How to ensure safer drilling What is fracking and why is it so controversial? - Edition Four - July 2012

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How to ensure safer drilling What is fracking and why is it so controversial? - Edition Four - July 2012
Edition Four – July 2012

How to ensure safer drilling
What is fracking and why is it so controversial?
How to ensure safer drilling What is fracking and why is it so controversial? - Edition Four - July 2012
1    OilVoice Magazine JULY 2012

                                                                 Adam Marmaras
                                                          Manager, Technical Director

    Issue 4 – July 2012
                                           Welcome to the 4th edition of the OilVoice
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How to ensure safer drilling What is fracking and why is it so controversial? - Edition Four - July 2012
2     OilVoice Magazine JULY 2012

    Contents

    Featured Authors
    Biographies of this months featured authors.                                           3
    Sometimes the oil industry just makes money - no matter what it does
    By Larry Wall                                                                          6
    Insight: Free is the way...
    By David Bamford                                                                       8
    Review: Don't steal from us Argentina...
    By Richard Etherington                                                                 9
    Recently added companies
    The latest companies added to the OilVoice database                                   11
    Review: Is there any oil offshore East Africa?
    By David Bamford                                                                      12
    Insight: Finding more UKCS oil...
    By David Bamford                                                                      15
    Clearing the air - Oil, subsidies, imports, exports, ownership, alternatives and
    more
    By Larry Wall
                                                                                          18
    What is fracking and why is it so controversial?
    By Matt Rawlings                                                                      26
    Bowleven plumbing 2009 lows... Material undervaluation provides a potentially
    very attractive buying opportunity
    By Richard Jennings
                                                                                          27
    Ithaca Energy - Recent takeover collapse now offers opportunity to the bulls
    By Richard Jennings                                                                   29
    Featured University
    This month we are featuring University of Ibadan                                      40
    Understanding U.S. gasoline prices
    By Larry Wall                                                                         41
    Heritage Oil - Unloved, forgotten and materially undervalued
    By Richard Jennings                                                                   44
    How to ensure safer drilling
    By Richard Kluth                                                                      53
    Exploration: How to find more oil
    By David Bamford                                                                      54
    Significant changes taking place in U.S. Oil & Gas industry
    By Larry Wall                                                                         56
    Fund raising CFO's are vital outside the FTSE 250
    By Kris Hicks                                                                         60
    Fracking - Gas drilling and environmental threat
    By Keerthana Karthik                                                                  61
    Due diligence in the oil industry
    By Michael Littlechild                                                                63

                                                           press@oilvoice.com | +44 208 123 2237
How to ensure safer drilling What is fracking and why is it so controversial? - Edition Four - July 2012
3    OilVoice Magazine JULY 2012

    Featured Authors

    OilVoice is always on the lookout for quality, original content. We receive submissions
    from people in the industry on a regular basis, who in turn benefit from our large user
    base. You get a chance to broadcast to the industry and spread the word, and we get
    fantastic original content. Get in touch for more details!

                        Richard Etherington
                        OilEdge
                        Richard Etherington, 24, works as a freelance journalist. Richard, a BA
                        Hons Political Science graduate, is also a fully trained sub-editor and
                        reporter. He is a former equities reporter and columnist, who specialised
                        in small cap drilling and mining companies – during which time he built up
                        an impressive portfolio of industry contacts.

                        David Bamford
                        OilEdge
                        David Bamford is non-executive director of Tullow Oil, and a past head of
                        exploration, West Africa and geophysics with BP.

                        Matt Rowlings
                        McLaren Software
                        Matt Rawlings, an experienced journalist currently working with McLaren
                        Software.

                        Richard Kluth
                        Pulse Monitoring
                        Richard has been working in the upstream oil and gas sector since 1994
                        and has extensive experience in monitoring and measurements both in
                        the subsea and down-hole domains and across multiple disciplines
                        including drilling and production.

                        Kris Hicks
                        AVA Energy
                        Kris has spent the last 13 years working with senior talent in the energy
                        and infrastructure sectors, initially with a large global FTSE organisation,
                        where he progressed to become one of their leading consultants.

                        Keerthana Karthik
                        GAJ Industrial Supply
                        Keerthana Karthik is a blogger who writes on industrial supply products.
                        She at present blogs for Gajindustrialsupply, a global ecommerce retailer
                        of high heat pump, jet pumps, Monoblock pumps, ac motor, three phase
                        induction motors, water pumps, air compressor and more.

                                                             press@oilvoice.com | +44 208 123 2237
How to ensure safer drilling What is fracking and why is it so controversial? - Edition Four - July 2012
4   OilVoice Magazine JULY 2012

                          Richard Jennings
                          Spreadbet Magazine
                          Richard Jennings' background is as an equities fund manager, being
                          responsible for in excess of half a billion pounds at a local authority fund.
                          He qualified as a CFA in 2000 and has been an active personal investor
                          over the last 10 years, recently starting Spreadbet Magazine to enhance
                          traders understanding of the markets with quality and thought provoking
                          features.

                          Michael Littlechild
                          GoodCorporation
                          Michael takes responsibility for the delivery and quality of
                          GoodCorporation's on-site assessment work. He has led assessments in
                          Europe, the Middle East, Asia, Africa and the US and specialises in the oil
                          and gas sector and in anti-corruption policies and systems. He frequently
                          writes on business ethics and anti-corruption measures.

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How to ensure safer drilling What is fracking and why is it so controversial? - Edition Four - July 2012
How to ensure safer drilling What is fracking and why is it so controversial? - Edition Four - July 2012
6    OilVoice Magazine JULY 2012

    Sometimes the oil
    industry just makes
    money - no matter
    what it does
    Written by Larry Wall from Larry Wall

    Sometimes, a business cannot help but make money. This is the case with the oil
    industry today. Because of speculation, uncertainty in the Middle East and increased
    global demand, oil is nearing record highs.

