GENERAL INTEREST — Quick Takes
House Dems call for higher onshore royalty rates
Rep. Alan Lowenthal (D-Calif.) urged the US Department of the Interior to raise the 12.5% royalty rate oil and gas producers pay for production from onshore federal lands.
"Appropriate rental and royalty rates for onshore oil and gas leases help ensure that states, the US Treasury, and all American taxpayers receive their fair share from the nation's oil and gas boom," he said in an Aug. 7 letter to Janice Schneider, assistant Interior secretary for land and minerals management, which 42 other House Democrats signed.
The current federal royalty rate, which has not been changed in nearly a century, is not close to what others charge, said Lowenthal, a House Natural Resources Committee member, as he released the letter.
"Not only is this less than our western states charge, and what is charged for offshore oil and gas royalties, but it is one of the lowest rates of any country in the world," he maintained. "These lands belong to the public, and this current royalty rate system is neither fair nor equitable for the American taxpayer."
He said a Dec. 6, 2013, Government Accountability Office report recommended that the US Interior secretary take steps to let the US Bureau of Land Management adjust its onshore royalty rates to a level closer to the 18.75% collected on production from some federal offshore leases.
Rental rates, which producers pay to reserve the right to use certain federal tracts, have not been raised since the 1980s, and also are exceedingly low, Lowenthal said.
He noted that the Denver-based Center for Western Priorities, which tries to promote responsible conservation and energy practices across the West, said in a new report that some producers pay less than $1.50/acre annually in federal onshore rentals. Updating onshore rental rates could generate another $56 million/year for taxpayers, CWP's report said.
GOP senators urge Jewell to expand OCS access
Twenty-one Republican US senators, led by Energy and Natural Resources Committee Ranking Minority Member Lisa Murkowski (Alas.), asked US Sec. of the Interior Sally Jewell to consider opening more of the US Outer Continental Shelf to oil and gas exploration and production in the next 5-year program.
"As you proceed with planning the 2017-22 program, we urge you to reconsider the administration's disappointing decision not to include lease sales in the Atlantic region in the current program, contrary to the original vision for OCS development during this period," they said in the Aug. 7 letter to the secretary.
In addition to areas in Alaska and the Gulf of Mexico, which are open for leasing already, the senators recommended that the next program include sales in the Atlantic Ocean and in Alaska's Cook Inlet, and retain area-wide leasing.
"Shifting to targeted lease sales in Alaska or elsewhere could prematurely preclude access to and development of vital oil and gas resources," they warned.
"We must not return to the constrained vision of the past wherein America's resources remain untapped just off our coastline," the senators asserted. "As the next program is finalized, please know that we will support only a leasing program that continues to develop in current exploration areas, and includes new access in areas such as Alaska and the Atlantic regions."
Their letter came more than a week after four Senate Democrats sent a similar letter to Jewell calling for expanded leasing in the 2017-22 OCS program which the US Bureau of Ocean Energy Management is developing (OGJ Online, Aug. 1, 2014).
Brightoil completes acquisition of Bohai Bay assets
Brightoil Petroleum Ltd. has closed on its acquisition of interest in two oil producing blocks in Bohai Bay from Anadarko China Holdings 2 Co. Ltd., a wholly owned subsidiary of Anadarko Petroleum Corp., for $1.046 billion (OGJ Online, Feb. 18, 2014).
Brightoil now holds 40.09% interest in the 124-sq km contract area 04/36 and 29.18% interest in the 88-sq km unit area 05/36. CNOOC China Ltd. operates both blocks.
Combining the assets with the company's Dina1 and Tuzi natural gas field, Brightoil's interest in 2P storage is expected to total 86 million boe. When all three areas come online, net production will total 25,000 boe/d, and annual net production will total 9 million boe.
Sit Kwong Lam, Brightoil chairman, said the deal "marks the successful transformation of the group in its aim to become a resource-based energy enterprise" with aspirations to develop "into an international integrated oil and gas conglomerate."
Exploration & Development — Quick Takes
Rosneft, ExxonMobil JV starts drilling in Kara Sea
A joint venture of OAO Rosneft and ExxonMobil Corp. has spudded an exploratory well in the Kara Sea. Drilling is expected to continue for 2 months.
Design depth of the vertical well is 2,350 m from the rotary table. Sea depth is 81 m.
The Universitetskaya-1 is being drilled by the West Alpha rig owned by North Atlantic Drilling of Norway. The rig has an eight-anchor positioning system, two groups of blowout preventers, and a maximum drilling depth of 7 km, Rosneft said.
During extensive preparations, the companies developed an iceberg collision prevention plan.
Rosneft said resources in the Universiteskaya structure total more than 1.3 billion tons of oil equivalent. Universiteskaya is in the East Prinovozemelskiy-1 license area.
