OilVoice Magazine - June 2012

The oil explorers dream list... A portfolio to put away for 12 months.
Oil money still pouring into Eagle Ford

Image by Daniel Foster
OilVoice Magazine JUNE 2012
Adam Marmaras
Manager, Technical Director
Issue 3 - June 2012 OilVoice Acorn House 381 Midsummer Blvd Milton Keynes MK9 3HP Tel: +44 208 123 2237 Email: press@oilvoice.com Skype: oilvoicetalk Editor James Allen Email: james@oilvoice.com Advertising/Sponsorship Adam Marmaras Email: adam@oilvoice.com Tel: +44 208 123 2237 Social Network Facebook:
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Welcome to the 3rd edition of OilVoice

magazine. This month is a bumper edition, containing 60 pages of the best content the industry has to offer. We've pulled in contributions from around the globe, covering every aspect of the industry. And best of all, this magazine comes to you free of charge every month! This month we welcome our new contributors; Mark Young, Richard Jennings and Gail Tverberg. We'd also like to that the support that our advertisers have given us. If you'd like to advertise your business alongside them then please get in touch and we'll be happy to talk to you. As the magazine is quite young with a growing readership we're offering some very budget friendly deals. Hopefully the redesign we did last month made the PDF easier to read on whatever device you are using. As always, we value your feedback. Happy reading!
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Contents
Featured Authors
Biographies of this months featured authors.
3 5 9 11 12 18 19 20 21 22 23 27 28 30 31 32 33 38 42 43 45 48
My top junior oil stock in the Permian Basin 'Tight' oil play
By Keith Schaefer
Exploration: The "Big Data" problem

By David Bamford
BP profits plummet
By Hanife Mehmet By Keith Schaefer
Interview: How water applies to the Oil and Gas industry Featured University
This month we are featuring University College Cork
Insight: Raising the game for oil & gas data...

By Karl Jeffrey By Karl Jeffrey
Insight: Running E&P work flows through a web browser... BP to start new oil rigs in Gulf of Mexico
By Hanife Mehmet By Karl Jeffrey
Insight: Technology is what matters Oil money still pouring into Eagle Ford
By Mark Young
Recently added companies
The latest companies added to the OilVoice database
Oil and Gas Translation: Technical tips to increase your success rate
By Camilo Muoz By Karl Jeffrey
Insight: Enhanced oil recovery for field life cycle Oil prices may double say IMF
By Hanife Mehmet
Insight: Does the UK have an energy strategy?

By Karl Jeffrey
'Waterless Fracking' - Using LPG for greater oil & gas recovery
By Keith Schaefer
By Richard Jennings
Insight: European Commission proposal for regulation of offshore safety and environmental protection...
By David Bamford
Ithaca Energy crashes down to earth as another AIM takeover falls through
By Richard Jennings By Richard Jennings By Gail Tverberg
More pieces of the puzzle falling into place for Xcite Energy New IMF working paper models impact of oil limits on the economy
press@oilvoice.com | +44 208 123 2237
Featured Authors
OilVoice is always on the lookout for quality, original content. We receive submissions from people in the industry on a regular basis, who in turn benefit from our large user base. You get a chance to broadcast to the industry and spread the word, and we get fantastic original content. Get in touch for more details!
Keith Schaefer Oil & Gas Investments Bulletin

Keith Schaefer, editor and publisher of the Oil & Gas Investments Bulletin.
David Bamford OilEdge

David Bamford is non-executive director of Tullow Oil, and a past head of exploration, West Africa and geophysics with BP.
Hanife Mehmet Contract Jobs

Hanife Mehmet is a copywriter working for contractjobs.com, the contract only job board and news resource for freelance professionals. The site provides information for professional temporary workers from all leading industry sectors including the oil and gas sector.
Karl Jeffery Digital Energy Journal

Karl Jeffery, founder of Digital Energy Journal, also founder and conference producer for Digital Ship, publisher of Tanker Operator, Carbon Capture Journal and The Hydrogen Journal.
Mark Young Evaluate Energy

Mark Young joined Evaluate Energy in November 2008 focussing initially on US and International E&P company financial and operating data, with a particular focus on junior international companies. Mark is now responsible for the Shale Gas and LNG products within the Evaluate Energy service.
Camilo Muoz Translation Source

Translation Source helps companies communicate worldwide by offering comprehensive multilingual solutions based upon client needs. Our solutions are developed in more than 140 languages and include a full range of language translation and localization services, international training and e-learning development, interpretation, instruction, bilingual staffing and other supporting linguistic services.
Richard Jennings Spreadbet Magazine

Richard Jennings' background is as an equities fund manager, being responsible for in excess of half a billion pounds at a local authority fund. He qualified as a CFA in 2000 and has been an active personal investor over the last 10 years, recently starting Spreadbet Magazine to enhance traders understanding of the markets with quality and thought provoking features.
Gail Tverberg Our Finite World

Gail Tverber has an M. S. from the University of Illinois, Chicago in Mathematics, and is a Fellow of the Casualty Actuarial Society and a Member of the American Academy of Actuaries.
Jobs The OilVoice Jobs board is fast becoming the place candidates look for their next move in the industry. Featuring adverts from top draw recruiters, CV upload capability, and an easy application process. New jobs are appearing every day, so be sure to bookmark it. Company Directory 3330 company profiles, 5208 offices and 10765 people - all searchable by keyword and location. You can even export your results as an excel file. So the next time you are searching for a company or person, be sure to give it a try. Advertise OilVoice traffic numbers continue to climb and climb. If you'd like to reach a global audience of oil and gas professionals then it's easy to run an advert with us. We have solutions for every budget, so get in touch with us to discuss how we can help promote your business now. Events Let's face it, there are a lot of events in the oil and gas industry. It can be hard to keep track. The OilVoice Events Board contains hundreds of upcoming events, complete with descriptions and calendar bookmark functionality. Training Courses You can never stop learning about the oil and gas industry. How do you find the course that's right for you? By visiting our Training Courses section. Free Membership Over the past ten years we've grown to 29653 members (let's call it 30,000). If you're not a member then you should start now, it only takes a second. Then you'll be free to post job adverts, events and press releases.
My top junior oil stock in the Permian Basin 'Tight' oil play
Written by Keith Schaefer from Oil & Gas Investments Bulletin Tuesday, May 01, 2012
In Part 1, I explained how the Permian Basin in Texas was exploding with industry and investor interest-because of all the new tight oil plays being discovered and developed. And that has me excited about the prospects for one Canadian junior-though all this excitement is happening a year later than I thought it would. But at the end of the day, and the end of the play, all this should all be good news for one of my OGIB portfolio stocks, Lynden Energy (LVL-TSXv). Lynden has 6500 net acres in the Wolfberry trend in the main Permian Basin, and is producing just over 500 bopd from that land base. When I bought it a year ago, I thought the value of other Wolfberry transactions made the stock worth $0.90/share alone. I still believe that-but it was really their Mitchell Ranch property on the eastern shelf of the Permian that I saw as the catalyst to make the stock a double or a triple. And it's two formations that could give the stock a chance - the Cline Shale and the deeper Mississippian. Devon Energy's map of where the Cline shale is pervasive has Lynden's Mitchell Ranch very close to the middle of play. That is clearly getting some market attention in the last week. As background, I bought 67,000 shares of this stock a year ago at 66 cents, thinking the world was about to discover the eastern shelf of the Permian and both the play and Lynden's stock was about to take off. Well, I sure timed that wrong as the stock has spent the last year well below my
purchase price. But now, a full year later, market interest has arrived, based on newfound enthusiasm for a large resource play in the Cline/Lower Wolfcamp. Here's a map by Lynden of where their property sits:
Lynden is drilling 31 gross Wolfberry wells this year, where success rates are high and they are steadily adding production. They are producing just over 500 bopd now, and expect to exit this year at 900-1200 bopd. Their partner, a private company called CrownQuest LLC, is the operator. A net minority, non-operated interest could be the reason the stock has languished (other than a rotten market for junior oil stocks), plus the fact that Lynden and CrownQuest LLC have been very conservative in drilling Mitchell Ranch, where the two partners are 50/50. There are two vertical drill holes into Mitchell Ranch, but only one is producing, and that is from only one zone-the Spade 17 well. There are only two more (gross) wells in the 2012 budget for Mitchell Ranch, which will be targeting primarily the upper, shallower zones-not the big Cline Shale. They have drilled through the Cline, but don't have the resources-or the interest-in going horizontal here.
Lynden is a land play, and management will leave the expensive horizontals for whoever acquires them and partner CrownQuest LLC's interest in Mitchell Ranch. Lynden has been able to pull off two big corporate moves this year that got me and the market excited-only to see the stock pull back on no volume after a flurry of interest-which makes me cautious in buying more. One was bringing Chesapeake (CHK-NYSE) into Mitchell Ranch to joint venture 35,000 acres, one-third of the 103,400 acre Mitchell Ranch play (leaving Lynden with a 50% WI in 68,400 acres, or net 34,200 acres). Chesapeake is specifically interested in a deeper zone, the Mississippian at 7500 feet, where they have had great success in eastern Oklahoma. There is no public data on how their first well is going. But Lynden got Chesapeake to pay enough cash to get in that they were able to pay the underlying land owner their option payment, and Chesapeake shares the data with them. So Lynden gets a free look at how the upper zones they're targeting look, and a free learning curve on how to drill the Mississippian on their remaining acreage. The second was securing a $50 million credit line, so the company didn't need to raise equity again. But like I said, Lynden is a land play first and my fervent hope is that Chesapeake or some other major or large intermediate will come in and buy Lynden and CrownQuest LLC's position out. Lynden's Mitchell Ranch property has three main plays: 1. The upper shallow zones at 4200-5200 feet that can produce 75-100 bopd IP rates 2. The Cline Shale/Lower Wolfcamp that Devon is chasing, with potential 600 boe/d wells 3. Mississippian formation below that, which Chesapeake is now developing And there's another formation, the Ellenburger, beneath the Mississippian that is potentially productive as well. Let me draw up a hypothetical valuation-with one foot planted firmly in the air. Valuing these assets at this early stage is very difficult-but because of the size of the
asset - 64,000 acres-there is some leverage here with any proof-of-concept from any of these deeper zones at Mitchell Ranch. The market agrees with me because it's valuing Mitchell Ranch at zero. But I'm assuming that Devon's Richel would only farm out 50% of this large resource play for that $1.35 billion, which values the play at $2.7 billion or $5400/acre. Lynden's stock trades solely on the Wolfberry assets, and the reason I bought the stock is because I thought those were worth 90 cents a share. Here are some Wolfberry transactions in the last 12 months:

