OGJ Newsletter

Oct. 23, 2017
International news for oil and gas professionals
GENERAL INTEREST Quick Takes

Bakken oil in line for export to China

Continental Resources Inc. has sold about 1 million bbl of Bakken oil to Atlantic Trading & Marketing Inc. (ATMI), which intends to export the oil to China. Daily sales transactions of 33,500 b/d will take place from Cushing, Okla., beginning in November. ATMI will load China-bound tankers in Texas ports to begin the transport process.

Continental's Chief Executive Officer Harold Hamm cited the event an "historic day" for the company and described the sale as part of the company's long-term strategy to establish multiple international markets for US light, sweet crude. The deal comes after the US lifted in December 2015 the crude export ban enacted since 1977.

With a current $6 discount to Brent, stabilized US production and increasing sales of US crude to international markets could drive down US inventories, "correcting much of the recent disparity between Brent and WTI prices," Hamm said.

Coyle to lead Ineos' shale business

Ron Coyle will head Ineos AG's shale business in time to oversee the drilling of its first UK gas wells.

The newly appointed chief executive officer previously served as commercial director of Ineos Phenol since 2010 after joining the company in 1998. He succeeds Gary Haywood.

"With a diverse and knowledgeable shale team in place and a significant portfolio of land now secured, Ineos Shale is now ready to move into an operational phase," the company said in a statement. "Ineos Shale will shortly commence drilling test wells. Once the data from these surveys has been analysed, Ineos Shale will be well positioned to move into a production phase."

Ineos Shale is the onshore division of Ineos Upstream. The unit has licenses in North and South Yorkshire, the East Midlands, and Cheshire. Earlier this year it completed the acquisition of Engie E&P UK Ltd.'s UK onshore Petroleum Exploration and Development License interests, increasing its total UK acreage held under licence to more than 1.2 million acres.

ADNOC unifies brands of operating units

Abu Dhabi National Oil Co. is unifying the brands of its many operating units.

ADNOC's holdings include seven companies related to exploration, production, and drilling; seven companies in refining, petrochemicals, gas processing, and LNG; and four companies in product marketing, logistics, and marine services.

In most cases, operating units will carry the ADNOC name with a descriptor.

For example, Abu Dhabi Co. for Onshore Petroleum Operations Ltd. (ADCO) becomes ADNOC Onshore. Abu Dhabi Marine Operating Co. (ADMA-OPCO), which is being merged with Zakum Oil Development Co. (ZADCO), becomes ADNOC Offshore.

Exploration & DevelopmentQuick Takes

Chevron drops Great Australian Bight program

Chevron Corp. has decided to abandon its $400-million (Aus.) exploration drilling program in the Great Australian Bight (GAB) off South Australia.

The company said that low oil prices are to blame and that there were more commercially attractive ventures elsewhere, such as off Western Australia. It claimed that the decision had nothing to do with government policy, regulatory, community, or environmental concerns.

Chevron is the second major to walk away from the GAB in the last 12 months. It follows BP PLC's exit last October despite having a new $700-million rig-the Ocean Great White-ready to move to the area and begin a two-well program.

Interestingly, Chevron reaffirmed its plans to drill four wells in the GAB soon after BP announced its decision last year with Chevron saying at the time that it believed oil prices would recover. The company was pleased with the results of its 2-year seismic program and thought that the area had potential to produce oil and gas on a scale paralleling that of Bass Strait and the North West Shelf.

In announcing this week's reversal, Chevron Australia's managing director Nigel Hearne said that while the GAB is one of the country's most prospective frontier hydrocarbon regions, in the current low oil price involvement it was not able to compete for capital in Chevron's global portfolio.

The GAB is seen as one of the last unexplored Australian frontier basins, but work in the region was never going to be easy. Apart from the deepwater sites being subject to some of the roughest seas and wildest weather conditions in the world, making for huge exploration costs, any moves to work in the pristine marine area are fiercely contested by the environmentalists.

