OGJ Newsletter

Nov. 1, 2010
International News for oil and gas professionals
GENERAL INTERESTQuick Takes

Report deadline extended on failed BOP

A joint investigation team (JIT) of the US Coast Guard and the US Bureau of Ocean Energy Management, Regulation, and Enforcement received a 60-day extension of the deadline for the JIT final investigation report following a massive oil spill in the Gulf of Mexico.

The JIT is charged with completing forensic testing into the failed blowout preventer (BOP) from Transocean Ltd.'s Deepwater Horizon semisubmersible. An Apr. 20 blowout of BP PLC's deepwater Macondo well on Mississippi Canyon Block 252 resulted in an explosion and fire on the semi, killing 11 people.

USCG and BOEMRE officials said they granted the extension to allow additional time for testing the BOP and also to provide more time to prepare for a final public hearing on the forensic evidence. The hearing tentatively is scheduled for the week of Jan. 24, 2011.

The JIT was asked to issue a report outlining the evidence as well as its conclusions and recommendations. The deadline for the final report was moved to Mar. 27, 2011.

Previously, Det Norske Veritas was hired to conduct the BOP forensic testing. The BOP and lower-marine riser package were taken to the National Aeronautics and Space Administration Michoud Assembly facility in New Orleans on Sept. 11. Federal officials and DNV have been working on final BOP testing protocols.

Marubeni to buy BP's stake in Gulf of Mexico fields

Marubeni Oil & Gas (USA) Inc. agreed to purchase BP PLC's interests in four mature producing deepwater oil and gas fields in the Gulf of Mexico for $650 million. Closing, subject to regulatory approval, is expected in early 2011. BP's net production from these fields is 15,000 boe/d.

The Marubeni acquisition involves assets that BP acquired among other assets from Devon Energy Corp. in March. Since then, BP has decided that its interests in Magnolia, Merganser, Nansen, and Zia fields do not fit with its regional business plans. Marubeni Oil & Gas is a subsidiary of Marubeni Corp. of Japan.

BP acquired interests in the four fields now being sold as part of a wider acquisition of assets in the gulf, Brazil, and Azerbaijan (OGJ, Aug. 23, 2010, Newsletter).

The assets are 25% interest in the ConocoPhillips-operated Magnolia oil and gas field in the Garden Banks area, 50% interest in the Anadarko Petroleum Corp.-operated Merganser gas field in the Atwater Valley area, 50% interest in the Anadarko-operated Nansen oil and gas field, and a 65% operating interest in Zia oil and gas field in the Mississippi Canyon area.

BP said it is retaining its other interests in the gulf where it has net production of about 400,000 boe/d.

Flint Hills reports air permit transition plan

Flint Hills Resources LP, the US Environmental Protection Agency, and Texas Commission on Environmental Quality (TCEQ) agreed to a plan to convert four state air pollution permits to permits consistent with the federal Clean Air Act.

EPA and TCEQ released a four-step draft of the process at an Austin meeting in September, the federal regulator said. It said that Flint Hills, a Koch Industries Inc. chemical and refining subsidiary, proceeded to tailor the draft transition process to its four Texas facilities.

Under the process, Flint Hills' permits which contain Texas Subchapter G flexible air permits will change to state implementation plan-approved permits consistent with the CAA, according to EPA. It said that the applications for the new permits will be implemented by TCEQ, which remains the primary air permitting authority in Texas; be reviewed by EPA; and be made available for public comment.

The effort began when EPA objected to a proposed minor revision of the Title V permit for Flint Hills' East Refinery in Corpus Christi, Tex., said Bradley J. Razook, the Wichita, Kan., company's president and chief executive. Koch acquired the plant from Kerr-McGee Corp. in 1995.

Razook said EPA objected to the incorporation of a flexible permit into the Title V permit; the incorporation by reference of underlying permits into the Title V permit; a length of time it considered inadequate for maintaining records under the general record keeping provision; and the identification of stationary vents in the Title V permit.

EPA said the transition process which was being announced, along with other changes to the refinery's permit, resolve the agency's objections, clear the way for TCEQ to act on the company's permit applications, supply regulatory certainty for Flint Hills, and provide a way for the public to review permits the company will hold at its Corpus Christi, Port Arthur, and Longview facilities. "It is our hope that the [Flint Hills] process will serve as a model for other companies seeking to transition to federally-approved permits," EPA Region 6 Administrator Al Armendariz said.

