GENERAL INTEREST — Quick Takes
Tax scheme, weak ruble help Russian majors
Tax mechanisms and a weak ruble helped Russia's major oil companies maintain and in some cases improve ruble-denominated profitability in the first quarter despite weakness in the price of crude oil, reports Moody's Investors Service.
Russia's overall tax burden on domestic companies falls when prices decline, explains an analysis by Julia Pribytkova, Moody's vice-president and senior analyst. Combined with a 40% decline in the ruble's value against the dollar, the tax buffer offset a 50% drop in the crude price from the first-quarter 2014 average and weak performance from refining.
For all five Russian companies tracked by Moody's, first-quarter 2015 tax burdens fell as percentages of revenue from their levels in the first and last quarters of 2014.
The lower tax burdens largely reflected the price sensitivity of Russia's minerals extraction tax, which is a volume-based royalty, and export duties lowered for crude oil and oil products at the beginning of 2015.
Companies followed by Moody's are Rosneft, Lukoil, Gazprom Neft, Tatneft, and Bashneft.
Ruble weakness in the first quarter helped the companies generate cash flow. The companies' operating expenses and a large share of their capital expenditure are denominated in rubles, while their cash flows are largely in dollars because they export most of their crude and products, the analyst explained.
Although Russian oil production changed little in the first quarter from its year-earlier average, the tracked companies increased total exports by 20% for crude and 7% for refinery products.
Their overall refinery output dropped in the first quarter, however.
"The ruble's significantly weaker exchange rate and the lower export duty made crude oil more expensive for domestic refineries and squeezed their margins," the Moody's analyst said.
Pipeline leak to cost at least $257 million
A crude oil pipeline leak north of Santa Barbara, Calif. (OGJ Online, May 20, 2015), will cost Plains All American Pipeline LP at least $257 million, the Houston midstream transportation company estimated in its latest Form 10Q filing with the US Securities and Exchange Commission.
It said that in addition to claims filed directly at a claims line it established soon after the leak was discovered, six class action lawsuits were filed in US District Court for Central California alleging damages from the release.
PAA also expects to be liable for costs and damages under the 1990 Oil Pollution Act, and possibly could pay additional fines, penalties, and costs under other applicable federal, state, and local laws, statutes, and regulations. "Our assumptions and estimates may turn out to be inaccurate and our total costs could turn out to be higher," it cautioned.
It also said that in late May, the US Attorney for Central California launched an investigation on the US Environmental Protection Agency's behalf into whether any federal statutes were violated in connection with the incident, including the Clean Water Act.
PAA said it is cooperating with the inquiry, and is funding any employees' defense costs. The California Attorney General's Office and Santa Barbara County District Attorney's Office also announced investigations, it added.
Elsewhere in the Aug. 7 SEC filing, PAA said that 100 bbl of crude was released on July 10 from the Capwood pipeline at its Pocahontas Pump Station in Illinois some 40 miles from St. Louis, Mo. (OGJ Online, July 15, 2015).
Part of the leaked oil was contained within the facility, but some entered a nearby waterway where it was contained by booms, it noted. PAA estimated that costs associated with this release will be less than $10 million.
ND approves higher level of radioactivity
The North Dakota State Health Council voted unanimously Aug. 11 to adopt rules that would permit waste, including oil field waste, containing radioactivity levels of up to 50 picocuries/g of technologically enhanced radioactive material to be disposed at approved landfills.
The level is tenfold the level of radioactivity that the state currently allows at about a dozen landfills in North Dakota. The 5 picocuries/g was among the lowest in the nation, state officials noted. Texas and Washington set their limits at 10,000 picocuries/g.
Att. Gen. Wayne Stenehjem and the Legislature's Administrative Rules Committee have yet to approve the rule change. Dave Glatt, the health department's environmental health chief, said the rules possibly could be effective by Jan. 1, 2016.
Unconventional development and production in the Bakken formation means North Dakota has had to deal with more oil waste, including increased problems of illegal oil waste dumping.
Operators of North Dakota's landfills that accept special waste or industrial waste would have to apply for a permit modification to receive waste containing higher radioactivity, said the 11-member council, which is the governing and advisory group for the state Department of Health.
