OGJ Newsletter

Nov. 10, 2014
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

Results show energy won big in US 2014 elections

Energy was the big winner in the US 2014 elections, American Petroleum Institute Pres. Jack N. Gerard said the day after polls closed and ballots were counted. "In race after race, voters from all regions of our nation and from both political parties voted for pro-development, true all-of-the-above energy policies," he said.

The trend extended beyond US Senate races, where Republicans regained the majority after 6 years, to several gubernatorial contests, Gerard told reporters in a Nov. 5 teleconference. Illinois Gov. Pat Quinn (D), who lost his reelection bid, had stood in the way of oil and gas development in that state, while Colorado Gov. John W. Hickenlooper (D), whose background as a geologist helped him support oil and gas activity, was reelected for another 4 years, Gerard said.

He said that Hickenlooper prevailed while another Colorado Democrat, US Sen. Mark Udall, "who was reluctant to support the Keystone XL pipeline," lost his seat to US Rep. Cory Gardner (R), who supported the proposed project.

Backing TransCanada Corp.'s proposed 1,179-mile crude oil pipeline from Hardisty, Alta., to Steele City, Neb., did not guarantee another federal lawmaker's reelection, however. During Gerard's teleconference, US Rep. Lee Terry (R-Neb.), who wrote a bill the House passed to transfer decision-making authority on the project's cross-border permit from US President Barack Obama, conceded to Democrat Brad Ashford in Omaha after losing by more than 4,000 votes.

"Most candidates have gotten the message on energy issues generally and Keystone XL, specifically. And that's because they have heard from voters on these issues," Gerard said. If the next Congress is serious about living up to its energy campaign promises, it should quickly advance a pro-energy, pro-growth agenda that includes increasing access to US oil and gas resources, reforming the federal Renewable Fuel Standard, and approving Keystone XL, he suggested.

Gerard said an election night telephone survey of 827 voters by Harris Poll for API found 90% agreeing that increased US oil and gas production could lead to more jobs, and 86% saying that it stimulated the general economy. For 2016, 66% of the respondents said they were more likely in 2016 to back a candidate who supported more US oil and gas development, he said.

"When people focus on the American energy renaissance and see the broad value to consumers, you'll see they support taking advantage of this unique opportunity," he said.

EPA greenlights Texas GHG permitting program

The US Environmental Protection Agency has approved the Texas Commission on Environmental Quality's (TCEQ) program to issue greenhouse gas (GHG) permits for new and modified facilities. The new program will replace the federal implementation plan, which has been rescinded by the EPA, eliminating the need for industry to seek air permits from two separate regulatory agencies in Texas.

TCEQ worked with EPA to write federal GHG permits through a work-share agreement, and the two agencies say they will continue to work with pending permit applicants during the transition period and ensure no unnecessary project delays result from this action.

The authority for Texas to issue air permits for new or modified GHG pollution sources will become effective on publication of the final State Implementation Plan approval and the Federal Implementation Plan withdrawal in the Federal Register. Publication in the Federal Register typically takes 7-10 days following signature.

Beginning in 2011, projects in Texas that increase GHG emissions substantially required an air permit from the EPA, which has since received 83 GHG permit applications from businesses in Texas. The state is ranks first in the country for receiving EPA-issued GHG permits, with more than 50 issued. Of the 189 GHG permits issued nationwide, EPA has completed 61 and the states have issued 128 permits.

AWE completes sale of BassGas assets

AWE has completed the sale of a portion of its interests in the offshore Tasmanian offshore Bass Basin gas-condensate permits T/L1 and T/18P that contain the Yolla and Trefoil fields.

AWE has sold 11.25% of Yolla production licence T/L1 and 9.75% of Trefoil exploration permit T/18P to Hindustan Petroleum Corp. subsidiary Prize Petroleum for $85 million (Aus.).

T/L1 also contains associated production infrastructure of the Origin Energy-operated BassGas gas-condensate development that pipes gas to eastern Victoria.

AWE received an initial deposit of $16 million when making the deal and a further $64 million this week on completion of the sale.

The company will get a further $2.5 million when the BassGas midlife enhancement project is completed and another $2.5 million if the costs of the enhancement do not exceed an agreed threshold.

AWE has retained 35% interests in both permits which enables the company to retain a high level of control over major investment decisions.

The final two stages of the BassGas midlife enhancement will begin before yearend when gas compression and condensate pumping modules are lifted on to the Yolla production platform. Two more development wells on the Yolla field will be drilled early in 2015.

