OGJ Newsletter

June 8, 2009
General Interest — Quick Takes

IEA: Global upstream budgets already down 21%

Global upstream oil and gas budgets for 2009 have already been cut 21% compared with 2008, according to a report by Paris-based International Energy Agency.

This is almost $100 billion, said IEA in a report on the impact of the financial crisis on energy investments worldwide, prepared for the G8 Energy Ministers Meeting in Rome May 24-25.

The investment drop will continue into 2009, especially in the Organization for Economic Cooperation and Development region, and will impact both supply and demand, IEA reported.

From October through April, more than 20 planned large upstream oil and gas projects were either postponed indefinitely or scrapped. The projects were valued at more than $170 billion and involved 2 million b/d of oil capacity and 1 bcfd of gas capacity. A further 35 projects amounting to 4.2 million b/d oil capacity and 2.3 bcfd gas capacity were delayed by at least 18 months.

Oil projects in Canada account for the bulk of the postponed oil capacity. Investments in non-OPEC countries are expected to drop the most as upstream spending has fallen mainly in high-development-cost regions and in areas where small players and projects dominate investments. Supermajors, on the other hand, plan to cut spending by only 5%.

The report said spending cuts on existing fields could accelerate decline rates. It said exploration spending will be reduced sharply in 2009 as investments are diverted to complete development projects launched before prices slumped.

Iraq wants ‘coordination’ with Kurdish oil deals

The Iraqi oil ministry, while acknowledging the right of semiautonomous Kurdistan to sign agreements with international oil companies, said it is concerned about the lack of coordination regarding them.

“The Iraqi oil ministry’s objection is to the signing of these contracts without any coordination with it or with the federal government,” said Asim Jihad, a ministry spokesman.

“We do not know how many contracts exist, their details, or how much of Iraq’s oil is being given to the foreign companies, not to mention privileges,” Asim told Dubai’s Al-Arabiya television, adding that the Iraqi federal government and the oil ministry have “the right to learn of these details.”

Asim said the Iraqi constitution stipulates that the Kurdistan Regional Government (KRG) coordinate with the federal government on all oil-related matters but that “unfortunately, this has not been the case.”

Asim acknowledged that Article 112 of the Iraqi constitution does grant the KRG the right to sign oil contracts, but he said the document also stipulates that such matters should be coordinated with the oil ministry of the federal government.

This month, Kurdistan began exporting crude oil for the first time, sending 100,000 bbl from the Taq Taq and Tawke oil fields via the Iraq-Turkey pipeline to the Turkish port of Ceyhan (OGJ Online, June 1, 2009).

GWPC: US state regulations protect water

Current US state oil and gas regulations adequately protect water resources, the Ground Water Protection Council said in a new report on May 28.

The assertion by one of the nation’s leading groundwater protection organizations came as congressional discussions intensified on giving the US Environmental Protection Agency authority to regulate hydraulic fracturing, an essential part of producing natural gas from shale formations.

The study focused on eight regulatory aspects: permitting, well construction, hydraulic fracturing, temporary abandonment, well plugging, tanks, pits, and waste handling and spills. The resulting report was not intended as an evaluation of state programs, but rather, an evaluation of state programs, the GWPC said.

Each state covered in the study was invited to review the report’s findings and provide any updated information, it added. Thirteen states provided responses, which were incorporated in the report, the council said.

GWPC also produced a regulations reference document containing excerpts from each state’s oil and gas regulations related to the programmatic areas evaluated in the study, it said.

Oil from Canada’s oil sands is also blended, without segregation, with other feedstocks at many US refineries, making it impossible to determine the content of fuels that are purchased, it added. The report and addendums are available online at www.gwpc.org.

Oil and gas organizations responded favorably. “The study confirms what the industry has been saying: Regulation of oil and gas field activities, including hydraulic fracturing, is best accomplished at the state level where regional and local conditions are best understood, and where state regulators are on hand to conduct inspections and oversee specific applications like well construction and testing and plugging as well as hydraulic fracturing,” the American Petroleum Institute said in a statement.

