OGJ Newsletter

April 20, 2015
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

EPA to issue final 2014, 2015 biofuel quotas by Nov. 30

The US Environmental Protection Agency agreed to issue final biofuel quotas for 2014 and 2015 under the federal Renewable Fuel Standard by Nov. 30 in a tentative settlement of a lawsuit filed by the American Fuel & Petrochemical Manufacturers and American Petroleum Institute.

In a proposed consent decree filed Apr. 10 with US District Court for the District of Columbia, EPA agreed to issue a notice of possible rulemaking for the 2015 RFS quotas by mid-June so they would be issued on schedule with the 2014 quotas, which will come out more than a year late.

AFPM originally filed a notice of intent that it would sue EPA for not issuing the 2015 quotas on time in December (OGJ Online, Dec. 1, 2014). Five days earlier, EPA had said it wouldn't issue the 2014 quotas until yearend (OGJ Online, Nov. 21, 2014), more than a year after they were due.

"While we are pleased that we were able to negotiate a deadline that requires EPA to issue the overdue RFS rules, we remain concerned with the government's implementation of this broken program," AFPM General Counsel Rich Moskowitz said.

"EPA's failure to comply with the statutory deadlines injures refiners and exacerbates the problems associated with this unreasonable government mandate," he said.

The two trade associations have argued that mandates for steadily increasing amounts of ethanol in the US motor fuel supply under the 2007 Energy Independence and Security Act have become unworkable since US demand, which had been rising, started to drop soon after the law was enacted.

"We hope this agreement helps get the RFS back on track, but the only long-term solution is for Congress to repeal the program and let consumers, not the federal government, choose the best fuel to put in their vehicles," API General Counsel Stacy Linden said, warning, "Failure to repeal the unworkable law could put millions of motorists at risk of higher fuel costs, damaged engines, and costly repairs."

Mid-Atlantic senators petition for OCS revenue sharing

US senators from four southern Mid-Atlantic coastal states asked Energy and Natural Resources Committee leaders to consider comparable federal Outer Continental Shelf revenue sharing for oil and gas activity off their shores to what four US Gulf Coast states now receive.

The US Department of the Interior included a Mid-Atlantic lease sale in its draft proposed 2017-22 OCS management program, the senators said in their Apr. 7 letter to committee Chair Lisa Murkowski (R-Alas.) and ranking minority member Maria E. Cantwell (D-Wash.).

"We strongly believe that offshore energy and revenue sharing go hand-in-hand, and that any legislation considered by the committee should reflect that view," the two Democrats and six Republicans said. They said energy exploration and development can diversify their states' economies and create jobs while reducing US reliance on foreign suppliers.

The 2006 Gulf of Mexico Energy Security Act authorized OCS oil and gas revenue shares for Alabama, Mississippi, Louisiana, and Texas initially at 37.5%, with another 12.5% distributed directly to the Land and Water Conservation Fund. A second phase would cap revenue shares for the four states and LWCF distributions at $500 million/year starting in fiscal 2017.

"Our states want the opportunity to create new jobs, generate new revenue, and make the US more energy-secure," the senators said in their letter. "As you work to develop energy legislation in the 114th Congress, we would appreciate the committee's consideration of revenue sharing so that Mid- and South-Atlantic states are provided a fair revenue share alongside Gulf Coast states."

Sens. Mark R. Warner (D-Va.), Timothy M. Kaine (D-Va.), Richard Burr (R-NC), Thom Tillis (R-NC), Lindsey O. Graham (R-SC), Tim Scott (R-SC), Johnny Isakson (R-Ga.) and David Perdue (R-GA.) signed the letter. Warner and Kaine included a revenue sharing provision when they introduced a bill in 2013 to restore an OCS lease sale off Virginia's coast which had been dropped from the 2012-17 program following the 2010 Macondo deepwater well blowout and crude oil spill (OGJ Online, May 23, 2013).

Taskforce says train safety up to federal officials

A Virginia Railroad Safety and Security Task Force issued a draft report saying rail safety issues are largely up to the US government to address. The taskforce was formed in response to an Apr. 30, 2014, derailment of a train carrying crude oil from the Bakken formation to York County, Va.

Gov. Terry McAuliffe established the taskforce after crude from the derailment spilled into the James River. The focus of the taskforce was largely on rail transportation of flammable liquids, particularly crude and ethanol, its draft report noted.

"In the United States, promulgation and enforcement of rail safety and security regulations is generally reserved to the federal government," said a draft report of the taskforce findings.

The 2014 derailment involved a CSX unit train as it passed through Lynchberg. The task force said it looks forward to the expected release of the National Transportation Safety Board report on the incident.

Meanwhile, Virginia state agencies have taken action toward more frequent inspection of identified crude oil shipping routes and continuous engagement with federal transportation officials, the report said.

