OGJ Newsletter

March 7, 2005
Indonesia's concerns over its falling crude oil production has prompted the government to set up a team to review the country's membership in the Organization of Petroleum Exporting Countries.

General Interest—Quick Takes

Indonesia team to study withdrawing from OPEC

Indonesia's concerns over its falling crude oil production has prompted the government to set up a team to review the country's membership in the Organization of Petroleum Exporting Countries.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro said the country faced several problems in maintaining its membership.

"We are studying whether we are already a net oil importer and thus no longer eligible to be an OPEC member," the minister said. "The team will forward the results of the study to the Cabinet, as any plan for our withdrawal from OPEC will be a diplomatic issue."

He acknowledged that the country's crude oil exports dropped to 30,000 b/d in 2004 from 100,000 b/d in 2003.

Reports from the Central Statistics Agency said Indonesia's oil and gas imports—including both crude oil and oil products—increased by 52% in 2004 due to the country's declining oil production and rising domestic demand of as much as 7%/year.

The ministry's Director General for Oil and Gas Iin Arifin Takhyan said Indonesia was a net oil importer for 4 months in 2004. The country's annual average oil output has fallen by 5% over the last decade to less than 1 million b/d.

On Feb. 21, the official Antara news agency quoted Hardy Prasetyo, Indonesia's deputy chairman of the Oil Fuel Socialization Team, as saying Indonesia's reserves stood at 4.82 billion bbl, or about 1% of world petroleum reserves, according to official estimates.

Cimarex Energy to acquire Magnum Hunter Resources

Cimarex Energy Co., Denver, said it will acquire Magnum Hunter Resources Inc., Irving, Tex., in a $2.1 billion transaction.

The acquisition will triple reserves for Cimerax, double production, and extend its reserve life.

As of Oct. 1, 2004, Magnum Hunter's internally estimated total proved reserves were 1 tcfe, of which 61% was natural gas and 72% was proved developed.

In the third quarter of 2004, Magnum Hunter's production averaged 165 MMcfd of natural gas and 11,563 b/d of oil.

Magnum Hunter operates mainly in southeast New Mexico and other Permian basin areas, the Midcontinent area, onshore Gulf Coast, and shallow-water Gulf of Mexico.

Cimarex estimated that its yearend 2004 proved reserves totaled 449 bcfe, of which 81% was gas and 99% was proved developed.

Its third-quarter 2004 production averaged 176 MMcfd of gas and 7,358 b/d of oil.

Cimarex operates mainly in the Anadarko basin, on the Texas and Louisiana Gulf Coast, in the Mississippi Salt basin, and in northern California. It also has operations in North and South Texas, Kansas, New Mexico, Wyoming, and Montana.

The combined company pro forma statistics show yearend 2004 proved reserves of more than 1.3 tcfe, of which 68% was gas and 83% was proved developed.

Magnum Hunter shareholders will receive 0.415-share of Cimarex common stock for each share of Magnum Hunter common stock. Cimarex will assume Magnum Hunter's $645 million debt.

Epco acquires TE Products Pipeline in $1.1 billion deal

Enterprise GP Holdings LP, a unit of Enterprise Products Co. Inc. (Epco), has acquired Texas Eastern Products Pipeline Co. LLC, a general partner of

TEPPCO Partners LP, from Duke Energy Field Services LLC. The deal is valued at $1.1 billion.

TE Products Pipeline, one of the largest common-carrier products pipelines in the US, extends 4,600 miles from Texas to the US Midwest and Northeast. The 330,000 b/d system transports refined products, LPG, and petrochemicals. TE Products Pipeline also has 17 million bbl of product storage and 37 million bbl of LPG storage.

With this transaction, TE Products Pipeline becomes a wholly owned subsidiary of Enterprise GP.

"General partners of both TEPPCO and Enterprise will operate independently and will maintain separate boards of directors, management teams, and offices," said Barry Pearl, TEPPCO Partners CEO.

In a separate transaction, Epco and its affiliates have agreed to purchase 2.5 million TEPPCO LP units valued at $100 million from Duke Energy Corp.