    The consumers do not like that because it means the price of gasoline is increasing
    and they blame the U.S. Oil companies of making unfair profits.

    This is one of the cases where you cannot help but make money, mainly because of
    laws that are on the books in the United States. Let's walk through the steps.

    Oil Company CESB produces oil in the United States, onshore and in the Gulf. They
    do not necessarily send it to the refineries they own, they send it to the nearest
    refinery that can handle that grade.

    However, people want lower prices and suggest that all the oil companies agree to
    lower their prices. Well if they all come together and decide as a group to lower the
    price, they have just violated the anti-trust laws. Oil companies cannot and do not
    discuss prices with each other.

    But say we get pass that hurdle, and the price of U.S. produced oil is lowered.

    They are going to then get sued.

    First, the federal government will sue for the underpayment of royalties on oil
    produced in federal waters. Even if the oil sells for less than market value, the
    federal government is going to demand that royalties be paid on market value and
    not sale price. So the oil companies have to pay royalties on income they never
    made.

    If the oil is produced onshore, in Louisiana for example, the state is going to sue for
    the underpayment of severance taxes. The tax is levied on the value of the oil and
    not necessarily the price of oil.

    The state and individual landowners are also going to sue over the royalty issue
    again.

                                                         press@oilvoice.com | +44 208 123 2237
How to ensure safer drilling What is fracking and why is it so controversial? - Edition Four - July 2012
7    OilVoice Magazine JULY 2012

    So we get pass all of that and the oil goes to the refinery. But the refinery also has to
    buy foreign oil to meet its demand. How do you convince the foreign producers to
    lower their prices--you do not.

    So, the refineries agree to average the price of domestic and foreign crude and give
    up some profit.

    The refineries make the gasoline and it goes to the distributors. Now, the distributor
    is not required to pass on the savings to the gasoline stations, because the
    distributors are not owned by the oil companies and most gasoline stations are not
    owned by oil companies.

    So, there is no guarantee that the savings will ever get to the pump.

    However, if some gasoline stations do get the savings and pass that savings on to
    the consumer, other stations may not. Then you get into the issue of below cost
    selling laws. Yes, there are laws in most states that prevent a gasoline station from
    selling gasoline below its cost. So, the stations that cannot get the cheaper gasoline
    sue those stations that can.

    Along the way, the unfair trade laws will come up--but that gets really complicated.

    Then as the end of the year nears, and the corporate income tax returns are
    prepared, the government said that the oil companies underpriced the value of its oil
    and therefore made less than they should have and then levies additional taxes and
    fines.
    Some People Will Lose Money

    Finally, the stockholders in all of the major oil companies are going to see their
    dividends decrease and maybe the stock value go down. They will then sue the
    corporate leaders for not achieving maximum return on its investment. Thus, you end
    up spending a ton of money on legal fees.

    You see all those ads on televisions about class action lawsuits and how you may be
    entitled to a monetary settlement. I was involved in one of those suits. I had financed
    some home improvements and the finance company overcharged a large group of
    customers. I received a check for $1.27. I never cashed it. I just hung it on my wall
    (real wall and not Facebook wall).

    The price of oil is controlled by the world market. The OPEC nations still control a
    major portion of the supply and still set prices. The speculators and day traders react
    to the slightest event and the price goes up.

    It has been reported in the news recently that oil production in the U.S. has
    increased since President Obama has been in office. Most of that increased
    production is coming from projects started during the Bush administration and are
    just now coming on line. It can take six to seven years to bring a deepwater well on
    line.

    So, my point is that oil companies are making money. Thus the stockholders are

                                                          press@oilvoice.com | +44 208 123 2237
How to ensure safer drilling What is fracking and why is it so controversial? - Edition Four - July 2012
8    OilVoice Magazine JULY 2012

    making money, which means a lot of 401K accounts, pension plans and bond
    holders are making money. It means that people are working, making good wages
    and paying taxes and supporting businesses in the communities where they work.

    Oil prices will eventually come down and so will gas prices. The oil industry has a
    consistent history of ups and downs. We just have to wait it out. If we try to
    manipulate the market, we will be doing a great disservice to capitalism and probably
    do more harm than good.

    As usual, as a matter of full disclosure, I worked for the oil and gas industry as PR
    director of a trade association for 22 years. In December 2010 I was told my position
    was being eliminated and my services were no longer needed. That action did not
    put the industry on my list of favourite groups. However, the scenario I have
    presented is one I mapped out years ago and I believed then, just as much as I
    believe it today.

                                     View more quality content from
                                     Larry Wall

    Insight: Free is the
    way...
    Written by David Bamford from OilEdge

    To everybody who has just returned from the EAGE in Copenhagen, I hope
    you enjoyed yourselves, especially considering how much it cost you and
    your company:

    So, you took what, 4 days away from the office? Call that a week and let's divide the
    typical built up cost of a FTE of 200-250,000 Euros (do we still have them!) by 50 to
    get a cost of 4-5,000 plus your hotel and travel - hmm, another 1000 at least - plus
    registration, somewhere between 500 and 750 depending on your timing. So let's
    agree on ~ €7000 in total?

    Of course if your company wanted to exhibit; well, my brain isn't agile enough to
    figure it all out but I did hear that one well-known oil field services contractor figured
    that all-up it was going to spend ~$800,000 on the EAGE in Barcelona, and decided
    to give it a miss!

                                                           press@oilvoice.com | +44 208 123 2237
How to ensure safer drilling What is fracking and why is it so controversial? - Edition Four - July 2012
9    OilVoice Magazine JULY 2012

    And apart from having a 'good time' what do you expect to get out of it that you
    couldn't find by browsing companies' web-sites where all their papers, products and
    services appear anyway, and for free?

    Before I go any further, I should say that I don't mean this as an attack on the EAGE.
    There are plenty of other entities, noticeably commercial companies, that charge
    amounts getting well into four figures - in €, £ or $ - to attend one of their events.

