OGJ Newsletter

Jan. 9, 2006
ConocoPhillips, to resume Libyan operations

General Interest - Quick Takes

ConocoPhillips, to resume Libyan operations

ConocoPhillips reported that after reaching an agreement with Libya’s National Oil Corp. (NOC), it will return to its former oil and gas production operations in Libya along with coventure partners Marathon Oil Co. and Amerada Hess Corp.

ConocoPhillips and its coventures suspended operations in Libya in 1986.

Under the new agreement, ConocoPhillips and its partners will return to their former exploration and production interests in the Waha concessions in Libya. ConocoPhillips and Marathon each will hold a 16.33% interest, Amerada Hess will hold an 8.16% interest, and NOC will hold the remaining 59.16% interest.

The concessions, which currently produce about 350,000 b/d of oil, cover nearly 13 million acres in the Sirte basin.

ConocoPhillips would expect to add about 45,000 net b/d of oil to its production profile, based on the current gross production figure from the concessions.

The reentry terms include a 25-year extension of the concessions to 2031-34; a payment to NOC of $1.3 billion for reentry and the extension of the concessions; and a contribution to unamortized investments made since 1986 of $530 million that were agreed to be paid as part of the 1986 standstill agreement to hold the assets in escrow for the US-based coventurers.

Europe shaken over Russian gas supplies

Despite the signing Jan. 3 of a 5-year deal between Russia’s OAO Gazprom and Ukraine’s Naftogas, Europe’s confidence in the reliability of Russian gas supplies has been seriously eroded. The contract has ended Russia and Ukraine’s price conflict as well as a 2-day disruption to Europe’s supplies of Russian gas (OGJ Online, Jan. 4, 2006).

In the aftermath, Europe is riddled with new thoughts about gas supply security.

The Austrian presidency, which on Jan. 1 took over leadership of the European Union for the next 6 months, welcomed the “swift and positive” conclusion to the conflict, which interrupted for 2 days the transit of Russia’s gas exports through the Ukrainian gas line to Europe.

The signed contract, effective Jan. 1, is based on a price of $230/1,000 cu m. But Ukraine’s Naftogaz said it would be paying $95/1,000 cu m for gas from Russia and from Central Asia. The difference comes from a weighted average price between cheaper and larger quantities of gas from Turkmenistan and the gas from Russia.

Naftogaz also said that the transit tariff of the Russian gas to Europe will be raised from $1.09/1,000 cu m/100 km to $1.60/1,000 cu m/100 km. But the deal could be changed if circumstances change, point out observers.

Ukraine had been paying $50/1,000 cu m. The conflict broke out through Gazprom’s insistence on an immediate quadrupling of this price and Naftogaz’s subsequent refusal to pay the increase. Gazprom cut off supplies to Ukraine and accused Ukraine of “stealing gas” from the transit gas line: some 104 million cu m on Jan. 1 and another 118 million cu m Jan. 2.

At a press conference Jan. 4 in Brussels after the meeting of the Gaz Coordination Group, both Austria’s Energy Minister Martin Bartenstein and EU Energy Commissioner Andris Piebalgs insisted on the need to diversify Europe’s pipeline system and to “diversify supplies as far as we can,” Bartenstein said, adding, “Using Turkey will bring more security to the market.” He said that, although Russia would remain the EU’s main gas supplier, recent events will serve to give high priority to energy during Austria’s presidency.

Piebalgs pointed to the “benefits of the energy dialog with both Russia and Ukraine to get our views across effectively” and help resolve the crisis. But he also said that Europe needs a “clearer and more collective and cohesive policy on security of energy supply,” which so far has been considered on only a national level. A communication would be released in the spring on a new European energy policy, and before yearend, final conclusions and proposals would be drawn, he said.

The gas crisis also brought second thoughts to the governments of Poland and Hungary over the need to rely less on Russia’s gas through construction of LNG terminals and gas storage facilities. Poland said it would review a recent vote of the country’s deputies against a pipeline linking Poland and Norway.

