The Innovators in The Oilfield Service Industry Identified

A recent issue of Forbes magazine carried an article by three business school professors who have studied the world's most innovative companies for the past eight years, which is the subject of their book, The Innovator's DNA. The professors' efforts were directed to trying to identify those companies that are consistently innovative and to determine the particular skills that set their managers apart from the rest of the corporate world. 

The five skills of disruptive innovators that were identified by this effort were summarized in the article and we quote them below.

• Questioning allows innovators to challenge the status quo and consider new possibilities;


• Observing helps innovators detect small details – in the activities of customers, suppliers and other companies – that suggest new ways of doing things


• Networking permits innovators to gain radically different perspectives from individuals with diverse backgrounds


• Experimenting prompts innovators to relentlessly try out new experiences, take things apart and test new ideas


• Associated thinking – drawing connections among questions, problems or ideas from unrelated fields – is triggered by questioning, observing, networking and experimenting and is the catalyst for creative ideas.

What the professors observed is that there is a significant stock market premium assigned to companies identified as the most innovative companies. The professors worked with the people at HOLT, a subsidiary of Credit Suisse to identify and measure this premium. The innovation premium is the value investors assign to a company's stock market valuation that reflects their belief that the company will launch new offerings and enter new markets that will generate even bigger income streams in the future. 

The innovation premium is calculated by projecting a company's income (cash flows in this case) from its existing businesses, plus anticipated growth from those businesses, and looks to the net present value (NPV) of those cash flows. Then the NPV is compared to the company's current market capitalization. Companies that have a current market capitalization greater than the NPV of its cash flows have an innovation premium built in to its valuation. The professors were quick to point out that this valuation method does not correlate with substantial investor returns, so just because a company is one of the best innovators doesn't mean that Wall Street necessarily agrees.

The professors go on to point out that their method of determining the innovation premium contrasts with conventional reports that draw on surveys of corporate managers asking them to name the companies they consider to be the most innovative. The rating method adopted by the professors relies on investors who buy and sell stocks to identify those companies they expect to be innovative today and tomorrow. Within that context, it was interesting to see that the oilfield service industry accounted for six of the top 100 companies. 

Included in the group of leading innovative oilfield service companies are the two largest companies in the industry – Schlumberger and Halliburton – and two of the leading drilling equipment companies – FMC Technologies and Cameron International. The remaining two companies among this cadre were foreign companies – China Oilfield Services and Tenaris SA. The first two companies are not surprising since they possess probably the broadest range of drilling and completion products and services and they are known for their R&D efforts to develop new oilfield products. The second pair of companies represents the preeminent developers of new drilling hardware for use both on- and offshore, but they are best known for their offshore equipment. The last companies on the list are somewhat surprising since Tenaris' tubular business is known more as a commodity business than for new technology. China Oilfield Services is also a surprising selection since it provides a range of services offshore China, but they are not particularly innovative. We suspect these latter two companies may be more beneficiaries of investment funds trying to participate in the China and European energy markets through these foreign-based companies than rewarding them for their innovative DNA. 

Since companies had to have a market capitalization of $10 billion or greater to be included in the analysis, many of the more dynamic and innovative companies in the oilfield service industry were excluded because they were too small. Despite their exclusion, it is possible to utilize the five key characteristics identified by the professors to look for future innovative winning companies.

G. Allen Brooks works as the Managing Director at Parks Paton Hoepfl & Brown.

OIL & GAS UPDATES - Aug 2011

Keppel to build repeat jack-up rig for Transocean at US$195 million Keppel FELS Limited (Keppel FELS) has secured a repeat order from Transocean Offshore Deepwater Holdings Ltd, a subsidiary of Transocean Ltd. (Transocean) for US$195 million. Following its order of two jack-up rigs from Keppel FELS on 17 February 2011, Transocean is exercising its option to build another high specification jack-up rig based on the KFELS Super B Class Bigfoot design for delivery in 3Q2013.

Keppel secures contracts worth S$146 million Keppel Shipyard Ltd (Keppel Shipyard) has secured two contracts worth a total of S$146 million to convert a Floating Production Storage and Offloading (FPSO) unit as well as to fabricate and integrate an external turret mooring system for an existing FPSO unit. The first contract is from Single Buoy Moorings Inc (SBM) for the conversion of the Very Large Crude Carrier (VLCC) M/T Concorde Spirit into a FPSO facility, to be named FPSO OSX-2. SBM had been engaged by OSX Brasil S.A. (OSX) to supply the FPSO, which is expected to be completed in the second quarter of 2013 and will be deployed in the OGX Petroleo e Gas Participacoes S.A. (OGX) field in Campos Basin, offshore Brazil.

