OGJ Newsletter

Feb. 20, 2017
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

Lundin to spin off non-Norwegian assets

Lundin Petroleum AB, Stockholm, plans to spin off properties in Malaysia, France, and the Netherlands and to focus on offshore Norway.

The spun-off assets will form International Petroleum Corp., shares of which will be distributed to Lundin owners.

Norwegian assets represent 96% of Lundin Petroleum's proved and probable oil and gas reserves, 744 million boe at yearend 2016, and account for 88% of the 79,000-91,000 boe/d of net production expected in 2017 prior to the spin-off.

The new company's name is that of a former international producer based in Dubai that was headed at different times by Lundin Petroleum Chairman Ian H. Lundin and Director Lukas Lundin.

The former IPC was merged with Sands Petroleum AB in 1998 to form Lundin Oil AB, which was acquired by Talisman Energy Inc. in 2001. Lundin Petroleum was formed after the Talisman transaction.

Talisman Energy is now Repsol Oil & Gas Canada Inc.

Mike Nicholson, who has been Lundin Petroleum chief financial officer, will be chief executive officer of International Petroleum Corp. Lukas Lundin will be chairman.

Horizon Oil expands Papua New Guinea interests

Horizon Oil Ltd., Sydney, has expanded its portfolio interests in western Papua New Guinea with the acquisition of Eaglewood Energy BVI, originally a Canadian entity that was acquired for $28 million (Aus.) in 2014 by Perth-based private independent Transform Exploration Pty. Ltd.

The deal gives Horizon an interest in the Ubuntu gas-condensate discovery that lies adjacent to Ketu-Elevala-Tingu fields along with an increased 80% interest in permit PPL 574 where the Nama-1 wildcat failed to deliver in 2016. Horizon also gains 100% interest in permit PPL 430 to the south, along a proposed pipeline route to Daru Island.

Transform Exploration was established by former Woodside Managing Director John Akehurst along with former Woodside Exploration Director Agu Kantsler and financier Andrew Burt. The company was a partner with Horizon in the Papua New Guinea permits, but has decided to sell following the failure of the Nama-1 well.

Horizon bought the assets with a view to the "long game," according to the company's Chief Financial Officer Michael Sheridan.

The Horizon permits contain a total estimated 1.5 tcf of gas resources and 60 million bbl of condensate in various discoveries. The company initially contemplated a condensate-stripping development beginning with Stanley field, but has now set its sights on a midrange LNG development.

One option is to gather the gas resources from the company's fields and those nearby operated by others and pipe them to the coast. This revolves around ongoing talks with Papua New Guinea state-owned Kumul Petroleum Holdings to aid planning of an open-access Western Pipeline that will help the commercial prospects of developing several gas fields in the region and send the gas to Port Moresby. Alternatively, there could be a pipeline built south to Daru Island that is not reliant on third parties.

Much will depend on the outcome of exploration drilling planned by neighbor Oil Search Ltd. at the Koko and Kimu discoveries and how larger fields like P'ynang are ultimately developed.

To date, Horizon's production of 3,800 bo/d is coming from its interests offshore China and New Zealand.

Tamarind gains ownership of Tui fields in New Zealand

Private Malaysian oil and gas company Tamarind Management Sdn. Bhd. has completed its buyout of interest holders in Tui oil fields offshore New Zealand's north island. Tamarind now has 100% ownership of the field.

The company has purchased the 27.5% stake held by New Zealand Oil & Gas Ltd. subsidiary Stewart Petroleum Co. Ltd. for $750,000.

The company also bought Pan Pacific Petroleum Ltd.'s 15% stake in the fields in a deal that involves the sale of Pan Pacific's subsidiary WM Petroleum Ltd., which owned the Tui stake. Tamarind is to pay $400,000 for WM Petroleum. On completion of the transaction, Pan Pacific will make a net payment to Tamarind of $5.45 million in the form of cash and inventory.

The two deals follow Tamarind's purchase of AWE Ltd.'s 57.5% interest in Tui fields in December 2016 for $1.5 million.