Hungary is determined to draw up by July a policy for the next 20 years aimed at reducing the country’s dependence on Russian oil and gas. This could include a project to build a 1.2 billion cu m gas storage facility by 2010 as well as further storage and infrastructure to receive LNG from North Africa via the Adriatic Sea.

MMS to move OCS regulation beyond oil, gas

The US Minerals Management Service has taken the first step toward expanding its regulation of Outer Continental Shelf energy activities beyond oil and gas.

MMS published an advanced notice of proposed rulemaking in the Dec. 28, 2005, Federal Register of a program to regulate alternative energy activities, such as generation of electricity from wind or ocean waves, on the OCS.

The action comes under an Energy Policy Act of 2005 provision authorizing DOI and BLM to grant leases, entitlements, and rights-of-way on the OCS for development and support of energy resources other than oil and gas and to allow for alternate uses of existing facilities on the OCS.

The law, which Congress passed late last summer, directs MMS to develop a comprehensive program and regulations to implement this new authority by mid-2006.

MMS is seeking comments through Feb. 28 on five areas that it considers integral to the program’s development: access, environment, operations, finances, and coordination.

Industry Scoreboard

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Exploration & Development - Quick Takes

Chevron makes deepwater Gulf of Mexico strike

Chevron Corp. has made a deepwater oil discovery at the Big Foot prospect on Walker Ridge Block 29, about 225 miles south of New Orleans in the Gulf of Mexico.

The discovery well, in 5,000 ft of water, was drilled to a TD of 25,127 ft. It encountered 300 ft or more of net oil pay. A sidetrack is being drilled to delineate the discovery.

The Big Foot well comes shortly after the Knotty Head discovery well, which indicated 600 ft of net oil pay in multiple zones (OGJ Online, Dec. 21, 2005). Both wells were drilled through the Miocene Foldbelt trend.

Chevron plans to drill five delineation and exploration wells during the first quarter in the deepwater Gulf of Mexico, which will be “a major piece of our overall growth plan in the coming years,” Chevron said.

Chevron operates the block with a 60% interest. Anadarko Petroleum Corp. holds a 15% interest along with Plains Exploration & Production Co. and Shell Exploration & Production with 12.5% each.

Petrobras has deeper-pool strike off Brazil

Petróleo Brasileiro SA (Petrobras) has reported a deeper-pool oil discovery in the Marlim Leste field in the Campos basin off Brazil (see map, OGJ, Aug. 9, 2004, p. 37).

The discovery well, 120 km offshore about 188 km from the city of Macaé in 1,350 m of water, encountered 300 m of oil pay at a depth of 4,200 m. At 28˚ gravity, the oil is lighter than that produced from other Marlim Leste formations. Most Campos basin wells produce from reservoirs about 3,000 m deep.

Petrobras, which continues to evaluate the discovery, said reservoir quality is high.

Wood Group to install ESPs in Argentina fields

PanAmerican Energy LLC has let a 6-year contract to Wood Group ESP Argentina, a subsidiary of John Wood Group PLC, for the supply and installation of electric submersible pumping (ESP) systems in three oil fields in the San Jorge basin, just south of Buenos Aires.

The $120 million contract also commits Wood Group to supply field services, electrical maintenance services, equipment testing and repair, operational data collection, data base maintenance, and application engineering support for 500 existing units.

The contract supports PanAmerican’s development of a waterflood project in its mature fields, which includes the Cerro Dragon field, Argentina’s most productive oil field (OGJ Online, Aug. 17, 2005).

Endeavour’s fourth North Sea well unsuccessful

Endeavour International Corp. has completed the drilling of the fourth well in its 10-well exploration campaign in the North Sea, and it found no hydrocarbons.

The 31/26b-18 well, in the Central Graben in the UK sector of the North Sea, was drilled to 10,540 ft TD to test the Turriff and Tulliallan prospects.

In the primary Turriff objective, the well encountered 450 ft of Jurassic Fulmar sand with good porosity. The upper Fulmar section contained 63 ft of reservoir quality sands with an average porosity of 16%. However the sand was found to be water wet, indicating a failure of the trap to seal, which was the key risk factor for the well.

