General Interest — Quick Takes

US Senate questions oil executives on prices

A US Senate committee brought five major oil company executives back to Congress for the second time in less than 2 months so it could ask what’s causing record high oil and gasoline prices (See Editorial, p. 19).

The nationwide average retail gasoline price has more than doubled since George W. Bush became president, Senate Judiciary Committee Chairman Patrick J. Leahy said as he opened a hearing on oil prices. “The president once boasted that with his pals in the oil industry, he would be able to keep prices low, and consumers would benefit. Instead, it is his pals in the oil industry who have benefited. American consumers, and the American economy, have suffered immensely,” Leahy charged.

He said he wanted to hear from the witnesses about forces beyond supply and demand which have driven crude oil prices higher, whether to give the US Department of Justice authority to prosecute foreign oil supplies for violating US antitrust laws, and methods to reduce speculation in oil futures.

“This committee and the Congress need answers so that we can act in a way the administration will not: for the benefit of consumers, for American families and small businesses. We need to get prices under control and back to competitive levels, and we need to do it now,” Leahy declared.

Robert A. Malone, chairman and president of BP America Inc.; John D. Hofmeister, president of Shell Oil Co.; Peter J. Robertson, vice-chairman of Chevron Corp.; John E. Lowe, executive vice-president of ConocoPhillips Co., and J. Stephen Simon, executive vice-president of ExxonMobil Corp., submitted written testimony similar to their submissions to the House Select Committee on Energy Independence and Global Warming on Apr. 1.

Mexico’s oil output continues to recede

State-owned Petroleos Mexicanos said the country’s production and exports of crude oil fell sharply in the first quarter as output continues to recede at Cantarell, the country’s main oil field.

Pemex said average oil production decreased by 9% to 2.875 million b/d from 3.164 million b/d produced in 2007, while exports fell 13% to 1.484 million b/d and imports of gasoline rose by 18% to 317,000 b/d.

The country’s six refineries produced 1.52 million b/d of petroleum products such as gasoline, diesel, fuel oil, and others.

Pemex said production of nonassociated gas increased 3% over the same period last year to 2.643 bcfd, as a result of higher volumes provided by the North.

Cantarell production has fallen by 416,000 b/d from 2007. It produced 1.15 million b/d in March, down 5.7% from February, the seventh straight month of waning production at the field.

Oil decline at Cantarell was partially offset by a 40% increase in the production of Ku-Maloob Zaap to 670,000 b/d from 476,000 b/d. The results are not up to the expectations of Pemex officials, with falls at Cantarell and other fields greater than anticipated. In April, Pemex E&P Director Carlos Morales Gil predicted that 2008 output at Cantarell would be 1.2-1.3 million b/d, compared with an average of 1.5 million b/d in 2007.

Morales said that Pemex nonetheless would deliver the same volume of oil production in 2008 as in 2007 because other fields would compensate for the decline at Cantarell.

So far, however, Pemex has been unable to do that, and the country has had to increase its imports of oil products such as gasoline. In March, Mexico’s gasoline imports rose to 360,700 b/d, the highest level since November 2007, largely due to the declining output from traditional fields (OGJ, May 5, 2008, p. 40).

Analyst BMI has forecast Mexican production as averaging 3.45 million b/d in 2008, falling to 3.15 million b/d by 2012.

EC: VAT adjustment would send ‘bad signal’

The European Commission has warned that French President Nicolas Sarkozy’s proposal to adjust value-added taxes (VAT) on oil would send a “bad signal” to producers.

“Modifying the fiscality of fuel to fight the rise in oil prices would send a very bad signal to oil-producing countries,” an EC spokesman said. “We would be saying that we can raise oil prices, and this will be paid for by the taxes of Europeans,” he said.

A month before taking over presidency of the European Union, Sarkozy said he wanted to put “the question to our European partners: if oil continues to increase, should we not suspend the VAT taxation on the price of oil?”

Saying that it was necessary to have “the courage to tell the French” that fuel prices were going to continue to rise, Sarkozy also suggested allocating additional VAT income resulting from the price rise to a fund intended to reduce the bill of the poorest.

His proposals came as French fishermen kept up protests over high fuel costs by blocking ports and shipping, while other protestors blocked oil tankers from entering or leaving refineries operated by Total SA at Dunkirk and Gonfreville on the English Channel. French consumers currently pay about 19.6% VAT on the price of fuel.