The Tui fields-Tui, Amokura, and Pateke-lie in permit PMP 38158 in the offshore Taranaki basin 50 km from the Taranaki coast.

The outgoing companies believe the Tui fields are nearing the end of their economic life and they had begun preparations for abandonment within the next few years.

However, Tamarind, which was established in August 2014, has shown an ability to maximize value from late-life assets as well as having experience in decommissioning offshore projects. The company plans to introduce new ways to possibly prolong the fields beyond 2019.

Production from all three Tui fields is fed into the Tui gathering system that then leads to the Umuroa floating production, storage, and offloading vessel.

Exploration & DevelopmentQuick Takes

MOL Group awarded six licenses in Hungary

MOL Group has received six licenses in Hungary's 4th bid round, doubling its exploration acreage in the country.

Concession contracts have been signed by MOL and representatives of Hungary's Ministry of National Development. As a result, MOL can start hydrocarbon exploration on nearly 4,200 sq km in the Bazakerettye, Bucsa, Jaszarokszallas, Mezotur, Okany-West, and Zala-West areas in addition to the almost 4,200-sq-km area covered by mining authority decisions and concessions already acquired.

MOL is targeting both proved exploration plays in Hungary as well as new plays that are the result of the firm's continuing Trans-Pannonian basin study.

MOL also was recently awarded four licenses, including one operatorship, on the Norwegian Continental Shelf in Norway's Awards in Predefined Areas (APA) 2016 licensing round (OGJ Online, Jan. 17, 2017).

MOL Norge was granted operatorship for an additional position on the Mandal High area, one of the firm's core areas in Norway. The partners in the new operated license include Statoil ASA and Petoro AS, both of Norway. MOL also joined three licenses operated by AkerBP ASA.

Lundin makes oil, gas find in Filicudi prospect

Lundin Norway AS, a unit of Lundin Petroleum AB, Stockholm, has made an oil and gas discovery with main well 7219/12-1, which was drilled on the Filicudi prospect in the southern Barents Sea. Lundin is now drilling sidetrack well 7219/12-1A.

The wells are in production license 533 (PL533) about 40 km southwest of Johan Castberg and 30 km northwest of the Alta and Gohta discoveries on the Loppa High (OGJ Online, Sept. 30, 2016).

The main objective of the discovery well was to prove oil in Jurassic and Triassic sandstone reservoirs. The well encountered a 129-m gross hydrocarbon column of high-quality sandstone reservoir characteristics with 63 m of oil and 66 m gas in the Jurassic and Triassic targets. Extensive data acquisition and sampling has been carried out including coring, logging, and oil and gas sampled from the wireline tools.

The sidetrack well has reached total depth and has confirmed the reservoir and hydrocarbon column. The gross resource estimate for the Filicudi discovery is 35-100 million boe.

Filicudi is on trend with the Johan Castberg discovery, with resources of 500 million boe, in similar reservoir intervals. Multiple additional prospects have been identified on the Filicudi trend in PL533 with total gross unrisked prospective resource potential for the trend of as much as 700 million boe. The partnership is considering the drilling of as many as two additional prospects this year.

The Leiv Eiriksson semisubmersible drilling rig, which drilled the discovery, will next move to the Gohta discovery in PL492 to drill a second delineation well on this discovery (OGJ Online, July 21, 2014).

Lundin Norway is operator of both PL533 and PL492 and holds respective working interest of 35% and 40% in these licenses.

Pennine moves ahead on Albania's Velca block

Pennine Petroleum Corp. has committed to explore and develop the 620-km Velca block in southern Albania near the city of Vlore (OGJ Online, Dec. 7, 2015). The operator has signed a 6-year exploration lease that is convertible to a 25-year production license upon discovery of oil or natural gas.

Pennine reported in 2015 that the Velca block contains reservoirs of Ionian subthrust carbonates, which are similar in structure to the foothills of western Alberta. The operator intends to survey all available data to complete a technical report identifying potential drilling targets within the first 60 days. The production-sharing agreement includes commitments from Pennine to drill two wells to a minimum of 2,500 m.