Profits swelled at Parker Drilling as the company saw improved results from its tool rental and barge rig market. The Houston-based service and rental company on Thursday reported net income of $14.1 million on revenue of $172.8 million in the quarter ended in June. That compared with a mere $507,000 profit recorded on revenue of $156.5 million during the same period last year. "Our continued investment in Parker's rental tools business has allowed us to participate in the growing demand in the U.S. land market,� chief executive David Mannon said in a statement. �With our stores strategically located to service the leading shale plays, we have maintained high utilisation of our growing inventory of premium drill pipe and related products.�

Shell has hit back at �wildly inaccurate� reports of the scale of two oil spills it caused in Nigeria and described estimates of resulting compensation as �misguided� and �massively� exaggerated. The Anglo-Dutch supermajor�s Nigerian joint venture has also sought to distance itself from the perceived complicity of oil companies in Nigerian spills by claiming that the illegal oil refining trade is the major cause of pollution in the country. Shell�s comments, issued in an open letter from Shell Petroleum Development Company on Thursday, come on the same day at the UN released a report claiming the clean-up of environmental damage caused by Nigeria�s oil industry could take three decades and cost $1 billion in the next five years alone.

Profits edged higher in the second quarter at Pioneer Drilling, which turned around a loss from a year ago on higher equipment utilisation and a hot West Texas market.The San Antonio-based service company on Thursday reported profits of $3.6 million on revenue of $171.2 million in the three months ending in June. That compared with a $10.1 million loss on $117 million in revenue during the same period last year. "We continue to see strong demand for our drilling rigs in the West Texas drilling division,� chief executive Wm. Stacy Locke wrote in a news release. Diluted earnings were 7 cents per share. The company provides onshore services to major and independent oil companies in Texas, Louisiana, Appalachia, the Rocky Mountains and Colombia

Federal drilling regulators have signed off on Shell's exploration plan in Alaska�s Beaufort Sea, Reuters reported Thursday. Shell is still waiting for other approvals, including its air quality permit from the EPA. The project�s progress will be closely scrutinized, Michael Bromwich, director of the Bureau of Ocean Energy Management, told the AP. "The conditional approval of our Revised Beaufort Sea Plan of Exploration is welcome news and adds to our cautious optimism that we will be drilling our Alaska leases this time next year," Shell spokeswoman Kelly op de Weegh told Reuters

Net profit slumped at rig owner powerhouse Transocean in the second quarter as revenues were slashed and fleet utilisation remained low. The NYSE-listed company was also hit by rising costs and had to absorb a $25 million impairment charge in the period. Net profit for the three months to the end of June was $164 million, a significant drop on the $720 million booked in the comparable period last year. Much of the damage was done at the top line where revenues tumbled from $2.27 billion to $2.09 billion. Transocean also saw costs go in the opposite direction with operating and maintenance expenses soaring from $1.35 billion to $1.49 billion. Fleet utilisation stood at 55% in the period, which was the same as in the first quarter this year.

US driller Atwood Oceanics is counting on a reduced tax bill to boost year-on-year net profit in the third quarterThe Houston-based company had moderately decreased sales figures in the three months to the end of June but saw its operating result rise slightly. Net profit for the period has risen from $58.99 million to $75.29 million as Atwood has made a provision for incomes taxes of $11.92 million as against $25.85 million in the comparable period last year. Revenues sank from $166.64 million to $162.15 million indicating that there may have been a drop in operating costs, a breakdown of which was not provided in Atwood�s announcement to the NYSE on Wednesday. Atwood announced later in the day that it had won a one-year contract extension from an affiliate of Coastal Energy for its jack-up rig Vicksburg.

Swedish independent Lundin Petroleum has made a second gas discovery on Block SB 303 off Sabah, East Malaysia. The Cempulut-1 was drilled in a water depth of 75 metres using the Seadrill jack-up rig Offshore Courageous to a depth of 1095 metres and encountered a large Late Miocene carbonate reef with a total pay thickness of about 50 metres. Lundin said data recovered from the Cempulut-1 well would be analysed further to determine a range of resource estimates "This is the second gas discovery made by Lundin Petroleum in SB303 and the third in the contract area which also contains the Titik Terang discovery,� Lundin chief executive Ashley Heppenstall said.

Sydney-based Australian Oil Company has spudded the Archer-Whitney F1 Sidetrack well at its Hood-Franklin gas project in the Sacramento basin, in California.The company expects to take seven days to drill a sidetrack from its existing cased hole at 8300 feet to about 10,350 feet. Australian said existing pipelines, gas contracts and production facilities in the area would enable a successful side track to start production without delay. The original Archer-Whitney F1 well was drilled in 2006 as an updip play to gas shows in Wurster-2 well two miles south west, encountering 235 feet of gas shows before high pressure and hole condition concerns forced the operator to abandon the well before wirelogs or testing could be done.