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Exploration & Development — Quick Takes

Total makes gas, condensate find off Brunei

Total SA has made a natural gas and condensate discovery with its MLJ2-06 well drilled on Block B off Brunei. The well is the deepest ever drilled in Brunei in a high pressure, high temperature reservoir. The well was drilled to 5,850 m TD in 62 m of water about 50 km offshore.

Total said new gas compartments in the Maharaja Lela/Jamalulalam field have been detected and will require further appraisal work to evaluate them. The new well is expected to come on stream before yearend.

Total operates the block with a 37.5% stake. Other participants are Royal Dutch Shell PLC (35%) and local partners (27.5%).

Total has been present in Brunei since 1986, where it operates the Maharaja Lela/Jamalulalam field, which produced 28,500 boe/d in 2007. The gas is delivered to the Brunei LNG liquefaction plant.

Total holds a 60% stake in and operates 5,000-sq-km deepwater Block J, for which a production-sharing agreement was signed in March 2003. Exploration activities on Block J have been suspended since May 2003, awaiting the resolution of a border dispute with Malaysia.

BLM releases plan for NPR-A northeast portion

The US Bureau of Land Management released a supplemental final plan for leasing in the National Petroleum Reserve-Alaska’s northeast portion.

It said that the land could yield nearly 3 billion bbl of crude, or about a quarter of the oil produced over the last 31 years at Prudhoe Bay. The area also could provide trillions of cubic feet of natural gas for shipment through currently planned pipelines, the US Department of Interior agency said.

BLM will not open 219,000 acres of Teshepuk Lake and its island to oil and gas activity under the preferred alternative it selected in its supplemental final integrated activity plan and environmental impact statement. The plan’s preferred alternative also would defer leasing for 10 years on 430,000 acres north and east of the lake that currently are not available for leasing.

The plan includes protections for polar bears, including requirements to consider impacts on areas the animals use for their dens, according to BLM. It said that with the polar bear’s listing as a threatened species, it will continue to work with the US Fish and Wildlife Service on future oil and gas activities.

BLM said it expects to hold a lease sale this fall for available portions of NPR-A’s northeast area as well as part of the reserve’s northwest planning area. It said that it will publish a notice of availability regarding the plan’s release in the Federal Register later this month.

MMS proposes plan for first OCS revenue shares

The US Minerals Management Service is proposing regulations to distribute qualified federal Outer Continental Shelf oil and gas revenues to four Gulf Coast states and their eligible coastal governmental subdivisions.

The distributions will take place under the 2006 Gulf of Mexico Energy Security Act, which established federal OCS revenue sharing for affected coastal states and communities, MMS said on May 27.

The law authorized that 37.5% of all federal OCS revenue from new leases in the gulf, including bonus bids, rentals, and production royalties, would be shared with Alabama, Mississippi, Louisiana, and Texas and their coastal communities and counties (or, in Louisiana’s case, parishes).

The first sale with immediate revenue-sharing leases, OCS Lease Sale 224, was held Mar. 19, according to MMS. Based on the actual location of tracts bid in the sale, it said it calculates bonuses and first-year rentals for fiscal 2008 would be 30% for Alabama, 27% for Mississippi, 32% for Louisiana, and 11% for Texas.

Qualified OCS revenues are allocated among the gulf producing states based on a formula which incorporates a state’s proximity to certain tracts in the gulf’s Eastern Planning Area and a small section in the Central Planning Area, MMS said.

Shell plans more Tucumcari exploration

A Shell Oil Co. affiliate plans to mount an exploratory drilling program for tight gas in eastern New Mexico’s nonproducing Tucumcari basin.

SWEPI LP, an affiliate of Shell Exploration & Production Co., in mid-May staked three locations in northeastern Guadalupe County to be drilled back-to-back starting in early June.

The locations are Webb 3-23, in 23-11n-23e; Latigo Ranch 2-34, in 34-11n-23e; and Latigo 3-5, in 5-10n-23e. All are permitted to 13,150-13,500 ft or Mississippian and are thought to be aimed at low-permeability Pennsylvanian objectives. The area’s Pennsylvanian rocks are in the Atoka, Strawn, and Canyon formations.

