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Edition Four – July 2012
How to ensure safer drilling
What is fracking and why is it so controversial?
1
OilVoice Magazine JULY 2012
Adam Marmaras
Manager, Technical Director
Issue 4 – July 2012
OilVoice
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Welcome to the 4th edition of the OilVoice
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selection of quality articles from our stable of
featured writers.
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Adam Marmaras
Managing Director
OilVoice
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OilVoice Magazine JULY 2012
Contents
Featured Authors
3
Sometimes the oil industry just makes money - no matter what it does
6
Insight: Free is the way...
8
Review: Don't steal from us Argentina...
9
Biographies of this months featured authors.
By Larry Wall
By David Bamford
By Richard Etherington
Recently added companies
11
Review: Is there any oil offshore East Africa?
12
Insight: Finding more UKCS oil...
By David Bamford
15
Clearing the air - Oil, subsidies, imports, exports, ownership, alternatives and
more
18
What is fracking and why is it so controversial?
By Matt Rawlings
26
Bowleven plumbing 2009 lows... Material undervaluation provides a potentially
very attractive buying opportunity
27
The latest companies added to the OilVoice database
By David Bamford
By Larry Wall
By Richard Jennings
Ithaca Energy - Recent takeover collapse now offers opportunity to the bulls
29
Featured University
40
Understanding U.S. gasoline prices
41
Heritage Oil - Unloved, forgotten and materially undervalued
44
How to ensure safer drilling
53
Exploration: How to find more oil
54
Significant changes taking place in U.S. Oil & Gas industry
56
Fund raising CFO's are vital outside the FTSE 250
60
Fracking - Gas drilling and environmental threat
61
Due diligence in the oil industry
63
By Richard Jennings
This month we are featuring University of Ibadan
By Larry Wall
By Richard Jennings
By Richard Kluth
By David Bamford
By Larry Wall
By Kris Hicks
By Keerthana Karthik
By Michael Littlechild
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OilVoice Magazine JULY 2012
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!
Richard Etherington
OilEdge
Richard Etherington, 24, works as a freelance journalist. Richard, a BA
Hons Political Science graduate, is also a fully trained sub-editor and
reporter. He is a former equities reporter and columnist, who specialised
in small cap drilling and mining companies – during which time he built up
an impressive portfolio of industry contacts.
David Bamford
OilEdge
David Bamford is non-executive director of Tullow Oil, and a past head of
exploration, West Africa and geophysics with BP.
Matt Rowlings
McLaren Software
Matt Rawlings, an experienced journalist currently working with McLaren
Software.
Richard Kluth
Pulse Monitoring
Richard has been working in the upstream oil and gas sector since 1994
and has extensive experience in monitoring and measurements both in
the subsea and down-hole domains and across multiple disciplines
including drilling and production.
Kris Hicks
AVA Energy
Kris has spent the last 13 years working with senior talent in the energy
and infrastructure sectors, initially with a large global FTSE organisation,
where he progressed to become one of their leading consultants.
Keerthana Karthik
GAJ Industrial Supply
Keerthana Karthik is a blogger who writes on industrial supply products.
She at present blogs for Gajindustrialsupply, a global ecommerce retailer
of high heat pump, jet pumps, Monoblock pumps, ac motor, three phase
induction motors, water pumps, air compressor and more.
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OilVoice Magazine JULY 2012
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.
Michael Littlechild
GoodCorporation
Michael takes responsibility for the delivery and quality of
GoodCorporation's on-site assessment work. He has led assessments in
Europe, the Middle East, Asia, Africa and the US and specialises in the oil
and gas sector and in anti-corruption policies and systems. He frequently
writes on business ethics and anti-corruption measures.
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 over 30,000 members. 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.
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6
OilVoice Magazine JULY 2012
Sometimes the oil
industry just makes
money - no matter
what it does
Written by Larry Wall from Larry Wall
Sometimes, a business cannot help but make money. This is the case with the oil
industry today. Because of speculation, uncertainty in the Middle East and increased
global demand, oil is nearing record highs.
The consumers do not like that because it means the price of gasoline is increasing
and they blame the U.S. Oil companies of making unfair profits.
This is one of the cases where you cannot help but make money, mainly because of
laws that are on the books in the United States. Let's walk through the steps.
Oil Company CESB produces oil in the United States, onshore and in the Gulf. They
do not necessarily send it to the refineries they own, they send it to the nearest
refinery that can handle that grade.
However, people want lower prices and suggest that all the oil companies agree to
lower their prices. Well if they all come together and decide as a group to lower the
price, they have just violated the anti-trust laws. Oil companies cannot and do not
discuss prices with each other.
But say we get pass that hurdle, and the price of U.S. produced oil is lowered.
They are going to then get sued.
First, the federal government will sue for the underpayment of royalties on oil
produced in federal waters. Even if the oil sells for less than market value, the
federal government is going to demand that royalties be paid on market value and
not sale price. So the oil companies have to pay royalties on income they never
made.
If the oil is produced onshore, in Louisiana for example, the state is going to sue for
the underpayment of severance taxes. The tax is levied on the value of the oil and
not necessarily the price of oil.
The state and individual landowners are also going to sue over the royalty issue
again.
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OilVoice Magazine JULY 2012
So we get pass all of that and the oil goes to the refinery. But the refinery also has to
buy foreign oil to meet its demand. How do you convince the foreign producers to
lower their prices--you do not.
So, the refineries agree to average the price of domestic and foreign crude and give
up some profit.
The refineries make the gasoline and it goes to the distributors. Now, the distributor
is not required to pass on the savings to the gasoline stations, because the
distributors are not owned by the oil companies and most gasoline stations are not
owned by oil companies.
So, there is no guarantee that the savings will ever get to the pump.
However, if some gasoline stations do get the savings and pass that savings on to
the consumer, other stations may not. Then you get into the issue of below cost
selling laws. Yes, there are laws in most states that prevent a gasoline station from
selling gasoline below its cost. So, the stations that cannot get the cheaper gasoline
sue those stations that can.
Along the way, the unfair trade laws will come up--but that gets really complicated.
Then as the end of the year nears, and the corporate income tax returns are
prepared, the government said that the oil companies underpriced the value of its oil
and therefore made less than they should have and then levies additional taxes and
fines.
Some People Will Lose Money
Finally, the stockholders in all of the major oil companies are going to see their
dividends decrease and maybe the stock value go down. They will then sue the
corporate leaders for not achieving maximum return on its investment. Thus, you end
up spending a ton of money on legal fees.
You see all those ads on televisions about class action lawsuits and how you may be
entitled to a monetary settlement. I was involved in one of those suits. I had financed
some home improvements and the finance company overcharged a large group of
customers. I received a check for $1.27. I never cashed it. I just hung it on my wall
(real wall and not Facebook wall).
The price of oil is controlled by the world market. The OPEC nations still control a
major portion of the supply and still set prices. The speculators and day traders react
to the slightest event and the price goes up.
It has been reported in the news recently that oil production in the U.S. has
increased since President Obama has been in office. Most of that increased
production is coming from projects started during the Bush administration and are
just now coming on line. It can take six to seven years to bring a deepwater well on
line.
So, my point is that oil companies are making money. Thus the stockholders are
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OilVoice Magazine JULY 2012
making money, which means a lot of 401K accounts, pension plans and bond
holders are making money. It means that people are working, making good wages
and paying taxes and supporting businesses in the communities where they work.
Oil prices will eventually come down and so will gas prices. The oil industry has a
consistent history of ups and downs. We just have to wait it out. If we try to
manipulate the market, we will be doing a great disservice to capitalism and probably
do more harm than good.
As usual, as a matter of full disclosure, I worked for the oil and gas industry as PR
director of a trade association for 22 years. In December 2010 I was told my position
was being eliminated and my services were no longer needed. That action did not
put the industry on my list of favourite groups. However, the scenario I have
presented is one I mapped out years ago and I believed then, just as much as I
believe it today.
View more quality content from
Larry Wall
Insight: Free is the
way...
Written by David Bamford from OilEdge
To everybody who has just returned from the EAGE in Copenhagen, I hope
you enjoyed yourselves, especially considering how much it cost you and
your company:
So, you took what, 4 days away from the office? Call that a week and let's divide the
typical built up cost of a FTE of 200-250,000 Euros (do we still have them!) by 50 to
get a cost of 4-5,000 plus your hotel and travel - hmm, another 1000 at least - plus
registration, somewhere between 500 and 750 depending on your timing. So let's
agree on ~ €7000 in total?
Of course if your company wanted to exhibit; well, my brain isn't agile enough to
figure it all out but I did hear that one well-known oil field services contractor figured
that all-up it was going to spend ~$800,000 on the EAGE in Barcelona, and decided
to give it a miss!
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OilVoice Magazine JULY 2012
And apart from having a 'good time' what do you expect to get out of it that you
couldn't find by browsing companies' web-sites where all their papers, products and
services appear anyway, and for free?
Before I go any further, I should say that I don't mean this as an attack on the EAGE.
There are plenty of other entities, noticeably commercial companies, that charge
amounts getting well into four figures - in €, £ or $ - to attend one of their events.
My point is, to repeat:
We are increasing living in a world where you can download more or less anything,
certainly more or less anything that conference presenters and exhibitors are willing
to stand up and talk about and put on a slide, for free, more or less instantly - well, if
you have decent broadband that is. And from the comfort of your own desk or study
at home - without having to fight your way through LHR, ABZ or IAH!
As the author of this article in the Telegraph points out 'All sorts of things we used to
pay large sums of money for are now nearly or completely free.'
View more quality content from
OilEdge
Review: Don't steal
from us Argentina...
Written by Richard Etherington from OilEdge
The dust is no closer to settling on Argentina's highly-controversial decision
expropriate one the country's largest oil and gas firm, YPF. Six weeks have
passed since the Argentine Senate approved the bill to renationalise the
industry giant on April 26, yet the fallout from the move continues to make
headlines.
While President Cristina Fernández de Kirchner's restoration of 51% of the
company's ownership to the state may have won plaudits at home with its
appeal to nationalist sentiment, outside the South American nation the story is
very different.
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OilVoice Magazine JULY 2012
By bringing sister company Repsol's 57.4% majority control in the company to an
abrupt end, the Fernández administration has provoked political outcry from a
number of different sources. Unsurprisingly at the front of the queue calling foul play
is the Spanish oil giant itself, which has held majority control over YPF since the
1990s. The Madrid-based firm has also been supported by both the Spanish
government and the European Union (EU), which have threatened to bring a World
Trade Organization (WTO) suit against Argentina.
So, what caused Argentina to act? In short, lack of investment. Members of the
Argentinian parliament have argued that since Repsol took over YPF, its production
and investment levels have declined rapidly leaving Argentina in a position where it
is being forced to import gas for the first time in twenty years. But upon closer
inspection, there appears to be more to Buenos Aires' decision. With a basket full of
economic problems to deal with (including rampant inflation, commodity prices
moderating and domestic demand declining), the Fernández administration is
becoming increasingly desperate in its attempts to protect Argentine industry and to
maintain the level of economic growth it has enjoyed over recent years.
With its protectionist policies, however, Argentine is more likely shooting itself in the
foot than protecting its interest. Indeed, in the aftermath of the takeover of YPF, the
country's investment climate is likely to remain depressed over the coming quarters.
As Pablo Longueira, Chilean Economy Minister, recently noted, 'protectionist
practices' result in lower investor confidence in the region, and shuffles investments
towards more favourable places such as Asia. Given this, Argentine may soon find
itself struggling to raise the substantial investment it requires to develop its promising
shale potential; a move which may see the nation relying even more heavily upon
imports in the long term. What is more, it is not just investors that will be giving
Argentine a wide berth: by adopting such a strategy the Fernández administration is
likely to trigger a backlash from some of the country's main trade partners - most
notably the EU.
