OGJ Newsletter

April 7, 2008
General Interest - Quick Takes

MMS issues production, royalty reporting rules

The US Minerals Management Service published on Mar. 26 amended final regulations for reporting production and royalties of oil, gas, coal, and geothermal resources from federal and Native American lands.

The new rules are designed to align the reports with current MMS business practice, MMS said. They reflect changes implemented after the agency’s financial systems were largely reengineered in 2001, as well as other changes required by law, it said.

Among other changes, the new rules align regulations with updated reporting forms, eliminate references to forms and codes that no longer apply, update other references, and move up the due date for production reports submitted electronically.

They also clarify the requirement for reporting production inventory, eliminate references to some electronic reporting options that no longer exist, and clarify the reporting requirement for taxpayer identification numbers, MMS said.

The new rules will take effect in 30 days, it said.

Alberta: first oil sands reclamation certificate

The Alberta government presented its first oil sands reclamation certificate to Syncrude Canada Ltd. for converting a 104-hectare area known as Gateway Hill into forest and wetlands 35 km north of Fort McMurray.

Syncrude began planting trees and shrubs in 1983 to create a forest interspersed by several wetlands and a 4.5-km hiking trail. The company is committed to overall sustainability, said Syncrude Pres. and Chief Executive Officer Tom Katinas.

Under Alberta’s reclamation standards, companies must remediate and reclaim Alberta’s land so it can be productive again. Alberta requires reclaimed land to be able to support a range of activities similar to its previous use.

Alberta Environment Minister Rob Renner said it takes time to confirm a successful reclamation. “Both operators and government want to ensure that the reclamation is successful before a certificate is granted.”

Typically, oil sands mining requires the use of land for several decades. The reclamation process occurs throughout a project’s life, and reclamation certification occurs when the land has been fully reclaimed.

Overburden material removed during oil sands mining was put on Gateway Hill. By the early 1980s, the area was no longer needed, and Syncrude began replacing topsoil and planting trees and shrubs.

Katinas said Syncrude reclaimed more than 80 additional hectares in 2007 and plans on reclaiming another 100 hectares this year. In 2006 alone, the company reported spending $30.5 million on reclamation activities.

Syncrude is a joint venture operated by Syncrude Canada Ltd. and owned by Canadian Oil Sands Ltd., ConocoPhillips Oilsands Partnership II, Imperial Oil Resources, Mocal Energy Ltd., Murphy Oil Co. Ltd., Nexen Oil Sands Partnership, and Petro-Canada Oil & Gas.

Colombia offers 43 blocks in licensing round

Colombia has invited operators to bid for 43 blocks in its latest licensing round, with contracts expected to be signed with successful applicants by October.

The acreage, spanning over 7 million hectares, is in the natural gas-prone Sinu North area; Cesar Rancheria area, which is also gas prone and holds the potential for unconventional gas; Cordillera area, a frontier province; and Crudos Pesados West, a heavy oil region.

Armando Zamora, director general of Colombia’s National Hydrocarbons Agency (ANH), told delegates at the London roadshow that 17 blocks were on offer in the heavy oil zone. “According to a study by Halliburton, it is estimated to hold 20 billion bbl of oil in place.” Seventeen fields have been discovered near the blocks and three petroleum systems have been found in the basin.

About 122 wells have been drilled on the San Jacinto basin in the Sinu North area with 17 wells in the Guajira basin in Cesar Rancheria; four in the Eastern Cordillera basin, and 61 in the Llanos basin in Crudos Pesados West.

Separately, Colombia is offering operators the chance to develop 8 frontier heavy oil blocks in the East Llanos basin.

Colombia also is keen to attract small and medium-sized operators for its mini bidding round that will be launched shortly, Zamora added. “There will be 100 blocks available, and we will offer those that have been surrendered to the ANH in productive areas. The round will close in September.”

Foreign investment in Colombia’s petroleum sector is expected to be more than $5 billion this year compared with $3.5 billion in 2007. Colombia hopes to sign 70-80 exploration and production contracts by yearend compared with 56 last year.