Shell has been conducting tests since late 2007 but has released no results from the Webb CD-1 well, in 25-11n-23e, in the Cuervo subbasin (see map, OGJ, Sept. 17, 2001, p. 36). It was drilled to TD 10,910 ft earlier as part of a multiwell exploration program by Cuervo Exploration LLC, an affiliate of Gunn Oil Co., a private Wichita Falls, Tex., independent. Shell in January won state approval for an extended flow-test period at the well.

Shell’s locations are 6-8 miles north of Latigo Ranch, a gas accumulation discovered in 1982 and never produced. Latigo Ranch tested gas from Strawn sandstones at 6,658-6,764 ft.

Shell asked the New Mexico Oil Conservation Division to keep confidential all information relating to the proposed wells for 1 year after drilling and completion, but state regulations provide for such treatment only for well completion or recompletion reports and logs.

Norwood logs second pay zone in Nicaragua

Norwood Resources Ltd., Vancouver, BC, logged 138 ft of potential net hydrocarbon pay in its third exploratory well in southwestern Nicaragua and identified 387 ft of net pay in one of its previously drilled wells.

The company will test the new well, Maderas Negras-1, in July. It was drilled to 6,400 ft to test sands of the Paleocene Brito formation and found the same Brito interval as in the company’s San Bartolo well 3 miles southwest (OGJ, Mar. 24, 2008, p. 42).

Meanwhile, in the San Bartolo well, the company identified 387 ft of net hydrocarbon pay in the overlying Paleocene Masachapa formation. Masachapa was not targeted in the Maderas Negras well.

Maderas Negras’s potential net pay is based on porosity criteria of 10% or greater and hydrocarbon saturations of 40% or better. Porosities are 10% to more than 30%.

Log results will be further calibrated to 60 ft of retrieved whole-core sample being analyzed in Houston.

The Masachapa hydrocarbons had not previously been recognized in the San Bartolo well due to the effects of flushing of near-wellbore hydrocarbons by overweight drilling fluids, the company said. Norwood is re-entering the well to run cased-hole logs and determine the need for frac jobs and retesting.

“The company is now moving forward with an extensive testing program to determine the sustained productivity potential and commerciality of these hydrocarbon-bearing formations,” Norwood said.

The wells are on the updip margin of the Sandino basin on the 845,000-acre Indoklanicsa Concession, only one third of which is covered by seismic. The other two-thirds is considered prospective, the company said.

Norwood’s first two wells tested gas and 34° gravity oil. It plans to select and drill a fourth location later in 2008. The company has found operations to be slower and more costly than expected because of the lack of infrastructure and services.

Nicaragua has 35 wells drilled all time and does not as yet produce hydrocarbons.

Inpex upgrades Ichthys reserves

Japanese company Inpex Australia has announced an increase in reserves estimates for its deepwater Ichthys gas-condensate field in the Browse basin off Western Australia.

Field reserves are now estimated at 12.8 tcf of gas, and condensate reserves at 527 million bbl, putting the field in the top five gas fields in Australia in terms of reserves.

In 2000 the company’s subsidiary Inpex Browse Ltd. drilled three exploration wells, Dinichthys 1, Gorgonichthys 1, and Titanichthys 1 (the Ichthys complex), on WA-285-P permit and discovered the giant gas and condensate structure. Gas in place at that time was estimated at 10 tcf and condensate in place at 500 million bbl (see map OGJ, Oct 17, 2005, p. 34).

Inpex and partner Total SA of France are assessing LNG development plans, with a first cargo target now likely to be 2013.

Woodford a horizontal Anadarko basin target

Cimarex Energy Co., Denver, is pursuing gas and oil in Devonian Woodford shale with horizontal wells in the Anadarko basin in western Oklahoma.

The company said in late April it had five wells in various stages of completion and evaluation and was drilling three more wells. Cimarex is evaluating use of 4,000-ft laterals, while early wells went to 13,000 ft true vertical depth and had 2,500 ft laterals.

Cimarex’s 1H-27 Jameson, in 27-14n-10w, near Geary in Canadian County, is the basin’s first reported horizontal Woodford completion, said IHS Inc. It flowed 2.76 MMcfd of gas and 61 b/d of oil on initial tests of perforations at 12,800-15,030 ft measured depth.

