Untitled - Oil and Gas Investor

INTERNATIONAL ASSET ACQUISITION & DIVESTMENT
PORTFOLIO-SHIFT
Global tensions have E&P asset managers reconsidering their asset balance—
in terms of location and type.
T
and now generates more than half of its revenue outside of
his supplement is a summary of the World Oil &
Canada.
Gas Forum conducted by Waterous & Co. for its
“We are the largest oil and gas
clients March 11-12 in
A&D energy firm by far, with a
Houston, which featured speakers
global reach that compares to no
from 16 countries. Some particione,” says Waterous. “We are
pants have since been interviewed
facilitating cross-border transactions
as media personnel were prohibited
all of the time that would otherwise
from attending this private event.
not occur, because of our internaWith the specter of military
tional infrastructure and resources,
hostilities and continuing unrest in
and our focus and dedication to this
the Middle East and elsewhere,
part of the energy industry.”
the upstream global A&D market
The World Oil & Gas Forum
has become increasingly fragmentis a showcase of Waterous’ global
ed by regional orientation, says
reach and networks, with the lineJeffrey Waterous, Chairman,
up of speakers a demonstration of
Waterous & Co.
some of its relationships with peo“We are witnessing a very
Jeffrey Waterous, Chairman, Waterous & Co.
ple, which Waterous says are
strong effort on the part of many
“truly unparalleled in their interinternational oil and gas companies
national positions and backgrounds.”
to rebalance their portfolios, trying to avoid an over-weighting
Tensions in global energy supplies, leading to a realignment
in any one region, except perhaps in North America,” he says.
of upstream portfolios, was the appropriate theme for the
“It is a phenomenon driven sometimes as much by perception of uncertain politics as by economic fundamentals. Before forum, March 11-12, just before the beginning of the U.S.led coalition war against Iraq.
these unsettling political conditions set in, North American
The forum was held amid heightened tensions between the
buyers were the most active players overseas. Now, they are
U.S. and Russia, Germany and France, over how best to
generally conspicuous by their absence. Energy security is
ensure the disarmament of Iraq and topple the Saddam
becoming increasingly a factor in the business of buying or
Hussein regime. Concerns about terrorism, security, and
selling overseas reserves.”
The withdrawal of so many North American buyers is cre- energy supply—high since the Sept. 11 attack on the U.S.—
were extreme amid war talk and the persisting volatility in the
ating a vacuum, filled very quickly by Asian and other nonMiddle East.
traditional buyers. (i.e. Russian companies). The Asian playA backdrop to the conference was the impasse between the
ers are concerned about security of supply, and in many cases
U.S. and North Korea over North Korea’s reactivation of its
are willing to acquire a position in assets operated by other
nuclear weapons program.
companies; sometimes these “equity interests” could be relaFurther adding to the tensions of the day were the strained
tively small. Many Russian companies want to have internarelationship between the U.S. and Iran, which possibly worstional activities outside the former Soviet Union.
ened with the U.S.-led coalition against Iraq and the percep“In fact, we are so focused on this more active buyer community in Asia, that we have decided to open a Singapore office tion that Iran may be next. The U.S.-imposed sanctions
against Iran were extended in March due to U.S. allegations
to help our coverage of Asian companies,” Waterous says.
that Iran supports international terrorism, is trying to underWaterous & Co., which is a private firm owned by its
mine the Middle East peace process, and attempts to acquire
employees, was started in Calgary, Canada, in May 1987.
weapons of mass destruction.
The firm globalized its A&D practice about five years ago,
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WORLD OIL & GAS FORUM 2003
The drive to increase Russian oil imports to the U.S.
Perspective on Balancing Views and Positions
The forum was officiated by Congressman Curt Weldon, has gained new urgency with growing turmoil in the
Senior Member of the House Armed Services Committee, Middle East. Currently, exports from Russia to the U.S. are
Chairman of the Military Procurement Sub-Committee, sparse and a money-losing proposition, because the
Member of the House Select Committee on U.S. National Russians don’t have the pipelines and port facilities to efficiently move large amounts of
Security, who was introduced by
oil to the U.S.
Stephanie Jason, President of the
Russia, as the world’s second
International Forum Institute.
largest producer and a major sup“The U.S. can be short-sightplier of gas to Western Europe,
ed in dealings with other counrepresents an important stabiliztries, and it is important that
ing force for global energy securiAmericans come to appreciate
ty. Russia, which gets about half
other cultures to improve relaof its revenue from oil and gas, is
tions. Energy is a key issue that
eager to demonstrate to the U.S.
can help tear down barriers with
and the remainder of importing
other countries,” said Weldon.
nations that it can again become
Despite Iraqi-related tena dependable energy supplier. For
sions, the U.S. and Russia need
that to happen, Russia needs
to foster their cooperative efforts
massive investment. Russia’s
with energy serving as the cenneed for capital is about $8 bilterpiece for the emerging relalion a year, just to maintain curtionship, said Weldon, R- Congressman Curt Weldon, Senior Member of the
Pennsylvania. His presentation House Armed Services Committee, Chairman of the rent production levels.
