OGJ Newsletter

April 27, 2015
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

Report tracks Saudi market defense in Asia

Saudi Arabia's defense of it share of the crude oil market is most intense in Asia, where its dominance has been challenged by other exporters, points out a report by Wood Mackenzie.

"Saudi Arabia had to cut its price in Asia to ensure its crude oil remained attractive to the region's refiners," writes Shushant Dupta, head of Asia downstream research. "Other suppliers looking to position themselves will have to pay close attention to the Saudi pricing strategy for Asia."

Until September 2014, the official selling price (OSP) for Arab Light crude to Asia had exceeded the average of Oman and Dubai crude, a regional marker. Since then, the premium has become a discount, which reached $2.30/bbl in March.

"This means Arab Light's price to Asia is at its lowest level in more than a decade," Gupta says. Without the discount, Arab Light wouldn't be competitive with comparable crudes from Russia and Nigeria. If Saudi Arabia continued to export crude to Asia at the current rate, its share of that growing market would slip to 21% from 23%.

Asia's share of Saudi crude oil exports has risen to 65% in 2014 from 60% in 2006.

During 2010-14, exports to Asia from Iraq, Russia, and the United Arab Emirates increased by more than those from Saudi, while competition strengthened from Latin America and West Africa.

Gupta notes rising production of oil from unconventional plays in the US and Canada has changed trade flows in the past 4 years.

"The US has increased its heavy crude imports from Canada, backing off crude volumes from Latin America," he says. "Similarly, higher use of domestic tight oil resulted in the redirection of West African crude supplies. As such, these suppliers have turned to Asia, providing more options for Asian refiners."

New firm to target Rockies, Midcontinent

Independence Resources Management (IRM), Houston, has started work with a line-of-equity investment of as much as $500 million from Warburg Pincus affiliates as an independent oil and gas company focused on the US Midcontinent and Rocky Mountain regions.

"The company will focus on plays with large amounts of hydrocarbons in place and low recovery factors, where advanced drilling and completion techniques can create compelling risk-adjusted returns," Warburg Pincus said in a statement.

Members of the founding staff previously worked together at Enron Oil & Gas. Mike Van Horn, recently senior vice-president of exploration and then vice-president of geoscience at Newfield Exploration, is IRM chief executive officer.

Others include John Nicholas, chief operating officer, recently general manager for the Appalachia Division at Southwestern Energy; Rod Steward, chief corporate officer, manager of exploitation, capital planning, and analysis for Sheridan Production Partners; and Charles Minero, chief geosciences officer, senior staff geologist at Shell Oil Co.

Gulfport Energy to acquire Paloma Partners III

Gulfport Energy Corp., Oklahoma City, has agreed to acquire Paloma Partners III LLC, Houston, for $300 million. The deal is expected to close in the third quarter.

Paloma holds 24,000 net nonproducing acres in the core of the dry gas window of the Utica shale in Belmont and Jefferson counties in Ohio. Following completion of the deal, Gulfport's Utica holdings are expected to total 212,000 gross acres (208,000 net) under lease in the core of the play.

Gulfport in 2012 agreed to buy 30,000 net acres in the Utica from Wexford Capital LP affiliate Windsor Ohio LLC for $300 million (OGJ Online, Dec, 18, 2012). That was followed in 2013 by the purchase of an additional 22,000 net Utica acres from Windsor Ohio for $220 million (OGJ Online, Feb. 11, 2013).

Paloma Partners III is funded by EnCap Investments LP and a subsidiary of Macquarie Group. Paloma Partners II, whose leasehold resided in the Eagle Ford shale of South Texas, was acquired in 2012 by Marathon Oil Corp. for $750 million (OGJ Online, May 9, 2012).

Paloma Partners IV, meanwhile, holds 33,000 acres in the Tuscaloosa Marine shale of Louisiana and Mississippi, where it began nonoperated development drilling in late 2014.

