General Interest —Quick Takes
TransCanada to take ownership of Keystone line
TransCanada Corp. reached agreement with ConocoPhillips to buy its remaining interest in the Keystone pipeline system for roughly $550 million plus the assumption of $200 million of short-term debt. Upon completion of the transaction, TransCanada will be sole owner of the project.
The purchase price reflects ConocoPhillips's capital contributions to date and includes an allowance for funds used during construction. TransCanada will also assume ConocoPhillips's share of the costs associated with completing the project, an incremental commitment of roughly $1.7 billion through the end of 2012.
Pending regulatory approval, the transaction is expected to close in the third quarter.
TransCanada's 2,148-mile Keystone pipeline will transport oil from Canada to the US Midwest. In addition to 1,379 miles of newbuild US line, Keystone includes additions to existing Canadian pipelines and mainline flow reversals. It is expected to start up in December 2009 with the capacity to deliver 435,000 b/d from Hardisty, Alta., to the US at Wood River and Patoka, Ill.
TransCanada plans to extend the line to Cushing, Okla., starting fourth-quarter 2010, expanding it to 590,000 b/d. It has secured firm long-term contracts totaling 495,000 b/d for an average of 18 years.
New pipeline construction of 101 km in Manitoba was about 98% complete as of Apr. 15. TransCanada plans work on a total of six spreads in South Dakota, Nebraska, Kansas, Missouri, and Illinois during 2009.
TransCanada announced plans in July 2008 for the Keystone Gulf Coast Expansion Project (Keystone XL), providing 500,000 b/d additional capacity from western Canada to the US Gulf Coast by 2012. Keystone XL has secured firm contracts for 380,000 b/d for an average of 17 years from shippers.
Keystone XL includes 1,980 miles of 36-in. OD line starting in Hardisty and extending to a delivery point near existing terminals in Port Arthur, Tex. TransCanada anticipates beginning construction in 2010, pending regulatory approvals, and intends to start the line in 2012.
The combined Keystone pipeline system could be expanded to 1.5 million b/d from its as-built capacity of 1.09 million b/d if warranted by market demand.
Gazprom chief forecasts $85/bbl oil at yearend
Oil prices should hit $85/bbl by the end of 2009, and if capital investment is not restored, oil prices could rise to $150/bbl within 2-3 years, warned Alexey Miller, chief executive officer of OAO Gazprom at the European Business Congress in Porto Cervo, Italy.
Miller said it was encouraging that oil prices had crept to $70/bbl recently, adding that this was "a return to a precrisis trend" and not "not a technical correction or accidental fluctuation." At this level, it was double the price at yearend 2008, but still far below the peak reached in July 2008.
It was "financial transactions in the oil markets" and not the physical market that caused low oil prices earlier this year, Miller said. He forecasts that investment in exploration and production will decline by more than 20% in 2009. Operators are reluctant to proceed with projects because of the volatility of the market resulting in a reduction in production capacity and oil supplies within 3-5 years.
A year ago Miller said it was possible that oil prices could leap to more than $250/bbl because of the major imbalance between demand and supply of hydrocarbons by 2012.
Miller recommended that there be a radical overhaul in the operation of the oil market. "The problem is that today the price is determined not on the physical oil market, but on a market for financial instruments. As a consequence, the oil price greatly depends not on fundamental factors, not on the real oil demand and supply, but on the activities of speculating investors."
Miller suggested that long-term oil supply contracts could help exchange trading as it would contain the "impact of speculative capital on the oil price" and help to drive out "economically unjustified intermediaries."
Ecuador appoints Pinto as oil, mining minister
Ecuador President Rafael Correa, vowing to crack down on international oil companies operating in his country, has sworn in Germanico Pinto as the country's oil and mining minister.
"We're going to radicalize our citizens' revolution…and that radicalization implies demanding respect," said Correa after Pinto was sworn in. "Germanico will take a much firmer approach toward all these companies that think they can still keep abusing the country."
