Natioinal Oil Company Monitor Q2 2011 · 2013. 3. 21. · National Oil Company Monitor Q2 2011 3 In the Q1 edition of NOC Monitor, we talked about China’s growing demand for energy

National Oil Company Monitor Q2 2011

2 National Oil Company Monitor Q2 2011

3National Oil Company Monitor Q2 2011

In the Q1 edition of NOC Monitor, we talked about China’s growing demand for energy and how some of the projected shortfall in supply could be met through shale gas production. As part of the current five-year economic plan, the Chinese Government is looking to encourage cleaner energy use and reduce carbon emissions. As a result, natural gas is expected to play a more significant role in the country’s overall energy mix.

In June, China held its first shale gas bid round for domestic companies. The Ministry of Land and Resources has offered four shale blocks covering 11,000 sqkm to state firms PetroChina, Sinopec, China National Offshore Oil Corp. (CNOOC), China United Coalbed Methane and other companies. China is looking for shale gas to account for 10% of total domestic gas supply by 2020. Although this initial bid round was open only to domestic companies, Chinese companies will likely want to engage foreign companies in these projects to utilize their shale gas development expertise.

During the second quarter, Shell and China National Petroleum Company (CNPC) signed a shareholders’ agreement to establish a well-manufacturing joint venture, (JV) 50% CNPC and 50% Shell, subject to further corporate and government approvals. Commercialization of tight gas, shale gas and coal bed methane deposits can require the drilling of hundreds of wells over the life of the project. The intended aim of the venture is to design a system to drill and complete wells in a standardized and replicable manner, using advanced automation techniques that could help unlock substantial natural gas resources cost-efficiently and on a large scale.

China is also trying to stimulate domestic exploration and development of coal bed methane (CBM). The Chinese Government is working on a new set of regulations covering CBM developers that is likely to be finalized in July or August. It has been reported that one of the key elements in the new regulations will be terms that ensure that foreign companies involved in China’s CBM exploration and development sector commit to their exploration investments as defined in the production sharing contracts (PSCs) or relinquish their blocks. Since 1998, China has signed 24 CBM PSCs with foreign companies. China plans to increase CBM production from 9.8 billion cubic meters (bcm) in 2010 to 20-24bcm by 2015.

In tandem with the renewed focus on the development of domestic resources, Chinese oil and gas companies are still looking to gain and leverage experience from unconventional gas projects in other parts of the world. In April, Sinopec signed agreements for the acquisition of a 15% stake in ConocoPhillips’ and Origin Energy’s Australia Pacific LNG project, which is based on Australia’s largest coal seam gas reserves, and for the supply of 4.3 million tonnes per annum of LNG from the project for 20 years. However, PetroChina’s proposed JV with Encana covering the Canadian firm’s Cutback Ridge unconventional gas assets was called off, as the companies were unable to agree on the terms of the JV.

Dale Nijoka Global Oil & Gas Leader

Table of contentsPartnerships and alliances 4

North and South America 4

Europe, Middle East and Africa 4

Asia and Oceania 7

Privatization and consolidation 8



Asia and Oceania 10

Government policy developments 11


Asia and Oceania 11

NOC strategy 12



Asia and Oceania 12

Sources 13-14

All currencies are in US$ unless otherwise stated.


Partnerships and alliancesNorth and South America

CNPC and Cupet sign oil cooperation agreementChina’s state-run China National Petroleum Company (CNPC) and Cuban NOC Cupet have signed an agreement to expand cooperation in the oil and gas sector. Under the terms of the agreement, CNPC plans to leverage its technological capabilities — in oil and gas exploration and development, oilfield services, engineering construction and material and equipment — to help Cupet increase its oil output and reduce operational costs. CNPC also plans to expand cooperation with Cupet in new onshore and offshore oil projects in Cuba.1

PDVSA and Petroecuador sign upstream cooperation deals Venezuelan state-owned Petróleos de Venezuela (PDVSA) and Ecuador’s NOC, Petroecuador, have signed two new oil and gas cooperation deals to develop blocks in Ecuador and to explore and produce gas in Venezuela’s Lake Maracaibo/Gulf of Venezuela area.

As part of the first deal, the NOCs are expected to jointly explore for oil in two blocks in Ecuador’s Oriente (Eastern) Amazonian region, blocks 11 and 38. In the second deal, Petroecuador plans to explore and produce gas in Venezuela’s Lake Maracaibo/Gulf of Venezuela area, which is expected to be transported to Ecuador via a pipeline.2

Trinidad and Tobago signs production sharing contracts under the 2010 Competitive Bid RoundThe Government of Trinidad and Tobago has signed production sharing contracts (PSCs) for four shallow-water blocks under the 2010 Competitive Bid Round:

► Block North Coast Marine Area (NCMA) 2 has been awarded to Voyager Energy (Voyager), a wholly owned subsidiary of Canadian-listed Niko Resources (Niko) and Germany-based RWE Dea (RWE). Voyager Energy will be the operator of the block with a 56% interest, whereas RWE will own a 24% stake

► Block 4(b) has been awarded to Niko Resources Trinidad Limited (100%)

► NCMA 3 has been awarded to Voyager (80% interest)

► Block NCMA 4 has been awarded to UK-based Centrica Energy (100%)

The companies have been granted a period of six years to fulfill the terms of the contracts. The contracts also have a provision of a 25-year extension in the case of any commercial discoveries by the companies.3

Europe, Middle East and Africa

Field-development contracts signed in IraqKOGAS sign Akkas field development contract

The state-owned Korea Gas Corporation (KOGAS) has signed an initial 20-year contract with Iraq’s Ministry of Oil to develop the Akkas gas field. KOGAS doubled its stake in the project to 100% after its partner, Kazakhstan’s NOC, KazMunaiGas (KMG), exited the consortium in May 2011. The original 50-50 consortium was awarded a 20-year service contract for

the development of the field. However, the official signing of the contract was delayed.