"The start of exploratory drilling in the Kara Sea is the most important event of the year for the global oil and gas industry," said Igor Sechin, Rosneft president. Drilling began during a teleconference involving Russian President Vladimir Putin.
Rosneft has 66.67% interest in JV Karmorneftegaz and ExxonMobil has 33.33% (OGJ Online June 21, 2013).
Statoil fails to find oil in Arctic's Hoop program
Statoil ASA has wrapped up its 2014 exploration program in the Hoop area of the Norwegian Barents Sea, northeast of Johan Castberg, without making any commercial discoveries.
Three exploration wells—the Atlantis and Apollo in PL615 and Mercury in PL614—were drilled during the summer, with Atlantis and Mercury resulting in two small gas discoveries.
Statoil says it proved a good reservoir in Apollo, where, notably, the Statoil-contracted Spitsbergen drilling rig was boarded May 26 by members of the environmental activist group Greenpeace (OGJ Online, May 27, 2014). However, no hydrocarbons were encountered at the prospect.
"We are naturally disappointed with the results of this summer's drilling campaign in the Hoop area," commented Irene Rummelhoff, Statoil senior vice-president for exploration on the Norway continental shelf.
"However, it is important to understand that Hoop is a frontier area of more than 15,000 sq km with only six wells completed to date, so we do not have all the answers about the subsurface yet. Noncommercial discoveries and dry wells are part of the game in frontier exploration. They provide important knowledge about the area."
The prospects selected for the campaign tested different play models in varied geological settings and at different depths.
"We will now analyze the data we have acquired in the wells and incorporate it in our subsurface models," said Rummelhoff. "We have confirmed a working petroleum system in Hoop, but need to work further to understand the migration and where the oil has accumulated. We know from experience that exploring for hydrocarbons in the Barents Sea takes time and stamina."
In the Hoop area's neighboring PL537 license, Statoil is partner in the OMV (Norge) AS-operated oil discoveries Wisting Central, the Barents Sea's northernmost oil discovery estimated to hold 60-160 million bbl of recoverable oil and 10-40 bcf of recoverable gas (OGJ Online, Sept. 6, 2013); and Hanssen, estimated to hold 20-50 million boe, most of which is oil (OGJ Online, July 3, 2014).
Gabon signs offshore E&P contracts with six firms
The government of Gabon has signed exploration and production contracts for offshore blocks with Noble Energy Inc., Woodside Petroleum Ltd., Marathon Oil Corp., Impact Oil & Gas Ltd., Repsol SA, and Petronas.
The deals, which follow Gabon's licensing round in October 2013, include a production-sharing contract between Noble and Woodside covering deepwater Block F15 in the Gabon Coastal basin. Noble will operate the license with 60% interest and Woodside will hold the remaining 40%.
The PSC includes a 4-year seismic commitment and a future option for exploration drilling. Block F15 lies 87 miles offshore Gabon and covers more than 670,000 gross acres in 7,500-9,900 ft of water.
Susan M. Cunningham, Noble senior vice-president, Gulf of Mexico, West Africa, and Frontier, commented, "Several substantial subsalt leads have already been identified on the acreage, and we expect the prospectivity of the block will be enhanced as the work program progresses."
Peter Coleman, Woodside chief executive officer, described the deal as an opportunity for his company to secure significant acreage in a high-graded emerging oil-prone province with a like-minded and experienced partner. Woodside recently farmed into Morocco and Tanzania (OGJ Online, July 7, 2014; July 14, 2014).
Marathon Oil Exploration Ltd., a wholly owned subsidiary of Marathon Oil, signed an exploration and production-sharing contract for deepwater presalt Block G13.
Marathon is operator with 100% interest. In the event of development, Gabon will assume 20% financed interest in the contract upon commencement of production. The country holds additional rights to participate in the block in the future as a co-investor.
The newly named Tchicuate block is 50 miles offshore Gabon and encompasses 275,000 acres in 3,250-8,250 ft of water. Marathon says the acreage is near proven shallow-water, presalt oil discoveries.
Drilling & Production — Quick Takes
EIA: Utica gas output to reach 1.3 bcfd in September
Total natural gas production in Ohio's Utica region—which includes production from the Utica and Point Pleasant formations as well as legacy production from conventional reservoirs—is expected to increase to 1.3 bcfd in September from just 155 MMcfd in January 2012, according to the US Energy Information Administration's Drilling Productivity Report (DPR).
EIA in large part credits the growth to increased drilling productivity—the average monthly production from new wells per drilling rig—noting that it has increased to an estimated 5 MMcfd in August from 0.3 MMcfd in January 2012.
The increase has outpaced the growth rate in the Haynesville region during 2009-11 and the Marcellus region during 2010-12. However, current drilling productivity levels in those areas still exceed that of the Utica.
