OGJ Newsletter

Sept. 24, 2012
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

EPA sets biodiesel products minimum for 2013

The US Environmental Protection Agency established the amount of biodiesel products to be included in US fuel markets during 2013 at 1.28 billion gal. EPA said it acted under provisions of the 2007 Energy Independence and Security Act, which established a second phase of the federal renewable fuels standards.

It said the law specifies a 1 billion gal minimum biodiesel level for 2012 and beyond. EPA acted after reviewing comments and additional information received since it proposed the volume in 2011, it indicated.

Officials from the American Petroleum Institute and the American Fuel & Petrochemical Manufacturers criticized the Sept. 14 move. "EPA's mandate will unnecessarily raise the cost of making diesel fuel," API Downstream Group Director Bob Greco said.

"This is bad public policy that could burden consumers and businesses already pressed with higher energy costs," he maintained. "By picking energy winners and losers, EPA takes away consumer choice and further threatens public acceptance of biofuels."

AFPM Pres. Charles T. Drevna said the trade association submitted comments and met with White House Office of Management and Budget officials to outline problems associated with increasing the biodiesel minimum beyond the statutory 1 billion gal.

"Today's decision will force consumers to pay almost $500 million more next year for diesel fuel and is yet another example of the Obama administration putting politics ahead of American consumers," Drevna noted, adding, ""Given the exorbitant cost of biodiesel, its poor performance qualities, significant fraud in the biodiesel industry, and the drought facing our nation's farmers and ranchers, this is a bad decision at the wrong time."

India eases price pressure on state refiners

India's government has taken the politically difficult step of raising the controlled price of diesel by 5 rupees/l. (about 9¢/l.). In New Delhi, the new price will be about 47 rupees/l.

State-owned "oil marketing companies"—Indian Oil Corp. Ltd., Bharat Petroleum Corp. Ltd., and Hindustan Petroleum Corp. Ltd.—have sustained heavy losses from the need to buy crude oil at market prices and to sell diesel, kerosine, and LPG at prices held below market levels. They are supposed to be compensated for the consequent "under-recovery" by payments from state-owned producers and the government.

But the government has been accruing its share of the under-recovery liability. It projects that, without a price adjustment, under-recovery during the current fiscal will total the rupee equivalent of about $34 billion.

Of the increase in diesel price, 3.5 rupees/l. will compensate under-recovery, and the rest will be excise duty.

The Cabinet Committee on Political Affairs also agreed to restrict the amount of subsidized LPG delivered to Indian consumers but took no action on publicly distributed kerosine.

Gasoline isn't strictly subject to price controls, although the OMCs are restricted in timing of price increases and currently sustain under-recovery of about 6 rupees/l. To compensate, the government will cut the excise duty on gasoline by 5.3 rupees/l.

The price and supply actions will face stiff political opposition and won't fully solve the OMCs' problems.

After the new actions, the OMCs' under-recovery during the current fiscal year still will be an estimated $30 billion, which is higher than the prior year's level.

Alaska's Parnell protests NPR-A plan

Alaska will immediately withdraw as a cooperating agency in the National Petroleum Reserve-Alaska's (NPR-A) memorandum of understanding to protest plans US Interior Sec. Ken Salazar announced for the reserve in August, Gov. Sean Parnell (R) reported.

Despite the state's good faith efforts, Interior did not treat it respectfully, he told Salazar in a Sept. 12 letter.

Requirements under the federal National Environmental Policy Act (NEPA) and Interior's own regulations, statements, and policies required the US Bureau of Land Management (BLM) to prepare an environmental impact statement with state and local governments' cooperation, Parnell continued.

"Regulations implementing NEPA and specific BLM regulations further define requirements for the agency to work in a collaborative manner with the state to develop land management plans," he said.

Parnell suggested that the only way to cure defects in the process is to start over with a more accurate assessment of NPR-A's oil and gas resources involving Alaska's state geologist and possibly others from outside BLM and the US Geologic Survey.

"Only after that geologic analysis is complete should the EIS and planning process start," the governor said. "If you choose to restart the process, please take the time to provide a truly respectful cooperative process with the State of Alaska and others."

US court closes Snamprogetti bribery case

A US District Court has dismissed the criminal information against Snamprogetti Netherlands BV related to a bribery case in Nigeria after fulfillment of commitments made in 2010 under deferred prosecution, reports Eni, of which Snamprogetti earlier was an indirect subsidiary.

The Foreign Corrupt Practices Act case involved bribes paid in conjunction with construction of an LNG plant on Bonny Island. Snamprogetti Netherlands was a 25% partner in a joint venture building the facility (OGJ Online, July 8, 2010).

Eni said it and Snamprogetti Netherlands, a subsidiary of Saipem, have met commitments that included implementation of an anticorruption program. Eni owns about 43% of Saipem.

