UOGM - Ed Stelmach interview

For analysis and commentary on these and other stories, plus the latest unconventional developments, see inside…

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19 September 2011

Week 37

Issue 74 News

Analysis Intelligence

Published by

NewsBase

COMMENTARY 2 Exiting Stelmach encouraged by

progress 2 Total seeks to explore French shale

despite ban 3 POLICY 5 CAPP issues fracking guidelines 5 SHALE GAS 6 ConocoPhillips launches campaign to

improve opinion of fracking 6 German authorities claim fracking is

more dangerous than CCS 6 Shell partners with UT for

unconventional gas research 7 SHALE OIL 8 DoE increases estimate of US shale oil

potential 8 OIL SANDS 8 Shell Canada to focus on brownfield

expansions 8 Connacher hoping to complete

financing to add to Algar output 9 CNRL preparing for second train at

Horizon plant 9 HEAVY OIL 10 Madagascar Oil upgrades heavy oil

estimates for Tsimiroro block 10 OIL SHALE 10 Kivioli plant running out of oil shale,

says CEO 10 COAL TO LIQUIDS 11 KBR bets on India CTL 11 GAS TO LIQUIDS 11 Sasol plans GTL debut in US 11 NEWS IN BRIEF 12 STATISTICS 18 TENDERS & CONTRACTS 19 CONFERENCES 23

NEWS THIS WEEK…

One man’s legacy In office as Alberta’s premier since late-2006, Ed Stelmach has overseen major development of the province’s oil sands. Prior to his departure on October 1, UOGM speaks to Stelmach about about progress, his legacy and the future for Alberta.

The province is home to the world’s second largest oil reserves – more than 173 billion barrels of crude. (Page 2)

Stelmach spoke optimistically about the Keystone XL project, which will add 591,000 barrels per day of capacity to the Keystone pipeline. (Page 2)

He said that transporting LNG to Asia would become important for Alberta in the future. (Page 2)

Totally behind shale search A moratorium on fracking has put the brakes on France’s bid to produce unconventional resources. However, Total has announced it will explore for shale gas in the south of the country.

Total has stressed it will not use the banned fracking technique while prospecting in the area.(Page 3)

Torreador holds licences for shale oil in the Paris Basin, and has said it will not use fracking. (Page 4)

UnconventionalOIL & GAS MONITOR

Unconventional OGM 19 September 2011, Week 37 page 2




With Alberta being home to more than 173 billion barrels of crude oil reserves, the second largest worldwide after Saudi Arabia, the job of its premier is probably one of the most challenging in the four western Canadian provinces.

Yet, Ed Stelmach – who will probably be known for his unpopular decision in late 2007 to review the existing royalty regime that led to the flight of large volumes of capital to the neighbouring provinces of British Columbia (BC) and Saskatchewan – will be leaving behind an imprint.

He was elected the 13th premier of the province in December 2006 by the Progressive Conservative party and will leave his post on October 1.

“From a legacy view point, it will be for Albertans to decide where I went right and wrong,” Premier Stelmach told UOGM in an exit interview. “From an industry perspective, we had to look at the lack of infrastructure investment at Fort McMurray [the main oil sands production centre], which was emerging as the bread basket not just for Canada but also North America. As a provincial government, we have invested C$2.2 billion [US$2.24 billion] and there is still lots to do,” he said.

Approval The verdict will be forthcoming, but in the meantime he is more confident now than before of receiving the approval of the US government for the Keystone XL pipeline.

The 1,700-mile (2,736-km) XL project

involves adding 591,000 barrels per day of capacity to bring the Keystone pipeline system capacity to around 1.1 million bpd. The project would originate in Hardisty, Alberta, and ultimately bring crude supply to the Texas Gulf Coast region.

“With so many years in public life and having seen several decision-making processes, I am confident we will receive approval,” he said.

His statement comes in the wake of the recent environmental impact statement from the US government and the holding of several public meetings.

“It may still be a bit stretched before we get the final go-ahead, but in the past few months Washington has given positive responses and their body language is encouraging. With the

appointment of Carlos Pascual as the special envoy and co-ordinator of international energy affairs by Hillary Clinton [US Secretary of State], we feel more hopeful. He is acting in between the US regulators and the province to get things sorted out,” Stelmach said.

“We have not heard anything in the past few days, but we have had discussions recently with the developer [TransCanada] and our ambassador in the US [Gary Doer] and the feedback we are hearing is that Americans want this pipeline,” he said.

Backup plan On what would be Alberta’s lifeline in case approval were rejected, Stelmach said: “Asia is our big market and we need to get there by adding new capacity to pipelines that would exit through the Port of Vancouver. At the end of the day, whether Keystone gets through or not, we will still need a pipeline to the west coast. The Asian market will also be important for the province from an [liquefied natural gas (LNG)] perspective,” he said.

According to Stelmach, hydraulic fracturing (fracking) for shale gas will bring trillions of cubic feet to the market that will need to find export destinations.

“Having returned from India, I see a potential to ship LNG there from the West coast. It may still take a while before natural gas prices in North America improve, but Asian prices are double compared to the US and we need to get there,” he said.

COMMENTARY

Exiting Stelmach encouraged by progress UOGM speaks to outgoing Albertan premier Ed Stelmach about progress, his legacy and the province’s future By Ashok Dutta The premier has been in office since late-2006, and his rule will come to an end next month Alberta is home to the world’s second largest oil reserves – more than 173 billion barrels of crude Stelmach said he was confident that the US would give approval to the Keystone XL pipeline project





Alberta has also placed its might behind the Northern Gateway pipeline that will transport 525,000 bpd of bitumen from Hardisty to Kitimat in BC for export to the Asian market and import 193,000 bpd of condensate through a parallel pipeline to dilute bitumen for pipeline transportation, Stelmach said.

“At the national level, I have written to the Prime Minister [Stephen Harper] requesting for streamlining of the various regulators and avoiding duplications. We are also working with the developer [Enbridge], the government of BC and the First Nations to clear any roadblocks. We need to work jointly and there has to be clarity and certainty,” he said.

Upgrading Meanwhile, the Department of Energy is in “initial” discussions with oil companies to invest in new bitumen upgraders in the province.

“Margins are improving and although some bitumen will be exported via

pipelines, we are confident there will be more investments. There are a few proposals and they are in their infancy, but given the social unrest in the Middle East and a slow-down in the US economy, [prospective] investors are doing their due diligence now before taking a final decision,” Stelmach said.

In March, the provincial government signed an agreement with North West Upgrading and Canadian Natural Resources Ltd. (CNRL) to supply 37,500 bpd of bitumen under its bitumen royalty in-kind (BRIK) programme for a 150,000 bpd diesel refinery to be built in central Alberta. The refinery is due to start production at 50,000 bpd by 2014 under its first phase of development.

BRIK is the feedstock bitumen that the provincial government makes available for investors in refineries and upgraders in Alberta. By 2020, the volume of bitumen to be available under BRIK will be 400,000 bpd, compared with 75,000 bpd now.

Commenting on the energy policy his successor should pursue, he replied: “We will need to continue along the same path, keeping a hawk’s eye on [the] environment and guarding our interests zealously. One issue that I have not been able to figure out as yet is whether the province should put the brakes on the billions of dollars of planned investments into the oil sands sector by oil companies.”

Around C$51 billion (US$52 billion) is earmarked for investment over the coming five years in Alberta by both Canadian and international majors.

“Some in the province have advocated we adopt a staggered approach to oil sands development to ensure the construction market is not overheated. But if oil companies come with proposals to invest billions of dollars, what can you say? Investment is liquid and will go away somewhere else. It is a rare opportunity ... how can we delay it?” he concluded.

Seemingly undaunted by the controversy that has erupted in France over the use of hydraulic fracturing (fracking), French energy giant Total is still planning to explore the country southern region for prospective shale gas deposits.

Total stressed it would not use the banned fracking technique while prospecting in an area for which it won a 5-year exploration licence in 2010, Reuters reported on September 12.

The company’s stance is that it has purchased exploration rights for five years on the site and therefore wants more information on the reserves that sit below the ground. The energy ministry has said that it will announce its decision on the plans on October 13, after taking advice from officials. Left-wing senators have already protested about the plans, questioning the government’s silence on the project.

The move by Total was revealed via an application that was lodged for a project to restart drilling on its Montelimar site, a zone covering 4,327 square km that follows the Rhone from the north of Montelimar to Montpellier. Total believes the block could hold as much as 2.38 trillion cubic metres of shale gas, although it has stressed that this is not a recoverable reserves figure.

COMMENTARY

Total seeks to explore French shale despite ban A moratorium on fracking has put the breaks on France’s bid to produce unconventional resources, however, Total has announced it will explore for shale gas in the south of the country By Kevin Godier No shale gas drilling has yet taken place in France, and a ban was introduced this year Total has stressed it would not use the banned fracking technique while prospecting in the area Torreador holds licences for shale oil in the Paris Basin, and also has said it will not use fracking





Targeting shale gas France is a natural target for the Paris-headquartered oil super-major, which has turned to a number of countries across the world in an emerging strategy to tap unconventional energy resources, especially shale gas, to compensate for its depleting conventional reserves.

