OGJ Newsletter

Nov. 12, 2012
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

PwC reports increasing MLP activity in last 2 years

US upstream master limited partnerships (MLP) participated in a growing percentage of oil and gas asset transactions during the last 2 years, PwC US reported as part of its latest quarterly analysis of oil and gas asset transactions.

Rick Roberge, principal in PwC's energy merger and acquisition practice, noted "an upward trajectory with MLP deal activity" in oil and gas during 2011-12.

"While MLPs have traditionally been active in the midstream sector, we believe that there will be more activity with upstream assets as the number of upstream MLPs is increasing, and more are expected when capital markets are more receptive," Roberge said.

PwC reported 122 US oil and transactions total for the first 9 months of 2012, and researchers said MLPs were involved in nearly 20% of those deals. That compared with MLP involvement in 15% of all US oil and gas deals during 2010, when PwC counted 186 deals total.

"Another trend that we see developing is M&A activity in the Gulf of Mexico, which has seen the highest total deal value during the third quarter that has been recorded" in more than 2 years, Roberge said. "Now that the gulf is clearly back in business for M&A, we believe oil and gas companies will increasingly look there for deal opportunities going forward."

Overall, PwC reported 39 US oil and gas asset deals during the third quarter having values greater than $50 million, accounting for $33.7 billion total compared with 44 deals worth $41.1 billion total for the third quarter 2011.

IPAA asks FWS for Endangered Species Act forum

The Independent Petroleum Association of America asked the US Fish and Wildlife Service for a public forum on the agency's future plans involving the Endangered Species Act.

IPAA made the request after a federal district court's September approval of the US Department of the Interior agency's settlements of lawsuits filed by the Center for Biological Diversity and Wild Earth Guardians.

The settlements require FWS to complete reviews of 250 candidate species for possible ESA listing and conclude critical habit petition, listing, and other actions by 2016, IPAA Pres. Barry Russell wrote in a Nov. 5 letter to FWS Director Daniel Ashe. "IPAA understands that FWS is obligated to meet certain deadlines as part of the court approved settlement; yet there is very little transparency afforded to the public on which species are coming up for review," Russell said.

"The pure depth and breadth of these settlement agreements could harm our membership and create uncertainty in the development of domestic oil and natural gas," he warned.

In its announcement about the letter, IPAA also said it recently formed an ESA taskforce comprised of independent producers as well as state and regional trade associations.

The Washington, DC-based trade association also is a member of the National Endangered Species Act Reform Coalition, which represents a broad range of business, agriculture, and consumer groups, it indicated.

Inergy Midstream to acquire COLT oil hub

Inergy Midstream LP, Kansas City, agreed to a $425 million purchase of Sugar Land, Tex.-based Rangeland Energy LLC, which owns and operates the COLT open-access crude oil rail terminal, storage, and pipeline complex to handle unconventional Bakken oil production near Epping, ND, in Williams County.

The hub uses a combination of gathering pipelines and trucks to aggregate crude oil into its 720,000 bbl storage. The hub offers two 8,700-ft rail loops with which it accommodates 120-car unit trains. The hub is capable of moving more than 120,000 b/d by railroad (OGJ Online, June 11, 2012).

A 21-mile, 10-in. pipeline connects the COLT hub to the Enbridge and Tesoro pipelines at Dry Fork terminal near Tioga, ND.

Borthakur to head ONGC offshore operations

P.K. Borthakur has been named director (offshore) of state-owned Oil & Natural Gas Corp. Ltd. of India.

Borthakur succeeds Sudhir Vasudeva, who earlier was named chief managing director of the company (OGJ Online, Oct. 3, 2012).

Before his appointment, Borthakur managed Mumbai High and Bassein and satellite fields offshore India.

Exploration & DevelopmentQuick Takes

Alaska oil and gas lease sales net $14.2 million

Thirteen groups placed 132 bids on 122 tracts in the Beaufort Sea and on Alaska's North Slope and North Slope foothills Wednesday, according to preliminary results from the state Department of Natural Resources.

The 122 tracts totaled 310,500 acres. Winning bids totaled $14.2 million, of which $11.5 million came in bids for North Slope parcels. This was the largest sum drawn by North Slope tracts since areawide sales began in 1998.

The Beaufort Sea sale brought the state close to $1.8 million, the fifth largest by dollar amount in that area.

Bidders included North Slope majors as well as familiar smaller companies and at least two new players, the DNR said.