Recent derailments of trains carrying Bakken crude oil across various states have prompted elected officials to request expedited federal efforts to address the safety of moving crude oil by rail (Unconventional Oil & Gas Report, Mar.-Apr. 2015).

Exploration & DevelopmentQuick Takes

Statoil makes another gas discovery in Aasta Hansteen

Statoil ASA and partners proved a 38-m gas column in the Nise formation via exploration well 6706/12-3 of the Roald Rygg prospect, encountering "very good" reservoir quality.

The well, which was drilled by Transocean Ltd.'s Spitsbergen drilling rig 7 km west of the Snefrid Nord discovery, reached a vertical depth of 3,296 m in 1,287 m of water, and was terminated in the Kvitnos formation in the Upper Cretaceous.

Snefrid Nord was the first discovery made this spring by Statoil in the Aasta Hansteen area of the Norwegian Sea (OGJ Online, Mar. 18, 2015).

Statoil estimates the volumes in Roald Rygg to be in the range of 12-44 million boe recoverable. The estimated total volumes in the two discoveries correspond to about 25% of the Aasta Hansteen recoverable volumes.

"Statoil has completed a targeted two-well exploration program around Aasta Hansteen, which aimed to test additional potential in the area and make the Aasta Hansteen project more robust," said Irene Rummelhoff, Statoil senior vice-president, exploration, Norway.

"Both wells-Snefrid Nord and Roald Rygg-have resulted in interesting discoveries, which will now be further evaluated for future tie-in to the Aasta Hansteen infrastructure," Rummelhoff said. Production from the Aasta Hansteen spar platform is expected to launch in 2017.

Well 6706/12-3 is part of PL602, where earlier this year Statoil increased its equity share through transactions with Rocksource ASA and Atlantic Petroleum Norge AS.

Subject to government approval, the PL602 partnership will consist of Statoil Petroleum AS as operator with 42.5% interest, Petoro AS 20%, Centrica Resources (Norge) AS 20%, Wintershall Norge AS 10%, and Atlantic Petroleum Norge AS 7.5%.

Cairn-led JV moves on exploration offshore Senegal

A joint venture led by Cairn Energy PLC has proposed a $150- million exploration and appraisal program offshore Senegal to begin later this year.

The JV, which includes Perth-based FAR Ltd., ConocoPhillips, and Petrosen, will concentrate first on appraisal of last year's SNE-1 oil discovery as well as testing other prospects in the shallow waters of the continental shelf. There also will be further technical evaluation of the more difficult FAN-1 oil discovery in deeper waters (OGJ Online, Nov. 19, 2014). A 3D seismic survey is planned over a section of the contract area that includes part of the Sangomar and Rufisque blocks.

The proposed work program will be submitted to the Sengalese government next month.

FAR says the estimated size of the SNE-1 oil accumulation is 330 million bbl. It has excellent reservoir and a well-defined structure making it the more attractive of last year's two discoveries, hence the focus of early appraisal.

Cairn anticipates two appraisal wells will be drilled to further evaluate the reservoir at SNE with flow tests and a coring program. There needs to be at least 200 million bbl of proved oil reserves to make a viable development.

Exploration will focus on several other prospects, including Soleil and Sirius, within a 25-km radius of the discovery. A minimum economic volume for any tie-back to SNE is 75 million bbl. Soleil has potential to hold 100 million bbl and Sirius, 200 million bbl.

Any development will use a floating production, storage, and offloading vessel hub.

In the deeper water canyon plays in FAN-1 region, the group will consider drilling a nearby prospect named Beer.

FAN discovery did not encounter an oil-water contact and at this stage the reserves estimate has the wide range of 250-2,500 million bbl of oil. The uncertainties will be addressed with interpretation of the reprocessed 3D seismic data towards yearend.

Gazprom Neft starts drilling at Chonsky project

JSC Gazprom Neft has started drilling three exploratory wells on each of its Ignyalinsky, Vakunaysky, and Tympuchikansky fields as part of its Chonsky project in eastern Siberia.

Drilling of an additional well on the Tympuchikansky block will begin within a month, Gazprom Neft says. Data obtained from further well testing will enable clarification of the fields' geological models so the blocks can be prepared for production drilling.

Following geological prospecting last year, Gazprom Neft increased estimated reserves at the Chonsky project by an additional 50%, with total C1 and C2 reserves across all three blocks now totaling more than 210 million tonnes of oil and 270 billion cu m of gas, the company says.

Gazprom Neft says preparation of the most thoroughly researched blocks for production testing, expected to start next year, is "a key objective in 2015."

Licenses on the Ignyalinsky, Vakunaysky, and Tympuchikansky blocks, which lie at the border of the Irkutsk Oblast and the Sakha Republic (Yakutia), are held by Gazprom Neft subsidiary Gazpromneft-Angara.

