Little change seen from Mexico’s election
With two Mexican presidential candidates at presstime last week declaring victory in a race that officials say is still too close to call, two analysts say neither outcome will have much effect on the oil and gas industry.
Andres Lopez Obrador of the Party of the Democratic Revolution and a former Mexico City mayor has called for a full recount, saying he suspects voter fraud and manipulation in the July 2 election.
Preliminary results indicate Felipe Calderon of the National Action Party received slightly more votes than Lopez Obrador, but Mexican election officials say the race is too close to call until an official count, which was slated to start July 5.
John S. Herold Inc. analyst Gray Peckham said Mexico’s ban on foreign investment in the upstream oil and gas sector will continue regardless of which candidate wins.
Paul Horsnell with Barclays Capital Inc., London, agreed, saying: “Political outlook and political expediency both imply that a contentious reform of the oil sector is perhaps unlikely to be high on the agenda for either” presidential candidate.
Mexico’s strategic importance in the oil market comes primarily from its US trade, Horsnell noted in a June 28 research note.
“Exports to the US are running at just below 1.7 million b/d for the year to date, representing the lion’s share of total Mexican crude exports of 1.9 million b/d. Mexico accounts for 37% of US imports of heavy crude oil and 57% of heavy crude imported into the upgraded refineries of the US Gulf Coast,” Horsnell said. “The exports of Venezuelan heavy crude to the US fell by 0.25 million b/d from 2001 to 2005, while Mexican exports of heavy to the US rose by a matching 0.25 million b/d over the same period.”
US Senate Democrats question NPR-A lease sale
US Senate Democrats and Independent James M. Jeffords of Vermont have raised concerns over a federal oil and gas lease sale in the National Petroleum Reserve-Alaska (NPR-A) scheduled for September.
Jeff Bingaman of New Mexico, chief minority member of the Energy and Natural Resources Committee; Senate Minority Leader Harry Reed of Nevada; Jeffords; and 16 others said in a letter to US Interior Sec. Dirk A. Kempthorne that only a single well was drilled in the reserve in the past drilling season despite 2.8 million acres being leased.
They suggested that the situation could be exacerbated by provisions in the 2005 Energy Policy Act, which they said allow producers to hold federal leases for 30 years without commencing production and allow them to combine leases into larger production units.
“While we appreciate that conditions for development are difficult on the North Slope, we are concerned that these provisions could be implemented by the department to allow oil and gas companies to hold leases for lengthy periods without production of the domestic oil and gas resources that Americans need,” they said.
Kempthorne’s predecessor, Gale A. Norton, set the sale in motion before she resigned earlier this year, a spokesman for the Energy and Resource Committee’s minority staff said.
The 19 Senate Democrats also expressed concern that the law might be interpreted to allow production in the NPR-A without payment of royalties or to extend royalty relief in situations where it is not warranted.
They also expressed “serious reservations” about the proposed sale’s possible impact on the environment and on subsistence users. The group asked Kempthorne to reconsider inclusion of previously protected areas in the proposed sale.
Kerr-McGee, DOI to mediate deepwater relief
Kerr-McGee Corp. and the US Department of the Interior agreed June 30 to mediate their disagreement over deepwater royalty relief. They also agreed to ask a federal court to postpone entry of a scheduling order in Kerr-McGee’s lawsuit against DOI while mediation is under way.
The Oklahoma City independent sued the agency in March over an order from the department’s Minerals Management Service to pay royalties on oil and gas produced from deepwater Gulf of Mexico leases between 1996 and 2000 when prices exceed certain thresholds (OGJ Online, June 22, 2006).
Rep. Darrell E. Issa (R-Calif.), who chairs the House Government Reform Committee’s energy and resources subcommittee, said, “I am pleased to see that Kerr-McGee...has now expressed a desire to sit down and reach a resolution that protects the sanctity of the contracts they signed and corrects a clear error in the language of those agreements.”
He referred to the omission of price thresholds from federal offshore leases covered by deepwater royalty relief during fiscal 1998 and 1999. MMS has said this was an error, but Greg Pilcher, senior vice-president, general counsel, and corporate secretary at Kerr-McGee, said the company is not certain that omitting the price thresholds during those years was a mistake.
He testified at a June 21 hearing of Issa’s subcommittee that Kerr-McGee believes the Deep Water Royalty Relief Act’s language and history did not give Interior and MMS authority to impose price triggers during the first 5 years of deepwater leasing, including 1998 and 1999.
