oilvoice magazine | july 2014

7/21/2019 OilVoice Magazine | July 2014

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Edition Twenty EightJuly 2014

Iraq unrest tests U.S. 'energy independence'MENA war fever and the Iraq oil price spike

Why the crisis in Iraq has the global oil industry on edge

Cover image by William John Gauthier


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1 OilVoice Magazine | JULY 2014

Issue 28 July 2014

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Adam Marmaras

Chief Executive Officer

Welcome to the 28th edition of theOilVoice Magazine.

With the recent activities in Iraq overthe last couple of months, this editionof the OilVoice Magazine has turnedout to be an Iraq Special.

This month we have great articles from

30 Point Strategies, WorldwideRecruitment Solutions andThinkProgress. We'd also like towelcome back some of our regularauthors, including Andrew McKillop.

If you're interested to know more aboutseeing your articles featured onOilVoice, pleaseget in touch.

Adam Marmaras

CEO

OilVoice
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Contents

Featured Authors

This months featured authors 3Iraq unrest tests U.S. 'energy independence'by Loren Steffy 4

Iraq: Why it's worse than you thinkby Keith Schaefer 5

America energy independenceby Euan Mearns 11

Kurt Mix case a cautionary tale for employees

by Loren Steffy19

There is no act three to the American horizontal oil boomby Keith Schaefer 20

MENA war fever and the Iraq oil price spikeby Andrew McKillop 25

The Bakken gets bigger - likely a LOT biggerby Keith Schaefer 28

Should the West save Iraq?

by Andrew McKillop34

Canada moves ahead with new pipeline project as Keystonelanguishesby Loren Steffy

40

Upward trend for South East Asia's investment in worldwide oil andgas industryby Dan Saleh

42

TransCanada's credibility dented by Keystone defectsby Loren Steffy 45

Why the crisis in Iraq has the global oil industry on edgeby Ari Phillips 47


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Featured Authors

Andrew McKillop

AMK CONSULT

Andrew MacKillop is an energy and natural resource sector professional withover 30 years experience in more than 12 countries.

Keith Schaefer

Oil & Gas Investments Bulletin

Keith Schaefer is the editor and publisher of the Oil & Gas InvestmentsBulletin.

Euan Mearns

Energy Matters

Euan Mearns has B.Sc. and Ph.D. degrees in geology.

Dan Saleh

Worldwide Recruitment Solutions

Dan Saleh is the Oil & Gas Team Manager at Worldwide RecruitmentSolutions.

Ari Phillips

ThinkProgress

Ari Phillips is reporter for ClimateProgress.org.

Loren Steffy

30 Point Strategies

A senior writer for 30 Point Strategies and a writer-at-large for Texas Monthly.Loren worked in daily journalism for 26 years, most recently as an award-winning business columnist for the Houston Chronicle, and before that, as asenior writer at Bloomberg News.
http://www.oilvoice.com/description/AMK_CONSULT/82b50237.aspxhttp://www.oilvoice.com/description/AMK_CONSULT/82b50237.aspxhttp://oilandgas-investments.com/http://oilandgas-investments.com/http://euanmearns.com/http://euanmearns.com/http://www.worldwide-rs.com/http://www.worldwide-rs.com/http://thinkprogress.org/http://thinkprogress.org/http://30point.com/http://30point.com/http://30point.com/http://thinkprogress.org/http://www.worldwide-rs.com/http://euanmearns.com/http://oilandgas-investments.com/http://www.oilvoice.com/description/AMK_CONSULT/82b50237.aspx


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Iraq unrest tests U.S.'energy independence'

Written by Loren Steffyfrom30 Point Strategies

The idea of U.S. energy independence is getting its first real test as a militantuprising in Iraq raises a serious threat to the future of OPECs second-largestproducer. West Texas Intermediate crude prices haverallied as much as 5 percent,or $4.45 a barrel this month.Thatsa significant gain given the relative calm of the oilmarkets during the past year, but the most surprising thing about the price spike isthat it hasnt been higher.

Although no Iraqi exports or production have been affected yet, there has been someimpact on the countrys oil infrastructure,as Bloomberg reported:

The group that calls itself the Islamic State in Iraq and the Levant, know as ISIL,seized Mosul this week, forcing a halt to repairs at the main pipeline from the Kirkukoil field to the Mediterranean port of Ceyhan in Turkey. There were conflicting reportsthat Baiji, the site of Iraqs biggest refinery, had been captured.

Working against these fears: rising production from U.S. shale plays, which hassmoothed the markets reaction to geopolitical upheaval in recent years.As I notedlast year,unrest in Syria and a potential nuclear showdown with Iran had little impacton oil prices, largely because of increased production from the U.S. But the events inIraq pose a greater test of the notion that the U.S. can drill its way to energyindependence. The upheaval in Iraq comes as seasonal demand for gasoline ispicking up and two other OPEC members, Iran and Libya, are producing below theircapacityIran because of sanctions and Libya because of its own political turmoil.As the Financial Times points out,these issues are compounded by productionoutages from South Sudan, Colombia and Kazakhstan.

In other words, the available supply of oil on the world market could tighten quickly.

The U.S., despite surging domestic production, remains a net oil importer, whichmeans it remains vulnerable to global supply shortages. Fracking is a buffer to oilprice volatility, but it isnt immunity.

View more quality content from30 Point Strategies
http://www.oilvoice.com/description/30_Point_Strategies/c97b8ea5.aspxhttp://www.oilvoice.com/description/30_Point_Strategies/c97b8ea5.aspxhttp://www.oilvoice.com/description/30_Point_Strategies/c97b8ea5.aspxhttp://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htmhttp://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htmhttp://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htmhttp://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htmhttp://www.bloomberg.com/news/2014-06-12/wti-heads-for-biggest-weekly-gain-this-year-amid-iraq-conflict.htmlhttp://www.bloomberg.com/news/2014-06-12/wti-heads-for-biggest-weekly-gain-this-year-amid-iraq-conflict.htmlhttp://www.bloomberg.com/news/2014-06-12/wti-heads-for-biggest-weekly-gain-this-year-amid-iraq-conflict.htmlhttp://www.forbes.com/sites/lorensteffy/2013/08/28/benefits-of-fracking-will-be-tested-in-syria-attacks/http://www.forbes.com/sites/lorensteffy/2013/08/28/benefits-of-fracking-will-be-tested-in-syria-attacks/http://www.forbes.com/sites/lorensteffy/2013/08/28/benefits-of-fracking-will-be-tested-in-syria-attacks/http://www.forbes.com/sites/lorensteffy/2013/08/28/benefits-of-fracking-will-be-tested-in-syria-attacks/http://www.ft.com/intl/cms/s/0/5114cd48-f22a-11e3-ac7a-00144feabdc0.html?siteedition=intl#axzz34WrFuokJhttp://www.ft.com/intl/cms/s/0/5114cd48-f22a-11e3-ac7a-00144feabdc0.html?siteedition=intl#axzz34WrFuokJhttp://www.oilvoice.com/description/30_Point_Strategies/c97b8ea5.aspxhttp://www.oilvoice.com/description/30_Point_Strategies/c97b8ea5.aspxhttp://www.oilvoice.com/description/30_Point_Strategies/c97b8ea5.aspxhttp://www.ft.com/intl/cms/s/0/5114cd48-f22a-11e3-ac7a-00144feabdc0.html?siteedition=intl#axzz34WrFuokJhttp://www.forbes.com/sites/lorensteffy/2013/08/28/benefits-of-fracking-will-be-tested-in-syria-attacks/http://www.forbes.com/sites/lorensteffy/2013/08/28/benefits-of-fracking-will-be-tested-in-syria-attacks/http://www.bloomberg.com/news/2014-06-12/wti-heads-for-biggest-weekly-gain-this-year-amid-iraq-conflict.htmlhttp://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htmhttp://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htmhttp://www.oilvoice.com/description/30_Point_Strategies/c97b8ea5.aspx


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Iraq: Why it's worsethan you think

Written by Keith SchaeferfromOil & Gas Investments Bulletin

Everyone knows that Iraq is an important oil producing country. But Iraq is more thanjust important, it is critical.

Iraq is so important that in October of 2012 the International Energy Agency (IEA)released a report called World Energy Special Outlook On Iraq.

In that report the IEA concluded that in 2035 oil prices would be $215 if Iraq couldincrease its oil production by 266% from 3 million barrels per day to 8 million barrelsper day. (Couldnot couldnt)

Source:IEAWorld Energy Special Outlook On Iraq

Drink that in for a moment.

