OGJ Newsletter

Nov. 14, 2005
The number of onshore US marginal oil wells increased last year, but production totals for those wells dropped from the previous year, the Interstate Oil and Gas Compact Commission reported.

General Interest - Quick Takes

US stripper well oil down in 2004; gas up

The number of onshore US marginal oil wells increased last year, but production totals for those wells dropped from the previous year, the Interstate Oil and Gas Compact Commission reported.

IOGCC’s annual study showed 397,362 marginal oil wells produced 311 million bbl in 2004, or an average of 2.14 b/d/well. During 2003, a total of 393,463 stripper wells produced 313.7 million bbl, or an average of 2.18 b/d/well.

Marginal wells accounted for 15.7% of oil and 7.8% of gas produced in the US onshore in 2004. A marginal oil well produces 10 b/d or less. A marginal gas well produces 60 Mcfd or less.

The number of marginal gas wells has climbed steadily since 1995, IOGCC said in its report, “Marginal Oil and Natural Gas: American Energy for the American Dream.”

US gas stripper wells during 2004 numbered 271,856 and produced 1.54 tcf of gas, or an average of 15.5 Mcfd/well-the same average production rate as 2003, when 260,563 wells produced 1.48 tcf.

During 2004, the report noted that 4,129 marginal gas wells were plugged and abandoned. This was the highest number since 1998, when 4,203 gas wells were plugged and abandoned.

If all marginal wells were abandoned in 2004, the US would have lost more than $20 billion in revenue and 200,213 jobs, the report said.

“Marginal wells are a stable source of much-needed American energy,” said Christine Hansen, IOGCC executive director. “Collectively, they provide significant resources needed to create jobs in our economy and lessen our dependence on foreign resources.”

American Petroleum Institute statistics show the US last year imported 4.7 billion bbl of crude oil and products. “If the oil production from marginal wells active in 2004 did not exist, imports would have increased 6.6% to make up for the shortage,” the report said.

The IOGCC represents the governors of 30 oil and gas producing states. Seven states are associate members.

Audubon Society chief urges compromise

While oil companies receive blame for greenhouse gases and climate change, the business community to which they belong provides leadership in addressing global warming, National Audubon Society Pres. John Flicker told the annual meeting of the Independent Petroleum Association of America.

He said oil companies provide efficiency and innovation that are good for both the environment and the economy.

Flicker called for compromise between environmentalists and the oil industry, saying it is time for “big picture views.” The goals of IPAA members and Audubon members need not be at odds, Flicker said.

“When energy prices are high, everybody is starting to think of innovation and efficiency,” Flicker said, adding that high crude oil and gasoline prices promote conservation.

He called for cooperation between the oil industry and environmentalists, saying that it is time to “get beyond our daily skirmishes.”

“We’re all down in the weeds, and we fight whatever is in front of us,” Flicker said. “If we are going to seriously address global warming, we need leadership from Washington. We need your help to make that happen.”

Global warming requires a global solution, and a rational energy strategy could pave the way toward resolution, Flicker said. He emphasized the need for reducing energy demand.

“The reduction should come first from foreign oil, not domestic oil,” he said. It’s unrealistic to expect the US to suddenly rely on renewable fuels because they currently cannot provide the energy supplies that fossil fuels provide, he said.

Canadian, US pipeline regulators cooperating

Canadian and US pipeline regulators have signed a memorandum of understanding, effective Nov. 1, that provides for improved pipeline safety through cooperation and information-sharing between the two agencies.

Canada’s National Energy Board and the US Pipeline and Hazardous Materials Safety Administration (formerly the US Office of Pipeline Safety) agreed to the MOU, which outlines the terms for staff exchanges and joint training opportunities.

Increased interaction and sharing of best practices will lead to a more uniform regulatory approach for cross border pipelines, NEB said in a news release. “The parties recognize that the conduct of their responsibilities has and will in the future require them to examine, regulate, or otherwise oversee interconnecting pipeline facilities or activities,” said the MOU.

The agreement is part of the Security and Prosperity Partnership for North America, a trilateral agenda inaugurated Mar. 23 by Canada Prime Minister Paul Martin, US President George W. Bush, and Mexican President Vicente Fox. The partnership builds on the North American Free Trade Agreement.

