OGJ Newsletter

Deutsche Bank updates oil, gas price forecasts

A research report released Oct. 3 by Deutsche Bank sees room for oil prices to continue to decline.

“We believe crude oil prices have further downside as the fallout of the financial crisis spreads into the real economy and ultimately global oil demand. Like gold, we also believe the oil price is trading rich relative to the US dollar, with the current euro/dollar rate suggesting an oil price nearer $80/bbl,” the report says.

Over the last 2 years, 85% of the movement in the West Texas Intermediate oil price is explained by shifts in the value of the dollar, the report says.

Deutsche Bank recently reduced its fourth-quarter 2008 and first-quarter 2009 WTI price forecasts to $85/bbl. The price is forecast to average $90/bbl in second quarter 2009.

The report notes that some other analysts are looking for oil to move as low as $50/bbl, a price last seen in early 2007.

Analyst Adam Sieminski says that although $50/bbl oil is not out of the realm of ‘reasonableness’ in view of recent history, it seems unlikely in view of the consensus opinion that the Federal Reserve will cut interest rates when it meets later this month.

Meanwhile, natural gas is forecast to average $9/MMbtu in the final 2008 quarter and $8.50/MMbtu in first quarter 2009, rebounding to $9/MMbtu in the second quarter of next year.

Despite shut-in gas production in the Gulf of Mexico following Hurricane Ike, gas in underground storage continues to climb, and Deutsche Bank estimates gas is on track to reach 3,400 bcf by the start of winter.

“Since many meteorologists are forecasting a colder-than-normal start to the US winter, we continue to believe that US natural gas is trading cheap relative to oil,” Sieminski says.

House Republicans ask DOI for next OCS steps

With the expiration of US Outer Continental Shelf and oil shale leasing moratoriums a day earlier, US House Republicans asked Interior Secretary Dirk A. Kempthorne on Oct. 2 to identify steps Congress should take to ensure potential resources in reopened areas are developed soon.

“We are concerned by media reports that radical anti-energy groups may, with the tacit support of the Democratic leadership, file a barrage of lawsuits to continue to deny the American people access to these vital sources of American-made energy,” Minority Leader John H. Boehner (Ohio), Minority Whip Roy Blunt (Mo.) and seven more House Republicans said in a letter to Kempthorne.

“We are also concerned by speculation that federal red tape and bureaucratic hurdles exist that will prevent Americans from gaining quick access to these resources. Such delays would needlessly hinder the creation of tens of thousands of good American jobs and further slow our nation on its path to lower [gasoline] prices and energy independence,” they continued. They asked Kempthorne to promptly identify such barriers and potential litigation as well as responsible actions which Congress might take to ensure that resources in the reopened areas “are fully and completely unlocked in the most expeditious manner possible.”

California operator fined for Lands Act violation

The US Minerals Management Service fined a California offshore oil and gas operator $450,000 on Oct. 7 for violating the Outer Continental Shelf Lands Act following a multiyear investigation.

Pacific Operators Offshore LLC pleaded guilty and will also serve 5 years’ probation for using a gas lift line in direct contradiction to an MMS order, the US Department of the Interior agency said.

MMS said it notified the Carpenteria, Calif.-based company, which operates two platforms off the state’s coast, that the gas lift line was not fit for service in 2000 and that its continued use posed a significant workforce safety risk. MMS also said it notified POO that if it intended to use the gas lift line in the future, it would need to submit a repair plan for MMS’s approval.

In 2002, according to MMS, its inspectors determined that POO was still using the gas lift line, and the agency referred the matter to the DOI Inspector General’s office for criminal investigation. It added that the US Department of Justice also participated in the inquiry.

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Rift flows gas at Puk Puk

London-based Rift Oil has flowed 29.2 MMcfd of gas during a test in its Puk Puk-1 wildcat on Papua New Guinea permit PPL235 in the country’s Western Province.

The flow came from combined Toro Sandstone and Lower Hedinia pay intervals in the well. A separate flow from the Lower Hedinia measured 20.85 MMcfd.