$215 per barrel is the IEAs scenario if everything goes swimmingly well in Iraq overthe next 20 years. Given the long history of instability here, the IEAs vision seemslike a very optimistic one.

Last weeks violence in Iraq, the IEA scenario seems almost absurd. If oil isexpected to be $215 per barrel in 2035 if Iraqthrives, what will the oil price be if Iraqfalls apart or just keeps production steady?

It wont be pretty, especially for poorer countries.
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Now, Im the first to say any prognostication that goes 20 years into the future is asuseful as screen doors on a submarine. But lets look at the two main reasons whythe IEA says the world needs a lot more oil production by 2035.

The first great call on new oil production comes from the relentless thirst for oil that

belongs to the emerging middle class of the billions of people in emerging countries.China and India lead this group that also includes all of Africa, Southeast Asia andLatin/South America. The people in this part of the world use on a per capita basis atiny fraction of the oil that Westerners do, and every day they are fighting to live amore Western lifestyle.

The second great call on new oil production is that currently producing oil fieldsacross the globe produce less and less oil every month. All in, these fields decline inproduction at 6% per year, which means that the world will require an additional 40million barrels of new production to just replace those declines by 2035. To put thatin context, it means the world needs to bring on new oil production equal to four

Saudi Arabias.

How important the IEA believes Iraqs contribution towards meeting global oildemand needs to be is shocking. The Agency has earmarked Iraq to provide 45% ofthe global growth in oil production by 2035.


Yes, Iraq, a country that has been in a state of chaos for virtually its entire existence,is the key piece in the energy supply puzzle for the future of the entire globe. Alice,pass me the gravol.

Historical Iraqi oil production wont calm your stomach either. Recent Iraq oilproduction has been bouncing back and forth between 3.3 million and 3.5 millionbarrels per day. That level is the highest production has been in 30 years datingback to 1976.


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As you can see in the graph above that 3.5 million barrel per day figure has beenapproached a couple of times in the past 30 yearsbut never stays there for long.The world needs a lot more than for Iraq to just deliver 3.5 million barrels per dayconsistently. The world needs Iraq to more than double that all time high level ofproduction and then grow some more from there.

There is nothing in the history of this country to lead us to believe that a longsustained run of bigunprecedented evenproduction growth is possible. And thenews coming out of the country certainly provides no reason to believe the future

would be any different.

The Good NewsMost Of Iraqs Oil Production is Not Currently In Harms Way

The IEAs vision for Iraq production growth is certainly questionable. The good newsis that the group calling themselves theIraq/Syria Islamic State (ISIS) is actually notlikely to materially disrupt Iraq oil production in the near term.

ISIS is an extreme Sunni group that is small in number (Iraqi officials estimate thegroup has 6,000 soldiers) and that doesnt have much popular support. Theheadlines the group has been making by gaining control of cities have been in

regions divided by religion like Mosul and Tikrit that were extremely unstable to beginwith.

These are not regions with significant oil production.

The great majority of Iraqs production is found away from current hostilities either inthe south of the country within the borders of the Shiite majority or in the Kurdishregion in the north.


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Source:Securing Americas Energy Future

Iraqs historical production has been dominated by just two super giant oil fields.There is the Rumaila field that has produced over 14 billion barrels since the 1950sin the Shiite south and the Kirkuk field which has produced a similar amount since

the 1920s in the northern Kurdish region.

A third super-giant field called The West Qurna is also located in the Shiite south andwith 44 billion barrels of recoverable oil is the second largest oil field in the world.West Qurna is targeted to be the primary driver of Iraq production growth.


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Iraqi oil production is now split roughly 75/25 between the Shiite south and theKurdish north. The fighting has however already impacted some of Iraqs key oilinfrastructure, most notably a pipeline that can deliver 600,000 barrels of oil per dayfrom Kirkuk to the city of Ceyhan in Turkey which is damaged and offline.

What the fighting also does is make Western oil companies hesitant to invest capitalin Iraq. The IEA estimates that more than $15 billion needs to be invested every yearin Iraq in order to generate the anticipated level of production growth. Without atleast the appearance of the country moving closer to stability, it seems hard tobelieve companies will be willing to risk that kind of money.

Reality May Be Setting In

The actual near term threat to oil production from ISIS is likely not as significant asthe frightening headlines make it seem. What the headlines may be doing however iswaking the world up to the fact that Iraqs success as a growing oil producer is

critical to the entire world and also to the fact that the country is in no better shapethan it has been over the last 30 years when production has sputtered.

The Sad Truth is that one has to wonder if Iraq isnt in worse shape than it has everbeen. And that isnt good considering what the IEA says its importance to globalenergy security.

View more quality content fromOil & Gas Investments Bulletin
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America energyindependence

Written by Euan MearnsfromEnergy Matters

Talk of the USA becoming energy independent, even exporting oil and gas, is verymuch in the news. Indeed the turnaround from ever rising energy imports to decliningenergy imports has been spectacular (Figure 1) and on current trajectory it doesindeed appear that the USA could become energy independent in a decades time.Everyone knows that shale gas and shale oil have liberated the USA fromdependency on Saudi crude (Figure 2). Less publicised is the fact that US energy

consumption succumbed to high energy prices and has been in steep decline since2007 (Figure 3). Indeed, 45% of the fall in energy imports is down to reducedconsumption.

The USA remains the Queen of energy waste to Canadas King. US citizensconsume double the energy of those in the UK. The energy system remainsdominated by fossil fuels that account for 87% of all energy consumed. Newrenewables account for only 2% and in electricity generation solar accounts for amere 0.7% as reported by BP [1].

But the USA is on a new energy trajectory, arguably more sustainable and perhapsheading for Maximum Power [2].

Figure 1 The USA imports alot of oil and some natural gasfrom Canada. Both oil and gasimports have declined sharplyin recent years. The US hasbeen a coal exporter since1981 and exports haverecently been on the rise as

domestic electricity productionhas switched to natural gas.
http://www.oilvoice.com/description/Energy_Matters/08f6d34a.aspxhttp://www.oilvoice.com/description/Energy_Matters/08f6d34a.aspxhttp://www.oilvoice.com/description/Energy_Matters/08f6d34a.aspxhttp://www.oilvoice.com/description/Energy_Matters/08f6d34a.aspx


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Data

All of the energy statistics reported here are drawn from the 2013 BP statisticalreview of world energy [1]. The economic and population data are drawn from theUnited Nations National Accounts Main Aggregates Database [3] and World Bank

[4]. All data sources are referenced on charts.

Figure 2 From the energy production stand point, the USA is in much better shapethan Europe producing a surplus of coal and nearly self sufficient in gas. It is oilconsumption that vastly exceeds domestic production. The peak in US oil productionwas back in 1971 standing at 11.3 mbpd compared with 8.8 mbpd in 2012 so there isstill a way to go before the 197o peak is past. And with oil consumption running at18.6 mbpd, the USA still imports 53% of oil consumed. There is a way to go beforeoil independence is achieved, but overall, the trend of US energy production is quitedefinitely up on the back of shale oil and gas production. Nuclear and hydrocombined are significant but new renewables make only a negligible contribution tototal energy production.


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Figure 3 USA primary energyconsumption has been indecline since 2007 in part due torecession, but mainly due to the5 fold increase in oil price since

2002the two factors are ofcourse linked. This decline inenergy consumption mirrorsthose seen in post 1974 and1979 oil price shocks. These oilprice shocks were caused byMiddle East wars. This time thecause is global energy supplygrowth being outstripped bydemand growth and energyprices are more likely to

increase than decline in future.Declining energy consumptionhas become a hallmark ofOECD economies.

Figure 4USA low carbonenergy consumption grew

significantly in the 1970s, 80sand 90s with the growth ofnuclear power. It is rising onceagain on the back of newrenewables although the latterstill contribute very little to thewhole energy mix.


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Trouble in the shale patch

The recent growth in US oil and gas production (Figure 2) is down entirely to shale

oil and gas. The hope in the USA and globally is that this new bounty will provide theenergy independence and security that is so much prized. However, some well-informed commentators like Art Berman and Rune Likvern have been warning forsome time that the shale industry may be a bubble inflated by debt.This recentreportin Blomberg gives some forewarning of potential trouble brewing in the shaleindustry that I will return to in a future post.

Shale debt has almost doubled over the last four years while revenue has gainedjust 5.6 percent, according to a Bloomberg News analysis of 61 shale drillers. Adozen of those wildcatters are spending at least 10 percent of their sales on interestcompared with Exxon Mobil Corp.s 0.1 percent.

