OGJ Newsletter

Oct. 26, 2009

General InterestQuick Takes

ExxonMobil ordered to pay in MTBE case

A US District Court in Manhattan found ExxonMobil Corp. liable for contaminating New York City's ground water with methyl tertiary butyl ether (MTBE) and awarded the city $104.7 million in damages, New York City officials said.

On Oct. 19, the New York City's Law Department said a jury awarded the compensatory damages after an 11-week trial in a product-liability case. The city sued ExxonMobil for the costs of removing MTBE from drinking water wells in southeast Queens.

The case was tried before Judge Shira Scheindlin of the US District Court for the Southern District of New York. The trial focused on six water wells.

A spokesman for ExxonMobil downstream issued a statement saying the company was disappointed with the decision, and it will consider all its legal options.

"As we've maintained throughout, our service stations were not the source of the MTBE contamination" at the six wells, Exxon-
Mobil said. "We do not believe we should be required to compensate the City of New York for someone else's contamination."

Several other large oil companies previously settled claims from New York City against them for a total of $15 million.

APPEA issues update on Montara oil leak

Australia's oil and gas industry expects soon to stop an oil leak from Montara field in the Timor Sea off Western Australia, said the Australian Petroleum Production & Exploration Association.

APPEA Chief Executive Belinda Robinson, in an Oct. 19 statement, called the sealing of the leaking well at Montara "an extremely difficult and complex operation." She said, "A team of international and Australian experts are drilling a relief well down through 2.6 km of the seabed and then seeking to intersect a leaking 25-cm section of steel casing."

The drilling team's next attempt to intercept and stop the leaking well was scheduled for Oct. 22. The leak started on Aug. 21. Thailand's PTTEP owns and operates the Montara platform complex.

Seadrill Ltd. said its West Atlas jack up drilling rig is working under a PTTEP contract. An oil leak developed on a well adjacent to where the West Atlas worked, Seadrill said, adding that all West Atlas personnel were evacuated (OGJ, Sept. 7, 2009, Newsletter).

"The operation is being undertaken by Australia's best drilling experts from across the industry," Robinson said. "Once the leaking well is intercepted, heavy mud will be pumped from the West Triton drilling platform down into the relief well, displacing the oil, gas, and water and stopping the flow."

Once the leak has been stopped and a 24-hr safety period has passed, a team will reboard the wellhead platform, and the West Atlas rig to further secure the well by inserting two plugs into the previously leaking wellbore.

This second operation to plug the well is expected to take about another week to complete, Robinson said.

Gazprom signs gas deal with Azerbaijan

OAO Gazprom will import 500 million cu m of Azerbaijani gas starting in January 2010 under a contract signed with State Oil Co. of Azerbaijan Republic (SOCAR).

"The contract doesn't limit the maximum purchase volume. The gas price will be defined under a price formula," said Gazprom. Gas volumes may increase, it added, and signified a long term partnership with Azerbaijan.

Alexey Miller, chairman of the Gazprom's management committee, recently led a delegation to Azerbaijan. Miller said, "Gazprom owns the world's largest contract portfolio for gas supply to the domestic and foreign markets as well as an advanced and flexible gas transmission system; Russia and Azerbaijan have a common border and have already been connected by the unified infrastructure."

Azerbaijan holds up to 1.5 trillion cu m of proved natural gas reserves, including the Shah Deniz field in the Azerbaijani sector of the Caspian Sea with recoverable reserves of more than 1.3 trillion cu m of gas.

Turkmenistan appoints energy minister

Turkmenistan's President Gurbangulu Berdymukhamedov, following his dismissal of several key officials, appointed Oraznur Nurmiradov as Minister of Oil and Gas, Industry, and Mineral Resources.

Nurmiradov's appointment followed a decision by the Turkmen president to fire several top energy officials, denouncing their "irresponsible approach" to their jobs.

