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 „Drillers and Dealers‟ – July 2010 Edition

 About The Oil Council and „Drillers and Dealers‟

 The Fallacy of „Easy Oil‟

o By Robin Mills, Energy Economist and Author of 'The Myth of the Oil Crisis'

 Waste to Energy – A Recyclable Hydrocarbon Footprint?

o By Ennio Senese, Executive Partner, Resources, Accenture

 Oil Council Assemblies

 Shale Gas Comes To Europe – Another “Game Changer”?

o By Doug Glass, Partner and Greg Hammond, Partner, Akin Gump Strauss
Hauer & Feld LLP

 „On the Spot‟ with our Question of the Month (Part One)
o “Do you except an increased wave, a stagnant lull or sporadic activity of new
M&A/A&D transactions in Q3 and Q4 of 2010?”

 „On the Spot‟ with our Question of the Month (Part Two)
o “How significant a role will unconventional oil (extra heavy oil, oil sands and
oil shale) and unconventional gas (CBM, shale gas, tight gas) play in
tomorrow’s global energy mix? Are these unconventionals now in fact
becoming conventional?”

 “Wall Street Investor” (Column) – PE Investing: Setting the Record Straight

o By Ziad Abdelnour, President & CEO, Blackhawk Partners, Inc.

 “Golden Barrels” (Column) – The Market is The Market

o By Simon Hawkins, Head, Oil & Gas Research, Ambrian

 “The Oil Outlook” (Column) – Fears of Weaker Recovery Mire Crude

Markets
o By Gianna Bern, President, Brookshire Advisory and Research

 A Nightmare Well
o By Elaine Reynolds, Oil Analyst, Edison Investment Research

www.oilcouncil.com
Trevelyan_OilGas_1343279:Layout 1 06/07/2010 16:24 Page 1

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 The Fallacy of ‘Easy Oil’

Written by Robin Mills, Energy Economist and Author of 'The Myth of the Oil Crisis'

There is one thing on which almost all pundits, industry veterans, forecasting agencies and
members of the public seem to agree. Energy, particularly hydrocarbons, is going to get ever
scarcer and more expensive. The „age of easy oil‟ is over.

Former Shell CEO Jeroen van der Veer opined in April 2008 that, “Easy oil and easy gas...is
simply depleted” and that December, his unlikely soul-mate, Russian Prime Minister Vladimir
Putin, concurred: “The era of cheap energy, including cheap gas, is coming to an end”.

Oil prices remain high by historic levels, and the continuing Macondo disaster in the Gulf of
Mexico seems to confirm the belief that the oil industry is venturing into ever more-challenging frontiers.

Business plans and economic projections are founded on the belief in the end of easy oil. It predicts a rosy future
for the Middle East and Russia, drives growth in renewable energy and alternative vehicles, and leads many to
worry about „peak oil‟, resource wars and a collapse of industrial civilisation.

But what if this belief is wrong?

Resources in the ground are clearly abundant. Canadian Association of Petroleum Producers Vice President
Greg Stringham, pointing to the 175 billion barrels recoverable from the Canadian oil sands, says, “It won't be a
lack of resources that causes a shift away from oil. There's lots of oil.” The United States Geological Survey
recently updated their estimates for recoverable oil from Venezuela‟s Orinoco Belt to 513 billion bbl. Compare
this to BP‟s estimate of some 1200 billion bbl of global conventional oil reserves.

Some shale formations, such as the US‟s Bakken and Eagle Ford, contain substantial amounts of oil and natural
gas liquids too, a form of unconventional oil which has emerged from nowhere in the past few years.

Traditional onshore light crude, though often inaccessible to the international oil companies, remains plentiful too.
We might be sceptical of Iraq‟s plans to reach some 12 million barrels per day output by 2015, despite the
assistance of Shell, Total, ExxonMobil, CNPC and others. The political, security and logistical challenges are
clearly huge. But most industry observers agree that, in the longer term, the technical potential is there. Iraq‟s
reserves are likely to increase substantially once the supermajors start work, not to mention the almost unbroken
string of discoveries in the Kurdistan region.

Next door, despite sanctions and mismanagement, exploration successes in Iran suggest substantial remaining
potential: at least 21 billion bbl found since 1998 in four fields near the Iraqi border. Saudi Arabia has substantial
spare capacity, while Kuwait and Abu Dhabi recently updated ambitious plans for production gains.

Non-OPEC is not slacking either. Despite high taxation, maturing fields, often outdated technology and a
capricious legal environment, Russian production continues to creep up. Kazakhstan‟s long-delayed Kashagan
field will finally come onstream around 2013 and yield more than 1 million bbl per day. Brazil‟s enormous pre-salt
play continues to deliver new discoveries and is now moving into early production. At the same time, frontier
exploration is finally yielding fruit, with major finds in Ghana and Uganda, and promising signs in areas such as
Mozambique, the Falklands Islands and Greenland.

And we should not forget the potential of old fields. Global average recovery factors hover around 33%, but 50-
60% is often achieved in the North Sea and onshore USA, indicating a vast, low-risk prize for better reservoir
management and more systematic use of enhanced oil recovery. Mature areas such as Colombia, Egypt and
Oman are rebounding impressively from some years of decline.

Instead of fears that non-OPEC production had peaked, the IEA now sees output broadly flat to 2015. Admittedly,
action following the Macondo blowout may hamper US deepwater production, but elsewhere in the world, higher
safety standards are to be welcomed, and probably mean only moderately higher costs.

During the decade to 2009, stimulated by high oil prices, reserves increased in every region and by 23% overall,
even excluding the undeveloped portions of the Canadian oil sands. Production growth, running at 1.1% annually
during the 1990s, accelerated under the stimulus of Asian demand to 1.4% per year from 2000 up to the onset of
the economic crisis.

As for gas, the success of US shales has demonstrated that fears earlier this decade of a shortage were wildly
pessimistic. Led by technology, the industry was able to respond to high prices, and demonstrate that

www.oilcouncil.com
unconventional resources can be brought into play fast enough to make a difference. Europe, China, Australia,
Indonesia, South Africa and India are now all looking seriously at shale gas and coal-bed methane.

With no OPEC to cut production, gas prices remain well below oil on an energy-equivalent basis. Remaining
global gas resources may be as much as 12400-20800 Tcf, plus a more speculative 6000 Tcf of unconventional
gas outside North America. At the upper end, this equates to 250 years of current production.

Add to this the enormous potential of coal gasification, the conversion of coal and gas to liquid petroleum, the
significant if problematic role of biofuels, and the tantalising potential of gas hydrates and cooking oil from
kerogen shales.

How do we reconcile this abundance of resources with fears of declining production? The result is the appeal to
„the end of easy oil‟. The argument goes that new petroleum supplies, though available, are more difficult and
costly than before, requiring new technology, located in remote or unstable regions, or environmentally
damaging. Hence at best, prices will continue to rise; at worst, some of these resources may be permanently
inaccessible.

