OGJ Newsletter

Aug. 10, 2015
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

Energy Institute guide explains UK shale gas

The Energy Institute (EI), London, has published a 20-page guide to shale gas, aiming, it says, "to bring scientific and technical accuracy to the debate" over development of natural gas from shales in the UK.

The industry group notes that the UK government has indicated support for development of shale gas but that applications for hydraulic fracturing "have been rejected by local councils (OGJ Online, July 19, 2013)."

The guide covers technological, environmental, and legal aspects of shale-gas development.

"It has been developed from an extensive review and analysis of existing literature and contributions by over 75 subject specialists, including professionally qualified EI fellows and members from relevant backgrounds and experience," the institute says. "It has been subject to a robust peer review process prior to publication."

The guide reports resource assessments by the British Geological Survey, commissioned by the Department of Energy and Climate Change, of UK shale gas and oil potential.

According to the first study in that series, the Carboniferous Bowland-Hodder shales in central Britain might contain 822-2,281 tcf of gas in place.

Jurassic shales in the Weald basin of southeastern England, covered in a separate assessment, have oil potential estimated at 2.2-8.57 billion bbl in place and limited gas potential.

In the Midland Valley of Scotland, covered in a third study, resources of Carboniferous shales are estimated at 49.4-134.6 tcf of gas and 3.2-11.2 billion bbl of oil in place.

OGUK outlook shows 'slight improvement' in 2Q

The UK oil and gas industry remains fragile, but the outlook has improved in the second quarter, according to Oil & Gas UK.

Pessimism has moderated, according to the Business Sentiment Index, a tool to capture a quarterly snapshot of the industry mood. It measures economic indicators such as business confidence, activity levels, business revenue, investment, and employment (OGJ Online, Aug. 6, 2014).

"While the overall index remains in negative territory for the fourth quarter in a row, this slight improvement in mood is the first upward movement we have seen since first-quarter 2013," said Oonagh Werngren, operations director.

Respondents returned a score of -27 on a -50/+50 scale, up four points from -31 in the first quarter.

Werngren said a large number of companies are concerned about a further decline in activity, the challenge of managing costs, and how these factors will impact employment. But a few respondents have reported higher activity than in the first quarter, which may be due to preparations for annual summer maintenance programs.

Werngren said another reason for the modest improvement is that a number of companies have already put significant effort into tackling cost and improving efficiency, and are beginning to see the impact.

While contractors cite uncertainty regarding future orders, they also highlight improvements in how their clients engage them to identify cost-effective ways to address the current business climate.

"For small to medium enterprises, the main issue is ensuring they are paid in a timely manner, a principle enshrined in the industry's Supply Chain Code of Practice-a key tool for the industry to help ensure its cost base remains competitive," Werngren said.

IFC signs financing deal to help Argentinian producer

The International Finance Corp. signed a $520-million financing agreement with Pan American Energy to help the Buenos Aries oil and gas producer develop its resources to help meet Argentina's rising energy needs.

Pan American, which is Argentina's second-largest producer, will use the money in its $1.5-billion expansion program on the Cerro Dragon block in the San Jorge Gulf off southern Patagonia and the Lindero Atravesado block in Neuquen, the World Bank Group member said.

IFC said it also is working with Pan American, which represents 17% of Argentina's hydrocarbon production, to strengthen its environmental and social management. The company has been an IFC client for more than 20 years.

The financing package consists of $120 million from IFC and $400 million it raised from commercial banks and financial institutions, including ICBC, Banco Itau BBA, Natixis, Credit Agricole, Banco Santander, Banco Bilbao Vizcaya Argentaria, and Banco Latinoamericano de Comercio Exterior.

IFC said its loans extend to 7 years, a long loan maturity in Argentina's financial markets.

Exploration & DevelopmentQuick Takes

Latest Edvard Grieg appraisal well hits oil pay

Lundin Norway AS, a wholly owned subsidiary of Lundin Petroleum AB, encountered a 66-m gross oil column in pebbly sandstone with medium-to-good reservoir quality while drilling appraisal well 16/1-23 S on Edvard Grieg field in the Norwegian North Sea.

The objective of the well, which lies 2.4 km southeast of the Edvard Grieg platform, was to further delineate the southeastern portion of the field southwestwardly from last year's successful appraisal well 16/1-18 (OGJ Online, Feb. 26, 2014), and test the incremental resource potential of the area.

