GENERAL INTEREST — Quick Takes
Chesapeake names Dunham nonexecutive chairman
Chesapeake Energy Corp.'s board appointed Archie W. Dunham, former ConocoPhillips chairman and former chief executive officer of Conoco, as Chesapeake's new independent nonexecutive chairman. Dunham has had no previous relationship with Chesapeake.
As expected, Aubrey K. McClendon relinquished the position of chairman but remains a director and will continue to serve as Chesapeake's chief executive officer and president.
Dunham said he sees "exceptional opportunities ahead" for Chesapeake, which is working to sell assets and reduce debt amid questions about its financial practices.
"As I evaluated this opportunity, I was attracted by the clear mandate to provide strong oversight while working closely with the company's exceptional management team," Dunham said.
Chesapeake's board also appointed four other new independent directors. Three were proposed by Southeastern Asset Management, Chesapeake's largest shareholder with a 13.9% ownership stake, and one proposed by Carl C. Icahn, Chesapeake's second largest shareholder with a 7.6% stake. The new director proposed by Icahn is Vincent J. Intrieri.
As previously announced, the board will also take the necessary actions to enable shareholders to elect the entire board at the 2013 annual meeting of shareholders.
Wyoming oil and gas supervisor resigns after remark
Wyoming's Oil and Gas Supervisor Tom Doll resigned his position last week following a comment he made about possible groundwater contamination in Pavillion, Wyo., amid controversy about whether hydraulic fracturing played a role.
"I really believe greed is driving a lot of this," Doll said of the Pavillion controversy while he was in Canada at an energy conference.
"I think they're just looking to be compensated," he said of some Pavillion residents.
Gov. Matt Mead's office issued a statement saying Doll's comments did not reflect Mead's opinion.
"The comments made by Mr. Doll are contrary to the governor's expectation," the statement said, adding that Mead has directed state agencies to ensure an open and transparent process to address the concerns of Pavillion residents.
Appointed as oil and gas supervisor in 2009, Doll directed the Wyoming Oil and Gas Conservation Commission.
During March 2009-April 2010, the US Environmental Protection Agency collected samples from water wells near Pavillion gas field, which has 169 vertical production wells.
In a draft report, EPA said fracing possibly contributed to water well contamination.
Encana Oil & Gas (USA) questions the source of some chemicals found in the EPA water well samples (OGJ Online, Jan. 2, 2012).
ONGC, CNPC move to increase cooperation
Oil & Natural Gas Corp. of India and China National Petroleum Corp. have signed a memorandum of understanding to expand cooperation in global oil and gas ventures.
"Both companies emphasized that this MOU will go a long way towards establishing a strategic partnership," ONGC said in a prepared statement.
The companies agreed to increase cooperation directly or through subsidiaries in exploration and production, refining, gas processing, marketing and distribution, and construction and operation of oil and gas pipelines.
They have worked together in Syria, Sudan, and Myanmar.
OMV moves UK focus to West of Shetlands
OMV (UK) Ltd. has divested interests in the central UK North Sea to concentrate on the West of Shetlands area.
It has sold its 5% interest in licenses around Beryl oil field to a buyer it didn't identify for $118 million and its 1.5% interest in Boa oil field to Bridge Energy Ltd. for $18 million.
In a swap with Statoil (UK) Ltd., it acquired a 17.5% interest in License P967 in exchange for a 30% interest in License P726.
P967, operated by Total, includes discoveries called Tobermory and Bunnehaven. OMV operates two licenses contiguous with P967. P726 covers a discovery called Mariner East.
OMV holds interests in Schiehallion oil field under redevelopment by a group led by BP and in three discoveries—Rosebank, Cambo, and Tornado—in the area.
Exploration & Development — Quick Takes
Gulf sale draws 56 bidders for tracts, deep water
Oil and gas companies offered $2.6 billion for Gulf of Mexico acreage blocks June 20 at federal lease sale 216/222 conducted by the Interior Department's Bureau of Ocean Energy Management.
BOEM said 56 companies submitted 593 bids for 454 of the 7,434 tracts offered. The $1.7 billion in high bids were for a combined 2.4 million acres, or about 6% of the blocks and 6% of the area made available. The federal royalty rate on all blocks is 18-3/4%.
Statoil Gulf of Mexico LLC submitted the sale's high bid of $157.1 million for Mississippi Canyon Block 718, lying between Mars and Pluto fields.
Apache Corp. and its Apache Deepwater LLC unit submitted a combined 109 total bids, the most of any company, 90 of them high bids. Apache exposed $135 million, of which $96 million were high bids. Apache Corp. alone made 61 high bids.
