OGJ Newsletter

April 4, 2011
International News for oil and gas professionals
GENERAL INTERESTQuick Takes

CNOOC, Total to buy stakes in Uganda from Tullow

Tullow Oil PLC plans to sell stakes in Ugandan exploration areas to Total SA and CNOOC Ltd. for $2.9 billion total, and pending approval from the Ugandan government, the transactions mark another step toward a long-awaited $10 billion development for oil production in Uganda.

Tullow expects to complete the transaction, also subject to regulatory approvals by China officials, within the first half of 2011. After closing, Tullow, CNOOC, and Total each will hold one-third interest in Exploration Areas 1, 2, and 3A in Uganda.

Uganda will determine which company operates each exploration area. Initially, Tullow will act as interim operator in all three exploration areas.

The sale to Total and CNOOC was in negotiations for more than a year pending resolution with a capital gains tax dispute among Uganda, Heritage Oil Corp., and Tullow. Last year, Heritage sold its interest in the proposed development area to Tullow, its former partner in the Lake Albert Rift basin.

The Mar. 30 announcement follows a memorandum of understanding between Total and Uganda. The Mar. 15 MOU separated Tullow from the Heritage tax dispute, allowing Tullow to proceed with selling part of its stake to CNOOC and Total.

The next step is for Tullow to make certain tax-related payments to Uganda. Under the MOU, Tullow and partners were granted new licenses over EA-1 and an onshore area of EA-3A. The MOU also confirmed the partnership's rights to develop Kingfisher field where Tullow said it has targeted oil production of 200,000 b/d by around 2015.

"In addition, a new 6-month license over the Kanywataba (previously Sunbird) prospect in EA-3A will be awarded to Tullow, CNOOC, and Total under similar license terms to the EA-3A license," Tullow said. "The remainder of the EA-3A license has been relinquished, and the partnership has the right to apply for a new license over this area."

Norway's PSA seeks explanation from Statoil

Norway's Petroleum Safety Authority has asked Statoil to respond to the agency's questions regarding a gas leak from the Gullfaks B platform on Dec. 4, 2010, and PSA said its investigation identified serious deficiencies related to Statoil's planning, approval, and execution.

Based on the Gullfaks B gas leak and earlier incidents on Statoil-operated installations, PSA asked Statoil to assess what measures it might consider necessary given the deficiencies that PSA identified. PSA gave Statoil until Apr. 29 to respond. Statoil made no immediate comment regarding the request.

The gas escape on Gullfaks B happened after maintenance work on a production well. PSA said workers reported that it proved impossible to operate emergency shutdown valves on the well. No people were injured, but the leak created a serious situation, PSA said.

As part of its internal investigation into the Gullfaks B platform gas leak, Statoil estimated 730 kg of gas leaked in 1 hr.

"A significantly higher leak rate than the one which actually occurred could very probably have caused the buildup of a large explosive gas cloud in the area and thereby represented an explosion risk with a substantial potential for becoming a major accident," PSA said Mar. 24.

PSA's investigation concluded deficiencies existed in how Statoil's management supervised the maintenance of choke valves on Gullfaks B.

PSA said the deficiencies identified have features in common with shortcomings found during earlier Statoil incidents. These incidents include a gas leak on Snorre A in November 2004, the hydrocarbon escape in a Statfjord A shaft in May 2008, loss of well control on Gullfaks C in May 2010, and numerous incidents related to mechanical handling in the drilling area.

BOEMRE grants sixth deepwater gulf drilling permit

The US Bureau of Ocean Energy Management, Regulation, and Enforcement approved a sixth deepwater drilling permit that complies with new safety standards implemented in the wake of the Deepwater Horizon explosion and resulting oil spill.

The approved permit is a revised permit to drill a new well for Statoil Gulf of Mexico LLC's Well No. 1 on Alaminos Canyon Block 810 in 7,134 ft of water, about 216 miles off Texas, south of Texas City.

