Oil prices rise as market focuses on Nigeria

Oil prices rise as market focuses on Nigeria

GEORGE JAHN
Tuesday, June 24, 2008
VIENNA — A faltering U.S. dollar, Mideast tensions and concerns over supply disruptions out of Nigeria propelled oil prices above $138 (U.S.) a barrel Tuesday, less than $2 away from crude's trading record.

The crude futures market was also showing disappointment over Saudi Arabia's modest production increase announced Sunday at a meeting of oil producing and consuming nations. The kingdom said it would pump more crude oil this year if the market needs it. That fell far short of hopes for a larger increase.

Light, sweet crude for August delivery rose $1.38 to $138.10 a barrel by noon in European electronic trading on the New York Mercantile Exchange. The contract rose $1.38 to settle at $136.74 a barrel Monday.

The increase put crude close to the trading record of $139.89 reached early this month.
Prices increased as the U.S. greenback weakened — in morning European trading, the euro bought $1.5559, up from $1.5499 the night before in New York and other major currencies also gained on the dollar.

When the dollar loses ground, investors tend to buy oil and other commodities seen as a hedge against inflation. Many analysts believe the dollar's protracted decline has been one of the main reasons oil has nearly doubled in value over the past year.

Investors were also closely watching developments in Nigeria. Royal Dutch Shell PLC has said it cannot meet contractual obligations to export oil from a Nigerian oil field following a militant attack, and news reports say Chevron Corp. has been forced to shut down a Nigerian oil facility, also after a militant attack. Chevron's workers in Nigeria also reportedly walked off the job Monday after talks with the company over staffing levels broke down.

“Markets are still concerned about oil supply, particularly after disruptions last week in Nigeria,” said David Moore, a commodity strategist at the Commonwealth Bank of Australia in Sydney.
The production outages in Nigeria appeared to overshadow a cease-fire declaration by the Movement for the Emancipation of the Niger Delta, or MEND, the largest militant group in Nigeria. Attacks by MEND have sliced about one quarter from Nigeria's normal oil daily oil output, helping buoy crude prices in international markets.

EU nations approved new sanctions Monday against Iran, imposing additional financial and travel restrictions on a list of Iranian companies and experts — including the country's largest bank. The 27-nation bloc stopped short of banning oil and gas exports from Iran, OPEC's second-largest producer, in response to its nuclear program plans.

With upward pressure predominating, “the Saudi hike in output that they announced on Sunday is not enough to cause prices to come down,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

Saudi Arabia said it would add 200,000 barrels per day in July to a 300,000 barrel per day production increase it first announced in May, raising total daily output to 9.7 million barrels.
“There's a broader review, in the market, of whether the increase in Saudi output will be sufficient to meet the ongoing demand for oil, particularly from developing economies,” Mr. Moore said.

In the U.S., Democratic members of Congress said Monday they intend to tighten investment restrictions on pension funds, investment banks and other large investors that they blame for driving up fuel prices. Investors have increasingly pumped money into contracts for oil and other commodities as a hedge against inflation when the dollar falls.

Vienna's JBC Energy, in its daily market report, noted that skyrocketing prices at the pump apparently were having an effect on U.S. driving habits, citing U.S. Department of Transportation reports showing a 2.1 percentage point decrease in U.S. vehicular travel from January through April, year on.

Looking at gasoline demand for the whole year, JBC predicted a 1.7 per cent drop compared to 2007.

Analysts said the oil market was also supported by tight fundamentals.

“It's not just speculators or just fundamentals,” Mr. Shum said. “Global oil markets are at this time structurally tight, meaning demand keeps growing and supply is playing catch-up with demand. That has attracted speculators into oil,” Shum said.
In other Nymex trading, heating oil futures added nearly 5 cents to $3.8460 a gallon while gasoline prices rose by almost 4 cents to $3.4936 a gallon. Natural gas futures added close to 5 cents to $13.250 per 1,000 cubic feet.

Brent crude futures rose $1.23 to $137.14 a barrel on the ICE Futures exchange in London.
© Copyright The Globe and Mail

Talisman eyes Iraq

Energy giant wants to extend its reach into Northern IraqBy MARKUS ERMISCH, SUN MEDIA

Talisman Energy is zeroing in on northern Iraq as the Calgary-based company is trying to extend its global reach.

