OGJ Newsletter

July 27, 2009

General InterestQuick Takes

IHS: Global upstream M&A activity rebounded in 2Q

Global upstream mergers and acquisitions (M&A) deals nearly doubled in the second quarter, up from a 10-year low in the first quarter, spurred by a resurgence in oil prices and a thaw in equity and credit markets, according to IHS Herold Inc., an IHS company.

“Both US onshore and international deal counts increased significantly, although North American activity remained well below historical averages,” said Chris Sheehan, IHS Herold director of M&A research. “International pricing for proved plus probable reserves held firm on stronger crude oil prices, but falling gas prices plunged North American asset deal prices to the lowest level since 2005.”

Sheehan said, “The upsurge in activity in the second quarter is encouraging, but the market is still extremely volatile.”

IHS Herold reported that second quarter total transaction value increased fourfold outside North America, driven by strong activity in the Africa-Middle East region and upturns in Europe and Asia-Pacific.

Total worldwide transaction value was flat at $28.4 billion, as first quarter figures were buttressed by the $20 billion merger of Suncor Inc. and Petro-Canada. National oil companies represented nearly 40% of global deal value, including Sinopec’s $8.8 billion agreement to acquire Addax Petroleum—the largest overseas upstream transaction by a Chinese company.

Saskatchewan reports growing energy momentum

Saskatchewan offers a wealth of oil and natural gas assets, and officials believe the province’s resource potential will continue to grow through anticipated technological innovations.

Of the Canadian provinces, Saskatchewn is Canada’s second-largest oil producer and third-largest natural gas producer.

One promising play under production is Saskatchewan’s portion of the Bakken oil play. Saskatchewan’s Bakken oil production reached 57,000 b/d in December 2008 compared with 950 b/d in October 2004.

Ed Dancsok, assistant deputy minister of the Saskatchewan Ministry of Energy and Resources, attributes escalating production figures to advances in horizontal drilling and hydraulic fracturing. The province has not yet established a Bakken reserve estimate.

In 2008, Saskatchewan reported 4,045 oil and gas wells were drilled, making it the province’s second-best year in terms of total wells drilled. In 2007, officials reported 3,451 wells were drilled.

Initial oil in place for conventional crude reserves across the province is estimated at 41.2 billion bbl. Currently, more than 35.5 billion bbl remain beyond reach, but Danscok said intensive research efforts are under way to find ways to economically unlock that oil.

Latest estimates put Saskatchewan’s remaining recoverable reserves of conventional crude oil at 1.18 billion bbl. This includes 611 million bbl of heavy oil, with the rest being medium and light crude.

These figures do not include oil sands or oil shale, and the province is working toward developing its unconventional crude oil. Saskatchewan has a 2.7 million hectare area with some degree of oil sands potential.

Dancsok said enhanced oil recovery holds great potential for Saskatchewan’s conventional reserves. Current EOR projects include both steam and carbon dioxide injection. Researchers are studying vaporized solvent injection methods for heavy oil.

EOR production levels increased steadily from 2,735 b/d in 1982 to 50,788 b/d in 2008. Canada’s largest CO2 project is the Weyburn project operated by EnCana Oil & Gas Partnership. In 2005, Apache Canada began CO2 injection in Midale field.

Brazil interested in Russian expertise

Brazil’s Deputy Foreign Minister Samuel Pinheiro Guimaraes, on a visit to Moscow, said his country is interested in using Russian technology to develop oil and gas fields as well as nuclear power.

“We’re interested in Russia’s technologies of oil and gas output at sea platforms and their transportation,” said Guimares, who added that Brazil could share its deepwater oil production technology in exchange for Russian technology.

“The fields have been discovered at a depth of 7 km and some 200 km off the coast, so we’ll have to convert the gas into a liquid with Russian technology on offshore platforms,” Guimaraes said.

Guimares also discussed the potentials for cooperation between the two countries regarding nuclear technology, saying that “Brazil ranks fifth in the world for uranium stocks” while “Russia has big experience on nuclear technologies.”

“We’re planning to build eight new nuclear power electric power plants,” Guimares said, adding, “We praise Russia’s participation in carrying out this program.”