    My point is, to repeat:

    We are increasing living in a world where you can download more or less anything,
    certainly more or less anything that conference presenters and exhibitors are willing
    to stand up and talk about and put on a slide, for free, more or less instantly - well, if
    you have decent broadband that is. And from the comfort of your own desk or study
    at home - without having to fight your way through LHR, ABZ or IAH!

    As the author of this article in the Telegraph points out 'All sorts of things we used to
    pay large sums of money for are now nearly or completely free.'

                                     View more quality content from
                                     OilEdge

    Review: Don't steal
    from us Argentina...
    Written by Richard Etherington from OilEdge

    The dust is no closer to settling on Argentina's highly-controversial decision
    expropriate one the country's largest oil and gas firm, YPF. Six weeks have
    passed since the Argentine Senate approved the bill to renationalise the
    industry giant on April 26, yet the fallout from the move continues to make
    headlines.

    While President Cristina Fernández de Kirchner's restoration of 51% of the
    company's ownership to the state may have won plaudits at home with its
    appeal to nationalist sentiment, outside the South American nation the story is
    very different.

                                                           press@oilvoice.com | +44 208 123 2237
10    OilVoice Magazine JULY 2012

     By bringing sister company Repsol's 57.4% majority control in the company to an
     abrupt end, the Fernández administration has provoked political outcry from a
     number of different sources. Unsurprisingly at the front of the queue calling foul play
     is the Spanish oil giant itself, which has held majority control over YPF since the
     1990s. The Madrid-based firm has also been supported by both the Spanish
     government and the European Union (EU), which have threatened to bring a World
     Trade Organization (WTO) suit against Argentina.

     So, what caused Argentina to act? In short, lack of investment. Members of the
     Argentinian parliament have argued that since Repsol took over YPF, its production
     and investment levels have declined rapidly leaving Argentina in a position where it
     is being forced to import gas for the first time in twenty years. But upon closer
     inspection, there appears to be more to Buenos Aires' decision. With a basket full of
     economic problems to deal with (including rampant inflation, commodity prices
     moderating and domestic demand declining), the Fernández administration is
     becoming increasingly desperate in its attempts to protect Argentine industry and to
     maintain the level of economic growth it has enjoyed over recent years.

     With its protectionist policies, however, Argentine is more likely shooting itself in the
     foot than protecting its interest. Indeed, in the aftermath of the takeover of YPF, the
     country's investment climate is likely to remain depressed over the coming quarters.
     As Pablo Longueira, Chilean Economy Minister, recently noted, 'protectionist
     practices' result in lower investor confidence in the region, and shuffles investments
     towards more favourable places such as Asia. Given this, Argentine may soon find
     itself struggling to raise the substantial investment it requires to develop its promising
     shale potential; a move which may see the nation relying even more heavily upon
     imports in the long term. What is more, it is not just investors that will be giving
     Argentine a wide berth: by adopting such a strategy the Fernández administration is
     likely to trigger a backlash from some of the country's main trade partners - most
     notably the EU.

     After the loss of its subsidiary, Repsol has unsurprisingly taken Buenos Aires' actions
     personally and has already taken retaliatory action. On May 18 the firm terminated
     its contract to supply liquified natural gas (LNG) to Argentina. Repsol pointed the
     finger that state-run firm Enarsa (Energia Argentina) for breach of several terms of
     their contract, including non-payments. Repsol also noted that Enarsa had changed
     delivery schedules and wanted to discuss the prices of shipments for LNG. On top of
     that, Repsol has been quick to initiate legal proceedings under international law
     against the Argentina government over the seizure of YPF. Repsol is hoping to
     received payment of up to US$10 billion via arbitration - a judgement which will be
     decided by the World Bank's International Centre for Settlement of Investment
     Disputes, should the two sides fail to find a resolution within six months.

                                      View more quality content from
                                      OilEdge

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11    OilVoice Magazine JULY 2012

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                                                                  press@oilvoice.com | +44 208 123 2237
12    OilVoice Magazine JULY 2012

     Review: Is there any oil
     offshore East Africa?
     Written by David Bamford from OilEdge

     The emergence of East Africa as a petroleum province has been spotted by the
     media, especially the UK press where a headline such as 'Improved
     technology helps to oil the wheels for East Africa' (The Times, 7th January
     2012) is but one of many.

     As a recent Finding Petroleum Forum revealed, it is certainly true that improved
     technology has had an impact, whether satellite imagery, aero-magnetics, gravity
     gradiometry or plate tectonic modelling, but where the oil is - and whether the gas
     that has been discovered is commercial - requires more careful thought.

     I am grateful to Alastair Bee at Richmond Energy Partners, Chris Matchette-Downes
     at MDOil and Oswald Clint & Robert West at Bernstein Research for helping me
     summarise the current status.

     If we go back let's say 10 years, East Africa was completely disregarded by
     petroleum explorers. Only a handful of wells had been drilled and there wasn't very
     much data but source rocks were generally believed to be absent or poor; the
     prevailing view was that there would only be small amounts of gas, if anything.

     Actually, this was based on 'Myths, Myopia, Misinformation' as pointed out by Chris
     Matchette-Downes in 2005(1). In particular, he identified evidence for contiguous
     source rocks, for example in the Early and Mid-Jurassic, which could be in the oil
     window offshore. And of course, persistent seeps were known both offshore and in
     the lakes of the East African Rift System.

     Since 2008, there has been significantly more exploration activity and Richmond
     Energy Partners have analysed the current discovery position as summarised in the
     table on the next page.

                                                         press@oilvoice.com | +44 208 123 2237
13    OilVoice Magazine JULY 2012

     Courtesy of Richmond Energy Partners

     New well results are being announced all the time but the essence is still the same:

     Oil has been discovered
     onshore in the Albertine
     Graben of Uganda (and very
     recently in Kenya) - see the
     Finding Petroleum
     presentation by Shane Cowley
     of Tullow Oil(2).

