Daily Archives: February 7, 2012

Deep-Water Lifting: A Challenge for the Industry

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As oil and gas developments go deeper, the risk related to lifting operations is increasing. “Existing standards and regulations don’t sufficiently meet this challenge and this is why DNV now has initiated a joint industry project to ensure a unified safety approach. Fourteen key international offshore players have joined the project,” says Robert A. Oftedal, DNV’s Business Development Leader, Cranes & Lifting.

The development of subsea cranes and lifting appliances has been driven by constant demand for increased lifting capacity, operations in greater water depths and motion compensating systems. This has introduced several technological challenges related to ensuring the reliable execution of subsea lifting operations so that objects can be safely placed on and removed from the seabed.

Ensuring proper design and correct operation, as well as regular inspection and maintenance, is crucial for not only the reliability of a lifting appliance, but also the safety of the personnel and equipment involved.

According to DNV, subsea lifting standards and regulations have not followed the steep curve of technological progress. “Instead, the required safety level has been defined by clients’ specifications, technological boundaries and manufacturers’ considerations, rather than regulatory documents acknowledged by all the stakeholders involved. Some client specifications may also be based on vessel-to-platform lifting and not subsea lifting. This situation is a challenge when contracting new equipment,” Oftedal explains.

While various measures are undertaken by different parties, implementing standards and regulatory requirements has proven to be one of the most efficient ways of reducing the risks involved in offshore operations.

“This is why DNV has invited the industry to develop a unified approach concerning important aspects of subsea lifting. The aim is to increase efficiency and safety during the equipment’s design, operation and maintenance phases,” he says.

Fourteen key industry players have joined the project and will present their conclusions in a Recommended Practice within a year. The participants are: Statoil, Petrobras, Lundin Norway, Marathon Oil Norge, Technip, Subsea7, SAIPEM, Heerema Marine Contractors, Cargotec, Liebherr Werk Nenzing, TTS Energy, Huse Engineering (incl. Rolls-Royce), SamsonRope and W. Giertsen Services.

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Revisited: THE FINANCIAL STD HANGING OVER EUROPE

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Tuesday, February 7, 2012

Let’s say you earn $21,000 per year. Would your bank grant you credit and loans that total more than $600,000 to “invest” on long shot bets in Vegas? Sounds ludicrous, right? And it is, until you realize this is how our global financial system is currently structured.

Thanks to some fancy (but rigged) modeling of market instruments, market players have been able to convince some incredibly stupid people (though there are some smart ones in the bunch) that their bets will pay off. What the incredibly stupid people don’t understand is that the entire house of cards can only function if lines of credit are kept open. The problem here, as Hyman Minsky warned, is that it’s one thing to borrow when you have the assets to back things up, but it’s an entirely different thing to borrow when the collateral is full of financial holes.

This is precisely the situation Europe faces today, and why efforts to fix their banking system will fail.

Mirroring what I’ve been writing and talking about for years, Money Morning’s Keith Fitz-Gerald explains why Europe’s banks are going under, in spite of the the seemingly never ending trillion dollar rescue efforts from the U.S. central bank, and others. Specifically, Europe’s financial system is confronted by three big challenges.

UNCERTAINTY: Thanks to the murky system of cross derivative (i.e. Vegas-like) bets European Union (EU) ministers are reluctant to put money into a banking system that has the financial consistency of Swiss Cheese (why Ben Bernanke is doing it is another issue). And they should be reluctant. Because derivative markets are so murky, the ministers don’t know how much is going to be needed, or who’s going to need it.

FINANCIAL STDs: Because of the cross pollinization of derivative bets even healthy banks have been exposed to the financial STDs of the financial world. In what will (no doubt) be described as a pre-emptive effort, all banks will be provided with back up funds just in case (i.e. when) their partners drag them under. It’s kind of like an STD screening. But in this case you get the penicillin shots too (a process that resembles the U.S. banking “self-esteem” efforts too).

GOOD MONEY GOING AFTER BAD: Money from strong banks will be diverted to weaker banks. This is bad news. Why? Because in order to backstop the bad bets, even bigger (worse?) bets will be placed because they offer the promise of higher returns. This will only serve to keep the derivative lunacy going until the stupidity collapses on itself, again.

So why is this all a problem? Because the banks have lent or provided $600 trillion against market (derivative) instruments that are valued at $21 trillion. Total exposure here is 28.4-times. Go into a bank and ask them to provide you with a loan or credit totaling 28 times what you earn/own.