Correa said of the companies: "They refuse to pay taxes, and on top of that, they take us to arbitration and press charges against us seeking millions," adding, "We are heading in the right direction. These multinational companies know they can't play around with Ecuador anymore."
Shortly after assuming his new position, Pinto—essentially playing with words—said there was no need for the government to nationalize the oil industry "because the oil already belongs to the state."
Without providing any details, Pinto said he will promote "a deep change in…how we have been developing productive activities as well as energy and environment activities."
Pinto also said current oil prices are reasonable, adding that he sees no need for a cut in output by the Organization of Petroleum Exporting Countries, which Ecuador rejoined last year.
Pinto succeeds Derlis Palacios, who offered his resignation last month after failing to resolve several key disputes, including one with Perenco SA, which has declined to pay $338 million that Ecuador claims since raising taxes in 2007 to 99% on windfall oil earnings.
Perenco claims that the windfall tax violates its contract and has taken its case to the International Center for Settlement of Investment Disputes (ICSID), a branch of the World Bank.
In response, the Ecuadoran government seized 70% of Perenco's output in March and tried to auction it in May, despite a ruling by ICSID calling for suspension of the sale until a final judgment had been reached.
Repsol YPF SA also has approached ICSID for resolution of the tax issue, while Occidental Petroleum Corp. has applied to ICSID for $1 billion in compensation for oil fields seized by Correa's predecessor in 2006.
Following Perenco's lawsuit, and faced with those of Repsol YPF and Oxy, Ecuador announced its intention to withdraw from ICSID on May 31, claiming that the court had a bias in favor of Western corporate interests.
According to analyst BMI, Palacios's departure "heralds a further leftward shift of Correa's administration, whose radical agenda has been emboldened by a comprehensive victory following the April 2009 elections."
In view of this, BMI said it expects the government to drive a harder bargain during the ongoing restructuring of the Ecuadorian oil industry, which aims to confine oil operators to a position of service providers to state-run Petroecuador.
"Given the continuously deteriorating operating terms, further exits by foreign players may be expected over the next few years," BMI said.
Industry Scoreboard
Exploration & Development — Quick Takes
Newfield reports deepwater GOM discoveries
Newfield Exploration Co. reported two natural gas discoveries in the deepwater Gulf of Mexico: Pyrenees on Garden Banks Block 293 and Winter on Garden Banks Block 605.
Pyrenees, drilled in 2,100 ft of water, encountered 125 ft of net pay in three intervals. This could prove to be the company's largest discovery, a Newfield spokesman said.
He described Pyrenees as a gas-condensate discovery. The well was temporarily abandoned pending development plans.
Delineation drilling is planned for the second half of this year. Newfield operates Pyrenees and holds 40% working interest. Partners include Stone Energy Corp. 15%, Ridgewood Energy Corp. 15%, Arena Exploration 15%, and Deep Gulf Energy 15%.
Winter, drilled in 3,400 ft of water, found 44 ft of net pay in two sands. The well was temporarily abandoned. Development options are being considered.
Newfield operates Winter and holds 30% working interest. Partners include Apache Corp. 25%, Deep Gulf Energy 25%, and Royal Offshore 20%.
Tullow Oil has success with Kigogole-3 well
Tullow Oil PLC, London, will suspend its Kigogole-3 exploration well as a future oil-producer following the discovery of more than 20 m of net pay from two separate zones on Uganda's Block 2.
The well reached 575 m TD and encountered "excellent" reservoir sands. The Kasamene-type reservoir sands were in the lower zone with more than 15 m of net oil pay. Thin-bedded oil-bearing sands also were found in another 5 m total net reservoir section above the 15 m main reservoir interval.
