Volume 90 / Number 6 / Tuesday, January 10, 2012

The McGraw-Hill Companies

Oilgram NewsContents

Asia Pacific

BPCL focuses spending on Brazil and Mozambique 2

Seoul mulls cutting dependence on Iran oil 2

Sangu gas field back online but at much lower rates 2

China plans 710,000 b/d of CDU capacity 3

Sinopec acquires a 50% interest in Fujairah oil terminal 3

Seoul to launch online oil product trading 3

Europe, Middle East & Africa

Nigeria strike begins with no oil impact yet 4

Valero seen eyeing Murphy Oil’s UK refinery 5

Petroplus lays off contractors at Coryton 5

KazMunaiGaz EP responds to state order 7

UAE sees range of $85-$95/b for long-term investment 7

UAE oil link operational in May or June 8

ExxonMobil, Petrom spud Romania deepwater well 8

The Americas

Miner Teck buys oil sands company SilverBirch 9

Venezuela in ‘trouble’ if rejects ICSID ruling 9

Northern Gateway backers show themselves 10

US inspects rig leased by Repsol set to drill off Cuba 10

ExxonMobil, US agree to new terms at Gulf leases 11

Land drillers, services seen set for strong Q4 11

Markets & Data

Eurozone worries send NYMEX crude lower 12

www.platts.com

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Defiant Iran launches new uranium enrichment driveDubai—A defiant Iran has announced the imminent launch of a new cycle of uranium enrichment at an underground bunker, as its top naval commander again declared that Tehran could easily shut down the Strait of Hormuz to oil transit, drawing a warning from Washington that it would intervene if Iran crossed a “red line” by acting on its threat.

As tensions rose in the nuclear row that has simmered for years between the interna-tional community and the Islamic Republic, Iranian oil minister Rostam Ghasemi said world powers were waging an “economic war” against the country.

He told oil workers at the country’s main Kharg Island oil terminal they constituted a front line in the battle against the West and its allies as South Korea, a key buyer of Iranian oil, revealed it was considering cutting volumes of oil imports from Iran (see story, this issue).

Crude oil prices initially rose on January 9 in response to the renewed saber-rattling from Tehran, though Iran’s defense minister sought to play down the threat of Iranian

action against the Strait of Hormuz, through which 20% of the world’s traded oil transits en route to markets.

Ahmad Vahidi made clear it was not Iran’s intention to close the Strait of Hormuz but it had warned any threat to the vital waterway would jeopardize the security not just of Iran but the entire Persian Gulf region. “We did not say we will close the Strait of Hormuz. The thing is if someone wants to jeopardize security of the Persian Gulf, the jeopardy will be for everybody,” Vahidi said.

Iran’s top naval commander, Admiral Habi-bollah Sayari, had said earlier that blocking the strategic strait would be “very easy” and he defended recent war games close to the waterway as a response to threats and sanc-tions against Iran.

The uncertainty over Iran’s intentions regarding the oil choke point wedged between Iran and Oman has pushed up oil prices since the start of the year as markets reacted to the escalation in tensions in a region that is

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Statoil makes new discovery in Barents SeaHavis find seen opening up fresh petroleum province

Copenhagen—Norway’s Statoil said January 9 it has made a “substantial” new oil and gas discovery at the Havis prospect in the Barents Sea, which together with the previous nearby Skrugard discovery would open up a new Nor-wegian petroleum province.

Statoil said that with recoverable reserves estimated at 200 million-300 million barrels of oil equivalent, Havis was a major find.

Combining the potential reserves at Havis with the recoverable reserves estimated at Skrugard makes a major resource, Statoil said. “The provisional, updated total volume estimate for the Skrugard and Havis discoveries is in the region of 400-600 million barrels of recoverable oil equivalent,” Statoil said in a statement.

Havis is inside PL532—the same produc-tion license as Skrugard—but Statoil said it forms an independent structure and there is no communication between the two discoveries.

Analysts said the Havis find improves the economics justifying the massive infrastruc-ture costs required for developing Skrugard, which lies in remote Arctic waters, 100 km north of the Snohvit field.

Statoil CEO Helge Lund said January 9 the Havis find was a watershed development for opening up the Barents Sea. “Havis is our second high-impact oil discovery in the Barents Sea in nine months. The discovery’s volume and reservoir properties make it Skru-gard’s twin,” Lund said.

“Skrugard and Havis open up a new petro-leum province in the North,” he said.

Statoil said the Skrugard discovery already provided the basis for an independent develop-ment—and with the Havis volumes the devel-opment project becomes even more robust.

“The Havis discovery boosts the develop-ment of Skrugard as a versatile new center with processing and transport capacity,” said Statoil’s Erik Strand Tellefsen, vice president for the Skrugard development. “We are about to realize the Barents Sea as a core area on the Norwegian Continental Shelf.”

Statoil said January 9 that going forward, the partnership would drill an appraisal well in the Skrugard discovery and assess further upside potential in the license.

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2 Oilgram News / VOlume 90 / Number 6 / Tuesday, JaNuary 10, 2012

ASIA PACIfIC

Seoul mulls cutting dependence on Iran oilConsiders bringing down proportion of Iranian crude imports to 2010 levels

Seoul—South Korea is considering lowering the proportion of Iranian crude oil to its total imports to 2010 levels as a medium-term measure aimed at winning an exemption from new US sanctions, an energy ministry official said January 9.

However, the country will seek to avoid an immediate oil import reduction from Iran, said the official, who declined to be identified.

South Korea imported 72.6 million barrels of crude from Iran in 2010, accounting for 8.3% of its total imports in the year. In com-parison, dependence on Iranian oil rose to 9.7% in the first 11 months of 2011 when the country imported 82.59 million barrels, data from the energy ministry showed.

The US recently has stepped up pressure on Iran by unilaterally imposing additional sanctions that will make it difficult for compa-nies to import Iranian oil. The measures, to be implemented following a warning period of several months, would give the US President the option to block foreign institutions in viola-tion of the new sanctions from accessing the US financial system.

Seoul has said it will seek an exemption from the new tougher sanctions, noting that a suspension of oil imports from Iran would threaten South Korea’s energy security.

South Korean refinery sources last week told Platts they have yet to embark on talks

with alternative suppliers to replace Iranian oil, preferring to wait for the outcome of talks between US and South Korean government officials (ON 1/6).

The biggest importer SK Innovation and third-largest South Korean refiner Hyundai Oil have both renewed their 2012 term contracts with Iran at the same volume as 2011, sourc-es with knowledge of the matter said.

Separately, South Korea may release its strategic petroleum reserves in case of crude price hikes in the wake of US-led sanctions against Iran, the official said.

“The government has placed a priority to cushion the South Korean economy from the impact of high international crude prices and possible supply disruptions if and when Iran translates its threat to block the Strait of Hor-muz into action,” the official said.

“The government would take measures to minimize impacts from the Iran situation, including looking to alternative import sources and using strategic oil reserves,” he added.

South Korea relies on imports to meet all of its oil needs of around 2.5 million b/d.

South Korea released 3.47 million barrels of crude and oil products from its strategic petroleum reserves in July last year in line with global efforts to stabilize the oil market amid political unrest in North African and Middle Eastern countries.

It was South Korea’s fourth release of emergency stocks following a release of 4.94 million barrels during the 1990-91 Gulf war; 2.92 million barrels in September 2005 due to shortages in the Gulf of Mexico caused by Hurricane Katrina; and 980,000 barrels of kerosene in early 2006 to ease supply disruptions.

A foreign ministry official said South Korea would take joint steps with the US to resolve the Iranian nuclear crisis as Seoul needs Washington’s cooperation in ending the nuclear problem of North Korea, indicating South Korea may accept a US call for reducing Iranian crude imports. “What is needed for now is a flexible diplomatic stance,” he said.— Charles Lee

CNPC’s overseas output reaches record high in 2011Singapore—State-owned China National Petro-leum Corporation said it produced over 100 million mt of oil equivalent of oil and natural gas from its overseas assets in 2011, a record high, according to a report on its web-site January 9.

Overseas production in 2011 sharply surpassed the previous all-time high of 86.73 million mtoe in 2010.

The report did not provide the exact pro-duction figure for 2011.— Calvin Lee

Sangu gas field back online but at much lower ratesDhaka—Natural gas output from the Santos-operated Sangu field offshore Bangladesh resumed January 9, though at reduced levels, as only one of three producing wells returned online following a planned maintenance shut-down December 20, a senior company official told Platts.

Current output at Sangu, the country’s sole offshore field located in the Bay of Bengal, is 4,000 Mcf/d, 69% lower than about 13,000 Mcf/d prior to the shutdown, said Ajay Nambiar, Santos Bangladesh’s vice president of planning.

Water unloading activities at the other two Sangu wells are still being carried out, said Nambiar, adding that the wells should return online shortly.

Australia-based upstream company Santos has been incurring losses at the Sangu field due to declining output, a company source has said previously. The field had peak out-put of around 220,000 Mcf/d in 2006 when oil major Shell was operator. Following an acquisition of Cairn Energy’s interests in Ban-gladesh in November 2010, Santos became operator of the field with a 75% stake. US-based Halliburton Energy holds the remaining 25%.— M. Azizur Rahman

BPCL focuses spending on Brazil and MozambiqueMumbai—India’s state-owned refiner Bharat Petroleum Corporation Limited plans to invest between $2 billion to $2.5 billion in the next five years on upstream activities and most of the planned capital expenditure will go toward its Mozambique and Brazil projects where recent discoveries indicate good reserve poten-tial, a senior BPCL official said January 6.

While BPCL continues to look for acquisi-tion opportunities in the upstream sector, the company would like to reserve its cash for the current potential development at hand, S. Varadarajan, BPCL’s finance director, told Platts in an interview.

“The last estimates we have had from Mozambique [showed that reserves] have dou-bled to 30 Tcf from 15 Tcf of gas. So, we have decided to accept the advance commitments asked for by the partners,” Varadarajan said.

BPCL subsidiary Bharat PetroResources Limited or BPRL has a 10% stake in the 2.6 million acre Area 1 offshore Mozmabique with Anadarko Petroleum (36.5%), Mitsui (20%), Vid-eocon (10%) and Cove Energy (8.5%). Empresa Nacional de Hidrocarbonetos EP’s 15% interest is carried through the exploration phase.

All the consortium partners have agreed to take equal stakes in the liquefaction facilities to be set up in Mozambique for LNG exports, Varadarajan said.

