spears march 2007 dpo

DRILLING AND PRODUCTION OUTLOOK

MARCH 2007

SPEARS & ASSOCIATES, INC.

5110 SOUTH YALE, SUITE 410, TULSA, OK 74135 918-496-3434

www.spearsresearch.com

Profile of Spears & Associates, Inc. Spears & Associates has forty years of experience helping the oilfield service and equipment companies. The company is active in two areas: Subscription Services, and Market Research and Management Consulting. Subscription Services We have three subscription services, the Drilling & Production Outlook, the Oilfield Market Report, and Pipe Logix. The Drilling & Production Outlook (DPO) is updated quarterly and forecasts worldwide drilling activity. The DPO provides a five year forecast of oil and gas demand and price, U.S. drilling and production, Canadian drilling and production, as well as international drilling and production including short term forecasts of drilling in the CIS and China. It has been in publication since 1983. The Oilfield Market Report (OMR) contains a briefing on over thirty four segments of the equipment and service market associated with exploration and production. It supplies information on each market including: size, share, drivers, purchasing process, new technology, and recent transactions. Clients around the world are using the OMR to benchmark current business and identify growth opportunities. OCTG pricing is one of the key leading indicators in oilfield activity. Spears now produces Pipe Logix, a suite of reports that analyze the OCTG market. The flagship publication is the Spot Market Price report, which provides average monthly prices for 27 categories of pipe. The report covers the most popular sizes of tubing, production casing and surface casing. The Key Market Factors report is a concise presentation of the drivers to the OCTG industry. It is issued monthly and provides a history of OCTG shipments, OCTG imports, active rigs, wells drilled and other critical drivers to OCTG pricing. Every other month the Market Review and Outlook report details the drivers, prices, imports/exports and provides commentary and other analysis on the business

environment of the OCTG industry. Details and order forms for all Pipe Logix reports are located at www.pipe-logix.com Market Research and Management Consulting Market research projects typically address oilfield/petroleum industry market related problems and opportunities, often with an international component. We have handled projects in all petroleum industry sectors including exploration, production, transportation, refining, and power generation on a worldwide basis. Projects are usually undertaken on a confidential basis for a single client. Since 1965, we have managed more than 1,200 market research projects. In addition to our work with oilfield equipment and service companies, our in-depth experience in the domestic and international petroleum industry places the firm in a unique position to help financial groups better understand existing and potential business conditions in support of decisions concerning acquisitions and divestitures. For more information Spears & Associates, Inc. 5110 S. Yale, Suite 410 Tulsa, OK 74135 phone: 918/496-3434 fax: 918/496-0406 web page: www.spearsresearch.com

Drilling and Production Outlook – March, 2007

1

EXECUTIVE SUMMARY Three months in, 2007 looks like it will be another good year for most segments of the oilfield equipment and service industry. Oil prices are on track to be down about 10% compared to 2006, due to the fact that oil supply capacity will grow faster than incremental oil demand in 2007 largely due to the fortunate circumstance that several mega-projects in the Caspian Sea, West Africa, and Canada are reaching completion at about the same time. But more importantly, by continuing to trade around $60/bbl oil prices remain high enough to attract new investment into the upstream sector. Which is good, because the same analysis that shows supply growing faster than demand this year also indicates that after 2008 demand will once again be outpacing supply as the number of new mega-projects slows. In contrast, gas prices look to move about 10% higher in 2007 after finally seeing gas inventories return to near-normal levels after a spate of very cold weather in January and February. With La Nina promising a hot summer and gas imports from Canada expected to slide over the course of the year, there may be more upside to gas prices down the road than we are forecasting. We continue to expect that 2007 will see the fifth consecutive increase in overall US drilling. We now forecast that an 11% gain in US activity is in the cards for 2007. Unfortunately, this will not be enough to prevent the sharp fall in land rig day rates that is currently underway because for the time being the number of new rigs entering the market is exceeding the growth in drilling activity. This is good news for operators who were complaining about oilfield inflation six months ago but whom we think will see their finding and development costs flat or moving lower as the year unfolds. The recovery in gas prices has come too late to salvage the winter drilling program in Canada, which so far has run 10%-15% behind last year’s level. However, we continue to expect a pick-up in activity in the second half of ’07 as operators respond to higher gas prices and lower well costs, leaving

activity for the full year down only 2%. The dark clouds on the horizon in Canada come in the form of proposals that the federal government is expected to make to eliminate or restrict the accelerated depreciation allowance available to oilsands operators and to tighten CO2 emissions limits. Depending on what is proposed and how it is implemented, this could have a major impact in the future on the capital-spending plans of the fast-growing oilsands industry. Many state-owned oil companies continue an aggressive effort to expand production capacity and/or increase the government take from higher oil prices. We expect that overall rig count in the international market will increase 6% in 2007, with regional changes as follows: Africa (+18% compared to last year), the Mid East (+13%), Central and South America (+4%), the Far East (+2%), and Europe (-1%). As it unfolds, 2007 may be a watershed year, perhaps nowhere more importantly than in Mexico, where the collapse in production from its flagship oilfield has ramifications not only for Pemex but also for the government and throughout the economy, which will force policymakers to decide what path it will take to respond and adapt. Drilling Forecast 2006 2007 Spot WTI Prices ($/bbl) $66.55 $59.53 Spot Gas Prices ($/mmbtu) $6.38 $7.04 Rig Count U.S. 1,649 1,836 Canada 471 463 International 909 965 Russia 246 277 China NA NA Total 3,275 3,541 Wells Drilled U.S. 49,325 55,497 Canada 27,855 27,172 International 11,936 12,595 Russia 4,763 4,858 China 17,095 17,278 Total 110,974 117,400


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PRICE OUTLOOK

OIL MARKETS According to the US Energy Information Administration, world petroleum demand grew by 1.1 million bpd in 2006 and is projected to grow by 1.6 million bpd in 2007, helped by continued strong world economic growth. Over the 2007-2010 timeframe, we project that world oil demand will increase at an average rate of 1.8% per year.

World Oil Demand

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Despite ramping up their field development efforts over the past two years, OPEC’s crude oil production capacity has remain virtually unchanged at about 31.2 million bpd as decreases from Venezuela and Indonesia have offset gains elsewhere. However, because OPEC production is down 1.0 million bpd over this period - as it has been replaced by increased non-OPEC output - spare OPEC production capacity has recently risen to about 2.2 million bpd. Based on current trends, we anticipate that OPEC’s surplus capacity will grow by about 500,000 bpd in 2007.

OPEC Productive Capacity, Utilization

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We are currently tracking approximately 350 oilfield development projects located outside the US that are scheduled to come onstream over the 2007 to 2011 timeframe. Based on the current start-up dates estimated for these projects and their initial production levels, we have estimated the incremental global oil production capacity to be added each year from 2007 through 2010. (This analysis assumes that the global decline rate of existing fields averages 3% per year). Combining the analysis of incremental oil production capacity with estimates of annual oil demand growth, it appears that world oil supply growth will outstrip world demand growth over the 2006 to 2008 period, as shown by the following chart. After 2008, oil markets are expected to tighten as demand growth once again outstrips the increase in production capacity.


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World Oil Market

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In an environment characterized over the near term by further increases in demand but larger increases in oil production capacity, we expect that oil markets will be soft (assuming no geopolitical crises affecting supply or demand) and that oil prices can continue to trade near current levels if major oil exporting nations are successful in managing their production and in turn the level of commercially-held crude inventories. We believe that this will be the case and that US spot oil prices will average $59.53/barrel in 2007, down 11% from 2006, and that US spot oil prices will remain around $60/barrel in nominal terms through 2008 before gradually increasing after 2008 as supply growth begins to fall short of demand growth. Two other factors impacting future oil prices are the increasing cost to find and develop reserves and the increasing “take” required by host governments in production-sharing agreements. Observers estimate that the combination of these two factors now means that the threshold oil price required to justify international projects is now in the $50-$60 range.

US Spot Oil Prices ($/bbl)

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Source: NY Merc, Spears

GAS MARKETS Since last November, weather – and weather forecasts – have driven the US gas market. To the consternation of many, winter got off to a slow start across much of the US, with December coming in much-warmer than normal and raising fears that this winter would be a repeat of last year’s record-breaking warm weather (and record-breaking low gas withdrawal). This pushed average US spot gas prices below $5.50/mmbtu by early January as gas inventories stayed above 3,000 bcf.


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Winter finally got rolling in January, with extremely cold temperatures across much of the US, and more importantly for the gas market, with some record-breaking weekly gas withdrawals. As shown by the following chart, weekly withdrawals rose to over 250 bcf by mid-February. In response, average US spot gas prices rose above $8/mmbtu by mid-February, a jump of about 50% from the level seen just six weeks earlier.

US Weekly Gas Storage Injections/Withdrawals

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As a result of the massive pull on storage in January and February, overall gas inventories are currently about 240 bcf lower than they were at this time last year but about 175-200 bcf higher than the five-year average. “Normal” winter gas demand results in about 2,000 bcf being taken about of storage over the November to March timeframe; based on current trends, it appears that this winter will see about 2,075 bcf taken out of storage. This would leave inventories around 1,400 bcf exiting winter, about 175 bcf above the five-year moving average but also about 300 bcf below the 2006 level. We think the story on storage – in combination with gas demand developments - will set up a pattern for spot gas prices to be higher in 2007 than they were in 2006.


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U.S. Working Gas Storage (bcf)

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The EIA now projects a 2.7% increase in total US natural gas consumption in 2007 (double its prior estimate of gas demand growth in 2007), due to colder winter weather and increased gas consumption by the industrial sector as the result of continued economic growth. In addition, the EIA currently forecasts a 2.5% increase in US gas consumption in 2008 with increased demand across the board.

US Gas Demand

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One reason that the EIA is now projecting much future higher gas consumption than it had in the past is that the agency has significantly increased its forecast of US gas production over the near-term. Previously (as of 10/06), the EIA had projected that US natural gas production would increase by about 0.4 percent in 2007. In its most recent (2/07) outlook, the EIA now forecasts that overall US gas output will rise 2.7 percent in 2007 and 0.7 percent in 2008.


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US Gas Production (TCF)

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Source: EIA, Spears

The reason that overall US gas production is expected to increase over the near term is that growth in output from onshore gas fields – which rose almost 4% in 2006 – is now projected to rise 2% in 2007 and 1% in 2008 (previously the EIA had forecast virtually no change in output from onshore gas fields). The increase in onshore gas production is largely due to increased output from “unconventional” gas fields – tight gas, coal bed methane (CBM), and shale gas – which account for about half of the gas-related drilling currently taking place in the US. These unconventional fields are estimated to now account for about 25% of total US gas output.

US Gas Production (TCF)

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On the other hand, gas production from federal waters in the Gulf of Mexico, although it has largely recovered from 2005’s hurricane-related damage, is projected to not increase over the 2007 to 2008 period but rather hold steady at around 8 bcfd (2.92 TCF/year). With much of the gas inventory overhang that plagued the market last year removed, as gas demand rising, we project that spot gas prices will average $7.04/mmbtu in 2007, up 10% for the year.


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US Spot Gas Prices ($/mmbtu)

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Source: Natural Gas Week, Spears

The US currently imports about 3.5 TCF per year from Canada; FirstEnergy Capital has recently forecast that Canadian gas exports to the US may slide 10% by the end of 2007(!) due to the combination of falling gas production and rising domestic gas demand. One important source of increased gas demand inside Canada is from the many new oilsands projects under development. It is reported that these projects burn an average of 1 mcf of gas per barrel of synthetic crude. At that rate, a 300,000 bpd increase in oilsands output would translate into about a 100 bcf increase in gas demand.

US DRILLING AND PRODUCTION ACTIVITY Due to the weekly and monthly variation in drilling activity that any one rig count source might report, we now track the monthly rig counts of Baker Hughes, Smith Tool, and MI Swaco to find if a change in activity by one source is confirmed by the others. As shown by the accompanying chart, over the past two years the three US rig counts have generally, but not always, moved together. It should be noted that MI Swaco typically reports 15%-20% more active rigs in the US than Baker Hughes or Smith Tool, largely due to how an active rig is defined. Recently the most widely-followed measure of activity, the Baker Hughes rig count, has risen about 2% since November; during the same period the US rig counts of MI Swaco and Smith Tool have fallen 5% and been unchanged, respectively. Clearly there has been a distinct slowing in the rate of growth in the US market since mid-2006, probably due to weakness in gas prices beginning early in 2006; however, there has not been a general downturn in drilling activity.

US Rig Count

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Even without a downturn in drilling activity, day rates for land rigs began to come under significant pressure in late 2006 as the number of new and refurbished units entering the US market exceeded incremental rig demand growth. We estimate that on average 20 new units per month entered the US market in 2006, for a total of about 240 new additional units. In other words, the US rig fleet has been growing at a rate of about 1% per month. As similar-sized increase in the US rig fleet is expected for 2007.

US Land Rig Market

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As shown on the preceding chart, average land rig rates in Q4 2006 were unchanged from the previous quarter, averaging about $21,400 per day and marking the first quarter since Q4 2003 that day rates had not increased. Anecdotal evidence collected since the start of the year leads us to believe that average day rates will fall about 7% from the Q4 2006 level in Q1 2007, to about $19,500 per day. (While most rigs in the US are believed to be on well-to-well contracts, some are on longer term arrangements. Average day rates that we track reflect both types of contracts. If only well-to-well contracts are considered, quarter-to-quarter day rate declines might be 15% or more in Q1 2007.)

We expect the decline in US land rig day rates will bottom out in Q3 2007 and rise slightly before year-end; for the full year we estimate that US land rig day rates will average about $19,200, down 8% from last year. Combining lower rig rates with the fact that prices for many grades of OCTG are continuing to inch down - reflecting rising production capacity and growing imports – we expect that average overall well costs will fall about 10% in 2007. The accompanying chart tracks historical and projected monthly rig activity as measured by Baker Hughes. We had previously been forecasting a slight dip in monthly rig activity in Q1 2007, but indications are now that drilling activity will instead move higher throughout the quarter. We continue to expect to see a strong second half of ’07 for rig activity as operators take advantage of both lower well costs and higher gas prices. We continue to project that by Q4 2007 US rig activity will exceed 1,900 units.

U.S. Monthly Rig Count

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9

In our revised forecast we now expect that overall US drilling activity will rise 11% in 2007 to an average of 1,836 active units (as measured by Baker Hughes), accounting for 55,497 new wells (up 12%) and 324.9 million feet of hole drilled. We now forecast that about 32,619 new gas wells and 17,210 new oil wells will be drilled in 2007, up 13% and 12%, respectively. Total spending to drill and complete new wells is expected to reach $126.8 billion in 2007, up 1% for the year. Offshore The forecast now calls for overall offshore activity to average 88 active rigs in 2007, down 2%, accounting for 778 wells drilled and 8.8 million feet of hole. Deep Drilling In 2007, deep rigs (those with a measured well depth in excess of 15,000 feet) are now expected to see an average of 233 active rigs (as tallied by Smith Tool), up 10% from last year, accounting for 1,558 wells drilled. Directional Horizontal drilling continues to outpace the gain in overall drilling because of its increased use by operators in their unconventional gas field development programs. We now project that overall horizontal drilling activity will rise 28% in 2007, accounting for an average of 365 active rigs and over 6,200 wells drilled. Directional drilling, much of which is re-entry work, is projected to grow 5% in 2007 to 402 average active units and about 2,750 wells. Unconventional We estimate that in 2007 there will be approximately 1,000 wells drilled in the Fayetteville Shale. Southwestern Energy and Chesapeake are the most active operators at this time. Although it has been “below the radar” for some time, unconventional drilling in the Appalachian basin is picking up. Indicative of this is a recent announcement by Talisman of its plans to drill 25 wells in upstate New York this year where it expects to produce at an initial rate of 15 mmcfd per well from the Trenton Black River formation. Unconventional as plays also continue to draw in operators who most recently were walking away from US operations. For example, BP recently announced plans to spend about $2.4 billion over the 2007-2020 timeframe

on CBM projects in the San Juan basin. More than 700 new wells are to be drilled.

Indicators of Drilling Activity Trends US seismic activity continues to accelerate. IHS Energy’s count of active seismic crews in the US in January 2007 was up 13% compared to the year-ago period, continuing a growth trend that has been in-place since mid-2003.

US Seismic Crew Count

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US Well Service/Workover Outlook The forecast for 2007 now projects that US workover activity will average 1,603 active workover rigs, up 2%, while the Weatherford AESC well service/workover unit count is forecast to gain 2% to an average of 2,402 active units. The total number of producing oil wells is expected to increase almost 1% in 2007 to about 500,785 wells, the first increase in the number of producing oil wells since 2000, while the number of producing gas wells is expected to rise 4% to 413,174 wells, continuing a multiyear trend. The number of oil and gas well completions in the US is expected to rise 12% in 2007 to 49,800 jobs, while about 25,000 wells are forecast to be abandoned in 2007, down about 7% from 2006.


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U.S. DRILLING ACTIVITY

Drilling and CompletionSpending Wells Drilled Footage Drilled Average Active Rigs

Year WTI Spot Spot Gas Oil Gas Total* Oil Gas Total* Oil Gas Total* Oil Gas Total($/bbl) ($/Mmbtu) (Bil) (Bil) (Bil) (Mil) (Mil) (Mil)

2000 $30.38 $4.09 $4.9 $10.8 $21.9 8,859 17,765 31,113 39.0 84.9 149.0 197 720 9182001 $26.06 $3.88 $6.9 $18.2 $34.8 9,710 21,908 36,240 45.2 111.7 185.4 217 941 1,1562002 $26.21 $3.11 $6.0 $16.3 $28.6 7,312 16,985 28,114 31.2 92.4 145.8 137 691 8302003 $31.22 $5.38 $9.1 $21.3 $38.3 9,008 19,974 32,956 41.3 111.5 175.9 156 874 1,0302004 $41.46 $5.69 $19.2 $35.5 $62.7 11,716 23,187 39,063 62.7 126.7 213.8 165 1,024 1,1902005 $56.69 $8.21 $30.2 $46.0 $84.9 13,781 26,360 44,586 88.1 142.1 254.3 194 1,189 1,383

2006 Q1 $64.10 $7.26 $10.1 $15.1 $28.3 3,627 6,916 11,741 23.2 37.4 67.4 233 1,289 1,522Q2 $71.05 $6.18 $10.8 $16.4 $30.5 3,842 7,294 12,403 24.9 40.1 72.2 270 1,365 1,635Q3 $70.39 $5.78 $11.9 $17.9 $33.4 3,850 7,243 12,350 25.9 41.6 74.9 306 1,414 1,721Q4 $60.64 $6.31 $11.8 $17.7 $33.0 3,984 7,535 12,830 26.1 42.0 75.7 285 1,434 1,719

Total $66.55 $6.38 $44.6 $67.2 $125.2 15,303 28,988 49,325 100.1 161.0 290.2 274 1,376 1,6492007 Q1 $58.12 $7.35 $11.4 $17.2 $32.1 4,055 7,684 13,077 26.4 42.4 76.6 274 1,461 1,735

Q2 $60.00 $6.90 $11.2 $16.9 $31.6 4,201 7,959 13,544 27.4 44.1 79.4 306 1,494 1,800Q3 $60.00 $6.75 $11.1 $16.7 $31.1 4,375 8,286 14,100 28.6 46.0 82.8 338 1,538 1,875Q4 $60.00 $7.15 $11.4 $17.2 $32.0 4,579 8,690 14,776 29.6 47.7 85.9 348 1,587 1,935

Total $59.53 $7.04 $45.1 $68.1 $126.8 17,210 32,619 55,497 112.0 180.2 324.7 316 1,520 1,8362008 $60.00 $7.50 $46.6 $68.4 $128.7 18,473 34,037 58,509 120.2 188.0 342.7 339 1,599 1,9382009 $62.00 $7.75 $49.0 $71.6 $134.9 19,442 35,600 61,337 126.5 196.7 359.3 356 1,676 2,0322010 $64.00 $8.00 $50.6 $74.8 $140.3 20,069 37,191 63,797 130.6 205.5 373.6 359 1,754 2,1132011 $66.00 $8.25 $52.2 $78.0 $145.8 20,697 38,810 66,288 134.7 214.4 388.0 362 1,832 2,1942012 $68.00 $8.25 $53.9 $80.5 $150.4 21,343 40,023 68,359 138.9 221.1 400.1 385 1,878 2,263

Note: All prices and expenditures are in current dollars.