     Large amounts of gas have
     been discovered offshore - in
     both Mocambique and
     Tanzania - but no oil as yet.

     What has been proposed so
     far offshore is that the
     youngest source rock is an
     Early/Mid-Jurassic marine
     shale and so one model is that
     this may have been buried
     under more sediment than
     previously anticipated and is
     now in the gas window.
     However, this source rock has not been sampled and an alternative explanation is

                                                        press@oilvoice.com | +44 208 123 2237
14    OilVoice Magazine JULY 2012

     that the gas derives from an area of this source rock that has had high terrigenous
     input and so is gas prone.

     The gas volumes discovered in both Mocambique and Tanzania are significant and
     as a distant observer one's immediate response is to think that they are both
     candidates for LNG schemes. However, as Monica Enfield of Energy Intelligence
     pointed out in her Finding Petroleum presentation(2), this perspective ignores the
     focus both host governments will have on domestic issues such as creating a local
     market and providing employment in the relatively short term.

     As Bernstein Research has noted, a combination of successes - for example shale
     gas onshore in the USA, conventional gas in the Eastern Mediterranean and on the
     NW Shelf of Australia - have led to there being a large number of global LNG
     opportunities, for gas to move to either Europe or SE Asia, which may mean that
     somewhat more costly East African LNG will have to wait its turn in the queue. Whilst
     the Majors may be content to 'bank' gas for the longer term, ready for the day the
     price rises and it is needed, as pointed out above this may not at all be in line with
     the hopes and expectations of the governments of Tanzania and Mocambique.

     The attraction of offshore oil would be that the global price is probably going to
     remain high and that a discovery of a few hundred million barrels can be developed
     fairly rapidly with an FPSO and shuttle tankerage (indeed many tankers pass this
     way as they go around the Cape of Good Hope!).

     So where might there be oil offshore?

     Explorers now have vast amounts of data - from satellites, airborne surveys, field
     geologists, seabed cores, national repositories, the huge number of wells drilled
     (over 200,000 'wild cats' alone since 1965), publications - to sift through to identify
     basins and plays which might work or, in the question I have just posed, might work
     in a particular way.

     The ability of explorers to spot the next big play depends on their ability to deal with
     this veritable Niagara Falls of data, to solve what some have referred to as the 'Big
     Data'(3) problem - or opportunity, perhaps?

     Deploying a deep understanding of plate tectonics and chrono-stratigraphy -
     understanding what gets deposited where and when - is the key process by which

                                                           press@oilvoice.com | +44 208 123 2237
15    OilVoice Magazine JULY 2012

     this is achieved, whereby opportunity is accessed.

     It's just my opinion but we explorers may be guilty of laziness, believing - or at least
     giving the impression of believing - that offshore exploration nowadays simply
     consists of dropping in a regional/exploration 3D seismic survey and then 'no dry
     holes' will result. This is far from the truth!

        1. East Africa Petroleum Conference, 2005
        2. Finding Petroleum Forum, 17th April 2012
        3. http://www.findingpetroleum.com/video/385.aspx

                                      View more quality content from
                                      OilEdge

     Insight: Finding more
     UKCS oil...
     Written by David Bamford from OilEdge

     Now diving into the website of the Bank of England is not a normal activity for
     me, you understand, but I was searching for a copy of their latest Quarterly
     Bulletin in which, according to the Times this week, they attribute part of the
     UK's drop in productivity to the decline in output from the North Sea; and sure
     enough I read:

     'Norway is similar to the United Kingdom; both have seen falls in energy and
     utilities productivity over both the recession and recovery periods. This is not
     a surprise as they extract oil from common waters - the North Sea. The
     absolute fall at the aggregate level is larger in Norway, as extraction and
     utilities are a larger share of GDP (Table A).(4) As the decrease in oil
     production from the North Sea is likely to be structural rather than cyclical in
     nature, this evidence points to a fall in the level and growth rate of aggregate
     underlying labour productivity
     (Chart 8).'

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16    OilVoice Magazine JULY 2012

     For a moment there, I thought The Old Lady of Threadneedle Street was getting into
     exploration geology and was perhaps suggesting we should pursue more
     stratigraphic traps or perhaps even fractured basement! However, 'structural' here
     means - I take it - that the decline is inevitable (actually driven by the rocks) and
     there's nothing we can do about it.

     Oh really!

     To repeat myself, there is an old adage that runs "The best place to find oil is in an
     oil field!"

     As global exploration gets more difficult, there is a major prize to be gained by
     increasing flow rates and improving recovery factors in existing fields. In any
     petroleum province which is very mature in exploration terms, such as the North
     Sea, it would be better for companies to stop 'wildcat' exploring and focus on
     enhancing production in and around existing oil & gas fields.

     Increasing recovery factors depends on a range of technologies - surveillance,
     'smart' wells, EOR etc. Nevertheless, worldwide, just a 1% increase in the global
     recovery factor represents almost 90 billion barrels of oil, equivalent to replacing
     roughly 3 years of production at current levels.

     Wherever serious studies have been undertaken, truly astonishing volumes of oil can
     be contemplated from increasing recovery factors using technologies that are known
     today.

     Certainly, it seems reasonable to believe that the current ~10% of all existing
     discovery volumes that has actually made it to production is very much a lower limit.
     In many instances, a rising oil price will ensure that primary/secondary/tertiary
     recovery projects are economic although in some instances it may be necessary for
     governments to give tax incentives to help improved recovery projects, for example
     those based on CO2-EOR, to bring them into existence.

     As an example, Gluyas has estimated, by comparing the UKCS with West Texas,
     that an additional 2.7 - 8 billion barrels of technical reserves could result from CO2
     injection, corresponding to an increase of recovery factor in the range of 4 to 12%. In
     addition there are long term, indeed historic, estimates that improved reservoir
     modeling - and monitoring - could add 10% or more to recovery factors.