Yet the idea of easy oil ignores history, and the advance of technology.

There has never been an age of easy oil. Drillers in Persia in the early 1900s had to contend with smallpox,
hostile tribes, corrosive water and misleading surface geology. North Sea roughnecks of the 1970s faced
mountainous seas, blowouts and massive cost over-runs. Technology advances in line with our needs. Drilling in
two kilometres of water was unthinkable in the 1990s; now, it is almost routine.

Much of the run-up in industry costs this century is the result of inadequate investment in the previous decade,
and a consequent shortage of engineers, geologists, rigs and steel. In the early 2000s, oil sands developments
were thought to require an oil price around $30 per barrel; now $80 is often quoted. Yet the geology has not
changed, while technology has advanced significantly. Given time, these bottlenecks can be remedied.

Oil extraction costs are a constant battle between increasing depletion and advancing technology. Once we crack
the secret of developing a large resource, such as shale gas or extra-heavy oil, costs fall over time as we gain
experience.

Yes, many unconventional plays have higher development costs and require special approaches, but they have
no exploration risk, and are typically located onshore in stable countries. As some of the US gas shales are
cheaper than traditional North American plays, unconventional resources are becoming conventional.

Talking about the „end of easy oil‟ is an admission that we have failed as an industry. It gives entirely the wrong
message. It tells countries lucky enough still to have some „easy oil‟ that there is no point opening up to
international investment, and no risk of competition if they don‟t.

It tells bright young people at university that petroleum is a sunset business and they should look elsewhere for a
career. And it tells the general public that energy prices are only going to rise, and that society should make
costly efforts to develop alternatives to oil and gas. These are dangerous trends, at a time that many people are
already hostile to the petroleum industry on environmental grounds.

Instead, the message should be that we are developing the technology and business models to turn difficult
petroleum into easy and environmentally acceptable energy. That is how international oil companies can keep
themselves useful and relevant to the leading oil nations, and to the globe‟s energy consumers.

By Robin Mills

Robin M. Mills is a Dubai-based energy economist, and author of ‘The Myth of the
Oil Crisis’

You can contact Robin directly at: robin@oilcrisismyth.com

The Myth of the Oil Crisis’ explores myths surrounding the global consumption of
oil.With oil prices rising, drivers wince whenever they pull into the petrol station
and businesses watch their bottom lines shrink.

Predictions suggest that the situation will only get worse as oil dries up. It's a
plausible argument, especially considering the rate at which countries like China
and India are now using oil. Even more worrisome, the world's largest oil fields sit
in unstable, geopolitical hotspots like Iran and Iraq.