From the U.S. perspective,
was titled “Energy Security and Military Procurement Sub-Committee, Member of
the desire to make major longthe Threat of Global Terrorism.” the House Select Committee on U.S. National
term investments in Russia has
Development of U.S.-Rus- Security, officially opens the Forum.
never been stronger, but it has
sian cooperation in energy
been inhibited by the lack of a
should become a priority for
legal and commercial frame to
international policy because of
make the investments economiits capacity to address the risks of
cal, Weldon said. Russia must
uncertain supplies and energy
offer long-term deals, locking in
dependence, he said.
terms and taxes, or risk losing bilWeldon, whose efforts to
lions of dollars it needs to develimprove U.S.-Russian relationop its own and gas reserves.
ships have been a lynchpin of his
Russia may be warming to
congressional career, urged a
Western dollars, but there conhigh-level presidential task force
tinues to be a resistance to perwith representation from both
mitting Western companies
the Russian and U.S. presidential
unfettered access to Russian
administrations to be established
reserves. Western companies
immediately as part of the mutuwant production sharing agreeal effort to address the economic
ments, under which they are
and energy components of the
Congressman Curt Weldon, left; Stephanie Jason,
guaranteed larger profits and a
anti-terrorism campaign.
certain share of a field’s producIt is in the interest of the U.S. President, International Forum Institute; and Seyed
tion. Russians are reluctant to
and Russia to bridge decades of Alavi, Director, Institute for International Energy
grant such deals, and favor a
political and business mistrust. Studies.
joint-venture arrangement where
The two former rivals have complementary needs, centered on Russia’s huge oil and natu- any outside company would be expected to have to share
profits with a Russian company, creating a more compliral gas reserves, said Weldon, a congressman since 1987.
Russia needs massive investments from U.S.-based com- cated relationship.
Weldon, founder of the Duma-Congress Study Group
panies, and desires better access to the world’s largest oil
consumer. Meanwhile, the U.S. seeks to diversify its source (with a focus on energy matters), said work of the intergovof energy, particularly from areas other than the turbulent ernmental group should be intensified to encourage
approval in Russia to promote investment and taxation laws
Middle East, or from members of the OPEC cartel.
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WORLD OIL & GAS FORUM 2003
reflects our commitment to create a foundation that will
fuel continued value growth,” Cazalot said.
For 2003, Marathon has approved a capital, investment
and exploration expenditure budget of almost $2 billion, or
Marathon Oil’s
about 8% more than actual expenditures during 2002, in
International Thrust
which it produced oil or gas from
The biggest challenge for the
nine countries. The budget
energy industry is to gain access
includes exploration and producto profitable new resources to
tion spending of $1.1 billion.
establish long-term, secure ener“This budget reflects Maragy supplies, said Clarence P.
thon’s continued emphasis on
Cazalot Jr., President and Chief
expanding the development of
Executive Officer of Marathon
our international upstream portOil Corp.
folio with assets that enable us to
Successful finding and replacerealize long-term, value-added
ment of reserves is becoming
growth.” Its international busiincreasingly more difficult and
ness accounts for about 65% of
costly as legacy assets are in
the company’s total upstream
decline. For companies to achieve
budget, compared with about
sustainable growth new levels of
53% the previous year.
exploration and innovation will
Cazalot’s comments came on
be required, and Marathon is pracClarence P. Cazalot Jr., President and CEO,
the heels of a report from the
ticing what it preaches, he said.
Marathon began a new era in Marathon Oil Corp., the luncheon keynote speaker, American Gas Association that
revealed that in 2002, for the first
January 2002 when USX spun off introduced by Jeffrey Waterous.
time in four years, U.S. gas
U.S. Steel into a stand-alone
company and USX changed its name to Marathon Oil. reserves did not increase, despite intense drilling. The
That has enabled Marathon to implement a business model AGA says total domestic reserves actually finished 2002
taking it beyond a conventional integrated oil business. slightly below where they ended the previous year, at about
Marathon’s strategy reflects the world’s increased focus on 183.5 trillion cubic feet (Tcf).
It also reports that about 77% of the gas produced in
and demand for natural gas, a commodity with a volatile
2002 was used to replace reserves, but market demand,
price uncertainty.
In February 2002, Marathon introduced a new compo- caused by increased usage for power generation, was still
nent of its business model that it calls its “integrated gas strong. Despite an overall economic slump, gas demand
strategy.” This strategy offers an entirely different suite of was still so strong that net reserves declined.
opportunities for Marathon by linking the world’s vast
quantities of stranded gas with the key market centers Venezuela: Shaken, not Stirred
From a zero export level now, Venezuela expects to become
where this premium energy source is needed.