April 28 2011 - Antares Energy paid $62 million for 3,109 acres, or $19,942/acre April 28 2011 - Berry Petroleum paid $123 million for 6,000 acres, or $20,500/acre May 12 2011 - W&T paid $366 million for 21,500 acres, or $17,000/acre June 22 2011 - Laredo paid $1 billion for 65,000 acres or $15,000/acre Dec 6 2011 - Comstock paid $332.7 million for 44,000 acres for $7,561/acre Dec 22 2011 - Concho paid $175 million for 10,200 acres, or $17,157/acre Feb 11 2012 - Energen paid $65.8 million for 3,200 acres, or $20,300/acre
The average value per acre in these seven deals is $16,780. Lynden has 6310 net acres, all of which are in producing areas (especially with the first producing well on their Tubb property). That would give Lynden's Wolfberry assets a value of $105,881,800-with 109 million shares out that's 97 cents value. Were life so simple. There's 42 million warrants between 50 and 70 cents, taking the outstanding balance to 151 million, but with $27.75 million extra in cash. (Folks, warrants KILL stock prices. Never a good thing.) But $105.88 million/151 million=70 cents-20% higher than where the stock roughly is today. And I haven't started on Mitchell Ranch yet. The blue sky here is that if Chesapeake can get economic results out of the Mississippian-and at that depth, I'm guessing allin costs of $7-$8 million will need at least 500 bopd of oil and whatever NGLs and gas on top of that will be required-then Mitchell Ranch is worth potentially $5,000 an acre, and their net 34,200 acres is worth $171 million, or $1.13-which values the company at $1.83/share. And that doesn't take into account the Cline shale potential. You get the picture-lots of leverage if these plays work out. And that is the type of company I like to invest injust usually with a lot less shares out.
It will be interesting to see how the market values Mitchell Ranch in the near term, with all the new excitement in the east shelf of the Permian, just because of its address-and in advance of any word from Chesapeake in the Mississippian (at least 3 months away, IMHO). Because unless somebody really close by shows some Devon-style production levels from the Cline, its prospectivity will be hard to determine. It's highly unlikely Lynden will ever drill an expensive horizontal well in the Cline. They've got their land position and they want to monetize it, not drill it. On another metric, price per flowing barrel, it's not unusual to see $150,000, which would put Lynden's year end 1000 bopd worth an even $1/share. And while that's a theoretic value for Lynden as the stock has never traded close to that, increased market awareness could change that. So my conclusion here is that I expect the market to heat up, but there is no telling how much, and I'm not buying any more stock here-but I'm not selling any now either.
View more quality content from Oil & Gas Investments Bulletin
Exploration: The "Big Data" problem

Written by David Bamford from OilEdge Thursday, May 03, 2012
New exploration plays are increasingly difficult to find and spotting the few that might work requires explorers to undertand what vast amounts of data is telling them. Either that, or simply depend on being 'lucky'! Huge amounts of data are now available to explorers.
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Satellites have delivered global bathymetry and topography; satellite gravity data shows us crustal thickness globally; some 200,000 exploration wells - that's 200,000 'wildcats', never mind appraisal, development production wells - have been drilled in the last 50 years or so; there are sea-bed cores; any government that is serious about its resources has a national data repository; there's data from Geological Surveys; there's a huge published literature.and so on. It's just my opinion but we explorers may be guilty of laziness, believing - or at least giving the impression of believing - that offshore exploration nowadays simply consists of dropping in a regional/exploration 3D seismic survey and then 'no dry holes' will result. This is far from the truth! The ability of explorers to deliver the increasingly difficult job of spotting the next big play depends on their ability to sift, organise and understand the Niagara Falls of available data, to solve what some have referred to as the 'Big Data' problem - or opportunity, perhaps? Deploying a deep understanding of plate tectonics and chrono-stratigraphy understanding what gets deposited where and when - is the key process by which this is achieved, the 'Know How' whereby opportunity is accessed. The 'Winners' in exploration guard this 'Know How' carefully, cosseting the staff embodying this knowledge. They will pursue long lists of potentially hydrocarbon bearing basins and plays in the manner described above, before selecting the few that might work. They will be 'good explorers'. The 'Losers' will depend on 'luck', or believe they can. I'm sure there are many ways to lose.but here are just three: 1. For a Major, with plenty of staff and 'Know How', nonetheless rely on an 'Exploration Supremo' who selects two or three opportunities and says 'one of these will work!' 2. Be a small company, with no/few staff and little 'Know How', and rely on one play, or a small number of prospects, 'working'. and finally
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3. Be an investor in several small companies (all with executive packages, corporate jets etc to pay for) in the belief that a 'portfolio effect' will somehow get 'luck' on your side!
View more quality content from OilEdge
BP profits plummet
Written by Hanife Mehmet from Contract Jobs Thursday, May 03, 2012 BP profits have fallen following the company's decision to sell some of its oil fields. This was so the company could pay for the Gulf of Mexico disaster fund. BP officials have also stated that the company is likely to see decreasing profits over the next quarter. Replacement cost profits showed to be down by 14% to $4.8bn. This is compared to profits of $5.28bn seen last year. Bob Dudley's, chief executive of BP, 'shrink to grow' business scheme has been somewhat blamed for the profit loss. Instead of focussing on established projects, Dudley's approach has been much more aimed towards finding new ground to cover. Profit drop expectations were only estimated at $5.1bn, however Bob Dudley made light of the loss by stating '"We have made a good start against our strategic priorities for 2012." The rise in oil prices had the potential to work in BP's favour, however, according to recent statistics, the company was unable to utilise this to their advantage. Oil prices are 12.5% higher than 2011 where the price per barrel stood at $105.42. Keith Bowman at Hargreaves Lansdown Stated: 'Like rivals Exxon and Chevron, BP has failed to take advantage of the higher oil price. For BP, the Gulf of Mexico accident continues to overhang, with asset sales impacting productionOn the upside, planned asset sales are 60% complete, new exploration projects continue to
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be pursued, while the costs, at least for now, for the Macondo accident are reducing." Thanks to increasing outgoing payments and new projects in the pipeline, BP profits are indeed likely to continue falling throughout the year. Whether oil and gas contract jobs will be affected is unsure due to the company's recent expression of prioritisation, which is likely to unfold further throughout 2012.
View more quality content from Contract Jobs
Interview: How water applies to the Oil and Gas industry