Australia-listed Tangiers Petroleum said two new large gas prospects had been identified in exploration permits WA-442-P and NT/P81 in the Southern Bonaparte basin, off north-west Australia. Tangiers said two horizons were mapped by Schlumberger during the phase-1 seismic interpretation program which showed the presence of �very large anticlinal structures� below the top Bonaparte horizon which resulted in two new prospects, Nova and Super Nova. It said the Nova structure had a crest at about 3425 metres and encompassed a closure area of 240 square kilometres. It added the Super Nova structure was deeper with a crest at about 6085 metres and a closure area of 232 square kilometres

London-listed PetroNeft has made a new oilfield discovery with the Sibkrayevskaya-372 well on its licence 61 Block in Russia�s Tomsk Oblast regionThe well was a follow-up to the Sibkrayevskaya-370 which was drilled in 1972. Based on its re-interpretation of the vintage well logs and drilling data PetroNeft identified potential "missed pay" in the Upper Jurassic J1 interval. PetroNeft said the Sibkrayevskaya-372 well intersected the Upper Jurassic J1 oil reservoir at a depth of about 2350 metres. Preliminary logs indicated the interval consisted of 12.6 metres of net pay with good reservoir properties and oil saturation throughout. The company carried out an open-hole test over the interval which tested at a pro-rated inflow of 170 barrels of oil per day without stimulation

One dead in Colombia bomb blast A roadside bomb killed one oil worker and wounded six people including a passer-by in the southern Caqueta region of Colombia, according to reports. Colombian police blamed the attack on Farc rebels. The bomb exploded after a jeep entered an active mine field near the town of Puerto Rico, Dow Jones reported. Reuters said the workers were headed to an oil exploration field and were employed by a seismic company. Local media identified the company as Geoenergy, which reportedly employed five of the victims

Damage to two pipelines has forced Shell to shut-in a flowstation in Nigeria with no word yet on the extent of any possible spill.A probe is underway after the leaks were discovered on the pipelines which feed into the Adibawa flowstation in onshore Niger Delta. A Shell spokesperson confirmed the shut-in but said it was too early to determine the cause of the disruption although sabotage cannot be ruled out. Reuters reported on Wednesday that local youths have claimed responsibility, citing retribution for Shell�s alleged refusal to continue paying them for surveillance work on the facility. The news wire cited a witness as claiming that crude oil is currently gushing out of the damaged pipelines into a creek. The Shell spokesperson could not confirm the size of the spill, if any, but said that Shell would be committed to cleaning up any resultant pollution

BP shifts Forties pipeline bomb An unexploded World War II mine which threatened a crucial BP-operated crude oil pipeline in the North Sea has been safely removed, the UK supermajor said on Wednesday.The mine, which caused disruption to the Forties pipeline off the UK, is now being towed to an undisclosed safe location for disposal, news wire Dow Jones reported BP as stating. Following its discovery in March, the mine was one reason behind BP�s decision to shut the pipeline for almost a week this month.

Brazil will bar Falklands-flagged shipping vessels from its waters, a show of support for neighboring Argentina in a dispute over oil leasing off the coast of the British territory, UPI reported Wednesday. The decision came after a meeting between the countries� two presidents, Dilma Rousseff of Brazil and Cristina Fernandez de Kirchner of Argentina. A joint statement asserted Brazil�s support for "the legitimate rights of the Argentine republic in the sovereignty dispute relative to the Malvinas, South Georgia and South Sandwich islands and its adjoining maritime spaces.

UK explorer Cairn Energy said Wednesday it has not hit oil during drilling of its latest well off Greenland but insisted indications of oil-prone rocks are encouraging. Drilling of the LF-7-1 in the Lady Franklin Block off the west coast of Greenland, did not hit oil but initial analysis indicates the presence of pre-Tertiary oil prone source rocks in the basin, said Cairn. �By no means is this the end of the story, it�s just the beginning,� said chief executive Simon Thomson. �This will have no impact on this year�s drilling campaign. What we are doing is trying to make the right pin pricks in vast enexplored areas. At this stage we need a lot of luck so we will just continue. �From an exploration point of view we are encouraged, certainly not discouraged by this.�

Japan Drilling Company (JDC) has signed a contract to drill wells in deep-water off the coast of western Japan as part of a methane hydrate test production programme. Japan Petroleum Exploration (Japex) awarded the 1 billion yen ($13 million) contract to JDC, in which Japex has a 30.75% stake, Reuters reported. Since 2001, resource-poor Japan has invested several hundred million dollars in developing technology to tap methane hydrate, believed to be plentiful under the seabed near the country, and it hopes to complete development of technology for commercial production by 2018/19.

