OGJ Newsletter

Sept. 9, 2013
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

SEC to rework vacated foreign payment disclosure rule

The US Securities and Exchange Commission won't appeal a July 2 federal court decision vacating a requirement that would have made publicly traded US oil and gas companies disclose payments made to foreign governments. "The court remanded the matter for further SEC proceedings, which the commission will undertake informed by the court's decision," a spokesman said.

US oil and gas firms legally challenged the requirement outlined in the 2010 Dodd-Frank Financial Reform and Protection Act's Section 1504 because they believed it would give foreign competitors not subject to it an unfair competitive advantage. The US District Court for the District of Columbia agreed and ruled in their favor (OGJ Online, July 2, 2013).

"US companies are leading the way to increase transparency, and we look forward to working with the SEC to rewrite the rule in a way that recognizes these existing efforts without harming the competitiveness of American businesses," an American Petroleum Institute spokesman said on Sept. 4.

Whiting to acquire Williston basin assets

Whiting Petroleum Corp., Denver, has signed a purchase and sale agreement with an undisclosed private party to acquire certain producing oil and gas wells and development acreage in the Williston basin in Montana for $260 million.

The properties primarily target the Middle Bakken and Three Forks zones and include 17,282 net (39,310 gross) acres in and around Whiting's acreage in the Missouri Breaks and Hidden Bench prospects in its western Williston basin area. The properties include 13 operated 1,280-acre Bakken/Three Forks drilling spacing units with an average working interest of 58% and net revenue interest of 48%. Ninety-two percent of the acreage is held by production.

Whiting said it has seen "strong production growth" due to drilling results at its Hidden Bench, Tarpon, and Missouri Break prospects.

Net oil and gas production from the properties is estimated to average 2,420 boe/d in August. Whiting estimates proved reserves at 17.1 million boe with 85% of reserves being oil. Whiting also estimates 24% of the reserves are proved developed producing and 76% are proved undeveloped.

The deal, subject to customary adjustments, would have an effective date of Aug. 1, and Whiting expects the deal to close by Sept. 30.

Murphy Oil completes spinoff of downstream unit

Murphy Oil Corp. has completed the spinoff of its US downstream subsidiary, Murphy USA Inc., into an independent and separately traded company (OGJ Online, Oct. 16, 2012).

In 2011, Murphy completed the sale of its refineries as the company shifted its focus to concentrate on exploration and production and US retailing. The company first outlined its downstream exit strategy in 2010 (OGJ Online, July 23, 2010).

"Following the spinoff," said Steve Cosse, Murphy Oil president and CEO, "Murphy Oil will move forward, under the leadership of Roger Jenkins, as a focused exploration and production company with a strong portfolio of global assets."

Exploration & DevelopmentQuick Takes

Eni group has wet gas find on Mozambique Area 4

A group led by Eni has made a discovery in the southern part of Area 4 offshore Mozambique that early estimates indicate could contain 5-7 tcf of gas in place.

The group is planning an appraisal strategy for the Agulha structure, on which it drilled the discovery well to a total depth of 6,203 m in 2,492 m of water 80 km off Cape Delgado and encountered 160 m of wet gas pay in good quality Paleocene and Cretaceous reservoirs. The group will drill three more wells in 2014 in the southern part of Area 4.

Eni is operator of Area 4 with a 50% indirect interest in Eni East Africa, which holds 70% of Area 4. Other partners with 10% each are Galp Energia, Korea Gas Corp., and Mozambique's state ENH carried through the exploration phase. China National Petroleum Co. owns a 20% indirect participation in Area 4 through Eni East Africa.

Italy's Po Valley indicated gas find to undergo tests

A group led by Po Valley Energy will test an apparent gas discovery at the Gradizza prospect on the La Prospera permit in Italy's Po Valley.

The Gradizza-1 well went to a total depth of 3,478 ft, and logs identified a gas-bearing zone in the primary target area of the Quaternary sand, said BRS Resources Ltd., Dallas.