Akkas is the biggest of three non-associated gas fields awarded to foreign consortia in the October 2010 licensing round in Iraq. Iraq’s Oil Ministry, in the meantime, has revised estimates of the reserves of the gas field upward, to 5.6 trillion cubic feet (Tcf) from an original estimate of 2.66 Tcf.

Recently, some Asian companies have approached KOGAS about the purchase of a stake in the field-development contract.4

Turkish and Kuwaiti consortia sign Mansouriya and Siba field contracts

The state-run Turkish Petroleum Corporation (TPAO), along with KOGAS and Kuwait Energy, have signed a 20-year contract for the development of the Mansouriya gas field in Iraq, while TPAO and Kuwait Energy signed a similar contract for the Siba gas field. Mansouriya and Siba, along with Akkas, were awarded during Iraq’s third auction, which was held in 2010.

The Mansouriya field, which contains gas reserves of 4.5 Tcf, was awarded to TPAO (with a share of 50%), Kuwait Energy (with a share of 30%) and KOGAS (with a share of 20%) in the 2010 license round, at the remuneration fee of $7 per barrel of oil equivalent. The contract to develop the


Siba field was awarded to Kuwait Energy (60%) and TPAO (40%) at a remuneration fee of $7.50 per barrel of oil equivalent.5

Growing cooperation between NOCs and IOCsKMG and Repsol sign an MoU for exploration in Kazakhstan

KazMunaiGas (KMG) and Repsol have signed a Memorandum of Understanding (MoU) to explore the Adai Block in western Kazakhstan. The companies are also expected to collaborate on international projects in the future. Although the details of the MoU have not been disclosed, it is expected that the deal will result in increased investment in exploration in western Kazakhstan and offshore on the Caspian Shelf. In addition, KMG may join Repsol in the latter’s projects in Iraq and Iran.6

Rosneft and Lukoil sign long-term cooperation deal

Russian state-owned OAO Rosneft (Rosneft) and Russian public company Lukoil have signed an agreement on long-term cooperation for oil and gas projects in the country.

This deal is very significant for Lukoil, as it gives the company access to Rosneft’s strategic reserves. The collaboration is also likely to benefit Rosneft through access to Lukoil’s technological capabilities and financial strength.

The deal is expected to open up access to reserves on the Russian Arctic Shelf for Lukoil. Under Russian law, private oil companies can only work as minority partners with state-run companies on the Arctic Shelf.

In addition, both companies are expected to jointly explore and develop licenses in the Nenets region of Northern Russia. They are also likely to jointly focus on development of the market for locally produced petroleum products, joint marketing of gas from the Bolshekhetskaya and Vankor fields and work on logistics and transportation infrastructure projects.

The companies are expected to announce a complete list of projects by 1 August 2011.7

Gazprom Neft and Shell plan to form JV

Gazprom’s oil arm, Gazprom Neft, has signed a heads of agreement with Royal Dutch Shell (Shell) to evaluate the possibility of forming a JV for upstream projects in West Siberia. The companies may also

explore opportunities for cooperation in projects outside Russia. Shell and Gazprom Neft’s collaboration on projects is expected to benefit the latter in gaining access to advanced technologies and the opportunity to work on overseas projects. For Shell, the JV could serve as an opportunity to strengthen ties with the Russian NOC.8

Gazprom Neft and GEPetrol sign cooperation agreement Gazprom Neft and Equatorial Guinea NOC GEPetrol signed a cooperation agreement for blocks on the Equatorial Guinea Shelf. The agreement outlines key areas of cooperation between the NOCs within the framework of implementing production sharing agreements (PSAs) for blocks (T and U) signed in 2010.

The agreement has been signed with a view toward defining fundamental principles for managing the project and the procedures for making key decisions. Block T (located in the Niger Delta Basin) and Block U (Rio Muni Basin) may, according to preliminary estimates, hold 110 million tonnes (MT) of oil equivalent.9


EGPC and Naftogaz Ukrainy form PetroSenan JVEgyptian General Petroleum Corp. (EGPC) and Ukraine’s state-owned Naftogaz Ukrainy have set up a JV company, PetroSenan, to manage the Alam El-Shawish East concession. This concession is located in Egypt’s Western Desert and is expected to produce 1 million tonnes per annum of oil and gas, once pipelines and additional production facilities on the site are completed.10

SOCAR and RWE plan to sign PSA by end of 2011The State Oil Company of the Azerbaijani Republic (SOCAR) plans to sign a PSA with German utility company RWE AG by the end of 2011 to explore the Nakhchivan gas fields in the Caspian Sea. This will be a follow-up to the MoU signed between the two companies for jointly undertaking operations, including exploration, development and distribution, at the block in March 2010.11

Qatar Petroleum signs PSA with JX NipponQatari NOC Qatar Petroleum (QP) has signed a 30-year exploration and PSA with JX Nippon Oil and Gas (the upstream arm of Japan’s JX Group) for block A, offshore Qatar. The terms of the agreement will start with a five-year exploration period, during which JX Nippon is expected to implement a work program — including 2D and 3D seismic surveys and drilling of exploratory wells — under QP’s supervision. JX Nippon plans to spend more than $100 million on exploration in the first phase of the project. This agreement is JX Nippon’s first exploration deal in Qatar.12

ONGC Videsh Ltd. collaborates with KMG and UzbekneftegazONGC Videsh Limited (OVL), the overseas upstream investment arm of Indian NOC Oil and Natural Gas Corp. (ONGC), has signed a definitive agreement with KMG to acquire a 25% participating interest in the Satpayev exploration block, located in the Caspian Sea. The block comprises two prospective structures — Satpayev and Satpayev Vostochni (East) — and holds an estimated 256 MT of hydrocarbon resources. The transaction marks OVL’s entry into Kazakhstan‘s oil and gas sector and strengthens its global positioning by adding another asset to its international asset portfolio.