* Includes dry holes

Sources: API, Baker Hughes, NY Merc, Natural Gas Week, Spears and Associates


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U.S. DRILLING ACTIVITY

Drilling and CompletionAverage Active Rigs Wells Drilled Footage Drilled Spending

Year Land Offshore Total Land Offshore Total Land Offshore Total Land Offshore Total(Mil) (Mil) (Mil) (Bil) (Bil) (Bil)

2000 778 140 918 29,700 1,412 31,113 135.1 13.8 149.0 $13.4 $8.5 $21.92001 1,003 153 1,156 34,724 1,516 36,240 169.8 15.6 185.4 $21.4 $13.4 $34.82002 718 112 830 27,255 859 28,114 136.7 9.1 145.8 $19.1 $9.5 $28.62003 922 108 1,030 32,057 898 32,956 166.4 9.5 175.9 $25.7 $12.6 $38.32004 1,094 97 1,190 38,210 853 39,063 204.5 9.2 213.8 $50.1 $12.5 $62.72005 1,290 93 1,383 43,763 823 44,586 245.2 9.1 254.3 $70.8 $14.2 $84.9

2006 Q1 1,440 82 1,522 11,562 179 11,741 65.4 2.0 67.4 $24.3 $3.9 $28.3Q2 1,539 96 1,635 12,192 212 12,403 69.9 2.4 72.2 $25.8 $4.7 $30.5Q3 1,626 95 1,721 12,141 209 12,350 72.5 2.3 74.9 $28.5 $4.8 $33.4Q4 1,632 87 1,719 12,639 191 12,830 73.6 2.1 75.7 $28.6 $4.4 $33.0

Total 1,559 90 1,649 48,534 792 49,325 281.3 8.9 290.2 $107.3 $17.9 $125.22007 Q1 1,649 86 1,735 12,887 190 13,077 74.4 2.1 76.6 $27.5 $4.6 $32.1

Q2 1,712 88 1,800 13,350 194 13,544 77.3 2.2 79.4 $27.1 $4.5 $31.6Q3 1,786 89 1,875 13,904 196 14,100 80.6 2.2 82.8 $26.8 $4.3 $31.1Q4 1,845 90 1,935 14,578 198 14,776 83.7 2.2 85.9 $27.7 $4.3 $32.0

Total 1,748 88 1,836 54,719 778 55,497 315.9 8.8 324.7 $109.1 $17.7 $126.82008 1,846 92 1,938 57,698 811 58,509 333.3 9.4 342.7 $111.0 $17.8 $128.72009 1,936 96 2,032 60,488 849 61,337 349.3 10.0 359.3 $116.4 $18.6 $134.92010 2,012 101 2,113 62,911 887 63,797 363.1 10.4 373.6 $120.9 $19.4 $140.32011 2,089 105 2,194 65,363 925 66,288 377.1 10.9 388.0 $125.6 $20.2 $145.82012 2,154 108 2,263 67,405 954 68,359 388.9 11.2 400.1 $129.5 $20.9 $150.4

Sources: API, Baker-Hughes, Spears and Associates


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U.S. DRILLING ACTIVITYBY TYPE OF WELL AND RIG

Wells Drilled Footage Drilled (mil)

Offshore Re-Entry Subtotal Offshore Re-Entry SubtotalYear Horizontal Development Sidetracks Directional Vertical Total Horizontal Development Sidetracks Directional Vertical Total

2000 1,144 565 1,735 3,444 27,669 31,113 7.8 6.3 11.1 25.2 123.8 149.02001 1,150 599 1,789 3,538 32,701 36,240 8.4 6.8 11.1 26.3 159.1 185.42002 994 327 1,212 2,533 25,581 28,114 7.0 4.0 6.8 17.7 128.1 145.82003 1,411 377 1,613 3,401 29,554 32,956 9.0 4.2 8.4 21.6 154.3 175.92004 2,021 333 1,779 4,133 34,930 39,063 14.8 3.7 9.1 27.7 186.1 213.82005 3,053 321 2,266 5,640 38,946 44,586 22.4 3.6 11.6 37.6 216.7 254.3

2006 Q1 1,042 70 620 1,732 10,009 11,741 7.7 0.8 3.2 11.6 55.8 67.4Q2 1,162 83 662 1,907 10,497 12,403 8.5 0.9 3.4 12.8 59.4 72.2Q3 1,277 82 672 2,031 10,320 12,350 9.4 0.9 3.4 13.7 61.2 74.9Q4 1,356 75 657 2,087 10,743 12,830 10.0 0.8 3.3 14.2 61.6 75.7

Total 4,837 309 2,612 7,757 41,568 49,325 35.5 3.5 13.3 52.3 237.9 290.22007 Q1 1,460 74 638 2,173 10,904 13,077 10.9 0.8 3.3 15.0 61.5 76.6

Q2 1,515 76 677 2,267 11,277 13,544 11.3 0.9 3.5 15.7 63.8 79.4Q3 1,594 76 707 2,378 11,723 14,100 11.9 0.9 3.7 16.4 66.4 82.8Q4 1,645 77 732 2,454 12,323 14,776 12.3 0.9 3.8 16.9 68.9 85.9

Total 6,213 303 2,754 9,271 46,226 55,497 46.3 3.4 14.3 64.1 260.7 324.72008 6,754 316 2,850 9,920 48,588 58,509 51.0 3.6 15.1 69.7 272.9 342.72009 7,255 331 2,912 10,498 50,839 61,337 55.5 3.8 15.7 75.0 284.2 359.32010 7,722 346 3,026 11,094 52,704 63,797 59.8 4.0 16.6 80.5 293.0 373.62011 8,206 361 3,058 11,625 54,663 66,288 64.4 4.2 17.1 85.8 302.2 388.02012 8,655 372 3,153 12,180 56,179 68,359 68.8 4.4 18.0 91.2 308.9 400.1

Sources: API, and Spears and Associates

Surface to TD Surface to TD


14

U.S. DRILLING ACTIVITYBY DEPTH INTERVAL

Wells Drilled by Depth Interval Active Rigs by Depth Interval (Smith Tool)Under 5001- 10001- Over Under 5001- 10001- Over

Year 5000' 10000' 15000' 15000' Total 5000' 10000' 15000' 15000' Total

2000 17,323 9,070 4,020 700 31,113 100 330 402 121 9532001 19,869 10,527 4,943 900 36,240 127 385 491 162 1,1652002 14,911 8,817 3,690 697 28,114 97 262 315 126 8002003 16,727 10,626 4,792 811 32,956 98 335 423 143 9992004 19,929 12,035 6,125 975 39,063 113 391 511 171 1,1862005 22,919 13,389 7,134 1,145 44,586 90 460 586 187 1,323

2006 Q1 6,009 3,475 1,916 341 11,741 143 530 629 204 1,507Q2 6,110 3,921 2,018 355 12,403 142 585 647 208 1,582Q3 5,616 4,203 2,170 361 12,350 129 621 689 211 1,651Q4 6,118 4,260 2,076 375 12,830 146 650 680 226 1,702

Total 23,853 15,859 8,181 1,431 49,325 140 597 661 212 1,6102007 Q1 6,348 4,253 2,088 387 13,077 150 646 681 232 1,709

Q2 6,548 4,409 2,202 385 13,544 155 669 718 230 1,773Q3 6,782 4,623 2,308 387 14,100 161 702 753 232 1,847Q4 7,240 4,771 2,367 398 14,776 172 724 772 238 1,906

Total 26,917 18,057 8,965 1,558 55,497 159 685 731 233 1,8092008 28,358 19,049 9,457 1,646 58,509 168 723 771 246 1,9092009 29,724 19,972 9,915 1,726 61,337 176 758 808 258 2,0022010 30,925 20,768 10,310 1,794 63,797 183 788 841 269 2,0812011 32,142 21,573 10,710 1,862 66,288 190 819 873 279 2,1612012 33,147 22,247 11,045 1,920 68,359 196 844 901 287 2,229

Sources: API, and Spears and Associates


15

OFFSHORE DRILLING ACTIVITY

Gulf of Mexico West Coast TotalExplo Devel Total Explo Devel Total Explo Devel Total

Year Rigs Wells Wells Wells Footage Rigs Wells Wells Wells Footage Rigs Wells Wells Wells Footage(Mil) (Mil) (Mil)

2000 136 186 1,143 1,329 13.3 4 4 80 84 0.5 140 190 1,222 1,412 13.82001 148 199 1,225 1,424 15.0 5 5 87 92 0.6 153 204 1,312 1,516 15.62002 108 133 648 781 8.6 4 4 75 79 0.5 112 137 723 859 9.12003 104 140 683 823 9.1 4 4 72 76 0.5 108 144 755 898 9.52004 93 126 660 785 8.8 3 3 64 68 0.4 97 129 724 853 9.22005 90 121 636 757 8.6 3 3 62 65 0.4 93 124 698 823 9.1

2006 Q1 79 26 139 165 1.9 3 1 14 14 0.1 82 27 152 179 2.0Q2 93 31 164 195 2.3 3 1 16 17 0.1 96 32 180 212 2.4Q3 92 31 162 193 2.2 3 1 16 17 0.1 95 32 178 209 2.3Q4 84 28 148 176 2.0 3 1 14 15 0.1 87 29 162 191 2.1

Total 87 117 612 729 8.5 3 3 60 63 0.4 90 120 672 792 8.92007 Q1 83 28 147 175 2.0 3 1 14 15 0.1 86 29 161 190 2.1

Q2 85 29 150 178 2.1 3 1 15 15 0.1 88 29 164 194 2.2Q3 86 29 152 180 2.1 3 1 15 16 0.1 89 30 166 196 2.2Q4 87 29 153 182 2.1 3 1 15 16 0.1 90 30 168 198 2.2

Total 85 115 601 716 8.4 3 3 59 62 0.4 88 118 660 778 8.82008 89 119 627 747 9.0 3 3 61 64 0.4 92 123 689 811 9.42009 93 125 656 781 9.5 3 3 64 67 0.4 96 128 720 849 10.02010 97 131 686 816 10.0 4 4 67 70 0.5 101 134 752 887 10.42011 101 136 715 852 10.4 4 4 70 74 0.5 105 140 785 925 10.92012 105 141 738 878 10.7 4 4 72 76 0.5 108 144 810 954 11.2

Sources: API, Baker-Hughes, Spears and Associates


16

WorkoverActive Wells WS/WO Units

Year Oil Gas Abandonments Completions Total Units* Baker(1/1) (1/1)

2000 546,195 316,888 31.1 26.6 57.7 2,692 1,0562001 533,685 324,933 4.6 31.6 36.2 NA 1,2102002 529,995 355,666 9.5 24.3 33.8 1,830 1,0102003 528,724 371,719 40.5 29.0 69.5 1,967 1,1292004 513,194 375,725 17.3 34.9 52.2 2,064 1,2352005 511,610 394,955 50.1 40.1 90.2 2,222 1,356

2006 498,454 398,175 27.0 44.3 71.3 2,364 1,5732007 500,785 413,174 25.0 49.8 74.8 2,402 1,6032008 505,495 433,293 25.0 52.5 77.5 2,402 1,5722009 511,468 454,830 25.0 55.0 80.0 2,476 1,6182010 518,410 477,930 32.5 57.3 89.8 2,565 1,6682011 520,980 500,122 32.5 59.5 92.0 2,630 1,7102012 524,176 523,932 32.5 61.4 93.9 2,695 1,755

* Guiberson 1995-June, 2001; Weatherford July, 2001 forward

Sources: Baker Oil Tools, Weatherford, World Oil, Spears and Associates

U.S. WELL SERVICE/WORKOVER ACTIVITY

Jobs (000)


17

CANADIAN DRILLING AND PRODUCTION ACTIVITY Drilling activity in Canada, as measured by Baker Hughes, saw a total of 568 active onshore and offshore rigs during January 2007, down 14% (92 rigs) compared to the year-ago period. A similar decline was reported by MI Swaco, whose Canadian rig count stood at 509 active units in January 2007, down 13% (65 rigs) from January 2006. (MI Swaco generally reports 10%-15% fewer rigs than Baker Hughes in Canada, largely due to definitional differences).

Canadian Rig Count

100

200

300

400

500

600

700

800

J F M A M J J A S O N D J F M A M J J A S O N D J F

2005 2006 2007

BH

I

100

200

300

400

500

600

700

800

MI S

wac

o

BHI

MI Swaco

We now expect that overall Canadian drilling activity will fall 2% in 2007 to an average of 463 active units (as measured by Baker Hughes), accounting for 27,172 total wells and 105.2 million feet of hole drilled. A total of 16,470 new gas wells (down 7%) and 6,817 new oil wells (up 11%) are forecast for 2007. Drilling and completion expenditures are projected to fall 6% to a total of $18.9 billion (US) in 2007.

While gas drilling has slowed sharply since mid-2006 in response to a drop in gas prices, it is important to note that oil-related drilling activity has held steady. Drilling for natural gas generally accounts for 75% to 80% of all rigs working in Canada. As a result of the weakness in gas prices during much of 2006, gas drilling activity dropped sharply in the second half of last year. In Q3 2006, gas rig count was down 3% from the year-ago period, while in Q4 2006 gas rig count was off 28% from Q4 2005. In contrast, over the second half of 2006 oil rig count was virtually unchanged from the 2005 level.

Canada Drilling Activity

0

100

200

300

400

500

600

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2004 2005 2006

Source: Baker Hughes

Oil Rigs

Gas Rigs

As shown by the following graph, we project that rig count in the second half of 2007 will exceed that turned in during the second half of 2006.


18

Canadian Monthly Rig Count

100

200

300

400

500

600

700

800

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Sources: Baker Hughes, Spears

2007

2006

2005

The reason for this recovery we believe is two-fold. The first factor is the recovery in spot gas prices seen since the first of this year. When cold winter weather finally arrived in January, spot gas prices in Alberta rallied from a low of about $4/mmbtu to over $6/mmbtu, as shown by the following chart. Our gas price forecast calls for Alberta spot gas prices to average $6.05/mmbtu in 2007, up 9% for the year, as the inventory overhang diminishes, demand continues to grow due to increased oilsands usage and continued economic growth, and supply shortfalls begin to be felt.

Alberta Spot Gas Prices

$3

$4

$5

$6

$7

$8

$9

$10

$11

J FMA MJ J A

SONDJ FMA

MJ JA

SONDJFMA

MJ J A

SONDJ FMA

MJ JA

SOND

2004 2005 2006 2007

$/m

mb

tu

The second factor that is acting to restore drilling activity is the fall in drilling costs that has helped lower the breakeven point for operators. The following chart illustrates the change in land rig day rates in Canada since 2003 and our forecast of these rates through the end of this year. Land rig rates in Q4 2006 were only 5% higher than in Q4 2005, the smallest quarterly rise in two years. We estimate that overall land rig rates will be down between 5% and 10% in Q1 2007 (relative to the Q1 2006 level). As the economics of gas well drilling get restored, we expect that firms will gradually begin to ramp up their gas drilling operations during the second half of 2007.


19

Canada Land Rig Market

$5,000

$7,500

$10,000

$12,500

$15,000

$17,500

$20,000

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

2003 2004 2005 2006 2007

Day

Rat

es

-20%

-10%

0%

10%

20%

30%

40%

An

nu

al In

flat

ion

Day Rates Inflation Rate

Other Issues While the fundamentals of the industry are improving the outlook for activity for the balance of the year, actions by the federal government are clouding the outlook over the intermediate term. Canadian operators are expecting that the federal government will soon unveil tougher tax and environmental policies. On the tax side, some analysts expect that the government will propose rolling back the accelerated capital cost allowance available to oilsands operators that allows them to fully depreciate the cost of the equipment they buy in the year it is purchased. On the environmental side, the industry expects that tough new CO2 emissions limits may be proposed which could have a significant impact on the oilsands industry, the source of one-third of all CO2 emissions in Canada. Rather than accept an output level, the industry has been pushing for so-called intensity targets (measured in terms of CO2 output per barrel produced) to be adopted, focusing on technology to reduce emissions.

One issue that has been satisfactorily resolved deals with the government’s plan that was announced last September to phase out income trusts by 2011. The terms under which the proposed change will take place will allow income trusts to maintain a respectable level of growth – via either acquisition or drilling - until the phase-out deadline. Oilsands The Canadian Association of Petroleum Producers (CAPP) reports that in 2005 capital spending on oilsands projects amounted to Cdn$ 10.4 billion, up 70% from the prior year. Over the 1997 to 2005 period, spending for mining projects accounted for about 65% of overall oilsands capital spending, while in-situ projects represented 25%-30% and upgraders accounted for 5%-10%.

Canada Oilsands Capital Expenditures

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

1997 1998 1999 2000 2001 2002 2003 2004 2005

Source: CAPP

Cd

n M

illio

n

Upgraders

Mining

In-Situ

A survey by CAPP in 2006 found that the Alberta oil sands industry may spend Cdn$65 billion on new oil sands projects in the 2006 to 2011 period and as much as Cdn$81.6 billion in the 2006 to 2016 period. Oilsands spending is expected to peak in 2008/2009 at around Cdn$12 billion per year. However, several industry executives have begun to sound warnings that skyrocketing costs in northern Alberta caused by labor and


20

infrastructure shortages are jeopardizing future oil sands projects. Some operators have already delayed projects, but more could be halted as profitability continues to drop. It is estimated that in general new oil sands projects need prices higher than $50/bbl in order to continue to go forward. Shell recently announced plans to boost bitumen production capacity to 770,000 bpd and upgrading capacity to 700,000 bpd by 2020. Its current mining projects – Jackpine and Muskeg – will see production increase to 500,000 bpd from 155,000 bpd. The additional increase is to come from development of the Pierre River mine.

Indicators of Drilling Activity Trends IHS Energy’s count of active seismic crews in Canada in January 2007 was 30% below the year-ago period. Relative to the year-ago period, seismic surveying activity has been weak for the past three months, reflecting the new-found caution of operators in the wake of low gas prices dating back to early 2006.

Canadian Seismic Crew Count

0

5

10

15

20

25

30

35

40

.

2003 2004 2005 2006 .

Source: IHS

Canadian Well Service/Workover Outlook We now project that Canadian well service/workover unit activity (as measured by Weatherford) will rise 1% in 2007, averaging 787 active rigs. The Baker Oil Tools workover rig count is forecast to average 642 units in 2007, up 3% for the year. The number of oil and gas well completions in Canada is expected to fall 2% in 2007 to 23,300 jobs, while the number of oil and gas well abandonments is estimated to hold steady at about 6,000 jobs.


21

CANADIAN DRILLING ACTIVITY

AlbertaSpot Drilling Wells Drilled

Year Gas Prices Expenditures Oil Gas Dry Service Total Oil Gas Dry Service Total Oil Gas Total($/mmbtu) ($ Bil)

2000 $3.51 $6.53 5,706 9,078 2,699 348 17,831 22.8 30.0 11.6 1.5 65.9 134 211 3452001 $3.43 $7.70 4,732 10,757 2,811 297 18,597 20.1 34.6 11.9 1.1 67.7 110 231 3412002 $2.44 $6.48 4,319 9,061 2,300 193 15,873 17.7 28.5 10.2 0.8 57.2 79 184 2632003 $4.61 $9.65 4,845 12,951 3,652 243 21,691 19.9 37.8 17.0 1.0 75.8 105 266 3722004 $4.80 $12.09 4,526 15,126 3,182 317 23,151 18.9 48.7 13.6 1.0 82.2 91 274 3662005 $7.12 $17.61 5,482 15,931 3,737 284 25,434 24.9 57.6 15.7 1.3 99.6 100 355 455

2006 Q1 $6.38 - 2,153 6,195 1,329 103 9,781 9.7 21.8 5.6 0.5 37.5 125 536 661Q2 $5.13 - 949 2,731 586 46 4,312 4.3 9.6 2.5 0.2 16.5 69 223 292Q3 $4.77 - 1,595 4,588 984 77 7,243 7.2 16.1 4.1 0.3 27.8 121 369 490Q4 $5.88 - 1,435 4,130 886 69 6,520 6.5 14.5 3.7 0.3 25.0 127 314 441Total $5.57 $20.20 6,132 17,644 3,785 294 27,855 27.7 62.0 15.9 1.3 106.9 111 360 471

2007 Q1 $6.38 - 2,100 5,073 1,107 90 8,370 9.5 17.9 4.6 0.4 32.4 194 378 572Q2 $5.80 - 954 2,306 503 41 3,804 4.3 8.1 2.1 0.2 14.7 83 177 260Q3 $5.75 - 1,799 4,346 948 77 7,170 8.1 15.3 4.0 0.3 27.8 142 348 490Q4 $6.30 - 1,964 4,745 1,035 84 7,828 8.9 16.7 4.3 0.4 30.3 134 401 535Total $6.05 $18.87 6,817 16,470 3,594 291 27,172 30.9 58.0 15.1 1.3 105.2 138 326 463

2008 $6.45 $19.32 6,987 16,882 3,684 299 27,851 31.6 59.4 15.5 1.3 107.8 142 332 4752009 $6.67 $19.87 7,196 17,388 3,794 307 28,686 32.6 61.2 15.9 1.4 111.1 147 342 4892010 $6.88 $21.26 7,340 17,736 3,870 314 29,259 33.2 62.4 16.2 1.4 113.3 150 349 4992011 $7.10 $22.75 7,487 18,091 3,947 320 29,844 33.9 63.7 16.6 1.4 115.5 153 356 5082012 $7.10 $24.35 7,636 18,452 4,026 326 30,441 34.6 64.9 16.9 1.5 117.8 156 363 519

Note: Expenditures are in current US dollars at an exchange ratio of US$0.7:Can$1.0 from 1995-2004; and US$0.825:Can$1.0 from 2005-2012Sources: Baker Hughes, Canadian Association of Petroleum Producers, Spears and Associates

Average Active RigsFootage (Mil)


22

WorkoverActive Wells WS/WO Units

Year Oil Gas Abandonments Completions Total Units* Baker(1/1) (1/1)

2000 54,559 59,535 5.9 14.8 20.6 557 3422001 58,055 64,971 5.1 15.5 20.6 NA 3392002 58,331 75,058 1.8 13.4 15.2 627 2612003 58,760 86,205 7.9 17.8 25.7 710 3502004 62,555 92,279 5.6 19.7 25.2 755 6152005 64,053 104,850 5.9 21.4 27.3 795 654

2006 65,799 118,606 6.0 23.8 29.8 779 6262007 68,931 133,250 6.0 23.3 29.3 787 6422008 72,748 146,720 6.0 23.9 29.9 800 6482009 76,735 160,602 6.0 24.6 30.6 842 6842010 80,931 174,991 6.0 25.1 31.1 882 7172011 85,271 189,727 6.0 25.6 31.6 923 7522012 89,757 204,817 6.0 26.1 32.1 965 787

* Guiberson 1995-June, 2001; Weatherford January, 2002 forward

Sources: Baker Oil Tools, Weatherford, CAPP, Spears and Associates

CANADIAN WELL SERVICE/WORKOVER ACTIVITY

Jobs (000)


23

THE INTERNATIONAL MARKET International drilling activity, as measured by Baker Hughes, saw a total of 954 active onshore and offshore rigs during January 2007, up 7% (66 rigs) compared to the year-ago period. As measured by MI Swaco, international rig count stood at 1,509 active units in January 2007, up 13% (176 rigs) from January 2006. (MI Swaco typically reports 50%-60% more international rigs than Baker Hughes, largely due to definitional differences and the fact that Baker Hughes no longer reports rig activity in Iran and Sudan).

International Rig Count (1/00-1/07)

200

300

400

500

600

700

800

900

1000

.

2000 2001 2002 2003 2004 2005 2006

BH

I Rig

s

800

900

1000

1100

1200

1300

1400

1500

1600

MI S

wac

o R

igs

BHI

MI-Swaco

In our revised forecast we expect that international drilling activity will rise 6% in 2007 to an average of 965 active rigs (as measured by Baker Hughes), accounting for a total of 12,595 wells (up 6%) and 89.9 million feet of hole

drilled (up 5%). Onshore activity is projected to rise 7% to 10,024 new wells and 63.6 million feet of hole. Offshore drilling is projected to rise 2% accounting for 2,582 new wells and 26.3 million feet of hole drilled. Total spending internationally to drill and complete new wells is expected to reach $79.7 billion in 2007, up 16%.

For coming year the regional engines of growth are expected to be the Mid East, which is expected to account for about half of the incremental increase in rig count in 2007, followed by Africa and Central and South America. A description of expected activity by region and for the major countries is found in the following sections.

