OGJ Newsletter

April 21, 2014
International News for oil and gas professionals

GENERAL INTERESTQuick Takes

Senate leaders ask EIA to probe oil export impacts

US Senate Energy and Natural Resources Committee leaders asked the Energy Information Administration to conduct a more extensive analysis of possible consequences from lifting or easing the ban on exporting US-produced crude oil.

The US Department of Energy's independent statistics, analysis, and forecasting service has limited resources and numerous reporting requirements to Congress already, Chair Mary L. Landrieu (D-La.) and Ranking Minority Member Lisa Murkowski (R-Alas.) conceded.

"We would like to convey the interest of our committee in crude oil exports, which are largely banned by statute," they continued in an Apr. 10 letter to EIA Administrator Adam Sieminski. "As you know, the possibility of lifting the ban—partially or completely—has emerged as a subject of critical concern in Congress."

Possible areas of interest, according to Landrieu and Murkowski, might include:

• Current and projected production of crude and condensate of varying grades.

• US refining capacity and distribution, including the ability of US refiners to process the various grades of domestically produced crude and condensate.

• US refiners' position and ability to compete in relation to global products markets.

• Economic implications of retaining or changing the current crude export policy on US producers, refiners, and consumers.

• Transportation logistics connected with US crude and condensate production, including rail capacity.

"This is a complex puzzle that is best solved with dynamic and ongoing analysis of the full picture, rather than a static study of a snapshot in time," the senators' letter said.

ConocoPhillips ups Eagle Ford resources estimate

ConocoPhillips has increased its estimated resource base in the Eagle Ford play to 2.5 billion bbl of oil in place from 1.8 billion bbl, as well as its estimated production from current volumes to more than 250,000 boe/d by 2017.

"ConocoPhillips's wells in the Eagle Ford have the highest oil rates per well and are leading the industry in value," said ConocoPhillips Chairman and CEO Ryan Lance.

During fourth-quarter 2013, the company reported production of 218,000 boe/d from the Eagle Ford, Bakken, and Permian, a 31% increase compared with fourth-quarter 2012. The Eagle Ford and Bakken reached respective peak rates of 141,000 boe/d and 43,000 boe/d during that time (OGJ Online, Jan. 31, 2014).

ConocoPhillips has outlined a plan to consistently deliver 3-5%/year compound growth in production and margins from major development programs and projects already under way in the US Lower 48, Canadian oil sands, the UK and Norwegian North Sea, Malaysia, and Australia.

"Beginning this year, we will be growing production and margins across our diverse asset base, and allocating 95% of our annual capital expenditures to growth projects and programs with margins that are higher than our average margin today," said Lance.

Over the next several years, the company intends to execute a $16 billion/year capital program and achieve the company's organic reserve replacement target of more than 100%.

ConocoPhillips since 2009 has added 6.7 billion boe of resources, boosted in part by the Gulf of Mexico's Tiber, Gila, Shenandoah, and Coronado discoveries. Further activity targets offshore prospects in Australia, Angola, and Senegal; conventional exploration in Norway and Indonesia; and unconventional exploration in North America, Poland, and Colombia.

BP plans to divest Texas Panhandle assets

BP America Production Co. said it intends to divest assets in the Hugoton and Panhandle West fields in Sherman and Moore counties in the Texas Panhandle. The company will retain deep rights below the base of the Brown Dolomite, it said.

BP owns more than 270,000 gross acres in the two counties, encompassing 830 leases, 475 operated wells—a majority of which BP owns 100% working interest—along with 37 nonoperated wells. Other operators include ConocoPhillips Co. and Pantera Petroleum Inc.

The helium and liquids-rich sour gas play has total current BP production of 4,600 boe/d, NGL production of 2,000 b/d, residue gas production of 15 MMcfd, and helium production of 96 Mcfd.

