Ed. note: This is a new weekly column by Elie Mystal, Managing Editor of Above the Law Redline. This space will focus on the laws that exist, should exist, and should be put out of their misery. OVER-REGULATED Chinese Diplomacy: Let me get this straight: our new “deal” with China involves the U.S. agreeing to… Keep reading →
Energy News Roundup: Halliburton-Baker Hughes $34.6B Deal Struck, US Oil Output Soars & BrightSource China CSPBy Jared Anderson
News broke late last week the world’s second and third largest oil field services providers Halliburton and Baker Hughes were in merger negotiations. The combined company would more effectively compete with Schlumberger, the world’s largest oilfield service company. The deal briefly went hostile when it was reported over the weekend that Halliburton would make a… Keep reading →
Energy News Roundup: Halliburton-Baker Hughes Merger? Antarctica Melting From Below & Report Urges Hydro One BreakupBy Jared Anderson
The Wall Street Journal reported late Thursday that oil services giants Halliburton and Baker Hughes were involved in “quickly progressing” merger negotiations, which caused shares of both firms to jump. “The Journal, citing unidentified people familiar with the matter, said talks were progressing quickly and a deal could come soon.” [Fuel Fix] A new study using… Keep reading →
Energy Quote of the Day: ‘Halliburton has Already Left the Market and Schlumberger is Likely to Follow’By Jared Anderson
As US- and EU-led economic sanctions against Russian energy players crank up, the degree to which Western interests could be collaterally damaged is again being called into question. The EU has shied away from sanctioning Russian gas industry participants because the bloc is so reliant on Russian gas supply, but oil market pressure could also… Keep reading →
Happy birthday, fracking! What a fantastic, 65-year ride it has been – and here’s to another 65 years and more. Advanced hydraulic fracturing and horizontal drilling launched an oil and natural gas renaissance in this country – bringing dynamic job creation, economic stimulus that radiates well beyond the oil and natural gas industry proper and… Keep reading →
MarketWatch has compiled a list of hedge funds’ top ten energy stocks as of the end of June. On the list are Anadarko – which yesterday announced the sale of 10% of Mozambique Offshore Area 1 to India’s ONGC for $2.64 bln – as well as Occidental, Hess, and oilfield services firms Schlumberger and Halliburton.… Keep reading →
Some of the world’s leading oil field service companies are accused of anticompetitive behavior in which the firms allegedly colluded to manipulate the hydraulic fracturing services market. The companies face a class action lawsuit under the Sherman Antitrust Act. “The class action complaint alleges that major oilfield services companies conspired to manipulate the market for… Keep reading →
Cost estimates for various methods of wastewater disposal and recycling vary, depending on both the reservoir in question, and the information source. A seven-well recycling and reuse program using electrocoagulation in Eddy County, New Mexico, substituted over 8 million gallons of produced water for fresh water, and saved $70,000-$100,000 per well in water management costs, according… Keep reading →
The largest energy services companies are set to benefit from a focus on oil drilling in the US as the shale oil boom in North America continues, analysts at Barclays claim, even as drilling for natural gas in shale – largely an “efficiency game” – becomes commoditized.
Much has been made of the boom in development of both oil and natural gas fields in the US, stemming from advances in the efficiency and deployment of hydraulic fracturing. That technological advance has created a price dynamic that weighs on the very industry that has taken advantage of it, while comparatively high global oil prices have made drilling for crude – a more complicated business – more attractive. Keep reading →
Rex Tillerson, CEO of ExxonMobil recently met separately with Iraqi Prime Minister Nuri al-Maliki and Kurdistan Regional Government Prime Minister Masoud Barzani to discuss the company’s provocative stance within Iraq’s critical oil and gas sector. Exxon is simultaneously famous for its “my way or the highway” approach and for shying away from the internal politics of sovereign nations where it operates, so these high-profile meetings create many questions about the future of Iraq’s oil and gas development framework.
The disagreement and distrust between Baghdad and the KRG has gone on since the former regime fell in 2003, with the two sides unable to reach an agreement on oil revenue sharing, contractual terms with foreign oil companies, export routes and other issues.
Most of Iraq’s developed fields and export infrastructure is located in the south, but the Kurdish regional area in the north contains considerable undeveloped reserves and its border with Turkey offers additional export routes to European and western markets.
Baghdad has barred companies that sign contracts with the KRG from operating in the south, but ExxonMobil – having already established itself in one of the most prolific southern fields, West Qurna-1 – also signed production sharing contacts with the KRG in 2011. This infuriated the central government and Oil Ministry who barred Exxon from future licensing rounds and demanded the company sell its West Qurna-1 stake. Exxon has reportedly spoken to potential buyers.
In 2009 and 2010, Exxon – along with partner Shell – agreed to increase West Qurna-1 output from about 250,000 b/d to 2.825 million b/d within 7 years. “Initial field production of 244,000 barrels per day has now increased to 285,000 barrels per day, which exceeds the 10 percent improved production target established under the technical services contract,” Exxon said in a 2011 statement. The service contract terms provide the companies a $1.90/bbl remuneration fee for incremental output from developed formations and a $2.00/bbl fee from nearby discovered, undeveloped formations.
It’s hard to see why Exxon would risk its West Qurna-1 stake with hundreds of thousands of barrels of incremental daily production virtually guaranteed, but the prospect of bookable reserves could be a factor.
This was a major issue 10 years ago when Baghdad was trying to figure the best way to re-open the country’s oil sector to western companies. Ceding control of Iraq’s national resources by allowing foreign companies to book reserves would be politically toxic domestically and internationally. The nascent democratic government could not risk the fragile trust of its ethnically and religiously diverse population and western governments involved in Saddam Hussein’s ouster were sensitive to perpetuating the view that the war was about accessing Iraq’s enormous oil and gas reserves.
As such, the technical service contract became the preferred legal construct under which international oil companies would operate. As contractors they would receive a fee for services rendered, but could not book reserves, similar to the terms governing service companies like Schlumberger and Halliburton in their dealings with oil companies.
The majors were not thrilled with the generally tough terms dictated by Iraq’s Ministry of Oil, but the hope was that by getting their foot in the door to some of the world’s largest oil reserves and doing a good job things might open up down the road. At least this arrangement was better than the situation under Saddam Hussein when there was no access at all.
However, the KRG offers more attractive terms to foreign operators than Baghdad. Traditional production sharing contracts typically allow companies to book a portion of the reserves being developed. Regional operators have discussed the possibility of booking reserves. For example, Calgary-based E&P firm Western Zagros stated in its most recent Annual Information Form it “believes that there is excellent potential for the establishment of significant reserves and production on its PSC Lands.”
The exact details of Tillerson’s meeting with Barzani are unclear, but the potential to report Kurdish reserves on Exxon’s books could represent the added value required to walk away from West Qurna-1.
It is also possible that Exxon is attempting to hasten a grand bargain between the KRG and Iraq’s Central Government that would arguably be in everyone’s best interests, but the regional and central leaders appear to remain far apart on the issues.
Meanwhile, Kurdish leaders have reportedly been meeting with Turkish government representatives to discuss oil and gas transport possibilities, which if solidified, would reduce KRG reliance on Baghdad and put them in a stronger bargaining position, as some have recently suggested. Potentially lucrative petroleum pipeline deals in the north coupled with service contracts in the south could also be a desirable outcome for the oil majors operating in Iraq.
Iraq’s importance in global oil markets cannot be understated as the country’s export volumes play an increasingly crucial role in fundamentals and price discovery. Exxon’s foray into Iraqi politics highlights the valuable stakes,and whatever happens could alter the course of regional oil and gas development.Keep reading →