After the loss of its subsidiary, Repsol has unsurprisingly taken Buenos Aires' actions
personally and has already taken retaliatory action. On May 18 the firm terminated
its contract to supply liquified natural gas (LNG) to Argentina. Repsol pointed the
finger that state-run firm Enarsa (Energia Argentina) for breach of several terms of
their contract, including non-payments. Repsol also noted that Enarsa had changed
delivery schedules and wanted to discuss the prices of shipments for LNG. On top of
that, Repsol has been quick to initiate legal proceedings under international law
against the Argentina government over the seizure of YPF. Repsol is hoping to
received payment of up to US$10 billion via arbitration - a judgement which will be
decided by the World Bank's International Centre for Settlement of Investment
Disputes, should the two sides fail to find a resolution within six months.
View more quality content from
OilEdge
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OilVoice Magazine JULY 2012
Recently Added Companies
Rift Energy
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Ambassador Oil & Gas
Oil and Gas
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Quest Petroleum is an oil and gas
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Enterprise Energy
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Pétrolia
Oil and Gas
Pétrolia is the only active oil and gas
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Brixton Energy
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12
OilVoice Magazine JULY 2012
Review: Is there any oil
offshore East Africa?
Written by David Bamford from OilEdge
The emergence of East Africa as a petroleum province has been spotted by the
media, especially the UK press where a headline such as 'Improved
technology helps to oil the wheels for East Africa' (The Times, 7th January
2012) is but one of many.
As a recent Finding Petroleum Forum revealed, it is certainly true that improved
technology has had an impact, whether satellite imagery, aero-magnetics, gravity
gradiometry or plate tectonic modelling, but where the oil is - and whether the gas
that has been discovered is commercial - requires more careful thought.
I am grateful to Alastair Bee at Richmond Energy Partners, Chris Matchette-Downes
at MDOil and Oswald Clint & Robert West at Bernstein Research for helping me
summarise the current status.
If we go back let's say 10 years, East Africa was completely disregarded by
petroleum explorers. Only a handful of wells had been drilled and there wasn't very
much data but source rocks were generally believed to be absent or poor; the
prevailing view was that there would only be small amounts of gas, if anything.
Actually, this was based on 'Myths, Myopia, Misinformation' as pointed out by Chris
Matchette-Downes in 2005(1). In particular, he identified evidence for contiguous
source rocks, for example in the Early and Mid-Jurassic, which could be in the oil
window offshore. And of course, persistent seeps were known both offshore and in
the lakes of the East African Rift System.
Since 2008, there has been significantly more exploration activity and Richmond
Energy Partners have analysed the current discovery position as summarised in the
table on the next page.
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13
OilVoice Magazine JULY 2012
Courtesy of Richmond Energy Partners
New well results are being announced all the time but the essence is still the same:
Oil has been discovered
onshore in the Albertine
Graben of Uganda (and very
recently in Kenya) - see the
Finding Petroleum
presentation by Shane Cowley
of Tullow Oil(2).
Large amounts of gas have
been discovered offshore - in
both Mocambique and
Tanzania - but no oil as yet.
What has been proposed so
far offshore is that the
youngest source rock is an
Early/Mid-Jurassic marine
shale and so one model is that
this may have been buried
under more sediment than
previously anticipated and is
now in the gas window.
However, this source rock has not been sampled and an alternative explanation is
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14
OilVoice Magazine JULY 2012
that the gas derives from an area of this source rock that has had high terrigenous
input and so is gas prone.
The gas volumes discovered in both Mocambique and Tanzania are significant and
as a distant observer one's immediate response is to think that they are both
candidates for LNG schemes. However, as Monica Enfield of Energy Intelligence
pointed out in her Finding Petroleum presentation(2), this perspective ignores the
focus both host governments will have on domestic issues such as creating a local
market and providing employment in the relatively short term.
As Bernstein Research has noted, a combination of successes - for example shale
gas onshore in the USA, conventional gas in the Eastern Mediterranean and on the
NW Shelf of Australia - have led to there being a large number of global LNG
opportunities, for gas to move to either Europe or SE Asia, which may mean that
somewhat more costly East African LNG will have to wait its turn in the queue. Whilst
the Majors may be content to 'bank' gas for the longer term, ready for the day the
price rises and it is needed, as pointed out above this may not at all be in line with
the hopes and expectations of the governments of Tanzania and Mocambique.
The attraction of offshore oil would be that the global price is probably going to
remain high and that a discovery of a few hundred million barrels can be developed
fairly rapidly with an FPSO and shuttle tankerage (indeed many tankers pass this
way as they go around the Cape of Good Hope!).
So where might there be oil offshore?
Explorers now have vast amounts of data - from satellites, airborne surveys, field
geologists, seabed cores, national repositories, the huge number of wells drilled
(over 200,000 'wild cats' alone since 1965), publications - to sift through to identify
basins and plays which might work or, in the question I have just posed, might work
in a particular way.
The ability of explorers to spot the next big play depends on their ability to deal with
this veritable Niagara Falls of data, to solve what some have referred to as the 'Big
Data'(3) 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
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15
OilVoice Magazine JULY 2012
this is achieved, whereby opportunity is accessed.
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!
1. East Africa Petroleum Conference, 2005
2. Finding Petroleum Forum, 17th April 2012
3. http://www.findingpetroleum.com/video/385.aspx
View more quality content from
OilEdge
Insight: Finding more
UKCS oil...
Written by David Bamford from OilEdge
Now diving into the website of the Bank of England is not a normal activity for
me, you understand, but I was searching for a copy of their latest Quarterly
Bulletin in which, according to the Times this week, they attribute part of the
UK's drop in productivity to the decline in output from the North Sea; and sure
enough I read:
'Norway is similar to the United Kingdom; both have seen falls in energy and
utilities productivity over both the recession and recovery periods. This is not
a surprise as they extract oil from common waters - the North Sea. The
absolute fall at the aggregate level is larger in Norway, as extraction and
utilities are a larger share of GDP (Table A).(4) As the decrease in oil
production from the North Sea is likely to be structural rather than cyclical in
nature, this evidence points to a fall in the level and growth rate of aggregate
underlying labour productivity
(Chart 8).'
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OilVoice Magazine JULY 2012
For a moment there, I thought The Old Lady of Threadneedle Street was getting into
exploration geology and was perhaps suggesting we should pursue more
stratigraphic traps or perhaps even fractured basement! However, 'structural' here
means - I take it - that the decline is inevitable (actually driven by the rocks) and
there's nothing we can do about it.
Oh really!
To repeat myself, there is an old adage that runs "The best place to find oil is in an
oil field!"
As global exploration gets more difficult, there is a major prize to be gained by
increasing flow rates and improving recovery factors in existing fields. In any
petroleum province which is very mature in exploration terms, such as the North
Sea, it would be better for companies to stop 'wildcat' exploring and focus on
enhancing production in and around existing oil & gas fields.
Increasing recovery factors depends on a range of technologies - surveillance,
'smart' wells, EOR etc. Nevertheless, worldwide, just a 1% increase in the global
recovery factor represents almost 90 billion barrels of oil, equivalent to replacing
roughly 3 years of production at current levels.
Wherever serious studies have been undertaken, truly astonishing volumes of oil can
be contemplated from increasing recovery factors using technologies that are known
today.
Certainly, it seems reasonable to believe that the current ~10% of all existing
discovery volumes that has actually made it to production is very much a lower limit.
In many instances, a rising oil price will ensure that primary/secondary/tertiary
recovery projects are economic although in some instances it may be necessary for
governments to give tax incentives to help improved recovery projects, for example
those based on CO2-EOR, to bring them into existence.
As an example, Gluyas has estimated, by comparing the UKCS with West Texas,
that an additional 2.7 - 8 billion barrels of technical reserves could result from CO2
injection, corresponding to an increase of recovery factor in the range of 4 to 12%. In
addition there are long term, indeed historic, estimates that improved reservoir
modeling - and monitoring - could add 10% or more to recovery factors.
I'm for a bit of 'cyclicity' where we push the recovery factor for every UKCS oil field
up to 70%!
View more quality content from
OilEdge
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OilVoice Magazine JULY 2012
Clearing the air - Oil,
subsidies, imports,
exports, ownership,
alternatives and more
Written by Larry Wall from Larry Wall
While gasoline prices have been declining recently, they are still higher that some
American consumers would like. In addition, there has been a growing movement to
find alternatives to crude oil, for environmental reasons and at one time the fear that
the U.S. was growing too dependent upon foreign sources of oil.
With the discoveries of vast amounts of natural gas and crude oil in shale formation,
there is the belief by some that the United States can achieve energy independence
if it can find an alternative to crude oil. Also the recent decrease in the global price of
crude oil and the increased reserves is going to hamper or at least slow efforts at
finding alternative motor fuels.
Ideas such as wind turbines and solar panels have been around for a long time and
are in real-situation use. Electric cars are on the road, but have limited mileage
before the good old internal combustion engine takes over.
There has been talk that all of the "subsidies" received by the oil and gas industry
should be taken away and use to develop the alternative fuel industry.
People believe that a few people own the big oil companies and they are making
obscene profits.
It is time to take a closer look at these issues. As a former Public Relations Director
for a Louisiana-based oil and gas trade association for 22 years, I learned a lot about
the industry. One of my jobs was research, finding sources and verifying the
statements they were making or the information they was presenting. Some of it was
accurate and we used it. Some of it was not and we discarded it. Now, it must be
noted that the industry I worked for also fired me after my 22 years of service. So it is
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OilVoice Magazine JULY 2012
possible that I am trying to get back in the industry good graces, or trying to get back
for being fired. Neither is the case. I was laid off, to use a nicer term, because the
trade group was going in a different direction that did not include me. Despite that, I
still have great respect for the industry. Thus as the old saying goes, "I have no dog
in this hunt." I am just trying to get the facts out and clear up some of the confusion.
There Are No Subsidies-There Are Tax Incentives
There is more to oil than gasoline and BTUs. The most gasoline you can get from a
42 gallon barrel of oil is 21 gallons, usually a little less and in some cases, depending
on the quality of the oil a lot less. If you cannot make gasoline, then you make other
things. The typical barrel of oil can be turned into 19.4 gallons of gasoline, 10.5
gallons of diesel fuel and heating oil, 4.1gallons of jet fuel, 1.7 million gallons of
heavy fuel oil. 1.5 gallons of propane, 1.3 gallons of asphalt and road oil, 1.1gallons
of petrochemical feedstocks and 5 gallons of other products.
The list of products that are connected with oil is almost endless. However, the first
order of business is to clear up the confusion about subsidies
A subsidy is when the government or some other group gives money to help
someone. In the context being discussed here a subsidy would be money given up
front by the government to help a company develop or improve a product, such as
alternative fuels. If the project does not work, it is unlikely that the subsidy will be
repaid.
A tax break, usually referred to as an incentive when it is first granted, is the first step
the government will take to lower the tax burden, help it be more competitive with
foreign industries or compensate it for certain business expenses.
Individuals get tax breaks. When you file your tax return you can take a deduction for
charitable contributions, for losses you incurred in case your home burned down, a
portion of the medical expenses you incur and so on down the line. If you are over
65 you get an extra deduction just for being old. If you are blind, you get another
deduction.
After a tax incentive becomes or proves its success, it is then referred to as a tax
break and then, when the economy goes down the tubes, as it does frequently, the
tax break becomes a tax loophole or giveaway and therefore there is usually an
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OilVoice Magazine JULY 2012
immediate call to end it. Those receiving the incentive will usually fight it and not very
much happens.
After he first took office, President Obama had a budget plan that was going to be
tough on the oil and gas industry. I happened to be assigned the task of reviewing
that plan. The key points regarding the oil and gas industry are as follows:

Repealing the expensing of Intangible Drilling Costs

Repeal of Percentage Depletion

Repeal Marginal Well Tax Credit
Repeal Enhanced Oil Recovery Credit
Increases Geological and Geophysical Amortization Costs
Excise Tax on Gulf of Mexico Production
Repeal of Manufacturing Tax Deduction










Implementation of $4/acre fee on Gulf leases designated as non-producing
(use or lose)
Repeal Passive loss exception for working interests in oil and gas properties
Abandoned Mine Lands Payment in Certified States
Repeal Energy Policy Act fee prohibition and mandatory permit funds
reinstatement of Superfund (oil industry pays 57 percent)
Repeal Last In First Out reserve accounting
Attempt to repeal the ability to defer foreign income (subject companies to
double taxation-here and abroad.