Extensive data acquisition and sampling is ongoing with initial data results appearing very promising with regard to additional in-place volumes, Lundin says. The integration of the well results will be used to optimize the drainage strategy and to determine the best possible location for production wells in the area.

The well was drilled by the Rowan Viking jack up rig to a vertical depth of 2,043 m below the sea surface in 108 m of water, terminating in the granite basement. The rig will return to the Edvard Grieg platform to continue drilling of production and injection wells.

"This well, together with last year's appraisal well in the same area of the field, will in my opinion result in an increase to the Edvard Grieg reserves at the end of this year," said Ashley Heppenstall, Lundin Petroleum president and chief executive officer. "The low incremental cost of developing such barrels will add value to the Edvard Grieg asset."

Appraisal well 16/1-23 S is the 10th exploration or appraisal well drilled on PL338, which was awarded in 2004. Seven have been drilled on Edvard Grieg field. Lundin Norway operates the license with 50% working interest. Partners are OMV Norge AS 20%, Statoil Petroleum AS 15%, and Wintershall Norge AS 15%.

Lime Petroleum due Norwegian Sea stakes

Lime Petroleum Norway AS has agreed to acquire 50% of the PL760 and PL760B licenses in the Norwegian Sea from Enquest Norge AS. Terms weren't reported.

The licenses are 25 km west of Norne oil and gas field in 370 m of water.

Rex International Holding Ltd., the Singapore-based owner of 65% of Lime Petroleum PLC, the acquirer's parent, said exploratory targets are Cretaceous reservoirs productive in nearby Marulk gas field. It said a decision whether to drill on the acreage will be made in February.

Total operates the licenses with 50% interests.

Hibiscus Petroleum Sdn. Bhd., Kuala Lumpur, holds 35% interest in Lime Petroleum, which is based in Douglas, Isle of Man.

BG lets contract for seismic survey offshore Honduras

BG International Ltd. Sucursal Honduras has let a contract to Fugro for an integrated multibeam echosounder survey and seabed coring project offshore Honduras.

The MV Fugro Brasilis is conducting the 2-month survey. The campaign will map the seafloor to interpret, identify, sample, and analyze potential hydrocarbon seeps.

The BG Group subsidiary is sole license-holder of the 35,000-sq-km frontier exploration block, which covers the Patuca and Mosquitia sedimentary basins.

It conducted a gravity gradiometry survey last year and plans targeted seismic surveys. Seabed coring began in July 2014.

BG will relinquish 50% of the acreage in 2017. If it proceeds with the next 2-year exploration phase it will be required to drill at least one exploration well.

Drilling & ProductionQuick Takes

Cidade de Itaguai FPSO starts production

The Cidade de Itaguai floating production, storage, and offloading vessel started production on July 31 from the Iracema North area of Lula field on the Petroleo Brasileiro SA-operated BM-S-11 block offshore Brazil.

The FPSO, anchored in 2,220 m of water 240 km offshore Rio de Janeiro, arrived to the area at the beginning of last month (OGJ Online, July 7, 2015). Its first connected well, 7-LL-36A-RJS, has the potential to produce 32,000 bo/d. Eight production wells and nine injection wells will be connected to the FPSO, which is expected to reach peak production of 150,000 bo/d in early 2017.

Cidade de Itaguai is the second leased FPSO deployed on the Iracema development following Cidade de Mangaratiba's start-up last year (OGJ Online, Oct. 15, 2014), and doubles the gross production capacity from the area to 300,000 bo/d and 16 million cu m/day of natural gas. Cidade de Itaguai will also be able to store 1.6 million bbl of oil.

Petrobras describes oil from Iracema North as high quality with medium density at 30° gravity (OGJ, May 4, 2015, p. 88). It will be transported by shuttle tankers. Petrobras holds 65% interest in Block BM-S-11, with BG E&P Brasil Ltda. 25% and Petrogal Brasil SA 10%.

OGUK cites possible production increase for 2015

Oil & Gas UK says production from the UK Continental Shelf could increase this year for the first time in 15 years (OGJ Online, July 31, 2015).

OGUK Chief Executive Deirdre Michie cited "provisional" figures from the Department of Energy that showed liquids production for the first half of 2015 "up around 3%" and net gas production "up around 2.5%."

Production in the second quarter "looks particularly encouraging" with early figures suggesting that May had the most production since March 2012, she said.

