General Interest - Quick Takes
Bill would lift state shares of OCS revenue
Sen. Mary L. Landrieu (D-La.) has introduced a bill that would give Gulf Coast states 50% of federal offshore oil and gas revenue from their portions of the Outer Continental Shelf for hurricane protection, including construction of stronger levees and comprehensive coastal restoration.
The Gulf Coast Protection Act would make half of this year’s projected $6-8 billion of total federal OCS revenues available to states comprising what she termed the “Energy Coast.”
Landrieu said Louisiana represents 25% of US crude oil production and nearly 20% of the country’s natural gas output but receives less than 0.1% of royalties that the federal government shares with states.
Onshore producing states share in royalties on production from federal lands. Wyoming is expected to receive $1.3 billion and New Mexico $700 million this year, she said.
Landrieu said her bill would build on $1 billion in funding that she and Louisiana’s other US senator, Republican David Vitter, secured in the Energy Policy Act of 2005 for coastal impact assistance over the next 4 years. Using a similar formula that would allocate a portion to each state based on its share of OCS production within 200 miles of its coast, she said Louisiana would receive some 54% of distributed state shares.
Bush nominates Idaho governor Interior Secretary
On Mar. 17, US President George W. Bush nominated Idaho Gov. Dirk A. Kempthorne Interior Secretary less than a week after Gale A. Norton announced she was leaving at the end of the month (OGJ, Mar. 20, 2006, Newsletter).
The nomination would bring Kempthorne back to Washington, DC, where he served as an Idaho senator during 1993-98. During his single term, he chaired the Environment and Public Works Committee’s drinking water, fisheries, and wildlife subcommittee.
Kempthorne was mayor of Boise for two terms before being elected to the US Senate in 1992 when Steven D. Symms retired.
As the 49th Interior secretary, Kempthorne would be the second Idahoan to hold the job. Cecil D. Andrus, also an Idaho governor, held the position during 1977-81.
Kerr-McGee sues MMS over deepwater royalties
Kerr-McGee Corp. filed a lawsuit against the US Mineral Management Service and the Interior Department saying the government improperly tried to impose price thresholds on production volumes Congress intended to be royalty-free.
A lawsuit filed Mar. 17 in the US District Court, Western District of Louisiana, concerns the Deepwater Royalty Relief Act of 1995. Earlier this year, Interior officials ordered Kerr-McGee to pay royalties for oil and gas production on eight deepwater leases covered by the act.
Kerr-McGee argues that the law intended for production from the leases in question to be free of royalty without regard to price thresholds up to specified volumes. It says production from those leases hadn’t yet reached those minimum levels when MMS made its royalty claim.
Kerr-McGee has invested more than $3.5 billion to acquire, explore, and develop deepwater Gulf of Mexico leases. A deepwater well can cost nearly $100 million and have a 25% chance of yielding a commercial discovery, the lawsuit said.
Kerr-McGee attorney Lawrence Simon pointed to a 2003 federal court decision in a case involving limits of MMS’s discretion over royalties, saying it presents “controlling precedent in this proceeding.”
In that case, three producers, Devon Energy Corp., Ocean Energy Inc., and Santa Fe Snyder Corp. (now part of Devon) successfully sued Interior in July 2000 when MMS tried to collect royalties from a Mississippi Canyon lease issued in 1997. The companies argued that MMS ignored the intent of Congress by arbitrarily deciding that new production relief should be based on a field instead of a lease (OGJ, Jan. 27, 2003, p. 31).
Gregory F. Pilcher, Kerr-McGee senior vice-president said, “We believe that by making royalty relief conditioned upon commodity prices for oil and natural gas remaining below price thresholds, the government has disregarded the clear terms” of the deepwater royalty relief measure.
FTC chair opposes antitrust law change
Evidence does not support imposing merger requirements on the oil and gas industry tougher than those applied to other industries, US Federal Trade Commission Chairman Deborah Majoras told the Antitrust Modernization Commission Mar. 21.
Senate Judiciary Committee Chairman Arlen Specter (R-Pa.) has said he plans to introduce legislation to increase federal antitrust authority as a way to protect consumers from oil and gas industry concentration and its potential impact on gasoline prices. Executives from integrated oil companies testified Mar. 14 before the judiciary committee (OGJ, Mar. 20, 2006, p. 27).
Majoras spoke to the modernization commission, a government advisory committee whose members are studying possible changes to antitrust laws.
Noting that she spoke on her own behalf rather than for the FTC, Majoras said antitrust laws should not be changed to fit particular industries. “Fundamentally, we do not need to make substantive changes to the primary federal antitrust laws,” she said.
