Worldwide oil and gas reserves climbed 3% in 2009 as capital spending declined, IHS Herold reported Oct. 4 in its 2010 Global Upstream Performance Review. The analyst found that the worldwide upstream investments of 224 oil and gas companies decreased 23% last year to $378 billion.
During 2009, both oil and gas reserves grew for the first time since 2005, and production increased 1%, driven by a 2.2% increase in natural gas output.
Oil reserves, up 3% to 164 billion bbl, reversed a 2-year decline driven mainly by positive reserve additions but also by extensions and discoveries in Canadian oil sands and South and Central America. Natural gas reserves climbed 3.7% despite a record 11.4 tcf in negative reserve additions as the development of unconventional plays in North America and LNG resources in Asia accelerated, IHS Herold said.
The report found that E&P companies slashed capital spending by 40% last year, while the integrated oil companies reduced their investments by 9%. Exploration outlays fell 12% to $62.7 billion, but unproved acquisition costs dropped 71%.
A 2% dip in proved acquisition outlays would have fallen 50% were it not for Suncor Inc.'s $20 billion merger with Petro-Canada. "With the recession and ongoing uncertainty in the market last year, companies put acreage acquisition on hold and seemed to focus on their in-house development opportunities," said the report's author and director of IHS Herold, Nicholas D. Cacchione.
"This decision, I think, reflected their desires to monetize known holdings that can be brought into production much more rapidly than something with a less certain payout several years down the road," Cacchione said.
The reduced capital spending and higher reserves totals resulted in a near 50% decrease in reserve replacement costs to $11.41/boe and lower finding and development costs to $12.23/boe, IHS Herold said.
Strong natural gas reserves additions led reserves replacement rates to the highest level in 5 years, according to the report.
IHS Herold expects a modest rebound in 2010 upstream spending. In North America E&P investment increased 30% in the first half of this year, which was more than expected and should result in a 20% increase in spending for the year, said Cacchione.
Cacchione added that outside North America, where spending declines were less severe during 2009, he expects upstream investment to climb 10% this year.
NGSA expects stable winter pricesPressure on natural gas prices is likely to be flat this winter compared to last despite higher overall demand because of higher production, the Natural Gas Supply Association said as it released its 2010-11 winter outlook.
"We expect to see industrial demand coming back strong, and we also expect to see coal-to-gas fuel switching through the winter, if prices remain strong," NGSA Pres. R. Skip Horvath said. Fuel switching has risen by 10% since it began in 2008 and has continued due to competitive gas prices, he indicated.
"Projections show domestic production among the highest levels in decades," Horvath added. "Drilling activity has increased as the economy has improved."
NGSA's 2010-11 winter outlook said that data developed by Energy Ventures Analysis project 2.4% higher overall demand than a year earlier, with the strongest growth in power generation (7%) and industrial consumption (5%). Residential and commercial demand are expected to decrease, it indicated.
US supplies are also expected to grow as production approaches its highest level in decades, driven by onshore and shale activity, NGSA added, quoting data developed by ICF International. "Producers have responded to the challenge and have been actively investing and working," said NGSA Chairman Steven P. Kirchhoff, who also is vice-president for the Americas of ExxonMobil Gas & Power Marketing.
NGSA's forecast indicated that the US economy will probably continue its strained recovery, with concerns about high unemployment lingering as manufacturing shows some strength. It also projected robust storage, although not quite reaching last year's record level, and nearly normal weather with a similar number of heating degree days as the 2009-10 winter period.
DOI officially establishes ONRR divisionThe US Department of the Interior formally established the Office of Natural Resources Revenue (ONRR), moving the responsibility from its Bureau of Offshore Energy Management, Regulation, and Enforcement (BOE) to its Office of the Assistant Secretary for Policy, Management, and Budget.
