts for aberrations created by exchange rates and other national factors. In general terms it is expected that trends should rise from lower left to upper right as GNI and energy consumption rise in lock step with time (economic growth). The mature OECD economies are breaking the rules with their vertical rise.

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The key observations for the USA are 1) on a per capita basis, they use far more energy than any other country I have looked at so far, 2) the recent trend is for increasing GDP with declining energy consumption and 3) the USA currently has the highest GNI per capita of any of the countries I have looked at. Is the USA in Utopia?

The dashed lines are lines of equal efficiency at converting energy to GNI. The upper dashed line appears to be some form of upper limit ($11,500 per toe). Turkey is as efficient as Germany in converting energy to GNI but Germany uses more energy and is therefore significantly more wealthy.

I am speculating here that this upper boundary of converting energy to money has something to do with Maximum Power [2], a subject I know little about. But on Earth, the country that uses most energy most efficiently will ultimately rule the world.

Vladamir watch out.

Energy Independence So, is the USA heading for energy independence? I suspect not. Shale is expensive to produce and eventually the grade will decline requiring even more effort. But then again it is difficult to ignore American ingenuity and hunger for C-H bonds. Higher energy prices are required that must at some point sow seeds of inflation and if interest rates are raised it may kill shale stone dead. The world changed in 2001 and again in 2008. It is very difficult at this point to call what the future holds.

References [1] BP: Statistical Review of World Energy 2013 [2] Maximum power principle [3] UN: National Accounts Main Aggregates Database [4] The World Bank

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Kurt Mix case a cautionary tale for employees Written by Loren Steffy from 30 Point Strategies The first person convicted in connection with the Deepwater Horizon disaster won’t be facing a prison sentence later this summer after all. Last week, a federal judge threw out the obstruction of justice conviction against Kurt Mix after declaring that comments made by the jury forewoman outside the courtroom influenced the verdict.

It’s a victory for employees of large corporations everywhere.

The decision of whether to put Mix on trial again now falls to the Justice Department.

The DOJ has other criminal cases pending against BP workers who, unlike Mix, were actually involved in the disaster. (Those cases have their questionable aspects, too, but that’s the matter for another post.)

Mix was an engineer called in by BP to help cap the runaway well that was spewing oil into the Gulf of Mexico after the Deepwater Horizon exploded and burned on April 20, 2010, killing 11 men on board and injuring 17 others. His alleged crime was that he deleted some text messages containing information that the government already possessed about BP’s misrepresentation of how fast oil was flowing from the broken well bore.

The trial, as I’ve written before, was hampered because jurors heard from only one of the people Mix was conversing with in the two sets of text messages at the center of the case. One of those people was a contractor, the other a supervisor. The contractor testified, and Mix was acquitted of those charges. The supervisor didn’t, and Mix was convicted.

Jurors even said that hearing from the supervisor might have changed their minds.

The jury was deadlocked in December when the forewoman was overhead saying that outside statements she’d heard about Mix reinforced her view that he was guilty.

The judge, Stanwood Duval, found that the forewoman “polluted the jury with her statements at a critical juncture — that is after the jury had deadlocked.” In doing so, the forewoman ignored his instructions to jurors that they consider only evidence presented in court, Duval said.

Mix’s prosecution has always seemed like a placeholder for the Justice Department.

It was under pressure to bring criminal charges in the Deepwater Horizon case, and Mix was an easy grab at the headlines it needed. But it’s time for the government to let this dubious prosecution go. It’s pursuit of Mix may already have had a chilling effect on the workplace.

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After all, Mix wasn’t involved in the multitude of BP’s shortcomings that contributed to the disaster; he was one of the people trying to help the company solve the problem.

For that, he wound up facing 20 years in prison. In the corporate environment, when the indictments start flying, it’s every employee for themselves, of course. BP, eager to reach its own settlement with the DOJ certainly didn’t stand behind Mix. If the DOJ is concerned that allowing Mix’s perceived obstructions to go unpunished will encourage other workers to resist cooperating with federal investigations, it needs to consider the opposite possibility. It’s far more likely that prosecuting Mix again will encourage – and may already have encouraged -- workers to refuse to cooperate. More important, workers may be less likely to help their companies in times of need.

The message from Mix case is clear. Before any worker assists in fixing a corporate problem in which the company has liability, they have to ask themselves: am I ready to go to jail for this? Rather than reinforcing that message, the DOJ needs to drop the Mix case before it goes any further down the legal rabbit hole.

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There is no act three to the American horizontal oil boom Written by Keith Schaefer from Oil & Gas Investments Bulletin If you are looking for a reason to get bullish on future oil prices look no further. The chart on the following page is one of the most bullish charts in the energy patch today.

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This chart tells us two critical things.

First, it tells us that the horizontal oil boom is due almost entirely to only two plays, the Bakken and the Eagle Ford. Second, it tells us that production growth in these two plays is flattening significantly.

And the news gets worse (or better if you are long oil), because according to the most informed horizontal driller in the United States, there is no “next� big horizontal play waiting in the wings to follow the Bakken and Eagle Ford.

EOG Resources has perhaps the best visibility on where horizontal oil and WTI prices are going. EOG is the largest horizontal oil producer in the United States (and therefore the world) by a considerable margin.

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EOG produces twice as much oil from horizontal wells than its nearest competitor.

This is the foremost voice on American horizontal oil production.

EOG’s CEO and Chairman Bill Thomas recently spoke at the Sanford C Bernstein Strategic Decisions Conference and made very clear that his company is very bullish on oil prices.

Thomas was specifically asked at the conference if he was concerned about the lower prices that the futures market was predicting for oil. His response was that he believes that the futures market is mistaken and that the steeply steeped backwardation is inaccurate.

Source: CME Group The front month prices of West Texas Intermediate oil futures is now, and has been in a very steep state of backwardation. Backwardation is where the prices of contracts with later delivery dates are trading well below the near term contract price.

Where today WTI is selling for over $100, looking forward to 2017 and beyond the market seems to think that the price of oil will be closer to $80.

I can’t ever be sure why the market does what it does. Most people think it’s because while geopolitical events are supporting the near term price of crude, the surging supply of American oil production will cause it to drop in the longer term.