More information on his book can be found at: www.oilcrisismyth.com

www.oilcouncil.com
 Waste to Energy – A Recyclable Hydrocarbon Footprint?
Written by Ennio Senese, Executive Partner, Resources, Accenture
Volatility, Uncertainty and Interdependence
These are the buzz-indicators of today’s world and
as recent events show, the world is more
interconnected and unpredictable than ever before.
The recent fall outs in the economy and
environment have exposed us to enormous
challenges and provide evidence how nations are
really interdependent.
In Europe for example, Greece is clearly not alone
facing the economic financial crisis, and
environmental disasters, whether natural (Iceland)
or by likely human error, (Gulf of Mexico) are also
confronting us with our duty to define the kind of
global economy and environment we want for
tomorrow.
Governments, although often blindfolded by
national sentiments and interests, leaning on the
mandate given by their electorate, seem to
understand that it is their responsibility to devise
sound policies for a stronger and more sustainable
economy and environment.
Clean and affordable energy, including renewable
and sustainable forms of energy, should be a
central element of these efforts.
Arguably Sustainability leans on two E-pillars:
Economy and Environment.
“Despite the temporary
decline in crude oil prices
during the current global
economic downturn, a
$170 per barrel by 2020 is
not unthinkable”
The increase in global energy demand and the
decrease of easy oil and natural gas is driving the
market towards alternative energy sources. This
issue cannot be neglected.
The IEA projects that between 2005 and 2030
global demand for energy will increase by over
www.oilcouncil.com
50%. Assuming that in 2030 oil provides the same
percentage of global energy that it did in 2005.
This energy demand increase will cause an
additional 30 billion barrels of oil to be consumed
annually.
A key-factor behind the astonishing increase in
energy demand is the growing economies of the
emerging markets. As countries industrialize, more
energy is required for economic growth and to
increase standards of living.
Strong per capita income growth, rapid
industrialization, and rapid population growth are all
contributing factors to the increase in global energy
demand. With urbanization and improvement in
standards of living, the demand for energy
increases.
The increasing demand for energy is limited by
irreplaceable and ultimately ending petroleum
reserves. According to the EPA, domestic oil field
production in the U.S. has become increasingly
expensive, as easy-oil has already been exploited.
Some experts speculate that global oil production
has reached a maximum and that production will
soon enter a terminal state of decline. Alternative
technologies will be needed to supply increasingly
precious oil to the global economy.
My thought on this, is that Peak Oil will never be
reached as at one point in time the economics of
difficult oil exploration in combination with the ever
increasing environmental impact of growing
conventional consumption of Hydrocarbons, will
push the sense of urgency to come with
alternatives, of which we had a preview already in
2009 when new energy ballooned everywhere, with
a cost indicator about half of the $/bbl in that year.
Despite the temporary decline in crude oil prices
during the current global economic downturn, a
$170 per barrel by 2020 is not unthinkable and will
trigger the effect described before.
When we speak $/bbl, we tend to think in terms of
fuel. The question is what the effect will ultimately
have on the petrochemical industry, the mother of
all plastics.
Today, society is highly dependent on plastics,
almost as an incorporated addiction.
“This energy demand
increase will cause an
additional 30 billion
barrels of oil to be
consumed annually.”
At a micro level it keeps the foods we eat fresh, the
medicines we take secure, and the homes we live in
safe. On macro level, the industrial applications are
too many to tell, from ship cabins to biscuit-
factories, plastic is omnipresent.
As a result, consumption is increasing at a rapid
pace. In fact, the global culture of consumerism
relies upon plastic for its very existence. The overall
plastic market is growing at a rate of more than 7%
per year. In 2005, over 230 million metric tons (over
500 billion pounds) of plastic was produced globally.
Just to illustrate the scale of the waste as a
consequence, I want to focus on just one dimension
of it – waste plastic, which is responsible for around
7% of the waste content of the average UK dustbin.
According to general consensus, the amount of
plastic waste today in the world is estimated at 100
million tons per year and growing – but only a small
amount of this plastic is actually recycled.
For example, the UK uses over 5 million tonnes of
plastic each year of which an estimated 25% is
currently being recovered or recycled. Germany
recycles 44% of its plastics. In other parts of the
world, the figure is much lower.
It is commonly known fact there exists this terrible
mass of plastic waste floating around the in the
North Pacific Ocean known as the Great Pacific
Garbage Patch.
Shockingly, this Garbage Patch is twice the size in
area of France and it is growing rapidly. 90% of this
Garbage Patch is made up of plastic. Around 10%
of all the plastic in the world eventually makes it into
the world’s oceans.
Today there are four ways to dispose of waste
plastic: Recycling, landfill, Incineration, and
Dumping.
Unfortunately these come with severe drawbacks
and limitations.
Incineration, landfill, and dumping present harmful
environmental impacts and recycling has not yet
generally overcome the barriers of cost and
efficiency. It seems we are running out of time and
options, putting pressure on society to come with
new solutions.
www.oilcouncil.com
There are a number of reasons why only a small
percentage of plastic get recycled, one is consumer
awareness and public opinion, another one is
technical; there are many different types of plastics,
which makes it difficult and costly to separate.
Particularly those which make up items like
televisions, mixers, and even mobile phones are
almost impossible to recycle.
However, there is another recycling process for
plastics which is gaining interest, since it is
becoming more economic, has good demand
growth potential and more importantly, it is more
sustainable. It is the transfer of waste plastic back
into its original state – i.e. back to oil.
According to the British Plastics Federation, there
has been significant growth in the recycling of waste
plastic including plastics into oil over the past few
years for several reasons:
 Plastics are one of the most sustainable uses
of oil since it “borrows” fossil hydrocarbons and
returns them afterwards into the fuel cycle. In
short plastics start as oil and we can recycle
them back into oil,
 Used plastics can be recycled up to six times,
making them much more cost effective than
other forms of recycling,
 If it doesn’t make economic or environmental
sense to recycle plastics, then their energy
content can be recovered through Energy from
Waste incineration. Used plastics have a higher
calorific value than coal and at a time of high
energy prices, unrecyclable materials can,
through Energy from Waste provide a much
needed local energy supply.
So how viable is this recycling process of waste
plastic to oil?
“It seems we are running
out of time and options,
putting pressure on
society to come with
new solutions.”
There are numerous examples of plants around the
world, which are able to melt down most types of
plastic and convert them into oil which can be used
to make either fuel oil or higher value oil products
like gasoline, diesel, and jet fuel. The economics of
such plants vary, with some companies operating
plants that work at low as $10/bbl.
The trouble with most of the plants currently
operational is that they are all small; typically
producing between 20-50,000 barrels of oil per
year. Some are using unique technologies, which
require less energy intensity and do not require the
plastics to be separated.
At the moment, companies are finding it hard to
scale up such plants, which is due to fact that many
of the technologies in use are new and are still
being proven.
Also, depending on the location of the plant, they
can be subject to competition from increasing
regulation around fuel production and fuel
specifications, competition from other fuels and
uncertain economics due to fuel subsidies for
example.
Finally most waste projects tend to depend on
expensive and complex supply chains, which can
often make the project uneconomic.
So with the fundamental looking good, how can we
scale up the case for plastics to oil recycling?
We are in an age where we know that demand for
oil is continuing to increase, as is the amount of
plastic which is being wasted, and we also know
that there is a shortage of sustainable plastic waste
projects.
Our perspective is that there are several areas of
focus which could mean a transformation for this
business.
Firstly we need to see much more collaboration
between government, local authorities and industry
to resolve the problem of waste plastic, which
means more financial support for new and existing
projects, higher investment in the technologies
around this process.
Following on from this we would need to see an
acceleration of policies to support the spread and
adoption of the waste plastics to oil process and its
associated technologies.
In addition, since refinery margins seem to be
staying under pressure for a long period, an
opportunity to create additional value could be
identifying those new plastic-to-fuel-conversion-
technologies allowing cohabitation with traditional
Written by Ennio Senese, Executive Partner, Resources, Accenture, with thanks to Julie Adams, Senior
Manager, Accenture
The Accenture Energy industry group serves the oil and gas sector including upstream, downstream and
oil service companies. http://www.accenture.com/Global/Services/By_Industry/Energy/default.htm
www.oilcouncil.com
refining technology, and add traditional-renewable
to the refinery portfolio.
“We need courage to leave
the old paradigms and
build a new one based two
E-pillars: the Environment
and the Economy.”
Finally, we need spread more awareness of the oil
solutions for waste plastic. This innovative process
and the projects associated with it, should serve as
a role model to showcase these waste plastic to oil
recycling technologies.
Together, we should be aiming to transform the
vision of plastic as a waste material to one where
plastic is seen as a valuable feedstock and
resource.
Such a transformation could mean in this
increasingly unstable and urban world, waste plastic
could actually help to directly solve the world’s
waste problem.
To this we can also add that pressure has to be
increased on businesses and governments to
realize the opportunity in front of us, rather than
thinking in terms of un unpopular political and
business theme which is a seems a threat to
business and politics as usual.
In order to allow future generations the chance to
live in a world which is prosperous, clean and
green, we need to come to grips with the new reality
and identify the new opportunities.
Clean and affordable energy, including renewable
and sustainable forms of energy, are centres of
gravity in this new direction.
Finally, we need courage to leave the old
paradigms and build a new one based the two E-
pillars: the Environment and the Economy.
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 Shale Gas Comes To Europe – Another “Game Changer”?
Written by Doug Glass, Partner and Greg Hammond, Partner, Akin Gump Strauss Hauer & Feld LLP
Even though the presence of natural gas in shale
seams has been known to oil companies for decades
(the first commercial gas well drilled in the US in 1821
was a shale gas well), gas from shale seams has
historically been dismissed as too difficult to extract
and too expensive.
However, recent increases in energy prices have
incentivised and driven the development of new
technologies, with the result that shale gas is currently
causing a revolution in the gas fields of North America.
The US Department of Energy has estimated that
there is enough shale gas to supply North America for
the next 90 years.
The economic success of certain shale gas fields,
such as the Barnett Shale play in Texas, indicate the
widespread potential of shale gas as a sustainable
and relatively clean energy source.
Method of Extraction
In the past, shale has been disregarded for the
purposes of gas production due to its insufficient
permeability (which did not allow significant gas flow to
a well bore thereby making gas extraction
uneconomic). However, modern technological
advances in horizontal drilling techniques and in
hydraulic fracturing have meant that flow rates and
recoverability have significantly improved - resulting in
highly profitable operations.
The process of extraction begins with the well casing
being cracked open by explosive charges to create a
series of perforations along a horizontal well bore
drilled through the shale seam thousands of feet below
the surface. Water, sand and chemicals are then
pumped into the well at high pressure through the
openings in the pipes, “fracturing” the surrounding rock
which allows the gas to flow freely to (and through) the
well bore.
Impact on Global Gas Supply and Demand
The impact of the shale gas revolution is already being
felt around the world, and its influence on global gas
supply and demand is currently changing the shape of
the industry. One result is that the proliferation of shale
gas has had a major impact on LNG imports into
America. The Sabine Pass LNG terminal on the
Texas-Louisiana border was built at a cost of US$1.5
billion as a vital component of the US energy
infrastructure for the next generation.
Tankers from Qatar and other LNG producing
countries were expected to dock at the on-site
receiving terminal in order to supply LNG straight into
the US domestic gas network. Although the Sabine
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Pass LNG terminal has the capacity to receive one
shipment per day, in the space of two years only 10
ships have docked. The remaining eight LNG import
terminals in the US have been similarly affected by the
shale gas revolution and are running at only 10% of
capacity.
Environmental Impact
Although natural gas is the cleanest burning of the
fossil fuels, environmental concerns have been raised
surrounding the method of extraction of shale gas,
particularly the possible environmental impact of
hydraulic-fracturing on fresh water supplies.
The US Environmental Protection Agency has begun
an extensive examination of hydraulic-fracturing. Since
the technique uses considerable quantities of
chemicals mixed with water, this often requires the
chemical/water mix to be held in ponds at ground level
until removed by tanker or re-injected into the earth.
Some hold the view that the fracking mixture, once
injected, can seep into the fresh water table
underground.
Environmentalists allege that this may in turn have an
impact on ground and surface water quality,
threatening the environment and human health.
The environmental impact of hydraulic-fracturing is
currently being debated within the US Senate’s climate
and energy bill. According to recent reports, the latest
draft of the bill seeks to exclude regulation of this
technique by the EPA. A further discussion draft
proposed by BP and two other energy companies
provides that regulation would be the responsibility of
the individual states. This discussion draft also
recommends against publication of the chemicals
used in the fracturing fluid as this would comprise
disclosure of “trade secret information”.
Even though similar methods of extraction have been
used for decades in the US, historically there were few
concerns surrounding the environmental impact, since
the sites had been situated in unpopulated areas.
However, as sites have moved closer to the denser
population groupings, environmentalists have been
prompted to argue that occupiers of land alongside
drill sites and above the horizontal penetration paths
have a right to know what potential contaminants
could affect their nearby ground water supplies.
In response to the environmental lobbyists, one can
expect that nations within
Europe which have historically been forced to rely on
neighbouring states for their energy supplies will fight
long and hard to secure their own domestic energy
supplies.
Equally relevant will be the lessons to be learned in
due course from the recent oil spill at the Macondo
well in the Gulf of Mexico which will no doubt conclude
that (i) no development of hydrocarbons is without risk;
and (ii) problems incurred on-shore are generally
easier to remedy than those off-shore.
Specific European Issues
Not surprisingly, the explosion in North American
shale gas development has triggered interest all over
Europe. Even though the potential for shale gas in
Europe remains uncertain, the major gas companies
are keen not to make the same key mistake which
they made in the US. By being too slow off the mark in
the US, they had to spend billions of dollars buying
assets from independent explorers.
Europe mineral rights must be acquired to develop the
subsoil - but a separate agreement must then be
made with the holder of the surface rights before any
drilling can start. In addition, due to the greater
dissipation of land interests and the more dense
development and usage of the land, numerous such
surface-right agreements are often required as a pre-
condition to the commencement of operations.
In addition to this, a major issue facing oil companies
in Europe is the greater concentration of inhabitants.
Drilling shale gas requires multiple wells, which is
comparatively easy in the wide open spaces of North
America but will have a greater effect on the denser
population groupings in Europe in terms of health and
safety and sheer practicality.
Another stark logistical consideration is that, in
contrast with North America, Europe currently has a
far more limited supply of drilling rigs.