Eni and Snamprogetti also reached FCPA settlements, including disgorgement of profits, related to the same case with the US Securities and Exchange Commission.

Exploration & DevelopmentQuick Takes

Talisman to halt exploration in northern Peru

Talisman Energy Inc., Calgary, plans to stop oil and gas exploration in northern Peru where the Canadian company has explored since 2004.

Talisman Peru BV currently is operator of Blocks 64 and 103. It has nonoperated interests in Blocks 123 and 129 (OGJ Online, Apr. 20, 2009).

Richard Herbert, Talisman executive vice-president, international exploration, said, "We have been unable to build a material resource position in Peru. After careful consideration, a decision has been made to exit Peru."

In a statement, Herbert said Talisman wants to focus near-term on liquids and oil-linked gas opportunities.

Talisman Peru will begin the process to withdraw from the license contracts and work with Perupetro, the Peruvian petroleum licensing agency, he said, adding Talisman Peru will fulfill any contractual or legal obligations related to its operations.

Eni gauges Kirthar fold belt gas discovery

Eni Pakistan Ltd. has made a gas discovery estimated at 300-400 bcf in place in the Kirthar fold belt in Pakistan 350 km north of Karachi.

The Badhra B North-1 well (Badhra-7), on Badhra Lease Area B, went to a total depth of 2,450 m and encountered more than 54 m of net gas pay in two thick sandstones of the Cretaceous Mughal Kot formation. Appraisal wells will be required.

The well flowed high-quality gas from the two reservoirs at rates of 25 MMscfd and 35 MMscfd and will be tied into the Eni-operated Bhit gas processing plant 20 km west, which handles gas output from Bhit and Badhra fields.

Eni has started discussion with the Pakistani regulator and the joint venture partners to expedite production from the discovery through a long-term production test that will enable commercialization of the gas.

Interests in the discovery are Eni Pakistan operator with a 40% stake in the development phase, Kufpec Pakistan Ltd. 34%, Oil & Gas Development Co. Ltd. 20%, and Premier Oil PLC 6%.

Gazprom eyes Eastern Gas Program speed-up

Officials of Russia's Gazprom have indicated they soon will issue a decision to accelerate work on the long-discussed Eastern Gas Program, a system of natural gas developments in Eastern Siberia and pipelines accommodating local consumption and exports to China and elsewhere in Asia.

At a meeting in Moscow, Alexey Miller, chairman of Gazprom's management committee, and Yegor Borisov, president of the Republic of Sakha (Yakutia), discussed construction of a production center at Yakutia, which would be based on gas from Chayandinskoye gas and condensate field in the Lensk District of Yakutia.

A Gazprom statement said the company had "completed the investment rationale for the Chayandinskoye field predevelopment, gas transmission, and processing." It said the document is "being prepared for consideration."

Russia's energy ministry approved the Eastern Gas Program in 2007 (OGJ Online, Sept. 11, 2007). Linked with the Sakhalin projects in the Far East, the program also envisions development of large gas reserves in the Yurubcheno-Tokhomskoye, Sobinsko-Paiginskoye, and Kovytinskoye areas. In addition to Yakutia and Sakhalin, the program calls for the synchronized construction of production centers in Krasnoyarsk and Kamchatka Krais and Irkutsk Oblast.

Gazprom reports gas reserves, including preliminary estimates, at Chayandinskoye field at 1.3 trillion cu m with 79.1 million tonnes of oil and condensate. It projects field production at 25 billion cu m/year, starting with oil in 2014 and gas in 2016, when processing and chemical facilities are in place.

Gazprom plans to lay a pipeline between Yakutia and a tie-in at Khabarovsk to the Sakhalin-Khabarovsk-Vladivostok transmission system (OGJ Online, Aug. 6, 2012).

Morgunovskoe development begins in Russia

OJSC Orenburgneft, a unit of TNK-BP Group, plans to drill 13 wells by yearend in a development program starting up of Morgunovskoe oil field in the Buzulukskiye license area in the Orenburg region of Russia.

TNK-BP plans a 3-year pilot production project at the field, which was discovered in 2010 and now has eight exploration wells. Commercial operations are expected to begin in 2016, when 54 development wells will have been drilled.

The field is expected to produce 650,000 tonnes/year of crude oil.

TNK-BP estimates Morgunovskoe reserves at 12.846 million tonnes with a preliminary estimate of an additional 2.561 million tonnes.

Drilling & ProductionQuick Takes

Petrobras reports start-up of Chinook field

Brazil's Petroleo Brasileiro SA (Petrobras) reported that production has started last week at Chinook field in the Gulf of Mexico. Production is connected to the BW Pioneer floating production, storage, and offloading (FPSO) vessel—the first FPSO to produce oil and gas in the US portion of the gulf.