Shell Offshore Inc. bid a combined $406.6 million, the sale's top combined bonus amount for high bids, coming in first on 24 tracts. Statoil tendered a combined $333 million in high bids, BP Exploration & Production Inc. $239.5 million, and Chevron USA Inc. $189.5 million.
BP submitted 43 high bids, Chevron 29, Statoil and Stone Energy Offshore LLC 26 each, ConocoPhillips 24, Arena Energy LP 23, ExxonMobil Corp. 22, and BHP Billiton (Deepwater) Inc. 20.
BP lodged the sale's second high bid, $110.4 million for Keathley Canyon Block 745 adjacent to the Walker Ridge planning area.
Shell placed 5 of the sale's 10 top high bids and 7 of the sale's 20 top high bids.
Among non-US high bidders after BP's 43, Statoil's 26, and BHP Billiton's 20 were Total E&P USA Inc. 10, Maersk Oil Gulf of Mexico Two LLC 7, Ecopetrol America Inc. 6, Repsol E&P USA Inc. 5, and Nexen Petroleum Offshore USA Inc. 4. Petrobras submitted no bids.
Baker Hughes tallied 47 rigs actually making hole in the Gulf of Mexico in the week ended June 15. The January-early June average was 44 rigs in 2012 compared with 28 in 2011.
Of the 454 high bids, 43% were for shelf blocks in less than 200 m of water and 32% were for tracts in 1,600 m of water or deeper. The deepest-water block to draw a bid was Lund Block 965 in 3,062 m of water adjacent to the Henderson planning area.
Valeura gets Turkish licenses near Iraq
Turkey's General Directorate of Petroleum Affairs has awarded Valeura Energy Inc., Calgary, 100% working interest in two exploration licenses in southeastern Turkey.
Bostanci License 4985 covers 123,051 acres at the juncture of the Syria and northern Iraq borders, and Karakilise License 5052 covers 122,965 acres near the city of Diyarbakir.
On Bostanci, an area previously known as License 2600, Valeura and partners had spudded the Bostanci-1 well in April 2011 as a farm-in commitment well before the license was canceled for failure to meet the petroleum district's spudding deadline. Valeura reapplied for License 4985 only. Under a prebidding arrangement, Exile Resources Inc., Calgary, the other funding partner in the Bostanci-1 well, has a right to a 50% participating interest in the license.
Bostanci-1, along Iraq's northern border, was temporarily suspended at 508 m with surface casing set. Valeura believes that the well could be reentered to continue drilling. The primary exploration target at the time was the Cretaceous Mardin Group at 3,300 m.
The Bostanci drillsite is 35 km west of Tawke field in northern Iraq and 12 km northeast of Karatchok field in Syria. Over the next few months, Valeura will update its assessment of the Bostanci prospect and the timing, cost, and funding of an initial exploration well.
The Karakilise license is contiguous with licenses 2674 and 2677, in which Valeura has a 27.5% working interest.
The area is prospective for heavy oil in the Mardin Group and light oil in the Bedinan formation with a number of discoveries in the area. More recently there has been growing interest in unconventional oil and gas exploitation in the Silurian Dadas shale source rock that sits above the Bedinan. A number of companies are active in the area, including most recently Shell which has farmed in on several licenses held by the Turkish national oil company to the north and contiguous with License 2677.
Valeura has been active in this area since late 2010 and has shot 227 km of 2D seismic, carried out a successful well recompletion in the Mardin Group in the Karakilise-1 well on License 2677, and drilled a Mardin Group and Bedinan formation discovery in the Altinakar-1 well on License 2674.
Chevron joins Kosmos on blocks offshore Suriname
Kosmos Energy Co., Dallas, and Chevron Global Energy Inc. have signed a joint exploration agreement regarding blocks 45 and 45 offshore Suriname.
Chevron Global will be assigned a 50% working interest in the blocks. Kosmos will remain operator with 50% working interest until the end of the exploration phase. Chevron will assume the remaining 50% working interest and will be the operator following any commercial discovery.
Chevron noted that the blocks are on trend with new deepwater Cretaceous discoveries.
Blocks 42 and 45 total 2.8 million gross acres in 650-8,500 ft of water 155 miles offshore Paramaribo (see map, OGJ, June 4, 2012, p. 43).
Drilling & Production — Quick Takes
Land rig growth seen at 5%/year through 2016
Global growth in land rig demand will average 5%/year in 2012-16, expanding the rig fleet to more than 11,000 units from the 9,700 in service today, said a worldwide study by Douglas-Westwood Ltd., Canterbury, UK.
An estimated 66% of active rig demand will come from regions outside North American by 2016, the study indicated. The growth is to be driven by the increasing volume and complexity of well requirements in order to meet global production targets.
Countries such as Kazakhstan, Mexico, and Oman are likely to witness declines, while others such as China, Colombia, Russia, Saudi Arabia, and the US are expected to see an increase in the number of rigs required.