The Tulliallan objective did not encounter reservoir-quality rock.

Endeavour and its partners have begun to plug and abandon the well. Endeavour was operator with a 60% working interest.

Shell, EMGS sign R&D agreement

Shell International Exploration & Production BV and ElectroMagnetic GeoServices AS (EMGS) signed a 1-year agreement to collaborate on expanding the applications of EMGS’s proprietary seabed logging technique.

Terms include an option to extend the marine electromagnetic survey research and development agreement for another year.

EMGS will receive funding for conducting research, testing concepts, and developing software. Shell will secure access to EMGS’s software resources and computers, and the participation from its employees to achieve common objectives. In addition, Shell will fund exclusive seabed-logging surveys.

Meanwhile, both companies also will conduct parallel in-house development of the method. An EMGS vessel was expected to start the first experimental 3D survey for Shell within days. Statoil ASA formed EMGS in early 2002 (OGJ Online, Jan. 31, 2002).

Repsol YPF, RWE to obtain blocks off Portugal

Portugal is expected to award oil exploration rights in two blocks off Algarve province to a consortium owned 75% by Repsol YPF SA and 25% by RWE AG.

The permit award of Blocks 13 and 14, which lie in 200 m of water, was contained in an internal announcement of the country’s economy ministry.

The award is subject to formal approval by Antonio Castro Guerra, deputy secretary of state in the industry and innovation ministry.

Dragon tests Lam field well in Caspian

Dragon Oil (Turkmenistan) Ltd, a unit of Dragon Oil PLC, Dublin, said its Lam field well, LAM 10/112, drilled from the refurbished LAM 10 platform in the Cheleken Contract Area in the Turkmenistan section of the Caspian Sea, has tested oil from Zones 4, 5, and 6 at a combined rate of 2,950 b/d.

Dragon said well LAM10/112 was spudded on Oct. 14 and drilled to 3,629 m TD in reservoir Zone 7.

The well was successfully completed using a dual completion, enabling two reservoir intervals, at different reservoir pressures, to be produced at the same time.

Reservoir Zones 5 (lower part) and 6 were produced through the lower completion string and tested at a rate of 2,087 b/d. The upper part of reservoir Zone 5 and Zone 4 was produced through the upper completion string and tested at a rate of 863 b/d. Both intervals will be produced together.

Dragon said that the Iran Khazar jack up rig has been skidded to start drilling the fourth well, LAM 10/113, from the LAM 10 platform.

Plans call for the well to be drilled to 3,700 m TD.

Drilling & Production - Quick Takes

Trust looks toward Alberta CO2 operations

ARC Energy Trust, Calgary, closed the $462 million (Can.) acquisition of stock in two ExxonMobil Corp. affiliates that operate and hold interests in two central Alberta fields it believes have large remaining light oil recovery potential.

The subsidiaries of Imperial Oil Resources and ExxonMobil Canada Energy own a 45.57% working interest in North Pembina Cardium Unit No. 1, and another subsidiary of Imperial Oil Resources owns a large interest in the Redwater oil field.

ARC Energy Trust said the fields have a large but undisclosed potential beyond the estimated 40 million bbl of existing proved and probable reserves. That estimate doesn’t include a large expected enhanced oil recovery potential. The fields combined have produced more than 1 billion bbl of oil and have a 20-year reserve life.

The fields average 5,460 b/d of oil equivalent, 95% liquids, and have high operating costs, and Redwater has a material abandonment liability, ARC Energy Trust said.

The Pembina Cardium field, 120 km southwest of Edmonton, covers 800 sq miles and is Canada’s largest conventional oil field. Original oil in place is estimated at 7.4 billion bbl of 39° gravity oil. The 1953 discovery well still produces. Remaining oil in place is 860 million bbl.

Redwater Leduc oil pool, discovered in 1948, had 1.3 billion bbl of OOIP. Drilled up on 40-acre spacing, it has 860 million bbl left in place for primary recovery. Production averages 580,000 b/d of fluid net to the trust’s interest, 3,480 b/d of which is oil. The field is 40 km northeast of Edmonton.

