OGJ Newsletter

Nov. 13, 2017
International news for oil and gas professionals

GENERAL INTEREST Quick Takes

Petrobras, BP form strategic alliance

Petroleo Brasileiro SA (Petrobras) and BP PLC have signed a letter of intent to jointly identify and evaluate business opportunities involving assets or ventures in Brazil and abroad.

The agreement outlines cooperation in exploration and production, refining, transportation and commercialization of gas, LNG, oil trading, lubricants, aviation fuel, power generation and distribution, renewable energy, technology, and low-carbon initiatives.

Petrobras and BP teamed up in Brazil's second and third presalt tender rounds to acquire E&P rights for the Alto de Cabo Frio Central and Peroba blocks. The companies will split interest in the Alto de Cabo Frio Central block and each hold 40% interest in the Peroba block alongside China National Oil & Gas Exploration & Development Corp., a subsidiary of China National Petroleum Corp. (CNPC), which will hold 20%.

Petrobras in July also signed a memorandum of understanding with CNPC with the objective of forming a strategic alliance.

ConocoPhillips plans 3-year, $5.5 billion budget

ConocoPhillips plans an average annual capital budget of $5.5 billion during 2018-20 based on a flat real West Texas Intermediate price of $50/bbl. The Houston independent also intends to reduce its debt to $15 billion in 2019.

"Through accretive asset sales and an ongoing focus on capital and cost efficiency, we've lowered the capital intensity and sustaining price of the company, reduced the cost of supply of our investment portfolio, substantially strengthened our balance sheet, and returned a significant portion of cash flow to our owners," said Ryan Lance, chairman and chief executive officer.

ConocoPhillips last month reduced its 2017 capital budget for the second time, cutting another $300 million to bring it to $4.5 billion. The firm posted third-quarter earnings of $400 million compared with a third-quarter 2016 loss of $1 billion.

The firm also reported its intention to reduce its greenhouse gas emissions intensity by 5-15% by 2030.

US Senate confirms McIntyre, Glick nominations to FERC

The US Senate confirmed the nominations of Kevin McIntyre and Richard Glick to the Federal Energy Regulatory Commission on Nov. 2. McIntyre, who co-leads the global energy practice at the Jones Day law firm, will serve the remainder of a term that ends in June 2018 and a full term that ends 5 years later. Glick, general counsel for the Democrats on the Senate Energy and Natural Resources Committee, will serve the remainder of a term that ends in June 2022.

Oil and gas association leaders welcomed the news. "[FERC] faces critical issues in approving infrastructure for getting natural gas to markets. With a full slate of commissioners, these approvals will be even stronger to withstand opposition from those who fight to keep gas in the ground," Independent Petroleum Association of American Pres. Barry Russell said.

Trump nominates Capuano to lead US EIA

US President Donald Trump has nominated Linda A. Capuano, currently a fellow at Rice University's Baker Institute for Public Policy's Center for Energy Studies, to lead the US Energy Information Administration.

Capuano's previous experience includes working as vice-president of technology at Marathon Oil Corp. in Houston from 2008 to 2013, the White House said.

Exploration & DevelopmentQuick Takes

Pemex makes onshore oil discovery near Veracruz

Mexico's state-owned Petroleos Mexicanos (Pemex) has discovered what President Enrique Pena Nieto has called the "most important onshore discovery" made by the company in 15 years.

The Ixachi-1 well was drilled 72 km south of the port of Veracruz, close to Cosamaloapan. Pemex is reporting the discovery could contain as much as 350 million boe, with total reserves-in-place equal to the recent offshore Zama-1 discovery.

Pemex has not reported production test or geological data for the discovery.

The well is close to existing systems, which could lead to extending the initial estimate, Pemex said.

Beach Energy makes gas finds in Cooper basin

Beach Energy Ltd., Adelaide, has made two natural gas discoveries in its Western Flank gas program in the South Australian section of Cooper basin.

The company reported that its Lowry-1 wildcat drilled in the southwest Patchawarra fairway of wholly owned PRL 26 on Udacha block intersected 3.3 m of net pay in the Permian-age Patchawarra formation.

A 2-hr drillstem test over the interval 2,586-2,593 m flowed at 9.4 MMcfd on a 48/64-in. choke at a flowing pressure of 955 psi. About 34 bbl of condensate also was recovered at a rate of 400 b/d.

The results confirm Lowry-1 as a discovery that is not connected to nearby producing fields. It lies about 4 km northwest off the company's Middleton gas processing facility and has provided further validation for the approved expansion of this plant to 40 MMcfd from its original capacity of 25 MMcfd.