What EOG and Thomas believe is that despite the incredible rate of growth in US oil production, pure crude oil horizontal plays are actually very rare and becoming harder (not easier) to find.

Thomas notes that EOG has scoured the country looking for a third major horizontal oil play to follow the Bakken and Eagle Ford but the search has come up empty.

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There are other, smaller high quality oil plays but there is nothing in the pipeline that is close in size to the main two. Together the Bakken and Eagle Ford account for 75% of horizontal oil production in the United States.

There’s no Third Act here, and production growth in the Bakken and Eagle Ford is already slowing.

The Bakken and Eagle Ford are so special not just because they’re big; they’re also simple. They’re like flat layer cakes that go for tens of miles, and there are no surprises; you know where the oil is and how to turn the well to go horizontal in every well.

Now look at the Monterey formation in California. It’s potentially big, but it sure isn’t simple.

In 2010 the EIA (Energy Information Agency) announced that the Monterey contained almost 14 billion barrels of “technically recoverable” oil. At that figure the Monterey made up 60% of the recoverable shale oil in the United States.

This spring, the EIA recently reduced its estimate of recoverable oil in the Monterey by a whopping 96%…..down to only 600 million barrels. The reason? It’s not a layer cake, it has been tectonically rolled over a few times and oil is in tough to get at small chunks.

Now, IMHO, there are two Brutal Facts that could kill EOG’s Beautiful Theory (and for all energy investors, it’s Beautifully Bullish Theory).

One is the Permian Basin in west Texas. It’s big and simple; the right makeup for horizontal production capability.

But Thomas contends the Permian is not a pure crude oil play. The Permian is a “combo” play–meaning that it has lots of natural gas, and natural gas liquids, but not nearly the quantity of oil that the Bakken and Eagle Ford have.

EOG’s Thomas addressed the Permian specifically at the Bernstein conference by noting “that while the Permian has a big boe (barrel of oil equivalent) count, the play is heavy on the “e’s” and not so much on the “o’s”…….”.

Gotta say, I’m not convinced on his Permian argument. But I think his overall point is valid. The core of the Eagle Ford and Bakken are being drilled now and everyone is extrapolating to a huge extent.

The second Brutal Fact is something that EOG is doing itself, and very well— increasing recoveries. Producers are learning how to get more and more oil out of wells, and they’re putting down more wells every square mile than ever before. That doesn’t kill the theory, but it could sure delay it by a few years.

The company continues to innovate in both the Bakken and Eagle Ford and increasing both the quantity of oil that can be recovered and the profitability of each

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produced barrel.

Since entering the Eagle Ford in 2010 EOG has increased its internal estimates of oil reserves in the play from 900 million barrels to a staggering 3.2 billion barrels.

That increase has been created through trial and error. EOG has worked to figure out the optimal number of wells to drill on the land and where to place them.

The company has also increased productivity of each well by perfecting drilling and completion techniques that have allowed for the amount of oil recovered per well to be increased.

And EOG isn’t done making both the Eagle Ford and Bakken bigger. The next step is going to come through enhanced oil recovery which is common to the oil industry but not to horizontal production. Through the application of water or natural gas flooding it is likely that recovery factors in these plays will again rise significantly.

For investors, the takeaway is that yes the horizontal boom is real and will continue, but the rate of production growth is going to slow and there isn’t another Bakken or Eagle Ford in the on-deck circle.

That should be long term bullish for oil prices and may eventually show the current futures curve to be significantly too low.

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MENA war fever and the Iraq oil price spike Written by Andrew McKillop from AMK CONSULT Libyan Precedent Whatever Libya's oil production is, this week, it is a lot less than the approximate 1.6 million barrels a day it regularly extracted and shipped during the Muammar Gaddafi era. Libya has no effective government and its last prime minister Ali Zedan fled to Europe in March, replaced by a shifting coalition of rival forces with changing strongmen. His supposed replacement, former Defence minister Abdullah el-Thinni has since late April kept a low profile, sometimes saying he has “stepped down”, and sometimes not. As recently as June 4, he told Reuters that he was stepping down but was also staying on as “interim PM”!

Libya has been moved to page 8 in the mainstream press, well after the football and celeb' news. For oil, the probably durable longer-term decrease in average daily Libyan oil production and exports and the almost zero impact on oil prices showed one thing – no undersupply. The real world context of today is that Libya no longer exists as a united state and only has a virtual prime minister. This has no effect on oil prices.

Iraq's el-Maliki could do the same thing as el-Thinni, using Barack Obama as his spokesperson instead of the newswires. Whether el-Maliki goes or stays Iraq's oil production and net exports are likely to gyrate, Libyan-style, with ever-decreasing impacts on world oil prices because the mirage of under-supply, cooked up in the desert heat, does not resist reality.

Or will we find that Iraq's decomposition signals a longer-term and larger oil price hike? One that to use a key word will be sustainable?

Kurdistan and Iran – not OPEC Sunni militants have a reality-barrier to recreating a Sunni-dominated Iraq inside pre2003 borders. Demographics. The Sunni population is well below 25%, perhaps only 20% of the approximate total 31 million population, on a basis of 2003 borders but using 2012 population data and estimates. Baghdad and nearby major cities, such as Fallujah account for 25% of Iraq's population.

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Iraqi Shia communities probably count for 55%-60% of total, and Kurds for about 20%. In other words, non-Sunni populations in Iraq are at least 75% and probably 80% of the total. They also have more than 90% of all oil reserves and production capacity. Sunni terrorists active in Sunni-majority regions therefore only have a potential spoiler role in the absence of airborne and long-distance surface attack on oil production infrastructures, for example by making pipeline and refinery attacks.

Source: Reuters In Iraq, as in Libya military hardware and logistics are unlikely to be the gamechangers, due to so much light infantry materiel existing on the ground – in different and easily changed hands. The hefty Shia-dominated southern and eastern

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demographic base of Iraq – with its largest oil reserves, output capacity and transport infrastructures – will be a hard nut to crack for ISIS or other Sunni militias, factions or terror groups. Iran is very close by!

As is well known by oil analysts, Iraq's oil production and exports “are outside the quota system” of OPEC, which itself is breached on a daily basis – overproduction – by its 12 non-Iraq member states relative to their supposed “voluntary production limit” to a total of 30 million barrels per day. The tortured quota system is in fact a lot more complicated than this, resulting in permanent uncertainty on real output and supply – nearly always under-estimated.