The Eagle Rock gathering system serves as the primary field gathering system for Sherman and Moore counties, receiving 80% of BP's production (OGJ Online, Aug. 13, 2012). The remaining gas is gathered by DCP Midstream Partners LP.

BP in 2012 sold its Kansas Hugoton assets to Linn Energy LLC for $1.2 billion (OGJ Online, Feb. 28, 2012). In February, Occidental Petroleum Corp. agreed to sell its Hugoton assets spanning southwest Kansas, the Oklahoma panhandle, and eastern Colorado to an undisclosed buyer for $1.4 billion (OGJ Online, Feb. 13, 2014).

Exploration & DevelopmentQuick Takes

Statoil makes oil, gas find north of Valemon field

Statoil ASA, together with its Valemon unit partners, made an oil and natural gas discovery in the Valemon North prospect in the North Sea, just 10 km north of the companies' planned Valemon installation (OGJ Online, June 19, 2012).

The discovery wells, 34/10-54 S and 34/10-54 A, were drilled by Transocean Inc.'s Transocean Leader semisubmersible drilling rig.

The main wellbore, 34/10-54 S, proved a gross 164-m gas-condensate and oil column in the Middle Jurassic Brent group. The sidetrack, 34/10-54 A, proved a gross 100-m gas-condensate column in the Brent Group and in sand of unspecified Jurassic age, and an additional gross 140-m gas-condensate column in the Statfjord Group. Gas-condensate also was found in the middle Jurassic Cook formation, Statoil reported.

Statoil estimates the total volumes in Valemon North to be 20-75 million bbl of recoverable oil equivalent.

"We are very satisfied with making a new discovery in the close proximity of the Valemon gas and condensate field currently under development," said Irene Rummelhoff, senior vice-president, exploration, Norway.

Valemon field, discovered in 1985, is one of Statoil's largest ongoing development projects on the Norwegian Continental Shelf. Recoverable reserves from the field are estimated at 206 million boe.

The development concept is a fixed platform, with rich gas export to Heimdal and condensate export to Kvitebjorn. Production start-up is expected in this year's fourth quarter.

Santos tests gas at Mt Kitty-1 in central Australia

The Santos Ltd.-operated wildcat Mt Kitty-1 in the Amadeus basin of central Australia has flowed gas on test from four zones in the target Heavitree formation below 2,140 m subsurface.

The well was air-drilled to the target where it encountered a formation thickness in the reservoir of 109 m on its way down to the programmed total depth of 2,295 m.

Elevated gas readings were recorded on penetration of the Heavitree prior to the test program.

A flow test at 2,144 m produced 500 Mcfd of gas before declining to 70 Mcfd after 10 min. A second test at 2,156 m produced 530 Mcfd decreasing to 420 Mcfd after 18 min. Comparable flows were then recorded at 2,185 m and 2,252 m.

The preliminary analysis indicated a high helium content in the gas, making up about 5.8% of the flow. Historically the region is known to be helium-rich.

The nearby Magee gas find recorded 6% helium, 45% inerts (mostly nitrogen), and 49% hydrocarbons. Helium is about 30 times more valuable than methane for the venture.

Santos said, nevertheless, it is too early to speculate on the commercial significance of the gas find. The JV is now conducting wireline operations and detailed gas sample analysis.

Mt Kitty-1 is in permit EP 125 in the southern Amadeus about 200 km south southwest of Alice Springs. Santos has 70% and Central Petroleum Ltd. has 30%.

BOEM proposes Lease Sale 238 in western gulf

The US Bureau of Ocean Energy Management (BOEM) will offer 3,992 blocks over 21.4 million acres offshore Texas for oil and gas exploration and development in August's western Gulf of Mexico Lease Sale 238.

The blocks, which lie 9-25 miles offshore in 5-3,346 m of water, could result in the production of 116-200 million bbl of oil and 538-938 bcf of natural gas, BOEM projected.

BOEM specified it plans to offer blocks located, or partially located, within the 3-statute mile US-Mexico Boundary Area subject to the terms of the US-Mexico Transboundary Hydrocarbon Agreement.