With the reserve estimates going up, the partners are now planning to set up six trains, against the earlier plan of only two trains, he said, adding that with first gas expected in 2017-18, the partners have started marketing the LNG.

BPCL has a 12.5% stake in India’s first LNG import company Petronet LNG, but Varadarajan said the company would market the gas independently and it might not neces-sarily come to India.

Should the LNG come to India there would be enough capacity available at Petronet LNG’s terminal as well as new terminals being planned on the west and east coasts, he said, adding there is no plan to build a new LNG import and regasification terminal in India based on the Mozambique discovery.

In Brazil, BPCL is Anadarko’s partner in block BM-C-30 and holds 25% along with its Indian partner Videocon. Varadarajan said the partners are expecting to get reserve estimates by 2013 and production to begin by 2016-17.

With two promising discoveries at the block, BPCL has agreed to pay advance com-mitments, which is part of the current capex plan, Varadarajan said.

BPCL operates two refineries on the west coast, the 12 million mt/year Mumbai refinery and 9.5 million mt/year Kochi refinery. It also operates a 6 million mt/year refinery in Bina, Madhya Pradesh, in a joint venture with Oman Oil Company.— M.C. Vaijayanthi

3 Oilgram News / VOlume 90 / Number 6 / Tuesday, JaNuary 10, 2012

ASIA PACIfIC

Singapore—China’s oil majors are expected to add 710,000 b/d in crude distillation capacity this year, more than double what was brought online in 2011, yet the country will lack the surplus that allowed it to be a net gasoil exporter in 2009 and 2010, Deutsche Bank said in a report published January 6.

According to the bank, the majority of the global refinery capacity growth slated for 2012 will be located in Asia, specifically China, as has been the trend in the past several years.

Of note in the 2012 balance is that China’s capacity growth, excluding the minor or so-called teapot refiners, will be more than double what was brought online in 2011.

“If we include the teapot refinery projects, then China’s refinery capacity growth this year will be 2.5 times greater than that of 2011,” Soozhana Choi, head of commodities research, Asia, said in the bank’s Commodi-ties Outlook for 2012.

The second-biggest contributor to refinery capacity growth for 2012 will be the former Soviet Union, where distillation capacity will be increased by 390,000 b/d, Deutsche Bank said.

China’s refining capacity growth for the majors alone in 2013 looks to be 640,000 b/d, before more sizable expansions are slated for 2014 and beyond.

Still, the sizable refinery expansion expect-ed in China this year is not likely to be suffi-cient to significantly boost surpluses as China’s oil demand is projected to grow by 5.5% year on year, or 535,000 b/d, in 2012, Choi said.

Also, some 240,000 b/d of distillation capacity will be shuttered and replaced with

newer capacity.“The refinery capacity expansion surplus-

es that allowed China to become a consistent net exporter of gasoil in 2009 and 2010 are unlikely to materialize again until 2014...In our view, this implies that China’s refinery sector this year will be in balance,” Choi said.

This means that China may lack the domestic capacity to meet demand surprises, she added.

In 2011, Chinese refinery margins were down 45% as the government held fuel prices steady—raising prices only twice in 2011 and cutting them once in October—as part of a broader effort to bring down inflation.

But with inflation expected to move in a downward trend in the near term, Deutsche Bank expects Beijing to adjust fuel prices upward, which already has occurred in the electricity markets.

“Such a move will be welcomed by refin-ers and would encourage high utilization rates,” Choi said.

Consequently, China’s crude oil demand this year also will be driven by the imperative to maintain operational inventory levels in line with the refinery expansions, which are levels typically enough to cover 20-25 days of con-sumption, the bank said.

The bank expects an additional 35,000 b/d of crude imports on an annual average basis for operational stockpiling purposes, which would be on top of higher import needs for feedstock use.

And although no new strategic petroleum reserve tanks are scheduled to be completed in 2012, the bank said that roughly 20 million

barrels of new strategic capacity in Lanzhou was completed by end-2011 and stands ready to be filled as early as the first quarter of this year.

“This implies that on an annual average basis, crude imports for strategic purposes may average 50,000 b/d this year,” Choi said.

In total, China’s crude import growth will average about 500,000-550,000 b/d year on year, which would be higher than 2011’s increase in 265,000 b/d over the previous year, said Deutsche Bank.— Calvin Lee

China plans 710,000 b/d of CDU capacityDeutsche Bank says expansion will balance domestic refining sector

Sinopec acquires a 50% interest in fujairah oil terminalSingapore—Hong Kong-listed Chinese oil trader, storage and jetty operator Sinopec Kantons January 9 said it has reached an agreement to acquire a 50% stake in Fujairah Oil Terminal FZC for total consideration of HK$194.9 million ($25.1 million) from Con-cord HK.

Sinopec Kantons has taken the stake through its subsidiary Sinomart Development.

Chinese integrated oil group China Petro-leum & Chemical Corporation, or Sinopec Corporation, indirectly controls 72.34% of Sinopec Kantons.

Concord HK, a wholly owned unit of Sin-gapore-based oil trader Concord Energy, owns 99.99% of FOT, while Concord Energy owns the remaining 0.01%.

The shares in FOT owned by Concord Energy will be transferred to Concord HK after the completion of the latest agreement. In addition, Concord HK is proposing to transfer 12% of its equity interest to two independent third parties, Sinopec Kantons said, but did

not provide details on the third parties.FOT is planning to develop and operate an

oil storage project with a capacity of 1.125 million cubic meters in Fujairah, located adjacent to the Fujairah port. The project is estimated to cost $303.82 million, but the company did not mention when construction of the terminal will start or when it will be ready for operation.

Sinomart Development and Concord HK have agreed to rent storage capacity of 557,500 cu m from FOT.

Sinomart Development also plans to engage FOT as the service provider for all ter-minal operations when the terminal starts up, Sinopec Kantons said.

The minimum rental and handling charge of the storage has been fixed at $4/cu m per month, payable from the commercial opera-tion date to the expiration of the commercial storage agreement. The agreement will run for a period of 10 years from the commercial operation date.— Calvin Lee

Seoul to launch online oil product trading in MarchSeoul—South Korea plans to launch an online oil product trading platform in March as part of efforts to bring down domestic oil prices by encouraging competition, the Korea Exchange said January 6.

The online trading system will begin pre-liminary operations in late March after test runs next month, the exchange said.

Oil refiners and importers will be the main sellers on the online market, and retail sta-tion owners will be the buyers, it said.

Any company that runs an oil business in South Korea can participate in the online trading platform regardless of its nationality, though individuals and brokerages would be excluded, the exchange said.

The basic trading unit has been set at 20,000 liters.

The four refiners’ domination of the country’s oil market has been described as a main factor behind high retail oil prices. The four control the local oil market through supply contracts with the country’s 13,000 retail pump stations, around 25% of which are directly operated by the refiners.

The remainder are run independently, but most receive fuel from one refiner under an exclusive supply contract, apparently under pressure from the refiner, despite the govern-ment encouraging retailers not to rely on a single supplier.

With the online trading platform, retail-ers will be able to buy oil products from any refiner or importer.

The ministry and exchange expect the online price to be Won 10/liter ($0.01/l), or 0.5% cheaper than prices under the existing buying and selling arrangements.

“Tax benefits will also be provided to those that participate in the online market,” a finance ministry official said. “The online trading system is expected to cultivate a competition-oriented environment.”

In another effort to bring down domestic oil prices, the finance ministry said it is con-sidering setting up a futures market to trade oil products by the end of this year.

The government also last month opened the country’s first discount fuel station that sells gasoline and diesel at lower-than-market prices (ON 12/22/11).— Charles Lee

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Statoil makes new petroleum discovery in Barents Sea...from page 1

Statoil said well 7220/7-1, drilled by the Aker Barents rig, proved a 48 meter natural gas column and a 128 meter oil column at Havis, which lies about 7 km southwest of the huge Skrugard discovery, made in April last year.

Statoil is operator of the license with a 50% stake, while Italy’s Eni (30%) and Nor-way’s Petoro (20%) are the other stakeholders.

Statoil’s latest finds follow on the heels of the huge Aldous Major South and Avald-snes discoveries made by Statoil and Lundin Petroleum last year, which now have been determined to be linked and are regarded as one of the biggest discoveries in the history of Norwegian Continental Self exploration.

Norwegian analyst Trond Omdal at Arctic

Lagos—Nigerian unions January 9 launched a nationwide strike in protest at the govern-ment’s withdrawal of fuel subsidies, the biggest industrial action in the country for years, though oil production and loadings from its export terminals have so far been unaffected.

Although the oil sector has yet to be impacted despite the worst fears—unions last week threatened a total shutdown of oil operations—foreign oil companies have closed their offices as workers stayed home in response to the strike call.

And if the indefinite strike continues, it would be difficult to avoid some disruption to the upstream in the West African country. “With air and sea ports shut, movement of production crew to and from oil fields will be hampered,” said one official.

Economic and social activities were para-lyzed across Nigeria as thousands of protest-ers held demonstrations and mass rallies.

“We are complying with the strike direc-tive, so we have directed our members not to come to the office from today [January 9],” Lumumba Okugbawa, deputy general secre-tary of the white-collar Pengassan oil union, told Platts.

“Our members [oil monitors] in the Department of Petroleum Resources have also pulled out from the [oil] terminals,” said Okugbawa, who added that his mem-bers had begun the gradual process of shut-ting down production.

However, an official from the DPR, which supervises all petroleum industry operations in Nigeria, told Platts that crude loadings and berthings at the country’s main oil terminals and ports were normal.

“Crude loadings are taking place despite the general strike which started this morn-ing,” a DPR operations controller based in

Lagos said. “There are no effects on our load-ings or shipments yet. Vessels are loading right now. Some people are on strike but with no effect so far.”

Some workers from the DPR and some port workers were on strike but everyone on the management team was working, he added.

State-owned oil company Nigerian National Petroleum Corporation said oil production was continuing as usual despite the strike. “There is no disruption to oil pro-duction. The flow stations are open,” NNPC spokesman Levi Ajuonuma said. “The oil terminals are also open, as we in the NNPC are working.”

Workers did, however, shut down some key power plants in the oil-producing West African country, cutting electricity supply to many parts of the country, sources said.

Some power plants were shut early Janu-ary 9 and this has hampered electricity dis-tribution across the country, a source at the power ministry said.

