The Anglo-Dutch energy giant expects to start a controversial three-year programme next month with a small armada of ships drilling a dozen wells in the Beaufort Sea 30 miles off the Alaskan coast.

Industry experts have claimed that it could spark a rush into one of the world’s biggest untapped energy reserves. Authorities believe that the Beaufort Sea contains eight billion barrels of oil and nearly 30 trillion cubic feet of gas. Despite fierce opposition from local communities and environmentalists, the US Minerals Management Service gave Shell the green light for the venture in February.

It is understood that Repsol of Spain, Norsk Hydro of Norway and Conoco-Phillips of the US are ready to follow Shell if the drilling proves successful. BP already operates the North Star field on the coastline of Alaska’s North Slope but Shell’s exploration activity is 20 to 30 miles closer to the Arctic fringe.

Malcolm Brinded, Shell’s chief executive of exploration and production, said: “There has been drilling there, there has been exploration there, but this is a return to make a new charge at it. Some people say that 25 per cent of the world’s undiscovered hydrocarbons sit in the Arctic. I think that may be optimistic but if it’s half right then it’s worth exploring. It has the right ingredients to be a good energy play and the world needs some new energy plays.”

Shell highlighted the huge potential of Alaska’s Arctic waters at a results presentation earlier this year. Super-majors such as Shell left the region in the 1990s after exploration in the Beaufort and Chukchi Seas but near-record oil and gas prices and the availability of new technologies mean it is now economical to return.

One of Shell’s first priorities will be to gauge the potential of the Sivulliq prospect, the new name for the Hammerhead discovery made by the group and Unocal in 1986. The campaign reflects a growing emphasis at Shell to differentiate itself from rivals by using technical knowhow to discover new hydrocarbon regions, given increased competition for “easy barrels” in mature provinces such as the North Sea.

After the reserves scandal three years ago, when Shell admitted overstating the proven reserves on its books by 20 per cent, the group has increased its exploration budget to £1 billion a year and halved the number of countries on its list of prospects. It is spending nearly £500 million a year on researching new seismic and production techniques such as gas injection. The group believes that its experience at the Sakhalin offshore field in the far east of Russia has given it vital experience in dealing with ice flows and Arctic conditions.

Shell also fine-tuned soundproofing critical in allowing it to drill at Sakhalin, which is a major feeding ground for endangered whales. That is also a key problem in the Beaufort Sea.

The group still faces major hurdles in Alaska. Local authorities have threatened litigation and the group has yet to reach a Conflict Avoidance Agreement with the local Inupiat Inuit people. Whalers have requested that Shell cease operations for up to 30 days in September, the time that bowhead whales migrate along the Northern Alaskan coast.

However, Mr Brinded insisted that Shell was doing all it could to address the concerns. “We have spent a huge amount of effort on environmental management and engaging with local communities,” he said. “We have really prepared for this summer.”

Arctic Ocean, Alaska, Shell, Group

Tri-Valley Corporation announced that Robert A. Bell, petroleum engineer, has joined the operating subsidiary, Tri-Valley Oil & Gas Co. as Vice President of Operations.

Most recently Area Manager of Texas and the Rockies for V.E. Faulconer, Inc., Mr. Bell began his career with Exxon drilling wells in California on shore and off shore and Alaska North Slope. He joined Unocal as Senior Technology Engineer in a global role in production optimization and then went with Schlumberger as manager for projects in the Gulf of Mexico, Australia and Ecuador. He became vice president of exploitation and co-leader of the California Business Unit for Plains Exploration & Production Company. He then moved to vice president operations of the privately held Bonanza Creek Oil Company in Bakersfield and then served in a global general manager capacity for Eventure Global Technology.

"Mr. Bell brings a broad range of experience in all phases of oilfield operations with emphasis on drilling and production optimization and has direct experience in some of Tri-Valley's properties, in particular our Temblor Valley West leases in the South Belridge Oilfield now under development," said Joseph R. Kandle, president of Tri-Valley Oil & Gas Co.

Tri-Valley plans to utilize Bell's core competencies in management, operations and engineering to accelerate the Company's development of its key producing properties and to help evaluate and arrange for property and corporate acquisitions.

"As vice president of operations, Mr. Bell will coordinate with our new vice president of exploration, Jim Bush, and Randy Stafford, vice president of our Great Valley Production Services subsidiary to accelerate the build up of production, revenues, and reportable reserves and share value on our existing properties and any new discoveries. He and Bush will free up Joe Kandle to foster growth in all of Tri-Valley Corporation's petroleum related subsidiaries including its Nevada drilling operations," said F. Lynn Blystone, president and chief executive officer of the publicly traded parent.

Kandle, Bell, Bush and Tri-Valley Oil & Gas Co. General Manager of Engineering, Dr. Mohsen Hanna will comprise the Company's technical team working with a world wide research organization to solve formation low permeability problems in the Company's major discoveries at the Ekho deep well some 45 miles northwest of Bakersfield, California and the Sunrise Natural Gas Project 30 miles north of Bakersfield.

"We believe that attaining commercial rates of production from either of these massive discoveries would deliver bonanza values to Tri-Valley shareholders and drilling partners and this technical team, in concert with the scientists and laboratory facilities of the research organization we've engaged are confident we will attain a commercial solution to the present production obstacles - an exciting project in and of itself and bell will lead the development of those projects once the tight formation problems are solved," Blystone said.

Scandinavian Oil & Gas

"It's a challenge for our company and all the international oil companies because of the size and scope of our investments. It's important for us to have those discussions," Mulva said Thursday, shortly before he gave a speech at Rice University about working with national oil companies.