Exploration & Development — Quick Takes
Lundin strikes oil on Luno II North
Lundin Petroleum AB, through its wholly owned subsidiary Lundin Norway AS, has discovered a gross 23-m oil column with its 16/4-9 S exploration well on the Luno II North prospect. The well is in a separate sub-basin northwest of the Luno II discovery in PL359 in the central North Sea sector of the Norwegian continental shelf (OGJ Online, May 6, 2013).
The well is on the southwestern flank of the Utsira High 15 km south of the Lundin Petroleum-operated Edvard Grieg field and 4 km northwest of the Luno II 16/4-6 S discovery well.
The well encountered quality Jurassic-Triassic conglomeratic sandstones with pressure data indicating that the petroleum system in the Luno II North discovery is different from that seen in the Luno II discovery. The operator reported that the 16/4-9 S produced 1,000 bo/d through a 32⁄64-in. choke during tests. The operator followed with extensive data acquisition and sampling, including conventional coring and fluid sampling.
The 16/4-9 S appraisal well is the fourth drilled in PL359 since 2006. It was drilled to a total depth of 2,305 m in 100 m of water by the Bredford Dolphin semisubmersible rig.
The gross contingent resource range for the Luno II North discovery, representing the southern part of the prospect, is estimated at 12-26 million boe. Economic viability analysis is ongoing, however, and the operator has suggested in its most recent press release that Luno II and Luno II North may be attached to Edvard Grieg field via subsea tieback. The Luno II discovery is estimated to contain a gross contingent resource range of 27-71 million boe.
Lundin Norway AS is operator of PL359 with 50% working interest. Partners are OMV (Norge) AS 20%, Statoil Petroleum ASA 15%, and Wintershall Norge AS 15%.
Frontier Campeche seismic survey begins
Schlumberger has begun a multiclient seismic survey of frontier acreage of the offshore Campeche basin of Mexico using technology designed for subsurface complexity.
The project indicates continuing interest in Mexican prospects newly accessible to international operators under reformed energy law. The country's first open bid round, held July 15, resulted in license awards for only 2 of 14 blocks on offer in shallow water, mostly off Tabasco (OGJ Online, July 16, 2015).
Observers have attributed the limited bidding in that historic round to problems with production-sharing contract design (OGJ Online, July 27, 2015).
Later rounds are to offer blocks in deep water and onshore, including shale basins.
For the new surveys, two fleets of WesternGeco vessels will use wide-azimuth, long-offset, and broadband technologies addressing problems created by features encountered in the 80,000-sq-km area of interest such as near-salt and subsalt structures, complex faulted structures, and deep-thrusted structures, Schlumberger said.
Data acquisition is to be complete in early 2016.
INPEX to drill well offshore Japan
INPEX Corp., Tokyo, will drill an exploratory well next year in the Korea Strait offshore southern Japan.
Commissioned by the Agency of Natural Resources and Energy (ANRE) of the Ministry of Economy, Trade, and Industry, the operator will drill the well in 210 m of water 130 km off Shimane Prefecture, about halfway between Tsushima and Oki Island.
INPEX expects drilling to begin in May and be complete in August.
The well is part of an ANRE program called Heisei 26-28 Domestic Offshore Drilling Program in Japan.
The Japanese government conducted a geophysical survey over the area in 2011, and INPEX conducted a 3D geophysical survey in 2013 based on the earlier project.
Pemex contract covers eight offshore fields
Pemex Procurement International has let a 3-year blanket engineering contract to Wood Group for work related to the potential development of five deepwater oil fields and three extra-heavy oil fields in the Gulf of Mexico.
The contract, worth up to $28 million, covers deepwater and complex shallow-water concept and basic engineering as well as owner engineer services.
Wood Group Kenny and Wood Group Mustang will perform field development planning and engineering of topsides facilities; subsea umbilicals, risers, and flowlines; and floating systems.
Deepwater fields covered by the contract are Exploratus, Kunah, Lakach, Piklis, and Trion.
Extra-heavy oil fields are Ayatsil, Tekel, and Utsil.
Drilling & Production — Quick Takes
Lukoil gets $1 billion for Shah Deniz
JSC Lukoil has signed an agreement with a consortium of banks to borrow $1 billion for the second stage of the Shah Deniz natural gas project offshore Azerbaijan.
Lukoil said $560 million will be provided by the European Bank for Reconstruction and Development (EBRD), the Asian Development Bank (ADB), and the Black Sea Trade and Development Bank.
The remaining $440 million will be provided by a commercial banking syndicate of ING Bank NV, the Bank of China, UniCredit AG, and Societe Generale via B Loan programs of the EBRD and ADB.