If you repeal all of these tax breaks, it was going to cost the industry $34 billion over
10 years. Most would say the industry could afford it. Others would say that the
government would just waste it. Both may be true, but you need to look at some of
these issues.
For instance, the repeal of the manufacturing tax deduction affects more than the oil
industry. That is a tax break that every manufacturing entity in the country receives.
Yet, the plan called for just repealing it for the oil and gas industry. That did not seem
quite fair.
The second item, repeal of the percentage depletion, only applies to independent
producers, and not the major oil companies. So, is that necessary?
Adding an excise Tax on Gulf of Mexico Production really does not make any sense.
The government receives a lease payment every year for the offshore tracts.
Companies pay huge bonuses up front to try and win the tracks and the government
receives a royalty for all the oil and gas produced from that leased. So, where is the
logic or fairness of adding an excise tax to that production? Also, keep in mind,
producing oil in the Gulf of Mexico is not easy or cheap. By the way, royalty income
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OilVoice Magazine JULY 2012
is the second largest source of revenue for the United States Government. The
personal income tax is the largest.
The idea of implementing a $4 per acre fee on Gulf of Mexico leases that are
designated as non-producing does not make sense. First, because a lease does not
have a well on it, does not mean it is not producing. With new drilling techniques in
place, a well on one lease can produce oil from several adjacent leases, thus
reducing the industry footprint in the Gulf. If a lease really is a non-producing lease, it
reverts back to the government after a certain period of time, but the lease payments
are made during that time period. Again, there is no rationale.
Next there was going to be an attempt to repeal the ability to defer foreign income. In
other words, when a U.S. based company makes money in another country, it pays
taxes in that country, and normally defers that income when paying its federal
income taxes. The Obama plan would have the companies paying foreign taxes and
then paying federal taxes on that same barrel of oil, even though it was produced in
another country. That did not seem to make any sense.
The other items in the Obama plan are more technical and would take too much
space to explain them. Nothing was ever done with the plan. So for now the status
quo on that item remains the same. However, it is important to remember, that none
of these issues give money to the industry. They provide tax breaks. If the tax breaks
are repealed, the cost of doing business will increase and just like any business, you
pass on your higher operating cost to the consumer. Therefore, if this plan was
enacted, the federal government would get $3.4 billion more each year in income
and consumers would pay another $3.4 million each year for gasoline, diesel and all
the oil and gas products we use each day. The planning was not very good.
Ownership and Profits
If you compare the profit margins for major manufacturing sectors, you will find that
the major integrated oil and gas companies have an average profit margin of 7.9
percent. Wineries and distillers have a 17 percent profit margin, internet information
providers have a 23.8 percent profit margin and magazine publishers have a 58.1
percent profit margin, according to FuelFix by StatOil, Oct. 27, 2011.
One company that has been mentioned frequently is Exxon, which had about $40
billion in profits during 2011.
However, what does not get mentioned is that Exxon spent $412 billion during the
year. That is a little less than a 10 percent return. That may be a little better than the
overall average of the industry, but close to other types of industry operating in the
United States. It is a very simple law of economics, if you know what you are doing
and you spend a lot of money doing it, you are probably going to make a lot of
money.
However, with success come criticism and the argument that big oil companies are
owned by other big oil companies and by the executives who make millions of
dollars.
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Oil companies have joint ventures, where two companies will go in together to do a
project, with one company being the operator and the other supplying cash, access
to a pipeline, access to leases, use of boats, barges, helicopters, etc. It is something
called cooperation. It works in the industry. Perhaps Congress could give it a try.
The actual ownership of oil companies may be surprising. The basic breakdown is
that 20.6 percent are owned by asset management companies, 21.1 percent owned
by individual investors, 31.2 owned by pension funds, 17.7 owned by IRAs, 2.88 by
corporate management of oil companies and 6 percent by other investors. Simply
stated, there is No Mr. Exxon or Mr. Chevron who is making all the money.
We Can Do It Ourselves
With the discovery of the new shale plays for oil and gas, an attitude is developing
that we can provide our own oil at our own price and not be "held hostage" by foreign
countries. That is not going to happen anytime soon. Saudi Arabia has 17.7 percent
of the world's crude oil supplies. Other nationalized oil companies hold lesser
amounts, but far less than the major oil companies.
U.S. dependency has dropped to 35 percent, after being as high as 60 percent or
more. However, we cannot drill the wells and produce the shale oil and gas quickly
enough to meet our daily needs. In fact, the concern over "fracking", a technique that
has been used for years in drilling vertical wells and is now being used in the
directional wells that produce the shale oil and gas, is coming under attack, which
may slow that process.,
Natural gas prices have dropped dramatically, because we never had to import
natural gas from the other side of the world. We did get some from Canada, but that
was for convenience purposes more than anything else. Thus the abundance of
shale gas has created an excess supply. When supply exceeds demand, the price
goes down. That is why Liquefied Gas Terminals are being built or reactivated, in an
attempt to find a market for the excess natural gas.
Even if the United States could produce enough oil to meet daily needs, the oil
companies are going to charge the global market price. This is not to be greedy. This
will be done to meet the demands of all those shareholders in the previous graph.
They are going to want the maximum return on investments so the value of their
stocks will grow and dividends can be paid.
The United States, which collects sizable royalties from production in the Gulf of
Mexico and on federal lands, is going to want the royalty payments based on the
global market price. The producing states like Louisiana and others, where a
severance tax or production tax is collected, based on the price of oil, are going to
base collection of that tax on the global price.
Now does anyone want to guess how the global price is going to be set? It will be
done by the OPEC nations. If they cut back production and thus the amount they sell
to other countries besides the United States, the price is going to go up. Also, this
happened once before, they opened the taps and drove the prices so low many
produces could not afford to compete in that market and had to shut in production.
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OilVoice Magazine JULY 2012
We enjoyed very cheap prices for a while, but it did not last very long. During that
time a lot of people lost their jobs and a lot of equipment was stacked and never
used again.
Looking At the Alternatives
A lot of discussion has been devoted to developing alternative forms of energy. This
is not going to be a discussion of which one is better or worse. It is going to be a
discussion regarding the practical implementation of alternative energy.
When it was decided that tetraethyl lead was dangerous and should be removed
from gasoline as an octane enhancer, it took ten years to phase in the use of that
gasoline because of the fleet of older cars on the road that could not user the newer
unleaded fuels that were being developed.
Now we are talking about cars powered by natural gas, liquefied natural gas,
electricity and numerous other ideas. The alternative fuel movement is going to have
to come together and pick a fuel that will be used for daily use. The car
manufacturers will have to design the cars and someone will have to build the
infrastructure, if the existing infrastructure that moves gasoline cannot be used.
More than likely the alternative fuel industry is going to have its hand out looking for
some type of subsidy. It would be unfair to ask the existing energy industry to finance
the new industry that is going to take away a part of their business. However, we are
probably a long way from that point. Renewable energy accounts for only 7 percent,
which includes solar energy 1, percent, hydroelectric, 34 percent; geothermal, 9
percent; biomass 53 percent and wind energy 7 percent.
Why Are We Exporting Oil and Gasoline
The United States does export some oil and a considerable amount of gasoline,
diesel and other petroleum products. The oil is exported as a convenience. Some
goes to Canada, Mexico and to Japan from Alaska.
Remember that only half of a barrel of oil can be turned into gasoline. We produce
more gasoline than we need. We buy oil by the barrel. We sell gasoline by the
gallon. Therefore, it makes sense to sell the excess refined products instead of
letting them accumulate. By selling them, the U.S. balance of trade is improved and
foreign countries also develop a greater interest in our oil and gas industry. The
Energy Information Administration, which is a branch of the U.S. Department of
Energy, maintains extensive records on imports and exports.
The EIA records show that in 2011 the United States exported 17 million barrels of
crude oil, mostly to Canada and Mexico for convenience purposes. It just makes
sense to send the oil to the nearest refinery. In the same year the U.S. exported 1.05
billion barrels of refined products, with approximately 1 billion gallons going to
Mexico, again for convenience purposes. Mexico is in the process of building new
refineries. That number will decrease in future years.
This presentation has touched on tax breaks, alternative fuels, governmental
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OilVoice Magazine JULY 2012
involvement, products from a barrel of oil and other related items.
The oil and gas industry is really four industries, production, refining, pipelines and
marketing--the places where you buy your gasoline. Those are the same places that
post the price each time it changes in numerals that can be seen from a great
distance. I can assure you the grocery store or department stores do not advertise
items where they have been forced to raise prices. Gasoline prices are always
posted.
Just a few points to remember
The U.S. levies a tax of 18.4 cents per gallon of gasoline at the pump.
Most, if not all, the states levy their own gasoline tax. These funds do not go to the
oil companies. Thus, the price at the pump, in the United States, includes the taxes
that are collected by the states and the federal government.
Prices are dependent upon the cost of crude, the value of the euro against the dollar,
political unrest in the Middle East, overall economic conditions and speculation. The
oil and gas industry has no control over those factors and just like any other industry
it must react to those factors.
However, the oil industry has to react daily and the price change can show up that
day. The garment industry may have to react daily, but the prices of blue jeans do
not fluctuate like the price of gasoline.
View more quality content from
Larry Wall
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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 [email protected]
Reserve your place now at FindingPetroleum.com
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OilVoice Magazine JULY 2012
What is fracking and
why is it so
controversial?
Written by Matt Rawlings from OilVoice
Without being involved in the industry or campaigning strongly either for or against
the process, fracking is just something you vaguely remember from a few science
lessons you had at school that you can't actually explain.
Hydraulic fracturing, to give it it's proper name, is the process of drilling into the earth
and setting off a series of small explosions to shatter and make cracks in the solid
rocks, such as shale, in order to release the gas stored inside. Water is then injected
into the rock along with chemicals and sand to encourage the gas to escape to the
top of the 'mine' or 'well.'
The most common practice is performed by drilling horizontally, i.e. across the rock,
but it is also regularly performed vertically, going straight down into the ground, and
this enables the extractors to find new sources of gas, or to extend their current
pipelines. The horizontal drilling creates new channels within the rock, meaning that
the gas is actually extracted much quicker than the more traditional methods.
While this may sound like a pretty routine drilling procedure, simply extracting gas
from the ground, it is viewed as highly controversial and has produced numerous
campaigns calling it for the practice of fracking to be ceased, one high profile version
in the UK was back in 2011 after two small earthquakes near to Blackpool. The
campaigning is down, mainly, to the chemicals being used in the extraction process.
The water used in the process comes from within the well itself, but the primary
concerns among campaigners relate to the chemicals used, and the potential for
them to find their way into drinking water.
The issues, which prompted the Blackpool protests in 2011, came about after two
small earthquakes - registering 1.5 and 2.2 on the Richter scale struck inland, and
after complaints were received that fracking was to blame, the process was stopped
while a full investigation was carried out.
Those working in the industry itself have claimed that shale gas is safe, and they
have said that any incidents of polluted drinking water have been down to simple
poor practice, as opposed to accidents.
It isn't just the UK where issues have occurred, with one highly documented case in
America where a household claimed that shale gas found its way into their drinking
water pipeline and caused the tap water to actually ignite.
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OilVoice Magazine JULY 2012
So if it's a potentially dangerous process with so many people against it, why have
those in the industry persisted with it, there must be some real advantages of shale
gas to make the fracturing process a worthwhile perseverance and method of
extracting gas right? Put simply, yes, there are.
Shale gas reduces the cost of gas on the market, and is actually contributing to a
worldwide flow of gas, which has halved the domestic market price in the United
States. In the UK, a number of research companies have even predicted that there
are substantial amounts currently in the rocks under South Wales, with experts
estimating the value at around £70bn.