Independent Kurdistan is certain to come out of the present crisis with heightened credibility and world recognition as what it is – an independent state. Totally unlike ISIS terrorists, or el-Maliki's “chocolate soldiers” Kurd armed forces including Peshmerga battalions have decades-long experience fighting Turkey's modern armed forces, as well as the former Iraq army of Saddam Hussein, and Iranian and Syrian armed forces. The potential for Turkish-Kurdish alliance, possibly only de facto to fight ISIS, is high.

El-Maliki's Former Iraq In the case where Iraq's oil supply (meaning Kurd and Iraqi supply totals) do not seriously decline, this does not mean el-Maliki has saved his own skin. Western journalists have nearly all misunderstood the real nature and sequels of his powerjuggling to stay in power. One example was a 9 Nov 2013 report by BBC journalists saying el-Maliki is making “....an increasingly successful effort to splinter Sunni Arab opposition. Mr Maliki is selectively reactivating the Sahwa (Awakening) movement of armed tribal auxiliaries and continues to promise de-Baathification and anti-terror reforms to Sunni factions”.

In Syria, its Baath party headed by Bashr el-Assad is the real core of resistance to ISIS and the real equivalent of “the Syrian nation”, which itself is as artificial as the Iraqi nation. The de-Baathification of Iraq's armed forces and local administrations, pursued by the US with Christian zeal and US taxpayers' money hastened the end of the fiction called Iraq.

The Baath party had been confused with so-called radical Islam, a fatal error. Putting Iraq's Humpty Dumpty back together - of a modern, non-sectarian, non-confessional western-type democracy – is now probably impossible. De-Baathification certainly helped this endgame. El-Maliki's divide and rule strategy, probably whispered or shouted in his ear by US advisers, was to spread weapons almost anywhere and to everybody, Inevitably el-Maliki's weapons-manna showered down on Sunni militants willing and able – when the time is right – to move up the Islamic hysteria scale to ISIS level. ElMaliki sowed the seeds of political anarchy (whether it is is Islamic flavored or not is finally unimportant) making it certain that the fiction of an indepenent and united Iraq had an ever-shorter shelf life.

El-Maliki, today, has no option but to take help from Iran and accept the reality of

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Kurdistan. Both of these players are not in the business of cutting their oil production and exports. The potential that they ensure the minimum-possible decrease in Iraqi production and net export supply is high.

Coming weeks will see if this forecast is the right one. It means that oil prices can spike a little- but not a lot.

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The Bakken gets bigger - likely a LOT bigger Written by Keith Schaefer from Oil & Gas Investments Bulletin Crescent Point’s Torquay Discovery Reignites Southeast Saskatchewan Just when you thought The Bakken couldn’t get any better—it does.

Oil producers are now “cracking the code” on the Torquay, or Three Forks formation below the Bakken, and coming up with incredible economics—these wells are paying back in only seven months.

This news has completely re-invigorated the Canadian side of the Bakken. And on the US side, the Three Forks is causing industry to leap-frog estimates of the amount of recoverable oil available–by about 57%!

It’s hard to imagine that the #1 oil play in all of North America could have such a huge increase in size—usually this happens in increments. This map from the Province of Manitoba shows how much potential theTorquay/Three Forks has—it ranges from 1.5 – 7 x as thick as the Bakken!

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Results from Crescent Point Energy (CPG-TSX/NYSE) in Canada and Continental Resources (CLR-NYSE) onthe US side of the border are showing this could be an incredible discovery. The Torquay/Three Forks could prove to be another multi-billion barrel catch for the North American oilpatch.

Now when I say discovery; what I really mean is the industry has discovered how to produce from it profitably. Theindustry has known it’s potential for several years now.

But the Bakken source rock itself has been so prolific, there wasn’t much incentive to drill deeper and go through a new learning curve at the Three Forks.

On April 14 Crescent Point Energy (CPG-TSX) announced a Torquay discovery in its core Flat Lake area in southeast Saskatchewan, right along the US border. In just 12 months, the company grew production from 0 to over 5,000 boe/d by drilling 36 wells. These are low-decline, high-rate-of-return wells that payout in less than 7 months.

(A 7 month payback is incredible. It’s the simplest measurement for retail investors to know how good a play is. I like to see 12-15 month payouts, and don’t like to invest in plays that have more than 18 month payouts.)

CPG says each well costs $3.5 million all-in on a 1–mile horizontal. These well economics are fantastic: 1. More than $73/boe in operating netbacks (netback=profit per barrel) 2. A recycle ratio greater than 6–that’s profit divided by costs. That’s 6 times your money! 2 is good; 6 is great!

3 Generates an IRR > 300%. I like to invest in anything over 70% IRR. CPG believes the Flat Lake Torquay discovery has the potential to match its core,

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Viewfield Bakken play in southeast Saskatchewan. The oil field is estimated to hold 4.6 billion bbls OOIP.

This eye catching news triggered an acquisition spree; Crescent Point was the first mover with the acquisition of privately held CanEra Energy with 10,000 boe/d and a large Torquay land position only 10 days after its discovery announcement.

Crescent Point’s acquisition locked in more than 880 net sections of Torquay potential land with more than 280 net sections in its delineated core area. The largest Bakken producer in Canada is positioning itself to becomethe number one

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Torquay player.

Legacy oil and gas (LEG-TSX) and Vermillion Energy (VET-TSX) have also made acquisitions of their own buying up privately held companies with land in the emerging play at Flat Lake—all at high metrics of over $100,000 per flowing barrel.

Production out of the Torquay/Three Forks has a lot more history on the US side of the border. $&spl1t&% GEOLOGY BACKGROUND The Bakken formation is located within the Williston Basin encompassing 25,000 square miles across southern Saskatchewan, upper Montana, upper North Dakota and western Manitoba. Unlocking this formation propelled North Dakota from the 9th largest oil producer in 2006 to no 2 behind Texas with more than 900,000 barrels of oil per day.

The Bakken formation is actually three layers of rock—Upper, Middle and Lower– and is situated above theTorquay/Three Forks. The underlying Torquay actually has four layers of tight rock identified as TF1 (upper layer), TF2, TF3 and TF4 (deepest layer).

