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Oil Industry - Sept 22

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Many more articles are available through the Energy Bulletin homepage

Edwards sees threat to oil sands projects
Dave Ebner, Globe and Mail
BANFF — High costs will likely derail some projects in the oil sands, according to Murray Edwards, the reclusive vice-chairman of Canadian Natural Resources Ltd., one of many firms working in the overheated Fort McMurray region of Alberta.
It was the strongest public declaration yet from a senior industry executive that some projects may not go ahead as planned.

For projects on the drawing board -- which is a long list including major ones from Petro-Canada, Total SA and Exxon Mobil Corp. -- the challenge is huge, Mr. Edwards said yesterday, without pointing a finger at any one company.

"These projects, long term, need prices higher than $50 [U.S. a barrel]," Mr. Edwards told reporters after in a rare public appearance yesterday afternoon at the Alberta Global Business Forum in Banff, an intimate annual gathering of top business and political leaders. ..

Pressures around Fort McMurray -- competition for labour, construction materials such as steel and the region's overstretched infrastructure -- have already forced one global player to amend its plan. Paris-based Total SA, which bought into the oil sands a year ago, had hoped to see some production in 2010 but in August revealed first production is now set for 2013.
(22 Sept 2006)

Cost of search for energy reserves soars

Carola Hoyos, Financial Times
The costs of finding additional reserves of oil and gas have soared, an industry study shows, adding to the malaise of international oil companies.

"Reserves replacement costs surged 73 per cent as increased capital spending did not translate into incremental reserve additions," a study of 200 oil and gas companies found.

The world's proved reserves of oil and gas rose just 2 per cent to 257.7bn barrels, while production increased 1 per cent to just shy of 19bn barrels, the authors of the study, John S. Herold, the Houston-based research company, and Harrison Lovegrove, theLondon advisers, found.

While development costs rose $37bn, or 30 per cent, to $159bn in 2005, they yielded just a 1 per cent increase in output.

"They are spending 30 per cent more just to stand still," saidRodney Schmidt, managing director at Harrison Lovegrove. "The money has been there, but the barrels have not."

Companies spent $36bn on exploration in 2005. That meant that in 2005 the industry as a whole spent more money producing that extra 1 per cent of oil and gas than it spent exploring for the reserves that will feed the world's economic growth in the years and decades to come.
(21 Sept 2006)

Suits Say U.S. Impeded Audits for Oil Leases
New York Times
Four government auditors who monitor leases for oil and gas on federal property say the Interior Department suppressed their efforts to recover millions of dollars from companies they said were cheating the government.

The accusations, many of them in four lawsuits that were unsealed last week by federal judges in Oklahoma, represent a rare rebellion by government investigators against their own agency.

The auditors contend that they were blocked by their bosses from pursuing more than $30 million in fraudulent underpayments of royalties for oil produced in publicly owned waters in the Gulf of Mexico. ..

The new accusations surfaced just one week after the Interior Department’s inspector general, Earl E. Devaney, told a House subcommittee that “short of crime, anything goes” at the top levels of the Interior Department.
In two of the lawsuits, two senior auditors with the Minerals Management Service in Oklahoma City said they were ordered to drop their claim that Shell Oil had fraudulently shortchanged taxpayers out of $18 million.
A third auditor, also in Oklahoma City, charged that senior officials in Denver ordered him to drop his demand that two dozen companies pay $1 million in back interest.
And in a suit that was filed in 2004, Mr. Maxwell charged that senior officials in Washington ordered him not to press claims that the Kerr-McGee Corporation had cheated the government out of $12 million in royalties.
(20 Sept 2006)
See also US Congressmembers call for hearings on corruption at Department of Interior, audio from Etopia Media.

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