Canada�s Simba Energy is eyeing �significant oil and gas discoveries� as it snaps up an exploration block in Kenya. The Vancouver-based independent has been handed a production sharing contract for Block 2A in the north-east of the country, it revealed on Wednesday. The contract, penned with Kenya�s Ministry of Energy, gives Simba access to a 7801-square kilometre area which touches on the Mandera and Anza basins. �Block 2A also has excellent potential for significant oil and gas discoveries,� Simba wrote in a statement

US Natural Gas has picked up a second mature well in Allen County, Kentucky in hopes of revitalizing production there. The site was originally drilled and completed to 450 feet in 1990, but in the next few weeks will get upgrades including a new wellhead and completion components, the company wrote Wednesday in a news release. "The addition of the Reynolds No. 2 well adds to our goal of increased daily production without excessive costs," president Wayne Anderson said.

Anglo-Dutch supermajor Shell is likely to face �tens of millions� of dollars in bills as it prepares for settlement talks after accepting liability for two oil spills in Nigeria in 2008. The case against Shell and its Nigerian subsidiary, Shell Petroleum Development Company (SPDC), results from two massive oil leaks in 2008 caused from a double rupture of the Bodo-Bonny Trans-Niger pipeline that pumps around 120,000 barrels of oil per day. Lawyers representing some 69,000 Nigerians living in the Bodo community, who started court proceedings against the two companies in April, said Wednesday that Shell has formally accepted responsibility for the two leaks.

Australia to post YouTube film to curb people-smugglingThe Australian government is to post on YouTube images of so-called boatpeople being turned away and sent to Malaysia, in an effort to deter asylum seekers. The video will show arrivals at Australia's offshore detention centre on Christmas Island being expelled and boarding aircraft. Canberra recently signed a deal with Malaysia to accept 800 boatpeople intercepted in Australia. Asylum seekers remain a politically sensitive issue in Australia. Australia currently has more than 6,000 asylum seekers in detention, originating from countries including Iran, Iraq, Vietnam, Sri Lanka and Afghanistan

BLM seeks comments on Dejour's proposed Colorado gas project The US Bureau of Land Management is seeking public comments on Dejour Energy (USA) Corp.�s proposed natural gas project in northwestern Colorado.BLM said the Denver-based subsidiary of Dejour Energy Inc. of Vancouver, BC, proposes drilling up to 68 new wells over 5 years from four new well pads on federal leases 3 miles south of Newcastle, Colo., later this year.

Vietnam has launched its 2011 licensing round which will cover nine offshore blocks through state-run Petrovietnam, the nation�s first offer in four years and its biggest in recent times.The nation aims to ramp up domestic and overseas production to meet growing demand in the face of falling output from ageing fields, Reuters reported. The licensing round lasting between 1 August and 5 January 2012 covers blocks 43, 03, 10/11, 41, 11-2/11, 05-3/11, 50, 22/03 and 12/11 in the Nam Con Son, Phu Quoc and Malay-Thochu basins, Petrovietnam said in a statement.

Sydney-based Planet Gas has spudded the Mead�s Crossing-1 exploration core hole on PEL 468 in New South Wales. Planet Gas said the core hole would be drilled to a depth of between 600 and 800 metres, over about 21 days, and target coalbed methane (CBM) resources in the Illawaara coal measures in the north-west of the licence. It added Mead�s Crossing-1 was the first of two planned core holes to confirm the presence, thickness and quality of the coals and analyse any gas that was present and its concentration

Major oil producers in the Gulf of Mexico have redeployed workers and most have resumed production after evacuating and shutting in platforms that were threatened by Tropical Storm Don last week.The Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE) said in a daily update on Monday that none of the 617 manned production platforms in the US Gulf remain evacuated. All four drilling rigs that were evacuated have also been re-manned, BOEMRE said.

Australia�s Texon Petroleum has spudded its fourth Eagle Ford well on its acreage in McMullen County, Texas. The Hoskins EFS-1H well will be drilled to a total depth of 16,000 feet and have a 4500 foot horizontal section, similar to Texon�s first three Eagle Ford wells. Texon added the well was being drilled from north-west to south-east with the total depth being near the previously drilled MR-1 well.