Written by Keith Schaefer from Oil & Gas Investments Bulletin Tuesday, May 08, 2012 OilVoice recently had a chance to sit down with Keith Schaefer, Publisher of the Oil & Gas Investment Bulletin to discuss the topic of water, and how it applies and is important to the oil and gas industry: OV: Keith, what is it about water that's so alluring? How does it apply to the oil and gas space? KS: Water use in the oil and gas industry is skyrocketing because of the Shale Revolution-so much so it's disturbing a lot of people-even in traditional oil and gas areas like Texas. Water is a deeply emotional issue, and because of that it's going to get regulated. And that's going to mean a lot of revenue for companies that can source, treat, recycle and dispose of water. It's one of the fastest growing sectors in the industry, and certainly one of the hottest. Investment bankers LOVE water stocks right now. OV: Give us an idea of how big an issue this is-give us some numbers. KS: In North America, over half the wells are now horizontal, and require hydraulic
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fracking to produce oil and gas out of all the shale and tight sand formations that everybody is chasing. And something like 80% of all new wells are horizontal with multi-stage fracking. These wells use 2-6 million gallons of fresh water-each. It's been estimated that in the US alone, the industry will require between 70-140 billion gallons of fresh water this year. And in a growing number of places, this water isn't free anymore. In the Marcellus shale of the Northeast USA, it can cost as much as $1 million per well just for water. There will be hundreds of wells drilled there in the coming years; somebody is going to make a lot of money dealing with all that water. OV: So is this where you see the business opportunity? In cleaning the water? Or is it in the supply of water? Both? KS: Each basin in North America has different water needs. So we will see the water industry develop in each differently. The other thing to remember here is that the water industry is quite new, and is literally forming before our eyes. The ink on the business model is still drying with edits coming along the way at every turn. Texas is quite dry, and has plenty of space to dispose of water (all the empty wells from the last 100 years), but is in dire need of supply. We've seen shale gas production in the Eagle Ford play, in southeast Texas, increase over ten fold in the last three years-and the Eagle Ford uses more water per well than almost anywhere in the US. So they need to source water. And one of their solutions has been to build water pipelines. Whereas, if you look at places like New York and Pennsylvania, that house the Marcellus shale, water supply isn't an issue, so much as the disposal is. They have lots of fresh water, but there's no place to put it afterwards. Texas has disposal wells; the northeast US doesn't have the geology for those. Instead of injecting the water back into the ground in disposal wells, these Marcellus wells require trucking and hauling to get that water out of there. This means that we're seeing a growth in the trucking industry in the Northeast, which hauls out the used, brackish water from the Marcellus wells to disposal wells over in Ohio. Texas needs pipelines to get the water, Marcellus needs trucks to get rid of the water. So each basin has its own needs. You asked where is the opportunity. Look at the trucking for a minute. It's not exactly a cheap or ideal process, but it's what they've got. The cost for this scenario breaks down into two stages. It costs $7-10 per barrel just to get it hauled to the disposal site and you can tack on $3 per barrel for the disposal once it's there.
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To make the math easier, I like to use the figure of 4.2 million gallons of water for my examples (because there's 42 gallons to a barrel). So, if we assume a well uses 4.2 million gallons of water to frack, that's 100,000 barrels. At $3 per barrel, that's $300,000 to dump the water, and another $700,000 or so to haul it. We're talking close to a million dollars or more, per well, just for water costs. So for a water services company, this almost becomes a license to print money. Close to a million dollars per well, and that's just for one well, remember there are thousands of these being drilled every year. With more than 80% of these new wells being horizontal and requiring fracking, the water bucks are there to be made at a rapid rate. OV: Aren't there ways to recycle or reuse the water to cut down on this consumption? KS: Right now, about 60% of the water we use comes back up to surface, so we can re-use that amount. But only half of that comes back right away, whereas the remaining half will gradually return over the life of the well. That locks up a lot of water for a few years, and at the rate we're drilling, that'll be a lot. So theoretically, we can recover that 60% over time, but in reality, the industry isn't actually recycling it. Instead, they're disposing of it, in what's called a disposal well. That water goes through a minor cleaning process, but doesn't actually become fresh water again. Sad, but true. OV: Are you seeing a lot of the pressure regarding water coming in the wake of the Gasland documentary? There are still a lot of concerns floating out there about how fracking has the potential to contaminate drinking water. KS: Oh yes. The anti-fracking movement is getting religious; messianic even. Scientifically, I really don't see this as an issue, but politically, this issue is huge. But this is good in two ways. One is, the industry is now being pushed to do things like make fracking fluid a food-grade liquid; you can drink it. While we may not get that far, I'm sure that in the near term, fracking will be much more environmentally friendly than it was 2-3 years ago. Second, it will mean even more money for water companies, because of increased political pressure and regulation. Producers will have to account for where they got the water, how much they used and what they did with it afterwards. Somebody has to pay for all that paperwork. And guidelines are only going to get tighter. That may not be the most efficient way, but I'm not judging that-I'm just trying to figure out who will make the most money from that and invest there. We might as well adjust how we look at the investment side of this, and take advantage of the opportunity. OV: What kind of changes are you actually seeing at the political level?
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KS: Well, just recently in March, we saw North Dakota announce a ban on all water pits at well sites. Producers were storing their frackwater at the surface in lined pits that were dug nearby. Needless to say, the problem they were having there was that some of these pits were susceptible to leakage. Water management can be difficult in North Dakota, because of the possibility of it freezing on you. In Texas, they had the opposite problem, as their water was evaporating. But half of all wells in the US still use these pits, regardless of the challenges they present. Now we're seeing a shift to alternatives, such as new types of water storage tanks that are costing a lot less and storing a lot more water than they did before. A cottage industry of companies supplying these new tanks is springing up, and those that sell or lease the tanks are getting fantastic margins for their efforts. They're also making their investors very happy. OV: So are you one of those investors? KS: For a few of those companies, yes, I am. OV: But what you just explained was for the storage and/or disposal of water. You did say that there was a possibility for the recycling of water. If we're to protect this water supply, there's going to have to be a lot of recycling going on too, right? What's happening on that end of the water boom? KS: The recycling portion is very important, and I call this the Holy Grail of the water services sector. It's a heated race right now, as several companies are competing to be the top dog in the industry with their own proprietary technologies. It's a bit of a back and forth between the servicers and the producers figuring out what is a fair price for this service. Right now, what I see is a cost of just under $0.02/litre or just over $0.075/gallon in treatment charges. If we do see a per gallon or per litre revenue model arise, I think it would become a very lucrative industry. This is what the service companies are aiming for. OV: So of the service companies that are out there, which are the ones that you are currently following, and why? KS: In the US, there's Heckman Corp. (NYSE: HEK) and GreenHunter (GRHNYSE/AMEX) and in Canada there is Ridgeline Energy Services (TSX-V: RLE)(OTCQX: RGDEF). Heckmann and GreenHunter are both trying to be a one-stop shop for water in the oil and gas industry. Heckmann's stock recently took a big hit because most of its work is dealing with the natural gas side of the industry. Since natural gas prices keep plummeting, the market has reacted quite negatively-fewer wells being drilled means less water being produced and therefore less revenue. GreenHunter has a water management software system called RAMCAT that tracks the water being used from cradle to grave in the oil and gas industry-or from
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sourcing through to disposing of it. Like Heckmann, they're buying disposal wells and developing infrastructure networks in various oil and gas basins across the US. Ridgeline, on the other hand has just completed their first deal to provide water purification and recycling systems to an oil and gas producer, with EOG Resources (EOG-NYSE). What's interesting about this setup is that Ridgeline is indeed getting paid on a per gallon charge, but at this stage won't say how much. So this is an example of the Holy Grail business model I talk about. They're also using the technology for municipal waste now in Los Angeles. This year they'll just work with EOG to roll out their water purification and recycling technology, but in 2013 I'm watching for some strong revenue growth. OV: Do you own any of the stocks you talk about here? KS: Yes, I own Ridgeline. OV: I understand you have a free report you are offering our readers? KS: Two reports, actually. One is a compilation of all my research on the water industry in the oil and gas sector. That's mostly a North American thing so far. But I recognize your audience is mostly European, and I have found that Europeans are much more comfortable with international oil plays than North Americans are. So I wanted to give your readers an idea on how I go about finding the Big Winners in the junior oil stocks in the international space. I've had great luck here with companies like Coastal Energy and Xcite Energy, both of which are dual listed in London. I explain my methodology in this free report. Click here now to access both reports from the Oil & Gas Investments Bulletin. OV: That sounds very interesting. Thanks for taking the time to talk with us today, Keith. KS: My pleasure, thanks for having me.
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June Featured University University College Cork

UCC was established in 1845 as one of three Queens Colleges at Cork, Galway and Belfast. The site chosen for the college is particularly appropriate given its connection with the patron saint of Cork, St Finbarr. It is believed his monastery and school stood on the bank of the river Lee, which runs through the lower grounds of the university. The Universitys motto is Where Finbarr Taught, let Munster Learn.
Contact School of Biological, Earth & Environmental Sciences Distillery Fields North Mall Cork Ireland Tel: +353 (0)21 021 490 4553/4575/4619 Fax: +353 (0)21 021 490 4664 bees@ucc.ie
The School of Biological, Earth and Environmental Sciences (BEES) was formed in 2010 through the amalgamation of the former Department of Geology, Department of Zoology, Ecology and Plant Science (ZEPS) and the Environmental Science Programme at University College Cork. BEES is recognised as a leader in teaching and research across all of our disciplines. You can find out more about BEES Teaching and BEES Research on this site.
Tullow Oil are proud to be an OilVoice Sponsor for University College Cork Tullow Oil's operations are global and span Africa, Europe, South Asia and South America. In recent years, in particular, activities and investment have been focused on major projects in Ghana and Uganda, which together with an exciting exploration portfolio across Africa, establishes Tullow as Africa's leading independent oil company. Want to Sponsor a University? OilVoice has created an opportunity for companies to help students gain a valuable insight into the industry from a worldwide perspective by sponsoring unrestricted OilVoice access to a university of their choice. Read more
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Insight: Raising the game for oil & gas data...

Written by Karl Jeffrey from Digital Energy Journal Tuesday, May 08, 2012 The oil and gas industry's IT systems could be better at working with real time data, managing new data types and providing analytics, says Jay Hollingsworth, director of oil and gas with Oracle. The oil and gas industry's IT systems are not able to handle many new data types, don't connect real time and static data well, and don't allow very good real time analytics of drilling data, said Jay Hollingsworth, director of oil and gas with Oracle, speaking at the Digital Energy Journal March 13th conference in Aberdeen on developments with subsurface data. 'When you talk about industry challenges with IT people, they are all surprised that we have some of these problems,' he said. Big data Big data is a fairly new technology term, which means a specific type of data, where the value is found from the analytics, not individual components of data. In this way, a list of bank transactions, where every piece is valuable, would not be considered 'big data', but a database of online purchases used to work out what someone might like to purchase next, would be. An example of big data would be a stream of temperature data from a well. Each individual reading is not worth so much, but by analysing how the temperature changes over a long period, you could get useful information, such as which factors cause the temperatures to change. Oil and gas companies often reduce the temperature data to a reading every hour to make the data volumes easier to manage, but in doing so lose a lot of the value. 'A surveillance engineer could make use of high rate data but he typically doesn't have that available,' he said. Big data typically has lots of varieties, including structured data (databases), unstructured data (documents), and something in between, for example when a report has fields in it which contain free text. For the full article, please go to the latest edition of Digital Energy Journal
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Insight: Running E&P work flows through a web browser...

Written by Karl Jeffrey from Digital Energy Journal Thursday, May 10, 2012 Oil & gas IT could be much easier if all data and application functionality was on a centralised database and computing platform accessed via a web browser, instead of using multiple PC software tools. Dr Duncan Irving of Teradata asks if it can be done. If the oil and gas industry was starting its IT from scratch, it would probably choose to do it like many other industries do it, with all data and software being accessed using web browsers, and all data running in a central database, says Duncan Irving, EMEA oil and gas industry consultant for data warehousing company Teradata, speaking at the Digital Energy Journal March 13th Aberdeen conference, 'Developments with subsurface data'. No complex PC applications, no subsurface 'projects', just one large database which all the company's subsurface, surface and sensor information was kept in, which people work directly with. So geoscientists and engineers would never have to move data between systems and reformat it. There wouldn't be problems of multiple data in different places about the same field. The database would be run according to standard computer science tenets of how to run a database, with long term stewardship, good data governance, and records of which people did what, at which time and with which version of the data. 'That would be a good place to be,' he said.
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But the oil and gas industry, and technology itself, have a long way to go before something like this can work. For the full version of this article, click on Digital Energy Journal
BP to start new oil rigs in Gulf of Mexico