RIGS WELLS FOOTAGE (MIL) SPENDING (BIL)Land Off Total Land Off Total Land Off Total Land Off Total

2000 466 177 643 6,070 1,909 7,978 35.5 17.7 53.2 $14.2 $20.9 $35.12001 525 209 734 7,423 2,207 9,629 46.4 21.0 67.3 $18.6 $25.1 $43.72002 507 216 723 7,069 2,105 9,174 43.5 21.0 64.6 $18.8 $25.0 $43.92003 543 217 761 7,523 2,159 9,682 45.1 21.0 66.1 $20.0 $26.8 $46.82004 594 231 825 7,886 2,165 10,051 48.3 21.8 70.1 $21.0 $26.8 $47.82005 643 250 893 8,458 2,315 10,773 53.3 23.4 76.7 $25.5 $30.2 $55.72006 Q1 628 252 880 2,244 642 2,886 14.1 6.6 20.7 $7.6 $9.1 $16.7 Q2 643 254 897 2,294 654 2,948 14.6 6.8 21.4 $7.8 $9.4 $17.2 Q3 671 253 924 2,409 624 3,033 15.2 6.4 21.5 $8.2 $9.1 $17.3 Q4 684 251 935 2,451 619 3,070 15.4 6.2 21.7 $8.4 $9.1 $17.6

Total 656 252 909 9,397 2,539 11,936 59.3 26.0 85.3 $32.0 $36.7 $68.82007 Q1 692 260 952 2,471 670 3,141 15.7 6.8 22.4 $9.4 $10.6 $20.0 Q2 701 257 958 2,482 645 3,127 15.8 6.5 22.3 $9.5 $10.3 $19.8 Q3 713 255 968 2,510 629 3,139 15.9 6.4 22.4 $9.6 $10.3 $19.9 Q4 724 256 980 2,551 637 3,188 16.2 6.5 22.8 $9.7 $10.2 $20.0

Total 707 257 965 10,014 2,582 12,595 63.6 26.3 89.9 $38.2 $41.5 $79.72008 736 266 1,002 10,487 2,664 13,151 66.6 27.2 93.7 $41.9 $45.0 $86.92009 755 274 1,029 10,752 2,730 13,482 68.2 27.8 96.1 $45.1 $48.4 $93.52010 769 278 1,047 10,955 2,760 13,716 69.5 28.1 97.7 $48.3 $51.4 $99.72011 780 282 1,062 11,108 2,783 13,891 70.5 28.3 98.8 $51.5 $54.3 $105.92012 791 287 1,078 11,268 2,807 14,076 71.5 28.6 100.1 $55.0 $57.5 $112.5Sources: Baker Hughes, Spears and Associates

INTERNATIONAL


24

The steady increase of drilling activity in the international market has pushed up both offshore and land rig rates over the past two years. Rates for international onshore rigs are now rising faster than rig rates in North America. In Q4 2006 international land rig rates averaged almost $24,700 per day, 27% higher than in Q4 2005. Given our outlook for continued gains in international drilling activity, we expect that overall land rig rates in the international market will continue to increase through 2007.

International Land Rig Market

$10,000

$12,500

$15,000

$17,500

$20,000

$22,500

$25,000

$27,500

$30,000

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

2003 2004 2005 2006 2007

Day

Rat

es

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

An

nu

al In

flat

ion

Day Rates

Inflation Rate

Leading Indicators of Drilling Activity IHS Energy’s count of active seismic crews in International market in January 2007 was up 4% compared to the year-ago period, primarily due to a sharp increase in seismic surveying in Africa over the past year.

International Seismic Crew Count (Excluding CIS)

80

90

100

110

120

130

140

150

160

.

2003 2004 2005 2006 .

Source: IHS


25

CENTRAL AND SOUTH AMERICA Drilling activity in Central and South America, as measured by Baker Hughes, saw a total of 335 active onshore and offshore rigs during January 2007, up 4% (12 rigs) compared to the year-ago period. As measured by MI Swaco, Central and South American rig count stood at 408 active units in January 2007, up 3% (13 rigs) from January 2006. (MI Swaco typically reports 15%-25% more rigs than Baker Hughes in Central and South America, largely due to definitional differences).

Central and South America Rig Count

150

175

200

225

250

275

300

325

350

.

2000 2001 2002 2003 2004 2005 2006

BH

I

225

250

275

300

325

350

375

400

425

MI S

wac

o

BHI

MI Swaco

In our revised forecast we expect that drilling activity in Central and South America will rise 4% in 2007 to an average of 336 active rigs (as measured by

Baker Hughes), accounting for 5,081 new wells and 32.1 million feet of hole. Onshore activity is projected to rise 4% to an average of 271 active land rigs accounting for 4,720 new wells and 28.9 million feet of hole. Offshore rig count in Central and South America is expected to rise 3% to an average of 65 active rigs, accounting for 361 new wells, and 3.2 million feet of hole. We project that spending will grow 14% in 2007 to a total of $21.8 billion to drill and equip new wells.

On a regional basis, the increase in drilling activity over the coming year is expected to be led by Argentina and Colombia. In Argentina, provincial governments – which in the past have had better relationships with producers than the federal government has had – are to be given more authority to negotiate with producers about contract terms. Colombia continues to attract interest from foreign operators as it seeks to increase output due to attractive contract terms, good exploration results, and an improving security situation. We estimate that in Mexico the sharp decline in output from Pemex’s flagship Cantarell field could reduce oil export revenues by 20% this year. In response, Pemex proposes an increase in exploration and development but budget constraints may become a problem, although some restrictions on foreign investment in downstream development may be relaxed.


2000 186 41 227 2,535 296 2,832 15.3 2.7 18.0 $5.5 $3.4 $9.02001 215 47 262 3,849 342 4,191 24.0 3.1 27.1 $8.9 $4.2 $13.12002 168 46 214 3,141 355 3,496 19.2 3.2 22.4 $7.4 $4.6 $12.02003 188 56 244 3,551 388 3,939 20.4 3.6 23.9 $8.3 $5.5 $13.82004 225 66 290 3,786 365 4,151 23.2 3.3 26.6 $9.0 $5.2 $14.22005 251 64 316 4,148 289 4,437 26.3 2.5 28.8 $11.2 $4.4 $15.62006 Q1 253 60 313 1,074 81 1,154 6.7 0.7 7.4 $3.2 $1.4 $4.6 Q2 266 63 329 1,149 91 1,240 7.1 0.8 7.9 $3.4 $1.5 $4.9 Q3 265 62 327 1,187 83 1,270 7.1 0.7 7.9 $3.4 $1.4 $4.8 Q4 258 67 326 1,144 94 1,237 6.9 0.8 7.8 $3.3 $1.6 $4.9

Total 261 63 324 4,553 348 4,901 27.8 3.1 30.9 $13.3 $5.8 $19.12007 Q1 261 69 330 1,151 96 1,247 7.0 0.9 7.8 $3.7 $1.7 $5.4 Q2 266 65 331 1,161 92 1,253 7.1 0.8 7.9 $3.7 $1.7 $5.4 Q3 273 61 334 1,186 81 1,268 7.3 0.7 8.0 $3.8 $1.5 $5.3 Q4 283 65 348 1,221 92 1,313 7.5 0.8 8.3 $3.9 $1.7 $5.6

Total 271 65 336 4,720 361 5,081 28.9 3.2 32.1 $15.1 $6.6 $21.82008 287 69 356 5,048 413 5,461 30.9 3.6 34.5 $17.0 $8.0 $24.92009 295 71 366 5,200 424 5,623 31.8 3.7 35.5 $18.4 $8.5 $26.92010 302 73 374 5,319 431 5,750 32.6 3.8 36.3 $19.8 $9.1 $28.92011 305 75 380 5,387 438 5,825 33.0 3.8 36.8 $21.1 $9.8 $30.92012 309 76 386 5,461 445 5,906 33.5 3.9 37.4 $22.6 $10.4 $33.0Sources: Baker Hughes, Spears and Associates

CENTRAL AND SOUTH AMERICA


26

In Brazil, Petrobras is fast-tracking gas development to offset the looming shortfall in imports from Bolivia. PdVSA’s finances have come under increasing pressure as the company is being looked to as the source of funding for the president’s nationalization program in the telecom and power sectors. As a result, exploration and development spending looks to fall short of planned activity once again in 2007.

Leading Indicators of Drilling Activity IHS Energy’s count of active seismic crews in Central and South America in January 2007 was 4% behind the year-ago period. Overall activity has remained fairly flat for the past two years.

Central & South America Seismic Crew Count

0

5

10

15

20

25

30

.

2003 2004 2005 2006 .

Source: IHS


27

ARGENTINA The Argentine federal government plans to hand over control of the country’s onshore oil and gas concessions to provincial authorities by mid-2007. Several provinces are carrying out tender rounds – the first major offering of exploration acreage since 2001. These provinces include: Rio Negro, Santa Cruz, Tierra del Fuego, Salta, and Mendoza.

Petrobras Energia announced it intends to invest $400 million from 2006 to 2014 in the southern Patagonian province of Santa Cruz to develop the Glencross and Estancia Chiripa gas fields, which have combined gas reserves of 900 bcf. Repsol-YPF intends to invest up to $1.1 billion in E&P activities in the Santa Cruz province between 2007 and 2009.

BRAZIL Petrobras is fast-tracking the Jabuti, Marlim Sul, and Parque das Conchas gas field development projects this year in an attempt to boost gas production to make up the expected shortfall in imports from Bolivia. Gas demand in Brazil has grown by an average of 20 percent per year over the past decade and now totals 55 million cm/year. It is forecast to reach 128 million cm/year by 2015.

Petrobras plans to develop five production centers – Merluza (starting up in 2008), Mexilhao (2008), BS-500 (2010), Polo Sol, and Polo Centro – in the offshore Santo basin. In all, a total of 29 blocks in the Santos basin are currently under development. Petrobras recently announced the commercial viability of the 700-100 million bbl Papa-Terra heavy oilfield in the Campos basin. Development costs are

RIGS WELLS FOOTAGE (MIL) SPENDING (MIL)Land Off Total Land Off Total Land Off Total Land Off Total

2000 57 0 57 962 6 968 5.9 0.0 5.9 $1,747 $51 $1,7982001 71 0 71 1,419 0 1,419 8.6 0.0 8.6 $2,750 $0 $2,7502002 49 0 49 1,124 5 1,128 6.5 0.0 6.5 $2,178 $42 $2,2212003 60 1 60 1,288 13 1,301 7.6 0.1 7.7 $2,498 $115 $2,6132004 71 0 71 1,269 3 1,272 8.0 0.0 8.0 $2,460 $23 $2,4832005 76 1 77 1,288 7 1,295 8.0 0.1 8.1 $2,746 $69 $2,8152006 Q1 75 0 75 317 1 318 2.0 0.0 2.0 $745 $6 $750 Q2 81 0 81 343 0 343 2.1 0.0 2.1 $805 $0 $805 Q3 83 0 83 353 0 353 2.2 0.0 2.2 $827 $0 $827 Q4 80 0 80 339 0 339 2.1 0.0 2.1 $795 $0 $795

Total 80 0 80 1,352 1 1,352 8.4 0.0 8.4 $3,171 $6 $3,1772007 Q1 85 0 85 361 1 362 2.2 0.0 2.3 $932 $6 $938 Q2 87 0 87 370 0 370 2.3 0.0 2.3 $954 $0 $954 Q3 89 0 89 378 0 378 2.4 0.0 2.4 $976 $0 $976 Q4 91 0 91 387 0 387 2.4 0.0 2.4 $998 $0 $998

Total 88 0 88 1,496 1 1,497 9.3 0.0 9.3 $3,860 $6 $3,8672008 92 0 92 1,571 1 1,571 9.8 0.0 9.8 $4,256 $7 $4,2632009 94 0 94 1,602 1 1,603 10.0 0.0 10.0 $4,558 $7 $4,5662010 94 0 94 1,602 1 1,603 10.0 0.0 10.0 $4,786 $8 $4,7942011 92 0 92 1,570 1 1,571 9.8 0.0 9.8 $4,925 $8 $4,9332012 91 0 91 1,539 1 1,539 9.6 0.0 9.6 $5,068 $8 $5,076Sources: Baker Hughes, Spears and Associates

ARGENTINA RIGS WELLS FOOTAGE (MIL) SPENDING (MIL)Land Off Total Land Off Total Land Off Total Land Off Total

2000 9 14 23 257 200 457 1.1 1.7 2.8 $356 $2,420 $2,7762001 10 18 28 291 250 541 1.2 2.1 3.4 $424 $3,171 $3,5942002 10 16 27 287 230 517 1.1 2.0 3.1 $438 $3,063 $3,5012003 10 16 26 287 225 512 1.2 1.9 3.2 $460 $3,157 $3,6172004 10 16 26 273 189 462 0.9 1.5 2.4 $438 $2,647 $3,0852005 10 17 27 293 170 463 0.9 1.4 2.3 $517 $2,619 $3,1362006 Q1 13 18 31 94 45 139 0.3 0.4 0.7 $183 $763 $946 Q2 13 18 31 92 46 138 0.3 0.4 0.7 $179 $775 $954 Q3 13 17 30 96 43 139 0.3 0.3 0.6 $187 $720 $907 Q4 14 19 32 99 47 146 0.3 0.4 0.7 $193 $792 $985

Total 13 18 31 382 180 562 1.2 1.4 2.6 $741 $3,051 $3,7922007 Q1 15 19 34 109 48 156 0.3 0.4 0.7 $232 $886 $1,118 Q2 13 18 31 92 46 138 0.3 0.4 0.7 $197 $853 $1,049 Q3 14 17 31 102 43 144 0.3 0.3 0.7 $217 $792 $1,009 Q4 14 19 33 102 48 149 0.3 0.4 0.7 $217 $886 $1,102

Total 14 18 32 404 183 587 1.3 1.5 2.7 $862 $3,416 $4,2782008 14 19 33 408 224 632 1.3 1.8 3.1 $914 $4,391 $5,3052009 14 19 33 412 229 641 1.3 1.8 3.1 $969 $4,703 $5,6722010 14 19 34 416 233 649 1.3 1.9 3.2 $1,028 $5,036 $6,0642011 14 20 34 420 238 658 1.3 1.9 3.2 $1,090 $5,394 $6,4842012 15 20 35 424 243 667 1.3 1.9 3.3 $1,156 $5,777 $6,933Sources: Baker Hughes, Spears and Associates

BRAZIL


28

estimated to be around $1 billion, with production of about 200,000 bpd likely to begin in 2011. The Cachalote-Baleia heavy -oil complex is slated to go into production in 2012 starting at 100,000 bpd. Shell is planning development of the 14 TCF Mexilhao gas field in the Santos basin, Brazil’s largest-ever gas discovery using seven production wells. First production from three fields – Ostra, Abalone, and Argonauta – on Shell’s heavy-oil discovery on deepwater block BC-10 is planned for 2010; initial production may reach 100,000 bpd. Chevron’s $2.4 billion Frade heavy oil development will make use of 12 production wells and seven injectors. Production is scheduled to begin in early 2009 with peak production expected to be 85,000 bpd. Devon Energy has proposed to develop the shallow water Polvo field by the second half of 2007 using a fixed platform to produce 50,000 bpd. The field will be produced using 18 development wells and 10 injection wells.

COLOMBIA According to the national hydrocarbons agency, ANH, foreign investment in Colombia’s oil and gas sector is forecast to reach $1.5 billion in 2007, unchanged from the total thought to have been invested in 2006. About $1.1 billion was spent in 2005. A total of 56 exploration wells are reported to have been drilled in Colombia in 2006. In all, ANH signed a total of 32 E&P contracts and 12 technical evaluation contracts in 2006. Over the 2007-2010 timeframe the government hopes to sign 120 new upstream contracts. In contrast, over the 2002-2006 period a total of 150 contracts were signed. The four-year plan calls for drilling 160 exploratory wells, up from 125 wildcats that were drilled during 2002-2006. Ecopetrol plans to spend about $1.6 billion for exploration and production in 2007. It plans to participate in more than 550 development wells. A similar budget is expected for 2008 under the terms of its initial public offering later this year.

Ecopetrol plans to drill 15 exploratory wells in 2007 (up from 6 or 7 in 2006), gradually increasing the number to 25 in 2011. The company hopes to total output reach 500,000 bpd by 2011, up from about 320,000 bpd at present. Ecopetrol plans to increase output from its Castilla heavy -oil block from 60,000 bpd at present to 90,000 bpd by 2009. About $700 million is to be spent on the project..


2000 14 0 14 105 0 105 1.0 0.0 1.0 $371 $0 $3712001 15 0 15 107 0 107 0.9 0.0 0.9 $398 $0 $3982002 11 0 11 72 0 72 0.5 0.0 0.5 $281 $0 $2812003 11 0 11 95 0 95 0.7 0.0 0.7 $386 $0 $3862004 9 0 9 92 0 92 0.7 0.0 0.7 $375 $0 $3752005 15 0 15 194 0 194 1.4 0.0 1.4 $872 $0 $8722006 Q1 19 1 20 61 1 61 0.4 0.0 0.4 $301 $0 $301 Q2 22 1 23 70 0 71 0.5 0.0 0.5 $348 $0 $348 Q3 24 0 24 76 0 76 0.6 0.0 0.6 $375 $0 $375 Q4 23 0 23 75 0 75 0.5 0.0 0.5 $369 $0 $369

Total 22 0 22 282 1 282 2.1 0.0 2.1 $1,393 $0 $1,3932007 Q1 24 0 24 77 0 77 0.6 0.0 0.6 $418 $0 $418 Q2 26 0 26 83 0 83 0.6 0.0 0.6 $453 $0 $453 Q3 26 0 26 83 0 83 0.6 0.0 0.6 $453 $0 $453 Q4 28 0 28 90 0 90 0.7 0.0 0.7 $487 $0 $487

Total 26 0 26 333 0 333 2.4 0.0 2.4 $1,811 $0 $1,8112008 27 0 27 349 0 349 2.6 0.0 2.6 $1,996 $0 $1,9962009 29 0 29 367 0 367 2.7 0.0 2.7 $2,201 $0 $2,2012010 30 0 30 385 0 385 2.8 0.0 2.8 $2,426 $0 $2,4262011 32 0 32 405 0 405 3.0 0.0 3.0 $2,675 $0 $2,6752012 33 0 33 425 0 425 3.1 0.0 3.1 $2,949 $0 $2,949Sources: Baker Hughes, Spears and Associates

COLOMBIA


29

ECUADOR PetroEcuador has set a budget of $72 million for production and development spending to operate block 15. The government may invite other state-owned firms to bid on operating the block.

MEXICO Pemex plans to invest a total of $87 billion over the next decade in exploration and production. In all, about $40 billion is to be spent on exploration, including the drilling of about 1,200 exploratory wells including 150 deepwater wells. The second priority is to spend about $25 billion to drill about 10,700 development wells in the Chincotopec region. About $5 billion is to be spent on the Burgos

basin, where 1,500 wells are to be drilled. Other high-priority target areas include the offshore Ku-Maloob-Zap oilfield and Light Marine Crude. Pemex has delayed for the third time the date to submit bids for multiple-services contracts for the Euro, Monclova, and Nejo blocks in the Burgos basin. Bidding for integrated services contracts for work in the oil-prone onshore Chincotopec region has also been delayed. A review of onshore field services contracts is believed to be underway. In December 2006 output from the giant offshore Cantarell oilfield averaged 1.4 million bpd, down 25% from December 2005. Exports were just over 1.5 million bpd. Recent studies project a further drop of 300,000-600,000 bpd from Cantarell over the next two years.

Pemex plans to lease three offshore rigs starting in the second half of 2008 for a period of five years to drill about 30 wells to explore deepwater structures in the Gulf of Mexico. Each well is projected to cost about $100-$200 million.


2000 6 1 7 57 3 59 0.5 0.0 0.5 $231 $32 $2632001 9 1 10 101 3 104 0.9 0.0 1.0 $436 $34 $4702002 9 0 9 98 1 99 0.8 0.0 0.9 $444 $13 $4572003 9 0 9 98 1 99 1.0 0.0 1.0 $468 $14 $4822004 10 0 10 96 1 97 1.0 0.0 1.0 $457 $14 $4712005 12 0 12 120 0 120 1.2 0.0 1.2 $627 $5 $6312006 Q1 12 0 12 31 0 32 0.3 0.0 0.3 $180 $5 $185 Q2 11 0 11 29 0 29 0.3 0.0 0.3 $165 $0 $165 Q3 11 0 11 28 0 28 0.3 0.0 0.3 $160 $0 $160 Q4 12 0 12 30 0 30 0.3 0.0 0.3 $175 $0 $175

Total 11 0 11 118 0 118 1.2 0.0 1.2 $681 $5 $6862007 Q1 11 0 11 29 0 29 0.3 0.0 0.3 $181 $6 $187 Q2 11 0 11 29 0 29 0.3 0.0 0.3 $181 $0 $181 Q3 10 0 10 26 0 26 0.3 0.0 0.3 $165 $0 $165 Q4 10 0 10 26 0 26 0.3 0.0 0.3 $165 $0 $165

Total 11 0 11 109 0 110 1.1 0.0 1.1 $693 $6 $6982008 10 0 10 107 3 110 1.1 0.0 1.1 $713 $58 $7712009 10 0 10 105 3 108 1.1 0.0 1.1 $733 $61 $7942010 10 0 10 103 3 106 1.1 0.0 1.1 $755 $64 $8192011 10 0 10 101 3 104 1.0 0.0 1.1 $776 $67 $8442012 9 0 10 99 3 102 1.0 0.0 1.0 $799 $71 $870Sources: Baker Hughes, Spears and Associates

ECUADOR


2000 38 6 44 253 29 282 1.9 0.3 2.2 $810 $473 $1,2832001 48 6 54 433 28 461 3.2 0.3 3.5 $1,457 $479 $1,9362002 54 12 65 407 60 466 3.0 0.7 3.6 $1,367 $1,018 $2,3852003 67 26 92 499 102 602 3.9 1.1 5.1 $1,679 $1,748 $3,4272004 76 34 110 570 122 692 5.0 1.3 6.3 $1,916 $2,080 $3,9962005 76 31 107 687 61 748 6.3 0.7 7.0 $2,540 $1,148 $3,6882006 Q1 61 25 85 137 25 161 1.3 0.3 1.5 $556 $511 $1,067 Q2 61 24 85 137 24 161 1.3 0.3 1.5 $556 $497 $1,052 Q3 54 23 77 122 23 145 1.1 0.3 1.4 $494 $482 $977 Q4 58 26 84 131 26 157 1.2 0.3 1.5 $531 $538 $1,069

Total 58 25 83 525 98 623 4.8 1.1 5.9 $2,136 $2,029 $4,1652007 Q1 57 26 83 128 26 154 1.2 0.3 1.5 $574 $592 $1,166 Q2 57 24 81 128 24 152 1.2 0.3 1.4 $574 $546 $1,120 Q3 60 24 84 135 24 159 1.2 0.3 1.5 $604 $546 $1,151 Q4 63 25 88 142 25 167 1.3 0.3 1.6 $634 $569 $1,204

Total 59 25 84 533 99 632 4.9 1.1 6.0 $2,386 $2,254 $4,6402008 60 25 86 544 101 645 5.0 1.1 6.1 $2,555 $2,414 $4,9702009 62 26 87 555 103 658 5.1 1.1 6.2 $2,737 $2,586 $5,3232010 63 26 89 566 105 671 5.2 1.2 6.4 $2,931 $2,769 $5,7002011 64 27 91 577 107 684 5.3 1.2 6.5 $3,139 $2,966 $6,1052012 65 27 93 589 109 698 5.4 1.2 6.6 $3,362 $3,177 $6,539Sources: Baker Hughes, Spears and Associates

MEXICO


30

PERU The government will hold a bidding round in 2007 for 18 blocks, of which 13 are onshore. PetroPeru recently signed an E&P contract with Gold Oil Peru and Plectrum Petroleum covering offshore block Z-34. In all, PetroPeru signed a total of 16 upstream contracts in 2006 and 15 in 2005.