Gulfport's first quarter Utica production totaled 396 MMcfd of gas equivalent, or 93% of the company's aggregate net production, compared with 93% and 78% of its aggregate production during fourth-quarter 2014 and first-quarter 2015, respectively.

The company's first-quarter 2015 production represented an 11% increase over fourth-quarter 2014 production of 381.9 MMcfed and a 161% increase over first-quarter 2014 production of 162.5 MMcfed. Gulfport's first-quarter 2015 production mix was 68% natural gas and 32% oil and natural gas liquids.

Gulfport also recently entered into additional firm transportation agreements with Rockies Express Pipeline (REX) and Texas Gas Transmission (TGT).

The company's agreement with REX provides transportation for an additional 50,000 MMbtu/day of gas beginning in mid-2016 for 15 years. Gulfport's agreement with TGT provides transportation for an incremental 54,000 MMbtu/day of gas beginning in April 2017 for 15 years.

Gulfport says it has secured total firm commitments covering 900,000 MMbtu/day of gas production by yearend 2016.

Seele named chief executive of OMV

Rainer Seele has been named chairman of the executive board and chief executive officer of OMV AG, effective July 1. He has been head of Wintershall Holding GMBH. Seele will succeed Gerhard Roiss, who will resign effective June 30.

Walker named senior vice-president at Lundin

Lundin Petroleum AB has appointed Nick Walker as senior vice-president, development and operations. Walker will oversee all worldwide development projects and serve as a member of the company's investment committee. He joins Lundin from Africa Oil Corp., where he was chief operating officer since 2012. During 2009-11 he served as executive vice-president for international operations at Talisman Energy Inc.

Exploration & DevelopmentQuick Takes

Comment period extended for Arctic drilling rules

The US Bureau of Ocean Energy Management and Bureau of Safety and Environmental Enforcement extended the comment period for proposed oil and gas drilling regulations on the US Arctic Outer Continental Shelf by 30 days.

Comments on the proposal, which the two US Department of the Interior agencies jointly announced in February (OGJ Online, Feb. 20, 2015), now will be accepted through May 27. The original 60-day comment period was scheduled to end on Apr. 27.

Repsol makes third gas discovery in Illizi basin

Repsol SA encountered gas at a depth of 1,307 m in the Tan Emellel Sud-Ouest-2 (TESO-2) exploration well of the Sud-Est Illizi block in southeast Algeria, yielding a flow rate of 175,000 cu m/day and 90 b/d of condensate on a 32⁄64-in. choke.

Four more wells are planned to appraise previous discoveries within the block. In 2012 the Tihalatine South-1 well-the first of a five-well exploratory program-tested at a rate of 3.7 MMcfd at 1,073 m (OGJ Online, Nov. 9, 2012).

Repsol operates the block with 52.5% interest. Partners are Enel SPA 27.5% and GDF-Suez 20%. lgeria's state-owned Sonatrach will hold 51% interest in the development and production phases, with the existing members maintaining their existing proportions in the remaining 49%.

Repsol's activities in Igeria, where the company produces 8,000 boe/d, comprise the Tin Fouye Tabankort production project, Reggane Nord development project, and Sud-Est Illizi and Boughezoul exploration projects. Sud-Est Illizi was awarded in December 2009 and Boughezoul in October 2014.

ConocoPhillips drills dry holes off Angola, in GOM

ConocoPhillips reported that its Omosi-1 deepwater exploration well, drilled on Block 37 offshore Angola in the Kwanza basin, reached a total depth of 20,666 ft and found a 525-ft gas column in the primary objective reservoir. The well has been plugged; no further activity is planned.

Separately the Harrier prospect, which was drilled on Mississippi Canyon Block 118 in the deepwater Gulf of Mexico to a total depth of 19,400 ft, found no commercial hydrocarbons and will be plugged.

Stone Energy Offshore LLC was a nonoperating co-owner in the Harrier prospect.

An aftertax charge relating to the two wells of $142 million net to ConocoPhillips will be recorded to dry hole expense in this year's first quarter, the company said.

