OGJ Newsletter

March 23, 2009
General Interest — Quick Takes

NGC: Tax proposals would harm gas industry

The Obama administration’s proposed tax law changes would seriously damage a domestic gas industry, which is hurting already, the Natural Gas Council warned in a Mar. 17 letter to members of Congress.

The group, which is comprised of trade associations involved in the US gas industry from wellhead to burner tip, explained that investments in new US gas production come from three funding sources: selling the gas, obtaining credit from lenders, and securing private and institutional investors willing to commit capital to high-risk ventures.

“Unfortunately, new US natural gas projects are at risk. Dramatic reductions in natural gas prices this past year have reduced cash flow to producers, while the credit crunch has limited access to capital, and investors are more cautious than ever,” the letter continued.

It said the White House’s tax proposals, outlined in its proposed fiscal 2010 federal budget, would radically shift incentives for developing domestic gas, some of which have been in place since 1913.

“If these taxes are imposed on the industry, not only will prices rise for consumers, but tax and royalty revenues to the federal and state treasuries will diminish, and well-paying American jobs will be eliminated,” the group warned.

Such results would run counter to the Obama administration’s stated strategy of developing cleaner energy and reducing US reliance on foreign oil, it continued. “We urge you to reject these unjustified changes to energy tax policy. Congress must develop rational national energy strategies [which] rely on American energy first, including clean-burning, abundant American natural gas,” the NGC’s letter said.

The letter was signed by Independent Petroleum Association of American Pres. Barry Russell, Natural Gas Supply Association Pres. R. Skip Horvath, Interstate Natural Gas Association of America Pres. Donald F. Santa, and American Gas Association Pres. David N. Parker.

Uganda urged to ‘audit’ IOCs

Members of Uganda’s parliament have been urged to keep a close eye on international oil companies operating in the country, with a view to ensuring that oil revenues are properly revealed and shared.

“The government should regularly audit oil companies,” said Sarah Wykes, an activist and researcher on oil and transparency issues with the London-based human rights organization, International Alert (IA).

“There should also be a parliamentary committee to ensure that the oil revenue was properly managed,” said Wykes, who was arrested in Angola 2 years ago while attempting to assess the transparency of its oil sector.

Wykes told Ugandan parliamentarians that although revenue from oil had potential to lift people out of poverty, it could also bring suffering to the masses as it benefited just a handful of people.

“It is [incumbent] upon you to make sure that the common man benefits and that oil does not turn into a curse,” said Wykes, who added that there is also a tendency of investors to exploit countries by giving them little revenue.

Wykes’ remarks struck a chord with Uganda Member of Parliament Stephen Mukitale, who called on the government to carry out consultations on oil production. “We should know the prospective and production costs so that we are not cheated,” Mukitale said.

Meanwhile, Ugandan rebels known as the Lord’s Resistance Army (LRA) also are eyeing the country’s oil resources.

LRA’s chief negotiator David Matsanga told a news conference in Nairobi that the discovery of oil in Uganda’s northern region could ignite a fresh war in the region.

“There might be a fight motivated by the need to protect the oil fields,” said Matsanga, referring to oil discoveries around Uganda’s Lake Albert that have been reported to be among the largest finds around the region.

Earlier this week, international oil companies operating in Uganda, who confirmed the discoveries, announced plans for stepped up production from the fields.

Tullow Chief Operating Officer Paul McDade said the company recently discovered more oil in the lakes region. He said first oil production would commence in 2010, with production rising to 20,000 b/d in 3-5 years and to 100,000-150,000 b/d in 10 years (OGJ, Mar. 16, 2009, p. 40).

Industry Scoreboard
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Exploration & Development — Quick Takes

StatoilHydro finds gas on Asterix prospect

StatoilHydro has made a natural gas discovery on its Asterix prospect, which lies in 1,360 m of water 345 km west of Sandnessjoen in the Norwegian Sea. The resources lie in Upper Cretaceous reservoir rocks, the company said, adding that preliminary estimates put proved reserves at 16 billion cu m (about 100 million boe).

The Transocean Leader semisubmersible rig drilled wildcat well 6705/10-1 to a vertical depth of 3,775 m below sea level. The well is the first in production license 327B, awarded in 2007. Licensees are operator StatoilHydro 70%, Petoro 20%, and Norske Shell 10%.

No formation test was carried out, the company said, but extensive data gathering and coring took place in the reservoir before well 6705/10-1 was permanently plugged and abandoned.

