OGJ Newsletter

Nov. 5, 2007
General Interest - Quick Takes

Senate members question further SPR oil purchases

Noting that crude oil prices have reached the $90/bbl range, seven US Senate Democrats asked Energy Secretary Samuel W. Bodman on Oct. 18 to suspend further purchases for the Strategic Petroleum Reserve.

The US Department of Energy deposited 2.6 million bbl in the SPR during September and plans to buy another 6 million bbl in the next few months, said Energy and Natural Resources Committee Chairman Jeff Bingaman (NM) and six other Senate Democrats.

“This action sends a message to the marketplace that the administration is comfortable with current price levels, and can only add to US crude oil prices and the prices of related commodities,” they said in a letter to Bodman.

The seven Senate Democrats also criticized DOE’s issuing a solicitation Oct. 10 for 13 million bbl of crude from federal leases in the Gulf of Mexico under the royalty-in-kind program (OGJ Oct. 22, 2007, Newsletter). DOE said the action was in accordance with the 2005 Energy Policy Act, which directs that the SPR be filled to its authorized 1 billion bbl capacity. It added that there are no immediate plans to replace 11 million bbl of SPR crude which were sold in response to Hurricane Katrina.

DOE’s policy of continuing to fill the reserve is bad for taxpayers as well as consumers, the lawmakers said. “Based on the department’s own forecasting of crude oil prices and on current futures prices, a deferral of SPR deliveries for 12 months would allow the department to acquire the oil at a discount of more than $10/bbl compared to today’s prices,” they said.

In addition to Bingaman, Sens. Byron L. Dorgan (ND), John F. Kerry (Mass.), Carl M. Levin (Mich.), Claire McCaskill (Mo.), Jack Reed (RI), and Ron Wyden (Ore.) signed the letter.

NEB: Canadian oil, gas stocks adequate’ for winter

Supplies of heating oil and natural gas will be adequate for this winter, Canada’s National Energy Board reported.

Even with a winter that is colder-than-usual, high storage levels of gas will be more than adequate to meet heating demand, NEB said in its winter outlook for Canada’s energy markets.

The price for heating oil should track similarly to the price of crude, which will likely remain in the $75-80/bbl range throughout the winter, NEB said. Also, tightening supply inventories will continue to raise prices, it said.

North American gas futures prices are expected to hold steady between $6-8/MMbtu, NEB expects. Stronger gas production in the US as well as imported LNG will offset any decline in production from Canada.

In mid-October, oil prices crested to new record-highs, NEB said, driven by a combination of market speculation, Middle East political tensions, the low US dollar, and persistent refinery bottlenecks. The Organization of the Petroleum Exporting Countries agreed in September to raise its supply output by 500,000 b/d, starting in November. NEB said this supply increase should help to moderate recent high oil prices.

It added that despite high crude prices, Canadian consumers are not likely to see high prices at gasoline pumps until spring, as the high driving season, Apr. 1 to Labor Day, increases demand for gas.

MMS sells more than 91 bcf of RIK gas

The US Minerals Management Service sold more than 91 bcf of natural gas it received from Gulf of Mexico offshore producers as royalties in kind to nine high bidders, the Department of Interior agency said Oct. 23.

The gas will be delivered in 13 sales packages over 5-12 months beginning Nov. 1 to 13 offshore pipeline systems originating in the gulf, MMS said. Bear Energy LP, BG Energy Merchants, ConocoPhillips Inc., Louis Dreyfus Energy Services, National Energy and Trade LP, PPM Energy Inc., Sequent Energy Management LP, United Energy Trading LLC, and Williams Trading Co. submitted the winning bids.

Bidding was strong for the sale as 21 companies tendered 175 offers for the gas, MMS Director Randall Luthi said. Revenues would total $641 million at current prices, although actual revenues will vary based on prices over the life of the contracts, he added.

The gas in the sale was taken as royalties in kind instead of cash payments from federal Gulf of Mexico leases. MMS then sells such gas competitively on the open market. It has said that the program is more efficient, reduces regulatory and reporting costs, provides early certainty to royalty values, and ensures a fair return on public royalty assets.

