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Gulf of Mexico: MMR’S Moffett Keeps His Eyes on the Prize at Davy Jones

Joan Lappin, Contributor

Greetings from Denver and the EnerCOMConference where McMoRan presented on 8/13. It’s interesting to observe that as we really near the end of problem solving at Davy Jones, investors are so shell shocked they can’t believe the flow test might really happen soon. Many cannot see the forest for the trees or the enormity of this Shallow Water Ultra Deep play vs. the limited prospects of the shale plays they love so dearly. Most shale wells are unimaginative step out wells a short distance away from other known discoveries. Many of the public shale players are recent arrivals in those plays and are paying the price for being followers, not leaders. Their potential returns on invested capital are tiny compared to the potential enormity of the Shallow Water Ultra Deep which can totally transform the U.S. energy picture for the future.

Add to that MMR’s Main Pass Energy Hub where it has reapplied for an export permit to use this facility 20 miles offshore to export hydrocarbons to other parts of the world where gas prices are far above the current <$3 in the United States.

Nobody on earth wanted to have flow tested this well prior to this EnerCOM energy gathering more than Moffett so that this might have been the finest champagne party of this century. Instead, after almost a year of delays, Davy Jones is still not giving up its bounty without a final fight. So, the flow test is still to come.

Jim Bob Moffett stood resolutely in the break out session and at the McMoRan dinner last night and patiently answered the same questions again and again. What about your balance sheet? Aren’t you going to run out of money? Do you honestly think you will have a successful flow test? Is there really permeability in these rocks? How big is this play? Really? Ironically, the well wants to flow so much that the latest problems have revolved around containing the flow, not encouraging it.

As future well completions in the Shallow Water Ultra Deep move forward, rest assured there will be a whole series of protocols that will be standard operating procedure. For one thing, wells will never again be designed to have tiny pipe at the bottom of the hole, making all efforts difficult because there is no room to maneuver tools and equipment. Wells surely won’t be using Schlumberger’s remote control small guns to perforate the casing. The folks at BOEMRE won’t be requiring the interruption of a flow test to move the rig back off the well. And wells will have packers routinely placed at the bottom of the production tubing so that no matter what comes flowing up after perforation of the well, it can easily be contained and controlled. Moffett takes responsibility on himself for not foreseeing that the original multiple O ring type assembly currently being pulled out of the hole would have to contain a far larger perforation project than originally conceived for one zone at a time instead of what resulted from perforating all zones at once. These recent completion activities and “redos” at Davy have cost the group another $70 million. You can’t sue the Government but one wonders what culpability might be laid at Schlumberger’s feet when all the dust settles.

Halliburton’s Boots and Coots pressure control experts are finally off the well. So we can presume that the final preparations for the flow test are now underway. If you look at Moffett’s latest presentations, I believe the slides and cartoons are aimed not at the public markets but at the huge investors who will soon be coming out of the woodwork to turn this into a full blown commercial development to rival the biggest and most important energy projects in the history of the U.S. oil and gas industry.

Many of the folks in the room, some of whom control or influence vast pools of money, don’t seem to see the forest for the trees or grasp what is coming about here. At the conference, if you go into the presentation rooms of those producing from shale plays onshore in the various parts of the country, there is standing room only, just as there was last year. Those investors don’t seem too concerned that shale requires $5-7 gas to be profitable in the present $3 world for natural gas prices. They don’t seem afraid of the write downs of reserve values that are coming at the end of the year. They only seem to focus on the $300 million + cost of Davy Jones and are sure that it will never produce economically. They don’t understand that at some point DJ became a science experiment for the entire play and its proof of concept.

A major topic at dinner was about the cost of future wells. Moffett seems particularly happy with future use of expandable liner to limit the starting size of pipe that must be used. He thinks future wells, particularly those on land at Lineham Creek (Chevron is the operator) and at its new huge Highlander prospect onshore where it will be the operator, can be brought in for $75 million per well. Everything on land is much cheaper from land rigs, or even barge rigs in the swamp areas where there is less than 10 feet of water, to not needing support helicopters and delivery boats. Also, onshore with some of the targeted formations closer to the surface, the support costs are much less, too. Even offshore wells will be far cheaper going forward even if more than $100 million.

Energy XXI, MMR’s junior partner, and Tex Moncrief are reportedly on pins and needles with the rest of us but with no wavering in their conviction about the Ultra Deep. Fortunes are made with patience and by leading, not following, the pack. This group fits that description in spades. Moncrief loves to tell the story of getting hooked on the oil patch when out with his Dad as a young boy in a pair of rubber boots watching a well start to gush oil into the air. Davy is trying to gush, too. It shouldn’t be long now until all the believers get their reward, including the public shareholders.

