OGJ Newsletter

March 18, 2013
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

House members move to jump–start Keystone XL approval

US House Energy and Commerce Committee members released a discussion draft of legislation designed to jump–start approval of the proposed Keystone XL crude oil pipeline project. The draft bill by Rep. Lee Terry (R–Neb.) would eliminate the need for a presidential permit and find that the Aug. 26, 2011, final environmental impact statement issued by Sec. of State Hillary Clinton satisfied all National Environmental Policy Act requirements.

Reps. Jim Matheson (D–Utah) and John Barrow (D–Ga.) cosponsored the proposal, which also would limit legal challenges to the project so it would not be delayed further. Energy and Commerce Committee Chairman Fred Upton (R–Mich.) and Energy and Power Subcommittee Chairman Ed Whitfield (R–Ky.) also co–wrote the Mar. 4 draft.

The US Department of State released a draft supplemental environmental impact statement on Mar. 1, which found that the pipeline, including the revised Nebraska route, would have limited adverse environmental impacts. The review followed DOS's initial analysis which lasted for more than three years and found the pipeline to be environmentally sound.

"It's been over 4 years and thousands of pages of environmental reviews," Terry said on Mar. 7. "The experts have weighed in. Now is the time to build the Keystone Pipeline. If we see further delays as we have in the past, Congress is ready to act. This discussion draft is part of that process."

Environmental organizations immediately condemned the proposal. Jane Kleeb, executive director of BOLD Nebraska, said that Oil Change International's Dirty Energy Money Database shows that Terry and the proposal's four cosponsors average 400% more lifetime fossil fuel campaign contributions than the average US House member.

"The Keystone XL tar sands pipeline may not be in the best interests of his Nebraska constituents, but Rep. Terry and his Big Oil backers don't seem to care," Kleeb said on Mar. 8. "Terry makes it clear that money speaks louder than farmers, ranchers, and other Nebraskans who continue to voice their opposition to a toxic pipeline that will put our health and water at risk."

Chevron on target for production goals in 2017

Chevron Corp. is on schedule to deliver its 2017 production target of 3.3 million boe/d because 98% of its targeted production already is in design, construction, or production.

Speaking to analysts in New York on Mar. 12, John Watson, Chevron's chairman and chief executive officer, said the company is "gaining momentum to deliver growth beyond 2017."

The company seeks to boost its oil and natural gas production to an average 3.3 million boe/d in 2017 from nearly 2.7 million boe/d averaged during the fourth quarter of 2012.

George Kirkland, vice–chairman and upstream executive vice–president, noted ample investment opportunities and the ability to expand shale and tight reservoir operations, particularly in the Permian and Marcellus basins.

"Construction on our Australian LNG projects, Gorgon and Wheatstone, is progressing very well, with first LNG for Gorgon targeted for early 2015," Kirkland said.

"Construction continues on the Jack, St. Malo, and Big Foot deepwater projects in the US Gulf of Mexico, both of which are scheduled for start–up in 2014," he added.

Chevron is the operator of the Jack, St. Malo development and has a 50% interest in Jack (Walker Ridge Blocks 714, 715, 758, 759, and a portion of 802 and 803) and a 51% interest in St. Malo (Walker Ridge Blocks 673, 674, 677, and 678).

The combined fields may contain more than 500 million bbl of potentially recoverable oil, according to Chevron.

The fields will produce from Lower Tertiary reservoirs that are at a 26,500 ft depth (OGJ Online, Sept. 7, 2010).

Jay Johnson, president, Chevron Europe, Eurasia, and Middle East exploration and production, said growth opportunities include multiple frontier exploration plays and developing existing resources, notably Tengiz operations in Kazakhstan, Wafra steamflood operations in the Partitioned Zone, and LNG projects in Australia and Canada.

Pat Yarrington, vice–president and chief financial officer, said operating cash flows are expected to grow significantly as new projects come on stream.

Chevron expects to generate $50 billion in operating cash flow during 2017, up more than $10 billion from 2012, Yarrington said.

Wyden seeks EIA data on gasoline price increases

US Senate Energy and Natural Resources Committee Chairman Ronald L. Wyden (D–Ore.) requested information from the US Energy Information Administration about rising US gasoline prices for a hearing he plans to hold on the situation.

"This most recent round of gas price increases has come at a time of year when gas prices are typically at their lowest point, but that has not been the case this autumn and winter," Wyden said in a Mar. 11 letter to EIA Administrator Adam Sieminski.

Wyden asked the agency to provide data concerning US oil production, exports and imports, refining capacity, transportation and midstream capacity, and consumption in preparation for a hearing he plans to hold later this spring.

EIA data show that average US gasoline prices set records for the months of September, October, November, December, and February, he noted.