The protests also turned violent in places and two protesters were shot dead by police and several others fatally wounded. “We have reports that one youth was shot dead in Ogba area of Ikeja in Lagos and another in Kano. We will hold the government accountable for the deaths if it is confirmed that the police killed the young protesters,” a spokesman for the Nigeria Labor Congress (NLC), Babatunde Aturu, said in Lagos.

Unions and civil society groups called the strike to protest the end of fuel subsidies in the country. “The strike has begun. It will be a massive one because the only issue in discourse, which is the reversal of the petrol price to Naira 65/liter ($1.58/gal), has not been addressed,” the deputy general secre-tary of the Nigeria Labor Congress, Promise Adewusi, told Platts.

“Right now as I talk to you, there is no work, and it will be followed shortly later by mass protest and street rallies,” Adewusi said.

Asked about the effect on the oil sector, the union official said that while there was a total shutdown of the downstream oil sector, operations in the upstream sector including oil production and exports would follow.

“You know, shutting down oil production is a process and this will come gradually,” Adewusi said.

Some oil workers said they were staying away from their offices for now in response to their unions’ request. “Our offices are closed,” a senior official of a western oil com-pany confirmed.

Nigeria exports around 2.4 million b/d of crude oil, and production could be threatened unless the government and unions resolve the dispute quickly, officials said.

The unions are demanding the govern-ment reverse its decision made January 1 to end subsidies on imported fuel, which caused the price of gasoline at the pump to more than double to Naira 141/liter.

President Goodluck Jonathan January 7 pleaded for understanding from the unions of the fuel subsidy’s abolition and promised to implement measures to help cushion the ini-tial effect of the sharp increase in prices.

Jonathan said the savings from the subsi-dy removal, estimated at Naira 1.2 trillion ($8 billion), would be spent to improve the power and road infrastructure, provide more health and other social services.

Despite its huge reserves, Nigeria imports more than 85% of the gasoline it consumes, which it had been subsidizing up until Decem-ber 31, to keep domestic pump prices low.

Many Nigerians see the subsidy as the only benefit they derive from a government accused of squandering billions of dollars in oil revenues over the decades.

The displeasure at the abolition of the subsidy, and its timing, also was felt at the highest level, as Nigeria’s House of Represen-tatives January 8 passed a motion calling on the executive arm of the government to sus-pend the removal of the fuel subsidy.

At an emergency session convened to address the strike, the House urged unions and other stakeholders to reconsider the strike and allow for wider consultations on the policy of subsidy removal.

It also agreed to set up an ad hoc com-mittee to interface between the executive arm of government and the unions. The com-mittee will report back to the House within one week.

Local financial analysts said the shut-down has already caused Nigeria huge economic losses. “Nigeria is a $300 billion economy. The one day strike with sea and airports, banks and markets shut cost the country at least $900 million,” Bismarck Rewene, CEO of Financial Derivatives, said.—Staff reports

Nigeria strike begins with no oil impact yetBut officials expect disruption to oil sector if action continues

EUroPE, MIDDLE EAST & AfrICA

Securities said the Havis find firmed up the already positive investment case for Statoil.

Omdal said Havis added between NOK 0.9-1.4 of extra value to the group’s share price. “Assuming 500 million boe total resources for the two discoveries would likely imply plateau production from the two fields above 100,000 b/d after 2020, with Statoil’s share 50,000 boe/d giving further support to Statoil’s 2020 production ambition of 2.5 mil-lion b/d,” Omdal said in a research note after the announcement.

“The Havis and Skrugard discoveries along with the Aldous should continue to sup-port a premium pricing for Statoil compared to European peers Eni and Total,” he said.— Patrick McLoughlin

5 Oilgram News / VOlume 90 / Number 6 / Tuesday, JaNuary 10, 2012

EUroPE, MIDDLE EAST & AfrICA

London—The US’ Valero Energy has been tipped as a possible buyer for Murphy Oil’s 130,000 b/d Milford Haven refinery in the UK, which if confirmed would see the US refiner snap up a second facility in Wales.

Valero last summer bought from Chevron the neighboring 210,000 b/d Pembroke refin-ery, with analysts suggesting at the time the company also could acquire Murphy’s Milford Haven plant.

Murphy in June 2010 announced its inten-tion to withdraw from the refining business and to sell its 125,000 b/d refinery in Mereaux, Louisiana, a 35,000 b/d refinery in Superior, Wisconsin, and the Milford Haven plant.

By October 2011 it had completed the sale of its two US refineries, with Valero acquiring the 135,000 b/d Meraux, Louisi-ana, refinery. Murphy CEO David Wood admit-ted late last year the company was finding greater interest in its US than in its UK down-stream assets.

But now, a report in a local Wales news-paper January 9 suggested Valero was close to finalizing a deal to buy Milford Haven.

“Talks between the companies are believed to have been ongoing for some time and follow Valero’s acquisition of the Murphy Oil refinery in Meraux, Louisiana, last year,” the Milford and West Wales Mercury reported January 9. The newspaper said the two companies were “close to sealing a deal” on Milford Haven.

A Valero spokeswoman declined to com-ment directly on the newspaper report, but said the company “has been clear in express-ing its interest in expanding its geographic footprint and we continue to consider the pos-sibility of further acquisitions.”

“Valero considers a lot of options but makes very few acquisitions as we are only interested in assets that are a good fit for our portfolio and would deliver a healthy return for our shareholders,” the spokeswoman added.

Murphy was not immediately available to comment, although Wood said in November the company was in talks to sell the Welsh refinery and its chain of UK retail service sta-tions and expected to close the sale by the end of the first quarter of 2012.

“Today we’ve got three or four folks that are talking to us about the refinery and quite a bit more than that interested in our retail business,” Wood said during a conference call with analysts. “It’s going to be more of a first-quarter next-year kind of business.”

Murphy acquired the 70% stake it did not already own in Milford Haven refinery from French partner Total for $250 million in 2007.

Milford Haven came on stream in 1973 under Amoco’s ownership, with Murphy joining as a partner in 1981 when a catalytic cracker was added. Elf acquired Amoco’s interest in 1990 and Elf was acquired by Total in 2000.

A major upgrade was carried out in 1981 and since then further units have been added, notably a naphtha isomerization unit and a hydro-desulfurization unit.

The nearby marine terminal, to which the refinery is linked by mainly underground pipeline, is capable of handling tankers up to 275,000 dwt. Refined products are dis-tributed by road, rail, sea and pipeline to the Midlands and Manchester.

Analysts already had signaled Valero as a likely buyer of Murphy’s UK refinery. “We view Valero as a natural buyer” of Milford Haven, Simmons & Company analyst Jeff Dietert said in September last year. He also said he did not expect a robust sales price for the refinery, given the “structurally chal-lenged outlook for European refining, an area currently long capacity.”

France’s Total also has been looking to exit UK refining and put its 200,000 b/d Lind-sey refinery up for sale in April 2010 as part of a target to reduce its global refining capac-ity by 500,000 b/d by the end of 2011.

However, the company is now likely to keep Lindsey on its books after a self-imposed deadline of end-2011 passed with-

out finding a buyer. In October, the company said it may shelve plans to sell the site if long-running negotiations did not result in an agreed sale by the end of last year.

The UK petroleum industry association UKpia said late last year the UK’s refining industry could face plant closures as the country’s growing dependence on imported fuels and costly UK-only regulations squeeze the profitability of the sector.

The UK’s remaining eight refineries are facing increasing cost pressures, due in part to the growing complexity and overlap in a range of policies designed to reduce carbon emissions, UKpia said.

The number of UK refineries has fallen from 18 in the late 1970s to eight in response to falling domestic demand locally and as oil majors sought to offload or shut plants to reduce their exposure to the low-margin, low-growth UK market.

Of the UK’s eight remaining operational refineries, two were sold to new owners in 2011: Shell’s 270,000 b/d Stanlow refinery to India’s Essar Energy in March and the Pem-broke plant to Valero.

UK demand for all fuels has been gradu-ally in decline since peaking in 1973 and amounted to 65.4 million mt of oil equiva-lent last year, UKpia said citing government figures.—Elza Turner, Robert Perkins

Valero seen eyeing Murphy oil’s UK refineryWould add a second plant to US refiner’s UK portfolio

Petroplus lays off contractors at UK Coryton refineryLondon—Petroplus has formally laid off con-tractors at its 220,000 b/d Coryton refinery in the UK, throwing into further doubt the future of the troubled European refiner’s biggest plant, a union official said January 9.

“The maintenance workers and other con-tractors have been given notice [to end their employment contracts], although the refinery is still operating,” a official at the UK’s Unite trade union said. Petroplus was not immedi-ately available to comment.

According to the UK’s Energy Institute, Coryton employs a total of about 1,000 staff, some half of which are third-party contractors working on the site.

Petroplus began temporarily shutting three of its five plants last week—in France, Bel-gium and Switzerland—after its lenders froze a key credit line needed to buy crude oil.

While Coryton and the Ingolstadt plant in Germany continue to operate, they have reduced their throughput to slightly above half of the usual rates, the company said last week.

Crude throughput at Coryton was at 100,000 b/d last week compared to its nor-mal crude throughput of 175,000 b/d, the company’s CEO said on January 5 (ON 1/6).

Petroplus, Europe’s biggest independent refiner, bought the 586-acre site on the Thames Estuary from BP in 2007, for $1.4 billion.

The refinery has a nameplate crude capac-ity of about 175,000 b/d and the capacity to process an additional 65,000 b/d of other

feedstocks, principally straight-run fuel oil.Meanwhile, Petroplus’ French Petit Cou-

ronne and Belgian Antwerp refineries continue to be shut down, with units gradually being halted, union sources said January 9.

Some products are still being produced at Petit Couronne, but all shipments are still being blocked by the employees, a union source said.

Employees from the refinery are sched-uled to meet the French economy minister, Eric Besson, later January 9, a ministry spokeswoman said.

Labor union representatives will ask Besson for the government to take over the refinery and find another company to commit to its revival, the French newspaper Les Echos reported.

Petroplus also does not seem to have found any solution with its lenders during talks which started January 6, another union source said.

The Cressier refinery in Switzerland is expected to continue producing until January 15-16, when it is expected to begin a mainte-nance shutdown, according to a union source.

Petroplus is negotiating its revolving credit line with 13 banks, including BNP Paribas, Societe Generale, Natixis, Credit Suisse, Mor-gan Stanley and Deutsche Bank, according to French media reports.

