GENERAL INTEREST — Quick Takes
Market seen balancing with OPEC at target
Target-level production of crude oil by members of the Organization of Petroleum Exporting Countries would balance the oil market in 2016, according to three key monitoring agencies.
In projections for the coming year by the International Energy Agency, OPEC, and US Energy Information Administration, total OPEC production of about 30 million b/d-the OPEC group target-plus other contributions to worldwide supply equals respective projections for global oil demand without inventory change.
Recently, total crude production by OPEC members has exceeded the target level by more than 1 million b/d and supply from other sources has continued to increase, causing inventories to build at unusually high rates and depressing crude prices.
For 2016, all three agencies project increases in global oil demand. IEA has the highest demand outlook at an average 95.2 million b/d for the year, and OPEC has the lowest at 93.94 million b/d. EIA's demand forecast is 95.03 million b/d.
OPEC and EIA both expect much slower growth in non-OPEC oil supply next year than has occurred recently: 300,000 b/d to 57.69 million b/d for OPEC and 180,000 b/d to 58.55 million b/d for EIA. IEA projects no change in non-OPEC supply from this year's expected level of 58 million b/d.
At zero stock change, the market projections for 2016 balance with OPEC crude production at 30.3 million b/d for IEA, 30.07 million b/d for OPEC, and 29.91 million b/d for EIA.
Operators seen still able to raise capital
Oil and gas operators remain able to raise capital despite falling crude oil prices and, for many, deteriorating financial conditions, according to analysts at Moody's Investors Service.
In fact, say Prateek Yanati Reddy, associate analyst, Pete Speer, senior vice-president, and Amol Joshi, vice-president and senior analyst, in a research note, access to capital markets by US exploration and production companies is "robust."
Citing data from FactSet Research System Inc., the analysts report that during January-June, 57 companies issued $21 billion of equity, and 58 companies issued $73 billion of debt.
"In an environment of record-low interest rates and substantial declines in energy company equity valuations following the oil price collapse, investors in energy companies appear to be positioning themselves to benefit from a rebound in commodity prices," the analysts say.
Second-lien issuances have risen this year, they add.
Lower-rated producers have used second-lien issuances mainly to bolster liquidity. The "occasionally" use them to redeem unsecure notes at large discounts to par. Some have issued equity in exchange for debt.
"We view these transactions as distressed exchanges-effectively defaults," the analysts say.
Persistently low oil and gas prices probably will produce more defaults, they add.
WPX Energy to buy RKI E&P in $2.35 billion deal
WPX Energy Inc. agreed to buy privately held RKI Exploration & Production LLC of Oklahoma City for $2.35 billion in a move intended to help WPX produce more oil as the Tulsa independent shifts its focus from natural gas to oil.
The acquisition also strengthens WPX's holdings in the western US, said WPX Chief Executive Officer Rick Muncrief. WPX is getting RKI's 92,000 acres of leaseholds and associated infrastructure in Loving County, Tex., and Eddy County, NM, both in the Permian basin oil window.
Muncrief said the company's goal is for oil to account for 36% of WPX production by 2017 compared with less than 10% in 2012. Previously, WPX sold at least half of its gas-producing assets in the Marcellus shale in Pennsylvania and also its interests in Argentina.
Terms of the WPX-RKI transaction exclude RKI's Powder River basin assets in Wyoming, which RKI plans to divest before closing the WPX deal.
EPP completes acquisition of EFS Midstream
Enterprise Products Partners LP (EPP) said it has completed the purchase of EFS Midstream LLC from Pioneer Natural Resources Co. and Reliance Holding USA Inc.
EPP said $1.15 billion has been paid and $1 billion will be paid within a year. Pioneer held 50.1% and Reliance 49.9%.
EFS Midstream provides natural gas gathering, treating, compression, and condensate processing in the Eagle Ford shale. The system includes 460 miles of gas gathering pipelines, 10 central gathering plants, 780 MMcfd of gas treating capacity, and 119,000 b/d of condensate stabilization capacity (OGJ Online, June 1, 2015).
Under terms of the agreements, the Pioneer and Reliance joint development dedicated its Eagle Ford shale acreage to EPP under a 20-year, fixed-fee gathering agreement that includes a minimum volume requirement for the first 7 years (OGJ Online, June 24, 2010).
Pioneer and Reliance also dedicated their Eagle Ford shale acreage under related 20-year fee-based agreements with EPP for gas processing, NGL transportation and fractionation, and for gas, processed condensate, and crude oil transportation services.
