OGJ Newsletter

Aug. 11, 2014
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

EIA: Marcellus gas production reaches 15 bcfd

Natural gas production from the Marcellus shale has surpassed 15 bcfd through July and now represents 40% of US shale gas production, making it the largest producing shale gas basin in the country, according to the US Energy Information Administration's Drilling Productivity Report.

While the region's rig count has leveled off at about 100 rigs over the past 10 months, improvements in drilling productivity have enabled operators to more efficiently support new wells.

EIA expects wells coming online in August to add more than 600 MMcfd to existing production, more than offsetting a drop in production due to existing well decline rates, thus increasing the production rate by 247 MMcfd.

Marcellus production in recent years has shot up to record levels after accounting for just 2 bcfd in 2010, resulting in record gas storage injections, multiple pipeline expansion projects to remedy bottlenecks, and stabilized or decreased prices.

EIA points out that gas prices in the US Northeast, such as the Dominion South trading point in southwestern Pennsylvania, have increasingly been below the Henry Hub price, in part because of more access to Marcellus gas.

According to a report released by Moody's in April, however, Marcellus producers are expected to benefit more than producers elsewhere in the US, even if prices were to decline to 2012 levels, because of rapid technological advancements, large producing wells in the northeast section conveniently located near major markets, and increased capital poured into the NGL-rich southwestern section (OGJ Online, Apr. 1, 2014).

Production in the region is now on pace to be enough to meet the combined winter demand of Pennsylvania, West Virginia, New York, New Jersey, Delaware, Maryland, and Virginia, EIA says.

Pioneer to sell Hugoton, Barnett assets in two deals

Pioneer Natural Resources Co., Dallas, has agreed to sell all of its assets in both the Hugoton field to Linn Energy LLC, Houston, and the Barnett shale to an undisclosed private buyer for total cash proceeds of $495 million.

The Hugoton transaction, effective July 1, involves the exchange of all of PNR's interests in the field, including 235,000 net acres, its 1,200 producing oil and gas wells, its 51% interest in the Satanta gas processing plant, and other associated infrastructure, to Linn for $340 million.

Linn says it has identified 180 future drilling locations and 150 recompletion opportunities in the assets.

Net production from Hugoton averaged 6,600 boe/d of gas and natural gas liquids during the first half. The deal is expected to close by the end of the third quarter.

Mark E. Ellis, Linn chairman, president, and chief executive officer, commented on the deal: "Following our acquisition from BP in 2012 (OGJ Online, Feb. 28, 2012); this year's announced trade with ExxonMobil (OGJ Online, May 21, 2014); and today's announcement with [PNR]; Linn will become the largest producer in the field and will have pro forma production in the basin of approximately 275 MMcfed and two natural gas processing plants with capacity of 690 MMcfed."

The Barnett transaction, effective Aug. 1, involves the exchange of all of PNR's assets in the play to an undisclosed private company for $155 million.

Net production from Barnett averaged 10,300 boe/d of oil, NGL, and gas during the first half. The transaction also is expected to close by the end of the third quarter.

Scott D. Sheffield, PNR chairman and chief executive officer, commented on both deals: "The sale of these assets will allow us to strategically redeploy capital to our core, oil-related Spraberry-Wolfcamp assets in the Permian basin of West Texas where we are successfully transforming the substantial resource potential we delineated in 2013 into strong production growth."

AEP units complete Marcellus, Utica acquisitions

Two affiliates of American Energy Partners LP (AEP) have closed on acquisitions of assets totaling $1.75 billion (OGJ Online, June 9, 2014).

American Energy-Marcellus LLC (AEM) has completed its acquisition of 48,000 net acres in Doddridge, Harrison, Marion, Tyler, and Wetzel Counties, W.Va., from East Resources Inc. and an unnamed private company for $1.275 billion. Capital raised by AEM now totals $1.8 billion.