TRINIDAD AND TOBAGO BP will resume drilling in 2008. It now plans 10 wells in 10 years. EOG Resources has begun development of a gas find it made off the east coast of Trinidad. Production is scheduled to begin by mid-2009.

VENEZUELA Fresh doubts have surfaced about PdVSA’s ability to fund its capital spending program this year in light of the government’s intention to have PdVSA provide the $1.5 billion required to finance the nationalization of the telecom and power industry. In addition the firm is committed to spend $1.0 billion to build three


2000 3 1 4 30 10 40 0.2 0.1 0.3 $65 $66 $1312001 3 1 4 23 12 35 0.2 0.1 0.3 $53 $81 $1332002 1 1 2 10 10 20 0.1 0.1 0.2 $24 $74 $972003 2 0 3 24 1 25 0.2 0.0 0.2 $57 $7 $652004 2 0 2 40 2 42 0.2 0.0 0.2 $95 $15 $1102005 3 0 4 75 2 77 0.4 0.0 0.4 $195 $13 $2082006 Q1 3 0 3 15 1 16 0.1 0.0 0.1 $43 $6 $49 Q2 5 0 6 29 1 30 0.2 0.0 0.2 $84 $6 $90 Q3 4 0 4 22 1 23 0.1 0.0 0.1 $63 $6 $69 Q4 5 1 6 28 2 29 0.2 0.0 0.2 $79 $14 $93

Total 4 0 5 94 4 98 0.5 0.0 0.6 $268 $32 $3002007 Q1 6 1 7 33 3 36 0.2 0.0 0.2 $104 $22 $126 Q2 5 1 6 28 3 30 0.2 0.0 0.2 $87 $22 $109 Q3 5 0 5 28 0 28 0.2 0.0 0.2 $87 $0 $87 Q4 4 0 4 22 0 22 0.1 0.0 0.1 $69 $0 $69


PERU


2000 0 3 4 80 41 121 0.1 0.4 0.5 $82 $312 $3942001 2 4 5 90 44 134 0.1 0.4 0.6 $97 $352 $4482002 0 4 4 60 46 106 0.1 0.4 0.5 $68 $388 $4552003 0 3 3 140 37 177 0.2 0.3 0.5 $166 $325 $4912004 0 4 4 120 43 163 0.2 0.3 0.5 $142 $381 $5232005 0 2 3 50 41 91 0.1 0.3 0.4 $65 $395 $4612006 Q1 1 2 3 10 7 17 0.0 0.1 0.1 $14 $77 $91 Q2 1 4 6 10 18 28 0.0 0.1 0.2 $14 $195 $209 Q3 4 3 7 40 14 54 0.1 0.1 0.2 $57 $149 $207 Q4 2 4 6 30 17 47 0.0 0.1 0.2 $43 $181 $224

Total 2 3 5 90 57 147 0.1 0.5 0.6 $129 $603 $7322007 Q1 3 4 7 30 17 47 0.0 0.1 0.2 $47 $199 $247 Q2 3 4 7 30 17 47 0.0 0.1 0.2 $47 $199 $247 Q3 2 3 5 20 13 33 0.0 0.1 0.1 $32 $149 $181 Q4 2 4 6 20 17 37 0.0 0.1 0.2 $32 $199 $231

Total 3 4 6 100 64 164 0.2 0.5 0.7 $158 $747 $9052008 3 4 7 100 67 167 0.2 0.5 0.7 $166 $824 $9902009 3 4 7 100 70 170 0.2 0.6 0.7 $174 $909 $1,0832010 3 4 7 100 70 170 0.2 0.6 0.7 $183 $954 $1,1372011 3 4 7 100 70 170 0.2 0.6 0.7 $192 $1,002 $1,1942012 3 4 7 100 70 170 0.2 0.6 0.7 $202 $1,052 $1,253Sources: Baker Hughes, Spears and Associates

TRINIDAD & TOBAGO


31

thermal power plants this year. Plans to acquire majority stakes in four heavy -oil crude production companies later this year could cost about $20 billion. PdVSA’s own six-year capacity expansion plan is now expected to cost about $130 billion with the addition of refinery and modernization programs that have been promised in 12 foreign countries. In all, $10 billion that is thought to be necessary to be spent in 2007 to get its domestic production back on track, but further expansion of the government’s financial demands on PdVSA could delay planned investments this year.

Some of the PdVSA’a planned work includes exploratory drilling in the Barinas-Apure basin (along the Venezeula-Colombia border) and in eastern Venezeula’s Naricual formation, where 14 wells will be spudded before the end of 2007 targeting formations 20,000 feet deep. “Priority” projects include development of heavy-oil fields such as Urdaneta, Ceuta-Tomoporo, and Barua-Motatan around Lake Maracaibo. PdVSA has sanctioned plans to drill around 400 wells over the next five years to develop heavy oil fields in the San Cristobal region of eastern Venezuela. In eastern Venezuela, PdVSA will focus on expanding light oil production at the El Furrial field using water and

gas injection, and developing the Tacata, Mix Said, Bare-Arecuna, Pesao Oeste, and Marichal fields in the Orinoco heavy oil belt.

CENTRAL AND SOUTH AMERICA - OTHERS Bolivia Plans by foreign operators concerning future investment under the new more heavily-taxed contract terms have yet to be announced. The government has said that operators will spend around $3.5 billion from 2007-2009, with about $600 million invested in the Itau field and $900 million in the Margarita field. Chile The government’s plan to launch a tender for 11 blocks in the far-south Magallanes region has been delayed to the end of March 2007.


2000 47 15 63 688 3 691 3.9 0.0 3.9 $1,556 $36 $1,5922001 50 18 67 1,282 3 1,285 8.3 0.0 8.3 $3,043 $44 $3,0872002 30 12 42 949 2 951 6.3 0.0 6.3 $2,253 $31 $2,2842003 26 11 37 960 5 965 5.0 0.0 5.0 $2,280 $66 $2,3462004 43 12 55 1,150 6 1,156 6.8 0.1 6.8 $2,730 $74 $2,8042005 55 13 68 1,270 7 1,277 7.5 0.1 7.5 $3,317 $92 $3,4092006 Q1 65 13 78 364 2 366 2.1 0.0 2.2 $1,046 $25 $1,072 Q2 67 16 83 385 2 387 2.3 0.0 2.3 $1,105 $30 $1,135 Q3 67 18 85 397 2 399 2.3 0.0 2.4 $1,140 $35 $1,175 Q4 59 18 77 357 2 359 2.1 0.0 2.1 $1,025 $34 $1,059

Total 64 16 81 1,502 8 1,510 8.8 0.1 8.9 $4,316 $124 $4,4402007 Q1 55 18 73 339 2 342 2.0 0.0 2.0 $1,073 $38 $1,111 Q2 59 18 77 358 2 360 2.1 0.0 2.1 $1,132 $38 $1,169 Q3 63 17 80 372 2 374 2.2 0.0 2.2 $1,176 $36 $1,211 Q4 67 17 84 391 2 393 2.3 0.0 2.3 $1,235 $36 $1,270

Total 61 18 79 1,460 9 1,469 8.6 0.1 8.7 $4,615 $147 $4,7622008 70 20 90 1,679 10 1,689 9.9 0.1 10.0 $5,573 $177 $5,7502009 74 21 95 1,763 11 1,774 10.4 0.1 10.5 $6,144 $195 $6,3392010 77 22 100 1,851 11 1,862 10.9 0.1 11.0 $6,774 $215 $6,9892011 80 23 104 1,925 12 1,937 11.3 0.1 11.4 $7,397 $235 $7,6322012 84 24 108 2,002 12 2,014 11.8 0.1 11.9 $8,077 $257 $8,334Sources: Baker Hughes, Spears and Associates

VENEZUELA


2000 11 1 12 105 5 110 0.7 0.0 0.8 $296 $55 $3512001 7 1 7 102 3 105 0.6 0.0 0.6 $290 $36 $3272002 4 0 5 135 1 136 0.8 0.0 0.8 $343 $17 $3592003 4 0 4 160 3 163 0.6 0.0 0.6 $328 $39 $3672004 5 0 5 176 0 176 0.5 0.0 0.5 $362 $0 $3622005 4 0 4 172 2 174 0.4 0.0 0.4 $317 $24 $3412006 Q1 5 0 5 44 0 44 0.1 0.0 0.1 $94 $0 $94 Q2 5 0 5 54 0 54 0.1 0.0 0.1 $110 $0 $110 Q3 5 0 5 54 0 54 0.1 0.0 0.1 $108 $0 $108 Q4 6 0 6 56 0 56 0.1 0.0 0.1 $126 $0 $126

Total 5 0 5 208 0 208 0.5 0.0 0.5 $438 $0 $4382007 Q1 5 0 5 45 0 45 0.1 0.0 0.1 $119 $0 $119 Q2 5 0 5 44 0 44 0.1 0.0 0.1 $105 $0 $105 Q3 4 0 4 43 0 43 0.1 0.0 0.1 $96 $0 $96 Q4 4 0 4 43 0 43 0.1 0.0 0.1 $96 $0 $96


CENTRAL AND SOUTH AMERICA - OTHERS


32

EUROPE Drilling activity in Europe - as measured by Baker Hughes - saw a total of 70 active onshore and offshore rigs during January 2007, down 9% (seven rigs) compared to the year-ago period. As measured by MI Swaco, European rig count stood at 184 active units in January 2007, up 3% (six rigs) from January 2006. (MI Swaco routinely reports 130%-160% more rigs than Baker Hughes in Europe, largely due to definitional differences).

Europe Rig Count

20

40

60

80

100

120

.

2000 2001 2002 2003 2004 2005 2006

BH

I

125

150

175

200

225

250

MI S

wac

oBHI

MI Swaco

We now expect that drilling activity in Europe will be down 1% in 2007, averaging 72 active rigs (as measured by Baker Hughes), 1,038 new wells and 9.1 million feet of hole. Offshore rig count is expected to fall 2% to an average of 50 active rigs, accounting for 553 new wells, and 6.6 million feet of hole.

Onshore activity is projected to average 22 active land rigs accounting for 486 new wells and 2.6 million feet of hole. We project that spending will grow 7% in 2007 to a total of $10.3 billion to drill and equip new wells in Europe.

In the UK, exploratory drilling activity is expected to rebound in 2007 following the record-setting license round just completed and the fact that some drilling rigs are moving back into the UK sector in the near term, helping to alleviate a constraint on activity. Similarly, Norwegian authorities are expecting to see a pick-up in exploratory drilling in 2007 following a successful tendering round. Across the North Sea, development drilling is expected to hold steady and remain tightly focused on marginal field development. The effect of the planned merger of Statoil and Norsk Hydro on field development plans in the North Sea and elsewhere is not known at this time; the combined entity will account for about 50% of all activity in the Norwegian sector and presumably have first claim on exploration and development resources, making it a challenge for other operators to smoothly carry out their planned projects.


2000 30 47 77 521 556 1,077 2.6 5.5 8.1 $0.7 $6.3 $7.12001 31 58 89 574 707 1,281 3.0 7.4 10.3 $0.8 $8.4 $9.32002 29 54 83 510 559 1,070 2.7 6.6 9.3 $0.8 $7.0 $7.82003 32 48 79 449 531 980 2.2 6.1 8.3 $0.7 $6.7 $7.42004 25 41 66 456 476 933 2.1 5.4 7.6 $0.7 $6.0 $6.72005 21 44 66 478 493 971 2.4 5.9 8.2 $0.8 $6.8 $7.62006 Q1 23 55 78 134 153 287 0.7 1.8 2.5 $0.3 $2.3 $2.6 Q2 20 58 78 117 157 274 0.6 1.9 2.5 $0.2 $2.4 $2.6 Q3 21 51 72 117 141 257 0.6 1.7 2.3 $0.2 $2.1 $2.4 Q4 24 42 66 127 121 247 0.7 1.4 2.1 $0.3 $1.8 $2.1

Total 22 51 73 494 572 1,066 2.6 6.8 9.4 $1.0 $8.6 $9.62007 Q1 21 49 70 124 136 260 0.7 1.6 2.3 $0.3 $2.3 $2.6 Q2 21 49 70 122 136 258 0.7 1.6 2.3 $0.3 $2.3 $2.5 Q3 22 52 74 120 142 262 0.6 1.7 2.3 $0.3 $2.4 $2.6 Q4 22 50 72 120 138 258 0.6 1.6 2.3 $0.3 $2.3 $2.6

Total 22 50 72 486 553 1,038 2.6 6.6 9.1 $1.1 $9.2 $10.32008 22 51 73 491 564 1,055 2.6 6.7 9.3 $1.2 $9.9 $11.02009 22 52 74 497 575 1,072 2.6 6.8 9.5 $1.3 $10.6 $11.82010 22 52 74 497 576 1,073 2.6 6.9 9.5 $1.3 $11.1 $12.42011 22 51 73 493 565 1,058 2.6 6.7 9.3 $1.4 $11.4 $12.82012 22 50 72 488 556 1,044 2.6 6.6 9.2 $1.4 $11.8 $13.2Sources: Baker Hughes, Spears and Associates

EUROPE


33

Leading Indicators of Drilling Activity Although seismic surveying activity always falls sharply at the end of the year, the chart below illustrates that the overall trend in seismic activity over the past 2½ years has been on the rise. IHS Energy’s count of active seismic crews in Europe in January 2007 was 22% ahead of the year-ago period.

Europe Seismic Crew Count

0

5

10

15

20

25

.

2003 2004 2005 2006 .Source: IHS


34

DENMARK Maersk’s Halfdan phase 3 project will include two platforms to be installed in mid-2007. ConocoPhillips’ Hejre discovery may see a phased development with first oil by 2009. Some five to ten wells may be drilled in the HTHP reservoir. Maersk’s Ella and Alma gas projects are due to start production in 2007, with development of the Freja gas field another possibility during this timeframe.

NETHERLANDS NAM and ExxonMobil are evaluating a plan to redevelop the Schoonebeek heavy oilfield. The current plan call for drilling 40 production wells and 20 steam injection wells. A decision will be made sometime in 2007. Northern Petroleum will bring onstream the onshore Papekop, Ottoland, and Brakel oilfields starting in late 2007 and finishing up in 2008. License transfer delays have slowed development of the Grolloo and Geesburg gas fields.


2000 0 3 3 0 28 28 0.0 0.4 0.4 $0 $312 $3122001 0 4 4 0 44 44 0.0 0.4 0.4 $0 $528 $5282002 0 4 4 1 34 36 0.0 0.6 0.6 $2 $439 $4412003 0 4 4 0 34 34 0.0 0.5 0.5 $0 $430 $4302004 0 4 4 0 32 32 0.0 0.5 0.5 $0 $413 $4132005 0 2 2 0 14 14 0.0 0.2 0.2 $0 $191 $1912006 Q1 0 3 3 0 7 7 0.0 0.1 0.1 $0 $102 $102 Q2 0 4 4 0 9 9 0.0 0.1 0.1 $0 $133 $133 Q3 0 3 3 0 5 5 0.0 0.1 0.1 $0 $83 $83 Q4 0 2 2 0 3 3 0.0 0.1 0.1 $0 $52 $52

Total 0 3 3 0 24 24 0.0 0.4 0.4 $0 $370 $3702007 Q1 0 4 4 0 8 8 0.0 0.1 0.1 $0 $136 $136 Q2 0 4 4 0 8 8 0.0 0.1 0.1 $0 $136 $136 Q3 0 4 4 0 8 8 0.0 0.1 0.1 $0 $136 $136 Q4 0 3 3 0 6 6 0.0 0.1 0.1 $0 $102 $102


DENMARK RIGS WELLS FOOTAGE (MIL) SPENDING (MIL)Land Off Total Land Off Total Land Off Total Land Off Total

2000 1 3 4 8 18 27 0.1 0.2 0.3 $21 $312 $3332001 1 5 6 9 30 39 0.1 0.3 0.4 $25 $553 $5792002 2 3 5 18 23 41 0.2 0.3 0.5 $53 $445 $4982003 1 4 5 13 27 40 0.1 0.3 0.4 $39 $507 $5462004 1 4 4 5 22 27 0.0 0.2 0.2 $15 $419 $4332005 1 3 4 9 21 30 0.1 0.2 0.3 $30 $443 $4732006 Q1 2 4 5 4 6 11 0.0 0.1 0.1 $15 $145 $161 Q2 1 4 6 3 7 11 0.0 0.1 0.1 $12 $169 $181 Q3 1 5 6 2 9 10 0.0 0.1 0.1 $6 $197 $203 Q4 1 3 4 2 5 7 0.0 0.0 0.1 $6 $118 $124

Total 1 4 5 11 27 38 0.1 0.2 0.3 $39 $629 $6682007 Q1 1 4 5 3 7 9 0.0 0.1 0.1 $10 $173 $183 Q2 1 4 5 3 7 9 0.0 0.1 0.1 $10 $173 $183 Q3 1 4 5 3 7 9 0.0 0.1 0.1 $10 $173 $183 Q4 1 4 5 3 7 9 0.0 0.1 0.1 $10 $173 $183


NETHERLANDS


35

NORWAY The Norwegian Petroleum directorate forecasts that up to 30 exploration wells could be drilled in 2007, up from only 18 exploration wells drilled in 2006 and nine in 2005. The government handed out 48 licenses covering parts of all of 85 blocks in January 2007 as part of its 2006 Awards in Predefined Area (APA) round. A total of nine firm commitment wells are planned from these awards. The 2007 APA round, covering 13 new blocks, will be held in September 2007. However, the 20th licensing round, covering frontier areas, which had been set for next year, has now been postponed to 2009. The planned merger of Statoil and Norsk Hydro is set to be completed by October, 2007. The combined firm would operate more than 80% of total Norwegian production and more than 85% of total reserves. The impact on each firm’s ongoing field development has not be determined at this point, although some expect the immediate impact to be minimal. In the meantime, Statoil plans a four-slot template for its Alve field where first production is targeted for late 2008. Statoil will drill nine production wells and three injection wells on its Tyrihans subsea project, with field start-up expected in 2009. Statoil is moving ahead with development of the Gjoa field, calling for 8-10 horizontal oil wells and four gas wells, with possible production start-up in 2010. For its part Norsk Hydro is planning to develop its CBB complex (Camilla, Belinda, and Fram B fields) as subsea tiebacks to the Gjoa platform with production to begin by Q4 2010. Six subsea wells are thought likely. Norsk Hydro is considering a plan for development of the Vilje oilfield, with production to start in 2007. Norsk Hydro’s Ormen Lange field now looks to start-up in 2007; eight subsea development wells are planned for the first phase, with 24 production wells planned in total. Norsk Hydro will use 11 multi-lateral wells to increase production at the Grane field. BP’s Valhall re-development project is now set to come onstream in 2010 at a cost of $2.1 billion. First production from BP’s Skarv oil and gas field is also set to come onstream in late 2009.

Shell plans to develop the Trym oilfield, with first production due in Q4 2007. ENI is studying field development options for its Goliat discovery in the Barents Sea, where reserves are estimated to total 250 million barrels plus considerable associated gas. Talisman has submitted plans for a $630 million re-development plan for its Yme oil field; plans call for 12 new production and injection wells. Field start-up is expected in early 2009 at 40,000 bpd. Talisman will develop its marginal Rev gas-condensate field with production to start in 2007. A second development phase could be completed in 2008.


2000 0 22 22 0 201 201 0.0 1.9 1.9 $0 $2,384 $2,3842001 0 23 23 0 212 212 0.0 2.7 2.7 $0 $2,634 $2,6342002 0 19 19 0 177 177 0.0 2.6 2.6 $0 $2,317 $2,3172003 0 19 19 0 176 176 0.0 2.5 2.5 $0 $2,305 $2,3052004 0 17 17 0 150 150 0.0 2.1 2.1 $0 $1,962 $1,9622005 0 17 17 0 173 173 0.0 2.4 2.4 $0 $2,492 $2,4922006 Q1 0 19 19 0 47 47 0.0 0.6 0.6 $0 $740 $740 Q2 0 20 20 0 50 50 0.0 0.7 0.7 $0 $791 $791 Q3 0 16 16 0 39 39 0.0 0.5 0.5 $0 $621 $621 Q4 0 13 13 0 33 33 0.0 0.4 0.4 $0 $514 $514

Total 0 17 17 0 169 169 0.0 2.3 2.3 $0 $2,666 $2,6662007 Q1 0 16 16 0 40 40 0.0 0.5 0.5 $0 $696 $696 Q2 0 17 17 0 43 43 0.0 0.6 0.6 $0 $740 $740 Q3 0 18 18 0 45 45 0.0 0.6 0.6 $0 $783 $783 Q4 0 17 17 0 43 43 0.0 0.6 0.6 $0 $740 $740

Total 0 17 17 0 170 170 0.0 2.3 2.3 $0 $2,959 $2,9592008 0 17 17 0 173 173 0.0 2.4 2.4 $0 $3,169 $3,1692009 0 18 18 0 177 177 0.0 2.4 2.4 $0 $3,394 $3,3942010 0 18 18 0 177 177 0.0 2.4 2.4 $0 $3,564 $3,5642011 0 17 17 0 173 173 0.0 2.4 2.4 $0 $3,667 $3,6672012 0 17 17 0 170 170 0.0 2.3 2.3 $0 $3,773 $3,773Sources: Baker Hughes, Spears and Associates

NORWAY


36

Norwegian independent Pertra is planning to re-develop the 50 million bbl Froy field, with output starting in 2011 at 30,000 bpd from five producing wells, two water injection wells and two water production wells.