Australia-listed Metgasco has raised A$15.3 million (US$16.8 million) under a share purchase plan to help fund its coalbed methane (CBM) operations in New South Wales. Metgasco launched the share purchase plan in June offering eligible shareholders the ability to buy up to A$15,000 worth of shares at a discount price of A$0.26 per share, which at the time represented a 11.5% discount to the volume weighted average of the company�s shares over the five days prior to the launch. The funds will be added to the A$6 million the company had already raised from its recent non-underwritten placement.

Muammar Gaddafi is exploiting close relations with Venezuelan President, Hugo Chavez, in an effort to bust international sanctions on the sale of oil by his Libyan regime, according to a report. The embattled leader of the North African nation has sent a delegation to Venezuela�s capital, Caracas, with the intention of bolstering his country�s coffers through oil sales and getting the country�s fleet of oil tankers trading once again. Chavez confirmed that a delegation sent by Gaddafi has reached Caracas but would not disclose the precise nature of their visit. "Gaddafi has sent some emissaries and a letter. There's Gaddafi, resisting the aggressions of NATO - they bombed a media outlet - and the world remains quiet with its arms crossed,� news wire Bloomberg quoted Chavez as saying on national television

Crimestoppers hunts UK's most-wanted fraudsters Anyone with information should call Crimestoppers on 0800 555 111 An appeal has been launched to track down the UK's 10 most-wanted fraudsters.The charity Crimestoppers says the suspects are responsible for at least �200m of fraud between them. They include a man who allegedly posed as the brother of comedian Peter Kay and claimed to be raising money for a young cancer victim. A live-in carer suspected of stealing �35,000 from a vulnerable woman in her 80s also features on the list.

Noble orders two more jackups US rig player Noble Corporation said today it has exercised options to build two additional high-specification jackups, and is mulling a further option to order its eighth newbuild ultra deep-water drillship. The order for the jackups, with Sembcorp Marine's subsidiary Jurong Shipyard, will tally up the number of jackup units Noble has on order from the yard to six. Estimated costs for the two latest units are around $245 million per rig, said Noble. The price tag includes project management, spares and start up costs but excludes capitalized interest. Like the first four rigs, Noble will pay for the units through installments.

Nigeria's onshore reserves 'declining' Nigeria's onshore oil reserves are declining by 10% to 12% per year as ageing fields pass peak production and investment in new projects slows, the country's oil minister said today. "Investment flow cannot be taken for granted ... we need to have a pragmatic approach to our oil assets, which have a 10-12% decline rate," Diezani Alison-Madueke told an industry conference in the capital Abuja, according to a Reuters report. A spokesman for the national oil company said the oil minister was referring only to onshore oil reserves. The stalling of oil reforms is shackling progress in Nigeria's energy sector, because foreign investors do not want to put money into an industry without a clear tax framework and with an undefined role for Nigeria's state oil company.

Singapore-based Sembcorp Marine said today it has exercised its option to increase its share in Sembmarine Kakinada (SK) to become the largest single shareholder of the proposed joint venture yard. Sembcorp, through its subsidiary Sembawang Shipyard, will increase its current 19.9% stake to 40%, while the technical management and services agreement to operate the yard will be extended from five years to 10 years. Sembcorp first entered the agreement in 2009 with Kakinda Seaports in a bid to establish a hub in India for the growing South Asian market

Occidental Petroleum and South Korea'sKogas have received their first cargo of crude oil as payment for helping to develop Iraq's Zubair oilfield, according to shipping sources. The vessel Hellespont Trooper left Basra on Sunday carrying 1 million barrels of Basra light. Occidental received 600,000 barrels and KOGAS 400,000 barrels, shippers told Reuters. The average selling price for Iraqi crude for July was around $108, a source at the Iraqi state oil company Somo said to Reuters. The vessel Olympic Legend also left on Sunday from the Basra oil port carrying 2 million barrels of Basra light crude for China's CNPC, one shipper said. The SOMO source said it was the second payment to CNPC for developing the Rumaila oilfield.

Gazprom Neft, the oil arm of Russian giant Gazprom, said today it has signed a product-sharing contract on four blocks in the Gulf of Mexico off Cuba with Malaysian state-owned player Petronas and Cubapetroleo (Cupet), the Cuban national oil company. Following the signing, Gazprom Neft becomes a party in the contract and acquires 30% stake in the project, while Petronas retains 70% in the project. Prior to the agreement Petronas had a 100% stake in the project. The parties signed the initial farm-out agreement in October last year. "This partnership with Petronas will help Gazprom Neft to enforce its competence in the sphere of deep-water development and expand its expertise in projects outside of Russia," Reuters quoted Alexander Dyukov, chairman of Gazprom Neft management board as saying

The Kenyan government has awarded London-listed Dominion Petroleum Block L15, in the offshore Lamu basin. Dominion said the award of the deep-water block was still subject to the signing of a production sharing contract by the company and Kenya�s Minister for Energy which was expected take place in the next few weeks. The initial exploration period for Block L15 will last two years, during which time Dominion will be required to undertake a minimum $2.8 million work commitment which includes the acquisition of 250 square kilometres of 3D seismic. Following the initial exploration period the company will have the option to relinquish the PSC or commit to another two year program with the obligation to drill at least one well.