The well intersected a 33-ft gross gas column with 30 ft of net gas sand. PVE has elected to run casing, complete the well, and start the production test. Upon evaluation of the test results, production rates will be finalized and reported.

BRS Resources participates in the well through its membership interest in AleAnna Resources LLC. AleAnna and PVE executed a farm-in agreement that allowed AleAnna to earn a 10% interest in the Gradizza prospect and La Prospera permit.

AleAnna holds a large acreage position onshore Italy with nine exploration permits and three permit applications in the Po Valley and Bradano basins totaling more than 800,000 acres.

Norway seeks bids for 23rd licensing round

Norway is asking oil companies to bid on blocks they want in the 23rd licensing round on the Norwegian shelf.

The primary focus area will be the southeastern Barents Sea. The Ministry of Petroleum and Energy is also accepting nominations in the Norwegian Sea and the North Sea.

Exceptions include areas covered by licenses, a category known as Awards in Predefined Areas, and areas with activity restrictions.

Bids must be received by the Ministry of Petroleum and Energy by noon on Jan. 14. A copy must also be submitted to the Norwegian Petroleum Directorate.

Niko suspends Indonesian offshore program

Niko Resources Inc., Calgary, has temporarily suspended its vast drilling program in Indonesia pending a reevaluation of its exploratory capital spending priorities. The firm said it is "working on various options to drill for third parties or to assign the contract for the Ocean Monarch rig and related service contracts to third parties for an extended period."

Niko is mobilizing the Ocean Monarch to the Makassar Strait until it finalizes the decision on the next drilling location. The company is discussing deferrals and redetermination of its borrowing base and is working on options to potentially refinance its credit facility to provide increased funding for its future capital programs.

Meanwhile, Hess Corp. has signed a definitive agreement to assume a 100% interest from Niko in the Semai V PSC offshore eastern Indonesia's Papua Province.

Two wells, Andalan-1 and 2, have been drilled on Semai V, and one future commitment well is yet to be drilled. Drilling results from these wells indicate hydrocarbon potential remaining on the block, Niko said.

Niko signed a separate agreement to increase its working interest to 100% in the Kofiau PSC offshore Papua Province. That pact took effect before the drilling of the Elit-1 well. Closings of the Semai V and Kofiau transactions are subject to government approval.

Elit-1 has been plugged and abandoned after encountering 10 ft of gas at the top of a 90-ft sand package. The Diamond Offshore Ocean Monarch drilled the well to 3,915 ft in 1,335 ft of water in 9 days under budget and ahead of schedule, Niko said.

Drilling & ProductionQuick Takes

UK outlines tax relief for decommissioning platforms

UK Chancellor of the Exchequer George Osborne outlined details of a tax relief program for decommissioning offshore oil and gas platforms and also emphasized the government's support for shale gas exploration.

Osborne's comments came Sept. 3 at the Offshore Europe conference in Aberdeen. Regarding shale gas, Osborne acknowledged the UK public's concerns about the safety of hydraulic fracturing, but he also said the oil and gas industry needs the ability to develop shale resources in order to remain competitive. The tax relief for decommissioning is expected to attract billions of investment in UK North Sea oil and gas assets, Osborne said.

He believes the tax relief program will provide cost incentives for industry and will result in production that otherwise might have not happened. Under the incentive, UK officials expect small independents will be willing to acquire mature assets from the majors.

Previously, UK government officials worked with industry regarding decommissioning tax relief, and the Oil & Gas UK last year welcomed publication by the UK Treasury of agreements covering tax relief for decommissioning offshore platforms (OGJ Online, Dec. 12, 2012).

Decom North Sea, an organization specializing in UK decommissioning, has said increased certainty on the tax relief will lead to new jobs and investment in new technology.

Cenovus seeks expansion at Christina Lake

Cenovus FCCL Ltd., Calgary, applied to Alberta's Energy Regulator for an expansion at the Christina Lake thermal project.

