OGJ Newsletter

June 28, 2010

Exploration & Development — Quick Takes

EPA takes on more air permits in Texas

The US Environmental Protection Agency said it was taking over the issuances of operating permits for Chevron Cedar Bayou chemical plant in Baytown, Tex., and the Garland Power & Light natural gas-fired Ray Olinger plant on Lake Lavon in Collin County, Tex.

"If you wish to continue operations, you must apply to EPA for your permit by Sept. 30," said an EPA letter to the Chevron chemical plant. The announcement is the latest in a running dispute between EPA and Texas officials over state air-quality regulations.

On May 25, EPA's Region 6, based in Dallas, forced the Flint Hills Resources refinery in Corpus Christi, Tex., to reapply for an air-quality permit it has held since 1995 (OGJ, June 7, 2010, p. 24).

Objecting to flexibility provided by Texas permits, the EPA regional office said it might take over permitting of 39 other facilities.

Texas state authorities are protesting, saying air quality is improving in the state, which they say disproves claims that permit flexibility degrades air quality. On June 14, Texas Atty. Gen. Greg Abbott asked the US 5th Circuit Court of Appeals in New Orleans to consider EPA's decision to disapprove some qualified facilities exemptions in Texas.

EPA said the exemption allows some companies to avoid certain federal Clean Air Act requirements. Under CAA, states must develop plans that meet federal requirements. The Chevron Cedar Bayou permit included a qualified facilities exemption.

Hess to buy stakes in Valhall, Hod fields

Hess Corp. will increase its interests in Valhall and Hod oil fields in the Norwegian North Sea by exercising its right to preempt the purchase by BP of interests now held by Total.

Subject to regulatory approvals, Hess will pay $496 million in cash for a 7.85% interest in Valhall field and a 12.5% interest in Hod.

After the transaction, it will hold stakes of 64.05% in Valhall and 62.55% in Hod.

In a separate deal announced late last year, Hess doubled its interests in the fields in a noncash swap with Royal Dutch Shell for holdings in Gabon (OGJ Online, Dec. 21, 2009).

Dana to buy Suncor's shares in Netherlands

Dana Petroleum PLC has reached an agreement with Suncor Energy Inc. to purchase all of Suncor's shares in Petro-Canada Netherlands BV for €445 million, effective Jan. 1.

Petro-Canada Netherlands has operated interests in eight offshore production and exploration licenses in the Dutch sector of the North Sea, including the operated De Ruyter (54% working interest) and Hanze (45% working interest) producing oil fields.

Current production is about 12,000 boe/d net to Suncor. In addition, Petro-Canada Netherlands has interests in 13 nonoperated offshore production and exploration licenses, primarily containing gas assets. It also has a small nonoperated onshore position in the Netherlands, which includes interests in the Alkmaar PGI Gas Storage facility.

The sale is expected to close in the third quarter and is subject to closing conditions and regulatory approvals.

As part of its strategic business alignment, Suncor is continuing with plans to divest a number of noncore assets. Announced sales to date include all oil and gas producing assets in the US Rockies, noncore gas properties in Western Canada, and all Trinidad and Tobago assets. Remaining proposed divestments include certain gas assets in Western Canada and noncore North Sea assets.

Statoil, Sinochem eye global cooperation

Statoil and China's Sinochem Group, which recently became partners in Peregrino heavy-oil field off Brazil, have signed a memorandum of understanding that "underlines the wish of the two companies to jointly investigate further opportunities in Brazil and elsewhere," according to a statement.

Sinochem is acquiring a 40% interest in Peregrino field under development in the Campos basin from Statoil for $3.07 billion (OGJ Online, May 21, 2010). Statoil owned 100% before the transaction.

Peregrino, in 100 m of water, is to start production early next year and produce at a plateau rate of 100,000 b/d.

The new memorandum, said Statoil Chief Executive Officer Helge Lund, "is the beginning of a long-term relationship between our two companies having similar international growth ambitions."

Industry Scoreboard

Exploration & Development— Quick Takes

El Paso E&P to ramp up Eagle Ford activity

El Paso Exploration & Production Co. has completed three gas-condensate and gas wells at or above expectations in the South Texas Eagle Ford shale trend where it holds 165,000 net acres and plans to expand activity in 2011.