Saboteurs using rocket-propelled grenades have attacked a cooling system linked to an Egyptian pipeline in Sinai that supplied gas to Israel until it was blown up earlier this month, according to security sources.It was the fifth assault this year on energy infrastructure providing Egyptian natural gas to Israel, Reuters reported. Saturday's attack punctured a hole in a pipeline that had been empty since it was blown up, halting its pumping operations. The saboteurs, who were in two trucks, initially tried to storm the area's main gas station but fled when confronted by army officers. But they then targeted the pipeline from a distance using rocket-propelled grenades, witnesses said

Mexico's state oil monopoly Pemex on Friday named the list of companies qualified to bid on the country's first-ever oil field operating contracts in a historic auction to be held in mid-August. The list of 17 companies includes global players like Halliburton , Schlumberger, Repsol and Pacific Rubiales as well as some smaller operators, Reuters reported. Pemex wants private industry to help reactivate three small oil fields in southern Mexico, the first step toward opening up the nationalised energy sector. The company hopes outside expertise and capital will help Mexico reverse a dramatic drop in oil output. Mexico, the world's No. 7 oil producer, lost nearly a quarter of its production capacity between 2004 and 2009 because of aging oil fields and a lack of exploration.

Croatian oil and gas group INA posted a half-year net profit of 1.9 billion kuna ($363.6 million), compared with a loss in 2010, mainly thanks to its strong upstream segment, the company has announced. The net profit compares to a half-year loss of 108 million kuna in 2010, INA said in a statement reported by Reuters. After two years of significant losses, INA reverted to profit later in 2010, posting a full-year profit of 958 million kuna. INA Chief Executive Zoltan Aldott said the results showed the company had generated strong results from oil and gas research and production.

Five contractors for US-based Occidental Petroleum who were kidnapped Friday in northeastern Colombia have been freed and are now safe, an army official has announced. Reuters reported guerrillas from the Revolutionary Armed Forces of Colombia (FARC) � Latin America's longest running insurgency � snatched the five workers on Friday night in the eastern Arauca province, one of Colombia's most violent border states. Colombian Army 18th brigade commander Jaime Reyes told Reuters the contractors were safe. "We started an operation with three battalions in the area where the guerrillas fled with the hostages to secure the release of these people while trying to avoid combat so as not to hurt the workers. We did it," he said.

London-listed Nostra Terra Oil and Gas has announced that a well has spudded at the Verde prospect in south-eastern Colorado. The company acquired a 16.25% stake in the prospect, which covers about 257.4 hectares, from US-based Plainsmen Partners in June. The well will be drilled to a depth of about 5300 feet into the Mississippian formation at a total estimated cost of $1.2 million. Nostra Terra will have a net revenue interest of 13.41% in the well. Drilling of the well is expected to be completed by the end of August, depending on operations and possible formation tests, with Nostra Terra to follow the drilling by completion and initial production testing

Read more: http://drillingclub.proboards.com/index.cgi?board=oildrilling&action=display&thread=5402#ixzz1UDCaMVIU

Oil Demand to Increase; Supply Less Certain -Study

Oil demand and prices should continue to rise in the third quarter of 2011 according to indicators, even with ongoing uncertainty with respect to the economic recovery, deficit reduction initiatives in the US and the debt crisis in Europe.

In the first quarter of this year, with expectations for continued economic improvement and as a result of the supply disruptions from the Middle East, oil prices rose to over $100/barrel. But after peaking in the second quarter, crude prices fell back slightly, in spite of the announced stock release by the International Energy Agency (IEA), as the economic recovery lost some steam.

Oil

The bright spot in the oil outlook is the increasing activity in the Gulf of Mexico since the oil spill last year, with the first new production out of the Gulf coming in the second quarter. While overall production remains below pre-2010 levels, the application and permitting process is substantially improved, and increasing production will create jobs and increase domestic energy supplies at a time of expected strong demand growth. Oil production elsewhere in the Americas continued to increase as well, notably from the Bakken formation in the Upper Midwest, as well as from the Canadian oil sands and Brazil.

