; Nov Dec 2012 Issue 30
Learning Center
Plans & pricing Sign in
Sign Out
Your Federal Quarterly Tax Payments are due April 15th Get Help Now >>

Nov Dec 2012 Issue 30


  • pg 1
									                             Edition Four - December 2012

UK CCS competition - no EOR projects included

                     And then there's the EU!
                                              OilEdge Magazine | DECEMBER 2012   1

Thin stew!
by David Bamford                                                           2
We know how to do this!
by David Bamford                                                           3
UK CCS competition - no EOR projects included
by Karl Jeffrey                                                            8
Kicking the can down the road!
by David Bamford                                                          12
Argentina And Protectionism: Shooting Itself In The Foot
by Richard Ethrington                                                     13
Venezuela: Six More Years Of Decline Under Chavez
by Richard Ethrington                                                     15
And then there's the EU!
by David Bamford                                                          18
About us                                                                  21
                                                                   OilEdge Magazine | DECEMBER 2012                 2

Thin stew!
Written by David Bamford from Finding Petroleum

“…...fixed up a tater stew……mighty thin stew, you could read a magazine right
through it……if it’d been just a little bit thinner, some of these politicians could have
seen through it……”
From ‘Talking Dust Bowl Blues’
Woody Guthrie: “This Land is your Land” Album/CD
On the theme of government making our lives harder and not easier, I thought I’d
begin with two or three links:

First of all, we have Shell attacking the “ridiculous” impact of European energy policy, warning that governments
are erasing the environmental benefits from expensive renewables by allowing coal use to increase (because the
cost penalties of emitting CO2 are too low to deter).

Putting the renewables point to one side for the moment, the key point is that
because cheap gas (dominated by ‘shale gas’) is reducing coal demand in the USA,
there is a lot of cheap coal in the marketplace. US coal manufacturers are not sitting
on their hands doing nothing – they are exporting coal. As a result, Europe is burning
more coal, while demand for gas – which emits much less CO2 than coal – is

So the answer to the question “when will shale gas be exported from the USA?”, the
answer is “it is already, in the form of coal!”.

Secondly, there is the view that Europe, focused as it is on austerity and
troublesome EU members, is losing out to the USA in an energy-driven ‘industrial

And meanwhile, the UK – or at least our government - seems to have a focus on
windmills that outdoes Don Quixote! More on that in the next article!

Thirdly, having just got our heads around the idea that the USA’s ‘energy revolution’
is driven by entrepreneurial companies operating in a market economy – and
absolutely nothing to do with whoever is in power in Washington – you can read this
from Daniel L. Juneau, President, Louisiana Association of Business & Industry. To
quote directly “Unfortunately, the regulatory schemes, which continue to come down
from Washington bureaucrats, leave players in limbo. Much of this new and
expanded oversight negatively affects the energy-producing and consuming
companies based here in Louisiana, although carbon-based energy in our state is
not alone as a target”

Article contributed by David Bamford from Finding Petroleum
View Online
                                                     OilEdge Magazine | DECEMBER 2012      3

We know how to do this!
Written by David Bamford from Finding Petroleum

Whilst the energy revolution rolls on in the USA, both Europe and the UK are mired
in confusion over shale gas and shale oil in particular and ‘Unconventionals’ in

Below ground, we have the technology………

What do we mean by ‘Unconventionals’?

      Conventional: = Light Oil and ‘Clean’ Gas in good poroperm sandstone or
       carbonate reservoirs

      UnConventional Hydrocarbons: = Examples: ‘Heavy’ oil, ‘Sour’ gas, ‘waxy’

      UnConventional Reservoirs: = Examples: Fractured Reservoirs (e.g.
       Basement), Shales, Coal Beds, ‘Tight’ Sandstones, ……., Gas Hydrates

We have the technology………..

      Regional Geology: = Intensive biostratigraphy, sedimentology, petroleum
       systems analysis to identify candidate reservoirs and likely fluid fill

      3D Seismic (increasingly ‘wireless’): = to locate ‘sweet spots’

      Horizontal drilling/laterals: = to access ‘sweet spots’ whilst minimising surface
       footprint; longer and longer laterals

And there’s more of course……………….

      Hydraulic ‘Fracking’: = to maximise flow rates and recoveries from reservoirs;
       more and more fracking stages
                                                  OilEdge Magazine | DECEMBER 2012   4

      Passive/Micro Seismic: = to monitor fracture growth and guard against mini-

      Returned Water Cleansing: = to remove any risk of contamination

And the result is……………….