The find represents “one of the bigger discoveries off Norway in recent years,” said Tove Stuhr Sjoblom, StatoilHydro’s head of Norwegian exploration.

Frode Fasteland, exploration manager for the Norwegian Sea, said, “Asterix will be considered for development together with Luva and the other nearby discoveries of Haklang and Snefrid South. That could help to lay the basis for a deepwater gas infrastructure in the Norwegian Sea.” Asterix is 80 km west of Luva (OGJ, Apr. 3, 2006, p. 33).

StatoilHydro will now redeploy the Transocean Leader to production license 035B/362 in the North Sea to drill a delineation well on the Fulla structure.

Nexus places Crux project on short-term hold

Nexus Energy Ltd., Melbourne, operator of the proposed Crux field liquids-gas recycling project in the Browse basin off Western Australia, has put the project in temporary abeyance following failed attempts to sell down its interest in the development. The sales process has been managed by Deutsche Bank.

Nexus plans to minimizing future capital expenditures until market conditions improve. Nevertheless the company adds that it hopes negotiations over asset sales, debt raising alternatives, and contractual obligations will be completed by the end of March.

Nexus says attempts to sell a stake in Crux have not resulted in an acceptable offer and, although it will continue to consider offers, the sale will not be actively marketed. It owns 85%, with Osaka Gas owning 15%. Nexus has been trying to sell as much as 30% of the project since the Japanese firm Mitsui walked away from a purchase deal in October 2008. Mitsui had planned to buy a 25% interest for $255 million, but global financial problems interfered.

Crux has an estimated 75.2 million bbl of condensate.

Currently it is negotiating to secure funding for the drilling of the Auriga prospect, which has estimated potential reserves of 42 million bbl of liquids within tie-back range of Crux field.

Drilling on Auriga is expected to begin in late May. A success would greatly enhance the economics of the Crux project.

In the same Browse basin region, Nexus is preparing to farm out a stake in its Echuca Shoals field in permit WA-377-P. A successful farmout could result in a well’s being drilled later this year to test the full potential of the field, which holds possibilities for an LNG-scale development.

Elsewhere, the company is pushing ahead with its Longtom gas development in Bass Strait and expects to bring the field on stream to fulfill its supply contract with Santos through the Patricia-Baleen production plant on Victoria’s east Gippsland coast by mid-2009.

Nexus says its key priority is finding funding solutions, while ensuring that Longtom achieves a cash-flow positive position as soon as possible.

Drilling & Production — Quick Takes

Shell completes Perdido topsides installation

Shell Oil Co. has completed installation of the drilling and production platform atop a 555-ft cylindrical spar at its Perdido development in 8,000 ft of water 200 miles from Houston in an isolated section of the Gulf of Mexico.

It is the deepest such facility in the world, company officials claimed (OGJ Online, Dec. 3, 2008).

Russ Ford, Shell’s technology vice-president for the Americas, said, “Perdido is a technological tour de force that is opening up a new frontier for global oil and gas production.” He said, “Producing oil safely and responsibly this far out and this deep should allay concerns about industry access to the 85% of the US Outer Continental Shelf that remains undeveloped.”

Shell operates the Perdido project; its partners are BP PLC and Chevron Corp. Shell acquired the lease in 1996 and had to pioneer several technologies and operational innovations before commercial development in 2006.

Shell Oil Co. recently completed installation of the drilling and production platform at its Perdido development in the Gulf of Mexico. Photo from Shell.
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Over the next several months, 270 workers living on the platform and on an adjacent “flotel” will complete the commissioning and hookup to begin producing oil and gas. The platform is capable of producing 130,000 boe/d. Oil will be transported through 77 miles of pipelines, while gas will move through 107 miles of pipelines over the rugged sea floor to connect with existing offshore pipeline.

The Perdido subsea well was drilled to 9,356 ft below the water’s surface and completed. The project intends to drill an even deeper well at 9,627 ft.

Nine polyester mooring lines more than 2 miles in length now hold the 50,000-ton floating structure in place. The facility includes a common processing hub to gather, process, and export production within a 30-mile radius. It is designed to provide regional synergies, reduce costs, and lower risk as well as minimizing the environmental impact in this frontier area. Officials said 10 innovative systems were designed to make Perdido a leader in health and safety.

In connection with its work on Perdido, Technip claimed two water-depth records. The Paris company installed a reeled flowline in 9,731 ft of water and a reeled steel catenary riser in 8,100 ft.