OGUK believes the improved performance is partly due to Golden Eagle field, which started producing last November (OGJ Online, Nov. 3, 2014).

"We will be able to discuss annual estimates with more certainty by the end of the summer maintenance season, as figures for July and August are historically the most uncertain," she said.

Cidade de Itaguai FPSO started production from the Iracema North area of Lula field. Photo from BG Group.

Athabasca's SAGD project starts oil production

Athabasca Oil Corp. said the Hangingstone 1 steam-assisted gravity drainage (SAGD) oil sands project in Alberta started oil production in July with six well pairs converted to production (OGJ Online, Nov. 28, 2012).

Nine other well pairs are expected to be converted in the third quarter, the company said in its second quarter financial report. Athabasca commenced steaming the 15 well pairs in March.

Initial temperature and pressure response in the reservoir and plant reliability meet management's expectations for the project, which is designed to produce 12,000 b/d.

Seven additional well pairs are planned to be put on circulation in the third quarter and converted to production before yearend. The SAGD project is 20 km southwest of Fort McMurray.

The diluent supply pipeline is operational, and startup of the dilbit pipeline to the Cheecham terminal is "on track" for yearend.

PROCESSINGQuick Takes

ExxonMobil plans capacity expansion at Texas refinery

ExxonMobil Corp. is planning a 20,000-b/d capacity expansion at its 345,000-b/d refinery in Beaumont, Tex., to accommodate increased processing of US light crudes.

In addition to boosting the refinery's capacity to process light crudes from US shale, the expansion project would contribute to improved energy efficiency at the Beaumont plant, ExxonMobil said.

The additional feedstock of light crude also would enable improved production yields from the refinery, according to Fernando Salazar, manager of the Beaumont facility.

The company disclosed neither a timeline nor estimated cost for the proposed project.

The proposed expansion follows ExxonMobil's move to increase the processing flexibility of its US downstream operations to benefit from growing North American supplies.

ExxonMobil recently completed a metallurgy upgrade project at the Beaumont refinery to expand the plant's capacity to process heavy Canadian crude, the company said in its 2014 annual report to investors released earlier this year.

Neste advances integration of Finnish refineries

Neste Corp. will proceed with a previously announced plan to invest €60 million in the 3 million-tonne/year (tpy) Naantali refinery in Findland as part of the company's broader program to keep its European operations competitive through consolidation of its Finnish refining assets (OGJ Online, Oct. 7, 2014).

The Naantali investment, which will be used to carry out various utility-related enhancements intended to simplify the refinery's structure and improve its processing efficiency, follows the company's October 2014 decision to closely integrate the plant with the 9.8 million-tpy Porvoo refinery so that the sites will operate as a single system, Neste said.

Naantali will continue to produce diesel and specialty products, including solvents and bitumen, and maintain an important role in producing feedstocks, such as vacuum gas oil, for production lines in Porvoo.

Additionally, gasoline components produced at Naantali will be refined into finished products at Porvoo, with Naantali's terminal capacity to be used for distributing Porvoo's gasoline production, Neste said.

Integration of the Naantali-Porvoo operations also will enable increased diesel production alongside a simultaneous reduction in heavy fuel oil output.

Neste said the refining consolidation program is scheduled to be completed and the new Naantali-Porvoo operating model fully commissioned by mid-2017.

In June, Neste completed a 2-month, €100-million planned maintenance turnaround at the Porvoo refinery, which alongside standard 5-year maintenance to ensure safe and reliable operations, also involved the following projects related to the refinery's future development:

• Installation of furnaces in the crude oil distilling unit.

• Replacement of automation in several unidentified areas of the refinery.

• Preparation of connections for other unidentified, future investment projects (OGJ Online, June 16, 2015; Mar. 23, 2015).

Neste also plans to build a €200-million solvent deasphalt (SDA) feedstock pretreatment unit at Porvoo as part of the €500-million refining consolidation and integration program.

Last year, Neste let a contract to Neste Jacobs Oy to provide engineering, procurement, and construction management services for the SDA project, according to an Oct. 13, 2014, release from Neste.

Designed to improve the refinery's production structure and ability to optimize its crude slate, the SDA unit is scheduled to be completed in 2017.

JV advances plan for refinery in North Dakota

Quantum Energy Inc., Tempe, Ariz., and a joint-venture partner Native Son Holdings LLC (NSH), The Woodlands, Tex., have filed a minor-source air quality construction permit application with the North Dakota Health Department's division of air quality (DAQ) for construction of the partnership's proposed 40,000-b/d refinery in Berthold, ND (OGJ Online, July 21, 2015).