The prospects in the pipeline for Total include a proposed partnership with ExxonMobil to explore Poland’s enormous shale reserves, two Danish exploration permits and six licences in Argentina.

But it has proved impossible to ignore the lure of France’s sizeable shale gas reserves – estimated to comprise some of the biggest natural gas reserves in Europe – and its economic need for domestically produced gas. Having produced around 33% of its gas consumption in the 1970s, France was importing 98% of the gas it consumed in 2009, at an enormous cost to the French treasury and French consumers.

No shale gas drilling has yet taken place in France, but hopes that shale gas could drastically cut back the import bill were dashed this summer, when the French Parliament imposed an outright moratorium on fracking, the first country to do so, in the wake of months of protests by environmental activists following a temporary freeze on shale gas exploration in February.

Total did not give any details of how it would recover any gas found, but said that any exploration push would not include fracking, which is the only known method to extract hydrocarbons from shale rock formations.

Fracking furore Green groups and politicians have led active protests across France, contending that the method could cause major environmental damage after having been shown to be a water pollutant.

Apart from fears over the pollution of aquifers, the anti-gas lobby has argued

that fracking demands millions of litres of scarce water and that the low-pressure gas requires drilling sites that would have to be set very close to each other and nearby housing, scarring the landscape. French Environment Minister Nathalie Kosciusko-Morizet spoke publicly of the “devastated countryside” and “sullied water tables” in US regions where fracking had occurred.

Opponents had forecast during the run-up to the parliamentary vote on the prospective ban in the second quarter that exploration companies would attempt to continue exploration without specifying the extraction method. Their fear is that if vast reserves of gas were found then the companies would put pressure on the government to find a way to go back on its fracking standpoint.

The bill – drafted by the country’s ruling UMP party – did not ban shale gas exploration itself, only fracking. An earlier version of the bill, which Socialist factions supported, would have banned any kind of development of the deposits.

October deadline The timetable for whether the government will need to revoke existing exploration licences was specified on September 1 by Kosciusko-Morizet.

Oil and gas companies that were planning to explore for shale hydrocarbons under previously granted licences had until September 13 to inform the government whether they were planning to use fracking, the minister said.

“After that we have one month to decide the fate of the permits,” she was quoted by Bloomberg. “If a company says it’s planning to use hydraulic fracturing, their permit will be cancelled. It’s the law,” she added. France’s fracking ban took effect in July and could lead to fines and imprisonment if a company is found to be using the technique.

France opened its doors to shale gas exploration in March 2010, when former Environment Minister Jean-

Louis Borloo granted three permits for periods between three and five years. The move – which was seen to have been heavily influenced by the positive publicity in the US about its so-called “shale gas revolution” – involved the extension of permits for shale oil and gas exploration to companies such as Total, Vermillion Energy, Toreador Resources and Schuepbach Energy.

Kosciusko-Morizet has already warned lawmakers that companies holding the permits and planning shale probes may resort to legal challenges to help rescind the parliamentary ban.

Toreador’s persistence Paris-based Toreador has said it will continue to work to develop the shale oil resources of the Paris Basin, in which it holds the most acreage of any explorer.

The company’s CEO, Craig McKenzie, said in early July that the company’s initial evaluation activity at its Paris Basin licences would not involve fracking. “We will not conduct hydraulic fracturing operations within any of our permit areas. We will make full disclosures and representations to the French regulatory authorities as may be required.”

Toreador subsequently stated on August 10 that its Liassic drilling programme in the Paris Basin “comprising six wells (without the use of hydraulic fracturing) is expected to commence by year-end, pending final review of permits by the French Administration.”

COMMENTARY





The small-cap E&P firm opted to focus on its French portfolio in 2009, offloading its interests in other countries and staking its future on the success of shale oil drilling near Paris, where it says an estimated 65 billion barrels of oil may be held within shale.

It received an infusion of support in May 2010, when US independent Hess farmed into the acreage, bringing US$120 million of financial firepower to the venture. The firms were intending to conduct exploration drilling of oil shale in the town of Doue (Seine-et-Marne) under a data capture-oriented first phase of a two-phase work programme.

McKenzie has stressed that the geology of the Paris Basin – in which there is around 2,000 metres of separation between the shale and the freshwater strata – will avoid contamination problems experienced in the US’ Marcellus shale, which is close to freshwater aquifers.

In the light of the fracking ban, Toreador’s medium-term strategy remains to be divulged. Some analysts have suggested that the company could participate in scientific research into shale gas exploration that France’s Prime Minister Francois Fillon has favoured, so as not to rule out forms of the technology that would not harm the environment.

Intense scrutiny Developments in France will now be

watched with intensity by the shale exploration industry elsewhere in Europe. A UK House of Commons select committee has called for an investigation into the link between shale gas tests in northwest England and two minor earthquakes which occurred in the area shortly after the start of operations.

As a result, the Dutch Ministry of Economics, Agriculture and Innovation has said there can be no green light for shale gas exploration in the Netherlands until results from the UK government investigation can be assessed. Certain parts of Germany have also banned fracking, which has only begun in earnest in Europe in Poland.

French developments will occur against a background where the country’s strong nuclear energy industry gives it far less incentive to explore new approaches in comparison with a country such as Poland, where shale gas has become a national priority to win independence from Russian imports.

A new set of guidelines issued on September 8 by the Canadian Association of Petroleum Producers (CAPP) for hydraulic fracturing of shale gas developments in the country is probably going to be more stringent than those in the US, a Progress Energy Resources marketing analyst, Kurtis Barrett, said.

“In the US, there is no need to disclose fracking fluids,” he said. “We will have to take a closer look at the new CAPP guidelines, as this issue is already being discussed between regulators and producers. Most companies have their own mix of fracking fluids and that is proprietary. Public disclosure of that would be [tantamount to] losing competitiveness in the market place.”

Progress Energy, in a joint venture with Petronas, is aiming to develop shale gas deposits in the North Montney basin

in British Columbia to produce feedstock for a grassroots liquefied natural gas (LNG) plant on the Canadian west coast.

The salient features of the new guidelines include: safeguarding the quality and quantity of regional surface and groundwater resources through sound wellbore construction practices; sourcing fresh-water alternatives and recycling water for re-use as much as is practical; measuring and disclosing water to reduce environmental impact; supporting the development of fracturing fluid additives with the fewest environmental risks, and supporting the disclosure of fracturing fluid additives.

“With the increase in natural gas production from unconventional sources such as shale, Canadians have told us they want more information as to how industry uses and protects water,” CAPP’s president, Dave Collyer, said in

a statement. “These principles articulate our water management objectives and water protection practices, as well as our focus on improving our water performance over time.”

CAPP’s guiding principles for hydraulic fracturing apply in all jurisdictions in which the upstream industry operates and have been issued with the understanding that some provinces are working on regulations. The expectation is for the new guidelines to complement future regulatory needs, the CAPP announcement said.

“The Canadian natural gas industry supports all regulations that govern hydraulic fracturing, water use and water protection, as we recognise water is a valuable resource,” an executive vice-president at Encana, Michael McAllister, said in a statement.

COMMENTARY

POLICY

CAPP issues fracking guidelines





“Strong regulations exist in regions of active unconventional gas development. Similar regulations are being developed in regions with an emerging unconventional natural gas sector to ensure protection of water resources and provide the public confidence that these

resources are being developed responsibly.”

A Weatherford sales manager, Randal Biedermann, while welcoming the decision to disclose fracturing fluids, expressed concern about the environmental impact.

“The composition of fluids is vital, as there are several chemical cocktails that are not environment-friendly. Depending on the formations, there are various toxic fluids that could potentially affect a water-bearing area.”

ConocoPhillips has launched a public relations campaign to address the negative public perception of hydraulic fracturing (fracking), and the benefits of natural gas.

The oil and gas super-major has kicked off the campaign, which includes a website and speeches by CEO Jim Mulva, to reach both the public and policymakers. ConocoPhillips is one of the US’ largest natural gas producers.

The website specifically touts fracking as “safe extraction” and natural gas as clean, as a job-creator and as ‘made in the US.’

“At ConocoPhillips, we believe the risk associated with well operations, including those involving horizontal drilling and hydraulic fracturing, is very low, yet it is important for us to manage these risks effectively,” it said. “Proper site selection, well design, construction and operating procedures are critical to protect against spills and surface

equipment or well failures that could potentially contaminate water supplies,” it added.

Fracking and horizontal drilling have been a “game-changer” and natural gas is the fuel of the future, Mulva told the Detroit Economic Club recently. “Since shale gas has breathed new life into the natural gas industry, it’s unfortunate to see a serious threat emerge to further development: that is the perception that hydraulic fracturing pollutes groundwater.”

He added: “The record is in our favour, those million wells safely fractured since the 1940s. The [Environmental Protection Agency (EPA)] studied the environmental record of fracturing in the past. It concluded that no additional federal regulation was required. A new study is now under way. We expect the results [in 2012].”