House Natural Resources Committee Chairman Nick J. Rahall (D-W.Va.) has criticized the program and attempted to impose limits on its use in legislation which the committee passed last spring.

Luthi said MMS will continue to use royalty-in-kind sales in tandem with royalty-in-value, or cash, payments depending on the particular business case to ensure a fair return on public royalty assets.

China’s oil production, imports rise during 2007

This year China has imported 18.1% more oil during January-August than it did in the comparable period last year, according to figures published by the country’s General Administration of Customs (GAC).

GAC said China’s total oil imports were 110.4 million tonnes in the first 8 months of this year; however, it exported 2.18 million tonnes, resulting in net imports of 108.22 million tonnes. Over the same period last year it imported 91.65 million tonnes of oil.

GAC also said domestic production of crude oil reached 124.7 million tonnes in the 8-month period, up 1.3% over last year.

China imported 24.28 million tonnes of oil products during the same period this year, GAC said. It produced domestically 129.08 million tonnes: 39.9 million tonnes of gasoline, up 8.8%; 7.68 million tonnes of kerosene, up 17.5%; and 81.5 million tonnes of diesel oil, up 6.3%.

Industry Scoreboard
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Exploration & Development - Quick Takes

MMS raises royalty for OCS Sales 206 and 224

The US government has raised the royalty rate on new offshore leases for the second time this year.

In proposals for Outer Continental Lease Sales 206, covering the Central Gulf of Mexico, and 224, covering the Eastern Gulf, the Minerals Management Service stipulates a royalty rate of 18.75%. The standard royalty has been 16.7%. The sales are scheduled Mar. 19, 2008.

Last January, MMS raised the royalty on new deepwater leases to 16.7% from 12.5% (OGJ, Jan. 15, 2007, p. 37).

MMS proposes to offer 5,000 blocks covering more than 28.5 million acres in the Central Gulf. Water depths of some blocks exceed 11,200 ft. Sale 206 covers the same area that Central Gulf Sale 205 did Oct. 3.

Sale 205 drew apparent high bids totaling more than $2.9 billion-the second highest total in US leasing history-for 723 tracts (OGJ, Oct. 15, 2007, Newsletter).

In Sale 224, MMS proposes to offer 118 whole or partial unleased blocks covering 547,230 acres in the Eastern Gulf. Water depths are 2,675-10,213 ft.

It would be the first offering of these Eastern Gulf blocks since 1988.

Apache tests more gas in Egypt’s Western Desert

Houston independent Apache Corp. reported that its Jade-2x well in Egypt’s Western Desert flowed on test 26.7 MMcfd of natural gas and 1,325 b/d of condensate from the Jurassic Alam El Bueib-6 (AEB) formation.

The well was the first test of the AEB reservoirs in the Jade structure along the Matruh Ridge, confirming AEB resource potential identified in the Jade-1x discovery in March. The Jade-1x discovery well logged 217 ft of AEB pay and 66 ft net pay in the Jurassic Upper Safa formation. The discovery was completed as a gas producer from the Upper Safa after a test of 25.6 MMcfd of gas (OGJ, Apr. 9, 2007, Newsletter).

The Jade-2x well, which is 1 mile northeast of Jade-1x, logged 148 ft of AEB pay.

Also at Jade field, the Jade-4 well has reached 12,670 ft TD and logged 234 ft of net pay in the AEB formation. The Jade-4, a twin to the Jade-1x and drilled to access the AEB sands identified in the discovery well, will be tested and completed following the Jade-2x test.

Apache recently recompleted the Imhotep-2 well to the AEB-6 zone which tested at a rate of 4,082 b/d of condensate and 3.3 MMcfd of gas. Imhotep field is 17 miles east southeast of Jade field. It was established in February 2004 as a Jurassic Upper Safa gas field, with cumulative production to date of 33 bcf of gas and 1.78 million bbl of associated condensate.