The company said yesterday it expects to initially spend about $95 million on two oil blocks in the area controlled by the Kurdistan regional government (KRG).
Company spokesman David Mann said the "KRG has a big potential to become a new core area for Talisman."

Talisman will gain a 40% stake in an established production sharing contract area, with Canada's WesternZagros Resources Ltd. holding 40% and the KRG retaining the remainder.

The company also entered into a two-year seismic services agreement with the KRG on another block, after which it will have the option to gain 60% and commit to one well in the first year.
Additionally, it will pay $220 million to build social infrastructure in the KRG zone, such as roads and hospitals.

The news comes a month after CEO John Manzoni announced that Talisman will sell about $3-billion worth of its less productive international assets.

Proceeds from the sales will be invested in North American unconventional natural gas plays as well as in expanding Talisman's global footing, most notably in Southeast Asia and the North Sea.
Compared to southern Iraq, which is still marked by civil unrest, the northern part of the country is relatively safe and has been awarding contracts to international companies for some time.

"As that part of the world goes, it's very stable," Mann said.
"It seems to be somewhat of a haven in the midst of some fairly troubled areas."
The population in northern Iraq, he said, is generally in favour of development.
But despite the relatively more peaceful conditions, Mann said Talisman gas checked into the security of the area.

He said that spending money on social infrastructure is not an unusual requests, noting that it fits with the company's corporate practices.

TLM Huge Crosses After Hours

Talisman Energy Signs Agreement With KRG

Talisman Energy Signs Agreement With KRG
10:03 EDT Monday, June 23, 2008

CALGARY, ALBERTA--(Marketwire - June 23, 2008) - Two wholly-owned subsidiaries of Talisman Energy Inc. (TSX:TLM) (NYSE:TLM) have entered into agreements with the Kurdistan Regional Government (KRG) within Iraq for interests in Blocks K44 and K39 respectively, effective upon completion of certain conditions, which Talisman expects will be satisfied within 60 days.
"This is an exciting opportunity in a world class hydrocarbon basin," said John A. Manzoni, President and Chief Executive Officer. "It is a great fit in terms of Talisman's global expertise and the strategic objectives of our exploration program, with the potential to become a core producing area for us.
"We have done extensive due diligence, including careful review of legal, regulatory, security and corporate responsibility issues. Block K44 is an established Production Sharing Contract (PSC) area, entered into by the KRG prior to the effective date of the new Iraqi constitution. The block is in the early stages of exploration with a well currently drilling. Both blocks are within the territory widely recognized as being on the KRG side of the 'Green Line' boundary that currently demarcates the region of Kurdistan within Iraq."
Talisman will acquire a 40% interest in Block K44, with WesternZagros Limited (a wholly owned subsidiary of WesternZagros Resources Ltd.) holding 40% as operator and the KRG retaining 20%. Talisman plans to spend US$80 million on the block, including past costs and a three well commitment.
Talisman has also entered into a seismic services agreement with the KRG on Block K39 for a period of two years, following which Talisman will have the option to enter into a PSC as operator of the block with a 60% working interest and a one well commitment in the first year. Talisman estimates exploration costs associated with the initial work program on this block to be US$10-15 million.
As part of the transactions with the KRG and in keeping with Talisman's corporate responsibility policies and practices, the Company will pay US$220 million plus further conditional contributions to the KRG for the sole purpose of providing financial support to infrastructure and capacity building projects for the benefit of the people in the region and, in particular, the local communities in the agreement areas. The KRG is bound to adhere to the principles of the Extractive Industry Transparency Initiative (EITI) pursuant to the Kurdistan Regional Oil and Gas Law. Talisman and the KRG have confirmed their mutual commitment to revenue transparency in the spirit of the EITI, as well as to promoting respect for and compliance with human rights principles, including those set forth in the Voluntary Principles on Security and Human Rights.
Talisman Energy Inc. is an independent upstream oil and gas company headquartered in Calgary, Alberta, Canada. Talisman has operations in Canada and its subsidiaries operate in the UK, Norway, Southeast Asia, North Africa and the United States. Talisman's subsidiaries are also active in a number of other international areas. Talisman is committed to conducting its business in an ethically, socially and environmentally responsible manner. The Company is a participant in the United Nations Global Compact and included in the Dow Jones Sustainability (North America) Index. Talisman's shares are listed on the Toronto Stock Exchange in Canada and the New York Stock Exchange in the United States under the symbol TLM.