Including Pembina and Redwater, ARC Energy Trust believes its assets have more than 750 million bbl of light and medium oil in place that is not expected to be recovered under existing projects. It has large holdings at Pembina, Alta., and in southeastern Saskatchewan amenable to EOR techniques such as carbon dioxide miscible recovery. It holds interests in Saskatchewan’s Weyburn and Midale fields, Canada’s two largest CO2 miscible floods.

No CO2 infrastructure exists in Alberta, but the company is developing a dedicated CO2 EOR team.

Aramco extends contract for Saudi Arabian fields

Saudi Aramco extended a contract to subsidiaries of J. Ray McDermott SA to fabricate, transport, and install 16 additional jackets in oil and gas fields off Saudi Arabia.

The work is an extension to the contract awarded in August to fabricate and install five wellhead platforms for the Maintain Potential project, which includes work in the Berri, Marjan, Maharah, Safaniya, and Zuluf fields (OGJ Online, Aug. 19, 2005).

The project will be carried out in two phases, the first of which is scheduled for completion in October. Phase I requires fabrication, transportation, and installation of 11 jackets with four, 42-in. piles in each jacket. The remaining five jackets will be built in the second phase, which is expected to be completed in July 2007.

J. Ray’s DB26 derrick barge will execute the installation work along with DB27.

Maersk, QP to boost Al Shaheen oil output

Maersk Oil Qatar Co. and state-owned Qatar Petroleum agreed to more fully develop Al Shaheen field on Block 5 in the Persian Gulf, boosting production gradually to 525,000 b/d by late 2009 from 240,000 b/d in the first quarter.

The $5 billion 2005 field development plan calls for drilling more than 160 producing and water injection wells in 6 years, clustering 19 production and accommodation platforms in three new locations, laying subsea pipelines, and adding facilities to gather associated gas. Work is to start immediately.

The companies plan to continue developing the field using state-of-the-art horizontal wells. Previous such wells in the field have set world records for length, rate of penetration, and other drilling parameters.

Al Shaheen field went on production in 1994 from temporary facilities. Permanent structures were added in 1998. The companies last expanded the field in 2004.

Previous outlays at Al Shaheen, which underlies the northern part of supergiant North gas-condensate field 110 miles north of Doha, are about $2 billion.

Gas production starts at UK Rhum field

BP PLC and Iranian Oil Co. UK Ltd. have begun natural gas production and export from the UK’s largest undeveloped gas discovery, Rhum gas field, 240 miles northeast of Aberdeen.

The high-pressure, high-temperature (HPHT) reservoir is flowing through the 3/29a-5 well, drilled earlier this year, at an initial rate of 130 MMscfd of gas. Production is expected to plateau at 300 MMscfd of gas when all three development wells are on stream.

Rhum has estimated reserves of 800 bcf of gas. It is a subsea tieback to BP-operated Bruce field. Gas will be exported from Bruce via the Frigg pipeline system to St. Fergus and associated condensate will be piped via Bruce into the Forties Pipeline System.

The development of a HPHT gas reservoir using a long-distance subsea tie-back is a world first, BP said.

Processing - Quick Takes

ExxonMobil eyes new Singapore ethylene unit

ExxonMobil Asia Pacific Ltd. let a project coordination and services contract to Foster Wheeler Ltd. and WorleyParsons Ltd., Sydney, for a second ethylene cracker and downstream units under study for its growing Singapore chemical plant.

Value of the contract for the Singapore Parallel Train project wasn’t disclosed.

If the project proceeds to the next stage, Foster Wheeler and WorleyParsons also would be responsible for front-end engineering design and the potential engineering, procurement and construction of some facilities, Foster Wheeler said.

ExxonMobil Chemical Co. in December appointed Georges Grosliere, site manager of the Singapore chemical plant, as project executive for the possible second steam-cracking train.

