OGJ Newsletter

April 6, 2009
General Interest — Quick Takes

SEC files charges in oil investment scheme

The US Securities and Exchange Commission charged a Los Angeles man and two of his companies with securities fraud on Mar. 24 and moved to halt their oil and gas investment sales.

The commission obtained an emergency court order from a federal district court in Los Angeles to freeze the assets of Clement Ejedawe, also known as Clement Chad, and his companies, Innova Energy LLC and Innova Leasing & Management.

SEC said in its complaint that Ejedawe and his companies raised $1.3 million from 30 investors by promising guaranteed returns on working interests in oil and gas leases or drilling equipment. In fact, it continued, the money was used to pay sales commissions; small amounts to complaining investors; and Ejedawe’s personal expenses, including cash withdrawals, his apartment rent, and donations to his church.

The complaint said that since December 2006, the defendants solicited investors by cold-calling them from a Los Angeles boiler room where they said money would be invested in oil and gas lease or equipment working interests and promised monthly payments of $4,000-5,000 for every $50,000 invested.

SEC said that in their solicitations, representatives did not disclose that Ejedawe is the subject of at least seven separate cease-and-desist or desist-and-refrain orders relating to his unregistered offering of securities, including orders from California, Alabama, Pennsylvania, Maryland, Kansas, and Washington.

SEC said a hearing on whether a preliminary injunction will be issued against the defendants is scheduled for Apr. 6. It also is seeking permanent injunctions, disgorgement, and civil penalties against Ejedawe and the Innova entities.

Pence to lead GOP Energy Solutions Group

US House Republican Conference Chairman Mike Pence (Ind.) will chair the House GOP American Energy Solutions Group, House Minority Leader John A. Boehner (R-Ohio) said on Mar. 30.

The group will work on crafting Republican solutions to reduce energy prices for American families and small businesses, Boehner said.

“As gasoline prices skyrocketed to record levels last summer, Republicans consistently advocated an all-of-the-above strategy to create up to 1 million new jobs in the United States by increasing American energy production, encouraging greater efficiency and conservation, and promoting the use of alternative fuels,” he said.

“Rep. Pence showed extraordinary leadership last summer during Republicans’ historic [gasoline] price protects, and I know he is dedicated to developing solutions to keep energy costs affordable for all Americans,” Boehner said.

He said that Reps. John Shimkus (Ill.) and Fred Upton (Mich.) will be cochairmen. Other members include Joe Barton (Tex.), ranking minority member of the Energy and Commerce Committee; Doc Hastings (Wash.), ranking minority member of the Natural Resources Committee; and Rob Bishop (Utah), who chairs the Western Caucus.

European gas demand increases by 2.1% in 2008

Preliminary figures and estimates brought out by the European Union of the Natural Gas Industry (Eurogas) indicate that total natural gas consumption in EU27 increased by 2.1% in 2008 over 2007 from 506.4 billion cu m (bcm) to 517 bcm. The total number of gas customers connected to the EU27 gas grid rose 1% to 112.5 million customers.

The largest gas consumers by far were in the UK where consumption rose to 101.8 bcm from 97.6 bcm in 2007; in Germany, where consumption fell to 85.1 bcm from 86 bcm in 2007; and in Italy, where consumption fell to 82.8 bcm from 82.9 bcm in 2007.

On a lower scale, consumption increased in France to 47.4 bcm from 45.8 bcm in 2007; in the Netherlands, up from 39.8 bcm to 41.4 bcm; Turkey to 36.1 bcm from 35.9 bcm; and in Switzerland to 3.3 bcm from 3.1 bcm.

Although natural gas markets vary significantly from one EU country to another, Eurogas believes some general trends may explain the overall increase. The main one is that the weather was mild in 2007 but rather cold in 2008 which, in addition, was a leap year of 366 days.

Overall the residential sector registered stable consumption resulting mainly from a trade-off between generally colder weather and energy savings. So the increase in gas consumption could be attributed to high demand in the power sector due to favorable gas prices compared with oil and coal. However, in all EU countries, there was a major slowdown in industrial demand in the last quarter due to the economic crisis.