American Energy-Utica LLC (AEU) has completed its acquisition of 27,000 net acres in Monroe County, Ohio, from the same two companies for $475 million. Capital raised by AEU now totals $3.156 billion.

American Energy-Permian Basin LLC recently completed its acquisition of 63,000 net acres and associated gathering assets in the southern Permian basin from affiliates of Enduring Resources LLC for $2.5 billion (OGJ Online, Aug. 1, 2014).

Exploration & DevelopmentQuick Takes

Lundin tests Tembakau appraisal well off Malaysia

Lundin Petroleum AB has successfully drilled and tested the Tembakau-2 appraisal well on Block PM307 offshore Malaysia, marking the completion of the company's first well in its 2014 Malaysian drilling campaign.

The West Prospero jack up rig drilled the well to 1,450 m in 68 m of water, targeting stacked gas reservoirs in Miocene-aged sands in a large, low-relief, structure discovered by the Tembakau-1 well in late 2012 (OGJ Online, Nov. 21, 2012).

Tembakau-2 is 3.7 km to the south of the discovery well and cut 22 m of gross gas sands in four sand intervals between 900 m and 1300 m subsea. The main two reservoirs penetrated were fully cored and the well was comprehensively logged.

The reservoir deliverability was measured through production testing. The I20 sand produced at stabilized flow rate of 15.8 MMscfd of gas over an 8-hr period on a 64⁄64-in. choke, and the I10 sand produced at stabilized flow rate of 15.9 MMscfd of gas over an 8-hr period on a 72⁄64-in. choke.

Each perforated interval was 3 m. The gas produced is dry with 0.5% carbon dioxide. Multiple samples were obtained for further laboratory analysis. Lundin says the data will be analyzed and integrated with 3D seismic information to update the current gross contingent resource estimate of gas and to provide reservoir information for conceptual development studies.

Lundin has plugged and abandoned the well and the West Prospero rig has moved to the Bertam oil field well head platform location, also in PM307, to commence development drilling (OGJ Online, Oct. 10, 2013).

Lundin Malaysia BV holds 75% interest in PM307, and Petronas Carigali Sdn. Bhd. is partner with the remaining 25%. Lundin Malaysia BV operates seven blocks in Malaysia, including PM307, PM308A, PM308B, PM319, SB303, and SB307/308.

Lundin spuds exploration well on Alta prospect

Lundin Norway AS has spudded exploration well 7220/11-1 in PL609 of the Alta prospect, 20 km northeast of the Gohta discovery in the Barents Sea.

The well's primary objective is to prove the presence of hydrocarbons in sandstones of Triassic age as well as carbonates of Permo-Carboniferous age. The planned total depth is 2,393 m below mean sea level.

The Island Innovator rig, which recently completed drilling Gohta appraisal well 7120/1-4s, will conduct the drilling over a period of 60 days (OGJ Online, July 21, 2014).

Lundin estimates Alta's unrisked, gross prospective resources total 261 million boe.

ConocoPhillips, Enap to study unconventional oil, gas

ConocoPhillips and Chile's state oil company Empresa Nacional del Petroleo (Enap) have signed a technical agreement to jointly conduct geological, geophysical, and engineering studies to determine the potential for unconventional hydrocarbon resources in the Magallanes region in southern Chile.

ConocoPhillips will contribute its technical expertise and technology in the development of these studies "to define areas of interest for the exploration and exploitation of unconventional oil and natural gas," Enap said.

The agreement was signed by Marcelo Tokman, Enap chief executive officer, and David Jones, vice-president, ConocoPhillips Ventures Ltd., South America.

Tokman stressed that this agreement was an additional initiative to the effort already being developed by Enap to strengthen the exploration and exploitation of unconventional oil and gas in the region. "Our commitment to Magallanes is to ensure the supply of gas in the long term," he said.