Mitsubishi gets oil for Pertamina loan

Japan's Mitsubishi Corp. reported it will import 20,000 b/d of crude oil for the next 6-7 years from Indonesia's state-owned oil and gas company Pertamina as part repayment for a $310 million loan to Pertamina that Mitsubishi and seven other lenders have arranged.

The loan will finance a series of engineering, procurement, and construction contracts for Pertamina's Pagardewa natural gas development project, including installation of gas gathering facilities at West Musi field, West Musi-Pagardewa gas transmission and compression facilities, and gas gathering facilities at Merbau and Pagardewa.

Mitsubishi will arrange 70% of the gas project funding through a Japanese entity, with the remaining 30% provided by four commercial banks.

The Mitsubishi-Pertamina deal will raise Japan's imports of Indonesian crude oil to 160,000 b/d at a time when the supply of low-sulfur crude oil in Japan has become tight following suspension of such imports from China.

US industry scoreboard — 3/7

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Exploration & Development—Quick Takes

Notices issued for OCS Sales 194, 197

The US Minerals Management Service has issued final notices for Outer Continental Shelf Lease Sales 194 and 197, both scheduled for Mar. 16.

Central Gulf of Mexico Sale 194 offers 4,063 blocks covering 21.4 million acres 3-210 miles off Louisiana, Mississippi, and Alabama in 4-3,400 m or more of water. MMS estimates the sale could result in production of 276-654 million bbl of oil and 1.59-3.3 tcf of natural gas.

Its final notice included recent changes such as the offering of Mississippi Canyon Block 920, to be drilled outside the lease via directional drilling.

MMS is offering previously deferred Vermillion Blocks 139 and 140, specifying that seabed and water column use be limited in areas where an offshore LNG deepwater terminal has been approved.

Eastern Gulf of Mexico Lease Sale 197 offers 124 blocks covering 714,240 acres 100-196 miles offshore in 1,600-3,425 m or more of water. MMS estimates recoverable hydrocarbons in the blocks at 65-85 million bbl of oil and 270-340 bcf of natural gas.

Changes included in this lease sale's final notice are price thresholds for deepwater royalty suspension of $39/bbl of oil and $6.50/MMbtu for gas, in 2004 dollars.

Indian firms invited to South Pars work

Iran has invited Indian oil and gas companies, including Oil & Natural Gas Corp., Indian Oil Corp., Oil India Ltd., and state-owned gas transmission firm GAIL (India) Ltd., to develop one phase in its South Pars natural gas field development off Iran.

The block would export gas to India through the proposed 2,775-km pipeline through Pakistan, which is expected to come on line by 2009, said National Iranian Gas Export Co. Chairman M.H. Rahabari.

New Delhi would not be associated with the construction, maintenance, or operation of the pipeline, 760 km of which would be in Pakistani territory.

"India will not enter into any agreement with Pakistan, but deal only with Iran on the issue," said Indian Petroleum Minister Mani Shankar Aiyar. "It will be Tehran's responsibility to court Pakistan for the laying of the pipeline and safe delivery of gas on the Indian border."

Iran, which is seeking international financing for these projects, also has committed to export 7.5 million tonnes/year of LNG from another phase of South Pars field to India beginning in 2009.

India and Pakistan both are seeking to increase the amount of gas volumes imported, which would require additional feasibility studies, said Aiyar, who plans to visit Tehran in June for further talks.

CanArgo to evaluate 2003 Kura basin discovery

CanArgo Energy Corp., Guernsey, Channel Islands, UK, plans to appraise its 2003 Manavi M11 indicated discovery in the Kura basin 45 km east of Tbilisi through two new wellbores this year.

Good but unmetered flow rates were observed before tubing collapsed, and M11 may be one of the most significant recent oil discoveries in the southern Caucasus, CanArgo said. The well found 34.4° gravity oil and cut more than 490 ft of hydrocarbon-bearing Cretaceous limestone reservoir topped at 14,265 ft.

Regional outcrop studies indicate this reservoir unit to be more than 1,000 ft thick, and no oil-water contact was indicated in the well.

The M11Z sidetrack, now at 12,461 ft, is to be tailed into Cretaceous using an underbalanced coiled tubing drilling unit at midyear.

