Falklands : Hydrocarbons Weekend Record (05 to 07 October 2007)
Submitted by Falkland Islands News Network (Juanita Brock) 08.10.2007 (Article Archived on 22.10.2007)
Risk assessment is key to the reasons behind BHP Billiton's decision to farm-in with FOGL.
HYDROCARBONS WEEKEND RECORD: 05 TO 07 OCTOBER 2007
Compiled by J. Brock (FINN)
ASSESSMENT OF RISK KEY TO BHP AGREEMENT WITH FOGL
By J. Brock (FINN)
The Falklands are awash with oil optimism now that BHP Billiton has decided to farm-in with Falkland Oil and Gas (FOGL). One key factor in the decision to farm in with FOGL was the risk involved with exploratory drilling in FOGL’s prospects in the South and East Falklands Basins. It is understood that British Geological Survey (BGS) assesses the risk in the North Falklands Basin as one in five and in the South and East Falkland Basins it is more like one in ten. With those odds it is a wonder why anyone would be interested in farming in so there must be something that lowered the risks. Part of the answer comes with the more detailed 3D seismic and, more importantly, the CSEM study that began in February this year.
Before he left the Falklands FINN asked Mr. Tim Bushell, CEO of Falkland Oil and Gas about FOGL’s assessment of risk and why it is so much better than BGS’s predictions.
FINN: In the public meeting you mentioned that there would be no drilling unless the risk is assessed and that risk is at least one in three. How is the risk assessed?
TB: One prospect in Desire tranches actually has a 1 in 2 risk. Oil Companies are fairly standard in the way they assess risk. There is an assessment of risk on every prospect in accordance with characteristics of prospects.
BGS have the view that a 1 in 5 risk exists in the North and a 1 in 10 risk in the South. No big Oil Companies would disagree that this is a frontier prospect however, all of the seismic work and CSEM helped to reduce the risk in the North as well as in the south and east. Risks in the north are lower than those in the south however FOGL believes risks in the south and east are lower than 1 in 10.
FINN: What are FOGL’s specific risks?
TB: FOGL risks are lower than 1 in 10. After the risk assessment using CSEM and 3D Seismic, the risks were lower than 1 in 10 and information will be published later. It is important that BHP feel the risks are lower than one in ten, otherwise they wouldn’t have come in with FOGL.
FINN: How many companies did FOGL approach?
TB: FOGL approached sixteen companies a year ago - both the majors and super majors. We came up with a list of companies with the financial resources necessary to bring a rig to the Falklands. Ten companies responded to our visit to the United States and to the data we presented. More than half took interest but were on the fence except for BHP.
FINN: What of the others?
TB: Later if more want to come in they might not be able to come if they hesitate too long.
At the public meeting it was surmised that other oil majors will indeed want to come to the Falklands once they felt BHP was on to something.
FINN: How did the CSEM and 3D Seismic reduce the risk?
TB: The CSEM showed a prospective anomaly of 1 in 2 or 1 in 3. There is a chance some major companies might be interested in this data but they haven’t seen the survey yet. It will be published later this year.
FINN: What will you expect to accomplish next January?
TB: BHP representatives will be coming with us. This will be their first visit to the Falklands. BHP will clearly need meet key people and to see services available - what could be provided. Specialists will also come along who know how to run a drilling programme. It is likely they will take a look at access facilities.
BHP has presented their work to FIG and FOGL and did extensive background work. You might say it’s now time to hit the gas now the agreement has been announced
FINN: Where will FOGL and BHP begin exploration drilling?
TB: BHP have a short list the same as FOGL’s. They have some more technical work to be done before we begin exploration drilling.
We will be awaiting the results of Mr Bushell’s January visit with BHP representatives.
LAST WEEK’S CRUDE PRICES:
Tuesday, 02 October 2007: Light Sweet Crude was trading at $80.05 down 19 Cents on the New York Mercantile Exchange. Brent Crude was trading at $77.38 down 27 Cents on London’s ICE Futures Market.
Wednesday, 03 October 2007: Light Sweet Crude was trading at $79.94 down 11 Cents on the New York Mercantile Exchange. Brent Crude was trading at $77.48 up 10 Cents on London’s ICE Futures Market.
Thursday, 04 October 2007: Light Sweet Crude was trading at $81.44 up $1.40 on the New York Mercantile Exchange. Brent Crude was trading at $78.95 up $1.76 on London’s ICE Futures Market.
Friday, 05 October 2007: Light Sweet Crude was trading at $81.22 down 22 Cents on the New York Mercantile Exchange. Brent Crude was trading at $78.90 down .07 Cents on London’s ICE Futures Market.
