Oil Gas Energy

The lawmakers ask Kempthorne for an update on plans to respond to IG recommendations for improving management of royalty collections.

"These [recommendations] range from clarifying the guidance provided to auditors, to the possible rescission of an agency policy based on the premise that calculating interest on royalties owed poses a ‘hardship’ for oil companies," they write.

The IG looked into False Claims Act lawsuits that several MMS auditors filed on their own against oil and gas companies, which was litigation aimed at forcing payment of millions of dollars in royalties. The auditors said they filed the suits because MMS prevented them from collecting the royalties they claimed were owed.

But Rahall and Bingaman’s letter says the report "raises a number of troubling questions beyond the initial scope of the investigation, exposing matters that heighten our concerns about the agency’s administration of its royalty management program."

According to Rahall’s office, the report also cites a "band-aid approach to holding together one of the federal government’s largest revenue producing operations."

Rahall, in a statement yesterday, said his committee will look carefully at how MMS royalty collection programs are being run and whether "fundamental changes are needed to ensure the American people are getting a fair share for the disposition of their oil and gas resources."

IG criticizes auditors

Several auditors filed "qui tam" lawsuits against oil and gas companies — including Shell Oil Co. and Kerr-McGee — between 2004 and 2006 alleging underpayment of royalties. A redacted version of the report is critical of the lawsuits and MMS alike.

It says the lawsuits were "either based on a lack of knowledge of other MMS efforts to collect royalties and interest or the auditors disagreed" with MMS decisions and guidance to companies.

"During the course of investigating these issues, we found a number of other significant concerns, worthy of separate investigation, including program mismanagement and process failures," the report states.

It also says the auditors did not properly report their suspicions of wrongdoing to the appropriate authorities, including the IG’s office, and that they removed and used proprietary, sensitive or confidential business information without authorization. It says the IG presented the auditors "potential misuse of government records" for their lawsuits to the Justice Department, but that DOJ declined to prosecute.

Turning back to MMS actions, the report says that while there is no evidence that MMS "deliberately retaliated" against the auditors, the IG investigators did find numerous human resource errors that, taken together, "created an environment where reprisal could be perceived."

Source:

http://www.rigzone.com/news/article.asp?a_id=50683 

The bill, which amends the law on subsurface deposits and their use, allows the state to revise the terms of a contract at a strategic deposit if the economic interests of the state have been impacted, Interfax said.

Kazakh lawmakers say the bill is needed now because of cost overruns and delays at the Eni-led (E) Kashagan oil field project in the Caspian Sea.

The consortium irked Kazakh authorities after informing them in June of a new delay to the start of production at the massive Kashagan project amid cost overruns.

The consortium is holding talks with the Kazakh authorities as the latter seeks compensation and changes to the Kashagan contract due to the output delay and higher costs.

According to one amendment in the bill, if the license holder’s operations have an impact on Kazakhstan’s economic interests or are a threat to national security, the relevant agencies "have the right to demand changes and/or terms added to the contracts with the goal of reestablishing Kazakhstan’s economic interests," Interfax reported.

The bill also expands the grounds on which the state can annul a subsurface resource use contract.

Grounds for annulment include the following: if within a period of up to two months after receiving notification the resource user doesn’t provide its written consent to begin talks on changing the terms of a contract or refuses to hold talks; if within a period of up to four months from receipt of the resource user’s consent to talks no agreement has been reached; and if in a period of up to six months from the attainment of agreement on restoring Kazakhstan’s economic interests the parties do not sign the contract amendments, Interfax reported.

"This approach gives the resource user up to one year overall to decide the issue," says the commentary attached to the bill, Interfax said.

The amendments "do not require the relevant agencies to seek a court order or arbitration," said Valery Kotovich, a deputy in the Kazakh lower house, Interfax said.

However, the state must give the resource user two months warning before unilaterally annulling a contract.

The bill assigns the government the authority to determine which deposits and fields are strategic.

"The amendments apply retroactively to earlier concluded contracts insofar as they concern production and/or exploration and production at sections of strategic fields," according to the commentary.

Eni holds an 18.5% stake in the development consortium, the same amount as Exxon Mobil Corp. (XOM), Royal Dutch Shell PLC (RDSB.LN) and Total SA (TOT). ConocoPhillips (COP) holds 9.3%, while Japan’s Inpex (1605.TO) and Kazakh state oil and gas company KazMunaiGas each own 8.3%. Eni is the sole Kashagan operator.

Kashagan is estimated to hold 13 billion barrels of recoverable reserves.

Source:

http://www.rigzone.com/news/article.asp?a_id=50684 

Traders said attention is focused on upcoming U.S. inventory data and weather developments in the western Atlantic for signs of potential hurricanes that

could impact Gulf of Mexico oil production.

"The next move for the market will be dependent on developments in the next 24 hours," said a broker at a London tradehouse. "There’s a chance of a deeper correction lower if the data disappoints and the Gulf (of Mexico) misses the worst of the weather but for now the sellers have taken a cautious approach."

At 1138 GMT, the front-month November Brent contract on London’s ICE futures exchange was up 26 cents at $77.88 a barrel.

The front-month November contract on the New York Mercantile Exchange was trading $0.60 higher at $80.13 a barrel.

ICE’s gasoil contract for October delivery was down $0.50 at $695.25 a metric ton, while Nymex RBOB gasoline for October delivery was up 66 points at 204.45 cents a gallon.

While the weather developments will be key, the market’s immediate concern is the Department of Energy inventory data due 1430 GMT.

