OGJ Newsletter

Feb. 24, 2014
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

Devon to sell conventional assets for $2.8 billion

Devon Energy Corp., Oklahoma City, has agreed to sell the majority of its Canadian conventional assets to Canadian Natural Resources Ltd. for $2.8 billion. Proved reserves associated with the divesture are about 170 million boe, said the company.

Upon close of the transaction, Devon said it would use the proceeds to repay debt incurred to finance its 2013 Eagle Ford acquisition (OGJ Online, Nov. 20, 2013). The company expects $2.7 billion to be repatriated to the US. after taxes and exchange rate adjustments.

"This agreement represents a significant step forward in the execution of our non-core divestiture process," said John Richels, president and chief executive officer, Devon Energy. The company's Canadian assets were the largest piece of that process and now Devon is free to focus on core assets, he added.

The company will retain its Canadian holdings in Horn River and Lloydminster as well as its heavy oil assets.

Oxy to spinoff California business

Occidental Petroleum Corp.'s board has authorized the separation of its California assets into an independent and separately traded company.

The news comes just a day after Oxy reported plans to sell its Hugoton field assets to an undisclosed buyer for $1.4 billion as part of the company's strategic review (OGJ Online, Feb. 13, 2014).

The newly formed company will hold 2.3 million net acres in California, including major operations in Los Angeles, San Joaquin, Ventura, and Sacramento (OGJ Online, July 23, 2009; Feb. 23, 2010; May 21, 2010).

The California business in 2013 earned $1.5 billion on a pretax basis. Earnings before income, taxes, depreciation, and amortization were $2.6 billion with capital expenditures of $1.7 billion. Capital expenditures planned for this year were increased to $2.1 billion.

Oxy said it will determine management and governance of the California business by the third quarter and complete the separation by yearend or early 2015.

Oxy, previously based in Los Angeles, will move its headquarters to Houston, maintaining exploration and production operations in the Permian basin and other parts of Texas, the Middle East region, and Colombia. The company will continue to operate its midstream and marketing segment along with chemical subsidiary OxyChem.

Stephen I. Chazen, Oxy president and chief executive officer since 2011, will remain in the position through 2016 (OGJ Online, Oct. 14, 2010).

Brightoil to buy Anadarko's China subsidiary

Brightoil Petroleum Holdings Ltd. of China plans to buy Anadarko Petroleum Corp.'s subsidiary in China for $1.075 billion. Anadarko owns minority stakes in two offshore oil fields in northeastern Bohai Bay, which are operated by majority owner CNOOC Ltd.

Anadarko's 2013 share of production from those fields averaged 11,000 b/d.

Closing, subject to regulatory approvals, is expected later this year. Brightoil is expanding its upstream oil and gas operations. It also has oil storage assets and trades marine bunker fuel.

Anadarko continues to divest its international projects to raise cash as the company focuses on US unconventional oil assets.

Al Walker, Anadarko chairman, said, "This transaction accelerates the recognition of value from a non-operated legacy asset and continues to demonstrate our commitment to active portfolio management."

As of Dec. 31, 2013, Anadarko reported an estimated 2.8 billion boe of proved reserves.

Brightoil, based in Shenzhen, already is involved with two natural gas field projects in the Xinjiang Tarim basin in northwestern China.

Exploration & DevelopmentQuick Takes

Lundin spuds exploration well offshore Indonesia

Lundin Petroleum AB reported its Balqis-01 exploration well is being drilled in the company's Baronang PSC prospect in the Natuna Sea.

The well is targeting Tertiary sands with its main objectives being the Oligocene fluvial sandstone reservoirs in stacked four-way dip closures. The well is being drilled to 2,130 m below mean sea level.

The company estimates the Balqis prospect to have a gross potential of 47 million boe.

The Boni-01 will be drilled as a sidetrack immediately following the vertical Balqis-01. The Boni-01 is planned as an 820 m offset from total depth of the Balqis-01 and will test early to late Oligocene reservoirs, which the company believes could contain up to 55 million boe.

The Boni-01 will drill to 2,300 m below mean sea level, and the company expects to complete drilling in 5 days.

Lundin has a 90% working interest as operator through its wholly owned subsidiary Lundin Baronang BV. Nideo Petroleum Limited holds 10% working interest as partner.

Canacol's Leono 2 well flows oil from Llanos basin

Canacol Energy Ltd. reported its second well, Leono 2, on the LLA 23 contract in the Colombia's Llanos basin encountered 121 ft of net oil pay in four separate reservoirs.

The Leono 2 well was spud Jan. 11 and was drilled to a depth of 12,610 ft on Jan. 26.