No problems here that $150 / barrel cant fix. On the other hand, interest rates at 5%may kill the goose completely.

Electricity

Figure 5 The breakdown ofUS energy consumption in2012 shows how fossil fuelsstill dominate. Only 2% comesfrom new renewables.

Figure 6After decades ofsteady growth US electricitygeneration stalled in 2007 andhas been flat to trending down

since then. Higher prices will bepart of the story but the trend isdifficult to reconcile with agrowing population andeconomy (Figure 8). Betterenergy efficiency standards mayalso be at work but I am leftwondering to what extent Greenpolicies may interfere with thegrowth of the US electricitysystem with conventional

thermal generation in retreat.
http://www.bloomberg.com/news/2014-05-26/shakeout-threatens-shale-patch-as-frackers-go-for-broke.htmlhttp://www.bloomberg.com/news/2014-05-26/shakeout-threatens-shale-patch-as-frackers-go-for-broke.htmlhttp://www.bloomberg.com/news/2014-05-26/shakeout-threatens-shale-patch-as-frackers-go-for-broke.htmlhttp://www.bloomberg.com/news/2014-05-26/shakeout-threatens-shale-patch-as-frackers-go-for-broke.htmlhttp://www.bloomberg.com/news/2014-05-26/shakeout-threatens-shale-patch-as-frackers-go-for-broke.htmlhttp://www.bloomberg.com/news/2014-05-26/shakeout-threatens-shale-patch-as-frackers-go-for-broke.html


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Population and economy

Figur e 7 Electricity generationis dominated by conventionalthermalcoal, gas andnuclear. Renewables make uponly 7% of which 2% is hydro.

The USA should perhapsfollow Germanys lead andgive up on this imposedenergy transition sooner ratherthan later.

Figure 8 One thing that sets the

USA apart from European peers isthat population has grown stronglysince 1970 and continues to do so.This is largely a function ofimmigration policy. The fact that thecontinent still has a lot of spacecombined with the knowledge thatpopulation growth may drive GDPgrowth is one reason why the USAhas typically enjoyed a highergrowth rate than European peers.

The 2008 / 09 recession is plain tosee but unlike many Europeancountries (except Germany) the USeconomy has recovered stronglysetting new year on year highs.

Figure 9One of the major ills of theUSA that affects the whole world, isthe gigantic structural trade deficitthe country has run since 1975, thelast year to have shown a surplus.

The cumulative deficit stands at $9trillion. In 2012, the USA imported9.65 m barrels oil per day costing$352 billion at $100 / barrel. Thetrade deficit that year was $547billion of which oil imports made up64%. This huge deficit and relianceon Middle East oil has createdmilitary and economic tensionsglobally. I have never understoodwhy the USA did not take steps tocurb oil consumption and avoidthese tensions that all must livewith.


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Figur e 10Another sign that all isnot well in the USA is the fact thatper capita GDP has been staticsince 2007. Per capita energyconsumption is in decline from

extreme high levels, which is agood thing, but the likely cause ishigh energy prices. Is per capitaenergy in decline because percapita GDP is static? Or is percapita GDP static because of highenergy prices? I suspect the latter.

Figure 11 This chart cross plots thedata shown in Figure 10. Theexpectation is that energy isrequired to produce GDP and GDPgrowth should require growth inenergy consumption. Mature OECDeconomies appear to have escapedthe thermodynamic reality thatenergy is required to do stuff or

make things. Improved efficiency,selling imported goods and phantomGDP created by banks and cityboys on Wall Street figure amongthe reasons the USA appears to bedefying gravity. The context of thischart become clearer in Figure 12where the USA is compared withother nations.

Figur e 12This chart remains a work of art in progress.All interpretations may be subject to future revision. Forthose readers who have not been following along, eachcountry data series is a time series beginning in 1980and ending in 2012. In this chart I am plotting per capitagross national income (GNI) purchasing power parity(PPP) which is an adjusted form of GDP that accountsfor aberrations created by exchange rates and othernational factors. In general terms it is expected thattrends should rise from lower left to upper right as GNIand energy consumption rise in lock step with time

(economic growth). The mature OECD economies arebreaking the rules with their vertical rise.


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The key observations for the USA are 1) on a per capita basis, they use far moreenergy than any other country I have looked at so far, 2) the recent trend is forincreasing GDP with declining energy consumption and 3) the USA currently has thehighest GNI per capita of any of the countries I have looked at. Is the USA in Utopia?The dashed lines are lines of equal efficiency at converting energy to GNI. The upper

dashed line appears to be some form of upper limit ($11,500 per toe). Turkey is asefficient as Germany in converting energy to GNI but Germany uses more energyand is therefore significantly more wealthy.

I am speculating here that this upper boundary of converting energy to money hassomething to do with Maximum Power [2], a subject I know little about. But on Earth,the country that uses most energy most efficiently will ultimately rule the world.Vladamir watch out.

Energy Independence

So, is the USA heading for energy independence? I suspect not. Shale is expensiveto produce and eventually the grade will decline requiring even more effort. But thenagain it is difficult to ignore American ingenuity and hunger for C-H bonds. Higherenergy prices are required that must at some point sow seeds of inflation and ifinterest rates are raised it may kill shale stone dead. The world changed in 2001 andagain in 2008. It is very difficult at this point to call what the future holds.

References

[1]BP: Statistical Review of World Energy 2013[2]Maximum power principle[3]UN: National Accounts Main Aggregates Database[4]The World Bank

View more quality content fromEnergy Matters
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Kurt Mix case acautionary tale foremployees


The first person convicted in connection with the Deepwater Horizon disaster wontbe facing a prison sentence later this summer after all. Last week, a federal judgethrew out the obstruction of justice convictionagainst Kurt Mix after declaring that

comments made by the jury forewoman outside the courtroom influenced the verdict.Its a victory for employees of large corporations everywhere.

The decision of whether to put Mix on trial again now falls to the Justice Department.The DOJ has other criminal cases pending against BP workers who, unlike Mix,were actually involved in the disaster. (Those cases have their questionable aspects,too, but thats the matter for another post.)

Mix was an engineer called in by BP to help cap the runaway well that was spewingoil into the Gulf of Mexico after the Deepwater Horizon exploded and burned on April20, 2010, killing 11 men on board and injuring 17 others. His alleged crime was that

he deleted some text messages containing information that the government alreadypossessed about BPs misrepresentation of how fast oil was flowing from the brokenwell bore.

The trial,as Ive written before,was hampered because jurors heard from only oneof the people Mix was conversing with in the two sets of text messages at the centerof the case. One of those people was a contractor, the other a supervisor. Thecontractor testified, and Mix was acquitted of those charges. The supervisor didnt,and Mix was convicted.

Jurors even said that hearing from the supervisor might have changed their minds.The jury was deadlocked in December when the forewoman was overhead sayingthat outside statements shed heard about Mix reinforced her view that he was guilty.The judge, Stanwood Duval, found that the forewoman polluted the jury with herstatements at a critical juncture that is after the jury had deadlocked. In doing so,the forewoman ignored his instructions to jurors that they consider only evidencepresented in court, Duval said.

Mixs prosecution has always seemed like a placeholder for the Justice Department.It was under pressure to bring criminal charges in the Deepwater Horizon case, andMix was an easy grab at the headlines it needed. But its time for the government to

let this dubious prosecution go. Its pursuit of Mix may already have had a chillingeffect on the workplace.
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After all, Mix wasnt involved in the multitude of BPs shortcomings that contributed tothe disaster; he was one of the people trying to help the company solve the problem.For that, he wound up facing 20 years in prison. In the corporate environment, whenthe indictments start flying, its every employee for themselves, of course. BP, eager

to reach its own settlement with the DOJ certainly didnt stand behind Mix.

If the DOJ is concerned that allowing Mixs perceived obstructions to go unpunishedwill encourage other workers to resist cooperating with federal investigations, itneeds to consider the opposite possibility. Its far more likely that prosecuting Mixagain will encourageand may already have encouraged -- workers to refuse tocooperate. More important, workers may be less likely to help their companies intimes of need.

The message from Mix case is clear. Before any worker assists in fixing a corporateproblem in which the company has liability, they have to ask themselves: am I ready

to go to jail for this? Rather than reinforcing that message, the DOJ needs to dropthe Mix case before it goes any further down the legal rabbit hole.