The company has also signed a MoU with the Uzbekistan’s NOC, Uzbekneftegaz (UNG), for joint cooperation in the upstream segment of Uzbekistan. Under the MoU, professionals from both companies will form a joint working group to identify specific oil and gas fields in Uzbekistan as well as other countries for joint exploration and production (E&P) efforts.13

KMG EP acquires four exploration contracts in KazakhstanKazMunaiGas Exploration Production (KMG EP) has signed agreements with JSC National Company KazMunayGas (NC KMG) to acquire four hydrocarbon exploration contracts in Kazakhstan — Temir, Teresken, Karaton-Sarkamys and the territory adjacent to Uzen and Karamandybas. KMG EP will pay $40 million for the acquisition, reportedly from internal funds. The company estimates reserves of 1.5 billion barrels of oil equivalent (bboe) in the four blocks. The acquisition is in line with KMG EP’s strategy to grow through acquisitions and expansion of exploration.

The acquired assets are expected to enhance the quality of the company’s onshore projects portfolio and, in the case of successful exploration, will increase its recoverable reserves in the medium term.14

Rosneft acquires license to explore the Naulskoye oil fieldRosneft has acquired a license to explore the Naulskoye oil field in the Nenets Autonomous District of Russia for RUB3.6 billion ($121.7 million). OOO Severnaya Neft, a subsidiary of Rosneft, is likely to be the operator of the project. Naulskoye’s oil reserves, classified as C1 and C2, are estimated at 51.3 MT. Production is expected to reach a maximum of 1 MTPA. The field is expected to be commissioned in 2016.15


Asia/Oceania

CNPC signs strategic agreements with ShellCNPC has signed a global alliance agreement with Shell to collaborate on business opportunities in China and overseas. This agreement marks the strengthening of relations between the two companies and is expected to result in more collaborative projects.

The two companies have also signed an agreement to establish a well-manufacturing JV. The 50-50 JV aims to develop a technologically advanced well-manufacturing system (WMS), which can improve the efficiency of drilling and completing onshore wells at competitive costs.

WMS technology is expected to help CNPC to strengthen its drilling capabilities for unconventional sources such as shale gas and coal bed methane (CBM), and help Shell gain access to China’s shale gas sector. The JV is expected to use advanced technologies such as automated directional drilling and drilling optimization, including technologies pioneered by Shell in its North America tight gas operations. The JV plans to source the majority of its rigs, services and drilling equipment from low-cost suppliers in China.16

Petronas signs a cooperative agreement to avoid ownership disputesMalaysia’s state-run Petronas has signed a unitization agreement with the Malaysia-Thailand Joint Authority (MTJA) to exploit the Bumi gas reserves that straddle Petronas’ Block PM 301 and Block A-18 in the Malaysia-Thailand joint development area. The two parties signed the agreement to avoid any conflicts over the ownership of assets. This agreement, which finalizes the heads of agreement signed between the two parties in January 2008, gives Petronas rights to the reserves in the unitized area. The area has 1.25 Tcf of estimated recoverable gas reserves.

Petronas will receive a 40% share of the resources over the planned 20-year development period, while the MTJA is entitled to a 60% share, which will be split equally between Thailand and Malaysia.17

Sinopec acquires stake in Australia’s LNGSinopec has signed an agreement with Australia Pacific LNG Pty Ltd. (AP LNG) to acquire a 15% stake in the AP LNG project from ConocoPhillips and Origin Energy Limited (OEL). AP LNG project involves development of CBM reserves in the Surat and Bowen basins for a period of

30 years, a 450km transmission pipeline and a multi-train LNG facility on Curtis Island, near Gladstone in Australia. ConocoPhillips and OEL will each hold a 42.5% stake after the transaction. Under the agreement, Sinopec has also entered into a non-binding contract with AP LNG for the supply of 4.3 MTPA of liquefied natural gas for 20 years. According to Jim Mulva, Chairman and Chief Executive Officer of ConocoPhillips, the project is expected to be sanctioned by mid-2011, and the first LNG cargo is expected to be delivered in 2015.18


Privatization and consolidationNorth and South America

Petrochina and Encana’s Cutbank Ridge JV ends As discussed in NOC Monitor Q1 2011, PetroChina International Investment, a subsidiary of PetroChina, and Encana have called off the planned JV concerning Encana’s Cutbank Ridge shale gas assets, as the companies were unable to agree upon the JV terms.19

Shale continues to attract NOCsPetronas acquires Progress Energy’s Montney shale assets

Petronas, through its wholly owned subsidiary Petronas International Corporation Ltd. (PICL), has signed a framework agreement to form a strategic partnership with Canada-based Progress Energy Resources Corporation to develop a part of the latter’s Montney shale gas assets in northeastern British Columbia, Canada. Under the terms of the agreement, PICL will acquire 50% of Progress Energy’s interest in three shale gas assets — Altares, Lily and Kahta — for C$1.07 billion ($1.09 billion). These assets have estimated gas reserves of more than 15 Tcf. Progress Energy will continue as the operator of these assets. Apart from the asset purchase agreement, the companies plan to form an LNG export JV to study the feasibility of an integrated LNG export facility in western Canada. PICL is likely to own an 80% stake in the JV, while Progress Energy is expected to hold

the remaining 20%. The companies also plan to collaborate on other potential natural gas opportunities in western Canada.