UNITED KINGDOM A record-setting total of 150 licenses covering 246 blocks were awarded in late January 2007 following the 24th licensing round that was held in 2006. In all these firms committed to drill 17 exploration and appraisal wells. Experts at Hannon Westwood Associates estimate that about 200 E&A wells have been committed to be drilled over the next three years – and point out that this is a level of E&A activity not seen for about 20 years. UKOOA estimates that UK operating costs now average $9-$10 per boe, compared to $5-$6 per boe three years ago. There were 69 exploration and appraisal wells drilled in 2006 as opposed to 78 in 2005. However, a survey of operators found that some 80 exploration and appraisal wells are forecast to be drilled in 2007. Talisman is currently working on the development of the Tweedsmuir field, which it expects to bring onstream in early 2007. It is also evaluating options for re-developing the Yme oilfield. BG will be the operator for the Jackdaw discovery, which may be onstream by 2012. ConocoPhillips intends to fast-track development of its Jasmine gas condensate field, with field start up targeting 2009 or 2010. The firm is targeting a 2007 start-up of its BritSats project. Venture Production is planning on about five development wells for its Acorn and Beechnut discoveries, with drilling to start in 2009.

Antrim will begin a three well development program on its Causeway field in mid-2007. Nautical Petroleum will develop its Kraken and Mermaid heavy oil structures. Ithaca Energy expects to put together a development plan following its discovery of the Athena oilfield; first oil may be produced in 2008. Gaz de France may bring its Cygnus gas discovery in the UK Southern basin onstream as early as 2008. BP’s Harding Area Gas Project is now scheduled to come onstream in 2010; the platform will be geared to handle 400 mmcfd. BP’s phase 2 development of its Clair heavy oil project has been fast-tracked, with production start-up now targeting 2010.


2000 1 18 18 25 274 299 0.3 2.8 3.0 $35 $2,898 $2,9322001 0 24 24 7 384 391 0.0 3.7 3.7 $10 $4,248 $4,2582002 1 26 26 30 295 325 0.3 2.9 3.2 $46 $3,427 $3,4722003 0 19 20 20 271 290 0.1 2.6 2.7 $30 $3,143 $3,1722004 0 15 16 9 247 256 0.0 2.5 2.5 $14 $2,867 $2,8812005 1 20 21 75 260 335 0.5 2.9 3.3 $126 $3,322 $3,4482006 Q1 2 27 29 26 89 114 0.2 1.0 1.1 $47 $1,247 $1,294 Q2 1 26 27 11 85 96 0.1 0.9 1.0 $19 $1,201 $1,221 Q3 1 25 26 15 80 95 0.1 0.9 1.0 $28 $1,128 $1,156 Q4 1 23 24 15 76 91 0.1 0.8 0.9 $28 $1,064 $1,092

Total 1 25 27 66 330 396 0.4 3.6 4.0 $122 $4,641 $4,7632007 Q1 1 24 25 15 78 93 0.1 0.9 0.9 $30 $1,206 $1,236 Q2 1 23 24 15 75 90 0.1 0.8 0.9 $30 $1,156 $1,186 Q3 1 24 25 15 78 93 0.1 0.9 0.9 $30 $1,206 $1,236 Q4 1 24 25 15 78 93 0.1 0.9 0.9 $30 $1,206 $1,236


UNITED KINGDOM


37

As of Q1 2007 Apache was proceeding with exploration on its 100 million barrel Howgate prospect. Nexen’s Buzzard oilfield came onstream in early 2007. To-date a total of nine production and five injection wells have been drilled; an additional 18 producers and six injection wells are to be drilled. Nexen’s Ettrick field is to start production in late 2007 using three development and two injection wells. The company is evaluating development options for its recent Golden Eagle discovery located near Ettrick; it could be onstream by 2009. ATP will develop the Cheviot oilfield using 15 to 20 wells and a gravity based structure. Start-up is targeting late 2008.

EUROPE - OTHERS Bulgaria Melrose Resources will begin drilling the first of what may ultimately be five exploration wells in the Bulgaria sector of the Black Sea in Q2 2007. Hungary Falcon Oil and Gas is developing the Mako Trough gas field.


2000 29 2 31 488 35 523 2.2 0.3 2.6 $671 $419 $1,0892001 30 2 32 558 38 596 2.8 0.3 3.1 $798 $476 $1,2742002 26 2 29 461 30 491 2.2 0.3 2.5 $671 $384 $1,0552003 30 2 32 416 24 440 2.0 0.2 2.2 $667 $313 $9792004 24 2 26 442 25 467 2.0 0.2 2.3 $655 $319 $9742005 19 2 21 393 25 418 1.9 0.2 2.1 $681 $331 $1,0122006 Q1 20 2 22 104 5 109 0.5 0.0 0.6 $209 $60 $269 Q2 18 3 21 103 6 109 0.5 0.1 0.6 $208 $87 $295 Q3 19 3 22 100 7 107 0.5 0.1 0.6 $202 $120 $322 Q4 22 1 23 110 4 114 0.6 0.0 0.6 $235 $56 $291

Total 20 2 22 417 22 439 2.1 0.2 2.3 $853 $324 $1,1772007 Q1 19 1 20 107 4 110 0.6 0.0 0.6 $250 $56 $306 Q2 19 1 20 104 4 108 0.5 0.0 0.6 $238 $61 $299 Q3 20 2 22 103 5 107 0.5 0.0 0.5 $229 $76 $306 Q4 20 2 22 103 5 107 0.5 0.0 0.5 $229 $76 $305

Total 20 2 21 416 17 432 2.1 0.2 2.3 $946 $270 $1,2162008 20 2 21 420 17 437 2.1 0.2 2.3 $1,008 $292 $1,3002009 20 2 22 424 17 441 2.1 0.2 2.3 $1,074 $311 $1,3852010 20 2 22 424 17 442 2.1 0.2 2.3 $1,129 $327 $1,4562011 20 2 21 421 17 438 2.1 0.2 2.3 $1,171 $337 $1,5082012 20 2 21 418 17 435 2.1 0.2 2.3 $1,215 $348 $1,563Sources: Baker Hughes, Spears and Associates

EUROPE - OTHERS


38

AFRICA Drilling activity in Africa as measured by Baker Hughes saw a total of 113 active rigs during January 2007, up 43% (34 rigs) compared to the year-ago period. As measured by MI Swaco, Africa rig count stood at 300 active units in January 2007, up 23% (56 rigs) from January 2006. (MI Swaco routinely reports 160%-200% more rigs than Baker Hughes in Africa, largely due to definitional differences and the fact that Baker Hughes no longer reports rig activity in the Sudan).

Africa Rig Count

40

60

80

100

120

.

2000 2001 2002 2003 2004 2005 2006

BH

I

100

150

200

250

300

MI S

wac

o

BHI

MI Swaco

We expect that drilling activity in Africa will increase 18% in 2007 to an average of 111 active rigs(as measured by Baker Hughes), accounting for 1,394 wells and 10.6 million feet of hole. Onshore activity is projected to see

an average of 85 active land rigs accounting for 1,064 new wells and 7.7 million feet of hole. Offshore rig count in Africa is expected to increase 13% to an average of 26 active rigs, 330 new wells, and 2.9 million feet of hole. We project that spending will grow 23% in 2007 to a total of $10.8 billion to drill and equip new wells.

Increased drilling in North Africa is expected to drive the overall regional increase in activity over the coming year. In Algeria, Sonatrach is increasing its E&P activity. Libya will see a number of operators start exploration work over the next 12-24 months. In Egypt onshore gas development activity is on the rise while offshore deepwater drilling is holding steady. Offshore drilling is expected to hold steady in West Africa in Nigeria and Angola as major operators remain on course with exploration and development programs. Elsewhere in Africa, numerous small-scale exploration and development projects are taking place in Gabon, Equatorial Guinea, Mozambique, Mauritania, and South Africa.


2000 38 26 64 457 246 702 3.8 2.2 6.0 $1.1 $3.6 $4.72001 47 31 78 507 263 771 4.3 2.4 6.7 $1.3 $4.0 $5.42002 55 29 85 692 295 986 5.6 2.7 8.3 $2.0 $4.7 $6.72003 61 26 87 744 316 1,060 5.8 2.8 8.6 $2.2 $5.1 $7.32004 67 24 91 755 292 1,047 5.4 2.6 8.0 $2.3 $4.5 $6.92005 76 20 96 795 278 1,074 5.7 2.5 8.2 $2.8 $4.7 $7.52006 Q1 64 20 84 219 61 279 1.6 0.6 2.1 $0.8 $1.2 $2.0 Q2 63 23 86 215 68 283 1.6 0.6 2.2 $0.8 $1.3 $2.1 Q3 76 24 100 238 74 312 1.7 0.6 2.4 $0.9 $1.4 $2.3 Q4 81 26 108 257 83 341 1.9 0.7 2.6 $1.0 $1.5 $2.5

Total 71 23 94 929 286 1,215 6.7 2.5 9.3 $3.5 $5.3 $8.82007 Q1 87 26 114 277 90 367 2.0 0.7 2.7 $1.1 $1.7 $2.8 Q2 85 27 112 265 86 351 1.9 0.7 2.7 $1.1 $1.7 $2.8 Q3 84 25 109 259 79 338 1.9 0.7 2.6 $1.0 $1.6 $2.7 Q4 85 24 109 263 74 338 1.9 0.7 2.6 $1.1 $1.5 $2.6


AFRICA


39

Leading Indicators of Drilling Activity IHS Energy’s count of active seismic crews in Africa in January 2007 was up 41% compared to the year-ago period. Seismic surveying is up sharply in Libya (which accounts for about 35% of total regional activity) as several operators are currently working on new exploration licenses.

Africa Seismic Crew Count

15

20

25

30

35

40

45

50

.

2003 2004 2005 2006 .Source: IHS


40

ALGERIA First Calgary has won approval for its proposed $1.3 billion development of its MLE gasfield on block 405b. First production is expected in late 2009. Rosneft will develop its block 245 South prospect in the Illizi basin. It is estimated that development cost will reach $1.3 billion.

PetroVietnam and PTTEP have a $3 billion plan to develop blocks 433a and 416b, with commercial production to begin in 2009. Anadarko will develop its four oil discoveries on block 208 with about 100 new wells. The block is to produce about 100,000 bpd as of 2008.

ANGOLA The government’s “queue system” for approving new field development has meant a slower but more orderly process. Chevron is targeting first oil from its Negage field in block 14 in 2010 or beyond. The nearby heavy-oil Gabela field is also expected to see start-up in the same timeframe. A third discovery in block 14, Lucapa, is being studied from development.

On block 15, ExxonMobil is developing the Mondo oilfield, with startup in 2007 producing 120,000 bpd. The Saxi/Batuque field is expected to be onstream in 2007 or 2008 using a larger subsea production system. The company could


2000 15 0 15 139 0 139 1.3 0.0 1.3 $380 $0 $3802001 20 0 20 149 0 149 1.7 0.0 1.7 $427 $0 $4272002 19 0 20 175 0 175 1.9 0.0 1.9 $527 $0 $5272003 20 0 20 190 0 190 1.9 0.0 1.9 $573 $0 $5732004 19 0 19 77 0 78 0.7 0.0 0.7 $234 $0 $2342005 20 1 21 51 2 53 0.5 0.0 0.5 $169 $22 $1912006 Q1 21 0 21 21 0 21 0.2 0.0 0.2 $78 $0 $78 Q2 21 0 21 21 0 21 0.2 0.0 0.2 $78 $0 $78 Q3 28 0 28 28 0 28 0.2 0.0 0.2 $101 $0 $101 Q4 27 0 27 27 0 27 0.2 0.0 0.2 $99 $0 $99

Total 24 0 24 97 0 97 0.9 0.0 0.9 $355 $0 $3552007 Q1 25 0 25 25 0 25 0.2 0.0 0.2 $100 $0 $100 Q2 25 0 25 25 0 25 0.2 0.0 0.2 $100 $0 $100 Q3 27 0 27 27 0 27 0.2 0.0 0.2 $108 $0 $108 Q4 27 0 27 27 0 27 0.2 0.0 0.2 $108 $0 $108


ALGERIA


2000 0 6 6 0 79 79 0.0 0.8 0.8 $0 $1,300 $1,3002001 0 5 5 0 76 76 0.0 0.7 0.7 $0 $1,290 $1,2902002 0 5 5 0 84 84 0.0 0.8 0.8 $0 $1,512 $1,5122003 0 4 4 2 61 63 0.0 0.6 0.6 $23 $1,095 $1,1182004 0 3 3 6 42 48 0.0 0.4 0.4 $0 $759 $7592005 0 3 3 1 41 42 0.0 0.4 0.4 $0 $813 $8132006 Q1 0 4 4 0 15 15 0.0 0.1 0.1 $0 $321 $321 Q2 0 4 4 0 16 16 0.0 0.2 0.2 $0 $347 $347 Q3 0 4 4 0 15 15 0.0 0.1 0.1 $0 $321 $321 Q4 0 4 4 0 16 16 0.0 0.2 0.2 $0 $347 $347

Total 0 4 4 0 62 62 0.0 0.6 0.6 $0 $1,335 $1,3352007 Q1 3 3 6 3 12 15 0.0 0.1 0.1 $0 $286 $286 Q2 2 4 6 2 16 18 0.0 0.2 0.2 $0 $382 $382 Q3 2 4 6 2 16 18 0.0 0.2 0.2 $0 $382 $382 Q4 1 4 5 1 16 17 0.0 0.2 0.2 $0 $382 $382


ANGOLA


41

also develop up to five other discoveries – Mavacola, Bavuca, Kakocha, Mbulumbumba, and Vicango - as subsea tie-backs to the Kozomba A and B fields. Appraisal drilling is planned for the Clochas and Tchihumba discoveries. BP’s Greater Plutonio development in block 18 off Angola is expected to involve up to 45 subsea wells. BP’s ultra-deepwater block 31 Northeast discoveries – Marte, Plutao, Saturno, Venues – could see 37 development wells drilled targeting initial production of 180,000 bpd by late 2009. A third development hub, in the southeastern part of block 31 involving the Ceres, Hebe Palas, Juno, and Astrea finds, is likely some time after 2010. Another development, this time in the western part of block 18 involving the Cesio, Chumbo, and Platina discoveries, is under consideration. Total is now targeting first oil from its 230,000 bpd Pazflor project involving four fields - Acacia, Perpetue, Hortensia, and Zinia - on block 17 by 2011. It is also studying options for developing the CLOV complex – comprised of the Cravo, Lirio, Orquidea, and Violeta fields. Also, tentative plans call for Total’s first development on ultra-deepwater block 32 – the so-called GCG project - to start production in the 2010 to 2012 timeframe. A second development on block 32 now looks to be in the works with the recent Manjericao and Caril discoveries.

EGYPT Burullus Gas is currently working on phase four development of its WDDM (West Delta Deep Marine) concession. The project involves eight subsea wells on the Scarab, Sinbad, and Serpent fields. Phase four should be onstream in 2009. In all, WDDM field development could ultimately hold a total of 60 subsea wells. Apache reported a successful test of a wildcat located north of its Qasr gas field in the Western Desert. Its subsidiary, Khalda Petroleum, is building a another train at its Salam natural gas processing plant to expand output from the Khalda field, where it has already completed 34 producing wells. BG is currently involved in phase three development of its Rosetta concession offshore Egypt.

Melrose Resources plans to drill about 23 exploratory and development wells in 2007 as part of a plan to lift oil production to 22,500 bpd by the end of the year. Most of the drilling will be at its El Mansoura concession in the Nile Delta. Amerada Hess plans to develop its deepwater fields on the West Mediterranean concession; work is to involve nine development wells in the initial phase (five of which have already been drilled) targeting production start-up in the second half of 2009.


2000 12 6 18 149 53 202 1.3 0.5 1.8 $339 $598 $9372001 14 8 22 127 64 191 1.1 0.7 1.7 $303 $758 $1,0612002 17 6 23 171 45 216 1.3 0.5 1.8 $429 $565 $9942003 19 8 26 206 61 266 1.6 0.6 2.2 $516 $754 $1,2702004 19 9 28 223 75 298 1.8 0.8 2.5 $560 $928 $1,4882005 22 7 29 256 62 318 2.0 0.6 2.7 $706 $855 $1,5612006 Q1 27 6 32 67 11 78 0.5 0.1 0.6 $203 $172 $374 Q2 26 9 34 64 17 82 0.5 0.2 0.7 $195 $262 $457 Q3 31 7 38 77 15 91 0.6 0.1 0.8 $233 $220 $453 Q4 32 8 39 79 15 95 0.6 0.2 0.8 $241 $232 $473

Total 29 7 36 287 59 346 2.3 0.6 2.9 $872 $885 $1,7572006 Q1 35 8 43 88 16 104 0.7 0.2 0.9 $292 $265 $557 Q2 36 8 44 90 16 106 0.7 0.2 0.9 $301 $265 $566 Q3 36 9 45 90 18 108 0.7 0.2 0.9 $301 $298 $599 Q4 37 9 46 93 18 111 0.7 0.2 0.9 $309 $298 $607


EGYPT


42

LIBYA The oil ministry hopes that exploration drilling will reach 50 wells per year. NOC finalized three exploration deals with Wintershall, Inpex, and PetroCanada in early 2007. ExxonMobil was awarded four blocks in offshore contract area #20 in January 2007. The company is already in the early stages of an exploration program in offshore contract area 44.

RWE-DEA will drill at least 10 wells on its six exploration blocks in Libya between 2006 and 2008. Woodside plans to drill 13 onshore and four offshore exploration wells between mid 2006 and the end of 2008.

Amerada Hess plans to drill exploratory wells in 2007 and 2008 on block 54 in Libya’s deep Mediterranean waters. Oxy plans to drill 27 exploration wells in the Sirte, Murzuq, and Cyrenaica region between Q4 2006 and the end of 2008. Wintershall plans to spend $400 million and exploration and field development work in Libya over the 2005-2007 timeframe.

NIGERIA Nigeria’s upcoming general election may delay a number of Nigerian oil and gas field development projects now in the planning stage. Chevron is planning to develop its $2.4 billion deepwater Nsiko discovery in block 249, with first oil due by 2012. The Sasol-Chevron Escravos GTL project is being developed, with start-up projected for 2009. ExxonMobil’s deepwater Bosi field development, in block 209, is expected to require about 25 subsea wells; however, problems in securing subsea risers are believed to push initiation of the project to beyond 2007. Output from its Abang, Oyot, and Itut fields is due by 2008 using at least three and possibly as many as six wellhead platforms. Total is evaluating development options for its Erina discovery on OML-130 that it shares with the Akpo find. Total’s deepwater Akpo project is expected to use a 44-well subsea production system that is to be in production by late 2008. Elsewhere, Total will develop the 500 million barrel Usan/Ukat field on block OPL-222 using 35 subsea wells (20 producers and 15 injectors), with first oil now expected on the 160,000 bpd project in 2011. Phase 2 development of Total’s shallow-water Ofon project is expected to be completed by Q1 2009. A total of 16 producing wells and 17 injection wells are expected to be drilled from three wellhead platforms. Total is also planning to drill eight wells in the Ima field on shallow-water blocks 112 and 117. Total will employ


2000 7 0 7 109 0 109 0.8 0.0 0.8 $271 $0 $2712001 5 0 5 109 0 109 0.7 0.0 0.7 $286 $0 $2862002 9 1 10 135 8 143 0.9 0.1 0.9 $374 $179 $5532003 9 1 10 111 14 126 0.7 0.1 0.9 $308 $311 $6192004 9 1 10 132 8 140 0.8 0.1 0.9 $366 $179 $5452005 8 1 9 114 3 118 0.7 0.0 0.8 $347 $84 $4312006 Q1 9 0 9 32 0 32 0.2 0.0 0.2 $105 $0 $105 Q2 9 0 9 32 0 32 0.2 0.0 0.2 $105 $0 $105 Q3 10 1 10 34 1 35 0.2 0.0 0.2 $114 $37 $151 Q4 11 1 12 39 1 40 0.2 0.0 0.3 $129 $37 $166

Total 10 0 10 135 3 138 0.9 0.0 0.9 $453 $75 $5282007 Q1 11 1 12 39 2 41 0.2 0.0 0.3 $142 $59 $200 Q2 12 1 13 42 2 44 0.3 0.0 0.3 $155 $59 $213 Q3 12 0 12 42 0 42 0.3 0.0 0.3 $155 $0 $155 Q4 13 0 13 46 0 46 0.3 0.0 0.3 $167 $0 $167

Total 12 1 13 168 4 172 1.1 0.0 1.1 $618 $117 $7362008 13 1 14 185 4 189 1.2 0.0 1.2 $714 $136 $8502009 15 1 15 203 5 208 1.3 0.0 1.3 $825 $157 $9822010 15 1 16 213 5 219 1.4 0.1 1.4 $909 $173 $1,0822011 16 1 17 224 5 229 1.4 0.1 1.5 $1,003 $190 $1,1932012 17 1 18 235 6 241 1.5 0.1 1.6 $1,105 $210 $1,315Sources: Baker Hughes, Spears and Associates

LIBYA


43

one or two land rigs for work onshore at its OML 58 block during 2008 and 2009.

Shell has started work on its shallow-water H-block development which is due onstream by 2009 at the earliest; the area is expected to produce 140,000 bpd and 460 mmcfd. Shell’s Bonga Southwest-Aparo field development will involve 34 subsea wells; plans call for the field to be put onstream in 2008, but the project is currently experiencing administrative delays.

SUDAN Petronas Carigali and Sudapet plan to spend $130 million to drill three wildcats in 2007 on block 5B, with additional exploration drilling to take place in 2008 and 2009.

Petrodar has started up production on block 3 from the Palogue, Adar-Yale, and Agordeed fields, as well as other fields in block 7. Production from these areas is expected to increase to 300,000 bpd in the future. CNPC is developing the Neem prospect on block 4 and the Abu Gabra and Bashair fields in block 6, where production will eventually reach 200,000 bpd.