The second stage project is 70 km offshore Baku (OGJ Online, Mar. 20, 2014). Total production for stage one and stage two is expected to peak at 25 billion cu m/year. Lukoil has 10%.
Steel jacket moving to Mariner field off UK
A core unit in the development of Mariner heavy oil field is moving to location on the East Shetland Platform of the UK North Sea about 150 km east of the Shetland Islands (OGJ Online, Jan. 14, 2015).
The 22,400-tonne steel jacket for the Mariner A production, drilling, and quarters platform left the Dragados yard in Cadiz, Spain, on Aug. 10, reports Statoil, the operator.
The 1,835-nautical-mile trip to the field, on Block 9/11a, is expected to take 2 weeks. Installation of the topsides, being built by Daewoo Shipbuilding & Marine Engineering Co. Ltd., is due next year. Water depth is about 105 m.
Statoil expects production to begin in 2017 from two reservoirs, which together hold reserves of 250 million bbl. The field will produce into a ship-shaped floating storage and offloading unit at a plateau rate of 55,000 b/d.
The Paleocene Maureen formation, at 1,492 m, holds 14.2° gravity oil with viscosity of 67 cp at reservoir conditions. Oil in the Paleocene Heimdal reservoir, at 1,227 m, is 12.1° gravity and 508 cp.
Drilling to 130 subsurface targets for production or injection will occur from the platform under a contract to Odfjell Drilling and from a Noble Corp. jack up rig under construction. It will involve multibranch technology, sidetracks, and reuse of slots.
Statoil holds a 65.11% interest in the project. JX Nippon Exploration & Production (UK) Ltd. holds 28.79%, and Dyas Mariner Ltd. holds 6%.
Saudi Aramco launches CCS pilot project
Saudi Aramco reported the launch of a carbon capture and storage pilot project in an attempt to enhance oil recovery while reducing carbon dioxide emissions. Aramco hopes the project, which it is calling the largest of its kind in the Middle East, will demonstrate enhanced oil recovery beyond the more common method of water flooding.
The pilot project, which will be led by the company's EXPEC-Advanced Research Center, entails the capture of 40 MMscfd of carbon dioxide at Hawiyah gas recovery plant to be piped 85 km to Uthmaniyah field where it will be injected into flooded oil reservoirs under high pressure for EOR (OGJ, Aug. 17, 2009, p. 44).
The pilot project is the latest in the company's efforts to inject 800,000 tons/year of CO2 into flooded oil reservoirs. A monitoring system is in place to measure how much CO2 remains sequestered underground.
Over the next 3-5 years, the project will be studied by field engineers and researchers, and lessons learned from this project will be used at facilities and fields around the kingdom, Aramco said.
PROCESSING — Quick Takes
Morocco's sole refinery plots restructuring
Societe Anonyme Marocaine de l'Industrie de Raffinage (SAMIR) is planning a financial restructuring of the company in an effort to maintain ongoing operations at its 10 million-tonne/year refinery at Mohammedia, Morocco, north of Casablanca.
The company will hold a September meeting for board of directors to convene an extraordinary general meeting of stakeholders on Oct. 12 to finalize a capital increase included as part of a financial restricting plan recommended by Attijari Finance Corp. of Morocco, SAMIR said.
The announcement follows confirmation from SAMIR on Aug. 5 that it has been forced to temporarily suspend processing operations of unidentified production units as a result of financial difficulties.
Full restart of the refinery's impacted units is scheduled for mid-August, according to an Aug. 6 release from the company.
The refinery, which continues to operate at reduced rates, also continues to supply petroleum products to Morocco's domestic market, SAMIR said in an Aug. 10 release.
The company, which is majority owned by Corral Petroleum Holding AB (67.27%) and controlled by Sheikh Mohamed Al Amoudi, additionally denied recent media reports of any plans to permanently close the refinery.
ExxonMobil lets contract for refinery expansion
ExxonMobil Corp. has let a contract to Jacobs Engineering Group Inc., Pasadena, Calif., to provide engineering, procurement, and construction management (EPCM) services for a planned 20,000-b/d capacity expansion at the company's 345,000-b/d refinery in Beaumont, Tex. (OGJ Online, Aug. 4, 2015).
The scope of Jacobs Engineering's work under the contract includes delivery of EPCM services related to an expansion of the refinery's crude distillation and jet fuel units, the service provider said.