The sale will be the sixth offshore sale under the Obama administration's Outer Continental Shelf Oil and Gas Leasing Program for 2012-17. The first five sales offered more than 60 million acres and netted nearly $2.3 billion.

Western gulf Lease Sale 233, held in August 2013, received 61 bids from 12 companies totaling $102,351,712 in apparent high bids (OGJ Online, Aug. 28, 2013).

Last month's central gulf Lease Sale 231 garnered 380 bids from 50 companies resulting in a total of $850 million in apparent high bids (OGJ Online, Mar. 19, 2014).

Drilling & ProductionQuick Takes

Total lets $3.5 billion contract for Kaombo

Total E&P Angola has let a contract to a consortium comprised of Technip SA and Heerema Marine Contractors for the engineering, procurement, construction, installation, and precommissioning of subsea umbilicals, risers, and flowlines for the Kaombo project on Block 32 offshore Angola. The deal is worth $3.5 billion, distributed 55% to Technip and 45% to Heerema.

The project's scope of work consists of the engineering, procurement, fabrication, transport, and installation of 18 rigid risers, 300 km of rigid pipe-in-pipe production and single pipe injection pipelines, and a large number of subsea structures, piles, and steel jumpers.

The contract also covers the transport and installation of 115 km of client-supplied umbilicals, manifolds, well jumpers, and flying leads.

Technip said the engineering work will begin immediately in the Paris, Leiden, and Luanda centers. Most of the offshore installation activities are scheduled for 2016-17.

Heerema intends to mobilize Balder, its deepwater construction vessel, to install risers and the PIP production pipelines. Technip's vessel, the Deep Blue, will install the remaining pipelines. Other vessels from Technip's fleet will install the flexibles and umbilicals and provide construction work support.

The project is scheduled for completion in first-half 2018.

Total recently made a final investment decision with its Kaombo development partners, reducing its capital expenditures from $20 billion to $16 billion (OGJ Online, Apr. 14, 2014).

Chevron, YPF to continue Vaca Muerta development

Chevron Corp. and YPF SA, Buenos Aires, will continue development of Argentina's Vaca Muerta shale formation. Chevron says it will build off the progress of its 2013 drilling program with YPF, investing in large-scale drilling and production in the 96,000-acre Loma Campana concession.

The initial development agreement was signed in July 2013 by Chevron subsidiaries after several months of negotiations with the Argentinian government (OGJ Online, July 16, 2013). It represented the first significant investment in the country since YPF was renationalized in 2012 when President Cristrina Fernandez de Kirchner expropriated 51% of the company from Repsol YPF SA, Madrid.

Chevron says the continuing Vaca Buena development will include exploration for shale oil and gas resources in a 49,000-acre area of Chihuido de la Sierra Negra concession, one of the main producing areas of the Neuquen basin in west-central Argentina.

In 2012, Repsol said a large investment in Vaca Buena could double oil and gas production in Argentina in 10 years. At that time, Ryder Scott Co. LP, Houston, estimated that the entire 7.4-million acre play had resource potential of 116 boe proved, probable, and possible reserves, 1.525 billion boe of contingent reserves, and 21.167 billion boe of prospective resources (OGJ Online, Mar. 27, 2012).

Stanley gas-condensate field development approved

The Papua New Guinea government has approved Horizon Oil Ltd.'s proposed $300 million development of the Stanley gas-condensate field in the country's western province.

Papua New Guinea Petroleum and Energy Minister Nixon Duban has been authorized by the National Executive Council to sign a gas agreement with Horizon and its fellow partners.

This agreement prescribes the key rights and obligations of the state and licensees for the Stanley project, including fiscal terms and commitments to local content. There also is approval for benefit sharing arrangements among the local landowners.

Stanley field will now be issued with a petroleum development license (PDL10) and a pipeline license (PL10) following the formal ceremony to sign the gas agreement this week.

