OGJ Newsletter

April 11, 2011
International News for oil and gas professionals
GENERAL INTERESTQuick Takes

Vedanta takeover of Cairn India takes step

Vedanta Resources PLC, London, has received approval by India's securities regulator to start an open offer for up to 20% of Cairn India, for which it has a conditional agreement to buy a majority stake for up to $9.6 billion (OGJ, Aug. 23, 2010, p. 26).

The Securities and Exchange Bureau of India approved an open offer to Cairn India's minority shareholders, which must be completed before the takeover can progress.

A Vedanta Indian subsidiary, Sesa Goa Ltd., will make the open offer.

The agreed acquisition of as much as 51% of Cairn India shares by Vedanta, a mining conglomerate, from Cairn Energy, Edinburgh, awaits approval by the Indian government.

Approval has been complicated by a dispute over royalties paid by state-owned Oil & Natural Gas Corp. on production in a project in Rajasthan operated by Cairn India. ONGC owns a 30% interest in the project.

Cairn Energy and Vedanta have extended a deadline for completion of all conditions in the transaction to May 20.

At completion of the sale to Vedanta, Cairn Energy will hold an interest in the fully diluted share capital of Cairn India of 10.6-21.6%.

Salazar to host ministerial deepwater forum

US Sec. of the Interior Ken Salazar announced that he is convening ministers and senior government officials from countries exploring and producing offshore oil and gas on Apr. 14 at DOI headquarters to discuss development of better technologies to contain potential deepwater well blowouts.

"Just as we share oceans with our neighbors, we have an interest in sharing best practices for how all of us can develop our resources safely and responsibly," said Salazar, who announced the ministerial forum in Rio de Janeiro while meeting with Brazilian officials to discuss cooperative offshore energy safety development efforts. "Those of us engaged in offshore energy exploration and production have a collective responsibility to strengthen our capabilities for containing potential deepwater blowouts and promoting international collaboration, research and development going forward."

Ministers and senior officials from 13 countries and the European Union, along with representatives from industry, academia, and nongovernmental organizations, have been invited to attend the forum, according to DOI. Confirmed participants include ministers and senior officials from Brazil, Mexico, Australia, Great Britain, Norway, Russia, Canada, India, Israel, Netherlands, Angola, and the European Union. Two panels of experts from industry and academia will make presentations on the lessons learned from recent blowouts and offer suggestions for promoting cutting-edge containment capabilities in the future.

Salazar has met with Brazilian officials, including Foreign Minister Antonio Patriota and Minister of Mines and Energy Edison Lobao, to discuss safe development of offshore oil and gas resources during his visit. He joined US Ambassador to Brazil Thomas Shannon in Rio de Janeiro on Apr. 14 for meetings with Haroldo Lima, director general of the Brazilian National Petroleum Agency, and leaders in the oil and gas industry to have a dialogue on best practices and safe development of offshore oil and gas resources. He also planned to meet with representatives of Brazilian environmental organizations.

He and Deputy Interior Secretary David J. Hayes were scheduled to travel to Mexico City later in the day to continue discussions about safe and responsible development of oil and gas resources in the Gulf of Mexico with Mexican government officials and oil and gas industry leaders. They were to be joined by former US Sen. Bob Graham and former US Environmental Protection Administrator William K. Reilly, who co-chaired US President Barack Obama's National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, DOI said.

CIPA argues against hikes in US oil, gas taxes

Representatives from the California Independent Petroleum Association (CIPA) met with congressional members and federal officials in Washington, DC, recently to warn against what CIPA calls "the dire effects of higher taxes on domestic production."

Proposed tax hikes on US oil and natural gas production could reduce new drilling investments by oil companies, CIPA said in its Apr. 4 weekly Monday Morning Report newsletter.

"Consequently, this would increase our dependence on imported foreign oil at a time when the president is calling for more domestic production," CIPA said of US President Barack Obama's administration. "Several of the proposals affect small independent producers exclusively."

Specifically, CIPA argued against eliminating expensing of intangible drilling costs, eliminating the percentage depletion income tax deduction, and extending the geological and geophysical amortization period.

CIPA also is against a proposal to eliminate the manufacturing tax deduction, noting that the oil and gas industry is restricted to a 6% deduction while other industries get a 9% deduction.

In addition to tax issues, CIPA continues to advocate for exploration off California's coast using 27 platforms already operating in state and federal waters. In addition, CIPA encouraged the federal government to continue funding the Department of Energy–Office of Fossil Energy.