CanArgo also plans to drill the M12 appraisal well 4 km west of M11.

Woodside tests well off Mauritania

Woodside Mauritania Pty. Ltd.'s majority-owned and operated Tiof-6 appraisal well off Mauritania has flowed high rates of oil and gas during production tests.

The well produced at a stabilized rate of 9,150 bo/d through a 72/64-in. choke after achieving a maximum flow rate of 12,400 bo/d and 11 MMscfd of gas through a 104/64-in. choke.

Tiof-6, 25 km north of Chinguetti field on Block 4 of Production Sharing Contract B, intersected oil over a gross interval of about 124 m. Chinguetti is to start producing in early 2006.

Coal measures yield gas at Perth basin wildcat

Arc Energy Ltd., Perth, reported a flow of 3.7 MMcfd of gas from Permian Irwin River coal measures at the Corybas-1 exploration well on Production License L2 in Western Australia's northern Perth basin.

The rate came on a drillstem test at 2,410-2,537 m through a 1/2-in. choke with 610 psia surface pressure. An earlier drillstem test at 2,425-59 m yielded 100 Mcfd. Arc Energy deepened the well to TD of 2,627 m and found excellent reservoir development and water in the primary objective, the underlying Permian Upper High Cliff sandstone, drillstem tested at 2,584-2,627 m.

The High Cliff drillstem tested 16.5 MMcfd of gas through a 1/2-in. choke with 1,220 psi flowing wellhead pressure from 2,370-2,419 m in the Hovea-2 well 11 km to the south in 2002.

The Irwin River is known to be gas-bearing in the area and has previously been of generally poor reservoir quality. Irwin River coal measures produce gas in nearby Dongara field and are interpreted from existing well intersections on the Yardarino Terrace to have as much as 400 bcf of gas in place in relatively poor reservoir in an inadequately tested accumulation known as the Elegans resource, Arc Energy said.

Arc Energy and Origin Energy Developments Pty. Ltd. each hold 50% interest in L1 and L2.

North West Shelf Venture lets Angel contract

Woodside Energy Ltd., operator of the North West Shelf Venture (NWSV), let a front-end engineering and design contract to Eos Joint Venture—an unincorporated JV of WorleyParsons Services Pty. Ltd. and Kellogg, Brown & Root Pty. Ltd.—for development of Angel gas-condensate field off Karratha in Western Australia.

The contract is for engineering of a remotely controlled production platform and three subsea wells capable of producing 800 MMcfd of gas and 50,000 b/d of condensate. Angel field is in 80 m of water, 49 km east of the North Rankin platform. A field development decision is expected in the second half of this year.

Fabrication of the jack up platform and drilling of the Angel wells are scheduled for late 2006 or early 2007, with field start-up planned for fourth quarter 2008.

The field life is expected to be 8 years. Total production will be 2 tcf of gas and 80 million bbl of condensate.

Production will be sent from Angel via a new 50-km, 30-in. spur line to an existing 135-km trunkline to the venture's onshore gas processing plant near Karratha.

Topas pilot flow starts off Norway

Statoil ASA has begun production from its Topas discovery in the Norwegian North Sea in a government-approved 6-month pilot expected to recover 3 million bbl of oil. Topas holds reserves of 10 million bbl (OGJ Online, Dec. 10, 2004).

The 34/10-48S discovery well is producing oil and associated gas through processing facilities on the Gullfaks C platform.

Statoil is working to extend production and might drill more wells to define the reservoir, depending on results of the pilot phase.

Statfjord late-life development approved

Statoil ASA and partners have received government approval for late-life development of Statfjord oil field and the associated Tampen Link gas pipeline in the Norwegian North Sea.

The 16 billion kroner project will keep the field on stream until 2020.

Statoil, the operator, will convert installations on the field to recover gas with associated oil instead of producing oil with associated gas. The procedure will change the drainage strategy to low-pressure production to recover the remaining gas.

Statfjord field has produced more than 4 billion bbl of oil in 25 years. The late-life development will raise recovery factors to 70% of the original oil in place and 75% of the gas, adding recoverable volumes of 32 billion cm of gas, 25 million bbl of oil, and 60 million bbl of condensate.