Indigenous gas production increased 1.8% to 202 bcm over the period, pulled along by the Netherlands’s 10.9% increase in production and Denmark’s 9.4% hike, compensating for the downward trend in most other EU producing countries.

Indigenous production, nonetheless, covers the highest percentage of the gas supplied in the EU, covering 39% of the total net supplies in 2008. The main external sources are Russia 25%, Norway 18%, and Algeria 10%. Some 60% comes from fields in Western Europe.

EPA: Global warming a threat to public health

In an action that appears to boost prospects for a federal global warming emissions cap, the US Environmental Protection Agency reportedly sent a proposal to the White House on Mar. 20 determining that global warming is a threat to public health and welfare, US Rep. Edward J. Markey (D-Mass.) said on Mar. 23.

“This finding will officially end the era of denial on global warming,” Markey said. “Instead of allowing political interference in scientific and legal decisions, as was the case in the previous administration, the Obama administration is letting the sun shine in on the dangerous realities of global warming,” added Markey, who chairs the US House Select Committee on Energy Independence and Global Warming.

An EPA spokeswoman confirmed the proposal’s existence and its delivery to the White House, but said it was an internal document, which the agency developed in response to a US Supreme Court directive.

“If the proposal is issued, it will undergo public comment and public hearings before it becomes final. The document does not propose any requirements on any sources of greenhouse gas emissions. The proposed finding does not impose any new regulatory burdens on any projects, let alone those funded under the American Relief and Recovery Act,” she said.

Markey, however, said that he and Energy and Commerce Committee Chairman Henry A. Waxman (D-Calif.) are drafting climate and energy legislation to control emissions that cause global warming, and an endangerment finding by EPA would send a strong signal to companies and industries pumping heat-trapping pollution into the atmosphere that they will have to curb such emissions.

Industry Scoreboard
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Exploration & Development — Quick Takes

ExxonMobil to probe Orinoco trend in Llanos

ExxonMobil Corp. plans to begin exploring an extension of Venezuela’s Orinoco heavy oil belt in far eastern Colombia in 2009.

The company in 2008 was awarded a technical evaluation agreement on Block CPE-3 covering 6.4 million acres in a remote and unexplored area of the eastern Llanos basin on trend with the Orinoco belt.

Exploration is to start with 2D seismic surveys. This region is 400 miles east-northeast of Bogota and almost as far south-southwest of Caracas.

Noble Energy discovers more gas off Israel

Noble Energy Inc. discovered natural gas at the Dalit prospect 30 miles off Israel on the Michal license with a well drilled to 12,000 ft in 4,500 ft of water.

Formation logs identified more than 110 ft of net pay in a high-quality reservoir. Dalit is Noble’s second subsalt, lower-Miocene discovery in the Levantine basin.

Production testing will be performed at Dalit after the well is completed. Subsequent to testing, the rig will return to the Tamar discovery in the Matan license to drill an appraisal well designed to better define Tamar (OGJ, Feb. 9, 2009, p. 39).

Charles D. Davidson, Noble Energy’s chairman, president, and chief executive officer, said Noble Energy plans to start its production from this new region in 2012.

“Based on results from the seismic program, we could see further exploration in the region starting in the second half of 2010,” Davidson said.

Noble Energy operates both the Michal and Matan licenses with a 36% working interest. Other interest owners are Isramco Negev 2 with 28.75%, Delek Drilling with 15.625%, Avner Oil Exploration with 15.625%, and Dor Gas Exploration with 4%.

Maurel & Prom discovers oil in Gabon

Maurel & Prom, Paris, reports the OMOC-1 well on the Omoueyi permit in southern Gabon on test stabilized at 1,000 b/d of oil from an 11 m interval in the Cretaceous Gas de Base formation, confirming the permit’s potential and reinforcing exploration efforts. The well targeted the Kissenda and Base sandstones, which produce oil at Omko and Onal, respectively.