Following the hearing, Issa said representatives of Royal Dutch Shell PLC, ConocoPhillips, and Chevron Corp. said their companies were open to renegotiating terms for their leases during the 2-year period.
Senate Energy and Natural Resources Committee Chairman Pete V. Domenici (D-NM) said June 29 that the Senate Appropriations Committee, on which he sits, passed his amendment to DOI’s fiscal 2007 budget requiring the federal agency to renegotiate leases where no royalties are being paid.
The committee also approved an amendment proposed by Sen. Diane Feinstein (D-Calif.) that would bar oil companies refusing to renegotiate such 1998 and 1999 leases from bidding on future federal oil and gas leases.
SPE, UN group to work on reserves standard
The Society of Petroleum Engineers (SPE) and the United Nations Economic Commission for Europe (UNECE) have agreed to develop a global harmonized standard for reporting oil and gas reserves and resources.
The organizations signed a memorandum of understanding supporting SPE’s efforts to develop a common language that can be adopted by the oil and gas industry as well as international financial, regulatory, and reporting bodies (OGJ, Apr. 17, 2006, p. 18).
Several international groups are involved in the effort, including the World Petroleum Council and the American Association of Petroleum Geologists.
Under provisions of the UN Framework Classification for Fossil Energy and Mineral Resources, the UNECE created an Ad Hoc Group of Experts on the Harmonization of Fossil Energy and Mineral Resources Terminology in which the SPE Oil and Gas Reserves Committee plays a key role.
“We believe that a universal standard will result in a more accurate global picture of current prospects and future energy supplies for the public,” said John E. Ritter, chairman of SPE’s Oil and Gas Reserves Committee and reserves manager for Chevron’s North American Upstream Operating Co.
Industry Scoreboard
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Scoreboard
Due to the holiday in the US, data for this week’s industry Scoreboard are not available.
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Exploration & Development - Quick TakesKG basin Cretaceous oil find opens province
The first deepwater oil discovery off India’s east coast is a Cretaceous find that the Reliance-Niko combine said opens a new petroleum province in the D6 block, Krishna-Godavari basin.
MA-1, the companies’ first Cretaceous test on the block, went to TD 3,783 m and penetrated 26 m of net oil pay and 72 m of net gas pay.
The oil zone tested at more than 6,700 b/d of oil and 10.96 MMscfd of gas on a 64/64-in. choke with 1,366 psig of flowing wellhead pressure.
The upper rich gas zone tested at more than 32 MMscfd of gas and 3,370 b/d of condensate on an 80/64-in. choke with 1,609 psig pressure. Both test rates were restricted by equipment limits. Well tests and coring results indicate excellent reservoir properties.
Reliance Industries Ltd., Mumbai, operates Block D6 with 90% interest.
Extensive areas of the block have Cretaceous oil prospectivity, said 10% interest holder Niko Resources Ltd., Calgary. Reliance-Niko this month will spud the MB-1 well, structurally higher and 11 km east of MA-1.
“MB-1 is ideally located to test geologic models which indicate the D6 Block is optimally positioned for encountering high quality Cretaceous reservoirs,” Niko said.
Papua New Guinea well tests hefty gas rate
InterOil Corp., Toronto, said its Elk-1 ST-1 exploration well on PPL 238 in the eastern Papuan basin flowed wet gas at 30-50 MMcfd for 30 min at 2,000 psi on an open hole drillstem test at 5,381-5,558 ft.
The company was reestablishing circulation and assessing requirements to continue drilling the overpressured Miocene Puri limestone, the well’s primary objective. The well lost circulation at 5,558 ft. After gas flowed, shut-in casing pressure quickly built to 3,150 psi.
The flow rates were obtained despite the loss of wireline perforating guns in the hole. InterOil estimated the absolute open flow potential at 150 MMcfd.
Outcrop studies and seismic evaluation indicate Puri to have 1,968 ft of true stratigraphic thickness. The company previously cemented 7-in. liner at 5,381 ft.
Original planned TD is 9,843 ft in the Eocene Mendi fractured limestone (OGJ Online, May 22, 2006).
Daewoo, partners make gas strike off Myanmar
South Korea’s Daewoo International Corp. and its partners has made a natural gas discovery on A-3 Block off Myanmar.