Written by Hanife Mehmet from Contract Jobs Thursday, May 10, 2012 The latest reports surrounding oil and gas Giant BP state that the company are to start three new oil rigs in the Gulf of Mexico. Along with BP's existing rigs, these new developments will mean the company will have more operating rigs than it did before the Deepwater Horizon disaster three years ago. The company is said to eventually invest around 2.5bn into the new rigs and will follow up with fresh yearly investment. Bernard Looney, BP's executive in charge of new ventures stated: 'After much soul-searching in the fall of 2010, we concluded it would be wrong to walk away [from the Gulf of Mexico] We would have been walking away not only from our past, but from a key component of our future." Inevitably, the issue has raised issues about health and safety in light of the Deepwater Horizon disaster. BP has adamantly repeated that the company have learnt from the disaster and have named it as the company's biggest challenge to date. Furthermore, more in depth safety standards are to be put in place in the lead up to the new oil rigs. BP officials are yet to state where exactly drilling will commence, leaving no area out the equation. Oil and gas contract jobs are likely to be involved with BP's latest venture while plans continue to unravel.
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Insight: Technology is what matters

Written by Karl Jeffrey from Digital Energy Journal Tuesday, May 15, 2012 Shell said it spends more money than any other international oil major on research because it believes technology is the way to take the industry forward, says Director of Technology Matthias Bichsel. 'Technology is really what matters,' said Matthias Bichsel, Director Projects and Technology organisation with Shell, and executive committee member. 'It enables us to go after the more difficult fields.' Shell is spending large amounts of money on developing technology. Over the period 2006 to 2010 it spent $5.5bn in research, which the company believes is $1bn more than ExxonMobil ($4.5bn), and more than Total ($4.3bn), BP ($3bn) and Chevron ($2.8bn). Mr Bichsel cites statistics from patent data company Patentboard, stating that according to 2010 data, Shell has the strongest patent portfolio in the 'energy and environmental' industry, beating Schlumberger (2nd), Halliburton (3rd), Baker Hughes (4th), Exxon Mobil (5th), Weatherford (6th), GE (7th), Chevron (8th), Samsung (9th) and Siemens (10th). Important areas for current technology development are, amongst others, LNG, gas to liquids, enhanced oil recovery, smart fields, deepwater, unconventional gas and differentiated (special) fuels, he said. Emerging areas of technology development are floating LNG, carbon capture and storage, Arctic, advanced gas separation, coal bed methane to LNG, and next generation biofuels.
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Expected future areas of technology development are next generation seismic, maximised recovery, efficient / clean fuels, and low carbon energy. For more on this topic, click on Digital Energy Journal.
Oil money still pouring into Eagle Ford

Written by Mark Young from Evaluate Energy Tuesday, May 15, 2012 A new analysis by Evaluate Energy highlights the big differences in drilling costs between companies in North American shale plays. The data reveals how much companies are set to spend and how many wells they will drill in the coming year in each play, and provides a benchmark average cost of a drilled and completed well across 8 North American shale plays, based on these guidance figures. The Eagle Ford: Different Companies, Different Costs Taking the Eagle Ford as an example of Evaluate Energy's new analysis, the raw data itself draws some interesting comparisons. The Eagle Ford was arguably the biggest headline maker of 2011 in US Shale; the number of new wells drilled in Texas' liquids rich shale play in Q4 2011 was double the number in Q4 2010, and the price paid per acre in M&A transactions soared to over $10,000. Below is a graph of just 6 of the major operators in the area, and the average cost per well they reported in annual reports, corporate presentations and press releases:
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Evaluate Energy estimates the average cost per well for the Eagle Ford at $7.8m, using reported 2012 capex budgets, 2012 planned well activity and company reported cost per well. The wide range here shows Anadarko predicting to make a healthy saving on this amount, with its reported cost per well at $5.8m, but Rosetta Resources and El Paso Corp (currently being acquired by Apollo Global Management LLC) are set to foot a heftier bill, with costs at $9.5m-$10m. The disparity could be down to a number of things. In the Eagle Ford, location will play a big part; the play's depth varies greatly across Texas, and gas/oil ratios can also be highly varied even within counties, both of these may cause fluctuation in costs. The Eagle Ford is still in the relatively earlier stages of its development compared to its more mature and higher-producing neighbours - some companies will have identified the most efficient practices, while others are still experimenting. In comparison, the Haynesville play saw the figures amongst the larger operators ending up very similar. New companies entering the play, with either less experience or different methods, will also have an impact on the level of disparity. Evaluate Energy's horizontal drilling data shows Anadarko ($5.8m) have been drilling for oil/liquids in the areas of the Eagle Ford since Q1 2010, while El Paso ($9.5m) only started drilling for oil in the play a year later, and on a much smaller scale. This would suggest Chinese state-owned company CNOOC has made a good choice in joining forces with Chesapeake, a company that could arguably be considered the powerhouse of US Shale. (With US gas prices below $2/mcf, well below economic levels, it is assumed that most reported Eagle Ford figures will be referring to oil/liquids drilling rather than gas drilling.) 2012 Outlook According to Evaluate Energy's new analysis, 2012 will be another big year for the Eagle Ford. Using this average well cost of $7.8m, and reported capex/planned number of wells guidance figures, the companies/joint ventures destined to make
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major strides in the Eagle Ford this year can be predicted.
The number of wells itself here, for these 10 selected companies/joint ventures is quite remarkable. Even if the average well cost of $7.8m is applied to the data, these companies alone will be drilling around 1500 wells. From Evaluate Energy's data, it is clear that this number is a low estimate; of these 10 companies, 5 report average well costs, and Anadarko ($5.8m), Pioneer/Reliance ($7.5m) and SM Energy ($7.3m) are all projecting drilling costs below this $7.8m average. 2 of the 3 non-US companies listed above, Statoil and Reliance Industries, will be looking to the Eagle Ford to build on recent successes. Statoil, 50/50 Joint Venture partner with Talisman in the Eagle Ford, reported record quarterly company-wide production figures in Q1 2012. The Norwegian major has moved into US Shale since June 2011, acquiring Eagle Ford acres with Talisman, and then further displayed its faith in the sector with its $4.7 billion acquisition of Bakken-operator Brigham Exploration towards the end of the year. The record production figure was mainly made up of gas outside of the US, but shale oil is clearly one of Statoil's major plans to increase this number further. Pioneer's ambitious Indian partner, Reliance Industries Ltd, is also on a high right now, with the news that its US Shale segment, acquired in 3 deals in 2010 (Marcellus x2 and Eagle Ford), has reported $250m revenues and $30m profit for the 2011-12 fiscal year. With gas prices low, and activity in the Marcellus likely to fall this year, operations in the Eagle Ford will be important for Reliance if this success is to continue.
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RPS Energy is a global multi-disciplinary consultancy, providing integrated technical, commercial and project management support services in the fields of geoscience, engineering and HS&E.
Contact James Blanchard T +44 (0) 20 7280 3200 E BlanchardJ@rpsgroup.com
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Recently Added Companies

The OilVoice database has a diverse selection of company profiles, covering new start-up companies through to multi-national groups. Each of these profiles feature key data that allows users to focus on specific information or a full company report that can be accessed online or printed and reviewed later. Start your search today!
Midstates Petroleum
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US Oil Sands
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US Oil Sands is engaged in the exploration and development of oil sands properties. The Company, through its wholly owned US subsidiary, has a 100% interest in bitumen leases covering 32,005 acres of land in Utah.
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Shoal Point Energy

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An independent exploration and production company focused on the application of modern drilling and completion techniques to oil-prone resources in previously discovered yet underdeveloped hydrocarbon trends.
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Shoal Point Energy Ltd. is a petroleum exploration and development company based in Toronto, Ontario, Canada. The Company was formed in December 2006 to pursue oil and gas exploration opportunities within Atlantic Canada.
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Terrex Energy
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Graham Corporation
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Graham Corporation designs and builds vacuum and heat transfer equipment for process industries and energy markets worldwide.
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We are a Calgary-based junior oil company that specializes in the application of proven Enhanced Oil Recovery (EOR) methods to improve oil production from mature pools.
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Conquest Petroleum
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Conquest Petroleum Incorporated is a fully reporting public, independent production company involved in the development and production of oil and gas from previously identified reservoirs.
http://www.oilvoice.com/Description/aa25659b.aspx
Armour Energy is focussed on the discovery and development of world class gas and associated Liquids resources in an extensive and recently recognised hydrocarbon province in northern Australia.
http://www.oilvoice.com/Description/8db7c236.aspx
Atmos Energy
Natural Gas
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Atmos Energy is one of the largest naturalgas-only distributors in the United States.
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Oil and Gas Translation: Technical tips to increase your success rate
Written by Camilo Muoz from Translation Source Wednesday, May 16, 2012 As a dynamic and innovative sector, the oil translation industry presents new challenges for technical oil and gas translators on a daily basis. To help improve your translation success rate, we've interviewed our leading oil and gas technical translators to share the secrets of their success. The following is a compilation of their 5 key tips. 1. Keep up-to-date All translators interviewed agreed that in this ever-changing field, the most important thing was keeping up-to-date on industry terminology, processes, markets and politics. Continuous updating of specialized glossaries and acronym lists is a must because as Francisco A. Carrion puts it: 'As new technologies emerge, language evolves, and it's of utmost importance to keep informed and aware, to study industry related news, journals, blogs, etc. to sometimes even propose/create new equivalent terminology.' Our translators' best tips are to continue using new translation tools and allow integrated use of glossaries and internet resources. Also, says Francisco, 'The Schlumberger Oil Field Review is an amazing publication with the latest news of the industry.' 2. Focus Specializing in one sector of the market or one specific company can really increase your oil translation success rate since it allows you to learn and become increasingly knowledgeable of particular material. It takes, for instance, a different set of expertise to work on an elearning localization project for HSE global compliance than on the translation of a highly technical RFP. Translating important, complex, and highly technical documents is a huge responsibility and the same effort that was spent on the quality of the original material should apply to its translation. An ineffective translation could lead an oil company to long-term, potentially catastrophic problems later on. The more specific knowledge and expertise you can acquire, the better chance you'll have of avoiding potential problems and creating an excellent translation.
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3. Think Globally, Act Locally Today's oil industry stretches across the globe and consequently, in the oil and gas translation business, you may find yourself translating for a market that is totally unknown to you. Translator Elas Sauza says 'Translating for a specific target audience can be challenging since many oil translation terms vary from country to country. Research of the specific market is needed in order to be as accurate as possible and the translator needs to take advantage of any available resources targeted to that specific audience.' 4. Research your Terms Unanimously, the biggest challenge our translators face when presented with an oil translation is deciphering company-specific terminology. Each company develops their own products, processes, and equipment which presents a major hurdle for translators who must find non-documented terms and acronyms created by the client, with no external references. Spending time on research, reference material and glossary creation is key to delivering documents that comply with client's standards. Some of the best online resources for an oil and gas translation such as The Glossary of the Petroleum Industry, The Schlumberger Oil Field Glossary and Diccionario de Pemex Refinacion can be easily found in blogs and publications such as '36 Essential Translation Resources'. 5. Communicate with Client and Users Elas Sauza comments: 'I believe that the client should always be asked to provide specific references such as glossaries to help the translator be as accurate as possible.' Francisco A. Carrion further promotes open communication with clients, stating: 'When working with South American oil and gas companies, dialog and constant communication with the client is very important to be 100% aligned with their requirements.' Oil translation involves many technical complexities, don't be afraid to go to the client with any doubts about the project. Working together, you'll be sure to create a highly successful translation.
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Insight: Enhanced oil recovery for field life cycle

