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International Petroleum News and Technology | www.ogj.com May 11, 2015 | Volume 113.5a
GENERAL INTEREST
20 OTC: Federal, state 24 OTC: Nova Scotia draws deepwater
cooperation vital for interest with latest bid round
Tayvis Dunnahoe
offshore energy development
Steven Poruban 26 US, Canada jointly release
crude-by-rail transportation rules
21 OTC: Shell determined Nick Snow
29 EDITORS PERSPECTIVE
23 OTC: Brazils 13th bid Pope will confirm religious nature of climate activism
round will be concession
model, energy minister says
Michael T. Slocum
COVER
The SCAR plow component of Ecosse Subseas
23 OTC: Indonesia seeks modular trenching system rests in its typical boulder
paradigm shift in developing clearing confguration on the Havila Jupiters deck.
western deepwater assets SCAR can be mobilized to depths of 3,000 m or
Tayvis Dunnahoe more on one tow vessel and deployed and recovered
over the stern roller, negating the need for heavy-lift
equipment. The system can perform trenching, lay,
backfll, and soil testing in addition to route clear-
ance. Photo from Ecosse Subsea Systems Ltd.
SOLUTION STORE
The PPG Logo and PSX are registered trademarks and Bringing innovation to the surface is a trademark of PPG Industries Ohio, Inc.
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NYMEX NATURAL GAS / SPOT GAS - HENRY HUB Latest Previous Same week Change,
$/MMbtu Latest week 4/24 week week1 Change year ago1 Change %
2.840 Stocks, 1,000 bbl
2.800 Crude oil 490,912 489,002 1,910 399,357 91,555 22.9
2.760 Motor gasoline 227,451 225,738 1,713 211,572 15,879 7.5
2.720 Distillate 129,270 129,336 (66) 114,449 14,821 12.9
2.680 Jet fuelkerosine 36,833 36,326 507 37,737 (904) (2.4)
2.640 Residual 37,483 38,731 (1,248) 36,723 760 2.1
2.600 Stock cover (days)4 Change, % Change, %
2.560
Apr. 29 Apr. 30 May 1 May 4 May 5
Crude 30.6 30.6 25.4 20.5
Motor gasoline 25.5 25.0 2.0 24.4 4.5
Distillate 32.6 33.0 (1.2) 28.9 12.8
ICE GAS OIL / NYMEX HEATING OIL Propane 68.4 65.1 5.1 31.2 119.2
/gal Futures prices5 5/1 Change Change %
200.00
198.00 Light sweet crude ($/bbl) 58.28 56.54 1.7 102.10 (43.82) (42.9)
196.00
Natural gas, $/MMbtu 2.63 2.56 0.1 4.70 (2.08) (44.1)
194.00 1
Based on revised figures. 2OGJ estimates. 3Includes other liquids, refinery processing gain, and unaccounted for crude oil. 4Stocks
192.00
divided by average daily product supplied for the prior 4 weeks. 5Weekly average of daily closing futures prices.
190.00 Source: Energy Information Administration, Wall Street Journal
188.00
186.00
Apr. 29 Apr. 30 May 1 May 4 May 5
BAKER HUGHES INTERNATIONAL RIG COUNT: TOTAL WORLD / TOTAL ONSHORE / TOTAL OFFSHORE
3,900
3,600
PROPANE - MT. BELVIEU / BUTANE - MT. BELVIEU 3,300
/gal 3,000
2,555
67.00 2,700
66.00 2,400
65.00 2,100 2,195
64.00 1,800
600 362
55.00
300
54.00
0
53.00 Mar. 14 Apr. 14 May 14 Jun. 14 Jul. 14 Aug. 14 Sept. 14 Oct. 14 Nov. 14 Dec. 14 Jan. 15 Feb. 15 Mar. 15
52.00
Apr. 29 Apr. 30 May 1 May 4 May 5 Note: Monthly average count
/gal 1,700
204.00 1,400
202.00 1,100 905
200.00 800
198.00
700
196.00
500
194.00
192.00 300 163
79
190.00 100
Apr. 29 Apr. 30 May 1 May 4 May 51 2/14/14 2/28/14 3/14/14 3/28/14 4/11/14 4/25/14 2/13/15 2/27/15 3/13/15 3/27/15 4/10/15 4/24/15
1Not available 2Reformulated gasoline blendstock for oxygen blending 2/21/14 3/7/14 3/21/14 4/4/14 4/18/14 5/2/14 2/20/15 3/6/15 3/20/15 4/3/15 4/17/15 5/1/15
3Nonoxygenated regular unleaded Note: End of week average count
s
201 5
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Offshore as archetype
The first annual Offshore Technology Conference concern, nor take lightly the powerful currents of
held in Houston drew a surprising 4,500-plus in- public opinion which are thus generated.
