OGJ Newsletter

May 9, 2005
The Bolivian Senate on Apr. 29 approved a hydrocarbons law steeply increasing taxes on oil companies.

General Interest - Quick Takes

Bolivian Senate votesto raise oil, gas taxes
The Bolivian Senate on Apr. 29 approved a hydrocarbons law steeply increasing taxes on oil companies. The bill now goes back to the lower house of Congress, which passed a similar bill earlier.

President Carlos Mesa, whose government has called the law “suicidal,” saying it violates contracts and discourages foreign investments, might veto the measure if the Congress passes it. An override of his veto also is possible.

The legislation would retain an 18% royalty but raise tax rates and lower deductions. Promoters say the legislation would triple government income from the oil industry to about $600 million/year.

Analysts say the measure might cut profits of non-Bolivian companies by as much as one-half.

Mesa had sought to phase in a tax increase but retain some deductions.

José Eduardo Dutra, president of Brazil’s state-owned Petroleo Brasileiro SA (Petrobras), said parts of the legislation are unclear, including the applicability of proposed rules changes to existing contracts. Petrobras, Bolivia’s largest investor, has invested more than $2 billion in the country (OGJ Online, Mar. 17, 2005). One large project that could be affected by the new legislation is a proposed $1 billion petrochemical plant that would be located in the Brazil-Bolivia border region, Dutra said.

A steep tax increase would probably freeze investments by Petrobras, said Fernando de Freitas, head of the company’s local office.

Julio Gavito, Repsol YPF SA’s country director, said, “As it is now, unless it is modified, the law would make it very difficult for us to remain here.” He added, “We came under one set of conditions, and if those conditions are changed, it will be very difficult for the Bolivian government to argue it is not confiscation.” Repsol YPF and Petrobras said they would seek international arbitration if the Congress passed the hydrocarbons bill. They said they cannot be obligated to change their contracts.

In addition to the tax hike, the bill passed by the Senate would revise contracts, renationalize two companies, and create a regulatory agency called Petrobolivia to replace the current state oil company in licensing negotiations and administration.

The government has granted 76 contracts for exploration, exploitation, and commercialization. Oil companies lured by Bolivia’s gas resource have invested $3.5 billion in exploration and development.

Oil prices establish new, higher plateau, analysts say

Oil prices have established a new and higher plateau, driven by increasing world demand, several analysts told a Canadian Energy Research Institute (CERI) conference May 2 in Calgary.

Paul Horsnell, head of energy research at Barclays Capital Inc., London, said oil prices may ease for a few months because of high inventories but prices are unlikely to drop below $40/bbl. Horsnell said prices are more likely to be $40/bbl than $20/bbl.

Horsnell also warned that declining US refinery capacity is a major issue. He said that no one wants to build refineries because they are unprofitable, which could lead to a crisis situation within 5 years. Continuing demand in countries such as China and India will drive oil prices, he noted.

Horsnell said that the Organization of Petroleum Exporting Countries is in a strong position to protect oil prices and the downside would be $40/bbl.

Fereidun Fesharaki, president of FACTS Inc., Honolulu, said oil prices have reached a new plateau, moving from the ground floor to the second floor. The former energy advisor to the prime minister of Iran said crude now has a floor price in the $35-40/bbl range, compared to a previous level of $20/bbl.

Fesharaki said oil prices are likely to stay high, barring some cataclysmic event, such as a meteor falling onto industrialized China.

Fesharaki said a likely scenario would see oil prices rising to $80/bbl by 2008 and dropping to $60/bbl by 2012 as high costs begin to impact on demand.

Michael Lynch, president of Strategic Energy & Economic Research, presented a more contrarian and bearish oil price outlook. Lynch said prices in the $40/bbl range indicate what consumers are willing to pay now, but not necessarily a forecast.

Lynch said real prices are cyclical and market fundamentals win in the long term. He also said that OPEC would cut their production quotas, if needed, to prop up prices.

Stripper Well Consortium cites technologies

Six new technologies developed to boost oil and gas production from stripper wells have been commercialized or are near commercialization, reported Stripper Well Consortium, Washington, DC.

The consortium is an industry-directed group whose research, development, and demonstration efforts are funded in part by the US Department of Energy.

The technologies are:

• Brandywine Energy & Development Co., Frazer, Pa., developed a gas-operated automatic plunger lift tool to remove fluids from stripper wells. The system operates automatically, using an on-tool, pressure-activated valve.

• Vortex Flow LLC, Englewood, Colo., developed a vortex flow regime that results in greater efficiency when moving fluids. It accelerates water and reduces the friction that causes pressure drops as fluids flow through a pipe.

• Pumping Solutions Inc., owned by a subsidiary of Smith International Inc., Houston, developed a pump based on a hydraulic-driven diaphragm, which allows placement of the pump inlet below the perforations in sandy wells.