The big unknowns for oil producers are the short-term effects of the IEA's release of 60 million barrels from emergency supplies and OPEC members' disagreement over supply increases. The IEA's release announcement brought prices down temporarily and is expected to fill the void of Libyan supplies. However, as the market moves into the high-demand season, the IEA release will not meet that increased demand, and the market will need more supply from OPEC at a time when its spare capacity is at its lowest level in more than 20 years. Beyond the short-term, over the next three to five years, pressures on OPEC to increase capacity and production are expected to increase substantially.

"Oil prices are dictated by supply and demand, and all signs point to modest oil demand growth and uncertain supply," said Marcela Donadio, Americas Oil and Gas Leader, Ernst & Young LLP. "Barring a strong economic shock, continued strong oil prices seem to be in order over the next three to five years."

Gas

US natural gas production continues to grow, with the latest production figures reaching the highest point in almost 40 years. Shale gas is driving the growth and is now approaching about 30% of US total gas production, even as gas-directed drilling has slowed and issues surrounding the economic feasibility and potential environmental impacts of the resource are raised.

"We maintain that natural gas is a sound solution to the nation's need for domestic, cleaner-burning fuel," said Donadio. "We have the resource in abundance and we know how to produce it safely. We need to put any questions around that to rest and focus on creating more opportunities to increase natural gas demand."

Oilfield services

Oilfield service activity is dictated by upstream spending. Spending is expected to continue to grow by about 15 to 20% in 2011, returning close to the peak 2008 levels. Service capacity is being strained by the unconventionals boom. Cost increases and staffing shortages are appearing. This resurgence of the oilfield service segment is being driven by fit-for-purposes technology such as rotary steerable rigs and directional/horizontal drilling; strong oil prices; and the efficient application of shale gas technologies including multi-stage fracking and horizontal drilling.

Transactions

The second quarter was another fairly strong quarter for oil and gas transaction activity, marking seven consecutive quarters of deal growth. Deal activity in Americas continues to dominate the global transactions landscape.

Looking into the second half of year, transaction activity should stay fairly strong, boosted by the expected continued high oil prices and the ever-high geopolitical risk, tempered only by the still reasonably high levels of economic uncertainty, particularly in the US and Europe

Ernst & Young LLP

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Thursday, August 04, 2011

The EPA Proposes New Drilling Regulations

Source: Kent Moors, Money Morning  (8/4/11)

"This is one more aspect to watch in selecting the best moves to make in a sector that's rapidly shaking out."

Last week, the Environmental Protection Agency (EPA) released a new series of proposals concerning the capture of emissions that are currently being released into the atmosphere during oil and gas drilling.

These emissions increase pollution and run the likelihood of creating a greater danger for the incidence of cancer.

The problem is hardly a new one.

Environmentalists have long argued that increasing the volume of drilling in a given location disproportionately raises the emission levels. The pollution effects tend to increase beyond a simple arithmetical aggregate of individual well results.

There is, in other words, a "triggering" effect on environmental dangers.

This is of concern in both oil and gas production, but the particular concern these days results from the development of shale gas sites. There, the combination of hydro-fracking and horizontal drilling has resulted in a greater concentration of drilling locations per pad, while frac fluid introduces a wide variety of chemicals into the process.

That has drawn the interest of the EPA.

For the first time, last Thursday (July 28), the agency actually proposed regulations. (The issuance just beat a court-mandated deadline.)

The new regulations target air emissions resulting from fracking, including standards for volatile organic compounds, sulfur dioxide, and air toxins related to oil and natural gas production or transmission.

The objective is to reduce volatile organic compounds released from fracked wells by 95%, and lower overall harmful emissions from the oil and gas industry by 25%. By volume, annual reduction targets are set at 3.4 million tons of methane, 540,000 tons of volatile organic compounds, and 38,000 tons of other toxins.

In its statement on releasing the proposals, the EPA noted that several states have similar standards in their regulations of the industry.

The EPA further proposes that the costs of the new regulations be recovered by companies that use existing technologies to capture—and then sell—the natural gas that is now escaping in the drilling process. It puts that savings to the companies at no less than $30 million a year.

Two Interesting Developments

Most major companies that have reacted since the announcement are taking the new regulations in stride.

Several have noted that they already comply with the standards—especially companies in those states where they are currently incorporated into state regulatory approaches.

The problems will emerge for very small drilling operations whose profitability is already narrow, given the declining price of natural gas.

Larger operations have the advantage of hedging prices by trading gas futures and options. Smaller companies have less leverage in so doing, usually because they cannot benefit from offsetting significant volumes produced from geographically distinct basins.