The 4-year project is scheduled to begin in the second half of this year, while full production is maintained.

The Tampen Link will tie Statfjord into the existing Flags gas transport system on the UK continental shelf. Pipelaying is planned for the second half of 2006 and gas exports for the second half of 2007.

Drilling & Production—Quick Takes

BP starts Clair field oil production

BP PLC began production Feb. 21 from Clair oil field off the UK west of Shetland. Plateau production is expected to be 60,000 b/d of oil and 15 MMcfd of natural gas, said BP.

Oil from the field will move to the Sullom Voe terminal in Shetland through a 105 km, 22-in. pipeline, and gas will move through a 10 km, 6-in. spur to the Magnus enhanced oil recovery trunkline.

Clair, long considered "impossible to develop," lies 47 miles west of Shetland in 140 m of water. The reservoir, which covers five license blocks—206/7a, 206/12, 206/8, 206/13a, and 206/9—has an estimated 5 billion bbl of oil in place.

Initial development will access 250 million bbl of oil reserves.

Development required investment of £650 million by BP and partners ConocoPhillips 24%, ChevronTexaco Corp. 19.4%, Royal Dutch/Shell Group 18.7%, and Amerada Hess Corp. 9.3%. BP, the operator, holds 28.6%.

US drilling dips but remains seasonally strong

US drilling activity dipped slightly, down by 14 rotary rigs to 1,281 units working the week ended Feb. 25, Baker Hughes Inc. reported. That's up from 1,134 a year ago and still in the highest range for February since 1986.

Canada's rig count increased by 28, to 617 rotary rigs working. That's up from 560 a year ago.

GlobalSantaFe gets semi, awaits another

GlobalSantaFe Corp. has taken delivery of the new Development Driller II ultradeepwater semisubmersible rig in Singapore.

The rig is to begin sea trials in the Gulf of Mexico in late May and will start a 3-year contract with BP PLC for the Atlantis project in July.

GlobalSantaFe expects to take delivery of another ultradeepwater semi, GSF Development Driller I, this month, also in Singapore. The rig will begin sea trials in the Gulf of Mexico in June and to begin a 2-year multiwell exploration and development program for BHP Billiton Ltd., Melbourne, in July.

Both rigs are capable of drilling to 37,500 ft in 7,500 ft of water.

Processing—Quick Takes

GAIL to invest in Myanmar LPG plant

GAIL (India) Ltd. plans to invest $340 million to build a floating gas processing plant in Myanmar.

The government-owned company wants the supply infrastructure in place by Apr. 1, 2006. Engineers India Ltd. was commissioned to prepare the feasibility report.

GAIL will install the barge-mounted plant in 340 ft of water in Yetagun gas field, 260 miles south of Yangon in the Gulf of Martaban off Myanmar. It will produce 250,000 tonnes/year of LPG from about 11.3 million cu m/day of gas. Currently, Myanmar exports Yetagun gas to Thailand by pipeline.

After liquids removal, lean gas from the plant will go to Thailand.

Sabic lets Sharq-III expansion contract

Saudi Basic Industries Corp. has awarded Foster Wheeler Energy Ltd. of the UK a program management services contract for engineering, procurement, and construction management of the Sharq III petrochemicals complex expansion project at Al Jubail.

The Sharq complex's production will be expanded to 2.9 million tonnes/year of ethylene, polyethylene, and ethylene glycol. Production following the expansion is scheduled to begin before yearend 2008.

Navajo refinery to get hydrotreater

Holly Corp. subsidiary Navajo Refining Co. LP has let a turnkey engineering, procurement, and construction contract to Koch Partners LP, Tyler, Tex., to design and build a 15,000 b/sd gas oil hydrotreater at its 60,000 b/d refinery at Artesia, NM.

The $14 million project is to be completed early in 2006.

Koch will provide process design, detailed engineering, project management, procurement, fabrication, and field construction for the unit.

Cryogenic gas sweetening pilot planned

Cool Energy Pty. Ltd., Perth, plans to test a cryogenic natural gas sweetening process at a pilot plant in a gas field in Western Australia's Perth basin. The plant is slated for operation in September.