Marathon believes this approach provides a third income a major international exporter of natural gas by 2008, says
stream disconnected from the volatility of traditional Luis Vierma, Venezuela’s Vice Minister, Ministry of Energy
upstream commodity prices and downstream margins. & Mining, who was introduced by Maria Pineda,
“Integrated gas adds more stability and balance to our port- Managing Partner, Energenz, and Special Advisor to
Waterous & Co. Most of that gas will be converted to LNG
folio and provides a broader base for sustainable growth.”
Like its integrated oil counterpart, integrated gas trans- for international transport, with the U.S. East Coast being
forms gas resources into a range of downstream products a primary destination.
Venezuela’s untapped gas reserve base, estimated at 147
including liquefied natural gas (LNG), ultra-clean fuels,
special lubricants produced by gas-to-liquids technologies, Tcf excluding unexplored offshore sites, provides enormous
opportunities for international companies forming joint
and petrochemical feed stocks such as methanol.
Marathon replaced 262% of its worldwide production ventures with state-owned Petroleos de Venezuela
during 2002. The reserves were added at a competitive cost (PDVSA), he said. Traditionally, a major oil exporter,
of $4.61 per barrel of oil equivalent (BOE) through pur- Venezuela has produced little gas to date. That gas has been
chases, discoveries, extensions, revisions and improved used for internal consumption, reinserted into the reserrecovery. The company’s total reserves increased by 237 voirs or flared.
Vierma said future offshore developments will provide
million BOE at year-end 2002 to 1.28 billion BOE.
“Marathon’s reserve-replacement performance was one the impetus for future gas exports. Proven offshore reserves
of the company’s key achievements during 2002 and total more than 17 Tcf, with expectations of much higher
that provide a positive environment for investment, such as
full and appropriate finalization of the PSA legislation.
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WORLD OIL & GAS FORUM 2003
levels with more exploration. Just the first phases of explo- Mosbacher’s Concern about
ration offshore exploration activity will require about a $7- U.S. Gas Supplies
Natural gas supply shortages in the U.S. will be long-lived as
billion investment, he said.
The Deltana platform project, offshore Venezuela, is the depletion rates of domestic assets accelerate and gas
sparking most of the international enthusiasm. Vierma demand continues to rise, says Robert Mosbacher, Chairman
of Mosbacher Energy Co. and forsaid most experts believe proven
mer U.S. Secretary of Commerce,
reserves from that area will soar
who was the keynote dinner
from 7 Tcf to about 40 Tcf with
speaker introduced by Jeffrey
more exploration. Various blocks
Waterous.
are now being awarded to interNoting that gas productivity
national companies in associathis year has declined at a rate of
tion with PDVSA.
about 28%, Mosbacher expects
Vierma, who holds a master’s
the shortage will be exacerbated
degree in petroleum geochembefore it improves. Shortages are
istry, describes himself as a techintensifying, even during an econical person, and downplays the
nomic slump. Once the econopolitical turmoil in Venezuela
my recovers, the supply and
and potential risks for investors.
demand gap will widen.
“Regardless of the political
There is no quick fix on the
regime, the gas and oil will be
horizon, Mosbacher told attenthere and is important to the
Keynote Speaker Luis Vierma, Vice Minister,
dees. Even with high commodity
country’s economy.”
prices the number of active
International enthusiasm and Ministry of Energy & Mining, Venezuela, was
drilling rigs is less than 1,000 and
investment in Venezuela is on the introduced by Maria Pineda, Managing Partner,
was as low as 850 just six months
rise, he said. Repsol, for example, Energenz, and Special Advisor to Waterous & Co.
ago, as attractive, affordable
is transferring the investments it
prospects—particularly onshore—
had been making in develop“Most of the companies that visit
continue to dwindle, as does
ments in Argentina to Venezuela,
Venezuela are the huge companies.
external financing, particularly
he said.
This conference provided an
for the independent producer.
Venezuela’s oil industry has
recovered from the 60-day strike opportunity to meet with representatives Mosbacher said the small, private
of smaller companies that I had not
independent producer may be
that affected the entire country
previously met to explain to them the
becoming an “endangered species.”
and led to a temporary 90%
many opportunities that exist for smaller
Oil in the U.S. market,
drop in oil production levels.
companies in my country.”
unlike gas, is a fungible commodOil production of about 3.45
—Luis Vierma, Vice Minister, Ministry of
ity influenced by international
millions barrels per day, slightly
Energy & Mining, Venezuela
supply fluctuations. Until interexceeded November, pre-strike
national LNG becomes a more
levels, he said.
significant source of gas supply,
Venezuela should adhere to its
constitution concerning the referendum, and not be undu- the U.S. will be largely a U.S.-Canadian market because of
the transportation component of gas, he said.
ly influenced by international pressure, Vierma said.
The U.S. gas market is nearly exclusively supplied by
It was under Chavez’s pro-nationalist administration
that Venezuelan law prohibited an international company domestic and Canadian production. Mexico is expected to
from holding more than 49% working interests in new oil import more U.S. gas at least for the next five years before
developments. Nevertheless, Vierma said great opportuni- that trend might eventually reverse with Mexico becoming
ties exist for international companies that form joint ven- a net exporter again.