Officials dismissed in the industry shake-up include Mineral Resources Minister Annaguly Deryayev; the head of state gas company Turkmengaz, Dovlet Mommayev; and the state oil company chairman, Orazdurdy Khadzhimuradov.

At a meeting with heads of oil and gas companies, Berdymukhamedov criticized the "poor construction quality" of Turkmenistan's energy installations, delays in providing gas to towns and villages, and the absence of "needed measures to increase oil production."

A mining engineer and hydrogeologist from Turkmen Polytechnic Institute, Nurmiradov formerly worked as an engineer, senior engineer, and researcher at the Turkmen research and design branch of the All-Union Scientific Research Institute and the Turkmen Research and Design Institute.

In 1993-96, he was a researcher at the Oil and Gas Institute of the Turkmen Oil and Gas Ministry. Since 1996, he has been researcher, senior researcher, and head of the Department of the Oil and Gas Institute of Turkmengaz.

Industry Scoreboard

Exploration & DevelopmentQuick Takes

Chevron group has Carnarvon basin gas find

A Chevron Australia group has made a gas discovery in the Carnarvon basin off Western Australia which is likely to boost reserves available to its Gorgon and Wheatstone LNG projects.

The group's successful Achilles-1 wildcat was drilled in permit WA-374-P immediately south of Io/Jansz field and west of Gorgon field.

The well, drilled by the Ensco 7500 semisubmersible rig, intersected 100 m of net gas pay in Triassic Mungaroo sandstone.

The well is part of a 10-well campaign being carried out by the group in Australia this year.

The Ensco rig has moved to the next location, also in WA-374-P, called Satyr-1.

Chevron has a 50% interest in the permit, which lies 160 km northwest of Onslow in the Greater Gorgon Area. ExxonMobil and Shell each have 25%.

OMV makes discovery west of the Shetlands

OMV AG made an oil and gas discovery with the Tornado exploration well, which reached a TVD of 2,743 m off the UK west of the Shetland Islands.

Well 204/13-1 penetrated hydrocarbons in the tertiary. OMV and its partners plan to drill a sidetrack to delineate the discovery.

Tornado lies 10 km northwest of the Suilven discovery and 30 km northwest of Schiehallion, Foinaven, and Loyal fields.

The well was drilled in 1,048 m of water by the Stena Carron drillship as a cost-sharing endeavor between production licenses P.1190 and P.1262.

Graham Stewart, chief executive of Faroe Petroleum, said, "The Tornado well is the second of a firm five-well Atlantic Margin exploration drilling program, which Faroe is undertaking over the coming months. The first well in the program, operated by DONG [Energy AS], made a significant discovery, the Glenlivet gas field, which is currently being appraised. We are scheduled to drill three further very high impact exploration wells, the Anne Marie oil prospect in the Faroes (operated by Eni), the Cardhu oil prospect in the UK (operated by BP) and the Lagavulin oil prospect in the UK (operated by Chevron)."

OMV has 35% interest in Tornado; Dana Petroleum PLC has 30%; DONG Energy has 20%; and Faroe Petroleum and Idemitsu E&P each have 7.5%.

Dana to buy stake in concession off Guinea

Dana Petroleum PLC is to gain a 23% interest in the Hyperdynamics concession off Guinea under an exclusive letter of intent (LOI) signed with Hyperdynamics Corp., Sugar Land, Tex.

The partners hope a binding agreement will be signed by yearend for the acreage, which covers 80,000 sq km. Hyperdynamics hopes to bring another partner into the concession.

"Dana has the option to negotiate for an additional interest of up to a further 27% (to give Dana a total of 50% interest) if Hyperdynamics does not sign a letter of intent with such a company by Nov. 30," said Dana.

In October, Hyperdynamics let a contract to TDI-Brooks International, Houston, for a comprehensive oil seep study (OGJ Online, Oct. 6, 2009).

Last month, Hyperdynamics agreed with Guinea's energy ministry to relinquish 64% of the current acreage by yearend and review the existing production sharing contract (PSC) by Apr. 1, 2010 (OGJ Online, Sept. 15, 2009).