The process, developed by Curtin University in Perth, freezes a dehydrated gas stream in a cryogenic chamber, which enables a gravity separation of solid particles. In the final step, the solids are melted to form separate liquid streams for removal. The product streams are sweet gas, propane, and butane. The waste stream includes liquid carbon dioxide.

Laboratory tests have been successful with 2 Mcfd of gas. Cool Energy expects the pilot plant eventually to be capable of handling 2 MMcfd. The plant will handle gas flows containing as much as 20% CO2, and Cool is working on a process so the plant can handle gas flows of 70% CO2.

Transportation—Quick Takes

Canadian oil getting new routes to US

Canada's National Energy Board will hold hearings in early April on a request by Enbridge Pipelines Inc., Calgary, to recover $10 million/year for 5 years in its Canadian oil pipeline to support a Mobil Pipe Line Co. initiative to reverse the flow of an idle 20-in. south-to-north pipeline.

The so-called "20-in. Reversal Pipeline Project" from Patoka, Ill., to the Gulf Coast would have the capacity to ship 65,000-70,000 b/d of western Canadian oil to the US Midcontinent and Corsicana, Beaumont, and Nederland, Tex. Canadian producers nominated more than 50,000 b/d of that capacity in a recent open season conducted by Enbridge, Mobil, and Mustang Pipe Line Partners.

Mobil said the revitalized system could be placed in service by late 2005 at a reversal cost of $22.5 million.

Enbridge Energy LP delivers crude oil to Mustang at Lockport, Ill., southwest of Chicago, for shipment to connecting carriers at Patoka, about 60 miles east of St. Louis. Patoka is the terminus of Mobil's formerly northbound pipeline.

NEB will consider at the same hearing Enbridge's application to recover similar toll revenues related to placing into service the Spearhead Pipeline from Griffith, Ind., southwest of Gary, to Cushing, Okla. That project, involving reversal of a system idle since 2003, is 85% in place and Enbridge could start pumping by Jan. 1, 2006.

Spearhead would transport 116,000-186,000 b/d, depending on the share of heavy oil carried.

Canadian crude now fills 10,000 b/d of the 712,000 b/d of refining capacity accessible from Cushing, Enbridge said.

Russia plans work on eastbound oil line

The Russian government plans to begin construction of its 4,118 km Taishet-Perevoznaya pipeline in June-August of this year, with oil exports expected to begin in August-September 2006.

The $11-14.5 billion pipeline, with 44 pumping stations, will extend from Taishet in Siberia's Irkutsk region to Perevoznaya Bay on the Sea of Japan.

Design work began in January, and pipeline construction is planned to begin this summer simultaneously at Taishet and Perevoznaya Bay.

Oil will be transported to the Perevoznaya terminal by rail until the pipeline is completed.

Japanese ports are just 400 km from the proposed terminus of the pipeline, but Russia also hopes to export oil to China, South Korea, Indonesia, and Australia.

South Korea last month proposed participating in the pipeline with financing, construction, steel, and expertise.

Shell, ERG to build Sicily LNG terminal

Shell Energy Europe BV and ERG Power & Gas SPA have signed an agreement to develop a 400 million euro LNG regasification terminal in Sicily. The terminal will be in the Priolo-Augusta-Melilli industrial area in Syracuse Province.

The terminal will have design capacity of 8 billion cu m/year of gas.

Shell expects to start construction in 2007 "subject to the permitting process" and to begin operations in 2010.

Qatar, Shell sign LNG agreement

Qatar Petroleum (QP) and Royal Dutch/Shell Group signed a heads of agreement to develop a large-scale LNG project in Ras Laffan City, Qatar.

The Qatargas 4 project, worth more than $6 billion, includes production of 1.4 bcfd of gas and associated liquids from supergiant North field off Qatar and a single LNG train with a capacity of 7.8 million tonnes/year. The 25-year project will supply North America and Europe.

QP will hold a 70% equity interest in the project and Shell, 30%.

LNG deliveries are scheduled to begin in 2010-12.