View more quality content from
OilVoice
Bowleven plumbing
2009 lows... Material
undervaluation
provides a potentially
very attractive buying
opportunity
Written by Richard Jennings from Spreadbet Magazine
The folly of the stock market never ceases to amaze me. Below is a chart of
Bowleven over the last 5 years and you can see how the stock twice nosed a high of
over 400p, whilst in the intervening period falling to a low of 20p. For those punters
lucky enough to pick up stock during the depths of investor despair that was
prevalent in early 2009, 20 times your money could have been made at the peak
(although its a trader with cajones of steel that can carry a profit of that magnitude
without selling…) in early 2011 - just 2 short years.
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OilVoice Magazine JULY 2012
At the current price, we are closing in on the very same levels touched in 2009 as
the price fell to 20p - it is worth noting that the last time the shares approached these
levels was during a period when the Company's very existence was in question due
to the court case that was ongoing at the time with Peter Garnham and where
ownership of the Company was being contested. This was later resolved with the
case being dismissed and so no longer hangs over Bowleven.
Intelligent investors can be forgiven for sratching their heads at this recent price
activity given the tentative takeover approach that was made by Dragon Oil in
February of this year when the shares sat at 75p. This very undervaluation was of
course what attracted Dragon Oil to the company in the first place and prices of 150250p were being bandied around by institutional holders and analysts alike as
representing 'fair value' for the company. Well ladeez and gentlemens, such is the
way with the stock market that a price of 59p has now been presented to you to pick
up shares in Bowleven. The company actually has net cash of circa 35p at the
moment (although this is diminishing) and so the entirety of its valuable exploration
portfolio is now valued at just under £60m.
Although Dragon Oil walked away from Bowleven, it was confirmed that DGO did not
in fact look at the Company's books and many pundits put the termination of the brief
flirtation down to the fact the the 'steal' basis of an acquisition was not possible given
the run up in the share price back to a more realistic discount to its NAV. This does
not detract from the deemed value in Bowlevens Cameroon licences and most
analyst estimates of core NAV actually centre around the 200p mark.
Let's not forget too that late last year Kevin Hart raised a further £80m through a
placing at 103p - when placings of this magnitude occur, the shares are typically
issued at a discount to the true worth of the Company in order to attract the fresh
institutional money on board. Well, the Company is now further advanced in their key
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OilVoice Magazine JULY 2012
Sapele fields drilling program and yet you have the opportunity to pick up shares at a
40% discount to those 'savvy' institutions…
You might well be asking just how the stock market can present investors with that
appears a one way ticket? As ever, there is always a catch. In the first instance, I
doubt that the recent oil price weakness we are seeing or indeed the general stock
market torpor are the true reasons for the price weakness that has been put about by
some quarters of the press.
What the market is saying is that the cost of raising funds for such Oil explorers (as
we have seen with Xcite Energy in recent months) is rising and the debt markets are
unlikely to play ball at this point in time. This leaves another potential equity fund
raising or alternately 'farm in' (dilution of the Company's interest in its exploration
portfolio by way of a 'major' being brought in, in exchange for a share of the spoils)
as the likely options for Bowleven. The company needs to raise approximately
another $250-300m. At the current market cap,doubt that Kevin Hart will take the
more damaging route of further equity issuance but rather look to a farm in
arrangement.
At 59p, the downside looks to be almost non existent yet the upside remains 200p+,
and potentially a lot more if the drilling program scheduled for this year and next is
successful. 4th Conviction Buy for Spreadbet Magazine.
View more quality content from
Spreadbet Magazine
Ithaca Energy - Recent
takeover collapse now
offers opportunity to
the bulls
Written by Richard Jennings from Spreadbet Magazine
Ithaca Energy has been in the news for all the wrong reasons recently for those long
the stock following the aborted takeover by various unnamed suitors and that has
resulted in a few singed fingers...
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OilVoice Magazine JULY 2012
Ithaca's focus is on the North Sea region and its strategy aims are as follows:
Fast track appraisal and development of oil and gas fields in the North Sea.

Acquire producing fields or undeveloped discoveries that:
o
o
o



(a) Are not material for larger companies
(b) Need technical or financial investment
(c) No longer fit with an existing company's strategy and business
model.
Use tried and tested development and production technologies.
Employ in-house technical excellence to generate development and
acquisition opportunities.
Participate in licensing rounds to gain acreage positions around its core
assets.
Ithaca's Core assets & Company background
Ithaca's primary assets are in four main areas of the North Sea:

Inner Moray Firth

Outer Moray firth
Central North Sea
Southern North Sea


Inner Moray Firth
Beatrice
In 2008 Ithaca entered into an agreement to lease the Beatrice field, the pipeline to
shore and the Nigg storage facility from Talisman for a minimum period of 3 years.
The Beatrice Field, in which Ithaca holds a 50% interest, is operated by Ithaca and is
the largest oilfield (approximately 485 MMbbls of stock tank barrels of oil initially in
place) in the Inner Moray Firth area. Beatrice has produced in excess of 163 MMbbls
to date.
Over the second half of 2009 Ithaca undertook a program of well interventions on
wells producing at the Bravo platform. The result of the Bravo workover campaign
increased production from the Bravo facility by 1,500 bopd (750 bopd net to Ithaca).
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OilVoice Magazine JULY 2012
The Company has undertaken an extensive workover campaign on Alpha platform
wells, which has involved the replacement of down hole equipment and the
recompletion of 4 production wells.
Jacky
Ithaca was awarded block 12/21c in the 23rd Licensing Round which contained the
previously drilled 12/21-2 well. Ithaca and partners drilled the 12/21c-6 well in 2007
which encountered oil-bearing Beatrice sands, 175 feet above the oil in 12/21-2, as
predicted.
Jacky came on-stream on April 6, 2009. Initial production was stabilised at rates in
excess of 10,000 bopd.
The field has been developed with one production well and one water injector well.
Polly
The Polly discovery lies 2.5 km to the east of the Beatrice field and is an elongate
structure which straddles blocks 11/30a and 12/26c. Ithaca acquired the Polly
prospect through the 23rd UK Licensing Round.
Development of Polly has been considered via either a subsea completion tied back
to the Jacky platform or a deviated well drilled directly from the Beatrice Bravo.
Development is currently not, however, considered commercially viable.
Outer Moray Firth
Athena
The Athena field is situated in block 14/18b in the Outer Moray Firth area of the
North Sea; lying approximately 18 kilometres west of the Claymore and Scapa fields
and the associated production facilities. Ithaca currently holds a 22.5% interest in the
Athena Field. The reservoir has been evaluated by Sproule Associates to contain 2P
reserves (gross) of 26.1 million barrels of oil.
Joint Venture partners in the Athena field are: Ithaca, operator (22.5%), Dyas UK
Limited (47.5%), EWE Energie AG (20%) and Zeus Petroleum Limited (10%).
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OilVoice Magazine JULY 2012
Central North Sea
Cook
The Cook field is located in Block 21/20a of the Central North Sea approximately
175km east of Aberdeen and 20km north of the Gannet Cluster development.
The field was discovered in 1983 and the first well encountered oil in the Fulmar
Formation and tested 7,330 bopd of 40.6 API oil and 6.7 Mmscfpd of gas.
The field was brought on-stream in April 2000 following development drilling in 1999.
The annual production rate for oil peaked in 2001 at a rate of 16,800 barrels of oil
per day.
The single well behind the Cook development is regarded as one of the strongest
and most efficient wells drilled in the UK sector of the North Sea.
Greater Stella
The Greater Stella Area became a core focus for Ithaca with the purchase of a
66.66% working interest in the Stella and Harrier undeveloped discoveries from Shell
and Esso in August 2008. Ithaca expanded its portfolio in this area with the award of
one part block in the area in the 25th UKCS Licensing Round and one part block in
the 26th Round. These blocks contain the Hurricane and Helios undeveloped
discoveries respectively.
This area lies in the heart of the prolific Central Graben of the North Sea and is
surrounded by numerous producing fields and undeveloped discoveries. Major E&P
companies including Total, Shell, ExxonMobil, BG, BP, Maersk and ConocoPhillips
operate platforms and pipelines in the area which provide several options for the
export of hydrocarbons from the development.
Having taken over operatorship of the Stella/Harrier block from Maersk in November
2009, Ithaca drilled an appraisal well on the Stella discovery in early 2010. In Q3
2010 Challenger Minerals (CMI) completed on an Earn In deal for a 18% equity in
the Stella/Harrier license by funding 27% of the appraisal well cost.
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OilVoice Magazine JULY 2012
The development scheme is likely to involve up to 5 production wells drilled from a
sub-sea drilling centre on Stella and 2 further production wells drilled on Harrier. The
Harrier centre will be tied back to the Stella where the hydrocarbons from both fields
(oil and gas) will be combined.
Stella
The Stella development lies in the Central North Sea, 15 km northwest of the Joanne
Field and was discovered in 1979 by well 30/6-2 when gas/condensate was
encountered throughout a 25 ft section of Paleocene Andrew sand. Oil was also
observed in the underlying Ekofisk Chalk reservoir. Subsequent appraisal wells
achieved flow rates of 2,900 boepd of condensate and 23 mmscf per day of gas from
the Andrew sands.
Ithaca drilled an appraisal well and a sidetrack (30/6a-8 and 30/6a-8Z respectively)
on the Stella discovery in 2010.
Harrier
The Harrier discovery lies 10 km south of the Stella discovery, also in Block 30/6a.
The accumulation was discovered in 2004 by well 30/6-4 when gas/condensate was
encountered in both the Ekofisk and Tor chalk reservoirs in a salt induced anticlinal
closure. Appraisal sidetracks 30/6-4Z, 4Y and 4X were drilled immediately following
the discovery to appraise, core and test the reservoirs.
Following the successful appraisal of the Stella discovery, detailed planning has
been undertaken for a joint development of Stella and Harrier through a Greater
Stella Area Hub (located at Stella).
In their December 2010 reserves audit, Sproule have assigned net 2P reserves of
11.69 mmboe to the Harrier discovery.
Appraisal drilling of Hurricane in early 2012 will test the accumulation in the Eastern
Lobe of the structure. The well is being designed as a future producer. The appraisal
programme will include a drill stem test to confirm flow rates and reserve estimates,
and take a fluid sample for analysis.
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Helios
Block 29/10d was awarded to Ithaca in the 26th UKCS Licensing Round in 2010.
The block lies within the Company's core Greater Stella area in which the Stella and
Harrier discoveries are under development, and the Hurricane discovery is to be
appraised in early 2012.
In 1969 well 29/10-1, lying within Block 29/10d, was drilled and both gas and
condensate was found in the Andrew Sandstone; the equivalent and principle
reservoir of the Stella discovery now under development. Hydrocarbons were
recovered from an FIT test.
The Company is currently evaluating the potential appraisal drilling of Helios along
the southern flank of the structure.
Southern North Sea
Anglia
The Anglia field lies approximately 60 km from the UK coastline and approximately
11 km southwest of the Clipper field.
The field was discovered in 1972 by well 48/18b-1 when dry gas was encountered in
the Rotliegendes Formation.
Cumulative production from the Anglia field at the end of 2009 was 194 bcf of dry
gas with an estimated recovery factor of 60% to date.
Topaz
The Topaz Field lies approximately 145 km from the UK coastline and 15 km
southeast of the Schooner Field. The field was discovered in 1987 by the 49/1a-3
well which encountered a 130 ft section of gas bearing Carboniferous Westphalian
C/D and Ketch sands.
The current single producing well (49/2a-6Z) was drilled in 2009 as a twin to the
discovery well and tested at 30 mmscfpd. First production was achieved in
December 2009.
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Carna
Blocks 42/52b, 43/16 and 43/21b were awarded to Ithaca in the 22nd Licensing
Round in 2004. Block 43/22c contains the eastern extension of Carna discovery and
was awarded to Ithaca in the 23rd Round.
The Carna discovery straddles blocks 43/21b and 43/22c in the Southern North Sea
and lies between two producing fields, Garrow and Kilmar, which together constitute
the Tors Development.
The Carna exploration well, 43/21b-5, was drilled in 2008. The well encountered dry
gas bearing Carboniferous reservoir formations. The section was cored and a well
test was carried out which flowed at a stabilised rate of 9 million standard cubic feet
per day.