It remains to be seen whether the remaining block licensees in the GAB-Statoil ASA, Santos Ltd., Murphy Oil Corp., and Karoon Gas Australia Ltd.-bring their current exploration plans to fruition. Norway's Statoil, which was BP's partner in two permits prior to the British company's exit, still has plans at this stage to drill a well by October 2019.

Tullow acquires four licenses in Ivory Coast

Tullow Oil PLC has acquired 90% stakes in four onshore blocks in Ivory Coast. State oil company Petroci holds the remaining 10%. The four blocks-CI518, CI519, CI301, and CI302-cover 5,035 sq km on the coast, mostly west of Abidjan.

Tullow believes that this acreage will complement the group's existing exploration portfolio as the blocks are in a proved petroleum system, indicated by multiple oil seeps and past production from the Eboinda oil sands.

If commercial discoveries are made, the maturity of Ivory Coast's oil industry suggests a relatively short and low-cost path to production, Tullow said.

Tullow intends to initiate work immediately on these licenses to allow a full tensor gradiometry survey to start in early 2018.

Tullow has worked in Ivory Coast for 20 years both as an explorer and as a producer and holds a nonoperated position in Espoir field, which produces 4,000 b/d of oil, net to Tullow.

Ophir signs PSC for Equatorial Guinea offshore block

Ophir Energy PLC, Equatorial Guinea's Ministry of Mines and Hydrocarbons, and the country's national oil company GEPetrol have signed a production-sharing contract for Block EG-24 offshore Rio Muni.

Ophir will operate the block with 80% interest. GEPetrol will have 20% with the option to increase its stake by 10% if a commercial discovery is made. Ophir also is building the Fortuna FLNG project on Block R offshore Equatorial Guinea.

Block EG-24, formerly Block EG-20 and Block M, is one of 20 exploration areas marketed during the EG Ronda 2016 licensing round and is located to the west of producing fields Ceiba and Okume, covering 3,537 sq km.

The PSC for Block EG-24 is based on Equatorial Guinea's model PSC and mandates an initial exploration period of two sub-periods of 2 years each plus two extensions of 1 year each.

During the exploration phase, Ophir will purchase and process existing seismic data and acquire and interpret 3,000 sq km of new 3D data. The PSC then specifies a development and production period, if a commercial discovery is made, of 25 years with one 5-year extension.

In addition to Ophir, other companies awarded blocks in EG Ronda 2016 during the summer were Offshore Equator PLC with Block EG-23, Clontarf Energy PLC with Block EG-18, Elenilto with Block EG-09, Taleveras with Block EG-07, and Atlas Petroleum LLC and Strategic Fuel Fund with Block EG-10.

The country also signed a separate PSC with ExxonMobil Corp. via direct negotiation for Block EG-11, which is contiguous to the company's Zafiro oil field.

Equatorial Guinea started producing in 1991 when Alba field came online, which was followed by Zafiro oil field in 1995. The country currently produces 342,000 boe/d.

Oranto Petroleum inks deals for Uganda licenses

Oranto Petroleum Ltd. has signed two production-sharing agreements with Uganda's Ministry of Energy and Mineral Development for the 410-sq-km Ngassa shallow and deepwater play of Lake Albert. Oranto will hold 100% participating interest in both licenses, which are contiguous with major coastal petroleum discoveries, the firm said.

The PSA comprises a first exploration period of 2 years followed by a second exploration period for a maximum of 2 years for both licenses. Each first exploration period carries a minimum work program that includes 2D and 3D seismic and reprocessing and amplitude vs. offset (AVO) studies.

Following the first exploration period, Oranto has the option to renew the agreement and commence a second exploration period consisting of additional seismic data acquisition, the drilling of one exploration well, and the drilling of one appraisal well contingent upon the success of the first well.

Oranto Petroleum and sister company Atlas Petroleum International are part of Atlas Oranto Group, which owns and operates 21 oil and gas acreages in 11 African jurisdictions.