The company has also said it is in talks with an oil producer to secure a lifeline after its lenders suspended its remaining credit lines.— Robert Perkins, Elza Turner

6 Oilgram News / VOlume 90 / Number 6 / Tuesday, JaNuary 10, 2012

EUroPE, MIDDLE EAST & AfrICA

home to 60% of global oil reserves and 40% of natural gas deposits.

The US, which has dismissed previous threats by Iranian officials as empty rhetoric, took a harder line January 8.

“We made very clear that the United States will not tolerate the blocking of the Strait of Hormuz,” US Defense Secretary Leon Panetta told CBS television. “That’s another red line for us and that we will respond to them.”

Iran has adopted a tougher stance after reports the EU was considering banning Ira-nian oil exports to Europe as part of a con-certed international effort to put pressure on Tehran to abandon uranium enrichment, which the US and its allies have long suspected is a bid by Iran to develop atomic weapons.

Tehran has denied the allegations and insists its nuclear program is peaceful and designed to generate electricity.

But the announcement January 8 by the head of the country’s Atomic Energy Organi-zation, Fereydoun Abbasi Davani, that Iran would soon start uranium enrichment at the underground Ferdou facility in northern Iran came as a surprise given current sensitivities over the issue.

The Farsi language newspaper Shargh quoted Abbasi Davani as saying the facility at Fordou would produce higher-grade uranium than is being processed at the existing facility at Natanz.

“This site has the capability to produce enriched uranium with 20%, 3.5% and 4% grades,” Abbasi Davani was quoted as saying during the inauguration of a nuclear technol-ogy exhibition in Iran. He did not say when the new facility would be operational.

A report by the International Atomic Ener-gy Agency in November saying it had serious concerns about Iran’s nuclear activities and that it had “credible” information that Tehran may have worked to develop nuclear weap-ons prompted the US and the EU to impose tighter sanctions against Tehran.

The EU, which buys an estimated one-third of Iranian crude exports of around 2.2-2.3 mil-lion b/d, is considering imposing a new set of sanctions, including a possible ban on Iranian oil exports to its 27 members. The EU is also said to be considering sanctions against the Iranian Central Bank following a similar US move at the end of last year.

Maja Kocijancic, European Commission spokesperson for foreign affairs, said January 9 the EU had major concerns about the reports on Iran’s new enrichment program. “We have very serious concerns. In fact Iran has been the subject of several rounds of sanctions already. We are working on tightening those measures with a view of having them adopted at the end of this month at the next Foreign Affairs council meeting,” she told a Brussels briefing.

“We follow a double-track approach so

Defiant Iran launches new uranium enrichment drive...from page 1

on the other hand we remain open to discus-sions on the building of a nuclear program without any preconditions from the Tehran side. This is a general position that remains unchanged,” she said.

The National Iranian Oil Company’s inter-national affairs director, Mohsen Qamsari, said January 7 an EU ban would not affect the OPEC state’s oil sales, which would be diverted elsewhere.

“These sanctions are not new for us. Iran is now in a sort of sanction as the West is pressuring Iran with regard to financial deal-ings,” Qamsari, said. The US restrictions on dealings with the central bank are meant to “pressure Iran’s oil buyers so our oil is prac-tically under informal sanctions,” Qamsari was quoted as saying by the student news agency ISNA.

“If oil sanctions are announced officially, solutions have been considered for it and Iran will act appropriately against any pres-sure,” he said. “We can easily change our customers and the sanctioned oil will be exported to China and other Asian and Afri-can countries.”

Qamsari said Iranian oil exports under term contracts were unchanged over last year despite reports to the contrary, adding that term sales to China would be renewed. The volume of total oil sales under fixed term con-tracts were expected to remain unchanged at 2.3 million b/d this year, he added.

He said Iran exported around 440,000 b/d of oil to China last year and intends to retain its share of the Chinese market.

“Any action from Brussels would possibly make European consumers pay a higher price for fuel,” he warned.

The restrictions on Iran’s financial deal-ings have created difficulties with regard to oil payments, Qamsari said, but added Tehran had come up with other payment routes. He gave no details.

Washington’s latest sanctions against Iran’s Central Bank, which processes most of Iran’s crude payments, are designed to choke off the country’s major source of revenue and have been accompanied by a US diplomatic effort to convince the major Asian buyers of Iranian crude to cut their reliance on Iran.

US State Department spokeswoman Victo-ria Nuland said January 6 that US diplomats remain in “close consultation” with India, China and Russia on the issue.

“We are making absolutely clear to coun-tries around the world that now is not the time to be deepening ties—not security ties, not economic ties—with Iran,” Nuland told reporters at daily briefing.

“Rather, it’s in the entire international community’s interest to make clear to Iran that it’s got a choice: it can remain in interna-tional isolation or it can comply with its obli-

gations and start cooperating and rejoin the community of nations,” she added.

Nuland said the State Department’s embassy in India, in particular, has been “quite active” with the local government since the US Congress tightened sanctions on Iran at the end of the year.

“I would anticipate we’re going to have some more intensive consultations in the weeks and months ahead,” she said.

While China is likely to resist US pressure to lower imports, refiners in Japan and South Korea are taking measures to guarantee the security of their supplies in the event of a major disruption.

Japan’s biggest refiner, JX Nippon Oil & Energy, said January 5 it had begun talks with Saudi Arabia and other oil producing countries on alternative crude supplies.

But Qamsari January 8 denied Iranian oil exports to Japan had fallen because of sanc-tions, saying Japanese imports of crude from various suppliers had fallen. Qamsari noted that other top crude suppliers to Japan had struck oil storage deals with Tokyo, while Iran had not. Both Saudi Arabia and the UAE have in recent years arranged to stock crude at the underutilized storage facilities of certain Japa-nese refineries, allowing them to shift supply quickly to fill any gaps.

Saudi Arabia, which put its December pro-duction at more than 10 million b/d, has capac-ity to produce 12.5 million b/d and is seen as one of a handful of oil producers able to ramp up output significantly. The UAE has spare production capacity estimated at 350,000 b/d, while Kuwait has said it can produce up to 3.05 million b/d from 2.65 million b/d currently.

The Saudi government, in a rare public response to speculation about Saudi Arabia’s position on the matter, said January 9 an oil import ban was a matter for individual states and it would continue to sell its crude in accordance with accepted commercial and marketing norms.

Saudi Arabia is committed to stable oil markets and prices and believes an oil import ban “from any source” is an internal matter for individual states and the kingdom would continue to sell its crude oil in accordance with accepted commercial terms, the cabinet chaired by King Abdullah said.

“The cabinet reviewed conditions on the international oil market and their regional links,” a statement issued on official news agency SPA after the weekly session said.

It added that the cabinet reaffirmed the kingdom’s commitment “to the stability of the international oil market, both in terms of sup-ply and demand balance and price.”

In what appeared to be the OPEC king-pin’s first official comment on the possibility of an EU ban on Iranian oil exports, the state-ment said: “The kingdom considers that a boycott of petroleum imports from any source is an internal matter for each individual state.”—Staff reports

7 Oilgram News / VOlume 90 / Number 6 / Tuesday, JaNuary 10, 2012

EUroPE, MIDDLE EAST & AfrICA

London—KazMunaiGaz Exploration Produc-tion, the upstream arm of Kazakhstan’s state-owned KazMunaiGaz, is to increase capital expenditure significantly in 2012 due to the creation of two new subsidiary companies in oil transportation and drilling in response to an order from Astana.

Creation of the companies is a direct result of the government order for the com-pany to improve social conditions in the Man-gistau region in western Kazakhstan by new job creation.

KazMunaiGaz EP was rocked throughout 2011 by strike action at its two main produc-tion units, UzenMunaiGaz and EmbaMunaiGaz.

In December last year the situation wors-ened considerably as striking employees at UzenMunaiGaz clashed with police leaving 15 dead in the town of Zhanaozen.

“In December 2011, the company was instructed by the government of Kazakhstan to improve social conditions in the Mangistau region through creating additional jobs,” KazMunaiGaz EP said in a statement.

“The board of directors has expressed understanding of the government’s position and is setting up two service companies—transportation and drilling—with headcount in excess of 2,000 employees to provide ser-vices to KazMunaiGaz EP and other oil compa-nies operating in the Mangistau region.”

KazMunaiGaz EP said it would increase its spending with the creation of the two com-panies. “According to a preliminary estimate, this leads to increased operating and capital costs in 2012 of Tenge 12.3 billion ($83 mil-lion) and Tenge 8.3 billion above previously planned levels, respectively,” it said.

The costs are expected to be partly offset by revenues received from selling services to third parties, the company said. “The board of directors of KazMunaiGaz EP is in discussion with the government and Sovereign Wealth Fund (Samruk-Kazyna) to ensure shareholder interests are properly taken into consider-ation,” it said.

KazMunaiGaz EP said its budget for 2012 is based on an oil price of $80/b, in line with the government’s macroeconomic forecast and the oil price assumption used by parent company KazMunaiGaz.

In 2012, KazMunaiGaz EP is planning to spend about Tenge 126.5 billion on capital expenditure, 19% more than the planned amount in 2011.

The company also is increasing its spend-ing on exploration and is planning to invest $64 million in 2012 to continue exploration of the prospective Fedorovsky block in the Caspian Sea.

The company also plans to increase oil production at UzenMunaiGaz and EmbaMun-aiGaz this year. Output at the two units is

expected to be 8.615 million mt (an average of 174,000 b/d) of oil, some 9% higher than the total produced in 2011. The 2012 target comprises 5.8 million mt at UzenMunaiGaz and 2.8 million mt at EmbaMunaiGaz.

Last year, UzenMunaiGaz produced 5.082 million mt (102,000 b/d) of oil, 884,000 mt less than in 2010. EmbaMunaiGaz produced 2.818 million mt (57,000 b/d), 18,000 mt down on the previous year. “The total volume of oil produced at the production facilities of UzenMunaiGaz and EmbaMunaiGaz in 2011 was 7.9 million mt of oil (159,000 b/d), 10% less than in 2010,” it said.

“The results were negatively affected by the industrial action at UzenMunaiGaz during May-August 2011 and a number of emergency

power cuts in the fields during January-April 2011 caused by severe weather conditions,” it said. “Recent measures taken at Uzen-MunaiGaz have resulted in increased daily production, which reached 105,000 b/d on December 31, 2011.”

KazMunaiGaz EP also has stakes in a number of other production companies in Kazakhstan, including KazGerMunai, CCEL and PetroKazakhstan. The company expects its stakes in these companies to contribute 92,000 b/d in 2012, it said.