This alliance earmarks Petronas’ entry in the North American shale gas industry and is likely to strengthen its position as a leading global LNG player. Petronas expects the asset purchase transaction to be completed in the third quarter of 2011, subject to regulatory approvals.20

Statoil and Talisman Energy acquire SM Energy’s Eagle Ford shale Statoil Texas Onshore Properties LLC (a unit of Norwegian NOC Statoil) and Talisman Energy USA Inc. (Talisman Energy’s US-based subsidiary) have signed an agreement to acquire a portion of shale acreage in the Eagle Ford shale play from Denver-based SM Energy for $225 million. Under the agreement, Statoil and Talisman will acquire 15,400 net acres of shale acreage comprising SM Energy’s entire operated position in LaSalle County, Texas, and a portion of its acreage in Dimmit County, Texas. The sale is expected to be completed in August 2011.21

Statoil farms into Nexen’s Kakuna in GoMStatoil, through its subsidiary, Statoil Gulf of Mexico LLC, has acquired a 27.5% interest in the Kakuna prospect in the deepwater Gulf of Mexico (GoM) from a subsidiary of Canadian oil and gas company Nexen Inc. According to the terms of the transaction, the companies plan to jointly drill exploration wells in the region. Nexen will continue to be the operator, with a 72.5% interest in the prospect. The financials of the transaction were not disclosed. Operations in the Green Canyon blocks of the prospect are expected to be

initiated in the second half of 2011.22

Ecopetrol farms out offshore blocks in ColombiaColombian NOC Colombiana de Petróleos (Ecopetrol) has signed an agreement with Repsol to farm out a 50% stake in its exploration blocks RC-11 and RC-12, located off the Caribbean coast. The assets cover an area of nearly 456,800 acres and 333,590 acres, respectively. The agreement is subject to approval by Colombia’s energy sector regulator, the Agencia Nacional de Hidrocarburos.23


Poland plans Grupa Lotos refinery’s privatizationThe Polish Treasury Ministry plans to divest its 53.2% stake, valued at an estimated $2.2 billion, in the country’s leading refiner, Grupa Lotos, to raise funds to reduce the country’s budget deficit. The ministry has shortlisted four bidders for the sale, the names of which have yet to be disclosed. According to Prime Minister Donald Tusk, the deal is not expected to be completed until 2012. The Anglo-Russian JV TNK-BP has confirmed that it submitted a preliminary offer for the stake in the refiner. Media reports have named Gazprom Neft, MOL and Lukoil as potential buyers. 24

Statoil and Total sell stakes in Gassled pipeline JVStatoil has decided to divest its direct and indirect stakes in the Gassled pipeline, which transmits gas from the Norwegian Continental Shelf to the UK and mainland


Europe. The NOC has signed an agreement to sell 24.1% of its stake in the Gassled JV to Solveig Gas Norway, a holding company owned 45% by the Canada Pension Plan Investment Board, 30% by Allianz Capital Partners (a subsidiary of Allianz SE) and 25% by Infinity Investments SA (a wholly owned subsidiary of the Abu Dhabi Investment Authority) for $3.2 billion. The transaction is aimed at streamlining Statoil’s portfolio, increasing capital efficiency and maximizing shareholder value creation. Following the transaction, Statoil will continue to hold a 5% stake in the JV and remain the major technical service provider.

In a separate agreement, Total S.A. (another Gassled partner) plans to sell its entire 6.4% stake in the JV and in associated entities to Silex Gas Norway AS, a wholly owned subsidiary of Allianz SE, for $870 million.25

Bashneft acquires Russneft’s retail fuel chainRussian oil company Bashneft has signed a deal with OAO Russneft (Russneft) to buy its retail fuel chain in the Orenburg region of Russia. Under the terms of the transaction, Bashneft will acquire a 94.04% stake in Orenburgnefteprodukt, a large regional retail operator based in Orenburg that has more than 100 filling stations and 16 fuel depots. The transaction is expected to expand Bashneft’s downstream business through vertical integration and widen its domestic presence. The deal will also help Russneft reduce its debt and open avenues for further cooperation between the companies.26

Petronas agrees to sell a stake in Block PM-307 offshore MalaysiaMalaysian NOC Petronas (through its subsidiary Petronas Carigali Sdn Bhd) has signed an agreement with Lundin Malaysia BV, a wholly owned Malaysian subsidiary of Swedish oil company Lundin Petroleum, to sell its 75% stake and operatorship in Block PM-307. Petronas will continue to hold the remaining 25% stake in the block, which is located in the Penyu sub-basin within the West Natuna Basin offshore peninsular Malaysia and contains a

proven oil discovery. The transaction is in line with Lundin’s strategy to pursue opportunities for organic growth in Southeast Asia. The financial details of the deal were not disclosed. 27

Petrobras acquires stake in Gabon pre-salt Brazilian state-owned Petrobras has entered into an agreement with UK-based Ophir Energy Plc to acquire a 50% stake in the latter’s PSCs, covering the Mbeli Marin and Ntsina Blocks offshore Gabon, Africa. In accordance with the agreement, Petrobras plans to participate in an initial work program that includes the acquisition of seismic data to target previously under-explored areas in the pre-salt region. According to Petrobras, geological structures in the region are comparable to discoveries in Brazil and have significant potential for deepwater-oil discovery. Once the initial work program is completed, Petrobras can opt to either continue with the exploration of the first and second wells or exit from the PSCs. It also has the right to become the operator of both PSCs. The deal is pending approval from Gabonese authorities.28


TAQA farms into Wintershall’s North Sea blocksThe United Arab Emirates’ state-owned Abu Dhabi National Energy Company, or TAQA, has farmed into Germany-based Wintershall AG’s two (MPX operated) blocks, 211/11b and 211/16b, in the Timon prospect in the UK North Sea, offshore western Europe. TAQA has agreed to acquire 18% of Wintershall’s interest in these blocks in return for an unspecified amount of funding for an exploration well on the Timon Prospect. The company will participate in the drilling of the Timon Prospect, which is expected to commence in 3Q11. According to TAQA, the transaction is in line with the company’s strategy to expand its footprint in the North Sea, as the purchased assets are located in proximity to its existing fields and infrastructure in the region.29

CNOOC farms out its Qatar block

CNOOC Middle East (Qatar) Limited, a wholly owned subsidiary of China National Offshore Oil Corporation (CNOOC), has farmed out a 25% interest in its Qatar deepwater block BC (pre-Khuff) exploration license to Total. According to CNOOC, the partnership will combine strengths of both the partners and help in realizing commercial discovery. In addition, the transaction will enable Total to strengthen its upstream presence in Qatar. CNOOC Middle East will continue to be operator with a 75% stake following the transaction. It will also carry out 2D and 3D seismic surveys and drill at least three exploration wells by 2014 under the Block BC exploration and PSA signed with QP in 2009.30

Asia/Oceania

Statoil farms into three Indonesian fields Statoil has entered a farm-in agreement with Niko Resources for three offshore PSCs in Indonesia. Under the terms of the agreement, Statoil, through its subsidiary, will own a 40% stake in each PSC that covers North Makassar Strait, West Papua IV and the Halmahera‐Kofiau fields. The transfer of working interest is subject to Indonesian Government approval, which is currently pending.