Project pipeline
Financial Overview
For the year ending December 2011 Ithaca produced net cash flows of US$103.5
million (2010 US$88.9 million), and profit before tax of US$37.1 million (2010
US$38.0 million).
Cash reserves were US$112.1 million (2010: US$201.9 million) and the company
had a UK tax allowance pool of US$325 million (2010 $289 million). On 21 March
2012 the UK Government increased the Small Field Allowance (SFA) tax shelter
availability from the 32% Supplemental tax charge for future small developments.
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The size of fields that qualify for full SFA was increased to include all fields with
reserves of under 45 mmboe. The tax allowance available to each field has been
doubled from approximately US$120 million to US$240 million. This change brings
the Stella field under the SFA tax shelter and doubles the relief expected for all other
developments including Harrier, Hurricane, Carna, Scolty Area (Scolty, Crathes and
Torphins) and South West Heather. In respect of the Greater Stella Area, this
amounts to in excess of US$80 million of additional tax-savings net to Ithaca over
the expected life of the fields.
Reserves
Net Proven and Probable reserves ("2P") increased approx. 9%, from
46.05 mmboe as at December 31, 2010 to 50.25 mmboe as at December 31, 2011.
Net 1P Reserves 26.13 million barrels of oil equivalent ("mmboe") (2010:
22.30 mmboe).
The increase in reserves came mainly from the acquisitions of interests in the Cook
field and Challenger Minerals (North Sea) Ltd.
Ithaca's management has hedged well in recent years; entering into swap contracts
to sell 768,800 barrels of the Company's March 2012 - June 2013 forecast
production at an average price of $116.07 per Barrel. The Company also entered
into put options, at a market price, for 390,000 barrels of oil at a weighted average oil
price floor of $120.24 / bbl for the period May 2012 - February 2013 during Q1 2012.
Company has locked in a portion of 2012/13 oil production (over 1.1 million barrels)
at a weighted average price of approx. US$118 per barrel, thereby securing
approximately US$136 million of revenue.
Significant developments in 2012
Takeover
In late January 2012 Ithaca issued an RNS stating that they had been approached
by an unnamed suitor with a view to a potential takeover. The shares rose quickly to
180p from an undisturbed level around 130p as the market priced in a takeover north
of £2 per share.
At the end of May 2012, management released a Corporate Update that included the
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OilVoice Magazine JULY 2012
blow to speculators of the stock that discussions had ceased with the initial suitor
who was intending to acquire the entire entity and also all the additional potential
bidders. The shares promptly fell to around £1.10, despite significant positive
corporate developments outside of the takeover. The wording of the RNS by
management was interesting:
'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 potential, the future value that can be delivered to shareholders and the
responses of the third parties with whom discussions have been held.'
Our guess is that the market volatility and the softening in oil prices caused one or
two of the parties interest to wane and the 'competitive tension' that is all important in
a bid process was much diminished. Management likely were holding out for a full
price relative to recent deals in the region of 220p - 250p, and the remaining
party(ies) were playing hardball on price. With this in mind the bidders bluff was
called and Ithaca decided to plough their own furrow going forward.
Athena
In June 2012, Ithaca announced initial peak gross oil production rates from the
Athena field of 22,000 barrels of oil per day (4,950 bopd net to Ithaca) as metered
into the BW Athena's storage tanks following the production of first oil in late May
2012. At current oil prices, the project is anticipated to achieve payback within twelve
months. Final pressure testing on the subsea infrastructure is in the course of being
completed and first oil is expected in Q2 2012.
With this added production, total Ithaca production is around 9000 barrels per day.
4,299 barrels per day were produced in Q1 2012. When the Greater Stella area
comes on-stream in 2014 production is expected to increase to an average of 20,000
barrels per day.
Hurricane appraisal well
The Hurricane appraisal well is expected to spud by the end of June.
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OilVoice Magazine JULY 2012
Stella/Harrier field DECC approval
On April 12th 2012, Ithaca announced that the company had received Field
Development Plan approval for the Stella and Harrier Fields (located in the Central
North Sea) from the UK DECC (Department of Energy and Climate Change).
A contract for use of the Ensco 100 heavy duty jack-up rig on the development
drilling campaign to commence in H2 2012 was executed in November 2011.
Debt facility
The Company announced a threefold increase in its debt facility in May 2012 to $400
million plus US$30 million cost overrun tranche. The facility is available to fund the
Company's ongoing development activities and future acquisitions, and takes away a
lot of the financing uncertainty for development of their fields that presently hampers
valuations of other companies like Bowleven and Xcite Energy.
What makes Ithaca interesting to us?
1. Stable North sea production and exploration assets.
2. Over 50 million barrels P2 reserves over broad portfolio of assets.
3. Strong financial position. It is Fully funded and has no debt, sitting with @
£70m in cash at present.
4. Cash flow from operations is set to increase from approximately US$150
million in 2012 to approximately US$575 million in 2014 (assuming $100 a
barrel).
5. $400 million debt facility to buy new assets and pay for development of
existing fields.
6. Current market capitalization only £300 million.
7. Forward price/earnings of less than 3.
8. Good news flow - ramp up in Athena production, Hurricane appraisal well,
potential acquisitions.
At the current price (at time of writing - 115p), the company's EV:2P (Enterprise
Value:Proven & Probable reserves) equates to £4.40 per barrel against a Brent
Crude price of over $100 (@ £70 per barrel at current FX rates).
Corporate takeover/absorption deals in Ithaca's area of exploration have been struck
in the £7-10 per barrel price range in recent years and so illustrates the present
undervaluation in the share price.
We also believe that the weakness in the share price has been exacerbated by the
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OilVoice Magazine JULY 2012
general market malaise; particularly in the Oil Explorers area of the market which is
perceived as risky. The bid talks collapsing has also most likely squeezed out a lot of
leveraged money. Downside looks minimal here although it has to be said that the
valuation is not as cheap as the other North Sea play we are keen on - Xcite Energy.
Technical view
The 5 year chart below illustrates how Ithaca's share price is now sat at a key
support level. One could argue that if 100p is broken decisively, that a very large M
top that had taken 2 years to play out was complete and the next support is at 50p.
What tempers this scenario is that the RSI is now somewhat oversold and the
deviation from the 19 week moving average is now excessive and at a point that
typically presages a bounce of some degree.
The alternate scenario, of course, is that the current price point will trace out a triple
bottom around the 100p level and a rally back towards to 150p would represent a
50% retracement of the decline.
View more quality content from
Spreadbet Magazine
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OilVoice Magazine JULY 2012
July Featured University – University of Ibadan
The University College, Ibadan, was founded in 1948. At first, it
occupied the old site previously used by the 56th Military General
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Nigeria
Phone: +23 48103 279 807
Email: [email protected]
Centre for Petroleum, Energy Economics and Law
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Afren are proud to be an OilVoice Sponsor for University of Ibadan
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OilVoice Magazine JULY 2012
Understanding U.S.
gasoline prices
Written by Larry Wall from Larry Wall
With all of the talk about alternative fuels and tensions in the Middle East, along with
the decision of the Administration not to allow the Canadian pipeline project to be
built in the United States, people keep hearing the arguments about how we need to
reduce our dependency on foreign oil but more importantly we hear about the price
of oil and the "robber baron" oil companies.
First there is plenty of oil. The United States will not let the domestic is oil companies
drill for it. The U.S. is the nation that is most guilty of under-utilizing its natural
resources such as oil and gas. Secondly, our biggest single supplier is Canada.
OPEC as a whole supplies more, but on a country by country basis, Canada is our
biggest supplier.
Thirdly, even if we stopped drilling in the Gulf, that is not going to stop South
American Countries and Cuba from developing its offshore oil resources--and they
will not be operating under U.S. rules.
If you plot the price of wholesale gasoline prices, crude oil prices and national
averages, you will see that they rise and fall pretty much in tandem. There are some
blimps, where the gaps are larger and sometime smaller, but on average, gasoline
prices follow the ups and downs of crude oil prices.
The point to be made here that there is not much variation is the gap between the
three data streams. As the price of crude oil goes up, the price of gasoline will follow.
If there is a late freeze in Florida, the price of orange juice will go up the next day. If
there is a drought in the mid-west, the price of wheat will go up and subsequently the
price of bread will increase. The same is true for gasoline, when the price of oil goes
up, so will the price of gas.
The big difference is why the price of oil goes up and down like it does. Oil is sold in
the global market. There are many grades of oil. The price you hear about most is
West Texas Intermediate. Some heavier crudes from the Middle East cost
considerably less. Louisiana Sweet costs a little more.
Refineries at one time could usually only handle one type of oil. However, over the
years, through technological improvements they are able to blend multiple grades of
oil. Oil prices rise and fall for two reasons--demand and outside pressures including
global tensions and the economy. Oil is sold and traded on the futures market. Some
is sold under contract, but those contracts have clauses allowing for increased and
decreased in prices. Speculators have a lot to do with the price of oil going up and
down. If they suspect tension in the Middle East is increasing or the economy is one
part of the world is collapsing, the price of oil will increase. Sometimes, the supply of
oil is too great and that will push the price down. I do not think oil prices will hit $5
this summer.
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OilVoice Magazine JULY 2012
Earlier this year it looked as if the price of gasoline in the U.S. was going to top $4
per gallon, before taxes. That may not happen. The price of oil is going down, people
are buying less, the demand is decreasing and the price is going down. In fact U.S.
gasoline prices may drop below $3 in some states-no guarantee-just an observation.
I can only offer my experience and past observations to support that conclusion. But
let's get to the local market. You can drive around town and see gas stations carrying
the same brand of gasoline, selling it for different prices and be surprised.
When my son was a child we purchased his formula at Wal-Mart. Sometimes the
Wal-Mart closest to the small town where we live would run out. I would go to the
next community and the Wal-Mart was selling it two to five cents higher per quart.
Why was that? In the city where I live there were three pediatricians who had a joint
practice. They recommended the same formula for their patients. In the next town,
there were no pediatricians, and the family doctors who treated the children were
happy with almost any brand. So one store sold more of what we used than the other
and because of the volume of sales, could buy in bigger supplies at a lower cost and
past some of the savings onto the consumers.
In gasoline, the issue is usually location and the size of the gas station. Near my
house is a station selling a major brand of gasoline.
The station has six islands with three double sided pumps on each island. They sell
a lot of gas. If you drive a few miles further, you find a much smaller station, selling
the same gas in a more affluent neighborhood. The station sold less gas and
because of its convenience, the people in that area were willing or at least did pay
more without complaining. Also, each station had one attendant. They kept the same
hours and accordingly had similar overhead costs. So, the one selling gasoline at a
higher volume, could afford to sell it for less. At this point, I want to offer some
advice.
When prices get real high, there will always be one station that will somehow be able
to sell gasoline at a lower cost. People will drive for miles to save a nickel a gallon.
Please do the math. You have a gas tank that holds 20 gallons of gasoline. Let's
assume you get 20 miles to the gallon. The gasoline is selling for $3.20 instead of
$3.25. So, if you fill up with the lower price gas you are going to save $1 per fill-up.
However, if you drive 10 miles round trip you are going to use one gallon of gas. So,
you will spend $3.20 to save $1. You are better off paying the nickel extra at the
nearby station.
I began my newspaper career in 1973 and the first major story I wrote about was the
impending gasoline shortage. People panicked. Every Friday, people with threefourths of a tank would sit in long lines, with the engines running to top off the tank. I
was told by an oil company executive years later, if people had not done this, we
would have never known there was any decrease in supplies. Oil companies operate
independently of each other. If they did not they would be in violation of anti-trust
laws.
There have been numerous Congressional and state investigations and the
conclusion has always been the same. Market forces at the wholesale and retail
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OilVoice Magazine JULY 2012
level impact gasoline prices. Every now and then you will have the bad apple that will
unjustly raise his prices. He is usually caught and will face civil and possible criminal
charges.
Summer gasoline is more expensive to make than winter gasoline. The U.S.