Joan E. Lappin CFA Gramercy Capital Mgt. Corp.

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USA: Schlumberger, NOV Complete Wilson Transaction

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Schlumberger Limited has completed the sale of its Wilson distribution business to National Oil well Varco, Inc.

Terms of the all-cash transaction, which remains subject to customary closing conditions, including regulatory approval, were not disclosed.

Founded in 1921, Wilson is a leading distributor of pipe, valves and fittings as well as mill, tool and safety products and services to the international energy business and to other industrial customers. The company manages a distribution business of approximately 200 sales and operations locations across the United States with a growing presence in other key international geographies. Wilson employs approximately 2,500 employees as a standalone Schlumberger business unit.

National Oilwell Varco is a worldwide leader in the design, manufacture and sale of equipment and components used in oil and gas drilling and production operations, the provision of oilfield services, and supply chain integration services to the upstream oil and gas industry.

Additionally, Schlumberger has committed to divest the remaining portion of its distribution business by agreeing to support NOV’s previously announced proposed acquisition of all outstanding shares of CE Franklin Ltd.  for CAD$12.75 in cash per share. Schlumberger owns 9,729,582 common shares of CE Franklin, or approximately 56% of CE Franklin’s outstanding common shares.

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USA: NOV Posts Solid 1Q Results

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National Oilwell Varco, Inc.  today reported that for its first quarter ended March 31, 2012 it earned net income of $606 million, or $1.42 per fully diluted share, compared to fourth quarter ended December 31, 2011 net income of $574 million, or $1.35 per fully diluted share.

The first quarter 2012 results included transaction costs totaling $7 million pre-tax, and, excluding these, earnings were $612 million, or $1.44 per fully diluted share. Earnings per share improved 44 percent from the first quarter of 2011 and five percent from the fourth quarter of 2011, excluding transaction and devaluation charges from all periods.

Revenues for the first quarter of 2012 were $4.3 billion, an increase of one percent from the fourth quarter of 2011 and an increase of 37 percent from the first quarter of 2011. Operating profit for the quarter, excluding the transaction and devaluation charges, was $881 million, or 20.5 percent of sales. Sequentially, first quarter operating profit increased two percent, resulting in operating profit flow-through (change in operating profit divided by the change in revenue) of 48 percent, excluding transaction and devaluation charges. Year-over-year first quarter operating profit increased 40 percent, resulting in operating profit flow-through of 22 percent, excluding transaction and devaluation charges.

Capital equipment orders for the Company’s Rig Technology segment increased 15 percent sequentially to $1.91 billion during the first quarter, reflecting higher demand for drilling equipment for new build offshore rigs. At March 31, 2012 the segment’s backlog was $10.36 billion, up two percent from the end of the fourth quarter.

Pete Miller, Chairman, President and CEO of National Oilwell Varco, remarked, “Our Company got off to a good start in the first quarter of 2012, with strong results in all three segments. Our Petroleum Services & Supplies group performed exceptionally well, helped by high levels of oilfield activity which is spurring demand for all our products and services. National Oilwell Varco continues to provide critical, enabling technologies to improve the efficiency and safety of oil and gas operations around the globe. Our outlook for demand for our capital equipment is very strong and our expectations high for the remainder of the year. Overall, efficient execution of orders in our backlog, innovation in our leading technologies, commitment to great service, and, most importantly, the hard work of the best team in the industry, led to solid earnings again this quarter.”

National Oilwell Varco is a worldwide leader in the design, manufacture and sale of equipment and components used in oil and gas drilling and production operations, the provision of oilfield services, and supply chain integration services to the upstream oil and gas industry.

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Schlumberger Announces Agreement to Sell Wilson International Inc.

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posted on 4-11-2012

HOUSTON, April 10, 2012—Schlumberger Limited (NYSE:SLB) announced today that it has entered into an agreement with National Oilwell Varco, Inc. (NYSE:NOV) to sell its Wilson distribution business. Schlumberger acquired Wilson International Inc. as part of the acquisition of Smith International in 2010. Closing of the transaction is subject to customary regulatory approvals.

“Schlumberger’s global supply chain has benefited from Wilson’s best-in-class distribution practices and we look forward to working with Wilson in the future,” commented Paal Kibsgaard, Schlumberger Chief Executive Officer.