Ziff: Western Canada F&D costs rising

Finding and development costs for natural gas and conventional oil in Western Canada, excluding revisions, have increased 12% to $2.40/Mcf during 2004 compared with the previous year, according to Ziff Energy Group, Calgary.

The higher cost primarily is attributed to smaller recoveries from new gas and oil wells, Ziff said in its annual Western Canada F&D and Reserve Replacement Cost study.

Within 8 regional gas strategy areas, 3-year F&D costs were $1.70-3.00/Mcf, and in 5 oil strategy areas, F&D costs were $9-15/bbl. The study found increases in F&D costs for each strategy during the last 5 years. The energy trust sector has grown significantly through both acquisitions and company conversions since 2001. The study said that trusts account for more than 20% of Western Canada production (over 30% of conventional oil).

In 2004, trusts spent $6 billion on acquisitions and about $2 billion on F&D. Many trusts are converting nonproducing assets to producing assets. Faced with the high cost of acquisitions, trusts are adding technical staff and exploiting opportunities on their existing properties, the study said.

Gas reserve replacement responded to record gas drilling levels, with more than 125% replacement for gas in 2004, Ziff said.

Oil reserve replacement reached 105%, marking the first time in 4 years of full oil replacement. Heavy oil drilling represented almost half of all oil wells drilled.

Industry Scoreboard

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Exploration & Development - Quick Takes

Repsol YPF makes sixth oil find on Libyan block

Repsol YPF SA has made a sixth oil discovery in Libya on Block NC 186 in the Sahara Desert’s Murzuk basin about 800 km south of Tripoli.

Well J-1 found an oil column in the Ordovician Memouniat sandstone formation at 1,500 m TD. The well tested at 4,650 b/d of 40° gravity oil.

J-1 is 16 km northeast of the recent I-1 discovery, which flowed 2,060 b/d of 40° gravity oil from the same sand at 1,717 m. Repsol YPF said the oil is “amongst the best quality on the market (OGJ Online, Oct. 3, 2005).”

Three of the discoveries on the 4,300 sq km block have been developed or are under development.

Repsol YPF operates the block. Other partners are Total SA, OMV AG, and Saga Petroleum ASA.

Talisman makes inner Moray Firth oil strike

Talisman Energy (UK) Ltd. has reported discovery of 20-50 million bbl of oil in place in the inner Moray Firth on Block 13/23b in the UK North Sea.

The 13/23b-5 well encountered oil-bearing Lower Cretaceous sandstones. The 13/23b-5z sidetrack, drilled southwest from the discovery well, encountered thicker oil-bearing sands and flowed on test at a rate of 6,700 b/d of 35° gravity oil.

A second sidetrack, 13/23b-y, was drilled to the west and proved the extent of the thicker sand sequence over the structure. The discovery will be evaluated further with reprocessed 3D seismic data to confirm commerciality.

The discovery is 15 km northeast of Ross oil field, which Talisman operates with a 69% working interest, and 10 km northwest of Blake oil field, in which Talisman holds a 54% interest.

Eastern Putumayo basin oil development proposed

Appraisal and development is pending for a 1988 eastern Putumayo basin oil discovery in Colombia that could have as much as 38 million bbl recoverable.

Chaco Resources PLC, London, signed a joint venture with Repsol Exploracion Colombia SA to develop Alea field near the border with Ecuador.

Chaco Resources will earn a 25% interest in the field from Repsol by funding certain appraisal operations. First year spending is as much as $7.4 million. Chaco Resources will rework existing seismic data, reenter and test the discovery well, and drill a stepout. Colombia’s state-owned Ecopetrol operates Alea (see map, OGJ, May 23, 1994, p. 85). Alea-1 flowed at a stabilized rate of 533 b/d of 30.9° gravity oil from Cretaceous Villeta Lower U sand. Logs indicate Villeta Upper U sand, not tested, to be oil bearing. TD is 2,542 m.

Repsol calculated probable recoverable volumes of 20.8 million bbl from Lower U and 17.3 million bbl from Upper U.