With the issuance of this most recent permit, BOEMRE Director Michael R. Bromwich acknowledged, "Some say we are now proceeding too quickly; some say we are still proceeding too slowly. The truth is, we are proceeding as quickly as our resources allow to approve permit applications that satisfy our rigorous safety and environmental standards."

Statoil's Well No. 1 is a new well. The operator had a rig under contract and an approved permit when activities were suspended due to the temporary drilling suspensions imposed following the Deepwater Horizon incident.

Statoil has contracted with the Helix Well Containment Group to use its capping stack to stop the flow of oil should a well control event occur.

Exploration & DevelopmentQuick Takes

Anadarko maps Liberian basin exploration plan

Anadarko Petroleum Corp. has finalized plans for its previously announced 2011 drilling campaign in the Liberian basin off West Africa. The program consists of two wells off eastern Sierra Leone and one off western Liberia.

Anadarko will mobilize the Discoverer Spirit drillship from the Gulf of Mexico to West Africa after it finishes completion on the third Caesar/Tonga well. Subject to the finalization of a contract amendment with the rig owner, the Discoverer Spirit is expected to begin drilling in West Africa during third quarter.

The company will drill the first Mercury appraisal well 7 miles west of the Mercury discovery well off Sierra Leone in Block SL-07B-10. It will drill the Jupiter exploratory prospect on the same block later in the year. Anadarko operates Block SL-07B-10 with a 65% working interest.

Anadarko will drill the Montserrado exploratory well on Block 15 off Liberia. Anadarko operates the block with a 57.5% working interest. Farther east, on Block 10, Anadarko has completed acquisition of a 2,400 sq km 3D seismic survey that gives it 3D coverage of nearly all of its Liberian basin acreage. Processing is expected to take 6-9 months.

Anadarko said it has identified more than 30 Jubilee-like prospects on its acreage off West Africa. It plans to keep the Ensco 8500 rig in the Gulf of Mexico for an extended well test at Lucius and, once it receives drilling permits, will use that rig and contract a deepwater rig of opportunity to resume its development and exploration programs in the gulf.

Kosmos group has discovery at Teak-2 off Ghana

Kosmos Energy Corp., Dallas, said the Teak-2 exploratory well off Ghana cut 90 net ft of high-quality oil, condensate, and natural gas pay in stacked Campanian and Turonian reservoirs.

Teak-2 went to 11,185 ft in 2,900 ft of water on the West Cape Three Points block 5,900 ft southwest of and fault-separated from the Teak-1 well and 2 miles northeast of the Mahogany-2 well. After preserving Teak-2, the partnership plans to mobilize the rig to drill the Banda prospect on the same block.

Nexus loses chance at exploring Yngling prospect

Nexus Energy Ltd., Melbourne, has lost its chance to evaluate the large Yngling oil prospect in Western Australian permit WA-368-P just off Perth.

The Australian government has enforced its "use it or lose it" provision to strip Nexus of the block, reportedly due to the company's failure to drill an exploration well within the required timeframe.

The Yngling structure, which lies about 25 km north of Rottnest Island, is thought to contain as much as 90 million bbl of oil.

The government intervention comes despite Nexus lodging a renewal application after the initial 6-year exploration licence expired in September 2010. The company was continuing efforts to secure a suitable drilling rig.

The refusal to renew comes hard on the heels of a Western Australian parliamentary economics and industry committee inquiry into domestic gas prices that found that the current process behind the application for and renewal of retention leases lacked rigor. It allowed the stockpiling of gas reserves, including fields that are suitable for the development of domestic supplies.

The inquiry found that the retention lease regime was lax and enabled producers to warehouse or hoard reserves when they could be economically developed for the local market.

The inquiry recommended that all retention leases with no development plans in place within the next 5 years be subject to a reevaluation of commercial viability by the joint authority. It added that the supply of domestic gas is included as a priority in the process of renewing or issuing a retention lease.

Statoil, Kazmunaygas to explore Caspian block

Statoil and Kazmunaygas signed a heads of agreement to explore the Abay block in Caspian Sea off Kazakhstan.

The two firms will establish a company that will serve as operator and shoot seismic and drill an exploratory well. The block is in 8-10 m of water 65 km from shore and southwest of supergiant Kashagan oil and gas-condensate field.