He said, “Brazil is planning to carry out an infrastructure program within the next 6 months that amounts to $150 billion. The program includes the construction of new electric power plants, ports and railways. In each field Russia has indisputable experience that we seek to use.”

Industry Scoreboard

Exploration & DevelopmentQuick Takes

Oxy adds giant gas, oil field in California

Occidental Petroleum Corp. has drilled six wells in an apparent giant gas and oil field in California’s San Joaquin basin and has estimated 150-250 million boe recoverable.

Geological extent of the multizone, mostly conventional discovery in Kern County is still . Oxy didn’t locate the find in sprawling Kern County by OGJ presstime but said the hydrocarbons are two-thirds gas. Oxy’s interest is 80%.

The discovery could be California’s largest in more than 35 years, Oxy said. The company said it is probable that more reserves exist outside the area so far defined and that similar structures lie outside its 1.1 million net acre position in California. Oxy plans to drill wells to exploit the other opportunities in the next 5-10 years.

Oxy, as California’s largest gas producer, third-largest oil producer, and largest acreage holder, operates more than 7,500 active wells in 90 fields in the state. The company’s proved reserves in California at the end of 2008 were 708 million boe, about 24% of its worldwide reserves.

BLM selects team to evaluate deferred Utah leases

The US Bureau of Land Management named a 12-member multidisciplinary team from three federal agencies to evaluate 77 deferred oil and gas lease parcels in southeastern Utah. The group does not include anyone involved in any previous decisions concerning the tracts, BLM said.

It includes James Haerter, BLM’s program lead for oil, gas, and energy, and eight other employees of the US Department of the Interior agency, along with two specialists from the National Park Service and one from the US Forest Service. The team’s findings are expected by late September, according to BLM.

Its Utah office originally auctioned the 77 parcels at a Dec. 19, 2008, lease sale. A federal district court enjoined their sale on Jan. 17 and US Interior Secretary Ken Salazar ordered that they not be issued on Feb. 6.

“It’s essential that any future decisions on these parcels be based on solid science and a comprehensive evaluation process,” BLM Acting Director Mike Pool said. “No one wants to strengthen the integrity of BLM’s oil and gas lease sales more than BLM and this team’s role is integral in achieving that.”

BLM said the team will be asked to produce recommendations on whether the deferred parcels should be reoffered under the same conditions, reoffered under different terms, or be withdrawn. It added that the team also will review protests ledged against each of the parcels during the original lease sale’s protest period and will address those protests in its final recommendations.

CNOOC, Sinopec sign deal for Angola block

Marathon Oil Corp. subsidiary Marathon International Petroleum Angola Block 32 Ltd. signed a $1.3 billion definitive agreement with CNOOC International Ltd. and Sinopec International Petroleum Exploration & Production Corp. under which CNOOC and Sinopec will acquire the Marathon unit’s undivided 20% participating interest in the production-sharing contract and joint-operating agreement in Block 32 off Angola.

The transaction total excluded any purchase price adjustments at closing and has an effective date of Jan. 1, 2009. Marathon will retain a 10% working interest in the block.

The companies expect to close the transaction by yearend, subject to government and regulatory approvals. For transfer of working interests in Angola, the concessionaire and the other Block 32 partners have rights of first refusal.

“With the divestiture of a portion of our Angola interest, we are able to bring better balance to our overall portfolio by capturing the sizable amount of value we have created and redeploying capital into other growth regions for the company,” said David E. Roberts Jr., Marathon executive vice-president, upstream. “At the same time, maintaining a 10% interest in both Blocks 31 and 32 provides Marathon with exposure to this important resource base,” Roberts said.

Angola state-owned oil firm Sonangol serves as concessionaire of Block 32. Block operator Total E&P Angola (Block 32) Ltd. holds 30% interest. Other partners are Sonangol P&P 20%, Esso E&P Angola (Block 32) 15%, and Petrogal 5%.

Murphy makes oil find off Congo (Brazzaville)

Murphy Oil Corp. reported an oil discovery at the Turquoise Marine-1 prospect on the Mer Profonde Sud (MPS) block off Congo (Brazzaville).