Pay thicknesses are 40 m in the Kissenda and 14 m in the Base. Maurel & Prom is testing a 6-m interval in the lower Kissenda formation and plans to test a 24-m interval in the upper Kissenda.

OMOC-1 reached a depth of 1,020 m. The well is south of the Onal production permit and 9 km from the production center.

Maurel & Prom also reported that its Mafia Deep-1 well in Tanzania is not a commercial gas discovery at this stage.

Gas plugs were found at 3,950 m, and the well currently is 4,914 m deep. After reprocessing seismic data, the company said the well’s main objective is expected in about 150 m, representing 10 days under normal drilling conditions.

“The sandstone beds that may be the origin of the gas breakthroughs observed total approximately 20 m,” it added.

Lundin buys into Krabbe discovery

Lundin Petroleum AB has acquired from Talisman Energy Norge AS a 40% interest in production license 301 north of Ula field in the southern North Sea. The license holds the undeveloped Krabbe oil discovery.

The value of the transaction was not disclosed. This transaction is subject to government approval.

Lundin plans to tie in Krabbe and its nearby Nemo discovery in PL148 to existing nearby facilities as a subsea development so it can improve efficiency and lower development costs. “The two discoveries are of similar type and size,” Lundin said.

Drilling & Production — Quick Takes

Alve gas field begins production

Alve gas and condensate field in the Norwegian Sea began production Mar. 19.

Alve’s 1990 discovery led to the discovery of Norne oil and gas field, which was proved in 1992 and brought on stream in 1997. Alve, which had been temporarily plugged, was later developed as a subsea satellite field tied back to Norne field’s production vessel. Gas from Alve will be exported through Norne pipeline systems.

“Output from Alve and other finds in the area will extend Norne’s lifetime from 2016 to 2021. This will provide more spinoffs for land-based activities in the north of Norway,” said Anita A. Stenhaug, vice-president of Norne operations.

“Alve is a pilot project for submitting a simplified plan for development and operation for satellite fields,” said Kjell Helge Eide, manager for the development project. “This procedure has now been adopted in development projects for other such fields.”

Alve is in production license Block 159B, about 16 km southwest of Norne. The field embraces the Garn, Not, Ile, and Tilje formations. Proved reserves are in Garn and Not.

Alve is expected to produce 4 million cu m/day of gas. Reserves are estimated at 6.78 billion cu m of gas and 8.3 million bbl of condensate.

The Alve licensees are operator StatoilHydro 85% and Dong E&P Norge 15%.

BP awards Caspian Sea Chirag project contract

BP PLC, on behalf of Azerbaijan International Oil Co., awarded KBR Inc. a front-end engineering and design (FEED) contract for the Chirag oil project in the Azerbaijan section of the Caspian Sea.

The Houston-based engineering, construction, and services company will provide FEED and procurement support services for a single, large drilling platform that will tie in to existing Azeri-Chirag-Gunashli (ACG) oil field development platforms and pipeline systems.

This is the next stage in the Chirag oil project development, including incremental expansion of existing ACG field development.

KBR has been involved with the development of the ACG project since 1995. Work on the project is under way.

E.On starts production from Rita gas field

E.On Ruhrgas UK North Sea Ltd. has started natural gas production from Rita field in the UK North Sea via a subsea development tied back to Hunter field, which the company operates.

E.On Ruhrgas did not disclose Rita’s likely output. The field is connected to Hunter by a 14-km pipeline. This is the first time a dual lateral well was drilled in a Carboniferous reservoir in the southern gas basin, the company said.

“Each leg was drilled as a 6-in. hole and has a horizontal length of more than 800 m. Gas is exported via the CMS infrastructure to the Theddlethorpe gas terminal on the UK’s east coast, where the gas is supplied to the UK market,” said E.On Ruhrgas.

Rita field lies on Blocks 44/21b and 44/22c. E.On Ruhrgas UK operates the Rita field and has a 74% equity share. Coventure partner Gaz de France Suez E&P UK Ltd., meanwhile, holds a 26% share.

Development approval for Rita was granted in early 2008.