It will spud its first well by 2011. The company has right of first refusal on any new concessions Guinea offers in the relinquished area if it matched terms offered by another party.

Subject to signing the final agreement by Dec. 31, Dana will pay Hyperdynamics $5 million that will go towards a $10 million 2D seismic survey scheduled to start by Oct. 31. Dana will pay Hyperdynamics another $15 million, in either cash or shares, on signature of the revised PSC.

The seismic dataset will be used to evaluate which parts of the concession to relinquish as mutually agreed by Dana and Hyperdynamics.

Eni reports 'world-class' gas find off Venezuela

Italy's Eni SPA said it has made a "world class" natural gas discovery after successfully drilling an exploration well in Perla field on the Cardon IV block in the Gulf of Venezuela.

Venezuela's President Hugo Chavez was quick to turn the discovery into political capital, saying that the find could help boost Venezuela to fourth place in the world in proven gas reserves within 4 years.

"Venezuela is growing more established as a global energy power," Chavez said on state television. Repsol YPF SA first announced the find a few weeks ago during a visit by Chavez to Spain, but Eni's statement confirmed the magnitude of the find.

"The results of the well exceeded predrill expectations, making Perla the largest gas discovery in Venezuela and, potentially, one of the world's largest natural gas discoveries in recent years," Eni said.

It said these results will be evaluated "with the objective of accelerating the definition of a work program to further define the discovery and establishing possible development scenarios."

Eni said, "The field has a reserve potential higher than the 6 tcf of gas previously estimated."

The Perla 1X well, drilled 50 km offshore, encountered a 240-m hydrocarbon column. During the production test, it produced high-quality gas with a capacity of 600,000 cu m/day and 500 b/d of condensate.

"Normalized gas production per well is expected to increase to over 1 million cu m/day," Eni said.

Cardon IV Block is licensed and operated by a joint operating company Cardon IV SA, which is held equally by Eni and Repsol YPF. Venezuela's state-owned Petroleos de Venezuela SA owns a 35% back-in right in the development phase and, if exercised, Eni and Repsol YPF will each hold a 32.5% interest in the project.

Drilling & Production— Quick Takes

Yuri Korchagin offshore installations completed

OAO Lukoil is closer to bringing its Yuri Korchagin oil field on stream in the Caspian Sea in December following installation of offshore facilities.

Offshore facilities have been installed at Lukoil's Yuri Korchagin oil field in the Caspian Sea. Production is expected to start in December. Photo from J. Ray McDermott SA.

This will be the first of Lukoil's North Caspian fields in the Russian sector of the Caspian Sea to be developed.

The company let the contract to J. Ray McDermott SA, which completed the installation within a month and a half: an ice-resistant fixed processing platform (LSP-1) and adjacent living quarters (LSP-2) joined together by a 243-ft bridge.

Oil from LSP-1 will be delivered to the marine transportation complex, which consists of a floating storage offloading system (FSO) and the 1,005-ton single-point mooring (SPM) substructure via a 36-mile, 12-in. pipeline.

"Additional work included engineering, procurement, fabrication, transportation, and installation of tie-in spools connecting LSP-1 and the SPM to the 36-mile subsea pipeline as well as hydrostatic leak testing and flushing of the entire pipeline system," said J. Ray McDermott.

The field lies in 11-13 m of water and holds proved, probable, and possible reserves of 570 million boe. It is 180 km from Astrakhan and 240 km from Makhachkala and will produce 2.3 million tons/year of oil and 1.2 billion cu m/year of gas.

Neptune Explorer drillship completes upgrade

Neptune Marine Oil & Gas, a subsidiary of Jasper Investments Ltd., completed a $340 million upgrade of its deepwater drillship, the Neptune Explorer.

Sembawang Shipyard in Singapore did the work. Sembawang Shipyard is a subsidiary of Sembcorp Marine Ltd.

