OGJ Newsletter

Sept. 11, 2006
General Interest - Quick Takes

Gulf oil find shows need for legislation

Congressional energy leaders said that the massive oil discovery reported in the deepwater Gulf of Mexico on Sept. 5 demonstrates the need to open more of the region to oil and gas leasing and development (see Exploration & Development).

“America needs America’s oil, and suddenly we’ve found a lot more of it,” House Energy and Commerce Committee Chairman Joe Barton (R-Tex.) said. “The discovery of oil that isn’t half a world away and that might increase our country’s petroleum reserves by billions of barrels in one swoop will do wonders for assuring that American drivers can get gasoline at a price they can afford to pay.”

Chevron Corp. reported that more than 6,000 b/d of crude flowed from the Lower Tertiary formation during a production test in the second quarter of its Jack-2 well on Walker Ridge Block 758. Chevron operates and holds 50% interest in the lease. Devon Energy Corp. and Statoil ASA each hold 25% interest. The companies plan to drill a second appraisal well in 2007.

While the more than 10 million-acre play is still in its infancy, early estimates suggested that it might contain 9-15 billion bbl of recoverable oil equivalent, making it the biggest domestic discovery since Prudhoe Bay on Alaska’s North Slope. US proved crude reserves currently total 21.4 billion bbl.

“The discovery of new oil reserves in the Gulf of Mexico underscores the need to develop Lease Sale 181 and regions south of there,” Senate Energy and Natural Resources Committee Chairman Pete V. Domenici (R-NM) said. “Chevron estimates that recent discoveries in the gulf, including the one announced [Sept. 5], could boost US supplies by 50%. Imagine what that could do for pump prices in the future. Imagine what other resources we have in this region.”

Sen. Mary L. Landrieu (D-La.) called the discovery “great news for achieving American energy independence [and] especially great news for Louisiana’s offshore energy industry and the future of deepwater production.” Much of the deepwater exploration and production activity will be operated from Port Fourchon, Venice, Morgan City, and other ports and land bases in the state, she noted.

The two senators said that the discovery strengthens the case for enacting its version of US Outer Continental Shelf leasing reforms, S. 3711, which passed the full Senate by a 71-25 vote on Aug. 1. It is headed to conference later this month with HR 4761, which the House approved by a 232-187 vote on June 29.

Domenici said that it would not be sufficient to leave opening acreage in the so-called Sale 181 area of the central and eastern gulf to the US Minerals Management Service, which included the region in its proposed 5-year OCS leasing plan for 2007-12. “MMS first proposed opening Lease Sale 181 in 1997, and the country is still waiting,” he said.

“With oil prices hovering near $70/bbl and gasoline prices at $3/gal, it is past time to expand our exploration of this region. I urge the House to join us in opening Lease Sale 181 and Lease Sale 181 South for environmentally responsible oil and gas development,” Domenici said.

Members of the House Resources Committee, which developed and sent HR 4761 to the floor, have said that they will press for their bill’s more comprehensive approach, which includes Alaska and the East and West coasts. Senate energy leaders consider S. 3711, with an approach limited to the gulf, more politically acceptable.

Chad continues to pressure firms to pay taxes

Chad President Idriss Déby Itno Aug. 29 said his country must have a 60% share in the country’s oil production, and that the two foreign oil companies he ordered to leave the country, Chevron Corp. and Petronas, must pay what they owe to the public treasury. His government earlier said the two companies have failed to pay taxes totaling about $450 million (OGJ Online, Aug. 28, 2006).

On Aug. 29 Chevron confirmed it had been asked by Chad to halt its operations for not paying taxes, but said it had already met all of its tax obligations to the country. Petronas said it is seeking information from all parties in Chad after the government there ordered its departure.

Chevron and Petronas together hold 60% of a pipeline consortium in Chad, with ExxonMobil Corp. holding the remaining 40%. ExxonMobil said Aug. 29 that its operations in Chad haven’t been affected by the dispute, and Déby said Chad would continue working with ExxonMobil.

Meanwhile, Déby has replaced three government ministers involved in a deal to allow foreign oil firms to extract Chad’s oil resources. Emmanuel Nadingar was appointed oil minister, while Rakis Manany was brought in to head the farming ministry. Abbas Mahamat Tolli, meanwhile, acquired the economy portfolio in addition to his job as finance minister.