Majoras said there was no empirical evidence that mergers of oil and gas companies are responsible for high gasoline prices.
“The evidence does not point to mergers as the reason,” she said. FTC officials maintain that rising gasoline prices stem from higher crude oil prices worldwide and are unrelated to mergers previously approved by the FTC. ✦
Industry Scoreboard
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Exploration & Development - Quick Takes
Nexen says sidetrack confirms gulf oil find
Nexen Inc., Calgary, said a sidetrack well has confirmed the Knotty Head oil discovery on Green Canyon Block 512 in the Gulf of Mexico.
The discovery well was drilled in 2005 to 34,189 ft TD-the deepest well drilled to date in the gulf-and found about 600 ft of net oil pay in multiple zones (OGJ, Jan. 2, 2006, Newsletter).
The sidetrack well was drilled downdip to 32,986 ft TD, with a bottomhole location about 4,500 ft south of the original wellbore, Nexen reported. The sidetrack penetrated all reservoirs seen in the discovery well and logged about 400 ft of net oil pay.
The field’s resource estimate prior to drilling of the first exploration well, according to Nexen, was 350 million-1 billion bbl of oil. Based on drilling results, the company estimates the resource at 200-500 million bbl of oil equivalent. The field lies in 3,500 ft of water.
Nexen, operator of the block, holds 25% working interest. Anadarko Petroleum Corp., BHP Billiton, and Chevron Corp. hold 25% interests each.
Total finds oil off Congo (Brazzaville)
Total SA reported an oil discovery on the Mer Très Profonde Sud (MTPS) Block about 180 km southwest of Pointe Noire off Congo (Brazzaville).
Drilled in 1,970 m of water to 3,370 m TD, the Aurige Nord Marine 1 exploration well tested 4,970 b/d of oil.
The MTPS Block, awarded in May 1997, covers more than 5,000 sq km and lies in water as deep as 3,000 m. Total, through its subsidiary Total E&P Congo, is operator with a 40% interest. Partners are Eni SPA and Esso Exploration & Production Congo (Mer Très Profonde Sud) Ltd., each with 30%.
Aurige Nord Marine 1 is the third oil find on the block, following Andromède Marine 1 in 2000 and Pégase Nord Marine 1 in 2004. These three discoveries may form the basis for a future development, Total said.
In 2005 Total’s equity production from Congo (Brazzaville) averaged 95,000 b/d of oil.
Uranus wildcat finds no producible oil, gas
Statoil ASA said it completed exploratory drilling on its Uranus prospect in the Barents Sea without encountering producible hydrocarbons.
Uranus is in the North Cape basin 25 km from Pandora, a 2001 oil and gas discovery. The Uranus exploration well 7227/11-1, on Production License 202, is 125 km north-northeast of North Cape.
Statoil is moving the rig, Ocean Rig ASA’s Erik Raude semisubmersible, to its Edvarda prospect in the Norwegian Sea.
Statoil has 70% interest in the Uranus prospect, and Norsk Hydro ASA has 30%.
Canadian firm, Kansans to explore N. Slope
Independent oil and gas executives are forming a joint venture that may spend $46.9 million in 2006-09 exploring for oil on extensive portions of Alaska’s North Slope.
The joint venture, to be formed by the end of March, holds interests in 167,000 acres and plans to drill at least four wells under the proposed budget. The planned outlay includes well costs and the cost of land, seismic, prospect generation, administrative, and geological and geophysical work.
The properties can be grouped into a number of distinct play areas including: Gwydyr Bay, Itkillik, Ocean Point, Slugger, Southland, Titania, and Whiskey Gulch. Gwydyr is just north of and Slugger is east of Prudhoe Bay field, and the others are near Alpine, Nanuk, Tarn, and Meltwater fields.
The play areas have been assembled since 1999, are prospective for oil, have existing 2D leads or 3D drilling prospects, and are near infrastructure. The North Slope has many prospects in the 20-200 million bbl range, the companies said.
Joint venture operator is Brooks Range Petroleum Corp., a subsidiary of Alaska Venture Capital Group LLC. Owners of AVCG are eight Kansas independent oil and gas company executives and AVCG’s managing director, former ARCO Alaska Pres. Ken Thompson. John J. “Bo” Darrah Jr. is chairman and president of BRPC.
TG World Energy Corp., Calgary independent exploring the Tenere rift in eastern Niger, is to pay $17 million to share interests in the BRPC acreage and may elect to participate as desired in each part of the program.
