Cost of Gonu Rebuild in Millions

ArabianBusiness.com
by Conrad Egbert
16 June 2007

The cost of reconstructing Oman after last week's Cyclone Gonu is set to run into millions of dollars.

According to a developer operating in the country, most of the damage was done to roads and infrastructure, along with building projects under construction.

"The damage has been quite extensive to the infrastructure with widespread destruction of roads and bridges that could cost hundreds of millions of dollars, but the authorities are working round the clock to try and get things back to normal," said Amer Al Fadhil, vice president - external affairs, The Wave, Muscat - one of the largest waterfront developments in Oman.

"Oman is focusing on three aspects at the moment. The first priority is relief operations to those who need it, with The Wave also sending out basic necessities across Muscat. The second is the clean-up, while the third is, of course, the reconstruction."

Roads and bridges have suffered extensive damage and the city has turned into a mini-lake due to water logging in many areas.

Muscat's terrain is mountainous with wadis (dried up river beds), which are used as residential and commercial space. Due to these low-lying areas, rain and seawater brought in by the storm caused severe flooding of the wadis, resulting in parts of roads and bridges being swept away as well as buildings being submerged.

"Most of the damage has been to the infrastructure," said David Skinner, regional manager, Carillion Alawi, Oman.

"A section of a road outside the Seeb Airport that is being constructed by us was washed out but we started repairs on the morning after the storm [Thursday 7 June] and worked round the clock to get it functional by 5am on Saturday [9 June]."

The most affected areas have been Al Hubra, Qurum and Amerat, which has been totally cut off due to the collapse of its only highway connection.

Other roads that have been affected are Al Khodh and Southern Marbela, while storm waters that tore through a wadi ripped open the Qurum high road to Darsait.

A McDonald's restaurant on the edge of Wadi Aday in Qurum was almost completely submerged by the flood waters along with Qurum Park, a popular recreational area near the shore.

Muscat Municipality chairman, Abdullah Bin Abbas, said that the city has been devastated due to the cyclone but will soon be back on track.

"We are doing our best to restore city life back to pre-Gonu days," he said.

Cyclone Gonu Misses Rigs

Latest Update 11 am Gulf Time Sunday

By Eduard Gismatullin
June 7 (Bloomberg)

Crude oil traded below $66 a barrel in New York as Tropical Cyclone Gonu missed oil rigs and fields in the Middle East, causing only some disruption to shipping.

Gonu battered southern Iran early today after hitting the eastern coast of Oman yesterday, closing all its seaports and oil- export terminals two days ago and causing the country to suspended oil and gas exports. Ships continued to pass through the Strait of Hormuz, a waterway between Iran and Oman at the mouth of the Persian Gulf, the Associated Press reported.

``We think that bulls will find it difficult to make much of a case centering around the fading Persian Gulf cyclone,'' Edward Meir, an analyst at Man Financial in Darien, Connecticut, wrote in a report. Gonu ``did not hit any key oil installations.''

Crude oil for July delivery was down 1 cent at $65.95 a barrel in after-hours electronic trading on the New York Mercantile Exchange at 9:08 a.m. in London.

Gonu's center was 88 kilometers (55 miles) south of the town of Jask on the southern coast of Iran at 3:30 a.m. Omani time today, according to the latest U.S. Navy Joint Typhoon Warning Center advisory. Gonu's winds fell to 83 kilometers per hour as the storm moved north-northwest across the Gulf of Oman at 13 kilometers per hour.

Prices rose yesterday following reports that Turkish troops chased Kurdish guerrillas into northern Iraq. Government officials from Turkey and the U.S. denied any attack occurred.

Iraq has the world's third-biggest proved oil reserves, according to BP Plc. Turkey has threatened to launch a military operation unless U.S.-led coalition forces in Iraq eradicate the threat posed by the Kurdistan Workers' Party. The Turkish military has deployed tens of thousands of troops near the border to stop members of the group from entering Turkey.

``Neither do we think the Turkish incursions will morph into a wider conflagration,'' Meir wrote. The Turkish parliament ``will have to sanction any sustained military operation.''

In London, Brent crude oil for July settlement fell 13 cents to $70.89 a barrel on the ICE Futures Exchange at 9:10 a.m. in London.