The Turquoise Marine-1 discovery well, which was drilled to a total measured depth of 12,060 ft in 5,285 ft of water, found more than 136 ft of net oil pay. The well lies 17 miles from Murphy-operated Azurite field.

The discovery marks the second for Murphy on the MPS block, said David M. Wood, president and chief executive officer. The rig now moves to the Diamant Marine-1 prospect, which lies even closer to Azurite field, Wood said.

Murphy will be “looking at appraisal and development options for Turquoise Marine-1 in the coming months and seeking to optimize the existing Azurite field infrastructure,” Wood added.

Murphy is operator with 50% working interest in Turquoise, Marine-1 and MPS block. Partners are PA Resources, 35%, and Societe Nationale des Petroles du Congo, 15%.

BP reports success of Mad Dog South well in gulf

BP PLC drilled a successful appraisal well in a previously untested southern segment of Mad Dog field in the Gulf of Mexico. The 826-5 well was drilled on Green Canyon Block 826 about 100 miles south of Grand Isle, La., in 5,100 ft of water.

The well found 280 net ft of hydrocarbons in the objective Miocene hydrocarbon-bearing sands and also found an oil column of more than 2,200 ft.

In 2008, BP drilled the A-7 well in the western part of the field, which found a hydrocarbon column of more than 2,500 ft and 275 ft of net pay.

“With these additional hydrocarbon resources in the west and south of the field, Mad Dog has been firmly established as the third giant field in BP’s Gulf of Mexico portfolio, joining Thunder Horse and Atlantis,” said Andy Inglis, BP chief executive officer, exploration and production.

BP is currently reviewing development options to increase production from Mad Dog either through debottlenecking the existing facility or by adding another production facility, the company said.

Mad Dog field, which started production in 2005, utilizes a truss-spar platform that is equipped with facilities for simultaneous production and drilling operations. The facility is designed to process 80,000 b/d of oil and 60 MMscfd of gas.

BP holds a 60.5% working interest in Mad Dog. Other partners are BHP Billiton 23.9% and Chevron Corp. 15.6%.

Drilling & ProductionQuick Takes

Anadarko lets Caesar Tonga field contracts

Anadarko Petroleum Corp. has let two lump-sum contracts to Technip SA to design equipment to bring deepwater Caesar Tonga field on stream by 2011 in the Gulf of Mexico.

Caesar Tonga is a subsea tie-back to Anadarko’s Constitution Spa development. It lies 190 miles off New Orleans in 1,500 m of water.

Technip will design and supply the components for four pipe-in-pipe flowlines and install 43 km of flowlines. It also includes the design, fabrication, and installation of eight pipeline end terminations.

This development will use the pipe-in-pipe technology, which provides insulation and flow assurance for effective production in deep and ultradeep water. Offshore installation will be carried out with the Deep Blue, Technip’s deepwater pipelay vessel.

The second contract covers the project management, engineering, and fabrication of two control umbilicals and their termination hardware. This contract, which is scheduled to be completed in third quarter 2010, will be executed by Duco, Technip’s wholly owned subsidiary in Houston.

Cabgoc starts oil production from Mafumeira Norte

Chevron Corp. subsidiary Cabinda Gulf Oil Co. Ltd. (Cabgoc) brought the Mafumeira Norte oil project off Angola on stream ahead of schedule.

Cabgoc developed the field with 14 wells to the existing Kungulo water-injection platform and will deliver a maximum of 30,000 b/d and 30 MMcfd of natural gas in 2011.

This project is in 160 ft of water 15 miles off Angola. This is the first phase development of Mafumeira field in Area A of Block 0.

Sonamet (Lobito), a joint venture of Sonangol and Acergy, won the engineering, procurement, construction, and installation contract for the Mafumeira Norte platform. This was the first time Sonamet was awarded such a contract and the platform was fabricated at its Lobito yard in southern Angola.

Chevron, through Cabgoc, has a 39.2% interest and is operator of the Block 0 contractor group, which also includes Sonangol P&P, 41%. Total SA, 10%, and Eni SPA, 9.8%.