Operators drilled more than 70 wildcat wells in 2007, and Colombia wants this to increase to 90 in 2008. Technical success rates were over 40%.

Carolina García, licensing coordinator at ANH, told delegates that operators must be prequalified before they can submit applications for acreage. Production will last 24 years unless operators seek an extension. They must acquire seismic data under the first phase of the exploration program and drill wells or shoot 3D seismic during later stages.

“In the ’90s, people were worried about Colombia’s sufficiency in oil, but now that’s stabilized, and the outlook is for increased growth,” Zamora said. “We want to produce 1 million b/d of oil within the next 10-15 years, and we have enough reserves to be self-sufficient for the next 20 years.”

Despite having only 7 tcf of proven gas reserves, Colombia has started exporting up to 150 MMcfd of gas to its gas-rich neighbor Venezuela.

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Exploration & Development - Quick Takes

Kazakh field gets deeper pool gas find

Tethys Petroleum Ltd., Guernsey, Channel Islands, UK, gauged an apparent Cretaceous deeper pool gas discovery on the Akkulka Block in Kazakhstan’s North Ustyurt basin.

The AKK-14 exploration well, drilled on a prospect between the AKK-13 and AKK-04 discoveries, flowed a combined 13.3 MMcfd of gas from two intervals. The company’s highest-rate test on the block, it appears to be the first commercial discovery in Cretaceous Tasaran sand.

The Tasaran sand stabilized at 7.5 MMcfd with 163 psig flowing tubinghead pressure on a 30-mm choke, while the overlying Paleocene Kyzyloi sand stabilized at 5.8 MMcfd with 152 psig flowing tubinghead pressure on the same size choke.

The Tasaran is made up of several units of up to 20 ft of blocky, medium-grained sandstones and are more conventional reservoirs than the generally thinner and finer-grained Kyzyloi sandstone, the company said.

The company plans to examine existing seismic for potential untested Tasaran zones in several older wells and for new leads. The discovery opens a new play on both the Akkulka and Kul-Bas blocks.

Sapex begins first Arkaringa push in 25 years

Adelaide-based Sapex Ltd. has signed a contract with Terrex Seismic to shoot a seismic survey in the Arkaringa basin in South Australia beginning in late April.

The 6-week program, comprising 428 km of 2D survey onshore, will be the first seismic work in the basin since the early 1980s when the Santos-Delhi group held permits in the region.

Sapex said that half of the program will provide detailed coverage over two key portions of the Boorthanna Trough, where interpretation of previous data indicated several prospects and leads. The company anticipates that the work will identify locations suitable for exploration drilling. Sapex plans to spud two wells before the end of this year, subject to the seismic results and its ability to secure a suitable rig.

The second part of the survey will be a regional program to determine the southward extension of the Boorthanna Trough.

Sapex holds 100% interest in seven permits totaling 65,000 sq km and covering virtually the entire Arkaringa basin. In addition to conventional petroleum work, Sapex has announced a farmin by Sydney-based Eastern Star Gas Ltd. to undertake the first coal seam methane investigation in the basin’s coal measures.

Drilling & Production - Quick Takes

Crew returns to Neptune TLP; analysis continues

BHP Billiton Ltd. said Mar. 27 that it is continuing its structural analysis of a hull anomaly identified on the Neptune tension-leg platform.

The anomaly was discovered during the TLP’s commissioning (OGJ Online, Mar. 26, 2008). Personnel working on the TLP were removed temporarily, but they have returned to work on the platform, BHP Billiton said.

A BHP Billiton spokeswoman told OGJ Mar. 27 that it is still too early to answer questions regarding if or how the anomaly might impact future production. Previously, BHP Billiton said production was expected to start “during the March quarter.”

No details have been released yet regarding the nature of the anomaly.

“We do intend to update our schedule for first production as we know more. We believe the impact to fiscal year 2008 production will be minimal,” she said.