BLM plans forums to discuss hydraulic fracturing

The US Bureau of Land Management will hold three regional forums in late April to further discuss the use of hydraulic fracturing to produce natural gas from tight shale formations on federal onshore lands, BLM Director Robert V. Abbey announced on Apr. 1.

He said the sessions, which will build on a November 2010 forum at the US Department of the Interior in Washington, DC, will be held in Bismarck, ND; Little Rock, Ark.; and Denver. Dates and specific locations will be announced later.

Abbey said scheduled discussion topics will include best management practices, disclosure of the chemicals used in fracing fluids, well construction and integrity, production wastewater management, and other techniques for protecting drinking water resources. Panelists will include experts from federal and state governments, industry, and environmental organizations which have been engaged in gas development issues, he said.

Exploration & DevelopmentQuick Takes

Basement oil tested in Luno area off Norway

Lundin Petroleum AB's Lundin Norway AS unit completed an oil discovery at Well 16/1-15 on the Tellus prospect on Production License 338 in the Greater Luno area of the North Sea off Norway.

Tellus is most likely a northern extension of Luno field, the companies said. They plan to sidetrack the well to ensure it will be included in the Luno development program (see map, OGJ, Apr. 4, 2011, p. 48).

At Tellus, Lundin encountered oil in a 50-m column including a 3-m thick Lower Cretaceous sandstone with excellent reservoir quality overlying porous, fractured basement. The oil is of the same type as at Luno.

Perforations in a fractured basement interval flowed 650 b/d of oil on a 40⁄64-in. choke. This is the first successful full-scale basement test on the Norwegian continental shelf.

The second test was perforated in the overlying sandstone interval and produced 3,900 b/d of oil on the same size choke. This test showed good flow properties and good pressure support, Lundin said. An estimate of the discovered resources will be provided once the sidetrack has been completed.

Lundin Petroleum is operator of PL338 with 50% interest. Wintershall Norge ASA has 30% and RWE Dea Norge AS has 20%.

Ophir-BG has Rovuma gas find off Tanzania

Ophir Energy PLC and BG Group made a third gas discovery in a deepwater exploratory drilling program program off Tanzania.

Ophir Energy hasn't disclosed the size of the three discoveries. However, the company said, "There are now early indications that there could be sufficient volumes of gas present within the acreage held by Ophir to support the construction of one or more liquefied natural gas processing facilities, which will allow for the export of gas to world markets."

The Chaza-1 well, in Block 1 in the northern part of the Rovuma basin, went to a total depth of 4,895 m subsea in 952 m of water 18 km off Mnazi Bay. Ophir Energy said only that the well encountered a high quality gas bearing reservoir associated with a distinctive seismic anomaly.

The Rovuma basin is the location of four deepwater gas discoveries by an Anadarko Petroleum Corp. group off Mozambique. An estimated 40 miles separates Chaza-1 from Windjammer, the Anadarko group's northernmost discovery to date in Offshore Area 1 (see map, OGJ, May 17, 2010, p. 35).

Chaza, the first discovery in Block 1, is 200 km south of Ophir Energy-BG Group's Chewa-1 and Pweza-1 gas discoveries on Block 4 in the Mafia basin.

Ophir Energy is operator of Blocks 1, 3, and 4 with 40% interest, and BG Group has 60%. BG Group has the option to assume operatorship of all three blocks on completion of the initial work program.

Chaza-1 is the third of a three-well sequence that forms part of an initial work program across the three blocks, which cover more than a combined 27,000 sq km in 100 m to more than 3,000 m of water.

The Deepsea Stavanger semisubmersible will move back to Block 4 to sidetrack and appraise Chewa-1 off Dar es Salaam and deepen it to test older objectives.

The two companies plan to start a second drilling campaign in late 2011. So far this year they have shot 3,200 sq km of 3D seismic in Blocks 3 and 4 and are completing 1,800 sq km in Block 1.

Drilling & ProductionQuick Takes

Parnell asks Salazar to accelerate Alaska drilling

Alaska Gov. Sean Parnell asked US Sec. of the Interior Ken Salazar and the federal government to work with the state of Alaska to accelerate development of Alaska's Outer Continental Shelf resources.

Currently, the Bureau of Ocean Energy Management, Regulation, and Enforcement is considering a preferred alternative in the National Environmental Policy Act process for OCS leasing.

Parnell asked Salazar to ensure that federal drilling regulators work directly with Alaska Natural Resources Commissioner Dan Sullivan to ensure Alaska's input is considered as the process guiding OCS leasing moves forward.

"Instead of financing new foreign sources of oil in the OCS off Brazil, we need to develop and increase our domestic supply of oil and gas," Parnell said in a Mar. 31 letter.

