Today in Oil News 2/26/11

An order to pay $8.5 billion to Chevron

Oil giant Chevron has been ordered to pay in pollution damages more than $8.5 billion by a court in Ecuador.

The company agreed to pay $2.7 billion for a well-support department of Britain’s John Wood Group PLC. It is a very big operation, with around 3,700 employees across the world and about $1 billion of annual revenue. This company specializes in working on old oil wells with new technology to extract oil which has been previously unrecoverable.

Due to the improvement in the mining technology, gold prices have increased to $1,350 an ounce or higher, which has been a great incentive to revisit old mines.

GE Sees Scope of Gold in Older Oil Fields

Last year, big players in the oil services industry have worked out around $21 billion to attract small contractors as they would get a chance to take control of one of the biggest assignments ever.

This goes well for oil prices too. Once, oil was sold for $3 per barrel, a lot of which certainly led to not less than half of total reserves of all oil fields abandoned as unrecoverable economically; this was due to unrecoverable costs in extracting it from the ground. But it is no longer the case now as oil is traded around $94 a barrel.

“Enhanced recovery” is as glamorous as it sounds too. Although, the business has no gushers, no thrills of any discovery, as well as no prospect of new frontiers. But extracting more oil from the old wells with production history proven does not carry as much risk as searching for newer fields. There are many old oil fields to choose from. Enhanced recovery, which is important for the petroleum markets supply side, GE clearly feels and believes will make money off it.

Other industry news

Seahawk Drilling, a rather small player amongst offshore drillers, entered Chapter 11 bankruptcy. As a part of their restructuring process, it would sell its expeditions and oil wells. They have jack-up rigs which operate in relatively deep and shallow coastal waters on the Gulf of Mexico, where years ago oil was found easily. Hercules Offshore Inc, the Houston-based driller is buying 21 rigs from Seahawk at an excessive discount. For similar reasons as GE’s, Hercules sees a lot of opportunity for keeping Seahawk’s old fleets working gainfully. Hercules apparently feels it as a winning strategy. Its shares jumped up nearly 19% on Monday.

- Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

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