It is believed that at least 40 companies are currently
looking for shale gas in Europe with all the major oil
companies, except BP, being present in the market.
Licences to explore for shale gas in Sweden, Poland,
Germany, France, Hungary and Austria are being
snapped up by the majors.
Exxon-Mobil is believed to have shale gas areas in
Germany and Hungary and to have applied for permits
in Poland. Shell has acquired licences in Sweden.
ConocoPhillips recently drilled the first European shale
gas well under an exploration agreement with Lane
Energy in a shale formation in Poland. More recently,
Akin Gump has also been working on a possible shale
project in Russia.
There are several issues which are specific to Europe.
Firstly, no two shale rock formations are ever the
same. Consequently, the geological expertise built up
in North America may prove not to be applicable to
Europe, since the Texan and Pennsylvanian plains (for
example) are geologically very different to the
mountains of Central and Eastern Europe.
Similarly, a variety of legal issues arise in Europe
relating to land. In the US, the holder of the mineral
rights generally has the right to use the surface of the
land under which the minerals lie, with only an
obligation to compensate the surface owner for any
damage.
However, the real estate and land use laws in Europe
are very different, more diverse, more complicated and
largely untested in the shale gas context. Generally, in
Finally, the concerns relating to possible
environmental contamination, which are currently
being debated in the US, will no doubt also be strongly
voiced in Europe, especially given Europe’s greater
and closer population groupings. Whilst there are
many factors in the US shale gas industry which will
be different to the European industry, one can
probably assume that many similar arguments will be
echoed in great detail in Europe, particularly as to
whether there should be pan-European regulation of
hydraulic fracturing.
The Future
There are undoubtedly hurdles which need to be
overcome before Europe’s shale deposits can be
exploited to the full. Although many issues are similar
to those in the US, the different geographic,
demographic and regulatory landscapes in Europe are
presenting different challenges.
However, as in the US, the enormous potential
advantages to be gained from this new gas resource
simply cannot be ignored and, if found to be
commercially viable, European shale gas may have
the ability to transform the energy industry in Europe
for decades to come.
Undoubtedly, one can expect that the “first movers”
and the most experienced players having the best
strategy, skills, technology and advisers will prevail.
7 July 2010 – Copyright: Akin Gump Strauss Hauer &
Feld LLP - www.akingump.com

Doug Glass and Greg Hammond are partners in the London Office of Akin Gump Strauss Hauer & Feld. Since its
foundation in Texas, Akin Gump Strauss Hauer & Feld has been one of the leading international oil and gas law
firms - advising clients at every stage of the hydrocarbons value chain. In addition to the more traditional oil & gas
transactions, in recent years Akin Gump has been increasingly active in the area of "unconventional"
hydrocarbons and in the last six months alone has advised on the following:
 Anadarko – in its US$1.4 billion carry-to-earn Marcellus Shale gas joint venture with Mitsui;
 Consol Energy - in its acquisition of the Appalachian shale gas and other properties of Dominion Resources
for US$3.48bn; and
 Enterprise Products – in its acquisition of a Haynesville shale gas gathering system for US$1.2bn.
 In Europe, Akin Gump in London is currently advising on two shale gas projects in Poland and one in Russia.

www.oilcouncil.com
 ‘On the Spot’ with our Question of the Month (Part One)

“Do you except an increased wave,

a stagnant lull or sporadic activity of new
M&A/A&D transactions in Q3 and Q4 of 2010?”