Alaska session possible on pipeline contract

Alaska Gov. Frank H. Murkowski said he would call a special legislative session, starting Sept. 19, if state lawmakers agree that a contract outlining terms of a proposed natural gas pipeline can proceed to ratification.

“That call is contingent on an affirmative indication that it would be productive from legislative leaders who are polling their members,” Murkowski said. He also proposed that legislators be involved in negotiating specific points of the contract.

The state’s legislature twice has failed to pass bills to pave the way for a pipeline to carry gas from the North Slope to the Lower 48. The contract calls for partial state ownership of the pipeline and is contingent upon oil tax changes (OGJ, July 24, 2006, Newsletter).

Eight Alaska House Republican leaders met Aug. 29 with North Slope producer representatives to try to find common ground. The producers are BP PLC, ConocoPhillips, and ExxonMobil Corp.

Murkowski said producers and lawmakers have a list of issues to be negotiated, including the terms of fiscal certainty, dispute resolution-mediation, work commitments, project labor agreements, and a reserves tax.

“We have delivered a contract to the legislature that meets the requirements of the Stranded Gas Development Act. It is now up to the legislature to take action,” Murkowski said. “We are working with it to make the changes it needs to feel comfortable in ratifying the contract.”

In May, Murkowski made public a draft gas pipeline agreement between the state and North Slope producers. Last month, Murkowski lost the Republican primary election to Sarah Palin.

MMS sets lease-sale analysis framework

The US Minerals Management Service has identified areas and mitigation measures it will consider in environmental analyses covering 11 proposed oil and gas lease sales in the central and western Gulf of Mexico.

The identification proposes a framework in which potential operating and environmental impacts of exploration, development, and production following the proposed sales can be evaluated before the Interior Department agency releases the related draft multisale environmental impact statement.

The sales are included in the draft proposed Outer Continental Shelf program for 2007-12, MMS said on Aug. 31 (OGJ Online, Aug. 25, 2006). The area identification allows planning for draft environmental impact statements to proceed.

The identification will involve areas in Western Gulf of Mexico sales 204, 207, 210, 215, and 218 and Central Gulf of Mexico sales 205, 206, 208, 213, 216, and 222.

MMS said all unleased acreage in the central and western gulf planning areas listed in the draft proposed 5-year program will undergo environmental analysis except for the following deletions:

  • Whole and partial blocks within the boundary of the Flower Garden Banks National Marine Sanctuary.
  • Whole and partial blocks within the former Western Gap portion of the 1.4 nautical-mile buffer zone along the US treaty line with Mexico, which will be excluded from leasing consideration through January 2011 but may be considered in later sales.
  • Blocks newly added to the Central Gulf area that are within 100 miles of Florida’s coast.
  • Blocks newly added to the Central Gulf that are part of presidential withdrawals through 2012 or subject to annual congressional moratoriums.
  • Blocks beyond the US exclusive economic zone in the area known as the northern portion of the Eastern Gap.

MMS said that, in addition to area identification, it has determined that other mitigation measures should also be analyzed.

These measures include stipulations for protection of topographic features, live bottoms, military areas (including standard-use measures as well as special-case evacuation and coordination requirements), operations in the Naval Mine Warfare Area, protected species, and blocks south of Baldwin County, Ala.

Industry Scoreboard
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Scoreboard

Due to a holiday in the US, data for this week’s Industry Scoreboard are not available.

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Exploration & Development - Quick Takes

Gulf producers bullish on Lower Tertiary play

The first extended drillstem test of deep formations of Lower Tertiary age in the deepwater Gulf of Mexico has boosted confidence that major reserve additions will emanate from the play.

Chevron Corp. and Devon Energy Corp. said the formations have the potential to add 9-15 billion bbl of oil equivalent in coming years. US proved crude oil reserves are 21.4 billion bbl. Several other companies are exploring the area.

The two companies based the potential in part on the Jack-2 appraisal well in Walker Ridge Block 758, which sustained a flow of more than 6,000 b/d of oil from 40% of the total measured net pay of more than 350 ft. Oil and gas came from more than 20,000 ft under the seabed in 7,000 ft of water.