The anticipated gross production from BassGas should increase to 60-70 terajoules/day of gas-up from the 40 tj/day average achieved in this year's third quarter.

Other interest holders in BassGas (T/L-1) are Origin with 42.5% and Toyota Tsusho Gas with 11.24%.

Trefoil field in T/18P is another liquids-rich gas field with development timed for the end of this decade when production from Yolla is expected to decline.

AWE will move to 40% interest in Trefoil by yearend on completion of an unrelated acquisition of 5% interest in T/18P from Drillsearch Energy.

Exploration & DevelopmentQuick Takes

ConocoPhillips drills dry hole offshore Angola

ConocoPhillips will drill the second of four exploratory wells in a Kwanza basin program offshore Angola after the first test was dry.

The operator will spud a wildcat on Block 37 after plugging the Kamoxi-1 dry hole on adjacent Block 36. It drilled Kamoxi-1 to total depth of 22,660 ft.

"Although the Kamoxi well results were disappointing, we continue to see potential for this subsalt Angola play," said Larry Archibald, ConocoPhillips senior vice-president, exploration. Archibald added that the company will follow up on the FAN-1 well offshore Senegal, where drilling has launched on a second wildcat (OGJ Online, Oct. 7, 2014). Additional drilling is being contemplated for late 2015 or 2016.

An aftertax charge of $140 million net to ConocoPhillips will be recorded to dry hole expense in the fourth quarter, which includes estimated costs through November.

Statoil gets exploration acreage in Exmouth Plateau

Norway's Statoil ASA has been awarded an exploration permit on the Exmouth plateau offshore Western Australia.

The 13,000-sq-km WA-506-P permit lies 300 km offshore 150 km west of Io-Jansz gas fields that are part of the Chevron Corp.-ExxonMobil Corp. group's Gorgon LNG development.

Water depths in the region vary from 1,500 m to 2,000 m.

Statoil has pledged to acquire 2,000 km of 2D and 3,500 sq km of 3D seismic during the next 3 years.

The company has interests in some onshore Northern Territory acreage, but this is its first entry offshore Australia.

The permit is held 100% at this stage.

Touchstone signs license deal with Trinidad and Tobago

Touchstone Exploration Inc., Calgary, signed an onshore exploration and production license with Trinidad and Tobago's Ministry of Energy and Energy Affairs.

The license, which is on Ortoire block, lies east of Fyzabad in southern Trinidad and covers 44,731 gross acres.

The license includes a 6-year minimum work program with technical reviews, 85 km of 2D seismic, and four wells. Capital requirements are estimated at $11 million.

With a commercial discovery, the license can be extended 25 years.

Touchstone is operator and holds 80%. Petroleum Co. of Trinidad & Tobago holds the remaining 20% and will be carried for the minimum work obligations.

James Shipka, Touchstone's chief operating officer, said prospects are at depths shallower than 6,000 ft, "which is consistent with our current drilling programs."

Drilling & ProductionQuick Takes

Sembcorp Marine gets contract for new jack up

BOT Lease Co. Ltd (BOTL), a leasing company of The Bank of Tokyo-Mitsubishi UFJ, has let a $240-million contract to Sembcorp Marine subsidiary PPL Shipyard to build a jack up drilling rig. Japan Drilling Co. Ltd. (JDC) will serve as project coordinator.

The Hakuryu-10, a Pacific-class 375 jack up delivered by PPL Shipyard to Japan Drilling Co. Ltd., is currently on charter to Total E&P in Indonesia. Photo from Sembcorp Marine.

The rig, Hakuryu 14, is scheduled for delivery at the end of October 2016, and will be built based on PPL Shipyard's Pacific Class 400 design, capable of drilling high-pressure and high-temperature wells to depths of 35,000 ft.

The design includes a 2-million-lb hook load capacity along with offline handling features and simultaneous operations support. It will be able to accommodate 150 people.

This is the second jack up that PPL Shipyard is building for BOTL. The first unit, Hakuryu 12, is currently under construction with contractual delivery expected at the end of January 2015.

Canadian firms' 3Q results spotlight production rise

Third-quarter financial and operating results included updates on several oil sands projects in Alberta.

Imperial Oil Ltd. said the Kearl project averaged 78,000 b/d in the third quarter. Excluding 2 weeks of planned maintenance in September, Kearl averaged 92,000 b/d.

MEG Energy Corp. said bitumen production averaged a record 76,471 b/d, an 11% increase over second quarter and more than 120% over 2013 third-quarter production of 34,246 b/d. The higher production stemmed from the ramp-up of MEG's Christina Lake Phase 2B project and incremental production associated with its RISER initiative on Phases 1 and 2. MEG continues commercial deployment of its proprietary "enhanced and modified steam and gas push."