The AEB formation is one of the most prolific oil-producing reservoirs in the greater Khalda concession, accounting for almost 40% of the more than 250 million bbl total crude oil produced from the concession to date.

Apache holds a 100% contractor interest in the 250,000-acre Matruh concession.

Drilling & Production - Quick Takes

ExxonMobil starts up Angola’s Marimba North field

Esso Exploration Angola (Block 15) Ltd. has begun production from the Marimba North project in 3,900 ft of water 90 miles off Angola.

The Marimba North project, designed to develop 80 million bbl of oil, is a tie-back to the Kizomba A development and has come on stream ahead of schedule and within budget, and without any production impact to the Kizomba A operations.

The project includes subsea wells, a single drill center, 30 km of flowlines, and a unique riser system which ties the production flowline into the existing Kizomba A tension-leg platform. The Marimba North production and control facilities have been integrated with the existing Kizomba A development to effectively and cost efficiently use the existing field facilities.

Marimba North, one of seven major start-ups for ExxonMobil this year, will add about 40,000 b/d of peak production capacity to the existing Block 15 production, which includes the Xikomba, Kizomba A, and Kizomba B developments. With the addition of Marimba North, Block 15 will produce about 540,000 b/d of oil with combined estimated recoverable resources of 2 billion bbl of oil. A fourth Block 15 development, the Kizomba C project, is planned to develop an additional 600 million bbl in Mondo, Saxi, and Batuque fields.

Block 15 participants are Esso (operator) 40%, BP Exploration (Angola) Ltd. 26.67%, Eni Angola Exploration BV 20%, and Statoil Angola 13.33%.

SPD raises oil output in Siberia’s Salym field

Salym Petroleum Development NV (SPD), a joint venture of Royal Dutch Shell PLC and Sibir Energy PLC, reported a record-high oil production rate at Salym field in the Khati-Mansi autonomous region of western Siberia.

Salym said the rate of production at Salym fields, which include West Salym, Upper Salym, and Vadelyp, exceeded 100,000 b/d one month ahead of schedule. An SPD spokesman said the production increase was due primarily to exploration of West Salym field.

SPD CEO Harry Brekelmans said SPD, which had doubled production in 16 months to 100,000 b/d from 50,000 b/d, has produced more than 22 million bbl of crude this year.

In 2004, SPD began oil production from wells in West Salym, the largest of the Salym group of oil fields in the region (OGJ Online, Dec. 23, 2004).

BPZ gets tankers, fast tracks Corvina production

BPZ Energy has signed two short-term contracts with the Peruvian Navy for two 6,000-bbl tankers to transport oil earlier than scheduled from Corvina oil and gas field on Block Z1 off northwestern Peru.

The field is expected to begin production of about 2,500 b/d of oil in early November. Last month it tested 8,300 b/d of oil and 184 MMcfd of gas, mostly from the Lower Miocene Upper Zorritos formation (OGJ Online, Oct. 10, 2007).

BPZ plans to ramp up production from 2,500 bo/d to 4,000 bo/d using two barges when they become available at yearend or early next year.

BPZ previously announced that two barges, the Nomoku and the Nu’uanu, each with a capacity of about 40,000 bbl, had been leased and would be used as floating production, storage, and offloading facility and transport barges in the company’s oil production operations. These barges are currently being outfitted with equipment in the port of Paita, but have encountered some delays due to scheduling.

The Nomoku will be used as an FPSO, moored at the CX11 platform, while the Nu’uanu will be used to transport oil between offshore Corvina field and Petroperu SA’s 62,000 b/cd Talara refinery, 70 miles south of the BPZ’s operations.

PDVSA charters Neptune Discoverer drillship

Venezuela state firm Petroleos de Venezuela SA (PDVSA) signed a 4-year contract with Neptune Marine, Nicosia, to charter the Neptune Discoverer drillship.

The vessel will drill natural gas wells as part of the development of the Mariscal Sucre gas project under a contract lasting 1,460 days and valued at some $700 million.