Rift now plans to isolate these two zones and test the Upper Hedinia zone in the structure. Once flow rates have stabilized, the company also plans to use its onsite separator equipment to measure the liquids content of the gas.

Rift is particularly pleased with the Lower Hedinia flow rate because it comes from thinner sands. The company adds that initial flow rates from the Toro are in line with expectations from this well-developed reservoir.

Testing at Puk Puk will be completed later this month. The company is also running a 210 km 2D seismic program in the area.

A strong final result will enhance the company’s plans for supplying gas to a floating LNG plant in the Gulf of Papua via an onshore-offshore pipeline from the discovery.

Flow rate high at Suez Gemsa area well

Vegas Oil & Gas SA, private Greek operator, reported a sustained flow rate of 3,388 b/d of 41° gravity oil and 4.25 MMcfd of gas from a well on the North West Gemsa concession in Egypt’s Gulf of Suez basin.

It is suspending the Al Amir SE-1 sidetrack as a discovery and potential producer from the Kareem formation sandstones.

The concession covers more than 400 sq km about 300 km southeast of Cairo. The concession agreement includes the right of conversion to a production license of 20 years, plus extensions, in case of commercial discoveries.

RWE Dea discovers more oil in Sirte basin

Libya’s state-owned National Oil Co. said RWE Dea has made its eighth oil discovery in the NC-193 concession area in the Sirte basin with exploration well G1-NC 193.

According to RWE, well G1-NC 193 encountered oil in the Upper Satal Formation at a depth of 4,631-61 ft. RWE said the wildcat tested 33.8° gravity oil at a net rate of 426 b/d through a ³²/₆₄-in. choke.

Last month, RWE Dea scored its sixth and seventh oil discoveries in the NC-193 concession.

The E1-NC₁93 well struck oil at a depth of 1,470 m, flowing 704 b/d during testing from the Dahra formation, while the F1-NC₁93 flowed 439 b/d from the Upper Dahra formation after hitting 1,346 m TD.

NOC has a 68% stake in the NC-193 concession project, while operator RWE holds the remaining 32%.

Chesapeake presses 3D seismic in Fort Worth

Chesapeake Energy Corp. has drilled 82 wells and has five rigs drilling for gas in the Barnett shale in Newark East field on its 18,000-acre lease on the Dallas-Fort Worth International Airport in the Fort Worth basin.

Sales are limited to 60 MMcfd of gas because the company has only a single pipeline outlet on the northeast side of the airport, but it is pursuing further connections on the south side, Larry Lunardi told OGJ’s Unconventional Gas International Conference & Exhibition Oct. 1 in Fort Worth.

The company drilled the most recent well 7,000 ft vertically and a similar distance horizontally. Pipelines distribute frac water to drill pads around the airport.

It has converted four of the five rigs to electric power from diesel, and the five contribute less than one half of 1% of total airport emissions including aircraft.

Having completed its $4 million, five-stage 3D seismic survey of the entire airport property, the company plans to shoot 25-sq-mile and 10-sq-mile 3D surveys working only from city streets in west and northwest Fort Worth suburbs populated by 20,000 or more homeowners.

KazMunaiGas signs MOU for Caspian E&P

Kazakhstan’s state-owned KazMunaiGas has signed a memorandum of understanding with ConocoPhillips and Mubadala Development Co. for joint exploration and production of the N Block in the Caspian Sea.

“The parties will now have until Dec. 31, 2008, to negotiate the definitive agreements for the assignment by KMG of a 49% interest in the subsoil use contract to be shared equally between ConocoPhillips and Mubadala,” the Kazakh firm said, adding that, “KMG will remain the majority partner in the venture.”

The N Block, also known as Nursultan, lies 30 km south-southwest off Aktau and covers some 8,100 sq km. According to KMG, the block “is considered highly prospective for both oil and gas.” KMG had earlier estimated the block to hold about 637 million tonnes of oil equivalent.

The MOU was signed by KMG Chief Executive Kairgeldy Kabyldin, ConocoPhillips Chief Executive Jim Mulva, and Mubadala Chief Executive Khaldoon Khalifa Al Mubarak.