“Whilst there has been a limited amount of very large corporate transactions in the first half of
2010 there has been a steady flow of smaller opportunities in the marketplace. The larger
transactions are driven by a need to focus capital on core projects such as shale gas (in the
US) and other capital-intensive ventures. Whilst the rationale for smaller deals are also driven
by capital discipline and a need to focus many are on offer due to a complete lack of capital by
the seller.

With respect to the next 6 months Stellar sees very little change (and certainly no downturn) in
the sub- USD100mm market where capital for developments, exploration etc. will remain very
tight indeed. This will ensure that projects that require investment (particularly those that involve some reservoir
or political risk) will continue to come into the market in a fairly steady flow.

In the mid-sized part of the market we see much more enthusiasm and willingness for companies to consider
mergers. In particular, many those with market capitalisation of less than USD500million are actively looking at
the acquisition or merger with other companies that would benefit from being part of a larger entity. Stellar
expects continuing deal flow and news on the back of this model with the mergers of Bridge and Silverstone,
Norse and Pan Petroleum and Afren‟s acquisition of Black Marlin as just a few examples.

In the larger sector of the market we expect the market to be dominated by BP sales which will draw in funds
from many of the larger oil and gas Majors and large Independents. This will inevitably impact the availability of
finance for other deals and may precipitate some of the buyers of BP‟s assets to sell their non-core assets to
raise capital for the purchases. We also feel that the pace of overseas growth of some National Oil Companies
will slow and several may retrench back to home markets as projects compete for precious capital.

From Stellar‟s perspective, after 11 years of working as an independent advisor in the upstream M&A/A&D
market, we are currently experiencing our highest ever level of deal-flow through our business and see no
evidence of things slowing down.”

... Dave Fassom, Director, Stellar Energy Advisors Limited (Oil Council Member)

“Increase. Buyers are able to hedge the higher commodity prices and sellers are starting to
come around to valuations they feel compensate them for taking the exploration or development
risk. Increased regulations offshore will drive buyers onshore looking for lower risk Bakken, West
Texas and Colorado oil that is now being developed using proven drilling techniques that provide
a payback on wells within the first two years.

After payback, these wells can produce 500 barrels per day for years providing the buyer a
consistent return on investment while the seller gets a premium for the exploration risk.”

... Steve Crower, Energy Investment Banker, Starlight Investments LLC (Oil Council Member)

“Despite earlier improvements in credit and equity markets and corporate balance sheets, U.S. M&A activity
remained sluggish in the first half of 2010. Unforeseen economic events in the last two months triggered a global
ripple effect reviving sentiments of uncertainty – setting the stage for a challenging M&A environment for large
cap transactions in the second half, according to the Transaction Services practice at PwC. However, PwC
contends that the middle market may be a different story.

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  “Going into the second half, record dry powder in the private equity space and unprecedented cash
levels on the balance sheets of corporate America will combine with the desire of family held businesses
and private equity backed management teams to sell prior to looming tax increases”
Bob Filek, Partner, PricewaterhouseCoopers’ Transaction Services.

U.S. M&A activity was down three percent compared with the same period in 2009. The number of closed deals
in the first half of 2010 represents the lowest deal volume this decade, according to PwC. For the first five months
of 2010, there were 2,969 closed deals representing $317 billion, compared with 3,065 deals valued at $323
billion in the same period of 2009.

While deal value and volume are down, willing lenders and open credits markets are available for transactions,
according to PwC.

 “Banks and institutions are providing capital to execute deals. They are lending more conservatively, but
credit is available from a variety of sources and in a variety of types – including traditional leveraged
loans. Companies are taking advantage of depressed valuations – looking for deals to grow and
diversify at discounted prices. Even with the uncertainty in Europe, a hesitant consumer and volatile
markets, it‟s still an attractive time to buy. While there is still ambition to complete mega deals, the „hit
rate‟ will be low. The sweet spot for deals will be one to five billion dollars and below, with a mega deal
or two sprinkled in. Private equity players will also remain active in the distressed area, using their debt,
hedge and distressed funds to find deals in untraditional ways. While there are concerns about stricter
regulation for certain alternative investment classes, private equity is a resilient and innovative business
run by sophisticated investors who will still get deals done, regardless of what transpires in Washington.”
Greg Peterson, Partner, PricewaterhouseCoopers’ Transaction Services

Corporate buyers continue to employ strategic deal making, pursing attractively valued companies and seeking
out „mergers of productivity‟ as a means to capture benefits of scale and cost savings. The median deal size in
the first half was $107 million, indicating that smaller, middle market deals have become the new „normal.‟

PwC expects divestitures, carve-outs and spin-offs to continue to contribute to deal activity as companies
separate certain assets and operations no longer seen as core to the business. The likely candidates to acquire
these assets are private equity players who have strong relationships with large corporations that may be
interested in selling certain assets. Business units within the industrial products and technology sectors are
among the industries where PwC expects to see increased divestiture activity.

The current private equity overhang at nearly $850 billion (three and a half times the overhang in 2000)
represents 54% of all capital commitments made between 2004 and 2009. Over 85% of the $850 billion is in
funds larger than $1 billion, including 48% in funds larger than $5 billion, according to Cambridge Associates.

www.oilcouncil.com
Declining values of the Euro and Pound are also providing a strong backdrop for cross-border deals, particularly
in Europe. “Typically, during U.S. downturns, European companies take advantage of a poor U.S. economy, but
this time, foreign buyers have to deal with issues at home, including a challenging financing market, reduced
demand and declining currency values,” according to PwC‟s Filek. “As a result, we expect the inverse to occur.
U.S. corporates are going to see good opportunities to acquire high quality franchises and brands in Europe.”

Sectors ripe for consolidation include:

 Financial Services – Until the impact of U.S. financial regulation is fully realized, uncertainty will be
cause for continued stagnation of deals in the sector, other than some continuing interest in FDIC
supported takeovers. However, opportunities exist for companies to divest non-core assets and consider
capital raising alternatives such as debt or equity raises. Consolidation in the property and casualty
insurance is still expected in light of continued soft premium pricing and desire to maximize scale, while
life insurance consolidations will likely continue to be a less active space given returning investment
portfolio valuations and focus on product redesign.