“Accordingly, consolidated production of KazMunaiGaz EP including its share in produc-tion of its associates and joint ventures, is planned to be 265,000 b/d in 2012, which is 6% more than in 2011,” it said.

In 2011, the company produced an aver-age 250,000 b/d, including its stakes in KazGerMunai, CCEL and PetroKazakhstan, 7% down on the previous year.— Stuart Elliott

KazMunaiGaz EP responds to state orderForms two new subsidiaries to create Kazakh jobs

UAE sees range of $85-$95/b for long-term investmentAbu Dhabi—UAE oil minister Mohammed Bin Dhaen al-Hamli said January 9 an oil price aver-age of $85-$95/b this decade would encour-age the UAE and other oil producers to invest in long-term sustainable oil production capacity in an increasingly challenging environment.

Speaking at an energy conference in Abu Dhabi organized by The Gulf Intelligence, Hamli said there were still untapped offshore and onshore reserves that could be exploited while existing resources were becoming more difficult to extract. Producers will need prices to be at levels high enough to justify the investment cost required, he said.

“While it is clear that the age of easy oil is coming to an end, it is equally clear, thanks to the application of new technology, that the oil and gas industry has a long life ahead of it,” Hamli said.

“Oil and gas might be more challenging to produce but there is still plenty of it in reser-voirs, not just in this region but in other pro-ducing regions of the world also,” he added, referring to new finds offshore West Africa and Brazil in recent years.

Furthermore, “large tracts of virgin land as well as many offshore areas have never been adequately explored for oil and gas and could contain appreciable reserves that would sig-nificantly prolong the age of oil,” Hamli said.

“However, these investments will material-ize only if price levels are sufficiently high to justify commercial production from complex reservoirs,” he said, adding that the industry could do more to improve recovery rates given that OPEC expects primary energy demand to rise by 51% between now and 2035.

For traditional hydrocarbons producers such as the Gulf Cooperation Council coun-tries—Saudi Arabia, Kuwait, the UAE, Qatar, Bahrain and Oman—”the ongoing challenge will be the need to invest heavily in capital-intensive projects such as enhanced oil

recovery, which will be increasingly required to maintain production over the long term,” Hamli said.

“In a world where oil demand is set to increase, we cannot afford to leave 65-70% of proven reserves in the ground. The petroleum industry needs to allocate adequate resourc-es to surmount this hurdle,” he added.

Hamli referred to OPEC’s World Oil Out-look published late last year, which he said forecast that oil prices will average $85-$95/b during this decade.

“If oil prices do trade within this range over the next decade, it will provide an ade-quate economic incentive for producers such as the UAE to continue investing in long-term sustainable production capacity,” Hamli said, noting that oil markets, and not OPEC, deter-mined the price of oil.

The UAE oil minister also had some com-forting words for the foreign oil companies that are involved in joint ventures with state oil company ADNOC amid ongoing negotia-tions over the renewal of some production sharing agreements due to expire in the next few years.

The world’s biggest oil companies such as BP, Shell, Total and ExxonMobil all have upstream assets in the UAE, which holds roughly 8% of global oil reserves.

“In all these areas, international oil com-panies have a role to play,” he said, adding that national oil companies could not act in isolation in trying to deal with the challenge of meeting future demand for energy. These rela-tionships would continue in the future, he said.

“The UAE is fully committed to meeting the future challenges of the energy industry by continuing to invest in new projects, many of which involve the application of new cutting edge technologies. We will do this in collabo-ration with international oil companies,” he said.— Staff reports

8 Oilgram News / VOlume 90 / Number 6 / Tuesday, JaNuary 10, 2012

EUroPE, MIDDLE EAST & AfrICA

Abu Dhabi—A pipeline to carry UAE crude oil from Abu Dhabi straight to the Arabian Sea, bypassing the Strait of Hormuz and the secu-rity threat posed by Iran, will be operational in May or June, UAE oil minister Mohammed bin Dhaen al-Hamli said January 9.

The pipeline, which is more than a year behind schedule, would allow Abu Dhabi to ship 1.5 million b/d, or roughly 60% of its oil exports, to markets through Fujairah, an international bunkering hub that lies just outside the narrow strait at the mouth of the Persian Gulf.

“The pipeline is almost complete. It will be operational within six months...by May or June,” Hamli told reporters on the sidelines of an energy event in Abu Dhabi.

The Habshan-Fujairah pipeline had been planned for some time, but it was not until 2007 that the International Petro-leum Investment Company, the cash-rich oil investment arm of the Abu Dhabi govern-ment, decided to proceed with construction of the 360 km (250 mile) link amid rising tensions in the region over Iran’s nuclear ambitions and vague hints by Tehran that Gulf shipping could be at risk if it came under attack.

Completion was originally slated for January 2011 and it was not immediately clear why the project was delayed given its strategic value to the UAE and in view of the renewed and more explicit threats from Teh-ran in recent days about freedom of naviga-

tion through the oil transit route.Abu Dhabi, the biggest producer within the

seven-member federation, currently produces around 2.5 million b/d and relies almost exclusively on its Persian Gulf ports to export its crude oil to markets.

“There is a lot of work to be done,” Hamli replied when asked why the project was delayed while dismissing the possibility of disruption to tanker traffic through the Persian Gulf gateway.

Flows through the strait in 2011 at a rate of almost 17 million b/d were roughly 35% of all seaborne traded oil, or almost 20% of oil traded worldwide, the US Energy Information Administration, statistical arm of the Department of Energy, said in its most recent update.

Fellow OPEC producers Qatar and Kuwait also rely on Persian Gulf ports for their exports.

Iraq ships the majority of its crude through the Persian Gulf, though it also has a northern pipeline to the Mediterranean port of Ceyhan. However, the twin northern pipelines, with a design capacity to transport 1.6 million b/d, are in need of an upgrade and are limited at present to some 700,000 b/d through a single pipeline, making it dif-ficult for Iraq to divert a large volume from the south.

Saudi Arabia has oil export terminals on both the Persian Gulf and the Red Sea and has enough redundancy in its pipeline system to divert more crude through its

western ports.The OPEC kingpin, which puts its cur-

rent oil production at over 10 million b/d, has three primary export terminals, the big-gest of which is the Persian Gulf port of Ras Tanura with capacity to export 6 million b/d. A smaller Gulf port, Ras al-Ju’aymah, can export between 3 million b/d and 3.6 million b/d, the EIA says.

The Red Sea terminal of Yanbu, with capacity to load 4.5 million b/d of crude oil, could potentially export more Saudi crude oil should the kingdom be forced to divert is exports.

This could be done by adjusting flows through the pipeline from its eastern oil fields and switching an east-to-west pipeline currently used to transport gas to petro-chemicals plants on the Red Sea coast to crude oil.

However, Yanbu has little storage capac-ity, which would limit the volume of crude it can ship from its eastern oil hub. But as it operates on the basis of one-day laycans rather than the average three days because of its high flow rates, it can move vessels out quickly, industry sources say.

“Several alternatives are potentially available to move oil from the Persian Gulf region without transiting Hormuz, but they are limited in capacity, in many cases are not currently operating or operable, and generally engender higher transport costs and logistical challenges,” the EIA said in a January 2012 report.

It said the 745 mile Petroline, also known as the East-West Pipeline, across Saudi Arabia from Abqaiq to the Red Sea, would provide an alternative export route for the kingdom and potentially to other Gulf export-ers. The East-West Pipeline has a nameplate capacity of about 5 million b/d, with current movements estimated at about 2 million b/d.

The Abqaiq-Yanbu natural gas liquids pipeline, which runs parallel to the Petroline to the Red Sea, has 290,000 b/d capacity, it added.

Other alternate routes could include the deactivated 1.65 million b/d Iraqi Pipeline across Saudi Arabia (IPSA), which has been idle since 1990 and was subsequently expro-priated by Riyadh. Another potential export route is the deactivated 500,000 b/d Tapline to Lebanon.

The Strait of Hormuz has been the focus of attention in recent days following recent war games by the Iranian navy near the waterway and conflicting remarks by Iranian officials about freedom of navigation through the Persian Gulf.

Iran’s top naval commander, Admiral Habi-bollah Sayari, repeated January 8 a warning that blocking the strait would be “very easy” and said the recent naval exercises, which Tehran plans to repeat again in February, were a response to threats and sanctions.— Kate Dourian

UAE oil link operational in May or JunePipeline would see 1.5 million b/d of UAE crude bypass Strait of Hormuz

ExxonMobil, Petrom spud romania deepwater wellLondon—ExxonMobil and its Romanian part-ner Petrom have spudded the first deepwater exploration well in the Romanian sector of the Black Sea, Petrom said January 9, with a suc-cessful well expected to give a major boost to the country’s future energy output.

The Domino-1 well is being drilled in the Neptun block, 170 km offshore in water depths of about 1,000 meters.

The well is being drilled by the sixth-gen-eration drillship Deepwater Champion, which recently transited to Romanian waters after completing a drilling program offshore Turkey. Drilling operations are expected to take about 90 days, Petrom said.

Petrom, which is majority owned by Aus-tria’s OMV, said a deepwater discovery in the Romanian sector of the Black Sea could change the country’s energy sector. Romania is currently dependent on imports of both oil and natural gas.

“Deepwater exploration carries high investment risks and requires investments of several hundred million dollars, yet a poten-tial success would fundamentally change the perspective of the Romanian energy sector,”

Petrom upstream chief Johann Pleininger said in a statement.

ExxonMobil and Petrom signed the explo-ration deal for Neptun, which covers some 9,900 sq km in water depths ranging from 50 to 1,700 meters, in December 2008.

Initially, the two companies worked together to acquire 3-D seismic to evaluate the block’s exploration potential. In 2009-2010, Petrom and ExxonMobil acquired more than 3,000 sq km of 3-D seismic data in the largest seismic program ever undertaken in Romania.

Analysts believe Neptun could be a game-changer for both Petrom and Romania. “We view this area as one of the most exciting parts of Petrom’s (and OMV’s) exploration portfolio,” Peter Csaszar of Budapest-based KBC Securities said in a note January 9.