Follow-on investments in new rig construction and the updating of current fleets (which have experienced underinvestment over the last three decades) will be necessary to meet the increased level of demand forecast for 2016, Douglas-Westwood said.
Calum Shaw, a coauthor of "World Land Drilling Rig Market Forecast 2012-16," said, "Increases in demand for hydrocarbons are expected to drive growth in drilling activity in countries such as China, India, and Iraq, for example, while continuing investment in enhanced oil recovery techniques in Saudi Arabia and Kuwait are expected to boost productivity in some of the world's largest maturing fields.
"Exploration and development of unconventional gas resources, throughout the forecast period, are likely to support a strong activity increase in North America, Poland, and Australia, among others. Drilling continues to recover strongly from the economic downturn in 2009," Shaw said.
Statoil installs Valemon steel jacket in North Sea
Statoil ASA has installed a steel jacket on the North Sea Valemon field, scheduled to come on stream in the fourth quarter 2014. The Valemon platform is on Blocks 34/11 and 34/10 offshore Norway, west of Kvitebjorn field.
Production from Valemon field is anticipated to last until at least 2025, enabling Statoil to maintain production on the Norwegian Continental Shelf for years and also help prolong the life of the Heimdal processing platform.
Statoil noted Valemon is one of its largest development projects off Norway. It estimates that the field contains 206 million boe in complex reservoirs with high pressure and temperature. At peak, Valemon is expected to produce 86,000 boe/d (OGJ Online, May 18, 2011).
The reserves lie at about 4,000 m in Middle Jurassic sandstones of the Brent Group and Lower Jurassic sandstones in the Cook formation.
Test heats bitumen with radio waves
A group including three oil producers claims success in tests of a method for producing heavy oil with electrical heat from radio waves followed by solvent injection.
Tests at Suncor Energy's Steepbank mine north of Fort McMurray, Alta., confirmed the ability to generate, propagate, and distribute electromagnetic heat in an oil sands formation, the group said.
The method is called Enhanced Solvent Extraction Incorporating Electromagnetic Heating (ESEIEH). It uses antenna technology developed by Harris Corp. to heat oil sands in conjunction with injection of an oil solvent to dilute and mobilize bitumen.
The group plans a field pilot next year. Members in addition to Suncor and Harris are Laricina Energy, Nexen Inc., and Climate Change and Emissions Management Corp.
PROCESSING — Quick Takes
CenterPoint Energy to buy East Texas assets
CenterPoint Energy Field Services LLC, Houston, has signed two agreements to buy gathering and processing assets located mainly in northeast Texas.
The first agreement covers a $275 million acquisition of gathering and processing owned by Prism Gas Systems I LP, Bedford, Tex. a wholly owned subsidiary of Martin Midstream Partners LP, Houston. It also includes other gathering and processing from Martin Midstream's natural gas services segment.
The assets under this first agreement include Prism's 50% interest in Waskom Gas Processing Co. Waskom, Tex. A CenterPoint Energy subsidiary currently owns the other 50% interest in Waskom.
In the second transaction, CenterPoint Energy entered into a 15-year agreement with Encana Oil & Gas (USA) Inc., a subsidiary of Encana Corp., to gather and treat gas production from Amoruso and Hilltop fields in Robertson and Leon counties in East Texas. This agreement includes volume commitments and acreage dedication, according to CenterPoint Energy's announcement.
Along with the gathering agreement, CenterPoint purchased Encana's 139-mile Amoruso gathering systems for about $89 million. Amoruso currently has more than 200 MMcfd of gas throughput primarily from Deep Bossier and Cotton Valley Lime formations.
The assets to be acquired from Prism in northeast Texas include:
• Prism's 50% interest in Waskom, including a 320-MMcfd processing plant, a 14,500-b/d fractionation plant, and the 75-MMcfd Harrison gathering system.
• The Woodlawn plant and a 30 MMcfd, 125-mile gathering and processing system.
• The McLeod, Hallsville, and Darco gathering systems that, combined, gather and treat more than 40 MMcfd and sit near the other assets to be acquired in East Texas and northwest Louisiana.
Under terms of the Encana gathering agreement, CenterPoint Energy will expand the Amoruso systems to gather and treat more gas as necessary to support Encana's future production within the dedicated area.
The Prism transaction, subject to certain closing conditions, is to close in third-quarter 2012. The Encana transaction closed on May 31.
Swift Energy inks gas midstream services deal
Swift Energy Co. has entered into a long-term agreement for natural gas gathering and processing services for its LaSalle County, Tex., natural gas production with Eagle Ford Gathering LLC, a 50-50 joint venture between Kinder Morgan Energy Partners LP and Copano Energy LLC.