Lowry-1 was the second exploration well drilled in the Udacha block campaign.

The third well, Crawford-1, about 2 km northwest of the Middleton plant, also found gas.

Designed to evaluate stratigraphic traps within the gas and condensate fairway, the Crawford-1 intersected 4.1 m of net gas pay in the mid-Patchawarra formation target. It was cased and suspended as a future producer.

Beach said reservoir pressure data indicated good permeability and a connection to Brownlow field.

Novatek increases Kharbeyskoye field reserves

PAO Novatek is targeting Jurassic with exploration wells Nos. 306 and 307 to further develop Kharbeyskoye field in the Tazovskiy district of Russia's Yamal-Nenets autonomous region. The company's No. 305 well has already increased reserves of natural gas, condensate, and oil, Novatek said.

The well flowed 90 cu m/day on a 10-mm choke with oil flowing from the BT12 layer. The company said its 2017 exploration program has increased Kharbeyskoye field's reserves to 220 billion cu m of gas and more than 40 million tons of recoverable oil. Wells Nos. 306 and 307 will be tested in the near future, Novatek said.

R-Cluster development advances off India

Reliance Industries Ltd. (RIL) has issued a letter of award to McDermott International Inc. for subsea development of deepwater R-Cluster natural gas fields on Block KG D6 offshore eastern India.

The development, also called R-Series, is the first of three RIL plans in an integrated program that will bring gas production on stream in phases to 1 bcfd from 3 tcf of reserves during 2020-22, according to partner BP PLC.

R-Cluster production, to be tied back to the existing KG D6 control and riser platform, will start in 2020, reaching 425 MMcfd of dry gas.

McDermott will provide engineering, procurement, installation, and precommissioning of subsea flowlines, vent lines, and a pipeline-end manifold for connection with six subsea wells in as much as 6,890 ft of water. The work includes in-field pipelines, a monoethylene glycol line, pipeline-end terminals, jumpers, risers, an umbilicals system, and modification of the control and riser platform.

RIL, operator with a 60% interest in KG D6, said recently it plans to apply for approvals for the other developments in the project, designated MJ and Satellite, next year.

According to BP, which has a 30% interest, investment in the integrated program will reach $6 billion.

Niko Resources Ltd., Calgary, holds the other 10% interest in the block.

Drilling & ProductionQuick Takes

Nigerian group renews threat to oil flow

Nigerian oil production came under renewed threat Nov. 3 when a militant group canceled a ceasefire in effect this year and warned of a "brutish, brutal, and bloody" campaign against oil companies.

The Niger Delta Avengers web site called the suspension of hostilities it announced in August 2016 but didn't put into effect until about January "officially over."

The group's attacks on pipelines and other oil installations cut Nigerian crude oil production to about 1 million b/d from 1.65 million when they began earlier in the year.

According to the International Energy Agency, Nigerian production recently reached 1.66 million b/d.

The militant group demands increased distribution of wealth from oil production to Nigerians in the Niger Delta region.

In its announcement about ending the ceasefire, it specifically targeted the floating production, storage, and offloading vessel to be installed in 1,400-1,700 m of water on Engina oil field operated by Total SA 130 km offshore.

And in a "message to the oil companies," the group warned: "Our next line of operation will not be like the 2016 campaign, which we operated successfully without any casualties. This outing will be brutish, brutal, and bloody as we shall crush everything we meet on our path to completely put off the fires that burn to flair gas in our communities and cut every pipe that moves crude away from our region."

Production begins at Sofiya field in Pakistan

Sofiya gas-condensate field came onstream Oct. 27 in Pakistan, operator OMV Maurice Energy Ltd. reported. The Sofiya-2 well adds 15 MMscfd of natural gas and 1,400 b/d of condensate to production from the Sofiya development and production lease.

Sofiya field is north of Mehar gas field on Mehar block in Pakistan. OMV along with joint venture partners Ocean Pakistan Ltd., Government Holdings Private Ltd., and Zaver Petroleum Corp. Pvt Ltd. discovered hydrocarbons from what is now Sofiya-2 in August 2013. Development activities began early this year.

The gas and condensate is being processed at OMV-operated Mehar gas facilities in Shahdadkot in Sindh province.

Nexen lets drilling contract for Buzzard field

Nexen Petroleum UK Ltd. let a contract to Maersk Drilling to drill three wells with options for nine additional wells at Buzzard oil field in the UK North Sea. The contract is for the Buzzard Phase II development. Drilling is expected to start around July 2018.