Exploration & Development — Quick Takes
US shale oil production to fall 91,000 b/d
Crude oil production in August from seven major US shale plays is expected to decline 91,000 b/d to 5.36 million b/d, according to the US Energy Information Administration's latest Drilling Productivity Report. EIA last month also projected a 91,000 b/d decline for July (OGJ Online, June 9, 2015).
The DPR focuses on the Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara, Permian, and Utica, which altogether accounted for 95% of US oil production increases and all US natural gas production increases during 2011-13.
The monthly drop will again be led by the Eagle Ford, where output is expected to fall 55,000 b/d in August to 1.54 million b/d. Production from the Niobrara is expected to fall 20,000 b/d to 395,000 b/d.
Production from the Bakken is projected to decrease 22,000 b/d in August to 1.18 million b/d. In the Permian, where production has continued to grow during the industry-wide downturn, output is expected to increase 5,000 b/d to 2.05 million b/d.
New-well oil production/rig across the seven plays is projected to rise in August by a rig-weighted average of 10 b/d to 432 b/d, including a 26-b/d rise in the Bakken to 691 b/d, 25-b/d rise in the Eagle Ford to 766 b/d, 14-b/d rise in the Niobrara to 516, and 12-b/d rise in the Permian to 327 b/d.
Natural gas production across the plays is expected to drop 260 MMcfd in August to 45.15 bcf. The steepest decline by far is projected for the Eagle Ford, which EIA sees relinquishing 123 MMcfd to 6.97 bcfd. The Utica is the lone play projected to increase gas output, adding 22 MMcfd to reach 2.66 bcfd.
Rosneft drills horizontal wells at North Komsomolskoye
OAO Rosneft and Statoil ASA have jointly drilled two horizontal exploitation wells in the PK1 layer of North Komsomolskoye field, Rosneft reported.
One well was completed using openhole gravel packing in a horizontal section of 1,000 m, which Rosneft said was a first for onshore Russia.
The pilot drilling opens a new stage of the joint work of Rosneft and Statoil, said Igor Sechin, Rosneft chairman (OGJ Online, May 7, 2012).
The oil and gas condensate field is in the Purovsky and Nadymsky regions of the Yamalo-Nenets Autonomous District. Rosneft said it has "highly viscous oil" and "an extensive gas cap."
The companies signed a cooperation agreement for "difficult-to-extract" resources at North Komsomolskoye on May 23, 2013.
Drilling & Production — Quick Takes
Group starts radio frequency pilot for Dover oil sands
The first radio frequency pilot for oil recovery within an in situ reservoir is under way in the Dover area north of Fort McMurray, Alta. In a test that will last about 2 years, radio frequency technology will heat the reservoir to ease the movement of bitumen to the surface.
The technology is being called enhanced solvent extraction incorporating electromagnetic heating, or ESEIEH (pronounced "easy").
The technology has the potential to improve economic and environmental performance in the oil sands by eliminating the need for water at in situ operations and reducing greenhouse gas emissions, said Gary Bunio, general manager of oil sands strategic technology for Suncor Energy Inc., Calgary (OGJ Online, July 9, 2014).
Partner Nexen Energy ULC said the technology delivers electricity to a downhole antenna that generates an electromagnetic field in the reservoir to heat the bitumen. Once the bitumen is mobilized, propane is injected as a solvent to further reduce bitumen viscosity.
In addition to Suncor and Nexen, project partners are Devon Energy Corp. and Harris Corp., with funding in part from Climate Change and Emissions Management Corp. The group has been collaborating on the technology since 2011, with initial physical testing in 2012 at Suncor's Steepbank mine facility.
"We will be actively monitoring test results through a comprehensive real-time analytical workflow," said Bill MacFarlane, Nexen senior adviser for technology management.
PDO to use solar to displace gas in thermal EOR work
Petroleum Development Oman (PDO) plans to use a solar plant to displace natural gas in enhanced oil recovery (EOR) efforts in Amal oil field.
The 1,021-Mw Miraah plant in southern Oman will generate an average of 6,000 tons/day of steam. PDO said Miraah will save 5.6 trillion btu/year of gas used to create steam for thermal EOR.
Groundbreaking will occur later this year and steam generation from the first glasshouse module is expected in 2017.
The project with GlassPoint Solar will have 36 glasshouse modules. Total project area, including support infrastructure, will be 3 sq km.
The plant's "enclosed trough technology" will include large curved mirrors to focus sunlight on a boiler tube containing water. The concentrated energy will boil the water to produce steam that will be fed to the oil field's existing steam distribution network.