Mosbacher said he does not expect producers to have
tures with PDVSA.
Vierma is adamant in his support of Venezuela’s active access to reserves offshore California and Florida any time
participation in OPEC. Without OPEC management of soon, and that access to Alaska’s Arctic National Wildlife
supply from participating exporting countries, there would Refuge (ANWR) is also problematic in the near term.
In the long term, some of those areas will likely become
be even greater supply and price fluctuations, which in the
long run would not benefit the producers or the buyers. accessible, but the timetable is more driven by politics than
OPEC’s efforts to manage production so that oil prices economic certainty. Canadian gas accounts for about 15%
remain $22-$28 per barrel are in the interests of all, includ- of U.S. supply, but that percentage is likely to decline until
the McKenzie Delta and/or Arctic Canadian gas can make
ing the U.S., he said.
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WORLD OIL & GAS FORUM 2003
Asia’s Different Complexions and Consumption
its way to market via pipelines still to be constructed.
Despite all the hype about LNG being imported to the Indonesia has no choice but to try everything to attract forU.S. from international suppliers, the reality is that it will eign investment, said Hilmi Panigoro, Chief Executive
take another decade before those proposed projects are built Officer, PT Medco Energi Corp. Tbk, Jakarta. Panigoro
said declining oil production could be reversed with investand make significant inroads in the U.S. market, he said.
ment and that removal of
A few years ago it was a trend
Pertamina’s monopolistic role
among U.S.-based exploration
will allow the government to
and production companies, even
make available new blocks for
the small producers, to have
the industry to bid and present
international portfolios. That
opportunities for foreign E&P
trend is reversing itself as many
companies.
producers have learned the hard
Panigoro was joined on the
lessons of international political
Asian panel
by Hideki
risk and the time value of money
Hayakawa, General Manager,
tied up in international projects,
Japan National Oil Co.; Linmin
often with long lead times before
Gu, President, Sinochem USA
yielding any cash flow. With turInc.; and Douglas De Filippi,
moil in Africa, the Middle East,
Managing Director, Waterous &
and elsewhere, more midsize and
Co., Houston/Singapore.
small U.S. producers, despite the
With Asian consumption as a
decline in attractive domestic
whole continuing to outstrip
opportunities, are still opting to Jeffrey Waterous, Chairman, Waterous & Co.,
focus their operations closer to left, and keynote speaker and former U.S. Secretary existing and projected sources of
all forms of hydrocarbon supply,
home. Mosbacher said his com- of Commerce Robert Mosbacher, Chairman,
focus is on the well-capitalized,
pany illustrates that trend, hav- Mosbacher Energy Co.
larger NOCs in Asia to expand,
ing divested portfolios in
panelists said. Security, diversity
Venezuela, Colombia, Indonesia
of supply and direct participation
and the U.K.
in hydrocarbon projects are leadIn the past, as former chairing China, Japan, Korea and
man of the National Petroleum
Malaysia to seek supply from all
Council, Mosbacher has lecquarters of the world. For many
tured frequently about the need
smaller domestic players, stratefor a national energy policy and
gies of opportunistic in-country
energy independence. Now, he
acquisitions and nimble exploitaconcedes that energy independtion are prominent and made posence for the U.S. is probably
sible through the departures or
unattainable, so the best it can
dilutions of interests of many
do is to diversify its sources of
North American and European
supply. Active as finance chairportfolios.
man or co-chairman in every Asia Panel: Linmin Gu, President, Sinochem USA
China’s remarkable economic
Republican presidential cam- Inc., Houston; Hideki Hayakawa, General Manager,
growth (soaring from US$3.14
paign since Gerald Ford, Japan National Oil Co., Houston; Douglas R. De
Mosbacher says that political Filippi, Managing Director, Waterous & Co., Houston; trillion in 1993 to US$10.24 trillion in 2002) has caused growth
risk is a factor that every astute Hilmi Panigoro, CEO, PT Medco Energi Corp.
Tbk., Jakarta.
of its oil consumption to far outbusinessperson must consider.
pace production. Consumption
He expects oil prices will stahas increased nearly 6%, while
bilize at an average of about $25
“More focused and personalized than
production has increased about
per barrel, while natural gas
other conferences. The program increased
2%. China, which had virtually
prices in the U.S. will stabilize at
everyone’s understanding and provided an
no oil imports in 1994, is expect$4 to $6 per thousand cubic feet,
excellent networking opportunity.”
ed to import 60% of its oil by
and that the days of $2 natural
—Hilmi Panigoro, CEO,
2010.
gas are over. He cautions, howevPT Medco Energi Corp., Tbk, Jakarta
Not surprisingly, Chinese
er, that business obituaries are
filled by those who guessed wrong and believed too strong- companies have been the most active buyers of oil reserves,
with a focus on Indonesia illustrated by CNOOC’s purly in their own estimates.
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WORLD OIL & GAS FORUM 2003
single digits. Total has to be highly selective as its technical
committee assesses about 250 new opportunities annually,
with the company making 15 to 20 major investment decisions, Obadiah said.