Suncor Energy Inc. had record oil sands production of 411,700 b/d vs. 396,400 b/d in the same quarter last year. The increase was primarily due to the full ramp-up of the Firebag project following the commissioning of hot bitumen infrastructure assets in third-quarter 2013. The increase was partially offset by unplanned maintenance, including an outage at Upgrader 2 in late September. Production returned to normal rates in mid-October.

Suncor said the Fort Hills mining project remains focused on detailed engineering, procurement, and continued ramp-up of field construction. Detailed engineering was 55% complete by the end of the quarter. The project is expected to provide Suncor with 73,000 b/d of bitumen, with first oil expected in fourth-quarter 2017.

Suncor said it continues to work toward "a sanction decision" on the MacKay River expansion project, which is targeted to have an initial design capacity of 20,000 b/d.

Canadian Oil Sands Ltd. said it has "achieved substantial completion" in construction of the Mildred Lake Mine Train Replacement, which is now in the commissioning and start-up phase, and on schedule to be in service by yearend. In addition, the Centrifuge Tailings Management project reached an estimated 90% completion and is on schedule to be in service during first-half 2015.

Pengrowth Energy Corp. said commissioning and start-up activities have begun at its Lindbergh commercial facilities, with the start of steam production anticipated in early December. First production from the initial 12,500-b/d project is expected in January. The Lindbergh pilot averaged 1,626 b/d of bitumen in the third quarter.

Golden Eagle begins production in UK North Sea

The Golden Eagle Area Development (GEAD) in the UK North Sea has begun oil production, reported project operator Nexen Petroleum UK Ltd.

Two wells are producing 18,000 b/d. A peak production rate of 70,000 b/d is expected in 2015.

The development includes separate production and wellhead platforms and two subsea production systems. Fifteen production wells and six water injection wells will eventually be drilled.

GEAD includes development of the Golden Eagle, Peregrine, and Solitaire fields on Blocks 20/1S, 20/1N, and 14/26a, about 70 km northeast of Aberdeen (OGJ Online, Oct. 27, 2011). Water depths are 89-139 m.

Nexen, a subsidiary of China National Offshore Oil Corp. Ltd., has 36.54%. Maersk Oil North Sea UK Ltd. has 31.56%, Suncor Energy UK Ltd. holds 26.69%, and Edinburgh Oil & Gas Ltd. has 5.21%.

PROCESSINGQuick Takes

Failed sale leads to closure of Welsh refinery

A deal intended to prevent Murco Petroleum Ltd.'s 135,000-b/d Milford Haven refinery in Pembrokeshire, Wales, from closing has been unsuccessful, according to Murphy Oil Corp., Murco's owner.

The sale of the Milford Haven refinery and terminal assets to Klesch Refining Ltd., a subsidiary of Klesch & Co. Ltd., Geneva, by an Oct. 31 deadline could not be completed, Murphy said.

The refinery, currently shuttered, will be decommissioned and operated solely as a petroleum storage and distribution terminal, the company said.

Murphy said it will now seek a buyer for the converted refining terminal as well as three associated inland terminals.

The company did not disclose a reason for the failed sale.

Murphy announced it was entering into consultation with unions and staff on the future of the Murco plant after a deal to sell the refinery to California-based private equity fund Greybull Stewardship LP fell through in April (OGJ Online, Apr. 3, 2014).

Klesch announced its bid to acquire the Milford Haven refinery in late July, according to a July 31 release from the company.

The refinery's planned sale and now closure comes as part of Murphy's previously announced intention to divest its UK downstream operations, (OGJ Online, Oct. 16, 2012).

Aux Sable to expand fractionation capacity

Aux Sable Liquid Products LP, Calgary, will expand fractionation capacity at its Channahon, Ill., natural gas plant by 24,500 b/d, the company said. It estimated the cost of the expansion at $130 million.

The plant, which began operations in late 2000 (OGJ Online, Dec. 4, 2000), currently can process 2.1 bcfd of gas and produce about 107,000 b/d of NGL products. The expansion will increase NGL production to 131,500 b/d and has a target in-service of mid-2016.

Aux Sable Liquid Products-owned by Enbridge Inc., Veresen Inc., and Williams Partners LP-has been receiving liquids-rich gas streams from the Bakken via the newly built 77-mile Tioga lateral that connects Hess Corp.'s recently expanded 250-MMcfd Tioga gas plant with the Alliance pipeline at Sherwood, ND (OGJ Online, Mar. 24, 2011; Sept. 27, 2011).