“The area is very underexplored and thus could hold significant exploration upside. Although it is far too early to attach any value to this exploration we will continue to monitor it closely to assess any potential future impact on the company,” he said.— Stuart Elliott

9 Oilgram News / VOlume 90 / Number 6 / Tuesday, JaNuary 10, 2012

Venezuela in ‘trouble’ if rejects ICSID rulingExxonMobil could seize assets such as the Chalmette refinery

Houston—Venezuela would be in “serious trouble” if it were to reject the upcoming deci-sion of the International Centre for Settlement of Investment Disputes (ICSID) over expropria-tion of ExxonMobil’s heavy oil assets there, an associate professor at Harvard Business School said January 9.

The US major, which December 30 won a $907 million award from a separate arbitra-tion panel for the 2007 nationalization of its stake in the Cerro Negro heavy oil project, could then seize Venezuelan-owned assets in the US such as the 184,000 b/d Chalmette, Louisiana, joint venture refinery that Exxon-Mobil co-owns with Venezuelan state com-pany PDVSA, Noel Maurer, Associate Profes-sor of Business Administration at the school, said in an email.

ExxonMobil could also “try to get a freezing order that would make it almost impossible for PDVSA to export oil to the US—or in fact any country that has signed the New York Convention,” which recognizes international arbitration as a means of set-tling global commercial disputes, Maurer said.

“It would take time, because ExxonMobil would have to go through the courts, but they almost certainly would win,” he added.

On December 8, Chavez said on a televi-sion program that Venezuela will not recog-nize an ICSID decision—expected in the next few months—related to the expropriation.

Moreover, the ICSID decision is not likely to be “massively greater” than last week’s decision by the International Chamber of Commerce’s court of arbitration, and instead is likely to hover around the $1 billion mark, added Maurer.

Even if Venezuela rejected ICSID’s rul-ing, investments already made in Venezuela under a bilateral investment treaty containing an ICSID arbitration clause are protected by the convention since those treaties generally include a “survival clause,” Carlos Bellorin, a London-based petroleum analyst at energy consultancy IHS said. Bellorin was previously an attorney for the Orifuels-Sinovensa joint venture in Venezuela between PDVSA and China National Petroleum Corporation.

On the other hand, “Despite the presi-dential rhetoric about rejecting an eventual ICSID award, Venezuela could adopt the same position as Argentina which has been successful blocking the payment of awards using a well-crafted legal strategy,” Bellorin said.

At the same time, if Venezuela rejects the ICSID decision, the country’s refusal “for sure will affect the country in other areas such as raising financing for new projects,” he added. “What Venezuela will not pay in awards, it will end up paying more in financing

costs,” he said. In addition, a legal source affiliated

with PDVSA but who declined to be identi-fied said it was “possible” for ExxonMobil to take over Chalmette, but added “the state always can allege immunity on executing the demands.”

“It would be easier to seize accounts and cargoes,” the source said.

Chavez, speaking on his regular “Alo Presidente” television program, referred to the ICC’s recent award to ExxonMobil by say-ing the US major’s earlier demand had been excessive.

“They [ExxonMobil] demanded $12 billion. It was crazy,” he said. “Now they are threat-ening to go to the ICSID. We’ll have to get out of the ICSID and I say again, we do not recog-nize any decision of the ICSID.”

“They threaten us with an embargo on Citgo, a company that is worth $20 billion. They will see if they do that we are not going to break,” he added, referring to the Venezue-lan-owned refining business in the US.

Included in the ICC’s long-awaited deci-sion was a ruling that Venezuela must contin-ue supplying crude until 2035 to Chalmette, located outside New Orleans. ICC ruled that the refinery contract is valid, thus forcing PDVSA affiliate Petromonagas to keep send-ing its crude to the plant, which processed 147,000 b/d in 2010 according to informa-tion from PDVSA.

ExxonMobil had asked for a $7 billion payment from PDVSA for its takeover of the Cerro Negro oil project, which would repre-sent the entire value of its current and future operations. The company had said previously that the value of its seized assets was about $750 million.

The US company also has arbitration pending with the ICSID, this time against the government of Venezuela, also related to the Cerro Negro expropriation. That hearing is due to start in first-quarter 2012.

Venezuela also faces other pending expropriation claims, including with Cono-coPhillips for stakes in two heavy oil proj-ects, Petrozuata and Hamaca. The US com-pany at the time of the 2007 nationalization had asked for $7.5 billion in compensation (ON 9/6/2007). ConocoPhillips could not be reached for an update.

“An arbitration hearing was held before the ICSID tribunal during the summer of 2010 and we are currently awaiting a decision on key legal and factual issues,” ConocoPhillips said in an email.

In addition, last year big Oklahoma-based driller Helmerich & Payne also filed suit against Venezuela over the 2010 government takeover of 11 of its drilling rigs.—Starr Spen-cer with Mery Mogollon in Caracas

Miner Teck buys oil sands company SilverBirchNew York—Canadian zinc and coal mining group Teck Resources will buy oil sands pre-production company SilverBirch Energy in an agreed cash and share deal valued at C$435 million ($423.5 million), Teck said January 9.

SilverBirch shareholders will receive $8.50/share in cash and one share of a new company, SilverWillow Energy Corporation, Teck said in a statement. SilverWillow will hold substantially all the assets of Silver-Birch, other than SilverBirch’s 50% interest in the Frontier and Equinox oil sands project in Alberta.

Teck will contribute C$25 million to SilverWillow in working capital and its 50% interest in several oil sands leases that are currently jointly owned with SilverBirch.

The cash portion of the consideration to SilverBirch shareholders represents a pre-mium of around 31% to the 20-day volume weighted average price of SilverBirch common shares on the TSX Venture Exchange.

“We believe this transaction provides excellent value to the SilverBirch shareholders and that this is the appropriate time for us to exit the Frontier project,” said Howard Lutley, president and CEO of SilverBirch. “SilverWil-low will be able to focus its attention on the very promising, existing 100% owned, Audet in situ oil sands prospect, while gaining 100% control over the Birch Mountains leases and the other lands that have significant oil sands exploration potential.”

According to SilverBirch’s website, the Frontier and Equinox project is the last major oil sands mining project in Canada not held by a major oil company. Teck describes it as a proposed truck and shovel oil sands mining project on its website.

Commenting on the deal, privately owned US investment bank Dahlman Rose, said Teck is effectively paying 28 cents/b of contingent resource, but said the value of the assets could increase significantly.

“We have observed oil sands deals occur at much higher levels, but those deals have occurred after the company has received addi-tional permits and for assets that are closer to production. Thus, as Teck Resources pro-gresses through the permitting process, we believe that the value of these assets could significantly increase,” Dahlman Rose said in a research note.

It said that prior to the acquisition, Teck maintained a 50:50 ownership interest in three oil sands assets with SilverBirch. “Now the company is consolidating these oil sands/mining assets and spinning out a traditional E&P company,” Dahlman Rose.

Dahlman Rose noted that Teck has previ-ously indicated these assets could produce 277,000 barrels of oil equivalent/d on a 100% basis.— Anthony Poole

ThE AMErICAS

10 Oilgram News / VOlume 90 / Number 6 / Tuesday, JaNuary 10, 2012

Vancouver—Five of Canada’s leading oil sands producers have emerged as financial back-ers of Enbridge’s proposed Northern Gateway pipeline in the final jostling among rival fac-tions before joint economic and environmental regulatory hearings start January 10.

Suncor Energy, Cenovus Energy, Nexen, Total E&P Canada and MEG Energy have ended years of anonymity by disclosing in fil-ings with the National Energy Board, Canada’s federal energy regulator, that they along with China’s Sinopec acquired six of 10 units sold by Enbridge in 2007 and 2008 to help pay C$100 million of preconstruction develop-ment, engineering and regulatory costs. The other four are still not publicly known.

Until this year, only Sinopec had confirmed its role as a “funding participant,” although Enbridge has insisted there is substantial industry demand for the 36-inch diameter pipeline to export 525,000 b/d of oil sands crude to the Asia Pacific region and a parallel 20-inch diameter pipe to import 193,000 b/d of condensate for blending with bitumen to facilitate pipeline shipment of the product.

Enbridge has estimated it will need anoth-er C$200 million to complete the regulatory process, which is expected to conclude by mid-2013.

To date the industry participants have signed only “precedent agreements,” still one step short of agreeing to fixed shipping

contracts, and have not said whether they will make further financial contributions.

No longer confident they have limitless access to US markets, given the uncertain future of TransCanada’s Keystone XL proj-ect, oil sands producers and the Canadian government have rallied to Northern Gateway in recent weeks, ending a decade of erratic progress toward the NEB application.

Natural Resources Minister Joe OIiver issued an open letter January 9 describing Northern Gateway as an “an urgent matter of Canada’s national interest,” saying Canada is “on the edge of an historic choice: to diversify our energy markets away from our traditional trading partner in the United States or to con-tinue with the status quo” at the cost of jobs and economic growth.

Commissioned by the Alberta government, a 44-page report by Houston-based consultant Harold York for the firm of Wood Mackenzie and submitted to the NEB, estimated produc-ers could lose C$72 billion over nine years if the project is turned down.

“If we can get our crude offshore, there are a lot more markets available to us which are willing to pay a higher price than we can obtain in North America,” a spokesman for Alberta Energy told Platts.

Other than Sinopec, whose plans are still evolving, the producers who are openly endors-ing Northern Gateway indicated in their filings

that they plan to quadruple combined output to 2 million b/d by 2020, led by Suncor at 1 million b/d, Cenovus 500,000 b/d, Nexen 300,000 b/d (including third-party volumes), MEG 260,000 b/d and Total 200,000 b/d.

The list does not include other major oper-ators such as Imperial Oil and its sister com-pany ExxonMobil Canada, Canadian Natural Resources, Shell Canada, PetroChina, Husky Energy in partnership with BP, Statoil and Devon Energy—all key players in forecasts of production reaching 5 million b/d by 2030.

An Enbridge spokesman said public decla-rations of support from business partners add to the “groundswell of opinion favoring the project (and) the better we are for that.”

Juan Plessis, a pipelines analyst at Canaccord Genuity, said in a note that know-ing who the potential shippers are does not ensure the project will go ahead, describing the economics as a “hard sell.”

Equally challenging for Enbridge is dealing with swelling opposition from environmental-ists and First Nations to pipelines that will cross 773 water courses between Alberta and the deepwater tanker port at Kitimat on the northern British Columbia coast and about 200 tankers a year operating in B.C. waters.

However, an Enbridge spokesman said his company will not participate in the initial rounds of community hearings scheduled to last until mid-July, when 4,300 individuals and organizations have registered to make public statements.