The Chinook No. 4 production well was drilled and completed in lower tertiary reservoirs, a promising offshore exploration frontier in the gulf, at a depth of 8,000 m.

The FPSO, which lies 250 km off Louisiana, is also connected to Cascade field, which initiated production in late-February (OGJ Online, Mar. 2, 2012). The vessel has the capacity to process 80,000 b/d of oil and 500,000 cu m/day of natural gas. Petrobras is the first company to develop an oil field in the gulf using an FPSO.

Chinook is owned by Petrobras 66.67% and Total Exploration Production USA Inc. 33.33%.

Probe continues into ‘escape of hydrocarbons'

The Norwegian Petroleum Safety Authority (PSA) said it is investigating a Sept. 12 "substantial escape of hydrocarbons" from an offshore production platform in Ula oil field in the Norwegian North Sea.

Production from Ula field, which is operated by BP PLC, was suspended. Norwegian Petroleum Directorate statistics show Ula field produced 10,200 b/d of oil in July.

No injuries resulted, and no damage resulted to the platform beyond equipment directly involved, PSA said.

"But the PSA considers the incident to have had a substantial potential," the agency said. "The leak arose in the separator module on Ula's production platform. Nobody was in the module when the incident occurred."

The production platform automatically shut down, and all personnel were evacuated to a drilling platform.

Discovered in 1976, Ula field is in the southern part of Norway's North Sea sector and has three conventional steel platforms (processing, drilling, and accommodations) in 30 m of water. The platforms are linked by bridges.

PSA said its objectives include establishing the course of events and identifying the direct and underlying causes. No other details were immediately available.

PNR to sell Barnett shale assets

Pioneer Natural Resources Co. expects to open a data room in October in its efforts to sell its assets in the Barnett shale, where PNR has operated since 2007.

Currently, the Dallas independent has 155,000 gross acres, of which two-thirds are in the liquids-rich Barnett shale play and the rest is in the play's dry gas area.

PNR has Barnett shale production of 7,000 boe/d, of which 55% is liquids and 45% is dry gas.

Scott Sheffield, PNR chairman and chief executive officer, said, "The sale of our Barnett shale properties will allow us to strategically reallocate capital to our higher-return, core assets in the Spraberry vertical play, the horizontal Wolfcamp shale play, and the Eagle Ford shale."

PNR said it hopes to complete the divestiture process during first-quarter 2013.

Petrobras signs big subsea wellhead deal

Petroleo Brasileiro SA (Petrobras) has signed a contract worth nearly $1.1 billion with GE Oil & Gas for the supply of about 380 subsea wellhead systems and installation tools.

GE called it the world's largest such contract.

The systems, to be produced at a GE plant in Jandira, Sao Paulo, will be installed in "various oil and gas fields in Brazil, including subsalt," GE said.

PROCESSINGQuick Takes

Lukoil speeds upgrades of two refineries

Lukoil has adjusted plans for modernization of two of its Russian refineries to boost output of gasoline.

"The changes were introduced into refinery modernization plans in order to fully satisfy the demand of the Russian Federation market for automotive gasoline and prevent possible shortage of gasoline," the company said in a statement.

At the 17 million tonne/year (tpy) Nizhny Novgorod refinery, which processes West Siberian and Tatarstan oils in the town of Kstovo, Lukoil plans a second catalytic cracking complex to increase gasoline throughput by 1.3 million tpy and a residue hydrocracking unit with an expanded capacity of 4.8 million tpy. The company accelerated construction of the hydrocracker to move commissioning to 2018 from 2020 and raised the target capacity from the originally planned 2.2 million tpy.

At the 13 million tpy Perm refinery, Lukoil is building a deep-conversion complex including a 2.1 million tpy delayed coking unit along with diesel hydrotreatment, hydrogen, and sour-water stripping units.

The Perm facility processes a blend of crudes from the northern part of the Perm region and from Western Siberia.

In its long-term modernization program, Lukoil during 2000-10 commissioned:

• At the Nozhny Novgorod refinery, a 1 million tpy reforming unit, a 400,000 tpy isomerization unit, a 2.6 million tpy catalytic cracking complex, and a 4.6 million tpy reconstructred diesel fuel hydrotreatment unit.

• At the Perm refinery, a 3.5 million tpy vacuum gas oil hydrocracking unit and a 470,000 tpy isomerization unit.

• At the 3.9 million tpy Ukhta refinery, a 120,000 tpy gasoline fraction isomerization unit and an 850,000 tpy diesel fuel hydrodewaxing unit.

• At the 11 million tpy Volgograd refinery, a 1 million tpy reforming unit, a 390,000 tpy isomerization unit, and a 1.4 million tpy diesel fuel hydrotreatment unit.