Devon expects four discoveries in which it has participated to add 300-900 million boe to the company’s resource base. It averages 43% working interest in another 19 prospects that have a combined 2-5 billion boe in unrisked exploration potential. The prospects are mostly in the Keathley Canyon and Walker Ridge areas.

The industry overall has made 12 discoveries in 19 wells drilled in the trend for a 63% geologic success rate, Devon noted. The play area covers more than 10 million acres, much of it near Mexican waters.

Salt is a prominent feature in the play. Two play types in the 19 prospects are four-way closures under salt and three-way closures against salt, Devon said. Two thirds of the 19 prospects are in Keathley Canyon, but not all have reached drillable status, Devon said.

The Jack-2 test set more than a half dozen world records for test equipment pressure, depth, and duration in deepwater. The perforating guns were fired at world record depths and pressures, and the test tree and other drillstem test tools set world records.

International group starts Saudi gas drilling

A joint venture of Royal Dutch Shell PLC, Total SA, and Saudi Aramco has begun exploratory drilling for nonassociated gas and condensate in the southern part of Saudi Arabia’s Empty Quarter.

The venture, South Rub al-Khali Co. Ltd. (SRAK), has spudded Isharat 1, the first of seven wells planned over the next 28 months. It has been shooting seismic surveys toward a commitment of acquiring at least 16,000 km of 2D data during a 5-year exploratory period.

SRAK moved components of the rig 2,000 km from Dubai to the location of Isharat 1, drilling of which is expected to take 4 months.

South Rub al-Khali Co. Ltd. has set up its first drilling camp in the southern part of Saudi Arabia’s Empty Quarter at the site of the Isharat 1 well. Photo by Faisal I. Al-Dossary for Saudi Aramco.
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SRAK holds two blocks covering 50,000 sq km near Shaybah oil field and 160,000 sq km next to the border with Yemen under a November 2003 concession. Shell holds a 40% interest in the venture, and Total and Aramco hold 20% each.

The Saudi government retains control over development in the event of an oil discovery.

In 2004 it signed three similar agreements with international ventures involving Aramco for gas-only exploration and production in the Empty Quarter’s northern area.

ConocoPhillips group reports North Sea strike

A group led by ConocoPhillips hopes for development approval next year of a large gas-condensate discovery in the Central UK North Sea.

BG Group, which holds a 30.5% interest in the prospect formerly known as Shoei, estimates the discovery’s reserves at 100-275 million bbl of condensate. Mark Cane, BG executive vice-president, Europe and Central Asia, called it “one of the largest recent North Sea discoveries.”

The Ensco 102 jack up spudded the initial exploratory well in March and a sidetrack that confirmed the discovery in July.

The field, which will be renamed, lies on Blocks P011 and P0032 30/7a. It’s in 81 m of water 9 km west of Judy oil and gas field, which has been on production since 1997.

A BG Group spokeswoman said development might involve a tieback to the Judy platform, with production starting in 2010.

Production from J-Block fields, which include Judy, Joanne, and the Jade tie-back development, moves to Teesside, UK, through the Central Area Transmission System.

ConocoPhillips holds 36.5% interest in the discovery. The other partner is Eni UK Ltd. with 33%.

The same companies hold varying interests in the J-Block fields.

On-time but low-volume Cepu start-up seen

ExxonMobil Corp. hopes to start output from Indonesia’s Cepu oil and natural gas project by the planned date of 2008, but a company official said initial volumes will be small due to development problems (OGJ, June 12, 2006, Newsletter).

“There are options for us to bring forward some of the production but in smaller volume,” Peter Coleman, ExxonMobil Indonesia president, told reporters after meeting Indonesian Vice-President Jusuf Kalla.

He did not specify the nature of the discussion, but Indonesian state media reported that ExxonMobil is in talks with drilling contractors and that it expects to wrap up negotiations with them by the first half of 2007.

The Indonesian government has approved the Cepu development plan, but an official at the state’s upstream regulator BP Migas said some problems have arisen since the approval, including land-clearing, which could delay the start of production until 2009.

BP Migas earlier urged ExxonMobil and its partner PT Pertamina to speed up development of Cepu. In March, when the joint development agreement was signed, Energy and Mineral Resources Minister Purnomo Yusgiantoro had requested a “fast-track” development scheme.

