OGJ Newsletter

June 2, 2014
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

Marathon to buy retail unit from Hess for $2.87 billion

Speedway LLC, a subsidiary of Marathon Petroleum Corp. (MPC), has agreed to acquire Hess Retail Holdings LLC, the East Coast's largest chain of company operated retail outlets and convenience stores with 1,342 locations, from Hess Corp. for $2.87 billion.

The transaction, expected to close late in the third quarter, includes all of Hess's retail locations, transport operations, and shipper history on various pipelines, including 40,000 b/d on Colonial Pipeline.

John B. Hess, Hess chief executive officer, said, "The sale of our retail business marks the culmination of our strategic transformation into a pure-play exploration and production company."

Hess in November 2013 completed the sale of its energy marketing business to Direct Energy, a subsidiary of Centrica PLC, for $1.2 billion (OGJ Online, Nov. 1, 2013). Last month, the company sold its interests in Thailand's Sinphuhorm and Pailin fields to PTT Exploration & Production PCL (PTTEP) for $1 billion (OGJ Online, Apr. 23, 2014).

Flint Hills to acquire PetroLogistics in $1.2 billion deal

Flint Hills Resources LLC, a subsidiary of Koch Industries Inc., has entered into a definitive agreement to acquire PetroLogistics and its general partner PetroLogistics GP LLC for $1.2 billion. The deal is expected to close before yearend.

Completion of the transaction is subject to a requirement that PetroLogistics' facility perform at a certain level of production for a period of 4 days before the closing, and to PetroLogistics' receipt of a legal opinion regarding certain tax matters.

Under the merger agreement, PetroLogistics retains the right through July 6, under certain conditions, to provide certain information to and enter into discussions and negotiations with any third party that submits an unsolicited qualifying superior acquisition proposal.

Flint Hills would have the opportunity to match such a proposal, but PetroLogistics would be able to terminate the merger agreement with Flint Hills and enter into or recommend a transaction with the third party that submitted the proposal, paying a resulting $57 million termination fee to Flint Hills.

PetroLogistics is a major producer of propylene with operations in the vicinity of the Houston Ship Channel. The company owns and operates the only propane dehydrogenation facility in the US, which has a production capacity of 1.45 billion lbs.

Sanchez to buy Eagle Ford acreage from Shell

Sanchez Energy Corp., Houston, has agreed to acquire 100% working interest in 106,000 net acres in Dimmit, LaSalle, and Webb Counties, Tex., from Royal Dutch Shell PLC for $639 million, effective Jan. 1. The agreement is expected to close at the end of the second quarter.

The sale includes 176 operated producing wells and associated field facilities and infrastructure. The assets consist of 60 million boe of proved reserves and 24,000 boe/d of average first-quarter production, with 60% liquids.

Sanchez's total position in the Eagle Ford will amount to 226,000 acres with 3,000 potential drilling locations.

The company's average production rate for this year's first quarter will rise to 42,800 boe/d, which includes an estimated Catarina production rate of 20,000 boe/d. Total proved reserves will increase 100% to 119 million boe.

The acquired assets are expected to generate a substantial amount of near-term cash flow and fully fund their drilling and completion activities in 2015, with only a modest outspend in 2014, Sanchez said.

Last year, Sanchez bought assets with high working interests in 43,000 net acres in Dimmit, Frio, LaSalle, and Zavala counties in the Eagle Ford from Hess Corp. for $265 million (OGJ Online, Mar. 18, 2013).

The transaction is part of Shell's restructuring of its North Americas shale oil and gas plays portfolio to focus on acreage positions that can reach the scale required by the company.

Shell previously divested its acreage position in the Mississippi Lime in Kansas, its Utica shale position in Ohio, and a portion of its acreage in the Sandwash Niobrara basins in Colorado (OGJ Online, Mar. 7, 2014).

OMB may ask SEC to pose fresh Dodd-Frank rules

The White House Office of Management and Budget may recommend that the US Securities and Exchange Commission propose revised requirements for publicly traded US oil, gas, and mining firms to disclose payments to foreign governments.

Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act mandates that such disclosures be required, OMB's Office of Information and Regulatory Affairs said in a notice. US District Court for the District of Columbia vacated and remanded the SEC's previous attempt to implement the rule in July 2013, it noted (OGJ Online, July 2, 2013).

The SEC subsequently said it would not appeal the court's decision, but try to rework its proposal to address shortcomings the ruling identified instead (OGJ Online, Sept. 4, 2013).

US oil and gas trade associations have expressed concern that requiring US producers and refiners to publicly report payments to foreign governments would give overseas competitors that don't have to make similar disclosures an unfair advantage.