He cited a 2008 US Geological Survey report and a University of Alaska study detailing the massive reserves held in Alaska, and he outlined safety and spill prevention regulatory requirements in Alaska.

LNG trucks to provide water in Haynesville play

Encana Natural Gas Inc. will provide LNG from its new mobile LNG fueling stations to Heckmann Water Resources, a California company that provides water hauling services to Encana and other producers in Louisiana's Haynesville shale gas play.

Heckmann recently ordered 200 new LNG trucks from Peterbilt Motors Corp., Denton, Tex. The vehicles are powered by Westport HD Systems from Westport Innovations Inc., Vancouver, BC.

Heckmann plans to convert the company's water-hauling truck fleet to LNG from diesel and this will make Heckmann the operator of the largest fleet of LNG trucks in North America, according to Encana.

Encana notes that LNG costs 20-40% lower than gasoline or diesel in many regions and that carbon dioxide emissions from natural gas vehicles are up to 30% lower.

Encana will initially dispense LNG to Heckmann's truck fleet from mobile fueling stations, which consist of an insulated LNG tank and dispensing equipment built on a trailer that can be parked at key operating locations in the Haynesville play.

Encana also plans to build its first permanent and public LNG fueling station in the Shreveport, La., area later this year.

Last November, Encana opened its first CNG fueling station at Coushatta in Red River Parish, La. Also, this year, Encana plans to open its next four CNG stations, one in each of the states of Wyoming and Colorado and two in Western Canada.

Heckmann Corp. was created to buy and build companies in the water sector. In 2011, the company acquired additional disposal assets including expansion into the Eagle Ford shale area in South Texas. In early 2010, the company completed a 50-mile water-disposal pipeline in the Haynesville shale, and began expanding the line in 2011 to handle additional produced water and freshwater transportation.

In February 2010, the company announced a joint venture with Energy Transfer Partners to provide turnkey pipeline transportation for complex water flows in the Marcellus and

Haynesville oil and natural gas fields.

The company said its acquisition of an oil field produced water disposal and transport company in November 2010, recently renamed Heckmann Water Resources, makes it one of the largest handlers of produced water in North America.

Sangatta West produces coalbed gas in Indonesia

Dart Energy Ltd. said the coalbed methane pilot well in the Sangatta West project in East Kalimantan started to flow gas on Mar. 25 after the installation of a dewatering pump.

Dart said this is the first gas in Indonesia from a dedicated CBM pilot well.

The well, SCBM No. 1, is the first of four pilot wells planned for Sangatta West. It was drilled in February to an 830-m depth and the plans are to test the well for 2-3 months to determine the production and reserves potential.

Sangatta West CBM Inc. is the joint-venture company that operates the Sangatta West CBM production-sharing contract in East Kalimantan. The joint operators are Ephindo Energy, with a 24% indirect interest in the PSC, and Dart 24%. PT Pertamina-Hulu Energy Metana Kalimantan-A is a nonoperating partner with 52% interest.

The venture intends to sell the gas from SCBM No. 1 along with gas from the other pilots to a pilot-to-power scheme. Dart's operating partner Ephindo has signed a memorandum with GE and local gas-fired genset supply company, Navigat, for supplying gas-fired electricity to the local grid.

Also in Indonesia, Dart has signed a joint operating agreement for the Tanjung Enim PSC in Sumatra and has spudded the first exploration well. This year Dart plans to drill three core wells and three pilot wells in the block. The company also has submitted a preplan of development for government approval to facilitate early-stage pilot-to-power sales similar to those in Sangatta West.

Dart holds a 45% interest in the Tanjung Enim PSC. Its partners are a local coal mine owner and operator PT Bukit Asam 27.5%, and Pertamina 27.5%.

PROCESSINGQuick Takes

Mont Belvieu fractionation in surplus until 2014-15

Consultants Petral Worldwide Inc. forecast a surplus in Mont Belvieu, Tex.-area fractionation capacity until 2014-15, depending on construction schedules for new pipelines into the region.

Speaking Apr. 5 at the annual meeting of the Gas Processors Association in San Antonio, managing partner Daniel Lippe noted that capacity in Mont Belvieu was a constraint through late 2010 when Enterprise Products Partners brought its fourth Mont Belvieu NGL fractionator online with a 75,000 b/d nameplate capacity, increasing its nameplate capacity at the site to 305,000 b/d (OGJ Online, Dec. 1, 2010).