The 5,900-ton TLP was equipped to produce as much as 50,000 b/d of oil and 50 MMscfd of natural gas from an initial seven subsea wells. The TLP was installed June 5, 2007, and the topsides processing facility was set atop the hull later that same month (OGJ, Aug. 3, 2007, Newsletter).

BHP Billiton is the operator and holds 30% interest. Its partners are Marathon Oil Corp. 30%, Woodside Energy 20%, and Repsol-YPF SA subsidiary Maxus (US) Exploration 15%.

Workers’ strike shuts in Shell Gabon production

Gabon last week asked Shell Gabon to restart 6,000 b/d of oil production at its Gamba site, leaving around 54,000 b/d of production still shut in amid an oil workers’ strike.

Shell Gabon, a joint venture of Royal Dutch Shell PLC 75% and the government of Gabon 25%, shut in 60,000 b/d of production Mar. 20 following the start of the workers’ strike.

An additional 30,000 b/d of production from Total Gabon and Perenco SA, which passes through the Gamba terminal, also has been curtailed.

Shell managed to undertake some maintenance work at its strike-hit operations in Gabon on Mar. 31, as union officials threatened to extend the worker protest to the whole of the country’s oil industry.

“Some vital equipment has been restarted [on Mar. 31] to prevent damage to our infrastructure,” Shell Gabon reported in a statement.

Gabon’s National Organization of Petroleum Workers (ONEP) is demanding various labor concessions from the oil industry on working hours and time off. Marathon Oil workers notified the union that they would be joining Shell Gabon workers on strike.

Gabon produced about 270,000 b/d in 2007, according to the US Energy Information Administration.

NWS to develop North Rankin off W. Australia

The Woodside Petroleum-led North West Shelf gas project joint venture has made its final investment decision to go ahead with the North Rankin B platform development off Western Australia.

The $5 billion (Aus.) project is aimed at recovering the remaining low-pressure gas from the North Rankin and Perseus gas fields and includes installation of a second steel platform at North Rankin. The structure, with a topsides weight of 23,600 tonnes, will house gas compression facilities, utilities, and a living quarters module.

The platform will be placed in 125 m of water close to the existing North Rankin A platform and connected by to it via a 100-m bridge and walkway.

The development work will also include systems tie-ins between the two platforms plus a complete refurbishment for North Rankin A, which has been in place since the mid-1980s.

Once the work is completed, both platforms will be operated as a single integrated facility.

The North Rankin B project will extend the life of the North Rankin and Perseus fields and will support the JV’s onshore gas commitments to supply customers past 2013. The announcement also follows approval of a fifth LNG train on the Burrup Peninsula fed by the NWS gas project fields.

This train will produce 4.4 million tonnes/year of LNG, bringing the total project output to 16.3 million tpy.

The North Rankin B Project is expected to come on stream in 2012.

Chevron lets Platong platform work contract

Chevron Thailand let a contract to J. Ray McDermott SA to build a central production-processing platform, living quarters, and associated facilities for the Platong Gas II project, Gulf of Thailand.

The value of the engineering, procurement, construction, and installation contract was not disclosed.

However, executives said it represents a major part of the $3.1 billion investment required for developing the gas structure, which is about 200 km offshore.

Engineering for this project has commenced at J. Ray’s Singapore office, and installation is expected by the end of 2010.

Platong Gas II’s offshore facilities are designed to produce 420 MMcfd of gas.

The field is scheduled to come on stream in 2011 and to produce more than 330 MMcfd of gas, which will be piped to the Thai eastern coast for domestic consumption.

Chevron operates Platong Gas II in which it has a 69.8% share. Other stakeholders are Mitsui Oil Exploration Co. 27.4% and PTT Exploration & Production PLC 2.8%.

Processing - Quick Takes

China faces diesel, gasoline shortages

China is facing shortages of diesel and gasoline as the gap widens between rising international crude prices and centrally controlled fuel markets.

