OGJ Newsletter

June 27, 2016
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

Marathon to buy STACK-focused firm for $888 million

Marathon Oil Corp., Houston, has agreed to acquire PayRock Energy Holdings LLC, an Oklahoma City-based portfolio company of EnCap Investments LP, for $888 million. The deal, to be funded with cash-on-hand, is expected to close in the third quarter.

PayRock holds 61,000 net surface acres and 9,000 net boe/d of current production in the oil window of the Anadarko basin STACK play in Oklahoma.

The acreage features 2P resource of 330 million boe with 490 gross company operated locations, and 700 million boe total resource potential from increased well density in Meramec and Woodford.

"We expect the 2016 capital program on the acquired acreage will be covered within our current $1.4-billion budget," said Lee Tillman, Marathon Oil president and chief executive officer. "As we look into 2017, we would anticipate a minimum four-rig drilling program in our pro forma STACK position, which will achieve leasehold drilling requirements while accelerating delineation work."

Noble, PDC swap Wattenberg field acreage

Noble Energy Inc., Houston, and PDC Energy Inc., Denver, have entered definitive agreements to swap acreage and consolidate their respective land positions in Wattenberg natural gas and condensate field in Weld County, Colo.

The swap involves 13,500 net acres from Noble and 11,700 net acres from PDC, leasehold only. Existing production on the acreage remains with the original party. The companies said the difference in net acreage reflects variances in net revenue interests.

Noble said the exchange will expand its position in a development area called Wells Ranch by about 20%. The acreage due PDC mainly will come out of Noble's Bronco area.

Both companies said the transaction will improve operating efficiencies and expand long-lateral drilling opportunities.

In a separate transaction, Noble said it received $486 million in an initial closing of the sale of 33,100 net acres in the Greeley Crescent area of Weld County to Synergy Resources Corp., Denver (OGJ Online, May 5, 2016). Noble is to receive a further $19 million in a final closing expected in the fourth quarter.

Indian consortium to buy shares in Rosneft unit

A consortium of Indian companies is to buy 23.9% of shares in a subsidiary of OJSC Rosneft.

The definitive agreement was signed by Indian Oil Corp. Ltd., Oil India Ltd., and Bharat PetroResources Ltd. for shares in JSC Vankorneft, which owns the Vankor and North Vankor field licenses in eastern Siberia.

Vankor is in Turukhansk district of Krasnoyarsk territory. IOC said Vankor is currently producing about 422,000 b/d. Rosneft said Vankor in 2015 produced 22 million tonnes of oil and 8.71 billion cu m of gas.

The acquisition is subject to regulatory approvals and is expected to close in September.

Rosneft owns 85% of Vankorneft. A subsidiary of ONGC Videsh Ltd. holds 15% in a purchase that took effect May 31.

Exploration & DevelopmentQuick Takes

Rosneft, BP form joint venture for Siberian exploration

OJSC Rosneft and BP PLC have signed final binding agreements to form a joint venture for onshore exploration in two Siberian basins (OGJ Online, June 19, 2015).

Rosneft will have 51% in Yermak Neftegaz LLC, which will conduct exploration activities in areas of mutual interest (AMI) totaling about 260,000 sq km in the West Siberian basin and the Yenisey-Khatanga basin.

Activities will include regional research, acquisition of seismic data, and drilling of exploration wells. Field work is anticipated to begin in the 2016-17 winter season.

BP committed to spend as much as $300 million in two phases. Rosneft will contribute licenses and operational experience in the basins with initial drilling to be performed by Rosneft subsidiaries.

In the initial stage, the joint venture will carry out further appraisal work on the 2009 Rosneft-discovered Baikalovskiy field inside the Yenisey-Khatanga AMI, and exploration of the Zapadno-Yarudeiskoye, Kheiginskoye, and Anomalnoye licenses in the West Siberian AMI.

