Oil and gas

IOC (integrated oil company)

An investor-owned company involved in the production of oil and gas, making decisions based on economic factors and in the interest of the company.

NOC (national oil company)

An extension of the government, not necessarily market-oriented, and operates in the interest of the government.

NOCs with strategic and operational autonomy

Corporate entities that operate independently from the government, profit-oriented, and focused on both commercial success and country development.

Spare capacity

The volume of oil production that can be sustained within 90 days, indicating the ability of a business to meet increased demand.

Gravity (API)

A measure of the density of crude oil compared to the density of water, used to classify crude oil into different types based on its weight. It is refered as degrees.

Sulphur content

Refers to the amount of sulphur present in crude oil, with sweet crude having less than 0.5% sulphur and sour crude having more than 0.5% sulphur.

Producers

Companies involved in the production of oil and gas, including IOC and NOC.

Consumers

Individuals, transportation, and industrial sectors that use oil and gas products.

Traders, hedgers, speculators, and investors

Participants in the global oil market who engage in trading, hedging, speculating, and investing in oil and gas.

Policymakers

Individuals or entities responsible for formulating and implementing policies related to oil and gas, including demand-side policies, supply-side policies, and market regulation.

Factors influencing oil prices formation

Supply, physical balancing, markets and market behavior, and demand.

Benchmark

A reference point for pricing different types of crude oil, such as West Texas Intermediate (WTI), Dated Brent, and Dubai/Oman (Platts).

Upstream

The exploration and production (E&P) phase of the hydrocarbon industry, including activities such as drilling wells and extracting crude oil and natural gas.

Midstream

The transportation, trading, and marketing phase of the hydrocarbon industry, involving the movement of crude oil through pipelines or tankers and the trading and marketing of oil and gas products.

Downstream

The refining and marketing (R&M) phase of the hydrocarbon industry, including the refining of crude oil into various products and the marketing of these products, as well as the production of chemicals and LNG regasification.

Ownership of mineral resources

Refers to the rights and ownership of oil and gas reserves, with private ownership existing in countries like the US and Canada, while public ownership is prevalent in countries like Mexico.

Rule of capture

The legal principle that the first person to extract oil or gas from a tract of land becomes the owner of that resource, even if it migrated from adjoining lands. Oil and gas move as fish!

Rig Count

A weekly census of the number of drilling rigs actively exploring for or developing oil or natural gas in the United States and Canada.

Fundamental issues of state ownership

The challenges and considerations associated with the ownership of oil and gas resources by the state, including the role of the sovereign state as the owner.

Hydrocarbon volumes classification

The categorization of hydrocarbon resources into reserves (proved, probable, possible), contingent resources, and prospective resources based on their level of development and discovery.

Reserves/Replacement ratio

A metric used to assess the operating performance of oil and gas companies, calculated as the amount of proved reserves divided by the amount of oil and gas produced.

Stranded Assets

Assets, such as pipelines or oil and gas reserves, that are no longer profitable due to factors like energy transition or end of economic life.

Transfer of title

The point at which ownership of crude oil is transferred, typically occurring when the oil passes through the connection between the cargo hose of the shipment pipe to the oil tanker's measuring point.

Hydrocarbons Fiscal Regime

The contractual, legal, and regulatory elements governing the economic benefits and relationship between the host government and oil and gas companies, including concessionary systems, contractual systems, and payment methods (cash or in-kind).

State take

The government's share of revenue from oil and gas projects, calculated as the state cash flow divided by the gross project cash flow.

PSC

A type of contract in the hydrocarbon industry where the contractor assumes exploration risk and costs and receives a share of the oil and gas produced.

Concessions or Licences (R/T)

A type of contract where the host government receives compensation through royalty and tax payments.

Risk service contract

A contract where the contractor provides exploration and production services to the government in exchange for a fee.

Exploration period duration

The length of time allocated for exploration activities in a specific area.

Declaration of commerciality

The written acknowledgement of a discovery's commercial viability, allowing for production to commence.

Economic balance

The requirement for parties to consult and adjust contract terms in the event of changes in laws, rules, or regulations.

Joint Operating Agreement (JOA)

A contract that governs the sharing of rights and liabilities among multiple participants in a project.

Farm-in/Farm-out Agreement

An agreement where a company enters into a partnership with a third party to share risks and costs in exploration and production.

Production Sharing Agreement

A contract between a government and a resource extraction company that determines how much of the extracted resource each party will receive.

Production sharing

The portion of production that remains after royalties and cost recovery.

Cost recovery

The process of recovering exploration and production costs incurred by the contractor. ==> ceiling (plafond) + rate + uncovered costs

Service agreement

A contract where a contractor provides specific services to the host country in exchange for payment.

Gas flaring

The burning or release of associated gas during oil production instead of capturing it, often due to the lack of infrastructure.

Emissions reduction plan

Measures implemented by the host government to reduce greenhouse gas emissions in the energy sector.

Who are the global oil market players?

Producers, consumers, (traders, hedgers, speculators), and policymakers

Colonel Drake struck oil in Titusville, Pennsilvania, USA

1859

On January 10, Spindletop, an oil field located just south of Beaumont, Texas, produces a "gusher" that spills out 100,000 barrels of oil per day

1901

Ford Motor introduced the “Model T” will make the automobile accessible to many Americans and drive consumer demand for gasoline, a previously little used byproduct of the petroleum refining process

1908

Standard Oil is ordered to be broken up into 34 smaller companies after the United States Supreme Court declares the company an "unreasonable" monopoly under the Sherman Antitrust Act.