 Oil & Gas – Oil & gas commodity price differential will drive companies to increase their oil positions
through acquisitions. Equipment and service companies will expand their product and geographic
footprint through transactions. The offshore drilling moratorium will be an obstacle for those highly
levered to Gulf of Mexico E&P projects but will likely not dampen the growing level of transactions in the
sector.

 Power & Utilities – Despite uncertainty surrounding energy policy and regulatory changes, M&A activity
in the sector has been a pleasant surprise, as significant regulated and merchant company transactions
have been announced in the first two quarters of 2010. PwC expects this trend to continue, with a
cautious eye towards regulatory approvals of the announced transactions. IOUs continue to shed non-
core assets and M&A activity remains strong in the renewable space. Expect to see continued sales of
merchant power plants, particularly driven by the current and projected commodity prices.

According to PwC, the wild card in the second half will be just how much incentive looming tax increases give
buyers to sell. “The economics could be compelling enough to drive a rush to exit by December 31, which could
mean a busy holiday season for deal makers,” says Filek.

By PricewaterhouseCoopers’ US Transaction Services Team

www.oilcouncil.com
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 ‘On the Spot’ with our Question of the Month (Part Two)

“How significant a role will unconventional oil (extra

heavy oil, oil sands and oil shale) and unconventional
gas (CBM, shale gas, tight gas) play in tomorrow’s
global energy mix? Are these unconventionals now in
fact becoming conventional?”

“Significant. As high quality middle east imported crude declines or is consumed by developing
countries closer to the area, unconventional oil will play a big part in contributing to supply the
US and European markets. Alberta oil sands are 95% of all of Canadian oil reserves and 13% of
global oil reserves with 173 billion barrels of recoverable oil in place. The bitumen in place is low
quality but with additional refining, Canada can produce approximately 1.5 million barrels per
day from Steam Assisted Gravity Drainage (SAGD) projects that have only been commercial in
the past 15 years. Production should increase to 2.0 million barrels per day due to advances in
engineering and design.

Oil shale (similar to what is in western Colorado) is a few years away, but if commodity prices stay in the current
range there are some techniques using portable nuclear heating elements that may be proven soon and could be
used to make oil shale production economical. These low quality crude plays are the bottom of the barrel when
comparing reserves, but they are on soil that is politically stable and can be managed for the long term.”

... Steve Crower, Energy Investment Banker, Starlight Investments LLC (Oil Council Member)

“Most major upstream exploration companies are moving into unconventional resources such as coal seam gas
and shale gas. Super-major exploration companies predict that as much as 16% of production this year will be
from unconventional resources. Around 20% of upstream global mergers and acquisitions deals in 2008 were in
coal seam gas and a high percentage in recent times were in shale gas, with some extraordinary prices paid, e.g.
the $41B XTO deal. Over the past 5 years coal seam gas investment was the number one oil and gas strategy;
for every $1 invested in 2004 coal seam gas returned $4.4 Global coal seam gas production has increased
rapidly, nowhere more so than in Australia, where coal seam gas now comprises 30% of proven and probable
(2P) gas reserves and is still rising. The rise of gas as a cleaner fuel and the increasing "liquidity" of LNG
markets, especially from abundant shale gas and coal seam gas will see more being paid for unconventional
fields. I believe that we are approaching the tipping point fast”

... Chris McKeown, Commercial & Business Development Manager, L&M Energy (Oil Council Member)

www.oilcouncil.com
“There is no question that at some point, unconventional oil will play a significant role in our energy economy,
especially oil shale. The oil locked in shale in the Piceance Basin of my home State of Colorado are larger than
all the known deposits in the world - so there is little doubt that resource is part of our future.

Moreover, the Shell technology has essentially broken the century-old technological barrier, so oil there can now
be produced at marketable prices.

So we are left with a problem of political will more than anything else. With a State Governor who opposes the
production of any new fossil fuels (and who has imposed an onerous and difficult new regulatory process on
O&G), and with a federal Administration unfriendly to oil shale, most companies are simply waiting for a better
business climate.

I frequently tell clients these are battles they'll eventually win, but many companies are just waiting for a better
political window. It is unfortunate that politics, not economics, is the primary driver of energy policy - but of course
that has always been the case.”

... Greg Walcher, Energy and Natural Resources Consultant [Managing Director, Global Energy & Natural
Resources at LeaderBridge] – (Oil Council Member)

“I think we should perhaps start distinguishing between 'conventional unconventionals' like oil
sands, extra-heavy oil and shale gas, which are commercial today, and the remaining
unconventionals like oil shale and gas hydrates, which still await technological and commercial
breakthroughs. To extend the debate further, there is also oil and gas in difficult places -
ultradeep water, ultradeep reservoirs, the Arctic - and conventional oil extracted via tertiary
recovery/EOR. These can be comparably expensive to unconventional oil, as can 'stripper
wells'.

Then we have liquid hydrocarbons derived from coal, gas and biomass/biofuels, and natural
gas made from coal or landfill waste. These are not traditional oil/gas extraction technologies at all, but the end
product can be indistinguishable to the consumer from traditional fuels. I agree the Shell technique for oil shale is
very promising, along with some other new ideas, which get round the old problems of waste rock, high water
use, land degradation, etc.

We need, though a new term. It's getting too confusing distinguishing between the oil shale deposits in places
like Colorado, and the shale oil reservoirs like the Bakken. I'd suggest that the Bakken and its like be called shale
oil, as with 'shale gas' which everyone is familiar with now, and the oil derived by transformation of immature
source rocks like the Green River Formation could be called kerogen oil (and to make it even more confusing, the
Shell process produces natural gas as well as oil!)

The potential volumes of kerogen oil are enormous, amounting to trillions of barrels (as against the ~1 trillion
barrels of conventional oil produced to date). It's not just confined to Colorado etc, there are big high-quality
kerogen-shale deposits in Jordan, Morocco, Australia, Brazil and other places. Maybe the process will have to
get started there and overcome the environmental hurdles before it really emerges in the US.

The big question for me is whether kerogen oil can be economically competitive as vehicle fuel, or whether all-
electric vehicles (electricity from natural gas, nuclear, renewables or whatever) will win out.”

... Robin Mills, Energy Economist and Author of 'The Myth of the Oil Crisis' (Oil Council Member)

www.oilcouncil.com
 Wall Street Investor – PE Investing: Setting the Record Straight
Written by Ziad Abdelnour, President and CEO, Blackhawk Partners Inc

We at Blackhawk meet on the average over 500 entrepreneurs a year; and the question that keeps recurring at
all times by every one of our entrepreneurs seeking funding is: Why is every private equity fund we meet trying to
take advantage of us? We are much more comfortable in dealing with family offices such as Blackhawk; could
you please help us?

Our view in this regard is very simple:

As venture capital and private equity continue to make news headlines, entrepreneurs may find it challenging to
distinguish fact from fiction.