Shortages first reported in southern and inland China apparently are spreading to the wealthier areas in the north and east as filling stations struggle to obtain fuel shipments from refiners.

In Beijing, workers at 20 retail outlets said they were either rationing or had run out of diesel because of shortages. Four outlets in Shanghai said their daily diesel shipments had not arrived. Staff at another outlet said they were on duty all day and night, waiting for diesel shipments.

Shanghai authorities played down the shortages and urged drivers not to hoard fuel. The municipal economic commission said the city has enough diesel to last 10 days. Shanghai and other major cities experienced brief shortages in the second half of last year, but those shortfalls disappeared after the government ordered oil companies to ensure supplies and then raised fuel prices by about 10%. Now with inflation at its highest level in a dozen years, Chinese officials are resisting pressure from refiners for price increases.

After decades of supplying its own energy needs, China became a net importer in the 1990s as its economy boomed. Imports rose 12.3% last year to 1.1 billion bbl, and they now supply nearly half of China’s demand.

With crude priced close to or above $100/bbl on the world market, independent refiners have reduced or stopped production. Under orders to ensure supplies to major cities and key sectors such as farming and public transport, state-owned major oil companies such as Sinopec and PetroChina reportedly limited sales to independent retail outlets in some regions.

Petrobras buys into, will upgrade Nishihara plant

Brazil’s state-owned Petroleo Brasileiro SA (Petrobras) has acquired an 87.5% stake in the 100,000 b/d Nishihara refinery in Okinawa owned by Japan TonenGeneral Sekiyu KK, the Japanese subsidiary of ExxonMobil Corp.

Nansei Sekiyu, in partnership with Petrobras, has Sumitomo Corp. as a shareholder that will retain its 12.5% stake in the company.

Sumitomo and Petrobras are expected to spend as much as ¥100 billion to upgrade the Nishihara facilities and boost the cost competitiveness of the refinery as an export base.

Much of the output from the refinery is said to be low-value heavy oil, so Petrobras will build facilities for producing high-value gasoline and kerosine along with a variety of petrochemical materials.

The refinery has an oil and derivative terminal capable of storing as much as 9.6 million bbl, three piers with potential to receive large vessels, and a monofloat for very large crude carriers.

Petrobras said the agreement, valued at some $50 million, marks an important first step in its strategy to launch downstream operations in Asia.

Petrobras, which has discovered fields in Central and South America as well as Africa, is trying to boost exports. This latest move illustrates its plan to be involved in the refinery process and to secure refineries in proximity to markets.

In February, TonenGeneral Sekiyu KK said its net profit plummeted 82.4% last year. The company blamed the earnings erosion on its inability to pass on higher oil prices and shipping charges to its oil products.

Cienfuegos refinery on line; expansion mulled

Processing at Cuba’s 65,000 b/d Cienfuegos refinery is on schedule 2 months into operations with gasoline output beginning in March and expansion plans on the drawing board, according to a senior official.

PDV-Cupet SA—a joint venture of Venezuela’s state-run Petroleos de Venezuela SA and CubaPetroleo—owns the refinery, which is in the port city of Cienfuegos, 155 miles southeast of Havana.

Julio Sanchez, director of refinery expansion, said the facility began processing crude Jan. 8. It has reached its initial capacity and was to begin producing gasoline Mar. 21, he said.

He said the refinery is expected to produce 48% fuel oil, 18% diesel, 12% gasoline, 10% jet fuel, and 10% LNG for the domestic market and for export to other countries in the Caribbean region.

Further development plans call for the refinery eventually to process 150,000 b/d of crude and supply feedstock for a planned petrochemical industry in the area (OGJ Online, Feb. 3, 2008). Sanchez said the $1.3 billion expansion of the facility would get under way in 2009 and begin operation in 2013.

Cuba has two other refineries, Nico Lopez in Havana and Hermanos Diaz in Santiago de Cuba, 860 km east of the capital. The two facilities have a combined capacity of 65,000 b/d.