Although remaining active in the North Sea, BP’s
divestiture of its Forties Field
assets to Apache is illustrative of
BP’s view that greater opportunities exist elsewhere and that it
needs to balance its resources to
support both the development of
new profit centers and the securing of the long-term viability of
its current core areas, Gair said.
In addition to Russia, where
BP has just announced the formation of a new venture with
TNK, BP is focused on developing five new profit centers, in
Trinidad, Angola, Azerbaijan,
Indonesia and the deepwater
Shuffle of European
Legacy Assets
David J. Gair, Vice President, M&A, BP Plc, London. Gulf of Mexico. As BP implements its strategic drive it has
A number of major producers are
recently announced disposals of
divesting some of their more
“It was useful to hear directly from
assets in the U.S. (the Gulf of
mature “legacy” assets, giving rise
representatives of a number of
to opportunities for new entrants companies and countries, comparing what Mexico and the Permian Basin),
Venezuela, Thailand, Malaysia
to move into these still-prolific
they said to what I thought was going on
and the U.K.
areas. While the North Sea will
in their organizations based on press
remain a core area for companies
comments. It was a real coup for the
such as BP and Total, these forum to have the Vice Minister of Energy Russian and Western
Companies Tango
majors are also developing new
for Venezuela as one of its speakers.
M&A
activity centered on
profit centers in a number of
Also, I appreciated meeting Paul
Russian reserves and companies
countries.
Rodzianko of Access Industries,
Eastern Europe, particularly a major shareholder in TNK with whom BP seems to signal the coming of age
Russia and the former Soviet recently announced a major transaction.” for Russian capitalism. Russian
companies are looking to become
Union states have become
—David Gair, Vice President, Mergers &
global, and global companies are
increasingly attractive with an
Acquisitions, BP Plc, London
increasingly looking at Russia.
improving economic environConsider these three examment enabling large investments.
These were among points made by panelists David Gair, ples: Russia’s largest oil producer, Yukos, is acquiring
Vice President, M&A, BP Plc, London, and Victor Sibneft, the No. 5 Russian company. Combined, the newly
Obadiah, President and CEO, TotalFinaElf E&P New formed company, YukosSibneft, will be the world’s fourth
Ventures, Houston, on the European panel, which was largest private producer of oil.
Meanwhile, BP and the Alfa Group and Accessmoderated by Simon Ashby-Rudd, Managing Director,
Renova (AAR) have formed a partnership to combine
Waterous & Co., London.
The majors have learned not to place too large a per- their interests in Russia to create the country’s third
centage of their overall portfolios in any one country, or biggest oil and gas business. The new company will incorregion, as European producers are increasingly less depend- porate TNK and Sidanco. Also, Marathon, through its
ent on home-based assets. Europe, for example, accounts acquisition of Khanty Mansiysk Oil Corp., a U.S.-based
for just 36% of the production of Total, Obadiah said. Still, company with operations in western Siberia, is making its
for that company, Europe accounts for the highest percent- first foray into Russia.
Worldwide interest is Russia is intensifying as that
age of its total production, although Africa, prompted by
West African activity, is closing in with 28%, compared country emerges as the world’s premier non-OPEC producer. Russia currently produces about one- third of the world’s
with 18% in the Middle East.
South America, Asia and North America are all in the natural gas and holds about 25% of the globe’s gas reserves.
chase of Indonesia Repsol and PetroChina buying Devon
Indonesia. Chinese companies also have equity ambitions
in the Middle East, North Africa and South America.
Japan is attempting to reduce its dependence on nuclear
generation and Middle East-produced oil, leading to a shift
to gas as an increasing source of
its energy supply, panelists said.
Gas currently accounts for just
12% of Japan’s consumption, but
its short-term goal is to increase
that to 20%. Japan is the world’s
largest LNG importer, as LNG
provides nearly 100% of Japan’s
gas supply. There is no crossborder pipeline in Japan, but Russia
is increasingly being eyed as a
possible future supplier because
of its proximity to Japan and relative political stability.
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WORLD OIL & GAS FORUM 2003
Russian oil exports have steadily risen since 1993, ly eyed as a possible destination. But Matias said that
when they bottomed at 3.2 million barrels per day. They while Russia and OPEC have separate agendas, and
are projected to climb to more than 5 million barrels per sometimes strained relations, Russia shares OPEC’s
day by year’s end. In comparison, Saudi Arabia exports objective of managed production resulting in oil prices
ranging from $22 to $28 per barrel, with about $25 being
about 7 million barrels of oil per day.
the optimum price.
Russia’s oil exports mostly go
Matias also gave a presentato nearby Europe, with only a
tion on behalf of Nikolai
token amount reaching the
Bogachev, President, TambeinU.S. Shipping costs create a
eftegaz, Moscow. Other panel
lower netback for Russian crude
participants were Paul Rodziandestined for the U.S., than for
ko, Senior Vice President, AcEurope. Russia is considering
cess Industries Inc., New York, a
building a deepwater port that
major shareholder of TNK; and
would allow larger tankers to
Jan-Hendrik Rover, Head of
ship more oil affordably to the
Equity Funds, Project and AssetU.S., but that project would
Based Financing, HVB Group,
cost about $2.5 billion and need
Munich.