“Hydraulic fracturing is a tried-and-true, more than 50-year-old technology, increasingly essential for producing the nation’s natural gas,” API added.

Libya, Cyprus to sign energy agreements

Libya plans to sign agreements with Cyprus concerning the supply of oil and natural gas, according to a senior Libyan official.

“We look forward to signing agreements with Cyprus in the fields of oil and natural gas,” said Libya’s Minister of Justice Mustafa Mohamed Abdel Jalil.

“There are many areas of cooperation that are vital for both countries,” Jalil said after meeting with Cyprus Minister of Commerce, Industry, and Tourism Antonis Paschalidis.

Libya has sufficient quantities of oil and natural gas it can supply to others, Jalil said, adding that his country will give priority to neighboring countries such as Cyprus.

In April, Libya’s National Oil Corp. Chairman Shukri Ghanem, following talks with Paschalides, said the company is considering investing in oil and natural gas exploration off southern Cyprus (OGJ Online, Apr. 30, 2009).

Industry Scoreboard
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Exploration & Development — Quick Takes

Companies ramp up Bakken participation

Several companies increased ownership in North Dakota Bakken well and production interests under an existing joint venture with Slawson Exploration Co., a private Denver operator.

Northern Oil & Gas Inc., Wayzata, Minn., acquired certain North Dakota Bakken assets from Windsor Bakken LLC as part of a syndicate led by Slawson. Northern purchased a 5% interest in the undeveloped acreage, including 60,000 net acres. Price is $7.3 million.

Northern also acquired 14% of the existing 59 gross Bakken and Three Forks well bores in North Dakota including 1,200 b/d of oil production. It also purchased 300,000 bbl of proved producing reserves and 3,000 net undeveloped acres.

GeoResources Inc., Houston, acquired a 15% interest in 60,000 net acres and 15% of varying working interests in 59 producing and productive wells, adding more than 300,000 boe of proved producing reserves. Cost was $10.4 million.

Lario Oil & Gas Co., private Denver operator, also participated in the revised joint venture on undisclosed terms, GeoResources said.

Slawson, responsible for all operations, is expected to drill as many as 45 gross Bakken wells on the newly acquired acreage through 2010.

The joint venture, running one rig, expects to add two more in July and possibly a fourth by the first quarter of 2010, GeoResources said.

Shell-led group to start drilling in the Philippines

Shell Philippines Exploration BV and its partners Kuwait Foreign Petroleum (Kufpec) and South China Resources Ltd. (SCR) will start drilling activities at their Service Contract 60 (SC 60) in Northeast Palawan.

The partners have commissioned the services of the Frontier Phoenix drillship for oil and gas exploration in SC 60, according to filing by SCR with the Philippine Stock Exchange (PSE).

David Baladad, SCR vice-president of operations, told PSE that the drillship will proceed to Northeast Palawan later this year upon completion of its five-well program in Malaysia.

SC 60 is one of the country’s most promising areas in terms of potential for large accumulations for petroleum, according to SCR, which said that a rigorous study of the 3D seismic data was conducted and highlighted a number of leads, several of which have been elevated to “prospect status.”

“The objective is to continue and further the exploration of the block with a commitment to drill one well during the subphase,” SCR said, adding that the second subphase is valid until Feb. 10, 2010.

The consortium partners signed their agreement for SC 60 in 2005. Under terms of their 7-year agreement, the consortium committed a minimum of $24 million (1.27 billion pesos) for the project.

According to the agreement, the consortium is to conduct seismic and exploration work to find petroleum and optional exploration drilling within the first 7 years. SC 60 also includes a 25-year production term in the event of a commercial discovery of petroleum.

The SC 60 partnership is comprised of Shell 55%, Kufpec 30%, and SCR 15%.

Drilling & Production — Quick Takes

San Leon to test oil shale technology in Morocco

San Leon Energy PLC has been given 3 years to test its In Situ Vapor Extraction (IVE) oil shale technology on the Tarfaya oil shale exploration project in Morocco with first tests scheduled for mid-to-late-2010.