Chariot adds Moroccan acreage, exits Mauritania

Morocco's Office National des Hydrocarbures et des Mines (ONHYM) has awarded Chariot Oil & Gas Investments (Morocco) Ltd., a wholly owned subsidiary of Cariot Oil & Gas Ltd., 75% interest and operatorship of the Mohammedia I-III offshore exploration permits. The permits are nearshore and cover 4,600 sq km in less than 500 m of water. They are adjacent to Chariot's Rabat Deep offshore exploration permits (OGJ Online, Mar. 30, 2016).

In 2014, Chariot acquired 375 sq km of 3D seismic data in the precursor Mohammedia Reconnaisance license, from which the company identified several prospects including: EOP-1 and EOP-2 (Eo-Oligocene); LKP-1a, 1b, 2a, and 2b (Lower Cretaceous); and JP-2 (Jurassic).

Netherland, Sewell & Associates Inc. audited these prospects with a gross mean resource ranging 50-289 million bbl.

The Jurassic carbonate shelf-edge system that makes up the JP-1 prospect in the Rabat Deep license is thought to lie along the western margin of the Mohammedia permits, the company said (OGJ Online, May 4, 2015). According to Chariot's assessment, the carbonate shelf acts as a structural control on the overlying Early Cretaceous margin with the LKP prospects, which result from deposition of interpreted shallow-water deltaic clastics. Both the Eo-Oligocene and Lower Cretaceous prospects have seismic attributes that could indicate hydrocarbons, the company said.

As part of this acquisition, Chariot has committed to acquire 250 sq km of 3D seismic data where the LKP prospects extend outside its current data. The company will acquire an additional 2,000 km of 2D seismic over the remaining unexplored area of the permits. Both programs are likely to be carried out in 2017.

ONHYM maintains 25% interest in the Mohammedia permits. In addition to its added acreage offshore Morocco, Chariot announced it will not enter into the first renewal phase of the C-19 license offshore Mauritania. The company acquired 3,500 sq km of 3D seismic data in 2013 and undertook reprocessing of legacy 2D seismic data along with seabed coring to perform an integrated analysis of the block.

Chariot cited the unsuccessful bid to acquire third party funding of an exploration well as the primary reason for exiting Mauritania. Cairn Energy PLC (OGJ Online, Aug. 8, 2013) was also a partner on C-19 with 35% interest. Both companies will likely exit Mauritania.

Faroe finds oil, gas in North Sea Brasse prospect

Faroe Petroleum Norge AS has encountered 39 m of gross gas, oil-bearing reservoir, 18 m and 21 m, respectively, in its Brasse well (31/7-1) in license PL740 in the Norwegian North Sea. Spudded in May, the well has been drilled to a total depth of 2,780 m (OGJ Online, May 19, 2016).

The reservoir is thought to be analogous to producing Brage oil field 13 km north of Brasse, the company said. Faroe holds 14.3% interest in the field.

If the Brasse drilling results prove a commercial discovery, "it could be tied-back to the Brage production facilities or alternatively to other nearby installations," said Faroe CEO Graham Stewart.

The partnership has plans for a sidetrack to confirm the reservoir distribution and hydrocarbon contacts. Faroe and Point Resources AS each hold 50% interest in the Brasse prospect.

NPD: Statoil finds gas, condensate near Oseberg South

The Norwegian Petroleum Directorate said a wildcat drilled in the North Sea by Statoil Petroleum AS found natural gas and condensate with a preliminary estimate of 1-3 million cu m of gas equivalent recoverable.

The Songa Delta semisubmersible drilled well 30/11-13 about 8 km southeast of the 30/11-8 S Krafla discovery (OGJ Online, June 28, 2011). It's also about 27 km south of the Oseberg South facility. Water depth is 106 m.

It was drilled to a vertical depth of 3,313 m below the sea surface to the Ness formation. Statoil encountered gas columns of 5 and 31 m in the top part of the Tarbert formation, its primary target. The well is in production license 272, where Statoil will next drill wildcat 30/11-14 with the Songa Delta (OGJ Online, Sept. 4, 2015).