There is no act three tothe Americanhorizontal oil boom


If you are looking for a reason to get bullish on future oil prices look no further. Thechart on the following page is one of the most bullish charts in the energy patchtoday.
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This chart tells us two critical things.

First, it tells us that the horizontal oil boom is due almost entirely to only two plays,the Bakken and the Eagle Ford. Second, it tells us that production growth in thesetwo plays is flattening significantly.

And the news gets worse (or better if you are long oil), because according to themost informed horizontal driller in the United States, there is no next big horizontalplay waiting in the wings to follow the Bakken and Eagle Ford.

EOG Resources has perhaps the best visibility on where horizontal oil and WTIprices are going. EOG is the largest horizontal oil producer in the United States (andtherefore the world) by a considerable margin.


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EOG produces twice as much oil from horizontal wells than its nearest competitor.This is the foremost voice on American horizontal oil production.

EOGs CEO and Chairman Bill Thomas recently spoke at the Sanford C BernsteinStrategic Decisions Conference and made very clear that his company is very bullish

on oil prices.

Thomas was specifically asked at the conference if he was concerned about thelower prices that the futures market was predicting for oil. His response was that hebelieves that the futures market is mistaken and that the steeply steepedbackwardation is inaccurate.

Source:CME Group

The front month prices of West Texas Intermediate oil futures is now, and has beenin a very steep state of backwardation. Backwardation is where the prices ofcontracts with later delivery dates are trading well below the near term contract price.

Where today WTI is selling for over $100, looking forward to 2017 and beyond themarket seems to think that the price of oil will be closer to $80.

I cant ever be sure why the market does what it does. Most people think its becausewhile geopolitical events are supporting the near term price of crude, the surgingsupply of American oil production will cause it to drop in the longer term.

What EOG and Thomas believe is that despite the incredible rate of growth in US oilproduction, pure crude oil horizontal plays are actually very rare and becomingharder (not easier) to find.

Thomas notes that EOG has scoured the country looking for a third major horizontaloil play to follow the Bakken and Eagle Ford but the search has come up empty.


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There are other, smaller high quality oil plays but there is nothing in the pipeline thatis close in size to the main two. Together the Bakken and Eagle Ford account for75% of horizontal oil production in the United States.

Theres no Third Act here, and production growth in the Bakken and Eagle Ford isalready slowing.

The Bakken and Eagle Ford are so special not just because theyre big; theyre alsosimple. Theyre like flat layer cakes that go for tens of miles, and there are nosurprises; you know where the oil is and how to turn the well to go horizontal in everywell.

Now look at the Monterey formation in California. Its potentially big, but it sure isntsimple.

In 2010 the EIA (Energy Information Agency) announced that the Montereycontained almost 14 billion barrels of technically recoverable oil. At that figure theMonterey made up 60% of the recoverable shale oil in the United States.

This spring, the EIA recently reduced its estimate of recoverable oil in the Montereyby a whopping 96%..down to only 600 million barrels. The reason? Its not a layercake, it has been tectonically rolled over a few times and oil is in tough to get atsmall chunks.

Now, IMHO, there are two Brutal Facts that could kill EOGs Beautiful Theory (andfor all energy investors, its Beautifully Bullish Theory).

One is the Permian Basin in west Texas. Its big and simple; the right makeup forhorizontal production capability.

But Thomas contends the Permian is not a pure crude oil play. The Permian is acombo playmeaning that it has lots of natural gas, and natural gas liquids, but notnearly the quantity of oil that the Bakken and Eagle Ford have.

EOGs Thomas addressed the Permian specifically at the Bernstein conference bynoting that while the Permian has a big boe (barrel of oil equivalent) count, the play

is heavy on the es and not so much on the os..

Gotta say, Im not convinced on his Permian argument. But I think his overall point isvalid. The core of the Eagle Ford and Bakken are being drilled now and everyone isextrapolating to a huge extent.

The second Brutal Fact is something that EOG is doing itself, and very wellincreasing recoveries. Producers are learning how to get more and more oil out ofwells, and theyre putting down more wells every square mile than ever before. Thatdoesnt kill the theory, but it could sure delay it by a few years.

The company continues to innovate in both the Bakken and Eagle Ford andincreasing both the quantity of oil that can be recovered and the profitability of each


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produced barrel.

Since entering the Eagle Ford in 2010 EOG has increased its internal estimates of oilreserves in the play from 900 million barrels to a staggering 3.2 billion barrels.

That increase has been created through trial and error. EOG has worked to figureout the optimal number of wells to drill on the land and where to place them.

The company has also increased productivity of each well by perfecting drilling andcompletion techniques that have allowed for the amount of oil recovered per well tobe increased.

And EOG isnt done making both the Eagle Ford and Bakken bigger. The next stepis going to come through enhanced oil recovery which is common to the oil industrybut not to horizontal production. Through the application of water or natural gasflooding it is likely that recovery factors in these plays will again rise significantly.

For investors, the takeaway is that yes the horizontal boom is real and will continue,but the rate of production growth is going to slow and there isnt another Bakken orEagle Ford in the on-deck circle.

That should be long term bullish for oil prices and may eventually show the currentfutures curve to be significantly too low.

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MENA war fever andthe Iraq oil price spike

Written by Andrew McKillopfromAMK CONSULT

Libyan Precedent

Whatever Libya's oil production is, this week, it is a lot less than the approximate 1.6million barrels a day it regularly extracted and shipped during the Muammar Gaddafiera. Libya has no effective government and its last prime minister Ali Zedan fled toEurope in March, replaced by a shifting coalition of rival forces with changing

strongmen. His supposed replacement, former Defence minister Abdullah el-Thinnihas since late April kept a low profile, sometimes saying he has stepped down, andsometimes not. As recently as June 4, he told Reuters that he was stepping downbut was also staying on as interim PM!

Libya has been moved to page 8 in the mainstream press, well after the football andceleb' news. For oil, the probably durable longer-term decrease in average dailyLibyan oil production and exports and the almost zero impact on oil prices showedone thingno undersupply. The real world context of today is that Libya no longerexists as a united state and only has a virtual prime minister. This has no effect on oilprices.

Iraq's el-Maliki could do the same thing as el-Thinni, using Barack Obama as hisspokesperson instead of the newswires. Whether el-Maliki goes or stays Iraq's oilproduction and net exports are likely to gyrate, Libyan-style, with ever-decreasingimpacts on world oil prices because the mirage of under-supply, cooked up in thedesert heat, does not resist reality.

Or will we find that Iraq's decomposition signals a longer-term and larger oil pricehike? One that to use a key word will be sustainable?

Kurdistan and Irannot OPEC

Sunni militants have a reality-barrier to recreating a Sunni-dominated Iraq inside pre-2003 borders. Demographics. The Sunni population is well below 25%, perhaps only20% of the approximate total 31 million population, on a basis of 2003 borders butusing 2012 population data and estimates. Baghdad and nearby major cities, suchas Fallujah account for 25% of Iraq's population.
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Iraqi Shia communities probably count for 55%-60% of total, and Kurds for about20%. In other words, non-Sunni populations in Iraq are at least 75% and probably80% of the total. They also have more than 90% of all oil reserves and productioncapacity. Sunni terrorists active in Sunni-majority regions therefore only have apotential spoiler role in the absence of airborne and long-distance surface attack onoil production infrastructures, for example by making pipeline and refinery attacks.

Source:Reuters

In Iraq, as in Libya military hardware and logistics are unlikely to be the game-changers, due to so much light infantry materiel existing on the groundin differentand easily changed hands. The hefty Shia-dominated southern and eastern


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demographic base of Iraqwith its largest oil reserves, output capacity andtransport infrastructureswill be a hard nut to crack for ISIS or other Sunni militias,factions or terror groups. Iran is very close by!

As is well known by oil analysts, Iraq's oil production and exports are outside the

quota system of OPEC, which itself is breached on a daily basisoverproductionby its 12 non-Iraq member states relative to their supposed voluntary productionlimit to a total of 30 million barrels per day. The tortured quota system is in fact a lotmore complicated than this, resulting in permanent uncertainty on real output andsupplynearly always under-estimated.

Independent Kurdistan is certain to come out of the present crisis with heightenedcredibility and world recognition as what it isan independent state. Totally unlikeISIS terrorists, or el-Maliki's chocolate soldiers Kurd armed forces includingPeshmerga battalions have decades-long experience fighting Turkey's modernarmed forces, as well as the former Iraq army of Saddam Hussein, and Iranian and

Syrian armed forces. The potential for Turkish-Kurdish alliance, possibly only defacto to fight ISIS, is high.