Niko plans to drill wells on all three PSCs during an Indonesian deepwater drilling campaign, starting early 2012. The companies are also exploring new opportunities in Indonesia, with the intent of working jointly on additional PSCs.31


Government policy developmentsEurope, Middle East and Africa

Libya announces new Oil MinisterThe Libyan Government has appointed Omran Abukraa as the new Chairman of the country’s NOC, National Oil Corporation, replacing Shukri Ghanem. Omran Abukraa was the minister-in-charge for Arab affairs at the Libyan Foreign Ministry previously.

Omran Abukraa is reportedly in talks with European and US companies to resume crude oil exports, which have been suspended amid ongoing political unrest in the country.32

Nigeria amends energy regulationsNigeria scraps “incorporated JV” provision

The Government of Nigeria has deleted the provision relating to Incorporated JVs (IJVs) from the final draft of the Petroleum Industry Bill (PIB). The IJV provision was intended to replace the current JV arrangement with IOCs and free the Government from JV cash-call obligations. The Government has not been able to meet its funding commitments in the past.

The IOCs had also showed disapproval to the IJV provision on the grounds that it would result in the transfer of management control into the hands of the Nigerian NOC, Nigerian National Petroleum Corporation (NNPC).33

Nigeria to deregulate fuel prices Nigeria has set up a special committee comprised of fuel marketers, which will establish a new pricing regime aimed at deregulating fuel prices in the country. Under the new regime, the country is

expected to end government-fixed fuel prices by August 2011. This move is not only likely to remove government subsidies of fuel prices but also prove a significant step toward deregulating the Nigerian petroleum sector. Subsequently, the committee intends to also work toward encouraging private investments in the sector.33

The complete removal of the subsidy system in the petroleum sector will likely help the Government save $4.4 billion annually.34

Asia/Oceania

China drafts new CBM regulationsChina’s National Energy Administration (NEA) plans to strengthen the country’s CBM regulations by drafting a new set of rules. The NEA has asked the country’s leading CBM company — China United Coalbed Methane Corp. (CUCBM) — to draft the new rules, which are to be completed by August 2011.

The new regulations are likely to include terms that would ensure that foreign companies involved in the sector either commit to their work program as defined in the PSCs, or relinquish their blocks to their Chinese partners. According to some newspaper sources, the current CBM rules do not define the exit procedure for foreign companies that wish to surrender their blocks before the expiration of the exploration period.

Currently, China’s CBM terms under PSCs are based on onshore oil and gas PSCs in the country. However, the Government introduced a number of incentives, including tax breaks for CBM explorers in 2005. Since 1998, China has signed 24 CBM PSCs with foreign companies; however, only $757 million has been invested in these blocks. This investment is far less than the Government’s expectations.

China plans to increase CBM output from 9.8 bcm in 2010 to 20—24 bcm by 2015, including 10—11 bcm from surface wells drainage and 11—13 bcm from underground drainage.35

Malaysia to set up an agency to promote oil and gas sector The Government of Malaysia plans to establish a new agency with a view to promoting the domestic oil and gas industry and attracting private investment into Malaysia’s oil and gas sector. The proposal for the agency, which will be named Malaysian Petroleum Resource Corp. (MPRC), is currently under review by Prime Minister Najib Razak. The Government is currently analyzing human capital requirements and planning marketing and promotional activities for the industry.

The MPRC’s primary responsibility will be to attract private and foreign investment into Malaysia’s oil and gas sector and help achieve the goal of raising gross national income (GNI) from the sector from MYR110 billion ($36.2 billion) in 2009 to MYR241 billion ($79.4 billion) by 2020. The MPRC is also expected to help Malaysia achieve its target of creating 52,300 jobs in the sector over the next decade. In addition, the MPRC could provide detailed information and advice on investment opportunities and facilitate JVs and partnerships to open up the sector.36


NOC strategy North and South America

Petroecuador plans to invest $3.7 billion in 2011Petroecuador plans to invest $3.7 billion in its operations in 2011, with more than half of the investments to be directed toward upstream activities. The NOC plans to spend $1.7 billion to sustain upstream output growth and $550 million in exploration activities and acquiring seismic data, with a focus on drilling onshore wells in mature fields.