2000 1 7 8 23 66 89 0.2 0.6 0.8 $88 $1,110 $1,1982001 2 9 12 36 73 109 0.3 0.6 1.0 $144 $1,296 $1,4402002 3 9 12 44 72 116 0.4 0.6 1.0 $184 $1,335 $1,5192003 2 8 10 28 77 104 0.2 0.7 0.9 $122 $1,489 $1,6122004 1 7 8 14 72 85 0.1 0.7 0.8 $59 $1,397 $1,4562005 2 7 9 26 67 94 0.2 0.6 0.9 $128 $1,443 $1,5712006 Q1 2 8 10 8 18 26 0.1 0.2 0.2 $43 $417 $460 Q2 1 7 9 5 17 22 0.0 0.2 0.2 $28 $396 $423 Q3 1 9 10 5 21 26 0.0 0.2 0.2 $28 $488 $515 Q4 2 8 10 8 18 26 0.1 0.2 0.2 $43 $417 $460

Total 2 8 10 26 73 99 0.2 0.7 0.9 $141 $1,718 $1,8582007 Q1 3 6 9 12 14 26 0.1 0.1 0.2 $70 $358 $428 Q2 2 8 10 7 18 25 0.1 0.2 0.2 $40 $477 $517 Q3 1 8 9 4 18 22 0.0 0.2 0.2 $23 $477 $500 Q4 2 8 10 7 18 25 0.1 0.2 0.2 $40 $477 $517


NIGERIA


2000 NA NA NA 23 0 23 0.2 0.0 0.2 $109 $0 $1092001 4 0 4 48 0 48 0.3 0.0 0.3 $213 $0 $2132002 4 0 4 70 0 70 0.5 0.0 0.5 $325 $0 $3252003 7 0 7 117 0 117 0.7 0.0 0.7 $457 $0 $4572004 14 0 14 215 0 215 1.4 0.0 1.4 $910 $0 $9102005 18 0 18 255 0 255 1.7 0.0 1.7 $1,188 $0 $1,1882006 Q1 NA NA NA 65 0 65 0.4 0.0 0.4 $327 $0 $327 Q2 NA NA NA 65 0 65 0.4 0.0 0.4 $327 $0 $327 Q3 NA NA NA 65 0 65 0.4 0.0 0.4 $327 $0 $327 Q4 NA NA NA 65 0 65 0.4 0.0 0.4 $327 $0 $327

Total NA NA NA 260 0 260 1.7 0.0 1.7 $1,309 $0 $1,3092007 Q1 NA NA NA 65 0 65 0.4 0.0 0.4 $360 $0 $360 Q2 NA NA NA 65 0 65 0.4 0.0 0.4 $360 $0 $360 Q3 NA NA NA 65 0 65 0.4 0.0 0.4 $360 $0 $360 Q4 NA NA NA 65 0 65 0.4 0.0 0.4 $360 $0 $360

Total NA NA NA 260 0 260 1.7 0.0 1.7 $1,440 $0 $1,4402008 NA NA NA 280 0 280 1.8 0.0 1.8 $1,660 $0 $1,6602009 NA NA NA 280 0 280 1.8 0.0 1.8 $1,743 $0 $1,7432010 NA NA NA 280 0 280 1.8 0.0 1.8 $1,830 $0 $1,8302011 NA NA NA 280 0 280 1.8 0.0 1.8 $1,922 $0 $1,9222012 NA NA NA 280 0 280 1.8 0.0 1.8 $2,018 $0 $2,018Sources: Baker Hughes, Spears and Associates

SUDAN


44

AFRICA - OTHERS Niger CNPC is testing the Saha-1 wildcat in Niger’s Tenere permit. A wildcat is to be drilled on the West Fachi prospect later in 2007. CNPC and others are bidding to take over the 350 million barrel Agadem find which ExxonMobil abandoned last year after development talks with the government went nowhere.

Tunisia BG and Etap are planning to develop their Hasdrubal gas field located on the Amilcar exploration permit. Senegal Several operators, including Hunt Oil, Edison, Al Thani, Tullow Oil, Fortesa, and Maurel & Prom, have acquired offshore acreage and have started exploration programs. South Africa South Africa will hold a licensing round covering four offshore basins in 2007. At least 20 blocks will be on offer. Phase 1 of Forest Oil’s proposed offshore Ibhubesi gas project would see production start-up in 2009 via 19 subsea wells. Gabon CNR proposes to develop the Olowi offshore oil and gas field with production beginning in 2009; output is expected to plateau at 20,000 bpd. Equatorial Guinea Devon may develop the Venus discovery in offshore block P in 2008. Mozambique Sasol plans to drill 14 development wells in 2007 on its Pande gas field. Congo Equipment delays look to force the start-up of Total’s Moho/Bilondo field located in the Haute Mer block to the back half of 2008. Cost overruns are pushing up project costs beyond the planned $1.6 billion budget.


2000 2 8 10 37 70 107 0.3 0.5 0.8 $71 $753 $8242001 2 8 11 87 72 160 0.6 0.6 1.2 $170 $872 $1,0412002 2 9 11 97 85 181 0.7 0.7 1.3 $208 $1,085 $1,2932003 5 5 11 90 104 194 0.6 0.8 1.5 $205 $1,416 $1,6212004 5 4 8 88 95 183 0.6 0.7 1.3 $219 $1,270 $1,4892005 5 3 8 93 102 195 0.6 0.8 1.4 $252 $1,456 $1,7082006 Q1 5 3 8 26 17 43 0.2 0.1 0.3 $76 $275 $351 Q2 6 3 8 28 18 46 0.2 0.1 0.3 $83 $248 $331 Q3 6 4 10 29 23 52 0.2 0.2 0.4 $88 $303 $390 Q4 9 6 16 40 33 72 0.3 0.2 0.5 $124 $495 $619

Total 7 4 10 123 90 213 0.8 0.6 1.5 $370 $1,321 $1,6922007 Q1 10 8 19 46 46 92 0.3 0.3 0.6 $152 $703 $855 Q2 8 6 14 34 34 68 0.2 0.2 0.5 $112 $560 $672 Q3 6 4 10 29 27 56 0.2 0.2 0.4 $94 $463 $557 Q4 5 3 8 26 22 48 0.2 0.2 0.3 $84 $366 $450


AFRICA - OTHERS


45

MID EAST Drilling activity in the Mid East as measured by Baker Hughes saw a total of 203 active rigs during January 2007, up 21% (35 rigs) compared to the year-ago period. As measured by MI Swaco, Mid East rig count stood at 331 active units in January 2007, up 21% (57 rigs) from January 2006. (MI Swaco routinely reports about 60% more rigs than Baker Hughes in the Mid East, largely due to definitional differences and the fact that Baker Hughes no longer reports rig activity in Iran).

Mid East Rig Count

120

140

160

180

200

220

.

2000 2001 2002 2003 2004 2005 2006

BH

I

100

150

200

250

300

350

MI S

wac

o

BHI

MI Swaco

In the revised forecast, we expect that drilling activity in the Mid East will increase 13% in 2007 to an average of 214 active rigs (as measured by Baker Hughes), accounting for 2,192 wells and 17.7 million feet of hole. Onshore activity is projected to see an average of 192 active land rigs accounting for

2,024 new wells and 16.0 million feet of hole. Offshore rig count in the Mid East is expected to remain unchanged at an average of 22 active rigs, 168 new wells, and 1.7 million feet of hole. We project that spending will grow 28% in 2007 to a total of $13.2 billion to drill and equip new wells.

The primary driver of increased drilling over the coming year will be Saudi Arabia as the Kingdom starts to put in place a 15% increase in crude output capacity; by the end of 2007 it plans to increase its fleet of drilling rigs by 25% in order to address its major field development projects including Manifa, Khurais, Marjan, Zuluf, Safaniya, Abu Hadriyah, Harach, Shaybah, and Nuayyim. The other major oil exporters in the region will also be active in 2007. In Oman, PDO is looking to EOR projects to stabilize oil output, and may soon approve its first tight gas field development project. Abu Dhabi is seeking a major boost in gas output by 2008. Yemen has reworked contract terms and is poised to announce the winners of its most recent acreage tender round. Maersk is working on a large field expansion project in Qatar.


2000 119 15 134 1,196 106 1,303 7.8 0.8 8.6 $3.1 $1.1 $4.22001 127 24 150 1,138 145 1,283 8.8 1.3 10.1 $3.4 $1.6 $4.92002 138 31 168 1,236 166 1,402 9.5 1.8 11.3 $3.9 $1.8 $5.82003 147 23 170 1,364 136 1,500 10.2 1.3 11.6 $4.2 $1.7 $5.92004 156 25 181 1,334 147 1,481 10.5 1.5 12.0 $4.2 $1.8 $5.92005 167 27 193 1,429 179 1,608 11.2 1.7 12.9 $5.1 $2.3 $7.52006 Q1 149 23 172 394 45 439 3.1 0.5 3.5 $1.7 $0.7 $2.3 Q2 162 21 183 431 40 471 3.4 0.4 3.8 $1.9 $0.6 $2.5 Q3 175 22 197 462 42 504 3.6 0.4 4.1 $2.1 $0.6 $2.7 Q4 183 21 204 480 40 520 3.8 0.4 4.2 $2.2 $0.6 $2.8

Total 167 22 189 1,766 167 1,933 13.9 1.7 15.6 $7.8 $2.5 $10.32007 Q1 184 20 204 481 39 520 3.8 0.4 4.2 $2.5 $0.6 $3.1 Q2 190 22 212 501 42 542 4.0 0.4 4.4 $2.6 $0.7 $3.3 Q3 197 23 220 522 43 565 4.1 0.4 4.6 $2.7 $0.7 $3.4 Q4 197 24 221 521 45 565 4.1 0.4 4.6 $2.7 $0.7 $3.4


MID EAST


46

Leading Indicators of Drilling Activity IHS Energy’s count of active seismic crews in the Mid East in January 2007 was up 13% from the year-ago period.

Mid East Seismic Crew Count

10

15

20

25

30

35

40

.

2003 2004 2005 2006 .

Source: IHS


47

ABU DHABI Adnoc is soliciting proposals to develop its offshore sour gas reserves to supply its domestic market. The country has over 200 TCF of mostly sour gas reserves. The company plans to produce 6 bcfd of gas by 2008, up from 4.5 bcfd at present. Zadco is developing the offshore Umm al-Lulu oilfield that is aimed at producing 100,000 bpd initially. Project cost is estimated at $1.5 billion.

Sinochem is developing the offshore Umm-al-Quwain gas field. Production start-up is expected by the end of 2007.

Other UAE development plans include: the Lower Zakum and Umm Shaif offshore fields, to increase output from 470,000 bpd to 600,000 bpd by 2008; and the Habshan onshore gas development project, where ADCO will drill 22 new gas wells and 12 new injection wells.

IRAN Iran’s third licensing round will take place in 2007; it will include 17 blocks, mostly onshore. ENI and NIOC have been considering a third stage at the Darkhovin oilfield that would nearly double output to 300,000 bpd. Even so, the partners are already considering a fourth stage that would lift output to 400,000 bpd. Working has begun on stage two, in which 29 new wells are planned.


2000 7 4 11 64 16 80 0.7 0.2 0.8 160$ 252$ 412$ 2001 8 6 14 65 22 87 0.6 0.2 0.8 169$ 369$ 538$ 2002 9 6 14 70 22 92 0.6 0.2 0.9 193$ 382$ 575$ 2003 9 5 14 75 20 95 0.7 0.2 0.9 207$ 340$ 548$ 2004 10 4 14 77 16 93 0.7 0.2 0.9 213$ 278$ 491$ 2005 9 4 13 80 25 105 0.7 0.3 1.0 243$ 476$ 719$ 2006 Q1 9 5 14 20 8 27 0.2 0.1 0.3 66$ 158$ 223$ Q2 9 5 14 20 8 27 0.2 0.1 0.3 66$ 158$ 223$ Q3 9 5 14 20 7 27 0.2 0.1 0.3 66$ 148$ 214$ Q4 9 6 15 20 9 28 0.2 0.1 0.3 66$ 180$ 246$

Total 9 5 14 79 31 110 0.7 0.3 1.0 263$ 643$ 906$ 2007 Q1 9 5 14 20 8 27 0.2 0.1 0.3 72$ 173$ 246$ Q2 9 5 14 20 8 27 0.2 0.1 0.3 72$ 173$ 246$ Q3 9 5 14 20 8 28 0.2 0.1 0.3 72$ 184$ 256$ Q4 9 5 14 20 8 28 0.2 0.1 0.3 72$ 184$ 256$

Total 9 5 14 79 31 110 0.7 0.3 1.0 290$ 714$ 1,004$ 2008 9 5 14 81 32 112 0.7 0.3 1.1 310$ 765$ 1,075$ 2009 9 5 15 82 32 115 0.8 0.3 1.1 332$ 819$ 1,152$ 2010 9 5 15 82 32 115 0.8 0.3 1.1 349$ 860$ 1,209$ 2011 9 5 14 80 31 112 0.7 0.3 1.1 357$ 881$ 1,238$ 2012 9 5 14 78 31 109 0.7 0.3 1.0 366$ 901$ 1,267$ Sources: Baker Hughes, Spears and Associates

ABU DHABI


2000 24 3 27 141 11 152 1.1 0.1 1.2 407$ 150$ 557$ 2001 24 6 30 120 20 141 0.9 0.2 1.1 357$ 292$ 649$ 2002 25 8 34 112 25 137 0.8 0.2 1.0 347$ 380$ 727$ 2003 28 7 35 94 29 124 0.7 0.2 0.9 309$ 463$ 771$ 2004 32 9 41 140 36 176 1.0 0.3 1.3 481$ 592$ 1,073$ 2005 32 8 40 143 45 188 1.1 0.4 1.4 539$ 820$ 1,359$ 2006 Q1 NA NA NA 35 10 45 0.3 0.1 0.3 146$ 194$ 340$ Q2 NA NA NA 35 10 45 0.3 0.1 0.3 146$ 194$ 340$ Q3 NA NA NA 35 10 45 0.3 0.1 0.3 146$ 194$ 340$ Q4 NA NA NA 35 10 45 0.3 0.1 0.3 146$ 194$ 340$

Total NA NA NA 140 40 180 1.0 0.3 1.3 582$ 777$ 1,359$ 2007 Q1 NA NA NA 35 10 45 0.3 0.1 0.3 160$ 214$ 374$ Q2 NA NA NA 35 10 45 0.3 0.1 0.3 160$ 214$ 374$ Q3 NA NA NA 35 10 45 0.3 0.1 0.3 160$ 214$ 374$ Q4 NA NA NA 35 10 45 0.3 0.1 0.3 160$ 214$ 374$

Total NA NA NA 140 40 180 1.0 0.3 1.3 641$ 854$ 1,495$ 2008 NA NA NA 140 40 180 1.0 0.3 1.3 673$ 897$ 1,570$ 2009 NA NA NA 140 40 180 1.0 0.3 1.3 706$ 942$ 1,648$ 2010 NA NA NA 140 40 180 1.0 0.3 1.3 742$ 989$ 1,731$ 2011 NA NA NA 140 40 180 1.0 0.3 1.3 779$ 1,038$ 1,817$ 2012 NA NA NA 140 40 180 1.0 0.3 1.3 818$ 1,090$ 1,908$ Sources: Baker Hughes, Spears and Associates

IRAN


48

KUWAIT KOC has made two large oil and gas finds in the north of the country, containing an estimated 35 tcf of gas. Another southeast field that has recently been discovered is expected to be onstream by the end of 2007 and producing 50,000 bpd.

OMAN BP has been awarded development of the Khazzan-Makarem tight gas field, which is estimated by authorities to hold up to 20 TCF of gas. Output is

expected to start up in 2011 at 200 mmcfd in order to meet domestic needs. BP intends to spend up to $700 million over the next three to four years to appraise the property.

Medco Energi (Indonesia) will develop a cluster of 18 small oilfields in the Nimr-Karim area on block 6 that currently produce 18,000 bpd. Similarly, PDO has put out for bid a service contract for several small fields in the Rima area. Bids are due in early 2007. PDO has begun work on an EOR project for its extra-heavy Marmul oilfield on block 6 involving the injection of polymers and waterflooding. The project is to be completed in 2008. Daleel Petroleum expects to spend $450 million on a five year work program using water injection to double output from block 5 to 30,000 bpd by 2012. About 20 wells per year are to be drilled in the field. A mix of ESPs and beam


2000 12 0 12 141 0 141 0.7 0.0 0.7 110$ -$ 110$ 2001 9 0 9 104 0 104 0.8 0.0 0.8 131$ -$ 131$ 2002 6 0 6 73 0 73 0.6 0.0 0.6 96$ -$ 96$ 2003 5 0 5 66 0 66 0.5 0.0 0.5 87$ -$ 87$ 2004 10 0 10 71 0 71 0.6 0.0 0.6 94$ -$ 94$ 2005 12 0 12 75 0 75 0.6 0.0 0.6 108$ -$ 108$ 2006 Q1 12 0 12 18 0 18 0.1 0.0 0.1 30$ -$ 30$ Q2 13 0 13 20 0 20 0.2 0.0 0.2 31$ -$ 31$ Q3 14 0 14 21 0 21 0.2 0.0 0.2 34$ -$ 34$ Q4 15 0 15 22 0 22 0.2 0.0 0.2 35$ -$ 35$

Total 14 0 14 81 0 81 0.7 0.0 0.7 130$ -$ 130$ 2007 Q1 16 0 16 24 0 24 0.2 0.0 0.2 42$ -$ 42$ Q2 15 0 15 23 0 23 0.2 0.0 0.2 40$ -$ 40$ Q3 15 0 15 23 0 23 0.2 0.0 0.2 40$ -$ 40$ Q4 16 0 16 24 0 24 0.2 0.0 0.2 42$ -$ 42$

Total 16 0 16 93 0 93 0.7 0.0 0.7 164$ -$ 164$ 2008 16 0 16 95 0 95 0.8 0.0 0.8 175$ -$ 175$ 2009 16 0 16 97 0 97 0.8 0.0 0.8 188$ -$ 188$ 2010 16 0 16 97 0 97 0.8 0.0 0.8 197$ -$ 197$ 2011 16 0 16 95 0 95 0.8 0.0 0.8 203$ -$ 203$ 2012 15 0 15 93 0 93 0.7 0.0 0.7 209$ -$ 209$ Sources: Baker Hughes, Spears and Associates

KUWAIT


2000 24 0 24 327 0 327 1.5 0.0 1.5 414$ -$ 414$ 2001 25 0 25 348 0 348 2.5 0.0 2.5 462$ -$ 462$ 2002 29 0 29 399 0 399 2.8 0.0 2.8 557$ -$ 557$ 2003 35 0 35 451 0 451 3.2 0.0 3.2 629$ -$ 629$ 2004 35 0 35 414 0 414 3.7 0.0 3.7 578$ -$ 578$ 2005 34 0 34 405 0 405 3.6 0.0 3.6 622$ -$ 622$ 2006 Q1 34 0 34 99 0 99 0.9 0.0 0.9 167$ -$ 167$ Q2 38 0 38 110 0 110 1.0 0.0 1.0 186$ -$ 186$ Q3 40 0 40 117 0 117 1.0 0.0 1.0 197$ -$ 197$ Q4 41 0 41 120 0 120 1.1 0.0 1.1 202$ -$ 202$

Total 38 0 38 445 0 445 4.0 0.0 4.0 752$ -$ 752$ 2007 Q1 40 0 40 116 0 116 1.0 0.0 1.0 216$ -$ 216$ Q2 42 0 42 122 0 122 1.1 0.0 1.1 226$ -$ 226$ Q3 45 0 45 131 0 131 1.2 0.0 1.2 242$ -$ 242$ Q4 43 0 43 125 0 125 1.1 0.0 1.1 232$ -$ 232$

Total 43 0 43 493 0 493 4.4 0.0 4.4 916$ -$ 916$ 2008 43 0 43 503 0 503 4.5 0.0 4.5 981$ -$ 981$ 2009 44 0 44 513 0 513 4.6 0.0 4.6 1,051$ -$ 1,051$ 2010 45 0 45 523 0 523 4.6 0.0 4.6 1,125$ -$ 1,125$ 2011 46 0 46 534 0 534 4.7 0.0 4.7 1,205$ -$ 1,205$ 2012 47 0 47 544 0 544 4.8 0.0 4.8 1,291$ -$ 1,291$ Sources: Baker Hughes, Spears and Associates

OMAN


49

pumps is to be used on the approximately 150 wells ultimately installed in the field. PDO will develop the Sakhiya-SW and Mamour fields as part of the Harweel field development project. PDO is planning a phase 2 development of its Harweel oilfields. The plan calls for miscible gas injection in seven fields to lift production to 125,000 bpd. PDO is also working on the Qarn Alam steam injection EOR project, which is scheduled to produce up to 30,000 bpd in 2009. Oxy is on schedule to produce 50,000 bpd from the Mukhaizna heavy oilfield by 2008, where it intends to lift oil production to 150,000 bpd by 2012. Plans call for drilling 1,800 new wells and the construction of up to 80 steam plants.

QATAR ExxonMobil and QPC have launched the Barzan gas project designed to supply 1.5 bcfd of gas to Qatar’s domestic market. The project is reported to be similar to ExxonMobil’s Al Khaleej phase 2 gas project which is expected to produce 1.6 bcfd when it comes onstream in 2009 at a cost of $3 billion. Maersk will spend $5 billion to more than double oil production from the offshore Al Shaheen field to 525,000 bpd. Work will involve a six-rig drilling schedule and up to 160 new wells. The expansion is planned for completion by 2009. Sasol expects to start production from its Oryx gas-to-liquids plant in Q1 2007. Qatar Petroleum is to build three new wellhead platforms at the Bul Hanine field where QPC plans to drill 86 new wells over the next 10 years. Other operators currently exploring in Qatar include Anadarko (block 4), Talisman (block 10), EnCana (block 2), and Wintershall (block 11).

SAUDI ARABIA Saudi Aramco has indicated that it will spend almost $4 billion on development well drilling in 2007, an increase of 60%, and another $620 million on exploration. Saudi Aramco will develop plans to exploit the recently-discovered offshore Karan gas field. Karan is expected to produce about 1 bcfd when it comes onstream in 2001-2012. In all, Saudi Aramco’s five-year gas plan calls for drilling 300 development gas wells and more than 70 exploration and appraisal wells. Aramco is to spend $1 billion to product 100,000 bpd from the onshore Nuayyim field.