"We're pleased the SEC is moving ahead with a revised disclosure rule," Stephen Comstock, tax and accounting policy director with the American Petroleum Institute, said. "The industry has led efforts to increase transparency for more than a decade and has asked the SEC to begin work on a new rule.

An effective and workable rule can provide a significant amount of information on payments without compromising US companies' ability to compete or transparency efforts already under way, he indicated.

Comstock said the oil and gas industry is working with civil society groups and the Obama administration to implement the Extractive Industries Transparency Initiative process, a program which effectively promotes transparency without harming American companies and investors.

"The initiative is being implemented in 36 countries and continues to grow," he noted.

Groups that support adopting such a requirement for US oil, gas, and mining companies to disclose payments to foreign governments as a way to increase financial transparency also welcomed the news. They urged the SEC to move ahead on developing robust rules which implement the law's provision.

US's crude imports from Mexico lowest since 1993

In 2013, Mexico was the third-largest source of crude oil imports to the US, averaging 850,000 b/d, behind Canada and Saudi Arabia, according to the US Energy Information Administration. However, the volumes were the lowest since 1993, reflecting declining production of crude oil in Mexico. Meantime, US oil imports from Mexico have dropped by 47% in the last decade.

By contrast, US petroleum products exports to Mexico have risen 152% over the past 10 years. Last year the US exported 527,000 b/d of products to Mexico, most of which was motor gasoline (46%), distillate fuel oil (22%), and LPG (10%).

"While the US is a net exporter of petroleum products to Mexico, the United States also imports some petroleum products from Mexico," EIA said, adding that, as with crude oil, US imports of petroleum products from Mexico have declined in recent years.

In 2013, the US imported 68,000 b/d of products from Mexico.

Exploration & DevelopmentQuick Takes

Eni appraises Agulha discovery off Mozambique

A group led by Eni SPA has successfully executed the appraisal campaign for the Agulha discover in Area 4 offshore Mozambique, Eni reported.

The Agulha 2 well, which is the twelfth well drilled in Area 4, proved a 25-m gas column in good quality Paleocene reservoir sandstones and confirmed the field's southern extension.

The delineation was carried out through the Agulha 2 well, which was drilled in 2,603 m of water and reached a total depth of 5,645 m. The well is in the southern part of Area 4 about 12 km south of the Agulha 1 discovery well and 80 km off Cabo Delgado (OGJ Online, Sept. 3, 2013).

Eni is considering further exploration drilling in the southern part of Area 4 after Agulha 2.

Total resources discovered in Area 4 are estimated at 85 tcf of gas in place.

Eni is the operator of Area 4 with 50% indirect interest owned through Eni East Africa, which holds 70% of Area 4. Other partners, each with 10% interest, are GalpEnergia, Korea Gas Corp., and Mozambique's state ENH carried through the exploration phase.

China National Petroleum Corp. owns 20% indirect participation in Area 4 through Eni East Africa.

RWE Dea completes, plugs Titan appraisal well

RWE Dea Norge AS says it will temporarily plug and abandon an appraisal well of the 2010 Titan discovery in the Norwegian North Sea (OGJ Online, Mar. 3, 2014).

The company conducted five mini-drillstem tests and said oil was proved in the Brent Group and the Heather, Drake, Cook, and Statfjord formations in production license 420.

Appraisal well 35/9-11 S and sidetrack 35/9-11 A are 16 km west of the Gjoa field. The Norwegian Petroleum Directorate (NPD) said the wells were drilled 1.7 km southwest of the 35/9-6 S oil, gas, and condensate discovery well (OGJ Online, Dec. 8, 2010).

The 35/9-11 S well was drilled to a vertical depth of 3,733 m below the sea surface by the Ocean Rig ASA's Leiv Eiriksson semisubmersible drilling rig in 368 m of water. NPD said the 35/9-11 A well was drilled 30 m from 35/9-11 S "for optimal core samples" and reached 3,795 m.

RWE Dea said the purpose of the drilling was to delineate the Titan discovery toward the south and to reduce uncertainty in reservoir thicknesses and properties.

"The well results increase our understanding of the area, which will be useful in the further exploration of the greater Titan area," said Hugo Sandal, managing director.

RWE Dea Norge is operator of PL 420 with 30% interest. Other partners are Statoil Petroleum AS 40% and Idemitsu Petroleum Norge 30%.

Petrovietnam still protesting CNOOC rig position

Do Van Hau, president and chief executive officer of Petrovietnam, said at a May 23 press conference that China has not provided a legal basis to justify the view of "disputed waters."

Petrovietnam said it sent a protest letter on May 4 to the president of China National Offshore Oil Corp. regarding the position of a drilling rig (OGJ Online, May 6, 2014). Petrovietnam said CNOOC positioned the rig in Vietnamese waters on May 2.