He continued, “That’s not to say that there is no reason for public concern.

There have been some problems. But they are rare. And they were caused not by fracturing, but faulty drilling and well completion work, or improper handling of fluids on the surface. Fracturing is not inherently risky to groundwater. It occurs far below drinking-water aquifers.”

Mulva concluded: “to address the public’s concerns, our industry must follow good practices. These exist, and we must adopt them as standard procedure. There is a role for government oversight in this. Also, we must de-mystify fracturing. ConocoPhillips supports disclosure of the non-proprietary substances contained in fracturing fluids.”

In response, Susan Harley, Michigan policy director for Clean Water Action, a national watchdog group, told the Detroit Free Press: “Companies are doing deep fracking in Michigan, putting our natural resources at risk, including 20% of the world’s useable fresh water.”

Hydraulic fracturing (fracking) is more dangerous than carbon capture and storage (CCS), the head of Germany’s environmental authority has claimed.

Jochen Flasbarth, president of the

Federal Environmental Office (UBA), told German press agency DPA: “We know that some of the substances [used in hydraulic fracturing] can cause cancer. In particular, the endangering of the

water table cannot be ruled out. It’s a very extensive use of chemicals that’s required to make the gas in deep rock layers accessible.”

POLICY

SHALE GAS

ConocoPhillips launches campaign to improve opinion of fracking

German authorities claim fracking is more dangerous than CCS





He added: “Until now, fracking wasn’t especially in focus because its application was not immediately imminent. As the UBA, we assume that the dangers caused by chemical use alone during fracking are greater than in the case of CCS.”

The UBA implements various environmental legislation in Germany, and advises the federal government on the environmental impact of policies.

“As the national environmental authority, we consider a transparent application process essential – with participation from the water authorities and the public,” Flasbarth continued. “In this case, it must especially be made

public in detail which chemical compounds and which processes will be used,” he added.

Flasbarth backed federal environment minister Norbert Roettgen’s decision to commission a study of the risks associated with fracking. He added that he considered it necessary for environmental assessments of projects using fracking to be enshrined in law.

In recent months, fracking has come under intensifying public pressure in Germany as public knowledge of the process increases.

Companies wishing to carry out fracking or CCS in Germany face opposition from a patchwork of fiercely

opposed local campaign groups. Opponents of fracking claim that some companies conducting tests in Germany have used techniques which are banned in the US or no longer used there.

Politicians in the two states believed to have Germany’s largest shale gas reserves – Lower Saxony and North Rhine-Westphalia (NRW) – have turned against fracking on environmental grounds, with some calling for a blanket ban. The NRW state government, a coalition between the social-democratic SPD and The Greens, has been vocal in its opposition, while the more business-oriented government in Lower Saxony has tended to be more supportive.

Energy giant Shell has signed a five-year research deal worth US$7.5 million with the University of Texas (UT) to study improved methods of unconventional oil and gas recovery.

The programme will be overseen by the university’s Bureau of Economic Geology (BEG), and will focus on increasing understanding of the subsurface characteristics of shale, coal-bed methane (CBM) and other tight, complex formations. This will hopefully lead to new techniques to extract the resources in a more efficient and environmentally sensitive way, said Scott Tinker, director of the BEG.

The majority of the funding will be split between the university’s geosciences and petroleum geoscience engineering departments, but experts in economics, environmental policy, business and energy law are all expected to participate in the research.

“This agreement marks an important milestone in Shell’s commitment to

research and develop innovative technology continually that will help to meet global demands by bringing more energy resources to market,” said Shell’s president, Marvin Odum, in a statement.

“We chose to collaborate with the UT because it brings together an extraordinary amount of talent from both organisations that will push the technological envelope in the field of developing even the most challenging hydrocarbons safely and responsibly,” he added.

The unconventional oil and gas sector has transformed the US energy industry

in recent years, leading to a drastic drop in the cost of natural gas at a time of soaring oil prices. Shale gas, tight gas and CBM accounted for 50% of US natural gas production in 2009, a figure that the US Energy Information Administration (EIA) has said could rise to 75% by 2035.

Despite this, environmental concerns over the extraction methods used – in particular hydraulic fracturing (fracking) – have led to moratoria on shale drilling in countries such France, Germany and the UK.

“The pursuit of unconventional energy resources is a complex, integrated problem that requires uniting the scientific and engineering efforts below ground with above-ground efforts in water, regulation and public awareness,” said William Powers, president of UT.

“As a major research university and leader in energy, we’ve got the integrated expertise to help solve it,” he added.

SHALE GAS

Shell partners with UT for unconventional gas research

“This agreement marks an important milestone in Shell’s commitment to research and develop innovative technology

continually”





An advisory panel to the US Department of Energy (DoE) has said the country’s shale oil production has the potential to top 2-3 million barrels per day by 2035. However, if hydraulic fracturing regulations stand in the way, production could be restricted to just 600,000 bpd.

According to state regulators and industry estimates, shale oil output in July accounted for about 580,000 bpd of production in North Dakota and Texas combined. The report, compiled by the industry-led National Petroleum Council for US Secretary of Energy Steven Chu, urged policies to aid expansion.

It was drafted in response to a request made by Chu in 2009 for a fresh

assessment of North American oil and gas resources. The National Petroleum Council is led by Anadarko Petroleum’s CEO, Jim Hackett, and also includes the CEO of Shell’s North American unit, Marvin Odum, and the CEO of Chesapeake Energy, Aubrey McClendon.

It said the growth in supplies could be equivalent to about a 50% boost in current domestic output. But even an increase to 2-3 million bpd of oil would not be enough to replace imports, as the US consumes about 20 million bpd of oil and imports about half this amount.

A Shell official, Andrew Slaughter, who led the council’s study of resources, told Reuters that the report contradicted

“the conventional wisdom that North American oil production is on an inevitable decline.”

He continued: “The potential is very significant, and if choices are made to develop those resources, that decline that we’ve seen over the last 10-15 years could actually turn up, and turn into growth.”

The report noted that the public mood had lost confidence since BP’s oil spill in the Gulf of Mexico in April 2010. It recommended that a new network of regional councils to promote best practises for the oil and gas industry be set up to work with communities on their concerns.

Shell Canada will focus more on brownfield expansions – rather than investing in new facilities at this time – as part of efforts to nearly triple its bitumen production in northern Alberta to 770,000 barrels per day, a senior company official said at the recently concluded annual oil sands trade show and conference in Fort McMurray.

Christian Houle, general manager of Shell Albian Sands project, told UOGM: “Earlier, we were thinking of a cookie-cutter method of expanding our production, but now that will be changed and we are talking first of debottlenecking existing plants.”

He added: “We are currently producing a total of 255,000 bpd, of which 155,000 bpd is from the Muskeg River and the remaining 100,000 bpd is from the

Jackpine project. For our target of 770,000 bpd, we will need to take slow steps to ensure [capital] costs of projects remain in check and that we also reduce our environmental footprint and improve both water and land usage.”

The Muskeg River and Jackpine facilities are part of Shell Canada’s Athabasca Oil Sands Project (AOSP). Shell Canada is the 60% owner and operator of AOSP, with Chevron Canada and Marathon Oil Canada each holding 20% interest in the joint venture.

AOSP is an integrated oil sands project that consists of bitumen-mining facilities in the Fort McMurray area and a 255,000 bpd upgrader at Scotford near Edmonton, around 450 km south.

At present, Shell Canada is working with Alberta’s Energy Resources

Conservation Board to get regulatory approval to expand the Jackpine and Pierre River mines.

“The Pierre River expansion will help us learn even better what we did in our earlier oil sands projects. In Canada our aim will be to produce more bitumen/synthetic crude oil to replace the conventional sources of crude oil and also supply to our refineries in the US,” Houle said.

Shell Canada is also pursuing a mega carbon capture and storage (CCS) project – Quest – in Alberta.

In late June, the provincial and federal governments signed final agreements with Shell Energy that allotted C$865 million (US$879 million) for the proposed facility.

SHALE OIL

DoE increases estimate of US shale oil potential

OIL SANDS

Shell Canada to focus on brownfield expansions





Estimated to cost C$1 billion (US$1.02 billion), the CCS project will have three components: capture of 1.2 million tonnes per year of carbon dioxide (CO2) from the Scotford bitumen upgrader; its transportation through a 90-km, 12-inch-

diameter pipeline to injection wells located north of Thorhild county, and permanent storage of CO2 in a 2.1-km subsurface geological structure.

“CCS is until now not an economical project globally, but technology will help

us to make that happen. A [final investment decision (FID)] on the proposed venture will be taken in 2012, with onsite construction due to be completed in 2015,” Houle said.

Calgary-based Connacher Oil and Gas is aiming to complete a financing deal and also receive regulatory approval by the end of 2011 to add 24,000 barrels per day of additional production to its Algar bitumen project in northern Alberta.

“Initial estimate of the capital cost is C$800 million-1 billion [US$812 million-1.02 billion], but we are still fine-tuning that aspect,” company president and CEO Peter Sametz, told UOGM on the sidelines of the annual oil sands trade show and conference in Fort McMurray.