ProcessingQuick Takes

Kurdistan inaugurates refinery at Arbil

Iraq’s Kurdistan region, eyeing a broader plan of industrialization, has inaugurated a new refinery near the capital city of Arbil, one of several planned for the area that will jointly process as much as 200,000 b/d.

Refinery director Baz Karim said the new facility is operated by private Kurdish investors Kar Group, and will process crude from the Khurmala Dome oil field, which will initially provide 50,000 b/d of oil before rising to 100,000 b/d after 6 months.

The new refinery has an initial capacity of 20,000 b/d but is expected to increase to 40,000 b/d by yearend, with eventual plans calling for an increase to 75,000 b/d.

The Arbil facility will produce gasoline, kerosine, heavy fuel oil, diesel, paraffin, and airplane fuel, said Karim, who added that the KRG will pay Kar Group for what the refinery produces.

The new facility will enable the Kurdish region to reduce its dependence on Iraq and Turkey for its refined products, according to KRG Prime Minister Nechirvan Barzani.

“We cannot rely on foreign fuel and electricity to help us cope with the heat of summer and the cold of winter,” said Barzani. “We will fulfill our promise that our people must live like citizens of the developed world in terms of living standards and prosperity.”

Ashti Hawrami, minister of natural resources for the Kurdistan regional government (KRG), underlined that view, saying that the Arbil refinery is one of several planned for the region which will have the capacity of producing 200,000 b/d within 2-3 years.

The launch of the new refinery also coincided with remarks by KRG President Massud Barzani, who told an election campaign rally that he will not “compromise” on longstanding Kurdish claims to the oil-rich province of Kirkuk.

“We are committed to the application of Article 140 (of the Iraqi constitution) and we promise that we will absolutely not compromise on this issue or on the rights of the people of Kurdistan,” Barzani said ahead of Kurdish regional elections, scheduled for July 25.

He was referring to the article of the Iraqi constitution which calls for a referendum to decide the fate of Kirkuk, which the Kurds wish to make the capital of their autonomous region.

In June, Kurdistan began exporting crude for the first time, sending 100,000 b/d from the Taq Taq and Tawke oil fields via the Iraq-Turkey pipeline to the Turkish port of Ceyhan. Initial exports include 40,000 b/d from Taq Taq and 60,000 b/d from Tawke (OGJ Online, June 1, 2009).

China approves Tianjin petrochemicals complex

Construction of the $3 billion petrochemicals complex in Tianjin, China, owned by Sinopec and Saudi Basic Industries Corp. is slated for completion in September.

The complex will have a production capacity of 3.2 million tonnes/year, including a 1 million tpy ethylene cracker and will produce other products, including polyethylenes, ethylene glycol, polypropylene, butadiene, phenol, and butene-1 (OGJ Online, Dec. 15, 2008).

In June 2008, the project’s costs were expected to surpass $2.5 billion, but have since risen due to the expanded scope of the plant.

The Chinese National Development and Reform Commission (NDRC) has approved both companies forming a 50:50 joint venture for the complex. It follows a strategic cooperation agreement signed by both parties on June 21, 2008, in Jeddah, Saudi Arabia.

The companies will also assess adding polycarbonates at the facility using Sabic technology.

China is the world’s largest petrochemical market based on high growth rates realized by the Chinese economy, said Sabic. NDRC’s approval means that it will ensure that the company will be able to reach its customers with local products and services.

Sasol to establish GTL plant in Uzbekistan

Sasol has formed a partnership with Petronas and Uzbekistan state oil and gas company Uzbekneftegaz to establish a 1.3 million tonne/year GTL plant in Uzbekistan.

The companies signed a joint venture agreement in the capital of Tashkent on July 15 and will begin a feasibility study on the $2.5-billion project. No start up date was provided nor were details on which gas fields could produce the feed to produce the diesel, kerosine, naphtha, and LPG.

Sasol said the GTL facility will use its proprietary Slurry Phase Distillate process, which produces a clean-burning, high-performance diesel fuel.

Each company will have an equal equity share in the JV. The plant would have a capacity of 36,000-40,000 b/d.