Indonesia gas find noncommercial but promising

A gas discovery in the North Sumatra basin waters of the Malacca Straits is described as noncommercial but encouraging for further exploration.

Serica Energy PLC, Toronto, did not test the Togar-1A exploration well on the 2,185-sq-km Asahan PSC but said it found gas that analyzed 96% methane in Miocene Middle Keutapang sandstones topped at 3,385 ft subsea.

The well cut 22 ft of net gas pay and found a gas-water contact at 3,410 ft subsea. Porosities reached 35%. Of several other Middle Keutapang reservoirs encountered, only one held gas at the Togar-1A location. TD is 6,451 ft subsea.

Serica Energy, with 55% interest, released the Galaxy Driller semisubmersible, advertised for a rig for 2006 drilling, and is looking for other drilling locations on the block. Its partners are Duinord Asahan Petroleum Inc., Jagen Asahan Pty. Ltd., PT Risjad Salim Resources Asahan, and Greevest Asahan Pty. Ltd.

North German tight sands test at promising rates

Two European companies are installing surface facilities after a highly deviated well yielded promising gas flow rates from extremely low-permeability Permian Rotliegend sandstone in the North German basin.

Sustained production is to start as early as spring 2006 at the Leer Z4 well, said Gaz de France Produktion Exploration Deutschland GMBH and BASF’s Wintershall AG unit. The companies did not enumerate the test flow rates.

Leer Z4 is near Breinermoor/Ostfriesland, Germany, 75 miles east of Groningen, Netherlands.

The companies drilled the well vertically to 3,000 m, then kicked off and drilled horizontally. The well bore reached 5,683 m measured depth at 4,424 m true vertical depth in the Rotliegend, on which several hydraulic fracs were then performed.

Indonesia seeks exploration of eastern area

The Indonesian government is drafting incentives aimed at attracting exploration to the country’s eastern regions, according to a senior official.

Kardaya Warnika, chairman of Indonesia’s upstream oil and gas agency BP Migas, said the agency would propose to the Ministry of Energy and Mineral Resources that the exploration commitment be limited to geological studies and seismic surveys.

He did not specify which regions would be targeted for more exploration.

He said drilling would be an option rather than a commitment. And the 6 year commitment period could be halved.

“This proposal was based on inputs from investors and hopefully can make the frontier area more attractive,” he said.

Kardaya said BP Migas is studying incentive options for mature fields.

“We cannot generalize incentives for brown fields as the condition in one area differs from the others,” he said.

State oil and gas firm PT Pertamina has identified 41 mature fields and begun offering them to investors.

Pertamina Pres. Widya Purnama said four multinational investors, including China Petroleum & Chemical Corp., had shown interest in joining partnerships to brown fields.

“We are ready to open the data room. They can choose the areas they want to assist in developing,” said Widya, who did not name the interested companies.

Drilling & Production - Quick Takes

Shell lets contract for Mars platform work

Shell US Inc. has let a contract to Heerema Marine Contractors for support work on the Mars oil and gas production platform in the deepwater Gulf of Mexico.

The contract includes lifting and uprighting the drilling rig on Mars, which sustained considerable damage to its topsides during Hurricane Katrina (OGJ, Sept. 5, 2005, p. 24).

The Hermod crane vessel with a tandem lift capability of 8,100 tonnes is scheduled to start work early November.

Kristin field comes on stream off Norway

The high-pressure, high-temperature Kristin gas and condensate field in the Norwegian Sea has come on stream, reported Total SA, a partner.

Kristin is a subsea development in 315 m of water. It involves a complex reservoir more than 4,500 m beneath the seabed. Operator Statoil ASA previously increased its investment estimate for Kristin by 1.4 billion kroner to 20.8 billion kroner (OGJ Online, Mar. 11, 2005).

Kristin’s pressure, 900 bar, and temperature, 170° C., are higher than those of any other field developed on the Norwegian continental shelf to date. The reservoir is to be produced through 12 subsea wells, with a production capacity of 126,000 b/d of condensate and 18 million cu m/day of rich gas.