“Rothschild [of the US] is acting as our exclusive financial advisor and our aim would be to establish a joint venture with

a third party to develop the asset. Also, in May 2010 we filed an application with Alberta’s [Energy Resources Conservation Board (ERCB)], and hope to receive final regulatory approval by the year-end. Our aim is to conclude both deals by the year end and move ahead with procurement of long-lead items and construction work,” he added.

The Algar facility – located on the Great Divide acreage – has a nameplate production capacity of 20,000 bpd, with the total bitumen resources being 500 million barrels, he said. The plant utilises the steam-assisted gravity drainage (SAGD) technology.

“UK/Canadian engineering firm

Amec-BDR is carrying out detailed design work and will also help us in firming up project costs. We aim to start production from the expanded facilities in late 2013/early 2014,” Sametz said.

At present, Connacher is the owner and operator of the Algar project – also known as Great Divide Pod 1 and Pod 2 – of nameplate capacity 20,000 bpd.

“The facilities were constructed in two phases, each of equal capacity. Output is now standing at 14,000 bpd and is being ramped up. Capital expenditure required to construct facilities for Pods 1 and 2 was C$270 million (US$274 million) and C$360 million (US$366 million) respectively,” he added.

Canadian Natural Resources Ltd. (CNRL) has invited firms to bid for work to expand its Horizon oil sands project in northern Alberta. The work is expected to double the project capacity to 270,000 barrels per day by adding a second train.

A report from Platts on September 14 said that a tender issued by CNRL, seen by the news agency, was soliciting bids for an estimated C$650 million (US$662 million) contract to build a second train at the site near Fort McKay, Alberta.

An official from Calgary-based SNC Lavalin, one of the contractors bidding for part of the work, confirmed that Snamprogetti of Italy had also submitted

a bid for the work. A decision on the bids “will be made by October 15,” Platts quoted the official as saying on the sidelines of the annual Oil Sands Trade Show and Conference in Calgary.

Four companies were originally prequalified to participate in the tender, the two others being Japan’s Toyo Engineering and UK-based AMEC.

The tender is part of a capital expenditure programme announced in August by CNRL. This involves spending nearly C$2 billion (US2.04 billion) on increasing production from Horizon in 2012. The news came one day after CNRL said it had begun producing

crude oil again from its Horizon project, eight months after the plant’s operations were shut down by a fire.

Production began in the first week of September and has averaged around 75,000 bpd of crude oil. Full production rates of 110,000 bpd will be reached by mid-September, the company said. The Horizon plant uses upgraders to process heavy oil sands crude oil into a lighter crude oil. A coker fire at the upgrader facility on January 6 shut down operations. CNRL is Canada’s second largest oil and natural gas company, with operations in the west of the country, the North Sea and offshore West Africa.

OIL SANDS

Connacher hoping to complete financing to add to Algar output

CNRL preparing for second train at Horizon plant





Madagascar Oil (MOIL) has announced a significant upgrade of its oil-in-place (OIP) estimates for the Tsimiroro block (Block 3104) in Madagascar.

Around 1.69 billion barrels of heavy oil are now said to be in place, according to the best estimate provided by independent reservoir engineers Netherland, Sewell & Associates. This represents a 75% increase on previous estimates of 965 million barrels that ensued after 18 of the 24 wells drilled on Tsimiroro in 2010 discovered oil.

“We are delighted to report these new resource estimates, which further demonstrate the enormous potential of Tsimiroro. What we are seeing is the new ‘best estimate’ scenario exceeding the previous high estimates, whilst the updated high estimate provides an indication of just how large a prospect Tsimiroro could be,” said CEO Laurie Hunter.

Speaking on September 14, after the announcement, he added: “Following the resolution of the dispute with the government of Madagascar regarding

Block 3104 [Tsimiroro] and the government’s agreement to revise the terms of our joint venture with Total E&P on Block 3102 [Bemolanga], we are pleased to be pressing forward on both

these significant projects. The approval by the government of our 2011-2012 work programme at Tsimiroro affirms its support of the company’s presence and contributions to the country.”

MOIL reached an important agreement with the country’s government in June that has allowed it to press ahead with its Tsimiroro heavy oil project and to return to London’s junior AIM market following a six-month suspension of its shares.

“Tsimiroro remains our primary focus, so we do not believe that the curtailment of activity on the exploration blocks will adversely affect our near-term business. However, we are hopeful that once the country’s political issues are resolved, key government officials will move to address approval of our continuing exploration programme,” said Hunter.

MOIL said facilities construction was under way for its Tsimiroro steam flood pilot. Drilling of the 28 pilot wells is expected to proceed in the fourth quarter of 2011, with first production anticipated in the second half of 2012.

Estonia’s Kivioli Oil Shale Processing and Chemicals Plant is under pressure from declining oil shale reserves and a lack of investor confidence, the company’s CEO has said.

On September 14, Estonian news agency ERR reported that Robert Karpelin, head of the Kivioli facility, had said that it was “running out of oil shale,” while a messy land dispute was “costing it the trust of its creditors and stalling

planned investments.” In 2008, the company warned that oil

shale reserves in its acreage were close to being depleted. In order to keep the plant – which employs almost 10% of Kivioli’s population of 7,000 – running, it attempted to purchase 330 hectares (3.3 square km) of mining land from local businessman Nikolai Reisman.

However, Reisman set the price at 50 million euros (US$68 million), forcing

the country’s government to threaten him with expropriation if he did not agree to the significantly lower price of 320,000 euros (US$437,000) – a move that was later rejected by Estonia’s courts.

The company has been mining a second Kivioli oil shale quarry, but a March injunction by landowners concerned over the project’s environmental impact forced it to stop.

HEAVY OIL

Madagascar Oil upgrades heavy oil estimates for Tsimiroro block

OIL SHALE

Kivioli plant running out of oil shale, says CEO





As a result, Karpelin said, a number of projects have had to be self-financed.

“We have just finished the construction of a semi-coke dump, and next we are planning a thermal power plant (TPP) steam turbine and change of generator,” he said.

Karpelin added: “The investments are quite large, with landfill construction

costing 3.8 million euros [US$5.19 million], a container park over 1 million euros [US$1.37 million] and the exchange of the turbine project will cost 1.8 million euros [US$2.46 million].”

Despite Kivioli’s struggles, the outlook for Estonia’s shale sector is largely positive, with Statistics Estonia reporting earlier this month that the country’s

electricity output had been boosted by a hike in oil shale production.

“As more than 90% of electricity is oil shale-based, the [growing] demand for electric energy led to a 20% increase in oil shale production” it said. “Over a half of produced shale oil was exported.”

KBR is seeking to cash in on India’s proposed coal gasification and coal-to-liquid (CTL) projects.

The company recently said that it intended to compete for contracts for CTL ventures in India, three of which have already been announced. India is pushing CTL businesses to produce diesel and naphtha from the large available deposits of inferior coal, as it is a major importer of crude oil.

KBR’s vice president, Ron Gualy, said that with the “continuous rise [in the price] of crude oil, CTL seems to be one of the viable options in India. Crude oil is projected to remain around US$100 per barrel. If a low-cost feedstock like low-rank coal is used, owners can take advantage of the spread in prices, which makes it possible for CTL to be competitive.”

Jindal Steel and Power (JSPL), which is building a CTL plant in the coal-rich eastern state of Orissa, signed a technology deal with KBR in late August. “KBR has received the contract for gasification project from JSPL for production of syngas for their direct reduced iron production,” Gualy said.

Two CTL projects with production capacity of 80,000 barrels per day are being implemented in Orissa. The investors are JSPL and Strategic Energy Technology Systems (SETL), a Tata-Sasol joint venture. Output is likely to begin by 2018.

JSPL and Tata have opted for the cheaper indirect liquefaction process, which condenses syngas produced from coal gasification. The two CTL plants are expected to cost 900 billion rupees (US$18.8 billion).

Two coal blocks in Orissa’s Talcher coalfields were allocated for the CTL projects in 2009, with the North of Arkhapal-Srirampur block awarded to SETL and the Ramchandi block going to JSPL. State-owned monopoly Coal India Ltd (CIL), meanwhile, has also proposed a joint venture with NMDC and the government of West Bengal for a CTL scheme.

While India has achieved success in coal-bed methane (CBM) output and the government is due to announce a shale gas policy this year, there is pressure to make progress on CTL projects as well.

Apart from procuring the latest technology and capital, co-ordination between federal and state governments, land acquisition, environment issues and violent Leftist threats are matters that also need to be addressed.

The US is on its way to having its first gas-to-liquids (GTL) facility, as South African energy firm Sasol has announced a feasibility study for a plant in Louisiana.

Sasol’s managing director of new business development, Ernst Oberholster, speaking at a press conference with Louisiana Governor Bobby Jindal last

week, said the company’s proprietary GTL technology could “help unlock the potential of Louisiana’s clean and abundant natural gas resources and contribute to an affordable, reliable and high-quality fuel supply for the US.” The planned project would be the country’s first to produce GTL transportation fuels and other products.