     I'm for a bit of 'cyclicity' where we push the recovery factor for every UKCS oil field
     up to 70%!

                                      View more quality content from
                                      OilEdge

                                                           press@oilvoice.com | +44 208 123 2237
18    OilVoice Magazine JULY 2012

     Clearing the air - Oil,
     subsidies, imports,
     exports, ownership,
     alternatives and more
     Written by Larry Wall from Larry Wall

     While gasoline prices have been declining recently, they are still higher that some
     American consumers would like. In addition, there has been a growing movement to
     find alternatives to crude oil, for environmental reasons and at one time the fear that
     the U.S. was growing too dependent upon foreign sources of oil.

     With the discoveries of vast amounts of natural gas and crude oil in shale formation,
     there is the belief by some that the United States can achieve energy independence
     if it can find an alternative to crude oil. Also the recent decrease in the global price of
     crude oil and the increased reserves is going to hamper or at least slow efforts at
     finding alternative motor fuels.

     Ideas such as wind turbines and solar panels have been around for a long time and
     are in real-situation use. Electric cars are on the road, but have limited mileage
     before the good old internal combustion engine takes over.

     There has been talk that all of the "subsidies" received by the oil and gas industry
     should be taken away and use to develop the alternative fuel industry.

     People believe that a few people own the big oil companies and they are making
     obscene profits.

     It is time to take a closer look at these issues. As a former Public Relations Director
     for a Louisiana-based oil and gas trade association for 22 years, I learned a lot about
     the industry. One of my jobs was research, finding sources and verifying the
     statements they were making or the information they was presenting. Some of it was
     accurate and we used it. Some of it was not and we discarded it. Now, it must be
     noted that the industry I worked for also fired me after my 22 years of service. So it is

                                                            press@oilvoice.com | +44 208 123 2237
19    OilVoice Magazine JULY 2012

     possible that I am trying to get back in the industry good graces, or trying to get back
     for being fired. Neither is the case. I was laid off, to use a nicer term, because the
     trade group was going in a different direction that did not include me. Despite that, I
     still have great respect for the industry. Thus as the old saying goes, "I have no dog
     in this hunt." I am just trying to get the facts out and clear up some of the confusion.

     There Are No Subsidies-There Are Tax Incentives

     There is more to oil than gasoline and BTUs. The most gasoline you can get from a
     42 gallon barrel of oil is 21 gallons, usually a little less and in some cases, depending
     on the quality of the oil a lot less. If you cannot make gasoline, then you make other
     things. The typical barrel of oil can be turned into 19.4 gallons of gasoline, 10.5
     gallons of diesel fuel and heating oil, 4.1gallons of jet fuel, 1.7 million gallons of
     heavy fuel oil. 1.5 gallons of propane, 1.3 gallons of asphalt and road oil, 1.1gallons
     of petrochemical feedstocks and 5 gallons of other products.

     The list of products that are connected with oil is almost endless. However, the first
     order of business is to clear up the confusion about subsidies

     A subsidy is when the government or some other group gives money to help
     someone. In the context being discussed here a subsidy would be money given up
     front by the government to help a company develop or improve a product, such as
     alternative fuels. If the project does not work, it is unlikely that the subsidy will be
     repaid.

     A tax break, usually referred to as an incentive when it is first granted, is the first step
     the government will take to lower the tax burden, help it be more competitive with
     foreign industries or compensate it for certain business expenses.

     Individuals get tax breaks. When you file your tax return you can take a deduction for
     charitable contributions, for losses you incurred in case your home burned down, a
     portion of the medical expenses you incur and so on down the line. If you are over
     65 you get an extra deduction just for being old. If you are blind, you get another
     deduction.

     After a tax incentive becomes or proves its success, it is then referred to as a tax
     break and then, when the economy goes down the tubes, as it does frequently, the
     tax break becomes a tax loophole or giveaway and therefore there is usually an

                                                            press@oilvoice.com | +44 208 123 2237
20    OilVoice Magazine JULY 2012

     immediate call to end it. Those receiving the incentive will usually fight it and not very
     much happens.

     After he first took office, President Obama had a budget plan that was going to be
     tough on the oil and gas industry. I happened to be assigned the task of reviewing
     that plan. The key points regarding the oil and gas industry are as follows:

           Repealing the expensing of Intangible Drilling Costs
           Repeal of Percentage Depletion
           Repeal Marginal Well Tax Credit
           Repeal Enhanced Oil Recovery Credit
           Increases Geological and Geophysical Amortization Costs
           Excise Tax on Gulf of Mexico Production
           Repeal of Manufacturing Tax Deduction
           Implementation of $4/acre fee on Gulf leases designated as non-producing
            (use or lose)
           Repeal Passive loss exception for working interests in oil and gas properties
           Abandoned Mine Lands Payment in Certified States
           Repeal Energy Policy Act fee prohibition and mandatory permit funds
            reinstatement of Superfund (oil industry pays 57 percent)
           Repeal Last In First Out reserve accounting
           Attempt to repeal the ability to defer foreign income (subject companies to
            double taxation-here and abroad.

     If you repeal all of these tax breaks, it was going to cost the industry $34 billion over
     10 years. Most would say the industry could afford it. Others would say that the
     government would just waste it. Both may be true, but you need to look at some of
     these issues.

     For instance, the repeal of the manufacturing tax deduction affects more than the oil
     industry. That is a tax break that every manufacturing entity in the country receives.
     Yet, the plan called for just repealing it for the oil and gas industry. That did not seem
     quite fair.

     The second item, repeal of the percentage depletion, only applies to independent
     producers, and not the major oil companies. So, is that necessary?

