Upstream News

Oil prices rise but capacity remains and issue; BP and Conoco reduce their Alaska investment; Nippon Oil and Mining combine to take on the majors and Zambia grants exploration licences.

Oil prices have continued to rise and, according to a CNN report, the weak dollar could push prices back up to $100 a barrel in the near future.  The report, also cites renewed confidence in equities markets as another reason for the improving oil price.  However, there is a warning in the longer term with the need for a significant increase in demand if OPEC's current overcapacity is to be absorbed.

In fact, production is also reaching very high levels in the US according to API's Monthly Statistical Report, which shows production at its highest since 2005, with October's average at 5.36 million barrels per day.

However, production in Alaska took a knock with the news that PB and ConocoPhillips are reducing their 2010 investment and development budgets in the state.  The reductions were blamed on disappointed exploration results, technical challenges and increased state taxes.  Instead, BP has turned its attention to Iraq with the news that they, along with China National Petroleum Corporation, have signed a deal with the state's South Oil Company to expand production at the Rumaila Oilfield near Basra.  The two organisations plan to spend $15bn during the 20 year contract.

Nippon Oil aims to take on the major producers after announcing a merger with Nippon Mining Holdings to create the JX Group.  Although initial plans are to cut refining output between now and 2015 to reduce overcapacity,  the new group will take a 38% share of Japan's refining volume and is looking to become on of the world's biggest energy and materials companies.

In Zambia is set to grant exploration licences for 11 oil and gas blocks across the country.  Seven bidders in all have received the go-ahead, three of them local companies.  A further 12 blocks are still on offer, with bidding due to end in June 2010.

While in Uganda, UK-based Heritage Oil announced the sale of its 50% stake in two Ugandan oil fields to Italian group Eni for $1.35bn.  The sale coincided with Heritage's cancellation of it proposed $6bn reverse takeover by Turkey's Genel which was set to take Heritage into the oil fields of Kurdistan.  However, political difficulties regarding exports from the region have apparently made the deal untenable.  Heritage re-stated its commitment to operating in Kurdistan and is likely to use to money from the Ugandan sale to develop other opportunities in the region.