He said Enbridge representatives will be available for cross-examination in formal hearings due to take place in September and October.

Over the past week, Oliver and Canadian Prime Minister Stephen Harper have tackled opponents of Northern Gateway, accusing “foreign environmental interests financing from the United States” of attempting to inter-fere in the NEB process.

“Growing concern has been expressed to me about the use of foreign money to overload the public consultation phase of the hearings just to slow down the process,” Harper told reporters in Edmonton January 6.

He said that although his government will not interfere in the Northern Gateway applica-tion it will “take a close look at how we can ensure that our regulatory processes” protect the economy, environment, worker safety and other community interests, while reaching decisions “in a reasonable amount of time.”

Oliver told reporters January 8 that “radi-cal” environmentalists and “jet-setting celebri-ties,” including US actors Robert Redford and Leonardo DiCaprio, who are trustees of the US Natural Resources Defense Council, are “threatening to hijack our regulatory system.”

But he would not say whether the govern-ment would consider overruling the NEB if it makes Northern Gateway the third among “thousands” of pipeline applications it has rejected.— Gary Park

Northern Gateway backers show themselvesFive oil sands producers say they provided funding for Enbridge line

ThE AMErICAS

US inspects rig leased by repsol set to drill off CubaWashington—The US Bureau of Safety and Environmental Enforcement and the US Coast Guard on January 9 completed an inspection of the drilling rig Repsol will use to spud a deepwater well off the coast of Cuba in the coming months, the agencies said.

The inspectors “found the vessel to gener-ally comply with existing international and US standards by which Repsol has pledged to abide,” a joint statement read.

Personnel from the two agencies boarded the Chinese-made Scarabeo 9 on January 9 off the coast of Trinidad and Tobago. The inspection was done at the invitation of the Spanish firm Repsol, which will be the first company to use the rig to explore in Cuba’s deepwater. After the rig finishes the Repsol well, it will go on to spud deepwater wells for Petronas and Gazprom. The rig itself is owned by Saipem, a division of the Italian firm Eni.

The inspectors reviewed vessel construc-tion, drilling equipment and safety systems, the agencies said in a joint statement. The safety equipment inspected includes lifesav-ing and firefighting equipment, emergency generators and dynamic positioning systems.

The inspection also included the blowout preventer on the rig.

The agencies would not say how many people participated in the inspection or how long they spent on the rig. In Congressional testimony last year, Michael Bromwich, the former head of the Bureau of Ocean Energy Management, Regulation and Enforcement, had said the inspection would not be as thor-ough as one done on a rig operating in US waters. Inspection efforts would also suffer because once the rig enters Cuban waters, there is no way to verify if modifications are made to the rig or any of its parts or if US regulations are followed once drilling begins.

Repsol, which has leases in the US Gulf of Mexico it intends to work, has pledged to follow US regulations.

A Repsol spokeswoman in the Houston office said January 9 that she could not com-ment on Cuba-related matters and referred questions to Repsol’s Madrid office. Spokes-men in the Madrid office did not respond to emails later in the day.

“The review is consistent with US efforts to minimize the possibility of a major oil spill, which would hurt US economic and environmental interests,” the joint statement read.—Gary Gentile, with Leslie Moore Mira in New York

11 Oilgram News / VOlume 90 / Number 6 / Tuesday, JaNuary 10, 2012

Land drillers, services seen set for strong Q4Analysts say offshore segment ready to rebound

Houston—With the US land rig count up 17% from 2010, land drillers and oilfield service providers will soon demonstrate how they rode the onshore boom to higher prof-its for 2011.

Companies in the service sector will begin releasing final financial results for last year January 20, and a Platts survey of ana-lyst expectations indicates they anticipate a combined 47% hike for five key land drill-ers and a 30% gain for seven key services providers.

At the same time, however, results for the offshore drilling contractors are expected to reflect a subsector still waiting for a much-anticipated global boom in deepwater opportunities.

Now, analysts believe that, too, looms just around the corner.

“The next mega-cycle for the oil services industry is getting under way,” noted analysts at Barclays Capital in a January 4 report on the sector as it prepares for the 2011 report-ing period.

Summarizing the factors to bolster their outlook, the Barclays team wrote “the world is becoming increasingly short energy, hydrocar-bon prices are at attractive levels for invest-ment and are likely to rise further.”

In addition, they noted that operator cash flows and spending are set to rise rapidly with the oil services companies “likely to capture the economic benefit of this unfolding trend.”

Although the offshore drilling segment stalled last year with eight key companies anticipating a combined earnings decline of 30% from 2010, Barclays and other analysts still tout the segment for the longer term as more large global deepwater projects emerge.

Barclays believes deepwater spending by operators could double in the next five years, noting “the international upcycle is taking hold and the national oil companies are driv-ing the gains.”

Summarizing the outlook on the eve of final 2011 reports, Barclays concluded: “The retooling of an aging offshore fleet (both shallow and deepwater) and the transforma-tion of the domestic and, potentially, the international onshore rig fleets are driving capital equipment backlogs well north of prior peaks.”

For the quarter ended December 31, the land drillers should see a gain of 30% from the same period of 2010 while the service providers post a 25% uptick, according to a review of analyst earnings projections col-lected by Thomson Financial.

In contrast, the offshore companies are poised to fall a combined 16% from the fourth quarter of 2010, led by the largest member of the group, Transocean.

Transocean’s situation reflects symptoms

across the offshore subsector as contractors wrestle with unexpected downtime as well as factors peculiar to Transocean, such as its acquisition of Aker Drilling (ON 11/4/11).

Analysts expect Transocean to post fourth-quarter earnings of $0.26/share, down 62% from 2010, with total earnings of $1.54 for the year down 74% from 2010.

Among Transocean’s rivals, analysts expect quarterly earnings to fall 42% at Dia-mond Offshore to $1.00, 17% at Rowan to $0.35, 11% at Seadrill to $0.73 and 500% at shallow-water specialist Hercules to the only loss in the segment at a negative $0.18.

In contrast, they project quarterly increas-es of 49% at Noble Corporation to $0.58, 27% at smaller Atwood Oceanics to $1.03 and 12% at Ensco International to $1.01.

For the year in the offshore segment, the survey shows projected combined earnings of $19.96/share compared with $28.53 for 2010.

Meanwhile, analysts project all five of the land drillers to report gains from 2010 with the segment’s largest contractor, Nabors Industries, up 14% on the quarter to $0.50/share and 30% for the full year to $1.47.

Nabors’ rival Patterson UTI-Energy is expected to post a 70% gain for the fourth quarter to $0.63 while Helmerich & Payne reports a 22% gain to $1.15.

Smaller land driller Unit is projected for a 13% gain to $1.04, while Parker Drilling should see quarterly earnings jump 1,500% to $0.16/share from a tiny basis of $0.01 in 2010.

Benefitting from increased drilling wher-ever it occurs, the big four oil service titans of Schlumberger, Halliburton, Baker Hughes and Weatherford are each poised to report that quarterly and full-year earnings rose double digits from 2010.

Schlumberger is projected to post a 29% gain for the quarter to $1.10/share, with Hal-liburton up 46% to $0.99, Baker Hughes up 58% to $1.33 and Weatherford up 57% to $0.33.

Of the three more specialized companies in the oil services segment, only workboat provider Tidewater Marine is forecast for a quarterly dip, down 34% to $0.44.

Meanwhile, blowout preventer manufac-turer Cameron International projects a 10% hike to $0.76 for the quarter and subsea equipment provider National Oilwell Varco should see a 23% increase to $1.29.

“After taking a more cautious approach to the US market through the third-quarter earnings season, we find that the majority of the evidence points to a stronger 2012 than 2011,” concluded analysts at Credit Suisse in their year-end outlook report published December 19.— Gary Taylor

ExxonMobil, US agree to new terms at Gulf leasesWashington—ExxonMobil will be allowed to continue exploring its Julia find in the Gulf of Mexico’s Walker Ridge, but will pay the US additional royalties and fees and agree to start production by 2016, under the terms of a settlement agreement.

ExxonMobil and Statoil, which each own 50% of the leases, sued the Interior Depart-ment in August over the department’s denial of extensions of three leases in the ultra-deepwater Walker Ridge section.

The companies had argued that the for-mer Minerals Management Service improperly canceled the three 10-year leases after they had expired even though wells had been drilled and ExxonMobil was acting on a plan to produce hydrocarbons from the leases. Exx-onMobil is the operator on all the leases.

The settlement, disclosed late January 6, extends the leases in several stages, with production required by June 2016.

“The settlement will allow ExxonMobil to develop this very large, but technically chal-lenging, resource as quickly as possible using a phased approach,” ExxonMobil spokesman Patrick McGinn said in a statement January 9. “The Julia project will play an important role in meeting America’s energy demand. The initial phase of the project is expected to produce more than 175 million barrels of oil through six production wells.”

Under the terms of the settlement, filed in the US District Court for the Western Dis-trict of Louisiana, the two companies agreed to pay the US a “production incentive fee” of $11.2 million per year until the three original Julia leases reach 87.5 million barrels of total production. The original leases had been granted under the Royalty Relief Act, which waived the government’s right to collect royal-ties on oil produced from the leases until a predetermined production level was reached.

The companies also agreed to a higher 18.75% royalty rate instead of the original 12.5% royalty rate. The companies also agreed to boost the rent on the leases to $11/acre from the $7.50/acre when the leases were first issued.

“The proposed settlement ensures the preservation of the important regulatory prog-ress represented by the May 31, 2011, deci-sion of the Director of the Office of Hearings and Appeals (OHA) that is challenged in the litigation, provides incentives for timely and thor-ough development of the leases, and secures a fair return on those resources to the US Trea-sury,” Interior Department spokeswoman Melis-sa Schwartz said in a statement January 9.

The lawsuit had argued that MMS improperly applied its regulations for lease extensions, known as “suspension of produc-tion,” in the case of the three Walker Ridge leases.— Gary Gentile

ThE AMErICAS

12 Oilgram News / VOlume 90 / Number 6 / Tuesday, JaNuary 10, 2012

US degree days indicator through January 8New York—The degree days indicator for US heating oil demand so far this heating season (through January 8) was 17.84% less then the corresponding period of the last season and 15.1% less then normal.The indicator is comprised of the average degree days for 18 geographically representa-tive US cities, weighted to reflect the cities’ relative consumption of home heating oil.The degree days data were compiled by Platts from reports by CustomWeather.

