GENERAL INTEREST — Quick Takes
Mexican Congress approves energy reforms
Mexico's Congress has passed historic constitutional reforms opening the energy industry, including oil and gas, to private investment (OGJ Online, Oct. 14, 2013).
The reforms build on amendments proposed Aug. 12 by President Enrique Pena Nieto, who proposed changes to the country's strict limits on foreign energy investment but left details to Congress.
The Senate on Dec. 11 passed a reform bill opening the industry to competition and specifying that participation terms available to Congress for oil and gas production and development will include licenses, production-sharing, profit-sharing, and service contracts. It left open the possibility for other types of contracts.
The Senate bill also stipulated that the board of Petroleos Mexicanos (Pemex), the state oil monopoly, include five independent members and five representatives of the federal government, including the secretary of energy, who can cast decisive votes in ties. The legislation removed representatives of the Pemex union from the board.
The lower house of Congress passed the Senate version of the reform bill without change. At presstime last week, the legislation had been approved by a majority of state legislatures.
In a Dec. 13 report, Michael Cohen of Barclays Research said, "Approval of this landmark legislation could insert the missing piece of the North American energy landscape" and have "dramatic medium and long-term implications given the US's tight oil and Canadian oil sands."
But development likely will be slow, requiring investment at more than twice the current rate by Pemex, about $24 billion/year, Cohen said.
He said slight near-term increases from current production of 2.5 million b/d are possible but called government targets of 3 million b/d by 2018 and 3.5 million b/d by 2025 "ambitious."
US governors show support for States First effort
Twelve governors from US oil and gas producing states announced their support of the States First Initiative, an effort aimed at supporting and enhancing the states' role as the primary and appropriate regulators of oil and gas development, the Interstate Oil & Gas Compact Commission said.
"Our programs, which are as varied as the geography, climate, geology, and social fabric of our states, are designed to be flexible, yet effective, in providing the world's best environmental protection and regulation," the governors said in a Dec. 13 letter to US energy policy leaders.
"The states' ability to design effective regulations that reflect state-specific needs is a vital element in the resurgence of our nation's oil and natural gas industry," they maintained.
IOGCC and the Groundwater Protection Council formed the initiative to establish a state oil and gas regulatory exchange that will allow experts to meet emerging regulatory challenges and solve unique problems in oil and gas producing states.
The exchange will focus initially on field operations, the letter noted. "This critical area is where the states know best how to conduct oversight of exploration and production activities," it said. "The program's initial goals are identifying opportunities for new operating procedures, improving communication with the public and improving efficiency and effectiveness in regulatory oversight."
Other activities under the initiative include a field inspectors education and certification program, and ongoing efforts to make FracFocus, the online voluntary well stimulation ingredient disclosure web site IOGCC and GWPC launched in 2011, more useable and accessible.
The initiative also plans to work with the US Environmental Protection Agency to establish underground injection well peer reviews, and facilitate science and technology transfer from pure and applied research projects being done through the US Department of Energy, national laboratories, universities, and other institutions.
Oil, gas groups tell Baucus tax proposal has problems
Fourteen US oil and gas association executives jointly expressed concerns about federal tax reform proposals US Sen. Finance Committee Chairman Max Baucus (D-Mont.) outlined in a cost recovery and tax accounting draft (OGJ Online, Nov. 22, 2013).
"Our concern is that the proposals in your discussion draft, such as extending the period during which businesses can recover their operating or labor costs—as in the case of drilling expenses—will take cash away from capital-intensive businesses like ours and significantly reduce future domestic investment," American Petroleum Institute Pres. Jack N. Gerard and 13 other association executives said in their Dec. 13 letter.
"In addition, proposals to extend depreciable lives and eliminate valid, long-standing accounting methods, like [last in-first out], will also significantly hurt energy businesses seeking to grow and invest in new capital projects," they told Baucus.
The US oil and gas industry provided one of the few bright spots during the recent domestic economic downturn, and is poised to make even greater investments across the country, the letter continued. "We must have a tax code that not only encourages growth in such investments, but allows us to continue our track record of creating jobs, growing the economy, and strengthening our energy security," it said.
Linn Energy unit completes merger with Berry
Linn Energy LLC's subsidiary LinnCo LLC reported the completion of its $4.3 billion merger with Denver-based Berry Petroleum Co., acquiring all of Berry's outstanding shares. LinnCo subsequently contributed Berry to Linn Energy in exchange for the issuance of Linn Energy units.
The deal, which was first reported in February (OGJ Online, Feb. 22, 2013), creates one of the largest independent oil and natural gas companies in North America.
Linn Energy will have proved reserves of 1.1 billion boe, 54% of which are liquids. The company has 4.8 tcfe of proved reserves in producing US basins as of Dec. 31, 2012.
