Oil & Gas Exploration

Implicit time/explicit space

Overview:Oil exploration is an expensive, high-risk operation. Offshore and remote area exploration is generally only undertaken by very large corporations or national governments. Typical Shallow shelf oil wells (e.g. North sea) cost USD$10 - 30 Million, while deep water wells can cost up to USD$100 million plus. Hundreds of smaller companies search for onshore hydrocarbon deposits worldwide, with some wells costing as little as USD$100,000.
Petroleum resources are typically owned by the government of the host country. In the USA most onshore (land) oil and gas rights (OGM) are owned by private individuals. Sometimes this is not the same person who owns the surface rights. In this case oil companies must negotiate terms for a lease of these rights with the individual who owns the OGM. In most nations the government issues licences to explore, develop and produce its oil and gas resources, which are typically administered by the oil ministry. There are several different types of licence. Typically oil companies operate in joint ventures to spread the risk, one of the companies in the partnership is designated the operator who actually supervises the work.

In effect, an explicit area (space) is leased out to the oil exploration company (FOC – Foreign Oil Company in most cases) to explore, drill and remove oil/or gas. Time is usually implicit, because operations are likely to cease once the oil reserves are either exhausted or unviable to extract. Negotiations are based on the estimated oil or gas reserves in that particular oilfield and the costs required to extract them. These costs vary because oil/gas may be found at different depths at different oilfields, the rock hardness and the location of oil reservoirs. In very few cases today are oilfields leased on an explicit time basis, although in the past it was common practice.

How pricing is negotiated
Licensing (http://en.wikipedia.org/wiki/Hydrocarbon_exploration)
• Tax and Royalty - Companies would pay a royalty on any oil produced, together with a profits tax (which can have expenditure offset against it). In some cases there are also various bonuses and ground rents (license fees) payable to the government - for example a signature bonus payable at the start of the licence. Licences are awarded in competitive bid rounds on the basis of either the size of the work programme (number of wells, seismic etc) or size of the signature bonus.
• Production Sharing contract (PSA) - A PSA is more complex than a Tax/Royalty system - The companies bid on the percentage of the production that the host government receives (this may be variable with the oil price), There is often also participation by the Government owned National Oil Company (NOC). There are also various bonuses to be paid. Development expenditure is offset against production revenue. (http://en.wikipedia.org/wiki/Production_sharing_agreements) Production-Sharing Agreements (PSAs) are among the most common types of contractual arrangements for petroleum exploration and development. Under a PSA the state as the owner of mineral resources engages a foreign oil company (FOC) as a contractor to provide technical and financial services for exploration and development operations. The state is traditionally represented by the government or one of its agencies such as the national oil company (NOC). The FOC acquires an entitlement to a stipulated share of the oil produced as a reward for the risk taken and services rendered. The state, however, remains the owner of the petroleum produced subject only to the contractor's entitlement to its share of production. The government or its NOC usually has the option to participate in different aspects of the exploration and development process.PSAs can be beneficial to governments of countries that lack the expertise and/or capital to develop their resources and wish to attract foreign companies to do so. They can be very profitable agreements for the oil companies involved, but often involve considerable risk.
PSAs were first introduced in Indonesia in 1966. After independence nationalistic feelings were running high and foreign companies and their concessions became the target of increasing criticism and hostility. In response to this the government refused to grant new concessions. In order to overcome the subsequent stagnation in oil development, which was a disadvantage to both the country and the foreign firms, new petroleum legislation was brought in. PSAs were regarded as acceptable because the government upholds national ownership of resources. The major oil companies were initially opposed to this new contract form as they were reluctant to invest capital into an enterprise which they were not allowed to own or manage. More importantly, however, the FOCs did not want to establish a precedent which might then affect their concessions elsewhere. The first PSAs were therefore signed by independent FOCs who showed a greater willingness to compromise and accept terms that had been turned down by the majors. Furthermore, it has been argued that the independents saw this as an opportunity to break the dominance of the big oil companies and gain access to high quality crude oil (Barnes 1995). Thus challenged, the major FOCs bit the bullet and entered into PSAs (and found that in reality the foreign firm usually manages and operates the oilfield directly). From Indonesia PSAs spread globally to all oil-producing regions with the exception of western Europe where only Malta offers this type of contract.
• Service contract - This is when an oil company acts as a contractor for the host government, being paid to produce the hydrocarbons.