The joint operating company will participate in social investment projects including the training of local personnel. Statoil will provide financial and technical assistance to Kazmunaygas' project to build, own, and operate a jack up for use in the Caspian.

Drilling & ProductionQuick Takes

Statoil launches fast-track projects off Norway

Gamma-Harepus and the Snorre B template are two new fast-track projects off Norway launched by Statoil.

Statoil expects to submit a plan for development and operation (PDO) of Gamma-Harepus gas-condensate fields, Production License 312, to Norwegian authorities in first quarter 2012 and to start producing the fields in fourth-quarter 2013 at the same time as the Snorre B template.

Statoil's plan calls for tying back Gamma-Harepus wells 8 km north to template B on the Mikkel gas-condensate field that produces via the Midgard field to the Asgard B semisubmersible production facility.

Harepus's 2009 discovery well 6407/6-7S was drilled in 247 m of water to a 3,162-m TD in the Early Jurassic. The well found hydrocarbons in the Middle Jurassic.

The Gamma discovery well 6407/6-6 was drilled in 2008 to a 2,508 m TD in the Middle Jurassic and encountered rich gas in the Middle Jurassic Fangst group.

The company estimates that Gamma-Harepus contain about 3 billion cu m of gas and 0.7 million cu m of condensate.

Operator Statoil holds a 59% interest in Production License 312. Partners are Eni Norge AS 17%, and ExxonMobil Exploration & Production Norway AS 24%.

The Snorre B template will tie back 5 km northeast to the Snorre B semisubmersible production facility. Statoil estimates that it will recover about 5 million cu m of oil from the development.

Operator Statoil has a 33.32% interest in Snorre B. Partners are Petoro AS 30 %, ExxonMobil E&P Norway 11.58%, Idemitsu Petroleum Norge AS 9.6%, RWE Dea Norge AS 8.28%, Total E&P Norge 6.18%, and Hess Norge 1.04%.

Statoil aims to have about five fast-track fields in operation by yearend 2012 to early 2013 and to maintain this level of start ups in coming years.

Its list of planned fast-track projects now includes Visund South (Pan-Pandora), Katla, Vigdis Northeast, Gygrid, Fossekall and Dompap, Vilje South, Visund North, Gamma-Harepus, and Snorre B template.

Sevan Group plans new company; orders rigs

Norway's Sevan Marine plans to organize a new company, Sevan Drilling ASA, to expand its ultradeepwater drilling rig business, and has ordered two semisubmersible drilling rigs, although the construction contract remains subject to the new company's formation.

Sevan Marine expects to launch an initial public offering for Sevan Drilling during April. In connection with the IPO, Sevan entered into letters of intent with COSCO Shipyard in China to build two semisubmersible rigs with options for another two semis.

The two newly ordered rigs are scheduled for delivery in late-2013 and in second-quarter 2014. The turnkey contracts outline a price of $525 million/rig and options to build two additional semis. Finalization of the construction contracts remains subject to the listing of Sevan Drilling as an independent company on the Oslo Stock Exchange, Sevan Marine said.

The two semis on order are based on the same design as the Sevan Driller and the Sevan Brazil. The Sevan Driller operates in the Santos basin off Brazil for Petroleo Brasileiro SA under a 6-year fixed term charter. The Sevan Brasil is expected to be delivered from COSCO Shipyard in 2012 for a 6-year fixed term charter with Petrobras.

The Sevan Driller, the world's first deepwater circular drilling rig, was designed to drill to 40,000 ft and in 12,500 ft of water. The rig has a 150,000 bbl of oil internal storage capacity and a variable deckload of more than 15,000 tonnes (OGJ, July 13, 2009, Newsletter).

PROCESSINGQuick Takes

Valero to buy Chevron's Pembroke refinery

Valero Energy Corp. has agreed to buy Chevron Corp.'s 220,000-b/d refinery at Pembroke, Wales, for $730 million plus a payment for working capital estimated at $1 billion.

