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Petroleum News: State-run, national companies rule

88% of proven reserves in grips of politically volatile, left-leaning regimes; Denver energy advisor says role in oil sands essential

By Gary Park

For Petroleum News

There’s 1.3 trillion barrels of proven oil reserves around the globe, enough, you might think, to ease worries of a supply crisis.

But after Thomas Petrie, chairman of Denver-based energy advisor Petrie Parkman & Co., has broken down that total the cause for concern becomes obvious.

Speaking to the Colorado Oil and Gas Association earlier in August, Petrie underscored the urgent need to find resources in regions that offer political stability and favor international oil companies over state-run operations.

Quoting from the BP “Statistical Review of World Energy,” Petrie noted that proven reserves include 734 billion barrels in the troubled Middle East, 120 billion in politically suspect Russia, 112 billion in Africa where upheaval is close to the surface in most producing regions and 101 billion in South and Central America, where Venezuela is leading left-wing, nationalist reforms in several countries.

That leaves a mere 121 billion barrels under the control of politically reliable regimes in North America, Europe and Asia-Pacific.

The bottom line shows that 88 percent of the world’s oil reserves are controlled by totally or predominantly state-run companies, which either deny or limit access by international oil companies.

Petrie: international companies need oil sands

In Petrie’s view, that leaves international oil companies with little option but to grab stakes in Canada’s oil sands, with almost 200 billion barrels of recoverable reserves, trailing only Saudi Arabia.

He referred to Alberta Chamber of Resources’ projections that oil sands production will grow to 2 million barrels per day by 2010, 3 million bpd by 2020 and 5 million bpd by 2030 to bolster what he forecasts will be a “tsunami” of synthetic crude flowing from Canada to the United States over the next 25 years.

Despite challenges stemming from the environmental and social impact of an explosion of oil sands development, rising costs and the struggles to recruit skilled workers, Petrie suggested oil majors have little option but to develop the resources.

Raising capital should not be a problem, he suggested, noting that majors have free cash flow of US$88 billion, but the shortage of “intellectual capital … is another matter.”

On other fronts, he pointed to the galloping finding and development costs in the U.S., from 90 cents per thousand cubic feet for natural gas in 1999 to $2.36 in 2005, although Petrie Parkman forecasts gas prices will move from an average $2.25 from 1995-1999 and $4.75 from 2000-2005 to an expected $7 average from 2005-2010.

Because of the pressure to open up new supply sources, Petrie said U.S. activities in coming years will expand into enhanced oil recovery, shale oil and gas, tight gas, deepwater Gulf of Mexico, offshore basins, Alaska and Canada, including a greater concentration of gas development in the Powder River and Wind River basins of Montana and Wyoming, the Julesburg basin in Colorado and other plays in the Rockies region, where potential has accelerated from 2 trillion cubic feet in 1990 to a current 4.5 tcf and an expected 6 tcf by 2025.

Alberta lands sales up

Petrie’s preaching about the need to participate in the oil sands has attracted many converts, many of them showing up at Alberta government land sales this year.
In the latest bidding, companies paid almost C$86 million for 643,000 acres, compared with a mere C$19.4 million for conventional rights to 122,000 acres.

For the year to date, oil sands rights have fetched more than C$1.3 billion and involved more than 2.4 million acres, well over half the land sale total of C$2.47 billion for 7 million acres.

The leading bid in the latest auction was from start-up North American Oil Sands Corp., which paid C$28.4 million for rights to 14,000 acres in the southern portion of the Athabasca region and to the west and south of properties already held by North American and Paramount Resources.

Established in 2001, privately held North American, with Paramount, ARC Financial Corp. and Ontario Teachers’ Pension Plan as its key shareholders, has filed with Alberta regulators to develop the Kai Kos Dehseh demonstration project, a possible forerunner to an eventual C$7.4 billion project yielding 160,000 bpd of upgraded bitumen by 2015.

Another land buyer was Petroland Services, which paid C$3.3 million for an oil sands permit of 7,600 acres near the Alberta border with Saskatchewan, part of a growing eastward push from the traditional plays.

But there was another salient reminder for all oil sands players on Aug. 13 when Syncrude Canada, the world’s largest producer of synthetic crude, again scaled down its August target to 9 million barrels as its struggles to restart a new 125,000 bpd coker, just a week after buyers said output for the month had been lowered by about 1.1 million barrels to 9.3 million barrels.

The latest 2006 forecast by the consortium set the target at 90 million barrels, down 5 million barrels.

The coker has experienced troubles over the past three months since Alberta Environment ordered a shutdown after local residents complained of odors from the new plant, which is designed to raise Syncrude Canada output to 350,000 bpd.

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