Designed to expand the refinery's capacity to process light crudes from US shale, the Beaumont crude flexibility and expansion project also will result in increased production of jet fuel from the plant, according to Jacobs Engineering.
Increased processing of light crude feedstock additionally would contribute to quality improvements in the refinery's overall production slate, ExxonMobil said when announcing the project earlier this month.
Jacobs Engineering did not disclose a value of the EPCM contract but did confirm the project is a release against an existing long-term agreement with ExxonMobil.
An official timeline for the proposed expansion has yet to be released.
The capacity expansion plans at Beaumont follow 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 increase the plant's ability to process heavy Canadian crude, the company told investors in March.
TRANSPORTATION — Quick Takes
Kinder Morgan to boost US tanker fleet
Kinder Morgan Inc. entered a definitive agreement to acquire four new 50,000-dwt product tankers qualifying for intracoastal US trade under the Jones Act.
The $568-million deal with Philly Tankers LLC requires approval of 80% of the seller's ownership.
The tankers, which are convertible for LNG carriage, will be built at the Aker Philadelphia Shipyard. Each will be able to carry 337,000 bbl of product.
The ships will be delivered between November 2016 and 2017.
Kinder Morgan entered the Jones Act product tanker business when it bought five ships in January 2014 through the acquisition of American Petroleum Tankers and State Class Tankers for $960 million.
Before the latest deal it had seven product tankers in service and five under design or construction.
KMI starts Powder River deliveries on Double H
Kinder Morgan Inc. (KMI) has begun receiving Powder River basin crude oil into its Double H pipeline system via a newly constructed connection near Douglas, Wyo., increasing system capacity to about 99,000 b/d. KMI said further expansion is possible as the Bakken shale and Power River basin grow.
The Market Center Gathering system in the Bakken supplies the 485-mile Double H, which runs from the Dore terminal in North Dakota and the Albin terminal in Montana to Guernsey. At Guernsey, KMI expects to put delivery connections to Plains All American Pipeline's Guernsey station and Sinclair Guernsey terminal into service later this quarter, increasing connectivity to local and regional markets.
Shippers also have access via an interconnect with the Pony Express Pipeline for transportation to Phillips 66's Ponca City, Okla., refinery or the Deeprock terminal in Cushing, Okla. Double H began service in February.
The Powder River basin project stems from an open season held earlier this year.
KMI in January acquired Hiland Partners and its Double H pipeline (OGJ Online, Jan. 22, 2015).
Keyera takes 50% stake in portion of pipeline
Keyera Corp. has agreed to acquire 50% interest in the southernmost section of the 20-in. diluent Grand Rapids pipeline, entering into a 50-50 joint venture with the Grand Rapids Pipeline Limited Partnership, itself a 50-50 JV of TransCanada Corp. and PetroChina Co. Ltd. Canadian subsidiary Brion Energy Corp.
The 45-km pipeline will be constructed by Grand Rapids and will extend from Keyera's Edmonton terminal to TransCanada's Heartland terminal near Fort Saskatchewan (OGJ Online, May 3, 2013). Keyera will also contribute a new pump station at its Edmonton terminal.
Grand Rapids expects its total contribution to the joint venture to be $140 million. Keyera will operate the pipeline once construction is complete and the facilities are in-service.
The expected in-service date is in the second half of 2017 subject to regulatory approvals.
The Grand Rapids project, announced in 2012 and to be operated by TransCanada (OGJ Online, Oct. 29, 2012), began construction in fall 2014 and will become operational in stages, with initial crude oil transportation expected in 2016.
GAIL 'running behind schedule' on projects
India's minister of petroleum and natural gas says GAIL (India) Ltd. is "running behind schedule" on three pipeline projects (OGJ Online, Mar. 15, 2013).
India's Press Information Bureau cited a written reply by Minister Shri Dharmendra Pradhan to the Rajya Sabha, the upper house of the Indian Parliament.
The projects are: the second phase of the Kochi-Koottanad-Bangalore-Mangalore gas pipeline; an upgrade of the Vijaypur-Kota pipeline and laying of spur to Chittorgarh; and the Surat-Paradip trunkline and spur.
He cited legal disputes, nonavailability of right-of-use, delay in getting statutory clearances such as forest clearance, wildlife sanctuary permission, contractural issues, complexity of terrain, and non-availability of anchor load customers.