Drilling & ProductionQuick Takes

Iraq reclaims Kirkuk in crucial oil region

Oil supply from northern Iraq came under new jeopardy Oct. 15 as Iraqi military troops reclaimed Kirkuk from Peshmerga forces of the Kurdistan Regional Government (KRG).

Iraqi Prime Minister Haider al-Abadi called on the military to "impose security on Kirkuk" after warning that a Sept. 25 referendum in Iraqi Kurdistan put the country "in danger of partition."

Kurdish voters overwhelmingly supported negotiations toward separation from Iraq.

The Iraqi military initially seized control of the K1 air base north of Kirkuk, an airport, the headquarters of North Oil Co., and other positions and later marched into the city center as thousands of Kurds fled.

The city, officially outside the semiautonomous Kurdistan Region of Iraq, has been under Peshmerga control since March 2014.

There were no reports of disruption to Kurdish production of about 600,000 b/d, about half of which comes from giant Kirkuk field. The Iraqi portion of the Iraq-Turkey pipeline linking Kirkuk and nearby fields with the Mediterranean has been idle since 2014, damaged during fighting by Iraqi and Peshmerga forces against Islamic State jihadists.

About 580,000 b/d of oil produced in Iraqi Kurdistan, half from Kirkuk field, now flows through two spurs in Kurdish territory that link with the trans-Turkey pipeline at Fishkhabur on the border, according to the International Energy Agency.

About 40,000 b/d of Kurdish oil enters Turkey by truck.

Turkey has threatened to close its portion of the pipeline if Kurdish independence proceeds. It worries that an independent Kurdistan would incite separatist militancy in its Kurdish population, a concern shared by Iran.

Oil sales are crucial to the KRG, which has accumulated crippling debt since crude prices began slumping in mid-2014.

Rosneft signs agreements for five blocks in Kurdistan

Rosneft PJSC and the Kurdistan regional government (KRG) have signed production-sharing agreements for five blocks in the region.

Rosneft subsidiaries will hold 80% interest in the blocks, where a geological exploration program will be implemented and pilot production will begin as early as 2018. If successful, full-field development of the blocks will begin in 2021.

The company says "conservative estimates" show a possible 670 million bbl of recoverable oil from the blocks.

Costs related to the farm-in as well as geological information for each of five blocks range $40 million-110 million and could total $400 million, including $200 million that may be compensated through production, the company says.

The PSAs stem from a series of binding agreements signed in June related to widening cooperation between Rosneft and the KRG in exploration and production of hydrocarbons, commerce, and logistics.

Rosneft last month said it was advancing an agreement for construction of a natural gas pipeline able to supply electric power plants and factories in the Kurdish region of Iraq and to export as much as 30 billion cu m/year of gas to Turkey and Europe.

Oil Search reaches record production in third quarter

Sydney and Port Moresby company Oil Search Ltd. has notched up its highest ever production volumes during the third quarter, most of it thanks to the rise in output from the ExxonMobil Corp.-operated Papua New Guinea-LNG project.

The company reported production of 7.91 million boe, an increase of 9.3% over the previous quarter and 3.7% higher than the same quarter last year.

The PNG-LNG project produced at its highest rate for the quarter since the development came on stream in 2014 recording an equivalent of 8.6 million tonnes/year.

Oil Search is on track for a production target 29-30.5 million boe for 2017.

Revenue for the third quarter rose to $380.8 million.

The company said the oil and gas fields it operates in the Kutubu-Gobe region of Papua New Guinea also performed well, contributing 1.52 million boe vs. 1.34 million boe produced last quarter.

Oil Search has signalled that its growth prospects will be in development of additional LNG production trains using gas supplies from P'nyang gas field in the western highlands and the Elk-Antelope fields in the eastern highlands.