     Adding an excise Tax on Gulf of Mexico Production really does not make any sense.
     The government receives a lease payment every year for the offshore tracts.
     Companies pay huge bonuses up front to try and win the tracks and the government
     receives a royalty for all the oil and gas produced from that leased. So, where is the
     logic or fairness of adding an excise tax to that production? Also, keep in mind,
     producing oil in the Gulf of Mexico is not easy or cheap. By the way, royalty income

                                                           press@oilvoice.com | +44 208 123 2237
21    OilVoice Magazine JULY 2012

     is the second largest source of revenue for the United States Government. The
     personal income tax is the largest.

     The idea of implementing a $4 per acre fee on Gulf of Mexico leases that are
     designated as non-producing does not make sense. First, because a lease does not
     have a well on it, does not mean it is not producing. With new drilling techniques in
     place, a well on one lease can produce oil from several adjacent leases, thus
     reducing the industry footprint in the Gulf. If a lease really is a non-producing lease, it
     reverts back to the government after a certain period of time, but the lease payments
     are made during that time period. Again, there is no rationale.

     Next there was going to be an attempt to repeal the ability to defer foreign income. In
     other words, when a U.S. based company makes money in another country, it pays
     taxes in that country, and normally defers that income when paying its federal
     income taxes. The Obama plan would have the companies paying foreign taxes and
     then paying federal taxes on that same barrel of oil, even though it was produced in
     another country. That did not seem to make any sense.

     The other items in the Obama plan are more technical and would take too much
     space to explain them. Nothing was ever done with the plan. So for now the status
     quo on that item remains the same. However, it is important to remember, that none
     of these issues give money to the industry. They provide tax breaks. If the tax breaks
     are repealed, the cost of doing business will increase and just like any business, you
     pass on your higher operating cost to the consumer. Therefore, if this plan was
     enacted, the federal government would get $3.4 billion more each year in income
     and consumers would pay another $3.4 million each year for gasoline, diesel and all
     the oil and gas products we use each day. The planning was not very good.

     Ownership and Profits

     If you compare the profit margins for major manufacturing sectors, you will find that
     the major integrated oil and gas companies have an average profit margin of 7.9
     percent. Wineries and distillers have a 17 percent profit margin, internet information
     providers have a 23.8 percent profit margin and magazine publishers have a 58.1
     percent profit margin, according to FuelFix by StatOil, Oct. 27, 2011.

     One company that has been mentioned frequently is Exxon, which had about $40
     billion in profits during 2011.

     However, what does not get mentioned is that Exxon spent $412 billion during the
     year. That is a little less than a 10 percent return. That may be a little better than the
     overall average of the industry, but close to other types of industry operating in the
     United States. It is a very simple law of economics, if you know what you are doing
     and you spend a lot of money doing it, you are probably going to make a lot of
     money.

     However, with success come criticism and the argument that big oil companies are
     owned by other big oil companies and by the executives who make millions of
     dollars.

                                                            press@oilvoice.com | +44 208 123 2237
22    OilVoice Magazine JULY 2012

     Oil companies have joint ventures, where two companies will go in together to do a
     project, with one company being the operator and the other supplying cash, access
     to a pipeline, access to leases, use of boats, barges, helicopters, etc. It is something
     called cooperation. It works in the industry. Perhaps Congress could give it a try.

     The actual ownership of oil companies may be surprising. The basic breakdown is
     that 20.6 percent are owned by asset management companies, 21.1 percent owned
     by individual investors, 31.2 owned by pension funds, 17.7 owned by IRAs, 2.88 by
     corporate management of oil companies and 6 percent by other investors. Simply
     stated, there is No Mr. Exxon or Mr. Chevron who is making all the money.

     We Can Do It Ourselves

     With the discovery of the new shale plays for oil and gas, an attitude is developing
     that we can provide our own oil at our own price and not be "held hostage" by foreign
     countries. That is not going to happen anytime soon. Saudi Arabia has 17.7 percent
     of the world's crude oil supplies. Other nationalized oil companies hold lesser
     amounts, but far less than the major oil companies.

     U.S. dependency has dropped to 35 percent, after being as high as 60 percent or
     more. However, we cannot drill the wells and produce the shale oil and gas quickly
     enough to meet our daily needs. In fact, the concern over "fracking", a technique that
     has been used for years in drilling vertical wells and is now being used in the
     directional wells that produce the shale oil and gas, is coming under attack, which
     may slow that process.,

     Natural gas prices have dropped dramatically, because we never had to import
     natural gas from the other side of the world. We did get some from Canada, but that
     was for convenience purposes more than anything else. Thus the abundance of
     shale gas has created an excess supply. When supply exceeds demand, the price
     goes down. That is why Liquefied Gas Terminals are being built or reactivated, in an
     attempt to find a market for the excess natural gas.

     Even if the United States could produce enough oil to meet daily needs, the oil
     companies are going to charge the global market price. This is not to be greedy. This
     will be done to meet the demands of all those shareholders in the previous graph.
     They are going to want the maximum return on investments so the value of their
     stocks will grow and dividends can be paid.

     The United States, which collects sizable royalties from production in the Gulf of
     Mexico and on federal lands, is going to want the royalty payments based on the
     global market price. The producing states like Louisiana and others, where a
     severance tax or production tax is collected, based on the price of oil, are going to
     base collection of that tax on the global price.

     Now does anyone want to guess how the global price is going to be set? It will be
     done by the OPEC nations. If they cut back production and thus the amount they sell
     to other countries besides the United States, the price is going to go up. Also, this
     happened once before, they opened the taps and drove the prices so low many
     produces could not afford to compete in that market and had to shut in production.

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23    OilVoice Magazine JULY 2012

     We enjoyed very cheap prices for a while, but it did not last very long. During that
     time a lot of people lost their jobs and a lot of equipment was stacked and never
     used again.

     Looking At the Alternatives

     A lot of discussion has been devoted to developing alternative forms of energy. This
     is not going to be a discussion of which one is better or worse. It is going to be a
     discussion regarding the practical implementation of alternative energy.

     When it was decided that tetraethyl lead was dangerous and should be removed
     from gasoline as an octane enhancer, it took ten years to phase in the use of that
     gasoline because of the fleet of older cars on the road that could not user the newer
     unleaded fuels that were being developed.