1. Do investors win at the expense of entrepreneurs?

2. Are investors out to wrest control from management?
3. Is an investor's sole focus on the final liquidity event?

Without question, misperceptions can prevent an entrepreneur from making rational, fact-based decisions.

During my 20 years as an investor, I have come to identify what I call "The Five Myths of Private Equity." Let's
closely examine these five myths, one by one:

Myth #1: Private equity is a win-lose game -- investors win, entrepreneurs lose.

According to this myth, private investors somehow make off with the value of your company -- perhaps buying at
a too-low price and cutting you out of the eventual rewards that you'd earn from going public or selling to another
company. Remember, though, that private equity investors only make money if the value of your company
appreciates -- and, in most cases, the entrepreneur retains a substantial interest in the business. After all, it's in
their best interest to help you grow your company and increase its value. Almost by definition, if the investor wins,
the entrepreneur wins.

Moreover, a private equity investment provides entrepreneurs with the opportunity to diversify their assets. You
receive cash for part of your share in the company, which you can spend or invest as you see fit. As a result, you
immediately reduce your exposure to events at a single company, in a single industry -- and can access cash that
you may need for retirement, college tuition, or major purchases.

Myth #2: Valuations are the only consideration when you're shopping the deal.

Valuation is certainly an important consideration since you want to get a fair price when you sell your company.
However, it's equally important to partner with an investor who shares your goals and who will work with you to

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achieve them. When you focus exclusively on valuation, you risk ending up with a partner who doesn't
understand your company, your growth strategies, or your industry.

Let's say, for example, that you sell your company to an investor whose expectations for your business are
unrealistically high. You may obtain a good price for your company, but that relationship is likely to sour as the
business fails to meet the investor's expectations. On the other hand, an investor with a more nuanced
understanding of your company would work with you to increase its value in a realistic and sustainable way.

Myth #3: Private equity investors don't add value because they haven't been in an operating role.

Most entrepreneurs have ample experience with operating issues. In fact, that's one of the main reasons private
equity investors should not try to micromanage portfolio companies. However, they can add value by challenging
management to think outside the box.

Investors who have backed many different companies at rapid growth stages can recognize patterns that may not
be obvious to the management team. They may have a network of relationships that can also assist companies
in recruiting talent at the board and management level. They can often help companies explore strategic
partnerships with other firms.

Myth #4: Taking venture capital/private equity money means you lose control of your company.

If you take on a minority investment, you can continue to control your company -- making all operating decisions
and having the ultimate say over strategic issues. Selling less than half of your company leaves you in charge,
while providing liquidity to you and other early shareholders.

Myth #5: Private equity investors are only interested in your exit strategy.

When a private equity firm invests in your company, they do expect to exit their investment within the next five to
seven years. Since the firm has limited partners who expect liquidity at some point, they can't hold their
investment forever. However, this doesn't mean that your company will have to sell your company or take it
public. Alternatives might include recapping the company with bank debt, swapping out one investor with a new
private equity investor, or raising capital from a strategic partner.

In any event, your private equity partner has a vested interest in growing your company over the next several
years up to the exit event. Their goal during this period is the same as yours: to increase the value of your
company by expanding the business.

Bottom Line:

Focus on what's important, put the myths to rest

Whether to take on private equity is a complex decision, requiring in-depth analysis of your personal and
business goals, the market environment, and the financing options available. Focusing on these important
considerations -- rather than on common misperceptions -- will help you make the right decision. It's time to put
the myths to rest.

Looking forward to doing business with you and to continue being your resource for deals, capital, relationships
and advice.

Your feedback as always is greatly appreciated.

Ziad K. Abdelnour,
President and CEO, Blackhawk Partners, Inc
ziad@blackhawkpartners.com

About Ziad K. Abdelnour: Once referred to by the New York Times as one of the 100 most creative and
fiercest investment bankers on Wall Street, Ziad K. Abdelnour is a dealmaker, trader and financier
with over 20 year experience in merchant banking, private equity, alternative investments and
physical commodities trading. Since 1985, Mr. Abdelnour has been involved in over 125 transactions
totaling over $30 billion in the investment banking, high yield bond and distressed debt markets and
has been widely recognized for playing an integral role in those three key market sectors.

He founded Blackhawk Partners, Inc., in 2004; a New York based private equity ”family office” that
focuses on originating, structuring and acting as equity investor in management-led buyouts,
strategic minority equity investments, equity private placements, consolidations, buildups, and
growth capital financing. For more information please visit: http://blackhawkpartners.com

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 In OIl, Gas, MInInG, and CheMICals, needs are very speCIfIC. so are our solutions.

InvestIng In OIL And gAs

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Golden Barrels: The Market is the Market
By Simon Hawkins, Head, Oil & Gas Research, Ambrian

One of the best pieces of advice I was given when I
started in the City is “the market is the market”. At first
it sounded silly and obvious but having lived with the
idea for more than a few years now the message has
a timeless truth about it.
The idea is that no matter who we think we are, what
organisation we think we represent, what insight we
think we have on a stock or a sector, whatever
opportunity we think we’re highlighting to investors, the
market will respond in a way that is sometimes
predictable and sometimes not.
It will be influenced by things we know about and
sometimes by things we don’t. It has its own ebbs and
flows, high tides and low tides, sometimes gets
whipped up by a storm that can devastate us.
And sometimes, in the calm of the day, it allows us to
jump into a small boat, potter out a mile or two on the
turn of a gentle tide so we can fish for our lunch.
Over the last three months we have seen the market
wipe around £90bn off the value of the UK Oil and Gas
sector, leaving it valued at around £250bn. The loss of
£90bn is equal to the combined market capitalisation
of 119 out of the 122 stocks that make up the sector:
everything up to and including BG Group.
Yet, while BP has plummeted and pulled down its Big
Oil peers, the explorers have been enjoying a
renaissance on the back of exploration success in the
Falklands, the North Sea and elsewhere.
Rockhopper, one of the best performers, is now the
18th largest company in the sector without having
produced a drop of oil. This is by all accounts an
extraordinary time.
“The good news is that
there is still an appetite
for a good story”
So what would be our advice to companies looking to
brave the elements to raise cash at this tempestuous
time?
The good news is that there is still an appetite for a
good story but investors are understandably picky.
If you have a good story resulting in strong,
transparent cash flows, a robust cash position after the
fund raise, reasonable scale and a liquidity in the stock
for investors to exit if they need to you will be off to a
good start.
IPOs require all of that plus a little more courage. To
be successful, not only does the investment case have
to be good on an absolute basis, but it has to be better
than its listed peer group.
If it isn’t the market is likely to put capital into stock that
it knows, trusts, has a track record with and can
punish if things go wrong.
But that’s just my view. After all, the market is the
market
Let me know your views at:
info@goldenbarrels.co.uk

About Simon:
Previously, Simon was
founder of Omni
Investment Research,
and held senior
positions at UBS and
Dresdner Kleinwort,
having been ranked
number one by
Thomson Extel for his coverage of the European Gas sector,
number two in European Oils and three in European Utilities.
Prior to joining the City, Simon had eight years international
experience with the Shell, working in economics and finance
in Nigeria, The Netherlands, the Far East and the US. He is
now Head of O&G Research at Ambrian, a specialist energy
and resources investment bank.