2000 3 4 6 13 55 68 0.1 0.3 0.4 20$ 304$ 324$ 2001 2 7 9 9 77 86 0.1 0.7 0.8 19$ 506$ 525$ 2002 2 11 13 8 88 96 0.1 1.1 1.1 15$ 581$ 596$ 2003 1 6 8 14 49 64 0.1 0.6 0.7 29$ 326$ 355$ 2004 1 8 9 17 60 77 0.1 0.7 0.9 34$ 397$ 432$ 2005 2 10 12 21 72 93 0.2 0.9 1.1 46$ 523$ 569$ 2006 Q1 2 11 13 6 19 25 0.0 0.2 0.3 15$ 154$ 168$ Q2 2 8 10 6 15 21 0.0 0.2 0.2 15$ 119$ 134$ Q3 2 9 11 7 16 23 0.1 0.2 0.2 17$ 125$ 142$ Q4 2 7 9 5 13 18 0.0 0.2 0.2 12$ 105$ 117$

Total 2 9 11 24 63 87 0.2 0.8 1.0 58$ 503$ 561$ 2007 Q1 1 8 9 3 14 17 0.0 0.2 0.2 8$ 126$ 134$ Q2 2 9 11 6 16 22 0.0 0.2 0.2 16$ 142$ 158$ Q3 2 8 10 6 14 20 0.0 0.2 0.2 16$ 126$ 142$ Q4 2 9 11 6 16 22 0.0 0.2 0.2 16$ 142$ 158$

Total 2 9 10 21 61 82 0.2 0.8 0.9 56$ 538$ 594$ 2008 2 9 11 23 67 90 0.2 0.8 1.0 65$ 621$ 686$ 2009 2 10 12 25 74 99 0.2 0.9 1.1 75$ 717$ 792$ 2010 2 11 14 28 81 109 0.2 1.0 1.2 86$ 828$ 914$ 2011 3 12 15 31 90 120 0.2 1.1 1.3 99$ 957$ 1,056$ 2012 3 14 17 34 99 132 0.3 1.2 1.5 115$ 1,105$ 1,220$ Sources: Baker Hughes, Spears and Associates

QATAR


50

Aramco will complete development of the 500,000 bpd onshore Abu Hadriyah oilfield cluster (the Abu Hadriyah, Khursaniya, and Fadhli fields) in the Eastern Province by Q4 2007. Aramco’s expects to have as many as 125 drilling rigs operating in 2007 and staying at that level through 2012. An $11 billion program to revive the once-mothballed offshore Manifa oilfield has an output target of 900,000 bpd by 2011. New project infrastructure includes building 27 shallow-water drilling islands which should be completed by 2009. Aramco also is working on increasing production from the offshore Marjan, Zuluf, and Safaniya fields to 450,000 bpd from 300,000 bpd. Aramco will increase production capacity from the onshore Shaybah field by 250,000 bpd, with work to be completed in early 2008. The field is currently

producing 500,000 bpd. A follow-on stage that is being considered could take production capacity of the field to 1 million bpd. Aramco also will develop the onshore Khurais field, targeting output of 1.2 million bpd by 2009. The project will include a waterflood for the Kurais, Abu Jifan, and Mazalij fields. The project calls for the use of 23 rigs to drill more than 300 wells.

YEMEN OMV plans to increase production from its S2 block in two phases. First phase of the work is to be completed by 2008, when oil production should reach 16,000 bpd. Phase two will lift output to 32,000 by 2010.


2000 22 4 25 237 18 255 1.9 0.1 2.1 1,444$ 234$ 1,678$ 2001 27 4 30 255 14 269 2.0 0.1 2.2 1,625$ 197$ 1,822$ 2002 29 4 32 297 15 312 2.4 0.1 2.5 1,988$ 211$ 2,199$ 2003 29 3 32 301 28 329 2.4 0.2 2.6 2,012$ 398$ 2,411$ 2004 28 4 32 283 28 311 2.3 0.2 2.5 1,892$ 404$ 2,296$ 2005 34 3 37 348 24 372 2.8 0.2 3.0 2,564$ 378$ 2,942$ 2006 Q1 47 7 54 118 7 125 0.9 0.1 1.0 957$ 116$ 1,073$ Q2 54 6 60 135 6 141 1.1 0.0 1.1 1,093$ 109$ 1,202$ Q3 62 8 70 156 8 163 1.3 0.1 1.3 1,261$ 134$ 1,394$ Q4 68 8 76 170 8 178 1.4 0.1 1.4 1,376$ 139$ 1,515$

Total 58 7 65 579 29 608 4.7 0.2 4.9 4,686$ 498$ 5,184$ 2007 Q1 72 7 79 180 7 187 1.4 0.1 1.5 1,603$ 134$ 1,736$ Q2 75 8 83 188 8 196 1.5 0.1 1.6 1,669$ 153$ 1,822$ Q3 80 9 89 200 9 209 1.6 0.1 1.7 1,781$ 172$ 1,952$ Q4 80 9 89 200 9 209 1.6 0.1 1.7 1,781$ 172$ 1,952$

Total 77 8 85 768 33 801 6.2 0.3 6.4 6,833$ 630$ 7,463$ 2008 78 8 87 783 34 817 6.3 0.3 6.5 7,318$ 674$ 7,993$ 2009 80 9 88 799 34 833 6.4 0.3 6.7 7,838$ 722$ 8,560$ 2010 81 9 90 814 35 849 6.5 0.3 6.8 8,394$ 773$ 9,168$ 2011 83 9 92 831 36 866 6.7 0.3 6.9 8,990$ 828$ 9,819$ 2012 85 9 94 847 36 884 6.8 0.3 7.1 9,629$ 887$ 10,516$ Sources: Baker Hughes, Spears and Associates

SAUDI ARABIA


2000 6 0 6 84 0 84 0.6 0.0 0.6 224$ -$ 224$ 2001 6 0 6 81 0 81 0.5 0.0 0.5 225$ -$ 225$ 2002 9 0 9 108 0 108 0.7 0.0 0.7 318$ -$ 318$ 2003 9 0 9 122 0 122 0.8 0.0 0.8 359$ -$ 359$ 2004 9 0 9 125 0 125 0.8 0.0 0.8 366$ -$ 366$ 2005 12 0 12 142 0 142 0.9 0.0 0.9 459$ -$ 459$ 2006 Q1 13 0 13 40 0 40 0.3 0.0 0.3 142$ -$ 142$ Q2 16 0 16 48 0 48 0.3 0.0 0.3 171$ -$ 171$ Q3 16 0 16 49 0 49 0.3 0.0 0.3 174$ -$ 174$ Q4 16 0 16 49 0 49 0.3 0.0 0.3 174$ -$ 174$

Total 15 0 15 186 0 186 1.2 0.0 1.2 660$ -$ 660$ 2007 Q1 15 0 15 45 0 45 0.3 0.0 0.3 176$ -$ 176$ Q2 16 0 16 48 0 48 0.3 0.0 0.3 188$ -$ 188$ Q3 16 0 16 48 0 48 0.3 0.0 0.3 188$ -$ 188$ Q4 17 0 17 51 0 51 0.3 0.0 0.3 199$ -$ 199$

Total 16 0 16 192 0 192 1.3 0.0 1.3 751$ -$ 751$ 2008 16 0 16 196 0 196 1.3 0.0 1.3 804$ -$ 804$ 2009 17 0 17 200 0 200 1.3 0.0 1.3 861$ -$ 861$ 2010 17 0 17 204 0 204 1.4 0.0 1.4 922$ -$ 922$ 2011 17 0 17 208 0 208 1.4 0.0 1.4 988$ -$ 988$ 2012 18 0 18 212 0 212 1.4 0.0 1.4 1,058$ -$ 1,058$ Sources: Baker Hughes, Spears and Associates

YEMEN


51

MID EAST - OTHERS Syria The Oil Ministry’s 2007 licensing round is expected to include six offshore blocks and up to four onshore blocks. PetroCanada will develop two gas discoveries, Cheriffe and Ash Shaer, estimated to be capable of producing 80 mmcfd, starting in 2010, at a cost of between C$550 and C$800 million. INA will develop its Jihar and Mahr discoveries on the Hayan block with first gas set to come onstream in 2009. It is also developing the Palmyra gas field on this block.

Iraq The Kurdistan Regional Government is protesting Iraq’s proposed hydrocarbons law unless the northern Kurdish region is give sole authority to enter into upstream agreements with international oil companies. Authorities report that 165 new oil wells were drilled in the Basra and Amara fields in southern Iraq in 2006. Drilling activity is expected to increase in 2007 as authorities hope to increase production. Neutral Zone Plans to lift crude production capacity from the Neutral Zone by 100,000 bpd are now expected to be delayed to 2010-2011 due to a shortage of available rigs.


2000 22 1 23 189 7 196 1.3 0.1 1.3 $328 $114 $4422001 26 2 28 156 12 168 1.3 0.1 1.4 $378 $192 $5692002 29 2 31 169 16 185 1.4 0.2 1.6 $431 $285 $7162003 30 1 31 240 10 250 1.8 0.1 1.9 $572 $180 $7532004 31 1 32 207 7 214 1.3 0.1 1.3 $505 $114 $6192005 31 2 33 214 13 227 1.3 0.1 1.4 $560 $128 $6882006 Q1 31 1 32 58 2 59 0.4 0.0 0.4 $174 $30 $204 Q2 30 1 31 57 2 59 0.4 0.0 0.4 $171 $30 $201 Q3 30 1 32 57 2 59 0.4 0.0 0.4 $173 $39 $212 Q4 32 0 32 59 0 59 0.4 0.0 0.4 $179 $0 $179

Total 31 1 32 231 5 236 1.5 0.0 1.5 $696 $99 $7952007 Q1 31 0 31 58 0 58 0.4 0.0 0.4 $196 $0 $196 Q2 31 0 31 60 0 60 0.4 0.0 0.4 $198 $0 $198 Q3 30 1 31 60 2 62 0.4 0.0 0.4 $198 $33 $231 Q4 30 1 31 60 2 62 0.4 0.0 0.4 $197 $33 $230

Total 31 1 31 238 3 241 1.5 0.0 1.5 $789 $66 $8552008 32 1 33 246 3 249 1.6 0.0 1.6 $852 $69 $9222009 34 1 34 244 3 247 1.5 0.0 1.6 $887 $73 $9602010 34 1 35 243 3 246 1.5 0.0 1.6 $923 $77 $1,0002011 34 1 34 241 3 244 1.5 0.0 1.5 $961 $80 $1,0412012 33 1 34 239 3 242 1.5 0.0 1.5 $1,000 $84 $1,084Sources: Baker Hughes, Spears and Associates

MID EAST - OTHERS


52

FAR EAST Drilling activity in the Far East as measured by Baker Hughes saw a total of 233 active rigs during January 2007, up down 3% (eight rigs) compared to the year-ago period. As measured by MI Swaco, Far East rig count stood at 286 active units in January 2007, up 10% (25 rigs) from the January 2006. (Largely due to definitional differences, MI Swaco routinely reports 15%-20% more rigs than Baker Hughes in the Far East; the January 2007 differential was 23%, in percentage terms the largest differential since early 2004).

Far East Rig Count

125

150

175

200

225

250

275

.

2000 2001 2002 2003 2004 2005 2006

BH

I

150

175

200

225

250

275

300

MI S

wac

o

BHI

MI Swaco

In our revised forecast we expect that drilling activity in the Far East will rise 2% in 2007, averaging 232 active rigs (as measured by Baker Hughes), accounting for 2,890 wells and 20.5 million feet of hole. Offshore rig count in

the Far East is expected to rise 2% to an average of 94 active rigs, accounting for 1,170 new wells, and 12.0 million feet of hole. Onshore activity is projected to rise 1% to an average of 138 active land rigs resulting in 1,720 new wells and 8.5 million feet of hole. We project that spending will grow 13% in 2007 to a total of $23.6 billion to drill and equip new wells in this region. The region’s two largest drillers, India and Indonesia, are expected to increase their drilling activity in 2007. In India, Reliance has doubled the scope of its planned offshore deepwater gas field development and Cairn is carrying out a large onshore multi-field development. In Indonesia the government continues to look for ways to encourage operators to increase exploration activity and increase rehabilitation of older, marginal fields in order to stabilize oil production.

Elsewhere in the region offshore activity will hold steady overall. Pakistan’s offshore sector will see BP and Shell undertaking exploratory programs in the coming year. Offshore field development in Malaysia, Brunei, and Myanmar will hold steady. Operators in Australia are continuing to work on several offshore gas field development projects. However, offshore activity in New Zealand will decline as field development work winds down and activity in Vietnam looks to slow as exploratory drilling eases back.


2000 93 48 140 1,361 704 2,065 6.0 6.4 12.4 $3.7 $6.5 $10.22001 105 50 155 1,355 748 2,104 6.4 6.7 13.1 $4.1 $6.9 $11.02002 118 56 174 1,490 730 2,219 6.5 6.8 13.3 $4.7 $6.9 $11.52003 116 64 180 1,415 787 2,203 6.5 7.1 13.6 $4.5 $7.8 $12.42004 122 75 197 1,555 885 2,440 7.1 8.9 16.0 $4.8 $9.3 $14.12005 128 94 222 1,609 1,075 2,684 7.7 10.8 18.5 $5.5 $12.1 $17.62006 Q1 139 94 233 424 302 726 2.0 3.1 5.1 $1.6 $3.6 $5.2 Q2 132 90 221 382 297 680 2.0 3.1 5.1 $1.5 $3.6 $5.2 Q3 135 93 227 405 284 689 2.0 2.9 5.0 $1.6 $3.6 $5.2 Q4 137 94 231 443 282 725 2.2 2.9 5.1 $1.7 $3.6 $5.3

Total 136 93 228 1,655 1,165 2,820 8.3 12.0 20.2 $6.4 $14.4 $20.82007 Q1 138 96 234 438 309 747 2.2 3.2 5.4 $1.9 $4.3 $6.2 Q2 140 93 233 434 289 723 2.2 3.0 5.1 $1.8 $4.0 $5.8 Q3 137 94 231 423 284 706 2.0 2.9 4.9 $1.8 $4.0 $5.8 Q4 137 93 230 426 289 715 2.1 3.0 5.0 $1.8 $4.0 $5.8

Total 138 94 232 1,720 1,170 2,890 8.5 12.0 20.5 $7.3 $16.3 $23.62008 142 97 239 1,765 1,200 2,965 8.7 12.3 21.0 $7.8 $17.6 $25.42009 145 99 243 1,804 1,227 3,032 8.9 12.6 21.5 $8.4 $18.9 $27.22010 146 100 246 1,834 1,238 3,072 9.0 12.7 21.7 $8.9 $20.0 $28.92011 149 101 250 1,871 1,253 3,124 9.2 12.8 21.9 $9.5 $21.3 $30.82012 152 103 255 1,910 1,268 3,178 9.3 12.9 22.2 $10.2 $22.6 $32.9Sources: Baker Hughes, Spears and Associates

FAR EAST


53

Indicators of Future Activity IHS Energy’s count of active seismic crews in the Far East (including China) in January 2007 was 26% behind the year-ago period.

Far East Seismic Crew Count

30

35

40

45

50

55

60

65

70

75

.

2003 2004 2005 2006 .

Source: IHS


54

AUSTRALIA Amerada Hess has won the right to explore block WA-390-P off Western Australia; it bid a work program that includes four exploratory wells in year two and 12 exploratory wells in year three. Chevron is carrying out a feasibility study to develop its Wheatstone gas field off Australia that would support the country’s first gas-to-liquids (clean diesel) project. Proposals call for a 200,000 bpd facility costing over $14 billion.

Apache plans to fast-track development of its Theo-Van Gogh offshore oilfield, with production start-up targeting 2008. Output may reach 80,000 bpd. Apache will also develop the shallow-water Reindeer-Caribou gasfield off western Australia, with first output scheduled for 2008 at the rate of 50 mmcfd.

Santos could drill a total of about 1,000 wells over the 2006 to 2010 timeframe during its onshore Cooper basin project. Woodside will develop its $720 milliion deepwater Vincent oilfield off western Australia, with first oil to begin flowing in 2008. Woodisde is developing the deepwater Pluto field targeting a 2010 start-up; reserves at the field are now estimated to be 4.5 TCF using seven subsea production wells. ExxonMobil is developing the $225 million Kipper field; three or four subsea wells are to be drilled. Its Wirrah field (due online in 2007) and West Whiptail field (2006) are in southeast Australia’s Bass Strait. BHP Billiton is working on the Stybarrow multiple-field project where eight to 12 development wells are planned. However, work on the Pyrenees project has been halted due to cost overruns.

INDIA The sixth licensing round saw 52 blocks awarded in February 2007, although many large multinational oil companies stayed away from the bidding. The government intends to hold a seventh NELP round in April 2007 where 70 to 80 blocks may be on offer. ONGC is looking to develop the B22 “marginal fields cluster” located near the South Bassein gas field, most of which are sour gas. ONGC plans to use eight wellhead platforms and 17 development wells for development of the shallow-water C-series fields located in the Arabian Sea. First phase development is scheduled to be complete by December 2008. Reliance Industries now estimates that its prolific D6 block off the east coast of India will be onstream by mid-2008 producing 2.8 bcfd using 50 wells at a cost of $5.2 billion. Subsea wells in deeper water would follow in the second phase of the project. Separately, Reliance is planning to start production from its


2000 5 5 10 144 57 200 1.0 0.5 1.5 $260 $1,226 $1,4862001 6 4 10 164 48 212 1.3 0.4 1.7 $311 $1,084 $1,3962002 5 4 9 133 44 176 1.0 0.4 1.4 $264 $1,039 $1,3032003 6 5 11 144 66 210 1.0 0.6 1.6 $286 $1,569 $1,8552004 8 6 14 157 95 252 1.2 1.0 2.2 $313 $2,249 $2,5612005 8 8 16 157 128 284 1.2 1.4 2.6 $343 $3,327 $3,6702006 Q1 9 7 16 36 29 65 0.3 0.3 0.6 $87 $838 $925 Q2 11 10 21 45 40 85 0.4 0.4 0.8 $109 $1,148 $1,257 Q3 10 10 20 39 41 80 0.3 0.4 0.7 $93 $1,183 $1,276 Q4 11 10 21 44 40 84 0.3 0.4 0.8 $106 $1,148 $1,254

Total 10 9 20 164 150 314 1.3 1.6 2.9 $395 $4,317 $4,7112007 Q1 10 11 21 40 44 84 0.3 0.5 0.8 $106 $1,389 $1,495 Q2 11 10 21 44 40 84 0.3 0.4 0.8 $116 $1,263 $1,379 Q3 10 11 21 40 44 84 0.3 0.5 0.8 $106 $1,389 $1,495 Q4 11 10 21 44 40 84 0.3 0.4 0.8 $116 $1,263 $1,379


AUSTRALIA


55

offshore MA oilfield by 2008; estimates are that the field will produce 40,000 bpd of oil and 100 mmcfd of gas. Gujarat State Petroleum Corporation is evaluating development options for the huge KG-8 Deen Dayal HT/HP offshore gas discovery it made in 2005.

Cairn Energy plans to develop its Mangala, Aishwariya, Saraswati, and Raageshwari discoveries on onshore block RJ-ON-90/1 in Rajasthan. The fields are expected to produce about 100,000 bpd starting in 2009. The company will submit development plans in 2007 for Bhagyam and Shakti fields in Rajasthan that are expected to start producing 50,000 bpd in 2010. The plan for Bhagyam calls for 80 production and water injection wells. BG Group is working on the Tapti field expansion project, which will boost gas output from 250 mmcfd to 400 mmcfd. Great Eastern Energy will drill a total of 100 wells over four years at India’s first commercial CBM project located in West Bengal.

INDONESIA The government awarded nine oil and gas blocks this month; the combined work programs could result in up to 22 exploration wells over the next three years. Operators include Talisman, Total, Esso, Pertamina, and Statoil. In the hope of boosting flagging oil output, the government is requiring operators working in eastern Indonesia to return their concessions to the government if they fail to develop potential resources after three years so that they can be placed with other operators.

Amerada Hess will soon begin development drilling on the second phase of its Ujung Pangkah oil and gas project off Indonesia that has a production start-up target of the second half of 2008.


2000 40 9 49 277 51 327 2.2 0.5 2.7 $1,205 $441 $1,6462001 41 9 50 304 53 357 2.2 0.5 2.7 $1,389 $484 $1,8722002 43 11 54 320 63 383 2.2 0.6 2.8 $1,539 $599 $2,1382003 44 16 60 331 91 422 2.3 0.9 3.2 $1,589 $870 $2,4592004 47 23 70 330 114 444 2.4 1.1 3.5 $1,586 $1,088 $2,6742005 51 29 79 304 103 407 2.6 1.0 3.6 $1,606 $1,082 $2,6882006 Q1 56 26 82 84 39 123 0.7 0.4 1.1 $491 $446 $937 Q2 54 25 80 81 38 119 0.7 0.4 1.1 $473 $439 $913 Q3 52 31 83 78 47 125 0.7 0.5 1.1 $456 $538 $994 Q4 53 31 84 79 47 126 0.7 0.5 1.1 $459 $543 $1,003

Total 54 28 82 323 170 493 2.8 1.7 4.4 $1,880 $1,967 $3,8462007 Q1 54 32 86 81 48 129 0.7 0.5 1.2 $518 $611 $1,129 Q2 54 32 86 81 48 129 0.7 0.5 1.2 $518 $611 $1,129 Q3 55 32 87 83 48 131 0.7 0.5 1.2 $527 $611 $1,138 Q4 55 32 87 83 48 131 0.7 0.5 1.2 $527 $611 $1,138


INDIA


2000 23 9 32 810 216 1,026 1.8 1.7 3.5 $1,598 $2,163 $3,7612001 31 10 41 721 190 911 1.6 1.5 3.1 $1,493 $1,998 $3,4912002 37 9 46 854 147 1,001 1.9 1.1 3.1 $1,858 $1,621 $3,4792003 33 12 45 750 177 926 1.7 1.4 3.1 $1,630 $1,950 $3,5802004 34 15 49 879 217 1,096 2.0 1.7 3.7 $1,912 $2,392 $4,3042005 33 22 55 891 269 1,160 2.0 2.1 4.0 $2,131 $3,268 $5,3992006 Q1 34 21 55 233 63 296 0.5 0.5 1.0 $614 $842 $1,455 Q2 27 16 43 186 48 234 0.4 0.4 0.8 $488 $641 $1,130 Q3 30 16 46 206 48 254 0.5 0.4 0.8 $542 $641 $1,183 Q4 34 18 52 231 53 284 0.5 0.4 0.9 $608 $709 $1,318

Total 31 18 49 856 212 1,068 1.9 1.6 3.5 $2,253 $2,833 $5,0862007 Q1 33 16 49 224 48 272 0.5 0.4 0.9 $649 $705 $1,355 Q2 33 16 49 224 48 272 0.5 0.4 0.9 $649 $705 $1,355 Q3 34 18 52 231 54 285 0.5 0.4 0.9 $669 $794 $1,463 Q4 34 18 52 231 54 285 0.5 0.4 0.9 $669 $794 $1,463

Total 34 17 51 911 204 1,115 2.0 1.6 3.6 $2,637 $2,998 $5,6352008 34 17 52 934 209 1,143 2.1 1.6 3.7 $2,838 $3,226 $6,0652009 35 18 53 957 214 1,172 2.1 1.6 3.8 $3,055 $3,472 $6,5272010 36 18 54 981 220 1,201 2.2 1.7 3.8 $3,288 $3,737 $7,0252011 37 19 56 1,006 225 1,231 2.2 1.7 3.9 $3,538 $4,022 $7,5602012 38 19 57 1,031 231 1,262 2.3 1.8 4.0 $3,808 $4,329 $8,137Sources: Baker Hughes, Spears and Associates

INDONESIA


56

Pertamina plans to have the $1.7 billion Donggi area field development project up and running in 2007. Chevron has decided to proceed with the $6 billion development of the deepwater Gendalo structure and Gehem Ranngas field. First oil is to flow by 2010-2012; 10 wells are planned at Gendalo, while the Maha and Gandang fields will use subsea tiebacks. Santos may fast-track development of its 350-500 million bbl Jeruk discovery, which may be brought onstream in 2008. ExxonMobil’s Banyu-Urip oilfield development on its offshore Cepu block has finally begun to move forward following a new contract. Production start-up is now expected in late 2008 or early 2009. Serica Energy plans to fast-track development of its Kambuna gas and condensate field off Sumatra; targeting start-up in 2007. Some 15 wells are planned on BP’s Tangguh gas development project, where drilling started in 2006 and is expected to last for about two years. A second development phase at BP’s 400 bcf Kepodang gas field will follow in about 2008. Total is developing the Sisi and Nubi gas fields off East Kalimantan, with production expected to begin in 2007. As many as nine drilling rigs are expected to be working at one time as Total brings the fields online in tandem with the further development of its Tunu and Peciko fields. Total is planning to begin the 12th development stage at Tunu in 2007; work will involve drilling another 84 wells at the field. ConocoPhillips’ Belanak offshore field is slated to have a total of 36 development wells. North Bulut, is anticipated to start production in 2009; the Kerisi-Hiu fields are expected onstream by 2008.