Hester et al. with the US Geological Survey, using a study area in northwestern Oklahoma, pointed to the Woodford as a possible large potential horizontal drilling target in an earlier article (see map, OGJ, Dec. 3, 1990, p. 73).

Drilling & Production — Quick Takes

China gas wells back on stream after earthquake

China Petroleum & Chemical Corp. (Sinopec) said 97% of its natural gas wells in Sichuan Province have resumed production after the earthquake 2 weeks ago.

Some 208 wells out of the total 218 have resumed production, according to Chen Ge, secretary to the board of governors.

Last week Sinopec’s giant Chuanxi gas field in Sichuan was reported to be producing at 20% of capacity after many chemical plants were closed, up from only 10% earlier when 1,000 gas wells were shut in (OGJ Online, May 23, 2008).

Transocean drills record extended well off Qatar

Transocean Inc. claimed its GSF Rig 127 jack up drilled a record length extended-reach well off Qatar for Maersk Oil Qatar AS.

GSF Rig 127 drilled Well BD-04a to 40,320 ft measured depth with a 35,770-ft lateral section in 36 days in Al-Shaheen field. The record of 7.6 miles also is the first well in the history of offshore drilling to exceed 40,000 ft, Transocean claimed.

The well, in 200 ft of water in the Perisn Gulf, bottomed at a true vertical depth of 3,500 ft subsea. Inclination of its horizontal section was 89° to just over 91°, Maersk Oil Qatar said.

The extended-reach portion surpassed by 2,000 ft the previous world extended-reach record of 38,322 ft MD set by Parker Drilling Co. working for ExxonMobil Corp. The ExxonMobil well was drilled by a land rig at Sakhalin-1 under the Sea of Okhotsk in Far East Russia to a target area in Chayvo field 7 miles offshore (OGJ, Feb. 18, 2008, p. 33). That well was drilled with the custom-designed Yastreb land rig.

Transocean said its GSF Rig 127 crew dealt with high torque in the well’s extended-reach section. The crew used extensive deck-management planning and a supply boat to hold additional drill pipe so that the rig stayed within its variable deck-load rating.

OGJ archives indicate that Well DB-04a may be the world’s longest well bore. The former Soviet Union claimed it drilled the vertical SG-3 research hole well to 40,228 ft in the 1970s-90s on the Kola Peninsula near the Norwegian border west of Murmansk (OGJ, Dec. 7, 1992, p. 32).

Bakken play gets Three Forks/Sanish producer

A well on the Williston basin Nesson anticline in Dunn County, ND, was completed flowing oil, gas, and water from the Devonian Three Forks/Sanish formation.

Only 52 wells have produced from little-known Three Forks/Sanish in the US part of the basin. Continental Resources Inc., Enid, Okla., and other operators are attempting such completions to determine whether the Three Forks/Sanish formation may be a separate reservoir not drained by a horizontal completion in the more heavily drilled Middle Bakken zone above it.

Another consideration is whether a horizontal well bore in the Three Forks/Sanish might recover oil by gravity drainage from the Middle Bakken, necessitating fewer overall wells.

The US Geological Survey (USGS) included the Three Forks/Sanish interval in its April 2008 assessment as part of the “Bakken composite continuous fractured reservoir.” The USGS used estimated ultimate recoveries (EUR) from the basin’s Bakken/Sanish completions to estimate the undiscovered resource in the Nesson-Little Knife Structural Assessment Unit (see map, OGJ, Apr. 21, 2008, p. 37).

Vertical wells perforated in the Bakken and Sanish had high EUR relative to vertical wells that only produced from the Bakken, so matrix contribution from the porous Sanish is extremely favorable, said Richard Pollastro, USGS geologist and Bakken formation task leader.

Sanish wells “certainly had a resulting effect on the final mean volume of 909 million bbl assessed” for the Nesson-Little Knife unit, Pollastro said.

Continental Resources reported a 7-day average flow of 618 b/d of oil, 543 Mcfd of gas, and 662 b/d of load water with 1,352 psi through a 2464-in. choke at the Bice 1-29H well, in 29 and 32-146n-95w, Dunn County, ND.

The distance between a horizontal wellbore in the Middle Bakken, if drilled, and the horizontal lateral in the Three Forks/Sanish in the Bice 1-29H is 60 ft, Continental Resources said.