Engineering studies for both these projects are under way to evaluate a narrow range of options for development of both these resources. Managing director Peter Botten said the venture partners are aiming to present an aligned development proposal to the new recently elected Papua New Guinea government before yearend.

PROCESSINGQuick Takes

Huizhou refinery completes 10 million-tpy expansion

CNOOC Oil & Petrochemicals Co. Ltd., the refining arm of China National Offshore Oil Corp. (CNOOC), has commissioned the Phase 2 expansion of subsidiary CNOOC Huizhou Refining & Chemical Co. Ltd.'s (CHRCC) 12 million-tonne/year integrated refining complex at the Daya Bay Economic & Technological Development Zone in Huizhou in China's Guangdong province. The operator completed startup and testing of the 15 processing units, auxiliary production units, and supporting public works for the Phase 2 refinery project in early October, CNOOC said.

Designed to increase crude processing capacity at the plant by 10 million tpy as well as its flexibility to process a wider slate of more economically attractive sour Arab Gulf grades, the refining leg of CHRCC's Phase 2 expansion is scheduled to boost overall processing at the site to its new capacity of 22 million tpy by yearend, the company said.

Ahead of commissioning activities at Huizhou, CNOOC received its first shipment of Saudi Arabian sour crude from Saudi Aramco for the refinery as part of a 2016 memorandum of understanding on future crude supply and downstream cooperation between the companies.

Alongside increasing processing capacity of the refinery, CNOOC's 46.6-billion renminbi Phase 2 expansion at Huizhou also includes an ongoing project by CNOOC & Shell Petrochemicals Co. Ltd. (CSPC)-a 50-50 joint venture with Royal Dutch Shell PLC subsidiary Shell Nanhai BV-to build a 1.2 million-tpy ethylene cracker and associated derivatives units at the complex.

CSPC's ethylene expansion, which will increase overall ethylene production at the site to 2.2 million tpy, is slated for mechanical completion in early 2018, CNOOC said.

ExxonMobil commissions new PE line at Mont Belvieu

ExxonMobil Chemical Co. has started up production from the first of two 650,000-tonne/year high-performance polyethylene (PE) lines at its plastics plant in Mont Belvieu, Tex.

ExxonMobil plans to export the first polyethylene shipment from the new unit, which entered service on Oct. 17, from the Port of Houston later this month, the company said.

Once fully commissioned, the new PE lines will increase production capacity at Mont Belvieu by 1.3 million tpy to an overall site capacity of 2.5 million tpy, making it one of the largest PE plants in the world.

At peak production, more than 200 containers of PE will ship from Mont Belvieu daily to help meet growing global demand for high-performance PE products, according to the operator.

Part of a previously announced multibillion dollar expansion project in the Baytown, Tex., area, the polyethylene lines will process ethylene feedstock from the new 1.5 million-tpy steam cracker currently under construction at the company's Baytown complex.

The Baytown-Mont Belvieu projects are part of ExxonMobil's 10-year, $20-billion "Growing the Gulf" initiative, which includes 11 major chemical, refining, lubricant, and LNG projects along the Texas and Louisiana coasts to expand the company's existing manufacturing and export capacity.

ExxonMobil, however, did not disclose a timeframe for when it will commission the second new PE line at Mont Belvieu.

Glencore to enter South African refining business

Glencore PLC, Baar, Switzerland, has entered a deal to acquire Chevron Corp.'s majority ownership in Chevron South Africa (Pty.) Ltd., which operates a 110,000-b/d refinery at Milnerton, in Cape Town, South Africa, as well the entirety of Chevon's interest in downstream assets in Botswana.

Glencore will purchase 75% stake in Chevron South Africa as well as 100% ownership interest in Chevron Botswana (Pty.) Ltd. from Off the Shelf Investments Fifty Six (RF) (Pty.) Ltd. (OTS) of Johannesburg following OTS' previous exercise of its preemptive right to acquire the assets from Chevron, the Swiss company said.