MALAYSIA Newfield will drill a total of 10 development wells on its East Belumut and Chermingat offshore fields on block 323 over a two-year period starting in 2007 during the first phase of development. Petronas is developing the Sumandak multi-field complex, set for start-up in early 2008.

Murphy is seeking approval to develop a cluster of shallow-water gas fields in offshore blocks 309 and 311, with the intent of starting production in 2008 or 2009 to feed the Bintulu LNG facility. In addition, Murphy is aiming to have its 700 million barrel deepwater Kikeh field in block K onstream in late 2007.


2000 0 7 7 0 59 59 0.0 0.5 0.5 $0 $399 $3992001 0 11 11 0 171 171 0.0 1.3 1.3 $0 $1,217 $1,2172002 0 14 14 0 130 130 0.0 1.0 1.0 $0 $972 $9722003 0 14 14 0 157 157 0.0 1.2 1.2 $0 $1,171 $1,1712004 0 14 14 0 162 162 0.0 1.3 1.3 $0 $1,207 $1,2072005 0 13 13 0 133 133 0.0 1.0 1.0 $0 $1,087 $1,0872006 Q1 0 15 15 0 38 38 0.0 0.3 0.3 $0 $338 $338 Q2 0 13 13 0 33 33 0.0 0.3 0.3 $0 $293 $293 Q3 0 14 14 0 34 34 0.0 0.3 0.3 $0 $309 $309 Q4 0 12 12 0 30 30 0.0 0.2 0.2 $0 $271 $271

Total 0 13 13 0 134 134 0.0 1.0 1.0 $0 $1,211 $1,2112007 Q1 0 14 14 0 35 35 0.0 0.3 0.3 $0 $347 $347 Q2 0 13 13 0 33 33 0.0 0.3 0.3 $0 $323 $323 Q3 0 13 13 0 33 33 0.0 0.3 0.3 $0 $323 $323 Q4 0 12 12 0 30 30 0.0 0.2 0.2 $0 $298 $298


MALAYSIA


57

Newfield and Petronas are developing the offshore Abu Cluster in PM 318 that is expected to come onstream in 2007. Shell’s deepwater Gumusut field in block J off Sabah may be planned for 2008 using a TLP. Talisman is targeting mid-2008 for start-up of its Northern Fields oil and gas development that is in block PM3-CAA in the Malaysian-Vietnam commercial arrangement area. Talisman plans to drill four exploration wells and 15 development wells for the project.

PAKISTAN The government’s proposed energy policy seeks to encourage exploration and production; one step it hopes to achieve is to boost the number of exploration wells drilled to 100 per year, versus the estimate 21 that were drilled in 2006. A new tender round involving 17 exploration blocks is expected within weeks.

OGDC plans to develop its $250 million Uch 2 gas field project, which calls for drilling 15 development wells. OGDC is conducting a fast track development of the Bhulan Shah discovery and others made on the Nim block, and is ramping up gas production at the Shakardara field in the Kohat district of the Northwest Frontier Province. Shell now plans to drill the Anne-1 deepwater wildcat starting in the second quarter of 2007 in Indus block E.

THAILAND The Carigali-PTTEP B-17 project in the Malaysia-Thailand joint development area is now scheduled to come onstream in late 2009 at an initial rate of 270 mmcfd. Plans for PTTEP’s S1 oilfield call fro 45 development wells and four exploration wells to be drilled in 2007. PTTEP also plans to install up to 10 wellhead plans in phase 4 development of its Greater Bongkot South gas production area. A total of 16 development wells and six exploration wells are to be drilled at Bongkot in 2007. The project is scheduled for completion in 2010. PTTEP also plans to develop Arthit and Arthit North fields in the Gulf of Thailand with production from both starting in 2008. A total of 37 development wells are planned for the Arthit project. Pan Orient’s drilling plan for block L44/43 includes 10 firm wells and 10 contingent wells, while it will drill two exploration wells on adjacent block L33/44. Drilling is underway in support of Pearl Energy’s expansion plan for the Jasmine field involves 12 production wells and eight injectors on the B platform, while the C platform will have eight producers. At Chevron’s Pailin field, plans call for construction of two new platforms and the drilling of 27 development wells.


2000 9 0 10 37 1 38 0.3 0.0 0.3 $193 $12 $2052001 9 0 9 44 0 44 0.4 0.0 0.4 $240 $0 $2402002 11 0 11 57 0 57 0.5 0.0 0.5 $330 $0 $3302003 13 0 13 71 0 71 0.6 0.0 0.6 $409 $0 $4092004 11 0 11 50 1 51 0.5 0.0 0.5 $285 $13 $2982005 12 1 12 57 1 58 0.5 0.0 0.5 $360 $15 $3752006 Q1 14 0 14 17 0 17 0.2 0.0 0.2 $117 $0 $117 Q2 17 0 17 20 0 20 0.2 0.0 0.2 $142 $0 $142 Q3 19 0 19 23 0 23 0.2 0.0 0.2 $159 $0 $159 Q4 17 0 17 21 0 21 0.2 0.0 0.2 $145 $0 $145

Total 17 0 17 81 0 81 0.8 0.0 0.8 $563 $0 $5632007 Q1 20 0 20 24 0 24 0.2 0.0 0.2 $184 $0 $184 Q2 19 1 20 23 1 24 0.2 0.0 0.2 $175 $18 $192 Q3 18 0 18 22 0 22 0.2 0.0 0.2 $166 $0 $166 Q4 18 0 18 22 0 22 0.2 0.0 0.2 $166 $0 $166

Total 19 0 19 90 1 91 0.8 0.0 0.9 $690 $18 $7072008 19 0 19 92 1 93 0.9 0.0 0.9 $742 $19 $7612009 20 0 20 95 1 96 0.9 0.0 0.9 $799 $20 $8192010 20 0 20 97 1 98 0.9 0.0 0.9 $860 $22 $8822011 21 0 21 99 1 100 0.9 0.0 0.9 $925 $24 $9492012 21 0 21 102 1 103 1.0 0.0 1.0 $996 $25 $1,021Sources: Baker Hughes, Spears and Associates

PAKISTAN


58

VIETNAM The government expects that gas output will double by 2011 to almost 15 billion cubic meters per year, mostly used for power generation. Five oil projects currently under development are expected onstream by the end of 2008: Bunga Orkid, Bunga Pakma, Ca Ngu Vang, Te Giac Trang, Song Doc, and Su Tu Vang. Petrovietnam will begin phase two development of the Dai Hung (Big Bear) oilfield sometime after Q1 2007. Vietsovpetro will start production from its Ca Ngu Vang field in 2007 or 2008 at a rate of 20,000 bpd; its Te Giac Trang field will start production in Q4 2008 at about 30,000 bpd.

Start-up of ConocoPhillip’s Su Tu Trang (White Lion) gas field in block 15-1 is planned for 2011. ConocoPhillips will install a wellhead platform and an FPSO for its 60,000 bpd Su Tu Den (Black Lion) oilfield in block 15-1, where it is also developing the Su Tu Vang (Golden Lion) oilfield. The block also contains the Su Tu Nau (Brown Lion) oilfield and the Su Tu Chua (King Lion) oilfield. PTTEP’s CNV oilfield in the Cuu Long basin will start production by the end of 2007. Talisman is now planning to start production from the Song Doc oilfield in 2008 at a peak rate of 15,000 bpd. It is also planning development of the Hoa Mai gas field.


2000 1 5 6 14 203 217 0.1 2.2 2.3 $38 $1,014 $1,0522001 1 5 6 20 185 205 0.1 2.0 2.2 $62 $972 $1,0342002 1 7 8 12 232 244 0.1 2.6 2.6 $37 $1,278 $1,3152003 0 5 5 28 196 224 0.2 2.2 2.3 $91 $1,079 $1,1712004 0 5 6 19 207 226 0.1 2.9 3.0 $62 $1,140 $1,2022005 1 7 8 40 352 392 0.3 4.3 4.6 $143 $2,130 $2,2732006 Q1 1 9 10 10 108 118 0.1 1.3 1.4 $39 $720 $759 Q2 1 9 10 10 112 122 0.1 1.4 1.4 $39 $744 $783 Q3 2 8 9 17 92 109 0.1 1.1 1.3 $67 $616 $683 Q4 3 7 10 30 84 114 0.2 1.0 1.2 $118 $560 $678

Total 2 8 10 67 396 463 0.5 4.9 5.3 $264 $2,639 $2,9032007 Q1 3 9 12 30 108 138 0.2 1.3 1.5 $130 $792 $922 Q2 2 8 10 20 96 116 0.1 1.2 1.3 $87 $704 $790 Q3 1 7 8 10 84 94 0.1 1.0 1.1 $43 $616 $659 Q4 1 8 9 10 96 106 0.1 1.2 1.3 $43 $704 $747


THAILAND RIGS WELLS FOOTAGE (MIL) SPENDING (MIL)Land Off Total Land Off Total Land Off Total Land Off Total

2000 0 8 8 0 48 48 0.0 0.5 0.5 $0 $510 $5102001 0 8 8 0 50 50 0.0 0.5 0.5 $0 $557 $5572002 0 8 9 3 58 62 0.0 0.6 0.6 $8 $685 $6922003 0 9 9 0 54 54 0.0 0.6 0.6 $0 $627 $6272004 0 8 8 1 48 49 0.0 0.6 0.6 $2 $561 $5622005 0 9 9 2 52 54 0.0 0.7 0.7 $4 $669 $6742006 Q1 0 10 10 0 15 15 0.0 0.2 0.2 $0 $206 $206 Q2 0 10 10 0 15 15 0.0 0.2 0.2 $0 $206 $206 Q3 0 10 10 0 15 15 0.0 0.2 0.2 $0 $206 $206 Q4 0 8 8 0 12 12 0.0 0.2 0.2 $0 $176 $176

Total 0 9 9 0 56 56 0.0 0.7 0.7 $0 $795 $7952007 Q1 0 6 6 0 9 9 0.0 0.1 0.1 $0 $140 $140 Q2 0 6 6 0 9 9 0.0 0.1 0.1 $0 $140 $140 Q3 0 8 8 0 12 12 0.0 0.2 0.2 $0 $187 $187 Q4 0 8 8 0 12 12 0.0 0.2 0.2 $0 $187 $187


VIETNAM


59

FAR EAST - OTHERS Brunei Total will undertake a year-long exploration and development drilling program off Brunei in 2007. Cambodia Chevron will drill 10 wells in 2006 and 2007 to evaluate discoveries it recently made on block A. New Zealand Origin’s Kupe offshore gas field is scheduled to begin production in 2008. Three development wells are planned, with three additional wells a possibility. OMV’s Maari offshore field is due to be onstream by Q2 2008 at a rate of about 35,000 bpd. A total of five horizontal production wells and three water injection wells are planned. Output from AWE’s Tui is due to start in mid-2007 at an output of 50,000 bpd. A total of nine wells are to be drilled starting in Q3 2006. Cambodia Chevron has found a 700 million barrel oilfield in block A. Government authorities estimate it could be brought online as early as 2009. A 10 well exploration drilling program is underway. Myanmar (Burma) PTTEP plans to drill seven exploration and appraisal wells on its offshore block M-9 in 2007.

CNPC recently signed contract on three deepwater blocks off Maynmar – AD-1, AD-6, and AD-8. In addition, Sinopec has been working on block D since 2005. Total is working on phase 3 development of its offshore Yadana gas field. Daewoo plans to bring on the giant Shwe gasfield it found on block A1 by 2009.

Papua New Guinea Production from the Hides, Kutubu, and Moran onshore fields in the Southern Highlands is planned for 2009. ExxonMobil is the operator for the PNG Gas Project.


2000 16 4 19 80 70 150 0.6 0.6 1.1 $412 $738 $1,1502001 17 2 19 102 51 153 0.8 0.5 1.3 $591 $588 $1,1792002 20 3 23 110 56 166 0.8 0.5 1.3 $630 $665 $1,2952003 19 4 23 92 47 139 0.7 0.4 1.1 $536 $566 $1,1022004 21 4 25 119 42 161 0.8 0.4 1.2 $657 $619 $1,2762005 23 5 28 159 38 197 1.1 0.3 1.4 $931 $502 $1,4332006 Q1 24 6 31 44 11 55 0.3 0.1 0.4 $280 $161 $441 Q2 21 6 27 40 13 52 0.3 0.1 0.4 $249 $177 $427 Q3 22 4 26 42 7 49 0.3 0.1 0.3 $271 $79 $350 Q4 19 8 27 38 15 53 0.3 0.1 0.4 $246 $228 $474

Total 22 6 28 164 46 210 1.1 0.4 1.5 $1,046 $645 $1,6912007 Q1 18 8 26 39 17 56 0.3 0.1 0.4 $277 $304 $580 Q2 21 7 28 42 14 56 0.3 0.1 0.4 $301 $238 $539 Q3 19 5 24 37 9 46 0.2 0.1 0.3 $259 $128 $387 Q4 18 5 23 36 9 45 0.2 0.1 0.3 $253 $128 $381

Total 19 6 25 154 49 203 1.0 0.4 1.5 $1,089 $797 $1,8862008 19 6 25 155 49 204 1.0 0.4 1.5 $1,147 $832 $1,9792009 19 6 25 156 49 204 1.0 0.4 1.5 $1,210 $869 $2,0792010 19 6 26 157 49 206 1.1 0.4 1.5 $1,282 $919 $2,2012011 19 6 26 159 49 208 1.1 0.4 1.5 $1,358 $972 $2,3292012 20 6 26 161 50 210 1.1 0.4 1.5 $1,439 $1,027 $2,466Sources: Baker Hughes, Spears and Associates

FAR EAST - OTHERS


60

CHINA Onshore PetroChina, the country’s largest natural gas producer, aims to boost gas production by 350 bcf per year to 2,800 bcf by 2010. In 2007 the plan calls for drilling almost 500 development wells; the three main fields targeted for further development in 2007 will be Tarim, Sichuan, and Changqing. At the end of 2006 PetroChina was operating about 2,400 gas wells. At the same time the company is in the middle of a program to overhaul several hundred high-sulfur gas wells in the Sichuan area. PetroChina also plans to drill a minimum of 3,000 development wells annually at the Daqing oilfield starting in 2006 and increasing to 4,000 wells per year by 2010 in the hope of maintaining output from the country’s largest field at 840,000 bpd until 2010 and at 800,000 bpd until 2020. In the first half of 2006 PetroChina spudded 84 oil and gas wells in the Tarim basin in northwest China, up 28% from last year. The firm plans to start production from its Yingmaili gas field by the end of 2006, at 175 mmcfd that would lift PetroChina’s total gas output from the Tarim basin to 1.3 bcfd.

Sinopec plans to develop up to 10 new gas fields in the Sichuan province over the next four years and lift gas production to 250 bcf per year by

2010. Sinopec intends to develop the Puguang gas field in Sichuan province and produce 140 mmcfd in 2008 and double that by 2010. The Puguang gasfield is located at depths in excess of 15,000 ft. CNPC plans to spend $500 million over the next five years on upgrading oil and gas production facilities at its aging Daqing oilfield, where crude output is falling by 40,000 bpd and this year will hit 840,000 bpd. Shell plans to produce 300 mmcfd from the Changbei gas field in the northwest Ordos basin by 2008. It plans to drill seven wells there in 2007. Total intends to explore and develop the onshore Sulige gas field in the Ordos basin in China’s northwest. Burlington is still in talks to develop block 14 in the Ordos basin. Longer term, the Chinese government plans to spend $100 million over the next 10 years to study the development of natural gas hydrates. The plan calls for trial production of gas hydrates to start between 2010 and 2015, with commercial production around 2020. Drilling will first take place in the South China Sea. Offshore CNOOC will be developing 16 offshore projects in 2007. Between 2007 and 2010 CNOOC plans to drill 55 appraisal wells and 20 exploratory holes in the East China Sea, with most in the Xihu trough near the border with Japan. PetroChina will develop its C4 block that is part of the Zhaodong oilfield in Bohai Bay with 24 development wells (13 producers and 11 injectors), including 16 horizontal wells. First oil is targeted for 2008. ROC Oil is considering development of its Wei 6-12 and Wei 6-12 South discoveries in the Beibu Gulf using an FPSO. Initial production is expected to be in the 10,000 to 15,000 bpd range. Further appraisal drilling is planned for 2007.


2000 NA 9 NA 10,001 54 10,055 53.5 0.4 53.9 NA $940 NA2001 NA 11 NA 9,751 63 9,814 51.7 0.5 52.2 NA $1,080 NA2002 NA 9 NA 9,946 53 9,999 76.6 0.6 77.2 NA $905 NA2003 NA 10 NA 12,234 59 12,293 93.0 0.7 93.7 NA $1,008 NA2004 NA 11 NA 13,077 165 13,242 96.8 1.8 98.5 NA $2,300 NA2005 NA 15 NA 16,202 220 16,422 119.9 2.3 122.2 NA $2,900 NA2006 4 17 NA 16,850 244 17,095 124.7 2.6 127.3 NA $3,222 NA2007 11 18 NA 17,019 259 17,278 125.9 2.8 128.7 NA $3,412 NA2008 11 18 NA 17,189 259 17,448 127.2 2.8 130.0 NA $3,412 NA2009 11 18 NA 17,361 259 17,620 128.5 2.8 131.2 NA $3,412 NA2010 11 19 NA 17,535 273 17,808 129.8 2.9 132.7 NA $3,601 NA2011 11 19 NA 17,710 273 17,983 131.1 2.9 134.0 NA $3,601 NA2012 11 19 NA 17,887 273 18,160 132.4 2.9 135.3 NA $3,601 NA

Sources: Baker Hughes, MI Swaco, Spears and Associates

CHINA


61

RUSSIA As of January 2007 MI Swaco reported a total of 274 drilling rigs (272 onshore; two offshore) working in Russia, up 52% from 1/06. Most of the increase is thought to be due to improved access to Russian drilling operations by western oilfield service firms, rather than an absolute increase in overall drilling activity. In January, Gazprom approved spending almost $14 billion in 2007 for work on existing fields, development of new projects, and maintenance and construction of new pipelines. Some $1 billion is to be spent on developing the Bovanankovskoye and Kharasaveyskoye gas fields on the Yamal peninsula. About $800 million is to be spent on developing the South Russkoye gas field, and some $650 million is to go toward developing the Shtokman gas and condensate field in the Barents Sea. Work is also expected on the Prirazlomnoye oilfield in the Barents Sea. Separately, $4.5 billion is to be spent on pipeline and gas distribution networks – building new lines and upgrading existing infrastructure.

Gasprom is expected to soon take operational control of Sibneft, which it has since renamed Gazpromneft, which it bought in late 2005. Rosneft is expected to spend about $2.3 billion in 2007 and $2.5 billion in 2008 on upstream projects at Yuganskneftegaz in an attempt to boost

output from 1.25 million bpd at present to 1.5 million bpd by 2010. Most of the work will involve drilling in the Priobskoye and Prirzalomnoye oilfields. The Purneftegaz subsidiary of Rosneft is developing the Vankor oilfield in west Siberia that is scheduled to come onstream in 2008, increasing to 280,000 bpd by 2012. TNK-BP will spend between $3.0 billion and $3.4 billion in 2007, compared to $2.4 billion in 2006, to improve output. TNK-BP will spent $270 million for pilot development of the Verkhnechonskoye oilfield in East Siberia. Plans call for 20 new wells, comprised of 13 producers and 7 injectors. Earlier this year TNK-BP purchased Oxy’s 50% stake in the Vanyeganeft joint venture in West Siberia.

CASPIAN REGION As of January 2007 MI Swaco reported a total of 76 drilling rigs (74 onshore; two offshore) working in Kazakhstan, up 19% from 1/06. ENI now estimates that its Kashagan project will cost $19 billion for phase one, in which two 150,000 bpd systems are to become operational. First oil is now expected in 2010. Lukoil is developing the offshore Yuri Korchagina field where production is expected to start in 2008 at the rate of 44,000 bpd. BP expects to boost production from its ACG complex off Azerbaijan bu about 250,000 bpd in 2007. CNPC won a contract from Uzbekneftegaz to drill 15 wells in Uzbekistan over the 2007 to 2011 timeframe. Drilling will start in Q2 2007.


2000 40 1 41 4,714 5 4,719 33.8 0.1 33.9 NA NA NA2001 76 1 77 5,140 5 5,145 36.9 0.1 36.9 NA NA NA2002 68 1 69 4,401 5 4,406 31.0 0.1 31.1 NA NA NA2003 77 1 78 4,505 5 4,510 31.5 0.1 31.6 NA NA NA2004 127 2 129 3,527 10 3,537 29.5 0.1 29.6 NA NA NA2005 144 2 146 3,802 10 3,812 32.1 0.1 32.2 NA NA NA2006 244 2 246 4,753 10 4,763 40.2 0.1 40.3 NA NA NA2007 275 2 277 4,848 10 4,858 41.0 0.1 41.1 NA NA NA2008 289 2 291 5,090 10 5,100 43.0 0.1 43.1 NA NA NA2009 303 2 305 5,345 10 5,355 45.2 0.1 45.3 NA NA NA2010 318 2 320 5,612 10 5,622 47.4 0.1 47.5 NA NA NA2011 334 2 336 5,892 10 5,902 49.8 0.1 49.9 NA NA NA2012 351 2 353 6,187 10 6,197 52.3 0.1 52.4 NA NA NA

Sources: MI Swaco, Spears and Associates

RUSSIA

spears march 2007 dpo

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