World biofuels demand rising, report says

World biofuels demand is expected to expand at 19.5%/year to 92 million tonnes in 2011 despite concerns about the impact of biofuels on the environment and food supplies, Freedonia Group Inc. said in a report.

The Cleveland market research firm said 2006 world biofuels demand was 37.7 million tonnes, and that the annual growth rate was 19.9% during 2001-06.

Future market expansion will come from a more-than-doubling of ethanol demand and even faster increases in global biodiesel demand. Other biofuels also will experience strong growth but at a slower pace than ethanol or biodiesel, Freedonia said.

The annual growth rate for biofuels demand from 2006-11 is forecast at 35.3% in Asia Pacific, 22.1% in Western Europe, and 19.5% across North America. In terms of absolute gains in expanding biofuels demand, North America will be the leader, Freedonia said.

Transportation - Quick Takes

First LNG cargo for Sabine Pass terminal

A carrier is bound from Nigeria with the first cargo of LNG for Cheniere Energy Inc.’s Sabine Pass LNG terminal in Cameron Parish, La.

The 145,000 cu m-capacity Celestine River LNG vessel, owned and operated by Kawasaki Kisen Kaisha Ltd. (“K” Line) is scheduled to arrive Apr. 12 at the Sabine Pass LNG terminal.

Sabine Pass LNG, under construction for 3 years, is the largest US regasification facility with an initial send-out capacity of 2.6 bcfd and peak capacity of 4.3 bcfd. It has 16.8 bcf of LNG storage capacity and two berths capable of handling the largest LNG vessels.

In February, Cheniere Energy hired Credit Suisse as its financial advisor in evaluating the future of the Sabine Pass LNG terminal. Options include taking on partners or selling Cheniere’s 2 bcfd portion of the terminal’s 4 bcfd capacity. Total SA and Chevron Corp. each hold 20-year agreements for 1 bcfd capacity (OGJ Online, Feb. 28, 2008).

Tepco plans LNG import terminal at Sendai

Japan’s Tohoku Electric Power Co. (Tepco) will build a new LNG import terminal at Sendai, aiming to disperse its LNG sites in order to minimize the risk of supply disruptions from earthquakes and other problems.

Tepco, which currently receives all of its LNG at its Niigata terminal, said the new facility will have storage capacity of 1 million tonnes of LNG and is expected to begin operations around 2016.

On Mar. 6, Tohoku Electric received some 70,000 tonnes of LNG on a spot basis from Qatar that arrived at the Niigata terminal aboard a Q-Flex vessel. It was the second Q-Flex cargo to arrive in Japan after the first shipment in January (OGJ Online, Jan. 11, 2008). In December 2007 Tepco signed an 8-year agreement to purchase gas from North West Shelf Australia LNG. Tepco would purchase about a million tonnes/year from 2010.

Tepco’s territory covers seven prefectures in the Tohoku region of northeastern Japan, providing gas to electric machinery makers and other large-lot electricity users.

Japanese LNG buyers make deal with Indonesia

Japanese buyers have agreed to forgive Indonesia’s failures to supply 72 cargoes of LNG as part of a 10-year extension to supply contracts that were due to expire in 2010 and 2011.

Iin Arifin Takhyan, deputy director of Indonesia’s state-run PT Pertamina, said his country has been released from liability for failing to deliver 72 LNG shipments to Japan last year and causing a gas shortage.

The new contracts are for 3 million tonnes/year over the first 5 years of the contract and 2 million tpy over the next 5 years. The extensions represent a significant cut over the current contracts, which call for 12 million tpy.

The reduced supplies follow earlier announcements by the Indonesian government that it was planning to reduce LNG exports to Japan because it wants to use more gas for domestic purposes.

Iin said LNG will be sold at $15-16/MMbtu fob and that the price of the gas is linked to the worldwide price for oil. If the crude price drops, the price of the LNG could also be lowered.

Analysts said that Indonesia’s deal to raise LNG prices to Japan sets a new benchmark for Asian term contracts and increases the pressure on other gas deals currently under negotiation.