OGJ Newsletter

Feb. 21, 2005
Saudi Arabia's Minister of Petroleum and Mineral Resources Ali I. al-Naimi said his country has spent substantial amounts of money securing its oil installations and insisted it would be "difficult, if not impossible" for terrorists to attack them.

General Interest—Quick Takes

Al-Naimi: Saudi oil safe from terrorists

Saudi Arabia's Minister of Petroleum and Mineral Resources Ali I. al-Naimi said his country has spent substantial amounts of money securing its oil installations and insisted it would be "difficult, if not impossible" for terrorists to attack them.

"Even if it happens, the impact on the kingdom's production and exports will be negligible," al-Naimi told reporters at a 4-day antiterrorism conference that ended Feb. 8.

Prince Nayef Ibn Abdul Aziz Al-Saud, Saudi Minister of Interior, said that, although the terror threat had decreased, attacks could not be ruled out, and the government would remain on full alert "until we ensure there isn't a single terrorist left in the country," he said.

On Dec. 16, terrorist leader Osama bin Laden urged his followers in an audiotape to "go on and try to prevent (the West) from getting oilU. Concentrate your operations on that, especially in Iraq and the [Persian] Gulf" (OGJ, Jan. 10, 2005, p. 27).

Asked whether the Saudi government heeds such messages, al-Naimi said, "Any statements made by leaders of terror organizations that threaten our facilities will always be taken seriously."

In addition, the kingdom has strategic reserves to fall back on in the event of an attack or industrial disaster, al-Naimi said.

The petroleum minister said the kingdom increased its oil production last year to 11 million b/d and plans a further increase to 12.5 million b/d within the next 4 years due to projected increases in world demand for oil over the next 2 decades. "Moreover, the kingdom has studied the possibility of raising its productive capacity to 15 million b/d if the demand for oil requires that," he said.

Royal Dutch/Shell cuts reserves again

Royal Dutch/Shell Group has reduced its proved reserves by another 1.4 billion boe as of Dec. 31, 2003, in the fifth such reduction in a little over a year. The company said its new reserves total is 12.95 billion boe.

Previous write-downs totaled 4.47 billion boe, and the new total reduction of 5.87 billion boe is equivalent to 30% of the company's total reserves originally reported for Dec. 31, 2002, said Aberdeen consultant Wood MacKenzie Ltd.

Shell's latest recategorization was "largely based on technical adjustments," WoodMac analyst Derek Butter said in a Feb. 4 research note.

Shell executives noted that their reserves audit for 2003 has been completed. The US Securities and Exchange Commission has yet to accept it. Shell's series of reserves revisions attracted the attention of international regulators and shareholders alike last year (OGJ Online, Nov. 1, 2004).

Shell announced the most recent reserves cut while releasing its 2004 earnings statement in London Feb. 3. The major reported record net income of $18.5 billion for 2004, compared with $12.5 billion for 2003.

Standard & Poor's Ratings Services responded to the reserves reduction by lowering Royal Dutch/Shell's credit rating to AA from AA+ on Feb. 4 and took the major's long-term corporate credit ratings off CreditWatch.

"Accordingly, we estimate that proven reserves amounted to only some 12 billion boe, or about 8.5 years of production, at Dec. 31, 2004, a level significantly below that of most oil companies globally," said S&P credit analyst Emmanuel Dubois-Pelerin.

WoodMac's Butter estimates Shell's 5-year organic reserve replacement rate has fallen to 44-57%. "This is significantly below the level of its industry peers, where the top performers have recorded 5-year organic reserve replacement rates of up to 150%," Butter said.

Shell said it replaced 15-25% of the depletion in its reserves last year, and its goal is to average 100% reserves replacement during 2004-08.

World Bank backs project to utilize Guneshli gas, cut flaring

The World Bank is financing a project to reduce flaring of associated gas from Azerbaijan's Guneshli oil field and enable the country's electric power plants, local industry, power generation, households, and municipal services to burn natural gas instead of heavy oil and coal.