Ambrian provides full service investment banking to a broad range of institutional and corporate clients, including Corporate
Finance, Corporate Broking and Equities. Ambrian is focused on three key sectors, Oil and Gas, Mining and
Cleantech/Alternative Energy, where it has developed in-depth expertise and relationships. www.ambrian.com

www.oilcouncil.com
 The Oil Outlook
June 2010: Fears of Weaker
Recovery Mire Crude Markets
By Gianna Bern, President,
Brookshire Advisory and Research

Crude markets have retrenched on continued fears prices, have taken big hits in the last few weeks on
that a weaker-than-expected global recovery will sovereign debt fears.
take place in the second half of 2010.

Crude oil prices have plunged to near $71 per
barrel as projected economic growth begins to slow
in the US, Europe, and China. While economic
growth was never projected to be robust, a modest
recovery now hangs in the balance.
Fears of a double dip recession plague U.S. equity
markets while anticipated spending cuts weigh on
U.K. equity markets.
All told, crude oil prices are not projected to flirt with
$90 per barrel levels any time soon. Over the near
term, we don't expect crude oil prices to advance
much above the $80 per barrel mark.
Robust Crude Supplies
“Barring any geopolitical
events, crude oil prices will
continue to trade beneath
the $80 per barrel mark
for the near term.”
Global markets await results of European bank
stress tests and indications of debt reduction
throughout many countries. As the year progresses,
we expect this sentiment to proliferate.
Sovereigns will try to implement debt reduction
plans and mitigate potential ratings downgrades.

To compound matters, crude supplies on both sides
of the Atlantic are plentiful. U.S. crude supplies,
currently at 363 million barrels, are near 2009 levels
when crude prices were considerably weaker than
our current $72 per barrel.
We will continue to see sovereign ratings
downgrades and several countries placed on
Outlook Negative or Evolving -- rating agency speak
for potential future downgrade coming unless swift
action is taken typically within the year.

With northern hemisphere summer drive season Emerging Market Strength

near the half way mark, we anticipate that gasoline
demand will remain sluggish for the remaining two
months of the peak summer drive season. This
situation is not helping ample crude supplies.
At mid-summer, gasoline supplies are also plentiful
placing further downward pressure on gasoline
prices. Gasoline demand is simply not
materializing.
Sovereign Scares Continue
Once we consider continued Eurozone sovereign
debt concerns, global equity markets remain jittery
at best. Commodity markets, including crude oil
Emerging markets of China, India, and Brazil
continue to carry the day as GDP growth is
expected to vary from 5% to upwards of 6% or 7%
in Brazil. These economies are growing as
indicated by buoyant corporate bond issuances
amid a weak corporate lending environment.
Emerging markets have also exhibit continued
commodity demand albeit slower-than-expected
GDP growth. At this rate, we expect developed
markets in Europe and the U.S. will remain
lackluster for much of 2011. Barring any geopolitical
events, crude oil prices will continue to trade
beneath the $80 per barrel mark for the near term.

About Gianna: Gianna Bern is a registered investment advisor and President of Brookshire Advisory and Research, Inc.

About Brookshire: Brookshire is an investment advisory firm focused on energy investment research, risk management, and
credit portfolio management with clients in Europe, Latin America & the U.S: www.brookshireadvisoryandresearch.com

www.oilcouncil.com
 “A decision without information is a
gamble”
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… in the global energy game.

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Web: www.newsbase.com

Publishers of:
 A Nightmare Well

Written by Elaine Reynolds, Oil Analyst, Edison Investment Research

Many years ago, when I began working as an
engineer in the oil industry, I was sent on my first trip
offshore to a semi-submersible that was drilling an
exploration well for my company in the North Sea.
This was no ordinary well however, but an HPHT
well, with a pressure of around 14,000 psi and a
temperature of 3500C.
It was the 1980s, in the infancy of HPHT technology,
and it was not clear how we would develop any
discovery.
In the process of drilling the well, we encountered a
high pressure zone that had not been predicted from
offset well data, and by the time I arrived, the well
was being held under control on a knife-edge, with
an increase in mud weight resulting in losses, and a
decrease causing an influx.
“We need to allow for
due process and wait for
the results of the
investigation before
jumping to conclusions.”
As a young and green engineer, I was only there to
observe and learn, but I can still clearly recall the
tension and anxiety of those days.
A great deal of thought and debate went into every
action that was taken on the well, with every
precaution taken, right down to us being restricted to
eating only uncooked food to ensure that there were
no ignition sources on the rig.
I write about those days now, because they come to
my mind as I see all the speculation in the media
regarding what went wrong on BP’s Macondo well,
especially when it was reported that the BP
engineers referred to it as a ‘nightmare’ well in
internal memos.
‘Halliburton recommended 21 centralisers on the
liner’, the press reports, ‘but BP only ran 6’ implying
that clearly BP was cutting back, but this may not
necessarily be so.
Halliburton is recommending the ideal number of
centralisers in order to maximize the chances of a
good cement job.
BP wants this, but is also looking at the implications
of each additional centraliser increasing the risk of
getting stuck in the hole, or of increasing the surge
effect into the formation, thereby increasing losses
and exacerbating a complex well that was difficult to
control.
My point is that, until we know the full facts, we really
don’t know what the thinking behind each step was,
and we cannot say what really went wrong.
We need to allow for due process and wait for the
results of the investigation before jumping to
conclusions.
I only hope that the engineers have fully documented
the risk assessments of all their decisions, and that
they were allowed to do their job by management.
And that well in the North Sea?
We achieved our objective safely, and the field
began production in 1997, continuing to this day.

About Elaine Reynolds: Elaine is an oil analyst at Edison Investment Research. Prior to joining
Edison she had fourteen years experience as a petroleum engineer with Texaco in the North
Sea and Shell in Oman and The Netherlands.

Edison is Europe’s leading independent investment research company. It has won industry
recognition, with awards in both the UK and internationally. The team of more than 50 includes
over 30 analysts supported by a department of supervisory analysts, editors and assistants.

Edison writes on more than 250 companies across every sector and works directly with
corporates, investment banks, brokers and fund managers. Edison’s research is read by every
major institutional investor in the UK, as well as by the private client broker and international
investor communities: www.edisoninvestmentresearch.co.uk

www.oilcouncil.com
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