The Oct. 1 move was part of Interior Sec. Ken Salazar's reorganization of the former US Minerals Management Service. It was designed to separate revenue collection from leasing and enforcement and eliminate potential conflicts of interest at what now is BOE.
DOI said the ONRR division will replace MMS's former Minerals Revenue Management Program, collecting and disbursing energy-production revenue on federal and American Indian lands onshore and the US Outer Continental Shelf. It said the program disbursed more than $10.6 billion in 2009 to the US Treasury, various state and tribal accounts, and special use accounts such as the Land and Water Conservation Fund.
ONRR also will be responsible for auditing and compliance, investigation and enforcement, and management of federal and tribal assets onshore and offshore, according to DOI.
It said improvements already made include implementing a risk-based compliance strategy to strengthen auditing and compliance efforts, hiring new auditors to bolster these efforts, and installing software and computing system to automatically detect company errors so the errors can be corrected quickly.
ONRR also will have a data-mining effort to use as a second-level screening process, authority to pursue more fines and other remedies if companies knowingly underpay or submit inaccurate royalty or production reports, and the ability to distribute revenue to tribes and individual American Indian owners more promptly, DOI said.
Salazar said DOI is beginning a strategic review to identify opportunities to further improve performance in all ONRR operations. The agency has approximately 600 employees. Its headquarters are in Washington, but most of its operation is at the Denver Federal Center in Lakewood, Colo., with field offices in Texas, Oklahoma, and New Mexico.
The Iraqi government has raised its estimate of the country's oil reserves to 143 billion bbl from 115 billion bbl. Citing work by international oil companies developing 12 oil fields, Oil Minister Hussain al-Shahristani made the announcement at a news conference in Baghdad. He said the reserves estimate applies to 66 discovered oil fields.
Shahristani, in a nod to the importance of reserves estimates in the politics of production quotas among members of the Organization of Petroleum Exporting Countries, said the exporters' group eventually will need a new quota mechanism.
"We will not discuss the Iraqi quotas issue with OPEC now," he said. "This case has been delayed." Iraq, which produces about 2.5 million b/d, is exempt from the OPEC quota system.
Shahristani said Iraqi reserves are distributed 71% in the southern part of the country, 20% in the north, and 9% in the center. Before the increase, he added, the reserves figure, which hadn't been adjusted in many years, had drifted to 110 billion bbl through depletion. With the adjustment, Iraq replaces Iran as the third-ranking country in reported oil reserves.
At the beginning of this year, Iran had reserves of 137.62 billion bbl (OGJ, Dec. 21, 2009, p. 18). Saudi Arabia had 259.9 billion bbl, and Canada had 175.2 billion bbl, most of it unconventional heavy oil and oil sands.
Schwarzenegger vetoes oil spill 'pre-booming' billCalifornia Gov. Arnold Schwarzenegger vetoed an oil spill bill on Sept. 30 that would have led to regulations addressing "pre-booming" of vessels transferring oil fuel and cargo. The measure also would have increased the per barrel fee, paid by tankers, and the nontank vessel fee which is used to support the state's Office of Spill Prevention and Response.
His action came on the same day that US Interior Sec. Ken Salazar announced two major regulations aimed at improving offshore oil and gas operations and workplace safety. The rules were the Obama administration's latest response to the Apr. 20 Macondo well accident, which claimed 11 lives, and subsequent 5,000 bbl Gulf of Mexico crude oil spill which took months to contain and clean up.
"This bill is unnecessary," Schwarzenegger said in his veto message. OSPR is already evaluating the benefit of requiring "pre-booming" standards on fuel transfer operations where they can be safe and effective, he explained.
Another provision in the bill would have authorized OSPR's administrator to adjust the maximum per-barrel fee annually for inflation as measured by the federal Consumer Price Index. Schwarzenegger said that the magnitude of the fee increases "far exceeds what OSPR estimates it would cost to promulgate the 'pre-booming' regulations this bill would require."