Technology Learning Curve - Bakken vs. Barnett Well Density
Sourced from Google Earth; Kimmeridge Energy

And thus, anything is possible………?
With the exception of Gas Hydrates, we can extract any hydrocarbons from pretty
well anywhere they are reservoired…...the only question is the economics…….

Above ground, we have experience and one or two problems………
                                                    OilEdge Magazine | DECEMBER 2012    5

The problems are not managing Stakeholders….
There is now a wealth of experience and expertise in the USA. For example, the
lawyers Edwards Wildman Palmer LLP have recently summarised several sources to
give “Fracking best practices: top 10 recommendations”:

   1. Conduct environmental sampling before and during operations
   2.   Disclose the chemicals being used in fracking operations
   3.   Ensure that wellbore casings are properly designed and constructed
   4.   Eliminate venting and work towards green completions
   5.   Prevent flowback spillage/leaks


   6. Dispose/Recycle flowback properly
   7. Minimize noise and dust
   8. Protect workers and drivers
   9. Communicate and engage
   10. Record and document.

Now none of these is rocket science; all pretty obvious (and similar to recent
recommendations by DNV…..

The problem is elsewhere: does the UK have an energy strategy………..?

       David Cameron (April 2012) + Centre for Policy Studies (June 2012):

   o    Balanced mix of: new nuclear power; cleaner coal and CCS; oil; gas
        (increasingly imported); shale gas

       George Osborne (April 2012 budget statement):

   o    “Gas is cheap, has much less carbon than coal, and will be the largest single
        source of our electricity in the coming years. We will set out our new Gas
        Generation Strategy (GGS) in the autumn to secure investment.”

Great! But then there’s these guys………………………

       Committee on Climate Change (September 2012):
                                                  OilEdge Magazine | DECEMBER 2012     6

   o   raised deep concerns about using gas power stations beyond 2030 è may be
       illegal vis a vis Climate Change Act

   o   object to George Osborne’s commitment that gas should “continue to play an
       important role in the energy mix well into and beyond 2030, not restricted to
       providing back-up to renewables.”

      Ed Davey, Energy Secretary, DECC:

   o   said traditional gas stations were not being encouraged after 2030 except as
       a back-up for rewables such as wind farms…..

   o   but we urgently need a massive new investment in gas generation (!!)

So I think the answer to my question is………………………
No, we have some very influential people who would like the UK countryside to look
like this!
                                                      OilEdge Magazine | DECEMBER 2012   7

To summarize….

         There is a global resource of ‘unconventional’ oil and gas
         We have the technology………………..
         and we can learn how to work with all Stakeholders


         In the UK, there are “no hands on DECC”!

Article contributed by David Bamford from Finding Petroleum
View Online
                                                    OilEdge Magazine | DECEMBER 2012    8

UK CCS competition - no EOR
projects included
Written by Karl Jeffrey from Finding Petroleum

The UK government has published the shortlist of companies to win its £1bn carbon
capture and storage funding - and no enhanced oil recovery projects were included.

One theory is that EOR projects might have been kept out of the shortlist due to an
unwillingness by the Liberal Democrats to embrace the technology, since it is seen
as increasing carbon emissions.

There have been well publicised friction between the coalition partners in the UK
government over the past few weeks on energy, with Conservatives wanting to
reduce support for financial subsidies to wind power, and the Liberal Democrats
trying to maintain them.

Using carbon capture together with enhanced oil recovery means taking carbon
dioxide from a power station and pumping it into an offshore oilfield, so the carbon
dioxide makes the oil less viscous and increases recovery.

Thus it achieves two objectives at once - removing CO2 from the atmosphere and
increasing oil production, and the increased revenues from oil production can be
used to finance the expensive carbon capture. If you work on the basis that
petroleum consumption would be constant (the oil would come from the Middle East
if not from North Sea oil fields) then it would not increase carbon dioxide emissions
to the atmosphere.