In January Kazakhstan’s ministry of energy and mineral resources announced the signing of a profit-sharing agreement with KMG for N Block.

At the time, KMG Vice-Pres. Kezhebek Ibrashev said, “According to the government, at the stage of exploration and assessment KazMunaiGas will be operating this project independently.”

Ibrashev said the company’s minimum financial liabilities for the period of exploration were set at $40 million, and that the PSA specifies an allocation of funds for social-development projects, training of local specialists and monitoring and maintenance of the wells drilled earlier within the licensed area.

The N Block had been the target of attention of both Royal Dutch Shell PLC and ConocoPhillips before the Kazakh government granted exclusive exploration and production rights to KMG.

Dana, Crescent kick off Kurdish gas production

Dana Gas and equal partner Crescent Petroleum have started natural gas production in Iraq’s northern Kurdistan region after commissioning stage one of a $650 million project.

The two companies said they have started production of 75 MMcfd of gas from Khor Mor field. Output is expected to gradually reach 300 MMcfd in first half 2009.

Gas produced will feed a electric power plant in Erbil province, while in a later stage the project would feed another power plant under construction in Suleimaniya province. The total power generation of the two plants would be 1,250 Mw.

Gas from Khor Mor field will be transported by a 180-km pipeline to feed the two plants.

In April 2007 the Kurdistan regional government awarded the two companies a service contract to develop, process, and transport gas from Khor Mor field on a fast-track basis and to appraise and develop the nearby Chemchamal gas field.

Khor Mor field has never been fully developed and has not operated since 1991. The field has estimated gas reserves of 1.4 tcf. Chemchamal, which has never been appraised or developed, has estimated reserves of 2.2 tcf.

Crescent and Dana also are developing a ‘Gas City’ business park in the area, using gas as a feedstock for industries such as petrochemicals, steel, building materials, fertilizers, and manufacturing.

Kurdistan Gas City has a targeted initial basic infrastructure investment of $3 billion.

BLM approves Montana CBM projects in CX field

The US Bureau of Land Management’s field office in Miles City, Mont., approved two coalbed methane projects proposed by Fidelity Exploration & Development Co. near Decker, Mont., on Oct. 1.

Work on 48 wells in the Tongue River-Deer Creek North and Decker Mine East projects will include drilling and infrastructure, the US Department of the Interior agency said. Project approvals include compliance measure to minimize environmental and land use impacts, it added.

Both projects will be within the existing CX field near Decker and will use roads, facilities, and water management infrastructure currently serving existing wells on state and private lands in the area, BLM said.

It said water produced with production of the gas from both projects will be put to beneficial use or discharged into the Tongue River in accordance with Fidelity’s existing water discharge permits which it received from Montana’s Department of Environmental Quality.

Angel gas field on stream off W. Australia

The North West Shelf gas project joint venture, operated by Woodside Energy Ltd., has brought the $1.6 billion (Aus.) Angel gas field development on stream off Western Australia. Angel has capacity to flow 800 MMcfd of gas along with as much as 50,000 b/d of condensate.

Angel lies 115 km off Western Australia inshore from North Rankin and Goodwyn fields. The three are the original North West Shelf fields Woodside-Burmah found in 1972.

The development comprises a new steel-leg platform in 80 m of water and associated infrastructure, which includes a 50-km undersea pipeline tied back to the existing North Rankin A platform¿the original hub of the North West Shelf gas project. Gas from Angel is then sent via the main Rankin trunkline to the joint venture’s LNG-domestic gas facility on the Burrup Peninsula near Karratha. Angel has been tapped by three subsea production wells. The gas will underpin supply to the five LNG trains now at the Burrup plant.

Demand rising for drilling services in Indonesia

Demand for drilling services in Indonesia is expected to jump by 20% in 2009 as domestic and international oil companies, eyeing government incentives and rising prices for crude, seek to increase their production.