Last year, the US Geological Service (USGC) updated its assessment to include the upper part of the Torquay, about 50 feet in thickness. For the two formations, the US Geological Service USGS estimates mean recoverable oil resources of 7.38 billion barrels. Estimates for the Torquay account for 3.7 billion bbl.

These estimates seem very conservative to Continental Resources; the largest acreage holder in the Bakken is more optimistic about the total amount of oil that

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could ultimately be recovered.

In its own assessment, Continental believes that including the deeper parts of the Three Forks increases the total amount of oil originally in place (OOIP) from 577 billion barrels of oil to 903 billion, and the amount that is technically recoverable from 20 billion barrels to as much as 32 billion, 36 billion or even 45 billion.

Only the upper layer (TF1) of the Torquay has been de-risked leaving the remaining 3 layers up for exploration. Continental has a pretty good reason to be optimistic.

The company got impressive IP rates from drilling into thelower layers of the Torquay/Three Forks formation in McKenzie Country, North Dakota.

In its Q1 release, the company reported drilling eight new wells (two in each of the MB, TF1, TF2 and TF3) with a combined maximum 24-hour initial rate of 22,460 Boe per day or 2,810 Boe per day per well.

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Continental also reported that seven newly completed TF2 and TF3 initially produced at approximately 285 Boe per day in its Tragsrud Unit in Divide County, ND. That’s right across the border from the Flat Lake area.

For Continental the play is simply getting bigger and better. But despite these successes, the Torquay remains largely unexplored. Continental barely scratched the surface of this play as more wells will be needed to test thedeeper layers of the formation.

For all this positive news, it’s important for investors to remember that the Torquay/Three Forks is still in its early stages and different areas and formations may respond differently. The Torquay is as much as 270 feet thick inthe central part of the basin.

In Canada, the formation is shallower but with similar thickness. This translates into lower drilling & completion costs per well than the other side of the border.

The Torquay is heating up with the potential for being the next big light oil resource play. The size of the prize is just too big to ignore and bodes well for other smaller players in southeast Saskatchewan like Painted Pony (PPY-TSX) Spartan Energy (SPE-TSX), Legacy Oil and Gas (LEG-TSX), TORC OIL & GAS (TOG-TSX), Surge Energy (SGY-TSX), Vermillion Energy (VET-TSX) and Lightstream Resources (LTSTSX).

In the US, companies like American Eagle Energy (AMZG-OTCBB), Emerald Oil (EOX-NASD) and Triangle Petroleum (TPLM-NASD) stand to benefit from Torquay/Three Forks development.

To conclude, the Bakken was the hottest oil play in North America last decade.

Investors made fortunes with theBakken in its early years and a similar investment

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scenario may now unfold as the Torquay/Three Forks zonegets increasingly tested in the coming months.

View more quality content from Oil & Gas Investments Bulletin

Should the West save Iraq?

Written by Andrew McKillop from AMK CONSULT Why Does Obama Hesitate?

Obama hesitated for some while before deciding not to bomb Syrian president Bashr el-Assad out of power. To be sure, Russia helped that decision in a big way. If elAssad had been chased from power and given a show trial like Saddam Hussein before being killed, or not even given a show trial like Muammar Gaddafi before being killed, fundamentalist Islamic forces would have held sway in Syria.

In Libya, the bombing party was fast - and the fundamentalists took over. Slowly but surely. Libya now produces almost no oil at all, some weeks, and more at other times. Its last prime minister fled the country in March. Libya will likely become three states - Fezzan, Tripolitana, and Cyrenaica but squabbling over oil revenues will ensure constant low-level turf war fighting. With the Benghazi killing of US ambassador Stevens in 2012, the basic ungovernability of Libya hit the headlines.

Iraq probably seemed different, at first, to Obama aides arguing the president must act with military force to prevent 'America's man', prime minister Nouri el-Maliki, from being deposed or killed by the Riyadh-friendly, humanity-unfriendly djihadist hordes swarming like ravenous insects in Iraq. By June 19 however, US glove puppet media like the 'Wall Street Journal' carried articles shouting that el-Maliki must go and for the moment at least, US fighter jets will not be bombing and strafing in Iraq.

Under new and different management of Iraq - notably by Kurdistan and Iran - oil production can likely be maintained. Ergo, no need to bomb!

Conversely if anti-regime hordes were at the gates of Riyadh and the already

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fundamentalist Sunni, anti-democratic Wahabite Kingdom was menaced US fighter jets, A 10 Tank Busters and cruise missiles would have already been in action for days - and to hell with the collateral victims and the political blowback! In fact this political blowback is a major reason for the existence of firstly Al Qaeda in Iraq, then ISIS. Following too many oil-driven western military attacks, occupation and oppression dating from the 1920s - Shia and Sunni militants may hate each other but have one shared aim in life. Kill an American or an European. Drive them out. Western oildriven interference in the region has added new enemies for reprisal attacks to the age-old vendetta system of Shia-Sunni conflict. This sectarian, clan, tribal and family fighting system exited long before oil, and will likely exist long after oil.

Iraq No, Oil Yes Obama and other western deciders are most surely and certainly influenced by the OECD's oil and energy watchdog agency the IEA. It's energy scenarios and forecasts for the next 21 years, to 2035, heavily feature long-term increases of oil supply from Iraq to help meet 'soaring oil demand'. As I noted in other recent articles on this subject, the IEA uses thinly-disguised Peak Oil alarmism (alongside its Global Warming alarmism), and has singled out Iraq as a silver bullet solution on the oil supply side.

The IEA's own Factsheet for Oil Supply in Iraq, published 13 June, and real world data on Iraq allows and enables plenty of doubt on this claim by the IEA. These merely repeat the unrealistic oil-happy bragging of Nouri el-Maliki's shaky coalition government.

Apart from being predicated on a semblance of civil peace in Iraq, the IEA's Iraq scenarios are based on continued forecasts of world oil demand increasing by about 12 - 15 million barrels a day by 2035 (from the IEA's estimate for early 2014 of about 90 Mbd). If we believed IEA forecasts, world demand for oil imports, by 2035, will increase by about one-half of today's total export supply of all 12 OPEC countries (which is about 30 Mbd). Apparently no problem for the IEA, when it puts on its Global Warming-Low Carbon hat, it says world fossil energy use, including oil, must be capped by or before about 2040 and then reduced to nothing by 'about the end of the century'. So we need Iraq oil now but not for all that long!