Valued at $978 million, the deal is scheduled to close in mid-2018 pending receipt of all necessary approvals.

Glencore, which plans to retain local management teams and workforce members as part of the deal, said acquisition of the manufacturing, retail, and industrial supply business in South Africa and Botswana provides an attractive downstream opportunity for its oil business.

Alongside a stake in the Cape Town refinery, Glencore's purchase will include ownership interest in the following Chevron South African and Botswanan assets:

• A finished lubricants blend plant and base oil terminal in Durban, South Africa.

• A broad network of coastal shipping, depots, and pipelines with major crude delivery and storage infrastructure at Saldanha Bay and Cape Town Harbor.

• A total of 820 retail outlets in South Africa as well as another 30 in Botswana.

OTS presumably will retain its current 25% interest in the South African assets.

TRANSPORTATIONQuick Takes

LLOG infield line ruptures offshore in gulf

LLOG Exploration Offshore LLC reported a spill of 7,950-9,350 bbl of crude oil caused by a fracture in an infield line leading from Mississippi Canyon Block 209 Well No. 1 to a seafloor manifold in the Gulf of Mexico. The system lies in 4,463 ft of water about 40 miles southeast of Venice, La. LLOG shut in the well, halting the flow of oil.

LLOG told the US Bureau of Safety and Environmental Enforcement that there is no recoverable oil on the surface but that two skimming vessels, one from Clean Gulf Associates and the other from Marine Spill Response Corp., were on location and prepared to respond. Monitoring of the originally reported surface sheen continues. No shoreline effects or personnel injuries have been reported.

LLOG found the location of the leak through use of a remotely operated vehicle. BSEE inspectors stationed at the company's Delta House platform are investigating the spill and coordinating response with the US Coast Guard.

Honghua Group lets contract for US gulf LNG platform

Honghua Group Ltd. has let a $12-million front-end engineering and design contract to Wood PLC for its LNG platform development in the Gulf of Mexico's West Delta area.

The main objective of the FEED is to finalize the design of what Honghua is calling the world's first offshore platform-based natural gas liquefaction and storage facility. Wood recently completed the pre-FEED for this project.

Wood's scope of work includes the onshore gas pretreatment plant configuration and layouts, general utilities, feed gas processing and compression, and transportation and delivery via repurposed pipelines from the existing onshore Toca and Venice, La., facilities to the LNG facility 10 miles offshore.

Once completed, expected to be in 2020, gas from the Permian basin in Texas will be transported to the offshore platform where it will be liquefied, stored, and exported globally.

The facility will be designed to produce as much as 4.2 million tonnes/year of LNG and to store 300,000 cu m of LNG.

The FEED is being conducted in collaboration with EnTX GasTek Global Ltd., Baker Hughes, and Braemar Technical Services.

FERC approves certificate for Atlantic Coast pipeline

The US Federal Energy Regulatory Commission has approved a certificate of public convenience and necessity for the proposed Atlantic Coast interstate natural gas pipeline project.

Dominion plans to fully review the certificate and finalize plans for complying with its conditions, said Leslie Hartz, vice-president for engineering and construction at Dominion Energy. Dominion also intends to continue working with the other state and federal agencies to complete the environmental review process and make the project a reality, Hartz said.

Atlantic Coast Pipeline LLC applied to FERC on Sept. 18, 2015, to construct and operate the project, which was intended to transport gas from West Virginia to the eastern portions of Virginia and North Carolina. It filed an amended proposal 6 months later which proposed several route changes and additional compression capacity in Buckingham County, Va.

The amended project consists of 604 miles of interstate pipeline and related facilities with 130,345 hp of compression. It is designed to provide up to 1.5 million decatherms/day of transportation service.

Hartz said FERC's three commissioners acknowledged the need for more gas systems in Virginia and North Carolina. "In her dissent, Commissioner [Cheryl] LaFleur noted that more than 90% of the ACP's capacity is subscribed by public utility customers in the two states," she said.