Analysts surveyed by Dow Jones Newswires expect crude inventories to fall by 1.8 million barrels, gasoline inventories are seen climbing by 0.2 million barrels, distillates are expected to increase by 1.1 million barrels and refinery utilization is expected to fall by 0.6 percentage points.

Behind the expected slide in crude inventories are production losses in the Gulf of Mexico last week, according to Eugen Weinberg, an analyst at Commerzbank in Frankfurt.

But it’s these production losses, as a result of the precautionary evacuations taken by oil companies operating in and around the Gulf of Mexico ahead of the last week’s Tropical Storm 10, that are making the U.S. inventory levels difficult to predict.

Adding to the cloudy picture is the latest Atlantic weather developments.

The National Hurricane Center said Tropical Depression 13, in the Gulf of Mexico east-southeast of Tampico, remains weak but warns that a tropical storm watch may be required later Wednesday. Hurricane Dean forced state operator, Petroleos Mexicanos, to close 2.65 million barrels a day of oil production but this storm is expected to stay around the Mexican Coast and away from oil assets, according to Olivier Jakob, analyst at Petromatrix in Switzerland.

Elsewhere, Tropical Storm Karen, located 1,285 miles east of the Windward Islands, hasn’t strengthened and it’s predicted path isn’t a worry to Gulf of Mexico oil facilities, while an area of low pressure around the Virgin Islands is waning.

"Overall, until new developments start to appear, there is no specific substance for tropical trading on the long side," Jakob said.

For now, the market remains hamstrung in anticipation of further updates on the weather and inventories but, with a still-large fund long position, further profit taking and a slide lower can’t be ruled out.

Technically, WTI looks primed to test $77.20 a barrel support short term as the overbought conditions are unwound said Barclays Capital’s technical analysts.

Source:

http://www.rigzone.com/news/article.asp?a_id=50677 

"We prefer to have them in the project, but if they’re not in we will proceed

without them," Nozari said at a press conference.

Nozari said that Total quoted a price of $11 billion for the project to the Iranians, and that price was too high.

"We think $11 billion is unacceptable for Iran; we want additional negotiations with Total," Nozari said.

Total is still at the stage of evaluating whether the Pars project is worth pursuing, Total spokeswoman Patricia Marie told Dow Jones Newswires, responding to Nozari’s comments. Only then would the company evaluate the implications of Iran’s growing isolation, she added.

The likely cost of the project to extract and liquefy natural gas from the South Pars field "has risen a lot these last months," following recent studies, Marie said, though she declined to specify a figure.

The company isn’t prepared to comment on the state of negotiations with Iranian officials and has never revealed the projected cost of the project to parties not involved in the deal, Marie said.

Earlier this week, French President Nicolas Sarkozy demanded tougher sanctions on Iran and urged oil giant Total not to invest in Iran.

Tuesday, Total’s Chief Executive Christophe de Margerie said the South Pars project was "stuck" due to difficult negotiations with the National Iranian Oil Company, or NIOC.

Separately, Nozari said he didn’t see a need for the Organization of Petroleum Exporting Countries to further raise output beyond the 500,000 barrels a day already agreed at the September meeting despite the increase in oil prices to fresh record highs last week.

"We will have to examine the oil market conditions, but I don’t think there will be any additional raise in production," Nozari said.

He also said that Iran would be willing to go ahead with the $7 billion Iran-Pakistan-India natural gas pipeline without India if there were further delays.

"We would like to have India in the project, but if they procrastinate, we and Pakistan will proceed without them," he said.

India and Pakistan have yet to reach an agreement on transit fees for the pipeline. A deal on the pipeline has also been hampered by Iran’s insistence on reviewing the gas pricing every three years, which both India and Pakistan find unacceptable.

Souce:

http://www.rigzone.com/news/article.asp?a_id=50704 

The front-month November light, sweet crude contract on the New York Mercantile

Exchange was recently down 40 cents, or 0.5%, at $79.13 a barrel after rising as high as $80.75 before the data. Brent crude on the ICE futures exchange fell 83 cents to $76.79 a barrel.

Crude oil stockpiles rose 1.8 million barrels to 320.6 million barrels last week, the DOE’s Energy Information Administration unit said in its weekly report. The average forecast in an earlier Dow Jones Newswires survey of analysts was for a draw of 1.8 million barrels.

"Prices are coming off on the build in crude stockpiles," which did the exact opposite of analysts’ forecasts, said Michael Cambria of PNDR Energy on the Nymex floor.

Gasoline stocks grew by 600,000 barrels to 191.4 million barrels, compared with expectations for a 200,000 barrel build, and distillates, which include heating oil and diesel fuel, grew by 1.6 million barrels, more than the 1.1 million barrels expected. Refinery use fell by 2.7 percentage points to 86.9% of capacity, a bigger drop than the expected fall of 0.6 percentage point.

Front-month October reformulated gasoline blendstock, or RBOB, fell 3.29 cents, or 1.6%, to $2.005 a gallon. October heating oil was down 1.74 cents, or 0.8%, at $2.1639 a gallon.

The unexpected build in stockpiles could be a turning point for crude oil prices, which hit a record $83.90 on Sept. 20. Prices have dropped for the previous three sessions, after a strong run-up helped by fund buying, and analysts had been saying this week’s inventory report would be key to deciding crude’s future direction.

"The $80 barrier may be difficult to overcome, the momentum has shifted to downside," said Mike Zarembski, an analyst at OptionsXpress in Chicago.

Source:

http://www.rigzone.com/news/article.asp?a_id=50712