Founded in 1921, Wilson is a leading distributor of pipe, valves and fittings as well as mill, tool and safety products and services to the international energy business and to other industrial customers. The company manages a distribution business of approximately 200 sales and operations locations across the United States with a growing presence in other key international geographies. Wilson employs approximately 2,500 employees as a standalone Schlumberger business unit.

About Schlumberger

Schlumberger is the world’s leading supplier of technology, integrated project management and information solutions to customers working in the oil and gas industry worldwide. Employing more than 113,000 people representing over 140 nationalities and working in approximately 85 countries, Schlumberger provides the industry’s widest range of products and services from exploration through production.

Schlumberger Limited has principal offices in Paris, Houston and The Hague, and reported revenues of $39.54 billion in 2011. For more information, visit www.slb.com.

###

For further information, contact:
Malcolm Theobald
Vice President, Investor Relations
Schlumberger Limited
Tel: 1 713 375 3535
or
Stephen Whittaker
Director, Corporate Communications
Phone: 33 1 4062 1308
investor-relations@slb.com

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Bexar facility is ‘big deal for us’

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Robert Drummond, president of Schlumberger North America, (left) talks about his company as Jeremy Aumaugher, south division operations manager, listens to questions about expansion of their business to support clients in the Eagle Ford Shale.

Photo: TOM REEL, San Antonio Express-News / San Antonio Express-News
By Vicki Vaughan
Updated 12:26 p.m., Thursday, March 8, 2012

Schlumberger, the world’s largest oil-field services company, threw open the doors Wednesday to its new operations plant in southern Bexar County, where it was drawn by proximity to the Eagle Ford Shale.

“This is a big deal for us,” Robert Drummond, president of Schlumberger North America, said as he stood before shiny trucks in a spic-and-span warehouse that’s part of a $19 million investment.image

The new facility is a critical addition to Schlumberger’s south division operations, which encompasses the New Mexico, West Texas and South Texas, he said.

Construction of the company facilities, which occupy three sites on Fischer Road near the intersection of Interstate 35 South and Loop 410, began in December 2010, company officials said.

Schlumberger — which is based in Houston, Paris and The Hague, Netherlands — employs almost 400 in the San Antonio area, a total that is likely to grow to 500 employees in the coming months, officials said.

San Antonio’s nearness to the shale has meant that the company hasn’t had a problem recruiting employees, whose work ethic “is excellent,” Drummond said.

The South Bexar facility employs managers, engineers, health and safety employees, equipment operators, maintenance and electronic technicians, and laboratory workers.

Salaries at the operations center range from $25,000 to $85,000 a year, said Jeremy Aumaugher, south division operations manager for pressure pumping. Employees also are eligible for performance bonuses, he said.

However, some employees may work 60 hours a week or more and be away from home for periods of time, Aumaugher said.

The company’s biggest labor needs are for truck drivers, while mechanics and electronic technicians make up another key category, he said.

“We’re in competition, obviously, with others who do the same work as us,” Drummond said. “We want to be the employer of choice in North America, meaning not only (in) compensation but work conditions, facilities and safety environment.”

Schlumberger’s center will handle its customers’ demands for pressure pumping, which is used to enhance the flow of oil and natural gas in hydraulic fracturing. It also will provide cementing services, a process used to surround a well’s casing, or pipe.

Schlumberger’s operations occupy 60 acres. One facility occupies a 35-acre site that includes bays for maintaining, fueling and washing trucks. There’s a 15-acre bulk plant capable of storing 20 million pounds of sand for use in hydraulic fracturing, a cement blending area, a 39,028-square-foot warehouse, a laboratory and a support and training facility on 10 acres.

At a ceremony Wednesday at Schlumberger, Economic Development Foundation Chairman Henry Cisneros said: “This is a great, global company doing important work. The more you can succeed here, it is ‘mission accomplished’ for us.”

As drilling in the Eagle Ford Shale has exploded, a number of oil-field services companies have established a presence in the region, including Houston-based Halliburton Co. and Baker Hughes Inc., Switzerland-based Weatherford International Inc. and Canada-based Sanjel.

In addition, a number of oil production companies drilling in the Eagle Ford Shale have opened offices in San Antonio.

vvaughan@express-news.net

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Schlumberger to Acquire Norway-Based SPT Group

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Schlumberger announced that it has entered into an agreement with Altor Fund II to acquire SPT Group—a privately owned software company specialized in dynamic modeling for the oil and gas industry.