Ecuador expects to increase its oil output by more than 4% in 2012 and surpass 526,000 barrels per day (bbl/d) production levels. Petroecuador’s investment plan is expected to help the country meet its production target.37


Rosneft plans to invest RUB74 billion and reduce gas flaring by 2014Rosneft, at its annual general meeting, announced plans to invest RUB74 billion ($2.6 billion) in its gas projects in the next few years. The company also intends to increase its utilization of associated gas to 95%, i.e., reduce gas flaring to 5%. Although the NOC did not provide a current gas-flaring estimate, the Natural Resources and Ecology Ministry of Russia has stated that Rosneft has a low associated gas utilization rate of 46%. According to the agency, Gazprom also has a low utilization rate of 44%, in comparison to companies such as Surgutneftegas and Tatneft, which have utilization rates as high as 96% and 94%, respectively.38

Gazprom intends to invest close to $1.8 billion in 2011 on domestic gas projects Gazprom plans to invest RUB26.8 billion ($956.2 million) in three gas pipeline projects in the Arkhangelsk Region in 2011. The NOC plans to invest RUB25.8 billion ($920.5 million) in the construction of two gas pipeline systems — Ukhta-Torzhok and SRTO-Torzhok. The company plans to invest the rest of the amount in completing the construction of a gas pipeline section running from the Rikasikha gas distribution station to the Severodvinskaya TETs-2 power plant in the region. The construction of this section is expected to be completed by 15 September 2011.39

Gazprom will divert gas to Nord Stream pipeline Gazprom is expected to redirect 20 bcm of the gas it currently transports through Ukraine via the Nord Stream pipeline once the pipeline becomes operational. The pipeline, which will run from Russia to Germany via the Baltic Sea, will have a capacity of 27.5 bcm of gas per year and will bypass Ukraine. According to industry professionals, Ukraine could lose up to $1 billion annually as a result of the decreased volumes of transported gas after the commissioning of the Nord Stream pipeline. However, for Russia, it is expected to reduce its dependence on Ukraine for gas transportation and, thus, increase gas deliveries to Europe.

The gas will be supplied under long-term contracts and purchased by Gazprom’s traditional partners in Europe.40

Asia/Oceania

Petronas plans investments worth $99 billion through 2015Petronas plans to invest MYR300 billion ($98.8 billion) on capital expenditure over the next five years. However, this investment excludes any potential spending on mergers and acquisitions. Petronas had earlier announced an investment of MYR250–MYR280 billion ($82.8–$92.7 billion) by the end of 2015. Based on its capital expenditure requirements, the NOC expects its net profit after tax and total assets to grow at CAGRs of approximately 13% and 10%, respectively, through 2015. The company also projects its return on capital employed to grow from 17.5% currently to about 19% in 2015.41

CNPC and PetroChina announce 2015 production targetsCNPC plans to produce 400 MT of oil equivalent by 2015, of which 200 MT are expected to be produced from overseas assets. CNPC’s listed arm, PetroChina Co. Ltd., also plans to trade 400 MT of oil equivalent with an annual value of $200 billion by 2015. PetroChina plans to establish oil trading networks in Singapore, London and New York and build transportation and storage facilities in the Caribbean. For CNPC, the major upstream growth areas are Central Asia, the Middle East and North America. Sinopec’s focus lies in growing its oil-based portfolio in West Africa and in Latin American states such as Brazil. According to press reports, Sinopec still faces challenges operating in deepwater environments and is looking to cooperate with other companies to enhance its technological capabilities and expertise.42


Sources1. “China/Cuba: China, Cuba ink oil cooperation pact,” Thai News Service, 10 June 2011, via Dow Jones Factiva,

© 2011 Thai News Service.

2. “PDVSA SAYS PETROECUADOR TO DEVELOP GAS IN VENEZUELA TO PIPE TO ECUADOR,” Platts Commodity News, 22 June 2011, via Dow Jones Factiva, © 2011 Platts.

3. “Minister Signs Contracts Awarded in Trinidad and Tobago’s Shallow Block Licensing Round,” IHS Global Insight Daily Analysis, 20 April 2011, via Dow Jones Factiva, © 2011 IHS Global Insight Limited; “Trio signs up for acreage under new PSAs,” Upstream, 22 April 2011, via Dow Jones Factiva, © 2011 Upstream; “Germany’s RWE Dea secures Trinidad and Tobago gas concession,” Platts Commodity News, 26 April 2011, via Dow Jones Factiva, © 2011 Platts; “UK Centrica signs contract for Trinidad acreage,” Platts European Gas Daily, 19 April 2011, via Dow Jones Factiva, © 2011 McGraw-Hill, Inc.

4. “Kogas stake in Iraq field eyed by three Asian nations,” Alrroya.com, 21 June 2011, via Dow Jones Factiva, © 2011 Media LLC 2009; “Iraq signs initial deal with S. Korea’s KOGAS to develop Akkas gas field,” Associated Press Newswires, 1 June 2011, via Dow Jones Factiva, © 2011 The Associated Press; “Iraq Country Brief,” EIA website, http://www.eia.gov/countries/cab.cfm?fips=IZ, accessed 29 June 2011.

5. “Iraq signs deals to develop two gas fields,” Xinhua News Agency, 5 June 2011, via Dow Jones Factiva, © 2011 Xinhua News Agency.

6. “Repsol Signs MoU with KazMunaiGaz on Joint Exploration of Adai Block in Kazakhstan,” IHS Global Insight Daily Analysis, 20 June 2011, via Dow Jones Factiva, © 2011 IHS Global Insight Limited.

7. “Lukoil Forges Breakthrough Alliance With Rosneft,” NEFTE Compass, 28 April 2011, via Dow Jones Factiva, © 2011 Energy Intelligence Group; “Lukoil and Rosneft Sign a Deal on Long-term Cooperation,” Rosneft website, www.rosneft.com/news/pressrelease/22042011.html, accessed 28 June 2011.

8. “Russian Gazprom Neft, Shell to look into W.Siberian upstream JV,” Platts Commodity News, 17 June 2011, via Dow Jones Factiva, © 2011 Platts.

9. “Gazprom Neft and GEPetrol sign cooperation agreement,” Gazprom Neft website, www.gazprom-neft.com/press-center/news/4210/, accessed 29 June 2011.

10. “Naftogaz Ukrainy and EGPC Set Up PetroSenan JV to Manage Egyptian Concession,” IHS Global Insight Daily Analysis, 20 April 2011, via Dow Jones Factiva, © 2011 IHS Global Insight Limited.

11. “RWE, SOCAR to sign Nakhichevan gas PSA in 2011,” Interfax: Central Asia General Newswire, 9 June 2011, via Dow Jones Factiva, © 2011 Interfax Information Services, B.V.