Demand for drilling services has already increased during the past year due to rising oil prices, according to Bambang Purwohadi, chairman of the Indonesian Oil & Gas Drilling Contractors Association.

“Despite the [recent] decline in the oil prices, the prices are still higher on average than in previous years,” Bambang told the Jakarta Post. “This will lure oil companies to increase their production, meaning more drilling projects will be available.” Bambang said, “I think demand will increase by 20% next year,” adding that plans by the government to tap marginal wells would contribute to this increase.

The energy and mineral resources ministry recently issued regulations allowing domestic oil and gas companies to exploit wells formerly managed by international oil companies.

Bambang said management of several marginal wells previously owned by state oil and gas company PT Pertamina had already been transferred to local firms. “About 12 drilling companies will begin work on this project immediately,” he said.

Total’s Provence refinery upgrades to begin

Total’s 158,000 b/d Provence refinery at La Mede on the French Riviera will undergo a €100 million turnaround of its western installations scheduled to last 2 months starting Oct. 6.

The eastern units will continue to operate, ensuring delivery of products. A turnaround is slated every 5-6 years, but this one is unusually significant.

Total indicates that it is “a real challenge” for the refinery with 60 projects earmarked in order to improve the safety of installations, reduce their environmental footprint, and optimize production. The major projects to be carried out include:

• The catalytic cracker furnace will be replaced, at a cost of €12.8 million, in order to bolster the safety of the installation and the workers, reduce by 15% the plant’s sulfur dioxide and carbon dioxide emissions, and improve the refinery’s energy efficiency while increasing the processing capacity of the installation by some 50 tonnes/day.
• The Alkylation visbreaker modernization will cost €8.7 million. It will require 45 km of extra cabling to introduce 200 new instruments and replace some 30 security valves.
• A new flare stack tip costing €1.2 million will reduce both smoke and noise, achieving the modernization of both flares at the refinery within the last 4 years.

ExxonMobil expands capacity at Singapore plant

ExxonMobil Chemical has completed a 130,000 tonne/year (tpy) capacity expansion at its Exxsol hydrocarbon fluids plant in Jurong Island, Singapore, increasing capacity at the site to more than 500,000 tpy.

The capacity expansion will provide more of ExxonMobil Chemical’s Exxsol series of differentiated fluids, and hydrocarbon fluids, including its proprietary Isopar and Solvesso.

Exxsol said the fluids are formulated to meet a diversity of customer needs “in applications such as drilling mud oil, metal working, polymer processing, industrial cleaning, adhesives, coatings, household products and mining.”

The new capacity is designed to meet demand in Asia Pacific, which is growing at an estimated rate of 6% a year for differentiated hydrocarbon fluid products.

Increasing demand in Asia Pacific results from strong industrial growth accompanied by rising awareness of health, safety, and environmental issues and the future consolidation of different regulatory requirements under the Globally Harmonized System (GHS).

Last November, ExxonMobil Chemical Co. said it would build a second petrochemical complex on Jurong Island after completing a detailed study. The petrochemical project will include a 1 million tpy ethylene steam cracker, two 650,000 tpy polyethylene units, a 450,000 tpy polypropylene unit, a 300,000 tpy specialty elastomers unit, an aromatics extraction unit to produce 340,000 tpy of benzene, an oxo-alcohol expansion of 125,000 tpy, and a 220-Mw power cogeneration unit.

ExxonMobil awarded the design, engineering, procurement, and construction contract for the steam cracker recovery unit to the Shaw Group, while the contract for the steam cracker furnaces was awarded to Mitsui Engineering and Shipbuilding and Heurtey.

Mitsui Engineering and Shipbuilding has also been awarded contracts for the polypropylene and specialty elastomers units. The contract for the two polyethylene units was awarded to Mitsubishi Heavy Industries.

The chemical complex, scheduled to come on stream in early 2011, is expected to cost more than $4 billion. The complex¿together with ExxonMobil’s 605,000 b/d refinery¿makes the company Singapore’s single largest foreign manufacturing investor.