Phase H expansion of the Phases A-G central processing facility would increase overall bitumen production capacity to 49,284 cu m/day and increase steam production capacity to 89,696 cu m/day cold water equivalent.

Cenovus has also applied to expand the currently approved project area to the east. Expansion would include an additional 743 steam-assisted gravity drainage well pairs on 72 well pads for long-term development, bringing the total to 2,155 SAGD well pairs on 203 pads.

Bitumen would be produced from the Wabiskaw-McMurray deposit. Phases A-G are about 20 km southeast of Conklin and 120 km north of Lac La Biche.

Lynden Energy builds oily Wolfberry production

Lynden Energy Corp., Vancouver, BC, has built its Wolfberry production in West Texas to an average 1,244 b/d of oil equivalent, 70% oil, in the past 30 days and is monitoring the results of other operators' horizontal wells being drilled into several benches of the Wolfcamp formation near Lynden's acreage.

Lynden has 71 gross (22.6 net) wells tied in and producing. The company's Wolfberry project consists of 30.625-43.75% working interests in 18,658 gross (15,630 net) acres for a net position of 6,482 acres. The leases are in Martin, Midland, Glasscock, and Howard counties.

Current output has been enhanced by initial production from a recent Glasscock County well that has averaged 495 b/d of oil (173 b/d net) and 291 Mcfd of gas (102 Mcfd net) in the last 34 days. The well has averaged 652 b/d (228 net) and 435 Mcfd (152 net) in the last 10 days flowing.

The nearby horizontal Wolfcamp wells are operated by a number of companies including Pioneer Natural Resources Co., Diamondback Energy Inc., and Laredo Petroleum Holdings Inc.

The Wolfberry play is a major low-permeability oil play in the Midland basin with targets generally 7,000-11,500 ft deep. The play's primary objectives are oil and gas in the Spraberry and Wolfcamp formations of Permian age that are informally grouped to form the 'Wolfberry' interval.

Over time, the play has evolved to include more zones below the Wolfcamp. A typical Wolfberry well involves completions that can include 8-12 fracture stimulations over a 2,500-3,000-ft gross interval. Lynden has been active in its Wolfberry project since 2009.

US drilling rig count unchanged at 1,776

The US drilling rig count remained unchanged at 1,776 rotary rigs working during the week ended Aug. 30, Baker Hughes Inc. reported.

Land-based drilling lost 1 unit to 1,691 rigs working. There were 64 units working offshore, 2 more than a week ago. Of these, 61 were drilling in the Gulf of Mexico, up 2 from a week ago. Rigs drilling in inland waters fell 1 from a week ago to 21.

Rigs drilling for oil rose 6 units to 1,388, while those targeting gas fell 7 units to 380. During the same week last year, there were 1,419 oil rigs and 473 gas rigs. Eight rigs were considered unclassified, up 1 unit from a week ago.

Canada's rig count was up 16 units to 399 from a week ago and 83 more than a year ago. The increase consisted of a 10-unit jump in oil rigs to 256 and a 6-unit jump in gas rigs to 143.

Louisiana led all of the major oil and gas producing states with a 2-unit gain, bringing its total to 112; Oklahoma, California, Utah, and Alaska each added 1 unit to respective counts of 170, 38, 29, and 14 units. Five states were unchaged: North Dakota, 169; New Mexico, 76; West Virginia, 36; Ohio, 34; and Arkansas, 13. Colorado and Wyoming fell 1 unit each to 66 and 49, respectively. Texas, at 846, and Pennsylvania, at 50, were down 2 units each.

Notable changes this week in major US basins included a 2-rig climb in Arkoma Woodford to 4 units working. The Marcellus, Granite Wash, and Cana Woodford each lost 2 rigs, falling to 85, 70, and 26, respectively.

PROCESSINGQuick Takes

EC approves Nynas purchase from Shell

The European Commission has approved the purchase of certain refinery assets near Hamburg, Germany, by Nynas AB of Sweden from Shell Deutschland Oil.