Neptune Marine also will participate in a social welfare program together with PDVSA in Venezuela for a total of 8% of the day rate in the contract.

The drillship will deploy to Venezuela upon completion of its drilling commitment for Con Son in Vietnam, estimated at the end of November. The drillship is expected to reach Venezuelan waters toward the end of February 2008.

In September Venezuelan President Hugo Chavez said he wanted his country-which became a gas importer this month with the opening of a pipeline from Columbia-to increase gas production by 3 bcfd to 11 bcfd by 2011.

At the time, Chavez said his government is “launching the socialist gas revolution,” claiming that Venezuela possesses “80% of South America’s gas reserves” and “30% of the gas reserves in the Americas (OGJ Online, Sept. 19, 2007).”

Processing - Quick Takes

CCRL plans to expand Saskatchewan refinery

Consumers’ Cooperative Refineries Ltd. (CCRL) has retained International Alliance Group (IAG) as program manager for the grassroots portion of a proposed expansion of its 100,000 b/cd refinery in Regina, Sask.

The project would increase output of Saskatchewan’s only oil refinery by 30%. It involves building a fluid catalytic cracking complex to support the additional crude oil processing.

IAG is expected to make a final decision in early 2008 to move forward with detailed design and construction of the project, which, if implemented, would increase capacity of the refinery to 130,000 b/cd.

Meanwhile, Mustang Engineering, a subsidiary of John Wood Group PLC, is providing front-end engineering design services to IAG for the CCRL refinery expansion.

Galp to expand Porto refinery in Portugal

Galp Energia SA has let a contract to Fluor Corp. for front-end engineering and design and early procurement services of main equipment for a conversion project at its 91,000 b/cd refinery in Porto, Portugal. The contract’s value was not disclosed.

The conversion project will add a grassroots vacuum flash and distillation unit, a visbreaker, a diesel hydrodesulfurization unit, and associated utilities and infrastructure. The project is part of Galp’s investment program to increase production of diesel by 50,000 b/d as well as the utilization rate of its existing refineries. The revamp also will enable Galp to process heavier crudes.

Fluor offices in Madrid and in Camberley, UK, will carry out the refinery conversion work along with local Portuguese companies.

Fluor previously constructed an HDS unit for Galp’s 213,000 b/cd refinery at Sines in 2002.

Pertamina seeks oil supplies for planned refinery

Indonesia’s state-owned PT Pertamina is seeking crude supplies from oil-producing countries to feed its refinery project in Bojonegara, Banten, after Iran reduced its supply commitment to 100,000 b/d from 300,000 b/d.

“The commitment with Iran is a fragile one, so we are looking for other sources to supply the crude,” said Pertamina’s director of refining Suroso Atmomartoyo. “We have to ensure we get the supplies before the refinery is completed.”

Atmomartoyo said Pertamina is in talks with several countries for the crude supply, but he would not identify them, saying negotiations were still at the early stages.

Pertamina and Iran had signed a memorandum of understanding in March 2005 to jointly build the 300,000 b/d Banten refinery with the understanding that Iran would invest in the $5.6 billion refinery and supply the heavy crude.

In July, they agreed to build the refinery and said construction would start in 2008, with completion scheduled for 2012. Officials from the two countries planned an August meeting in Tehran to discuss project details, including equity distribution, project structure, and crude supply agreements.

However, in September Iran expressed disappointment with Indonesia’s handling of the plan to build the refinery jointly, including the substitution of Pertamina for its 51.38%-owned subsidiary PT Elnusa to be partner with Iran’s National Iranian Oil Refining & Distribution Co. in the project.

“The heads of state of the two countries made a commitment to support the development of the project, but after 3 years there is no progress toward its implementation,” said Mahmoud R. Radboy, head of the economic section at the Iranian embassy in Jakarta.

At the same time, Pertamina Pres. Ari Hernanto Soemarno said implementation of the project would be postponed because of rising costs.