EIA attributes the increase in Utica drilling productivity growth to the geological properties of the Utica formation along with horizontal drilling and hydraulic fracturing. Overall gas production in the region has ascended about on pace with production increases in the Eagle Ford region during 2010-12.
Analysts from Wood Mackenzie Ltd. in 2013 estimated that Utica production will average 3 bcfd in 2020, an increase from the more than 1 bcfd expected for this year (OGJ Online, Aug. 12, 2013).
Previous constraints in production caused by limited gas processing capacity in the area have been remedied with new plants coming online over the past year, EIA says. Additional aid has come by way of the Rockies Express Pipeline, which in June started transporting Utica gas westbound from eastern Ohio.
Maersk lets contract for Culzean project in North Sea
Maersk Oil UK has let a 10-month front-end engineering and design contract to Intecsea, a unit of WorleyParsons Group, for work on its Culzean ultra high-pressure, high-temperature gas-condensate development about 145 miles east of Aberdeen in the UK central North Sea.
The Culzean development, which lies in 88 m of water, is one of the largest gas discoveries of recent years in the UK North Sea. The reservoir lies 4,300 m below sea level.
The contract includes optional detailed design scopes also in support of the Culzean project. Work on the project began at the start of July and will be executed in the Intecsea UK office.
Maersk Oil earlier this year let a FEED contract for topsides for the field (OGJ Online, May 29, 2014). Maersk Oil and co-venturers JX Nippon Exploration & Production (UK) Ltd. and Britoil (BP) have chosen a standalone facility to develop the discovery, consisting of a wellhead platform, central processing platform with flare tower and separate living quarters, and utility platform.
Statoil lets contract for integrated drilling services
Statoil ASA has let a 1.15-billion kroner contract to Schlumberger Norway for integrated drilling services on Norwegian continental shelf licenses Gullfaks, Gullfaks Satellites, Snorre, Statfjord, Tordis-Vigdis, and Visund.
The deal, which includes exploration drilling, takes effect Sept. 1 for an initial duration of 2 years, with three optional 2-year extensions.
Services under the agreement include the delivery of directional drilling, measurement while drilling, logging while drilling, and mud logging services. Schlumberger also will provide RT data transfer, integrated operations and onshore support, drilling optimization, and drilling equipment.
Statoil says Schlumberger holds extensive operational experience relating to the respective licenses and exploration of the NCS.
PROCESSING — Quick Takes
Second fire hits Pemex's Ciudad Madero refinery
The second fire within a month broke out on Aug. 8 at Petroleos Mexicanos's (Pemex) 190,000-b/d Francisco I. Madero refinery in Ciudad Madero, Tamaulipas.
An explosion and ensuing fire occurred after a gas leak ignited during maintenance activity at the refinery's coking plant, killing one worker instantly and sending 11 others to the hospital, three of whom later died as a result of their injuries, Pemex confirmed in a series of releases via its Twitter account spanning Aug. 8-11.
The fire, which was contained to the refinery's coking plant already offline for maintenance, did not cause damage to other processing units at the site, Pemex said.
The root cause of the incident, which originated in the area of the plant's coking drums, is currently under investigation, according to the state-owned oil company.
Further details regarding operations at the refinery have not been released.
This latest incident at the Madero refinery follows a previous fire that broke out on July 23 in a gasoline storage tank at the site, leaving nine workers injured (OGJ Online, July 24, 2014).
The accident comes just days after Mexico's senate approved legislation that will begin to open the country's oil and gas industry to outside investment in both the upstream and downstream for the first time since it was nationalized in 1937 (OGJ Online, Aug. 7, 2014).
ExxonMobil lets contract for Texas ethylene expansion
ExxonMobil Corp. has let a contract to Jacobs Engineering Group Inc. to provide engineering, procurement, and construction services as part of a multibillion dollar ethane cracker project at its Baytown, Tex., complex and associated premium product installations in Mont Belvieu, Tex. (OGJ Online, July 1, 2013; June 5, 2012).
Jacobs will provide site-enabling works for the two sites, including site preparation of 350 acres for the ethane cracker in Baytown and 100 acres for the associated operations in Mont Belvieu, Jacobs said.
Additionally, Jacobs said it will provide interconnectivity services for two sites by integrating a 1.5 million-tonne/year (tpy) ethane steam cracker in Baytown and two 650,000-tpy, high-performance polyethylene lines at the company's Mont Belvieu plastics plant.
This interconnectivity aspect of the project will require about 63,000 ft of pipe to integrate into the existing Baytown plant operations, with another 43,000 ft of pipe required for integration into Mont Belvieu's existing operations, Jacobs said.
A value of the contract was not disclosed.
ExxonMobil began construction on the US Gulf Coast ethylene expansion project in June (OGJ Online, June 19, 2014).