But this argument is not accepted by everyone - some argue that there are no net
environmental benefits if carbon dioxide is pumped into the subsurface, and used to
increase oil production, which creates more carbon dioxide emissions when

2CO Energy

Perhaps most disappointed by the announcement was 2CO Energy of London,
which has won EU funding for its project to build a carbon capture and storage
project, using the carbon dioxide for Enhanced Oil Recovery, in Don Valley

The project currently leads the European Commission rankings for all European
CCS projects, 2CO says, and ranks in Bloomberg New Energy Finance's top ten
global CCS projects. The Don Valley project was awarded €180 million of EU
funding in 2010 and planning permission was awarded in 2009.
                                                      OilEdge Magazine | DECEMBER 2012       9

"This is truly disappointing news for the Doncaster area where we would have built
this plant and for our world-class project team working to deliver it," said Lewis
Gillies, CEO, 2CO Energy Limited, and a past CEO of the BP / Rio Tinto joint
venture project "Hydrogen Energy".

"We will complete the current phase of the project and meet the knowledge-share
obligations of our existing EEPR funding from the EU but we cannot take this project
further without funding from the UK government."

"In the meantime, we are trying to come to terms with how the UK’s most advanced
project that has twice been selected by the EU for funding and is currently sitting as
Europe’s top ranked project has not even made it to the UK’s shortlist."

Stuart Haszeldine, Professor of Carbon Capture & Storage with the University of
Edinburgh, wrote to a UK newspaper saying he was "surprised and shocked that the
government seems to have prematurely rejected the new opportunity to pursue
enhanced oil recovery (EOR) using CO2 from power plants.

"The Don Valley project certainly has additional costs associated with EOR, but
these will be more than offset by the tax receipts to Treasury. This could leave
billions of barrels of politically secure domestic oil in the ground, and shorten the life
of 300,000 jobs in the North Sea offshore oil industry," he said.

In July, the 650MW (net) Don Valley project in South Yorkshire topped the list of
European CCS projects competing for an estimated €337 million share of the €1.3
billion funding pot available in the EU's NER300 programme.

The project planned to pipe its captured CO2 offshore to depleted UK oil fields and
use it to recover millions of barrels of ‘hard to reach’ oil via Enhanced Oil Recovery

Project shortlist

When the UK shortlist was announced, Secretary of State for Energy and Climate
Change (and Liberal Democrat), Edward Davey said:
“We have received some quality bids from industry who have really risen to the
challenge set by the competition. “The projects we have chosen to take forward have
all shown that they have the potential to kick-start the creation of a new CCS industry
in the UK, but further discussions are needed to ensure we deliver value-for-money
for taxpayers."

"We will remain in close contact with the European Commission in the coming
months as they take their decisions on which projects to support with European

The four short listed bids, all full chain capture, transport and storage projects, are in
alphabetical order:

Captain Clean Energy Project: A proposal for a new 570MW, fully abated coal
Integrated Gasification Combined Cycle (pre-combustion) project in Grangemouth,
                                                    OilEdge Magazine | DECEMBER 2012     10

Scotland with storage in offshore depleted gas fields. Led by Summit Power,
involving Petrofac (CO2 Deepstore), National Grid and Siemens.

Peterhead: A 340MW Post-combustion capture retrofitted to part of an existing
1180MW Combined Cycle Gas Turbine power station at Peterhead, Scotland. Led
by Shell and SSE.

Teesside Low Carbon Project: A Pre-combustion coal gasification project (linked to
c330MWe net power generating capacity fuelled by syngas with 90% of CO 2 abated)
on Teesside, North East England with storage in depleted oil field and saline aquifer.
A consortium led by Progressive Energy and involving GDF SUEZ, Premier Oil, and

White Rose Project: An Oxyfuel capture project at a proposed new 304MW fully
abated supercritical coal-fired power station on the Drax site in North Yorkshire. Led
by Alstom and involving Drax, BOC and National Grid.

Article contributed by Karl Jeffrey from Finding Petroleum
View Online
                                          Global Status of CCS
                                          report summary
                                          Shell Quest project
                                          going ahead
                                          Making money from
                                          CO2 mineralisation

Nov / Dec 2012                 Issue 30

 CCS for gas - results of Element Energy study
 Getting CCS moving - Carbon Capture Journal conference report
 Lessons from Vattenfall’s Jänschwalde project
 Next generation coal projects backed by U.S. Department of Energy
                                                    OilEdge Magazine | DECEMBER 2012     12

Kicking the can down the road!
Written by David Bamford from Finding Petroleum

Or, in the case of DECC, down the road, into the long grass, beyond SatNav reach,
into a parallel Universe!

I’m referring of course to their recent announcements on CCS – which Karl Jeffrey
has reviewed in a previous article – which effectively postpone the utilisation of CO2
for EOR in the UKCS out beyond 2020, to a point where much of the existing
infrastructure will be being decommissioned.