Terms call for Swift Energy to have up to 40 MMcfd of firm capacity available on this system by the fourth quarter.
Eagle Ford Gathering last year reached a long-term agreement with Williams Partners LP to process an initial 100 MMcfd of Eagle Ford shale gas at Williams Partners' Markham processing plant in Matagorda County, Tex. (OGJ Online, June 17, 2011).
Eagle Ford Gathering's pipeline runs through McMullen, LaSalle, Dimmit, and Webb counties.
Copano earlier this year announced plans to extend its DK natural gas pipeline in the Eagle Ford shale by adding about 65 miles on pipe southwest into McMullen County (OGJ Online, Feb. 10, 2012). A new long-term agreement with Petrohawk Energy Corp., a subsidiary of BHP Billiton, supports the extension.
NET Midstream's wholly owned subsidiary Eagle Ford Midstream LP will build a 105-mile, 24-30-in. OD extension of its existing natural gas pipeline to transport residue gas from Western Gas Partners LP's Brasada gas processing plant in LaSalle County to interstate and intrastate pipelines (OGJ Online, Mar. 23, 2012). The Eagle Ford Midstream system currently consists of 55 miles of 16-in. OD pipeline.
Lukoil to produce Euro-5 gasoline in Russia
All Lukoil refineries in Russia will be producing only AI-92 and AI-95 gasoline meeting low-sulfur Euro-5 standards by July 1, the company said. Production of gasoline meeting Euro-4 standards will cease.
Lukoil operates five refineries with total crude capacity of 45.1 million tonnes/year.
TRANSPORTATION — Quick Takes
FTC clears Kinder Morgan purchase of El Paso
The US Federal Trade Commission ordered Kinder Morgan Inc. to sell 3 Rocky Mountain natural gas pipelines and associated assets as part of the FTC's order approving KMI's $38 billion purchase of El Paso Corp.
The commission's June 14 order specified KMI would sell the assets to a purchaser, to be approved by the FTC, within 180 days of the acquisition's closure.
FTC said the required sale of the pipelines resolves anticompetitive claims regarding the KM-El Paso transaction.
The order also required KMI to grant the purchaser the opportunity to recruit and hire any KM Pipeline employee under specified conditions.
Previously, KM agreed to divest Kinder Morgan Interstate Transmission Co., Trailblazer Pipeline Co., the Casper-Douglas natural gas processing plant, the West Frenchie Draw treating facilities, and a 50% interest in the Rockies Express Pipeline to win FTC approval of the El Paso acquisition.
KM completed the El Paso cash and stock acquisition May 25 after selling that company's exploration and production business for $7.15 billion to affiliates of Apollo Global Management LLC and others.
Upon closing, KM said it would offer other assets to Kinder Morgan Partners to replace the divested holdings.
The KM-El Paso transaction was announced last year (OGJ Online, Oct. 24, 2011).
Inergy Midstream pipeline negotiating with shippers
Inergy Midstream LP, UGI Energy Services Inc., and Capitol Energy Ventures Corp., a wholly owned subsidiary of WGL Holdings Inc., confirmed sufficient demand for their 30-36 in. OD Commonwealth natural gas pipeline to move the project forward.
Inergy said a broad customer spectrum—including local distribution companies, electric generators, producers, and marketers—from Pennsylvania, the Mid-Atlantic, and the Southeast US expressed interest in Commonwealth .
The companies are negotiating with prospective shippers to finalize design and route selection and reach binding agreements to support Commonwealth's construction. As proposed, the pipeline would move gas from the Marcellus and Utica shales to Philadelphia, Baltimore, Washington, DC, and the Delmarva peninsula.
At a proposed length of 200 miles and pending regulatory approvals, Commonwealth would ship at least 800 MMcfd by 2015. It would begin from the southern end of Inergy's Marc I pipeline and interconnect with a number of interstate pipelines along its route (OGJ Online, Mar. 6, 2012).
Spectra Energy Corp. earlier this year announced a pipeline to move 1.25 bcfd of natural gas from the Marcellus, Utica, and Appalachian shales to Georgia, Alabama, and Tennessee (OGJ Online, Mar. 6, 2012).
Spectra's pipeline is scheduled to begin service 2015.
Murex, Cetane to expand Carlsbad crude terminal
Murex NA Ltd. and Cetane Energy LLC will expand Cetane's Carlsbad, NM, storage terminal, adding a crude oil storage tank and a terminal for a 110-railcar crude oil unit train.
A railcar-loading agreement between the two companies provides Murex with exclusive rights to Cetane's unit and manifest facilities.
Cetane has 900 acres of rail and tank farms for unit train and manifest cars. The two companies previously have worked together in loading manifest cars.
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