The company will drill and complete one more well in the dry gas part of the trend and then run two rigs in the gas-condensate area the rest of the year. It called Eagle Ford one of its most profitable programs and said it sees the play as a "key source of reserve and production growth for many years."

About 100,000 net acres of El Paso's holding are in the liquids-rich area north of the play's dry gas window, where gas streams analyze 1,350 btu/scf.

The recent completions, all in LaSalle County, are:

• Hixon-4H flowed 2.1 MMcfd with 765 b/d of 53.5° gravity condensate on a 23⁄64-in. choke with 1,811 psi flowing casing pressure after 18 fracs in a 5,000-ft lateral at 9,900 ft true vertical depth.

• Hixon-2H flowed 1.6 MMcfd and 584 b/d of 53.5° gravity condensate on a 21⁄64-in. choke with 1,543 psi flowing casing pressure after 13 fracs in a 3,800-ft lateral at 9,900 ft TVD.

• Nunley Traylor-1H, in the dry gas area, flowed 6.4 MMcfd on an 18⁄64-in. choke with 5,100 psi flowing casing pressure after 14 fracs in a 4,000-ft lateral at 12,600 ft TVD. Engineering analysis indicated that this well has the same producing capability as the Briscoe Nunley GU-1H well, which had an initial rate of 8.1 MMcfd on a 24⁄64-in. choke with 3,750 psi flowing casing pressure.

Hilcorp, KKR form Eagle Ford partnership

Private Houston independent Hilcorp Energy Co. and Kohlberg Kravis Roberts & Co. agreed to form a partnership to develop Hilcorp's 100,000-net acre holding in the Eagle Ford shale trend in South Texas.

Upon closing, Hilcorp will hold 60% and KKR 40% of Hilcorp Resources LLC, which will explore a 200-mile long area southeast of San Antonio. KKR will invest as much as $400 million in the partnership. Hilcorp will also commit capital to the project.

Hilcorp, which operates almost all the acreage, is running two horizontal rigs.

"In addition to the development program," Hilcorp said, "the company will actively look for opportunities to increase its acreage position in the Eagle Ford through leasing, joint ventures, and acquisitions. Going forward, the company intends to be creative in structuring future transactions as it expands its Eagle Ford position and believes that it can offer a strong value proposition to landowners and operators in the trend."

Hilcorp Energy was founded in 1988 by current Pres. and Chief Executive Officer Jeff Hildebrand. It is one of the largest private independent oil and natural gas companies in the US with five offices and 600 employees. It has operated in South Texas since 1998 and is the largest producer of conventional oil in the region.

Petrobras has Albacora Leste presalt shows

Brazil's Petroleo Brasileiro SA (Petrobras) said it discovered evidence of oil in presalt reservoirs in the Albacora Leste concession in the northern Campos basin south of giant Roncador oil field.

The 6-ABL-57D-RJS well went to 4,536 m, below Albacora Leste field's sandstone reservoir, in 1,956 m of water 130 km off Rio de Janeiro state, the company said.

"Preliminary estimates suggest the accumulation is of light, good-quality oil, but further drilling will be required to assess not only the volumes, extent, and productivity of these reservoirs, but also the possibility of using the existing production and offloading infrastructure in the area," Petrobras said.

Petrobras operates Albacora Leste field with 90% interest, and Repsol YPF SA has 10%.

Norway approves Gudrun field development

Statoil and partners have received approval for development of Gudrun oil and gas field about 55 km north of Sleipner oil field off Norway.

The Norwegian Parliament approved the group's development plan based on a fixed steel platform connected by pipeline to Sleipner facilities. Water depth in the field, discovered in 1974, is 110 m (OGJ Online, Feb. 18, 2010).

Statoil, operator with 46.8% interest, estimates reserves at 11.2 million standard cu m of oil and 6.6 billion standard cu m of natural gas in a high-pressure Jurassic sandstone at 4,200-4,700 m.

Partners are Marathon Petroleum 28.2% and GDF Suez 25%.

Statoil expects production to start at undisclosed rates in 2014. Initial processing will occur on the 16-slot, 7,400-tonne Gudrun platform, to be installed in the summer of 2011. Drilling will begin in October 2011.