Is it that they think the methodology is unproven and the technology does not exist?
On the contrary, it has been conclusively demonstrated in the United States.

Is it they think that it’s somehow uneconomic?

Well, Element Energy has just published a report for Scottish Enterprise in which
they demonstrate the considerable benefits to the (Scottish) economy of deploying
CO2 EOR . To quote directly “the study identified nineteen UKCS oil fields with the
technical potential for CO2 enhanced oil recovery, which could provide an additional
one billion barrels of oil being recovered whilst offering the potential to store
significant volumes of CO2.”

In fact, IMHO, it’s difficult to see how CCS alone would be economic without a
massive uplift in CO2 price if the main avenue for generating revenue from CO2 has
been closed in this fashion.

This seems like case where ideology trumps pragmatism!

By the way, our cover picture this week is of the Don Valley site, the aerial image
provided courtesy of "CO Energy Ltd.

Article contributed by David Bamford from Finding Petroleum
View Online
                                                   OilEdge Magazine | DECEMBER 2012      13

Argentina And Protectionism:
Shooting Itself In The Foot
Written by Richard Ethrington from OilEdge

President Cristina Fernandez de Kirchner’s administration simply cannot help itself.
And if Buenos Aires continues to meddle in the oil industry in the manner to which it
has become accustom over recent months then nobody else will be willing to help it

First came the expropriation of former state oil company YPF back in April 2012. The
government made the decision to re-nationalise the industry giant in an attempt to
arrest the South American nation’s deteriorating energy trade balance. The finger of
blame had long been pointing at Spanish major Repsol, the majority stakeholder in
YPF for over a decade, for what Buenos Aires perceived to be a sustained lack of
investment in the sector that as a consequence had turned the nation from net
exporter to net importer. To the contrary, the evidence suggests that such claims
were ill founded, however. Indeed, under Repsol’s control, YPF invested a record
US$3.2 billion in 2011 and had planned to increase that figure in 2012. What is more
only two months earlier, Repsol YPF had upped its estimate for the shale oil and gas
it found in Argentina to nearly 23 billion barrels, which would be enough to double
the country's output in a decade. But the Spanish company said it would cost US$25
billion a year to develop, and in the process rubbed Fernandez up the wrong way by
warning that Argentina would need to overhaul its energy policy to attract the
necessary investment to implement such a programme.

Reluctant to be dictated to – or be willing to let the facts get in the way of a good
expropriation – Buenos Aires sanctioned the grab of YPF from Repsol’s hands. The
move, which was met by popular nationalist support at the time, served to score
Fernandez a few cheap political points in the process too.

So with YPF now re-nationalised, the plan for the government was simple: reverse
falling oil and gas production levels in proven reserves by getting YPF back on its
feet. An announcement from Buenos Aires that that the company would be investing
US$3.5 billion into the energy sector before the end of 2012, and US$7 billion per
year from 2013 to 2017 in an attempt to boost production by as much as 35% came
soon after. This would be financed by cash from the company’s revenue stream,
debt issues and strategic partnerships with overseas players. One problem with this
plan, however, was that all three of these cash sources remain subject to a number
of conditions, and unfavourable ones at that. YPF’s average profit of US$1.5 billion
per annum represents nothing more than a drop in the ocean for the level of
investment required; Argentina’s creditworthiness is being hurt by the government’s
rising determination to protect scarce dollar reserves; and a growing number of
overseas firms will be thinking twice about investing in the country after the way YPF
was unfairly extracted from Repsol. Beyond protectionism, additional challenges for
                                                   OilEdge Magazine | DECEMBER 2012      14

foreign companies looking to operate in the South American nation include artificial
oil and gas prices, currency controls and import restrictions. What is more, such a
basket of headwinds would likely serve to prevent the very sort of high-tech
exploration and production companies that Argentina is attempting to attract from
going about their normal business – at least in a profitable way anyway.

Fear not, the Argentine government has one overseas player in the form of US oil
group Chevron that it can rely on for investment though, right? Well that certainly
appeared to be the case until the Argentine courts decided to thrown the country into
the middle of a bitter dispute between the firm and the government of Ecuador. In
solidarity with its South American ally, an Argentine judge ordered that Chevron’s
assets, which total around US$19bn in Argentina alone, be frozen until the firm pays
damages to Ecuador for environmental damages caused by Texaco (which was
acquired by Chevron in 2001) during its time operating in the county.