Drilling & ProductionQuick Takes

Shell starts oil production from Bonga North West

Royal Dutch Shell PLC reported the start of oil production from the first well at its Bonga North West deepwater development, drilled in 1,000 m of water offshore Nigeria. Operated by Shell subsidiary Shell Nigeria Exploration & Production Co. Ltd. (SNEPCo), the development is expected at peak production to contribute 40,000 boe/d to the Bonga development.

The $3.6 billion Bonga development project, which began producing oil and gas in late 2005, was Nigeria's first deepwater development in water deeper than 1,000 m (OGJ Online, Dec. 1, 2005). The 60-sq-km Bonga field lies on OPL 212.

Oil from Bonga North West is transported by a subsea pipeline to an existing Bonga floating production, storage, and offloading vessel that has been upgraded to handle the additional flow. Shell expects four oil-producing wells and two water-injection wells to be connected to the FPSO, from which oil will be loaded on tankers.

SNEPCo holds a 55% stake in the Bonga project. Partners include Esso Exploration & Production Nigeria (Deepwater) Ltd., Total E&P Nigeria Ltd., and Nigerian Agip Exploration Ltd. under a production-sharing contract with the Nigerian National Petroleum Corp.

UK regulators approve drilling in Horse Hill

The UK Environment Agency approved drilling an initial well in Horse Hill oil field in Surrey, UK, reported Horse Hill Developments Ltd., a London joint venture and field operator. The field is part of PEDL 137.

Plans call for a vertical well to test several conventional stacked oil and gas targets in Portland sandstone, Corallian sandstone, and Great Oolite limestone. Stakeholders said drilling was expected to start soon when weather permits.

Horse Hill Developments holds 65% interest in the project. Stakes in Horse Hill Development are held by Alba Mineral Resources PLC, Regency Mines PLC, Solo Oil PLC, Stellar Resources PLC, Doriemus PLC, Angus Energy Ltd., and UK Oil & Gas Investments PLC. Magellan Petroleum Corp. of Denver owns the other 35% interest.

CNOOC starts oil production from Panyu project

CNOOC Ltd. reported that its Panyu 10-2/5/8 project has started oil production. The Panyu 10-2/5/8 project lies in 100 m of water in the Pearl River Mouth basin of the South China Sea.

The project includes three oil fields—Panyu 10-2, Panyu 10-5, and Panyu 10-8—and was designed to share some facilities of Panyu 4-2 oil field.

The main newly built production facilities include a wellhead platform and nine producing wells. Currently there are four wells producing about 9,000 b/d. The project is expected to reach peak production of 13,000 b/d in 2015, CNOOC said.

Panyu 10-2/5/8 is an independent project in which the company holds 100% interest.

PROCESSINGQuick Takes

NNPC lets contract for Port Harcourt refinery

Nigerian National Petroleum Corp., through a service provider, has let a contract to GE Co. to provide gas turbines to be used to generate a reliable, uninterrupted supply of power to NNPC's refining complex in Port Harcourt, Nigeria, that would enable the complex to return to its full production capacity.

GE will deliver three, 25-Mw, trailer-mounted TM2500+ aeroderivative gas turbines to GEL Utility Ltd., a subsidiary of independent power producer Genesis Electricity Ltd., with whom NNPC signed a 20-year power purchase agreement in November 2013 for the Port Harcourt refinery, GE said.

In addition to delivery of the turbines, which will provide both the baseload and backup power to support refining operations at Port Harcourt, the recent agreement also includes the future modernization of Nigeria's other two existing refineries.

The installation of the mobile gas turbines at the Port Harcourt refinery, Nigeria's largest, is intended to guarantee the plant has the power it needs to overcome chronic grid outages in the region that have presently reduced production at the Port Harcourt complex to 30% of its total maximum nameplate capacity of 210,000 b/d, GE said.

The three gas turbine units are scheduled to enter commercial operation in August, at which time the Port Harcourt refinery will have the necessary power to return to its full operational capacity, GE said.