California Assemblyman Jared Huffman (D-Marin.) introduced the bill, AB-234, on Feb. 5, 2009.
Drilling & Production — Quick TakesShell to add second platform on Mars fieldShell Oil Co. reaffirmed its commitment to the deepwater Gulf of Mexico, announcing it will add a second tension-leg platform to Mars field off Louisiana.
The Mars B deepwater development, 130 miles south of New Orleans, will include the 100,000-boe/d Mars B Olympus TLP, scheduled for operation in 2015.
"This significant investment decision demonstrates Shell's continued commitment to responsibly maximize deepwater oil and gas recovery," said Marvin Odum, Shell's Upstream Americas director and president.
Cost of the Mars Olympus TLP was not disclosed, but Odum said Shell plans to invest $10 billion/year on US and Canadian upstream projects through 2014. The deepwater gulf is part of Shell's growth plan for the next 4 years, Odum said, forecasting a positive outlook for gulf exploration and production.
Shell holds 71.5% interest and will operate it. BP PLC holds 28.5% interest. Mars field, discovered in 1989, has been producing since 1996. The Mars B Olympus TLP will process oil and gas from the West Boreas and South Deimos discoveries.
The Mars B development will draw production from eight Mississippi Canyon blocks: 762, 763, 764, 805, 806, 807, 850, and 851.
Iranian field start-up said to be imminentJofeir oil field in southwestern Iran is ready for commissioning, according to Shana, the official news agency.
Belpars Petroleum Co. Ltd., a joint venture of National Iranian Oil Co. and state-owned Belorusneft of Belarus, is developing the field under an Iranian buy-back contract.
Shana quoted an Iranian official who said the field has been producing 3,500 b/d of oil from four wells under an early-production program. After installation of pumps, he said, capacity will increase to 6,000 b/d. The field is 50 km west of Ahwaz and 30 km from giant Azadegan oil field under development in a venture between NIOC and Inpex Corp. of Japan, which is reported to be considering withdrawal from the project because of the threat of sections (OGJ Online, Sept. 30, 2010).
Belorusneft estimates Jofeir reserves at 2 billion bbl of hydrocarbons. An NIOC subsidiary says Jofeir oil is 23º gravity and occurs mostly in the Upper Cretaceous Ilam reservoir.
China coalbed methane drilling program quickensWork has started on a proposed 60-well coalbed methane development drilling program and gas gathering system on the Shouyang block in China, said Far East Energy Corp., Houston.
The gathering system is to be placed in service around yearend to eliminate flaring and begin gas sales, the company said.
Three wells have been spudded in the past week, and all 60 are to be completed by mid-2011. Of the 60 wells, 51 are to be drilled in the 1H pilot area. Nine parameter wells will test the No. 3, 9, and 15 coal seams across the 242,000-acre northern half of the block. The No. 15 seam is the main target.
Far East will also fracture stimulate 10 wells, including 6 already-drilled wells in the 1H pilot area and 4 parameter wells as far as 16 km west of that area. The yearend production target is 2 MMcfd, double late-August output.
The company also plans to fracture stimulate five wells on the Laochang block in Yunnan to test two coal seams.
Atwood Oceanics to build two jack upsAtwood Oceanics Inc. said a subsidiary plans to build two high-specification jack up drilling rigs at an estimated total cost of $190 million each. The two rigs, capable of drilling in 400 ft of water, are slated for delivery in late-2012.
Atwood Oceanics Pacific Ltd. signed turnkey construction agreements with PPL Shipyard Pte. Ltd. to construct the drilling rigs, which will each accommodate 150 people.
Upon delivery of both new jack ups, Atwood Oceanics will have 13 mobile offshore drilling units in its fleet.
PROCESSING — Quick TakesHellenic refinery upgrades nearly completeHellenic Petroleum SA expects to complete work next year on upgrades of two of its refineries in Greece.