The success of Aux Sable's rich gas premium strategy, said Tim Stauft, president and chief executive officer of Aux Sable, along with increasingly volumes of liquids-rich gas from the Bakken, Duvernay, and Montney plays, has resulted in higher heat-content gas arriving at the inlet of the Channahon plant.

Aux Sable's expansion will allow the plant to process the new liquids-rich gas contracted for after 2015, Stauft said.

TRANSPORTATIONQuick Takes

PAA, EPP to expand Eagle Ford pipeline

Plains All American Pipeline LP (PAA) and Enterprise Products Partners LP (EPP) are constructing a condensate gathering system into their Three Rivers, Tex., terminal and doubling the mainline capacity on the Eagle Ford joint venture pipeline from Three Rivers to Corpus Christi, Tex.

The expansions are supported by a long-term production commitment and are expected to be placed into service during third-quarter 2015.

The Eagle Ford JV pipeline system is a 50-50 joint venture of PAA and EPP that delivers crude oil and condensate via pipeline from Gardendale in La Salle County, Tex., to the Three Rivers and Corpus Christi refineries, as well as other markets via marine transport facilities at Corpus Christi. The companies agreed upon its expansion last year (OGJ Online, Sept. 19, 2013).

The pipeline also supplies the Houston-area through a connection to EPP's crude pipeline terminal at Lyssy in Wilson County, Tex.

As part of the expansion, PAA and EPP will construct a gathering system with 55 miles of gathering and trunkline pipeline that will connect Karnes County and Live Oak County production areas in Texas to the Three Rivers terminal.

The companies also will build an additional 70-mile, 20-in. pipeline from Three Rivers to Corpus Christi as well as expand storage and pumping capacity at Three Rivers. Combined with the previously announced expansion, this project effectively loops the Eagle Ford JV line from Gardendale to Corpus Christi and increases the JV system capacity to more than 600,000 b/d.

The Eagle Ford JV pipeline will be connected with the Cactus pipeline, which PAA is constructing from the Permian basin at McCamey to the Eagle Ford JV pipeline at Gardendale.

PAA and EPP also will build a terminal on the Corpus Christi ship channel to support the increased volumes to be shipped via pipeline to the region. The dock will have the capacity to handle a variety of oceangoing vessels and is planned to be in service by 2017.

Santos completes gas processing hub for Gladstone

The first of three Santos Ltd.-operated gas processing hubs for the Gladstone LNG (GLNG) project has been completed in the Surat-Bowen basin fields.

The hub, at Fairview field north of Roma in central Queensland, contains 1,250 tonnes of steel, 440 km of cabling, and 40 km of pipework and is the largest of the three hubs being constructed for the coal seam gas-LNG project.

Commissioning of the other two hubs is progressing on schedule. When completed the three hubs will process a total of 555 terajoules/day of gas.

The gas will be sent down the 420-km gas transmission pipeline to the LNG plant nearing completion on Curtis Island near Gladstone.

Gas processing at each hub will include water removal for treatment and reuse.

Gas has already been introduced to the line via the primary compressor at Fairview and is being progressively filled section by section. The pipeline will transport as much as 40 million cu m/day of gas from the fields to the Curtis Island plant.

Start of gas production is expected into the LNG plant before yearend. The plant is 90% complete and first LNG is scheduled for delivery in 2015.

When fully operational, GLNG will have capacity to produce 7.8 million tonnes/year of LNG.

Santos is operator of GLNG, with Petronas, Kogas, and Total as joint venture partners in the project.

TransCanada moves ahead with Vaughan pipeline

TransCanada Corp., Calgary, reported that it is moving forward with its Vaughan pipeline project and associated facilities as part of $475 million pipeline and facility expansions within the Eastern Triangle portion of the Canadian Mainline system.

Construction of TransCanada's Kings North Connection, Parkway West Connection, and Hamilton Area Project are expected to cost $255 million and be in-service in November 2015. The Vaughan pipeline and associated facilities are expected to cost $220 million and be in-service in November 2016.

"This is the next step of development for natural gas infrastructure in southern Ontario and is the result of collaboration between TransCanada, Enbridge Gas Distribution, Gaz Metro, and Union Gas," TransCanada said.

"Over the past year, TransCanada has announced plans to invest almost $2 billion in facility enhancements to allow growing supplies of Marcellus gas to reach Ontario and Quebec markets," said Russ Girling, TransCanada president and chief executive officer.

These projects are backed by long-term, binding agreements, TransCanada said, and are subject to regulatory approval.