Stanley will initially be developed as a condensate extraction project with reinjection of dry gas until a market develops, both locally and potentially as part of a wider gas-gathering system associated with the country's LNG projects.

The plan is to produce at a rate of 140 MMcfd of gas from two wells, which is expected to yield a condensate flow of 400 b/d, plus potential for 40 tonnes/day of LPG.

A condensate recovery plant will be built at Stanley field along with a liquids pipeline to Kiunga on the Fly River. Storage will be built at Kiunga while a river tanker being built in Jiangsu in China will ferry the condensate to market outlets.

Stanley-1 flowed at 30 MMcfd of gas and 24 bbl/MMcf of condensate after a workover in mid-2008. Horizon, which is project operator with 30% interest, estimates the project will produce about 8 million bbl of condensate over 10 years.

Osaka Gas has 20% interest, while Talisman Energy began with 40% and Mitsubishi 10%. Talisman brokered a deal with Mitsubishi in 2013 to sell down its interest in this and a number of other PNG projects such that Mitsubishi's share would rise to an average of 20% in each of the permits concerned.

PROCESSINGQuick Takes

Joint venture launches refinery in Kurdistan

Black Diamond Oil Co. and Rezhwan Co. have agreed to form a joint venture for a refinery in the Kurdistan region of Iraq that is scheduled to begin operations as soon as next week, the companies said in an Apr. 13 release.

The refinery, near the Kurdish capital of Erbil, will process crude Black Diamond purchases directly from above-ground reserves in Taq Taq field in central Iraq, about 50 miles east-southeast of Erbil. Rezhwan will act as the refinery's operator.

The gasoline-producing plant will have an initial crude oil processing capacity of 11,000 b/d, which Black Diamond plans to increase by 22,000 b/d starting in May, the company said.

With proved and probable reserves totaling 607 million bbl of an estimated 1.7 billion bbl of oil in place, Taq Taq—Kurdistan region's largest oil-producing field—produced 80,000-100,000 b/d of crude, all of which currently is transported by truck, according to field operator Genel Energy PLC (OGJ Online, Mar. 13, 2013).

Production from Taq Taq averaged 75,500 b/d in 2012 vs. 66,000 b/d in 2011.

With a projected total depth of 5,400 m, the TT-22 Taq Taq deep exploratory well is due to spud shortly, Genel Energy said.

But with a gross unrisked resource of 250 million bbl of oil equivalent still in Jurassic and Triassic reservoirs, Genel Energy said it believes ultimate recovery from Taq Taq could reach 1 billion bbl.

Suriname refinery expansion advances

The construction phase is progressing for a major expansion and efficiency project to double crude capacity at the Tout Lui Faut refining complex about 12 miles south of Suriname's capital city of Paramaribo (OGJ Online, Sept. 9, 2009).

Precommissioning preparations have now been completed to start up some of the new systems related to the expansion, according to Suriname state oil firm Staatsolie.

In a series of sessions during February and March, the construction, commissioning, and startup and refining operations divisions established plans to complete additional project milestones, including the final powering of a substation as well as the start-ups of cool water pumps and air compressors at the site, Staatsolie said. The deadline for meeting these last project milestones is May 15, according to the company.

Once completed, Staatsolie's expansion project—which began in February 2012 and was designed to reduce the country's dependence on imported fuel products—will more than double the refinery's capacity to 15,000 b/d from a current 7,000 b/d to produce high-quality diesel, gasoline, and fuel oil (OGJ Online, July 28, 2011).

Most recently, Staatsolie let a contract to Honeywell for a manufacturing execution system at the Tout Lui Faut plant, at which time Staatsolie said the expanded refinery would be commissioned in October (OGJ Online, Jan. 21, 2014).

New ethylene plant proposed for Louisiana

Shintech Inc., the US uni of Shin-Etsu Chemical Co. Ltd., Tokyo, has applied to the Louisiana Department of Environment Quality for a permit to build a grassroots ethylene plant.

