Providing coverage of Alaska and northern Canada's oil and gas industry
March 2004

Vol. 7, No. 10 Week of March 07, 2004

The Oil Patch Insider

Canadians join forces to trap harmful gases underground

The Canada and Alberta governments have achieved a rare moment of harmony on an environmental issue.

They joined forces March 1 by agreeing to share costs in a C$30 million experiment to create a market for greenhouse gases.

The federal government will make C$15 million available over the next two years as royalty incentive for companies to develop ways to reduce harmful air-borne emissions, matching Alberta’s previously-announced C$15 million royalty credit program announced last summer.

Known as carbon flooding, the technique involves the injection of carbon dioxide to increase pressure in depleting oil fields, forcing the crude to the surface. The gas is then stored underground.

EnCana is using the process to recover as much as 125 million barrels from old reservoirs in Saskatchewan, adding another 20 to 25 years to what was a tapped-out field. In that case the carbon dioxide is shipped to the site from North Dakota.

Alberta Energy Minister Murray Smith said carbon flooding could see the province extract significant amounts of oil and gas.

He suggested there is almost as much trapped underground as Alberta has produced to date.

Smith and federal Natural Resources Minister John Efford said the technique could help Canadian companies reach the emission targets set in the Kyoto Protocol.

But the Alberta-based environmental research group Pembina Institute is not sold on the idea, saying there is not yet conclusive proof that the carbon dioxide will remain underground.

Location for ANWR test well moves west …

It looks as though the proposed stratigraphic test well offshore the Arctic National Wildlife Refuge will be drilled farther west than state officials recommended. They will likely be closer to Anderson Point, in the vicinity of the Warthog and Kuvlum prospects versus on unleased state submerged lands 30 miles northeast of Kaktovik, Alaska, between the state’s three-mile limit and ANWR’s coastal boundary offshore from the Angun oil seep.

“It appears most of the companies interested in participating in this project want the well farther west,” Jim Cowan told Petroleum News March 3. Cowan, an Alaska Division of Oil and Gas geologist, is in charge of the ANWR strat well project for the state. “If the well gets drilled, they will be drilling into a similar stratigraphic section that was drilled in those two wells (Kuvlum and Warthog).”

Although no companies have confirmed they will participate in the ANWR test well or selected an exact location, those companies that are interested have decided the best way to drill the well would be with the SDC drillship used by EnCana last winter to drill the Beaufort Sea McCovey well.

“ASRC Energy Services polled the companies, giving them three options – drill from an ice island, a bottom founded barge with a drill rig on it or the SDC,” Cowan said. Anchorage-based ASRC Energy Services was awarded the state contract last fall to draw up preliminary plans for the well, determine how much it will cost and put together a consortium to drill it.

Cowan said he hopes to have firm commitments from participating companies by the end of March.

ASRC is “currently looking at how to initiate permitting, what’s the best way forward, so that there is enough time to drill a well in the next drilling season, the winter of 2004/2005,” he said.

A consortium drilling a strat well on state lands in Alaska is not required to drill off-structure, as would be the case if it were drilling on federal lands. Meaning the consortium can target, and hit, oil.

Common in frontier areas, strat test wells are generally designed to provide geologic data about an area, such as defining the nature of petroleum systems, identifying source rock potential and assessing reservoir quality, etc.

Energy worries — what do you mean?

There is nothing to fear but fear itself when it comes to energy shortages in North America, says a new poll.

The study found that a majority of those surveyed in the United States and Canada are braced for shortages of electricity, natural gas, home-heating fuel and gasoline in the next five years.

But 61 percent in Canada and 60 percent in the United States believe governments and the energy industry are guilty of stretching the truth to support their political or financial goals.

The poll, released March 1, was done by Ipsos-Reid for the Canada Institute of the Woodrow Wilson Center of International Studies in Washington, D.C.

The conclusions were that 66 percent of Canadians and 67 percent in the United States worry that they might personally be hit by electricity shortages between now and 2010; 67 percent of Canadians and 76 percent in the United States have the same worries about gasoline shortages.

Half of Canadians and two-thirds in the United States think they could be hit by shortages of natural gas or home-heating fuel.

For all that, 61 percent in Canada and 60 percent in the United States believe the supply fears are exaggerated.

The U.S. portion of the poll surveyed 1,000 people, while 1,059 Canadians were polled, with the results considered accurate within 3.1 percentage points 19 times out of 20.

Remember the dynamic duo? One is leaving Plains Exploration

Last week Petroleum News featured John Raymond and James Flores (Dynamic Duo kicks up fuss), who have led the charge on the friendly takeover of one publicly traded company and kicked up a storm with investors over the attempted takeover of another one.

The author of that story, Petroleum News Houston correspondent Ray Tyson, said “Raymond and Flores wear so many hats it’s tough keeping track of their exploits.”

Well, Raymond, the son of ExxonMobil Chairman Lee Raymond, is taking off one hat. Currently president and chief operating officer of Plains Exploration & Production Co. and president and chief executive officer of Plains Resources, while at the same time sitting on the board of Plains All American Pipeline, Raymond has resigned his position with Plains Exploration to “focus his attention” on Plains Resources, according to a March 3 company press release.

One would assume Raymond will also be focusing his attention on all those investors whose feathers he ruffled during the proposed takeover of Plains Resources.

Rising oil prices put eight more Russian billionaires on Forbes list

Rising oil prices helped Russia add eight new billionaires in 2003 for a total of 25. That puts the country in third place, behind the United States and Germany, according to Forbes magazine’s annual list of billionaires.

And two of those Russian billionaires are behind bars, including Russia’s richest man, former Yukos oil chief Mikhail Khodorkovsy ($15 billion), as well as Yukos shareholder Platon Lebedev ($1.8 billion).

Microsoft co-founder Bill Gates remains perched atop the list for the 10th straight year but investor Warren Buffett is nipping at his heels. Gates’ net worth is now estimated at $46.6 billion, still less than half the $100 billion it peaked at in 1998, but up about 13 percent from the $40.7 billion Forbes attributed to him in 2003.

Buffett wins the bragging rights for reaping the best gains of the year. He increased his net worth by $12.4 billion to $42.9 billion, significantly narrowing the gap between him and Gates, with whom he competes in bridge tournaments.

It pays to do business with BP (not Russia?)

Forbes magazine recently reported that Russian energy tycoon Victor Vekselberg has bought the largest private collection of Fabergé Imperial Easter Eggs, due to have been auctioned in April by the Forbes family.

No price has been disclosed for the private sale. Pre-auction estimates were that the eggs and the rest of the Forbes Fabergé collection would realize in the range of $80 million to $120 million.

Vekselberg is chairman of Tyumen Oil, Russia’s third-largest oil and gas company. He took a controlling interest in the company in 1997 and subsequently developed a joint venture with BP.

TNK-BP is currently in dispute with the Russian gas monopoly Gazprom over a license to exploit the Kovykta gas field in East Siberia, one of the world’s largest undeveloped gas fields, Forbes reported. Gazprom fears the project could break its stranglehold on gas export pipelines. (Last year the Russian government appointed Gazprom state coordinator for all Russia gas projects.)

Reuters reported in early March that Gazprom has asked for “at least an equal stake” in Kovykta: “This field is very interesting and I’m sure we want to be involved,” said Gazprom Deputy Chief Executive Alexander Ryazanov. “(But) we are not used to working as minority shareholders and we want to control projects.”

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