dustry members who heard both optimistic and Addressing the 2015 OTC attendees at a panel
pessimistic appraisals of the offshore outlook at the discussion on federal and state cooperation, North
opening general session. Carolina Gov. Pat McCrory said, We often find
That was the opening to Oil & Gas Journals ourselves in a reactive mode when discussing en-
special report published May 26, 1969. Not many ergy vs. the environment. It is important to pro-
publications can boast being present at the inau- vide a picture of the positive outcomes over time,
gural OTC, but OGJ was there and has followed he said, as opposed to only responding to negative
the innovation, growth, and setbacks of the off- results.
shore industry every year since. North Carolina is advocating for access to its
At that first OTC, OGJ described the scene as offshore reserves on the Atlantic Margin and will
a vast exhibit area in Houstons Albert Thomas be acquiring new seismic this fall. One major
Center jammed with 385 exhibit booths. By roadblock to offshore development is the 50-mile
comparison in 2015, OTC Chairman Ed Stokes offshore drilling buffer zone (OGJ Online, May 4,
TAYVIS DUNNAHOE
said the show now encompasses 2,600 exhibitors 2015).
Exploration Editor across 700,000 sq ft (16 acres) in NRG Center. Not unlike today, access to offshore areas was
Roughly speaking, an editor wanting to spend debatable in 1969. At that time, The Marine Sci-
15 min visiting each exhibitor booth would need ence Commission proposed that an international
81 days to do so. This is before you add the more agreement assign coastal nations with resource ju-
than 1,300 papers submitted for this years tech- risdiction in 200 m of water or 50 miles offshore.
nical sessions, up from 125 papers presented in An intermediate zone would encompass water
1969, according to OGJ. 2,500 m deep or 100 miles offshore with control
maintained by sovereign nations, but with royal-
Themes, past and present ties paid out to an international organization.
The size and breadth of this years OTC indicate Northcutt Ely, chairman of the American
how the offshore industry has changed, but several branch of the International Law Association, ac-
themes presented at the event show that in some cused the commission of trading the doughnut
ways it has not changed. Then and now, problems for the hole in its proposal to renegotiate the
associated with cost inflation in deeper water, pub- Continental Shelf Convention of 1958 (the Ge-
lic perception, and environmental sustainability neva Convention) on rights to adjacent submarine
ring true in current market conditions. areas.
In his keynote at the inaugural OTC, Shell Oil Today, the US exclusive economic zone is es-
Co. Chief Executive Officer R.C. McCurdy warned tablished as 200 nautical miles from the coastline.
that development of future reserves presented a Although this was not the case until US President
tougher problem as the search moved steadily into Ronald Reagan enacted Proclamation 5030 on
deeper water, where extraction costs rise sharply. Mar. 10, 1983, potentially many of the deepwater
Since 2010, deepwater plays have been opened in projects in the Gulf of Mexico could be in pseu-
10 new basins (OGJ Online, May 5, 2015). dointernational waters under the proposed plan
Public approval has remained a constant theme from 1969.
through the last 50 years. The unfortunate inci- While the offshore industry is nearly impos-
dent at Santa Barbara, Calif., is still fresh in every- sible to predict, if the last 50 years are a guide, in-
ones mind, Chairman M.A. Wright of Humble novation and resource development will continue
Oil & Refining Co. told attendees at OTC in 1969, to expand. The themes of high costs, limited ac-
referring to the oil spill that occurred in January cess, and public perception will likely be repeated.
of that year in the Santa Barbara Channel. We With continued effort and a little luck, OGJ will
should not underrate the seriousness of public be there reporting as this prediction unfolds.
leaders from North Americas oil and gas industry. The conference provides an opportunity for executives
ex to learn
and exchange insights and build highly valued long-term relationship
relationships.