Unsurprisingly, the firm has both denounced the Ecuadorean court's charges under
the Inter-American Convention on the Execution of Preventive Measures as
fraudulent, and the freezing of its assets by Argentina as without legal merit.

Given the firm’s strong presence in Argentina, producing around 26,000 barrels of
crude and 4 million cubic feet of natural gas daily, Chevron already has all
credentials to become a key investor in the YPF project over the coming years.
However, recent events put that potential role, and even more directly the agreement
made only months earlier between Chevron and YPF (the first with an overseas
player since the firm’s expropriation) to jointly develop the country's vast Vaca
Muerta shale reserves, at risk. Argentina’s proven shale reserves currently rank as
the world’s third largest, behind those in China and the US. What seemed like a
worthwhile and calculated risk at the time is quickly turning sour for Chevron. In the
long-term, the news is potentially more harmful to YPF, however, as it is highly
unlikely that it will be able to exploit its shale resources alone.

So with Chevron still in the dock in Argentine courts, where can the Fernandez
administration go for help now? With its back edging ever close to the wall, the
Argentine government saw no option but to turn to another traditional source of funds
to bankroll YPF’s ambitious investment plans; price hikes. The state looks set to
grant approval to YPF to more than double the price of natural gas, with the increase
in prices expected to begin before the end of the year. According to Deputy
Economy Minister Axel Kicillof, the average price that producers get from the
government could reach US$5.50 per million British thermal units (MMBtu) from the
existing US$2.50MMBtu.

Whether this policy will pass, however, remains to be seen.

Article contributed by Richard Ethrington from OilEdge
View Online
                                                     OilEdge Magazine | DECEMBER 2012        15

Venezuela: Six More Years Of
Decline Under Chavez
Written by Richard Ethrington from OilEdge

Same, same and very little different. After Hugo Chavez’s recent re-election victory
in Venezuela the global oil industry knows only too well what to expect from his next
six years in power. Chavez’s October 7 2012 Presidential election victory over
contender Henrique Capriles with more than 54% of the vote hailed a continuation of
the strategy which has come to characterise the President’s first fourteen years in

Lead by the highly-politicised vehicle of state oil firm Petróleos de Venezuela
(otherwise known as PDVSA), the Chavez administration is expected to continue
cutting discounted supply deals with allies within its sphere of influence, pushing
away potential investors by expropriating further oil fields and ultimately mortgaging
away its future oil production for financing right now, much of which has thus-far
been put towards the government's impressively ambitious social agenda.

To-date, Chavez’s agenda has failed to help the South American nation live up to its
full potential. In fact, it has not even come close. Instead things have gone from bad
to worse with the Venezuelan oil industry now experiencing (a) rapidly declining
production levels, which have slumped by as much as 26% under Chavez’s tenor;
(b) falling operation standards, which have in turn caused a string of deadly
accidents in recent years; and (c) stifled levels of inbound overseas investment at a
time when it is becoming increasingly needed by the domestic oil industry.

Chavez may have inked deals with the likes of Brazil’s state producer Petrobras and
Argentina’s counterpart YPF in recent times, but his actions have scared off many a
major international oil producer. Indeed, PDVSA’s move to take over the oil fields in
the Orinoco belt where many of the country’s vast reserves are located, saw the likes
of Exxon Mobil, Chevron and ConocoPhillips all pushed out of the way. While some
international oilfield services firms such as Halliburton and Schlumberger have opted
to continue operating in the country despite the risk of further intervention from
Caracas, PDVSA has proven that its capacity to increase production on its own is
quite limited. To be sure, Venezuelan production forecasts make for increasingly
grim reading with the consensus seeing oil production levels falling well short of the
government’s 2012 year-end target of 3.5 million barrels per day (bpd). According to
Venezuela’s oil minister Rafael Ramirez, average output has ranged between 3
million and 3.1 million bpd so far this year. However, thanks to the country
terminating the publishing of independently certified data back in March 2011, a
more precise figure of the country's oil output remains elusive.