• W&W Vacuum & Compressor Inc. is developing a variable capacity compressor and a pump that is substantially smaller and lighter than existing products.

• Composite Engineers Inc. developed a chemical system that reduces wellbore corrosion and maintenance costs.

• Tubel Technologies Inc., The Woodlands, Tex., developed a new downhole wireless gauge to automate and optimize hydrocarbon production.

Industry Scoreboard

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Exploration & Development - Quick Takes

Venezuela seeks Rafael Urdaneta bids

Petroleos de Venezuela SA (PDVSA) has distributed bid data for Phase I of its planned Rafael Urdaneta natural gas development project in the Gulf ofVenezuela and northeastern Falcón state. PDVSA expects to award 25-year licenses for five shallow-water blocks by September.

The overall Rafael Urdaneta project consists of 29 blocks totaling an aggregate 30,000 sq km, with 18 blocks in the Gulf of Venezuela and 11 in northeastern Falcón.

Representatives of 37 national and international corporations attended the prebid meeting Apr. 4 in Los Taques, Falcón. Selected companies will have 6 months to submit reservoir development offers.

Rafael Ramírez, minister of energy and petroleum and PDVSA president, said Venezuela’s interest in the blocks would be a maximum of 35% once commerciality is established.

PDVSA said produced gas would be used domestically, with any surplus gas exported via an expansion of the Trans-Guajira gas pipeline, which would deliver gas to Colombia and Central America.

Swift Energy to develop New Zealand lease

Crown Minerals of the New Zealand Ministry for Economic Development has awarded Petroleum Mining Permit (PMP) 38155 to Swift Energy New Zealand Ltd., a subsidiary of Swift Energy Co., Houston. The 30-year permit is for development of the Kauri Sand gas-condensate and Manutahi Sand oil discoveries.

The 8,708-acre PMP is in Petroleum Exploration Permit (PEP) 38719 in the Taranaki basin on New Zealand’s north island.

Swift Energy plans to place two additional multiwell drilling pads, in addition to existing A and E pads, on the permit for full development of Kauri Sand, and more wells are needed to exploit the Manutahi Sand. Swift expects to drill the remaining scheduled Kauri A and E wells, and the Manutahi A-L series of wells by March 2006. Then it will drill 10 more wells by July 2008, raising the total well count to 32.

Kauri gas production will be processed at Swift’s Rimu production station, while oil production from the Manutahi Sand initially will be trucked to the company’s Waihapa production station.

Swift will continue the delineation of the Rimu-Kauri area and will drill additional exploration wells later this year in the PEP 38719 area, such as the Tawa prospect in the Tarata Thrust exploration program.

Total to develop Akpo field off Nigeria

Nigerian National Petroleum Corp. (NNPC) has given Total SA approval to start development of Akpo gas-condensate field on OML 130 in 1,100-1,700 m of water, 200 km off Port Harcourt, Nigeria.

The field’s development plan includes 22 producing wells, 20 water injection wells, and 2 gas injection wells, all of which will be tied back to a 2-million-bbl floating production, storage, and offloading (FPSO) vessel.

Akpo, scheduled to be on stream in late 2008, is expected to reach a quick production peak of 225,000 boe/d, 80% condensate. The condensate will be exported via a buoy 2 km from the FPSO. The gas will be piped 150 km to the Amenam-Kpono platforms then transported to the Bonny liquefaction plant.

Total is operator of OML 130 with a 24% interest. Other stakeholders are NNPC, Petroleo Brasileiro SA, and South Atlantic Petroleum.

Work due on Colombian block under farmout

Kappa Resources Colombia Ltd., a private Calgary company, has completed a farmout agreement that allows UK-based Black Rock Oil & Gas PLC to participate and earn an interest in Kappa’s 249,000-acre Las Quinchas Association Contract in the Middle Magdalena Valley of Colombia.

The companies also created a joint venture to accelerate development of Kappa’s Arce oil field and the Bukhara-1 oil discovery.

The farmout agreement, which is subject to approval by state-owned Ecopetrol, obligates Black Rock to spend $3.2 million to earn 50% of Kappa’s rights in the Las Quinchas contract. Black Rock will participate in drilling the Arce-3 delineation well and in the workover and extended production testing of Bukhara-1.

Also, Black Rock will either fund the reentry and deepening of an existing wellbore or drill an alternate location to explore deeper Cretaceous reservoirs. The combined work program is targeting light and heavy oil accumulations with potential recovery of as much as 120 million bbl of oil. A workover rig is on site at Bukhara-1. After completing work there, the rig will spud the Arce-3 well in mid-May.

Petrobras projects due subsea equipment

Petroleo Brasileiro SA has let separate contracts to FMC Technologies Inc. for subsea equipment for Golfinho and Piranema oil fields off Brazil.