BRIEF INVENTORY REPORTFOR WEEK ENDING 28 SEPTEMBER 2007:
Crude: up 1.2 million barrels to 321.8 million barrels
Gasoline: down 100,000 barrels to 191.3 million barrels
Distillates: down 1.2 million barrels to 135.9 million barrels
Refinery Capacity: up 0.6% to 87.5%
LAST WEEK’S ANALYSIS:
Tuesday, 02 October 2007:
Crude prices are lower today on the strengthening dollar against other currencies as well as profit taking after record highs.
Wednesday, 03 October 2007:
The US Department of Energy Administration inventory report has showed a rise in crude stocks. This helped the price of Light Sweet Crude decline today.
Thursday, 04 October 2007:
North sea output has declined for the 5th month in a row and this caused Brent Crude prices to increase today. Despite yesterday’s inventory report, supply concerns in the US have caused an increase in Light Sweet Crude prices today.
Friday, 05 October 2007:
Analysts say that supply worries were not sufficient to increase the price of crude today. Those who consume hydrocarbons products are hoping for better news for the up and coming winter season.
(South America General)
The South American press are reporting from several major oil companies are divesting themselves of Latin American assets. Reports of a refinery and gas stations in Argentina being divested from ESSO, as well as ESSO doing the same in Uruguay appear in most papers. In Uruguay, it was announced that Venezuela’s PDVSA was interested in purchasing the over one hundred service stations owned by Esso, information confirmed by government authorities. Just a few months ago Uruguay’s government-owned oil corporation Ancap took over Texaco service stations for an estimated $22 million, definitively closing the American firm's representation in the country. Exxon Mobil are also unloading assets in Brazil, Uruguay, Paraguay, and Chile. It is thought that some of these companies are worried about dictatorships – left and right wing – emerging in South America.
(Russia and Venezuela)
It has been widely reported that Lukoil expects to close a deal this month to organize a joint venture with Venezuela’s state oil holding PDVSA, Representatives from Lukoil are visiting Venezuela this month to talk with PDVSA about setting up a joint venture with Lukoil, having a 40 percent share in the future corporation, with the remaining 60 percent would be owned by PDVSA.
Following a Latin-American-wide trend, Exxon Mobil Corporation has extended the time period for interested parties to submit offers to buy its ESSO unit in Argentina. Exxon Mobil is looking to exit Argentina as part of a plan to divest its interests Latin America. Argentine media reports have suggested President Nestor Kirchner's administration wants the buyer to include the nation's new state owned energy company, ENARSA. ENARSA and PDVSA currently rent and operate two service stations together in Argentina. ESSO’s assets in Argentina include a refinery and 540 directly owned service stations.
(Brazil and Venezuela)
Petrobras is assessing Exxon Mobil Corp's assets in Latin America. However, Brazil’s state owned Energy Company has not yet offered to buy them. Press speculation has been ripe lately about Petrobras buying up EXXon’s assets in Latin America.
Exxon left Venezuela this year when President Hugo Chavez put the pressure on for nationalisation. Venezuela's state oil company PDVSA has said it could be interested in Exxon's assets in Argentina but hasn’t made any decisions yet.
Latin American newspapers report that Petrobras, Brazil’s state owned energy corporation, will to invest US$ 18.2 billion, for the exploration, production and supply of natural gas demand in the country. US$ 18.2 billion, US$ 4.5 billion will be turned directly to the expansion of the gas pipeline grid and to the construction of liquefied natural gas (LNG) re-gasification terminals. US$ 1.9 billion will go to energy development (bio-diesel, wind energy and other alternative sources) and electrical energy.
LAST WEEK’S RELEVANT SHARE PRICES:
02 OCTOBER 2007:
TLW: 601.50 up 2.50, DES: 31.00 up 2.75, FOGL: 173.00 up 8.50, RKH: 50.00 down 0.50, BOR: 38.50 up 1.50, PRE: 13.50 unchanged, GBP: 9.75 up 1.13, GPK: 420.00 unchanged.
03 OCTOBER 2007:
TLW: 598.00 down 3.50, DES: 29.25 down 1.25, FOGL: 153.50 down 19.50, RKH: 50.50 up 0.50, BOR: 36.00 down 2.50, PRE: 13.50 unchanged, GBP: 9.25 down 0.50, GPK: 420.00 unchanged, BLT 1747.00 up 12.00
04 OCTOBER 2007:
TLW: 594.00 down 4.00, DES: 28.25 down 1.00, FOGL: 142.00 down 11.50, RKH: 50.00 unchanged, BOR: 36.00 unchanged, PRE: 13.50 unchanged, GBP: 8.63 down 0.63, GPK: 420.00 unchanged, BLT 1702.00 down 45.00
05 OCTOBER 2007:
TLW: 595.50 up 1.50, DES: 29.75 up 1.50, FOGL: 126.50 down 15.50, RKH: 50.00 down 0.50, BOR: 36.00 unchanged, PRE: 13.50 unchanged, GBP: 8.50 down 0.13, GPK: 420.00 unchanged, BLT 1745.00 down 43.00