From late 2011 through mid-2012, Linn Energy acquired Plains Exploration & Production Co.'s Granite Wash oil and gas assets (OGJ Online, Nov. 8, 2011), along with BP America Production Co.'s holdings in the Jonah and Pinedale natural gas fields and the Hugoton field in southwestern Kansas for a combined $2.8 billion (OGJ Online, June 25, 2012; Feb. 28, 2012).
LinnCo was created to improve Linn Energy's ability to raise additional equity capital to execute on its acquisition and growth strategy.
Berry has operations in California, Texas, Utah, and Colorado. The company in July let a contract for the installation of a buried seismic array at its North Midway-Sunset heavy oil field in Kern County, Calif. (OGJ Online, July 24, 2013).
Exploration & Development — Quick Takes
BP, ConocoPhillips make oil find in deepwater gulf
BP PLC made an oil discovery at its Gila prospect in 4,900 ft of water on Keathley Canyon Block 93 about 300 miles southwest of New Orleans in the Gulf of Mexico. The deepwater find is the major's latest in the Paleogene trend and lies in a deepwater area where the company has been concentration its exploration drilling efforts. Last month BP reported it now has a record nine rigs in the region (OGJ Online, Nov. 19, 2013).
The Gila discovery, which BP co-owns with ConocoPhillips, is the company's third in recent years in the emerging Paleogene trend. Past discoveries in this trend include Kaskida in 2006 and Tiber in 2009 (OGJ Online, Aug. 31, 2006; Sept. 2, 2009).
The well, which penetrated multiple Paleogene-aged reservoir sands, was drilled to a total depth of 29,221 ft. Appraisal drilling, including completion of drilling through the Paleocene section, will be required to determine the size and potential commerciality of the discovery, BP said.
BP owns a majority interest in the Gila discovery, which lies 25 miles west of Tiber, also in the Keathley Canyon area. The lease for Keathley Canyon Block 93 was acquired in the western gulf Lease Sale 187 in 2003 (OGJ Online, Aug. 20, 2003).
CEPSA unit farms in to block offshore Suriname
CEPSA Suriname SL, Madrid, has acquired a 25% interest in deepwater Block 53 offshore Suriname from Apache Suriname Corp. LDC.
Apache Suriname retains a 75% participating interest in the block, which it holds under a production-sharing contract with state-owned Staatsolie Maatschappij Suriname NV. Staatsolie can back in for 20% in commercial discoveries on the 867,117-acre block.
The work program calls for a 3D seismic program now in the processing stage and the drilling of two exploration wells.
The block is 80 miles offshore in 1,640-5,900 ft of water.
RWE Dea spuds first well on Mauritania block
RWE Dea AG, along with partner Repsol SA, spudded the Ouguiya-1 well in Block Ta10 in Mauritania. The well is slated for completion in second-quarter 2014.
The company acquired 2D seismic data during 2008-10, which was reprocessed with older 2D data prior to drilling.
The company is drilling the Ouguiya-1 well using the Saipem 5893 drilling rig. Its primary targets are Precambrian formations. The well is scheduled to be completed within second-quarter 2014.
The early Precambrian age prospect is in the Taoudeni basin in central Mauritania's desert region, and 800 km inland from the Atlantic Coast.
RWE Dea holds a 30% interest in Block Ta10, which covers an area of 14,450 sq km. Repsol holds the additional 70% as operator.
Petronas finds gas in Malaysia, oil in Indonesia
Malaysia's Petronas reported a natural gas discovery in Malaysia and an oil strike in an appraisal well in Indonesia.
In Malaysia, gas was discovered in the Sintok-1 well on offshore Block SK320, about 240 km northwest of Bintulu, Sarawak.
Block operator Mubadala Petroleum drilled to 2,775 m. Well data indicates a 292-m gas column. It's the third gas discovery on the block since Petronas awarded it in February 2010.
In Indonesia, a Petronas subsidiary drilled the Bukit Tua South-2 appraisal well to assess the Bukit Tua South-1 oil discovery in 2012. The appraisal well penetrated the CD and Kujung carbonate reservoirs and reached 2,176 m. A drillstem test for the CD interval recorded a flow rate of 1,656 b/d through a 2-in. choke. Another DST will be carried out for the shallower Kujung reservoir.
Production from the Bukit Tua oil field is expected to begin by late 2014.
Drilling & Production — Quick Takes
Rosneft, ExxonMobil form JV for tight Siberian oil
OAO Rosneft and ExxonMobil Corp. have formed a joint venture for a pilot project for development of tight oil reserves in Western Siberia.
Rosneft holds 51%, ExxonMobil 49%. Areas of interest are the Achimov and Bazhenov formations.
Joint exploration work for the Achimov will be performed on 17 license blocks, while work on the Bazhenov will be performed on 20 license blocks in the region of RN-Yuganskneftegaz work.