Despite Iraq's major success in raising oil output through 2011-2013, by about 25%, this growth was however already tailing off seriously by late 2013, and production on the eve of the ISIS invasion was around 3.1 Mbd enabling net oil exports of about 2.6 Mbd, of which only 1 Mbd went to the OECD group of countries.

The el-Maliki government's claims of future output are wide ranging, depending on spokesman, but some claims went as high as nearly 10 Mbd (the same as Saudi Arabia and Russia) 'by about 2029'.

Inside OPEC, shown by statements by different oil ministers at OPEC conferences, Iraq's claims are not treated as a threat to oil prices - due to continued fast growth of Iraqi output being unlikely or very unlikely, and peak Iraqi output being likely, at most

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or at best to be one-half the 10 Mbd goal. Many oil analysts doubt if Iraq can achieve better than 4 - 4.5 Mbd by the early 2020's, under the best conditions of civil peace and continued high levels of investment in the oil sector. The potential for decline from today's output of about 3.3 Mbd also exists, especially if there is investor retreat.

The Trouble With Oil IEA claims, simply repeating the claims coming out of Baghdad, ignore or sideline other high potential and likely growths of national oil output, outside the Gulf region and Iraq. While the IEA cites US and Canadian shale oil production growth, and increasing oil output from Kazakhstan, it gives little attention to Azerbaijan's high potential for output growth and makes little reference to west and east African onshore and offshore oil and gas development. Shale oil production outside of North America is still treated, by the IEA, as either hypothetical or long-term. World NGL (natural gas liquids) output growth - which the IEA says is urgent and necessary due to depletion of 'conventional first generation' oil - will certainly occur but it will certainly not feature Iraq as a major NGL producer.

As we know the three-largest world oil producers (Russia, Saudi Arabia, USA) include two non-OPEC producers and their total combined output is close to 33% of world total oil demand. Only the OPEC member Saudi Arabia could likely cut oil output by any major amount - but past real world experience, in the 1986-2000 period shows that Saudi Arabia soon abandons 'price defending output cuts'.

In other words reduced production by the world's three-largest oil producers is unlikely.

Several other large oil producers, including Iran and Venezuela, could increase oil output depending on investment conditions but this totally ignores the demand side, which the IEA stubbornly refuses to admit has dramatically changed in less than a decade. Since 2005, the 30-member developed nation OECD group has cut its oil consumption from about 50 Mbd to 44.5 Mbd in 2014. This cut is more than twice the total oil consumption of Germany and around 15% more than the total oil consumption of Japan, which imports nearly 100% of its oil and is the world's thirdlargest economy.

The IEA still pretends this is a 'temporary cut due to adverse economic conditions', but nobody else has to believe this is the real or only cause. The IEA does not look at world energy prices for coal, gas, oil and electricity and does not single out oil as especially overpriced - which it is. Being overpriced, the decline of oil energy demand should not really be a surprise!

IEA member state energy policies, coordinated by the Agency and seeking to 'drive oil out of the energy mix' have been on the books and in the works for over 35 years.

The most-recent peak year for the share of oil in world energy supply was in the early 1980s - over 30 years ago - and has been declining ever since. Why should this 30-year trend not continue?

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The IEA avoids explaining the uber-simple energy economics which helps oil decline, rather fast, while coal energy, for example advances rather fast. Present world coal prices, including shipping and transport charges, are well below $175 per ton pricing this energy at about $35 per barrel of oil equivalent. Oil as we know, has a minimum price tag of around $100 a barrel. Due to the Iraq crisis it could or might edge up to $115.

The Peak Oil Narrative IEA energy forecasts are for the least ambivalent about world gas. Although world gas has stalled as a growing supplier of world energy, this is nothing to do with resource and reserve bases of world gas, both conventional and unconventional ranging from deep offshore gas and shale gas to coalbed methane reserves. The Islamic tyrannies of the Gulf region have no stranglehold on world gas despite Qatar owning as much as one-third of world proven conventional gas reserves. According to BP among others, resource discoveries since 2009 are roughly equivalent to 150 years of present world gas consumption. Potentials for NGL production from 'new gas reserves' are high.

To be sure this implies high gas prices to pay for exploration and development, and pipeline or LNG transportation - but the gas is there - and in the cases of Europe and Asia gas prices are already high.

Conversely, the IEA's narrative concerning Iraq oil is scarcely-disguised Peak Oil alarmism. Outside of Saudi Arabia and other GCC suppliers Kuwait, UAE and Oman, only Iraq is seen as able to maintain long-term annual growths of oil output. In reality and however, Iraq as of early 2014 has in fact only been able to dial back to late1980's oil production rates. At a current 3.1 Mbd this is still far behind its output in the 1976-1978 period of nearly 4 Mbd. Concerning crude oil, not NGLs and unconventional crude (which total less than 90 000 barrels a day or 0.09 Mbd), Iraq's production in first quarter 2014 grew to slightly exceed its production in 1989. That is not exactly a breakthrough.

Obama is Right to Hesitate Despite popular belief that Iraq is home to large reserves of easily produced light sweet crude, the reality is that Iraq's lightest crudes are at 35 degrees API. These are defined as medium-heavy crude. Much of Iraq's oil reserves and output is of crudes at 22 degrees API - categorized as very heavy crudes. These are highly contaminated by sulphur and heavy toxic metals.

At least a half of Iraq's claimed total oil reserves of 143 billion barrels are heavy and very heavy oils, in the exact same way as Saudi Arabia's claimed total reserve of about 260 billion barrels feature heavy and dirty crudes.

Iraq's future growth of output, excluding the country's NGLs and unconventional oil output, which is tiny, therefore depends on massive investment in heavy crude extraction and processing. This is totally unrelated to existing and future world oil demand. To be sure heavy crude extraction and processing for pipeline transport is

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no problem, in technical terms. But in the real world of today, as the IEA notes and details, much of the rise in world oil output over the past few years has come from the US and concerns very light, zero sulphur shale oil, not needing any special processing at all and able to be used 'as is' in lower-cost refinery operating systems.