Partners include Albania's Ministry of Energy and Industry and state-owned Albpetrol. Pennine will recover exploration and development costs from 90% of the net operating revenue, after Albania's 10% state royalty tax. Pennine and Albpetrol will retain 100% net working interest in future production until after costs are recovered, at which time Albania's Ministry of Energy will maintain 50%.

Drilling & ProductionQuick Takes

EIA: Oil output to rise from major US onshore regions

The US Energy Information Administration projects crude oil production from seven major US onshore producing regions to climb 80,000 b/d month-over-month in March to 4.873 million b/d.

The overall increase reflects additions of 70,000 b/d from the Permian basin and 14,000 b/d from the Eagle Ford shale, marking the South Texas region's first rise in Drilling Productivity Report data since late 2015.

EIA's monthly DPR tracks the total number of active drilling rigs, drilling productivity, and estimated changes in production from existing oil and natural gas wells in the Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara, Permian, and Utica.

Permian production is expected to reach 2.25 million b/d during March. The basin has accounted for much of the country's rig-count rebound since last spring, and expanding oil-output projections have followed.

Between the weeks ended May 13, 2016, and Feb. 10, 2017, the Permian's rig count spiked from 134 to 301, according to Baker Hughes Inc. data. During January, its count of drilling but uncompleted (DUC) wells rose 84 month-over-month to 1,757, EIA also said in the DPR.

The impact of increased drilling also might be showing in the neighboring Eagle Ford, where output is expected at 1.077 million b/d in March. Between June 3, 2016, and Feb. 10, 2017, its rig count grew from 29 to 59. Its DUC well count during January gained 11 month-over-month to 1,255.

Continued increases are forecast in the Niobrara, where EIA projects a 15,000-b/d month-over-month rise in March to 447,000 b/d. The Bakken, meanwhile, is expected maintain its downward trend during the month, shedding 18,000 b/d to 976,000 b/d.

EIA anticipates overall gas production from the seven regions to rise 524 MMcfd month-over-month in March to 49.135 bcfd. Expected to lead the way is the Marcellus, up 192 MMcfd to 19.105 bcfd. It's followed by the Permian, up 129 MMcfd to 7.829 bcfd; Haynesville, up 109 MMcfd to 6.171 bcfd; Utica, up 62 MMcfd to 4.161 bcfd; and Bakken, up 2 MMcfd to 1.762 bcfd.

Only Eagle Ford gas output is seen falling during the month. Down 25 MMcfd month-over-month, the region is projected to average 5.559 bcfd in March.

BHP Billiton to invest $2.2 billion in Mad Dog Phase 2

BHP Billiton Ltd. reported that its board has approved expenditure of $2.2 billion for its share of the development of the Mad Dog Phase 2 project in the Gulf of Mexico.

BHP Billiton holds 23.9% participating interest in Mad Dog field. Operator BP PLC holds 60.5% participating interest, and Chevron USA Inc. unit Unocal Corp. holds the remaining 15.6%. During fourth-quarter 2016, BP sanctioned the Mad Dog Phase 2 project (OGJ Online, Dec. 1, 2016).

Mad Dog Phase 2, in the Green Canyon area in the deepwater gulf, is a southern and southwestern extension of existing Mad Dog field. The project includes a floating production facility with the capacity to produce as much as 140,000 gross b/d of oil from as many as 14 production wells. Production is expected to begin in the 2022 financial year.

DNO accelerates drilling in Kurdistan, Oman

Norwegian oil and gas operator DNO ASA has accelerated drilling in the Kurdistan region of Iraq and Oman, citing 2016 operating profits and improved payments for exports from Tawke field in Kurdistan as the reason for stepping up investments.

Interim 2016 operating profits were $6 million, DNO said, noting that it reversed an operating loss of $174 million in 2015. Following 2 years of cost cutting and asset rationalization, DNO has restarted investments to replenish its reserves and restore production.