After almost 36 months of upgrading and conversion, the Neptune Explorer now is a dynamically positioned deepwater drilling rig with a variable deckload of 7,220 tonnes.

It is equipped to work in 5,000 ft of water.

Shell lets contract for flowlines

Shell Nigeria Exploration & Production Co. Ltd. let a contract to Saipem SPA to carry out subsea development of Bonga Northwest field on OML 118 about 120 km off Nigeria.

Saipem will carry out engineering, procurement, fabrication, installation, and precommissioning services for 13 km of 10-12 in. production pipe-in-pipe flowlines and 4 km of 12-in. water injection flowlines as well as related production facilities. The $200 million contract also includes installation of 15 km of umbilicals.

Bonga Northwest is in 900-1,200 m of water and will be developed with 12 subsea wells tied back into the Bonga main infrastructure.

Marine activities will be carried out mainly by Saipem FDS and Saipem 3000 vessels during the second half of 2012 and the last quarter of 2013.

Processing — Quick Takes

Petrobras, PDVSA resolve refinery terms

Brazil's Petroleo Brasileiro SA (Petrobras) said it has resolved all outstanding issues with Venezuela's Petroleos de Venezuela SA over development of the Abreu e Lima refinery planned for Suape, near Recife in northeastern Brazil.

Paulo Roberto Costa, Petrobras director for supply, said there were no more obstacles to construction of the refinery, and that there is no change in the proportion of investment required from either side, with Petrobras to supply 60% of the refinery's investment and PDVSA the remaining 40%.

However, PDVSA will have to pay Petrobras at least $400 million when it signs the final agreement for the Abreu e Lima refinery, according to a Petrobras spokesperson.

"This amount represents the obligations PDVSA has in this project calculated until December 2008. A consulting company is now reviewing all investments that both companies have to take responsibility for as from January 2009," the spokesperson told BNAmericas.

"We expect the revised amount to be paid by cash immediately after the agreement is signed," the spokesperson added.

Asked if Brazil's President Luis Inacio Lula da Silva would sign a definitive agreement with Venezuela's President Hugo Chavez on an upcoming state visit, Petrobras Pres. Jose Sergio Gabrielli said he didn't know. Lula was to visit Caracas on Oct. 17-18, according to Brazil's foreign ministry.

Meanwhile, Costa said there had been several obstacles holding up the refinery agreement, including the rising cost of the project, which has escalated to about $12 billion from a preliminary estimate of $4.06 billion.

Petrobras said the increased cost of the joint venture was normal for such projects because pricing always increases once more detailed plans are developed. Petrobras also said that $2 billion of the cost increase came from the appreciation of Brazil's currency.

Other areas of disagreement came over rights to purchase products from the refinery and Venezuela's desire for higher-than-market prices for the heavy crude it plans to supply to the refinery.

Qatar Fertilizer lets urea plant contract

Qatar Fertilizer Co. SAQ (Qafco) has let a lump sum turnkey contract to partners Saipem SPA and Hyundai Engineering & Construction Co. Ltd. for the Qafco 6 project, including a 3,850-tonne/day urea plant.

The deal is worth $610 million. The site is in the new Qafco industrial complex in Mesaieed, about 30 km south of Doha.

The engineering, procurement, and construction contract also covers associated utilities and offsite units at the fertilizer complex. It will be completed by the third quarter of 2012.

Saipem and Hundai are building two ammonia plants and a urea plant for Qafco in the Qafco 5 project. The Qafco 6 urea plant will use surplus ammonia from Qafco 5.

Transportation — Quick Takes

China begins commissioning third LNG terminal

China's Shanghai LNG terminal received its first LNG cargo of 45,000 cu m aboard the 88,000-cu m Arctic Spirit LNG carrier from Bintulu, Malaysia, Oct. 11. A second cargo is slated for later this month.