The well tested at a gross rate of 1,328 b/d of oil in the C7 reservoir (10 ft net oil pay with average porosity of 19%). The well encountered 60 ft of net oil pay in the Barco, which has an average porosity of 18%. The Barco was perforated from 10,974-10,979 ft and flowed 3,003 b/d of oil of 37° gravity API oil.

The Leono 2 encountered 26 ft of net oil pay within the Gacheta reservoir and 25 ft net oil pay in Ubaque, which have average porosities of 24% and 19% respectively.

Canacol has an 80% operated working interest in the LLA23 contract, with Petromont Colombia SA holding the remaining 20%.

The LLA23 contract gives Canacol access to 115,014 acres. It is a conventional reservoir, not prospective for shale as previously reported (OGJ Online, Dec. 16, 2013).

Dana signs agreement for concession off Nile Delta

Dana Gas PJSC signed an agreement for the North El Arish Block 6 concession off the Nile Delta, according to a company announcement. The Sharjah-based company was awarded 100% interest in the concession last April after blocks were put up for bid by the Egypt Natural Gas Holding Co. (OGJ Online, April 22, 2013).

Dana Gas says it has already begun a 4-year exploration phase that will include acquiring seismic data and drilling an exploration well. The 2,980 sq km Block 6 sits in waters as deep as 1,000 m and is near other large gas finds in the Levantine basin.

The company further said it was awarded the 32 sq km Balsam development lease in the West El Manzala concession, Nile Delta region. This brings the company's total number of leases to 13.

Dana Gas said its total average 2013 production was 36,700 boe/d.

Beach extends reserves with Bauer step-out

Beach Energy Ltd., Adelaide, has further extended reserves in its Bauer oil field in the western flank of the Cooper-Eromanga basins, South Australia with success in a new step-out well.

The Bauer-12 well in the PEL 91 permit encountered 4 m of net oil pay in the McKinlay member sands and another 5 m net oil zone in the underlying Namur Sandstone. Both reservoirs are of Mesozoic age in the Eromanga basin that lies on top of the Cooper basin. The No. 12 well was designed to probe the undrilled northwest part of the prospect.

Preliminary mapping following the success has added 2.5 million bbl to the 2P reserves at Bauer field and the well has been cased and suspended as a future producer.

Bauer is the largest field on the Western Flank fairway and is currently producing from 8 wells. Three more have still to be brought on stream.

Production is exceeding the 10,500 b/d capacity of the Bauer-Lycium oil pipeline and seven road tankers have been brought in to take an additional 2,500 b/d to the production facilities at Moomba.

A new step-out, Bauer-13, 1.4 km southeast of Bauer-12, is next on the company's drilling agenda.

Drilling & ProductionQuick Takes

ExxonMobil starts production from Damar field

ExxonMobil Exploration & Production Malaysia Inc. reported the startup of natural gas production from Damar field, which lies in 55 m of water about 200 km offshore eastern peninsular Malaysia.

Damar field has a projected capacity of 200 MMcfd of gas. ExxonMobil and joint-venture partner Petronas Carigali Sdn. Bhd. have planned 16 development wells that will tie back to a four-legged gas satellite platform. Full well stream gas will be produced via a 22-km pipeline to the existing Lawit A platform for processing.

The Damar startup follows the Telok gas development in Malaysia, which started production in March 2013 (OGJ Online, Mar. 11, 2013).

Damar was developed under a production-sharing contract signed by ExxonMobil, Petronas Carigali, and Petronas.

ExxonMobil E&P Malaysia in late 2012 awarded a contract to Malaysia Marine & Heavy Engineering Sdn. Bhd. for the engineering, procurement, construction, and commissioning of the topsides and platform jacket for the Damar project.

ExxonMobil E&P Malaysia is the project's operator with 50% interest, while Petronas Carigali holds the other 50%.

Industry to see increase in FPS deployment

Energy industry analyst Douglas-Westwood is forecasting that nearly $100 billion will be spent worldwide on floating production systems (FPS) between 2014-2018, according to a company market report. That would be an increase of 138% over the previous 5-year period.

The report says that long-term growth will be spurred by continued deepwater development, marginal fields, and fast-track, short-term deployments. The increase in deepwater deployments will account for $68 billion in value, or two thirds of the total spend over the next 5 years.

Floating production, storage, and offloading systems (FPSOs) will make up the largest segment of the market in units installed and capital expenditure. And Latin America will account for 29% of the 139 installations forecast by the report as well as 38% of the capex.

The FPS sector has seen a steady recovery since the downturn in 2008-09. However, there has been little growth in the annual value of installed units over the last 4 years. Douglas-Westwood sees 2014 as the first year of a significant increase in the value of units deployed.

Pemex signs contracts for Seadrill jack ups

Petroleos Mexicanos (Pemex) signed 6-year drilling contracts to use Seadrill Ltd.'s jack up rigs West Oberon, West Intrepid, West Defender, and West Courageous in the Gulf of Mexico.