The company is to carry out its feasibility study on the project, planned for Calcasieu Parish in southwest Louisiana, over the next 18 months.

The study will look at two capacity options, one for 2 million tonnes per year and the second for 4 million tonnes per year.

OIL SHALE

COAL TO LIQUIDS

KBR bets on India CTL

GAS TO LIQUIDS

Sasol plans GTL debut in US





Officials anticipate 850 permanent jobs will be created by the plant, and as many as 5,500 positions during peak construction.

“GTL fuels are an important part of the energy mix because they can advance energy independence in a way that is both cost-efficient and environmentally friendly,” Oberholster said. He added

that, unlike other proposed alternatives to conventional petroleum-based fuels, GTL fuel could be used in existing vehicles and fuel delivery infrastructure without modifications.

Sasol announced plans for the world’s first ethylene tetramerisation unit in December 2010, also for Louisiana’s Calcasieu Parish. The engineering,

procurement, and construction management (EPCM) contract was awarded to Texas’ S&B Engineers and Constructors in May.

In March of this year, the South African company set out plans for a joint venture with Talisman Energy in Canada’s Montney basin, which included a GTL study.

POLICY

Despite probe, SEC not regulating fracking The US Securities and Exchange Commission wants to ensure drilling companies are not misleading investors about their natural gas reserves but is not cracking down on a practice of hydraulic fracturing, its chairman said on Thursday. The SEC issued subpoenas to ExCo Resources Inc and Quicksilver Resources Inc last month in a probe into whether companies are overstating the productivity of their natural-gas wells. That has led to complaints from some lawmakers, including Bill Posey, a Republican of Florida, that the SEC was straying from its traditional area of securities abuse into regulating environmental issues.

REUTERS, September 15, 2011

SHALE GAS

Camp Frack mobilises against UK shale gas well The first of an expected 150 climate activists and local residents began to converge on a field near Southport on Friday to protest against the environmental impacts of one of the UK’s first shale gas wells. “Camp Frack”, named after “fracking”, the process of pumping vast quantities of

water underground and fracturing rocks with chemicals to release shale gas, is setting up outside the Lancashire village of Banks. It is close to a drilling rig that Cuadrilla Resources is using to drill up to 3.5km deep. The company, which is backed by the former BP chief Lord Browne and money from Australia, has a licence to explore 437 square miles of Lancashire, but suspended operations this summer after two earthquakes struck Blackpool. It has so far sunk two exploratory wells and says a further three may be needed. Britain has around 150bn cubic metres of recoverable shale resources, according to the British Geological Survey, which could meet the nation’s gas requirements for 18 months. Cuadrilla is expected to disclose its first estimate for the amount of shale gas found inside its Lancashire licence area next week. According to the chief executive, Mark Miller, the signs are “encouraging”. “Acre for acre, I think the gas in place here is very comparable to – and in some cases exceeds – some of the good [resources] in the US,” he said last month. But local people and green activists have argued that the “fracking” process is inherently risky due to the effect of the chemicals used, explosions, links with seismic activity and allegations of illness. Environmentalists are calling for a delay in fracking until a major review of the practice has been published by the US Environmental Protection Agency. But the UK government says it is confident its own safety regulations are strict enough.

GUARDIAN, September 16, 2011

Encana holds talks with PKN Orlen Encana, Canada’s biggest natural-gas producer, is holding talks with PKN Orlen SA on developing shale gas in Poland, Alan Boras, an Encana spokesman, said in an e-mail. Encana doesn’t have an agreement with the largest Polish oil refiner, Boras said, denying a report in Poland’s Rzeczpospolita newspaper yesterday. “The company’s focus” is on “operations and opportunities” in North America, he said. Exxon Mobil Corp., Chevron and Talisman Energy Inc. are among companies that bought about 100 licenses from the Polish government to explore the possibility of extracting the estimated 5.2 trillion cubic metres (of gas in shale rock formation that the country may hold, according to the Energy Information Administration. Orlen is working to find a partner to help it develop shale gas licenses, Beata Karpinska, a spokeswoman, said in an e-mail today, declining to give other details.

BLOOMBERG, September 13, 2011

Poland’s Siekierki tight gas appraisal well falls short Aurelian Oil & Gas is suspending plans for a sidetrack at the Trzek-2 well and reviewing the possibility of gas sales from the existing three wells at its Siekierki tight gas project near Poznan in west-central Poland.

GAS TO LIQUIDS

NEWS IN BRIEF





Initial data indicate that gas recovery from the Trzek-3 multiply fractured horizontal appraisal well could be 4-8 bcf rather than the 16-20 bcf the company expected. Flow tests will continue to the end of September. The Permian Rotliegendes sandstone reservoir below 3,000 m has a midcase 1.6 tcf of gas in place and covers 150 sq km, of which only 2.5 sq km has been appraised. The company plans to protect capital until it understands the reasons why gas rates are lower and water rates higher than anticipated. Energia Zachod, a company owned 90% by Aurelian and 10% by Avobone NV, owns 100% interest in the Poznan licenses.

OIL & GAS JOURNAL, September 16, 2011

Poland may start shale gas production in 2014: PM Poland may begin commercial shale gas production as soon as 2014, helping to reduce its energy reliance on Russia, Prime Minister Donald Tusk said on Sunday. Poland is seen as a prospective market for unconventional gas production, with 90 exploration licenses awarded and the likes of Chevron and ExxonMobil among interested parties. “With moderated optimism we think that in 2014 there will be commercial extraction, so really just around the corner,” Tusk said. He added that by 2035, Poland, which relies almost entirely on gas from Russia, may be able to mainly use its own source. Decreasing Poland’s energy dependence on its eastern neighbor has been a goal for its governments and often an issue in election campaigns. The country holds an election on October 9. Poland, the European Union’s largest ex-communist member, also hopes to capitalise on some of the income from shale gas production through taxes and licenses. According to a recent study by the US Energy Information Administration, Poland’s technically recoverable reserves of shale gas are the biggest in Europe, at an estimated 5.3 trillion cubic metres.


FERC OKs 2 pipeline projects to send Marcellus gas to the NE Tennessee Gas Pipeline can build a new gas line segment and other facilities to add 250,000 Dt/day of transportation capacity from the Marcellus Shale to the Northeast region, the US Federal Energy Regulatory Commission said Thursday. The Northeast Supply Diversification Project includes a 6.77-mile, 30-inch-diameter pipeline loop in northeastern Pennsylvania, improvements to a compressor station in Niagara County, New York, improvements to a meter station in Erie County, New York and installation of several other facilities in New York and Pennsylvania.

PLATTS, September 15, 2011

Fracking veterans to set up shop in Glasgow The management team that spearheaded the push into unconventional gas in Scotland is to front a new company in Glasgow aiming to float next year for over GBP60 million. Hutton Energy – named after James Hutton, the Scots-born father of geology – will be led by Keith Lough, Colin Bousfield and Tom Pickering, respectively former chief executive, finance director and chief operating officer of Composite Energy. The three left Composite, which focuses on extracting coal-bed methane (CBM) around Stirling, after selling it to Australia’s Dart Energy in March for US$64 million (GBP40 million).

HERALD SCOTLAND, September 18, 2011

South Texas jobs boom There’s an old fashioned oil boom in South Texas. A new pipeline in Hobson is gushing money for the small towns that dot a 400-mile stretch that geologists call the Eagle Ford Shale.

“I’m gonna hire as many people as I can possibly afford to hire,” David Brodsky told CBS News reporter Bigad Shaban. Brodsky used to own a coin laundrymat. Now, he’s on his way to becoming a millionare. “I was just sitting in my living room one day,” Brodsky says, “and somebody knocked on my door and decided they wanted to lease my property for oil.” Brodsky used the money to buy three RV parks - which are now packed with oil workers. So he’s expanding. He’s building up to 600 rooms, which are all already rented.

CBS NEWS, September 15, 2011

India shale gas framework India will likely come up with a framework for shale gas exploration by the start of the country’s 12th five-year plan, which begins in April 2012, oil secretary G C Chaturvedi said while speaking at an industry event in Mumbai on Wednesday. Early this year senior officials at the directorate general of hydrocarbons said they have identified six basins for resource assessment in the first phase, and that a task force was working on a policy framework to tackle issues such as land use, environmental concerns and simultaneous exploitation of conventional oil and gas. India’s state-owned E&P company Oil and Natural Gas Corp. announced the country’s first shale gas discovery in January this year, at Durgapur in West Bengal in the country’s east.

OGE, September 14, 2011

Norwest approval to fracture Australia’s Norwest Energy has received approval from the Western Australian Department of Mines and Petroleum to hydraulically fracture stimulate the Arrowsmith-2 shale gas well, the company said Wednesday in a release to the Australian Securities Exchange. The approval followed the review and acceptance of all relevant documentation, including the Environmental Management Plan for the well, Norwest said.

NEWS IN BRIEF





Earlier, the Western Australian state’s Environmental Protection Authority had decided not to assess the planned fracture stimulation at the request of a third party.