Drilling & ProductionQuick Takes

BP sanctions fast-track development of Atoll Phase 1

BP PLC and Egyptian Natural Gas Holding Co. (Egas) have sanctioned development of the Atoll Phase 1 project in the North Damietta offshore concession in the East Nile Delta.

The project will bring as much as 300 MMscfd of gas (gross) to the Egyptian market beginning in first-half 2018. Atoll field is estimated to hold 1.5 tcf of gas and 31 million bbl of condensates.

Atoll Phase 1 is an early production scheme (EPS) involving the recompletion of the existing exploration well as a producing well, the drilling of two additional wells, and the installation of the necessary tie-ins and facilities required to produce from the field.

The Atoll wells will be drilled by Ensco PLC's DS-6 ultradeepwater drillship, which arrived in Egypt last month and is expected to start drilling in August for roughly 24 months. BP says success with Atoll Phase 1 EPS could lead to further investment in the Atoll Phase 2 full field development.

The firm recently completed multiple transportation and processing agreements accelerating development of Atoll. Onshore processing will be handled by the existing West Harbour gas processing facilities.

BP reported the Atoll discovery in March 2015 (OGJ Online, Mar. 9, 2015). The Atoll heads of agreement was signed 8 months later (OGJ Online, Nov. 5, 2015). BP has 100% interest in the concession.

PDO approved for Oseberg Vestflanken 2 in North Sea

Norway's Ministry of Petroleum and Energy has greenlighted Statoil ASA's plan for development and operation (PDO) for Vestflanken 2 in the northern section of the North Sea. The PDO was submitted last December (OGJ Online, Dec. 18, 2015).

Located 9 km from the Oseberg field center, Vestflanken 2 is the first of three planned phases for development of the remaining reserves in the Oseberg area. The project will help extend the life of the Oseberg field, which has been producing since 1988.

Development of Vestflanken 2 involves an unmanned wellhead facility resting on the seabed. The concept is new to the Norwegian shelf, but common on the Danish and Dutch shelves.

The platform will have no process equipment, living quarters, drilling facilities, or helicopter deck. Wells will be drilled with a mobile drilling unit, while maintenance will be performed by a support vessel with adapted gangway drawing up alongside the platform.

The wellhead facility has 10 well slots, two of which will be used to inject gas. Additionally, two production wells will be drilled from an existing subsea template on Vestflanken.

Further injection will take place by bringing in gas through a new pipeline from an existing gas injection system. The wells on Vestflanken 2 will be controlled from the Oseberg field center, where the oil and gas will also be processed.

Statoil is operator of Vestflanken 2 with 49.3% interest. Partners are Petoro AS 33.6%, Total SA 14.7%, and ConocoPhillips 2.4%.

ConocoPhillips in 2015 estimated development cost at just under $1 billion, facilitating production of 110 million boe. Of the total, oil represents 62 million bbl, while gas amounts to 7.8 billion standard cu m. The reservoirs are 2,400-3,100 m subsea.

Pioneer to expand Midland basin drilling

Pioneer Natural Resources Co. will increase its rig count for horizontal drilling in the northern part of its Midland basin Spraberry-Wolfcamp play to 17 from 12 after an acquisition from Devon Energy Corp. and in response to its "improving outlook for oil prices."

Pioneer agreed to acquire 28,000 net acres, mostly undeveloped, from Devon for $435 million, subject to normal closing adjustments. The acreage is in Martin, Midland, Upton, Reagan, Glasscock, Andrews, Dawson, Gaines, and Howard counties. Net production is 1,000 boe/d, of which 70% is oil.

About 15,000 net acres is in the Sale Ranch area of Martin and northern Midland counties, where Pioneer is active. Combined with its existing acreage, the acquisition will add 70 locations targeting the Permian Wolfcamp B shale to Pioneer's Sale Ranch drilling inventory in an area where lateral lengths average about 9,000 ft.

A separate 8,000 net acres in the Sale Ranch area and northern Midland County will add about 80 Wolfcamp B locations where lateral lengths are less than 7,500 ft.