Exploration & DevelopmentQuick Takes

Pioneer tests Silurian oil in southern Tunisia

Pioneer Natural Resources Co., Dallas, completed three wells in southern Tunisia in the second and third quarters of 2010 and plans to drill two more appraisal wells by the end of this year.

The El Badr-3 and Cherouq-2 wells in the Cherouq concession and the Mona-1 well in the Anaguid exploration permit tested at a combined rate of 10,000 b/d of oil equivalent from Silurian sandstones.

Pioneer called Mona-1 a Silurian discovery that opens a number of exploration opportunities in Anaguid. Production from all three wells is expected to be flowing to sales by early 2011. Pioneer said it is selling 100% oil from Cherouq and Anaguid (see map, OGJ, July 2, 2007, p. 44).

The company said the completions are in large part a product of internal 3D seismic reprocessing that identified the three prospects and additional resource potential.

After the results of the two planned appraisal wells are known, a forward plan for Tunisia will be announced, Pioneer said. The company also said it is watching Ordovician and hot shale potential being assessed by other operators in the area (OGJ Online, Aug. 30, 2010).

The two planned appraisal wells are expected to bring net production in Tunisia to 8,000-9,000 boe/d by early 2011.

Pioneer is operator with 50% interest in Cherouq and will have a 30% interest in the operated concession derived from the Anaguid permit. Tunisia's state ETAP will have a 50% interest in both concessions, and Medco will own 20% interest in the Anaguid concession.

Putumayo appraisal drilling, 3D work starting

Consorcio Colombia Energy has started a multiwell appraisal and development program in Pinuna-Quillacinga and Cohembi fields on the 90,000-acre Suroriente block in Colombia's southeastern Putumayo basin.

Now drilling is Pinuna-3, the first vertical appraisal of the early-2010 Pinuna U pool discovery. The Pinuna-5 discovery well has averaged a gross 2,309 b/d of 29° gravity oil with 12% water cut since coming on line Feb. 11.

The appraisal well targets to extend this pool to the north, said Suroco Energy Inc., Calgary, which holds 15.8% working interest in the block. Further drilling is planned in the Lower T sand, the other main reservoir in Pinuna field.

Two wells are to be drilled starting in the first quarter of 2011 to offset the single well in Cohembi field. Preliminary results of reservoir simulation work support an interpretation that this pool could grow significantly in size with appraisal drilling, Suroco said.

Cohembi output has gradually increased to an average 1,988 b/d of oil on a larger submersible pump from Villeta N. Cohembi-1 cumulative production is 2.4 million bbl of 20° gravity oil as of Sept. 30, with no significant formation water recovery.

History matching of production and pressure data indicates that the oil-bearing reservoir extends at least 2 km downstructure. A 3D seismic survey is to start in November on the northern part of the block covering 132 sq km to define potential drill targets along a structural trend that includes Quinde oil pool, a suspended oil well. Drilling could occur in late 2011.

Oil, gas shows off Greenland encourage Cairn

Cairn Energy PLC expressed encouragement at the results of early drilling off western Greenland as it suspended operations for the season as it had agreed with Greenland authorities.

The company released the Stena Forth and Stena Don rigs and suspended the Alpha-1S1 exploration well for possible reentry to sidetrack or deepen it later. It plugged and abandoned the T8-1 and T4-1 exploration wells.

Alpha-1S1 encountered oil shows in the volcanic section. Drilling ceased on Sept. 30 when the well was still in volcanics, and the prognosed Mesozoic section had not been reached.

T4-1, which targeted a Tertiary objective at a different stratigraphic level than T8-1, failed to encounter any significant hydrocarbons and found only thin reservoir sands, although geochemical analyses continue on selective samples.

T8-1 well, which encountered gas in thin sands, was plugged and abandoned.

Since T8-1 and T4-1 were not commercial, the well costs, including all associated demobilization and other costs, of $185 million are forecast to be written off in accordance with Cairn's accounting policies. The primary objectives of the Alpha prospect were not reached, the well has been suspended, and any future re-entry work depends on the results of further evaluation, the company said.