Put another way, only because oil is overpriced, heavy oil extraction and processing is economically feasible and profitable. The IEA admits that at least until the end of the 2020's, America's 'light tight' oil and Brazil's deepwater production of light crude will continue to grow. As recently as 2010, the IEA made no references to these two sources of light low-sulphur crudes!

By the early 2020s, we can take an easy bet, other sources of similar light low sulphur crudes - this time including NGLs in quantity - will become available, for example Africa onshore and offshore.

Obama can therefore take it easy, play golf and hesitate another day before bombing Iraq. The IEA sold him and other western political deciders a pup, mixing and mingling Peak Oil fears with its climate change fears - which we can repeat is stated by the IEA to mean 'all fossil fuels must be abandoned' - , and cobbled Iraq as the silver bullet solution to 'sure and certain' oil supply shortage by the 2020's.

The shameful Bush doctrine, that Obama has slavishly and mindlessly continued like a robot, was to 'tweak' oil production in victim countries through massive bombing, military invasion and occupation in outright-illegal wars. Today's Iraq provides yet more proof this doesn't work. In the short run, Iraq's oil production and exports will certainly decline, if not by much. Whether this causes any major and sustained uptick of oil prices is unlikely - but for the details you will have to ask Goldman Sachs!

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OilVoice Magazine | JULY 2014

Canada moves ahead with new pipeline project as Keystone languishes Written by Loren Steffy from 30 Point Strategies Earlier last week, the Canadian government granted conditional approval to a $7.9 billion project to move heavy crude known as bitumen from the oil sands of Alberta westward to the coast of British Columbia. “Pipeline Approved,” screamed the headline of Wednesday’s National Post print edition.

Enbridge’s Northern Gateway project would move 525,000 barrels a day through a 1,777-kilometer pipeline from Edmonton, Alberta, to Kitimat, B.C. From there, it would be shipped by tanker down the Douglas Channel and out to the Pacific Ocean.

The project is a far riskier than TransCanada’s Keystone pipeline, largely because it would add 220 tanker trips a year though the environmentally sensitive channel.

Despite more than 200 precautions and stipulations spelled out in the government’s decision — including double hull tanker requirements, increased monitoring and other measures — a tanker is a less safe option for transporting oil than a pipeline.

As National Post columnist Michael Den Tandt noted: “…a bitumen spill in this waterway would be catastrophic and unfixable.”

In green-lighting the controversial project, the Ottawa government cited, in part, the Obama administration’s foot-dragging in granting a permit for the Keystone line to cross the U.S. border.

The Keystone project has certainly had its problems. But the environmentalists who oppose it have used the pipeline as a fundraising tool while mortgaging the environment elsewhere. By rallying against the safer option – a pipeline – companies have resorting to transporting oil by rail, often with catastrophic results. Now, add increased tanker traffic in western Canada to the list of new environmental concerns.

Blocking Keystone may have been a victory for environmental groups, but it’s a short-sighted one that ignores the economics of energy demand.

Admittedly, the Northern Gateway is a long way from completion. It faces stiff opposition in British Columbia and among some of the First Nations whose territory it would cross, and it already has become a political football. Even Prime Minster Stephen Harper, whose government gave the tacit approval for the project, seems to be backing away from it.

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As we’ve seen with Keystone, these hurdles may create so many delays that the project may become obsolete before it gets underway.

Yet Canada has a handful of other pipeline and export programs on the drawing board as it builds a strategy of becoming a major oil exporter.

The U.S., as Canada’s largest trading partner, next-door neighbor and world’s largest energy consumer is the logical market for these export efforts. It would lay the foundation for decades of strengthened North American energy security, if not outright energy independence.

Ironically, this push comes as political unrest in Iraq raises new questions about the frailty of our energy independence.

By tapping Canada’s vast oil resources, the U.S. has an opportunity to create a stronger cushion against the sort of global price shocks that left us vulnerable in the past. If we choose to ignore the opportunity, the Canadian government has made it clear last week that our biggest supplier of oil won’t wait on us forever.

View more quality content from 30 Point Strategies

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Upward trend for South East Asia's investment in worldwide oil and gas industry Written by Dan Saleh from Worldwide Recruitment Solutions Asian buyers may spend $150 billion by 2016 to secure energy resources for their faster-growing economies, so says recent research.

The last few years have seen a growing trend in worldwide investments in oil and gas by many South East Asian companies. Every few months since 2008 there have been a steady stream of these investments with the main players being organisations from China, Malaysia and South Korea. For example, between 2008 and 2013, Chinese companies completed 83 overseas oil and gas purchases worth $100.7 billion, according to data compiled by Bloomberg to meet demand in the world's biggest energy-consuming nation.

Dan Saleh, of Oil and Gas recruitment specialist, WRS, sees this trend continuing, with no geographic region left out, 'To December 2008, China had spent as much as $5.4 billion on oil assets in Singapore, Syria and Kazakhstan after crude fell from a record and equity markets tumbled. Despite the economic downturn, WRS has seen a growing trend for these worldwide investments and these are not only focused on buying assets but often acquiring entire companies too.'

Sinopec Corp. was the first Chinese company listed in Hong Kong, New York, London and Shanghai and is one of the largest crude oil and petrochemical companies and also one of the largest producers and distributors of gasoline, diesel and jet fuel and other major chemical products in China and Asia. They have been particularly active, becoming a major global investor in the oil & gas industry in recent years: 



June 2009 saw Sinopec agree to buy Addax Petroleum for US $7.3Bn, which was their biggest overseas takeover at the time, and gained them oil reserves in Iraq's Kurdistan and West Africa. By buying Addax, Sinopec Group attained 42.5 million barrels of proved and probable reserves in the Kurdish region of Iraq.

In March 2010 they invested $2.46Bn in Sonangol Sinopec International Limited (SSI) to acquire a 55% stake, which marked their entry into the

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







overseas upstream E&P business. SSI owned a 50% participation interest in Angola Block 18, a world class deep-water oil asset in terms of output, with the highest reserves and production volume among projects of a similar type at the time. With the completion of this transaction, Sinopec Corp.'s remaining proven reserves of crude oil were increased by 102 million barrels, up 3.6%, whilst its daily crude oil production increased by 72,520 bbl, up 8.8%.