Written by Karl Jeffrey from Digital Energy Journal Thursday, May 17, 2012 In future, reservoir engineers will plan for enhanced oil recovery covering the entire lifecycle of a field - it won't just be something they think about at the end, Shell believes. Shell believes that it should be possible to increase recovery on a typical reservoir to as high as 70 per cent, using a mixture of advanced enhanced oil recovery techniques, together with careful field management. 'Historically, enhanced oil recovery (EOR) was what you thought about when there was nothing else to do [no other options to keep the field producing],' said Val Brock, Manager Improved Oil Recovery (IOR) and Enhanced Oil Recovery (EOR) with Shell. 'But we are really pushing a lifecycle view of a field' - where you plan from the start how you will keep the field running. In future, production from an oilfield could be enhanced using a range of different technologies during its lifetime. This 'mature field management' can also include smart (digital) surveillance, and more sophisticated wells and reservoir management. 'It's about how we manage a flood overall, but we also want to get to a molecular scale of understanding what is happening between the brine, the oil, and the rock so we can do that even better,' he said. You will also need systems which can manage the enormous amounts of data, something which is currently proving very difficult, he said. 'There's no one answer [for how to do EOR on a field],' he said. 'Every reservoir has a unique challenge. EOR can be the right answer, provided it's the right EOR.' Finding the right EOR strategy depends on many factors other than the field itself. Many EOR strategies require a steady supply of large amounts of fluids and gases for injection. Different EOR strategies need different surface equipment, so this needs to be taken into account as well.
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The term IOR,'improved oil recovery,' is generally only used for basic water or pressure maintenance type of gas injection. The term "enhanced oil recovery", or EOR, is used when the techniques are more advanced. For more on this topic, click on Digital Energy Journal.
Oil prices may double say IMF

Written by Hanife Mehmet from Contract Jobs Friday, May 18, 2012 The IMF (International Monetary Fund) has been informed by its own research team that oil prices could permanently double over the next 10 years. Although the world economy is used to oil prices spiking at months of a time, permanent doubling of oil prices could severely affect global trading. The news comes as the price per barrel is at an all-time high of $133. Furthermore, the news follows a statement from the International Energy Agency which suggests that worldwide consumption is likely to increase in order to fall in line with global economic recovery. IMF's report states: "While our model is not as pessimistic as the pure geological view that typically holds that binding resource constraints will lead world oil production on to an inexorable downward trend in the very near future, our prediction of small further increases in world oil production comes at the expense of a near doubling, permanently, of real oil prices over the coming decade," Although IMF have stated that the report is not a direct representation of their views, the study is likely to be held in high stature thanks to its accurate oil market readings in the past.
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Oil and gas contract jobs are likely to be effected by increased prices and consumption of oil prices if the study is to materialise over the next decade.
Insight: Does the UK have an energy strategy?