     Now we are talking about cars powered by natural gas, liquefied natural gas,
     electricity and numerous other ideas. The alternative fuel movement is going to have
     to come together and pick a fuel that will be used for daily use. The car
     manufacturers will have to design the cars and someone will have to build the
     infrastructure, if the existing infrastructure that moves gasoline cannot be used.

     More than likely the alternative fuel industry is going to have its hand out looking for
     some type of subsidy. It would be unfair to ask the existing energy industry to finance
     the new industry that is going to take away a part of their business. However, we are
     probably a long way from that point. Renewable energy accounts for only 7 percent,
     which includes solar energy 1, percent, hydroelectric, 34 percent; geothermal, 9
     percent; biomass 53 percent and wind energy 7 percent.

     Why Are We Exporting Oil and Gasoline

     The United States does export some oil and a considerable amount of gasoline,
     diesel and other petroleum products. The oil is exported as a convenience. Some
     goes to Canada, Mexico and to Japan from Alaska.

     Remember that only half of a barrel of oil can be turned into gasoline. We produce
     more gasoline than we need. We buy oil by the barrel. We sell gasoline by the
     gallon. Therefore, it makes sense to sell the excess refined products instead of
     letting them accumulate. By selling them, the U.S. balance of trade is improved and
     foreign countries also develop a greater interest in our oil and gas industry. The
     Energy Information Administration, which is a branch of the U.S. Department of
     Energy, maintains extensive records on imports and exports.

     The EIA records show that in 2011 the United States exported 17 million barrels of
     crude oil, mostly to Canada and Mexico for convenience purposes. It just makes
     sense to send the oil to the nearest refinery. In the same year the U.S. exported 1.05
     billion barrels of refined products, with approximately 1 billion gallons going to
     Mexico, again for convenience purposes. Mexico is in the process of building new
     refineries. That number will decrease in future years.

     This presentation has touched on tax breaks, alternative fuels, governmental

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24    OilVoice Magazine JULY 2012

     involvement, products from a barrel of oil and other related items.

     The oil and gas industry is really four industries, production, refining, pipelines and
     marketing--the places where you buy your gasoline. Those are the same places that
     post the price each time it changes in numerals that can be seen from a great
     distance. I can assure you the grocery store or department stores do not advertise
     items where they have been forced to raise prices. Gasoline prices are always
     posted.

     Just a few points to remember

     The U.S. levies a tax of 18.4 cents per gallon of gasoline at the pump.

     Most, if not all, the states levy their own gasoline tax. These funds do not go to the
     oil companies. Thus, the price at the pump, in the United States, includes the taxes
     that are collected by the states and the federal government.

     Prices are dependent upon the cost of crude, the value of the euro against the dollar,
     political unrest in the Middle East, overall economic conditions and speculation. The
     oil and gas industry has no control over those factors and just like any other industry
     it must react to those factors.

     However, the oil industry has to react daily and the price change can show up that
     day. The garment industry may have to react daily, but the prices of blue jeans do
     not fluctuate like the price of gasoline.

                                     View more quality content from
                                     Larry Wall

                                                          press@oilvoice.com | +44 208 123 2237
Doing more with data
                                       Kuala Lumpur,
                                       October 24-26, 2012

Finding Petroleum / Digital Energy Journal is running 3 one day conferences in Kuala Lumpur, Malaysia, on
October 24, 25 and 26 on doing more with petroleum data, covering drilling, subsurface and production data.

These 3 events will present the most exciting new technology to help manage and work with all aspects of data
in the upstream all and gas industry.

The conferences are for people who work with drilling, subsurface and production data, who want to learn about
new ideas and new technologies to make their data work harder, to improve efficiency and safety of drilling,
ability to find new reservoirs and extend existing ones, and maximise production.

The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October
21-24.

Attendance is free - register now to secure your place.

  October 24 - Doing more with with drilling data
  October 25 - Doing more with subsurface data
  October 26 - Implementing data tools faster

The aim is

(i) to make it easier for people working in KL oil and gas companies and service companies to find out more
about the latest new technology to help manage data, and

(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a
local audience during the same trip.

The events are supported by the South East Asia Petroleum Exploration Society and Energistics, and timed to
co-incide with the Energistics National Data Repositories conference in KL.

The events will be free to attend.

For days 1 and 2, we will look for financial contributions from speakers - in the range 14600 MYR / USD 4760 /
GBP 3000 for a morning slot and MYR 9750 / USD 3200 / GBP 2000 for an afternoon slot. Sponsorship
opportunities are also available.

The third day "getting data implemented faster" will be panel discussions, chaired by Jerry Hubbard, CEO of
Energistics, and participants in the first 2 days' sessions will be invited to join.

For enquiries about sponsorship and speaking please contact our sales manager John
Finder on +44 208 150 5292, e-mail jfinder@onlymedia.co.uk

      Reserve your place now at FindingPetroleum.com
26    OilVoice Magazine JULY 2012

     What is fracking and
     why is it so
     controversial?
     Written by Matt Rawlings from OilVoice

     Without being involved in the industry or campaigning strongly either for or against
     the process, fracking is just something you vaguely remember from a few science
     lessons you had at school that you can't actually explain.

     Hydraulic fracturing, to give it it's proper name, is the process of drilling into the earth
     and setting off a series of small explosions to shatter and make cracks in the solid
     rocks, such as shale, in order to release the gas stored inside. Water is then injected
     into the rock along with chemicals and sand to encourage the gas to escape to the
     top of the 'mine' or 'well.'

     The most common practice is performed by drilling horizontally, i.e. across the rock,
     but it is also regularly performed vertically, going straight down into the ground, and
     this enables the extractors to find new sources of gas, or to extend their current
     pipelines. The horizontal drilling creates new channels within the rock, meaning that
     the gas is actually extracted much quicker than the more traditional methods.