The initial contract is estimated to last 225 days. Maersk Drilling will use a harsh-environment jack up currently operating in Norway although the company has yet to specify which rig it will select for the job.

Maersk Drilling operates 24 drilling rigs, including drillships, deepwater semisubmersibles, and high-end jack ups.

CNRL updates 2018 production for Horizon oil sands

Canadian Natural Resources Ltd. (CNRL) estimates 2018 production for the completed Horizon Phase 3 expansion will be 1.09-1.17 million boe/d, representing a 17% increase over 2017 production levels, with a capital program targeted at $4.3 billion.

These numbers exclude the Athabasca oil sands project acquisition from March. CNRL will continue its steam-assisted gravity drainage project at Kirby North into 2018, targeting completion in fourth-quarter 2019

Canadian drilling hike seen for 2018

Drilling in Canada will increase to 7,900 wells in 2018 from 7,550 wells expected this year, according to the Petroleum Services Association of Canada.

The association expects wells drilled (rig releases) to increase by 152 in Alberta to 3,998 next year, by 84 in Saskatchewan to 2,931, and by 118 in British Columbia to 730. Drilling in Manitoba will remain constant at 230 wells.

The Canadian total projected for 2018 remains 30% below the number of wells drilled in 2014.

For 2018, the association assumes an average natural gas price of $2.50/Mcf (Can.) at the Alberta Energy Co. (AECO) hub and an average price of West Texas Intermediate crude oil of $53/bbl (US). It assumes the average Canadian dollar value at 82¢ (US).

PROCESSINGQuick Takes

Shell starts construction on Pa. petchem complex

The main construction phase has begun on Shell Chemical Appalachia LLC's petrochemical complex in Potter Township, Pa.

The start of work entails the completion of the site preparation and detailed design and engineering work. The final investment decision was taken in June 2016, with commercial production expected to begin early in the next decade.

The early works program included building bridges, relocating a state highway, improving existing interchanges, repositioning a rail line, and preparing foundations for the complex.

Shell will now progress to the construction of four processing units: an ethane cracker and three polyethylene units. The ethane cracker will be the largest part of the facility with more than 200 major components and 95 miles of pipe.

Shell also will build a 900-ft cooling tower, rail and truck loading facilities, a water treatment plant, an office building, and a laboratory.

The site will include a 250-Mw natural gas-fired power plant. About a third of the electricity produced will help supply the local electricity grid.

The petrochemicals complex will use ethane from shale-gas producers in the Marcellus and Utica basins to produce 1.6 million tonnes/year of polyethylene.

As many as 6,000 construction workers will be involved in building the facility. Shell expects to create around 600 permanent employee positions when the complex is completed.

ExxonMobil settles federal air emissions charges

ExxonMobil Corp. agreed to spend about $300 million for new air pollution control and monitoring equipment at five petrochemical plants in Texas and three in Louisiana. The settlement resolves charges that the company and its ExxonMobil Oil subsidiary violated the federal Clean Air Act at the installations, the US Department of Justice, US Environmental Protection Agency, and Louisiana Department of Environmental Quality jointly reported on Oct. 31.

The equipment will be installed on 26 industrial flares at Texas plants near Baytown, Beaumont, and Mont Belvieu, and at Louisiana facilities near Baton Rouge, the agencies said. Once fully implemented, the controls are expected to reduce more than 7,000 tons/year of volatile organic compounds emissions and more than 1,500 tons/year of benzene and other toxic air pollutants, they indicated.

The proposed consent decree was entered in US District Court for Southern Texas and is subject to a 30-day comment period and final court approval. Under it, ExxonMobil first will minimize waste gas that is sent to its flares by creating a waste minimization plan at each facility and then improve the flares' combustion efficiency, DOJ, EPA, and LDEQ jointly said.

At four of the plants, ExxonMobil will operate flare gas recovery systems to minimize the waste gas sent to the flares by recovering and recycling the gases before they are sent to the flares for combustion. The flare gas recovery systems will allow ExxonMobil to reuse these gases as a fuel at its facilities or a product for sale, the entities said.

They said the company also must install and operate instruments and monitoring systems to ensure that gases sent to flares are combusted efficiently. ExxonMobil also will perform air-quality monitoring to detect the presence of benzene at the fence lines of four of the covered plants and pay a $2.5 million civil penalty. The company also agreed to spend $1 million to plant trees as a supplemental environmental project in Baytown as a natural buffer to reduce airborne pollutants from the chemical plants to nearby communities.