Refineries have to make close to 20 different grades of each gasoline, regular, midgrade and premium. In the winter I think it is six or seven. Gasoline in the west is
higher, because they can only get gasoline from refineries on the west coast--there
are no pipelines crossing the Rocky Mountains. As the map below shows, the total
tax per gallon in California is more than 67 cents, while along the Gulf coast, the tax
is 38.4 cents.
If you are thinking about alternative fuels, remember it took 10 years to phase out the
use of tetraethyl lead from gasoline because the fleet of cars on the road at the time
needed the lead additive. Thanks to "Cash for Clunkers" we have a new fleet of cars
on the road that last longer and are made to run on gasoline.
Therefore, it will be many years before a viable fuel is found and before the
necessary infrastructure built or modified and most importantly, getting enough cars
on the road that can use the alternative fuel.
I am only addressing the U.S. situation regarding prices. Prices in other countries are
often much higher because they import gasoline or levy extremely high taxes on the
product. I once was interviewed by a Japanese reporter (we had an interpreter) and
when he learned what the U.S. price was vs. what was being paid in Japan, he
became slightly outraged, but in control.
Despite the higher prices, gasoline is still a bargain in this country. The price of
everything else has gone up. I remember 5 cent soft drinks, $2 haircuts and 25 cent
popcorn at the movies. All of those prices have gone up considerably, so therefore it
is not unreasonable to accept that gasoline prices also have to increase.
I also remember working for minimum wage at a summer job that paid less than $2
per hour. At the same time, you went to the gas station and say fill it up and if you
were on empty, the price to fill up was around $5. The mileage per gallon was not as
good and the cars did not run as well, but it still cost me more than two hours of work
to fill up a tank of gas.
Everything is relative to the other conditions and factors at the time. Today, with the
economic situation in the United States and other parts of the world, the price of
gasoline is a major concern. As the price comes down and the economy improves,
that concern will decrease.
View more quality content from
Larry Wall
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OilVoice Magazine JULY 2012
Heritage Oil - Unloved,
forgotten and
materially
undervalued
Written by Richard Jennings from Spreadbet Magazine
For holders of Heritage Oil, the last 12 - 15 months have been painful, to say the
least, with the shares falling from over 300p in Feb 2011 to plumb the recent lowly
depths of 130p. The reasons put forth by numerous commentators and analysts for
the collapse in value range from questions over the company's management and
strategic direction, to disappointment in the finding of gas as opposed to oil in their
key Miran prospect in Kurdistan, to continued worries over when the $405m currently
held up in arbitration proceedings through their dispute with Tullow Oil and the
Ugandan government will be ultimately returned, through to wider concerns with the
general global economic environment.
Spreadbet Magazine believes that, as is always the way, the stock market has over
reacted and, quite extensively so to the issues surrounding Heritage. In fact the
depletion of value has been so great that within the entire mid cap Oil & Gas
exploration sphere we believe they now offer the most compelling value on a risk to
reward basis. At the current price of 135p (time of writing) the company has a market
capitalisation of £361m and sits with cash reserves of approximately £200m. This
puts a value of just £161m on the following asset base and which we will attempt to
find a realistic value for each of them (i) The prime Kurdistan asset - 75% share in the Miran block, running to over 1,015
sq/km
(ii) Producing Russian fields
(iii) The Tanzanian assets covering over 25,000 sq/km
(iv) High-impact exploration in Malta
(v) Mali field prospects
(vi) Pakistan fields
(vii) A 51% equity interest and control of Sahara Oil Services Holdings Limited which
has the necessary long term permits and licences to provide onshore and offshore
oil field services in Libya as well as the rights to own and operate oil and gas
licences.
(viii) Approximately 34 million Heritage shares held in Treasury
(ix) Just over 15% of Petro Frontier, owning c.9.75m shares
(x) The 'option' value of the return of $405m from the Tullow/Ugandan dispute.
Let us look at each asset in turn –
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OilVoice Magazine JULY 2012
Miran
The market seems to think that a find of up to 9.1 trillion cubic feet of gas (gross in
place P50 estimate) has no value whatsoever. This is the only way one can
rationalise the current share price. The company however believes that monetisation
of this asset will commence in 2013 - not too far away now and sufficiently close in
timescale that any large time value discount is not warranted. The early production
will run in parallel to full field development and the export of gas to Turkey and/or
Europe with the full production of blended oil and condensate. Independent gas
marketing studies have highlighted increasing gas demand in Kurdistan, Turkey and
Europe that can potentially provide valuable markets for the gas volumes. In April
2011, Turkey's energy regulatory authority ran a licensing process for importation of
gas from Northern Iraq and Kurdistan, with first gas to be imported in 2014 starting at
700 mmcm/yr and plateauing at 3 Bcm/yr up to 2033, demonstrating real demand for
the gas and in a market on the door step of the Miran Field. There is an existing
transmission pipeline system in place in Turkey with only a 330 km pipeline needing
to be built in Kurdistan to the Turkish border. We believe this will be a transformative
event for Heritage as the market will then have to ascribe a value to the gas as it
finds a natural export path. See diagram below showing the existing transmission
system in Turkey.
Full field valuation models for the Miran Block constructed by various independent
analysts anchor around the $3.5 boe (barrel of oil equivalent) range. This equates to
circa £1.22bn if the Kurdistan Regional Government backs in and reduces Heritage's
share of the resources to an estimated 558m boe. It is worth taking a look at the
table below which produces a value graph of what is called EV/2P reserves basically this is a company's Enterprise Value (market cap + debt) to so called
'proven and probable' reserves. You can see just how lowly valued Heritage is
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OilVoice Magazine JULY 2012
relative to the entire sector. Even if one assumes an unheard of $1 boe value then
this equates to £350m based on 558 mmboe, add in the cash of circa £200m and
you get the equivalent of £2.13 per share. Remember this excludes any value at all
for any of the company's other assets. More realistic estimates of the discounted
value of the Miran Field are between 200 & 300p per share. Some analysts
estimates in fact go up to and over £4 per share.
Below is a cross section of the Miran East and West structures which illustrate the
hydrocarbon potential. It is by no means certain that within the East structure, where
drilling commenced in March 2012, that Heritage will find hydrocarbons due to the
nature of an exploration well, however, the structure is contiguous to the very large
hydrocarbon bearing West structure. The company is also continuing to drill down
past 3,000 metres on their Miran West-3 Well following the update in early March
and again as can be seen from the section below this area is where the company is
appraising the gas discovered in the previous well.
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OilVoice Magazine JULY 2012
It is worth also reflecting on the recent arrival of Exxon Mobil into Kurdistan too as an
illustration of the political de-risking of this area. The world's largest oil company
signed a deal for six exploration blocks with the Kurdistan Regional Government
(KRG) last November and thus firming up Western oil majors' perceptions of this
potentially very important region. Genel Energy plc, formerly Vallares (the ex BP
CEO Tony Hayward's vehicle), holds the balance 25% of the Miran licence following
their merger with Genel Enerji and, in Spreadbet Magazines opinion, once the route
to monetisation of the large gas find becomes clearer, we wouldn't rule out the
possibility of Tony Buckingham selling the controlling stake in this asset to them,
after all Tony Buckingham's history is to explore, establish value and then sell on the
development prospects of those assets.
Russia
Heritage's Russian assets are currently the only oil producing component of the
company located in the West Siberian province of Khanty-Mansiysk. The last
independent industry valuation resulted in an estimate of circa 61m barrels of oil and
a net present value valuation at that point of around £186m - approx 74p per share.
Analysts typically value this asset at a conservative 43p per share.
Tanzania
The Tanzanian onshore acreage awarded to Heritage in Q4 2011 and Q1 2012
appears to display a similar profile to the Albert Basin in Uganda and which of course
Heritage ultimately sold for $1.45bn (of which a portion is subject to the tax dispute
with the Ugandan Government). The company is currently in the process of acquiring
2D seismic data and should they find oil here, given the sheer size of the block, this
would be another transformative event for the company. On an unrisked (potential
attributable value if success in exploration is achieved) basis Tanzania is widely
valued around 87p per share equivalent with a boe assumption of circa $3.50.
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OilVoice Magazine JULY 2012
Malta
The Maltese acreage that has suffered from a delayed drilling timescale is also
another high-impact prospect. The company has gone on record in stating that they
believe up to half a billion barrels of oil could be in place here. Unrisked values here,
with a fair and assumed value of approx $3.50 boe, go up to the equivalent of 800p
per share. That's right 800p per share. The delay in drilling is due to the boundary
dispute between Malta & Libya and drilling is now expected to commence in late
2012 possibly rolling into 2013. It is possible that they could farm in a partner here
given the costs of drilling are around $60m. Any sniff of success in this particular
drilling prospect however and 135p per share will very certainly be a very dim and
distant figure...
Mali
The 2 blocks in Mali look, at this point, to be not material to the company. Heritage
has a 75% working interest here having been farmed into the prospect in exchange
for carrying out the seismic mapping on the acreage and also drilling one exploration
well. Unrisked values go up to 65p per share, although the recent coup will most
likely lead to delays in the work programme.
Pakistan
The two Pakistan blocks in which Heritage holds a 54% and 48% interest
respectively, are the Sanjawi and Zamzama North blocks. Any discovered
hydrocarbons could be very easily connected to the existing infrastructure in this
region as one of the main pipelines actually runs through the Zamzama acreage. We
ascribe a nominal 10p valuation here for the moment.
Sahara Oil Services Holdings Limited (SOSH)
It is too early to attach any real attributable value to the 51% controlling interest in
this company but make no mistake, the potential value of these licences could be
considerable. The company's purpose behind their purchase was to play a significant
role in the future development of the oil & gas industry in Libya including participating
in future licensing rounds. In fact, we believe that part of the reason for this
investment was also to give them leverage in the boundary dispute with Malta and
assist Heritage with the drilling programme there.
Treasury Stock
At time of writing the company held approximately 34 million shares in Treasury
giving a current market value of £46 million.
Option value of Ugandan tax dispute
One can debate the merits of Heritage's case against the Ugandan Government &
Tullow until the proverbial cows come home but ultimately, only the outcome of the
arbitration process will determine who is right and wrong here. Applying simple
mathematics of a 50% probability of the return of the monies at some point in mid
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OilVoice Magazine JULY 2012
2013 and applying a further 5% NPV discount gives an option value of around 46p
per share. Of course if they are successful in the arbitration then they would receive
back approx £1 per share
I was able to catch up with Paul Atherton, Heritage's Finance Director and posed the
following questions to him Q. What distinguishes Heritage from its peers?
A. The Company has many competitive strengths including:
a strong balance sheet;
a proven management team;
strong and established technical expertise with a history of finding oil and gas;
a geographically diversified portfolio of high impact exploration plays; and
well-established connections in all areas in which we operate.
Q. What are the main catalysts that you see on the horizon for value
realisation?
A. 2012 will continue to be a very interesting year for Heritage as we have a
diversified drilling programme and the financial flexibility to accelerate programme
execution in several of our core areas. In the near-term the main priorities for the
Group are to continue to drive our current portfolio forward with exploration or
development and drilling programmes in Kurdistan, Tanzania and Malta. We
currently have two rigs drilling in Kurdistan and are reviewing results from seismic
campaigns that could provide future growth in the portfolio. We are looking to further
develop the existing portfolio and continue to look for value generating opportunities
within our core areas.
Q. What options are open to you for the monetisation of your Miran Field?
A. We consider the Miran Gas Field to be of such a size that it is a commercial
discovery and independent engineering studies have confirmed the potential for a
fast-tracked, phased development of the field, with local gas sales in 2013 and full
field development through export of the gas to Turkey in 2015.
Furthermore, many commentators and analysts consider there will be considerable
M&A and so consolidation of existing licence holders in Kurdistan which is another
way to monetise an asset.
Q. What do you say to those shareholders that believe the purchase of the
Heritage shares by the company has been a monumental waste of money?
A. We are focused on building long term shareholder value. This can take some
time, but the management team has a track record of delivering success and is very
much aligned with other shareholders as we own over one third of the company. We
have personally not sold one share and Heritage has undertaken a significant share
buy back programme as we consider the company to be materially undervalued.