"Gazprom Neft has been actively developing the Chonsky project since 2011," commented Victor Sorokin, Gazpromneft-Angara chief executive officer. "The drilling of prospecting and exploratory wells clarifies our understanding of the geological structure of complex deposits in what is a very under-researched region.

"Continuation of the geological prospecting program will allow remaining geological uncertainties on this project to be dispelled, and the level of recoverable reserves to be increased" Sorokin said. "The 2014-15 polar season has also witnessed an industry record in terms of seismic operations at the Gazpromneft-Angara licensed blocks, with 4,200 separate pieces of physical data recorded in the course of a single day."

A total 66 prospecting and exploratory wells have been drilled and 2,750 sq km of 3D surveys conducted throughout the three fields.

Drilling & ProductionQuick Takes

Vaalco starts oil production from Etame 12-H

Vaalco Energy Inc., Houston, reported a production rate of 2,000 b/d of oil on a gross basis-500 b/d net to the company-with no indication of hydrogen sulfide from the Etame 12-H development well offshore Gabon.

The well is being temporarily constrained at that production level while being optimized for efficiency. Drilled from the Etame platform to a measured depth of 3,450 m, Etame 12-H targeted the recently discovered, untapped lower lobe of the Gamba reservoir.

Etame 12-H is an offset well to the Etame 10-H well that began producing in February at 3,000 b/d, representing the first oil production from the recently commissioned Etame platform (OGJ Online, Feb. 13, 2015).

"The offshore Gabon drilling campaign that we began last year has so far resulted in increased production of approximately 5,000 gross b/d of sweet crude," said Steve Guidry, Vaalco chief executive officer.

Transocean Ltd.'s Constellation II jack up rig is being mobilized to drill additional development wells from the Southeast Etame-N. Tchibala (SEENT) platform, beginning with the 2-H well in the Southeast Etame field, where the company and its partners drilled a successful exploration well in 2010 (OGJ Online, June 16, 2010).

After drilling the Southeast Etame 2-H well, the rig will drill the North Tchibala 1-H well, the first of Vaalco's wells off Gabon to be drilled targeting the Dentale formation. No hydrogen sulfide is expected from the Southeast Etame-N. Tchibala fields.

Bertram field starts up offshore Malaysia

Bertram oil field has started production from four predrilled development wells flowing through wellhead platform into a floating production, storage, and offloading vessel off the east coast of Peninsular Malaysia (OGJ Online, Jan. 19, 2012).

The 20-slot platform and spread-moored FPSO are in 75 m of water on Block PM 307.

Operator Lundin Malaysia BV is developing the field with 14 horizontal wells and electric submersible pumps. It will drill the remaining wells this year, expecting plateau production of 15,000 b/d by yearend.

Lundin Malaysia estimates gross reserves in the Oligocene reservoir at 18.4 million boe. The reservoir depth is 1,600 m.

The operator holds a 75% working interest. Petronas Carigali holds the rest.

Ungani native title agreements completed

Buru Energy Ltd., Perth, and its joint venture partner Mitsubishi have completed the third and final native title agreement paving the way for securing a production license over Ungani oil field onshore Canning basin in Western Australia.

The third claimants, the Yawuru people, executed the final agreement this week.

Terms of the agreement include the Yawuru people granting production licenses STP-PRA-004 and 005 required for commercial development of the field.

The deal follows agreements executed recently with the Nykikina Mangala and the Karajarri Yanja peoples.

Buru can now submit its license application to Western Australia's Department of Mines and Petroleum and expects to have the license within the next 2 months.

The native title agreements deliver financial and other benefits to the traditional landowners. They also include a process for managing cultural, heritage, and environmental matters for those parts of the project within the three groups' respective native title areas.

Ungani will be the first new, commercial oil production from the Canning basin since the 1990s.

PROCESSINGQuick Takes

Turkmenistan lets contracts for refinery upgrades

Turkmenistan has let contracts to a consortium led by South Korean firms Hyundai Engineering Co. Ltd. and LG International Corp. for work related to the modernization of the country's Turkmenbashi refinery complex, as well as construction of a grassroots gas-to-liquids plant to be built near Ashgabat.

Signed during a state visit to South Korea by Gurbanguly Berdimuhamedov, Turkmenistan's president, the framework agreements for the projects have a combined value of about $4.8 billion, LG said.

As part of the $940-million refinery modernization project, the group will design and build installations for the removal of sulfur from gasoline and diesel produced at the complex.

The new sulfur-removal units will use hydrogen sourced from the refining complex's existing delayed coking and catalytic cracking units, the Turkmen government said.

Valued at $3.89 billion, the contract with state-owned TurkmenGaz for the proposed GTL plant covers engineering, procurement, construction, and commissioning of the plant, which will be able to process 3.8 billion cu m/year of natural gas to produce motor fuels, said LG and the Turkmen government.