After further processing on the Sleipner A platform, gas will move into the Gassled system for transport to Europe. Oil will be moved by pipeline to Karsto, Norway, with Sleipner condensate.

Eni appraisal well hikes Jangkrik gas resource

A successful appraisal well near the Jangkrik gas discovery in the Kutei basin off East Kalimantan, Indonesia, has sharply increased the estimate of the field's recoverable resource.

Eni SPA said the Jankrik-2 appraisal well, drilled to 2,449 m in 425 m of water on the Muara Bakau PSC 70 km off the coast, cut more than 80 m of net pay in excellent quality reservoir sands of Pliocene age.

During the Jangkrik-2 production test, the well produced high quality gas at a tubing-constrained rate of 17.5 MMscfd.

Eni, through its Indonesian subsidiary, is the operator of Muara Bakau PSC with a 55% interest. GDF Suez holds 45% interest. The joint venture plan is to proceed quickly with assessment of the technical and commercial viability of a fast-track development. Jangkrik gas will be routed to the Bontang LNG plant.

Eni, among its other projects in Indonesia, was awarded an interest in Sanga Sanga CBM, a new coalbed methane PSC to be operated 50-50 with BP PLC as Vico CBM Ltd., which would supply CBM for shipment as LNG (OGJ Online, Dec. 2, 2009).

Realm awarded Poland shale gas concessions

Realm Energy International Corp., Vancouver, BC, was awarded interests in three shale concessions in Poland that target gas in Silurian, Ordovician, and Cambrian shales.

Realm has 100% interest in the Gniew concession on 294,296 acres in the Baltic depression 70 km south of Gdansk. The exploration program requires seismic reprocessing and shooting 100 line-km of 2D seismic.

Source Energy Partners, a private Denver shale company, and Realm hold the other two concessions 50-50.

The llawa concession covers 161,109 acres 134 km southeast of Gdansk. Minimum exploration program is for reprocessing seismic and shooting 50 line-km of 2D seismic. Firms that hold adjoining acreage include San Leon Energy PLC-Talisman Energy Inc., Marathon Oil Corp., and Lane Energy-Conoco.

The Wegrow concession is on 180,136 acres in the Podlasie basin in southeastern Poland 70 km northeast of Warsaw. Minimum work program is shooting 50 line-km of 2D seismic and drilling a well to 2,750 m within 3½ years. Silurian shales may lie at optimal depths for maturity and gas recovery, with total organic carbon measured by the Polish Geological Institute at 1% to 17%.

ExxonMobil Corp., EurEnergy Resources Corp., and Cuadrilla Resources Holding Ltd. have licensed lands adjacent to Wegrow for hydrocarbon exploration.

Drilling & ProductionQuick Takes

Land-based rig activity increases in US

Land drilling in the US increased again for the week ended June 18, while offshore activity continued to slide due to the federal moratorium against drilling in water deeper than 500 ft, said Baker Hughes Inc.

There were 1,539 rotary rigs working in the US and its waters this week, 12 more than the previous week and up from 899 during the comparable week in 2009.

US offshore drilling fell to 17 rotary rigs in the Gulf of Mexico, down 4 from the previous week. In US waters as a whole, only 17 offshore units were still working this week. Drilling in inland waters increased by 1 to 13 units. Land-based drilling increased by 15 to 1,509 active rigs.

Of the US rigs still working, 953 were drilling for natural gas, 1 less than the previous week. The number drilling for oil increased by 13 to 574.

There were 12 rotary rigs unclassified. Horizontal drilling jumped by 8 units to 827, while directional drilling gained 3 to 233.

EPA schedules public meetings on fracing study

The US Environmental Protection Agency has scheduled four public meetings on its proposed study of the relationship between hydraulic fracturing and its potential impacts on drinking water supplies.

The meetings will be held July 8 in Fort Worth; July 13 in Denver; July 22 in Canonsburg, Pa.; and Aug. 12 in Binghampton, NY. EPA said it will accept comments on the proposed study at the meetings. Stakeholders planning to attend a meeting are asked to register at least 72 hr in advance. The meetings will provide information about the proposed study's scope and design, EPA said in a June 18 announcement. It said it sought guidance from its independent science advisory board to support initial planning and guide the plan's development.