The agreement sparked hopes for development that would quickly bolster Indonesia’s sagging crude oil output. Production fell to 887,000 b/d in July, reportedly a 35-year low and down from 900,000 b/d in June, due to production problems in several oil fields as well as scheduled maintenance.

The government wants to step up local production because it subsidizes domestic purchases of oil. The decline in local production raises volumes of oil that Indonesia must purchase at international prices.

Talisman sees 1-2 tcf from ‘outer foothills’

Talisman Energy Inc., Calgary, said it could be producing a net 200 MMcfd of gas by 2010 from a large play in the outer foothills of the Western Canada Sedimentary Basin.

Having spent $230 million to acquire more than 260,000 acres along the trend, mostly at 100% working interest, the company plans a $250 million outlay to drill 30 or more wells in 2007. It has engaged rigs for the program.

The acreage lies in a relatively undeveloped part of WCSB, east of and parallel to Talisman’s existing foothills play in Alberta and British Columbia.

The land position provides Talisman with numerous multizone opportunities in several distinct regions. The company has identified more than 100 drilling locations so far.

Of four wells drilled in 2006, three are under test and the fourth will be tested this winter.

The first well, Chinook 16-14-65-13w6m, gauged 6 MMcfd of raw gas from three intervals within the Nikanassin, a formation found at the Jurassic-Cretaceous boundary. It will be tied in by the end of September, following tests of two more intervals. Three wells are drilling, and six more wells are planned for the rest of this year.

Talisman expects recovery to average 6-10 bcf/well, but some wells have produced more than 25 bcf.

“Reservoir deliverability is enhanced by fracturing associated with the thrust and fold structures,” the company said.

Drilling & Production - Quick Takes

Mars TLP producing above pre-Katrina rates

The Mars tension-leg platform (TLP), heavily damaged by Hurricane Katrina in late August 2005, currently is producing 190,000 boe/d (gross), Shell Exploration & Production Co. reported.

That is a 20% increase over pre-Katrina rates. The Mars TLP resumed production ahead of schedule and was producing slightly above its pre-Katrina rates in July.

Estimates placed the Mars platform in Katrina’s eye for 4 hr, absorbing 80-ft waves and wind gusts exceeding 200 mph. The Mars TLP floating structure and wells survived the extreme conditions, but the platform’s drilling rig and topsides production equipment were heavily damaged (OGJ, June 5, 2006, Newsletter).

It took 3 months of preparation and planning to lift and remove the damaged Mars platform rig in two pieces from its toppled position on the platform deck. Oil and gas pipelines in 3,000 ft of water also were repaired.

Shell has a 71.5% interest and operates the TLP. BP PLC has the remaining 28.5%.

Syncrude restarting Mildred Lake plant

Syncrude Canada Ltd. has introduced bitumen feed into Coker 8-3 at its Mildred Lake oil sands plant in Alberta in a phased-restart of Stage 3 operations.

Canadian Oil Sands Trust, a partner, said production would increase in phases to allow for testing of a flue gas desulfurization (FGD) unit that had to be shut down because of odorous emissions during start-up in May (OGJ Online, July 10, 2006).

Ammonia produced on site for the FGD unit was found to contain impurities and to be responsible for the odors. Syncrude is now using imported ammonia.

Terra Nova FPSO to resume flow in October

Petro-Canada expects to resume production in October from Terra Nova oil field off Newfoundland and Labrador after maintenance work that began in May.

Dry-dock work on the field’s floating production, storage, and offloading vessel has been completed in Rotterdam. The turnaround included the addition of a 40-bed quarters module and regulatory work such as recoating the vessel hull, replacing underwater shipside valves, and inspecting thrusters.

The October output resumption will be later than originally planned because of work added during the course of the project.

Output will increase to 110,000-120,000 b/d by yearend. Production averaged 52,000 b/d when shut in May 10 at the start of the project, which is expected to improve the FPSO’s reliability and reduce future downtime. The unit is to sail for Canada in mid-September and be on site early in October.

Processing - Quick Takes

ONGC lets contract for petrochemical plant

Oil & Natural Gas Corp. of India has let contract to Foster Wheeler Energy Ltd. for technology consultancy services for the petrochemicals complex it plans at Dahej, Gujarat (OGJ, Aug. 21, 2006, Newsletter).

The $1.05-billion facility will have a dual-feed cracker with capacity of 1.1 million tonnes/year of ethyelene plus units for production of high and low density polyethylene, polypropylene, and styrene butadiene rubber.