Compensating safety
Amid a violent contraction of the oil and gas in- Another kind of employee needs different at-
dustry, as companies jettison work and workers tention.
to confine spending to diminished cash flow, one Many companies manage employees above cer-
function must escape the blade. Asserting the pri- tain levels of responsibility with incentivesextra
ority of safetypersonal and environmentalis pay dependent on the achievement of company op-
easy, of course. Company executives do so continu- erational or financial objectives. Incentives align
ously and mean what they say, most no doubt with individual behavior with corporate priorities. The
commendable passion. Top-level concern for safety continuing popularity of managerial systems cen-
is essential. Its just not enough. tered on incentives indicates that they work.
The priority of safety means safety has to be But how many incentive systems give safety the
the priority, the one and only priority. At every priority it must have?
level and in every operation of every company, A weakness of performance incentives is the
safety has to be more important than anything temptation they impose on workers to take injudi-
elseeven profit. How many chief executives cious risk to influence evaluation metrics. People
will say that to a group of shareholders or invest- of course differ in their susceptibility to this pres-
ment analysts? sure. The susceptibility can vary circumstantially
within an individual. Some well-incented work-
Profit and safety ers habitually test the boundaries of caution, ever
Profit is supremely important, of course. It reflects ready to dismiss warnings with assurances that
value created by a company for its owners, which is all safety standards are unnecessarily strict. Other
the reason to be in business. But safety relates to the workers normally more prudent might, in spells
work itself, what a company does as part of a group of personal stress, cut corners opportunistically to
of companies performing similar activitiesan in- nudge performance-based bonuses.
dustry within a society that accepts or rejects its ac- Safety systems should integrate performance
tivities based on collective judgments about econom- incentives. More than that, they should dominate
ic benefits in balance with risks of harm. Work by a performance incentives. They should ensure not
company and industry depend on those judgments. only that workers have the training and resources
When an industry, or a single company within it, to perform safely in all circumstances but also
routinely injures its workers, customers, neighbors, that they do. That means no worker ever should
or surroundings, society judges harshly. be willing to compromise safety in the interest of
Safety performance is a test an industry and all personal gain. The risk of an accident must, at the
companies in it must pass continuously as a condi- personal level across every company, always out-
tion of being allowed to compete for profit. Safety weigh the reward for starting a well early or push-
precedes profit. That, coupled with the healthy ing cost-reduction into the next bonus tier.
revulsion most managers and workers feel about
injury to themselves and others, is why it must be Embedding the balance
the priority. This balance must be embedded in incentive sys-
When the price of crude oil is low, making prof- tems. How to do this varies from company to com-
itability elusive in the upstream business, these re- pany and falls within the realms of human relations
lationships can become dangerously easy to forget. and compensation specialists. Whats important is
Since the Macondo tragedy of 2010, the indus- that incentive systems recognize that safety pre-
try and its regulators have overhauled systems cedes profit, therefore takes precedence, and thus
of safety management (OGJ, May 4, 2015, p. 28). represents the managerial priority.
Those improvements are welcome, important, Safety lapses cant be tolerated, primarily be-
and ongoing. They will mitigate many problems, cause they hurt people and damage nature and
including the weak-link employee insufficiently secondarily because they diminish the legitimacy
trained or motivated to work safely in all circum- of vital work. Preventing lapses must be a priority
stances. that affects peoples pay.
US coastal states and the federal government will need strong foreign policy. For every 11 acres closed, he said,
to continue having an open and honest dialogue about there is one open for energy development.
the safe and reliable exploration and development of off- McCrory noted that the number of lease sales being of-
shore oil and gas resources, panelists agreed May 5 in an fered is problematic to resource development offshore his
opening session at the Offshore Technology Conference state and others. It makes no sense for just one lease sale
in Houston. off the Atlantic Coast, he said.