Wyden sent the letter as EIA reported US retail regular gasoline prices averaged $3.71/gal for the week ended Mar. 11, down 4.9¢ from a week earlier and 11.9¢ from a year earlier. Two consecutive weeks of declines followed 10 weeks of increases from $3.25/gal on Dec. 17, 2012, to an average $3.78/gal on Feb. 25, EIA's figures showed.

On–highway retail diesel fuel prices for the week ended Mar. 11 averaged $4.09/gal nationwide, 4.2¢ less than a week earlier and $3.5¢ less than the comparable week in 2012, according to EIA. Its figures showed two consecutive weekly declines from the recent peak of $4.16/gal on Feb. 25 followed seven consecutive weekly increases from $3.91/gal on Jan. 7.

API launches oil tax ad campaign

The American Petroleum Institute plans to launch a television and online video advertising campaign to remind members of Congress that passing punitive oil and gas taxes to reduce the federal deficit would be short–sighted and counterproductive in the long run.

The ads will be concentrated in the Washington, DC, area where lawmakers and their staffs are at work, but could be expanded to a broader audience if necessary, API Executive Vice–Pres. Marty Durbin told reporters in a Mar. 13 teleconference.

"If increased revenue is truly the objective, then allow the oil and natural gas industry to continue to do what it has always done—invest in America's economy by providing good–paying jobs here at home that develop the energy America needs," Durbin said.

"That's what the American people support, and in the long term the result would be far better for the American economy, for consumers, for our energy security, and for the nation's long–term economic growth," Durbin maintained.

Conceding that the only punitive measure introduced so far in 2013 came from US Sen. Robert Menendez (D–NJ) on Feb. 13 with 16 other Democrats as cosponsors, the API official said he was generally encouraged by the direction congressional tax reform discussions are moving under the direction of Senate Finance Committee Chairman Max Baucus (D–Mont.) and House Ways and Means Committee Chairman David L. Camp (R–Mich.).

"It's easy to go after the oil and gas industry and talk about issues in a polarized way," Durbin observed. "But our very public campaign of talking directly to voters has helped immensely to educate voters and policymakers that yes, we're a big industry, and yes, we make big profits, but we also make big US economic contributions. Without making a prediction on how far things will go this year, I think we're making progress."

Exploration & DevelopmentQuick Takes

ExxonMobil outlines 5–year, $190 billion E&D plan

ExxonMobil Corp. intends to spend $190 billion during the next 5 years on exploration and development to meet anticipated growing world energy demand, Chairman and Chief Executive Officer Rex Tillerson told investment analysts in a Mar. 6 presentation at the New York Stock Exchange.

The supermajor plans to more than double its exploration acreage in a range of proved and emerging locations, such as Russia, he said.

"An unprecedented level of investment is needed to develop new energy technologies to expand supply of traditional fuels and advance new energy sources," Tillerson said. "We are developing a diverse portfolio of high–quality opportunities across all resource types and geographies."

ExxonMobil's major project startups are expected to deliver 1 million boe by 2017 with liquids production to rise on average by 4%/year during 2013–17 as the company starts production at 28 major oil and gas projects, 24 of which are liquids or liquids–linked projects.

In the next 3 years alone, 22 major projects are expected to come on stream, including an expansion of the Kearl oil sands project in Alberta, and an LNG export project in Papua New Guinea (OGJ Online, Feb. 4, 3013).

ExxonMobil has a growing portfolio of high–quality resource opportunities with exploration success most recently in Romania and Tanzania, Tillerson said.

During 2012, ExxonMobil replaced 115% of its 2012 production and 174% of its crude oil and other liquids, increasing total proved reserves to 25.2 billion boe. The company reached this total by adding 1.8 billion boe of proved reserve additions last year.

Lundin extends Malaysia Paleogene intrarift oil play

Lundin Malaysia BV said its Ara–1 exploratory well offshore Peninsular Malaysia is a discovery that confirms extension of the new intrarift oil play across a large structural complex in northeastern PM308A below a major regional seal.

The West Courageous jackup drilled Ara–1 to 4,030 m in 75 m of water in an effort to extend the Paleogene intrarift oil sands encountered in Lundin's 2011 Janglau–1 well.

Ara–1 encountered nine thin oil–bearing sands in a high–pressured intrarift section extending over a vertical interval of 800 m. It also found effective sand reservoirs below 3,500 m. The oil pay zones intersected by Ara–1 were individually thinner than predrill expectation.

Ara–1 was plugged and abandoned as an oil discovery after completion of the well evaluation program, and the company is working to estimate the range of resources discovered.

The parent Lundin Petroleum will incorporate the well results into the recently extended regional 3D seismic data set to identify areas where local sand reservoir sources may be better developed and can highgrade future drilling prospects.