U.S. expertise and investment.
Vladimir Matias, Head of Russia Panel: Dr. Jan-Hendrik Rover, Head of Equity
Middle East Wildcards
Project Finance and Private Funds, Project and Asset Based Financing, HVB
Post-war Iraq is the latest wildcard
Equity, International Moscow Group, Munich; Vladimir Matias, Head of Project
Bank (HVB Group), says the Finance & Private Equity, International Moscow Bank in the petroleum-rich Middle East.
opportunity for international (HVB Group), Moscow; Paul Rodzianko, Senior Vice Iraq’s reserves, because of economic sanctions, are under-explored
investment in Russia’s petroleum President, Access Industries Inc., New York.
and under-developed, with insuffiindustry is unprecedented. While
conceding that ongoing debates “The forum gave an excellent global view. cient investments. The world is
waiting to see what government
over production sharing agreeAbsolutely great in many aspects.
and economy emerges.
ments (PSAs) have been an
The mix of representatives provided
Despite under-investment,
obstacle, Matias believes that
a unique opportunity to communicate
Iraq still holds the second-largest
through joint ventures and the
in a very open way. The high caliber
proven oil reserves in the Middle
existing tax structure with corpoof representatives helped with the
rate income rates at 24%, Russia understanding of rationale of some other East, behind only Saudi Arabia.
Dunia Chalabi, responsible for
still offers attractive opportunicompanies, and even entire regions.”
the Office of the Middle East &
ties, even without PSAs.
—Vladimir Matias,
Africa, International Energy
Russia and the former Soviet
Head of Project Finance & Private Equity,
Agency, told attendees that oil
states present vast underpriced,
International Moscow Bank
production in Iraq peaked in
long-term assets, currently trad(HVB Group)
1979 at 3.5 million barrels per
ing at $1 to $2 per BOE on a
day, and was down to just 2.1 miltotal reserves basis. That results
in an increasingly active consolidation and restructuring lion barrels per day in 2002.
The production target for Iraq is 6 million barrels per
market with attractive investment opportunities particularly from distressed midsize and small producers, Matias day within six to eight years, she said. An investment of
said. HVB Group, which helped arrange the SeverTek about $38 billion is needed for that target to be met. The
joint venture between Lukoil and Fortum and recently led source of such huge investment will likely be strongly influa Gazprom financing, has formed an alliance with enced by the government that emerges.
Even without increased production from Iraq, the Middle
Waterous & Co. for A&D services.
Matias notes that Russian companies have traditionally East is the globe’s petroleum kingpin and is likely to stay that
dealt with Iraq and that those relationships and knowledge way for the foreseeable future. In fact, Chalabi says Middle
of the reserves would be of benefit to any potential partner, East OPEC producers will capture most of the world’s increase
from Western countries or elsewhere. Russia-based compa- in oil demand after 2010.
Worldwide, she says, natural gas demand is projected to
nies are also increasingly interested in E&P activity in the
grow the fastest in absolute terms and nonhydro renewables
Middle East and in North Africa, he said.
The U.S. will have to compete with other regions as fastest in percentage terms, but oil is projected to remain
Russia’s share of European energy supply is expected to the dominant fuel at least until 2030, with the Middle East
reach about 70% by 2020 and Japan is being increasing- providing much of the world’s supply growth.
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WORLD OIL & GAS FORUM 2003
Middle Eastern OPEC members hold 63% of the world’s infrastructure and political stability present huge chaloil and gas liquids reserves, with Saudi Arabia, Iraq, Iran, lenges, panelists agreed.
Willem De Meyer, General Manager, E&P, Petro SA,
the UAE and Kuwait the largest holders among reserves.
Iran is interested in expanding its participation along Cape Town, the state oil company of South Africa, told
the integrated value chain, with particular interest in attendees that prolific oil provinces in Angola, Nigeria,
and Equatorial Guinea, and
attracting investments for
deepwater plays offshore Angola
expanding its petrochemical
and Nigeria, along with stranded
industry. Iran not only wants to
gas in Angola, Nigeria and East
increase its volume of oil and gas
Africa, offer a varied source of
exports via new pipelines and
opportunities.
LNG projects, it also wants to be
Developers must realize, howa bigger piece of the petrochemever, that for the host governical industry. Its 800 Tcf of gas
ments, the oil and gas resources
reserves are largely untapped.
are viewed as a resource that must
Seyed Alavi, Director, Institbe turned into local economic
ute for International Energy
wealth, while exercising environStudies, Iran, and a former longmental preservation and encourtime senior officeholder for the
aging social development.