Statoil holds 46.6% interest in Kristin, and Total holds 3%. Other licensees are Petoro AS 18.9%, Norsk Hydro AS 12%, ExxonMobil Corp. 10.5%, and Agip SPA 9%.

Dana Petroleum expanding into Algeria, Egypt

A unit of Dana Petroleum PLC, Aberdeen, signed agreements with subsidiaries of Gaz de France to exchange various properties in a series of transactions in which Dana obtains interests in Algeria, the UK, and Egypt.

Dana agreed to pay GDF $93 million for a 15% stake in Algeria’s Blocks 352a and 353 in Sbaa basin. The transaction is subject to approval by Algerian authorities. GDF now operates the blocks with a 75% interest. Algeria’s state-owned Sonatrach SA has 25% interest.

In addition, Dana plans to trade its interests in three blocks off Mauritania in exchange for GDF’s interests in two UK North Sea fields and a stake in a production-sharing contract off Egypt. Regarding Mauritania, GDF is obtaining Dana’s 24% interest in Block 1, 28% interest in Block 7, and 17.5% interest in Block 8.

Meanwhile in the UK, Dana is obtaining a 22% interest in Johnston gas field and associated UK North Sea Blocks 48/18b, 48/19b, and 48/19e. In addition, Dana is getting a 25% interest in Anglia gas field. Both fields are producing. Upon closing, Dana will have 50% interest in Johnston field. GDF will retain 30% of Anglia.

Off Egypt, Dana is getting a 30% interest from GDF in the PSC for West El Burullus in the Nile Delta. GDF plans to retain 70% interest in West El Burullus.

Processing - Quick Takes

Largest methanol plant meets nameplate capacity

The world’s largest methanol plant at Point Lisas, Trinidad, met its nameplate capacity of 5,000 tonnes/day in its 2 weeks of production, said officials at Methanol Holdings (Trinidad) Ltd.

The plant took 25 months to construct. The new facility makes Methanol Holdings the primary exporter of methanol to the US market and the second-largest methanol producer in the world, said company officials. KfW Bankengruppe financed the $550 million project.

Methanol Holdings operates five other plants that produce a total of 4 million tonnes/year of methanol. More than 95% of that production is exported. The company is building a methanol plant in Oman that is expected to be completed by yearend.

CL Financial Ltd., a diversified conglomerate, is majority shareholder in Methanol Holdings, with 53%. Other shareholders include Ferrostall AG 27.5%, GE Capital’s Latin American Fund 15%, and Helm AG 4.5%.

Two biodiesel plants planned in Singapore

Two firms have announced plans to build biodiesel facilities on Jurong Island, the center of Singapore’s petrochemical industry.

Germany’s Peter Cremer GMBH will initially invest as much as $34 million (Sing.) for its plant, which will have a capacity of 200,000 tonnes/year of biodiesel fuel. Cremer said it expects the plant to start up by first quarter 2007.

A joint venture of Singapore’s Wilmar Holdings and Archer Daniels Midland Co. (ADM), Decatur, Ill., said it plans to spend as much as $50 million (Sing.) on a biodiesel facility with an initial capacity of 150,000 tonnes/year, eventually doubling.

In early October, ADM said it would build its first wholly owned biodiesel production facility in the US. The 50 million gal/year facility will be built in Velva, ND, near ADM’s existing crushing facility, and will use canola oil as its primary feedstock. ADM said the construction completion date would depend on final engineering and permit approval.

Italian waste-to-energy plant to be expanded

Lomellina Energia awarded an engineering, procurement, and construction contract to a unit of Foster Wheeler Ltd. for a second processing line at a waste-to-energy plant at Parona, Italy.

Foster Wheeler Italiana SPA owns 39% of Lomellina Energia. The contract value exceeds $130 million. Commercial operation of the expansion is scheduled for September 2007.

The original plant, which started commercial operation in 2000, was designed and built by Foster Wheeler, which continues to operate it along with partners. The existing plant processes 200,000 tons/year of municipal solid waste (MSW), converting 60% of the MSW into refuse-derived fuel (RDF), which is combusted to generate 15 Mw of power.