Major National Oil Companies (NOCs)
1. Saudi Aramco (saudiaramco.com)is the state-owned national oil company of Saudi Arabia. It is the largest oil corporation in the world with the largest proven crude oil reserves and production. Headquartered in Dhahran, Saudi Arabia, Saudi Aramco also operates the world's largest single hydrocarbon network, the Master Gas System. It was known as just Aramco between the years of 1933-1988, an acronym for Arabian American Oil Company.
As of the end of 2006, its yearly production of only crude oil neared 3.4 billion barrels (540,000,000 m3) and it managed over 100 oil and gas fields in Saudi Arabia totaling at least 264 billion barrels (4.20×1010 m3) of oil reserves and 253 quadrillion scf of gas reserves Among those fields fully owned by the company is the Ghawar Field, the world's largest oil field; the Safaniya Field, the world's largest offshore field; and the Shaybah Field, one of the world's largest of its kind. It is thought to be by far the world's most profitable company.
2. The National Iranian Oil Company (NIOC) (www.nioc.ir), under the direction of the Ministry of Petroleum of Iran, is an oil and natural gas producer and distributor headquartered in Tehran. It was established in 1948.
NIOC was established with the objective of the exploration, development, production, marketing and sales of crude oil and natural gas. NIOC's oil and gas reserves in early 2005 was as follows;
• Recoverable liquid hydrocarbon reserves in early 2005, 136.99 billion barrels (21.780×109 m3, 10% of world's total).
• Recoverable gas reserves in early 2005 , 28.17×1012 m3 (15% of world's total).
NIOC is considered the second largest oil firm of the world .Current NIOC production capacities include over 4 million barrels (640×103 m3) of crude oil and in excess of 500 million cubic meters of natural gas per day. In 2008, the average extraction cost of oil was less than $5 per barrel. This does not include processing (refining) and distribution costs. Iran’s cumulative oil production has reached to 61 billion barrels by the end of 2007, most of these volume produced after 1951, under the supervision of NIOC.NIOC produces 50-80% of its industrial equipment domestically including refineries, oil tankers, oil rigs, offshore platforms and exploration instruments.
3. Oil and Natural Gas Corporation Limited (ONGC) (www.ongcindia.com) (incorporated on June 23, 1993) is an Indian public sector petroleum company. It is a Fortune Global 500 company ranked 335th, and contributes 77% of India's crude oil production and 81% of India's natural gas production. It is the highest profit making corporation in India. It was set up as a commission on August 14, 1956. Indian government holds 74.14% equity stake in this company.
ONGC is engaged in exploration and production activities. It is involved in exploring for and exploiting hydrocarbons in 26 sedimentary basins of India. It produces about 30% of India's crude oil requirement. It owns and operates more than 11,000 kilometers of pipelines in India. Until recently (March 2007) it was the largest company in terms of market cap in India.
4. Petronas, short for Petroliam Nasional Berhad (www.petronas.com.my ) is a Malaysian owned oil and gas company that was founded on August 17, 1974. Wholly owned by the Government, the corporation is vested with the entire oil and gas resources in Malaysia and is entrusted with the responsibility of developing and adding value to these resources. Petronas is ranked among Fortune Global 500's largest corporations in the world. In 2008, Fortune ranks Petronas as the 95th largest company in the world. It also ranks Petronas as the 8th most profitable company in the world and the most profitable in Asia.Since its incorporation Petronas has grown to be an integrated international oil and gas company with business interests in 31 countries. As of the end of March 2005, the Petronas Group comprised 103 wholly owned subsidiaries, 19 partly-owned outfits and 57 associated companies. Together, these companies make the Petronas Group, which is involved in various oil and gas based activities. The Financial Times has identified Petronas as one of the "new seven sisters"[4]: the most influential and mainly state-owned national oil and gas companies from countries outside the OECD.
The Group is engaged in a wide spectrum of petroleum activities, including upstream exploration and production of oil and gas to downstream oil refining; marketing and distribution of petroleum products; trading; gas processing and liquefaction; gas transmission pipeline network operations; marketing of liquefied natural gas; petrochemical manufacturing and marketing; shipping; automotive engineering; and property investment.
Petronas built the Petronas Twin Towers (opened 1998), the tallest twin towers and once the world's tallest buildings, as its headquarters.




OIL MAJORS


• Royal Dutch Shell (www.shell.com), commonly known simply as Shell, is a multinational oil company of Dutch and British origins. It is the second largest private sector energy corporation in the world, and one of the six "supermajors" (vertically integrated private sector oil exploration, natural gas, and petroleum product marketing companies). The company's headquarters are in The Hague, Netherlands, with its registered office in London (Shell Centre).[2]
The company's main business is the exploration for and the production, processing, transportation, and marketing of hydrocarbons (oil and gas). Shell also has a significant petrochemicals business (Shell Chemicals), and an embryonic renewable energy sector developing wind, hydrogen and solar power opportunities. Shell is incorporated in the UK with its corporate headquarters in The Hague, its tax residence is in Netherlands, and its primary listings on the London Stock Exchange and Euronext Amsterdam (only "A" shares are part of the AEX index).
Forbes Global 2000 in 2007 ranked Shell the eighth largest company in the world. Also in 2007, Fortune magazine ranked Shell as the third-largest corporation in the world, behind Wal-Mart and ExxonMobil. Shell operates in over 140 countries. In the United States, its Shell Oil Company subsidiary, headquartered in Houston, Texas, United States, is one of Shell's largest businesses.
• The Exxon Mobil Corporation (ExxonMobil.com), or ExxonMobil, is an American oil and gas corporation. It is a direct descendant of John D. Rockefeller's Standard Oil company,[formed on November 30, 1999, by the merger of Exxon and Mobil.
ExxonMobil is the world's largest publicly traded company when measured by either revenue or market capitalization. Exxon Mobil's reserves were 72 billion oil-equivalent barrels at the end of 2007 and, at current rates of production, are expected to last over 14 years.[4] The company has 38 oil refineries in 21 countries constituting a combined daily refining capacity of 6.3 million barrels. While it is the largest of the six oil supermajors with daily production of 3.921 million BOE (barrels of oil equivalent) in 2008, this is only approximately 3% of world production and ExxonMobil's daily production is surpassed by several of the largest state-owned petroleum companies. When ranked by oil and gas reserves it is 14th in the world with less than 1% of the total.
• British Petroleum, (www.bp.com)officially BP plc is the third largest global energy company, a multinational oil company ("oil major") with headquarters in London. The company is among the largest private sector energy corporations in the world, and one of the six "supermajors" (vertically integrated private sector oil exploration, natural gas, and petroleum product marketing companies).[2] The Company is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index.


4. Chevron Corporation (Chevron.com) (NYSE: CVX) is the world's fourth largest non-government energy company. Headquartered in San Ramon, California, USA, and active in more than 180 countries, it is engaged in every aspect of the oil and gas industry, including exploration and production; refining, marketing and transport; chemicals manufacturing and sales; and power generation. Chevron is one of the world's six "supermajor" oil companies.