UOP advances crude upgrading technology

UOP LLC signed a technology cooperation agreement with Petrobras and Albemarle Corp. to demonstrate and further commercialize its catalytic crude upgrading (CCU) process technology.

The agreement calls for UOP to provide the technology, equipment, and system design, and Albemarle is providing the FCC catalyst for the process. Petrobras has run the process in a pilot plant, and will provide its knowledge and experience in FCC catalysts and heavy crude processing.

UOP developed the CCU process in 2005 as an option for upgrading heavy crudes and bitumen-derived crudes. The process reduces the crude’s viscosity, which allows it to travel through pipelines without the use of diluents.

Trinidad and Tobago vies to renegotiate contracts

Trinidad and Tobago has announced that it wants to renegotiate the contracts for Atlantic LNG Co.’s (ALNG) Trains 1, 2, and 3.

Patrick Manning, prime minister of the Caribbean twin-island nation, said his government is dissatisfied with the level of revenues collected from the gas producers that supply ALNG.

“It is clear that the circumstances have changed since the contracts for [ALNG’s] Trains 1, 2, and 3 were negotiated and Trinidad and Tobago wants to get its fair share of the revenues,” the prime minister said.

Manning will soon travel to Madrid, where he will meet with the Repsol-YPF SA Pres. Antonio Brusfau. He will then visit London to hold discussions with BP PLC’s Chief Executive Officer Tony Haywood and BG Group Chief Executive Officer Frank Chapman.

Manning will be accompanied by the Minister of Energy and Energy Industries Sen. Conrad Enill and other senior technocrats in the twin-island nation’s energy industry.

ALNG purchases gas from suppliers and sells freight on board to customers from its Point Fortin port in respect of Trains 1, 2, and 3. But in Train 4, ALNG operates as a processor of gas.

Inpex to construct LNG terminal off Indonesia

Inpex Corp., bowing to pressure from the Indonesian government and seeking to start deliveries of LNG to Japan as soon as possible, will likely construct an offshore export terminal at a cost of more than ¥1 trillion. Inpex Pres. Naoki Kuroda said the Japanese firm will make a final decision in 2-3 months, and is likely to sign an agreement with Indonesia by yearend.

Inpex had two options for the terminal: to build on solid ground in Australia and transport gas from Indonesia through pipelines, or to build an offshore terminal inside Indonesian territorial waters.

Gas for the terminal would come from the Masela block, currently under development in the Timor Sea, where Kuroda owns a 100% stake. The Masela block lies 400 km from Darwin in northern Australia.

Indonesian officials, who made construction of the offshore terminal a condition for Inpex’s Masela block project, said development could begin as early as November, assuming that a final agreement was reached (OGJ Online, Sept. 4, 2008).

In July Inpex confirmed sufficient gas reserves to start 4.5 million tonnes/year of LNG production in the Masela block in 2016, following its completion of a four-well appraisal program.

In August Inpex said it had decided to build an LNG regasification terminal in northwestern Japan to meet robust growth in LNG demand, with operations to begin there in 2014.

The new Japanese receiving terminal is expected to be able to handle around 500,000 to 1 million tonnes of LNG imports in its first year of operation, and in excess of that afterwards, according to Hisatake Matsuno, a director at Inpex.

Matsuno also said the terminal would receive LNG supplies from Inpex’s own projects in Indonesia and Australia, where, with partner Total SA, will build a facility to produce more than 8 million tonnes/year of LNG starting in 2014 in Darwin.

Desirous of starting LNG production as soon as possible to meet the needs of the planned developments, Kuroda said that Inpex will build the offshore terminal in Indonesia. Kuroda nonetheless said that growing LNG demand and high LNG prices would make the project worthwhile, offsetting its estimated cost of ¥1 trillion.

He said construction will be financed by bank loans and Inpex’s own cash reserves, and that Inpex also will consider selling part of its stake in the Timor Sea gas field to foreign energy companies.

The new terminal, which would secure up to 7% of Japan’s annual LNG imports, will provide some 4.5 million million tonnes/year of LNG by 2015—all of it bound for Japan.