FT: Oil Sands, Eni, Congo

Eni finds oil sands deposits in Congo

By Ed Crooks in Pointe Noire, Congo

Published: May 19 2008 16:31 | Last updated: May 19 2008 19:14

Eni, the Italian oil group, has discovered a large oil sands deposit in the Republic of Congo that is expected to become Africa’s first large unconventional oil development and could hold several billion barrels.

Paolo Scaroni, Eni’s chief executive, said the project, due to begin production in 2011, opened “a new front” in the development of “unconventional” oil.

Unconventional resources, such as oil sands, which have in the past been considered too difficult or expensive to extract, are expected to provide an increasing proportion of the world’s fuel supply in future as conventional reserves run down.

Canada’s oil sands and Venezuela’s Orinoco belt have the world’s biggest known heavy oil reserves. The area to be developed by Eni is on a smaller scale, but is still likely to be very substantial.

Eni has not put a figure on the scale of the resources in its 1,790 square km licence area, but a sample 100 square km area that Eni has studied is estimated to hold 500m to 2.5bn barrels of recoverable oil.

That suggests the area as a whole could hold more oil than Eni’s entire reserves of 7bn barrels of oil equivalent.

It would put the resource base on a par with the 9bn-13bn barrels of oil equivalent at the problem-plagued, Kashagan field in Kazakhstan, where Eni is one of consortium members.

The deal giving Eni the oil sands licence, which was agreed last month, is part of an energy package it signed with Brazzaville.

It also includes investment in conventional oil production, a new power plant that will supply 80 per cent of Congo’s electricity, and 70,000 hectares of plantations to produce palm oil for food consumption and biofuels. Eni is also investing in capturing the associated gas from its oil fields that is burnt off in flares, to use in the power plant and the heavy oil processing plants or upgraders.

In total, Eni plans to invest $3bn in Congo, during 2008-11, excluding the heavy oil project. It could spend several billion more on upgraders to process the heavy oil into a form that can be readily sold on world markets. Each upgrader, with a capacity of 40,000 barrels per day, is expected to cost €1bn ($1.5bn). Eni suggested it could build five.

Eni has been in Congo since 1969, but stepped up its interest last year with the $1.4bn purchase of assets from Maurel & Prom of France, and the £1.7bn ($3.3bn) takeover of London-listed oil independent Burren Energy.

Copyright The Financial Times Limited 2008

Groups see unconventional future for crude

By Ed Crooks in Pointe Noire, Republic of Congo

Published: May 19 2008 19:20 | Last updated: May 19 2008 22:19

Unconventional oil is the future, both for the world’s fuel supplies and for western oil companies. The announcement on Monday from Eni, the Italian oil and gas group, that it had found a deposit of oil sands in the Republic of Congo that could contain many billions of barrels was a dramatic illustration of that.

The world has huge resources of oil sands and other forms of heavy oil, which does not flow easily and cannot be conventionally produced from wells.

Yet developing these resources presents formidable challenges that are likely to set a limit on the rate at which they can be produced, putting a constraint on their commercial potential and their importance as a source of oil supplies.

Interest in unconventional oil has mounted as the price of crude has soared past $120 a barrel. Traditional oil regions in the west, such as the North Sea, are in decline, and access to resources in many oil-rich countries, such as Russia and Venezuela, has become increasingly difficult for a variety of reasons, generally political.

Wood Mackenzie, the consultancy, believes conventional production from countries outside Opec, the producers’ group, will peak in the next decade.

“For oil companies trying to grow, they will either have to go to Opec countries, which is not easy, or look at unconventional oil,” says Rhodri Thomas of Wood Mackenzie.

All the big international oil companies have some involvement in unconventional oil. Even BP, which held out for years after its rivals had committed to heavy oil, announced a joint venture in Canada’s oil sands with Husky Energy late last year.

Heavy oil projects are being pursued in places including Tatarstan in Russia, where Royal Dutch Shell won a contract last year, Madagascar, Albania and Romania.

By far the two biggest known resources, however, are in Canada and Venezuela, and in both countries the development of heavy oil has run into problems.

In Venezuela, the drive by President Hugo Chávez to renegotiate contracts on the heavy oil upgrader projects, which process the oil into a form that can be readily sold on world markets, has prompted ExxonMobil and ConocoPhillips of the US to pull out.

Only Eni among the western companies has announced substantial fresh investment in Venezuela since those moves from Mr Chávez, with a planned commitment worth an estimated $4bn. Other investments welcomed by Mr Chávez are from countries such as China.

“It is not that Venezuela’s resources are not there, it is just whether the strategic partners the country has been selecting have the technology to develop those resources in the short term,” says David Fyfe of the International Energy Agency, the developed countries’ energy watchdog.

In Canada, there has been a flood of foreign investment, but there are also mounting concerns about the effect of developing the oil sands on the environment, especially because of their use of water and their carbon dioxide emissions.

Imperial Oil, which is 70 per cent owned by Exxon, last month lost a court appeal against a regulatory ruling denying it a water use permit for a large new oil sands project.

Canadian oil sands projects have also been hit by soaring costs because of shortages of staff and equipment.

Eni’s Congo development will have lower costs, the company says, and water is plentiful in the area. However, environmental constraints will bite here, too. The project is in the forest, and trees will be felled to clear space so the oil sands can be mined.

Eni says it will proceed carefully and restore the forest once the oil has been extracted. But that will limit output to at most 200,000 barrels a day.

As Mr Thomas of Wood Mackenzie puts it: “The volumes are there. It’s a question of how quickly you can get them out of the ground in an economic fashion. And there are bottlenecks in a wide range of systems.”

Copyright The Financial Times Limited 2008