Angus McCoss, exploration director at Tullow Oil, said this discovery in the Butiaba region of Block 2 reaffirms the exceptional quality of the prospects within the Victoria Nile Delta play. "We are steadily drilling our prospect inventory in this region and this continued success is enabling us to make significant progress on new leads and prospects. The ongoing campaign will help us define the ultimate limits of this very prolific petroleum system," McCoss said.
Kigogole-3 was drilled southwest of the Kigogole-1 oil discovery. The company said these results lower the risks of some of the adjacent prospects to be drilled later this year on Blocks 1 and 2.
Tullow Oil will now drill the Wahrindi prospect, which is 13 km to the southwest of this well. Drilling is to start later this month, close to the shore of Lake Albert. This well will be drilled to a depth of about 1,300 m.
Murphy reports oil, gas finds off Malaysia
Murphy Oil Corp., El Dorado, Ark., found oil at one exploratory well and gas at another off Malaysia.
A well on the Siakap North prospect in 4,300 ft of water on Block K off Sabah 6 miles from Kikeh field found oil-bearing pay sands of similar age and quality to those at Kikeh. Murphy is evaluating development options including tieback to Kikeh.
A well in 89 ft of water on the East Patricia prospect in Block SK 309 off Sarawak cut 230 ft of net natural gas pay. It is 23 miles off the Bintulu onshore gas receiving facility under construction for the Sarawak gas development.
Murphy operates both discoveries. Petronas Carigali Sdn. Bhd. Holds 20% in Siakap North and 40% of East Patricia. Murphy holds the rest.
Drilling & Production — Quick Takes
Connacher reactivates Algar oil sands project
After selling $200 million of first-lien senior secured notes, Connacher Oil & Gas Ltd., Calgary, announced it would reactivate its plan to construct the Algar project, a project similar in size to its first steam-assisted gravity drainage (SAGD) project, Great Divide Pod-1, in northeastern Alberta.
Algar is about 8 km east of Pod 1 and covers eight sections about 80 km south of Fort McMurray.
Alberta's Energy Resources Conservation Board approved the project on Nov. 13, 2008.
As with Pod 1, Connacher has designed Algar to produce 10,000 b/d of bitumen.
The company expects the project to cost a total of $359 million (Can.), including deferral costs of $14 million.
To date, it has completed an 8-km road, site work on the well pads and plant site, and has constructed and stored major component parts for the plant facility offsite. It estimates that completion of the project requires and additional $200 million (Can.).
The company says following completion of a brief prestart-up organizational period, the work at Algar, including drilling of 15 SAGD well pairs, will last about 275 days from commencement of field activities.
Following this, the company expects that it will need 30 days to commission the plant and 90 days to steam the SAGD wells before bitumen production starts.
Jubilee field subsea system ordered
The Jubilee integrated project team placed an order with FMC Technologies Inc. for designing and manufacturing a subsea production system for the Jubilee deepwater development in 4,000-5,100 ft of water off Ghana.
The Jubilee integrated project team consists of Kosmos Energy Inc. (technical operator), Anadarko Petroleum Corp., and Tullow Oil & Gas PLC (unit operator).
The Jubilee discovery well, Mahogany-1, found 312 ft of net pay in Cretaceous sandstone.
Appraisal wells Mahogany-2 and Mahogany-3 on the West Cape Three Points block and wells Hyedua-1 and Hyedua-2 on the adjacent Deepwater Tano block delineated the discover.
Kosmos says drillstem tests of the Mahogany-2 and Hyedua-2 wells indicated individual wells could produce more than 20,000 bo/d.
Kosmos and its partners plan a fast-track development of Jubilee, targeting first production for 2010 with the first phase tapping about 300 million bbl of oil (OGJ Online, June 12, 2009).
FMC will supply 19 enhanced horizontal subsea trees, 5 production manifolds, 3 injection manifolds, a pair of riser bases, and associated control systems, with subsea equipment deliveries scheduled to begin in 3 months.
FMC expects to realize $210 million from the order.