The foothills, which has seen no bidding in the past 3 years, drew eight bids, the fourth best result ever by bonus bids for that area. The foothills region has seen sporadic exploration, and several large prospects have been identified in recent decades. Bill Barron, director of the Alaska Division of Oil & Gas, said, "We are encouraged to see bidding in the Foothills region as well as the potentially gas-prone area in the southern part of the North Slope sale area, which may have an associated oil play." DNR Commissioner Dan Sullivan said, "In the past 2 years, DNR has undertaken significant efforts to get the word out about the North Slope's world-class resources and encourage investment in Alaska. We are seeing fruits from our efforts and we plan to continue this important work."

The division will verify that winning bidders are qualified and the bids are valid. Preliminary, post-adjudication results are expected to be available on the division's web site at dog.dnr.alaska.gov/ by Nov. 9.

DNO taps additional oil in Benenan field

DNO International ASA, Oslo, reported that additional oil has been discovered in Benenan field on the Erbil license in the Kurdistan Region of Iraq.

The company said the Benenan-3 well has encountered an additional 210-m oil column in the Najmeh reservoir. The find is expected to double the field's gross 2P oil in place volumes to 600-700 million bbl.

Benenan-3 produced 800-1,000 b/d of 12-16° gravity oil from an open-hole test in the Lower Najmeh interval, having earlier confirmed movable oil from an open hole test in the Bekhme formation (OGJ Online, Sept. 11, 2012). The Bekhme formation is currently producing in the company's Bastora-1A long-term test well in the neighboring Bastora field, and the Upper Najmeh previously tested as productive in the Benenan field discovery and appraisal wells.

Benenan-3 was originally designed as a horizontal producer in the Upper Najmeh formation with a deeper deviated exploratory probe. The well will now be completed as a deviated well capable of producing from several Najmeh intervals as well as from the Bekhme formation, DNO reported. The Benenan and Bastora field development program is continuing with a second development well scheduled for mid-2013.

DNO holds a 40% working interest and is the operator of the Erbil license.

Norway approves Boyla field development

Development of Boyla oil field offshore Norway has received approval of the Ministry of Petroleum and Energy, reports Lundin Petroleum AB (OGJ Online, June 4, 2012).

The field will be developed with two subsea production wells in 120 m of water tied back to a floating production, storage, and offloading vessel on Alvheim oil field 28 km to the north. A Boyla water-injection well also will be drilled.

Production from gross reserves estimated at 21 million boe of oil and gas is expected to peak at 19,000 boe/d.

Marathon Oil Corp. operates both fields and has a 65% interest in Boyla. Lundin holds a 15% Boyla interest, and ConocoPhillips holds 20%.

Drilling & ProductionQuick Takes

Nexen restarts Buzzard oil field

Nexen Inc. confirmed Nov. 6 that Buzzard oil field in the UK North Sea has resumed production after 2 months of maintenance work. Nexen of Calgary operates Buzzard.

The field was averaging 160,000-170,000 b/d, a Nexen spokeswoman told OGJ. The restart followed a series of operational delays (OGJ Online, Oct. 23, 2012).

Buzzard was shut in for maintenance on Sept. 4. At that time, the field's production averaged more than 200,000 b/d.

Platform deck work set offshore Saudi Arabia

Saudi Aramco has let a contract to McDermott International Inc. for topsides on installations in three Persian Gulf oil fields offshore Saudi Arabia.

In one project, North Dome, McDermott will handle procurement, construction, and installation of two wellhead decks for Abu Safah and Marjan fields and an auxiliary platform and access bridge for Marjan.

Another project covers procurement, fabrication, transportation, and installation of three electrified production deck modules in Safaniya and Marjan fields.

Total weight of the structures will exceed 4,000 tonnes.

Under a separate contract related to the same fields, McDermott will procure, transport, install, hook up, and test seven composite cables and corresponding anode sleds.

Lukoil to buy stake in Sierra Leone project

OAO Lukoil Holdings has acquired a 25% interest in an offshore project in the Gulf of Guinea offshore Sierra Leone from Talisman Energy Inc., the project operator, Lukoil said. Terms of the transaction were not disclosed.

Prospecting and exploratory drilling currently is under way. Partners in the SL-4B-10 block are Malaysia's Petronas with 25% interest and Prontinal Ltd. with 20% interest, Lukoil said.

The block, which covers 2,200 sq km in 100-3,000 m of water, borders on SL-05-11 exploration and development block that Lukoil operates.

ZaZa Energy updates Eagle Ford shale operations

ZaZa Energy Corp. released an update on its Eagle Ford operations in South Texas where it has begun drilling its Boening A-1H well in the wet gas window in DeWitt County.

Plans call for a 5,000-6,700-ft, in-zone lateral section with production anticipated mid-December.

Completion and production results from the Boening well will help ZaZa appraise and prioritize its 34,800 net acres in the Sweet Home Eagle Ford prospect.