I expect these new EPA regulations—while not the sole cause—will be a contributing element in stimulating the already-heated mergers and acquisitions (M&A) market in natural gas. The necessary consolidation of operations has accelerated this M&A action, with smaller companies having choice acreage at the top of the acquisition list even before the EPA move.

The big boys will be getting bigger. And farm-in opportunities at existing operations now run by smaller companies are likely to further support the consolidation of asset control.

All of this is one more aspect to watch in selecting the best moves to make in a sector that's rapidly shaking out anyway, as we reach an end to an oppressive heat wave and the prospect of even greater amounts of extractable gas volume moving forward.

The second interesting development, for us as investors, involves the technological advances required by regulations like these.

The EPA is correct in saying that currently available approaches are enough to meet the standards. Yet there is still no clear idea of whether the regulations will prove sufficient as the well volume increases.

And as requirements to control air emissions increase, not even the estimated $30 million a year from capturing gas will be insufficient to offset the costs for new equipment.

That means an entire age of opportunity is about to emerge for what American entrepreneurs are particularly good at—designing remedies for problems once they are focused upon, while increasing efficiency and profitability in the process.

Could mean some incredible new profit opportunities for us, too.

Fwd: Fuel for Thought - 03 August 2011

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Weekly Newsletter - 3 August 2011 FUEL FOR THOUGHT Subsea 7 tapped for Gorgon installation Subsea 7 won a $440 million subsea contract for the Chevron-operated Gorgon Project offshore Western Australia. Australia Pacific LNG project sanctioned Partners ConocoPhillips and Origin Energy gave the go-ahead for their Australia Pacific LNG project, which will produce coal seam gas in the Surat and Bowen Basins in Queensland to an LNG facility. Gudrun jacket in place Statoil has installed the steel jacket for the Gudrun platform, completing the first phase of installation work at the Norwegian North Sea project. Study: oil & gas spending up in '11 Capital spending on exploration and production will reach $406 billion in 2011, a 12% increase from 2010, according to a study of 139 publicly traded oil & gas companies. Brynhild field PDO goes in The plan for development and operations at the Lundin Petroleum-operated Brynhild (ex-Nemo) field in the North Sea has been submitted to Norwegian authorities. Gazprom enters Cuba EEZ Gazprom Neft signed an agreement with Cuban national oil company Cupet and Malaysian national oil company Petronas regarding four blocks in Cuba's exclusive economic zone. Appraisal confirms Guará find Petrobras said its second extension well at Guará, known as Guará Sul, indicated 'a good perspective' of production of the pre-salt accumulation in the Santos Basin. Noble Corp orders 2 more jackups Noble Corp has signed on to buy two more high-specification jackups from Sembcorp's Jurong Shipyard. Eni makes double hit Eni made discoveries offshore Indonesia and Ghana with the Jangkrik Northeast and Gye Nyame prospects. Production returns as Don fizzles Most of the Western Gulf of Mexico oil & gas operations interrupted by Tropical Storm Don resumed Sunday, 31 July 2011. Energize your career! The OilOnline Energy Career Center is committed to providing you with the best online employment experience within the world of energy. Latest Job Postings: Senior Subsea Mechanical Engineer Develop and design products and derivatives for similar or extended applications in the APP-Controls portfolio... Senior Designer (Mechanical) Determine feasibility of designing new equipment or modifying existing equipment, considering costs, time limitations, company planning and other technical and economic factors ... Sales Representative Selling of electronic (internet) job board solutions to HR managers within the energy and renewable sector... Offshore Engineer EVENTS Deepwater Intervention Forum "The Next Steps, the New Reality" 16-18 August 2011 - Galveston, Texas www.deepwaterintervention.com The Deepwater Invention Forum is pleased to announce Forum Energy Technologies has committed to sponsor the event as the official iPad sponsor. 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Major sponsors are NOV, SLB, Weatherford, and BHI to name a few. Business development is critical need for 2012 and Galveston is the Right Place and the Right Time, October 25-27, Galveston Convention Center... Read more Online Registration is now Open. Online Registration is now Open. Online Registration is now Open. DIRECTORIES 2011 Gulf Coast Oil Directory -Only $80.00 The 2011 Gulf Coast Oil Directory, commonly known as the "bible" to the oilpatch, is your companion to the petroleum industry in the Gulf Coast region. Through various research techniques, this directory is the most complete, up-to-date, and most accurate directory available of companies in this region . . . 2010/11 Houston/Texas Oil Directory -Only $80.00 The 2010/11 Houston/Texas Oil Directory is your definitive guide to the petroleum industry for the states of Texas and Oklahoma. An up-to-date contact resource of all companies involved in the "Texlahoma" oilpatch. 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