Production will flow to a leased turret-moored floating production, storage, and offloading vessel, owned and operated by Modec Inc. The lease is for 7 years with 13 1-year options.
Facilities on the FPSO are designed to handle 120,000 bo/d oil and 160 MMcfd of gas, as well as to inject 230,000 bw/d. The FPSO, currently being converted from a very large crude carrier, will have 1.6 million bbl of storage capacity.
Operator Kosmos holds a 30.875% in the West Cape Three Points block. Other interest owners include Anadarko 30.875%, Tullow 22.896%, Ghana National Petroleum Corp. 10%, EO Group 3.5%, and Sabre Oil & Gas Ltd. 1.854%.
Tullow is the operator of the Deepwater Tano block and holds a 49.95% interest. Other interest owners are Kosmos 18%, Anadarko 18%, Ghana National Petroleum Corp. 10%, and Sabre Oil & Gas Ltd. 4.05%.
Hibernia southern extension work advances
Development of the southern extension of Hibernia oil and gas field off Newfoundland has advanced with tentative agreement on fiscal terms.
Hibernia partners and the government of Newfoundland and Labrador have signed a nonbinding memorandum of understanding providing for a provincial equity stake of 10% and a top royalty rate of 50%.
Premier Danny Williams announced the agreement at the annual conference of the Newfoundland and Labrador Oil and Gas Industries Association.
Provincially owned Nalcor Energy would pay $30 million for an equity interest in 170 million bbl of oil expected to be produced through subsea wells tied back to the Hibernia gravity-base structure. It also would pay a $2.50/bbl processing fee for its oil. Depending on oil prices, the top royalty for this production would be 42.5%.
For the rest of the 220 million bbl of recoverable oil in the southern-extension area, development would occur from the existing structure. For this oil, the royalty rate would be 42.5% with no price trigger.
The new peak 50% royalty would apply to new licenses in the Hibernia area.
Field operator Hibernia Management & Development Co. (HMDC) recently has been producing 136,000 b/d of oil and 256 MMscfd of natural gas through its platform in 80 m of water 315 km east-southeast of St. John's. The royalty rate has reached 30%.
HMDC applied for development of the Hibernia southern extension in May 2006 but met resistance from the province, which required additional information.
Since then, HMDC has applied for the part of the development that would use the existing platform. It hasn't filed a development plan for the subsea-tieback scheme.
Hibernia field came on stream in November 1997 and has produced 670 million bbl of oil.
Processing — Quick Takes
Total-Aramco refinery in Jubail advances
Saudi Aramco Total Refining & Petrochemical Co. has completed an "awarding plan" for engineering, procurement, and construction contracts for the 400,000-b/d refinery it will build in Jubail, Saudi Arabia.
Total SA last year reported a delay in contract awards for the project as it and partner Saudi Aramco assessed global economic conditions (OGJ, Dec. 1, 2008, Newsletter). The review coincided with cancellation by Aramco of a contract with Snamprogetti for development of Manifa oil field off Saudi Arabia.
The Jubail refinery originally was to have processed Arabian Heavy crude and a new grade from Manifa. In a statement about the contract-award plan, the joint venture mentioned only Arabian Heavy.
The venture will let contracts for 13 process packages for the Jubail refinery, which will maximize yields of diesel and jet fuels and also produce 700,000 tonnes/year of paraxylene, 140,000 tonnes/year of benzene, and 200,000 tonnes/year of polymer-grade propylene.
Algeria gas project moves ahead
Algeria's Sonatrach has hired Canada's SNC-Lavalin Group Inc., Montreal, to build natural gas handling facilities in eastern Algeria.
The Algerian state company awarded SNC a $1.1 billion, 39-month contract to build a gas gathering system, gas processing plant, and carbon dioxide reinjection facilities to serve four fields: Rhourde Nouss Central, Rhourde Nouss Southwest, Rhourde Adra, and Rhourde Adra South. The gas processing plant will be at nearby Qartzites de Hamra.