September 1 - January 8 Week Sep-11 Sep-10 Ended Jan-12 Jan-11 Normal 8-Jan

East CoastBoston 1,719 2,186 2,204 243New York City 1,556 1,984 1,869 217Philadelphia 1,543 1,958 1,894 222Washington DC 1,752 2,120 2,042 226Average 1,643 2,062 2,002 227

Great LakesBuffalo 2,190 2,784 2,655 287Chicago 2,214 2,739 2,699 262Cleveland 2,007 2,562 2,436 254Detroit 2,248 2,626 2,484 262Average 2,165 2,678 2,568 266

MidwestDenver 2,698 2,404 2,697 233Minneapolis 2,705 3,352 3,368 292Omaha 2,380 2,642 2,774 236St. Louis 1,592 2,010 1,991 193Average 2,344 2,602 2,707 239

SoutheastBirmingham 1,088 1,310 1,205 155Charleston, SC 709 1,072 801 138Nashville 1,466 1,761 1,577 200Raleigh 1,195 1,644 1,455 169Average 1,115 1,447 1,260 165

West CoastPortland, OR 1,920 1,908 1,872 181San Francisco 1,074 932 1,019 109Average 1,497 1,420 1,446 145

Simple Average for all groups 1,753 2,042 1,997 208

Heating oil demand indicator* 1,764 2,147 2,077 223

* This is the average of each group’s simple average weighted to reflect each group’s percentage of past home heating oil demand, totaled for the 18 cities.

New York—NYMEX February crude oil futures settled 25 cents lower at $101.31/b January 9 as concerns over eurozone debt offset ten-sions regarding Iran’s threat to close the key Strait of Hormuz.

Product prices continued to be supported by Switzerland-based Petroplus’ move to shut sev-eral refineries in Europe, which could increase demand on US refineries for diesel and other fuels, “and would be among the first direct hits to the US consumer from the eurozone debt cri-sis,” said Mike Fitzpatrick of Kilduff Group.

NYMEX February heating oil settled 28 points higher at $3.0730/gal and February RBOB settled up 74 points at $2.7590/gal.

Oil futures were choppy throughout the session as markets focused on Europe’s debt crisis, with French and German leaders meet-ing to tackle the region’s growth and banking problems. This was countered by ongoing tensions over Iran’s threat to block the Strait of Hormuz, the oil shipping lane linking the Persian Gulf and the Arabian Sea.

Worries over a general strike in Nigeria affecting the country’s oil exports also pro-vided underlying support to the complex.

The euro fell to a fresh 16-month low of $1.2666 against the dollar before rebounding and trading up 46 points at $1.2765 by the NYMEX close.

ICE February Brent settled 61 cents lower at $112.45/b, while the Brent/WTI spread settled at $11.14/b, narrowing from $11.50/b the prior trading day, but widening out from $7.93/b on December 29.

The annual index re-balancing, which began January 9, had been slowly widening the Brent/WTI spread, as Brent is introduced into the DJ-UBS index, shifting focus away

from WTI, analysts said.The re-balancing of the index, which is set

to last five days, will result in the over 90,000 lots of WTI being sold, while some 55,000 lots of Brent will be bought, noted analysts at Bar-clays Capital, likely affecting time spreads and the Brent/WTI spread in day-to-day trading.

Analysts at Commerzbank estimated that the most significant change in the “hedge roll period” to re-balance value weights for the DJ-UBS and the S&P GSCI commodity indices, will be in oil, following the inclusion of Brent crude in the DJ-UBS index.

However, the analysts also noted that examining flows relative to aggregate daily vol-umes indicated that there may be significant impact in cotton, sugar, Chicago wheat and natural gas as well.

“The decision to shift a third of all crude oil contracts held by DJ-UBS from WTI to Brent, plus changes in weights to the S&P GSCI, will result in about $6.1 billion of inflows into Brent, and about $11.6 billion of outflows in WTI,” the Commerzbank analysts said in a note.

“Accordingly, index investors will have to buy Brent and sell WTI. That said, we are confident that the spread widening will only be a temporary phenomenon and anticipate a marked narrowing in the price difference during the course of the year as the reversal of an oil pipeline in the US offers arbitrage opportunities from April,” the Commerzbank analysts said.

Broker Tom Bentz of BNP Paribas said the re-balancing already has been priced into the market. “The re-balancing has already affected the spread for more than a week so I am not sure how much more impact we will get,” Bentz said.

Weekly oil data from the US Energy Information Administration and the American Petroleum Institute, meanwhile, should show a 1 million barrel draw in US commercial crude inventories for the week ended January 6, analysts polled by Platts said.

US crude stocks are expected to decline as refinery utilization increases.

Crude stocks have been lower in four of the last six years during the reporting week, while crude imports have been higher over the last two years, but were lower for four con-secutive years before that, said analyst Peter Beutel of Cameron Hanover.

The crude stock three-year average draw is 4.651 million barrels, while the five-year average is a draw of 1.822 million barrels, the EIA data shows.

The utilization rate has averaged 87.14% of capacity over the last five years, and is expected to be at 85.2% of capacity for the week ended January 6, up 0.2 percentage points, based on EIA data.

Analyst Kyle Cooper of IAF Advisors is predicting a 1 million barrel rise in US crude

stocks, which is counter to the analyst aver-age, based on a possible “backlog” of imports. “Runs have been relatively low and we had very low imports in December, so I expect to see an increase in imports this week,” Cooper said.

US gasoline stocks are expected to rise by 1.75 million barrels as refinery utilization increases. Gasoline stocks have been higher in each of the last six years, with a five-year average build of 4.008 million barrels.

Distillate stocks are expected to build by 1.35 million barrels, following a recent trend of draws. The five-year average draw for distillate stocks is 3.45 million barrels.— Alison Ciaccio

Eurozone worries send NYMEX crude lowerOffsets impact of concerns on Strait of Hormuz

MArKETS & DATA

Platts Podcast

Pressure on Iran grows as crude importation ban looms; Petroplus’ financial woes

In this discussion of the week’s top oil stories, Richard Swann, Editorial director of oil news, Stuart Elliott, Platts regional oil editor, and Robert Perkins, London news correspondent, discuss the potential impact of a European ban of the importation of Iranian crude; and look at Petroplus’, Europe’s largest independent refiner, struggle to find new lenders after its credit supply line was cut off, and three of its five refineries were forced to shut down.

http://www.platts.com/IM.Platts.Content/insightanalysis/podcasts/roundtable/archive/2012/jan/roundtable060112.mp3

13 Oilgram News / VOlume 90 / Number 6 / Tuesday, JaNuary 10, 2012

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Washington—Petroleum product importers face a new rule under the latest US Renew-able Fuel Standard that they argue will curb liquidity for the market in Renewable Identifi-cation Numbers, credits used to prove compli-ance with the mandate.

Before the Environmental Protection Agency adopted a final RFS for 2012, it attached several technical amendments, including a provision that targeted compa-nies obligated to blend biofuels solely by vir-tue of their fuel imports. The rule limited the

amount of RINs the importers can “sepa-rate”—the industry’s term for disassociating the proxy credits from the biofuel volumes they represent.

Before the change, importers could sepa-rate RINs for the entire volume of ethanol and biodiesel, for example, that they brought into the country. Under the 2012 rule, those importers now can only separate the amount of RINs representing the volumes they need for compliance.

“This proposal was designed to prevent abuse of the obligated party RIN separation provision by a company that imports a rela-tively small amount of an obligated volume, but then separates a large amount of RINs,” EPA said when it published the rule in late December. “It was also designed to help pre-vent hoarding of RINs by parties that do not need them for compliance purposes, and to generally increase the liquidity of RINs.”

US producers and refiners, by contrast, will continue to be able to separate as many RINs as they want.

Susan Lafferty and David McCullough, lawyers for Sutherland in Washington, said the rule would have the opposite outcome that EPA intends. On behalf of more than a dozen petroleum product importing, blending and trading companies, the law firm asked EPA last fall to abandon the proposal. The agency responded that it disagreed with their comments.

“It will limit the amount of liquidity in the RINs market because RINs will not be sepa-rated as freely,” McCullough said. “A num-ber those companies that are importers of gasoline and diesel don’t have any desire to own physical ethanol product with associated RINs. They just want to simply buy separated RINs and use those for compliance.”

Additionally, Sutherland maintained that the policy amounted to more than a mere technical

change and deserved full regulatory vetting.McCullough said the rule has implications

for the entire RINs market, not just for fuel importers, including increased compliance costs and higher RINs prices.

“It makes the market less liquid, because if you want to purchase RINs, you’re more likely now to have to purchase an associated volume of renewable fuel,” he said.

Lafferty said acquiring physical product comes with its own complications and costs.

“You need tank space, and if it’s being transferred or transported there’s just a lot more logistics that go along with it,” she said, adding that it could force RINs brokers to either reconfigure their business models or close up shop.— Meghan Gordon

US EPA fuel import rule could shake up rINs market

Kuwait’s 2011 oil output pegged at 2.6 million b/dKuwait City—Kuwait produced an estimated 2.6 million b/d of crude oil for the calendar year 2011, independent economists said January 6, with output increasing gradually over the year.

The Kuwait Export Crude (KEC) blend sold for an average of $104.70/b during 2011, the independent al-Shall Economic Consul-tants said in their latest report, compared with an average of $76.40/b for fiscal 2010.

Kuwait’s crude oil production as calcu-lated by al-Shall averaged 2.36 million b/d for the first quarter of calendar 2011, 2.45 mil-lion b/d for the second quarter, 2.53 million b/d for the third quarter and 3.05 million b/d in the fourth quarter.

The price of KEC peaked at $109.50/b in November 2011, and bottomed at $91.60/b in January 2011, the consultants said.

Kuwaiti planners set the state’s 2011-2012 (April-March) fiscal budget based on the emirate pumping 2.2 million b/d and selling at an average of $60/b.— Miriam Amie

NYMEX crude settle, �rst month

NYMEX natural gas settle, �rst month

($/bbl)

($/MMBtu)

101

102

103

104

102.96103.22

101.81101.56

101.31

9-Jan6-Jan5-Jan4-Jan3-Jan

January 9 settle: $101.31, down $0.25

2.9

3.0

3.1

2.993

3.096

2.980

3.062

3.011

9-Jan6-Jan5-Jan4-Jan3-Jan

January 9 settle: $3.011, down $0.051

What crude & natural gas markets are doing...

MArKETS & DATA