12. “Japan’s JX Nippon signs deal for Qatar offshore block,” Platts Oilgram News, 10 May 2011, via Dow Jones Factiva, © 2011 McGraw-Hill, Inc.

13. “OVL adds another asset in portfolio of its exploratory assets by signing Satpayev agreements with KMG,” OVL website, http://www.ongcvidesh.com/NewsContent.aspx?ID=866, 16 April 2011; “ONGC Videsh Ltd Signs MOU with Uzbekneftegaz – Uzbekistan,” OVL website, http://ongcvidesh.com/NewsContent.aspx?ID=871, 18 May 2011.

14. “KazMunaiGas to acquire four hydrocarbon exploration contracts,” Datamonitor News and Comment, 13 April 2011, via Dow Jones Factiva, © 2011 Datamonitor Ltd.; “KMG EP announces acquisition of four contracts for exploration of hydrocarbons,” ENP Newswire, 12 April 2011, via Dow Jones Factiva, © 2011 Electronic News Publishing.

15. “Rosneft Obtains License to Explore the Naulskoye Field in the Nenets Autonomous District,” Rosneft website, http://www.rosneft.com/news/news_in_press/06042011.html, 6 April 2011.

16. “Press Release: Shell and CNPC agree on global cooperation and establish well manufacturing JV,” Tex Energy Report, 22 June 2011, via Dow Jones Factiva, © 2011 The TEX Report Ltd.

17. “Thailand, Malaysia pursue JDA,” International Gas Report, 9 May 2011, via Dow Jones Factiva, © 2011 McGraw-Hill, Inc.

18. “Sinopec To Acquire 15% Stake In Australia Pacific LNG,” GlobalData Financial Deals Tracker, 10 June 2011, via Dow Jones Factiva, © 2011 GlobalData.

19. “Canada shale gas plan is scrapped,” ICIS Chemical Business, 27 June 2011, via Dow Jones Factiva, © 2011 Reed Business Information Limited.

20. “Progress Energy announces strategic partnership with PETRONAS to develop Montney shale assets,” Progress Energy website, www.progressenergy.com/progress-energy-announces-strategic-partnership-with-petronas-to-develop-montney-shale-assets, accessed 28 June 2011; “PETRONAS makes strategic entry into Canada,” Petronas website, www.petronas.com.my/media_centre/press_releases_details.aspx?Title=135, accessed 28 June 2011.

21. “Eagle sale for SM Energy,” Upstream, 17 June 2011, via Dow Jones Factiva, © 2011 Upstream.


© Ernst & Young LLP 2011. All rights reserved. The UK firm Ernst & Young LLP is a limited liability partnership registeredin England and Wales with registered number OC300001 and is a member firm of Ernst & Young Global Limited.

Fuel for thought? As the World Petroleum Congress (WPC) gathers in Doha, Qatar, Ernst & Young is delighted to be exhibiting at the Congress.Aligned with the theme of the Congress “Energy soutions for all — promoting cooperation, innovation and investment”, we will be launching several thought- provoking papers on issues affecting the industry. The launches will take place at our exhibition stand, no. 3312.

Our stand will also be available to network, access the internet, relax and enjoy our hospitality. We look forward to meeting you in Doha.

ey.com/oilandgas

22. “Statoil Acquires 27.5% Stake In Kakuna Prospect From Nexen,” GlobalData Financial Deals Tracker, 9 June 2011, via Dow Jones Factiva, © 2011 GlobalData.

23. “Repsol To Acquire 50% Stake In Two Caribbean Offshore Blocks From Ecopetrol,” GlobalData Financial Deals Tracker, 10 June 2011, via Dow Jones Factiva, © 2011 GlobalData.

24. “Poland shortlists 4 bidders for refiner Grupa Lotos privatization,” Platts Commodity News, 16 June 2011, via Dow Jones Factiva, © 2011 Platts; Kash Burchett, “TNK-BP Confirms Bid for Poland’s Lotos Refinery,” IHS Global Insight Daily Analysis, 17 June 2011, © 2011 IHS Global Insight Limited.

25. “Statoil and Total sell stakes in Gassled pipeline JV,” European Gas Markets, 15 June 2011, via Dow Jones Factiva, © 2011 Reed Business Information Ltd.; Beate Schjolberg Oslo, “Statoil cuts its Gassled stake to divert funds,” Upstream, 10 June 2011, via Dow Jones Factiva, © 2011 Upstream; “Statoil to divest in Gassled,” Statoil website, www.statoil.com/en/NewsAndMedia/News/2011/Pages/06Jun_Gassled.aspx, 6 June 2011.

26. Andrew Neff, “Bashneft Acquires Retail Fuel Chain from Fellow Russian Mid-Major Russneft,” IHS Global Insight Daily Analysis, 6 April 2011, via Dow Jones Factiva, © 2011 IHS Global Insight Limited.

27. Tom Grieder, “Lundin Petroleum Farms Into Block PM-307 Offshore Malaysia,” IHS Global Insight Daily Analysis, 7 June 2011, via Dow Jones Factiva, © 2011 IHS Global Insight Limited.

28. “Petrobras Enters Gabon Pre-Salt,” International Oil Daily, 20 June 2011, via Dow Jones Factiva, © 2011 Energy Intelligence Group Inc.

29. “UAE’s TAQA farms into two Wintershall held UK North Sea blocks,” Platts Commodity News, 13 June 2011, via Dow Jones Factiva, © 2011 Platts.

30. “Total buys 25% stake in Qatar,” International Gas Report, 6 June 2011, via Dow Jones Factiva, © 2011 McGraw-Hill, Inc.; “Total joins CNOOC at Qatar block,” Upstream, 3 June 2011, via Dow Jones Factiva, © 2011 Upstream; “Oil, Energy; Qatar: Total Farms into Exploration Block BC with a 25% Interest,” Economics Week, 17 June 2011, © 2011 Economics Week via VerticalNews.com.