Earlier this week, Chavez was widely reported as saying that he had decreed that Petroleos de Venezuela, or PDVSA, would take majority control of foreign-run oil production projects in the country's Orinoco River basin by May 1.

"May 1, obviously there's not a lot of time," Mulva said.

PDVSA, Venezuela's government-controlled oil company, is a minority partner in such projects run by ConocoPhillips and several other companies, including Exxon Mobil Corp., BP and Chevron Corp.

Exxon Mobil, BP and Chevron all declined comment this week about Chavez's comments. On Thursday, Mulva declined to speculate on the timing or outcome of such talks with PDVSA and the Venezuelan government.

But he said the projects were "very large" and technologically challenging in terms of operation, and "we have to understand what this means to our projects."

Mulva's speech kicked off a two-day conference highlighting a massive study released by Rice's James A. Baker III Institute for Public Policy and the Institute of Energy Economics in Japan. In the study, researchers led by Rice energy analyst Amy Jaffe examined the roles of national oil companies in the international energy spectrum. Companies studied ranged from those like PDVSA that are completely under government control to others that are partially or wholly privatized, such as Lukoil, Russia's largest oil company.

The study found that national oil companies control the vast majority of the world's oil and natural gas reserves. They also have surpassed international oil companies like Exxon Mobil, Royal Dutch Shell, BP and Chevron as the world's dominant producers.

"This is a really dramatic change in the structure of the industry," Jaffe said.

And the International Energy Agency has projected that in the next three decades, $2.2 trillion in new investments will be needed to meet world demand for oil.

Mulva didn't specifically mention the Chavez controversy in his speech. But he said there was "no question" that the oil industry's success hinges on continued cooperation and collaboration between national oil companies and publicly held international oil companies.

Mulva said national oil companies are "in a stronger position to bankroll big projects on their own as well as make acquisitions," and international oil companies also no longer necessarily have a lock on technological expertise.

So international oil companies need to understand their countries' geopolitical issues and tailor strategies for building relationships to each national oil company "to give us an entree if not direct access," Mulva said.

He said the key to collaboration is to share cost and risk, maintain good relationships with oil company leaders, and "a commitment to uphold the sanctity of contractual agreements."

ConocoPhillips has 35-year contracts that give the Houston company a majority stake in two Orinoco projects in which PDVSA has a minority interest.

Also, Mulva said energy policy needs to be more open to allowing national oil companies to invest in the United States, sending a "clear signal" that their contributions are vital.

Victor Zhikai Gao, general counsel of China National Offshore Oil Corp., or CNOOC, China's state-owned offshore oil and natural gas producer, said in a later speech that the company has moved on from its failed 2005 bid to buy Unocal.

CNOOC bid $18.5 billion, but faced a storm of political opposition to a Chinese company gaining that foothold on energy supply. Chevron bought Unocal for $18 billion.

"I really do believe CNOOC's offer was a better deal," he said. "It did not go the way we wished, not for commercial reasons, but for other reasons." Chron

Most oil in hands of governments

by KRISTEN HAYS
National giants' priorities may keep crude in the ground, Rice study says

National oil companies control the vast majority of the world's oil and natural gas reserves, but that doesn't mean bringing it to the surface is the host government's top priority, according to a massive study to be released today by Rice University.

Some state-controlled companies have other obligations, such as creating jobs, providing affordable fuel to citizens or supporting other industries.

And the actions of some indicate that they don't want foreign oil companies to control current production operations on their turf, much less that of future discoveries. Last December, OAO Gazprom, Russia's state-controlled natural gas monopoly, took control of Shell's liquefied natural gas project on the Pacific island of Sakhalin.

And according to news reports earlier this week, Venezuelan President Hugo Chavez said he had decreed a law that Petroleos de Venezuela, or PDVSA, would take majority control of projects in the country's oil-rich Orinoco River basin by May 1.

PDVSA has long been a minority partner in such projects run by Exxon Mobil Corp., ConocoPhillips, Chevron Corp., BP, France's Total and Norway's state-owned oil company, Statoil.

The United States will have to accept the existence of national oil companies as a fact of life, "but should encourage steps to make their activities more businesslike, transparent and — to the extent possible — free of onerous government interference," a 20-page summary of the study said.

It said that the problem is not that the companies "have complex and competing priorities. The problem is whether those priorities stand in the way of timely resource development."

The study, by Rice's James A. Baker III Institute of Public Policy and the Institute of Energy Economics in Japan, will be the centerpiece of a two-day conference beginning today at the university.

ConocoPhillips CEO James Mulva is among speakers scheduled to discuss "challenges and benefits" of international oil companies like his own being partners with national oil companies. Government leaders and industry and academic specialists are slated to speak about the study's findings as well.

Saad Rahim, an analyst with energy consultancy PFC Energy who was not involved in the study, said Wednesday that national oil companies have risen in prominence as oil prices rose in decades past. When prices fell, their importance dissipated as well.

But he said those companies are unlikely to fade from view if prices fall again because they have become important players in the world's energy spectrum, with some that are increasingly tools of state management.

"We've seen some of this before, but never to this degree," said Rahim, who plans to attend the conference.

The summary said that large, undeveloped oil fields exist throughout the Persian Gulf, Africa, Latin America and Russia as well as Iraq's western desert. But private-sector companies with cash needed for risky and long-term finding and development investments often lack access to such regions.

"This raises the question of whether timely development of the vast resources under the control of national oil companies can take place given the constraints of domestic political influences and geopolitical factors," the summary said.

The study examined national oil companies in Saudi Arabia, Nigeria, India, Russia, Malaysia, Indonesia, Iraq, China and Kazakhstan. It also examined PDVSA, Statoil and Russian privately held firm Lukoil. Chron