El-Maliki's Former Iraq

In the case where Iraq's oil supply (meaning Kurd and Iraqi supply totals) do notseriously decline, this does not mean el-Maliki has saved his own skin. Westernjournalists have nearly all misunderstood the real nature and sequels of his power-juggling to stay in power. One example was a 9 Nov 2013 report by BBC journalistssaying el-Maliki is making ....an increasingly successful effort to splinter Sunni Arabopposition. Mr Maliki is selectively reactivating the Sahwa (Awakening) movement ofarmed tribal auxiliaries and continues to promise de-Baathification and anti-terrorreforms to Sunni factions.

In Syria, its Baath party headed by Bashr el-Assad is the real core of resistance toISIS and the real equivalent of the Syrian nation, which itself is as artificial as theIraqi nation. The de-Baathification of Iraq's armed forces and local administrations,pursued by the US with Christian zeal and US taxpayers' money hastened the end ofthe fiction called Iraq.

The Baath party had been confused with so-called radical Islam, a fatal error. Putting

Iraq's Humpty Dumpty back together - of a modern, non-sectarian, non-confessionalwestern-type democracyis now probably impossible. De-Baathification certainlyhelped this endgame. El-Maliki's divide and rule strategy, probably whispered orshouted in his ear by US advisers, was to spread weapons almost anywhere and toeverybody,

Inevitably el-Maliki's weapons-manna showered down on Sunni militants willing andablewhen the time is rightto move up the Islamic hysteria scale to ISIS level. El-Maliki sowed the seeds of political anarchy (whether it is is Islamic flavored or not isfinally unimportant) making it certain that the fiction of an indepenent and united Iraqhad an ever-shorter shelf life.

El-Maliki, today, has no option but to take help from Iran and accept the reality of


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Kurdistan. Both of these players are not in the business of cutting their oil productionand exports. The potential that they ensure the minimum-possible decrease in Iraqiproduction and net export supply is high.

Coming weeks will see if this forecast is the right one. It means that oil prices can

spike a little- but not a lot.

View more quality content fromAMK CONSULT

The Bakken gets bigger- likely a LOT bigger


Crescent Points Torquay Discovery Reignites Southeast Saskatchewan

Just when you thought The Bakken couldnt get any betterit does.

Oil producers are now cracking the code on theTorquay, or Three Forksformationbelow the Bakken, and coming up with incredible economicsthese wells are payingback in only seven months.

This news has completely re-invigorated the Canadian side of the Bakken. And onthe US side, the Three Forks is causing industry to leap-frog estimates of the amountof recoverable oil availableby about 57%!

Its hard to imagine that the #1 oil play in all of North America could have such ahuge increase in sizeusually this happens in increments. This map from theProvince of Manitoba shows how much potential theTorquay/Three Forks hasitranges from 1.57 x as thick as the Bakken!
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Results from Crescent Point Energy (CPG-TSX/NYSE) in Canada and ContinentalResources (CLR-NYSE) onthe US side of the border are showing this could be anincredible discovery. The Torquay/Three Forkscould prove to be another multi-billionbarrel catch for the North American oilpatch.

Now when I say discovery; what I really mean is the industry has discovered how toproduce from it profitably. Theindustry has known its potential for several years now.But the Bakken source rock itself has been so prolific, there wasnt much incentive todrill deeper and go through a new learning curve at theThree Forks.

On April 14 Crescent Point Energy (CPG-TSX) announced a Torquay discovery in itscore Flat Lake area in southeast Saskatchewan, right along the US border. In just 12months, the company grew production from 0 to over 5,000 boe/d by drilling 36wells. These are low-decline, high-rate-of-return wells that payout in less than 7months.

(A 7 month payback is incredible. Its the simplest measurement for retail investors toknow how good a play is. I like to see 12-15 month payouts, and dont like to investin plays that have more than 18 month payouts.)

CPG says each well costs $3.5 million all-in on a 1mile horizontal. These welleconomics are fantastic:

1. More than $73/boe in operating netbacks (netback=profit per barrel)2. A recycle ratio greater than 6thats profit divided by costs. Thats 6 times yourmoney! 2 is good; 6 is great!3 Generates an IRR > 300%. I like to invest in anything over 70% IRR.

CPG believes the Flat Lake Torquay discovery has the potential to match its core,


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Viewfield Bakken play in southeast Saskatchewan. The oil field is estimated to hold4.6 billion bbls OOIP.

This eye catching news triggered an acquisition spree; Crescent Point was the first

mover with the acquisition of privately held CanEra Energy with 10,000 boe/d and alarge Torquay land position only 10 days after its discovery announcement.

Crescent Points acquisition locked in more than 880 net sections of Torquay

potential land with more than 280 net sections in its delineated core area. Thelargest Bakken producer in Canada is positioning itself to becomethe number one


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Torquayplayer.

Legacy oil and gas (LEG-TSX) and Vermillion Energy (VET-TSX) have also madeacquisitions of their own buying up privately held companies with land in theemerging play at Flat Lakeall at high metrics of over $100,000 per flowing barrel.

Production out of the Torquay/Three Forkshas a lot more history on the US side ofthe border.

$&spl1t&%GEOLOGY BACKGROUND

The Bakken formation is located within the Williston Basin encompassing 25,000square miles across southern Saskatchewan, upper Montana, upper North Dakotaand western Manitoba. Unlocking this formation propelled North Dakota from the 9thlargest oil producer in 2006 to no 2 behind Texas with more than 900,000 barrels of

oil per day.

The Bakken formation is actually three layers of rockUpper, Middle and Lowerand is situated above theTorquay/Three Forks. The underlying Torquayactually hasfour layers of tight rock identified as TF1 (upper layer), TF2, TF3 and TF4 (deepestlayer).

Last year, the US Geological Service (USGC) updated its assessment to include theupper part of the Torquay, about 50 feet in thickness. For the two formations, the USGeological Service USGS estimates mean recoverable oil resources of 7.38 billionbarrels. Estimates for the Torquayaccount for 3.7 billion bbl.

These estimates seem very conservative to Continental Resources; the largestacreage holder in the Bakken is more optimistic about the total amount of oil that


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could ultimately be recovered.

In its own assessment, Continental believes that including the deeper parts of theThree Forksincreases the total amount of oil originally in place (OOIP) from 577billion barrels of oil to 903 billion, and the amount that is technically recoverable from

20 billion barrels to as much as 32 billion, 36 billion or even 45 billion.

Only the upper layer (TF1) of theTorquayhas been de-risked leaving the remaining3 layers up for exploration. Continental has a pretty good reason to be optimistic.The company got impressive IP rates from drilling into thelower layers of theTorquay/Three Forksformation in McKenzie Country, North Dakota.

In its Q1 release, the company reported drilling eight new wells (two in each of theMB, TF1, TF2 and TF3) with a combined maximum 24-hour initial rate of 22,460 Boeper day or 2,810 Boe per day per well.


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Continental also reported that seven newly completed TF2 and TF3 initially producedat approximately 285 Boe per day in its Tragsrud Unit in Divide County, ND. Thatsright across the border from the Flat Lake area.

For Continental the play is simply getting bigger and better. But despite thesesuccesses, the Torquay remains largely unexplored. Continental barely scratchedthe surface of this play as more wells will be needed to test thedeeper layers of theformation.

For all this positive news, its important for investors to remember that theTorquay/Three Forksis still in its early stages and different areas and formationsmay respond differently. The Torquay is as much as 270 feet thick inthe central partof the basin.

In Canada, the formation is shallower but with similar thickness. This translates intolower drilling & completion costs per well than the other side of the border.

The Torquay is heating up with the potential for being the next big light oil resourceplay. The size of the prize is just too big to ignore and bodes well for other smallerplayers in southeast Saskatchewan like Painted Pony (PPY-TSX) Spartan Energy(SPE-TSX), Legacy Oil and Gas (LEG-TSX), TORC OIL & GAS (TOG-TSX), SurgeEnergy (SGY-TSX), Vermillion Energy (VET-TSX) and Lightstream Resources (LTS-TSX).

In the US, companies like American Eagle Energy (AMZG-OTCBB), Emerald Oil(EOX-NASD) and Triangle Petroleum (TPLM-NASD) stand to benefit fromTorquay/Three Forks development.

To conclude, the Bakken was the hottest oil play in North America last decade.Investors made fortunes with theBakken in its early years and a similar investment


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scenario may now unfold as theTorquay/Three Forkszonegets increasingly testedin the coming months.


Should the West saveIraq?