But things could be so very different for the oil-rich South American nation. In fact, all
the foundations are already in place for Venezuela to stem the rot and turn-around
                                                      OilEdge Magazine | DECEMBER 2012        16

its ongoing decline in the OPEC rankings. First off, Venezuela is not only one of the
largest producers in the world but it also boasts the biggest crude reserves in the
world. In addition it is also the fourth biggest supplier of petroleum to the oil-hungry
US market, behind only Canada, Mexico, and Saudi Arabia, with an 8.3% share. In
2011, Venezuela exported around 350 million barrels to the North American nation,
which equates to around 40% of its total output – according to Energy Information
Administration (EIA). Despite his incessant anti-American rhetoric, Chavez’s most
important business partner has long been the US. Instead of reinvesting the wealth
from this profitable relationship, however, Chavez has instead chosen to put the
money towards social measures and massive subsidy programmes, with oil being
sold to Venezuela’s neighbours at discounted prices. But this cannot go on forever.
Bank of America has already forecast that Caracas will run out of off-budget fund
deposits by the end of 2013 if oil prices keep steady, or sooner still if crude continues
to decline. The once full coffers will soon be empty. And if not oil, then Venezuela
appears to have no other way of filling them: EIA data shows that the industry brings
in as much as 95% of the OPEC nation’s revenue.

While the outlook is certainly gloomy and warrants the raising of a few red flags, this
is no doomsday forecast for the Venezuelan oil industry. In fact it is far from it. While
the fears are growing that six more years of Chavez in power could potentially push
production levels lower still, the country’s long-term potential is undeniable. This view
has only strengthened further since the country's active rig count rose to a record
high of 373, providing the framework for a sustained increase in production levels
over time. And investors around the world know this only too well. With global
demand set to increase, thanks largely in part to a growing global population, and oil
prices predicted to continue rising, interested parties are never going to be too far
away – despite the catalogue of risks involved. In the meantime while a number of
Western international oil companies opt to keep their distance and to wait on the
sidelines until the business environment turns about-face, it looks likely that
Venezuela will be forced to rely increasingly on investment from industry players in
Asia, India and Russia to help boost production levels. Over time this could provide a
shift in the orientation of Venezuela's key export destinations.

To be sure, we may be seeing the start of a gradual transition in Venezuela as it
attempts to arrest falling production figures and move itself away from a reliance on
exports to the US market. But in the near-to-medium term, the future of Venezuela’s
oil industry looks almost certain to remain characterised by continued
underinvestment – due to the preferential oil deals it is tied up in – that will only serve
to mute the country's long-term production potential.

Article contributed by Richard Ethrington from OilEdge
View Online
                        KEY PLAYERS IN THE                    COMMERCIAL TANKER
                        TANKER INDUSTRY                       OPERATIONS
                        will be profiled giving their         including shipbroking, legal matters
                        views on current legislation,         and financing
                        recommendations and trends.
                        These will include chief              IN DEPTH INFORMATION
                        executives from all sectors of        on the latest newbuilds, sale and
                        the industry from equipment           purchase, freight rates and
                        manufacturers to the top              derivatives markets, using industry
                        shipowners                            known commentators

                        INFORMATION                           A STRONG FOCUS
                        about meeting oil major               on shipbuilding and repair
                        (TMSA / vetting)

                        DEVELOPMENTS in management/
                        safety/ environmental best practice

                        NEW TECHNOLOGIES
                        and commercial industry
Photo credit – Hempel

                             subscribe online at www.tankeroperator.com
                                                      OilEdge Magazine | DECEMBER 2012       18

And then there's the EU!
Written by David Bamford from Finding Petroleum

The European Commission responded to the Deepwater Horizon disaster by
reaching for a new level of regulation; this is an extract from the Commission’s own
summary in the relevant press release:

“The new draft regulation sets clear rules that cover the whole lifecycle of all
exploration and production activities from design to the final removal of an oil or gas
installation. Under the control of the National regulatory authorities, European
industry will have to assess and further improve safety standards for offshore
operations on a regular basis. This new approach will lead to a European risk
assessment that upgrades continuously by taking into account new technology, new
know-how and new risks. It introduces requirements for effective prevention and
response of a major accident:

      Licensing: The licensing authorities in the Member States will have to make
       sure that only operators with sufficient technical and financial capacities
       necessary to control the safety of offshore activities and environmental
       protection are allowed to explore for, and produce oil and gas in EU waters.
      Independent verifiers: The technical solutions presented by the operator that
       are critical for safety on the installation need to be verified by an independent
       third party prior to and periodically after the installation starts into operation.
      Obligatory ex ante emergency planning: Companies will have to prepare a
       Major Hazard Report for their installation, containing a risk assessment and
       an emergency response plan before exploration or production begins. These
       reports will need to be submitted to national authorities who will give a go-
       ahead if satisfied.
      Inspections: Independent national Competent Authorities responsible for the
       safety of installations, who will verify the provisions for safety, environmental
       protection and emergency preparedness of rigs and platforms and the
       operations conducted on them. If an operator does not respect the minimum
       standards, the competent authority will take enforcement action and/or
       impose penalties; ultimately, the operator will have to stop his drilling or
       production operations if he fails to comply.
                                                       OilEdge Magazine | DECEMBER 2012         19

      Transparency: Comparable information will be made available to citizens
       about the standards of performance of the industry and the activities of the
       national competent authorities. This will be published on their websites.
      Emergency Response: Companies will prepare emergency response plans
       based on their rig or platform risk assessments and keep resources at hand to
       be able to put them into operation when necessary. Member States will
       likewise take full account of these plans when they compile national
       emergency plans. The plans will be periodically tested by the industry and
       national authorities.
      Liability: Oil and gas companies will be fully liable for environmental damages
       caused to the protected marine species and natural habitat. For damage to
       waters, the geographical zone will be extended to cover all EU marine waters
       including the exclusive economic zone (up to about 370 km from the coast)
       and the continental shelf where the coastal Member State exercises
       jurisdiction. For water damage, the present EU legal framework for
       environmental liability is restricted to territorial waters (about 22 km offshore).
      International: The Commission will work with its international partners to
       promote the implementation of highest safety standards across the world.
      EU Offshore Authorities Group: Offshore inspectors of Member States will
       work together to ensure effective sharing of best practices and contribute to
       developing and improving safety standards.”

Less explicitly stated is the notion that the principle of ‘extra-territoriality’ will apply,
meaning that oil & gas companies headquartered in the EU will be expected to follow
these regulations wherever on the globe they operate.

These proposals have elicited strong opposition from the oil & gas industry in both
the UK and Norway, mainly on the grounds that both these countries already have
fully functioning regulatory systems and that to replace them with an EC-regulated
EU-wide system is unnecessary and in addition will introduce a long period of
uncertainty as regulations shift from one regime to another.

Two additional, or perhaps alternative, observations can be made:

   1. Are these proposals practical? They appear to imply a large force of qualified,
      experienced, inspectors and assessors who will check every aspect of every
      offshore installation’s operations. This force does not currently exist; absent it,
      the scheme has the risk of turning into a ‘box ticking’ exercise.
                                                   OilEdge Magazine | DECEMBER 2012      20

   2. Do these proposals actually address the root causes of the Deepwater
      Horizon disaster (and for that matter the recent well control incidents at Elgin
      in the UKCS, Gullfaks in the NOCS or Frade in Brazil)? In other words, do
      they go a long way towards preventing something similar happening again?

Article contributed by David Bamford from Finding Petroleum
View Online
                                                        OilEdge Magazine | DECEMBER 2012         21

                                          About Us

Finding Petroleum is about connecting people with people, knowledge and technology in the
oil and gas industry.

Topics we cover include new exploration opportunities (including unconventionals,
deepwater and opportunities around the world), doing more with geophysics (including for
drilling and production), doing more with data (in subsurface, drilling, production and supply
chain management), safety (including people, asset management, maintenance, equipment
design), and carbon capture with enhanced oil recovery.

In 2012 we will produce 25 Forums in London, Aberdeen, Stavanger and Kuala Lumpur, 6
editions of our print magazine "Digital Energy Journal", a free weekly e-mail newsletter, our
new monthly “OilEdge” magazine, and our Finding Petroleum website where you can view
videos and presentations from our conferences, and many past Digital Energy Journal and
OilEdge articles.

Nearly all of our Forums are free to attend; we aim to produce around 40 in 2013.

The Finding Petroleum Team
Our shareholders, directors and founders are:

      David Bamford, a past head of exploration and head of geophysics at BP, and a non
       executive director of Tullow Oil, is a founder shareholder via his company New Eyes
       Exploration Ltd.
      Adam Marmaras, founder and website manager of OilVoice.com
      Karl Jeffery, founder of Digital Energy Journal, also founder and conference producer
       for Digital Ship, publisher of Tanker Operator, Carbon Capture Journal and The
       Hydrogen Journal.

Contact Details for OilEdge matters:
David Bamford via http://www.findingpetroleum.com/fp/contact.aspx

To top