The company, based in Marousi northwest of Athens, will finish scheduled mechanical work by yearend at its 66,500-b/sd hydroskimming refinery at Thessaloniki, where it is debottlenecking distillation capacity and adding a 15,000-b/d continuous catalytic reformer (OGJ, Aug. 11, 2008, Newsletter). It will shut down the refinery for maintenance and tie-ins in the first quarter of 2011. The Thessaloniki refinery is integrated with Hellenic's 146,500-b/sd facility at Aspropyrgos, which has fluid catalytic cracking capacity, and a 100,000-b/sd topping refinery at Elefsina, both in Greece. It also sends crude oil to the company's 50,000-b/sd hydroskimming Okta refinery at Skopje, Macedonia, with which it is linked by pipeline.
Hellenic's other upgrade is of the Elefsina refinery, to which it is adding a 40,000-b/d hydrocracker and a 20,000-b/d flexicoker (OGJ, Mar. 27, 2006, Newsletter). Construction is under way, with completion due in second-half 2001. When the project is complete, the Elefsina refinery's capacity for handling medium to high-sulfur crude oil will increase to 100% from 60%. Its yield of light products will increase to 100% from 52%.
Marathon sells Minnesota refineryPrivate Washington, DC-based equity firm Acon Investments LLC along with TPG Capital LP have signed a definitive agreement to acquire from Marathon Petroleum Co. LP its 74,000-b/d St. Paul Park, Minn., refinery, associated terminals, and other downstream assets in Minnesota for $900 million.
Acon and TPG formed Northern Tier Energy LLC to operate the assets as a stand-alone company.
Marathon, Acon, and TPG first announced that a letter of intent had been signed in May (OGJ Online, May 19, 2010). Marathon anticipates closing to occur by yearend.
In addition to the refinery and terminals, the acquired assets include 166 SuperAmerica retail outlets (including six Wisconsin outlets), SuperMom's LLC, SuperAmerica Franchising LLC, interests in pipeline assets in Minnesota, and associated inventories.
"This proposed sale is part of Marathon's ongoing efforts to ensure the Company's asset portfolio is strategically aligned with its business plans, while maintaining its position as one of the leading refining, marketing, and transportation operations in the nation," Marathon said.
The St. Paul Park refinery has 27,100 b/d of fluid catalytic cracking capacity and 18,500 b/d of semiregenerative catalytic reforming capacity.
Antero to sell Oklahoma midstream assetsAntero Resources, Denver, has entered definitive agreements to sell its midstream assets in the Woodford shale area of the Arkoma basin in Oklahoma to affiliates of Cardinal Midstream LLC for $268 million cash.
Cardinal, based in Dallas, will buy Antero's 60% membership interest in Centrahoma Processing LLC, a joint venture with MarkWest Energy Partners LP, Denver. The venture operates two cryogenic gas processing plants with total capacity of 100 MMcfd.
Cardinal also will buy 50 miles of gathering pipeline in Antero's Northern Front and East Rockpile areas of the Woodford shale play and a 42-MMcfd amine treating plant for carbon-dioxide removal in the East Rockpile area.
Gathering, processing planned for Bakken shaleOneok Partners LP, Tulsa, will build a new natural gas processing plant and expand gathering and compression over the next 2 years in North Dakota, the company announced this week. It will spend $300-350 million in the Bakken shale in the Williston basin between now and yearend 2012.
Oneok will spend $180-205 million on the new, 100-MMcfd Stateline I gas plant in western Williams County, ND, and related NGL infrastructure. And it will spend $70-90 million to expand and upgrade gathering and compression along with about $50-60 million in 2011 and 2012 for new well connections adjacent Stateline I. Oneok expects Stateline I to begin operating during third-quarter 2012.
The Stateline I gas plant will join the 100-MMcfd Garden Creek plant, set to open next year, and the newly opened 100-MMcfd Grasslands plant, both in McKenzie County (OGJ, June 7, 2010, p. 52).