Written by Andrew McKillopfromAMK CONSULT

Why Does Obama Hesitate?

Obama hesitated for some while before deciding not to bomb Syrian president Bashr

el-Assad out of power. To be sure, Russia helped that decision in a big way. If el-Assad had been chased from power and given a show trial like Saddam Husseinbefore being killed, or not even given a show trial like Muammar Gaddafi beforebeing killed, fundamentalist Islamic forces would have held sway in Syria.

In Libya, the bombing party was fast - and the fundamentalists took over. Slowly butsurely. Libya now produces almost no oil at all, some weeks, and more at othertimes. Its last prime minister fled the country in March. Libya will likely become threestates - Fezzan, Tripolitana, and Cyrenaica but squabbling over oil revenues willensure constant low-level turf war fighting. With the Benghazi killing of USambassador Stevens in 2012, the basic ungovernability of Libya hit the headlines.

Iraq probably seemed different, at first, to Obama aides arguing the president mustact with military force to prevent 'America's man', prime minister Nouri el-Maliki, frombeing deposed or killed by the Riyadh-friendly, humanity-unfriendly djihadist hordesswarming like ravenous insects in Iraq. By June 19 however, US glove puppet medialike the 'Wall Street Journal' carried articles shouting that el-Maliki must go and forthe moment at least, US fighter jets will not be bombing and strafing in Iraq.

Under new and different management of Iraq - notably by Kurdistan and Iran - oilproduction can likely be maintained. Ergo, no need to bomb!

Conversely if anti-regime hordes were at the gates of Riyadh and the already
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fundamentalist Sunni, anti-democratic Wahabite Kingdom was menaced US fighterjets, A 10 Tank Busters and cruise missiles would have already been in action fordays - and to hell with the collateral victims and the political blowback! In fact thispolitical blowback is a major reason for the existence of firstly Al Qaeda in Iraq, thenISIS.

Following too many oil-driven western military attacks, occupation and oppression -dating from the 1920s - Shia and Sunni militants may hate each other but have oneshared aim in life. Kill an American or an European. Drive them out. Western oil-driven interference in the region has added new enemies for reprisal attacks to theage-old vendetta system of Shia-Sunni conflict. This sectarian, clan, tribal and familyfighting system exited long before oil, and will likely exist long after oil.

Iraq No, Oil Yes

Obama and other western deciders are most surely and certainly influenced by the

OECD's oil and energy watchdog agency the IEA. It's energy scenarios andforecasts for the next 21 years, to 2035, heavily feature long-term increases of oilsupply from Iraq to help meet 'soaring oil demand'. As I noted in other recent articleson this subject, the IEA uses thinly-disguised Peak Oil alarmism (alongside its GlobalWarming alarmism), and has singled out Iraq as a silver bullet solution on the oilsupply side.

The IEA's own Factsheet for Oil Supply in Iraq, published 13 June, and real worlddata on Iraq allows and enables plenty of doubt on this claim by the IEA. Thesemerely repeat the unrealistic oil-happy bragging of Nouri el-Maliki's shaky coalitiongovernment.

Apart from being predicated on a semblance of civil peace in Iraq, the IEA's Iraqscenarios are based on continued forecasts of world oil demand increasing by about12 - 15 million barrels a day by 2035 (from the IEA's estimate for early 2014 of about90 Mbd). If we believed IEA forecasts, world demand for oil imports, by 2035, willincrease by about one-half of today's total export supply of all 12 OPEC countries(which is about 30 Mbd). Apparently no problem for the IEA, when it puts on itsGlobal Warming-Low Carbon hat, it says world fossil energy use, including oil, mustbe capped by or before about 2040 and then reduced to nothing by 'about the end ofthe century'. So we need Iraq oil now but not for all that long!

Despite Iraq's major success in raising oil output through 2011-2013, by about 25%,this growth was however already tailing off seriously by late 2013, and production onthe eve of the ISIS invasion was around 3.1 Mbd enabling net oil exports of about2.6 Mbd, of which only 1 Mbd went to the OECD group of countries.

The el-Maliki government's claims of future output are wide ranging, depending onspokesman, but some claims went as high as nearly 10 Mbd (the same as SaudiArabia and Russia) 'by about 2029'.

Inside OPEC, shown by statements by different oil ministers at OPEC conferences,

Iraq's claims are not treated as a threat to oil prices - due to continued fast growth ofIraqi output being unlikely or very unlikely, and peak Iraqi output being likely, at most


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or at best to be one-half the 10 Mbd goal. Many oil analysts doubt if Iraq can achievebetter than 4 - 4.5 Mbd by the early 2020's, under the best conditions of civil peaceand continued high levels of investment in the oil sector. The potential for declinefrom today's output of about 3.3 Mbd also exists, especially if there is investorretreat.

The Trouble With Oil

IEA claims, simply repeating the claims coming out of Baghdad, ignore or sidelineother high potential and likely growths of national oil output, outside the Gulf regionand Iraq. While the IEA cites US and Canadian shale oil production growth, andincreasing oil output from Kazakhstan, it gives little attention to Azerbaijan's highpotential for output growth and makes little reference to west and east Africanonshore and offshore oil and gas development. Shale oil production outside of NorthAmerica is still treated, by the IEA, as either hypothetical or long-term. World NGL(natural gas liquids) output growth - which the IEA says is urgent and necessary due

to depletion of 'conventional first generation' oil - will certainly occur but it willcertainly not feature Iraq as a major NGL producer.

As we know the three-largest world oil producers (Russia, Saudi Arabia, USA)include two non-OPEC producers and their total combined output is close to 33% ofworld total oil demand. Only the OPEC member Saudi Arabia could likely cut oiloutput by any major amount - but past real world experience, in the 1986-2000period shows that Saudi Arabia soon abandons 'price defending output cuts'.

In other words reduced production by the world's three-largest oil producers isunlikely.

Several other large oil producers, including Iran and Venezuela, could increase oiloutput depending on investment conditions but this totally ignores the demand side,which the IEA stubbornly refuses to admit has dramatically changed in less than adecade. Since 2005, the 30-member developed nation OECD group has cut its oilconsumption from about 50 Mbd to 44.5 Mbd in 2014. This cut is more than twice thetotal oil consumption of Germany and around 15% more than the total oilconsumption of Japan, which imports nearly 100% of its oil and is the world's third-largest economy.

The IEA still pretends this is a 'temporary cut due to adverse economic conditions',but nobody else has to believe this is the real or only cause. The IEA does not lookat world energy prices for coal, gas, oil and electricity and does not single out oil asespecially overpriced - which it is. Being overpriced, the decline of oil energydemand should not really be a surprise!

IEA member state energy policies, coordinated by the Agency and seeking to 'driveoil out of the energy mix' have been on the books and in the works for over 35 years.

The most-recent peak year for the share of oil in world energy supply was in theearly 1980s - over 30 years ago - and has been declining ever since. Why should

this 30-year trend not continue?


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The IEA avoids explaining the uber-simple energy economics which helps oildecline, rather fast, while coal energy, for example advances rather fast. Presentworld coal prices, including shipping and transport charges, are well below $175 perton pricing this energy at about $35 per barrel of oil equivalent. Oil as we know, hasa minimum price tag of around $100 a barrel. Due to the Iraq crisis it could or might

edge up to $115.

The Peak Oil Narrative

IEA energy forecasts are for the least ambivalent about world gas. Although worldgas has stalled as a growing supplier of world energy, this is nothing to do withresource and reserve bases of world gas, both conventional and unconventionalranging from deep offshore gas and shale gas to coalbed methane reserves. TheIslamic tyrannies of the Gulf region have no stranglehold on world gas despite Qatarowning as much as one-third of world proven conventional gas reserves. Accordingto BP among others, resource discoveries since 2009 are roughly equivalent to 150

years of present world gas consumption. Potentials for NGL production from 'newgas reserves' are high.

To be sure this implies high gas prices to pay for exploration and development, andpipeline or LNG transportation - but the gas is there - and in the cases of Europe andAsia gas prices are already high.

Conversely, the IEA's narrative concerning Iraq oil is scarcely-disguised Peak Oilalarmism. Outside of Saudi Arabia and other GCC suppliers Kuwait, UAE and Oman,only Iraq is seen as able to maintain long-term annual growths of oil output. In realityand however, Iraq as of early 2014 has in fact only been able to dial back to late-1980's oil production rates. At a current 3.1 Mbd this is still far behind its output in the1976-1978 period of nearly 4 Mbd.