The new cracker, which ExxonMobil describes as “world-scale,” would be integrated with an ethylene plant that will have capacity exceeding 900,000 tonnes/year after completion of a 75,000-tonne/year expansion in the fourth quarter of this year (OGJ, Feb. 7, 2005, Newsletter). The chemical facility, which was ExxonMobil Chemical’s single largest investment in the world when it started up in 2001, operates alongside ExxonMobil’s 605,000 b/cd Singapore refinery.

Along with the new ethylene cracker, the parallel train under study would include new world-scale polyethylene, polyproplylene, and speciality elastomer plants, an aromatics extraction unit, and oxoalcohol expansion.

PetroChina given nod for new ethylene plant

China’s National Development and Reform Commission has granted approval for PetroChina to build a $2.5 billion ethylene plant at Sichuan Province’s capital city of Chengdu.

The new ethylene cracker, scheduled for completion by 2010, has a design capacity of 800,000 tonnes/year of ethylene.

PetroChina will take a 51% stake in the new plant, with local firm Chengdu Petrochemical Co. Ltd., a project company established and owned by the local government of Chengdu, holding 49%.

Frontier lets lump-sum turnkey contract to CB&I

Frontier El Dorado Refining Co. let a lump-sum, turnkey engineering, procurement, and construction contract to Chicago Bridge & Iron Co. (CB&I), The Woodlands, Tex., for a crude and vacuum unit at the 110,000 b/cd refinery in El Dorado, Kan.

The $85 million project is scheduled for completion in first half 2008.

CB&I currently is building a 24,000 b/d diesel hydrotreater and a 35 MMscfd hydrogen plant at the El Dorado refinery.

Transportation - Quick Takes

Indonesia to bid 1,219 km pipeline

The Indonesian government will begin the tendering process this month for the construction of a 1,219 km natural gas pipeline between Bontang in East Kalimantan and Semarang in Central Java.

The pipeline, estimated to cost $1.7 billion, will carry 700-1,000 MMscfd of natural gas.

Tender documents for the 25-year special rights can be obtained during Jan. 16-27, and bids are to be submitted during Apr. 24-28.

The Downstream Oil and Gas Regulatory Agency (BPH Migas), in charge of the tender for the pipeline, expects to announce the winner in May.

The project is expected to be on stream by 2009.

PGN lets pipe contract for West Java pipeline

Indonesia’s state-owned gas utility PT Perusahaan Gas Negara (PGN) has awarded a $38.1 million pipe supply contract to a consortium of PT Bakrie Pipe Industries and PT Bumi Kaya Steel Industries.

The companies will supply 272 km of 4-in. through 24-in. pipe to be used in a natural gas distribution system in West Java that will be installed in areas around Cikampek, Karawang, Bekasi, Bogor, Jakarta, Tangerang, and Banten.

PGN plans to connect the distribution network to its Gresik and Pagardewa plants in South Sumatra, enabling the supply of 650 MMscfd of natural gas.

First pipe deliveries are expected to arrive by March.

TransCanada awards inspection contract

TransCanada Pipelines Ltd. awarded BJ Pipeline Inspection Services, Aberdeen, a 3-year contract to provide in-line inspection services.

The contract involves inspection of 4,500 km of pipeline. A 30-in. line in northern Alberta is slated for the first inspection, which will use a statistical method to calibrate for magnetic-flux-leakage, BJ said.

Japanese group wins India LNG shipping contract

A consortium of Japanese shipping lines-Mitsui OSK Lines, NYK Lines, and K Line-has won a 25-year contract from India’s Petronet LNG Ltd. to deliver LNG from Qatar to India.

The consortium will carry 2.5 million tonnes/year of LNG from Qatar’s RasGas liquefaction plant to Petronet’s Dahej regasification terminal at Gujarat.

The Japanese consortium partnered with Shipping Corp. of India to outbid a consortium led by Belgian Exmar NV in a price rebid.

Exmar, with its Indian consortium comprised of Varun Shipping Co. Ltd. and Indian Oil Corp., initially had won the bid, but Petronet rebid the project following changes in government policy that “kept Director General of Shipping’s Guideline of Indian flag in abeyance,” Petronet said.