The contracts, totaling $30 million, cover the supply of 13 subsea trees designed for service in 6,562 ft of water.

Partners to install truss spar off Malaysia

Murphy Oil Corp. and Petronas will install a truss spar in Kikeh field on Block K in 1,330 m of water off Malaysia.

Murphy (Kikeh field’s operator) and Petronas will install the 142 m deep and 32 m wide truss spar; a floating production, storage, and offloading vessel; fluid transfer lines between the FPSO and the spar; subsea production systems; and pipelines.

The Kikeh spar is scheduled for delivery late in 2006. Production is to start in the second half of 2007. Construction and completion work will be carried out by Malaysia Shipyard & Engineering’s facility in Pasir Gudang, Johor, Malaysia.

Production - Quick Takes

Shell E&P delays pipeline repair on Mars TLP

Shell Exploration & Production Co. has delayed flexjoint repairs to its Mars tension leg platform (TLP) because of ongoing loop currents in the Mars basin area of the Gulf of Mexico.

Loop currents form when a portion of the Gulf Stream enters the Gulf through the Yucatan Straits, flow north, and turn east and south to exit the Florida Straits.

Subject to appropriate regulatory approvals, Shell now plans to first complete flexjoint repairs at the Auger TLP on Garden Banks Block 426, starting June 1. It is in 2,860 ft of water.

The Auger flexjoint repairs are expected to take 10-14 days to complete. Production will be partially curtailed (60% boe remains on line) for part of the repair period and will be completely shut in for the remainder.

Meanwhile, Shell continues to monitor the loop currents surrounding the Mars TLP on Mississippi Canyon Block 807. The company expects to complete repairs in 2 weeks during the first half of July.

Shell operates Mars TLP with a 71.5% interest. BP PLC has 28.5% interest. Mars produces 140,000 b/d of oil and 156 MMcfd of gas.

The Mars TLP initially was shut in on May 22, 2004, and temporary repairs were made while the flexjoints were refurbished. Production resumed June 28 (OGJ Online, Nov. 1, 2004). Operator Shell holds a 71.5% interest, and BP 28.5%.

Inspections last summer of the remaining oil and gas export flexjoints, as well as all flowline flexjoints, on Shell’s TLPs revealed no deterioration.

Record well depths challenged in US gulf

At least two wells could set drilling depth records in the Mississippi Fan fold belt in the central Gulf of Mexico soon.

Shell Offshore Inc. has proposed to drill to 32,600 ft on Atwater Valley Block 267 using the Transocean Nautilus semisubmersible. Anadarko Petroleum Corp. holds a 25% working interest in the block.

Unocal Corp., using Transocean’s Discoverer Spirit drillship, spudded a well late in the first quarter destined for 32,500 ft targeting the Lower and Middle Miocene in Green Canyon Block 512. Anadarko’s interest in the Knotty Head prospect is 25%.

Kuwait lets facility upgrade contract

Kuwait Oil Co. (KOC) has awarded a $680 million contract to Aberdeen-based oil services company Petrofac Ltd. to expand KOC’s oil production capacity and implement safety and operational upgrades to its oil and gas facilities.

The 2-year contract, to be executed through Petrofac’s Engineering & Construction Division, covers the modernization of seven oil gathering centers and two booster stations, all in separate locations. The project is scheduled for completion in 2007.

Statoil to improve recovery at Norne field

Statoil ASA will invest 800 million kroner to install a new subsea template and drill two wells to recover an extra 10 million bbl of oil from its Norne field in the Norwegian Sea.

The template, to be installed in September, will be tied back to existing subsea templates in the field. The two wells will be drilled and completed for production to start as early as the second half of 2006.

Statoil has previously implemented a series of measures to optimally exploit the infrastructure in the Norne area. Urd (formerly Svale and Staer fields) is being developed with a total of three subsea templates which will be tied back to the Norne production ship, and production will start later this year.

Statoil resumes Guovca prospect drilling

Statoil ASA has resumed drilling a wildcat on its Guovca prospect in the Barents Sea after a 3-week halt due to a leak of about 1 cu m of hydraulic oil on Apr. 12. The well was initially expected to be complete by May 1 (OGJ Online, Apr. 7, 2005).

Statoil and the Petroleum Safety Authority Norway have completed separate investigations that revealed failures in Ocean Rig’s Eirik Raude semisubmersible’s monitoring system and that the direct cause of the leak was a ruptured hose.

Statoil has checked all hoses and systems and replaced the damaged hydraulic hose. It has also added an extra drilling engineer to the crew.

An impact assessment of the leak showed no effect on the marine environment.

Processing Quick Takes

Petrobras to invest $394 million in refinery

Petroleo Brasileiro SA (Petrobras) will invest $394 million in the next 3 years in its 170,000 b/cd Refinaria Presidente Bernardes Cubatão (RPBC) refinery in São Paulo and build a 208 Mw electric power generation plant, reported BNamericas.