The rig will be demobilized as Ara–1 was the last well in Lundin's 2012 drilling campaign.

Lundin Malaysia operates PM308A with 35% equity interest, JX Nippon Oil & Gas Exploration (Peninsular Malaysia) Ltd. has 40%, and Petronas Carigali has 25%.

Pakistan reports 66 license applications

Pakistan's Ministry of Petroleum and Natural Resources said it received 66 applications for exploration licenses to 50 blocks out of 58 blocks offered in a licensing round that ended Mar. 10.It said spending commitments by applicants totaled more than $372 million.

Under a petroleum policy adopted last year, the government offered onshore blocks under concession agreements and offshore blocks under a production–sharing framework. It hasn't broken out bids by area or identified bidding companies.

Drilling & ProductionQuick Takes

Talisman reaches settlement on Yme project

Talisman Energy Inc., Calgary, reached an agreement with Dutch maritime services group SBM Offshore NV to scrap the above–surface structure on the Yme oil platform in the Norwegian North Sea.

Terms call for taking down the above–surface structure and ending all joint venture activity with SBM. The agreement also calls for Talisman to pay $470 million to SBM.

Following an extended period of operational and execution delays, Talisman Energy Norge AS decided to remove the mobile offshore production unit (MOPU) from the previously abandoned field that was scheduled for redevelopment (OGJ Online, May 14, 2007).

SBM Offshore plans to scrap the MOPU, which it owns.

Ownership of the in situ subsea structure will be transferred from SBM Offshore to the Yme license holders, and they will assess alternative development concepts for the field.

Talisman holds a 70% stake in the PL 316 license that includes the Yme field. Revus Energy has 20% and Pertra has 10%. Talisman in May 2012 announced a $250 million writedown on the project and put production on hold. Previously, Yme production was expected to start this year.

ExxonMobil lets contract for Hebron project

ExxonMobil Corp. let a $1.5 billion engineering, procurement, and construction contract to Kvaerner ASA for the Hebron heavy–oil project off Canada's eastern coast, Kvaerner said. The contract total includes some work already completed.

In January, ExxonMobil said it will develop the Hebron oil field offshore Newfoundland and Labrador using a gravity–based structure that will recover more than 700 million bbl of oil, an increase over earlier estimates (OGJ Online, Jan. 4, 2013).

Hebron lies in 300 ft of water in the Jeanne d'Arc basin more than 200 miles southeast of the capital of St. John's and 19 miles southeast of ExxonMobil's Hibernia project. The field will be developed using a stand–alone gravity–based structure consisting of reinforced concrete designed to withstand sea ice, icebergs, and meteorological and oceanographic conditions.

The base will be designed to store 1.2 million bbl of crude oil and will support an integrated topsides deck that includes a living quarters and drilling and production facilities. The platform is being designed to produce 150,000 b/d of oil. Oil production is expected to begin by yearend 2017.

Kvaerner was spun off from Aker Solutions ASA in 2011.

Syskonsyninskoye gas flow starts in Russia

A joint venture of Repsol of Spain and Alliance Oil Co. Ltd. of Bermuda is producing natural gas at an initial rate of 855,000 cu m/day from Syskonsyninskoye (SK) field in the Khanty–Mansiysk region of Russia.

Repsol said three of five wells drilled so far in the field are on production. It expects drilling of six more wells from five locations by early next year.

SK is the first field start–up by the joint venture, A&R Oil & Gaz BV (AROG), formed to explore for and produce oil and gas in Russia (OGJ Online, Aug. 20, 2012).

With existing production contributed by Alliance, AROG now is producing 25,000 boe/d from 278 million boe of reserves.

Methane hydrate flow established off Japan

Japan Oil, Gas & Metals National Corp. (Jogmec), Tokyo, said it has produced methane from methane hydrates during tests of a well drilled in about 1,000 m of water offshore the Atsumi and Shima peninsulas of Japan.

The well, operated by Japan Petroleum Exploration Co., produced methane by depressurization of hydrates in a layer 270–330 m below the seabed.

Jogmec said it was the first offshore test of methane hydrate flow ever conducted.

It didn't specify the production rate, which it called noncommercial. The test was part of a second phase of methane hydrate research, the first phase of which was conducted during 2001–08.

The Chikyu drillship drilled the well.

Jogmec said it will conduct a second offshore production test under the second phase of research, a project of the Ministry of Economy, Trade, and Industry.

Commercial production is contemplated under a third phase during 2016–18.

PROCESSINGQuick Takes

CHS to expand Kansas refinery to 100,000 b/d

CHS Inc., St. Paul, Minn., will boost refining capacity at the 85,000 b/d National Cooperative Refinery Association facility at McPherson, Kan., to 100,000 b/d by 2016 in a $327 million project.