Upon completion of drilling the Boening A-1H well, ZaZa plans to move the rig to its Eagle Ford Moulton Project Area in the proved oil window area in Gonzales and Fayette counties.

Based in Houston, ZaZa has offices in Corpus Christi, Tex., and Paris, France. Its primary assets are in the Eagle Ford and Eaglebine plays in Texas.

PROCESSINGQuick Takes

Williams Partners to buy gulf olefins business

Williams Partners LP, Tulsa, will buy the 83% undivided interest owned by Williams Cos. Inc. in the Geismar, La., olefins production plant, the partnership has announced. It also will pay more than $2.2 billion for Williams' refinery-grade propylene splitter and $100 million for pipelines along the Gulf Coast.

Williams Partners takes on responsibility for completing the ongoing expansion at Geismar, projected to cost $270 million and pipelines projected to cost about $160 million (OGJ Online, Apr. 10. 2012; Jan. 4, 2012).

Located south of Baton Rouge, the Geismar plant is an NGL cracker currently handling 39,000 b/d of ethane and 3,000 b/d of propane and producing 1.35 billion lb/year of ethylene, said the partnership announcement. The expansion will increase ethane consumption to a maximum of 57,000 b/d and ethylene production capacity by 600 million lb/year to 1.95 billion lb/year. Williams Partners' overall undivided ownership interest following the expansion will be about 88%.

The pipelines in the transaction include a 212-mile ethane connection between Lake Charles, La., and Geismar, a 3-mile propane pipeline, a 50-mile pipeline between Port Arthur, Tex., and Lake Charles, and 60 miles of product pipelines in and around the Houston Ship Channel.

Williams has agreed to waive temporarily about $16 million/quarter of general partner incentive distribution rights until Dec. 31, 2013, or 30 days after the Geismar expansion is operating, whichever is later. Williams estimates the foregone distribution rights will last about 5 quarters, which would total $80 million. The partnership expects the expansion to be completed in 2013.

It said adding olefins production to its business would "bring more certainty to cash flows that today are exposed to the market for ethane," which Williams Partners expects to be volatile as feedstock demand for infrastructure "lags new supplies from shale-gas production."

Williams currently owns approximately 66% of Williams Partners, including the general-partner interest. Following the closing of this transaction this month, Williams will own about 70% of Williams Partners, including the general-partner interest.

Adding the Geismar plant to "Williams Partners' portfolio immediately reduces the partnership's exposure to the over-supplied ethane markets by nearly 70% and eliminates it by 2014, while increasing our ability to produce globally marketed ethylene," said Alan Armstrong, chief executive officer of the general partner of Williams Partners.

MarkWest begins processing in West Virginia

MarkWest Energy Partners and Antero Resources, both of Denver, have begun operations at the Sherwood I processing plant and on the first phase of a high-pressure gas gathering system in Harrison and Doddridge counties, W.Va.

The 200-MMcfd Sherwood plant is the first phase of planned processing; MarkWest is building the 200-MMcfd second phase there, which it expects to be in service during second-quarter 2013.

MarkWest and Antero reached agreements for potential development of a third processing plant at the same site. It would support additional rich-gas production and bring total processing capacity at Sherwood to 600 MMcfd.

The site is near the center of Antero's rich-gas production in northern West Virginia; the plant's associated volumes will be gathered by MarkWest, Antero, and other providers.

MarkWest and Antero estimate future capacity at Sherwood could exceed 1 bcfd with continued development by Antero of its rich-gas acreage. Antero holds more than 200,000 net acres of leasehold in northern West Virginia. The company is currently flowing about 90 MMcfd through Sherwood 1 from a portion of its 104 horizontal Marcellus wells that are producing more than 400 MMcfd of gross operated production in West Virginia. Antero plans to increase Sherwood I throughput over the midterm.

Antero will have access to the "full suite of MarkWest's midstream services" in the Marcellus and all of the announced ethane and propane pipeline projects, the companies said. NGLs recovered at Sherwood will flow into MarkWest's NGL pipeline network that also connects its Mobley and Majorsville plants to its Houston, Pa., fractionation and marketing.

Pending completion is MarkWest's previously announced fractionation, including the 100,000 b/d that is being developed in Harrison County, Ohio, with its partner Energy & Minerals Group.

MarkWest's total announced NGL fractionation capacity for the Marcellus and Utica will be about 275,000 b/d. This capacity includes nearly 155,000 b/d of purity ethane and 120,000 b/d of propane and heavier NGL fractionation.

MarkeWest said that by yearend 2014, it will operate more than 2.5 bcfd of processing capacity in Pennsylvania and West Virginia.

PetroChina starts up Fushun ethylene unit

PetroChina Co. Ltd. has started up an 800,000 tonne/year ethylene unit at its Fushun Petrochemical Co. refining and petrochemical complex in Liaoning Province, China, reports China National Petroleum Corp., PetroChina's parent.