Concerning crude oil, not NGLs and unconventional crude (which total less than 90000 barrels a day or 0.09 Mbd), Iraq's production in first quarter 2014 grew to slightlyexceed its production in 1989. That is not exactly a breakthrough.

Obama is Right to Hesitate

Despite popular belief that Iraq is home to large reserves of easily produced light

sweet crude, the reality is that Iraq's lightest crudes are at 35 degrees API. Theseare defined as medium-heavy crude. Much of Iraq's oil reserves and output is ofcrudes at 22 degrees API - categorized as very heavy crudes. These are highlycontaminated by sulphur and heavy toxic metals.

At least a half of Iraq's claimed total oil reserves of 143 billion barrels are heavy andvery heavy oils, in the exact same way as Saudi Arabia's claimed total reserve ofabout 260 billion barrels feature heavy and dirty crudes.

Iraq's future growth of output, excluding the country's NGLs and unconventional oiloutput, which is tiny, therefore depends on massive investment in heavy crude

extraction and processing. This is totally unrelated to existing and future world oildemand. To be sure heavy crude extraction and processing for pipeline transport is


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no problem, in technical terms. But in the real world of today, as the IEA notes anddetails, much of the rise in world oil output over the past few years has come fromthe US and concerns very light, zero sulphur shale oil, not needing any specialprocessing at all and able to be used 'as is' in lower-cost refinery operating systems.

Put another way, only because oil is overpriced, heavy oil extraction and processingis economically feasible and profitable. The IEA admits that at least until the end ofthe 2020's, America's 'light tight' oil and Brazil's deepwater production of light crudewill continue to grow. As recently as 2010, the IEA made no references to these twosources of light low-sulphur crudes!

By the early 2020s, we can take an easy bet, other sources of similar light lowsulphur crudes - this time including NGLs in quantity - will become available, forexample Africa onshore and offshore.

Obama can therefore take it easy, play golf and hesitate another day before bombing

Iraq. The IEA sold him and other western political deciders a pup, mixing andmingling Peak Oil fears with its climate change fears - which we can repeat is statedby the IEA to mean 'all fossil fuels must be abandoned' - , and cobbled Iraq as thesilver bullet solution to 'sure and certain' oil supply shortage by the 2020's.

The shameful Bush doctrine, that Obama has slavishly and mindlessly continued likea robot, was to 'tweak' oil production in victim countries through massive bombing,military invasion and occupation in outright-illegal wars. Today's Iraq provides yetmore proof this doesn't work. In the short run, Iraq's oil production and exports willcertainly decline, if not by much. Whether this causes any major and sustaineduptick of oil prices is unlikely - but for the details you will have to ask GoldmanSachs!

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Canada moves aheadwith new pipelineproject as Keystonelanguishes


Earlier last week, the Canadian governmentgranted conditional approval to a $7.9billion projectto move heavy crude known as bitumen from the oil sands of Albertawestward to the coast of British Columbia. Pipeline Approved, screamed theheadline of Wednesdays National Post print edition.

Enbridges Northern Gateway project would move 525,000 barrels a day through a1,777-kilometer pipeline from Edmonton, Alberta, to Kitimat, B.C. From there, itwould be shipped by tanker down the Douglas Channel and out to the Pacific Ocean.

The project is a far riskier than TransCanadas Keystone pipeline, largely because itwould add 220 tanker trips a year though the environmentally sensitive channel.

Despite more than 200 precautions and stipulations spelled out in the governmentsdecision including double hull tanker requirements, increased monitoring andother measures a tanker is a less safe option for transporting oil than a pipeline.As National Post columnist Michael Den Tandt noted:a bitumen spill in thiswaterway would be catastrophic and unfixable.

In green-lighting the controversial project, the Ottawa government cited, in part, theObama administrations foot-dragging in granting a permit for the Keystone line tocross the U.S. border.

The Keystone projecthas certainly had its problems. But the environmentalists who

oppose it have used the pipeline as a fundraising tool while mortgaging theenvironment elsewhere. By rallying against the safer optiona pipelinecompanieshave resorting to transporting oil by rail, often with catastrophic results. Now, addincreased tanker traffic in western Canada to the list of new environmental concerns.

Blocking Keystone may have been a victory for environmental groups, but its ashort-sighted one that ignores the economics of energy demand.

Admittedly, the Northern Gateway is a long way from completion. It facesstiffoppositionin British Columbia and among some of the First Nations whose territory itwould cross, and it already has become a political football. Even Prime Minster

Stephen Harper, whose government gave the tacit approval for the project,seems tobe backing away from it.
http://www.oilvoice.com/description/30_Point_Strategies/c97b8ea5.aspxhttp://www.oilvoice.com/description/30_Point_Strategies/c97b8ea5.aspxhttp://www.oilvoice.com/description/30_Point_Strategies/c97b8ea5.aspxhttp://business.financialpost.com/2014/06/17/northern-gateway-oil-pipeline-approved-tuesday/?__lsa=32d9-ab0ehttp://business.financialpost.com/2014/06/17/northern-gateway-oil-pipeline-approved-tuesday/?__lsa=32d9-ab0ehttp://business.financialpost.com/2014/06/17/northern-gateway-oil-pipeline-approved-tuesday/?__lsa=32d9-ab0ehttp://business.financialpost.com/2014/06/17/northern-gateway-oil-pipeline-approved-tuesday/?__lsa=32d9-ab0ehttp://fullcomment.nationalpost.com/2014/06/17/michael-den-tandt-northern-gateway-pipeline-may-not-be-as-politically-risky-as-it-seems/http://fullcomment.nationalpost.com/2014/06/17/michael-den-tandt-northern-gateway-pipeline-may-not-be-as-politically-risky-as-it-seems/http://www.forbes.com/sites/lorensteffy/2014/05/29/transcanada-credibility-dented-by-keystone-defects/http://www.forbes.com/sites/lorensteffy/2014/05/29/transcanada-credibility-dented-by-keystone-defects/http://fullcomment.nationalpost.com/2014/06/18/full-pundit-the-northern-gateway-pipeline-is-approved-let-us-now-prepare-for-war/http://fullcomment.nationalpost.com/2014/06/18/full-pundit-the-northern-gateway-pipeline-is-approved-let-us-now-prepare-for-war/http://fullcomment.nationalpost.com/2014/06/18/full-pundit-the-northern-gateway-pipeline-is-approved-let-us-now-prepare-for-war/http://fullcomment.nationalpost.com/2014/06/18/full-pundit-the-northern-gateway-pipeline-is-approved-let-us-now-prepare-for-war/http://www.theglobeandmail.com/news/politics/conservative-mps-from-bc-mixed-over-northern-gateway-blessing/article19219669/http://www.theglobeandmail.com/news/politics/conservative-mps-from-bc-mixed-over-northern-gateway-blessing/article19219669/http://www.theglobeandmail.com/news/politics/conservative-mps-from-bc-mixed-over-northern-gateway-blessing/article19219669/http://www.theglobeandmail.com/news/politics/conservative-mps-from-bc-mixed-over-northern-gateway-blessing/article19219669/http://www.theglobeandmail.com/news/politics/conservative-mps-from-bc-mixed-over-northern-gateway-blessing/article19219669/http://www.theglobeandmail.com/news/politics/conservative-mps-from-bc-mixed-over-northern-gateway-blessing/article19219669/http://fullcomment.nationalpost.com/2014/06/18/full-pundit-the-northern-gateway-pipeline-is-approved-let-us-now-prepare-for-war/http://fullcomment.nationalpost.com/2014/06/18/full-pundit-the-northern-gateway-pipeline-is-approved-let-us-now-prepare-for-war/http://www.forbes.com/sites/lorensteffy/2014/05/29/transcanada-credibility-dented-by-keystone-defects/http://fullcomment.nationalpost.com/2014/06/17/michael-den-tandt-northern-gateway-pipeline-may-not-be-as-politically-risky-as-it-seems/http://business.financialpost.com/2014/06/17/northern-gateway-oil-pipeline-approved-tuesday/?__lsa=32d9-ab0ehttp://business.financialpost.com/2014/06/17/northern-gateway-oil-pipeline-approved-tuesday/?__lsa=32d9-ab0ehttp://www.oilvoice.com/description/30_Point_Strategies/c97b8ea5.aspx


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As weve seen with Keystone, these hurdles may create so many delays that theproject may become obsolete before it gets underway.

Yet Canada has a handful of other pipeline and export programs on the drawingboard as it buildsa strategy of becoming a major oil exporter.