In addition to the refinery, the deal includes ownership interests in four product pipelines and 11 fuel terminals, a 14,000-b/d aviation fuels business, and more than 1,000 Texaco-branded wholesale sites in the UK and Ireland.

Valero Chairman and CEO Bill Klesse said purchase of the complex refinery, which has run more than 60 types of crude in the past decade, envisions product supply to the US. "After exiting refining in the US East Coast last year, this acquisition provides an opportunity for our company to supply that market more competitively when it's economic to do so," he said.

Valero last year sold a refinery in Delaware City to Petroplus Holdings and a refinery in Paulsboro, NJ, to PBF Holding Co.

For Chevron, said Mike Wirth, executive vice-president, Chevron Downstream & Chemicals, the sale fits a strategy of focusing globally on areas of strength. "We're concentrating our downstream portfolio primarily in North America and the Asia-Pacific region, markets where we enjoy our greatest competitive strength and opportunities for growth," he said.

In Europe, Chevron will keep its upstream, lubricants, and Oronite additives businesses, as well as its aviation business in Sweden, Greece, and Benelux countries.

The Pembroke refinery yields 44% gasoline, 40% distillates, 11% fuel oil, and 5% other products, Valero said.

According to OGJ's Worldwide Refining Report, the refinery's processing capacities include visbreaking, 26,000 b/d; fluid catalytic cracking, 90,000 b/d; and continuous regenerative catalytic reforming, 39,000 b/d (OGJ, Dec. 6, 2010, p. 45). It has 95,000 b/d of vacuum distillation capacity.

Catalytic hydrotreating capacities at Pembroke are 48,300 b/d for cat reformer feed, 60,000 b/d for diesel desulfurization, and 49,500 b/d for FCC naphtha. The refinery also has capacities of 32,500 b/d of HF alkylation, 19,900 b/d of butane isomerization, and 12,000 b/d of pentane-hexane isomerization.

Shell to sell Stanlow refinery to Essar

Royal Dutch Shell PLC has signed an agreement to sell its 270,000-b/d Stanlow refinery in the UK to Essar (UK) Oil Ltd., a unit of India's Essar Energy PLC, for $1.3 billion.

Essar offered to buy the refinery, near Ellesmere Port, Cheshire, in February (OGJ Online, Feb. 18, 2011).

The deal covers oil products, chemical manufacturing, and access rights to distribution terminal assets as well as commercial fuels, bulk fuels, and local marine fuels businesses associated with the refinery.

Processing capacities at the refinery include 68,000 b/d of fluid catalytic cracking, 27,000 b/d of semiregenerative catalytic reforming, 30,000 b/d of continuous regenerative reforming, 11,000 b/d of HF alkylation, and 5,700 b/d of C4 isomerization.

Chevron Phillips mulls US ethane cracker

Chevron Phillips Chemical Co. is considering construction of an ethane cracker it describes as "world-scale" at one of its facilities on the US Gulf Coast.

"We are finalizing our evaluation of potential sites and advancing discussions with EPC contractors," said Chief Operating Officer Tim Taylor. The feasibility study includes production of ethylene derivatives.

On the Gulf Coast, Chevron Phillips Chemical produces ethylene at plants at Sweeny, Baytown, and Port Arthur, Tex. It has other chemical manufacturing facilities at Pasadena, La Porte, and Orange, Tex.; St. James, La.; and Pascagoula, Miss.

TRANSPORTATIONQuick Takes

EPP, Anadarko expand Eagle Ford agreement

Enterprise Products Partners LP has signed a 6-year agreement to provide Anadarko Petroleum Corp. with midstream services in the Eagle Ford shale play of South Texas. The latest agreement comes in addition to a similar arrangement the two companies executed in September 2010. Under the terms of the new contract, EPP will provide gas processing and NGL fractionation and transportation services to accommodate Anadarko's Eagle Ford production.

EPP plans to construct a new 46½-mile, 24-in. OD pipeline through LaSalle County, Tex., to further expand its rich natural gas gathering system. This infrastructure, along with portions of the partnership's previously announced pipeline expansions, will transport additional volumes under the new contract. Construction of a 17-mile, 20-in. OD gas gathering pipeline was part of the September agreement between the two companies (OGJ Online, Sept. 22, 2010).