The bank's Guneshli Associated Gas Utilization Investment project will assist with the collection, compression, and transportation of the associated gas for distribution and sale in Azerbaijan.

Utilization of the surplus gas for the generation of electricity is expected to reduce carbon dioxide emissions by 2.5 million tonnes/year.

The World Bank said that Guneshli field, operated by the State Oil Co. of the Azerbaijan Republic, produces 40,000 b/d of crude as well as large amounts of gas that currently is flared. Nine wells produce only gas and 125 produce oil and associated gas. The field, expected to operate until 2030, holds estimated reserves of 300 million tonnes of oil, 2 million tonnes of condensate, and 43 billion cu m of gas.

Japan Oil Engineering Co. (JOE), which is providing consulting services for the project, expects to complete a technical feasibility study by June. The gas will be transported to shore by pipeline and treated to adjust its heating value for feeding it into the gas pipeline that extends to Azerbaijan from Russia.

JOE, together with Natsource Japan Co., also will advise in developing an emissions trading program.

China to export high-sulfur diesel

China appears likely to become a net exporter of high-sulfur diesel during February and March, reported Energy Security Analysis Inc. (ESAI), Boston. High-sulfur diesel, China's primary transportation fuel, increasingly is being used in electric power generators.

Imports surged to 5-year highs in December, when high-sulfur diesel imports rose to nearly 125,000 b/d, compared with 20,000 b/d during the third quarter, ESAI said.

Now, however, Chinese imports have slowed dramatically as higher refinery runs largely have met China's domestic demand, said Rick Mueller, ESAI oil manager. He expects Chinese high-sulfur diesel imports will remain far below their December level through March.

China Petroleum & Chemical Corp. plans to shift to 500 ppm sulfur in its diesel production by Apr. 1, which "will undoubtedly disrupt gas oil production and raise the call on imports," Mueller said.

Industry Scoreboard

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Exploration & Development—Quick Takes

BP makes fifth find on Block 31 off Angola

BP Exploration (Angola) Ltd. has made a fifth oil discovery, Palas-1, on ultradeepwater Block 31, off Angola.

Stavanger-based Ocean Rig ASA's Leiv Eiriksson semisubmersible rig drilled Palas-1 in 1,602 m of water to a TD of 3,745 m subsea. Palas-1 is 325 km northwest of Luanda and about 62 km southeast of Plutão field in a potentially new development area in the southeastern part of Block 31. The block lies in 1,500-2,500 m of water.

On test Palas-1 flowed a maximum 5,330 b/d of oil through a 40/64-in. choke. BP said it plans additional work to evaluate the full extent of the discovery.

Other reservoirs on the 5,349 sq km Block 31 include Plutão, Saturno, Marte, and Venus (OGJ Online, June 14, 2004).

Sonangol EP is the concessionaire of Block 31. BP is operator, holding 26.67%. Other shareholders are Esso Exploration & Production Angola (Block 31) Ltd. 25%, Sonangol 20%, Statoil Angola ASA 13.33%, Marathon Petroleum Angola (Block 31) Ltd. 10%, and Total Exploration & Production Angola (Block 31) Ltd. 5%.

The drillship next will move to Block 33 off Angola to drill another well for BP. Drilling operations are expected to take 30-45 days.

Russia to exclude foreign bidders

Non-Russian companies will be precluded from bidding on major resource-development projects in Russia this year unless they bid in partnership with a Russian firm holding at least 51% ownership, Natural Resources Minister Yuri Trutnev said Feb. 10.

The next day, he said that Russian companies with international operations would be pressured to participate in the licensing of Russian development rights. Affected projects include Sakhalin III development and projects in the Barents Sea and Russian Arctic.

ConocoPhillips proceeds on Corocoro

Venezuela has approved a plan for ConocoPhillips unit Conoco Venezuela CA and its partners to develop giant Corocoro oil field in eastern Venezuela's Gulf of Paria (OGJ, June 21, 2004, p. 39).

ConocoPhillips Pres. James Mulva and Venezuelan President Hugo Chávez met late Feb. 11, and the state oil company Petroleos de Venezuela SA (PDVSA) announced the agreement Feb. 12.