The U.S., as Canadas largest trading partner, next-door neighbor and worldslargest energy consumer is the logical market for these export efforts. It would laythe foundation for decades of strengthened North American energy security, if notoutright energy independence.

Ironically, this push comes aspolitical unrest in Iraq raises new questions about thefrailty of our energy independence.

By tapping Canadas vast oil resources, the U.S. has an opportunity to create astronger cushion against the sort of global price shocks that left us vulnerable in the

past. If we choose to ignore the opportunity, the Canadian government has made itclear last week that our biggest supplier of oil wont wait on us forever.

http://business.financialpost.com/2014/06/18/northern-gateway-pipeline-approval-energy-superpower/?__lsa=32d9-ab0ehttp://business.financialpost.com/2014/06/18/northern-gateway-pipeline-approval-energy-superpower/?__lsa=32d9-ab0ehttp://business.financialpost.com/2014/06/18/northern-gateway-pipeline-approval-energy-superpower/?__lsa=32d9-ab0ehttp://www.forbes.com/sites/lorensteffy/2014/06/13/iraq-unrest-tests-u-s-energy-independence/http://www.forbes.com/sites/lorensteffy/2014/06/13/iraq-unrest-tests-u-s-energy-independence/http://www.forbes.com/sites/lorensteffy/2014/06/13/iraq-unrest-tests-u-s-energy-independence/http://www.forbes.com/sites/lorensteffy/2014/06/13/iraq-unrest-tests-u-s-energy-independence/http://www.oilvoice.com/description/30_Point_Strategies/c97b8ea5.aspxhttp://www.oilvoice.com/description/30_Point_Strategies/c97b8ea5.aspxhttp://www.oilvoice.com/description/30_Point_Strategies/c97b8ea5.aspxhttp://www.forbes.com/sites/lorensteffy/2014/06/13/iraq-unrest-tests-u-s-energy-independence/http://www.forbes.com/sites/lorensteffy/2014/06/13/iraq-unrest-tests-u-s-energy-independence/http://business.financialpost.com/2014/06/18/northern-gateway-pipeline-approval-energy-superpower/?__lsa=32d9-ab0e


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Upward trend forSouth East Asia'sinvestment in

worldwide oil and gasindustry

Written by Dan SalehfromWorldwide Recruitment Solutions

Asian buyers may spend $150 billion by 2016 to secure energy resources for theirfaster-growing economies, so says recent research.

The last few years have seen a growing trend in worldwide investments in oil andgas by many South East Asian companies. Every few months since 2008 there havebeen a steady stream of these investments with the main players beingorganisations from China, Malaysia and South Korea. For example, between 2008and 2013, Chinese companies completed 83 overseas oil and gas purchases worth$100.7 billion, according to data compiled by Bloomberg to meet demand in the

world's biggest energy-consuming nation.

Dan Saleh, of Oil and Gas recruitment specialist, WRS, sees this trend continuing,with no geographic region left out, 'To December 2008, China had spent as much as$5.4 billion on oil assets in Singapore, Syria and Kazakhstan after crude fell from arecord and equity markets tumbled. Despite the economic downturn, WRS has seena growing trend for these worldwide investments and these are not only focused onbuying assets but often acquiring entire companies too.'

Sinopec Corp. was the first Chinese company listed in Hong Kong, New York,

London and Shanghai and is one of the largest crude oil and petrochemicalcompanies and also one of the largest producers and distributors of gasoline, dieseland jet fuel and other major chemical products in China and Asia. They have beenparticularly active, becoming a major global investor in the oil & gas industry inrecent years:

June 2009 saw Sinopec agree to buy Addax Petroleum for US $7.3Bn, whichwas their biggest overseas takeover at the time, and gained them oil reservesin Iraq's Kurdistan and West Africa. By buying Addax, Sinopec Group attained42.5 million barrels of proved and probable reserves in the Kurdish region ofIraq.

In March 2010 they invested $2.46Bn in Sonangol Sinopec InternationalLimited (SSI) to acquire a 55% stake, which marked their entry into the
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overseas upstream E&P business. SSI owned a 50% participation interest inAngola Block 18, a world class deep-water oil asset in terms of output, withthe highest reserves and production volume among projects of a similar typeat the time. With the completion of this transaction, Sinopec Corp.'s remainingproven reserves of crude oil were increased by 102 million barrels, up 3.6%,

whilst its daily crude oil production increased by 72,520 bbl, up 8.8%. An announcement at the beginning of October 2010 saw Sinopec buy a 40%

stake in Repsol Brazil for $7.1Bn, which strengthened China's presence inLatin America and ensured they were involved in one of the world's mostimportant exploration markets since the discovery of massive subsalt oilreserves off the Brazilian coast. China had already invested heavily in miningand oil assets in this region and this deal made them the biggest foreign directinvestor in Brazil for 2010.

A year later their focus turned to gaining shale-gas assets, when they boughtCanada's Daylight for $2.1 Billion. The takeover gave Sinopec access to morethan 300,000 acres of land in areas rich with oil and natural gas, adding to its

expansion outside Asia. Sinopec then moved onto acquire 49% stake in Talisman's UK North Sea

Assets for $ 1.5Bn in July 2012. Talisman's Aberdeen-based operation hasabout 2,500 staff and contractors, and involves 11 North Sea installations.

Their latest acquisition was a 33% stake in Apache Corporation's Egypt oiland gas business, for 3.1Bn, marking their largest investment to date in theMiddle East. This was estimated to increase Sinopec's annual production byaround 9%. This deal coincided with a potential move by PetroChina Co. intoIraq. Both these show clear willingness to take on more risk in this part of theworld.

Other major South East Asia investors include Korean state-run KNOC (KoreaNational Oil Corp.), Chinese state-owned CNOOC (China National Offshore OilCorporation) and Malaysia's state-owned oil and natural-gas company Petronas(Petroliam Nasional Bhd).

Resource-deficient South Korea, which imports most of its energy needs, has inrecent years accelerated its hunt for foreign assets. Its overall crude import needsaveraged 2.37 million barrels a day in 2008. In October 2009 it was announced thatKNOC had bought Harvest Energy Trust of Canada for around US$1.7 billion, in thelargest acquisition of a foreign oil producer by a South Korean company. This deal

boosted KNOC's crude oil output to 123,400 barrels a day from 70,000, raising SouthKorea's self-sufficiency rate for oil and gas by 1.8 percentage points to 8.1%,exceeding the country's target of 7.4% for that year. This investment also gave themaccess to the advanced oil development technologies and know-how of theCanadian company. KNOC's oil exploration and production footprint extends to morethan a dozen countries including Canada, Peru, Nigeria, Russia, the U.K. andIndonesia.

Dan comments on the investment in Canada, 'There has been significant focus onCanada in the last few years. Both China Petrochemical Corp. and CNOOC areamong companies that have invested more than $200 billion in ventures in Alberta to

tap the world's third-largest oil deposits after Saudi Arabia and Venezuela.'


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CNOOC bought OPTI in Canada for $2.1Bn in July 2011 after they went bankrupt,allowing China's biggest offshore oil producer, to expand their Oil-Sand assets. InFebruary 2013 they also bought Canadian oil and gas company Nexen Inc. for$15.1Bn, which then operated as a wholly owned subsidiary of CNOOC. Thisacquisition gives CNOOC new offshore production in the North Sea, the Gulf of

Mexico and off western Africa, as well as producing properties in the Middle Eastand Canada. In Canada, CNOOC gained control of billions of barrels of reserves inthe world's third-largest crude storehouse - the oil sands in the province of Alberta.

Also focused on Canada, an announcement in Jun 2012 saw Kuala Lumpur basedPetronas buy Progress Energy Resources Corp. for $4.6Bn in its biggest deal as itmoves to export Canadian gas to Asia. Buying the company gave Petronas ChiefExecutive Officer Shamsul Azhar Abbas ownership of the largest holder in theMontney shale-gas area of British Columbia and full control of the three ProgressEnergy fields it bought a stake in previously as it explores development of a liquefiednatural gas export terminal. The purchase was more than double the company's

previous biggest deal which was the 2008 $2 billion acquisition of a 40% stake inSantos Ltd.'s Gladstone LNG project in Australia.

Dan summarises, 'There is nothing to suggest that this investment from Asia intoEuropean and North American companies will slow down. Whilst the scale of certainacquisitions was a surprise to a number of people in the industry, the trend is mostlikely to continue upwards into 2015 and beyond as both investment houses andNational Oil companies in the region continue to see significant successes globally,probably in the form of company acquisitions.'

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