The Mya-1 well cut a 32-m gas column and flowed 57.6 MMcfd of gas on test.
Mya-1 could be another giant gas find, with an estimated 2 tcf of gas reserves in-place, Daewoo said. The discovery adds to the success at Shwe and Shwe Phyu gas fields on adjacent A-1 Block in the Rakhine basin, with 4-6 tcf of gas reserves (OGJ Online, Oct. 17, 2005, Newsletter).
Daewoo, operator of A-3, holds a 60% stake in both the A-1 and A-3 Blocks. India’s Oil & Natural Gas Corp. holds 20% and Gas Authority of India Ltd. and Korea Gas Corp. have 10% each.
A development plan on how best to exploit the A-1 and A-3 gas will be made after completion of the current drilling campaign, sources said.
Some development options being considered are pipeline exports to either India or China or to neighboring Thailand, as well as LNG and compressed natural gas projects.
India and China are both courting Myanmar in an attempt to be granted rights to import Daewoo’s discovered gas.
Holloman to drill three Cooper basin wells
Holloman Corp., Odessa, Tex., will drill three wells to earn two-thirds interests in three exploration permits in South Australia’s Cooper basin under a farmout from Australian-Canadian Oil Royalties Ltd.
Holloman also will become operator of PELs 108, 109, and 112 in the basin’s western sector.
Subject to rig availability, the first two wells will be drilled this year on PEL 112.
Interpretation of a recent seismic survey has delineated several leads with similarities to oil discoveries in adjacent permits such as Worrior and Christies fields.
PELs 112 and 108 cover a total area of 5,365 sq km and have never been drilled.
Esso awarded Surumana Block off Indonesia
ExxonMobil Corp. unit Esso Exploration International Ltd. has won the license to explore the 1.32 million acre Surumana Block in the Makassar Straits off Sulawesi, Indonesia.
The Oil and Gas Directorate of the Ministry of Energy and Mineral Resources on June 2 reported the winners of Indonesia’s 2005 exploration tender round.
Surumana Block comprises 5,340 sq km in the offshore North Makassar basin in 2-2,000 m of water.
Esso said it intends to evaluate other Indonesian oil and gas opportunities as well.
Units of Marathon Oil Corp. and Talisman Energy Ltd. won rights to the 1.2 million acre Pasangkayu Block, also in the straits (OGJ Online, June 2, 2006).
JSX Energy seeks more Thai acreage
JSX Energy (Thailand) Ltd., part of Canada’s Andaman Energy Corp., has sought two more onshore blocks to expand its acreage in northern Thailand.
The adjoining tracts are L3/48 (1,981 sq km) and L9/48 (3,934 sq km). In the same region last year, JSX, formerly known as Sun Oil (Thailand) Ltd., applied for the 3,996-sq-km Block L17/48 (OGJ Online, Aug. 22, 2005).
The additional blocks are part of Thailand’s 19th licensing round, which closed at the end of June.
Since the round opened last August, 18 petroleum companies have submitted applications for 22 blocks-151;10 onshore, 9 in the Gulf of Thailand, and 3 in the Andaman Sea. A total of 82 blocks nationwide have been offered.
Drilling & Production - Quick TakesWoodside lowers 2006 production target
Woodside Petroleum Ltd., Perth, has revised its 2006 production target of 76 million bbl of oil equivalent to 72 million bbl because of reservoir under-performance at Chinguetti oil field in Mauritania and construction delays at the Otway project in southern Australia.
Woodside expected that weaker production from Chinguetti field and delayed start-up of its Otway project would have been mitigated by the planned start-up in late May-early June of its Enfield oil project in Western Australia.
Woodside Chief Executive and Managing Director Don Voelte said, “The breakage of a winch wire during mooring of the floating production vessel a few days before [Enfield’s] planned start up has caused [the company] to sail the vessel to Singapore for repairs.”
The Western Australia project delay was due to six cyclones early this year on the North West Shelf. Also contributing to the firm’s production revision were development delays due to high demand for oil and gas services following last years hurricanes in the US Gulf of Mexico.
Voelte said, “Despite the lowering of the 2006 production growth estimate, it is 21% higher than 2005 [production of 59.7 million boe], and the company’s growth outlook over the next few years remains strong.”
Enfield is expected to come on line in the third quarter, still ahead of its initial planned start date in the fourth quarter.