An announcement at the beginning of October 2010 saw Sinopec buy a 40% stake in Repsol Brazil for $7.1Bn, which strengthened China's presence in Latin America and ensured they were involved in one of the world's most important exploration markets since the discovery of massive subsalt oil reserves off the Brazilian coast. China had already invested heavily in mining and oil assets in this region and this deal made them the biggest foreign direct investor in Brazil for 2010.

A year later their focus turned to gaining shale-gas assets, when they bought Canada's Daylight for $2.1 Billion. The takeover gave Sinopec access to more than 300,000 acres of land in areas rich with oil and natural gas, adding to its expansion outside Asia.

Sinopec then moved onto acquire 49% stake in Talisman's UK North Sea Assets for $ 1.5Bn in July 2012. Talisman's Aberdeen-based operation has about 2,500 staff and contractors, and involves 11 North Sea installations.

Their latest acquisition was a 33% stake in Apache Corporation's Egypt oil and gas business, for £3.1Bn, marking their largest investment to date in the Middle East. This was estimated to increase Sinopec's annual production by around 9%. This deal coincided with a potential move by PetroChina Co. into Iraq. Both these show clear willingness to take on more risk in this part of the world.

Other major South East Asia investors include Korean state-run KNOC (Korea National Oil Corp.), Chinese state-owned CNOOC (China National Offshore Oil Corporation) and Malaysia's state-owned oil and natural-gas company Petronas (Petroliam Nasional Bhd).

Resource-deficient South Korea, which imports most of its energy needs, has in recent years accelerated its hunt for foreign assets. Its overall crude import needs averaged 2.37 million barrels a day in 2008. In October 2009 it was announced that KNOC had bought Harvest Energy Trust of Canada for around US$1.7 billion, in the largest acquisition of a foreign oil producer by a South Korean company. This deal boosted KNOC's crude oil output to 123,400 barrels a day from 70,000, raising South Korea's self-sufficiency rate for oil and gas by 1.8 percentage points to 8.1%, exceeding the country's target of 7.4% for that year. This investment also gave them access to the advanced oil development technologies and know-how of the Canadian company. KNOC's oil exploration and production footprint extends to more than a dozen countries including Canada, Peru, Nigeria, Russia, the U.K. and Indonesia.

Dan comments on the investment in Canada, 'There has been significant focus on Canada in the last few years. Both China Petrochemical Corp. and CNOOC are among companies that have invested more than $200 billion in ventures in Alberta to tap the world's third-largest oil deposits after Saudi Arabia and Venezuela.'

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CNOOC bought OPTI in Canada for $2.1Bn in July 2011 after they went bankrupt, allowing China's biggest offshore oil producer, to expand their Oil-Sand assets. In February 2013 they also bought Canadian oil and gas company Nexen Inc. for $15.1Bn, which then operated as a wholly owned subsidiary of CNOOC. This acquisition gives CNOOC new offshore production in the North Sea, the Gulf of Mexico and off western Africa, as well as producing properties in the Middle East and Canada. In Canada, CNOOC gained control of billions of barrels of reserves in the world's third-largest crude storehouse - the oil sands in the province of Alberta.

Also focused on Canada, an announcement in Jun 2012 saw Kuala Lumpur based Petronas buy Progress Energy Resources Corp. for $4.6Bn in its biggest deal as it moves to export Canadian gas to Asia. Buying the company gave Petronas Chief Executive Officer Shamsul Azhar Abbas ownership of the largest holder in the Montney shale-gas area of British Columbia and full control of the three Progress Energy fields it bought a stake in previously as it explores development of a liquefied natural gas export terminal. The purchase was more than double the company's previous biggest deal which was the 2008 $2 billion acquisition of a 40% stake in Santos Ltd.'s Gladstone LNG project in Australia.

Dan summarises, 'There is nothing to suggest that this investment from Asia into European and North American companies will slow down. Whilst the scale of certain acquisitions was a surprise to a number of people in the industry, the trend is most likely to continue upwards into 2015 and beyond as both investment houses and National Oil companies in the region continue to see significant successes globally, probably in the form of company acquisitions.'

View more quality content from Worldwide Recruitment Solutions

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TransCanada's credibility dented by Keystone defects Written by Loren Steffy from 30 Point Strategies In building the southern leg of its Keystone pipeline, TransCanada Corp. has shot itself in the foot.

Safety regulators quietly tacked on new construction requirements for the remaining portions of the project after finding potentially dangerous defects in the section of the pipeline that runs from Cushing, Okla., to the Gulf Coast.

The problems give new ammunition to environmentalists who have rallied against the pipeline’s construction in the belief that blocking it will somehow slow climate change. Environmentalists have long had the upper hand in the battle, as evidenced by the Obama administration’s repeated delays in granting approval for the line to cross the U.S.-Canada border.

TransCanada had already agreed to 57 stipulations for building Keystone, which the company claims would make it the safest pipeline in the world. Given they political firestorm around the project and TransCanada’s aspirations for safety, the substandard constructions practices are stunning.

For all the lobbying, promises and political maneuvering, the company failed to do the one thing it should have been able to do best – actually build the pipeline. The defects, which included high rates of bad welds, dented pipe and damaged pipeline coating, have been fixed, according to the Associated Press, but the resulting dents to the company’s image won’t be so easily repaired.

The problems were significant enough that the federal Pipeline and Hazardous Materials Safety Administration added new requirements for constructing the more controversial northern leg of the project.

Those requirements include monitoring of the construction by a third-party contractor, which the pipeline safety agency will choose. TransCanada also must adopt a quality management program.

As the southern leg of the pipeline was being completed, several environmental groups raised concerns about dents and indications of bad welds that inspectors had noted on the line before it was put in the ground. While inspections typically uncover such issues in pipeline construction, the problems in this case apparently were more than anecdotal.

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The pipeline safety agency sent TransCanada two letters last year noting a high rate of defective welds. As the AP reported: Over 72 percent of welds required repairs during one week. In another week, TransCanada stopped welding work after 205 of 425 welds required repair.

Inspections by the safety agency found TransCanada wasn’t using approved welding procedures to connect pipes, the letter said. The company had hired welders who weren’t qualified to work on the project because TransCanada used improper procedures to test them, the letter said. In order to qualify to work on a pipeline, welders must have recent experience using approved welding procedures and pass a test of their work.