Q. Do you have a message for shareholders?
A. The Company has an excellent track record built over many years, one that we
continue to live up to, having found in excess of 2 billion barrels of oil in Africa and
one of the largest gas fields in Iraq. Management is very aligned with existing
shareholders and is focused on rebuilding shareholder value through the existing
portfolio and diversification by acquiring assets in our core areas of Africa and the
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Middle East.
Catalysts
The potential catalysts for value realisation are multi-fold and could include any or all
of the following Success in drilling the balance of Miran West and Miran East with the presence of oil
and gas
An accelerated path to market for the major gas find in Miran including access to the
lucrative gas market in Turkey
News on the Tanzanian, Maltese, Pakistan and Mali exploration programmes
Potential corporate activity - sale of Miran, farm in of the Malta prospect or indeed a
bid for the company or a transformational acquisition
A positive outcome in the arbitration process.
Cumulative valuation possibilities
Given recent security issues in Mali and Pakistan we have assumed only nominal
value for these licences. Drilling delays in Malta mean that we have only included
50% of the potential value for the Malta licences too.
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Technical Picture
Looking at the short term chart we can see the stock is beginning to probe the
downtrend from early February - this comes in around the 150-155p level. A close
above here targets next resistance around the 160p level. A number of consecutive
daily closes above 150p will be the confirmation signal I am looking for that the stock
has broken the intense downtrend in recent weeks. A move beyond 165p will likely
take us back towards 200p in short order and, as can be seen from the longer term
chart will be a decisive break of the longer term down trend from early 2011.
Conclusion
As can be seen from Heritage's individual prospects breakdown above, news flow
this year into 2013 will be thick and fast and any number of positive outcomes from a
sale of the Miran Block through to drilling success in Malta in particular could come
to pass. The Company has indicated that it has been searching for material
transactions and so could one of these transformational deals be completed?
At the current price of 135p (time of writing) and with cash and stock assets of
almost 100p, we struggle to see any downside whatsoever from here. The upside is
considerable and this is our second Conviction Buy in this issue. Regular readers will
know my usual caveat however and that is - be careful on your leverage (do not gear
yourself more than 3 times current surplus cash on your account) and so give
yourself headroom for further market volatility.
View more quality content from
Spreadbet Magazine
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The Next
Generation of
Ikon RokDoc
RokDocQED - Quantitative Exploration & Development
Next generation technology from Ikon Science;
geological inversion, geopressure prediction,
fast workflows and more. From rock physics to
reservoir properties in one powerful and connected
platform. RokDocQED for Quantitative Exploration &
Development.
Find out more www.ikon-rokdoc.com/QED
53
OilVoice Magazine JULY 2012
How to ensure safer
drilling
Written by Richard Kluth from Pulse Structural Monitoring
Since the Deepwater Horizon oil spill back in April 2010, the safety of drilling
operations has come in for massive scrutiny. The spill, which flowed unabated for
three months was the largest accidental oil spill in the history of the petroleum
industry. The explosion killed 11 men working on the platform, injured 17 others and
caused massive damage to the marine and wildlife habitats of the Gulf of Mexico.
Given such extensive damage caused, how can companies working in subsea
services ensure safer drilling operations?
The answer could lie in the monitoring of drilling risers.
Drilling risers, which are essentially extensions of subsea oil wells, need monitoring.
They are incredibly dynamic and complex structures that are subject to a range of
sometimes-extreme environmental and operational forces. Yet despite their critical
nature and the serious consequences of a riser failure, there has been a degree of
resistance in the industry to the idea of monitoring them.
This is because some of the early monitoring systems of drilling risers were
expensive, poorly integrated, impractical and insufficiently robust. In addition, the
data generated did not always translate into the sort of information that immediately
improved the life of the driller. There was a perception that riser monitoring was
research and development, and expensive research and development at that.
In order to win over the drilling community over to the advantages of riser monitoring,
drilling companies need to be offered a system which is not only practical and robust
enough to endure the rigours of drilling, but provide the analysis and visualisation
software needed to turn data into meaningful, well-presented information. This can
only be achieved through simple, accurate, robust and well-packaged sensors,
installed at critical points on the riser and not interfere with normal drilling operations
- if they do, the chances are they will be destroyed before they even enter the water.
Next up is the data the monitor provides. In an ideal scenario, any data should be
displayed on a single easy-to-view screen (a riser dashboard), with a simple trafficlight system to indicate the status of the riser within its overall operating envelope. It
needs to be easy for the operator to respond quickly and decisively when something
begins to happen that potentially compromises the integrity of the riser.
So what should you be looking for if you want to take your safety to the next level?
Any monitor you choose needs to use vessel position and motion data, metocean
readings, and tension in the region of the lower marine riser package (LMRP) to
provide the optimum position and heading of the drilling rig. You need to see a
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OilVoice Magazine JULY 2012
constant picture as well as information with which to control the riser tensioning
system. Most importantly, seeing a constant picture of where the riser lies within its
defined operating window is an invaluable aid to making prudent connect and
disconnect decisions, which are key to maximising drilling uptime and ensuring the
safety of drilling operations.
There are a number of advantages of this system. By helping to clearly understand
how the riser is responding to the operational and environmental forces it is being
subjected to, it helps risers operate safely within a defined operating window without
adopting an unduly conservative approach. Think of driving an expensive, fast car
along a busy road - you wouldn't just put your foot down and hope for the best!
Also important to your choice is the addition of a software module to assess a given
drilling riser's fitness for purpose and define its operating window. This can be
utilised for planning, during operations and for post-analysis. Established analytical
techniques will help you calculate drilling rig operating limits under static, dynamic
and hang-off conditions, as well as the extent of drift-off that can be tolerated in
given ocean environments.
It's been over two years, and there hasn't been another disaster like Deepwater.
With better systems and better monitoring like those offered by DrillASSURE, Pulse
hopes there never will be again.
View more quality content from
Pulse Structural Monitoring
Exploration: How to
find more oil
Written by David Bamford from OilEdge
About 20 years ago, when I first started to have a small role in BP's global
exploration program, we were driven by the concept of what we called 'New
Geography'. It was a simple but far reaching idea:
Whole new areas were being 'opened up', either because:
Regimes had fallen, governments had changed their mind - so Azerbaijan,
Kazakhstan, Venezuela, Brasil, eventually Russia, opened up…
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OilVoice Magazine JULY 2012
or because,
Technology had progressed; we could drop in huge 'exploration 3Ds' almost
anywhere that was wet; and drillers knew they could drill in ever deeper water
depths - this opened up the Deep Waters of the Gulf of Mexico, Angola,
Nigeria, Egypt, Norway, West of Shetlands etc etc.
Nowadays is different!
Nowadays is different because.....
Explorers are by and large are engaged in the search for new plays in known basins,
plays of increasing subtlety and complexity in basins that have been 'open' for a long
time, where somebody has gone before them.
Here are just four of the questions that explorers might be trying to answer today:
1. Massive amounts of gas have been found offshore East Africa. Is there
anywhere to go to find oil?
2. Where are the analogues for the much-talked-about Brazilian sub-salt
successes?
3. Where might big fields be hiding in the Deep Waters of South East Asia?
4. Is the North Atlantic really a poor relation compared with the South Atlantic?
And where, to tackle these questions, plenty of - sometimes huge amounts of - data
are now available to explorers.
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.
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. Unless you work
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in a company with enough people (and, maybe, the hubris) to think you have
cracked this problem, I commend the work of Neftex to you as an aid to building this
understanding.
View more quality content from
OilEdge
Significant changes
taking place in U.S. Oil
& Gas industry
Written by Larry Wall from Larry Wall
There are some significant changes taking place in the oil and gas industry. Some
people have perhaps noticed the changes but have not considered all of the
implications.
For example, at one time, the largest refinery in the United States was in Texas.
It still is. However, the Exxon refinery was the largest but not any longer. Today, it is
the Motiva Refinery, which is jointly owned by Shell Oil Co. and Saudi Arabia. The
refinery recently increased its capacity from 280,000 barrels per day to 600,000
barrels per day and now has the ability to handle different types of crude oil.
A couple of years ago, the Marathon Refinery in Louisiana, which was the last new
refinery to be built from the ground up in 1972, increased its capacity from 256,000
barrels to 436,000 barrels. All of these numbers are daily capacity numbers.
So the Port Arthur refinery can process 600,000 barrels of oil per day or in theory
219 million barrels per year. The 'in theory' term is added because refineries seldom
operate at maximum capacity and there are times when portions of the refinery have
to be shut-in for needed maintenance.
Regardless, the refinery has a tremendous capacity, as does the Marathon Refinery
in Louisiana and do not forget the Exxon Refineries in Baton Rouge and Texas, each
having a capacity of about 500,000 barrels per day. So, after a long dormant period,
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OilVoice Magazine JULY 2012
the refinery industry is growing. It is growing at a time, when it's most important raw
material, crude oil, is costing more, even though the price has come down in recent
weeks. At the same time, some smaller refineries are closing because of the price of
oil is too high for them to make a profit and some are on the block and up for sale.
The result is that refineries will be exporting refined products to other countries. U.S.
demand is down, so the refineries have to look for new customers for their products.
This does not mean that gasoline prices are going to go down. It does mean that
they are likely to remain at a somewhat steady level and more importantly means
that we will not have to import gasoline, home heating oil, aviation fuel and other
similar products.
Now add to this the recent announcement that during the last quarter the United
States produced nearly 6 million barrels of crude oil per day during the first quarter of
2012--the highest level of domestic production in 14 years. We are producing more
oil at a time with domestic demand is decreasing because of more fuel efficient cars,
conservation efforts and numerous other factors.
North Dakota has never been thought about a major producing state. So imagine
how much oil and gas the United States could produce if other areas, which are
currently off-limits, were opened up for exploration and production. Next, consider
the largest U.S. sources of U.S. oil. Texas still holds the top spot.
It used to be followed by Alaska. That is not true any longer. North Dakota, yes that
little state on the Canadian border where the temperatures drop to sub-freezing
levels in the winter, is the second largest oil producing state in the country.
Louisiana ranks high but there is a catch. Louisiana claims to be one of the major oil
producing states, but to do so, it has to claim the federal production in the Gulf of
Mexico. Otherwise, it falls down to fifth or possibly sixth place. In 1980, North Dakota
was producing about 40 million barrels a year. The top producing area is the federal
waters in the Gulf of Mexico, where some of those waters are also off limits to
exploration and production.
Putting It In Perspective
To put that in perspective, the Exxon Refinery in Baton Rouge can process 500,000
or one-half million barrels of day. So, in 80 days that one refinery could have refined
all the oil that North Dakota produced, assuming there was a way to get it there.
In 2011, North Dakota produce 152 million barrels of oil per year. That would be
enough to keep the Baton Rouge Exxon refinery busy for most of the year.
The increased production is due to the fracking process. While there is controversy
around the fracking process the use of the practice will continue and has been in use
for years on vertical wells without any serious concerns. Almost everyone will have
to admit it produces oil. The question that remains unanswered is how long will these
shale plays, where all of the oil is being produced, continue to produce substantial
quantities of petroleum.
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The shale formation in North Dakota spreads to other states and predictions indicate
that a lot of oil will be produced. Many potential oil producing areas have been kept
off limits with the argument that the amount of suspected petroleum was only enough
to supply the country for one or two years. That argument has no validity. Those
wells might produce for decades and the amount produced from those wells and all
the other wells that should be drilled would extend our oil supply by decades if not
longer.
While it may seem somewhat strange, the United States does export some oil. After
all it is the world's largest oil importer and yet in 2011 it exported 3 billion barrels a
day, mostly in the form of refined products. Due to various logistical, regulatory, and
quality considerations, it turns out that exporting some barrels and replacing them
with additional imports is the most economical way to meet the market's needs.
For example, refiners in the U.S. Gulf Coast region frequently find that it makes
economic sense to export some of their gasoline to Mexico rather than shipping the
product to the U.S. East Coast because lower-cost gasoline imports are available
from Europe, according to the U.S. Energy Information Administration.