The total before-tax exploration expense for the quarter is estimated to be $482 million, which includes dry hole, leasehold impairment, general and administrative, and geological and geophysical costs.

Statoil lets CO2 service contract for Bakken

Statoil has let a major carbon dioxide supply and service agreement to Ferus LP of Denver to supply liquid CO2 to be used in a test well to evaluate potential production uplift and partially replace water in a large multistage hydraulic fracturing operation in a horizontal oil well.

In addition to supplying the CO2, Ferus will provide transportation, logistics, storage, and onsite supervision. The service agreement also includes the deployment of a membrane technology that separates the CO2 from the produced gas to reduce flaring.

Statoil and other oil companies are working to reduce flaring to comply with a series of targets established by North Dakota. Oil firms also can save money by capturing gas and using it to economically fuel their own operations instead of flaring it.

This CO2 stimulation test is one of several projects under Powering Collaboration-a collaboration on joint technology Statoil and GE announced in January.

In collaboration with the University of Texas at Austin, Ferus and Statoil have demonstrated through numerous technical studies on North American reservoirs the potential for CO2 to enhance well productivity while reducing fresh water usage.

Petrobras tallies discoveries in Espirito Santo

Petroleo Brasileiro SA (Petrobras) has made separate oil and gas discoveries in the Espirito Santo and Amazon basins.

In Espirito Santo, an oil accumulation was found 711 m beneath the surface while drilling wildcat well 1-BRSA-1302-ES, known as Guayacan, to a depth of 1,312 m. The well, drilled 120 km from the city of Vitoria, comprises the Tabebuia discovery evaluation plan.

Petrobras operates exploratory block ES-T-495 with 100% interest.

In the Amazon, an oil and gas accumulation was found while drilling well 1-BRSA-1293-AM, known as Jusante do Aneba, to a depth of 2,040 m. Initial tests confirmed the presence of light oil of 47° gravity and gas in sandstone at depths of 1,350-1,900 m.

Petrobras operates Block PM-T-84 with 60% interest in partnership with Petrogal Brazil, which holds the remaining 40%.

Drilling & ProductionQuick Takes

Delta House flow starts in Gulf of Mexico

Production has begun at the Delta House semisubmersible floating production system operated and partly owned by LLOG Exploration Co. on Mississippi Canyon Block 254 in the Gulf of Mexico.

LLOG plans to have eight wells online from several hydrocarbon deposits by yearend. The FPS, in 4,500 ft of water, can handle production of 100,000 b/d of oil, 240 MMcfd of natural gas, and 40,000 b/d of water.

Designed by Exmar Offshore, the semi can accommodate 20 risers, producing from as many as nine fields with dual flowlines.

A joint venture of privately owned LLOG and Blackstone Energy Partners holds majority interests in the subsea wells flowing into the Delta House facility. The seven companies with interests in the producing leases don't own 100% of the FPS and pay fees to the ownership group.

The Delta House FPS is similar to an Exmar semi on Who Dat field operated by LLOG on Mississippi Canyon Block 547. Who Dat, in 3,000 ft of water, began producing oil and gas in December 2011 (OGJ Online, Dec. 21, 2011).

LLOG, Covington, La., recently reported production at Who Dat of 32,000 b/d of oil and 42 MMcfd of gas and said three wells were being drilled.

The Who Dat FPS has capacities of 60,000 b/d of oil, 150 MMscfd of gas, and 40,000 b/d of water.

Chevron group plans decommissioning at Thevenard

A group led by Chevron Corp. has submitted plans to decommission the Thevenard Island oil and gas facilities on and offshore Thevenard Island in Western Australia.

Production from the offshore fields-Saladin, Cowle, Yammaderry, Crest, Roller, and Skate-ceased in January 2014 and Chevron and partners Santos Ltd. and ExxonMobil Corp. have tried to sell the facilities without success.