The consortium has a production goal of 75,000 b/d in 2007 and 120,000 b/d in 2009.

ConocoPhillips had planned to drill wells in Corocoro in December, but Venezuela put the project on hold pending resolution of questions concerning the business plan (OGJ Online, Apr. 11, 2003). A PDVSA news release noted an adjusted royalty tax of 16.33% for the project.

Partners are PDVSA subsidiary Corp. Venezolana del Petroleo SA (CVP), Italy's Eni SPA unit Agip Venezuela BV, and Taiwan-based OPIC Karimun Corp., an affiliate of Chinese Petroleum Corp. unit Overseas Petroleum & Investment Corp.

Pemex cancels Ricos gas block tender

Mexico's national oil company Petroleos Mexicanos (Pemex) said that no bids were received for an international tender under the multiple service contract program for the Ricos Block in the Burgos basin.

The tender was canceled for now, but once the current MSC round has concluded, Pemex will schedule workshops with potential bidders to gather feedback and determine whether a future bidding round for the Ricos Block is suitable.

Pemex has a Feb. 15 deadline for submission of proposals for Monclova Block and a Feb. 22 deadline for proposals for Pirineo Block. Both blocks are in the second round of the MSC bidding process (OGJ Online, July 2, 2004).

MSCs are intended to help Pemex boost its natural gas production from the Burgos basin directly across from the Texas border (OGJ Online, Apr. 23, 2004).

BG taps Clough for development off India

BG Exploration & Production India Ltd. has let a $131 million contract to Clough Ltd., Perth, to expand development of Panna oil field and South Tapti gas field in shallow water of the Arabian Sea off western India northwest of Mumbai (OGJ, Oct. 13, 2003, Newsletter).

Clough will begin work immediately on engineering, procurement, installation, and commissioning of three wellhead platforms and modifications to existing platforms and pipelines. Project completion is expected in 2006.

Clough said it has identified $4 billion in offshore oil and gas projects that will be awarded in India during the next 4 years.

ExxonMobil group spuds ultradeep shelf well

A group led by ExxonMobil Corp. spudded one of the most-watched wells ever in the Gulf of Mexico Feb. 9.

Rowan Cos. Inc., Houston, spudded the well in 70 ft of water in the West Blackbeard prospect on South Timbalier Block 168, using the Tarzan class Scooter Yeargain jack up (see map, OGJ, June 7, 2004, p. 40). Drilling, possibly to more than 30,000 ft, could take a year, ExxonMobil said.

West Blackbeard, part of a group of deep shelf prospects known as Treasure Island generated by Newfield Exploration Co. and a predecessor, is thought to have potential for several trillion cubic feet of recoverable gas in Miocene and older sections.

Holding working interests are ExxonMobil, operator 25%, Newfield 23%, BP Exploration & Production Inc. 20%, Petrobras America Inc. 20%, Dominion Exploration & Production Inc. 7%, and BHP Billiton Petroleum (Deepwater) Inc. 5%.

Gasco lets contract for Abu Dhabi well

Abu Dhabi Gas Industries Ltd. (Gasco) has awarded Foster Wheeler Ltd. a project management consultancy contract for development of its world-scale Onshore Gas Development Project III (OGD-III) at Habshan field in Abu Dhabi. The project will increase the production of condensate and natural gas liquids.

The facilities will recover condensate and NGL in well fluids from the Thamama F gas reservoir. Included is a new pipeline for transporting NGL to Gasco's new facilities at Ruwais for further separation. Lean gas will be injected back into the reservoir at Habshan field. Stabilized condensate will be pumped to Ruwais for storage and shipping. Mechanical completion is expected in 2007.

Foster Wheeler also will oversee the engineering, procurement, and construction contractor whose activities will include commissioning and final handover of the new OGD-III facilities at Habshan.