Reliance advances Jamnagar expansion project
Reliance Industries Ltd. (RIL), Mumbai, has let a contract to Siemens Ltd., Mumbai, a subsidiary of Siemens AG, for work related to the expansion of its 1.24 million-b/d Jamnagar refining and petrochemical complex in Gujarat, India (OGJ Online, Jan. 22. 2014).
Under the scope of the contract, Siemens will design, manufacture, supply, and commission four of its SST-600 steam turbine generation units for the Jamnagar refinery, Siemens said in an Aug. 8 filing to India's BSE Ltd. (formerly Bombay Stock Exchange).
The contract is valued at 2.28 billion rupees ($37.3 million), Siemens said.
RIL's Jamnagar project, known as J3, is designed to increase production capacity of ethylene and other petroleum products at the complex. The third phase of the ongoing development project at the site, J3 includes expanding Jamnagar's gasification plants, ethylene cracker complex, and paraxylene plant.
RIL previously reported that the refinery off-gas cracker expansion would increase capacities as follows: ethylene to 3.248 million tonnes/year (tpy) from 1.883 million tpy; propylene to 913,000 tpy from 759,000 tpy; monoethylene glycol to 1.466 million tpy from 733,000 tpy; low-density polyethylene to 590,000 tpy from 190,000 tpy; high-density and linear low-density polyethylene to 1.478 million tpy from 928,000 tpy; and paraxylene to 3.656 million tpy from 1.856 million tpy (OGJ Online, May 3, 2012).
RIL in April secured loans from a consortium of Japanese banks totaling about $550 million to help fund the Jamnagar ethylene capacity expansion (OGJ Online, July 7, 2014).
TRANSPORTATION — Quick Takes
India, Pakistan negotiating gas trade
Exports of natural gas from India to Pakistan are under negotiation, according to the Indian minister of state in the Ministry of Petroleum and Natural Gas.
The official, Dharmendra Pradhan, told the upper house of the Indian parliament that officials of state-owned GAIL (India) Ltd. and Inter State Gas Systems of Pakistan have begun discussing the supply of 5 MMscfd of natural gas for 5 years.
GAIL, which imports LNG at four terminals on India's west coast and operates the country's gas-transmission system, would lay a 110-km pipeline between Jalandhar and Amristar to transport the gas.
India and Pakistan have been discussing a normalization of trade relations.
Edmonton oil rail terminal expanded to 250,000 b/d
Kinder Morgan Energy Partners LP's 50-50 joint venture with Imperial Oil Ltd. has entered into additional firm take-or-pay agreements to add incremental capacity of 110,000 b/d at the Edmonton Rail Terminal. The terminal is almost a year into construction, KMEP said.
The Edmonton Rail Terminal's first-quarter 2015 start-up capacity will now be more than 210,000 b/d and potentially up to 250,000 b/d. The terminal will connect via pipeline to KMEP's adjacent Edmonton storage terminal and will be capable of sourcing all crude streams handled by KMEP for delivery by rail to North America.
KMEP will build and operate the rail terminal in Strathcona County, Alta., with connections to both Canadian National and Canadian Pacific mainlines.
The joint-venture estimates the terminal's total cost, including expansion, at $232 million. KMEP and Imperial formed the terminal joint venture late last year (OGJ Online, Dec. 26, 2013).
URC, Enbridge to upgrade Line 10 crude oil pipeline
United Refining Co. (URC) has entered into a maintenance and upgrade agreement with Enbridge regarding Line 10, a 74,000-b/d pipeline owned by Enbridge Pipelines Inc. and Enbridge Energy LP transporting crude oil from Canada to URC's Kiantone Pipeline in West Seneca, NY, serving its 70,000 b/d refinery in Warren, Pa.
URC will fund certain integrity costs necessary to maintain Line 10 pipeline and also pay for half of the cost of the replacement of 20 miles of the pipeline in Canada.
URC will pay Enbridge $36 million for integrity costs for 2014. Enbridge plans to begin building the first segment of replacement pipeline in 2015.
URC's share of the replacement cost of this section of the pipeline will be about $28 million.
The agreement also provides for the replacement and upgrade of additional portions of Line 10, subject to regulatory approvals, and provided that a "put and call" agreement concerning ownership of the pipeline is entered into by yearend. Under such an agreement, URC and Enbridge would share the cost of replacing the majority of Line 10 in Canada and part of it in New York, each party investing about $135 million over the next 5-6 years for pipe replacement.
URC would repay Enbridge for its investment over a 10-year period for each section of Line 10 replaced. URC would have the right to purchase ("call") the entire Line 10 from Enbridge at any time during the next 11 years and Enbridge would also have the right to require URC to purchase Line 10 ("put") over a 2-year period starting at the later of 9 years or when all upgrades are completed.