CHS, which is in the process of acquiring 100% ownership of the McPherson refinery from Growmark Inc., Bloomington, Ill., and MFA Oil, Columbia, Mo., said the expansion will start this spring. Completion will take place in phases during the second half of calendar 2015 and the first months of 2016, with production coming on line in early 2016.

The expansion will occur alongside construction of a $555 million replacement coker already in progress (OGJ, Dec. 3, 2012, p. 100). The McPherson refinery will continue to operate normally during both projects.

The latest expansion brings to more than $1.4 billion the investments CHS has made or committed to over the past 24 months to expand and upgrade its refining, pipeline, and distribution system in order to further strengthen dependable supplies of quality refined fuels to its owners and customers.

CHS said the additional refined fuels produced will be equally divided between diesel and gasoline and will allow CHS to better match production from McPherson and its 55,000 b/d Laurel, Mont., refinery with customer demand.

Indian refinery due completion in November

Completion of a 300,000–b/d, full–conversion refinery by Indian Oil Corp. Ltd. at Paradip, India, is expected in November, according to a government official (OGJ Online, Nov. 16, 2011).

Panabaaka Lakshmi, minister of state for petroleum and natural gas, updated project timing in a reply to an inquiry from the lower house of the Indian parliament.

In addition to crude and vacuum distillation units, the refinery will have a hydrocracker and delayed coker.

Paradip is in the state of Orissa on India's northeastern coast.

Sibur, TNK–BP extend gas processing venture

Sibur and TNK–BP of Russia have extended gas–supply agreements and expanded the framework of cooperation within OOO Yugragazpererabotka, a gas–processing joint venture they formed in 2007.

They earlier made the term of the venture indefinite. The new supply agreements cover 2017–26.

Yugragazpererabotka owns and operates gas processing plants at Nizhnevartovskiy, Belozerniy, and Nyagan, compressor stations, and pipelines from the compressor stations to the plants.

Last year, the company processed more than 12.5 billion cu m of associated gas, 9% more than in 2011 and 71% more than the year the joint venture was established.

Completion of a compressor station at Nizhnevartovskiy last year boosted plant capacity to 6.2 billion cu m/year.

BP–Husky Refining starts reformer in Ohio

BP–Husky Refining LLC has started up a new 42,000–b/d naphtha reformer at its 160,000–b/d Toledo Refinery in Oregon, Ohio (OGJ Online, Jan. 20, 2010).

The $400 million project replaced two old catalytic reformers and a hydrogen plant.

BP–Husky Refining is a 50–50 joint venture of BP and Husky Energy. BP operates the refinery.

TRANSPORTATIONQuick Takes

Holly to expand New Mexico pipeline system

Holly Energy Partners LP (HEP) is expanding its crude oil transportation system in southeastern New Mexico in response to increased production in the area. HEP will convert an existing refined products pipeline to crude oil service, construct several new pipeline segments, expand an existing pipeline, and build truck unloading stations and crude storage capacity.

HEP estimates the project will increase capacity by as much as 100,000 b/d across its system and will be in service no later than early 2014. The expansion will provide shippers with additional pipeline takeaway capacity to either common carrier pipeline stations for transportation to major crude oil markets or to HollyFrontier's Corp.'s 100,000–b/d Navajo refinery in Artesia, NM.

Excluding the value of the existing pipeline to be converted, total capital expenditures are expected to be $35–40 million. The project has been approved by HEP's board and has already received the necessary shipper support.

Iran–Pakistan gas line groundbreaking held

Government leaders have held a ceremonial groundbreaking for the long–planned pipeline to carry natural gas from Iran to Pakistan (OGJ Online, Aug. 25, 2009).

Pakistani President Asif Ali Zardari and Iranian President Mahmoud Ahmadinejad attended the ceremony at Chabahar, Iran, near the Pakistan border.

The pipeline is to deliver 750 MMcfd of gas by 2015. It will carry gas from Iran Gas Trunkline 7 at Iranshahr to a connection with the Pakistani gas pipeline system near Nawabshah in Sind province, crossing the border near Chabahar.

Enterprise plans Gulf Coast ethane system

Enterprise Products Partners LP (EPP) said shipper commitments support development of a 270–mile pipeline header system for delivery of ethane to US Gulf Coast petrochemical plants from the company's storage complex at Mont Belvieu, Tex.

EPP has begun an open commitment period to determine additional interest in the project, which it calls Aegis.

The company said it will determine final design, including capacity and delivery points, after assessing further interest of shippers. The open commitment period ends Apr. 9.

EPP expects Aegis to begin commercial operations next year.