Caballo Energy to build cryo processing plant

Caballo Energy LLC will build a new cryogenic gas processing plant to handle expanding natural gas production in the liquids-rich Mississippi lime and Cana Woodford shale plays.

The 60-MMcfd Carmen, Okla., gas plant will bring the company's processing capacity in the region to about 100 MMcfd. The plant, to be in service by end of first-quarter 2013, will be built near Carmen on a 160-acre site that will accommodate construction of a second cryogenic plant.

Caballo Pres. and Chief Executive Officer Bob Firth said, "An additional plant could be up and running rapidly depending upon market conditions and demand."

The new plant and Caballo's existing Eagle Chief plant serve the company's Eagle Chief system, which includes more than 600 miles of gas gathering pipelines and compression in Alfalfa, Blaine, Garfield, Major, and Woods counties.

Caballo delivers processed gas to the Oneok Gas Transportation and Panhandle Eastern Pipe Line. NGLs are delivered to the Oneok NGL Pipeline. The Eagle Chief system also includes saltwater disposal and crude oil gathering. Caballo acquired the Eagle Chief system in December 2011.

Yamal LNG to use gas purification technology

Yamal LNG OAO will us BASF's technology for removing carbon dioxide from natural gas, reported BASF.

Use of the technology, marketed under the Oase brand, is a prerequisite for LNG production. Yamal LNG is owned by Novatek OAO, 80%, and Total, 20% (OGJ Online, Oct. 6, 2011).

In October 2010, the Russian Federation approved the large-scale plan for LNG production development on the Yamal Peninsula. Yamal LNG, as a pilot project, provides for construction of an LNG plant with output of more than 15 million tonnes/year.

The plant will take feed from Yuzhno-Tambeyskoe field with proven and probable reserves as of Dec. 31, 2011, of 879 billion cu m. Transport infrastructure, including a seaport and an airport near Sabetta, northeast of Yamal, is to be built within the project.

TRANSPORTATIONQuick Takes

Spectra, BG report British Columbia pipeline

Spectra Energy Corp. has signed an agreement with BG Group PLC to jointly develop a new large-diameter 525-mile natural gas pipeline from northeast British Columbia to supply BG's potential LNG export facility in Prince Rupert, BC, on the province's northwest coast. Spectra and BG will each initially own 50% of the proposed transportation project. Spectra will be responsible for construction and operation and BG has agreed to contract for all 4.2 bcfd of proposed capacity.

The project also will connect with the Spectra's existing system at Station 2 (southwest of Fort St. John, BC), a natural gas hub that collects supply from multiple areas of the province and other basins in Western Canada.

Pending regulatory approval, Spectra and BG expect to begin building the pipeline mid-decade and complete it by 2019.

The companies have developed early conceptual routes and will continue to work with Aboriginal and local communities, environmental organizations, and regulatory agencies, to further refine the project route, Spectra said.

Petronas Carigali Canada Ltd also plans to build an LNG export terminal in Prince Rupert (OGJ Online, June 28, 2012).

ERCB lets contract for pipeline safety review

Alberta's Energy Resources Conservation Board (ERCB) contracted Group 10 Engineering Ltd., Calgary, to conduct a third-party independent review of pipeline safety. The review, announced July 20 by Ken Hughes, Alberta Minister of Energy, will focus on incident response, pipeline integrity management, and pipeline safety near water crossings.

Group 10 will examine the adequacy of regulatory requirements with respect to pipelines under ERCB jurisdiction and industry best practices in: public safety and responses to pipeline incidents, pipeline integrity management, and safety of pipelines at or near water crossings. The review will take place in addition to any current incident-specific investigations ERCB is conducting.

ERCB responded to a leak on Plains Midstream Canada's 83,000 b/d Rangeland pipeline in June (OGJ Online, June 8, 2012).

ERCB expects Group 10 to complete the review by the end of November for presentation to Hughes by yearend. ERCB will review the Group 10 report and provide its own report, including resulting ERCB recommendations, if any, to Hughes by Mar. 31, 2013.

Parnon sets October start-up for Oklahoma line

Parnon Gathering LLC's 8-in. OD, 115-mile Great Salt Plains Pipeline will begin receiving oil into its Cherokee, Okla., terminal Oct. 12 and will start pumping to Cushing, Okla., a few days later, the company said. The pipeline and related tanks are mechanically complete, with hydrotesting in progress.

Great Salt Plains will have initial capacity of 20,000 b/d with future expansion planned to increase capacity to 35,000 b/d, transporting crude produced in central and western Oklahoma and southern Kansas to Parnon's Cushing tanks (OGJ Online, Mar. 20, 2012). A second phase might extend the pipeline westward to serve Granite Wash and new tight-formation plays farther west in Oklahoma.