Lippe expects new projects to add 195,000 b/d of capacity during 2011-12 (Enterprise, 75,000 b/d; Targa Resources, 75,000 b/d; and Gulf Coast Fractionators, 45,000 b/d) but doesn't expect new raw mix pipeline projects to enter service before mid-to-late 2013. By 2015 West Texas will likely have one new connection to Mont Belvieu, South Texas will have one pipeline linking to local fractionation and one pipeline connecting to Mont Belvieu, and the Bakken shale will add a propane-plus lateral connection into Oneok Partners' Overland Pass Pipeline system, according Petral's forecast.

Petral described existing pipeline capacity as a current constraint on NGL-rich gas production in both the Eagle Ford shale and a reinvigorated Permian basin. The company noted that a variety of preliminary proposals had been made for moving West Texas gas to the Gulf Coast, but believes only one project will eventually move forward. DCP Midstream has proposed the 130,000 b/d DCP Sandhills Pipeline to transport NGLs along this route. (OGJ Online, Nov. 19, 2010).

Oneok announced plans to build a 525-615-mile, 60,000 b/d lateral connection from North Dakota to Overland Pass in July 2010 (OGJ Online, July 27, 2010).

Saudi Aramco upgrades Yanbu refinery

Saudi Aramco has completed a total shutdown of its wholly owned hydroskimming refinery at Yanbu on the Red Sea in an upgrade that increased throughput capacity to 250,000 b/d.

One of 30 projects conducted during the shutdown was the upgrade to high-capacity stainless steel in crude-tower trays as part of a total revamp that will improve diesel quality and accommodate the throughput increase. The refinery had been operating at about 225,000 b/d.

A 500-ton crane lifts a center pipe at the continuous catalyst regeneration reactor at Yanbu refinery.

In another project, the continuous catalyst regeneration/platformer reactor's center pipes and scallops were upgraded to a more-robust design to improve integrity and reliability.

The shutdown was completed in the scheduled 38 days.

Axens, Shaw to license new FCC technology

Developers of a new catalytic cracking technology that will boost refinery production of propylene and other light products have selected Axens and Shaw Group to license and market the process.

Called high-severity fluidized catalytic cracking, the technology evolved over 15 years, according to news releases by Axens and Shaw. The HS-FCC design uses the firms' regeneration and catalyst transfer technology.

JX Nippon Oil & Energy Corp. of Japan and King Fahd University of Petroleum and Minerals in Saudi Arabia began development of the technology in a research venture. Saudi Aramco later joined the venture, which then designed, built, and operated a 30-b/d demonstration unit at Aramco's 550,000-b/d Ras Tanura refinery.

Now JX is building a 3,000-b/d precommercial demonstration unit at its 380,000-b/d refinery in Mizushima, Japan. Shaw and Axens provided engineering services for the unit.

TransportationQuick Takes

SemCrude to expand Cushing crude storage

SemGroup Corp. unit SemCrude LP has contracted with Matrix Services Co. to build 1.95 million bbl of additional crude oil storage at its Cushing, Okla., terminal. The project will include seven 250,000 bbl and two 100,000 bbl crude oil tanks. Upon completion, SemCrude's total crude storage capacity in Cushing will be 7 million bbl.

SemCrude's majority-owned White Cliffs Pipeline terminates at Cushing and is the only pipeline moving oil out of the Denver-Julesburg basin directly to Cushing. SemCrude plans to expand White Cliffs' capacity. The 526-mile, 12-in. OD pipeline entered service in 2009 with a capacity of 30,000 b/d, expandable to 50,000 b/d (OGJ Online, June 2, 2009).

The new tanks will be leased to three customers and are expected to be completed mid-year 2012.

SemCrude's partners in White Cliffs include Noble Energy's Samedan pipeline unit 5%, Western Gas Partners subsidiary Anadarko Wattenberg Co. 10%, and Plains All American 34%.

Yamal LNG lets contract for LNG project

Yamal LNG LLC has selected Chicago Bridge & Iron Co. NV, The Hague, to provide front-end engineering and design for its Yamal LNG's project. Work is to be completed in first-quarter 2012.

Yamal LNG encompasses production, treatment, transportation, liquefaction, and shipment of natural gas and NGLs from South Tambey field on the Yamal Peninsula in northern Siberia. Gas reserves in South Tambey are estimated at more than 1 trillion cu m, said the CB&I announcement.

CB&I's project includes FEED development for the 16.5 million tonnes/year LNG liquefaction plant, including LNG storage and loading. The FEED will involve CB&I partners Chiyoda and Saipem, along with the Russian Design Institute NIPIgazpererabotka to address local design and authority-approval requirements.

It will provide a basis for detailed engineering, procurement, and construction, as well as project schedule and cost estimates to enable Yamal LNG to secure the final investment decision, said CB&I.

The contract value was not disclosed.

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