The expansion will allow the plant to process an additional 180,000 tons/year of RDF and produce an additional 19 Mw, which will be sold to the Italian national grid.

Ivanhoe Energy, Egyptian Gas eye GTL plant

Ivanhoe Energy (Middle East) Inc. and Egyptian Natural Gas Holding Co. (EGAS) have signed a memorandum of understanding advancing a longstanding plan for Ivanhoe Energy to study the feasibility of a gas-to-liquids (GTL) plant in Egypt.

EGAS has agreed to commit up to 4.2 tcf of natural gas for the proposed project, which is expected to have an operating life of up to 20 years.

Ivanhoe Energy has begun the engineering design of a GTL plant and is obtaining an updated market analysis for GTL products to reflect changes since the original evaluation was completed several years ago.

Plant capacity options of 45,000 b/d and 90,000 b/d will be evaluated.

Ivanhoe Energy holds a master unlimited-volume license for Syntroleum Corp.’s GTL technology.

Transportation - Quick Takes

China, Russia to accelerate pipeline talks

Chinese Premier Wen Jiabao said he and his Russian counterpart, Mikhail Fradkov, agreed to accelerate negotiations on a proposed oil pipeline between the two countries.

The two sides long have discussed the feasibility of building an oil pipeline from Anagarsk, Russia, to link with China’s pipeline network at the northeastern city of Daqing.

The Chinese announcement came days after senior Japanese and Russian government officials agreed to speed up talks on possible cooperation on a separate proposed oil pipeline linking eastern Siberia with Russia’s Pacific coast.

Under the Japanese proposal, the pipeline would end at the Siberian port city of Nakhodka-allowing Russia to ship its oil to China, Japan, and South Korea.

Japan, Russia expedite oil pipeline talks

Senior Japanese and Russian government officials have agreed to speed up their talks on possible cooperation in building oil pipelines linking eastern Siberia with Russia’s Pacific coast.

Japanese officials said the accord was reached on Oct. 31 in a meeting between the visiting director general of Japan’s Agency for Natural Resources and Energy, Nobuyori Kodaira, and Sergey Oganesyan, head of Russia’s Federal Energy Agency.

Expediting the talks is considered essential as Japan and Russia want to issue a document on bilateral cooperation over the project during Russian President Vladimir Putin’s planned visit to Japan later this month.

Japan wants Russia to build a 4,100-km pipeline from Taishet near Lake Baikal to Nakhodka on Russia’s Sea of Japan coast, while China wants a 2,400-km pipeline to the industrial city of Daqing in northern China.

In April, Moscow appeared to back Chinese interests by issuing an order for the pipeline to be built from Taishet to the halfway point at Skovorodino near the Russia-China border. Putin then said the further construction of the pipeline on to the Pacific coast would depend on development of new oil fields in eastern Siberia.

CEPA: Pipeline delays could prove costly

A 2-year delay in construction of the Mackenzie Valley gas pipeline, Alaskan gas pipeline, and LNG receiving terminals could cost Canadians $57.7 billion (Can.) during 2006-25, the Canadian Energy Pipeline Association (CEPA) said.

The estimate is part of a report CEPA commissioned and released on Oct. 24 during Ziff Energy Group’s North American Gas Strategies Conference in Calgary.

“More than $20 billion will be spent over the next 2 decades by our industry on capital projects,” said CEPA Pres. David MacInnis. “These studies show that the impact of any delays is significant. We need to ensure there are timely regulatory reviews and approvals and the fiscal environment remains attractive and competitive. We need to ensure there are no unnecessary delays.”

The report, entitled The Costs to Canadian Consumers in Delays in Construction of Energy Transportation Infrastructure, said gas costs to consumers could rise by $20.2 billion in Alberta and $19.1 billion in Ontario. The rest of the $57.5 billion would hit other parts of Canada.

A companion study, The Economic Impacts of Constructing an Energy Pipeline, estimated the economic benefits of pipeline investment.

The study said a $1.52 billion, 1,000-km gas pipeline, half in Alberta and half in British Columbia, could increase the Canadian gross domestic product by $1.2 billion/year. Of that benefit, $202 million would occur outside Alberta and British Columbia.