     While this may sound like a pretty routine drilling procedure, simply extracting gas
     from the ground, it is viewed as highly controversial and has produced numerous
     campaigns calling it for the practice of fracking to be ceased, one high profile version
     in the UK was back in 2011 after two small earthquakes near to Blackpool. The
     campaigning is down, mainly, to the chemicals being used in the extraction process.

     The water used in the process comes from within the well itself, but the primary
     concerns among campaigners relate to the chemicals used, and the potential for
     them to find their way into drinking water.

     The issues, which prompted the Blackpool protests in 2011, came about after two
     small earthquakes - registering 1.5 and 2.2 on the Richter scale struck inland, and
     after complaints were received that fracking was to blame, the process was stopped
     while a full investigation was carried out.

     Those working in the industry itself have claimed that shale gas is safe, and they
     have said that any incidents of polluted drinking water have been down to simple
     poor practice, as opposed to accidents.

     It isn't just the UK where issues have occurred, with one highly documented case in
     America where a household claimed that shale gas found its way into their drinking
     water pipeline and caused the tap water to actually ignite.

                                                            press@oilvoice.com | +44 208 123 2237
27    OilVoice Magazine JULY 2012

     So if it's a potentially dangerous process with so many people against it, why have
     those in the industry persisted with it, there must be some real advantages of shale
     gas to make the fracturing process a worthwhile perseverance and method of
     extracting gas right? Put simply, yes, there are.

     Shale gas reduces the cost of gas on the market, and is actually contributing to a
     worldwide flow of gas, which has halved the domestic market price in the United
     States. In the UK, a number of research companies have even predicted that there
     are substantial amounts currently in the rocks under South Wales, with experts
     estimating the value at around £70bn.

                                     View more quality content from
                                     OilVoice

     Bowleven plumbing
     2009 lows... Material
     undervaluation
     provides a potentially
     very attractive buying
     opportunity
     Written by Richard Jennings from Spreadbet Magazine

     The folly of the stock market never ceases to amaze me. Below is a chart of
     Bowleven over the last 5 years and you can see how the stock twice nosed a high of
     over 400p, whilst in the intervening period falling to a low of 20p. For those punters
     lucky enough to pick up stock during the depths of investor despair that was
     prevalent in early 2009, 20 times your money could have been made at the peak
     (although its a trader with cajones of steel that can carry a profit of that magnitude
     without selling…) in early 2011 - just 2 short years.

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28    OilVoice Magazine JULY 2012

     At the current price, we are closing in on the very same levels touched in 2009 as
     the price fell to 20p - it is worth noting that the last time the shares approached these
     levels was during a period when the Company's very existence was in question due
     to the court case that was ongoing at the time with Peter Garnham and where
     ownership of the Company was being contested. This was later resolved with the
     case being dismissed and so no longer hangs over Bowleven.

     Intelligent investors can be forgiven for sratching their heads at this recent price
     activity given the tentative takeover approach that was made by Dragon Oil in
     February of this year when the shares sat at 75p. This very undervaluation was of
     course what attracted Dragon Oil to the company in the first place and prices of 150-
     250p were being bandied around by institutional holders and analysts alike as
     representing 'fair value' for the company. Well ladeez and gentlemens, such is the
     way with the stock market that a price of 59p has now been presented to you to pick
     up shares in Bowleven. The company actually has net cash of circa 35p at the
     moment (although this is diminishing) and so the entirety of its valuable exploration
     portfolio is now valued at just under £60m.

     Although Dragon Oil walked away from Bowleven, it was confirmed that DGO did not
     in fact look at the Company's books and many pundits put the termination of the brief
     flirtation down to the fact the the 'steal' basis of an acquisition was not possible given
     the run up in the share price back to a more realistic discount to its NAV. This does
     not detract from the deemed value in Bowlevens Cameroon licences and most
     analyst estimates of core NAV actually centre around the 200p mark.

     Let's not forget too that late last year Kevin Hart raised a further £80m through a
     placing at 103p - when placings of this magnitude occur, the shares are typically
     issued at a discount to the true worth of the Company in order to attract the fresh
     institutional money on board. Well, the Company is now further advanced in their key

                                                           press@oilvoice.com | +44 208 123 2237
29    OilVoice Magazine JULY 2012

     Sapele fields drilling program and yet you have the opportunity to pick up shares at a
     40% discount to those 'savvy' institutions…

     You might well be asking just how the stock market can present investors with that
     appears a one way ticket? As ever, there is always a catch. In the first instance, I
     doubt that the recent oil price weakness we are seeing or indeed the general stock
     market torpor are the true reasons for the price weakness that has been put about by
     some quarters of the press.

     What the market is saying is that the cost of raising funds for such Oil explorers (as
     we have seen with Xcite Energy in recent months) is rising and the debt markets are
     unlikely to play ball at this point in time. This leaves another potential equity fund
     raising or alternately 'farm in' (dilution of the Company's interest in its exploration
     portfolio by way of a 'major' being brought in, in exchange for a share of the spoils)
     as the likely options for Bowleven. The company needs to raise approximately
     another $250-300m. At the current market cap,doubt that Kevin Hart will take the
     more damaging route of further equity issuance but rather look to a farm in
     arrangement.

     At 59p, the downside looks to be almost non existent yet the upside remains 200p+,
     and potentially a lot more if the drilling program scheduled for this year and next is
     successful. 4th Conviction Buy for Spreadbet Magazine.

                                     View more quality content from
                                     Spreadbet Magazine

     Ithaca Energy - Recent
     takeover collapse now
     offers opportunity to
     the bulls
     Written by Richard Jennings from Spreadbet Magazine

     Ithaca Energy has been in the news for all the wrong reasons recently for those long
     the stock following the aborted takeover by various unnamed suitors and that has
     resulted in a few singed fingers...

                                                          press@oilvoice.com | +44 208 123 2237
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