COLLOQUY: Editor's Column
The IHS CERAWeek conference took Houston by storm in March, with a solid program of topical breakfast discussions, illustrious keynote speakers, plenary sessions, and dialogues. The energy topics ran the gamut, from upstream to downstream, investment and finance to cyber threats.
IHS vice chairman Daniel Yergin opened the conference with Saudi Aramco president and CEO Khalid Al-Falih delivering the opening keynote. As conference chair, Yergin described the theme, “Drivers of Change,” as representing new technologies, sources of energy, and shifts in global demand. Innovation will be a constant; expected to drive down costs, improve output, and help shape the energy mix of the future.
The boom mentality was riding high on sustained high oil prices and success with the new abundance of unconventional oil production in the US. Natural gas was discussed with exhuberance, particularly natural gas liquids (NGL) and global LNG, despite depressed prices in the US.
There were sobering discussions of industry challenges: tightened regulations, demographic shifts, building staff and the big crew change. J. Michael Yeager, CEO at BHP Billiton Petroleum said, “We’re in a tight and delicate market for talent,” during the Upstream Growth plenary.
Yeager was bullish on working in North America, saying that the US has a unique combination of favorable characteristics, including the “world’s largest gas market,” supportive regulators, attractive fiscal terms, and rig and service availability. “Fiscal terms change rapidly outside the US and Canada,” he warned. BHP is the fourth largest acreage holder in the US Gulf of Mexico, and has had four rigs operating there for 6-7 years. He said the average Gulf well costs $180 million to drill and produces about 20,000 bo/d.
Tim Dodson, EVP of global exploration at Statoil, agreed that the upstream sector was growing and and acknowledged that we’re in a period of increased optimism. He attributes the rejuvenation of exploration opportunities to high oil prices and technology developments. The three pillars of opportunity for Statoil are in mature provinces (Norwegian shelf), complex offshore, and unconventionals. “Innovation and tolerance of risk are the drivers for success,” he said.
The complex offshore includes the pre-salt in the Santos and Campos basins off Brazil, gas fields off East Africa, and ultra-deepwater fields. He pointed to Statoil’s two giant discoveries in the Barents Sea and the giants found off Tanzania as recent successes with new 3D acquisition geometries and processing algorithms.
“Technology can be a black swan,” said Dodson, “turning things upside down and presenting a very different picture. The US may become a net exporter—the opposite of a few years ago.”
Peter Jackson, VP of upstream research at IHS, mentioned the likelihood of increased automation, including robotics in offshore exploration and production.
New approaches are critical. In 2010, more than two-thirds of all oil brought onstream was discovered before 1980, Dodson noted. In 2012, just 29% of oil produced was replaced with new resources. Gas is obviously different, and will need to be a bigger part of the future energy mix, he said, channeling Churchill: “For myself, I’m an optimist. There doesn’t seem to be much point in being anything else.”
Dodson stressed collaboration, saying there will be more, not less, particularly in Arctic exploration and development. “Industry needs to explore and develop new business models and must share common costs.”
Among the pre-conference summits was the Africa Energy Summit, at which the BG Group mentioned they had created a new model for Tanzanian gas potential. The following day, Natznet Tesfay, head of Africa forecasting for IHS, was asked about Tanzania’s ability to develop a gas plan. Tesfay said the country’s delay in discussion has also delayed its fourth licensing round, and the issues revolve around education, labor force, government stability, and the young population. It will take years to work out the master plan, he said, because of the need to electrify and improve other infrastructure and human capacity.
Tesfay was among five IHS specialists who anchored an Expert Briefing session on Africa. Another was Catherine Hunter, senior principal analyst for the Levant and North Africa, who stressed the importance of localism and popular support for projects to succeed. West Nile Delta developments could supply 20% of Egypt’s domestic demand, but projects are delayed because of popular dissatisfaction with onshore processing facilities, leading to more than two years of delays. The opposite problem occurs in Tunisia, where locals want onshore facilities in their areas. In a bid for greater local content in northern Africa, she said there are great opportunities for service companies in joint projects. Governments are keen to harness benefits of oil and gas development through taxation and ambitious infrastructure plans. Changes in capital gains taxes began in Uganda, spreading to Mozambique, Tanzania, and further afield.
Laurent Ruseckas summarized the session: much acreage is available in Africa on relatively favorable terms; there are above-ground risks, with the potential of the Arab Spring spreading; localism can make or break projects and operators need to develop popular support for their endeavors to succeed; there is a still a need to build local regulations, as currently seen in Tanzania.
The week was also marked by the death of Hugo Chavez on March 5, the immediate impact of which included a larger than expected crowd at the IHS expert briefing session on “Latin America: A New Beginning.” We have yet to see the impact on Venezuela’s petroleum production, but the future of the PetroCaribe program is at stake, raising tensions in the 17 Caribbean nations that benefit from the belowmarket pricing on Venezuelan crude. The bulk of the subsidized oil goes to Cuba, elections are scheduled for April 14.
The threat to supply and continuing high oil prices are refocusing attention on Caribbean drilling opportunities—beyond Trinidad. We may see more deepwater drilling off Guyana and Suriname, a third well off French Guiana, and potential drilling off the coasts of Barbados and Jamaica, in addition to a resurgence in drilling off the Bahamas.
I’m pleased to announce that Elaine Maslin debuts in this issue as our new European Editor, based in Aberdeen. She has been covering the industry as an energy reporter at Aberdeen’s Press and Journal, and previously honed her skills as business editor at the Eastern Daily Press. Welcome to the team, Elaine! OE