National Iranian Oil Co., said
De Meyer was joined on the
Iran plans to increase its petroAfrica panel by Charles Tchen,
chemical production from levels
Special Advisor to the Director
of about 1 million tons, seven or Middle East Panel: Seyed Alavi, Director, Institute
General, Ministry of Energy,
eight years ago, to 20 million for International Energy Studies, Tehra; Dunia
Gabon; Tom Schull, General
tons by 2005, and eventually by Chalabi, Office of the Non-Member Countries,
more than 30 million tons. That Middle East & Africa, International Energy Agency, Manager, Global Exploration,
ChevronTexaco; and Jeffrey
will require about $10 billion of Paris; and Omar Shawaf, Vice Chairman, Saudi
Consulting Services, Riyadh.
Waterous, Chairman, Waterous
investment.
& Co.
The ILSA sanctions prohibit
“The conference was extremely wellThe U.S. is increasingly foU.S. companies and their foreign
organized and structured and featured a
cused on West Africa—and not
subsidiaries from conducting
diverse mix of all of the industry. ”
just Nigeria and Angola—as it
business with Iran, a prohibition
—Dunia Chalabi,
scours the world for new, nonthat Alavi says is in the interest
Office of Non-Member Countries,
Middle Eastern oil supplies, the
of Iran and the U.S. to lift. Alavi,
Middle East & Africa,
panelists said. The region is parwho had not been in the U.S. for
International Energy Agency
ticularly interesting to the U.S.
over 24 years, and whose presbecause, with the exception of
ence was facilitated by Stephanie
Nigeria, none of the West
Jason, President of the InterAfrican producers is a member of
national Forum Institute, made a
OPEC.
special contribution to the forum.
The region’s political instability
Chalabi and Alavi were
was underscored by demonstrajoined on the Middle East panel
tions in Nigeria after the reelection
by Omar Shawaf, Vice Chairof its president, amid widespread
man, Saudi Consulting Services,
accusations of voter fraud that
Riyadh, the largest civil engiprompted mass demonstrations.
neering firm in Saudi Arabia, and
Though it is one of the world’s
active in infrastructure projects
largest oil exporters, Nigeria reincluding gas to power facilities,
mains desperately poor and has a
and by Jeffrey Waterous, Chairhistory of coups and unrest.
man, Waterous & Co.
Africa, a Diamond in
the Rough
Africa is a multifaceted diamond,
with a variety of untapped opportunities, but the lack of energy
Africa Panel: Tom Schull, General Manager,
Global Exploration, ChevronTexaco, San
Francisco; Willem De Meyer, General Manager,
E&P, PetroSA, Cape Town; and Charles Tchen,
Special Advisor to the Director General, Ministry
of Energy, Gabon.
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WORLD OIL & GAS FORUM 2003
Latin America:
Distinctive Montages
Latin America, from an oil and
gas perspective, can be described
as consisting of various neighbor-
ing regions with distinct characteristics in which the play- totaling US$31 billion between 2002 and 2006, with
ers seek differing objectives. Such is true when comparing US$15 billion in the E&P sector.
Internationally, the company has an E&P presence in
the Southern Cone region, with Brazil, Venezuela and
Andean countries, said Latin America panel moderator 12 countries in North, Central and South America, and in
Arturo Vilas, Managing Director, Waterous & Co., Buenos West Africa, and has 11 billion BOE of proved reserves,
and produces 1.75 million BOE
Aires.
per day—an increase of 70%
The Southern Cone, broadly
since 1997.
defined as Argentina, Bolivia,
Steven Crowell, Chief
Chile and Southern Brazil, was
Executive Officer, Pluspetrol
characterized by Alejandro
Resources Corp., Buenos Aires,
Bulgheroni, chairman of Pan
discussed the Andean countries
American Energy, as a region
of Peru, Ecuador and Colombia,
with significant gas reserves of
with particular focus on Peru.
about 115 Tcf, representing
The company, since 1995, has
more than 60 years at current
consolidated its operations in
demand. That region’s comthat country and is now Peru’s
bined GDP of US$886 billion
top oil producer.
places it at a level surpassing
Pluspetrol is one of the key
Canada, and slightly lower than
sponsors of the Camisea gas
France.
project. Showing proven reserves
The combined population of Latin America Panel: Alejandro Bulgheroni,
of almost 9 Tcf of gas and 600
the Southern Cone, about 244 Chairman, Pan American Energy, Buenos Aires;
million barrels of liquids, Camimillion, exceeds Canada, France Steven Crowell, CEO, Pluspetrol Resources Corp.,
sea is located across the Andes
and the U.K. combined. But, the Buenos Aires; and Renato Bertani, President,
mountains, about 400 kilomeregion’s per-capita energy con- Petrobras Amercia Inc., Rio de Janeiro.
ters east of Lima, in an environsumption is less than 15% of
mentally sensitive region. ConCanada’s.
struction started in 2001 and
Gas accounts for about 50%
commercial operation is schedof Argentina’s consumption,
uled for late 2004.
compared with just 6% in Brazil.