Oil Execs see trend of declining reserves

60 percent of oil and gas execs believe trend of declining reserves is irreversible
May 11, 2007
PRNewswire

Oil and Gas Executives say government involvement in supporting the development of renewable energy sources is necessary to alleviate the problem of declining oil reserves, according to the results of a survey conducted by KPMG LLP, the audit, tax and advisory firm.

In the KPMG survey, which polled 553 financial executives from oil and gas companies in April 2007, twenty-five percent of the respondents said that at least 75 percent of government funding into energy should be directed at the renewable sources sector and a further 44 percent said that at least 50 percent of funding should be allocated in the same way. These feelings stem from the overwhelming majority, or 82 percent, citing declining oil reserves as a concern.

"These executives are deeply concerned about declining oil reserves, a situation they see as irreversible and worsening," said Bill Kimble, National Line of Business Leader, Industrial Markets for KPMG LLP. "They see renewable energy sources as a lifeline but our survey shows that the execs recognize they cannot count on them as a solution in the short-term. Consequently, oil and gas companies are sending a clear signal to the government that intervention is needed."

While oil and gas executives are keen to see renewable energy sources becoming a mass produced reality, 60 percent say that will not be possible by 2010. Of those that believe it will, 18 percent say ethanol is the most viable for mass production by then, 13 percent say biodiesel and only 3 percent say cellulosic ethanol.

Sixty percent of the executives believe that the trend of declining oil reserves is irreversible. And, when asked about the impact of emerging markets, such as China, will have on declining oil reserves, almost 70 percent of the executives said that it would lead the situation to worsen.

The executives also clearly see that there are steps that individuals can take to alleviate the issue of declining oil reserves.

"One-third of oil and gas executives questioned said that the next time they are purchasing a family car they would consider one that consumes less gasoline, such as a hybrid," said Kimble. "They clearly see demand-side as part of the solution to declining oil reserves."

When executives were asked about their upstream capital spending in the 2006 survey, the majority indicated that investment will be a factor in helping them manage declining oil reserves. Sixty-nine percent said that it would increase by more than 10 percent, a jump of 49 percent over 2005. The 2007 survey suggests that increases in spending are flattening, with 35 percent saying they expect and increase of more than 10 percent, 19 percent saying they expect an increase of up to ten percent, and 38 percent say it will stay the same. Only seven percent expect to see a decrease.

Mergers and acquisitions continue to be a trend, with 24 percent of the executives saying that they expect their company to be involved in one in the next year - a three percent increase over last year's survey. Sixty eight percent of respondents expect private equity to play a larger role over the next year than it has in previous years.

As financial executives, the respondents put a great deal of their focus on the risks facing their companies. Forty-four percent say that the biggest risk facing their company at this time is financial; such as satisfying news regulatory requirements and shareholder demands. The next biggest risks cited, at nine percent each, were "political unrest in certain countries in which your company has operations" and "insufficient access to drilling rigs".

Big Oil in Orinoco Patch

Some words on this before I turn it over to the sponsors. When you read these stories always be thinking of the present situation. Saudi through OPEC is telling Angola it shouldn't count on more than about 2.0 mbpd - probably in line with what would be equitable given reserve/production standards of OPEC. Meanwhile Venezuela is in a constant running war of words with the US. A farce. We are their biggest customer. Citgo. They are trying to get the Orinoco "certified." They need this to be able to pump more oil. Without certification of these as reserves(effectively putting them on Saudi turf), Saudi would never let them exceed 3.0 mbpd. At the same time we have some saying Saudi is on an 8% downslope. So what is going on. Does any one player know all the cards that all the other players hold?

With all the talk in the oil world, you would think this situation would get more attention. If one can believe the numbers, the Orinoco produces at least 500,000 barrels per day of what would be termed Syncrude in Canada. We have allread about Alberta. With all the fanfare, it produces about 1.2, maybe 1.4 mbpd. So Venezuela is not doing badly. The fact that Big Oil is sitting down to talk rather than simply walking is hugely significant. I would walk if I was an American company. I would go elsewhere. Let Statoil and Total deal with it. Let the Chinese in. Hugo Chavez will be dead one day. If Big Oil is going to make concessions to nationalization somewhere, it should be Mexico. Mexico is a friend of the United States. Ignore Chavez and Correa. It isn't worth it.