1911

During World War I, strategists for all the major powers increasingly perceive oil as a key military asset due to the adoption of oilpowered naval ships, new horseless army vehicles such as trucks and tanks, and even military airplanes.

1914-1918

Achnacarry Agreement

1928

Saudi Arabia allows Standard Oil to begin prospecting for oil in the country's eastern province. In 1938, the company's efforts paid off when a well near Dhahran yielded commercial quantities of crude oil

1933

Venezuela introduces the Fifty-Fifty principle

1943

The Allied forces' access to oil was considered a crucial factor in their victory over the Axis powers in World War II. Recognizing the limited supply of oil resources and its importance to the future of the nation, oil policy becomes a high priority for the U.S. at the end of the war

1939-1945

Oil is discovered in the Niger Delta

1956

President Mohammed Mossadegh nationalized Iran’s oil industry

1951

On September 14, the Organization of the Petroleum Exporting Countries (OPEC) is formed for the purpose of negotiating with oil companies on matters of petroleum production, prices, and concession rights. The first member nations of the cartel are Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela

1960

On October 17, OPEC member states declare an oil embargo against nations that had supported Israel during its war (known by many as the Yom Kippur War) with Egypt, Syria, and Jordan. The energy crisis that followed saw oil prices quadruple and the New York Stock Exchange lose $97 billion in share value, bringing on the worst recession since World War II.

1973

A second energy crisis occurs in 1979 after the Iranian Revolution transforms oil-rich Iran from an autocratic, pro-West monarchy under the Shah to an Islamic theocracy under the rule of Ayatollah Khomeini. Iran's oil supply is largely curtailed, prompting President Jimmy Carter to call the new energy crisis "the moral equivalent of war" in a nationally televised speech

1979

Oil prices collapse and several attempts of oil pricing methodologies.

80’s

On August 2, Iraqi forces under Saddam Hussein invade Kuwait and seize control of the oil-rich emirate. Recognizing that they will likely soon be pushed out of Kuwait, Saddam Hussein's forces begin setting fire to Kuwaiti oil wells in January. Approximately 700 production wells are sabotaged, and the total spillage of crude oil is estimated to be anywhere between 46 and 138 million tons. Western forces launch Operation Desert Storm on January 17, and Kuwait is officially liberated by late February. The last Kuwaiti oil well is capped in November. • 1998 – The world oil price drops to $10 a barrel.

1990

Ground is first broken for the construction of the monumental Baku-Tbilisi-Ceyhan (BTC) pipeline. In order to bring Caspian oil to thirsty world markets, a consortium of oil giants is formed in order to construct a pipeline that will traverse several problematic social, environmental, and geopolitical regions.

2002

OPEC “band system”

2000-2005

Shale Gas / Tight Oil Revolution began…

Mid 2000’s

Prices crashed (…again)

2014

Oil is discovered in Guyana (Liza-1)

2015

Oil Price (WTI) turns negative (US$ - 37.36 p/b)

2020

When is oil discovered in Namibia (Venus-1)

2022

Who produce oil and gas?

IOC - NOC - NOCs

West Texas Intermediate (WTI) API and sulphur content

API gravity 39.6° and 0.24% sulphur content

WTI infos

Trade in the NYMEX-CME.

Sweet crude oil, delivery point is Cushing Oklahoma to dozens of pipelines around US. Market price reference. most efficient hedging tool for hundreds of commercial oil companies. WTI futures and options are the most traded energy contract.

Dated Brent

API gravity 38.06°, and 0.37% sulphur content, traded in the ICE (intercontinental exchange). Based in the NorthSea market.

Dubai/Oman (Platts)

API gravity of 33.6º and 1.68% of sulphur content. Pricing reference in Middle East Gulf, Russia, US Gulf Coast, Mexico since spot market emerged in the 1980’s.

Types of refineries

-        Topping: separates the crude into petrol products by distillation (known as Atmospheric distillation), produces naphtha but no gasoline.

-        Hydroskimming: equipped with Atmospheric Distillation, produce gasoline.

-        Cracking: equipped with vacuum distillation and catalytic cracking. reducing fuel oil by conversion to light distillates and middle distillates

-        Cocking: process the vacuum residue into high value products suing the Delayed Coking Process

 

Who are the only countries doing private ownership?

US & Canada + Trinidad and Tobago (offshore)

Mineral estate Texas 5 rights

1.      The right to explore for and develop the minerals.

2.     The executive right, which is the right to execute an oil and gas lease.

3.      3. The right to receive a bonus.

4.      4. The right to receive a royalty.

5.      5. The right to receive delay rentals.

Can a country have more than one hydrocarbon fiscale regime?

YES. for different hydrocarbon types, types of fields, field location (onshore/offshore), conventional/unconventional field.

Oil and gas current state

Oversupplied market for several years, then covid hits wiping out 27% of demand. O&G companies are going to Energy companies meaning less money to E&P and more to renewables. Cost reduction to O&G.

Government is reperceiving the future: the sense of urgency is embraced, so countries are trying to improve. Virtual bidding rounds is the next step. E&P is constraints by environmental concerns

Important Changes to the PSA model between 2017-2019:

Greater interaction with potential investors + PSA model under constant evaluation + Less State* intervention *Petrobras

What can Host Government (HG’s) do in the Energy Transition?

Putting new regulations, better monitoring ==> Emissions reduction plan