Written by Karl Jeffrey from Digital Energy Journal Thursday, May 24, 2012 Charles Hendry, UK minister of state for energy, gave a round-up on the UK government's current activities with oil and gas, speaking at a Lloyd's Register press conference on May 9. 'We don't think the role of gas has been sufficiently clear,' said Charles Hendry, UK Minister of State for Energy and Climate Change, speaking at the Lloyd's Register press conference in London on May 9th about the UK government's perspectives towards the oil and gas industry. 'We are in the process of developing a gas generation strategy, looking at what we need to encourage new gas plant.' 'The earliest we can have a new gas plant is 2019.' The earliest we can have a plant with carbon capture and storage is in the 2020s, the earliest we can have large scale wind is in the 2020s. But the energy pinch point is 'coming before that,' he said. 'We need to see more gas coming through but in a way which takes account of our low carbon obligation.' In addition to gas, he spoke about the North Sea, Safety, EU Regulations, Shale gas and Carbon Capture. 'We're looking holistically,' he said in summary. 'I think this is
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the closest we've had to an energy policy in years.' The energy industry before 'didn't deliver the right amount of investment we needed.' Read more by following this Link
'Waterless Fracking' Using LPG for greater oil & gas recovery
Written by Keith Schaefer from Oil & Gas Investments Bulletin Friday, May 25, 2012 Zeke Zeringue is a man with a plan. But the new CEO of Calgary based GasFrac (GFS-TSX) says shareholders need to understand it's a long-term plan. Zeringue took over as CEO of GasFrac in October 2011, 14 months after it went public on the Toronto Stock Exchange. GasFrac is unique in the global fracking industry in that it uses no water, and there is now a growing database that shows its Liquid Propane Gas (LPG) technology dramatically improves the overall recovery of oil and gas out of wells. The obvious environmental benefits, and promise of greatly improved well performance, made the stock a stellar performer in its first seven months. The share price moved up from its $5 Initial Public Offering (IPO) price to $14. The company gained coverage from many brokerage firms, national and regional. But less than stellar sales growth throughout 2011 to back that up has now cost shareholders dearly, with the stock sitting at $5.50 after GasFrac announced its first financial guidance in Q1 2012-well below the market's expectations. Zeringue says an industrial accident in January 2011, and a perceived higher cost for LPG has hurt revenue.
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The new plan, he says, is to get a critical mass of GasFrac's LPG fraccing unitscalled 'spreads' in the industry-into one or two basins in North America. And he is also educating customers-new and old-how using propane is actually very effective, over the long term. 'This is a critical part of the strategy,' Zeringue said in a phone interview from Houston. 'If you look at the price of propane in our jobs, and then the fact that we can re-use or sell that LPG, makes it more economic.' 'I'll put that against the economics of water fracking production-where they get charged to haul water away for years-any day. That's why I think LPG can stand up against water fracking costs today.' The disposal costs for water in both the Marcellus Shale in the northeast US and in Texas are sometimes as much as $10/barrel-making water costs on a well $1-$2 million or more. 'We used to talk to facility people, but now we talk to production people. We educate customers on how to produce an LPG fracking job. For example you can now sell the propane you recover. And there are other ways to get economics out of our process.' Zeringue says another part of his plan is to have GasFrac be more vertically integrated around LPG on the jobsite. 'If you look at LPG technology, I want GasFrac to touch every part of that, from propane delivery to everything. That's a fundamental change. 'Recycling was mentioned in the previous strategy, but it wasn't realistic. You have to understand how a job works and the infrastructure around it. When you look at recycling and capturing propane, it's more than just putting a unit out there. 'We need to help clients understand how propane is different than a flowback of a fracking fluid. So we have to understand the surrounding infrastructure so we can sell that value-add service. 'In the past we have let the operator make most of the decisions regarding how they decide to handle the flow back. It many instances, GASFRAC has felt there have been better ways to do it-to get more value out of the LPG. 'We now analyze the job and recommend, based on the facilities available on job site, if the customer should flare, recapture or put it in their sales line if available.' Zeringue says the other change in sales is that GasFrac wants to get a 'critical mass' of jobs in two or three basins. 'Critical mass' means enough jobs that keep two frack spreads busy, as they only need that many to make mobile propane recycling available. Recycling the propane reduces costs significantly. 'Our partnership with Green Field services is a prime example. They're starting to use natural gasin their frac pumpers versus traditionally using diesel. If we can figure
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out how to tie in our gelling system, it will create an even more more environmentally-friendly frac. GasFrac spent the first 15 months of its life as a public company doing a lot of onetime jobs, making sure the technology got tested in as many different basins (e.g. Barnett, Permian, western Canadian) as possible. But that's very expensive, as it means a lot of down-time moving from job to job and amortizing all those costs over a small number of jobs-and over a small amount of revenue. 'We've done the market surveys now, and I felt we were still doing that,' Zeringue says, explaining the change in strategy. 'Now we will be focused in basins. We have to take the study of what we have learned, and go promote those results where we are having the best impact. 'In the North, that is the Cardium (formation along the foothills of Alberta). The Cardium has some big players, and we're now on the frack calendar of some of those people. 'In San Antonio, we have an early adopter with BlackBrush, so we now have a second operating area we can build on; it now gives us a base we can build from in south Texas. We're in discussion with an outfit in the Niobrara (Wyoming/Colorado), hoping to build a base there.' And the reason that GasFrac is continually getting initial interest, is the same reason I bought the stock in the first place-that LPG recovers more oil and gas (often a LOT more) than using conventional water or oil. 'This technology does make a fundamental difference when it's being used,' Zeringue says, 'and that is starting to gain us back entry into companies who were going to wait and see. The limited data we have clearly shows we make a fundamental difference in the production of these reservoirs.' In their corporate presentation, GasFrac says they can increase the Estimated Ultimate Recovery (EUR) by 20-30%. In the early days of a Cardium well they were able to more than double production over water in the first two years. GasFrac signs Non-Disclosure Agreements (NDA) with clients, so they must wait until the client releases well data into the public domain before they can use as part of their library, and sales pitch. 'We explain the differentiation (between LPG and regular oil or water fracks) and the key ingredient has been the ability to have comparative data,' says Zeringue. 'This is first time I can go into a customer and show a material difference. Everybody else (in fracking) is the same, and the service is commoditized.' Alright, I said. So how is this new sales strategy doing in the field since you came in as CEO? 'In the US, being a Canadian company, it has simply been a marketing effort. We've had a bevy of companies that we have introduced the technology to, and a
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significant amount of those have asked for quotes. 'That's a critical stage. It means we've gotten past the vetting and we've got real interest. We just got note from Chevron and that helps. Chevron spent 2 years vetting our process through numerous third party safety audits and we were finally able to perform our first jobs for them in Q4 2011.' In Canada, he says, a January 2011 industrial accident has had a 'lingering effect' on sales. Several workers had third degree burns in a flash explosion on a jobsite. 'In the operations community in Canada, (sales) has been affected by the 'wait and see attitude' to deliver it (LPG) safely. And we have, working with Shell and Husky. So there is data that we now have that validates us and we use that in our business development.' Water has become a big issue in fracking-both the quality and the quantity. This should play right into GasFrac's hands. But Zeringue says it's still secondary for operators. 'Water has only been a BIG issue for last 6 months. The environment is not our lead punch, the science and economics are. I know this industry-'tell us what you're doing for my neighbour'-that's how they think. We're saying we can have effect on your EUR-they say 'Wow'; that's my lead punch. If they're under any pressure on water, that's just a benefit.' Zeringue's knowledge of the industry also makes him realize that industry adoption of LPG will take time. 'This is not a sprint, it's a marathon,' he says. 'The adoption curve for this industry says it's a marathon.'
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Written by Richard Jennings from Spreadbet Magazine Monday, May 28, 2012 Gulfsands Petroleum - 99p current price From a high of over 400p in early 2011, the shares continue to touch new lows below 100p. At the current price of 98p the market capitalisation is now just a shade over 115m and yet the company sits with around 68m of net cash. GP is being hammered due to the political and civil unrest in Syria and the effective halting of their activities within Syria in (its principal exploration asset) in the early part of the year. General Petroleum Company (GPC) - Gulfsands' joint partner in the Syrian operations (known as Block 26), has however continued to pump oil during this period and, at the beginning of February, Gulfsands was owed approximately $25m from GPC. In effect, the market has, at the current price, ascribed zero probability to a resumption of its Syrian activities and attributed almost no value to its other Global operations. As detailed in the last issue of our magazine, on the 11th May Mr Mahdi Sajjad (a Director) purchased 30,000 shares at 111.75 on behalf of a Discretionary trust his children are beneficiaries of, taking his total beneficial holding up to 8.65m shares. Back in February, Chairman Andrew West also purchased 17,500 shares at 179p. There is a further intriguing spin on the Gulfsands story and that is the stake-building by both Michael Kroupeev (the Russian oil financier who has amassed a stake of 18% of the shares in the past few months) and also Soyuzneftegaz (a group headed by Yuri Shafranik, Russia's former energy minister) that has picked up 3.4%. Clearly these boys see value and they each have prior 'form'. Rumours of predatory takeover interest by CNOOC (China National Offshore Oil Corporation) is likely to commence in earnest again at these depressed levels... Finally, recall that back in April 2010 Gulfsands received an unsolicited bid proposal from Oil India Ltd & Indian Oil Corp Ltd at a price of 315p (over 3 times the current price and illustrative of the type of re-rating that will likely occur should the Syrian situation reach a positive conclusion) and that was unanimously rejected as undervaluing the company at that time. Should political signs of stabilisation and/or Government change in Syria become apparent, then I fail to see how the shares
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cannot re-rate or alternately be swooped upon by a predator. UPDATE - another RNS this morning from Waterford increasing their stake to just under 20% shows they agree with us! Heritage Oil - 128p current price Heritage's shares, in our opinion, currently trade at the lowest valuation relative to risked NAV within the mid cap Oil & Gas exploration sphere today. The company has been sold down to such a degree over the last 15 months that in fact, the shares now trade at only a modest premium to cash. Indeed, the depletion of shareholder value has been so great that although the path to monetisation of their gas find in Kurdistan is becoming clearer by the day, thatv almost no value is now ascribed to this. It is worth remembering that the Miran field alone has been valued at upto 300p per share. It is also interesting to note that the major shareholders including Tony Buckingham himself (CEO) and Lansdowne (no fools) have not reduced their holding in the company during this savage downdraft. In fact the company itself has bought back in excess of 30m of their own shares during the last 12 months - with an average purchase price approaching 200p - they saw value here and "Mr Market" has now thrown us the opportunity to pick up shares at 125p. I would suggest those readers not familiar with our Conviction Buy recommendation (one of very few that we have issued) on this stock take a look at our link here http://www.issuu.com/spreadbetmagazine/docs/spreadbet-magazine-v4_generic (Page - 26) and that sets out a detailed valuation case for Heritage Oil. Bowleven - 66p current price Bowleven's activities focus on West Africa in Cameroon. The Etinde Permit was the main focus of drilling in 2011 (Bowleven 75%; Vitol 25%) and comprises approximately 2,316 km of exploration acreage located across the Rio del Rey and Douala Basins in offshore Cameroon. In late 2010 and early 2011 the shares rode up to 4 on hopes that its acreage could be the next Tullow oil. However, a series of drilling disappointments on its Sapele well drills hit the shares hard. In February 2012, the company announced a potential takeover bid by Dragon Oil, which to everyones surprise very quickly came to nothing. Further drilling activities on the Etinde discoveries are planned for this year and next, with two firm wells and two contingent wells beginning with IM-5 appraisal well on block MLHP. The start of of exploration drilling programme onshore Bomono is also planned for the second half of 2012. Following fund raisings in November 2011, the company had around $125 million of cash at the end of 2011. In April the company signed a Memorandum of Understanding between SNH, German company Ferrostaal GmbH and EurOil Ltd with a view to supplying natural gas to a chemical fertilizer plant in Cameroon potentially making its existing gas find a commercial proposition.
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With OIP (Oil in place) of around 650 mm barrels plus and substantial gas finds in the exploration undertaken by the company to date, Bowleven already have a substantial base case valuation. Drilling success in Q2/Q3 this year could cause a serious uprating of this share which is currently at 66p. The market cap of 192 million, attibutes only 114 million to the discoveries to date and almost discounts as worthless the permits the company holds. Not without risk, but the risk/reward ratio looks very positive indeed for Bowleven with broker price targes in excess of 200p per share and, during the Dragon Oil bid excitement, valuation justifications upto 250p being put on the stock. Xcite Energy - 106p current price North Sea focused Xcite Energy's shares remain very much in the doldrums after a series of disappointments in 2011. After peaking around 4 in December 2010 on a successful flow test of the company's Bentley heavy oil field, the shares have been sold off sharply on a reserves announcement which were less than hoped, as well as an extension in the timescale to get commercial oil to market from early 2012 to late late 2013. In January 2P (proven & probable) reserves of 116 mm barrels were confirmed by auditors and in April the company received a $50 million unsecured loan from Canadian based West Face capital. Xcite is currently drilling the 9/3b-7 well by the Rowan Norway rig to allow an extended well test to take place to validate the Bentley reservoir model. First oil is expected in June, with the test being completed over a 3 month period. The shares should respond to further news on the well test as well as any progress on reserves based lending (RBL) to allow the next stage of the field development. At 106p, XEL looks like an inexpensive and relatively low risk play on the resumption of North Sea oil production. At the current Enterprise value:2P, we wouldn't be surprised to see a resumption of takeover speculation - something that the volume and share price move in recent days may be pointing to... Falklands Oil & Gas - 90p current price Falkland Oil and Gas, is a South Falklands basin focused oil and gas explorer. The Leiv Eiriksson drilling rig was secured in May 2011 through a deal with Borders & Southern and Ocean Rig 1 and is due to start drilling on FOGL acreage following the completion of Border's stebbing prospect in June/July 2012 at a cost of around $180 million. Two exploration wells will be drilled, Loligo and Scotia or Nimrod. The prospective resources of Loligo are 4.7 billion barrels and Scotia/Nimrod are around 1 billion barrels. In March 2012 the company announced that it had granted an option to an as yet anonymous company to farm-out a maximum of 25% of the FOGL licences which gives FOGL significant financial leverage to maximise its drilling activities during the remainder of 2012. Following Borders & Southerns gas find last month in the South Falklands Island basin and the subsequent placing and retracement of BOR's shares, it is intriguing to note that FOGL have largely held onto the gains running into this announcement. It seems the overhang of stock from the rundown of the old RAB Capital portfolio is no
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longer an issue too. Regular readers of our magazine will recall our article in the special Feb/Mar Oil Explorers edition on Pages 76 & 77 (Link here http://www.issuu.com/spreadbetmagazine/docs/advfn) and where we set out the potential upside for this stock. The discovery of hydrocarbons (gas condensate) in the South Island basin by BOR actually de-risks the exploration program of FOGL and make no mistake if they do strike oil in the potential monster prospect that is Loligo the share price will be many multiples higher. This is a higher risk prospect with substantial upside on a positive drilling outcome but investors should remember that a chance of success (COS) is around 25% for each well. Don't bet the house on this one! Northern Petroleum - 70p current price At the current market cap of 67m Northern Petroleum trade at a premium of 40m to its last reported cash reserves. Nop's geographical activities include the Netherlands where they are actually producing oil & receiving revenues. The company's licences include the potential for exploring the Shale basins in the North & West of the Netherlands and where an independent study has estimated gross reserves of between 20-30bn barrels of oil. The company's activities also extend to Guyane, Italy & the UK and which includes both gas and oil prospects. Consensus broker price targets exceed 100p per share and at the current price the shares offer good value. Please note however that this is quite an illiquid stock.
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Insight: European Commission proposal for regulation of offshore safety and environmental protection...
Written by David Bamford from OilEdge Tuesday, May 29, 2012
Last week we had an excellent Finding Petroleum Forum on 'Improving offshore safety beyond Macondo'. I particularly want to draw your attention to the presentation by Taf Powell, an expert adviser to the European Commission on its proposals for the regulation of the offshore oil & gas industry. Taf Powell is in the European Commission as an expert to advise the Commission in its programme for an offshore Regulation. He is from the UK where previously he was Director of HSE's Offshore Division, joining HSE from industry to work on the post Piper Alpha reforms and between 2006 and 2008 led the Government's independent investigation into the Buncefield explosions and fires. You can find Taf's slides here, along with the video of both his presentation and the interesting Q&A session which followed(the latter obviously not covered by the slides). Listening to Taf, I found myself agreeing with what he said. What I want to do here is to draw your attention to 3 aspects: 1. That we may well be talking here about Regulation rather than a Directive this meaning that member states have to obey the proposals.
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2. The idea that a company should be able to provide some sort of guarantee, against the cost of any damages incurred. 3. The notion of extra-territoriality - that is, these proposals would apply not only to companies operating in EC waters but also to companies domiciled in the EC wherever they operate. This is both worth reading/listening to and worth thinking about!
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Ithaca Energy crashes down to earth as another AIM takeover falls through
Written by Richard Jennings from Spreadbet Magazine Wednesday, May 30, 2012
Ithaca Energy shares tanked today (29th May) after confirming that it had ceased discussions with all parties regarding the potential takeover of the company. The failed talks come after similar stalled deals involving Wessex Petroleum and Bowleven. The RNS stated that 'The Board has concluded that continuing the current process at this time was unlikely to produce a transaction with financial terms that properly reflect the value of the Company, particularly in light of the current volatility in global markets and the short term softening in Brent crude prices. In reaching this decision the Board of Directors has fully considered the Company's current value, its growth
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potential, the future value that can be delivered to shareholders and the responses of the third parties with whom discussions have been held.' The shares fell 31% to 122p on AIM and touched a lot of 114p just after midday. On the Canadian TSX they finished at CS1.83 (1.14), a drop of 35%. The shares are now back to where they were before the takeover, but also before Athena first oil, a debt deal and confirmation of the Stella DECC approval. Though the takeover is history there is plenty to support the board's view that there is intrinsic value in the business:

Assets in North Sea with low geo-political risk Market capitalisation of 316 million, with 2013 p/e ratio of less than 3 First oil from Athena field at end of May 2012, increasing production from 5000 to 10,000 barrels of oil per day during Q2 2012 Ithaca will produce revenues of $150 mm in 2012, $300 mm in 2013, and $575 mm in 2014 (assuming $100 per barrel), with the North Sea Athena field coming fully on stream in June 2012 and Greater Stella in Q4 2013. $136M of the 2012 and 2013 revenues are underpinned by commodity hedges at $118 per barrel $111M cash balance at end of Q1 2012 with $400mm of senior secured borrowing base facility in place with BNP Paribas (plus $30M cost overrun) $380M is available for immediate use to fund field development and up to $250M for acquistions. 52M barrels Proved and Probable (2P) reserves $330M* tax allowances pool and UK tax incentives recently increased to facilitate development of fields with reserves up to 45MMboe. Small Field Allowance (SFA) provides fields with up to $240M of shelter from 32% Supplementary Charge. Both Stella and Harrier fields to benefit from recent SFA changes
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More pieces of the puzzle falling into place for Xcite Energy
Written by Richard Jennings from Spreadbet Magazine Thursday, May 31, 2012 After an upbeat AGM last week for Xcite Energy, a welcome operational update was delivered yesterday (29th May) from the company which also included some serious reassurances that the current extended well test (EWT) phase 1A is on track with no technical issues. The horizontal is 400 feet longer than the original appraisal well (9/3b-6z) drilled in late 2010 - 2200 feet versus 1800 feet, with the reservoir integrity continuing to be maintained with 100% net pay. With this strong reservoir integrity, and together with EOR (enhanced oil recovery) techniques during the well test, investors can proobably expect a reserves upgrade in due course from the current 116 mm barrels of oil. It is possible that auditors TRACS could updgrade the core area of Bentley beyond 150 mm barrels when the full results from the well test are complete; the board seem very confident that 116 mm barrels is purely the base case. It was also good to see Socius warrants finally knocked on the head. Onwards and upwards for investors from here. If a reserved based lending deal can be done, Socius can be consigned to company history for good as this deal has done shareholders no favours with the perpetual stock overhang 29th May 2012- update on 9/3b-7 well Xcite Energy is pleased to announce that the 9/3b-7 well has reached target depth of 9,377 feet (measured depth). A reservoir section in excess of 2,200 feet has been penetrated, with 100% net pay, and sand screens have been run successfully. The remainder of the planned operations, including drilling of the second reservoir section, installation of the downhole pump and commissioning of the processing equipment will now be undertaken prior to the production test commencing. The two 6' export pipelines from the Rowan Norway have been successfully installed and the installation vessel, Polar Prince, has been released. 8th November 2010 - update on 9/3b-6z well The horizontal section has reached the planned total depth at 7085 ft measured
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depth in the well section and has successfully tracked the top of the reservoir. This provides over 1800 ft of gross reservoir section since reservoir entry point of 5261 ft measured depth. The reservoir in the 9/3b-6z well bore section was encountered at an estimated 3618 ft true vertical depth subsea, some 18ft higher than the pre-well prognosis of 3636 ft true vertical depth and thus giving more oil column. Petrophysical analysis is being undertaken and is expected to confirm close to 100% net to gross oil pay. In a nutshell, the valuation is grossly out of sync with their 2P reserves relative to industry takeover deals (but then again this is the case with many of the current Oil explorers) - unless the market begins to correct this soon we suspect that the slide rule will begin to be run over the company in the near term. Question is what price would management seriously entertain - it must begin with a 2 and more likely towards the 3 level to get their vote. Contrarian Investor UK In the interests of clear disclosure I declare that I am long Xcite Energy (average 111p)
Doing more with data