Transportation - Quick Takes

Enbridge plans North Dakota pipeline expansion

Enbridge Energy Partners LP, Houston, said it will proceed with yet another expansion of the Enbridge North Dakota Pipeline System.

Costing an estimated $150 million, the expansion will add 40,000 b/d of capacity from the western end of the system to Minot, ND, and 51,000 b/d of capacity from there to Clearbrook, Minn.

It will increase total system capacity to 161,000 b/d from 110,000 b/d, with an in-service date of late 2009.

Enbridge said it will file with the US Federal Energy Regulatory Commission a cost-of-service-based expansion surcharge that will be added to existing tariff rates to fund the proposed expansion. No long-term volume commitments will be required for existing or new capacity.

This expansion is in addition to the existing 30,000 b/d expansion project that is under way and slated for completion by yearend.

The North Dakota Pipeline system gathers oil from production areas in western North Dakota and eastern Montana and transports it to Clearbrook, where the system interconnects with the Minnesota Pipeline and the Partnership’s Lakehead System. From Lakehead, shippers can access most of the major refinery markets along the Great Lakes and in the Midwest.

Hammerfest LNG exports first cargo

The LNG carrier Arctic Princess and its cargo of 145,000 cu m of LNG has left the Norwegian Hammerfest liquefaction plant and is on its way to southern Europe. The launch marks Europe’s first LNG export.

The gas came from Snohvit field in the Norwegian Barents Sea, with the first gas volumes produced in August and first LNG, in September. “The LNG production from Snohvit is still undergoing a run-in phase,” said project partner RWE Dea AG. Stable production is expected to begin by yearend.

Carbon dioxide, accounting for 5% of the Snohvit well stream, is separated and injected into a different underground formation. The project has cost a total of €6.5 billion. At full production, carriers will leave port at Melkoya every 5-6 days. Each ship will transport nearly 150,000 cu m of gas as LNG to customers worldwide.

Snohvit has been developed by a consortium consisting of operator StatoilHydro 33.53%, Petoro 30%, Total E&P Norge 18.4%, Gaz de France 12%, Hess Norge 3.26%, and RWE Dea 2.81%.

Tangguh LNG partners ponder additional trains

BP PLC subsidiary BP Berau Ltd., operator of the Tangguh LNG project, is considering construction of as many as eight additional LNG trains at the company’s existing site in Papua.

The company has set up a special team to study the possibility of new trains at the existing plant. Two other LNG trains are nearing completion.

“We are concentrating on getting these [two trains] finished. We are also looking at further development and opportunities for building more trains,” said David Clarkson, the project’s executive vice-president.

BP began construction of the two trains in March 2005, with the first due to go online in January 2009 and the second in May 2009. The project is said to be 82% complete as of September.

Tangguh will sell LNG to four overseas buyers-China’s Fujian (2.6 million tonnes/year), South Korean K-Power and Posco (1.11 million tpy each), and Sempra Energy (3.6 million tpy).

Energy and Mineral Resources Minister Purnomo Yusgiantoro said he would like BP to sell LNG from the trains under consideration as several domestic firms, including state-owned Perusahaan Listrik Negara and Perusahaan Gas Negara, have shown interest in buying gas from Tangguh.

Fos Cavaou LNG terminal in France delayed

Societe du Terminal Methanier de Fos Cavaou (STMFC) has informed France’s Energy Regulatory Commission (CRE) of a major delay in work being carried out to bring its Fos Cavaou LNG terminal in southeastern France on stream in April 2008. STMFC will operate the terminal on behalf of owners, Gaz de France 69.7% and Total SA 30.3% (OGJ, June 11, 2007, Newsletter).

CRE, in turn, announced it would postpone new tariff propositions for LNG terminal users, which originally had been scheduled for the end of October.

As matters now stand, CRE is unable to propose new tariffs because the current ones for the existing Fos Tonkin and Montoir-de-Bretagne terminals had been designed to apply only until Fos Cavaou came on stream.

Gaz de France told OGJ that, at this stage, it is unable to indicate when Fos Cavaou will become operational.