The joint venture was granted a 25-hectare site on the tiny 550-hectare island 25 km northwest of Onslow and 70 km southwest of Barrow Island during the late 1980s and production began with the Saladin oil field in 1989. The other fields were progressively brought on stream during 1991-98.

The Thevenard project included three Saladin platforms in 12-18 m of water and six monopods associated with the Roller, Skate, Yammaderry, and Cowle fields in 9-16 m of water.

Subsea flowlines produced oil and gas to facilities on the island including storage tanks for oil and a tanker-loading terminal. There was also a gas export pipeline to the mainland as well as gas lift pipelines and a water injection pipeline.

Chevron plans to disconnect the subsea pipelines, but leave them in place. All the structures offshore and onshore will be removed. The 22 offshore wells and 14 directional wells drilled from onshore will be decommissioned.

The company will use a jack up rig and construction vessel with a crane for the offshore work and a workover rig for the task of plugging the wells.

It is anticipated the work will begin in 2016 and take about 12 months to complete the offshore work. Onshore decommissioning and remedial work on Thevenard, including removal of roads, footings and pathways, will take 2 years.

Japanese group investing in deepwater FPSO

Four Tokyo-based firms are investing in a 20-year charter for a floating production, storage, and offloading vessel to be moored in 765 m of water offshore Brazil in fourth-quarter 2017.

The FPSO, to be named Cidade de Campos dos Goytacazes MV29, will be deployed with Petroleos Brasileiro SA in the C-M-401 concession block for Tartaruga Verde and Tartaruga Mestica fields, about 125 km from Macae in southern Brazil.

The FPSO will have processing capacity of 150,000 b/d of oil and 176 MMcfd of gas, and oil storage capacity of 1.6 million bbl.

Mitsui & Co. said it will be the fourth Brazilian FPSO operated by the group, which also includes Modec Inc., Mitsui OSK Lines Ltd., and Marubeni Corp. The companies are investing in Tartaruga MV29 BV, a Dutch company established by Modec, and signed agreements Apr. 14.

Mitsui has 32.4%, Modec 29.4%, Mitsui OSK Lines 20.6%, and Marubeni 17.6% (OGJ Online, Apr. 1, 2010).

PROCESSINGQuick Takes

Yasref continues exports at Yanbu refinery

Yanbu Aramco Sinopec Refining Co. Ltd. (Yasref), a joint venture of Saudi Aramco (62.5%) and China Petrochemical Corp. (Sinopec) (37.5%), has exported the first shipment of petroleum coke (petcoke) from its 400,000-b/d refinery in Yanbu Industrial City on the west coast of Saudi Arabia along the Red Sea.

The 49,000-tonne petcoke shipment loaded during Apr. 6-10 and was based on a fully automated process across production stages through export, Aramco said.

The petcoke shipment follows the refinery's first loading of a 300,000-tonne cargo of high-quality, low-sulfur diesel for export, which shipped on Jan. 15, according to separate January releases from Sinopec and Yasref.

Export of the January diesel cargo marked the official start of the refinery's commercial operations, including the plant's atmospheric and vacuum distillation units, delayed coker, as well as associated utilities, Sinopec said on Jan. 20. As of January, remaining units at the full-conversion refinery still were in the commissioning phase, the Chinese firm said.

Initially scheduled for start-up in September 2014 and first commercial shipment of refined products in fourth-quarter 2014 (OGJ Online, Apr. 11, 2013), the Yasref refinery now is scheduled to reach its full capacity during second-quarter 2015, said an April report by Riyadh-based Jadwa Investment, which also holds a joint interest with Aramco in Saudi Aramco Lubricating Oil Refining Co. (Luberef) (OGJ Online, Feb. 14, 2013).

NefteGazIndustriya lets contract for refinery revamp

NefteGazIndustriya LLC, through a project developer, has let contracts to CB&I, Houston, to provide engineering and procurement services for the modernization of its 5.25 million-tonne/year Afipsky refinery in Krasnodar, Russia.