Another gas processing plant, Stateline II, is under consideration and would add another 100 MMcfd of capacity, if additional gas becomes available for processing.
Stateline I and related infrastructure follow Oneok's previously announced gas gathering and processing and NGL growth projects totaling more than $1.1 billion in the Bakken shale, the company said. In July, the company announced about $700 million for NGL projects in the region, including construction of a 525-615-mile NGL pipeline able to move 60,000 b/d of unfractionated NGLs from the Bakken to the company's 50% interest in the Overland Pass pipeline; related expansions for the Overland Pass Pipeline; and expansion of fractionation capacity at Bushton, Kan.
Twin gas plants planned for Iraqi fieldsBGR Energy Systems Ltd., Andhra Pradesh, India, has awarded Mott MacDonald Group Ltd., Croydon, UK, a contract for detailed engineering and procurement of two 110-MMcfd gas plants for Akas and Al-Mansuria gas fields in Iraq. The announcement did not cite a value for the contract nor did Mott MacDonald disclose it.
Iraq's State Co. for Oil Projects is developing the fields in response to growing gas demand within Iraq. SCOP is an autonomous unit within Iraq National Oil Co. that is responsible for design and engineering of upstream and downstream projects.
Gas produced from the two fields will be sold to "major industrial and commercial users" in Iraq, according to the announcement from Mott MacDonald.
Each gas processing plant will include gathering, gas and condensate separation, gas sweetening and regeneration, and gas dehydration and glycol regeneration. Mott MacDonald declined to disclose how much condensate the plants may produce, how it will be disposed of, or the projected start-up date for either plant.
Mott MacDonald expects to complete engineering for both fields by mid-2011.
TRANSPORTATION — Quick TakesGolden Pass LNG to receive commissioning cargoExxonMobil Corp.'s Golden Pass LNG terminal, on the Sabine Pass waterway in Jefferson County near Port Arthur, Tex., will receive its first commissioning cargo during October, the company announced. The cargo will arrive from Ras Laffan in Qatar aboard the 210,000-cu m Al Khuwair Q-Flex LNG tanker.
The terminal includes two berths for unloading double-hulled LNG carriers; five 155,000-cu m LNG storage tanks; vaporization in two trains; and pipelines and equipment to move natural gas from terminal to customers.
At full operation, Golden Pass will be able to import 15.6 million tonnes/year, according to the project's web site, and be able to deliver the equivalent of 2 bcfd of natural gas. The terminal is a joint venture of Qatar Petroleum International 70%, ExxonMobil 17.6%, and ConocoPhillips 12.4%.
The terminal was on schedule to open last year when it was severely damaged by Hurricane Ike in September 2008 (OGJ, July 6, 2009, p. 32). It is the fourth LNG terminal to open on the US Gulf Coast since Cheniere Energy's Sabine Pass terminal in Cameron Parish, La., and Freeport LNG's terminal south of Freeport, Tex., opened in mid-2008. Sempra Energy began operating its 1.5-bcfd Cameron LNG terminal in Hackberry, La., in mid-2009 (OGJ Online, Oct. 22, 2009).
Farther east of the cluster of terminals in southwest Louisiana and southeast Texas, El Paso Corp., Houston, is building the 1.3 bcfd Gulf LNG terminal at Pascagoula, Miss. The terminal's capacity is fully contracted under 20-year contracts and targets start-up sometime in 2011 (OGJ, July 6, 2009, p. 32).
This will likely be the last LNG terminal built in the Lower 48 for some time, given the low prices offered here compared with LNG markets in Europe and Asia and the growth of US gas reserves thanks to shale gas development.
CorrectionIn the article "DOE-backed test shows 'huff-and-puff' EOR method can work for CCS," the test's depth was incorrectly reported as 3,500 ft (OGJ, July 19, 2010, p. 30). The test's depth was 8,050 ft.
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