TransCanada, in a statement, noted that information about the repair had been available for almost a year, and the company contends that the new requirements from the PHMSA were not a direct result of the defects on the Keystone project.

Nevertheless, safety experts are questioning if the defects reveal larger issues within the project’s management. The pipeline safety agency’s findings show a company that appears to have taken its eye off the ball. While top executives clearly understood the scrutiny the project would receive, that message didn’t translate to the front lines, to the construction work itself, and to the supervision of contractors.

Environmentalists have already succeeded in stoking public fears about the project, often while ignoring the potentially greater environmental fallout from blocking it. ignoring the potentially greater environmental fallout from blocking it.

Now, the reports of defects raise legitimate public concerns about whether TransCanada can live up to its promises.

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Why the crisis in Iraq has the global oil industry on edge Written by Ari Phillips from ThinkProgress The Middle East is under tumult and Iraq is experiencing its latest upheaval as the Islamic State in Iraq and Greater Syria (ISIS) — also known as the Islamic State in Iraq and the Levant (ISIL) — is clamping down its hold on parts of the country and expanding its territory in others. ISIS is a former al-Qaeda offshoot that wants to redraw Middle Eastern borders while creating an extremist Islamic state, and its rise to power is destabilizing for the entire region. Neighboring Syria is already approaching failed-state status with around a fifth of the population seeking refuge in other countries. The groups is made up of Sunni insurgents, and Iran, a Shiite state, is duly concerned about the escalating violence. Oil is a major dispute in this confrontation just as it has been throughout the modern history of the Middle East.

After years of war, sanctions, and more war, Iraq’s oil production has surged in recent years and it passed Iran as the second-largest producer of crude oil in OPEC at the end of 2012. The eighth-largest producer of total petroleum in 2012 and the world’s fifth-largest proven reserves holder, Iraq may be one of the few places left where hydrocarbon resources have not yet been fully exploited, according to the EIA. Currently production is at about 3.3 million barrels of oil a day.

The recent outbreak in mayhem, including ISIS’s takeover of Mosul, Iraq’s secondlargest city, sent global crude oil prices rising on speculation. However with only about ten percent of Iraq’s recent oil exports going through the northern area of the country where ISIS has established a stronghold for now, the convulsive situation is not significantly impacting production.

“Most of the oil fields in the region are around Basra between Iran and Kuwait, so they aren’t really under threat right now and I doubt they will be,” Peter Juul, a policy analyst specializing in the Middle East at American Progress, told ThinkProgress.

“Unless somehow ISIS runs the table and takes over the entire country, which would lead to general chaos — but I don’t think that will happen.”

Foreign investment from multinational oil companies like ExxonMobil, BP, and Chevron has helped revive Iraqi oil fields that suffered poor maintenance and oversight during the Saddam Hussein era. Even if the risk of the country collapsing is still remote, those companies are doubtlessly worried over the safety of their investments and workers in the region.

“The overall scenario is making people more cautious about sending money and

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people in,” said Juul. “The general political atmosphere is also worrying. Prime Minister Nouri al-Maliki has not incorporated Sunnis into the government and other parts of the Shia Islamist parties don’t really like him either.”

Aside from the Shia majority in control of the government and the Sunni insurgents, there are the Kurds, an ethnic group based in a region called Kurdistan that includes a significant portion of northern Iraq. The Kirkuk oilfield, which produces some 400,000 bpd is a major hub for Iraqi energy exports. Whether the city is under the authority of the autonomous Kurdish Regional Government (KRG) or the central government in Baghdad has been a source of tension in the past, with Baghdad maintaining that oil must be exported through Iraq’s state-owned SOMO. It may be a moot point as it is currently under control of the Kurds after their security forces fried it from ISIS last week.

“It’s back to the future in a lot of ways,” said Juul. “ISIS has some oil and also the Kurds taking over, it’s ethno-national and resource pride, and it’s a big issue that’s stuck in molasses.”

If the insurgents are able to continue pressing south and take over the major oil fields or at least disrupt production, OPEC’s spare production capacity per day is about equivalent to Iraq’s 3.3 million bpd. However if oil production is disrupted, markets will get even more uncomfortable and prices will rise.

“If there is real disruption out of Iraq, we could see at least a $10 to $15 rise in pricing,” Victor Shum, a vice president at IHS Energy Insight, a consultant in Singapore, told Bloomberg. “I think if oil prices go above $120, consuming nations will discuss releasing strategic stocks.”

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According to Matthew M. Reed, Vice President at Foreign Reports, a consulting firm in Washington, DC, OPEC isn’t losing sleep over Iraq just yet.

“That will change if the crisis curbs production or if the market stays anxious through this summer, when we’ll see seasonal demand rise,” he told ThinkProgress. “Saudi Arabia — the only country with reliable spare capacity — might have to decide if it wants to produce more oil then. The tighter the market gets the likelier it is we’ll see an strategic petroleum reserve release. But that’s a band-aid, not a real solution.”

Reed said that one of the biggest questions going forward is what happens to Iraq’s disputed territories. He wonders if Kirkuk will become a flashpoint of conflict between the Iraqi government, ISIS, and the KRG. If that happens it could hold the oil industry back and tears Iraq apart. The Iraqi army already abandoned oil fields to Peshmerga, the name for Kurdish fighters, and on Tuesday Iraq’s biggest oil refinery, Baiji, was shut down and its foreign staff was evacuated after ISIS jihadists surrounded it in the north-central part of the country. The Iraqi military remains in control of the facility.

“For now, ISIS and the Kurds have only skirmished off and on,” said Reed. “ISIS hasn’t made a bold play for fields or facilities in the KRG or disputed territories where we now see Peshmerga. That would be a game changer. Fields and facilities in the south are safe for now but one bombing could send shockwaves through the market.

It might also invite more attacks.”

As far as the U.S. is concerned, the 341,000 or so bpd from Iraq, representing less than four percent of the country’s total crude oil imports, isn’t driving U.S. policy. The integrity of Iraq as a country and the possibility of direct threats on U.S. soil are more pressing concerns.

“Here at home, any bump in price will be cited by those who want to drill more, drill now, and limit U.S. exposure to foreign disruptions,” said Reed. “Price doesn’t work exactly like that, of course, but it won’t stop the argument from being made.”

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