Under separate contracts, Technip supplied Perdido umbilicals and the hull and mooring system for the spar.

Roc Oil revises plan for Bass Strait project

Sydney-based Roc Oil Co. Ltd.—operator of the Basker-Manta-Gummy (BMG) oil and natural gas project in the Bass Strait—has revised its development plan and schedule to introduce several cost-saving measures.

During 2009 and 2010, the joint venture will focus on enhancing the production performance of the Phase 1 oil stage, at the same time reducing its development commitments for the Phase 2 gas development.

Roc has swapped its contracted use of the Songa Venus semisubmersible drilling rig with Shell Development Australia for use of the Ocean Patriot semi. Songa Venus is contracted to Shell for work in the Browse basin off Western Australia and to cover the Roc work in Bass Strait in July would have meant a long and expensive mobilization. Ocean Patriot is already in the strait. It will now carry out the planned 60-90 day program for Roc in May.

In addition, Roc has reduced its commitment for use of the Kan Tan IV jack up rig to 30 days from 143 days (originally to begin in March; now to begin in late 2010). This has been achieved through assignments of the rig to existing consortium members for work elsewhere.

Roc also says the gas flaring conditions for the BMG project have been revised to allow production to continue while modifications are made to the Crystal Ocean floating production, storage, and offloading vessel, which will remove the need for flaring during normal operations.

New topside facilities on the vessel include a low-pressure flare recovery compressor package to supplement the reinjection of produced gas. Cost of the new facilities, due for completion during the fourth quarter of this year, will be $10 million (Aus.).

The aim of all these measures is to reduce overall development costs and ensure investments for the project are carefully managed in the time of lower oil prices and unsteady financial markets.

Interests holders in the project are Roc (through its ownership of Anzon Australia) 40%, Beach Petroleum 30%, Cieco Exploration & Production 20%, and Sojitz Energy 10%.

Processing — Quick Takes

Motiva delays Port Arthur refinery expansion

Motiva Enterprises LLC has delayed until first-quarter 2012 the completion target for a project that will make its 285,000-b/d refinery at Port Arthur, Tex., the largest in the US.

Motiva, a joint venture of Shell Oil Co. and Saudi Refining Inc., originally planned to complete the $7 billion expansion in late 2010.

The project will add a single-train crude distillation unit with a capacity of 325,000 b/d.

Other new units include an 85,000-b/d catalytic reformer with associated isomerization and hydrotreating units, a sulfur recovery facility, a 75,000-b/d hydrocracker integrated with a new 60,000-b/d diesel hydrotreater, a 50,000-b/d hydrotreater for feed to the existing catalytic cracker, and a 95,000-b/d coker.

Motiva also is adding a 150-Mw electric power station that will produce 2 million lb/hr of steam.

The expanded Port Arthur facility will be the country’s largest refinery producer of sulfur and largest producer of petroleum coke.

The main project contractor is a joint venture of Bechtel and Jacobs Engineering Group.

The largest US refinery now is ExxonMobil’s 572,500-b/d facility in Baytown, Tex.

Enterprise starts Meeker II gas plant service

Enterprise Products Partners LP reported the start of operations at its Meeker II natural gas processing plant in Colorado’s Piceance basin.

The Meeker II expansion doubles the gas processing capacity at the Meeker complex to 1.5 bcfd with the capability to extract as much as 70,000 b/d of natural gas liquids (NGL).

Enterprise also has started operations at its recently expanded Shilling and Thompsonville gas processing plants in South Texas, and the company expects the partnership’s relocated Chaparral facility in the Permian basin to begin processing gas later this month.

The Meeker complex is supported by long-term commitments from 10 of the largest producers in the Piceance basin. Current inlet volume at Meeker is 750 MMcfd, with 38,000 b/d of NGL being extracted. Gas volumes are projected to reach 1.1 bcfd by yearend, when NGL production is expected to reach 60,000 b/d.

“This expansion will facilitate the continuing growth in natural gas production from the Piceance basin that is expected in 2009 and 2010 despite the effects of the recent decrease in drilling activity,” said A.J. Teague, Enterprise executive vice-president and chief commercial officer.

Teague noted that, based on producer estimates, there are more than 300 wells that have been completed in the basin that are waiting for pipeline connections. Meeker, through its connection with the White River natural gas hub, affords producers access to markets through connections with six interstate pipelines having 2.5 bcfd of total takeaway capacity, he said.