TIGHT GAS

Pakistan seeks US help Pakistan has sought financial and technical assistance from the United States for expediting exploration and production of the country’s natural gas resources as an alternate to the Iran Pakistan (IP) gas pipeline project. An official source said that the demand was made during talks between the Finance Minister Dr Abdul Hafeez Shaikh and Special Envoy and Coordinator for International Energy Affairs, Ambassador Carlos Pascual. The US team was informed about the country’s tight gas reserves of 100 trillion cubic feet (tcf), and informed that it lacked required financing and technology to tap these reserves on fast track basis. Pakistan is faced with a deficit of two billion cubic feet per day (bcfd) of gas, while supplies have dropped to 4bcfd.

PT, September 14, 2011

SHALE OIL

Arsenal Energy releases operational update At Stanley, North Dakota, Arsenal as operator has mobilised a drilling rig to the Gjoa Lynn (50% working interest) Bakken horizontal well location and expects to spud this weekend. It is estimated that the well will take 22 days to drill. The drilling rig will then be released to another operator with the plan to return it to Arsenal in early winter to drill the Anthony Robert and Wade Morris Bakken horizontal wells. Arsenal has acquired additional interests in those two wells and now has an 80% working interest in each. At Princess in southeast Alberta, Arsenal

is licensing two horizontal wells targeting a Glauconite channel complex. Last year Arsenal cored the Glauconite and confirmed the presence of a 12 meter oil saturated channel sandstone with average porosity of 16% and permeability of 0.7 millidarcies. With success, six additional drills have been identified on 3D seismic. Arsenal expects to spud the first well in early October and has a 100% WI in the play. At Edgerton in southeast Alberta, Arsenal is licensing a horizontal well to test the Leduc formation. Offsetting operators have initial production rates of 100 bbls/d of oil with reserves greater than 100,000 bbls/well. If successful, Arsenal has identified seven additional development locations. Also, Arsenal has an interest in two additional structures of similar size. Arsenal expects to drill in early November and has a100% WI in all of its Leduc play lands.

ARSENAL, September 15, 2011

Sheriff: 1 dead, 3 injured in Bakken oil well explosion The McKenzie County sheriff says one man was killed and three others were injured Wednesday evening in an oil well explosion south of Williston in the Bakken shale play. McKenzie County Sheriff Ron Rankin says the rig explosion occurred at about 5:40 p.m. on Indian Hill, just south of the Missouri River on County Road 4. The sheriff says one man died in the explosion and three others suffered severe burns. The injured men were transported to a Williston hospital. No names have been released, pending notification of relatives. Rankin says the workover rig is owned by Powers Lake-based Carlson Well Services.

AP, September 15, 2011

US shale oil could soar, but care needed-report North America’s nascent shale oil fields could one day produce as much crude as Venezuela, an advisory panel to the US

government said on Wednesday in a report urging policies to aid expansion. The surprisingly optimistic assessment of the country’s fastest-growing source of new oil came from the industry-led National Petroleum Council in a report to Energy Secretary Steven Chu – but it also came with a warning against excessive regulation. By 2035, shale oil – also known as “tight oil” because it is sandwiched between hard layers of shale rock – could produce 2 to 3 million barrels of oil per day given the right regulatory environment and technology breakthroughs, said the panel, which includes a who’s who of the oil and gas industry. Output from such fields has jumped from near nil to around 600,000 bpd.


Cressent Energy picks up TX oil well Fortune Oil & Gas reported that Cressent Energy has acquired an additional oil well with solid, long-term revenue production. The newly acquired well currently produces 12 barrels of oil a day. With this production capability the company expects this well to generate approximately US$220,000 annually. Company management expressed satisfaction with the current fast developments with the company. The current acquisitions of small producing wells is to lead revenue generation, so management can undergo larger projects, seek wells and leases with higher daily production capacities, and higher daily profits. More details will follow shortly.

FORTUNE OIL AND GAS, September 14, 2011

Texas Oil and Minerals signs LO for second Damon Mound lease Texas Oil and Minerals has signed a binding letter of intent to develop a 258-acre field located in Damon Mound Field in Brazoria County, Texas.

NEWS IN BRIEF





This will be the second acquisition for Texas Oil and Minerals in the high producing Damon Mound Field. The Damon Mound Field is located on a salt dome which was discovered in 1915 but not developed until 1925. Since that time there have been hundreds of wells drilled, which produce from a number of different horizons including the Het Limestone, Catahoula, Frio, Vicksburg and the Miocene. The dome has produced over 5.6 million barrels from these sands with the average well producing around 60,000 barrels per well. The existing wells and will be re-entered and cleaned up to enhance pressure to expedite recovery. The company plans to commence drilling at the beginning of the 1st quarter of 2012. The Company has agreed to make all and best efforts to complete and execute the Definitive Agreements to acquire this lease from the current lease holders by September 30, 2011.

TEXAS OIL AND MINERALS, September 13, 2011

Bering: drilling started at Concordia Parish Prospect Bering Exploration said that drilling has begun on the Sharp Heirs A No. 1 well located in Concordia Parish, Louisiana. This well will be drilled to a depth of approximately 7,500 feet to test the prospective zones in the Wilcox formation. This prospect has the potential for multiple wells and potential gross reserves of 500,000 barrels of oil. Bering will have a 10% working interest in this prospect. “We are excited to begin drilling our initial well on this prospect and expect to reach total depth in a couple of weeks,” stated Steven Plumb, Bering VP of finance. “If successful, this prospect has the potential to significantly add to our existing production.”

BERING EXPLORATION, September 12, 2011

HEAVY OIL

Poplar Creek Resources provides update Poplar Creek Resources has been advised by the operator that the two previously announced triple-leg horizontal oil wells drilled on the jointly held Sparky heavy oil play in the Warspite area of Alberta have now been placed on production. Based on the initial 10 days of production, the well HZ Bellis 15-34-58-17-W4M flowed at an average rate of 193 boe/d (includes 110 bbls/d of oil and 83 boe/d of natural gas). The flowing rates for this well will be monitored and a pump will be installed when operating conditions dictate. Based on the initial 11 days of production the well HZ Bellis 14-35-58-17-W4M was pumping at an average rate of 146 boe/d (includes 129 bopd of oil and 17 boe/d of natural gas). Natural gas production from both wells is being conserved in accordance with Energy Resources Conservation Board regulations via pipeline tie-in to the company’s jointly owned Warspite gas gathering system. Poplar has a 3.5% interest in the above mentioned wells, bringing the company’s current production to an estimated 32 boe/d. The above mentioned wells are the second and third horizontal wells Poplar has drilled in conjunction with the operator on the jointly owned Sparky heavy oil property. A further four multi-lateral horizontal oil wells on the Sparky heavy oil play are being planned for the fourth quarter of 2011. The company has an interest in 2560 gross acres (90 acres net) of prospective lands on this Sparky heavy oil play. In addition, approval has been granted by the ERCB to amend the drilling spacing on this Sparky heavy oil pool to allow for the drilling of up to eight horizontal lateral legs per pool per quarter section. As a result of the ERCB approval, up to an additional 120 horizontal laterals have been identified. As reported earlier, Poplar will be

shooting a seismic programme at Radway, Alberta and in this regard initial field operations are now underway. Subject to the results of the seismic programme a well may be drilled prior to year end.

POPLAR CREEK, September 13, 2011

Heavy crude oil growth The world will see far more incremental barrels of heavy crude in the market over the next two decades than the additional condensate supply that will come on stream, according to an analyst at Hart Energy, a provider of specialized data and information products to the energy industry. Global crude production is expected to grow from 73.5 million b/d in 2010 to 93 million b/d in 2030, of which heavy crude oil (API gravity of less than 22 degrees) will account for 38% and condensates and natural gas liquids or NGLs for 14%, Hart Energy’s executive director for refining, planning and evaluation, Rodrigo Favela, told a recent industry conference in Singapore.


OIL SANDS

Canada Min: Keystone to create US jobs Canadian Trade Minister Ed Fast said Monday the Keystone XL pipeline extension project would create thousands of jobs and help the US secure an “ethical and environmentally responsible” supply of oil from a trusted ally, and rely less on imports from the Middle East and Venezuela. Fast accused opponents of the TransCanada Corp. (TRP) project - which include such high-profile names as former US vice-president Al Gore, Nebraska Governor Dave Heineman, and some Nobel Peace Prize winners - of “wilfully ignoring facts and scientific evidence” and being “ideologically driven.”

NEWS IN BRIEF





The US State Department is expected to make a decision by the end of the year on whether to award the permit for TransCanada to build the 1,700-mile pipeline from Alberta to Texas. The pipeline extension, which has been under US review since 2008, would pass through six US states and have the capacity to transport about 1 million barrels of oil a day.