Processing — Quick Takes

Kuwait cancels fourth refinery at Al Jour

Kuwait Prime Minister Sheikh Nasser Mohammad al-Ahmad al-Sabah reported that the country has canceled plans to build a 630,000 b/d fourth refinery at Al Jour on the Persian Gulf coast near the Saudi Arabia border. He said an Audit Bureau study deemed the project unfeasible.

The refinery, earlier expected to cost $10 billion but later raised to $15 billion and rebid, had been scheduled to start in 2013 (OGJ, Nov. 12, 2007, p. 32).

Work on the grassroots refinery, which would have produced low-sulfur fuel oil for the country’s power plants, was officially halted at the council of ministers’ Mar. 23 meeting after contractors had been notified.

Kuwait National Petroleum Co. had awarded engineering, procurement, and construction contracts in May 2008 to four South Korean companies and a Japanese firm. Fluor Corp. was project manager and front-end engineering and design consultant, and Foster Wheeler was the feasibility study consultant. Fluor said it was notified Mar. 20 of its contract cancellation. It will reassign the 300 engineers working on the project.

The other contractors notified included Hyundai Engineering & Construction, which had a contract for $1.12 billion for offshore facilities; a consortium of Japan’s JGC Corp. and Korea’s GS Engineering & Construction, $4 billion for main unit construction; Daelim Industrial, $1.184 billion; and SK Engineering & Construction, $2.06 billion. GS Engineering was to have provided equipment.

The project was referred to the Audit Bureau for investigation in August following allegations by opposition members of Parliament (MPs) that the bidding process was flawed and that the contracts should have been awarded through the state-run Central Tenders Committee (CTC) to ensure transparency.

The outcome of their report was not published, but local media and MPs said the bureau concluded that the project was “technically and economically not feasible” and that future such project tenders should go through the CTC.

This is the second refinery proposal the country has scrapped in 4 months. In December, Kuwait dropped plans for a $7.5 billion partnership with US Dow Chemical after pressure from MPs, which cited “high cost amid the global economic downturn.”

France struggles to meet 10% ethanol deadlines

The introduction in all service stations in France of the new “green” unleaded gasoline, incorporating 10% ethanol instead of the current 5%, will take longer than initially expected.

However, Jean-Louis Schilansky, president of the oil trade group UFIP, told a press conference held Mar. 24 to launch the E10 that 75% of France’s service station network should be selling it by yearend.

The pace will be consistent with the logistic and technical problems encountered by oil company operators, independents, and supermarkets. Ethanol must be moved by truck rather than by pipeline; existing oil depots and service station tanks must be adapted to the new unleaded; and service stations must either sacrifice one pump to deliver it or, if a large service station, use one that was used to deliver other unleaded gasolines.

While BP retained its own depots when it sold its Lavera refinery and will be able to have all its service stations ready with E10 by the end of April, Shell has no access to any depots. It sold its three refineries last year and relies on the speed at which the new owners can accommodate its needs.

Total expects to have some 300 service stations delivering E10 the first fortnight in April and will progressively have all of its 4,000 service stations in France ready during the year.

Esso also will gradually have its service stations ready but doesn’t know how long it will take to deal with its own technical problems.

All four companies told OGJ they are keen and willing to deliver the “green” unleaded. They could refuse to do so but would have to pay a polluting tax instead.

The E10 can be used only by automobiles sold after 2000 and will only be really profitable for drivers when prices at the pump are higher than they are now. The price difference currently is only 1-2¿/l., if at all, as drivers need more E10 to travel the same distance as vehicles using normal unleaded fuel.

The government’s purpose in introducing the E10 at least 5 years ahead of the EU is that is should reduce carbon dioxide emissions in France by 1 million tonnes/year by 2010.

Transportation — Quick Takes

Cove Point LNG terminal starts up expansion

Dominion subsidiary Dominion Cove Point LNG, Richmond, Va., recently started up its 1.8-MMcfd expansion of the terminal on the Maryland shore of Chesapeake Bay.

The company said the project expands the terminal capacity by 80% and LNG storage capacity by nearly 100% to 14.6 bcf (equivalent).