Pioneer said it will use the remaining 13,000 net acres acquired from Devon and existing acreage in trades to consolidate its land positions in core areas.

It expects to add its first rig in the area in September, followed by two rigs each in October and November.

The company also reported an underwritten public offering of 5.25 million shares of its common stock, with an estimated value of $827 million, to fund the acquisition and general corporate activities.

The agreement is one of several sales announced by Devon of noncore Midland basin acreage. The agreed sales prices total $858 million, bringing to $2.1 billion the total proceeds of program by the company to divest noncore properties.

QEP Energy to add Midland basin acreage

QEP Resources Inc., Denver, said its wholly owned subsidiary QEP Energy Resources will gain 430 horizontal drilling locations targeting four horizons in the northern Midland basin with property acquisitions in Martin County, Tex., totaling $600 million.

The operator entered a definitive agreement with "individuals and entities" to buy 9,400 net acres 10 miles east of existing QEP operations. The company current holds about 26,000 net acres in the Midland basin, mostly in Martin and adjacent Andrews counties.

About 98% of the acquisition acreage is held by production to the base of the Permian Wolfcamp formation or deeper. Net production is 1,400 boe/d, about 83% crude oil, from 96 vertical wells.

Target formations of the drilling locations to be acquired are Wolfcamp A and B and Permian Middle Spraberry and Spraberry shale.

Terms of the agreement are subject to adjustment to the extent participating sellers are unable to secure joinders from associated property owners by July 13.

PROCESSINGQuick Takes

Reliance starts up unit at Jamnagar refinery

Reliance Industries Ltd. (RIL), Mumbai, has commissioned a benzene recovery unit (BRU) at the domestic-tariff area (DTA) refinery of its 1.24 million-b/d Jamnagar refining and petrochemical complex in Gujarat, India.

Designed to reduce the amount of benzene from light naphtha produced from DTA refinery's fluid catalytic cracking (FCC) units for upgrading to fuels that meet Euro 3 and 4 quality specifications, the BTU produced its first on-specification raffinate for blending and sales on May 23, RIL said in a filing to India's BSE Ltd. (formerly Bombay Stock Exchange).

Based on proprietary technology created by RIL and Indian Institute of Petroleum at Dehradun, the new unit uses an extractive distillation process using a robust and selective solvent that enables a 99 vol % or higher benzene-recovery rate (extracted and upgraded to cyclohexane-grade benzene) and raffinate product containing 0.2 vol % or less benzene, RIL said.

While RIL confirmed Technip SA served as detailed engineering contractor for the project, the company did not disclose details regarding the new unit's capacity.

Liberian firm lets contract for refinery study

ECOWAS Refinery Liberia Ltd. (ERLL) has let a contract to KBR Inc. to execute a bankable feasibility study for a proposed 100,000-b/d refinery to be built in Buchanan, Liberia.

To be performed over 5 months, KBR's scope of work includes development of an optimal refinery configuration, a financial model inclusive of capital and operational cost estimates, as well as an environmental, social, and health impact assessment (ESHIA) study, the service provider said.

KBR will execute the project with support from China National Petroleum Corp. subsidiary China Huanqiu Contracting & Engineering Corp., which will advise in tailoring the BFS product for potential future-phase Chinese investment in the refinery.

While KBR did not disclose a value of the contract, the company said the project value will be booked into earnings of its technology and consulting business segment for this year's second quarter.

ERLL previously was awarded a contract by state-owned Liberia Petroleum Refinery Co. (LPRC) to execute a feasibility study for construction of its own refinery in the country, according to 2013 local media reports out of the region.

KBR did not respond to a request to clarify whether ERLL has awarded this most recent contract on behalf of LPRC or as the proposed refinery's future owner.

ERLL could not be reached directly for comment.

In its 2011-16 strategic plan issued in October 2012, LPRC said it intended to conduct feasibility studies for construction of a 50,000-b/d refinery in Liberia, which currently without its own operable refinery, relies exclusively on fuel imports from surrounding regions.