In addition to the Port Harcourt complex—which is comprised of two refineries that, together, have a combined installed capacity of 210,000 b/d—NNPC also owns two additional Nigerian refineries, including its 110,000-b/d refinery in Kaduna and a 125,000-b/d refinery in Warri.

All three refineries recently have operated below their installed nameplate capacities, according to the latest data available from NNPC.

During the month of March, crude oil throughputs at the Kaduna refinery averaged about 38,700 b/d, while the Warri refinery processed about 28,000 b/d of crude.

No crude throughputs were reported at the Port Harcourt refinery during March, according to NNPC's latest data.

Geismar olefins plant restart postponed

The planned start-up of Williams Partners LP's Geismar, La., olefins plant rebuild and expansion projects, has hit another delay, the company told investors in its latest quarterly earnings update for 2014 (OGJ Online, Apr. 10, 2012).

While the Geismar rebuild and expansion projects are now substantially complete, commissioning has been delayed to September following a decision to install certain safety-related equipment and to provide additional contingency associated with the start-up process, Williams Partners said.

The company previously announced it would delay the Geismar restart to late July from June following construction delays and cost increases specific to bringing the expanded, rebuilt plant back into service (OGJ Online, June 17, 2014).

Given the revised September start-up date, the company said it now expects first ethylene sales to begin in October.

The additional safety modifications for the Geismar rebuild will increase capital spending for the project by $20 million, according to Williams Partners.

In June, the company said delays already had increased the project's cost to $715 million.

The company's rebuild and expansion work at Geismar follows a June 2013 explosion that originated in the area of the plant's propylene fractionator, killing two workers (OGJ Online, June 25, 2013; June 13, 2013).

Following the June blast, Williams Partners proceeded with repair and expansion work at Geismar for an initially planned restart in April (OGJ Online, Dec. 12, 2013).

The 600 million-lb/year Geismar expansion project will increase the plant's ethylene production capacity to 1.95 billion lb/year from 1.35 billion lb/year, with Williams Partners' share of the total capacity amounting to about 1.7 billion lb/year, the company said earlier this year.

Small-scale GTL pilot plant planned for Houston

Biofuels Power Corp. (BPC), Houston, reported signing a letter of intent with ThyssenKrupp Industrial Solutions (Africa) (Pty.) Ltd. and Liberty GTL Inc. to build a small-scale gas-to-liquid demonstration facility in Houston. The plant will be capable of converting 5-10 MMcfd of gas into about 500 b/d of synthetic crude oil.

BPC will operate the pilot plant for the 2-year demonstration period while ThyssenKrupp will provide technical services and contribute a previously operating autothermal reformer pilot plant. Liberty will provide intellectual property and operating know-how regarding crude oil synthesis along with the relevant catalyst supply.

The Liberty technical team also is credited for designing the Fischer Tropsch reactor, which will convert the synthetic gas to synthetic crude.

"The abundant supply and low cost of natural gas produced from unconventional shale resources enhances the opportunity to profitably convert natural gas to higher value liquid fuels," BPC said.

The plant, which will be assembled at the Houston Clean Energy Park (a BPC-owned industrial estate), has a nonbinding target instillation and commissioning completion date of Dec. 31.

TRANSPORTATIONQuick Takes

BP gets key approval for Tangguh LNG expansion

Indonesia's Ministry of Environment has approved the environmental and social impact assessment, known as AMDAL, for the BP PLC-led Tangguh LNG expansion project in Teluk Bintuni, Papua Barat province, and an environmental permit has been issued.

The AMDAL includes Tangguh's environmental and social commitments and outlines the role of the local administration and central government. Approval is required for project activities to begin at the Tangguh site.

The expansion project, expected to cost $12 billion, would add a third train, boosting total project capacity to 11.4 million tpy. Current operations consist of two identical LNG trains with combined production capacity of 7.6 million tpy.