Almost all of the Three Forks/Sanish completions are in Antelope field in McKenzie County, the USGS said.

The Bice well is in an undrilled spacing unit. To learn whether the two formations are in communication, Continental would need stabilized production from a Three Forks/Sanish lateral followed by drilling a Middle Bakken lateral and running a frac job. Some models show that a frac will not penetrate the Middle Bakken.

Transportation — Quick Takes

Pipeline to shorten West Coast deliveries

BP Products North America signed an agreement with Petroterminal de Panama SA (PTP) to ship oil to its US West Coast refineries through the Trans-Panama Pipeline (TPP).

The 81-mile TPP originally carried crude through Panama from the Pacific to the Atlantic. PTP will modernize the pipeline and reverse the flow, significantly reducing delivery times and transportation costs to the US West Coast. Previously, crude cargoes sailing from east to west took an additional 30 days to travel thousands of miles around Cape Horn at the tip of South America.

Upon completion of the project, very large crude carriers with 2 million bbl of capacity will be able to transport Angolan and other crudes to the port of Chiriqui Grande, Bocas del Toro, on the Caribbean for the journey across the isthmus of Panama. Crude will be piped to the port of Charco Azul on the Pacific coast where it will be received by tankers for the journey to refineries on the US West Coast. Construction is expected to take about 2 years.

The change will greatly reduce transportation time, lowering logistic costs, and increasing flexibility of supply to US West Coast refineries, said Bob Malone, chairman and president of BP America.

Under the 7-year agreement, BP will acquire 5 million bbl of storage and commit to pipeline shipments of 65,000 b/d. PTP has transported over 3 billion bbl of petroleum, mostly for BP.

Sonatrach receives EPC bids for Arzew LNG train

Algeria’s Sonatrach aims to increase its LNG export capacity by some 20% after it constructs a new 4 million-tonne/year liquefaction train at Arzew.

Four groups submitted bids on May 18 for the engineering, procurement, and construction contract to build the train: Snamprogetti and Chiyoda Corp.; Petrofac International and Inti Karya Persada Tehnik of Indonesia; Technip; and KBR. Commercial bids are due July 21 or possibly later in the summer, with an award to be made soon afterwards. The train is expected on stream by 2012.

In March, Sonatrach decided to move ahead on its own with the Arzew LNG project, as well as development of Gassi Touil gas field, after canceling an earlier agreement with Repsol YPF and Gas Natural of Spain.

The three firms had agreed to form El Andalous LNG, a joint venture of Sonatrach 20% and Repsol YPF-Gas Natural 80% to invest $3 billion in the new Arzew train.

Last September, Algeria canceled the project, including Gassi Touil gas field development, after the two Spanish companies delayed the start of work due to what they claimed was the sharp rise of costs in the LNG industry.

Papua New Guinea LNG project gets under way

The ExxonMobil-led Papua New Guinea LNG joint venture has signed a gas agreement with Papua New Guinea, paving the way for an LNG project in the country.

The agreement outlines fiscal terms and legal obligations under which the JV will operate. These terms include a 30% tax rate and an additional profits tax that would apply after a certain level of return has been achieved. The signing means that ExxonMobil can begin front-end engineering and design work for the project, a process expected to take about 16 months to complete. During this period the JV will be pursuing LNG sales agreements and securing project debt funding plus all permits and licenses needed.

On this basis, a final investment decision for the project is expected late in 2009 with first LNG cargoes planned for 2013.

Interest holders are ExxonMobil 41.6%, Oil Search 34.1%, Santos 17.7%, AGL Energy 3.6% and Nippon Oil 1.8%. Landholder interests have 1.2%.

Total lets pipeline, platform contracts off Angola

Total E&P Angola has contracted Saipem SPA to install a natural gas pipeline and injection platform off Angola.

The pipeline will extend from Block 17 to Block 2, where the gas will be injected into two oil-depleted reservoirs. The blocks are about 230 km northwest of Luanda. Saipem will carry out engineering, procurement, fabrication, transportation, and installation of the 1,500-ton injection platform—the Single Central Platform—to be installed in water 38 m deep on Block 2.

The marine activities will be carried out by the Saipem 3000 vessel in second half 2009.