CP, September 12, 2011

Solara updates drilling, operations Solara Exploration has drilled and cased a horizontal well at 16-9-45-5W5M to evaluate the oil potential of the Cardium formation at its Buck Lake (Pembina) project. The company is proceeding with the completion and stimulation (fracing) of the Cardium formation within the next several days contingent on the availability of fracing services. Solara has three more horizontal wells which it plans to drill on its Buck Lake (Pembina) lands prior to year end. To date, the company has drilled and participated in five Cardium horizontal oil and gas wells on the project lands. Solara also advises that it has entered into a sale agreement with an undisclosed purchaser which involves the sale of a number of its non-core oil and gas assets for aggregate consideration of $1.1 million. The disposition of these assets, which is part of the company’s ongoing asset rationalisation programme, is scheduled to close on October 23, 2011, and is subject to the usual industry conditions for transactions of this nature.

SOLARA EXPLORATION, September 13, 2011

TransCanada likely to miss 2013 start for Keystone XL pipeline Even if the US approves the Keystone XL pipeline in the next few months, an expected lawsuit by environmental opponents could force TransCanada to miss its 2013 target for starting the system, Deutsche Bank says. The investment bank said the project

would “very likely” get the presidential permit it needs from the Department of State. Nevertheless, it “may run into some delays in the post-approval phase as various federal and state regulators drag their feet in the follow-on processes.” “Additionally, as soon as approval is given, environmentalists will likely sue -- hence the massively thorough process – double the length of the typical major pipeline approval and counting,” Deutsche Bank said. “The takeaway is that construction completion by the end of 2013 may ultimately prove ambitious for Keystone XL, something that we’ve suspected from the beginning.”


China invests billions in Canada oil sands As US companies look toward oil riches in northern Canada, they’re encountering increasing competition - as well as some much-needed cash infusions – from the Far East. US and Canadian companies have dominated Alberta’s oil sands for decades. Now, though, Chinese firms are rushing to snap up Canadian oil sands resources and invest in ongoing projects - to the tune of $15 billion in the past 18 months in Alberta alone. The foreign funding can help pay for what research firm IHS CERA estimates will be $100 billion in spending on oil sands projects over the next decade.

CHRON, September 19, 2011

Anglo Canadian Oil spuds Ante Creek 8-3-67-26 W5 Anglo Canadian Oil has announced that its 8-3-67-26 W5 Ante Creek well has spudded. Drilling operations are expected to continue for a further two weeks followed by well completion. The drilling rig is expected to be moved to Anglo’s 3-4-67-26 W5 immediately following the 8-3 well. Theses two wells target the Nordegg and Montney zones. Pending the successful results on these two wells, Anglo is prepared to drill horizontal wells from

the same surface leases. Anglo owns rights to 172,160 acres (269 sections) of potential Nordegg oil bearing lands in west-central Alberta, as well as 89,919 acres (140 sections) of potential oil bearing Beaverhill Lake and Duvernay lands in central Alberta and an additional 17,640 acres (27 sections) of potential Bakken and Mannville oil bearing lands in the Kindersley area of southwest Saskatchewan. In the vast majority of these lands, the corporation holds a 100% working interest.

ANGLO, September 13, 2011

UCG

Carbon energy achieves UCG innovation Carbon Energy Limited today announced it has successfully achieved an Underground Coal Gasification (UCG) process innovation by automating its Controlled Retractable Injection Point (CRIP) using its proprietary technology developed in Queensland. The innovation, achieved at the Company’s project site at Bloodwood Creek near Dalby, uses Carbon Energy’s proprietary keyseam technology, and enables continuous retraction of the CRIP process underground, as the coal resource is consumed, to deliver a continuous supply of consistent quality gas. The process innovation is an important development in UCG which typically relies on manual intervention which can make gas flow and quality levels inconsistent and intermittent.

CE, September 16, 2011

CBM

Eden Energy to spin off UK gas assets into ASX listing Eden Energy is seeking to spin off its wholly owned UK coal seam methane/shale gas subsidiary, Eden Energy (UK), into a new proposed ASX listing to be called Adamo Energy.

NEWS IN BRIEF





The proposed new float will involve a capital raising of at least A$10 million with Eden Energy shareholders to be offered a priority entitlement via a prospectus. Eden’s vast UK shale gas and coal bed methane portfolios are potentially company making as the Welsh shale gas resource, in which Eden holds a 50% interest, is of world class dimensions. Independently reported Shale Gas Unrisked Prospective Mean Resources GIIP for part of the licence area stand at 49.8 trillion cubic feet of gas (TCF). The company plans to undertake this spinout as soon as market conditions are deemed are suitable and it will be subject to all necessary approvals being obtained. The company has a 50% interest in 17 licences located in South Wales, Bristol and Kent. Eden holds a 100% stake in three licences. The landholding has a total area of about 2,100 square kilometres (510,000 acres). The UK landholding will result from Eden UK agreeing to buy back the 45% interest in the coal seam methane rights in two licences that it sold in 2008, acquiring a 100% interest in three additional licences in south Wales, and completing its remaining farm-in obligations in the original joint ventures. Eden’s prospective Welsh shale gas resources were outlined by independent experts RPS Group Plc and results indicate just how significant it could be for the company. The large prospective gas resource includes a shale gas unrisked prospective resource, with the GIIP mean equalling 49.8 tcf (Gross): Eden 24.9 tcf (Net). The unrisked prospective recoverable resource mean equals 18.3 tcf (Gross): Eden 9.1 tcf (net).

PROACTIVE INVESTORS, September 12, 2011

BPMigas to summon contractors Upstream oil and gas regulator BPMigas will summon 149 contractors to discuss why they have failed to meet exploration

commitments. BPMigas deputy chief Hardiono said that 202 contractors operating in Indonesia were in the exploration stage, 23 were working in the coal bed methane (CBM) sector, while 179 contractors were looking for oil and gas. “Only 30 of the 179 contractors have fulfilled their exploration commitments. We’ll summon the remaining 149 contractors to ask them the reasons why they have done nothing in their work areas. We want to know the problems,” Hardiono said over the weekend.

JAKARTA POST, September 19, 2011

Complaint against pro-CBM ads A farming and environmental lobby group says it has lodged a complaint with the Advertising Standards Bureau over advertisements using the slogan “We Want CBM”. Lock the Gate alliance president Drew Hutton says the television commercial by the Australian Petroleum Production and Exploration Association is a slap in the face to rural communities living in fear of the impact of coal-bed methane (CBM). “The community is locked in a David and Goliath battle against a cashed up industry that thinks it can change public sentiment by spreading phony claims,” he says in a statement.

SMH, September 16, 2011

CBM threat to Murray Darling Basin Coal-bed methane mining poses just as big a threat to the Murray Darling Basin’s agricultural production base as the Murray Darling Basin Plan, according to the NSW Irrigators Council, which represents more than 12,000 irrigation farmers. Speaking at the Federal Senate hearing last Friday on coal-bed methane mining’s impact on the Basin, Council CEO, Andrew Gregson, said any mining permits should only be issued on a “no regrets” basis. The Council is concerned coal-bed methane mining threatens the quality and accessibility of ground and surface water

resources, with mining projects causing increased salinity and adding chemicals to water sources.

SJ, September 15, 2011

CTL

Sasol quits China CTL plant Sasol Ltd. (SOL), the largest producer of motor fuels from coal, abandoned plans for a factory in China in favor of other investment opportunities after government delays. “We have so many investment opportunities that we need to move on and look elsewhere at this time,” said Chief Executive Officer David Constable in an interview. Sasol, based in Johannesburg, was planning a $10 billion coal-to-liquids plant with Shenhua Ningxia Coal Industry Group Ltd., a unit of China’s biggest producer of the fuel. Funding will be moved to other developments and staff redeployed, Sasol said. The two partners haven’t received any response from the Chinese government since they submitted a project application report in December 2009, according to Constable.

BLOOMBERG, September 13, 2011

CONDENSATES

OGDCL condensate discoveries The Oil and Gas Development Company Limited’s (OGDCL) net sales increased to Rs.155.631 billion during the year ended June 30, 2011. According to the company’s report, its net sales in the corresponding period last year were registered at Rs.142.572 billion. Similarly, the company’s net profit before taxation increased to Rs.90.982 billion compared to Rs.88.553 billion in the corresponding period last year. While the company’s exploratory efforts yielded two new gas and condensate discoveries namely Gopang-1 (Nim EL) and Sheikhan-1 (Kohat EL).