A fifth contract for the recently acquired jack up Prospector 3, renamed West Titania, is expected to be finalized during the second quarter.

Total revenue potential from the five contracts exceeds $1.8 billion, Seadrill said. The West Oberon is under construction. The West Defender and West Courageous had worked in southeast Asia until their contracts expired this year.

Seadrill also established SeaMex Ltd., a 50-50 joint venture with an investment fund controlled by Fintech Advisory Inc., to own and manage jack up rigs drilling for Pemex. SeaMex will pursue more opportunities across Latin America.

"This opportunity to expand our relationship with Pemex was partly developed on the back of Seadrill's successful operations with our ultra-deepwater semisubmersible West Pegasus in Mexico," said Per Wullf, Seadrill chief executive officer.

Pemex in 2011 finalized an agreement with Seadrill's affiliate, Sea Dragon de Mexico, to provide the West Pegasus, formerly Seadragon I (OGJ Online, Apr. 8, 2011).

PROCESSINGQuick Takes

Iran, Indonesia plan $3 billion refinery

PT Kreasindo Resources Indonesia (KRI) and Iran's Nakhle Barani Pardis Co. (NBP), Tehran, have entered an agreement for the planned construction of a grassroots refinery in Indonesia.

KRI and NBP signed a memorandum of understanding on Feb. 11 to explore the feasibility of building a refinery designed to process heavy crude oil in either West Java Province or Banten Province, Indonesia, KRI President Rudy Radjab told OGJ.

Under the agreement, KRI will own 70% of the planned 300,000-b/d refinery, while NBP will own the remaining 30% and act as the refinery's heavy crude supplier.

Currently, the companies estimate the refinery will require an investment of $3 billion, which is based on an initial capacity of 150,000 b/d, Radjab added.

With both the bankable feasibility and site selection studies still to be completed, a specific timeframe for the project is not yet available.

Eni plans refining capacity cuts

Italy's Eni SPA is planning additional reductions to its Italian refining capacity by 2017 to tackle the growing refining overcapacity in the Mediterranean basin, the company said in its latest quarterly earnings and strategy presentation.

The capacity reduction plan follows poor fourth-quarter 2013 refining margins in the Mediterranean, which fell to less than $1/bbl (down by 81.1% from fourth-quarter 2012) "due to structural headwinds in the industry driven by overcapacity, lower demand, and increasing competition from imported refined product streams," the company said in its earnings release.

Quarterly results also were affected by narrowing differentials between the price of heavy crudes Eni's refineries process and the price of European benchmark Brent crude amid reduced heavy crude availability in the Mediterranean region, according to the company.

The capacity reductions are designed to increase the company's Italian refining utilization to 80% by 2017.

While Eni already has cut its refining capacity by 13% over the last 3 years with downsizing at its Venice and Gela refineries, it plans a further capacity reduction of 22% in the next 3 years, which would reduce the company's total refining capacity by over one-third since 2012, Eni's Senior Executive Vice-President of Trading Marco Alvera said.

Eni's plans to reduce refining capacity include completing the conversion of its 80,000-b/d Venice refinery at Porto Marghera, Italy, into a biorefinery base for the production of biodiesel (OGJ Online, Sept. 24, 2012), which is scheduled for second-quarter 2014, as well as a capacity optimization project due for completion in fourth-quarter 2014 at its 200,000-b/d Sannazzaro refinery in Italy's Po Valley.

Eni already shut down gasoline production plants in third-quarter 2013 at its 105,000-b/d Gela refinery on the southern coast of Sicily, according to the company's presentation.

Essar plans capacity cut at Stanlow refinery

India's Essar Energy PLC is planning to shut down a crude distillation unit at its Stanlow refinery in the UK near Ellesmere Port, Cheshire, in an effort to boost refining margins and ensure the plant's ongoing viability.

The company will be mothballing its smaller CD3 crude unit by October 2014, which will reduce fuel oil and naphtha production and improve absolute margins, according to Essar's latest interim management statement, issued on Feb. 18.

With the unit's shutdown, crude oil processing capacity at the Stanlow refinery will fall to about 195,000 b/d from its current nameplate capacity of 296,000 b/d, with the refinery 's yield profile expected to become 33% gasoline, 57% kerosene and diesel, and 3% fuel oil, the company said.

The decision to shutter the unit comes a result of the refinery's poor financial performance as well as the overall weakness in Europe's refining industry environment, according to the company.

In addition to closing the unit, the company also is embarking on an estimated $100 million cost-improvement program designed to enable the plant to weather the current period of "exceptionally poor refining margins" in Europe, Essar said.

Currently, the Stanlow refinery is operating at about 70% (207,000 b/d) of its nameplate capacity, according to the company's website.