North Carolina Gov. Pat McCrory, who also serves as
chairman of the Outer Continental Shelf Governors Coali- Other issues
tion, said his state is not yet taking full advantage of the The No. 1 goal for North Carolina moving ahead with off-
development of its energy resources. He said there are four shore energy developmentfollowing seismic data acqui-
main issues blocking the way for adequate energy devel- sition, which is slated to begin in the fallwould be to
opment offshore North Carolina and other mid-Atlantic hammer out a revenue-sharing plan with the federal gov-
states, namely: adequate (and updated) seismic ernment, McCrory said. We have to have the fed-
data for North Carolina, South Carolina, and eral government agree to revenue sharing with
Virginia; development of a revenue-sharing plan North Carolina, he said, just like what is done
with the federal government; reduction of the for states along the Gulf Coast. Funds collected
50-mile offshore drilling buffer zone; and the would be used by the state to improve infrastruc-
scant few lease sales currently being offered for ture projects such as highways and dredging.
drilling in offshore federal areas. State and federal governments also will have
to reexamine the Endangered Species Act in the
Seismic, lease sales needed near future, Bishop said. We need to let states
Offshore the mid-Atlantic states, seismic data lead the way on this, he said.
havent been acquired in decades, McCrory said. Lets find Taking questions from OTC attendees, McCrory noted that
out what we have in terms of resources, he said. the oil and gas industry has to do a better job overall of com-
Regarding seismic data acquisition, another panelist, municating with the public. Weve got to improve the acu-
Abbey Hopper, newly appointed director of the US Bureau men of where energy comes from to energy consumers, he
of Ocean Energy Management, said it wouldnt be appro- said. Based on the commercials shown on television, he said,
priate, however, to take the template of how the Gulf Coast one would assume that consumers think most energy comes
works and apply it to other offshore areas. from renewables like wind and solar. They also assume that
Another panelist, US Representative Rob Bishop (R- energy is only needed for their residences, he said.
Utah), who also chairs the House Natural Resources Com- Developing resources, offshore or otherwise, will have
mittee, agreed that outdated seismic data will not help the to be accomplished hand-in-hand with an environmental
US to develop into an energy powerhouse its destined to focus, the panelists agreed.
become. Forty-year-old seismic data doesnt help us, he McCrory said a good course of action for an environ-
said. mentally balanced development project would be to show a
Bishop also noted that the development of the nations picture of what things would look like in 25 years, and also
energy resources will be necessary to forge ahead with a show what things might look like in that same amount of
time without development.
presalt play with 6 billion bbl and the Tehiti subbasin in the Presalt blocks by 2017?
Gulf of Mexico with 3 billion bbl. While presalt blocks are not up for bid in this round, Braga
He said that the majors will likely be the strongest posi- believes that some blocks will be in the next roundno lat-
tioned to lead the future of deepwater exploration and devel- er than 2 years after October bidding. He added, however,
opment, although, he said, Acreage collectors arent always that Petroleo Brasiliero SA (Petrobras) will retain the right
the winners. of first refusal in that bidding process. The minister voiced
He said field development times, once seemingly stuck in his governments support for the embattled national oil com-
the 7-year range for quite a while, are falling to just 3 years, pany in remarks at OTC on May 4.
especially in North America. We must give Petrobras the opportunity, said Braga.
Also, companies are pairing up in the services sector, he But if they can or will not take that opportunity, we will
said, which will help with the cost side of things. Alliances not slow development. We will give foreign operators the
are probably cooking up this week perhaps, he speculated. chance.
Given these potential cost savings, many looming ques-
tions remain unanswered, he said, including: Proven production
Will activity pick up? Braga noted that those opportunities in Brazil remain lucra-
Will deepwater exploration deliver more megaplays? tive. He said 36% of all oil discovered in the world in the
Will cost and efficiency savings be permanent? last 5 years (22.9 billion bbl) was discovered in Brazil. In the
What new models or alliances might help the cost par- same period, 63% of all deepwater discoveries (22.2 billion
adigm? bbl) have been in Brazilian waters.