The Harburg refinery assets involved are the base oil manufacturing plant and certain parts of the refinery that are necessary to produce distillates from crude oil. Shell will retain the rest of the facility.

Without the transaction, the commission said closure of the refinery would be the most likely scenario, "dramatically reducing production capacity in Europe for a number of specific oil products."

In an in-depth investigation, the EC said, "Shell demonstrated that it would not continue to operate the Harburg refinery, as in its current set-up it is economically unsustainable." There were no alternative buyers, the commission said.

Nynas said first-phase takeover is targeted for Jan. 1 and will include about 90 Shell employees. It expects production of specialty oils to be up to 350,000 tons/year, a 40% increase in the company's supply capability.

A hydrogren production plant will be built and operated by a third-party supplier.

Nynas is jointly controlled by Petroleos de Venezuela SA and Neste Oil Oyj of Finland.

Grant to support study of Indonesia's refineries

The US Trade and Development Agency has awarded a $1 million grant to Indonesian oil company PT Pertamina to fund a feasibility study to modernize the country's existing refineries. UOP LLC, Des Plaines, Ill., will conduct the study.

The USTDA statement said that activities under this grant will "determine and prioritize where investments should be made to increase feedstock flexibility, improve the capability to process higher sulfur crudes, and produce needed fuels to meet future product and environmental requirements."

OGJ data as of Jan. 1 show the country's eight refineries with a total capacity of more than 1 million b/d. The two largest refineries—Balikpapn in Kalimantan and Cilacap on Central Java—are together rated at more than 600,000 b/d.

Straddle plant to handle Bakken production

SaskEnergy unit Bayhurst Energy Services Corp. (Besco) will join Mistral Midstream Inc., Calgary, to build a liquids-extraction plant in southeastern Saskatchewan, just north of the North Dakota border.

The $72.5 million (Can.), 50-MMcfd straddle plant will extract C2+ from natural gas moving on SaskEnergy's natural gas system from the Bakken formation in the region. Besco will hold a 10% share.

A Mistral spokesperson told OGJ the plant size is based on a "conservative view of gas volumes available for deep cut processing for NGL recovery in the area." The plant will fractionate the raw stream, sending ethane into the Alberta petrochemical market, most likely via Mistral's Vantage pipeline.

That pipeline is planned to move 40,000-60,000 b/d of ethane to Edmonton-Fort Saskatchewan from the Bakken shale by yearend (OGJ, June 3, 2013, p. 82; OGJ Online, Jan. 20, 2012).

Propane, butane, condensate, said the spokesperson, will be sold into regional NGL markets with "specifics being developed as supporting infrastructure continue to evolve in response Bakken production growth and emerging market opportunities."

Construction will begin next year; the plant will begin operating in early 2015, the company said.

Total to shut down Carling steam cracker

Total will shut down its Carling steam cracker in the Lorraine region of eastern France and use facilities there to produce hydrocarbon resins and polymers (OGJ Online, July 17, 2009).

The company described the naphtha-based cracker, to be shut down in second-half 2015, as "loss-making." It said it will honor contractual obligations for delivery of ethylene and propylene. OGJ's latest Ethylene Report listed Carling's nameplate capacity at 568,000 tonnes/year (OGJ, July 1, 2013, p. 90).

TRANSPORTATIONQuick Takes

Hess signs PVR to build gas gathering system

Hess Corp. has agreed to terms with PVR Partners LP for the latter to build, own, and operate a 45-mile natural gas trunkline and associated gathering pipelines and equipment serving Hess's lean gas production in the Utica shale in eastern Ohio. PVR will build a minimum 20-in. OD trunkline with an expected minimum capacity of 450 MMcfd and connections to the Texas Eastern and Rockies Express interstate pipelines, with possible future connections to other interstate systems.

PVR also will build gathering pipelines, compression stations, dehydration units and other related equipment to gather Hess's production from the dedicated acreage. PVR expects the project to begin operations in late 2014, with additional producers signing on for capacity and gathering services as construction progresses.