31. “Niko Announces Multi‐Block Farmout to Statoil,” Niko Resources website, www.nikoresources.com/upload/news_release/127/01/niko-announces-multi-block-farmout-to-statoil.pdf, accessed 28 June 2011.

32. “Libyan Regime Appoints New Oil Chief; Rebels Say Some Oil Deals Might Be Renegotiated,” IHS Global Insight Daily Analysis, 30 June 2011, via Dow Jones Factiva, © 2011 IHS Global Insight Limited; “UPDATE: Gadhafi Appoints Abukraa New Libyan Oil Head,” Dow Jones International News, 30 June 2011, via Dow Jones Factiva, © 2011 Dow Jones & Company, Inc.

33. “Nigeria shelves plan to incorporate joint ventures,” Platts Commodity News, 28 June 2011, via Dow Jones Factiva, © 2011 Platts.

34. “Nigerian Government Establishes Committee That Will Deregulate Fuel Industry by August,” IHS Global Insight Daily Analysis, 28 June 2011, via Dow Jones Factiva, © 2011 IHS Global Insight Limited.

35. “CHINA’s government is working on a new set of rules to further regulate...” Upstream, 13 May 2011, via Dow Jones Factiva, © 2011 Upstream; ”China CBM output expected to reach 20-24 bln cm by 2015,” Xinhua China Facts and Figures, 7 June 2011, via Dow Jones Factiva, © 2011 Xinhua News Agency; “Coal seam gas: broadening the energy mix,” Ernst & Young website, www.ey.com/Publication/vwLUAssets/Coal_seam_gas/$FILE/Coal_seam_gas.pdf, accessed 20 June 2011.

36. “Malaysia Sets Up New Industry Development Agency to Promote Oil and Gas Industry,” IHS Global Insight Daily Analysis, 14 April 2011, via Dow Jones Factiva, © 2011 IHS Global Insight Limited.

37. “Ecuador eyes exploration plan for 2011,” Upstream, 8 April 2011, via Dow Jones Factiva, © 2011 Upstream; “Ecuador To Increase Oil Production By More Than 4% In 2012,” Dow Jones International News, 4 April 2011, via Dow Jones Factiva, © 2011 Dow Jones & Company, Inc.

38. “Rosneft won’t achieve 95% APG utilization until 2014,” Interfax: Russia & CIS Business and Financial Newswire, 10 June 2011, via Dow Jones Factiva.

39. “Gazprom to invest 27 bln rbl in Arkhangelsk Reg gas pipe projs 2011,” Prime-TASS Energy Service, 8 June 2011, via Dow Jones Factiva, © 2011 PRIME-TASS News Agency.

40. “Gazprom’s CEO: Russian gas deliveries will bypass Ukraine,” Gorshenin Weekly: Polls & Reviews, 30 May 2011, via Dow Jones Factiva, © 2011 Gorshenin Institute.

41. “Petronas reveals major capital investment plan,” Upstream, 10 June 2011, via Dow Jones Factiva, © 2011 Upstream.

42. “Sinopec and PetroChina Unveil 2015 Production Targets,” IHS Global Insight Daily Analysis, 19 May 2011, via Dow Jones Factiva, © 2011 IHS Global Insight Limited.

© Ernst & Young LLP 2011. All rights reserved. The UK firm Ernst & Young LLP is a limited liability partnership registeredin England and Wales with registered number OC300001 and is a member firm of Ernst & Young Global Limited.

Fuel for thought? As the World Petroleum Congress (WPC) gathers in Doha, Qatar, Ernst & Young is delighted to be exhibiting at the Congress.Aligned with the theme of the Congress “Energy soutions for all — promoting cooperation, innovation and investment”, we will be launching several thought- provoking papers on issues affecting the industry. The launches will take place at our exhibition stand, no. 3312.

Our stand will also be available to network, access the internet, relax and enjoy our hospitality. We look forward to meeting you in Doha.

ey.com/oilandgas

Ernst & Young Our Global Oil & Gas contacts:

Dale Nijoka Global Oil & Gas Leader +1 713 750 1551 [email protected]

Marcela DonadioAmericas +1 713 750 1276 [email protected]

Enrique GrotzArgentina +54 11 4515 2655 [email protected]

Russell CurtinAustralia +61 8 9429 2424 [email protected]

Carlos AssisBrazil +55 21 2109 1606 [email protected]

Barry MunroCanada +1 403 206 5017 [email protected]

Raymond NgChina +86 10 5815 3323 [email protected]

John Avaldsnes Europe, Middle East, India and Africa (EMEIA) +47 51 70 67 40 [email protected]

Sanjeev Gupta Asia Pacific +65 6309 8688 [email protected]

David BarringerMiddle East +973 3961 7303 [email protected]

Jeff SluijterNetherlands +31 88 407 8710 [email protected]

Alexey LozaRussia +7 495 641 2945 [email protected]

James NewlandsSouth Africa +27 21 443 0489 [email protected]

Andy BroganUnited Kingdom +44 20 7951 7009 [email protected]

About Ernst & YoungErnst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 141,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

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How Ernst & Young’s Global Oil & Gas Center can help your business

The oil and gas industry is constantly changing. Increasingly uncertain energy policies, geopolitical complexities, cost management and climate change all present significant challenges. Ernst & Young’s Global Oil & Gas Center supports a global practice of over 8,000 oil and gas professionals with technical experience in providing assurance, tax, transaction and advisory services across the upstream, midstream, downstream and oilfield service sub-sectors. The Center works to anticipate market trends, execute the mobility of our global resources and articulate points of view on relevant key industry issues. With our deep industry focus, we can help your organization drive down costs and compete more effectively to achieve its potential.

© 2011 EYGM Limited. All Rights Reserved.

EYG no. DW0104In line with Ernst & Young’s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content.

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

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