DT, September 16, 2011

NEWS IN BRIEF





STATISTICS

North American rig count on land

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500

1000

1500

2000

2500

Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11

US

Canada

Source: Baker Hughes





PROJECT England Boiler ExpansionProject Sector Unconventional Oil & Gas ProjectsLocation Europe, England, TeessideProject Holder/Operator Sita UKScope of work EPC - Engineering, Procurement & Construction Contracts

Current/Past Phase Working contracts had been wonContract Value Estimate Over US$80 millionStart up Timing From 2010Development Stage Operational ProjectBrief The project is associated with the expansion of Energy from Waste factory in

BillinghamLSTK - Lump Sum Turnkey ContractsMC - Multi ContractsR&M - Repair and Maintenance ContractsTC - Term ContractsIPP - Independent Power Project ContractsFC - Framework Contracts

Future & Potential Sales Prospects

PROJECT Iran Boiler ConstructionProject Sector Unconventional Oil & Gas ProjectsLocation Middle East, Iran, KhuzestanProject Holder/Operator IPDC - Iran Power Development Company Scope of work EPC - Engineering, Procurement & Construction Contracts

Current/Past Phase Working contracts had been in progressContract Value Estimate Over US$410 millionStart up Timing From 2010Development Stage Operational ProjectBrief The project is associated with the construction of Parehsar IPP srarion

LSTK - Lump Sum Turnkey ContractsMC - Multi ContractsR&M - Repair and Maintenance ContractsTC - Term ContractsIPP - Independent Power Project ContractsFC - Framework Contracts


PROJECT Scotland Carbon Capture Storage Design Project Sector Unconventional Oil & Gas ProjectsLocation Europe, UK, Scotland, AberdeenshireProject Holder/Operator Hydrogen Energy/BP/Scottish & Southern Energy plc

Current/Past Phase The project had been on a negotiation stageContract Value Estimate Over US$720 millionStart up Timing From 2010Development Stage Operational ProjectBrief The project is associated with the CO2 development of Peterhead Clean Power and

EPC - Engineering, Procurement & Construction ContractsEPCC - Engineering, Procurement, Construction and Commissioning ContractsEPCM - Engineering, Procurement, Construction & Management ContractsEPIC - Engineering, Procurement, Installation & Commissioning Contracts

Scope of work FEED - Front End Engineering Design Contracts


TENDERS & CONTRACTS





PROJECT Canada Carbon Capture Storage Design Project Sector Unconventional Oil & Gas ProjectsLocation North America, Canada, AlbertaProject Holder/Operator Alter NRG Corporation

Current/Past Phase The project had been on a planning phaseContract Value Estimate Over US$490 millionStart up Timing From 2011 - 2012Development Stage Potential ProjectBrief The project is associated with the Bruderheim development of Alter NRG IGCC

CD - Conceptual Design Contracts EPC - Engineering, Procurement & Construction ContractsEPCC - Engineering, Procurement, Construction and Commissioning ContractsEPCM - Engineering, Procurement, Construction & Management ContractsEPIC - Engineering, Procurement, Installation & Commissioning Contracts

Scope of work Pre FEED - Preliminary Design & Engineering Contracts


PROJECT Bahrain Power & Desalination ExpansionProject Sector Unconventional Oil & Gas ProjectsLocation Middle East, Bahrain, Al-MuharraqProject Holder/Operator Hidd Power Co/Bahrain Ministry of Electricity and WaterScope of work EPC - Engineering, Procurement & Construction Contracts

Current/Past Phase Working contracts had been in progressContract Value Estimate Over US$310 millionStart up Timing From 2010Development Stage Operational ProjectBrief The project is associated with the expansion of Hidd power & desalination facilities

LSTK - Lump Sum Turnkey ContractsMC - Multi ContractsR&M - Repair and Maintenance ContractsTC - Term ContractsIPP - Independent Power Project ContractsFC - Framework Contracts


TENDERS & CONTRACTS

PROJECT Algeria Desalination DevelopmentProject Sector Unconventional Oil & Gas ProjectsLocation Africa, Algeria, AnnabaProject Holder/Operator AEC - Algerian Energy Company Scope of work EPC - Engineering, Procurement & Construction Contracts

Current/Past Phase Project had been on a negotiation stageContract Value Estimate Over US$50 millionStart up Timing From 2010Development Stage Operational ProjectBrief The project is associated with the development and construction of El-Tarf

desalination unitLSTK - Lump Sum Turnkey ContractsMC - Multi ContractsR&M - Repair and Maintenance ContractsTC - Term ContractsIPP - Independent Power Project ContractsFC - Framework Contracts






PROJECT Netherlands Emissions Control ConstructionProject Sector Unconventional Oil & Gas ProjectsLocation Europe, Netherlands, Zuid-HollandProject Holder/Operator Air Liquide/ShellScope of work EPC - Engineering, Procurement & Construction Contracts

Current/Past Phase Project had been on a commissioning phaseContract Value Estimate Over US$385 millionStart up Timing From 2010Development Stage Operational ProjectBrief The project is associated with the development of Pernis cogeneration unit

O&M - Operations and Maintenance Contracts LSTK - Lump Sum Turnkey ContractsMC - Multi ContractsR&M - Repair and Maintenance ContractsTC - Term ContractsIPP - Independent Power Project Contracts


PROJECT US Emissions Control UpgradesProject Sector Unconventional Oil & Gas ProjectsLocation North America, US, WisconsinProject Holder/Operator Dairyland Power CooperativeScope of work EPC - Engineering, Procurement & Construction Contracts

Current/Past Phase Working contracts had been in progressContract Value Estimate Over US$20 millionStart up Timing From 2010Development Stage Operational ProjectBrief The project is associated with the upgrades of Genoa power facilities

O&M - Operations and Maintenance Contracts LSTK - Lump Sum Turnkey ContractsMC - Multi ContractsR&M - Repair and Maintenance ContractsTC - Term ContractsIPP - Independent Power Project Contracts


PROJECT England Energy From Waste ProjectProject Sector Unconventional Oil & Gas ProjectsLocation Europe, England, NorfolkProject Holder/Operator Xergi A/S/Banham Power Ltd Scope of work EPC - Engineering, Procurement & Construction Contracts

Current/Past Phase Working contracts had been in progressContract Value Estimate Over US$15 millionStart up Timing From 2010Development Stage Operational ProjectBrief The project is associated with the development of energy from waste Banham power

stationLSTK - Lump Sum Turnkey ContractsMC - Multi ContractsR&M - Repair and Maintenance ContractsTC - Term ContractsIPP - Independent Power Project ContractsFC - Framework Contracts


TENDERS & CONTRACTS





PROJECT US Energy From Waste Feasibility Project Sector Unconventional Oil & Gas ProjectsLocation North America, US, MinnesotaProject Holder/Operator EPR Fibrowatt LtdScope of work FS - Feasibility Study Contracts

Current/Past Phase Government and local authority approval had been grantedContract Value Estimate Over US$90 millionStart up Timing From 2010Development Stage Operational ProjectBrief The project is associated with the development of Minnesota energy from waste

facilities PreFEED - Preliminary Design and Engineering ContractsFEED - Front End Engineering Design ContractsEPC - Engineering, Procurement & Construction ContractsEPCC - Engineering, Procurement, Construction and Commissioning ContractsEPCM - Engineering, Procurement, Construction & Management ContractsEPIC - Engineering, Procurement, Installation & Commissioning Contracts


PROJECT Canada Oil Sands Project Project Sector Unconventional Oil & Gas ProjectsLocation North America, Canada, AlbertaProject Holder/Operator Blackrock Ventures/ShellScope of work EC - Exploration Contracts

Current/Past Phase Project had been on a drilling and appraisal phaseContract Value Estimate Over US$330 millionStart up Timing From 2010Development Stage Operational ProjectBrief The project is associated with the development of BlackRock - Orion EOR - Heavy

Oil SAGD fieldsLSTK - Lump Sum Turnkey ContractsMC - Multi ContractsR&M - Repair and Maintenance ContractsTC - Term ContractsIPP - Independent Power Project ContractsFC - Framework Contracts


PROJECT China CBM DevelopmentProject Sector Unconventional Oil & Gas ProjectsLocation Asia, China, Xinjiang Uygur Autonomous AreaProject Holder/Operator Arrow Energy/PetroChina Company LimitedScope of work EC - Exploration Contracts

Current/Past Phase Project had been on a drilling and appraisal phaseContract Value Estimate Over US$40 millionStart up Timing From 2010 - 2011Development Stage Potential ProjectBrief The project is associated with the CBM development of Dajing Block Coal Bed

Methane facilitiesLSTK - Lump Sum Turnkey ContractsMC - Multi ContractsR&M - Repair and Maintenance ContractsTC - Term ContractsIPP - Independent Power Project ContractsFC - Framework Contracts


TENDERS & CONTRACTS





CONFERENCES

Unconventional OGM 19 September 2011, Week 37 Back Page

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HEADLINES FROM A SELECTION OF NEWSBASE MONITORS THIS WEEK

Oil and Gas Sector

AfrOil Fuel leaking from a Kenyan pipeline caught fire on September 12, killing at least 76 people near Nairobi.

AsianOil Pertamina has estimated the development of Indonesia's East Natuna gas block will cost US$20-40 billion.

ChinaOil CNPC has been named as the preferred bidder for three frontier oil blocks in Afghanistan.

EurOil Deutsche Industriegas has begun nationwide sales, avoiding long-term contracts and oil-price couplings.

FSU OGM With the purchase of RSP Energy, a Czech company, Gazprom is targeting European retail gas markets.

GLNG Osaka Gas is in talks with Inpex over an equity and offtake deal for Australia’s Ichthys LNG project.

MEOG Technip and NPCC have landed a US$500 million contract for work on Abu Dhabi's Satah field.

NorthAmOil The Canadian Association of Petroleum Producers has issued a new set of hydraulic fracturing guidelines.

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