The company signed a memorandum of understanding with Morocco’s National Office of Hydrocarbons and Mining (ONHYM) for the project and site testing will begin later this year. The location will be 200 m above the high oil-yielding zone within the Tarfaya oil shale.

San Leon signed an exclusive agreement with Mountain West Energy LLC to use IVE to extract oil from the acreage that encompasses 6,000 sq km. This method is easier on the environment than open pit mining.

ONHYM approved the feasibility study and work program. San Leon produced 62 l./tonne of oil under lab conditions. “This is similar to the yield reported by Shell when they were testing in the Tarfaya area from 1981 until 1986,” the company said.

Shell drilled 55 shallow boreholes, all of which were petrophysically logged, in 1982, encountering the Cretaceous and organic rich Tarfaya oil shale within the San Leon area. Shell established an open pit mine and heated the oil shale in a retort to produce oil. They left the area in 1986 after oil prices plunged to $10/bbl.

San Leon Energy estimates it could produce 500,000 b/d from oil shale reserves in the area. Petrobras is looking at similar developments in the Timhadit oil shale MOU, which is in northern Morocco.

Oil shale reserves in Morocco include an estimated 53 billion bbl in place.

K2 unit expansion tie-back contracts let

Anadarko Petroleum Corp. awarded Technip a contract for tying back to the Marco Polo tension-leg platform two new subsea completed wells in its operated K2 unit in the Gulf of Mexico.

The contract covers project management and engineering; fabrication and installation of two rigid flowlines; design, fabrication, and installation of four pipeline end terminations; installation of two static umbilicals; tie-ins; precommissioning; and a survey.

Technip’s operating center in Houston will execute this contract. The company will weld the flowlines at its spoolbase in Mobile, Ala. and has scheduled offshore installation for third-quarter 2009, using its Deep Blue deepwater pipelay vessel.

The Marco Polo TLP hub, installed in Novembr 2003, is on Green Canyon Block 608 in 4,300 ft of water. Enterprise Products Partners LP and Helix Energy Solutions Group Inc. each own 50% of the TLP while Anadarko is the operator and holds 100% interest in the Marco Polo field that started producing in 2004.

The K2 unit is on GC Block 562 and portions of GC Blocks 518, 561, 563, 605, 606, and 607. Production started in 2005 from subsea completed wells in about 4,000 ft of water.

Current interest owners in the K2 unit are operator Anadarko 41.8%, ConocoPhillips 12.4%, Nippon Oil Exploration USA Ltd. 11.6%, Eni Petroleum US LLC 13.4%, MCX Gulf of Mexico LLC 11.6%, and Ecopetrol America Inc. 9.2%.

Angostura gas project flowline contract let

BHP Billiton Ltd. has let a contract to Technip for the fabrication and installation of a flowline and installation of an umbilical in its operated Phase 2 Angostura gas project off Trinidad and Tobago.

The project lies in about 100 ft of water.

Technip’s operating center in Houston will execute the flowline and umbilical contract. Technip will weld the flowline at the group’s spoolbase in Evanton, Scotland, and has scheduled offshore installation for 2010 with its Apache pipelay vessel.

In September 2008, BHP Billiton announced that the Phase 2 development of the Greater Angostura field would involve a $400 million investment for the construction and installation of a gas export platform alongside existing facilities within the Greater Angostura field, as well as modifications to existing Angostura facilities and installation of new flowlines.

The company expects the facility, with a 280 MMscfd design capacity, to come on stream during the first half of 2011.

National Gas Co. of Trinidad & Tobago Ltd. (NGC) will take delivery of the gas at the new gas export platform and will transport the gas in its proposed 36-in. Northeastern Offshore pipeline and the 12-in. Tobago pipeline.

First gas production from Angotura started in December 2004 followed by oil production in January 2005. The Greater Angostura field includes oil and gas discoveries at Aripo, Kairi, and Canteen.

Operator BHP Billiton holds a 45% interest in Angostura. Partners are Total SA 30% and Talisman Energy Inc. 25%.

In 2009, Talisman entered into an agreement to sell its assets in Trinidad and Tobago for about $380 million before closing adjustments. It expected to complete the sale in the second quarter.