The company intends to build the plant, which would have a production capacity of 500,000 tonnes/year of ethylene, on land for industrial use that it already owns, Shintech said.

Concurrently with carrying out the required processes to secure a building permit, Shintech will continue its feasibility study with regard to the amount to be invested for the proposed plant construction, the profitability of the project, and the amount of time that will take for construction to be completed, the company said.

Neither a timetable for the final investment decision on the project nor a specific location for the proposed plant was disclosed.

Following its implementation of an in-house production system for chlorine, Shintech said the proposed plant aligns with its strategy of setting up in-house production of ethylene starting from its own raw materials to ensure a stable supply and further strengthen its integrated PVC production system.

TRANSPORTATIONQuick Takes

LNG Ltd. lets Magnolia LNG technical services agreement

Liquefied Natural Gas Ltd.'s wholly owned subsidiary Magnolia LNG LCC (MLNG) let a technical services agreement to SK E&C USA Inc. (SKEC), a wholly owned subsidiary of SK Engineering & Construction Co. Ltd., of South Korea covering ongoing engineering, procurement, and construction activities for MLNG's planned 8-million tonne/year liquefaction plant in Lake Charles, La.

Under the agreement, SKEC will:

• Continue to review all pre-frontend engineering and design information and data included in the preliminary resource reports submitted to the US Federal Energy Regulatory Commission.

• Assist MLNG in completing final resource reports as part of MLNG's filing application to FERC, targeted for submission the end of the month.

• Complete the FEED for the Magnolia LNG project including gas pretreatment facilities, four 2-million tpy LNG trains, two 160,000-cu m full containment storage tanks, jetty, and ship loader facilities, and all related infrastructure and services.

• Prepare a detailed lump-sum turnkey EPC cost estimate on an open book basis Nov. 28.

• Negotiate and agree with MLNG a detailed lump-sum turnkey EPC contract term sheet; targeted for June 30.

• Negotiate and agree a definitive and binding lump-sum turnkey EPC contract based on the term sheet.

SKEC has been working on several of these activities under a shorter term letter of engagement, which the technical services agreement supersedes.

SKEC has already completed a satisfactory detailed review of LNG Ltd.'s optimized single mixed refrigerant process technology, to be used for MLNG, and provided the company with an initial estimated EPC cost of $1.57 billion, consistent with the LNG Ltd.'s budget estimate.

Antero books all of TGP pipeline expansion capacity

Antero Resources Inc. was awarded all of the natural gas capacity offered by Kinder Morgan Energy Partners LP's Tennessee Gas Pipeline Co. (TGP) in an open season for its proposed Broad Run Flexibility and Broad Run Expansion projects.

The open season totaled 790 MMcfd of firm capacity for 15 years on the Broad Run Lateral in West Virginia and on TGP's 100 and 500 mainlines.

The projects include horsepower and piping modifications at existing stations, and one compressor station on the Broad Run Lateral, all in West Virginia; two TGP mainline compressor stations in Tennessee and Kentucky; and modifications to five existing mainline compressor stations in Kentucky.

The Broad Run Flexibility Project provides 590 MMcfd of firm transportation capacity from TGP's Broad Run Lateral in TGP Zone 3 to mutually agreeable delivery points in TGP Zone 1.

TGP expects the Broad Run Flexibility Project to enter service Nov. 1, 2015. TGP expects the Broad Run Expansion Project to provide an incremental 200 MMcfd firm transportation capacity on the same path by Nov. 1, 2017.

KMEP expects the projects to cost $782 million.

Antero last month became the anchor ethane supplier for Brazil-based Odebrecht SA subsidiary Odebrecht Oil & Gas SA's proposed Appalachian Shale Cracker Enterprise petrochemical complex in Wood County, W.Va. (OGJ Online, Mar. 28, 2014).