In addition to providing committed volumes of gas to the project, PVR's agreement with Hess establishes an area of mutual interest covering portions of Belmont, Jefferson, and Harrison counties where Hess holds substantial acreage.

PVR expects the project to cost $125-150 million. The company last month sold its part of Thunder Creek Gas Services to Meritage Midstream Services II LLC (OGJ Online, Aug. 20, 2013). Thunder Creek owns and operates gas gathering, treating, and processing assets in Wyoming's Powder River basin.

Hess said previously it was going to increase its 2013 exploration and production expenditures in the Utica shale to $400 million from $300 million in 2012 (OGJ Online, Jan. 11, 2013).

KMEP, Valero start up Parkway Pipeline

Construction has been completed of the 141-mile, 16-in. Parkway Pipeline, a 50-50 joint venture of Kinder Morgan Energy Partners LP (KMEP) and Valero Energy Corp., and the line is now transporting petroleum products from refineries in Norco, La., to an existing petroleum transportation hub in Collins, Miss., owned by Plantation Pipe Line Co. KMEP owns 51% of Plantation Pipe Line Co. and operates the system.

From this hub, the products will be transported by multiple pipeline systems, including Plantation, that serve the eastern US. The $250 million pipeline system has an initial capacity of 110,000 b/d and can be expanded to more than 200,000 b/d.

At its peak construction time, Parkway generated 1,200 temporary jobs, KMEP said. Construction on the pipeline began in August 2012 (OGJ Online, Aug. 23, 2012).

Enagas increases stake in Chilean LNG terminal

Spain's natural gas system operator Enagas has increased its stake in the Quintero LNG regasification terminal in Chile by buying a second 20% tranche from the BG Group.

At the same time, Enagas has brought in Oman Oil Co. to hold 49% of the company Terminal de Valparaiso in which Enagas is the main shareholder. Enagas incorporated Terminal de Valparaíso to buy the first tranche of 20%, which was completed in September 2012.

The current deal follows an agreement signed in April 2012 by Enagas to acquire in two tranches BG Group's 40% shareholding in GNL Quintero. Acquisition of the remaining 20% by Terminal de Valparaíso required an investment of $176 million.

Shareholders in GNL Quintero terminal now stand at Terminal de Valparaiso 40%, ENAP 20%, Endesa Chile 20%, and Metrogas 20%.

The terminal, in Chile's Quintero Bay, began operating in 2009 with total storage capacity of about 330,000 cu m, total regasification capacity of 10 million cu m/day, and LNG delivery capacity of 1,250 cu m at the truck loading station.

In addition, work is currently under way to increase regasification capacity to 15 million cu m/day and tank truck loading capacity to 2,500 cu m of LNG.

FRSU arrives on station off Italian port

The long-delayed floating LNG regasification and storage unit (FRSU) for the Italian port of Livorno has arrived on station 12 miles offshore, according to Fairmount Marine, whose tugs brought the vessel from its conversion yard in Dubai (OGJ Online, Mar. 11, 2008).

The 288-m long Toscana FRSU, formerly the Golar Frost, was towed from Drydock World in Dubai for contractor Saipem and owner OLT Offshore LNG Toscana SPA.

At full operating capacity, Toscana will be able to vaporize 3.75 billion cu m of LNG and store up to 137,500 cu m.

Italy has two other operating LNG terminals. The 2.5 million tonne/year onshore terminal at Panigaglia is owned and operated by GNL Italia and began operations in 1969. The world's only fixed offshore LNG terminal at Porto Levante can accommodate 5.8 million tpy. It is owned and operated by Adriatic LNG, a JV of ExxonMobil Corp., Qatar Petroleum, and Edison.

Under construction is the 5.8-million tpy Porto Empedocle in Sicily. Owned by Nuove Energie, a JV of Enel and the Siderurgica Investimenti Group, the terminal targets commissioning and start-up in 2016.