CB&I will deliver early detail engineering and procurement services for new process units included in the refinery's modernization, a 2.5 million-tpy hydrocracker unit licensed by Chevron Lummus Global, hydrogen and sulfur units licensed by CB&I, and other associated units, CB&I said on Apr. 20.

A value of the contract was not disclosed.

This latest contract for the Afipsky modernization follows NefteGazIndustriya's previous award of $90 million in contracts to CB&I for delivery of technology licenses and front-end engineering and design services for the project (OGJ Online, July 1, 2014).

The three-phased Afipsky modernization project, which is designed to increase the refinery's processing capacity and oil conversion ratio in order to improve product quality, will include the expansion and renovation of the existing refinery as well as the construction of a high-conversion refinery at the site, according to NefteGazIndustriya.

Stage 1 will involve the expansion of current production installations to increase the refinery's crude oil processing capacity to 6 million tpy and to optimize feedstock supply logistics.

Stage 2 of the project will include building a high-conversion refinery in order to lift the site's oil conversion ratio to 82% and boost production of products with specifications that meet requirements of the Technical Regulations of the Customs Union of Russia.

A third and final stage of the modernization will involve construction of a delayed coking unit designed to increase the complex's oil conversion ratio to 93% and maximize production of both Euro 5 diesel fuel and light oil, NefteGazIndustriya said.

In addition to the hydrocracking, distillation, and visbreaking units, the high-conversion refining complex also will include a diesel fuel hydrotreater, NefteGazIndustriya said.

TRANSPORTATIONQuick Takes

Magellan to pursue Houston Pipeline connection

Magellan Midstream Partners LP and TransCanada Corp. reported entering into a joint development agreement to pursue a project to connect TransCanada's Houston tank terminal to Magellan's East Houston terminal. The project would include the construction of a 9-mile, 24-in. pipeline, in which Magellan and TransCanada would have an equal ownership interest.

The project would give TransCanada's Keystone and Marketlink shippers access to Magellan's Houston and Texas City crude oil distribution system.

The joint project is estimated to cost $50 million. In addition, Magellan would expect to develop additional systems at its East Houston terminal to accommodate movements from the new line. Magellan would serve as construction manager and operator of the pipeline. Construction of TransCanada's Houston tank terminal is expected to be completed this year.

The pipeline would be expected to be operational by late 2016.

Woodside completes Apache Australian buy

Woodside Petroleum Ltd. has completed its $2.8 billion acquisition of Apache Corp.'s Australian LNG and oil assets. An allied $854 million deal for the company's Canadian interests is expected to be closed this week.

The total $3.7 billion transaction was made public in December 2014. The total price is made up of $2.75 billion plus extra amounts to reimburse Apache for investment made since July 1, 2014, an adjustment then expected to be $1 billion.

Woodside will now emerge as a 13% partner in the Chevron-operated Wheatstone LNG project, which is nearly 60% completed and due to come on stream late next year.

The deal also provides Woodside with an immediate increase in production via Apache's 65% stake in Julimar-Brunello fields that will supply gas to the Wheatstone project and a 65% stake in producing nearby Balnaves oil field on the North West Shelf.

The Canadian side of the deal comprises Apache's 50% interest in the proposed Kitimat LNG project in British Columbia, also operated by Chevron, and includes Apache's half-share in unconventional petroleum acreage in the Horn River and Liard basins.

Apache also is in negotiations for the sale of most of the remainder of its petroleum interests in Western Australia that include significant interests in the Varanus Island oil and gas hub and the Devil Creek gas processing hub along with associated oil fields, such as Van Gough, Coniston, and Pyrenees, and gas fields such as Halyard, Macedon, Stag, and Reindeer.

Apache, at this stage, still maintains a small joint venture in the onshore Canning basin with Perth-based Buru Energy Ltd. It also, later this year, will drill the Roc-1 wildcat to follow its success in the Phoenix South-1 oil find in the offshore Bedout sub-basin.