Kuala Lumpur, October 24-26, 2012
Finding Petroleum / Digital Energy Journal is running 3 one day conferences in Kuala Lumpur, Malaysia, on October 24, 25 and 26 on doing more with petroleum data, covering drilling, subsurface and production data. These 3 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry. The conferences are for people who work with drilling, subsurface and production data, who want to learn about new ideas and new technologies to make their data work harder, to improve efficiency and safety of drilling, ability to find new reservoirs and extend existing ones, and maximise production. The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24. Attendance is free - register now to secure your place.
October 24 - Doing more with with drilling data October 25 - Doing more with subsurface data October 26 - Implementing data tools faster
The aim is (i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data, and (ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip. The events are supported by the South East Asia Petroleum Exploration Society and Energistics, and timed to co-incide with the Energistics National Data Repositories conference in KL. The events will be free to attend. For days 1 and 2, we will look for financial contributions from speakers - in the range 14600 MYR / USD 4760 / GBP 3000 for a morning slot and MYR 9750 / USD 3200 / GBP 2000 for an afternoon slot. Sponsorship opportunities are also available. The third day "getting data implemented faster" will be panel discussions, chaired by Jerry Hubbard, CEO of Energistics, and participants in the first 2 days' sessions will be invited to join.
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292, e-mail jfinder@onlymedia.co.uk
Reserve your place now at FindingPetroleum.com
48
New IMF working paper models impact of oil limits on the economy
Written by Gail Tverberg from Our Finite World Thursday, May 31, 2012
The International Monetary Fund (IMF) recently issued a new working paper called 'The Future of Oil: Geology versus Technology' (free PDF), which should be of interest to people who are following 'peak oil' issues. This is a research paper that is being published to elicit comments and debate; it does not necessarily represent IMF views or policy. The paper considers two different approaches for modeling future oil supply: 1. The economic/technological approach, used by the US Energy Information Administration (EIA) and others, and 2. The geological view, used in peak oil forecasts, such as forecasts made by Colin Campbell and forecasts made using Hubbert Linearization. The analysis in the IMF Working Paper shows that neither approach has worked perfectly, but in recent years, forecasts of oil supply using the geological view have tended to be closer than those using the economic/technological approach. Since neither model works perfectly, the new paper takes a middle ground: it sets up a model of oil supply where the amount of oil produced is influenced by a combination of (1) geological depletion and (2) price levels. This blended model fits recent production amounts and recent price trends far better than traditional models. The forecasts it gives are concerning though. The new model indicates that (1) oil supply in the future will not rise nearly as rapidly as in the pre-2005 period and (2) oil prices are likely to nearly double in 'real' (inflationadjusted) terms by 2020. The world economy will be in uncharted territory if this happens. It seems to me that this new model is a real step forward in looking at oil supply and the economy. The model, as it is today, points out a definite problem area (namely,
49
the likelihood of oil high prices, if growth in oil production continues to be constrained below pre-2005 rates of increase). The researchers also raise good questions for further analysis. At the same time, I am doubtful that the world GDP forecast of the new model is really right-it seems too high. The questions the authors raise point in this direction as well. Below the fold, I discuss the model, its indications, and some shortcomings I see. The Two Models Economic /Technological Approach. With the economic/ technological approach, the assumption is made that high oil prices will encourage substitution and/or new oil production. Because of this, high oil prices are not expected to persist. Instead, the most important consideration in determining future oil supply is the level of future demand. The level of future demand, in turn, is primarily driven by anticipated GDP growth, since world GDP growth and world oil production growth tend to be highly correlated. In effect, models of this type assume that whatever oil supply is needed will be available; they don't consider the possibility that geological considerations may limit oil supply over the long term. As an example of how well these models have worked for prediction, the paper shows a graph of historical EIA forecasts (Figure 1, below).
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Figure 1. Graph showing that oil production forecasts by the US Energy Information Administration have been revised downward, year after year, from paper. Each year, EIA's forecasts have been adjusted downward, because actual oil supply growth was lower than forecast. Models Based on the Geological View. The paper considers forecasts of oil supply such as those of Colin Campbell (shown in ASPO-Ireland Newsletters) and forecasts based on Hubbert Linearization to be models based on the Geological View. The paper observes that forecasts of oil supply based on geological view have tended to be too low, but not by as big a margin as those made using the economic/technological approach. As an example, it gives the following graph of changes in forecasts by Colin Campbell.
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Figure 2. Colin Campbell Forecasts of Future Oil Supply, from paper. A review of the two methods by the IMF group indicates that neither works precisely as hoped, but each has some validity. While oil production did not rise as fast as the economic/technological view would predict, higher oil prices have allowed oil production to stay on more or less a plateau after 2005, rather than declining as predicted by geological methods. The new model in the IMF Working Paper combines indications from both points of view, using an approach that allows them to estimate the relative contribution of geological impacts vs higher prices. How the Two Methods are Combined The oil supply equation in the new model is set up so that there are two different ways that the forecast oil supply can change. There is a downward tug from oil depletion at the same time that there is an upward tug from oil prices. It is expected that in the short run, high prices will get producers to utilize spare capacity, and over a longer period (estimated at 4 to 6 years), it will get producers to add new capacity. I will not try to explain all the variables and coefficients, but the blended supply
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equation is
Figure 3. Oil Supply Equation In the above equation, qt is the quantity of oil produced in year t and Qt is the cumulative quantity produced in year t, so the ratio qt / Qt produces the familiar downward-sloping line one sees in charts used for Hubbert Linearization. The first two terms to the right of the equal sign are the ones based on the geological approach to depletion. The later terms depend on pt, which is price of oil at the time 't'. Adding the pt terms tends to raise the line at later periods so it does not slope downward as quickly as if depletion were the only factor affecting the relationship. Growth Rate of GDP In the model, high oil prices have some impact on GDP, but as we will see in Figure 5, below, not very much. There are two places in modeling GDP where high oil prices come into play. The first is in the Potential Growth Rate of GDP. According to the paper, The growth rate of potential world GDP is specified as fluctuating around an exogenous long-run trend, with oil price changes making the fluctuations more severe. Oil prices are allowed to have persistent but not permanent effects on the growth rate of GDP. . . The estimated steady state world potential growth rate of potential GDP equals four percent. The average annual growth rate of real oil prices, which is the growth in oil prices at which the model assumes zero effect of oil prices on output growth, is seven percent. The results indicate that an oil price growth that is higher than that historical average has a small but significant negative effect on the growth rate of potential. [emphasis added] Interesting-the model assumes real oil price growth of 7% per year has no impact growth rate of GDP. Perhaps this is supposed to be picked up by the second place where high oil prices come into forecasting GDP, called Output Gap. This is an excerpt from what the paper says about Output Gap: Apart from allowing for an effect of higher oil prices on the growth rate of potential output, the model also allows for the possibility that higher oil prices can cause fluctuations in the amount of excess demand in the economy. . . . Similar to the equation for potential, the coefficient estimates show that high oil prices have a small but significant negative effect on excess demand, and that this effect is highly persistent. Model Output When all is said and done, what does the IMF model forecast?
53
Figure 4. Oil Output Forecast with Error Bands, (in gigabarrels per year), from report. The forecast for future world oil supply, shown in Figure 4 above, is similar to EIA's most recent forecast of world oil supply (but lower than earlier EIA estimates). Oil supply is expected to rise a 0.9% per year. An alternate tighter oil supply forecast is given as well. The forecast for world GDP growth (shown in Figure 5 below) is not too much different from standard estimates, either. The point forecast is about four percent per year.
Figure 5. World GDP (in logs) forecast with error bands, with 2011 world GDP normalized to 1.00, from report.
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The thing that is different in this analysis is oil prices (in inflation adjusted dollars). Forecast oil prices are expected to be much higher that what the EIA is estimating.
Figure 6. Oil price forecast with error bands (in 2011 Real $) from report. The report points out that these high oil prices are a real concern. The report says: The predicted average annual growth rates of oil output are well below the historical forecasts of EIA, but above the forecasts of proponents of the geological view. . . . However, this projected positive trend in oil production comes at a steep cost, because the model finds that it requires a large increase in the real price of oil, which would have to nearly double over the coming decade to maintain an output expansion that is modest in historical terms. Such prices would far exceed even the highest prices seen in 2008, which according to Hamilton (2009) may have played an important roll in driving the world economy into a deep recession. Need for Enhancements /Areas of Concern Pointed Out by Authors of Paper The authors raise of the IMF Working Paper raise the following issues: 1. Impact of high oil prices on GDP growth. The expected impact of a continued rise in oil prices on forecast GDP is small, according to the model as constructed. Perhaps the relationship should be non-linear (convex) instead of linear. More generally, what is the importance of the availability of oil inputs for continued overall GDP growth? The report mentions studies showing the close connection between energy growth and GDP growth, such as by Ayers and Warr.
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2. Substitutability for oil. What is the substitutability between oil and other factors of production? Is it reasonable to assume that elasticities of substitution will become greater over time? Or is there a possibility that there are limits to the extent of substitutability of machines and labor for energy? 3. Is there a pain barrier? At some point, does the effect of high oil prices on the economy change, and become much worse? 4. Independence of Technology from Fossil Fuel Availability. Perhaps a reduction in fossil fuel availability will negatively affect the availability of future technology improvements since, for example, it takes fossil fuels to make new more efficient cars. This has not been reflected in the model. 5. Smaller Amounts of 'Spare' Oil Capacity Available in the Future. The model reflects amounts of OPEC spare oil production capacity available in the past. In the future, less spare production capacity seems likely. My Comments on the Paper The IMF is to be commended on putting together this analysis. To me, the big step forward is that questions about the impact of geological depletion of oil on the economy are starting to be addressed. The fact that the paper also points out the level to which oil prices will need to rise, if oil production is to rise at 0.9% a year between now and 2020, is important as well. Some of the issues I see that aren't addressed in the paper: 1. Factors underlying world long term growth rate, other than energy. It would seem to me that there are a number of factors which have permitted long term world economic growth, over and above the economic growth enabled by fossil fuels. Some of the following seem to be diminishing in importance, so perhaps the forecast of a 4% world GDP growth rate going forward is too high, apart from oil supply issues: a. Trend Toward Globalization. The trend toward globalization has allowed greater synergies to occur, and thus has contributed to world GDP growth. The trend toward globalization started over 4,000 years ago, with trade from northwest India to the Mediterranean region (Chew). In recent years, we seem to be approaching a maximum level of world globalization. In fact, higher price of oil has been raised as an issue cutting back on trade of bulky, low valued items (Rubin). Higher cost of oil may also have an adverse impact of commercial airline flights for international companies to oversee their distant operations, because the costs of these flights is now supported by a large number of international tourists, and this international tourist trade may dry up. Thus, the trend toward globalization that has been supporting world GDP growth in the past may not persist, and may even reverse. b. Growth in Education. Part of what has supported world GDP growth is likely growth in education, since literate workers are better able to use technology. There is evidence that the advanced economies are now plateauing in terms of educational level of new workers, relative to the existing work force. Even less advanced
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economies, such as China, are showing much higher levels of literacy. (See this post). To the extent that educational levels are reaching a plateau, the 'boost' to historical GDP rates that came from this factor can be expected to be lessened. c. Growth in Debt. GDP growth is enabled by debt growth. Consumers are able to purchase more goods and services, with increased levels of debt; businesses are able to increase their investment in new plants and equipment through more debt; and governments are able to undertake the development of new construction, roads, and other development, through the addition of more debt. But we seem to be reaching limits on debt growth. Theory also suggests that higher levels of debt are enabled by higher economic growth rates (Tverberg). Governments have been aware that increased borrowing can be used to pump up economic growth, but limits are being reached on the amount of debt that can be added. To the extent that debt fails to grow as quickly in the future as it has in the past, this can be expected to have an adverse impact on world GDP growth rates. d. Quantitative Easing and Extraordinarily Low Interest Rates. An argument can be made that GDP growth of advanced economies in recent years has been held up by quantitative easing and extraordinarily low interest rates. These would seem to be a temporary fixes that cannot be continued long-term. If this is the case, world GDP rates can be expected to be lower in the future, regardless of oil supply growth. 2. Limits on Substitutability of Other Fossil Fuels for Oil. The paper does not address the issue of whether there are limits of substitutability of other fossil fuels for oil. Stationary (as opposed to transportation) uses of oil have been substituting away from oil for years. There are millions of vehicles and other machines that use oil currently in operation. There will be a high cost in replacing these before the end of their normal lifetimes. Also, significant fossil fuels will be required for making vehicles and supporting infrastructure that use another fossil fuel source. 3. Limits on Capital Available for New Investment in Substitutes for Oil, and in New Oil Production. In recent years, we have made heavy use of debt financing for new investment. Government subsidies have also been used. To the extent that debt financing and government subsidies are less available, less investment can be expected in the future. 4. Impact of High Oil Prices on Diverse Parts of the Economy, Not Reflected in the Model. For example, prices of homes may be affected by high oil prices. People with less discretionary income are less likely to 'trade up' to a more expensive homes, so high oil prices seem to be one of the reasons for the decline in home prices (Tverberg). Lower home prices affect ability of homeowners to borrow against the value of their homes for new purchases, so affect GDP, apart from oil price's direct impact on the number of new homes built. 5. Which comes first: Oil Growth or Economic Growth? The assumption in the model is that GDP growth drives oil growth. While this is true, it is to some extent a 'chicken' and 'egg' situation. Perhaps the availability of inexpensive oil and other fossil fuels is one of the main drivers of economic growth (in addition to the other drivers I mention in the subparts of Item 1 above). Perhaps the cycle is started by the availability of cheap fossil fuels for industrial use and continued by the increased
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demand to which this growth gives rise. *** I appreciate the work that has been done by the IMF in putting together this model and look forward to seeing further enhancements to the model. The work that has been done and the questions that are being raised are important ones. I expect that commenters to this post will be able to point out other plusses and minuses of the model. The report itself is very interesting. Again, it can be found at The Future of Oil: Geology versus Technology.
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The oil explorers dream list... A portfolio to put away for 12 months.

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