Processing — Quick Takes

EPA cites BP for alleged violations at refinery

The US Environmental Protection Agency has cited BP Products North America Inc. on June 2 for allegedly violating federal air pollution regulations at its Whiting, Ind., refinery over a 5-year period.

EPA’s Region 5 office in Chicago alleged that the refiner failed to manage and treat benzene waste from the plant during 2003-08 as required by the Clean Air Act’s national emission standards for hazardous air pollutants.

It said that the facility’s 2008 report showed that benzene waste was almost 16 times the allowed amount.

The refinery, which was initially established in 1889, is now the third-largest in the US and the biggest outside the Gulf Coast, with more than 400,000 b/d of throughput capacity, according to information on BP America Inc.’s web site.

EPA emphasized that these are preliminary findings of violations. It said, to resolve them it may issue a compliance order, assess an administrative penalty, or sue the company in federal court. BP has 30 days from receiving the notice to meet with the agency to discuss and resolve the allegations, the federal environmental regulator said.

Chevron sells fuel marketing business in Haiti

Medley Capital Ltd. has agreed to buy Chevron Corp.’s fuels marketing business in Haiti for an undisclosed sum. Medley is owned by GB Group, a Haiti-based industrial group with core holdings in energy, steel, and food products.

Under the terms of the agreement, which are subject to various closing conditions, Medley Capital would acquire 58 retail outlets, 120 commercial and industrial customers, and other lines of business.

Brazil committed to biofuels despite presalt finds

Brazil remains committed to developing biofuels despite last year’s discovery of giant oil reserves in the presalt area of the Santos basin, according to a government official.

Dilma Rousseff, presidential chief-of-staff, while speaking to sugar and ethanol producers at the Ethanol Summit, said Brazil will continue being the leader in ethanol production and technology development.

Rousseff denied that sugarcane crops would take land from food’s rural farmers. “Sugarcane occupies only 0.5% of Brazil’s arable land,” Rousseff said, adding that technology has allowed Brazilian rural farmers to harvest more sugarcane in the same area.

Rousseff also said the Brazilian government could use ethanol as a substitute for diesel oil to generate electricity in isolated communities in the Amazon region. “In order to prevent diesel oil from being burned in the Amazon we want to burn ethanol,” she said.

“We estimate that, via the Eletrobras system, we can adopt it in isolated generation systems in the Amazon, as it’s impossible to take transmission networks to isolated communities,” she said.

Holly completes link in refinery expansion

Holly Corp. has completed a third 65-mile pipeline to carry intermediate products between segments of the New Mexico refinery it is expanding and upgrading to handle heavy oil.

Holly Energy Partners LP, 41% owned by Holly Corp., has acquired the 16-in. pipeline, which connects distillation and vacuum units in Lovington, NM, with the main Navajo Refining Co. LP facility in Artesia. The purchase price was $34.2 million.

Holly Corp. is expanding crude capacity of the refinery to 100,000 b/d from 85,000 b/d in a project that also is adding upgrading capacity, including a 15,000-b/d hydrocracker (OGJ, Apr. 28, 2008, p. 30).

The upgraded and expanded refinery will be able to run as much as 40,000 b/d of heavy crude.

The project includes a new 70-mile pipeline connecting Lovington with one of two 16-in. Centurion Pipeline LP lines between Cushing, Okla., and Slaughter, Tex., reversed to carry heavy crude.

Another part of the project is a new 37-mile pipeline linking Holly Energy’s Artesia gathering system with Lovington.

Transportation — Quick Takes

SemGroup crude pipeline begins operations

SemGroup LP announced its 12-in. OD, 525-mile White Cliffs crude pipeline began commercial operations. The pipeline extends from Platteville, Colo., to SemGroup’s storage at Cushing, Okla., from which it could be shipped to major US refining centers.

White Cliff’s current capacity is about 30,000 b/d, expandable to more than 50,000 b/d. It includes a 100,000 bbl tank at Platteville to aggregate DJ basin-Wattenberg field production.