Planned 2017 capital investments are estimated at $100 million, including four new production wells at Tawke (OGJ Online, Oct. 12, 2016). Other Kurdistan plans call for DNO to drill a third well at Peshkabir and an appraisal-production well at Benenan field on the Erbil license.

DNO said it will bring two wells back on stream in Oman on offshore Block 8 with plans to nearly double output at West Bukha and Bukha fields.

In addition, DNO is considering three additional wells at Tawke to raise production above current levels of 115,000 b/d contingent on regular and predictable export payments from the Kurdistan regional government.

DNO is controlled by RAK Petroleum PLC.

PROCESSINGQuick Takes

Light-end yields hit record high at Omsk refinery

PJSC Gazprom Neft's 21.4 million-tonne/year Omsk refinery in Western Siberia boosted output of light petroleum products to record-high levels in 2016, according to the company's preliminary operating statistics for yearend 2016.

Production of light-end fuels in 2016 increased to comprise 70.92% of the refinery's overall yield, Gazprom Neft said.

Gasoline production was up 6.6% to 4.7 million tpy, while diesel output rose to 6.5 million tpy, or 3.2% higher vs. 2015.

Omsk's combined production of Arctic and winter fuels in 2016 was up 9.6% from 2015.

Feedstock demand from petrochemical producers supported a 5.6% increase in the refinery's production of aromatic hydrocarbons, which averaged 430,000 tpy in 2016.

Increased output of light products came amid a corresponding boost in the volume of gas condensate processed at the refinery, which rose to 1.5 million tpy in 2016, the company said.

Omsk's responsive planning in line with market demand supported higher production levels for bitumen products used in road construction, with 2016 output increasing to 430,000 tpy, or 9.9% more than in 2015. Stronger demand from the aluminum industry sustained a 4.6% increase in coke production, which reached 169,900 tpy for 2016.

The plant's improved annual performance follows a series of completed and ongoing projects under Gazprom Neft's Omsk modernization program that-now in its second phase-specifically seeks to increase the refinery's overall yield of 100% Euro 5-quality motor fuels (OGJ Online, Feb. 8, 2016).

Indonesia lets contract for Balikpapan refinery

PT Pertamina (Persero) has let contracts to Honeywell UOP LLC, a subsidiary of Honeywell International Inc., to provide technology licensing and engineering design for a grassroots unit and expansion of an existing unit as part of the operator's project to upgrade and modernize its 260,000-b/d refinery in Balikpapan, East Kalimantan, Indonesia.

Honeywell UOP will deliver licensing and engineering for a new continuous catalyst regeneration (CCR) unit equipped with its proprietary CCR Platforming technology for production of cleaner-burning, high-octane motor fuels, the service provider said.

Pertamina will use the new 33,000-b/d CCR Platforming unit to help meet Indonesia's growing domestic demand for Euro 4-quality clean fuels, as well as to help phase out current production of 88 RONC gasoline, according to Honeywell UOP.

As part of the same project, Honeywell UOP will provide licensing and engineering for an expansion involving a 47,000-b/d unit equipped with its proprietary Unionfining hydrotreating process for production of kerosine jet fuel that meets increasingly more stringent fuel regulations.

The expansion leg of the project will increase overall capacity of existing Unicracking units at Balikpapan to 60,000 b/d to help meet eastern Indonesia's domestic demand for high-quality diesel fuels, according to the service provider.

While Honeywell UOP did not disclose a value of the contracts, these latest contract awards follow Pertamina's announcement in 2014 that it would undertake a 10-year, $25-billion plan to modernize five of its Indonesian refineries as part of an initiative to ensure long-term energy security for the country (OGJ Online, Dec. 15, 2014).

Last year, Pertamina let a series of contracts to Axens SA and CB&I to provide technology licensing, design, and engineering on additional grassroots units to be added during the Balikpapan modernization (OGJ Online, Oct. 6, 2016; July 25, 2016).

The Salt Lake City's retrofitted ISOALKY unit is scheduled for startup sometime in 2020.