The parties also formed an alliance to explore a large designated area that contains all other state-governed oil and gas leases on and off the North Slope between the National Petroleum Reserve-Alaska and the Arctic National Wildlife Refuge in which BRPC has no lease ownership. ✦
Buzzard utility deck prepared for delivery
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Heerema Hartlepool Ltd. has completed construction in Hartlepool, UK, of a 9,500-ton integrated utility deck for EnCana (UK) Ltd.’s $2 billion Buzzard oil field development project in the UK North Sea (OGJ, Apr. 19, 2004, p. 45). Delivery is scheduled for the second quarter. Abnormal Load Engineering (ALE), Staffordshire, UK, used as many as 420 axle lines in a self-propelled modular transporter system to move portions of the structure as far as 1⁄2 mile. Photos from ALE.
Drilling & Production - Quick Takes
Cannonball flows gas off Trinidad and Tobago
BP Trinidad & Tobago said the $250 million Cannonball platform started gas production off Trinidad and Tobago on Mar. 12. The unmanned platform is 35 km off Galeota Point, Mayaro, in 231 ft of water.
Full gas production is expected to reach about 800 MMscfd. BPTT said the Cannonball wells will be high-rate gas producers.
The Cannonball start-up had been scheduled for the fourth quarter of 2005 but was delayed by problems with construction of a pipeline between the platform and the Cassia processing hub on the mainland, a BPTT spokesperson said.
BPTT is owned by a holding company in which BP has 70% interest and Repsol YPF SA has 30%.
Engineering set for Husky upgrader expansion
Husky Energy Inc., Calgary, has approved plans to immediately begin the $90 million detailed engineering to increase capacity of its Lloydminster heavy oil upgrader to 150,000 b/d (OGJ Online, Dec. 2, 2005).
A debottlenecking program under way will boost the current capacity of 77,000 b/d to 82,000 b/d by yearend. The upgrader converts heavy oil into low-sulfur synthetic crude for Canadian and US refineries. Husky also processes 25,000 b/d from asphalt operations.
Engineering is scheduled for completion in 15-18 months. Oversight will include executing licensing agreements, preparing bid packages, seeking environmental assessment approvals, and developing cost estimates.
The $2.3 billion (total) expansion will enable Husky to process additional heavy oil forecast at Lloydminster and at the Tucker oil sands project at Cold Lake, 250 km to the northwest. Lloydminster production is expected to average 115,000-120,000 b/d this year.
Husky will begin steam injection at the Tucker oil sands facility this summer, with first oil production expected by yearend. Peak production of more than 30,000 b/d is expected by mid to late 2008.
Ivanhoe Energy upgrades heavy oil bottoms
Ivanhoe Energy Inc. has upgraded vacuum tower bottoms (VTBs) derived from heavy oil at its heavy-oil upgrading demonstration facility in California.
VTBs are the heaviest, most viscous component of crude oil, often less than 7º gravity. Canada’s Athabasca bitumen typically contains 45-55% VTBs, with the rest lighter fractions of oil. California raw heavy crude contains about 33% VTBs, Ivanhoe said.
In the demonstration, Ivanhoe’s heavy oil upgrading technology, operating in what the company calls its “high-yield” configuration, converted VTBs with viscosity of about 300,000 cp at 140º F. into a product of 1,300 cp at the same temperature.
After processing, the upgraded VTBs could be blended with lighter fractions separated by earlier processing to yield a product with viscosity low enough to flow in a pipeline without the need for diluent or heating, Ivanhoe said. It said the overall product blended yield from the demonstration run would exceed 90%.
In January, Ivanhoe ran whole California heavy crude through its 1,000 b/d demonstration facility in Belridge heavy oil field near Bakersfield (OGJ, Apr. 11, 2005, p. 24).
“The most recent run was a significant step forward in that the feedstock processed was dramatically heavier and more viscous (i.e. a solid rather than a liquid at room temperature) than the whole heavy crude run in January,” Ivanhoe said. The recent test also was significant because it used a process configuration intended for specific commercial applications-those aimed mainly at viscosity reduction and maximizing liquid volume yields, the company said.
Next steps will be processing VTBs in a “high-quality” configuration and conducting extended runs. The high-quality configuration adds recycle operations and will be used where both high product quality and maximum byproduct energy are needed.
Ivanhoe said equipment additions and upgrades needed for the next steps will require 4-6 weeks.
It said data from the demonstration runs will enable it to start site-specific design and engineering for commercial 10,000-15,000 b/d plants. ✦
Processing - Quick Takes
French group to study port strike effects
The French oil companies’ trade group Union Française des Industries Pétrolières (UFIP) has set up a working group to examine ways to reduce vulnerability of the four refineries on the French Riviera to the frequent labor action plaguing the ports of Fos, Lavera, and Etang de Berre refinery sites. The vulnerability extends to producers linked to the ports by a pipeline.