New facilities include:

  • Two 160,000-cu m LNG storage tanks.
  • Increased vaporization and associated station facilities adding 800 MMcfd.
  • An 81-mile, 24-in. OD pipeline in central Pennsylvania and associated facilities that allow imported natural gas to move to US Northeast natural gas markets.
  • A 48-mile, 36-in. OD gas pipeline loop in Maryland that increases pipeline capacity from the terminal.
  • Two new compressor stations near Perulack and State College, Pa.
  • Various natural gas storage facilities and pipelines that move natural gas to Dominion’s South Point market hub, other interstate pipelines, and the Leidy, Pa., interconnection with Transcontinental Gas Pipeline.

A subsidiary of StatoilHydro ASA has contracted for all the new capacity, including firm transportation and storage services in Pennsylvania, said Dominion. The previously existing capacity was already under contract.

Sakhalin Energy exports first LNG cargo to Japan

Sakhalin 2 has sent its first LNG cargo to Japan via Energy Frontier LNG carrier for delivery at Tokyo Bay. The cargo holds 45,000 cu m for Tokyo Gas and Tokyo Electric.

The LNG was loaded through the 805-m-long jetty at the Prigorodnoye port, which was built for the year-round export of LNG and oil.

“Russia has marked its entry into the Asia-Pacific LNG market,” said Sakhalin Energy Chief Executive Officer Ian Craig.

The first train at the 9.6 million tonne/year liquefaction complex has begun production, and the second train is scheduled to come on stream later this year.

“This year and 2010 will see a gradual ramp-up to full production capacity,” said Sakhalin Energy. “The newly built Sakhalin II infrastructure includes three offshore platforms, an onshore processing facility, 300 km of offshore pipelines and 1,600 km of onshore pipelines, an oil export facility, and the LNG plant.”

Sakhalin’s LNG will serve consumers in Japan, Korea, and other markets.

Shareholders in Sakhalin Energy are Gazprom with 50% plus 1 share, Royal Dutch Shell PLC with 27.5% minus 1 share, Mitsui & Co. Ltd. 12.5%, and Mitsubishi Corp. 10%.

Dutch terminal to double fuel imports to Moldova

Netherlands-based EasEur Holding, owner of Moldova’s sole oil products import terminal, expects shipments through the facility at Giurgiulesti to double to 30,000 tonnes this year from the 14,899 tonnes shipped in 2008.

EasEur Vice-Pres. Thomas Moser expressed satisfaction with development of the terminal’s operations this year. He said the firm has invested $27 million in the terminal, which became operational in August, yielding eight tanks with a combined storage capacity of 63,600 tonnes.

Moser said EasEur Holdings expects a number of storage tanks at the facility to be leased out to international oil trading companies in the coming months.

The terminal’s first incoming shipment last August was 4,000 tonnes of Euro diesel from the Motor Oil Hellas refinery in Greece.

All products shipped by the terminal in 2008 were delivered to EasEur Holding’s 23 filling stations in Moldova, according to the economy ministry, which said that EasEur Holding plans to build a total of 50 filling stations in the country.

Construction of the terminal was launched in 2006 by Azpetrol SRL, Azpetrol Refinery SRL, and Azertrans SRL—the three Moldovan subsidiaries of Azeri oil company Azpetrol.

In June 2006 EasEur Holding, a subsidiary of Eastern Capital NV, acquired the three Azpetrol subsidiaries and renamed them Bemol Retail, Bemol Refinery, and Danube Logistics.

Earlier this month, Moldova energy regulator ANRE said the country’s imports of oil products, including diesel fuel and gasoline, last year rose by 3.4% to 565,000 tonnes and by value increased by 45.4% to $531.5 million.

Imports of diesel fuel rose by 5.2% to 350,000 tonnes/year, while the volume of gasoline imports rose by 0.7% to 215,200 tonnes/year, ANRE said. It said Moldova’s LPG imports, which were not included in the overall import figures, grew by 19% in 2008 to 60,100 tonnes.