China National Offshore Oil Corp. owns 45% of the 3-million tonne/year terminal with Shenergy Group (55%), the Shanghai government's power investment group. CNOOC last year signed a 25-year agreement to buy 2 million tpy from Qatargas Operating Co. Ltd. with supplies to start later this year from the 7.8-million tpy Qatargas 2 project. The terminal also has another 25-year supply contract with Malaysia for 3.03 million tpy.

Capacity at Shanghai is to be expanded to 6 million tpy at some as yet unannounced date. China has two other operating LNG terminals: the 6.2-million tpy Dapeng LNG terminal in southern Guangdong Province and the 2.6-million tpy Fujian terminal, which began operating earlier this year and is to be expanded to 5.2 million tpy (OGJ, June 1, 2009, p. 12).

Ban sought on Russian gas re-exports

Turkmenistan, now negotiating with Russia's OAO Gazprom, is seeking to ban the Russian firm from re-exporting the natural gas it purchases from the Central Asian nation.

"The new contracts will include a clause banning re-export of gas," said Turkmenistan's Deputy Premier Baimurad Khodzhmukhamedov at a conference in Ashgabat earlier this month.

Khodzhmukhamedov's statements came ahead of this week's meeting between Turkmenistan's President Kurbanguly Berdymukhamedov and Gazprom Chief Executive Officer Alexei Miller aimed at resuming Russia's import of Turkmen gas that were suspended in April after a pipeline blast.

Both sides have since said they expect gas supplies to resume before the end of October, but they are still negotiating the terms of an amended supply agreement.

Prior to the blast, Gazprom had been buying 50 billion cu m/year of Turkmen gas and re-exporting most of it to Ukraine, much to the chagrin of Ashgabat.

While Turkmenistan wants to include the re-export ban, Gazprom wants to reduce its purchases of Turkmen gas to 30 billion cu m/year and to establish a flexible pricing formula that will ensure prices are in line with the international gas market.

Yemen LNG yields first production

Into a world already oversupplied with LNG capacity, yet another production project has come online. Total has announced that the 6.7-million tonne/year (tpy) Yemen LNG plant produced its first LNG from the first of two planned trains. The second train remains under construction.

The announcement did not specify to which customer this first production was to be sent, saying only that the plant's first cargo is "scheduled in the coming weeks." Three gas sales agreements were signed in 2005 with Kogas, GDF-Suez, and Total Gas & Power Ltd.

The $4.5-billion project supplies gas from Block 18 in the Marib region of central Yemen through a 320-km (nearly 200 miles) pipeline to the LNG plant at the port of Balhaf on the country's southern coast of the Arabian Sea.

Counting this first train of Yemen LNG, this year has seen nearly 30 million tpy of new production capacity come on line.

Sakhalin added two trains of 4.8 million tpy each earlier in the year. Qatargas 2 started up its 7.8-million tpy Train 4 and hopes to start up the 7.8-million tpy Train 5 by yearend.

In Asia, debottlenecking at Malaysia Dua was to have added 1.5 million tpy at some point in the year. And Indonesia's 7.6-million tpy Tangguh formally began operations but has been plagued by outages and is currently shut down.

At last week's World Gas Conference in Buenos Aires, BP's Ton Hayward said the project would produce from both trains this week, declining to specify amounts or destinations.

Expected to start up very early in 2010 is Peru LNG's 4.4-million tpy plant.

Midsize Chinese LNG plant to supply locally

China's Ningxia Hanas Natural Gas Co. will employ Air Products' LNG process technology and equipment for a midsize LNG project in Yinchuan, China, according to an agreement with overall project manager Technip announced Oct. 15.

Air Products will supply single mixed-refrigerant process technology, engineering, design, and manufacturing of the heat exchanger equipment for liquefaction process sections in two 400,000-tonne/year trains. The process uses Air Products' proprietary wound-coil main cryogenic heat exchanger technology.

Yinchuan is the capital of northwest China's Ningxia Hui Autonomous Region. The Yinchuan LNG plant will be the largest of its kind in China, according to Air Proiducts' announcement, and will distribute LNG to markets in the region.

Target completion for the units is second-half 2011.

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