Those figures, Bulgheroni sugNorth America: U.S. and
gested, combined with an excelCanada Compared
lent gas transportation infrastrucNorth American companies are
ture, position the Southern Cone
well poised for growth as a
for steady growth of gas conresult of healthy cash flow
sumption and overall energy
fueled by strong prices, a panel
intensity of its economies.
of three leading independent
Renato Bertani, president of
producers agreed.
Petrobras America, discussed the
Sizeable capital budgets for
expected developments for the
both exploration and acquisiBrazilian oil industry following
tions are common throughout
the recent inauguration of a Robert S. Boswell, Chairman and CEO, Forest Oil
the North American industry
Labor Party government. Under Corp., Denver, addresses the Forum.
today. With declining gas
the new administration, Petrobras, a publicly traded company where majority control is reserves and production in North America, a looming gas
held by the Brazilian government, will try to balance eco- supply crunch is causing many companies to focus on gas
nomic development with increased concern for social reserve replacement.
A number of U.S.-based companies have retrenched
issues.
Petrobras, however, is expected to continue the from areas of high perceived political risk during the past
implementation of its aggressive growth targets, project- 18 months, and whether this is a short-term phenomenon
ing production of 2.6 million barrels per day by 2005, up is yet to be seen. While adopting a variety of strategies,
from the current 1.8 million. The growth is to be most companies have pursued concentrated portfolios with
achieved through partnerships with international com- a strong North American presence, although more companies, consolidation of its international expansion and panies are setting their sites on opportunities in South
selective growth. That will lead to company investment America and Africa.
9
WORLD OIL & GAS FORUM 2003
The challenge for buyers is to obtain quality assets in an
Panelists on the subject of North America were
Robert Boswell, Chairman and Chief Executive Officer, undersupplied market.
Internally generated cash flows are providing the majorForest Oil Corp., Denver; Duane Radtke, President,
Dominion E&P Inc., Houston; David Trice, President ity of capital for companies at present, even as the opportuand CEO, Newfield Exploration Co., Houston; Craig nity for external financings and public market support for
oil and gas stocks is returning,
George, President and CEO,
Waterous said. Equity issues in
Vintage Petroleum Inc., Tulsa;
the U.S. and Canada, while
Scott Sheffield, Chairman,
improving, remain low relative to
President & CEO, Pioneer
previous years, and have not
Natural Resources USA, Irving,
reflected the strength in comTexas; and Adam Waterous and
modity prices, Waterous said.
Christopher Slubicki, Senior
Gas transactions, in both the
Managing Directors and PrinU.S. and Canada, are in greater
cipals, Waterous & Co.
demand than oil assets, and U.S.
Strong demand and underassets are receiving more intersupply of quality prospects in
est per offering than are
North America make for a sellCanadian assets. More than
er’s market for quality oil and gas
60% of U.S. asset transactions
asset offerings, said Adam
are gas-weighted, compared with
Waterous, senior managing Christopher Slubicki, Senior Managing Director,
about 50% in Canada. Asset
director, Waterous & Co. Asset Waterous & Co.; Craig George, President and
transaction activity in the U.S.
and corporate offerings, which CEO, Vintage Petroleum Inc.; Adam Waterous,
averaged about $7 billion per
were scarce in 2002, will increase Senior Managing Director, Waterous & Co.
year, compared with $3 billion
this year, he said, in presenting
in Canada.
study results.
Larger companies are the
Strong commodity prices
most significant group of buyers
have given the North American
of assets, however smaller comexploration and production
panies are more active in
industry strong cash flows, causCanada than in the U.S. U.S.ing companies of all market capbased buyers accounted for
italization categories to be
about 6% of the companies
actively pursuing mergers and
acquired in Canada during 2002,
acquisitions. Potential buyers are
a dramatic decrease from the
flush with cash flow. Plus,
80% in 2001. Proved reserves for
increased equity financing—
U.S. asset transactions have
from both public and private
averaged $5.40 per BOE during
sources—has provided potential
buyers with additional ample capital to make acquisitions. the last few years, compared with $6.45 for Canadian
Interest rates remain very low by historical standards, assets, Waterous said. Production values for U.S. asset
further lowering the cost of capital and providing incen- transactions have averaged $20,500 per BOE per day durtives for companies to be more aggressive in acquisition ing that time period, compared with $17,000 for
Canadian asset transactions. ■
pursuits.
JUNE 2003
A supplement to:
Hart Publications,
Chemical Week Associates
4545 Post Oak Place, Suite 210
Houston, Texas 77027-3105
713-993-9320
Fax: 713-840-8585
www.OilandGasInvestor.com
LESLIE HAINES, Editor
Ext. 151, [email protected]
NISSA DARBONNE,
Managing Editor
Ext. 165,
[email protected]
Contributing Editor:
GARY CLOUSER
CARLA CHESHIRE, Graphic Artist
10
WORLD OIL & GAS FORUM 2003
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OIL AND GAS INVESTOR/
HART PUBLICATIONS,
HOUSTON, TEXAS