He said China's purpose is to turn an "undisputed" area into a "disputed" one.

"Vietnam resolutely rejects this wrong view and affirms determination to protect the legitimate interests by peaceful means, in accordance with international law," he said, adding, "For a long time, Vietnam has managed and effectively exploited the exclusive economic zone and continental shelf of Vietnam, including oil and gas activities."

Drilling & ProductionQuick Takes

GCW bring Louisiana well blowout under control

Gulf Coast Western (GCW) and its operating partner, Alpine Exploration Cos. Inc., both based in Dallas, confirmed that they have brought under control a well blowout in the Mallard Bay marshlands along the southern coast of Louisiana. The Mary O. Long No. 1 well, which was drilled in Cameron Parish, experienced a blowout on Mar. 3 during completion activities.

The event, which occurred in the Lower Alliance Sand at 12,420-60 ft, is now controlled, the partners said. Completion activities have resumed and production is expected to start in the next 2 weeks.

"Upon reentering the well, we encountered even greater pressures than those experienced by Conoco [Inc.] 30 years ago, and lost control of the well," said Matthew H. Fleeger, GCW chief executive officer. "We are pleased that Alpine was able to successfully get the well back under control and look forward to placing the well into production in the near future."

The Mary O. Long No. 1 well was a reentry of a proved oil and gas well drilled by Conoco in the 1980s with multiple logged zones, but abandoned because of several factors at the time including low commodity pricing and the need to construct a production platform and pipeline.

The well tested at extrapolated rates as high as 14.5 Mcfd of gas and 545 b/d of oil prior to the well being brought under control. GCW also expects to produce from the Planulina Sand above the Lower Alliance, bringing the area's total reserves potential to more than 2 million boe.

Barents Sea rig boarded by environmentalists

The Transocean Ltd.'s ultradeepwater semisubmersible Spitsbergen drilling rig, which has been contracted by Statoil ASA for drilling in the Barents Sea, was boarded May 26 by members of the environmental activist group Greenpeace. The group is protesting the onset of drilling tied to the Apollo prospect in the Hoop area where the rig was heading, Statoil said. The rig is now about 190 miles offshore with protesters and crew members engaged in dialogue. The goals of the protesters are unclear at this time.

Statoil plans to drill three wells in the Hoop area this summer on the Apollo, Atlantis, and Mercury prospects. The company received approval from the Norwegian Ministry of Climate and Environment to begin drilling operations. However, it cannot drill into oil-bearing layers until a complaint filed by Greenpeace is heard by the Ministry.

Royale contracts Kuukpik rig for North Slope drilling

Royale Energy Inc., San Diego, has let a contract to Kuukpik Drilling LLC, Anchorage, to provide a drilling rig for its Alaska North Slope shale oil play and 3D conventional target. Kuukpik will provide Rig No. 5 for the 2014-15 winter season to drill two test wells, said Royale.

Royale Energy's 100,000 acres in Alaska are situated within the peak oil generating and volatiles windows of the Shublik and Lower Kingak shales (OGJ, Jan. 7, 2013, p. 52).

PROCESSINGQuick Takes

Gazprom Neft advances revamp of Omsk refinery

JSC Gazprom Neft has let a contract for project management consultancy (PMC) services to KBR for the construction of an advanced oil processing complex at its 286,160 b/cd Omsk refinery in Western Siberia, Russia. The contract is part of a major renovation program of the largest operating refinery in Russia.

KBR said it will provide PMC services for three process units and offsites and utilities construction, beginning with the front-end engineering and design phase and continuing through EPC, commissioning, and start-up.

The contract will be executed by KBR's London and Russian operating centers.

Gazprom Neft in December 2013 let a contract to CB&I, Houston, for front-end engineering and design services for the refinery (OGJ Online, Dec. 9, 2013).

Kazakhstan lets contract for Atyrau refinery

The refining and marketing division of Kazakhstan's state-owned KazMunaiGaz (KMG), through a contractor, has let a contract to a subsidiary of Foster Wheeler AG for the engineering and material supply of a steam reformer heater and air preheating system at its 104,000-b/d refinery at Atyrau, Kazakhstan.

Foster Wheeler will supply its Terrace Wall steam reformer, which will be part of a hydrogen production unit with a capacity of 24,000 cu m to be built at the refinery, according to Foster Wheeler.

The plant's existing hydrogen plant already is based on Foster Wheeler's hydrogen technology, the firm said.

Foster Wheeler's scope of work at Atyrau is scheduled to be completed in April 2015.

A value of the contract was not disclosed but was included in the firm's first-quarter 2014 bookings, Foster Wheeler said.

The contract was awarded to Foster Wheeler on behalf of a consortium comprised of Sinopec Engineering (Group) Co. Ltd., Marubeni Corp., and KazStroyService that was selected to execute the engineering, procurement, and construction for the Atyrau modernization project, according to the firm.