Production efforts at Wattenberg increased during 2008, with Anadarko Petroleum Corp. running 1,102 frac jobs in the gas and oil field, 60% more than in 2007 and a record for the field (OGJ Online, Feb. 6, 2009).

SemGroup owns 99.17% of White Cliffs Pipeline. Other partners are Anadarko Wattenberg Co. LLC 0.415% and Samedan Pipeline Corp. 0.415%

On May 15 SemGroup filed its plan of reorganization under Chapter 11 bankruptcy proceedings. The plan called for the distribution of about $2.27 billion in value to creditors, which would become owners of the reorganized company. SemGroup filed for Chapter 11 bankruptcy July 22, 2008, and expects to exit bankruptcy in the third quarter.

France discusses TransMed pipeline extension

France expressed interest in receiving gas from the Galsi pipeline, which will import 8 billion cu m/year of Algerian gas to Italy.

Chakib Khelil, Algeria’s energy minister, said France wants to add a branch to the proposed 850-km line, which will link Algeria to Sardinia to Tuscany. He told reporters construction of the pipeline would begin next year. “All of the studies concerning the pipeline have been completed, and the two partners in the project, Algeria and Italy, have decided to begin investment in 2010,” he said.

Khelil met with Italian Economic Development Minister Claudio Scajola over the weekend. With Europe keen to lessen its dependence on Russian imports, Scajola described Transmed as a “strategic project for the energy security of Europe.”

Galsi is an 840-km pipeline and in 2,800 m of water will be one of the deepest offshore pipeline ever laid. It will deliver Algerian gas into Italy starting in 2013, a year later than originally scheduled due to technical difficulties (OGJ Online, Dec. 15, 2008). The final investment decision will be made June 30, 2010.

“We will try to accelerate things on the Galsi project,” Khelil said. Sonatrach is leading the project along with Snam Rete Gas SPA, Edison SPA, Enel SPA, and the Hera Group.

The ministers agreed to increase capacity of the TransMed pipeline by 7 billion cu m by the end of this year. Its current capacity is 27 billion cu m/year of gas. It delivers gas from Algeria via Tunisia to Sicily.

Once the Galsi and upgrades to the TransMed pipeline are completed, Algeria’s export capacity to Italy will rise to nearly 40 billion cu m/year. But some industry experts have expressed concerns whether Algeria can boost production to fill these pipelines as Algeria’s recent gas finds have been relatively small, and there was little interest from foreign energy majors to develop Algeria’s fields under the last licensing round.

Algerian officials attributed the lack of interest in its energy sector to the global economic slowdown.

Kogas, Kitimat LNG sign gas supply agreement

Kitimat LNG Inc. has signed a memorandum of understanding to supply Korea Gas Corp. (Kogas) with as much as 40% of Kitimat LNG’s production along with an option to acquire an equity stake in Kitimat LNG’s export terminal.

Kitimat LNG said Kogas plans to purchase 2 million tonnes/year of LNG from the proposed terminal over 20 years at a total purchase value of more than $20 billion.

Kitimat LNG also said it is progressing with discussions with other potential terminal users and investors for terminal capacity, offtake from the terminal, and equity in the 5-million tpy project, which lies in Kitimat, BC.

Kitimat LNG and Mitsubishi Corp. earlier this year signed a heads of agreement under which the Japanese firm also will acquire terminal capacity and an equity stake in Kitimat LNG’s proposed LNG export terminal.

Under terms of that agreement, Mitsubishi will buy 1.5 million tpy of terminal capacity and acquire a minority equity interest in Kitimat LNG’s project.

Since then, the government of British Columbia has announced plans to help facilitate the participation of a number of First Nations in the Kitimat to Summit Lake Pipeline Looping (KSL) project.

The $1.2 billion (Can.), 1 bcfd KSL system, which was approved by Canada’s federal agencies in March, would extend 290 miles from Summit Lake to the Kitimat LNG export project.

Under the agreement with the British Columbian government, First Nations will secure a direct interest in Pacific Trail Pipelines LP, developer of the KSL system.