BP and its partners have pledged to supply 40% of the LNG output from Train 3, 1.5 million tpy, to Indonesia's state electricity company PT PLN (Persero) for the Indonesian domestic market.

BP says other key government approvals still in progress are required to continue with the planning, design, and procurement of the expansion project. The company received approval for expansion plans from Indonesia's Ministry of Energy and Mineral Resources in 2012 (OGJ Online, Nov. 5, 2012).

"We are engaging closely with SKK Migas, the Ministry of Energy and Mineral Resources, and other related government agencies to receive these critical approvals. We remain hopeful that they will be received soon," said Christina Verchere, BP regional president for Asia-Pacific.

Tangguh LNG, which started production in 2009, contributes to the development of six gas fields in the Wiriagar, Berau, and Muturi production-sharing contracts in Bintuni Bay, Papua Barat (OGJ Online, July 7, 2009).

EnLink expands processing in Permian, S. Louisiana

The EnLink Midstream companies, EnLink Midstream Partners LP and EnLink Midstream LLC, are expanding in the Permian basin and South Louisiana.

EnLink will expand its natural gas gathering and processing in the Permian basin by building a 120-MMcfd processing plant and expanding its rich gas gathering system. Production from Devon Energy Corp., partners in EnLink with Crosstex Energy LP, will support the expansion.

EnLink's Louisiana expansion will be a joint-venture with Marathon Petroleum Corp. to build a 30-mile NGL pipeline extension to Marathon's Garyville refinery.

EnLink will build the Permian processing plant near its existing midstream assets and expects it to be operational second-half 2015, doubling its regional capacity to 240 MMcfd. EnLink agreed as part of the expansion to provide Devon gathering and processing services for more than 18,000 Midland basin acres the operator is developing in Martin County, Tex.

EnLink also will build multiple low pressure gathering pipelines and a 23-mile, 12-in. OD high pressure gathering pipeline connect to its previously announced Bearkat natural gas gathering system, with completion expected by first-quarter 2015. The Permian expansion will cost more than $200 million.

EnLink's 50-50 joint venture with MPL Investment LLC, a Marathon subsidiary, establishes Ascension Pipeline Co. LLC. Ascension will connect EnLink's Riverside fractionation and terminal complex, part its Cajun-Sibon NGL system, to Marathon's Garyville refinery on the Mississippi River, supported by long-term, fee-based contracts with Marathon.

EnLink will manage construction of the pipeline and will operate it upon its first-half 2017 completion.

Devon and Crosstex completed the merger of their midstream assets earlier this year to form EnLink (OGJ Online, Mar. 7, 2014).

KMEP plans additional expansion to KMCC pipeline

Kinder Morgan Energy Partners LP (KMEP) has entered into a long-term transportation agreement with Republic Midstream Marketing LLC to build an interconnect and other facilities for the Kinder Morgan Crude & Condensate (KMCC) pipeline.

Plans call for Republic to build a gathering pipeline from Lavaca County, Tex., to the new interconnection at KMEP's DeWitt Station, near Cuero, Tex. KMEP will build two storage tanks with 120,000 bbl of capacity each, truck offloading racks, and related facilities.

KMEP says the agreement gives KMCC access to additional Eagle Ford production areas in Gonzales and Lavaca counties.

The company in October reported plans to invest $74 million to build an 18-mile, 24-in. lateral pipeline northwest from its DeWitt station to a new facility in Gonzales County, Tex., along with 300,000 bbl of storage, a pipeline pump station, and truck offloading facilities (OGJ Online, Oct. 9, 2013).

"We have now secured long-term commitments for more than 75% of the 300,000 b/d of capacity on KMCC," said Don Lindley, KMEP president of natural gas liquids. "Including joint ventures and other projects, [KMEP's] planned investments related to Eagle Ford crude and condensate opportunities currently total $1 billion, all of which are supported by long-term customer contracts."

KMEP will invest $54 million in the project, which is slated to come online in June 2015.