Processing — Quick Takes

Contract let for new refinery in Turkey

SOCAR & TURCAS Refinery AS, Istanbul, has let a contract to a Foster Wheeler AG subsidiary for early work on a 214,000-b/sd grassroots refinery to be integrated with a petrochemical complex at Aliaga, Turkey.

The refinery will supply naphtha to the Petkim Petrochemical AS complex, which is on the Aegean Sea, and fuels for sale in Turkey. In addition to crude and vacuum distillation units, the refinery will have naphtha hydrotreating facilities, a 40,000-b/sd delayed coker, a 66,000-b/sd hydrocracker, kerosine and diesel hydrotreaters, LPG caustic treatment units, a 28,000-b/sd continuous catalytic reformer, a saturated gas unit, an amine and sour-water stripper, sulfur and tail-gas treatment units, and a 160,000-normal-cu-m/hr hydrogen unit.

A unit of Foster Wheeler's Global Engineering and Construction Group will handle front-end engineering design and provide the license and basic design package for the coker, which will use Foster Wheeler's SYDEC technology.

SOCAR & TURCAS Refining, founded in 2008, is a subsidiary of SOCAR & TURCAS Energy, in which State Oil Co. of Azerbaijan Republic holds a 51% interest, Turkas Petrol 25%, and Aksoy Holding 24%. Main products of the Petkim complex are ethylene, polyethylene, polypropylene, polyvinyl chloride, and acrylonitrile. Some of its feedstock is light hydrocarbons from SOCAR's 400,000-b/d refining complex at Baku, supplied by tanker loaded at Batumi, Georgia.

Chinese group plans Argentine ammonia plant

Tierra Del Fuego Power & Chemical Co. Ltd. let a contract to KBR for licensing and process design for a grassroots ammonia plant in Tierra del Fuego, Argentina.

Feedstock for the 1,500-tonne/day plant, based on conventional KBR technology, will be natural gas produced in the region. The ammonia will be used for fertilizer.

Tierra Del Fuego Power & Chemical is a joint venture of Shaanxi Coal & Chemical Industry Group Co. Ltd., Shaanxi Xinyida Investment Ltd., and Jinduicheng Molybdenum Group Co. Ltd., all of China.

Frontier settles charges at Cheyenne refinery

Frontier Refining Inc. agreed to pay a $900,000 fine as part of a settlement of charges that it violated federal surface impoundment regulations, the US Environmental Protection Agency announced.

The Denver-based refining and marketing division of Frontier Oil Corp. in Houston also agreed to disconnect inlet piping which allowed hazardous waste to be released into Surface Impoundment Pond 2 at its Cheyenne, Wyo., refinery, EPA's Denver regional office said on June 8.

It also agreed to remove and manage all waste in the pond and clean the existing line this fall, and submit a closure plan for the pond, the federal environmental regulatory agency said. It said that the company estimated that it will spend $1 million to comply with the settlement.

EPA charged Frontier with allegedly violating the federal Resources Conservation and Recovery Act by storing hazardous wastes in a pond which was neither constructed nor operated to prevent overflowing and leaks.

Other allegations related to closing the pond and providing financial assurance of its proper closure. EPA said that it discovered the violations at the 52,000 b/d refinery during a March 2009 inspection.

TransportationQuick Takes

Valero to double capacity of gathering system

Valero Energy Corp. reported plans to double the capacity of its existing North Texas and Oklahoma Panhandle area crude oil gathering system in order to accommodate increased crude production.

The pipeline system expansion project, which is scheduled to be completed by this year's fourth quarter, will increase the amount of oil available to be processed at the company's 170,000 b/d McKee refinery in the Texas Panhandle.

The project will involve looping existing pipeline from Valero's storage facility in Perryton, Tex., additional pump stations, and storage facilities. Valero expects the project to be completed quickly since most of the infrastructure and right-of-way is already in place.

Agreement signed by partners of ITGI pipeline

Italy's Edison SPA, Turkey's state-owned Botas, and Greece's Depa SA signed a memorandum of understanding to transport natural gas from the Caspian Sea region to Italy via Turkey and the Adriatic, reducing Europe's dependence on Russia as the main gas supplier.