EPP currently processes 1.5 bcfd at its existing South Texas facilities. With the completion of a cryogenic processing plant in Lavaca County, Tex., expected to begin service mid-2012, the company will add 600 MMcfd of incremental capacity.

Activity in the Eagle Ford shale continues to increase. About 150 rigs are working in the play and more than 500 wells have been drilled, with roughly 300 more in various stages of completion, according to EPP. Current production from the play is estimated at 750 MMcfd of gas and 80,000 b/d of oil and condensate.

EPP unit launches Rockies pipeline open season

EPP affiliate Mid-America Pipeline Co. LLC has launched a binding open season to seek shipper support for a proposed expansion of the Rocky Mountain portion of its natural gas liquids pipeline system.

Starting in the Rocky Mountain Overthrust and San Juan basin production areas, the 2,793-mile pipeline extends to EPP's Hobbs fractionator in Gaines County, Tex. At Hobbs the Mid-America system links to the Seminole Pipeline, allowing access to the Mont Belveiu, Tex., NGL fractionation complex.

The expansion project can add 45,000-85,000 b/d of incremental capacity to the system, depending on shipper interest, by looping certain pipe sections and upgrading existing pumping stations. Provided there is sufficient shipper commitment, additional capacity could be available as soon as third-quarter 2014. The Rocky Mountain portion of the Mid-America system currently has a 275,000 b/d capacity.

The open season will run though Apr. 29. Mid-America will notify participating shippers by May 6 whether the expansion project will proceed. EPP began operations at its fourth NGL fractionator at Mont Belvieu at 75,000 b/d in December 2010, increasing nameplate capacity of its facility to 305,000 b/d (OGJ Online, Dec. 20, 2010).

Other companies with fractionation capacity in Mont Belvieu include Targa Resources Partners LP (Cedar Bayou Fractionators LP) and Gulf Coast Fractionators in which Targa is partnered with ConocoPhillips and Devon Energy Corp.

Fisherman's Landing LNG signs expansion deal

Liquefied Natural Gas Ltd. has signed a pre-front-end engineering and design study agreement with Jemena to evaluate the expansion capacity of Jemena's Queensland Gas Pipeline, to transport gas from the Wallumbilla Gas Hub to the Callide Gas Hub at Gladstone and onward to its planned 3 million tonne/year Fisherman's Landing LNG project. LNG Ltd. also received a petroleum facility license for Fisherman's Landing from the Queensland Government Minister of Mines.

In February, LNG Ltd. received environmental approval from the Queensland government for a planned 20-km gas pipeline from the Callide gas hub to Fisherman's Landing (OGJ Online, Feb. 25, 2011). The existing Queensland Gas Pipeline (QGP), owned and operated by Jemena, currently operates from Wallumbilla to Gladstone, running through the Callide gas hub. The Callide gas hub is where four new pipelines from the Surat basin and two new pipelines from the Bowen basin are planned to enter Gladstone to supply the proposed Curtis Island LNG projects.

The QGP pipeline is currently operating at close to full capacity between Wallumbilla and Gladstone, according to LNG Ltd., but may be expandable to transport up to an additional 483 MMcfd of gas supply from Wallumbilla to Callide, connecting to the Fisherman's Landing LNG project's planned pipeline of the same capacity.

LNG Ltd. expects the pre-FEED study to be completed in June. If satisfactory it would then move to a full FEED design study in parallel with discussions with potential suppliers for delivery of gas to either Wallumbilla or Callide.

The petroleum facility license awarded by Queensland is meant to ensure the following of acceptable and safe practices throughout the design, construction, and operation of Fisherman's Landing, and was a condition to LNG Ltd.'s proposed 19.9% share placement to CNPC China Huanqiu Contracting and Engineering Corp (HQCEC).

CNPC HQCEC says it would become LNG Ltd.'s largest shareholder upon completion of the placement.

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