At Chinguetti,as many as up to three new production wells may be drilled in the coming months as part of Woodside plans to lift production.
For the Otway project, Woodside does not expect earlier production since construction at the onshore gas plant has fallen behind schedule, but said it is working to maintain gas delivery agreements with customers.
Canada firm to exploit Rockies oil fields
PrimeWest Energy Trust, Calgary, said a US subsidiary will acquire producing oil and gas assets with large secondary and tertiary oil potential in Montana, North Dakota, and Wyoming.
PrimeWest did not disclose the seller in the $330 million (Can.) transaction.
The properties produce 3,200 boe/d, 94% crude oil and 70% light crude from formations of Mississippian and Devonian age, in the Williston basin, a new area for PrimeWest. The acquisition changes the overall company weighting to 32% crude oil and other liquids. Proved reserves being acquired total 20.4 million boe.
Covering 47,000 net acres, the main fields include Flat Lake, Dwyer, and Goose Lake in Montana; Rival, Grenora, Alexander, Wiley, Glenburn, and Sherwood in North Dakota; and Rocky Point in Wyoming.
PrimeWest plans to spend $23 million (Can.) this year in the fields, mostly spaced at 80-160 acres and where it has identified infill horizontal candidates and other drilling opportunities.
The fields have further upside in higher density infill drilling, waterflood optimization, and possible enhanced oil recovery projects, the company said.
Dominion Petroleum signs Tanzanian PSAs
Dominion Petroleum Ltd., Bermuda, has entered into three production-sharing agreements (PSAs) with Tanzanian Petroleum Development Corp. covering more than 10 million acres in the onshore Mandawa, Kisingire, Lukuliro, and Selous licenses along the eastern coast of sTanzania.
Dominion says it has identified 16 prospects through analysis of historical data and has committed to drill four wells, beginning in late 2006, subject to rig availability.
The Jurassic Mandawa sedimentary basin contains potential reservoir sandstones and limestone and a number of potential traps, Dominion said.
The Kisingire PSA comprises two large, adjoining areas: Kisingire and Lukuliro. The Songo Songo gas fields lie to the east of this area (OGJ, May 15, 2006, Newsletter). The geology comprises an early sedimentary basin underlying a Jurassic rift. Royal Dutch Shell PLC’s shallow drilling in the 1980s identified oil source rocks in this basin.
The acquisition of additional seismic data will enable Dominion to identify prospects in the Selous PSA in southern Tanzania, a relatively underexplored area dominated by the Permian Selous basin.
Mako Trough deep gas potential gauged
An independent analysis has estimated theoretical potential recovery from Falcon Oil & Gas Ltd.’s Mako Trough deep-gas exploration project in the Pannonian basin of southeastern Hungary at 18 tcf at 90% probability.
The estimate, by the Scotia Group, Dallas, focused on the basin-centered gas accumulation. At 50% probability, the estimate is 45.2 tcf and at 10% probability, 96.3 tcf.
Scotia based its estimates on historic data and new information.
Falcon, Denver, recently encountered thick sections of tight gas sands in two wells in the trough (OGJ Online, Mar. 24, 2006). Logs from the Pusztaszer-1 well on the Tisza license, which went to TD 3,900 m, indicated prospective sections of the Pliocene Szolnok and Miocene Endrod formations to be more than 100 m thick with moderate-to-good porosity.
Falcon has operations in Hungary, through its subsidiary TXM Oil & Gas Exploration, and operates in Romania through JVX Energy Corp.
Processing - Quick TakesFoster Wheeler to supply Jamnagar coker
Foster Wheeler USA Corp. will supply an eight-drum delayed coking unit for Reliance Petroleum Ltd.’s 580,000-b/d export refinery under construction at Jamnagar, India.
Bechtel France, which is handling design, engineering, procurement, and construction advisory services for the project, let the contract for Foster Wheeler’s Selective Yield Delayed Coking process.
Reliance has operated a 660,000-b/d refinery at Jamnagar, in Gujarat state, since 1998. Foster Wheeler designed the eight-drum coker at that facility.
Foster Wheeler said the new refinery will be “the largest single-stream petroleum refinery in the world.”
Earlier this month it received a contract for the thermal design, engineering, and procurement of four delayed coker heaters for the new refinery (OGJ Online, June 27, 2006).