Targa lets contract for gas processing plant

Targa Resources Corp., Houston, has let a contract to KP Engineering LP (KPE), Tyler, Tex., to build a grassroots cryogenic gas processing unit for subsidiary Targa Pipeline Mid-Continent WestTex LLC.

KPE will provide complete engineering, procurement, and construction (EPC) services for the plant, including its main 200-MMcfd cryogenic gas processing unit with compression, as well as the balance of plant items and associated infrastructure, the service provider said.

While it disclosed neither a value of the EPC contract nor a precise location for the new plant's siting, KPE did confirm the project is scheduled to be completed during first-quarter 2018.

Targa, which has yet to release official details regarding the project's specific location, did tell investors on Jan. 24 that it planned to begin construction soon on a 200-MMcfd plant for its WestTX system that was tentatively scheduled to be completed sometime around yearend 2017.

Further details regarding that proposed WestTX plant, however, have yet to be revealed.

TRANSPORTATIONQuick Takes

PAA, Noble Midstream to form JV, buy Advantage line

Plains All American Pipeline LP and Noble Midstream Partners LP have agreed to form a 50-50 joint venture to acquire Advantage Pipeline LLC, which owns a 70-mile, 16-in. crude oil pipeline in the southern Delaware basin.

The JV will acquire Advantage for $133 million. The majority of PAA's 50% share is expected to be paid in PAA units issued to certain sellers at closing.

The Advantage system has a capacity of 150,000 b/d originating in eastern Reeves County in Texas, extending through Pecos and Ward Counties to Crane County. The Advantage line also includes 490,000 bbl of combined crude storage at three separate trucking stations.

Noble will serve as operator and will construct a 15-mile pipeline to deliver crude to the Advantage system from its central gathering facility in the southern Delaware basin. PAA will construct a pipeline to connect its Wolfbone Ranch facility to the Advantage line near Hwy 285. The connections are expected to be completed in this year's second quarter.

The Advantage system will be contractually supported by an acreage dedication from Noble Energy Inc. and a volume commitment from Plains Marketing LP.

PAA in January agreed to acquire 100% interest in Alpha Holding Co. LLC, which indirectly owns the Alpha Crude Connector (ACC) gathering system in the northern Delaware basin, for $1.215 billion (OGJ Online, Jan. 26, 2017).

That month, the firm also announced planned expansions on its Cactus Pipeline from McCamey to Gardendale in Texas to 390,000 b/d, and its 50%-owned BridgeTex Pipeline from Colorado City to Houston in Texas to 400,000 b/d.

MPLX unit to acquire Ozark pipeline

An affiliate of MPLX Pipe Line Holdings LLC (MPLH), a subsidiary of MPLX LP, has agreed to acquire the 230,000-b/d Ozark crude oil pipeline from Enbridge Pipelines (Ozark) LLC, a subsidiary of Enbridge Energy Partners LP, for $220 million. The 433-mile, 22-in. pipeline originates in Cushing, Okla., and terminates in Wood River, Ill.

MPLX says an open season recently conducted by Enbridge Pipelines (Ozark) received sufficient long-term volume commitments to plan an expansion of the pipeline's capacity to 345,000 b/d.

The expansion project design includes increasing the horsepower at pump stations along the pipeline and adding drag-reducing agents to the crude oil. The expansion project is expected to be complete in second-quarter 2018.

"Ozark Pipeline will expand the footprint of our logistics and storage segment by connecting Cushing-sourced volumes to our extensive Midwest pipeline network," said MPLX Pres. Don Templin.

The deal is expected to close in the first quarter. Enbridge acquired the Ozark pipeline as part of a deal with Shell Pipeline Co. LP and Shell Oil Products in 2003 (OGJ Online, Dec. 29, 2003).

Earlier this month, MPLX wholly owned subsidiary MarkWest Energy Partners LP and Antero Midstream Partners LP reported the formation of a strategic joint venture to support development of Marcellus shale acreage in the rich-gas corridor of West Virginia (OGJ Online, Feb. 6, 2017).