What game-changing technology will be developed for Brazil has 2.8 million sq km for potential exploration, of
the deep water? which much has already been proved, said Braga. Compa-
nies currently operating in the sector have 430 fields under
production. Additionally, there are no restrictions on the ex-
port of oil from Brazil, with over 500,000 b/d exported in
OTC: Brazils 13th bid 2014 by 17 companies.
Petrobras accounted for only 45% of such exports, with
round will be concession the remaining 55% coming from other companies operating
in the country.
model, energy minister says Braga expects heavy participation in the 2015 auction
and says he has heard as much from operators at OTC. Con-
Michael T. Slocum tinued low oil prices do not seem to putting a damper on
Upstream Technology Editor enthusiasm for investment off Brazil.
Large multinational companies dont make long-term
Brazil will use a concession model rather than a production- decisions based on temporary price fluctuations, he said.
sharing model in the countrys 13th bid round later this They are thinking 10-15 years out and have a need to re-
year. The 269 blocks to be auctioned in the fourth quarter place reserves. We want to engage these companies and cre-
are outside of the presalt area and can be explored by any ate an economic environment that convinces them to invest
operator without a Brazilian partner, said Eduardo Braga, in Brazil.
Brazils minister of mining and energy.
Braga made the announcement May 5 at the Offshore
Technology Conference in Houston. Additional details of the
auction are available from Brazils National Agency of Petro- OTC: Indonesia seeks
leum, Natural Gas, and Biofuels (ANP).
Brazil will continue to use a production-sharing model
paradigm shift in developing
in its presalt blocks. Legislation has been proposed in the
Brazilian congress to open the presalt to a concession model.
western deepwater assets
Braga believes that this would be an unwise move for Brazil. Tayvis Dunnahoe
Much of the revenue collected from presalt production- Exploration Editor
sharing goes to a health and education fund, the bill for
which I oversaw as it made its way through congress, said Indonesia is working to change the way it develops its oil
Braga. This fund provides for the future of Brazilians while and gas resources, according to Ir. I Gusti Nyoman Wirat-
also supporting macroeconomic development in the country. maja, Indonesias acting director general of oil and gas. Our
It would be shortsighted to essentially defund this important vision is to enact a paradigm shift in the way we develop
program, and I think the majority in congress agrees. our energy resources, Wiratmaja said May 4 at an Active
Arena panel discussion at the Offshore Technology Confer- have an abundance of proved and potential reserves, but
ence in Houston. come with specific challenges that have lead the regions to
Historically, the country has used its oil and gas as a pri- be under explored. For Indonesia, Wiratmaja pointed out
mary commodity, selling it off to raise capital. Our goal that its energy developments have typically followed the
within the next decade is to leverage these resources to pro- people. A majority of its producing fields and infrastructure
vide real economic growth, Wiratmaja said. In addition to lies in the west where the population is more concentrated.
sustainable development, the minister added that Part of our vision is to transform this movement
the country is focused on developing its deepwa- where people can follow energy developments.
ter resources in the east, which includes develop- Wiratmaja noted, however, that developing In-
ing underexplored basins and putting infrastruc- donesias deepwater assets in the East will come
ture in place. at a cost. The country estimates it will need in-
Only 9% of all Jurassic discoveries from 1998- vestments of as much as $89.7 billion to reach its
2008 were in the eastern portion of Indonesia, goal of full development throughout Indonesia.
Wiratmaja said. In total, Indonesia has an estimat- Oil production peaked in 2000, and the country
ed 314 working areas for oil and gas exploration is seeking $57 billion to bring its oil infrastructure
and only 80 of these are producing. In addition, Indonesia up to speed.
contains at least 22 basins that have seen no exploration. According to Wiratmaja, Indonesia has 7.1%/year energy
The goal of the panel was to highlight specific areas that demand growth and its deepwater assets are key in meeting
this demand.