Sabic unit lets PP plant contract
Saudi European Petrochemical Co., (SEPC), a unit of Saudi Basic Industries Corp., has awarded Samsung Engineering Co. Ltd., Seoul, a contract to construct a 500,000 tonne/year polypropylene (PP) plant at SEPC’s Ibn Zahr complex in Al-Jubail, Saudi Arabia. The addition will nearly double the plant’s current capacity (OGJ, Aug. 22, 2005, Newsletter).
The additional capacity is expected to come on stream by third quarter 2008, SEPC said.
Aker Kvaerner ASA is providing project management and basic engineering services for the PP expansion, associated utilities, and offsite facilities. This is the third PP plant being built at Ibn Zahr.
Sinopec to raise ethylene output
China Petroleum & Chemical Corp. (Sinopec) has launched a 1 million tonne/year ethylene project in the Binghai New Zone, in north China’s Tianjin municipality. The project is scheduled for completion in 2009.
The new facility will raise ethylene production capacity at the company’s Tianjin branch to 1.2 million tonnes/year and its refining capacity to 12.5 million tonnes/year, Sinopec said.
Sinopec also plans to build two crackers in Shanghai and Wuhan of Central China’s Hubei Province. The Shanghai plant is designed with a capacity of 1 million tonnes/year, while the Wuhan facility would produce 800,000 tonnes/year.
Industry sources said the plants in Shanghai and Wuhan are planned for the more distant future, and still await approval from the Chinese government.
Sinopec currently has two ethylene production facilities in Shanghai, one of which is a 50-50 joint venture with BP PLC with a capacity of 900,000 tonnes/year.
Saudi Kayan signs letter for olefins plant
Saudi Kayan Petrochemical Co. has signed a letter of intent with Kellogg, Brown & Root for an engineering, procurement, and construction contract covering a 1.35 million-tonne/year olefins plant in Jubail Industrial City, Saudi Arabia.
Saudi Kayan is a new partnership of Saudi Basic Industries Corp. and Kayan Petrochemical Co. It plans a complex with capacity of more than 4 million tonnes/year of petrochemicals and chemical products, including specialty chemicals. Sabic owns 35% of the partnership and Kayan, 20%. The rest is to be offered to the public.
Separately, Saydi Kayan signed a letter of intent with Flour Co. for construction of offsite utilities for the Jubail complex.
Transportation - Quick TakesFERC approves ESNG pipeline expansion
Eastern Shore Natural Gas Co. (ESNG), a subsidiary of Chesapeake Utilities Corp., has received US Federal Energy Regulatory Commission approval for an expansion in 2006-08 of the company’s gas pipeline system.
The $33.6 million project will add 55 miles of pipeline looping in Delaware and Pennsylvania, as well as two new delivery points. It will increase the ESNG system’s firm peak capacity by 47,350 dekatherms/day of gas, a 36% increase.
Construction is scheduled to begin shortly.
Gazprom, DONG sign gas supply deal
Russia’s JSC Gazprom has signed an agreement with Danish utility DONG Energy to deliver natural gas to Denmark. The agreement represents the first-ever gas supply deal between the two countries.
Terms of the agreement specify that Gazprom will start gas supply to Denmark in 2011 via the North European Gas Pipeline. It commits DONG to buy 1 billion cu m/year of gas for 20 years, with an option to increase the quantity.
Under a separate agreement, DONG will next year begin supplying gas to Gazprom’s UK unit Gazprom Marketing & Trading. This contract is for 15 years and calls for as much as 600 million cu m/year of gas to be delivered via the Langeled Pipeline, which will connect Ormen Lange gas field in Norway with the UK.
KMEP to build oil storage in Edmonton
Kinder Morgan Energy Partners LP unit Kinder Morgan Terminals Canada ULC, Calgary, plans to begin construction this summer on a $133 million (Can.) crude oil tank farm in Edmonton, Alta., just north of its Trans Mountain Pipeline oil storage facility.
A Canadian unit of Chicago Bridge & Iron, The Woodlands, Tex., will construct the facility, which will begin operations in third quarter 2007.
The 2.2 million bbl site, which will contain nine tanks on 24 acres, will serve as a blending and storage hub for Canadian crude and will serve refining areas in British Columbia and Washington.
More than 20 incoming pipelines and several major outbound systems, including the 710-mile, 225,000 b/d Trans Mountain system, will access the facility.
Kinder Morgan has entered into long-term contracts with customers for all available capacity at the facility.