Drilling & Production—Quick Takes

Caspian's Central Azeri production begins

BP Group LLC, operator for the 10-company Azerbaijan International Operating Co. consortium, began oil production Jan. 13 from Central Azeri (CA) field, part of the Azeri-Chirag-Gunashli (ACG) complex in the Azerbaijan sector of the Caspian Sea.

Giant ACG, 100 km east of Baku, has reserves of 5.4 billion bbl of oil and is planned as a 30-year development and production project (OGJ Online, Sept. 24, 2004).

CA production, which began from the first of 10 predrilled production wells is expected to average 93,000 b/d of oil this year, with total 2005 CA production forecast at 35 million bbl.

BP in the third quarter also plans to install a compression and water injection platform in CA, bridge-linked to the 48-slot production, drilling, and quarters platform, creating a major complex of accommodations, drilling, production, processing, compression, and reinjection facilities. Facilities include a 30-in. oil pipeline to the expanded onshore Sangachal terminal and a 28-in. gas pipeline to Sangachal gas processing facilities. The development is designed to process 420,000 b/d of oil.

Phase II Azeri production, to come on stream through two platforms, includes West Azeri slated for 2006 and East Azeri for 2007(OGJ Online, Sept. 18, 2002).

ACG Phase III involves development of the deepwater Gunashli reservoir, scheduled to begin production in 2008. Plateau production in 2009 is expected to surpass 1.1 million b/d.

Statoil resumes Snorre A production

Statoil ASA said production from Snorre A platform and the Vigdis satellite in the Norwegian North Sea are back online after a natural gas leak forced it to shut in 205,000 b/d of production (OGJ Online, Jan. 18, 2005).

Output from Vigdis is back to its normal 75,000 b/d, but Snorre A is producing only about 100,000 b/d of its previous 130,000 b/d because it is not injecting gas pending completion of studies to determine if injection pressures exceed the design value for the risers.

US drilling continues at high levels

US drilling activity jumped by 32 units the week ended Feb. 11 to 1,280 rotary rigs working, Baker Hughes Inc. reported. That's up from 1,111 rigs drilling during the same period a year ago.

During the first 6 weeks of 2005, the US rig count has averaged 1,258 units—the largest weekly rig counts for that comparable period since the first 6 weeks of 1986 when weekly counts were 1,496-1,915 units.

Land drilling registered the biggest increase for the week ended Feb. 11, up by 23 rigs to 1,150 working. Inland water operations increased by 2 units to 25 rigs working.

Offshore drilling in US waters was up by 7 rigs to 105, including an increase of 5 to 98 rigs working in the Gulf of Mexico.

Canada had 589 rotary rigs working that week, 13 more than the previous week and up from 586 a year ago.

Mutineer-Exeter reserves revised; oil to flow early

The company also reported that initial production would begin in March, 3 months early.

The development lies 160 km off northwestern Australia within Exploration Permit WA 191-P in the Carnarvon basin, 150 km north of Dampier (OGJ Online, Jan. 8, 2004).

Four horizontal wells with dual electric submersible pumps have been completed, Santos said. They are expected to provide a high initial oil production output of 70,000-90,000 b/d.

In confirming the downward revision of the development's oil reserves from its August 2004 forecast, Santos said further drilling in 2004 and early 2005 indicated that the reservoir distribution was more complex than originally interpreted and that the top of Mutineer field's main reservoir has proven to be deeper than expected in some parts, and the oil pay thinner in some key wells.

Despite the estimated ultimate recovery, 2005 production is expected to average 15 million bbl—more than was estimated at the time of development approval. In 2006, a mean production of 19 million bbl is expected.

Santos is operator for partners Kufpec Australia Pty. Ltd., Nippon Oil Exploration, and Woodside Petroleum Ltd. (OGJ Online, Jan. 8, 2004).

BA Energy awards tar sands upgrader contract

BA Energy Inc. awarded a contract to a Canadian subsidiary of Jacobs Engineering Group Inc., Pasadena, Calif., to perform front-end and detailed engineering, procurement, and construction management services for Phase I of its grassroots Heartland Upgrader Project in Fort Saskatchewan, Alta.