In its latest available presentation to investors, dated October 2013, KMG said it aimed to complete modernization projects initiated in 2012 at its three refineries in Kazakhstan by Jan. 1, 2016. The modernization efforts follow Kazakhstan's state program on rapid industrial-innovation development (SPRIND) launched in March 2010, according to KMG's web site.

The second phase of reconstruction and modernization of the Atyrau refinery, which involves construction of a deep oil conversion complex at the site, broke ground on Sept. 10, 2012, with the project still awaiting full financial backing, according to a SPRIND project timeline posted to the web site.

In a Jan. 11, 2013, speech entitled outlining the policy and strategy for KazMunayGas up to 2050, Kazakhstan's President NA Nazarbayev said construction of an aromatics production complex as well as the deeper hydrocarbons conversion complex (OGJ Online, Oct. 3, 2012) already had started at the Atyrau refinery, with the projects requiring an investment of $1 billion each, according to a January 2013 release from KMG.

Suncor wraps maintenance at Canadian refineries

Suncor Energy Inc. has completed planned maintenance activities at its refineries in Edmonton, Alta., and Montreal, Que.

At its 142,000-b/d Edmonton refinery, about 1,400 employees and contractors were involved in the scheduled maintenance, which wrapped on May 26, Suncor said.

The planned maintenance at Edmonton began on Apr. 7 and was scheduled to last about 8 weeks (OGJ Online, Apr. 8, 2014).

Scheduled maintenance activities at Suncor's 137,000-b/d Montreal refinery concluded on May 20, with about 900 employees and contractors involved in the work.

Maintenance activities at the Montreal plant started on Apr. 21 and were planned to conclude after 4 weeks (OGJ Online, Apr. 22, 2014).

The company did not disclose specific details regarding the nature of work undertaken at either refinery, but both plants already have been scheduled for additional planned maintenance later this year.

The Edmonton refinery has a 4-week planned maintenance event slated to begin during the third quarter, while the Montreal refinery will enter 9 weeks of scheduled maintenance late in that same quarter, according to Suncor's first-quarter 2014 report to shareholders.

TRANSPORTATIONQuick Takes

EPP begins refined products exports from Beaumont

Enterprise Products Partners LP (EPP) has loaded the first cargo of refined products for export from its reactivated marine terminal in Beaumont, Tex. The terminal on the Neches River can load as much as 15,000 bbl/hr and includes a dock with 40-ft draft to accommodate Panamax vessels with a capacity as great as 400,000 bbl.

The terminal has access to more than 12 million bbl of refined products storage and receives products from eight refineries with a total of 3.3 million b/d capacity as well as the Colonial Pipeline. Improvements and modifications required to resume operations at the terminal included dredging, pipeline construction, and installation of loading arms and vapor recovery systems and are supported by shipper commitments.

EPP's future plans for the Beaumont refined products terminal include adding a second dock and on-site storage for blending components.

The company is also expanding its refined products marine terminal on the Houston Ship Channel (OGJ Online, May 30, 2013).

LNG Canada lets FEED, project execution contracts

LNG Canada Development Inc. let a front-end engineering and design contract and project execution services contract to Foster Wheeler AG subsidiary Global Engineering & Construction Group in joint venture with affiliates of Chiyoda Corp., Saipem SPA, and WorleyParsons Ltd., for its proposed LNG Canada export project in Kitimat, BC.

LNG Canada plans the export project as a phased development initially comprising two, 6-million tonne/year (tpy) processing trains, with an opportunity for two additional trains. Project timing depends on regulatory approvals and a final investment decision by LNG Canada not expected before 2016. LNG Canada received approval from the National Energy Board last year to export as much as 24 million tpy for 25 years.

Foster Wheeler included its portion of the FEED phase in its second-quarter 2014 bookings without disclosing cost.

LNG Canada partners are Royal Dutch Shell PLC affiliate Shell Canada Energy 50%, and affiliates of PetroChina 20%, Korea Gas Corp. 15%, and Mitsubishi Corp. 15%.

First shipment leaves from PNG LNG project

An official ceremony to mark the beginning of loading of the first shipment of LNG from the ExxonMobil group's Papua New Guinea LNG (PNG LNG) project onto the Spirit of Hela LNG carrier was held on May 14.

The cargo, loaded from the project's jetty adjacent to the production plant near Port Moresby, will depart shortly on its way to customer Tokyo Electric Power.

The ceremony was attended by Papua New Guinea Prime Minister Peter O'Neill and the country's founding Prime Minister Sir Michael Somare.

ExxonMobil Papua New Guinea managing director Peter Graham said the first cargo is only days away from being shipped to customers.