Submitted to DAQ on July 30, the permit application, if approved, would further the joint venture's plan to build the grassroots refinery on part of a combined 340-acre site in the Berthold area of Ward County, ND, that Quantum Energy previously optioned during fourth-quarter 2014, Quantum Energy said.

To be owned by Quantum Energy and NSH subsidiary Native Son Refining LLC, Quantum Native Processing Partners LLC (QNPP), construction of the refinery would require a capital commitment of about $645 million, according to Quantum Energy.

Using June 2015 prices, QNPP projects annual revenues from the planned Berthold refinery at about $1.2 billion, with a resulting annual EBITDA of about $345 million.

Based on a 360-day operating year, the refinery would have a production slate of 18,400 b/d of gasoline, 13,200 b/d of ultralow-sulfur diesel (ULSD) No. 2, 5,600 b/d of ULSD No. 1, and 2,800 b/d of atmospheric gas oil.

The venture expects the permit process to take 4-6 months, said Robert L. Monday, founder of NSH and its subsidiaries.

QNPP disclosed no additional details regarding timelines for the project's construction or potential commissioning.

TRANSPORTATIONQuick Takes

NextEra to acquire South Texas gas lines

NextEra Energy Partners LP, Juno Beach, Fla., has agreed to acquire natural gas pipelines in South Texas from privately held NET Midstream for $2.1 billion.

The deal covers seven pipelines that carry gas under ship-or-pay contracts covering a total of 3 bcfd, serving power producers and municipalities in South Texas, processing plants and producers in the Eagle Ford shale, and customers around Houston.

Planned expansions of the three largest pipelines would add 1 bcfd of gas to contracted deliveries.

The properties include:

• The NET Mexico Pipeline, a 120-mile, 42 and 48-in. line delivering gas from the Agua Dulce hub west of Corpus Christi to a Pemex subsidiary, which holds a 10% stake, at the Mexican border.

• Eagle Ford Midstream, 158 miles of large-diameter pipeline in the Eagle Ford play with deliveries to the Agua Dulce hub and access to multiple pipeline interconnects.

• The Monument Pipeline, 156 miles of 16-in. line carrying gas from the Katy hub to city gates of Houston and to the Houston Ship Channel and Galveston County.

• Four smaller pipelines serving power plants and residential customers.

The transaction includes expansion investment of about $300 million in 2016, NextEra said.

NET Midstream is owned 50% by founders Jerry Dearing and Joe Gutierrez and 50% by an affiliate of ArcLight Capital Partners LLC.

Rangeland forms new midstream partnership

Rangeland Energy, Sugar Land, Tex., has received a $300 million equity commitment from EnCap Flatrock Midstream and formed Rangeland Energy III LLC "to pursue new midstream opportunities in resource plays across North America."

An existing entity, Rangeland Energy II LLC, will continue to focus on construction, operation, and expansion of its RIO System, which includes a rail-and-truck hub near Loving, NM, providing transportation of crude oil and condensate produced in the Delaware basin as well as inbound frac sand. The hub was fully commissioned last month.

A related crude oil system, including a gathering hub near Mentone, Tex., and an 85,000-b/d pipeline between there and Midland, is under construction.

EnCap Flatrock Midstream and Rangeland founders provided equity financing for Rangeland Energy II and for the first Rangeland entity, which developed a system of crude oil pipelines and terminals in the Bakken play. Inergy Midstream LP, now Crestwood Midstream Partners LP, bought that company in 2012 (OGJ Online, Oct. 10, 2013).

ETP launches open season for Delaware Pipeline

Energy Transfer Partners LP, Dallas, reported that its affiliate, ETP Crude LLC, will launch a binding open season for the Delaware basin crude gathering pipeline with the capacity to accept 120,000 b/d of oil from receipt points in Reeves County, Tex., and Lea County, NM, for transport to Loving County, Tex., and Lea County.

Interstate service on the Delaware Pipeline will be subject to the jurisdiction of the US Federal Energy Regulatory Commission.

This project, when completed, will consist of three separate gathering systems with an aggregate of 130 miles of pipe. The gathering systems will deliver crude oil into the Sunoco Logistics Partners LP Delaware basin extension.

The pipeline is projected to be in service in first-half 2016. The open season is slated to end on Sept. 4.