The upgrader, which ultimately will be capable of processing 226,000 b/d of bitumen blends from Athabasca oil sands mining and in situ operations, will be built in three phases, with the first phase scheduled for operation in 2007.

This facility will produce light to medium, semisour crude blends suitable for most North American refineries, using proprietary technologies developed by BA Energy's parent company, Value Creation Inc.

The upgrader is the first in a series of projects Value Creation Group members are planning to accelerate the development of western Canada's oil sands and heavy oil resources, estimated to contain 1.6 trillion bbl of crude bitumen in place.

Processing—Quick Takes

Sudan taps ONGC for $1.2 billion refinery

Sudanese authorities in Khartoum have awarded a contract to India's state-owned Oil & Natural Gas Corp. (ONGC) to construct a $1.2 billion refinery at Port Sudan, reported Sudan's Minister of Energy and Mining Awad Ahmed al-Jazz.

The 100,000 b/d refinery will refine Nile blend crude oil produced in southern Sudan, and the petroleum products will be exported to south and east African nations.

ONGC will construct the refinery on a build, operate, and transfer basis. ONGC also will build a $200 million multiproduct export pipeline from the Khartoum refinery to Port Sudan on the Red Sea, about 740 km away. "Work on the pipeline...is expected to be completed by August 2005," al-Jazz said.

Transportation—Quick Takes

TransCanada plans $1.7 billion oil pipeline

TransCanada Corp., Calgary, is planning a $1.7 billion oil pipeline project to transport 400,000 b/d of heavy crude from its oil hub at Hardisty, Alta., to Wood River and Patoka, Ill.

The 1,870-mile Keystone pipeline system would involve construction of 1,000 miles of new 30-in. pipeline in North Dakota, South Dakota, Iowa, Missouri, and Illinois in the US; 100 miles of new 30-in. pipeline in Alberta and Manitoba, Canada; conversion of about 770 miles of TransCanada's existing 30-in. and 34-in. Alberta and Mainline natural gas transmission systems in Alberta, Saskatchewan, and Manitoba; and 15 pumping stations on the US line.

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The Keystone system anticipates growth in Canadian crude oil production during the next decade. Much of the oil will originate from oil sands and other projects in northern Alberta. TransCanada has received support for the project from a number of oil producers and refiners, and preliminary discussions have begun with other stakeholders, including communities, government representatives, and landowners along the proposed route.

TransCanada said it would continue to meet with industry groups to gauge additional support for the project with the view of calling an industry-wide "open season" later this year, after which regulatory applications would be filed in the fall or winter. Anticipated in-service date for the Keystone system is put at 2008-09.

Sempra lets Mexican LNG terminal contract

Sempra LNG, San Diego, Calif., has awarded a $500 million engineering, procurement, and construction contract to the BMVT consortium led by Black & Veatch Corp., Kansas City, Mo., for Sempra's Energia Costa Azul LNG receiving terminal 14 miles north of Ensenada, Mex.

BMVT also includes Mitsubishi Heavy Industries of Japan, Vinci Construction Grands Projets of France, and Techint SA de CV of Mexico.

The LNG terminal, capable of receiving 7.6 million tonnes/year of LNG and processing 1 bcfd of natural gas, will contain regasification facilities, LNG storage tanks, an LNG jetty, and unloading facilities.

The terminal will be the first to be constructed on the Pacific Coast of North America (OGJ Online, Jan. 28, 2005).

Black & Veatch and Techint will undertake terminal design and construction, including LNG regasification and LNG unloading facilities. Mitsubishi and Vinci Construction will construct two aboveground LNG storage tanks, each having a storage capacity of 160,000 cu m. Construction is scheduled for completion in 2008.

Wyoming gathering system due expansion

TEPPCO Partners LP plans to add 45 miles of pipeline loop and 33,300 hp compression facilities on its Jonah gas gathering system in southwestern Wyoming.

The $122 million Phase IV expansion will increase throughput of gas from Jonah and Pinedale fields, expanding the system's capacity to 1.5 bcfd (OGJ Online, May 15, 2003). The project is expected to be fully commissioned by December.