ExxonMobil will provide carry-financing up to $300 million through 2015. The partners will decide on large-scale development based on pilot program results.
Shah Deniz firms make FID on stage 2 development
Partners in the Shah Deniz consortium made a final investment decision (FID) for the stage 2 development of the Shah Deniz gas field in the Caspian Sea offshore Azerbaijan. Additionally, partner Statoil ASA entered into an agreement to divest a 10% share of its 25.5% holdings in Shah Deniz and the South Caucasus Pipeline (SCP). The consortium is operated by BP PLC.
The FID triggers plans to expand the SCP system through Azerbaijan and Georgia, to construct the Trans Anatolian Gas Pipeline (Tanap) across Turkey, and to construct the Trans Adriatic Pipeline (TAP) across Greece, Albania, and into Italy. Together these projects will create Southern Gas Corridor to Europe. The total cost of the Shah Deniz stage 2 and SCP expansion projects will be $28 billion, Statoil reported.
"The Shah Deniz stage 2 project is a significant project which will make Azerbaijan's large gas resources available for the European market. It brings benefits for customers and creates value for the partners," said Helge Lund, Statoil president and chief executive officer.
Buying Statoil's offered 10% share of its holdings in the Shah Deniz and the SCP are State Oil Co. of Azerbaijan Republic (SOCAR), 6.7%, and BP, 3.3%. As part of the transaction, Statoil will receive a total cash consideration of $1.45 billion. The effective date of the transaction Jan. 1, 2014.
"The divestment corresponds with our strategy of portfolio optimization based on rigid prioritization of future investment, and capturing value created from a significant gas position," Lund noted.
Statoil will not participate as an investor in Tanap.
Statoil holds a 20% share in TAP AG, the owner of TAP, which is developing the pipeline for gas transport from Turkey to southern Europe.
The current Statoil equity production (gas and condensate) from Shah Deniz (as per this year's third quarter) is 56,000 boe/d.
The Shah Deniz stage 2 project includes offshore drilling and completion of 26 subsea wells and construction of two bridge-linked platforms. Onshore there will be new processing and compression facilities at Sangachal. The 16 billion cu m/year of gas produced from the Shah Deniz stage 2 project will be carried 3,500 km to Georgia, Turkey, Greece, Bulgaria, and Italy. First gas is targeted for late 2018, with sales to Georgia and Turkey. First deliveries to Europe will follow about a year later.
TAP shareholders include BP 20%, SOCAR 20%, Statoil 20%, Fluxys 16%, Total 10%, E.On 9%, and Axpo 5%.
PROCESSING — Quick Takes
Fire cuts output at Montana refinery
CHS Inc.'s 55,000-b/d Laurel, Mont., refinery is operating at reduced rates following a fire at the plant on Dec. 13.
The morning fire, which broke out in the refinery's diesel hydrotreating unit, was quickly contained by onsite and regional emergency response teams, and no injuries were reported, CHS said in an e-mail to OGJ.
With the source of the fire still under investigation, CHS will not resume operations in the impacted area of the refinery until a cause has been verified, the company said.
CHS declined to address the impact to production at the plant until further investigation into the incident is completed.
Contract let for Vietnam's Nghi Son refinery
Nghi Son Refinery & Petrochemical LLC, through a contractor, has let a contract to a subsidiary of Foster Wheeler for two hydrogen reformers to be constructed at its 200,000-b/d refinery and petrochemical complex in Thanh Hoa Province in Vietnam (OGJ Online, June 7, 2013).
Under the contract, for which no value was disclosed, Foster Wheeler will design and supply reformers capable of producing a combined total of 145,000 tonnes/year of hydrogen, according to Foster Wheeler.
Delivery of the reformers is scheduled to be completed during fourth-quarter 2015, Foster Wheeler said.
The $9 billion Nghi Son refinery, currently under construction (OGJ Online, Dec. 2, 2013), will process Kuwaiti crude oil and is slated to begin commercial operation in 2017.
Foster Wheeler's global engineering and construction group will manage and administer the engineering, procurement, and construction contractor consortium through completion of performance testing (OGJ Online, July 30, 2013).
The Nghi Son complex is a joint venture of Vietnam Oil & Gas Group, Idemitsu Kosan Co. Ltd., Kuwait Petroleum Europe BV, and Mitsui Chemicals Inc.
TRANSPORTATION — Quick Takes
Pembina advances Phase III Canadian line expansion
Pembina Pipeline Corp. has reached binding commercial agreements to proceed with its $2 billion Phase III Pipeline Expansion. Pembina expects the 540-km expansion to enter service between late 2016 and mid-2017, subject to environmental and regulatory approvals. Phase III will follow and expand certain segments of Pembina's existing pipeline systems from Taylor, BC, southeast to Edmonton, Alta., with priority placed on areas in need of debottlenecking. The core of the expansion will entail building a 270-km, 24-in. OD pipeline from Fox Creek, Alta., to the Edmonton area.