The Chaparral facility was an idle plant acquired in 2004 in the merger with GulfTerra Energy Partners LP and recently relocated from southeast Texas to serve producers in the Permian basin. The facility, which can handle as much as 40 MMcfd of gas and extract more than 2,000 b/d of NGL, complements the partnership’s 900-mile Carlsbad gathering system in southeast New Mexico.

As part of the project, Enterprise constructed 13 miles of 4-in. NGL pipeline. It links the processing plant to Teppco Partners LP’s Chaparral pipeline, which transports NGL to the world’s largest fractionation complex at Mont Belvieu, Tex.

Expansion projects also have been completed and placed into service at two gas processing facilities that are part of Enterprise’s South Texas system. At the Shilling plant in Webb County, capacity has been increased to 110 MMcfd from 60 MMcfd as part of a project relocating equipment from idle plants and modifying existing infrastructure.

The partnership also modified existing equipment rather than building new systems to expand its Thompsonville gas processing plant in Jim Hogg County. Repiping and other efforts designed to enhance efficiency increased capacity at the facility to 330 MMcfd from 300 MMcfd while maintaining ethane and propane recovery percentages.

Chevron to sell stake in India refinery

Reliance Industries Ltd. will buy back Chevron Corp.’s 5% stake in a 580,000 b/d refinery in Jamnagar, India, at the original price of $300 million.

Under the initial 2006 deal, Chevron had the option to raise its stake to 29%. Chevron, Reliance Industries, and the refinery’s operating company jointly decided not to consummate those agreements.

Chevron cited “attractive investment alternatives and continuing low global demand for refined products” as the reasons for its sale.

Transportation — Quick Takes

Algeria’s Skikda LNG plant start-up delayed again

Algeria’s Skikda LNG plant will not come online until 2013, 2 years later than its earlier announced completion date, according to Chakib Khelil, Algeria’s oil minister.

“It’s being built, it’s advancing really well,” Khelil told Bloomberg News, adding that construction of the plant is about 20% complete and procurement of 70% of materials has been carried out.

Khelil’s announcement, which gave no explanation for the delay, marks a change in earlier statements about the plant’s projected start-up date.

In January 2008, Khelil told OGJ: “We are building another LNG plant in Skikda, and the contract was awarded to KBR so that will also be ready in 2011 (OGJ Online, Jan. 7, 2008).

Earlier, in April 2006, Khelil said that work on the facility was still under negotiation but he insisted that “the plant in any case will be ready in 2009, as scheduled.”

Three of the plant’s six trains were destroyed and another one was badly damaged when a boiler in one of the units exploded in January 2004, killing some 23 people and injured nearly 80.

In 2007, KBR said it won an engineering, procurement, and construction contract for the Skikda LNG project, valued at some $2.8 billion.

In addition to performing the EPC work for the 4.5 million tonnnes/year LNG train along with associated LPG and condensate recovery, KBR said it would execute the precommissioning and commissioning portion of the contract.

Colombia to acquire Enbridge’s share of oil line

Colombia’s Ecopetrol has entered into an agreement with Enbridge Inc. to buy the latter’s 24.7% interest in the Oleoducto Central SA (Ocensa) oil pipeline, which extends from the country’s interior to the Caribbean coast, for $417.8 million.

The transaction increases Ecopetrol’s stake in Ocensa to 60%. The company says the deal will allow it to more readily increase oil production in Colombia’s Eastern Plains region.

Enbridge became an owner and operator of Ocensa in 1995, with the pipeline entering service in 1996. The 525-mile Ocensa system can transport as much as 650,000 b/d of crude through 30-in. and 36-in. OD pipe from Cuisiana and Cupiagua fields to the port of Covinas. The system also includes five pumping stations, tankage, and marine loading facilities.

Other initial stakeholders in Ocensa were BP Pipelines 15.2%, Total Pipeline 15.2%, and Triton Pipeline Colombia 9.6%.

The agreement follows Ecopetrol’s announcement that it would acquire producer Hocol Petroleum Ltd. from Maurel & Prom, Paris, for $748 million (OGJ Online, Mar. 10, 2009).

Correction

In coverage of the 88th Annual Convention of the Gas Processors Association, OGJ incorrectly reported that Devon Energy Corp.’s 2009 capital budget was larger than its 2008 budget (OGJ, Mar. 16, 2009, Newsletter). Devon has cut its 2009 budget to “match reduced cash flow expectations,” it said.