The MOU defines the general terms and conditions for the gas transit for the Interconnection Turkey-Greece-Italy (ITGI) Project through Turkey. The agreement includes usage of Botas' existing capacity up to the Greek border for the gas requested by the ITGI line. "Today's agreement is a big step forward for ITGI because it completes the framework for transit in Turkey and enables us to speed up the finalization of the gas contract with Azerbaijan," said Edison Executive Vice-Pres. Roberto Poli.

The 804-km ITGI line, which will go into service in 2015, is comprised of three sections: the Turkish gas grid, which will be upgraded in order to enable transit of the volumes to Greece and Italy; the Interconnection Turkey-Greece (ITG), a 36-in. line completed in 2007; and the 800-km Interconnection Greece-Italy (IGI) line, yet to be built, which will have a transport capacity of 8 billion cu m/year.

The ITGI line is considered an integral part of Europe's plan to cut its dependence on Russian gas, aiming connect Azerbaijan's Shah Deniz gas field to Italy via Turkey and the Adriatic. The ITGI system is part of the Southern Corridor, which also includes several other projects aimed at bypassing Russia: the Nabucco pipeline, the Trans Adriatic Pipeline (TAP), and the White Stream pipeline.

ITGI's most recent accord follows an agreement signed earlier this month by Turkey and Azerbaijan that analysts said opened the way for the first Central Asian gas exports to Europe.

In a key development under the agreement, Turkey would have the right to re-export gas from the second phase of production of the Shah Deniz field offshore Azerbaijan in the Caspian Sea.

Boardwalk, Southcross boost Eagle Ford line

Boardwalk Pipeline Partners LP and Southcross Energy LLC, with its affiliates, announced June 15 plans to modify existing pipeline systems to transport natural gas from the Eagle Ford shale production area in South Texas.

Boardwalk plans to modify an existing section of its subsidiary Gulf South Pipeline's 30-in. OD pipeline from Refugio, Tex., to Fort Bend County, Tex., to allow condensate-rich Eagle Ford gas to travel through it to four Gulf Coast processing plants served by Southcross, including its Gregory plant near Corpus Christi, Tex. Southcross will connect its existing gathering facilities in South Texas to the newly modified Gulf South pipeline segment.

As more gas is being produced and gas prices remain low, one of the important factors has become a play's liquids since liquids sell at a premium to gas if they can be separated and marketed. This "liquids boost" has shifted attention to plays with high liquids content such as Eagle Ford (Texas) from dry gas plays such as the Fayetteville (OGJ, June 7, 2010, p. 65).

The companies said portions of the modifications could be operational later in 2010 and that they would seek to expand their pipeline capacity in the region.

Cheniere lets contract for Sabine Pass LNG

Cheniere Energy Inc. unit Cheniere Partners LP let a contract to Bechtel Oil, Gas & Chemicals for the design and construction of liquefaction facilities at Cheniere's 4 bcfd Sabine Pass LNG receiving terminal in Cameron Parish, La. The facilities will use ConocoPhillips's optimized cascade liquefaction technology.

Bechtel designed and built the Sabine Pass LNG receiving terminal.

The Sabine Pass site can accommodate up to four LNG trains capable of processing about 2 bcfd of natural gas, according to Cheniere. The capacity of each liquefaction train would be about 3.5 million tonnes/year. The initial project would include two trains each processing about 1 bcfd of gas. The company said customer interest would determine future expansion.

Cheniere is in the process of pursuing contractual arrangements with natural gas buyers overseas and US producers interested in supplying the project. Cheniere expects LNG exports could commence as early as 2015 and plans to make a request to the US Federal Energy Regulatory Commission to begin National Environmental Protection Act prefiling by the end of June. The company says the timing of actual construction will depend on regulatory approvals and a final investment decision contingent upon satisfactory construction contracts and securing sufficient long-term customer contracts. Cheniere expects to be able to offer bidirectional services at Sabine Pass at $1.40-1.75/MMbtu.

Cheniere says it can build liquefaction capacity at economics typically associated with expansion given that many of the needed components are already part of the receiving terminal, including five storage tanks with a total capacity of 16.6 bcf, two berths, and the 94-mile Creole Trail pipeline. Cheniere would reconfigure Creole Trail to be a bidirectional system.

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