All eight production units at the complex now are in operation, bringing crude capacity to 11.5 million tonnes/year (tpy) and ethylene capacity to 1 million tpy, CNPC said.

The complex yields 6 million tpy of gasoline and diesel. Other products include paraffin, base oil, alkyl benzene, and synthetic resin.

TRANSPORTATIONQuick Takes

Indonesia approves expansion of Tangguh LNG

Indonesia's Ministry of Energy and Mineral Resources and oil and gas executive agency BPMigas have approved expansion plans for BP PLC-operated Tangguh LNG in Papua Barat province in eastern Indonesia, according to BP.

BP submitted its plans in early September to develop a third liquefaction train. Indonesian government approval of the plan is a step toward final investment decision for Train 3, which BP expects to take in 2014. This would enable commissioning operations for the new train to begin in late 2018. Total investment in Train 3 by Tangguh project partners is estimated to be up to $12 billion.

BP and partners will begin tendering for the front-end engineering and design (FEED) for Train 3. The train is to add 3.8 million tonnes/year (tpy) liquefaction capacity to Tangguh, bringing total project capacity to 11.4 million tpy.

Under terms of the plan, BP and partners will sell 40% of Train 3's output to Indonesia's state electricity company PT. PLN (Persero) for the Indonesian domestic market.

In addition, up to 15 MMscfd of piped gas, supplied from Tangguh fields and sufficient to generate up to 50 Mw of local power, would be allocated for sale from the date of Train 3's start-up.

The plan also includes agreement for up to 8 Mw of power generated at Tangguh to be sold to Persero to sell and distribute to residential communities in the Teluk Bintuni Regency. The electricity is to be provided in stages, with the first 4 Mw available in January 2013 and up to 4 Mw more to be provided to PLN in following years to provide electricity to more residential communities.

Gorgon-Jansz project partners clash over Train 4

An ExxonMobil Corp. executive has reportedly disagreed with operator Chevron Corp. on the timing of the fourth train for the Gorgon-Jansz LNG project.

Luke Musgrave, ExxonMobil vice-president of LNG, reportedly said his company believed the timing mentioned by Chevron for front-end engineering and design (FEED) to begin on Train 4 late this year was too aggressive.

Musgrave pointed out that the construction work on the first phase of the project was still only about half completed.

He said the group was unlikely to see FEED as early as Chevron had stated. He said Train 4 was an aspiration of all the partners. However, while recent gas discoveries were building confidence for another expansion of the LNG project, ExxonMobil was not yet comfortable about going ahead.

Royal Dutch Shell PLC also is reportedly wary of Chevron's timing. Michael Carey, Shell Australia vice-president of finance and strategy, is reported as saying that Shell and the other Gorgon-Jansz JV participants are conducting a cost and schedule review. More should be known when that process is complete.

Russia, Hungary approve investment in South Stream

Russia and Hungary have approved final investment for building the 229-km Hungarian section of the South Steam natural gas pipeline. The agreement occurred during meetings in Budapest between Gazprom and Hungary's state-owned national gas transmission system operator MVM.

Hungary also gave the project official "national significance" standing. MVM described the project as a significant step towards becoming an integrated national energy group with a regional reach.

The two countries completed intergovernmental agreements towards Hungary's participation in South Stream in February 2008. A basic cooperation agreement to build the pipeline through Hungary followed in March 2009. Russian gas supplies to Hungary totaled 6.26 billion cu m in 2011.

Russia and Bulgaria agreed earlier this year to reach a final investment decision on South Stream by Nov. 15 (OGJ Online, Aug. 30, 2012).

CFE lets another Mexican gas pipeline contract

Mexico's federal power company Comision Federal de Electricidad (CFE) has awarded TransCanada Corp.'s Mexican subsidiary Transportadora de Gas Natural del Noroeste the contract to build, own, and operate the El Oro-to-Mazatlan Pipeline (Mazatlan Pipeline) in Mexico. The 24-in. OD pipeline will extend 257 miles and have contracted capacity of 202 MMcfd.

TransCanada expects the pipeline to enter service fourth-quarter 2016. It will interconnect with the El Encino-to-Topolobampo Pipeline, which was awarded last week to TransCanada (OGJ Online, Nov. 2, 2012). New 25-year natural gas transportation service contracts with the CFE support the two pipelines.

TransCanada built, owns, and operates the Guadalajara and Tamazunchale natural gas pipelines in central Mexico and will soon break ground on a Tamazunchale Pipeline Extension (OGJ Online, Feb. 24, 2012).

The Mazatlan Pipeline will cost roughly $400 million.