Lukoil lets contract for Kstovo refinery

PJSC Lukoil has let a contract to CB&I, Houston, to provide detailed engineering, procurement, and supply of process equipment (EPS) for a deep conversion complex to be built at subsidiary LLC Lukoil-Nizhegorodnefteorgsintez's 17 million-tonne/year Kstovo refinery in central Russia's Nizhny Novgorod region.

As part of the EPS package, CB&I will deliver two of its proprietary delayed coking heaters for the units, which will use delayed coking technology licensed by Chevron Lummus Global (CLG)-a joint venture of CB&I and Chevron Corp.-to process 2.1 million tpy of refinery residues, the service provider said.

Alongside its scope of delivery under the newly awarded contract, CB&I said it also is working closely with Lukoil to assess a broader range of unidentified solutions for the project.

The service company disclosed neither the value nor duration of the EPS contract.

The proposed delayed coking complex follows Lukoil-Nizhegorodnefteorgsintez's startup of a second 2 million-tpy catalytic cracking (CC) complex for vacuum gas oil (VGO) at the refinery in 2015 as part of Lukoil's broader program to boost overall processing capacities and production qualities of its refining assets.

Alongside installation of VGO-CC Unit 2, the project included the addition of the 327,500-tpy hydrofluoric alkylation Unit 2 as well as a 1 million-tpy gasoline hydrotreater to remove sulfur from gasoline feedstock from VGO-CC Unit 2, according to Lukoil-Nizhegorodnefteorgsintez's web site.

The Lukoil subsidiary also is considering the addition of a hydrocracking complex for heavy residues at the refinery in line with the company's goal of increasing refining depth of the Kstovo manufacturing site to 90% from its current 73.7%.

Total to sell Italian fuel marketing business

Total Marketing Services SA and ERG SPA have agreed to sell their remaining assets in TotalErg SPA, an oil product distribution and refining joint venture, to Italy's Anonima Petroli Italiana (API). ERG holds 51% of the combine and Total has 49%.

The deal includes 2,600 retail outlets, the Rome logistic hub, and 25.16% of the Trecate refinery. It's the third and final sale of TotalErg's assets following the divestment of its LPG and commercial sales businesses. The three sales have totaled €750 million.

Total, meanwhile, is buying out ERG's 51% stake in the JV's lubricants activities that will consequently be terminated.

Created in 2010, TotalErg is the fourth-largest fuel marketer in Italy, a fragmented market where the profitability outlook was not in line with the Total's expectations, the French supermajor said.

TRANSPORTATIONQuick Takes

Pembina Pipeline advances Duvernay development

Pembina Pipeline Corp. will proceed with constructing and operating the first tranche under its previously announced 20-year system development and service agreement with Chevron Canada Ltd. covering more than 230,000 acres in the liquids-rich Kaybob region of the Duvernay formation in Alberta.

Chevron's initial development program is expected to comprise 55,000 acres in East Kaybob. Under new service agreements Pembina will develop and construct:

• Raw product separation and water removal systems.

• A condensate stabilization facility with 30,000 b/d of raw inlet condensate handling capacity.

• A 100-MMcfd gas processing facility with 5,000 b/d of propane-plus liquids capacity to be referred to as Duvernay II-a replica of Pembina's 100-MMcfd Duvernay I facility.

• A 10-in. condensate pipeline lateral that will connect to the company's Peace Pipeline system.

Duvernay II and the related infrastructure will be built at the company's existing Duvernay complex near its Fox Creek terminal. Pembina expects the total capital cost to be $290 million with an expected in-service date of mid to late-2019, subject to regulatory and environmental approvals.

The facilities will have a 20-year contractual life and would be backstopped by a combination of fee-for-service and fixed-return arrangements. The service agreements include NGL and condensate transportation on Pembina's Peace Pipeline system and NGL fractionation at the company's Redwater fractionation complex.

Chevron overall has a net 70% operated interest in 330,000 acres in the Duvernay near Fox Creek, 260 km northwest of Edmonton.

Chevron ships first LNG cargo from Wheatstone

Chevron Australia has shipped its first cargo of LNG from the Wheatstone natural gas project in Western Australia.

The cargo will be delivered to Japanese buyer JERA-a joint venture of Chubu Electric Power and Tokyo Electric Power-one of the project's foundation customers.

Wheatstone development began in 2009. The project was originally slated for a yearend-2016 on-stream date, later amended to mid-2017 and then again to August 2017. Cost overruns have totaled $5 billion.

A second LNG train at the facility is expected to come on line in about 6-8 months. The two-train project, at full capacity, will produce 8.9 million tonnes/year of LNG.

The associated domestic gas plant has capacity to produce 200 terajoules/day of gas for Western Australia.