This deal builds upon a heads of agreement signed in April by Sasol Chief Executive Pat Davies and Petronas Pres. and Chief Executive Officer Tan Sri Mohd Hassan Marican.

Total reports steamcracker explosion at Carling

An explosion that occurred in the early afternoon of July 15 at Total Petrochemicals France’s steamcracker unit at the Saint-Avold-Carling site in eastern France killed two people and wounded six others. The injured were subsequently discharged from the hospital, a Total spokesman told OGJ.

The accident occurred as the steamcracker was being restarted after a shutdown due to recent heavy storms in the area. The plant has been made safe and there is no risk of pollution, Total said.

A superheater was thought to have caused the explosion although no reasons have been given thus far for a cause. Total speculates that an accumlulation of gas occurred during the unit’s operation and caused the blast.

The 250,000 tonne/year steamcracker was one of two crackers on the site. The second unit was shut down in 2008 and is in the process of being dismantled following a decision to restructure the Carling site. The remaining steamcracker had been thoroughly revamped during an October 2007 shutdown and its capacity increased.

Total SA Chief Executive Officer Christophe de Margerie, after visiting the site shortly after the incident, reassured workers that “the accident does not jeopardize the survival of the site.”

In view of the current difficulties of the petrochemicals market in France, the Carling trade unions were worried that the site, which is in the process of being restructured, might be shut down, thinking that the cost of reconstruction of the damaged steamcracker might be too high to take on in a period of economic uncertainty.

TransportationQuick Takes

CPC inaugurates Taiwan’s second LNG terminal

Taiwan’s CPC Corp. officially inaugurated on July 16 the country’s second LNG terminal, this one at Taichung in the north, according to press reports. Start-up of the nearly $955 terminal was more than a year behind schedule.

CPC’s web site, however, was not updated on the event. Other press reports have stated delays in the pipeline have delayed completion of the terminal.

For 2009, the Taichung LNG terminal will supply 1.68 million tonnes of vaporized LNG via a subsea pipeline to the state-run 4.4-Gw Tatan electric power plant in Taoyuan County, northern Taiwan, according to statements attributed to CPC Chairman Shih Yen-shiang. The remaining gas will meet industrial and residential demand in northern and central Taiwan.

Shih said combined output from the new Taichung terminal and the existing Yungan terminal in southern Taiwan will enable CPC to move as much as 10.5 million tpy of LNG.

Start-up of the Taichung terminal will allow CPC to import nearly 1.6 million tonnes of LNG from Qatar this year, rising to 2.5 million tonnes in 2010 and to 3 million tonnes in 2011, the terminal’s design capacity.

Shell, Vopak to build LNG terminal in France

Royal Dutch Shell PLC and Koninklijke Vopak NV have announced the formation of a joint venture aimed at developing an LNG terminal at Fos-sur-Mer, France.

Vopak LNG Holding BV will become the main shareholder with a 90% share in the JV, the Fos Faster LNG Terminal SAS, while Societe des Petroles Shell will hold the remaining 10%.

The firms said Fos Faster LNG will be developed as part of the expansion strategy of the Grand Port Maritime de Marseille and in close cooperation with the Port Authority.

“The joint venture combines the experience of Vopak in tank terminal development and operations with Shell’s position as the largest equity shareholder of LNG capacity among international oil companies,” they said.

The Fos Faster LNG terminal has an initial planned capacity of around 8 billion cu m/year of gas, more than 15% of the current annual gas consumption of France.

“Subject to market demand, permitting, and approval processes the terminal could commence operations around the middle of the next decade,” the two firms said.

The proposed terminal would further enhance gas supply diversification by providing France and Europe access to new sources of gas.

Fos Faster LNG terminal will be positioned as an independent multicustomer terminal. The business model of the terminal will be similar to the Gate terminal currently under construction in Rotterdam.

Earlier this year, Koninklijke Vopak NV said it would build and operate a storage terminal for more than 1.1 million cu m of oil products in the Port of Amsterdam.

The terminal, which will be used for the storage and blending of gasoline and other clean oil products, will meet the need for additional storage capacity for products in the Amsterdam-Rotterdam-Antwerp region (OGJ Online, May 28, 2009).