OTC: Nova Scotia draws deepwater interest with latest bid round
Tayvis Dunnahoe sels to Nova Scotia to conduct a major 3D seismic program
Exploration Editor that covered much of Nova Scotias offshore region. For BPs
four parcels it picked up Hess Corp. and Woodside Petro-
The Canadian province of Nova Scotia reported the addition leum Ltd. as partners in 2014. Its important to note that
of seven new offshore blocks in its deepwater region May 5 at both Hess and Woodside came on to BPs project after the oil
the Offshore Technology Conference in Houston. price began to decline, said Murray Coolican, Nova Scotia
Parcels No. 1-4 are on the western Scotian shelf adjacent deputy minister of energy.
to Shell Canada Ltd.s deepwater acreage acquired in 2012 Parcels 5, 6, and 7 are on underexplored synrift basins,
(OGJ Online, Jan. 30, 2012). Drawing on its seismic work with presalt potential. They are located on the landward side
completed in 2013, Shell plans to drill its first well in this of the deepwater exploration parcels controlled by BP and
years third quarter. Suncor Energy Ltd. and ConocoPhillips its partners.
are partners on Shells existing licenses. BP and Shell have committed $1 billion each to their
Parcels No. 5-7 are on the central Scotian shelf north of deepwater operations off Nova Scotia. Coolican told OGJ,
BP Canada Energy Group ULCs four existing licenses, also These parcels were industry nominated based in large part
acquired in 2012. In 2014, BP brought in 10 exploration ves- on Nova Scotias Play Fairway Analysis. Initially, we received
inquiries from a number of companies but soon realized
they were examining partnerships with BP and Shell. Ac-
tivity indicates that partnerships may be the best option for
Nova Scotias frontier deepwater area.
Reprints of any OGJ article may be purchased from In May 2014, Nova Scotia Premier Stephen McNeil an-
nounced the ministry would invest $12 million over 4 years
Rhonda Brown, Foster Printing Co., 4295 Ohio St.,
to provide new geoscience research on the previous work
Michigan City, Ind. 46360 brought forth in the Play Fairway Analysis, which identified
potential of 8 billion bbl of oil and 120 tcf of natural gas off-
1-866-879-9144 ext. 194 shore Nova Scotia.
rhondab@fosterprinting.com The bid round is open for nine parcels total, two of which
are in the shallow-water region near the Sable Island discov-
www.marketingreprints.com ery. Nova Scotia is providing its seismic data to interested
bidders at no additional cost. Bidding will remain open until
Oct. 29.
SARA LOWERY NG
Direct: +1-713-963-6277
E-mail: saran@pennwell.com
JUSTUS SWANTER
Direct: +1-713-963-6243
E-mail: justuss@pennwell.com
lif.), Jeff Merkley (Ore.), Charles E. Schumer (NY), and Mark added, some volumes that previously transferred to ves-
R. Warner (D-Va.). It was introduced as DOT prepared to sels in Albany before moving on to refineries in New York
announce final rules for the safe transportation of crude and Harbor, the Philadelphia area, and Canada now are moved
other hazardous materials by rail a day later. directly by rail closer to their ultimate destinations, EIA
said.
Its report came 4 days after the US Department of
EIA: East Coast refineries got Transportation and Canadas Transport Ministry jointly
issued new regulations governing transportation of crude
52% of crude by rail in February oil and other hazardous materials by rail (OGJ Online,
May 1, 2015).
Nick Snow
Washington Editor
332 Pages/Hardcover/2012
ISBN 978-1-59370-254-0
ORDER YOUR COPY TODAY AT
Price $89.00 US WWW.PENNWELLBOOKS.COM 226 Pages / Hardcover / 2014
OR CALL 800-752-9764 IISBN
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Joseph Hilyards timely
book provides a broad ADVERTISERS INDEX
perspective on the oil and COMPANY NAME PAGE
OGJ maps are available to an gas industry, with primary
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your reach on the OGJ maps fnd and evaluate resources, JD Neuhaus Hebezeuge 11
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*Revised.
Source: Oil & Gas Journal
Data available at PennEnergy Research Center.
Apr. 24, 2015 ........................... 490,912 227,451 200,638 36,833 129,270 37,484 64,666
Apr. 17, 2015 ............................ 489,002 225,739 199,002 36,326 129,336 38,732 62,044
April 25, 20142.......................... 399,357 211,571 182,364 37,737 114,449 36,723 31,537
1
Includes PADD 5. 2Revised.
Source: US Energy Information Administration
Data available at PennEnergy Research Center.
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