The complex will be integrated with an ethane-propane plant under construction at Dahej and also will be able to use naptha as feedstock.

Pemex to upgrade Mexico’s oldest refinery

Petroleos Mexicanos plans to upgrade its 194,000 b/cd refinery near Minatitlan in Veracruz. The Minatitlan refinery is Mexico’s oldest.

The planned upgrades will enable the plant to refine additional heavy, high-sulfur oil and increase the production of low-sulfur gasoline and middle distillates.

The upgrades will be made possible through a $216.8 million export sale, which is backed by a $200 million loan guarantee from the US Export-Import Bank.

Ex-Im Bank’s long-term loan guarantee supports Pemex’s purchase of US goods and services to build nine new processing units at its Gen. Lazaro Cardenas refinery (Minatitlan).

Ronald L. Stewart, chief executive officer for FS-Elliott Co. LLC, Export, Pa., said Ex-Im Bank financing of projects such as the Minatitlan refinery upgrade “creates strong incentive for the purchaser to use US companies.”

FS-Elliott is one of 43 US small businesses participating in the export sale. It and other suppliers such as Merichem Chemicals & Refinery Services LLC, Houston, will work through several large engineering, procurement, and construction contractors on the Minatitlan project.

FS-Elliott is providing $1.5 million of custom-built air compressors and Merichem is supplying a $4 million skid-mounted modular caustic treatment-processing unit for the project.

“Oil companies are doing major capital investment, and our backlogs are growing dramatically,” Stewart said.

Merichem Pres. Felipe Suarez said, “We’re a small company and we couldn’t finance this export sale by ourselves. If it hadn’t been for the Ex-Im Bank-guaranteed loan, a much larger global competitor, able to offer the buyer competitive financing, likely would have won the order.”

Transportation - Quick Takes

Russia files suit to suspend Sakhalin 2 project

Russian environmental authorities have filed suit to suspend Sakhalin 2, following a month-long investigation into the oil and natural gas development project off Russia’s Pacific Coast. The suit coincides with other government investigations into the project.

The Federal Service for the Supervision of Natural Resources is trying to halt construction of a pipeline, citing its potential harm to the environment. In taking this action, FSSNR is trying to overturn the approval granted by Russia’s Natural Resources Ministry (NRM) in 2003.

The suit is said to be motivated by Russia’s desire to expand its interest in the Sakhalin project by pressuring the firms involved. The current shareholders are Shell Sakhalin Holdings BV 55%, Mitsui Sakhalin Holdings BV 25%, and Diamond Gas Sakhalin, a Mitsubishi company, 20%.

In August, NRM issued a statement calling on the consortium to suspend pipe-laying work on Sakhalin, citing possible mudslides on the Pacific island. NRM said it had received a report showing the pipeline could be damaged by mudslides where it meets the coast and crosses the hundreds of rivers and streams on the island.

At the same time, Russia began a separate month-long financial audit of the Sakhalin 2 project which coincided with negotiations between the Sakhalin Energy consortium and OAO Gazprom on the state-run firm’s efforts to acquire a stake in the project.

On Sept. 6, the economics ministry said it wanted to complete that financial audit of Sakhalin 2 by yearend. Costs on the project are said to have doubled to about $20 billion, with rising commodity prices across the world. As a result, Gazprom wants to reduce the stake on offer, saying the value of the asset has fallen.

Deputy Economics Minister Kirill Androsov said the feasibility study requires detailed analysis to determine whether the additional expenses are justified. He hoped the study would be complete by yearend, and said it should not interfere with the project.

First LNG ship-to-ship transfer completed in gulf

Exmar NV, Antwerp, has completed the first commercial ship-to-ship (STS) transfer of LNG in the Gulf of Mexico.

Until recently, STS transfer of LNG was only performed between LNG carriers in emergency situations.

A total of 20,650 cu m of LNG was transferred from the LNGRV Excelsior, a 130,800 cu m vessel built in 2005, to the Excalibur, a 138,000 cu m vessel built in 2002, Exmar said. Exmar operates these vessels along with Excelerate Energy LLC.

Exmar said STS LNG transfer will enhance the operational flexibility of the regasification vessels. The process does not require the construction of an offshore platform