PDO said for every five barrels of heavy oil, the energy equivalent to one barrel is consumed in the production process.
PDO has been working with GlassPoint since 2010 on a pilot at Amal to test the commercial viability of solar steam. The 7-Mw pilot produced 50 tons/day of steam and will continue to operate at Amal.
The government of Oman owns 60% of PDO. Other partners are Shell 34%, Total 4%, and Partex 2%.
PDO said it accounts for about 70% of Oman's crude production and nearly all of its natural gas supply (OGJ Online, Apr. 30, 2015).
PROCESSING — Quick Takes
Sibur to expand gas processing in Western Siberia
Russian conglomerate PJSC Sibur Holding, Moscow, plans to expand gas fractionation capacity by 1.4 million tonnes/year (tpy) at its Tobolsk-Neftekhim processing site in Western Siberia's Tyumen region.
The company's investment committee has approved a project to boost the plant's capacity to fractionate raw NGLs to 8 million tpy from its current capacity of 6.6 million tpy, Sibur said.
The project, which will increase capacity of the site's second gas fractionator to 4.2 million tpy from 2.8 million tpy, specifically will involve installation of equipment for unit internals, as well the addition of heat-exchange and pump equipment.
The expansion also will include construction of a cooling tower and work to expand the unit's ability to process a wider range of feedstock, Sibur said.
NIPIgazpererabotka, Krasnodar, Russia, a Sibur subsidiary providing general engineering for the expansion, completed all design documents for the project, which already have been approved by Russia's Glavgosexpertiza (General Board of State Expert Review).
With relevant construction permits for the proposed project in place, Sibur has secured all related major production equipment, for which delivery is now under way, the company said.
The expansion project, which will require an investment of about 5.5 billion rubles, is scheduled to be completed by 2017, according to Sibur.
The company previously expanded Tobolsk's gas fractionation capacity in March 2014 when it commissioned the site's second fractionator (OGJ Online, Feb. 20, 2015).
The capacity expansion at Tobolsk comes as part of Sibur's strategy to continue benefitting from its competitive advantage of access to West Siberian NGL feedstock, said Dmitry Konov, Siber's chief executive.
Russia's Rosneft inks deal for stake in Indian refinery
OAO Rosneft has entered a preliminary agreement to purchase as much as 49% interest in Essar Energy PLC subsidiary Essar Oil Ltd., including its 20 million-tonne/year Vadinar refinery in Gujarat, India.
Signed by Shashi Ruia, founder of Essar, and Rosneft Pres. Igor Sechin on July 8, the agreement-which includes an interest in Essar Oil's exploration and marketing businesses-remains contingent upon a variety of factors, including due diligence, determination of transaction price, execution of definitive transaction documents, and receipt of requisite approvals, Rosneft and Essar said.
Rosneft's proposal to buy an ownership stake in Essar Oil follows a separate preliminary agreement for long-term crude supplies the companies signed in late 2014 (OGJ Online, Dec. 11, 2014).
Under the supply agreement, which the companies made final at the recent July 8 meeting, the Russian state-owned firm will deliver a total of 100 million tonnes of crude over a 10-year period to the Vadinar refinery.
Both deals come as part of a strategic alliance between the companies designed to boost India and Russia's integrated cooperation in the hydrocarbon sector.
KMI brings second Texas condensate splitter online
Kinder Morgan Inc., Houston, has commissioned the second of two splitters at the company's new petroleum condensate processing facility located near its Galena Park terminal along the Houston Ship Channel.
With a processing capacity of 50,000 b/d, the second condensate splitter entered operation in late June and began producing on-spec products as of this month, KMI said on July 15 in its quarterly earnings report to investors.
The company commissioned the first 50,000-b/d condensate splitter at the processing complex during this year's second quarter, with the unit producing on-spec material as of March (OGJ, June 1, 2015, p. 70).
The 100,000-b/d project, which is supported by a long-term, fee-based agreement with BP North America, required a total investment of about $436 million, KMI said.
Designed to split condensate produced from the Eagle Ford shale in South Texas into light and heavy naphtha, kerosine, diesel, and gas oil, the complex connects to about 2 million bbl of product storage capacity at the Galena Park terminal as well as integrated access to multiple-destination markets at the US Gulf Coast and abroad.
In a January presentation, KMI said design of the complex provides the possibility for addition of a third splitter that could expand total processing capacity at the site to 150,000 b/d.