Kuwait lets contract for Clean Fuels Project

Kuwait National Petroleum Co. (KNPC) has let another lump-sum turnkey contract to a second consortium of oil and gas service providers for work related to its Clean Fuels Project (CFP) at the Mina Abdullah refinery in southern Kuwait (OGJ Online, Feb. 19, 2014; Feb. 12, 2014; Dec. 6, 2013; Apr. 1, 2013).

KNPC has selected a joint venture formed by Fluor Corp., Daewoo Engineering & Construction Co., and Hyundai Heavy Industries Co. to design, construct, and commission the Mina Abdullah Package 2 CFP, Fluor said in a recent release.

Under the contract, Fluor will provide engineering, procurement, and construction (EPC) services as well as the associated commissioning, start-up, and testing support for the project, the company said.

The contract's total value was not disclosed, and Fluor said it plans to book its undisclosed portion of the project value during first-quarter 2014.

KNPC previously let a lump sum EPC contract to a consortium led by Petrofac for CFP-related work related at its Mina Abdullah and Shuaiba refineries.

Under the CFP, KNPC will integrate and upgrade the 270,000-b/d Mina Abdullah and 466,000-b/d Mina Al Ahmadi refineries and ultimately close the 200,000-b/d refinery at Shuaiba following the completion of the grassroots Al Zour refinery (OGJ Online, Dec. 3, 2013). The newly integrated refineries will operate as a merchant complex with total capacity of about 800,000 b/d, the company has said (OGJ Online, Apr. 1, 2013).

TRANSPORTATIONQuick Takes

Genesis to build new import-export terminal

Genesis Energy LP plans to build a new crude oil, intermediates, and refined products import-export terminal in Baton Rouge, La. Genesis will build the Baton Rouge terminal on about 90 acres of land near the Port of Greater Baton Rouge, connected to the port's existing deepwater docks on the Mississippi River.

The docks can berth vessels ranging from barges to Aframax-class. Genesis will also build an initial 1.1-million bbl of storage for crude oil, intermediates, and refined products, expandable to provide additional terminaling services to customers.

The Baton Rouge terminal will connect to ExxonMobil facilities in the area, as well as to Genesis' previously announced Scenic Station unit train-capable rail terminal. Genesis expects to complete Scenic Station next quarter (OGJ Online, Feb. 4, 2013). It is connected to both Canadian National Railway and Kansas City Southern Railway, the latter of which interconnects with Canadian Pacific Railway.

Genesis expects the Baton Rouge terminal to be operational by second-quarter 2015, underpinned by definitive agreements with ExxonMobil for a portion of both its storage and throughput capacity. The terminal will cost $150 million.

Irving to complete rail car conversion by April

Irving Oil reported that by Apr. 30 it will complete the conversion of its proprietary fleet of crude oil rail tank cars to Association of American Railroads' (AAR) recommended specifications for DOT-111 railcars constructed after Oct. 1, 2011. This will require the voluntary removal of older-model railcars from service.

The AAR specifications recommend that DOT-111 tank cars built after October 2011 be constructed with reinforcements and enhancements reported to reduce the risk of product loss if these tank cars are involved in derailments. Irving will also advise suppliers and marketers of crude oil of its adoption of AAR's enhanced standard, and will ask for their adherence by no later than Dec. 31, for crude oil tank cars servicing Irving.

Irving has so far brought 88% of its fleet into compliance. Over the next 10 weeks, the company will empty its remaining older-model rail cars so they can be cleaned and removed from service. By April 30, Irving's in-service proprietary DOT-111 rail fleet in Canada and the US will consist entirely of newer-model rail cars built in 2012-2013, all of which will meet AAR's enhanced specifications.

The announcement follows recommendations made Jan. 23 by the Transportation Safety Board of Canada (TSB) relating to enhanced protection standards for rail cars.

The US Pipeline and Hazardous Materials Safety Administration (PHMSA) last year proposed safety improvements including enhanced tank head and shell puncture resistance systems as well as top fittings protection exceeding current DOT-111 requirement tank cars (OGJ Online, Sept. 5, 2013).

NGPL tests interest in mainline expansion

Natural Gas Pipeline Company of America LLC (NGPL) launched a 14-day non-binding open season to gauge interest in the potential 750-MMcfd incremental expansion of its Gulf Coast mainline system from the Rockies Express Pipeline (REX) interconnection at Moultrie, Ill., to points south. The expansion would include the reversal of compressor stations, and minor pipe replacement and upgrade activities along NGPL.

The open season ends Mar. 4.

The US Federal Energy Regulatory Commission in December approved the reversal of REX to allow east-to-west transportation. REX's final leg began operations in 2009, completing the transport of natural gas from Wyoming to Ohio (OGJ Online, Nov. 13, 2009).