UFIP Delegate General Jean-Louis Schilansky, who announced the measure on a visit to Marseille, confirmed to OGJ that the CGT labor union’s 2-week strike in October 2005 had cost the industry around €25 million with blockaded tankers and production shortfalls.
He told OGJ that it was not certain whether the working group could devise acceptable solutions to the problem. Results were scheduled for summer.
He said UFIP is working on behalf not only of the four refineries in the region-Total’s La Mède (158,000 b/cd), Shell’s Etang de Berre (82,000 b/cd), Esso’s Fos (119,000 b/cd), and Ineos’s (formerly BP/Innovene) Lavéra (207,100 b/cd)-but also of Total’s 118,000 b/cd Feyzin refinery in the Rhône valley, Switzerland’s 60,000 b/cd Petroplus refinery, as well as refineries in southern Germany, which were all supplied by the pipeline carrying the oil delivered at the three ports.
Completion of Afghan topping plant reported
Oxiana Energy Inc., Princeton, NJ, has disclosed the completion last May of a 3,000 b/d topping plant at Angot oil field, in the Sar-i-Pol province of northern Afghanistan (see map, Aug. 9, 2004, p. 32).
Oxiana said reengineering and reconstruction of the plant began in 2002. It owns the facility with local partner Shamal Inter Neft, which began the project in the early 1990s.
Oxiana said it is awaiting permission under a new Afghan hydrocarbon law to participate in the rehabilitation and development of nearby oil fields, which will provide feedstock for the plant.
When the former Soviet Union controlled Afghan oil and gas operations, crude from Angot field was processed at a topping plant at Sheberghan for use in central heating boilers in area cites. The plant was destroyed by war.
Privately held Oxiana concentrates on the Amu Darya River Basin of Central Asia and has a regional office in Tashkent, Uzbekistan.
FEED pact let for Greek refinery upgrade
Hellenic Petroleum SA has let a front-end engineering design (FEED) contract to a unit of Foster Wheeler Ltd. for the upgrade of the 100,000 b/cd Elefsina refinery in Greece. The terms of the contract were not disclosed.
The work includes the selection of technology licensors for a 48,500 b/sd vacuum distillation unit, a 20,000 b/sd coking unit, a 40,000 b/sd hydrocraker, 95,000 cu m/hr of hydrogen, a sour water stripper, an ammine recovery unit, a 190 tonne/d sulfur recovery unit, and tail gas treating offsites and utilities.
Foster Wheeler Italiana SPA will coordinate the licensors during the FEED phase. It also will provide a complete process design package and carry out basic engineering; preparation of studies for permits; early procurement; and preparation of the invitation to bid package for the engineering, procurement, and construction phase.
The FEED phase of the project is to be complete by yearend. ✦
Transportation - Quick Takes
Internal pipe corrosion blamed for Prudhoe spill
Internal corrosion is being blamed for the crude oil spill discovered Mar. 2 by BP Exploration Alaska operators on a 34-in. oil transit pipeline at Prudhoe Bay, Alas.
Officials said the leak emanated from a 1⁄4-in. hole in a small section of pipe in a buried culvert at a caribou crossing. The preliminary findings were issued last week by a team of BP and Alaska Department of Environmental Conservation officials, who are jointly investigating the leak.
The spill-201,000 gal, “plus or minus 33%,” BP said-is limited to a 1.93-acre area of tundra and frozen lake surface between Gathering Center 2 (GC-2) and GC-1 on the company’s western operating unit.
The damaged GC-2 pipe section has been repaired but remains shut down, while BP inspects the 3-mile line section to ascertain whether any other defects exist along the pipeline. BP spokesman Daren Beaudo said that over the last 6 years BP has conducted 85 external inspections on the affected oil transit pipeline and 139 internal inspections with ultrasonic testing.
The line is expected to reopen in 4-6 weeks, BP said.
The GC-2 pipe section transfers oil from one of six processing plants at the Prudhoe Bay complex to the Trans Alaska Pipeline System (TAPS). It supplies about 10% of the crude oil volume fed into TAPS. Twelve well pads and about 230 wells served by the pipeline also are shut in.
However, other pipelines at the Prudhoe Bay complex continue to supply crude oil to TAPS, and Beaudo said plans are under way to reopen the shut in wells and reroute to other pipelines at the complex some 50-75% of the oil normally carried by the GC-2 line.
Meanwhile, around-the-clock clean-up efforts are continuing in temperatures that dip as low as -70° F. By Mar.19 BP reported it had collected 63,546 gal of free-flowing oil, 328 cu yards of contaminated gravel, and 5,209 cu yards of oil-contaminated snow.