TRANSPORTATION — Quick Takes
PHMSA orders PAA to keep Illinois pipeline shut down
The US Pipeline and Hazardous Materials Safety Administration issued a corrective action order directing Plains All American Pipeline LP to keep a southern Illinois crude oil pipeline and pumping station out of operation following a 100-bbl leak on July 10.
PHMSA issued the July 14 order the same day that Stacy Cummings, its interim executive director, spent some 2 hr responding to questions from a US House Energy and Commerce Subcommittee about delays in the agency's implementing mandates under the 2011 Pipeline Safety Reauthorization Act (OGJ Online, July 14, 2015).
"On Friday, a pipeline fitting blew out, spilling about 100 bbl of oil on the ground," Cummings told Energy and Power Subcommittee Ranking Minority Member Bobby Rush (D-Ill.) in response to his question about the incident.
"We were notified of the spill through the National Response Center, as procedures require, and had an investigator on the scene by 4 p.m. that day," she said. "The center immediately went in and stopped the flow of oil before it could threaten a nearby water source."
PHMSA said in its order that a failure was identified at PAA's Pocahontas Station near Highland, Ill., the morning of July 10. It said the crude was released through a 1-in. fitting used to connect the 55.7-mile, 20-in. pipeline to a gravitometer. The station had no history of failures associated with tubing fittings.
PHMSA's order said the crude flowed into a creek that feeds Silver Lake, a reservoir that provides drinking water to Highland. The city shut down its water intake there that evening, and found no contamination of its supply following tests on July 11. It also plumbed up an alternative water supply if it had to stop taking water from the lake.
This was the second failure of a PAA pipeline in as many months. Its 901 pipeline north of Santa Barbara ruptured on May 19, spilling more than 500 bbl of crude onto Refugio State Beach north of Santa Barbara, Calif. (OGJ Online, May 20, 2015).
In a July 14 response to PHMSA's order, PAA said, "We take any incident that occurs within our asset portfolio very seriously. We are engaged in an internal review into the factors that led to our recent incidents, and we are committed to implementing any changes to our procedures indicated by the findings."
BG starts LNG shipment from QCLNG project's Train 2
BG Group PLC has loaded its first cargo of LNG from the second train of the Queensland Curtis coal seam gas-LNG (QCLNG) plant. The LNG was loaded onto the Maran Gas Posidonia LNG carrier.
BG says that when plateau production is reached next year, the QCLNG plant's two trains will be producing sufficient LNG to load a total of 10 vessels/month, with exports expected to reach 8 million tonnes/year.
Train 1 came on stream in December 2014 and since that time 27 cargoes have left the Curtis island terminal (OGJ Online, Dec. 29, 2014).
Train 1 is mostly selling to China under contract with CNOOC Ltd. Train 2 will supplement BG's worldwide portfolio of LNG supplies with a large proportion expected to be sold into the spot market.
Assuming the recently announced $90-billion merger with Royal Dutch Shell PLC passes all the necessary regulatory hurdles, Shell will take ownership of the Curtis island facilities in 2016 (OGJ Online, Apr. 8, 2015). The Australian Competition and Consumer Commission is expected to announce its decision on the Shell-BG merger on Sept. 3.
Transco seeks FERC approval for NY Bay expansion
Transcontinental Gas Pipe Line Co. LLC (Transco), a wholly owned subsidiary of Williams Partners LP, has filed an application with the US Federal Energy Regulatory Commission for its New York Bay Expansion project, which will deliver additional natural gas to New York City in time for the 2017-18 heating season.
Earlier this year, Transco placed into service two other major New York City natural gas pipeline projects, the Rockaway Delivery Lateral and the Northeast Connector. These facilities are providing additional supply to the 1.8 million customers served by National Grid in Brooklyn, Queens, Staten Island, and Long Island.
The New York Bay Expansion is designed to deliver an additional 115,000 dekatherms/day of gas into National Grid's distribution system through the Rockaway Delivery Lateral and the Narrows meter station.
The New York Bay Expansion Project, which is estimated to cost as much as $130 million, will include installation of additional horsepower at three existing Transco compressor facilities, in addition to uprating Transco's existing Lower New York Bay lateral and replacing about ¼ miles of 42-in. pipe in Middlesex County, NJ. The project also will include modifications to existing Transco meter and regulator stations in Middlesex County, NJ; Chester County, Pa.; and Richmond County, NY. The work is confined to existing company property or rights of ways.
US industry scoreboard - 7/20
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