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General Interest -QuickTakes

Energy price hikes are two thirds of CPI's 1% June rise

The Consumer Price Index rose 1 % in June as its energy component increased sharply for a second consecutive month, the US Department of Labor's Bureau of Labor Statistics reported July 16.

The energy index's 6.6% increase on a seasonally adjusted basis in June accounted for about two thirds of the overall increase for all items during the month and followed a 4.4% increase in May, it said. "The index for petroleum-based energy advanced 10%, and the index for energy services rose 1.5%," BLS said. The energy index's 29.1% increase during 2008's first 6 months accounted for about half of the overall total growth as energy commodity prices climbed 34.7% and energy services prices rose 20.1%, it indicated.

The latest CPI report to Congress came one day after the Federal Reserve Board said steep increases in commodity prices boosted consumer price inflation in a sluggish US economy during the first half.

A decline in the dollar's foreign exchange value increased import prices, putting upward pressure on inflation, the Fed continued.

El Paso settles SEC reserve reporting charges

El Paso Corp. and five former employees settled federal charges of inflating reported proved oil and gas reserves in violation of federal securities antifraud laws, the US Securities and Exchange Commission said July 11.

The five - Rodney D. Erskine, a former president of El Paso's exploration and production division; Randy L. Bartley, a former El Paso E&P senior vice-president; and Steven L. Hochstein, John D. Perry, and Bryan T Simmons, former El Paso E&P vice-presidents - agreed to pay fines of $40,000-$75,000 without admitting or denying the allegations.

The complaint charged that during 1998-2003, El Paso and the employees inflated oil and gas reserves, overstated the Houston company's standardized measure of future cash flows, and over- stated capitalized costs related to its oil and gas production.

In 2004, El Paso restated its financial statements for 1999-2002 and for the first 9 months of 2003. It reduced its previously reported total proved reserves by 2.2 tcf of natural gas equivalent for the end of 2002; 3.3 tcfe at yearend 2002; and 3.3 tcfe at yearend 2001 . It also reduced its previously reported standardized measure of future cash flows.

The restatements reduced El Paso shareholders' equity as of Sept. 30, 2003, by $1.7 billion, according to SEC. Two subsidiaries, El Paso E&P and El Paso CGP Co. LLC, also restated previously issued financial statements to correct material overstatements of proved oil and gas reserves, standardized measures of future cash flows, and capitalized costs relating to oil and gas production activities, it said.

Bingaman urges DOI to push lessee development

Energy and Natural Resources Committee Chairman Jeff Bingaman (D- NM) and 30 other US Senate Democrats urged Interior Secretary Dirk A. Kempthorne to act immediately to encourage development of federal oil and gas leases totaling millions of acres.

"Federal lands both onshore and on the Outer Continental Shelf that are already leased, but not producing, are our biggest opportunity to provide needed oil and gas supply in the near term," the lawmakers said in a July 15 letter to Kempthorne. "We are concerned that policies of the [US Department of the Interior] do not result in the timely production of these resources."

The message reflected congressional Democratic sentiment that access to additional federal acreage should not be granted to oil and gas producers if they are not diligently developing tracts they already have leased. US Minerals Management Service officials and producers have said that this mandate does not recognize the time it takes to evaluate a lease once it has been granted or capital, equipment, and personnel constraints.

Bingaman and the other senators, including Majority Leader Harry M. Reid (D-Nev), asked Kempthorne to immediately clarify that oil and gas producers holding federal leases are required to diligently develop the tracts and asked him to exercise his full authority for appropriate OCS lease term lengths and lease rates and require lessees to regularly report their progress in diligently developing the tracts.

Recent lease sales failed to generate bids for major OCS tracts that are already available, including about 300 million acres in the Gulf of Mexico, the letter added.

Kazakh sulfur must be stored indoors by 2010

Kazakhstan said Chevron-led Tengizchevroil must store its openair sulfur stocks indoors by 2010. The company said it is working on ways of storing sulfur indoors and plans to cut stocks significantly by 2017. Last year, a court imposed a 74 billion tenge fine on Tengizchevroil but later reduced it by 50% (OGJ, Oct. 12, 2007, P- 30).

The government reportedly also reversed another earlier decision and could try to impose export duties on Tengizchevroil oil.

Tengizchevroil produces some 300,000 b/d of crude oil, which accounts for 20% of Kazakhstan's total oil production. It plans to increase total capacity to 400,000 b/d following the first phase expansion of 90,000 b/d, while the start-up of full facilities in this year's second half will further increase production capacity to 540,000 b/d (OGJ Feb. 4, 2008, Newsletter).

The Tengizchevroil partners include Chevron 50%, KazMunaiGas 20%, ExxonMobil Kazakhstan Ventures Inc. 25%, and LUKArco 5%.

Exploration & Development - Quick Takes

Brazil likely will hold two lease auctions in 2008

Brazil likely will hold two auctions for oil and gas exploration blocks in 2008, but will exclude rights to blocks in the presalt layer until passage of a new regulatory law.

"We are going to promote the resumption of the Eighth Round, and also hold another auction that will involve land areas and the fringes of the presalt area," said Mines and Energy Minister Edison Lobao. "An auction including the presalt area will be held only after a new regulatory law has been passed."

He said 15 exploratory drillings have been made in Brazil's presalt area, but additional wells must be drilled to determine the area's status.

Lobao told the state news agency that the government by early 2009 will have found a solution to the oil sector rule changes planned for exploitation in subsalt areas.

It recently was reported that Lobao plans to propose the creation of a new state-run firm that would manage oil discoveries made in recent months in the subsalt layer of the Santos basin (OGJ Online, July 7, 2008).

GeoPark tests oil from Chile's Fell block wildcat

GeoPark Holdings Ltd. discovered an oil field in Chile's Fell block following drilling and testing at its Aonikenk 1 exploration well.

GeoPark said a production test in the Springhill formation at 2,270 m in a 5-m perforated interval, flowed without stimulation. GeoPark, Hamilton, Bermuda, said the rates were 1,201 b/d of oil, 1.2 MMcfd of gas, and 1,465 b/d of water through a 12-mm choke and with a wellhead pressure of 896 psi.

"These are preliminary results following a 6-day production test, and further production history will be required to determine stabilized flow rates from this well and the extent of the reservoir," GeoPark said.