Petrobras will spend $254 million to improve gasoline quality and modernize the RPBC main processing unit, according to Agencia Estado news service.

Petrobras said in early March that it would invest $259 million in the refinery through 2008 and $140 million in a thermoelectric plant to supply 50 Mw of power for the refinery and 900 tonnes/hr of steam, the news service reported. The new plant will replace the 50-year-old power generation unit. Its construction is to start in the second half of 2005 for completion in 2008.

Preem lets study contract for fuel upgrading

Preem Petroleum AB, Stockholm, let a contract to Foster Wheeler Energy Ltd. to study residual-fuel upgrading at Preem’s 199,500 b/cd Lysekil and 106,000 b/cd Gothenburg refineries.

Terms of the contract were not disclosed.

Transportation Quick Takes

Work slows on Mackenzie Gas Project

Imperial Oil Ltd. said operational work for the proposed $7 billion Mackenzie Gas Project stopped while project partners complete benefit and access agreements and pursue “a clear regulatory process, including time lines.”

The project would include development of an estimated 6 tcf of gas in Mackenzie Delta and construction of a gas and natural gas liquids gathering system, gas pipeline, and related facilities from Canada’s Arctic to southern markets. The Mackenzie Valley pipeline would have initial design capacity of 1.2 bcfd.

Partners are ConocoPhillips Canada, Shell Canada Ltd., ExxonMobil Canada, and the Aboriginal Pipeline Group.

The partners filed an 8,000-page application with Canada’s National Energy Board in October 2004.

The companies have halted geotechnical data gathering programs, the start of detailed engineering, and preparatory work on construction contracts. They are continuing work to advance regulatory review, Imperial said.

“Substantial progress will need to be made prior to the start of public regulatory hearings [expected this summer]...to allow the project to continue,” the statement said. Imperial said progress on benefits and access agreements is hampered by “requests for terms that are well beyond the direct responsibility of the project.”

“The coventurers have serious concerns regarding the pace of progress relative to our ongoing investments, and the lack of convergence in some key project areas,” Shell Canada said.

Federal and territorial governments are being asked to help resolve the concerns of the consortium members, Imperial said.

North Adriatic LNG terminal approved

The Italian government and the European Commission approved construction and operation of an LNG terminal proposed by Edison LNG 15 km off northern Italy in 30 m of water in the North Adriatic Sea.

Qatar Petroleum and ExxonMobil Corp. each now hold 45% of Edison LNG. Former sole-owner Edison Gas SPA of Italy has 10% ownership and will have access to 80% of the terminal capacity.

As a result of the ownership changes, Edison LNG will change its name to Terminale GNL Adriatico. The terminal, scheduled for start-up by yearend 2007, will have a regasification capacity of 8 billion cu m/year (OGJ, Sept. 6, 1999, p. 21).

Aker Kværner holds a contract for development of the gravity-based structure, LNG storage tanks, and LNG off-loading and regasification facilities. Snamprogetti has the contract for a pipeline associated with the project.

The LNG will come from Qatar’s North field.

Dolphin to supply natural gas to Dubai

Dolphin Energy Ltd. has signed an agreement with the Dubai Supply Authority to deliver 700 MMscfd of natural gas from Qatar to Jebel Ali for 25 years, starting in 2007. The project involves the development of natural gas reserves in Qatar’s supergiant North field. The gas will be processed at Qatar’s Ras Laffan industrial city. As much as 3.2 bcfd will be transported via pipeline to the UAE.

ChevronTexaco to get two LNG carriers

ChevronTexaco Corp. has ordered two 154,800 cu m LNG carriers from Samsung Heavy Industries Co. Ltd. of South Korea.

The LNG carriers, to be operated by ChevronTexaco, will have a membrane-type design and equipped with diesel-electric propulsion.

The two carriers are planned for delivery in 2009.

Statoil, Aker extend Snøhvit contract

Statoil ASA and Aker Stord have signed a letter of intent for additional work and completion of the process barge for the Snøhvit project at the Hammerfest LNG plant on Melkøya island in northern Norway.

The 1 billion kroner contract is extended by 6 months to mid-2006. Aker Stord, part of Norway’s Aker Kværner engineering group, was awarded the contract initially in September 2003 to install the mechanical units on the barge.

Delays to the vessel being built at Spain’s Dragados yard in Cadiz are the principal reason for work to be transferred to Norway.

The process barge will be shipped via a heavy-lift vessel in late June for installation in the dock at Melkøya at the end of July.

Statoil still plans to start LNG deliveries from the Hammerfest facility in late 2006. The Hammerfest LNG plant will process and liquefy gas from the Snøhvit field in the Barents Sea for export.