The company provides a combination of software and consulting services for multiphase flow and reservoir engineering applications. Closing is subject to customary regulatory approvals.

“The dynamic modeling and reservoir optimization software of SPT Group will complement the existing Schlumberger production software portfolio,” said Tony Bowman, President, Schlumberger Information Solutions (SIS). “In combination with the Petrel* E&P software platform and other SIS technologies, this will enable customers to further optimize production from reservoir performance to processing facilities.”

“This is a great testament to our employees and a remarkable opportunity for the company,” commented Tom Even Mortensen, Chief Executive Officer of SPT Group. He continued, “Combining the skills, abilities, presence and technologies of the two companies will further increase the scale of our activities and enable continued delivery of products and services with the quality and pace the market demands.”

SPT Group Chairman and Altor Partner Reynir Indahl added, “We are proud to have developed a very successful company together with SPT Group management, and believe that Schlumberger will be a great home for SPT and its employees.”

SPT Group, founded in 1971, is headquartered in Norway and employs approximately 280 people in 11 countries worldwide. The company is a leader in dynamic modeling of multiphase flow and reservoir optimization through renowned software products and a global team of professional consultants. SPT Group has invested more than most comparable firms in developing cutting-edge technology. The company’s employees, global presence, close ties to industry research environments, and clear focus on customer needs have been important factors in its success.

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Norway: STX OSV Brevik Shipyard Hands Over PSV Island Captain

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On Thursday the 16th of February, Island Offshore (IO) took delivery of the MV Island Captain, the newest addition the growing IO fleet. The godmother for the vessel is Mrs. Tonje Tiley from ConocoPhillips.

The MV Island Captain’s sister vessel, the MV Island Centurion was delivered in October 2011. The two vessels are number 5 and 6 in the series of UT 776 CD design vessels built at STX OSV Brevik.

The two vessels will commence a 7 year firm contract plus options with Schlumberger as well stimulation vessels in 2013, and will undertake a major mobilization prior to this. Island Patriot and Island Commander are currently engaged as well stimulation vessels.

Vessel Particulars:

  • Type: PSV – DP 2
  • Design: UT 776 CD
  • Yard: STX OSV Brevik AS

Class: DNV +1A1, E0, SF, Supply Vessel Basic, DK(+), HL(+), LFL*, DYNPOS AUTR, CLEAN DESIGN, COMF-V(3), ICE-C, OILREC, NAUT-OSV(A)

  • L.O.A.: 93,0 m
  • Width: 20,0 m
  • DW: 4.000t
  • Deck area: 1.000 m2
  • Accommodation: 39 persons
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Hercules sees more rigs in GOM

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Hercules Offshore expects to end the year with more rigs in the Gulf of Mexico, as the top shallow-water driller in the region looks to cash in on higher day rates, a report said.

News wires  26 January 2012 05:42 GMT

Day rates could rise further as oil majors ramp up spending in the Gulf of Mexico after the government eased up restrictions on drilling permits that were imposed following the Macondo oil spill, chief executive John Rynd told Reuters in an interview.

“As we exit 2012, we may be running 19 or 20 rigs versus the current 18 (in the Gulf of Mexico),” said Rynd, who joined Hercules in 2005 after working with peers like Rowan Co and the drilling unit of Noble Corp.

A total of about 40 shallow-water rigs are active in the region and all of them are contracted, he added.

Houston-based Hercules has been commanding day rates of about $55,000 on average. The cost of renting a rig by the day has risen about $20,000 in the last one year.

“The rates are stable… we have a positive outlook for 2012,” Rynd said.

Activity in Gulf of Mexico is picking up after the 2010 oil spill brought drilling there to a standstill and higher oil prices are boosting exploration work in the region.

Oilfield services leader Schlumberger expects rig count in the Gulf of Mexico to top the level seen prior to the BP disaster, later in the year.

Rynd said Hercules is still in talks with Petroleos Mexicanos regarding its jack-up rigs. The Mexican state oil company did not renew contracts for two Hercules rigs following an accident in 2008.

The company, which is valued at about $618 million, caters to Chevron and Apache in the US Gulf and Oil and Natural Gas Corporation Limited (ONGC) in India.

Hercules shares were trading up 2% at $4.57 on Wednesday afternoon on the Nasdaq.

The stock has gained nearly two-thirds of its value in the October-December quarter, outperforming the broader S&P Oil & Gas Drilling Sub-Industry Index, which has grown 21% during the period.

Published: 26 January 2012 05:42 GMT  | Last updated: 26 January 2012 05:45 GMT

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