The expansion will have an initial capacity of 320,000 b/d, expandable to more than 500,000 b/d with the addition of midpoint pump stations. Once complete, Pembina will have three distinct pipelines in the Fox Creek-to-Edmonton corridor, with a combined capacity of 885,000 b/d if fully expanded.
The expansion will also increase pipeline interconnectivity between Edmonton and Fort Saskatchewan, including Pembina's Redwater and Heartland Hub sites and third-party delivery points in these areas. Pembina earlier this year acquired a site in the Alberta Industrial Heartland to support development of Heartland Hub; a rail, terminalling, and storage expansion of its Nexus terminal (OGJ Online, Sept. 5, 2013). The company has also been expanding its gas-plant infrastructure in west-central Alberta (OGJ Online, Aug. 13, 2013).
Phase III is underpinned by 10-year take-or-pay transportation services agreements with 30 customers for combined volumes of more than 230,000 b/d. The company anticipates securing further pipeline transportation commitments over the next 6-9 months while it refines project scope.
Activities related to obtaining regulatory approvals are underway and Pembina will begin First Nation consultation and its public involvement program for the expansion in early 2014.
Penn Virginia to sell Eagle Ford midstream assets
Penn Virginia Corp. has entered into a definitive agreement to sell its Eagle Ford shale natural gas midstream assets to a newly formed affiliate of ArcLight Capital Partners LLC for $100 million. The sale is expected to close in first-quarter 2014.
The assets to be sold include a natural gas gathering and gas lift system, along with 119 miles of pipelines and associated facilities in Gonzales and Lavaca Counties, Tex.
Penn Virginia plans to use the proceeds from the sale to help fund its 2014 capital expenditure plan.
"The divestiture of our natural gas midstream assets is the first step in a series of potential divestitures which will reduce our indebtedness, improve our liquidity, and fund further investment in our oily Eagle Ford shale play," said H. Baird Whitehead, Penn Virginia's president and chief executive officer.
The company's primary assets reside in the Eagle Ford.
Penn Virginia in April agreed to acquire producing and undeveloped leasehold interests in the Texas Eagle from Magnum Hunter Resources Corp. for $400 million (OGJ Online, Apr. 8, 2013). In October 2012, the company increased its acreage position in the Eagle Ford to 30,000 net, 40,100 gross acres with the purchase of 4,100 net acres in Gonzales and Lavaca counties, Tex., for $10 million (OGJ Online, Oct. 3, 2012).
KMEP files Trans Mountain expansion app with NEB
Kinder Morgan Energy Partners LP has applied to Canada's National Energy Board for approval of its Trans Mountain pipeline expansion, which would transport an additional 590,000 b/d of Western Canadian crude oil between Edmonton, Alta., and Burnaby, BC.
KMEP plans to twin the existing 1,150-km pipeline, raising total capacity to 890,000 b/d. The project will include 980 km of pipeline and 11 pump stations. The existing line will be repurposed to carrying oil products, light crude, and synthetic crude oil, with the new line dedicated to heavier oils.
NEB earlier this year approved KMEP's toll methodology for expansion of the line (OGJ Online, May 17, 2013). The government of British Columbia has resisted a competing project—Enbridge Inc.'s Northern Gateway pipeline—saying the project has not adequately addressed spill preparedness (OGJ Online, June 10, 2013). Environmental and some First Nations groups have also spoken out in opposition to Northern Gateway.
BG hits milestone in Curtis Island project
BG Group has reached a key milestone in its project to produce LNG from coal seam gas in Queensland.
The company, one of four groups planning similar projects with LNG plants on Curtis Island near Gladstone on the state's central-east coast, has announced that first gas production from the company's fields in the Surat basin has been transported to the island near the liquefaction terminal site.
Arrival of the gas completes a 2-year construction period to lay in excess of 46,000 sections of 1-m pipe some 540 km from the Queensland interior to the coast. This is the longest large-diameter buried pipeline in the country and links the company's CSG fields in one huge gathering system feeding into the coastal plant.
Final construction phase has now begun and commissioning work on the first of two planned LNG trains on Curtis Island is expected to start early in 2014.
BG says the $20.4 billion (Aus.) project is scheduled to be brought on stream during second-half 2014. Known as Queensland Curtis LNG, the plant will be the first in the world to produce LNG from CSG.
Of the other three CSG-LNG projects, two are also nearing completion. Gladstone LNG is a combine of Santos, Petronas, Total, and Kogas, while Australia Pacific LNG is a consortium of Origin Energy, ConocoPhillips, and Sinopec. The fourth, Arrow LNG, a partnership of Royal Dutch Shell and PetroChina, is lagging behind and is by no means certain of remaining a stand-alone project. It may integrate with one of the other three.