Due for completion in 2012, the project will allow Sonatrach to process and treat about 353 MMscfd, which would generate, according to Algerian Oil Minister Chakib Khelil, about $500 million/year in export revenues. The project will also produce 16,000 b/d of condensate, according to other published reports.
Residue gas from the plant will move more than 1,000 km to Arzew, on Algeria's northwestern Mediterranean coast, where Sonatrach is building a 4.7-million tonne/day train to come on line in 2012. That project will expand the already installed 16.4 million tonnes/year of LNG production capacity at that site.
Clean-fuel specs strain South African refiners
South African refiners will need to invest $4.95 billion by 2014 to comply with clean-fuel specifications, a senior Sasol SA official said earlier this month.
Sasol Executive Director Benny Mokaba said, "Refineries cannot afford to put in the equipment that is required. That's 40 billion rand that doesn't add an additional liter."
Mokaba warned of a clash between the high costs of improving fuel standards and the growing focus on cleaner fuels technology in the country. He said it was important not to jeopardize economic growth.
South Africa's fuel meets Euro 2 emission standards, but European countries have progressed to Euro 5 standards, which lower allowable emissions of nitrogen oxides and particulate matter. Refiners have requested a 5-year delay to have sufficient time to deliver Euro 4 standards.
Speaking at the South African National Energy Association Action for Energy conference in Johannesburg, Mokaba said there could be shortfalls of domestically produced fuels and the need to increase imports.
Nelisiwa Magubane, deputy director-general at South Africa's Department of Energy, said the government would seek greater stakeholder participation to implement its integrated energy plan.
She said integrated energy planning had formerly "fallen flat" for numerous reasons, one of which was enabling legislation.
Transportation — Quick TakesPapua New Guinea LNG partners start work early
ExxonMobil Corp.'s Papua New Guinea LNG project has moved forward another step with the partners agreeing to begin early work activities.
The activities include a range of infrastructure programs like the upgrade and repair of roads, construction of camps, wharf upgrades, early site preparation in the highlands, establishment of training facilities and ordering long lead time items.
Development of this type of infrastructure will contribute towards a swift beginning to the main construction work in early 2010 following final investment decision for the project expected later this year.
The early work will comprise an accelerated investment of about $600 million during the next 12 months prior to the final investment decision and is seen as a major vote of confidence and commitment in the project as a whole.
The early works agreement follows the recent signing of the umbrella benefits sharing agreement as well as progress made on marketing the LNG.
This month a major construction contract for upstream civil infrastructure was awarded to the Clough Curtain engineering joint venture. ExxonMobil also signed an agreement with KBR and WorleyParsons EOS joint venture for services such as training, in-country support and integrated project team services for construction and project management of the development.
PNG LNG comprises a 2-train, 6.3 million tonne/year LNG plant near Port Moresby with gas sourced from several fields in the central highlands region.
Gas storage field planned near Bakersfield
A California company has proposed to construct a natural gas storage facility in depleted Ten Section gas field 10 miles southwest of Bakersfield that would enter service in January 2012.
Tricor Ten Section Hub LLC said the field would have 22.4 bcf of working gas capacity and 10.1 bcf of base gas. It said the field would provide four high-speed cycles per year with a maximum withdrawal rate of 1 bcfd and a maximum injection rate of 0.8 bcfd.
An application filed with the Federal Energy Regulatory Commission said the field will initially connect with the Kern River-Mojave interstate pipeline.
Later potential tie-ins with California's two intrastate systems, Pacific Gas & Electric and Southern California Gas Co., would give the hub a "combined lateral surrounding optionality" of more than 4 bcfd.
Tricor started an open season for Ten Section's capacity on June 1. It asked that the US Federal Energy Regulatory Commission issue a certificate by February 2010.
Ten Section field was discovered in 1936.