Construction on the refinery modernization project will take 42 months, while the GTL plant is scheduled to be completed within 63 months, LG said.

The company did not specify when construction activities would begin for either of the projects.

These latest contracts follow increasing efforts between Turkmenistan and South Korea to strengthen economic, political, and cultural ties, according to the office of Park Guen-hye, South Korea's president.

Most recently, TurkmenGaz let a contract to a consortium that includes LG and Hyundai for the construction of a gas chemical complex in the Turkmenbashi district of Balkan Province in western Turkmenistan (OGJ Online, May 12, 2014).

The complex-which will use gas sourced from shelf of the Caspian Sea to produce 400,000 tonnes/year of ethylene, high-density polyethylene, and 80,000 tpy of polypropylene-is scheduled to be completed in 2018.

Flint Hills advances Texas refinery expansion

Flint Hills Resources, a unit of Koch Industries Inc., has let a contract to KBR Inc., Houston, for work related to Project Eagle Ford (PEF), a $600 million project designed to increase processing capabilities for US light crude oil production at its 230,000-b/d West refinery in Corpus Christi, Tex. (OGJ Online, Dec. 2, 2014).

As part of the reimbursable contract, KBR will provide construction management and direct-hire construction services in phases over the next 3 years for PEF, KBR said.

This latest contract follows an earlier contract Flint Hills awarded to KBR for ongoing construction advisory services as the refiner completes front-end engineering and design work for PEF, the service provider said.

KBR valued its scope of work under the contract at about $300 million, which will be booked into its engineering and construction segment's backlog of unfilled orders as individual orders are placed.

Initially announced in 2012 and formerly named the Domestic Crude Project, PEF will involve the modification of equipment at the West refinery's continuous catalytic regeneration hot oil heater, as well as the inclusion of a new saturates gas plant and associated hot oil heater (OGJ Online, May 29, 2014; Aug. 27, 2012).

In addition to equipping the refinery with an ability to process 100% US light US crude from nearby Eagle Ford shale play and boosting its overall crude processing capacity by about 7%, the expansion and modification project will aid the Corpus Christi plant's efforts to reduce criteria air emissions through the inclusion of best available control technologies, Flint Hills said.

PEF also will include installation of a mid-plant cooling tower, equipment piping, process vessels, and two storage tanks at the site. Construction on the project, which began in December 2014, is scheduled to last 36 months, Flint Hills and KBR said.

RIL commissions unit at Dahej petchem complex

Reliance Industries Ltd. (RIL), Mumbai, has commissioned a purified terephthalic acid (PTA) plant at its Dahej petrochemical manufacturing site near Bharuch, in India's Gujarat state.

The 1.15 million-tonne/year PTA plant, which is equipped with process technology from INVISTA Performance Technologies, will use paraxylene feedstock from RIL's nearby 1.24 million-b/d Jamnagar refinery to boost the company's total PTA capacity to 3.2 million tpy, RIL said.

RIL's investment in the PTA plant is intended to help bridge the current 1.5 million-tpy deficit in India's PTA market, the company said.

A second PTA plant of similar capacity already is under construction at the Dahej complex, RIL said.

The Dahej manufacturing site also includes an ethane-propane recovery unit, gas cracker, caustic chlorine plant, and four downstream plants for the production of polymers and fiber intermediates.

Recently, RIL let a series of contracts for work related to the Phase 3 expansion project at the Jamnagar refining complex, which in addition to expanding production capacities for ethylene, propylene, and polyethylene, will increase the complex's paraxylene production to 3.656 million tpy from 1.856 million tpy (OGJ Online, Mar. 12, 2015; Feb. 26, 2015; Aug. 8, 2014; Jan. 22, 2014; May 3, 2012).

TRANSPORTATIONQuick Takes

NGPL moves forward with Chicago Market project

Natural Gas Pipeline Co. of America LLC (NGPL) reported it has signed binding agreements with Antero Resources, Nicor Gas, North Shore Gas, and Occidental Energy Marketing Inc. for incremental firm transportation service on its Gulf Coast mainline system from the Rockies Express Pipeline (REX) interconnection in Moultrie County, Ill., to points north on NGPL's pipeline system.

These commitments will support the first phase of NGPL's Chicago Market expansion project, which will increase NGPL's capacity by 238,000 dth/day and provide transportation service to the Chicago area. The contracts are for an average term of over 11 years.

"This phase of the expansion project meets the current natural gas transportation needs of the Chicago-area markets and Northeast producers by providing competitive rates from the expanded REX interconnection to the Chicago area," said NGPL Pres. David Devine.

NGPL intends to file a 7(c) certificate application with the US Federal Energy Regulatory Commission in June, with the project expected to be in service in November 2016.