European countries depend more on diesel than gasoline, meaning that after the
refining process is completed in Europe, they have an excess supply of gasoline that
needs to be sold. So that gasoline goes to the east coast of the United States while
some of the oil refined on the Gulf Coast goes to Mexico. This further proves that the
oil industry must operate on a global basis, if it is to operate as efficiently as
possible.
Finally, there is a project underway in Baton Rouge that bridges the gap between
traditional oil and gas use and the growing demand for alternative fuels. The City of
Baton Rouge, which is the capital of Louisiana, is embarking on a project to convert
part of its fleet of vehicles, mainly the heavy duty vehicles to compressed natural
gas. Other cities are looking at using natural gas for a fuel source, but the fact that
Louisiana, a major player in the oil and gas industry is looking at the process gives it
some added significance.
The city is hiring a firm to conduct a study of the feasibility and then there will have to
be cost estimates and then the decision will have to be made whether or not to
proceed and if the project can support itself and generate enough return to cover the
cost of the initial investment. Otherwise, the taxpayer gets left holding the bag for a
plan that may or may not work, depending on how high and how low natural gas and
gasoline prices rise or fall in the future.
The Big Question
If oil is not to be the primary fuel source for the United States, what is going to
replace it? There are other fuel sources that can be burned to create BTUs that will
boil water, to create steam and produce electricity. There is solar energy to warm
your house. There is atomic energy to generate electricity and the list goes on.
However, no one has come up with an answer as to how to replace oil as a building
block.
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OilVoice Magazine JULY 2012
Through increased production we may be able to reduce our imports by a significant
amount and thus reduce the price of oil, which in turn will lead to cheaper gasoline
and almost everything else seeing some benefit--assuming the price does not get
too low. If oil prices drop below a level that the producer cannot make money, he will
shut in the well and we start the process over again of importing oil at a higher price,
causing gasoline to increase and the rest of the story unfolding as it has over the
past years.
Everyone has to be careful in trying to predict how much oil is left. During the
administration of President Jimmy Carter the industry and the government thought
the natural gas supply in the U.S. was shrinking at an alarming rate. Thus, the
Congress, with the backing of the President, enacted the Fuel Use Act, which among
other things prohibited the construction of any new utility plants that were to be
powered by natural gas.
So, somewhat ironically, a new power plant was built in Boyce, LA. It is a very large
plant and serves several cities. It is fuel by coal. Imagine now, in the middle of the
state that was a leading oil and gas producer for years, serves as the gateway to the
offshore industry and still produces a lot of oil and gas, stands a plant that has trains
running back and forth to Wyoming to bring coal to this Louisiana based plant.
The additional electrical capacity was needed. Had the Fuel Use Act not been in
place, this plant would probably be using natural gas, which even the
environmentalists agree is a clean burning fuel. Instead, coal is imported into the
state. This was a case of acting on inaccurate data and acting too quickly--a mistake
that must be avoided in the future.
Today, it is apparent to even the casual observer that the oil and gas industry is
undergoing numerous changes. Before final decisions are made on alternatives--if
final decisions can be made, If the products other than gasoline that are made from
oil, then wells will have to be drilled and refineries will have to operate.
It may be best to wait and see what shakes out in the oil and gas industry before
committing major amounts of capital to project that may not work.
Other works by Larry Wall may be found at http://larrywall.hubpages.com
View more quality content from
Larry Wall
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OilVoice Magazine JULY 2012
Fund raising CFO's are
vital outside the FTSE
250
Written by Kris Hicks from AVA Global Ltd
The role of the Chief Financial Officer (CFO), certainly across the Energy and
Natural Resources sectors, has changed vastly over the last few years. Traditionally
responsible for accounting, internal financial reporting and group budgets to more
recent expectations of aggressively raising capital, meeting financial forecasts and to
lead on strategic decision making. However, increasingly the issue of fund raising
has become ever more important to organisations operating outside of the FTSE
250, especially in the current economic climate.
It is true that financing has become a lot more sophisticated and 'instant' but since
2007 the capital markets have almost ground to a halt. A CFO who is able to
demonstrate strong relationships with financial institutions and investors, including a
track record of fund raising, even in difficult economic circumstances, is worth their
weight in gold.
Since the emergence of the Alternative Investment Market (AIM) in 1995 the
importance of a CFO who has the ability to raise substantial funds, knowledge of
capital markets, identify new opportunities, presenting them to shareholders and
investors whilst also shaping the overall strategic direction of the business has
become vital to any organisation looking to embark on growth. For companies listed
on AIM and other investment markets across the globe this is essential.
Take a look at recent figures released by Ernst & Young:
"Secondary fundraising by AIM listed oil and gas companies in Q1 2012 was £184.9
million, 40% lower than Q1 2011 and 30% lower than Q4 2011. Over 80% of this
relates to just five companies - 88% of AIM oil and gas companies raised no capital."
88% of AIM oil and gas companies raised no capital despite the fact that the sole
purpose of listing on AIM is to seek alternative investment for growth, expansion and
development. The opportunities for investment are there, it takes a highly skilled
CFO to seize those opportunities.
Previously headhunters would expect a CFO to present themselves as Autocratic,
Functional and a Financial Monitor but that has changed. Clients will want to be
presented with a CFO that is strategic, entrepreneurial, consultative and highly
commercial. They expect a CFO to identify opportunities for investment and
expansion, evolve to the ever changing market conditions, to take on board the role
of strategist rather than controller; yet still provide sound financial governance.
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At present we are carrying out four CFO retained search mandates for Oil & Gas and
Mining organisations operating throughout EMEA and the first and most important
skill or experience all of these clients expect is for the CFO to provide a substantial
track record of fund raising. No longer financial reporters or financial watchdogs but
strategic and commercial financial leaders.
Interestingly 38% of CFO's do not come from a financial background, something that
would have been unheard of 30 or 40 years ago but provides greater evidence that
M&A and Business Development is key to the new CFO role.
View more quality content from
AVA Global Ltd
Fracking - Gas drilling
and environmental
threat
Written by Keerthana Karthik from GAJ Industrial Supply
The Story So far
The intensity and push to generate clean energy in the U.S. has targeted on natural
gas, thereby compromising the quality of water resulting from the primary drilling
methods used, i.e. fracking or hydraulic fracturing. This technique involves deep
drilling into the ground and blowing up explosives so as to break open the rocks
which are packed with natural gas and oil. Then, water, sand and other toxins are
injected at extreme pressures to allow the gas to flow out easily to the surface. Such
advanced high volume hydraulic drilling techniques has armed drillers to reach out to
very deep underlying areas which were previously considered inaccessible to obtain
gas from! It has not only created new paths for releasing gas, but has also extended
the present paths. This unconventional drilling is now considered one of the most
controversial environmental threat in the United States and all around the globe.
Though the Environmental Protection Agency in 2004, has stated that the drilling
process does not pose any environmental threat, numerous water contamination
cases have been reported in various parts where drilling is being carried out. The
cause of such water contamination proves to be very complex to figure out as gas
companies refuse to bring to light the chemicals used as it may result in revealing
their trade secrets. The EPA is conducting deeper studies and reopened
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OilVoice Magazine JULY 2012
investigation of water contamination problems in areas where fracking is being
carried out. Certain studies have shown that hydraulic fracturing results in
augmented levels of methane, radioactivity and toxic fluids in groundwater which in
turn can lead to flammable tap water and have harmful effects on the nervous
system. Fracking releases certain chemicals called BTEX, which can cause birth
defects and cancer.
Apart from such environmental and health hazards, there are also rising geological
concerns regarding the use of hydraulic fracturing. Fracking hubs are now victims of
seismic activity. Earthquakes have now become a common phenomenon in cities
such as Youngstown, Ohio, where the residents have rarely experienced such
seismic events. This has led to inquiries on the fracking operations that are being
conducted in the nearby areas. Not only in the U.S., there have been similar issues
in the U.K. as well. The British government in fact has ordered a fracturing operation
to close down after their officials had reported that the fracking had caused such
earthquakes, thereby posing a serious life threat to their people.
Fracking - Economic Boon Vs Environmental Threat
There are two ways to look at fracking. On one hand, it provides a massive
economic benefit in the form of generating natural gas using unconventional
techniques. On the other hand, it also results in health and environmental hazards. It
is difficult to clearly depict the true cost-benefit of fracking as in certain cases the
benefits exceed the costs and vice versa. However, it is the duty of the government
to step in and clearly examine the process and risks involved in fracking and bring
about clear policies and procedures to carry out hydraulic fracturing and regulate
them judiciously.
View more quality content from
GAJ Industrial Supply
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OilVoice Magazine JULY 2012
Due diligence in the oil
industry
Written by Michael Littlechild from GoodCorporation
With the passing of the Bribery Act in 2011,
companies are facing ever-increasing liability for
the activities of third parties working on their
behalf. Under the Act, UK companies that fail to
prevent bribery face unlimited fines with a jail
sentence of up to ten-years for directors, if they
are prosecuted for corrupt practices. The old
excuse that a supplier may have 'exceeded their
remit' in negotiating a contract, obtaining customs
clearance or acquiring a permit will no longer form
a defence of any kind. Moreover, this is the case
not just under UK law, but also most other
European laws.
Although this affects all businesses in all sectors,
the extractive industry more than most depends
on permits and authorisations regularly obtained
by third parties. Not only that, most oil companies
operate in many of the world's highest risk areas
according to Transparency International's
Corruption Perceptions Index.
Not surprisingly perhaps, the activities of third
parties are under greater scrutiny than ever
before and we are seeing more and more
instances of malpractice being discovered. In
2011, every Foreign Corrupt Practices Act/US Securities and Exchange Commission
investigation involved the payment of bribes via third parties. Not only are companies
that get caught in this way facing heavy fines, they are also subject to boycotts by
other businesses and a subsequent loss of revenue.
As a result, we are seeing an increasingly cautious approach to the use of third
parties. GoodCorporation has worked with extractives companies in some of the
world's more challenging environments for the past ten years. To be fully protected,
companies need to ensure that they are undertaking rigorous due diligence. Key to
success here is establishing the right line of enquiry: asking the right people the right
questions and understanding any possible implications.
Some simple desk research can be useful. Look for an anti-corruption policy on the
intermediary's website or for a statement on facilitation payments. If these can't be
found, the alarm bells should start ringing.
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Although online checks can be a useful start,
effective due diligence needs to be more rigorous
and scientific. Many companies deal with thousands
of suppliers making due diligence a costly and timeconsuming exercise. While some would argue that
the cost would be marginal compared to the
potential fines, supplier risk assessments need to
be carried out in order to place potential third parties
into high, medium and low risk categories and that
appropriate due diligence is conducted according to
the risk.
Depending on the category, suppliers should be
checked either using an online questionnaire,
telephone interviews or site visits. GoodCorporation
has been at the forefront of developing such
processes and is already carrying out Due Diligence
checks on behalf of some of its clients.
This process should be gone through on a step-bystep basis enabling an organisation to categorise
third parties according to risk and carry out the
appropriate level of due diligence as indicated.
Suppliers can then be accepted or rejected on the
basis of the information received. In some parts of
the world, however, it may be a question of minimising the number of red flags and
working with the company that places you least at risk.
Though still fairly embryonic, third party due diligence is
currently one of the main preoccupations of senior
management. As businesses tighten up their anticorruption procedures, these processes will become
more systematic and routine.
Not only should this process be applied to new
suppliers, but also to existing ones. There may be a
reason why your current customs clearer, for example,
is 'quicker' than the competitors that has little to do with
the efficiency of their operation. These can be difficult
questions to ask, but failure to grasp nettles here could
lead to more than just a sting.
Conversely, if there are concerns surrounding an
existing supplier, check out the competition carefully to
ensure that the alternatives are more robust.
Once due diligence checks have been carried out, anticorruption clauses must be written into supplier
contracts demanding compliance with your own code of conduct and stipulating that
corrupt payments must not be made.
[email protected] | +44 208 123 2237
65
OilVoice Magazine JULY 2012
It may not stop corruption altogether, but undertaking a rigorous checking process
will provide a robust defence should the Serious Fraud Office find reason to call.
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