This lies in the fact that Chavez simply can't put production online fast enough in his lifetime as a political candidate to make a difference in his own personal power equation. The Saudis stand in the way of this. Unless, of course, the Saudis are in terminal decline. Hmm.

Big Oil Faces Tough Talks on Their Stakes in Orinoco Patch
by Peter Millard

Mar 15, 2007

Six western oil majors are sitting down with Hugo Chavez's government to plot the future of the world's largest hydrocarbons basin. But they face a stark choice: Play a supporting, not leading role, and accept less profit from operations involving Venezuela's massive tar oil reserves, or take a hike.

On Wednesday, France's Total (TOT) and Norway's Statoil (STO) set up a "transition team" to hand day-to-day operations at the Sincor project over to the state oil company, and meet a June 26 deadline to draft a new corporate structure. Partners in the other three heavy oil ventures have set up similar technical and negotiating teams over the past month.

Venezuela has come to epitomize resurgent oil nationalism, where resource-rich states such as Russia and Algeria force less-attractive terms on international energy firms from oil-importing countries. The Orinoco talks will show other petro-states just how far they can push the oil majors before these firms hit the road.

The tar oil, located in an area the size of Kuwait alongside the Orinoco river, is one of two so-called unconventional oil regions that will be key to meeting world oil demand for decades to come. The other is Alberta's tar sands, which supply an increasing percentage of U.S. oil imports.

The upcoming negotiations encompass future equity stakes, compensation, financial, commercial and operational arrangements. The six companies have an estimated value of some $30 billion in the projects, which together now produce around 525,000 barrels a day of synthetic crude but have a capacity of 600,000 barrels a day. The projects also have a total $4 billion in outstanding commercial bonds and bank loans.

Chavez, a fierce nationalist who is wiping out private ownership of "strategic" areas of the economy such as energy, power and communications, began unwinding the previous Orinoco contracts in 2004 as oil prices entered a sustained rally.

After hiking taxes and royalties, Chavez is now going for majority control, insisting on a minimum equity stake of 60% in each venture.

It is unclear how much of a say the majors will have over the projects. At the start of this year, Oil Minister Rafael Ramirez announced Orinoco negotiations had ended, saying the companies would have to accept Venezuela's terms after failing to meet the first end-2006 deadline.

Since then, he has toned down the rhetoric, saying this week he would like these
companies to remain as minority partners and that negotiations could go on past
the end-June deadline. Just the same, Venezuela has a history of heavy-handed
treatment.

These six companies were hit with a 2004 royalty hike with no warning - Chavez made the announcement on national television. The government also set the new negotiating deadline unilaterally through a decree. Many of these firms, including Chevron Corp. (CVX) and ConocoPhillips (COP), have said Venezuela was slow in launching talks.

Ramirez also announced a scheme to compensate these firms with crude oil instead of cash before three of the transition teams had been established, indicating the government will continue setting the new terms with little to no consultation.

Big Oil took a gamble in the Orinoco in the 1990s, setting up four huge projects to extract the extra-heavy crude and upgrade it into low-carbon synthetic grades that can be processed in most foreign refineries.

At the time these companies - which also include Exxon Mobil Corp. (XOM) and BP Plc. (BP) - won substantial tax breaks to compensate for the high cost structure at a time of rock-bottom oil prices.

In private, executives at these firms regret not negotiating with the government as a group, which could have increased their leverage in current talks. Divergent positions made it difficult to form a unified front.

Exxon is the only firm to publicly say it could leave if profitability is too low. The company, with more booked reserves than any of the other majors involved, has taken a harder line with Venezuela since 2004. At one point it suggested international arbitration over the royalty hike.

Other companies like Chevron and Statoil are said to be willing to suffer through
periods of nearly flat profitability to maintain a foothold in Venezuela, and be
well-placed in case the government offers better terms in the future.

Copyright (c) 2007 Dow Jones & Company, Inc.
URL: http://www.rigzone.com/news/article.asp?a_id=42617