EPP plans third gas plant for Delaware basin

Enterprise Products Partners LP (EPP), Houston, plans to further expand its gas processing capacity and associated systems in the Delaware basin of West Texas and southeastern New Mexico to take advantage of growing production of NGL-rich natural gas in the region (OGJ Online, Sept. 30, 2014).

EPP will build a 300-MMcfd cryogenic gas processing plant and add more than 40,000 b/d of NGL extraction capability to complement the company's ongoing growth in the region, EPP said.

While EPP has yet to determine a precise location to site the proposed plant, the company confirmed the proposed project already is anchored by long-term commitments from an unidentified major producer.

In addition to providing gas processing capabilities, the scope of the project will include construction of rich gas gathering lines, a residue pipeline to the Waha hub in West Texas, and an NGL pipeline to EPP's Mid-America Pipeline system to integrate operations with the rest of the company's Delaware basin systems, EPP said.

The proposed project, which will include the third cryogenic gas processing plant EPP has announced in less than 24 months, is scheduled for startup during second-quarter 2018.

In May, EPP commissioned a 200-MMcfd cryogenic gas processing plant as well as 25,000 b/d of NGL-extraction capability and associated systems in Eddy County, NM, as part of the company's overall strategy to double EPP's gas processing capacity in the Delaware basin during 2016 (OGJ Online, May 20, 2016).

EPP also remains on track with the previously announced startup during this year's third quarter of a 150-MMcfd cryogenic gas processing plant and 20,000-b/d of NGL extraction capability project under development with an affiliate of Occidental Petroleum Corp. (OGJ Online, Apr. 30, 2015).

EPP, which will operate the Waha plant on behalf of EPP-Oxy joint venture Delaware Basin Gas Processing LLC, also will build, own, and operate a 12-in. OD pipeline that will move NGLs from the plant to one of EPP's NGL pipelines offering access to its NGL fractionation and storage in Mont Belvieu, Tex.

Once all in service by mid-2018, the three projects together will increase EPP's processing capacity in Delaware basin to 800 MMcfd from 40 MMcfd in 2012, said A.J. Teague, chief executive officer of EPP's general partner.

TRANSPORTATIONQuick Takes

Tesoro closes Alaska logistics acquisition

Tesoro Corp., through affiliates, has closed its acquisition of wholesale marketing and logistics properties in Anchorage and Fairbanks, Alas., from Flint Hills Resources (OGJ Online, Nov. 24, 2015).

Tesoro Alaska Co. LLC and Tesoro Alaska Terminals LLC acquire an Anchorage terminal with 580,000 bbl of storage capacity, a truck rack, and rail-loading capability; a Fairbanks airport terminal with 22,500 bbl of jet-fuel storage capacity and a truck rack; and a terminalling agreement at the seller's North Pole terminal providing rail offload capabilities.

Tesoro agreed with the state attorney general to offer for divestment an interest of about 25% in its Tesoro Logistics Anchorage product terminal.

Bear Head LNG gets Canadian government approval

Bear Head LNG Corp. Inc., a wholly owned subsidiary of Liquefied Natural Gas Ltd., has received Governor in Council approval for a licence to import natural gas from the US and a license to export LNG from Bear Head LNG's project site on the Strait of Canso in Richmond County, NS. The Canadian National Energy Board approved Bear Head natural gas imports and exports in August 2015 (OGJ Online, Sept. 11, 2015), subject to approval from the governor in council.

The licenses authorize Bear Head LNG to import as much as 14.2 billion cu m/year of gas, sufficient to export as much as 12 million tonnes/year of LNG. Both licenses are for a period of 25 years.

Bear Head LNG has approval from the US Department of Energy to export US-sourced gas both to nations that do and nations that do not have free trade agreements with the US.

Gas will be supplied to Bear Head LNG on Bear Paw Pipeline, which in March filed environmental documents with the government of Nova Scotia (OGJ Online, Mar. 30, 2016).