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The bank’s rationale for rejecting you is exactly why the financial stupidity in Europe cannot be sustained.- Mark

P.S. If you want to know how derivative bets get started click here.

Posted by Mark A. Martinez at 8:59 AM

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Tuscaloosa shale promising

St. Helena well’s initial production spurs interest

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By Ted griggs
Advocate business writer
February 07, 2012

It’s still early in the Tuscaloosa Marine Shale’s development, but energy industry members say a St. Helena Parish well’s initial production, nearly 800 barrels a day, is encouraging.

The Encana Weyerhauser well, completed in November, averaged 784 barrels of oil per day and 309,000 cubic feet of natural gas, according to Encana’s filing with the state Department of Natural Resources.

“This is certainly a key well. There’s no doubt,” said Dan Collins, a Baton Rouge landman who spent much of last year negotiating lease agreements with landowners in the shale.

“You know, 800 of anything coming out of the ground daily is a lot,” Collins said.

That’s especially true when the anything in question fetches nearly $100 a barrel.

Around two dozen wells have been drilled or are being drilled in the Tuscaloosa Marine Shale, an oil-rich formation that covers Louisiana’s midsection. Energy companies have leased more than 1 million acres in the formation, but so far the firms aren’t sharing much of their early production figures.

Kirk A. Barrell, president of Amelia Resources, of Texas, said before the formation can be considered economically viable, 10 to 20 wells will have to be completed.

“You need the initial (production) rates for 10 to 20 wells, but you also need to get 12 to 15 months out and see what the decline of that rate is,” Barrell said.

Still, Collins said it appears the energy companies believe they have something.

Oil companies have proposed a number of wells and discussed putting multiple drilling pads on landowners’ property, Collins said. The shale’s future remains to be seen, but there probably wouldn’t be so much activity if the energy companies didn’t believe their investment is worthwhile.

Encana has leased around 270,000 acres in the play, has completed one horizontal well, and has two new wells under way, according to its investor presentations.

Encana spokesman Alan Boras said he could not discuss any details of the company’s Tuscaloosa wells.

But the company will release more information during its fourth-quarter earnings report, scheduled for Feb. 17, Boras said.

A lot of people think every well in the Tuscaloosa should produce 1,000 barrels a day, but it takes time for drilling companies to figure out the best approach, Barrell said.

Barrell, the author of a blog on the Tuscaloosa Trend, said people forget or don’t realize that the early results varied from wells drilled in the Eagle Ford Shale in Texas.

While there were a few good wells whose maximum production was around 1,000 barrels per day, there were a number of wells whose daily production never reached double figures, Barrell said.

Collins said in order to recover the millions in drilling costs, a well’s initial production has to be pretty strong because the production curve declines pretty rapidly.

Shale wells’ production rates generally fall about 75 percent after 12 months.

“I liken it to a ski slope. We certainly don’t want the black ski slope. We want one of those greens or blues that’s going to … gently drop over time,” Collins said.

Gifford Briggs, vice president of the Louisiana Oil and Gas Association, said the Encana well’s results will encourage additional testing.

But it’s difficult to say how significant the well is without knowing the costs and how long the well will continue producing at the same rate, Briggs said.

In this early phase, Encana and other companies operating in the Tuscaloosa are still trying to answer a number of questions, such as what is the right depth to drill and how to get the most effective fracture, he said.

Wells in the Tuscaloosa are drilled vertically for around 11,000 feet and then horizontally. Drillers then fracture the formation in multiple stages, forcing millions of gallons of water, mixed with sand and/or ceramic and chemicals into the formation to crack the shale. The sand and ceramic materials prop the cracks open, releasing the oil.

Fracking has drawn criticism from environmentalists and some landowners, who say the practice pollutes the air, contaminates water and consumes too much water. The oil and gas industry’s position is that fracking has been used for more than 50 years on thousands of wells with no evidence of groundwater pollution.

Collins said leasing activity in the area has slowed this year as companies have turned to drilling, but Barrell said his firm and its partners are still actively leasing.

Lease prices in the Tuscaloosa Marine Shale, compared to other shale plays, remains a “great, great value,” Barrell said.

Last year, leases were going for around $150 an acre.

Briggs said he has heard that leases are fetching $250 to $500 per acre.

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