A 2,500 km 2D seismic survey is under way on the Eqqua Block, and some 215 km of surveying will take place on the Sigguk block for well-tie purposes. A 7,400 km 2D survey was completed during the summer across the offshore south Greenland blocks (see map, OGJ, Aug. 24, 2009, p. 38).

Cairn has drilled one third of all exploration wells ever drilled off Greenland and the first wells in the Greenland Arctic for almost 35 years. The campaign demonstrated to the Greenland government and the industry that drilling operations can be successfully and safely carried out in this area.

Mike Watts, deputy chief executive, Cairn Energy, said, "Exploration in Greenland is at a very early stage and consequently to have encountered both gas and oil in two of the first frontier exploration wells in the previously undrilled Baffin Bay geological basin is extremely encouraging."

The company is evaluating the data and plans to reveal its forward exploration program in the first quarter of 2011.

Drilling & ProductionQuick Takes

API: US drilling has second quarter of growth

US oil and gas drilling increased year-to-year for a second consecutive quarter as the American Petroleum Institute reported that 11,297 wells were completed in the US in the 3 months ended Sept. 30, 45% more than the comparable 2009 period. This followed a 38% year-to-year increase in the second quarter and a 22% decline in 2010's first 3 months, it indicated.

"Third-quarter exploratory well completions climbed 31% compared with 2009's third quarter, with natural gas exploratory wells up a whopping 68%," said Hazem Arafa, director of API's statistics department. "I think this really demonstrates the oil and gas industry's continued commitment to finding new energy sources to meet growing US and world demand, as well as the importance of new supply areas, many of which were only opened recently thanks to the industry's ability to apply innovative techniques to existing technologies."

Arafa said API estimates showed a resurgence in oil well activity during the third quarter as completions climbed 60% year-to-year to an estimated 5,451 wells. Natural gas had been the primary target for US drilling for most of this decade, Arafa noted, but with the continued growth of oil well completions and a drop in gas well completions this year amid historically low prices, this is no longer the case.

An estimated 4,434 gas wells were completed in 2010's third quarter, 28% more than the comparable 2009 period, according to API. For the first three quarters of the year, estimated gas well completions dipped 3% from a year earlier to 12,677, while oil well completions rose 21% to an estimated 13,865, it said.

API also reported total estimated footage reached 69.156 million ft in the third quarter, 43% more than in the same 2009 period. Oil well footage surged 81% year-to-year to 32.815 ft, while gas footage gained 17% to 29.255 million ft, it said.

UN okays Mexican gas-flaring reduction project

A joint effort of Petroleos Mexicanos and Statoil marks the first Mexican gas-flaring reduction project to be registered by the United Nations.

The collaboration involves associated gas production from Tres Hermanos field in Veracruz. Pemex plans to build a gas processing and treatment plant to eliminate an estimated average 83,000 tonnes/year of carbon dioxide emissions during a 10-year period.

Statoil and Pemex registered the Tres Hermanos flaring-reduction project under the UN's Clean Development Mechanism (CDM). Companies can acquire approved emission-reduction credits created under the Kyoto Protocol via the CDM project-based system. CDM enables certified emissions reductions (CERs) to be earned and traded.

Statoil prepared the CDM registration documentation. CDM projects must follow specific and stringent UN rules. Statoil also will ensure the project approves yearly verifications.

Pemex plans to finance, own, and operate the gas plant. In return for providing its technical expertise, Statoil will buy CERs from Pemex.

Since 2004, Pemex and Statoil worked to identify CDM projects. Pemex committed to voluntarily reduce carbon emissions and improve energy efficiency.

Plans also call for pipelines to bring the gas to market. For the gas treatment plant, Pemex plans to sign an engineering, procurement, and construction contract in January 2011.

Under the Kyoto Protocol, Norway was among countries that accepted obligations to achieve specific GHG reductions within a specific period. The CDM program outlines benefits for investment in emission-reduction projects in nations without such commitments, such as Mexico, and outlines ways to earn CERs. Under CDM rules, every tonne of CO2 avoided results in one CER issued by the UN.

Pemex and Statoil both belong to the World Bank's Global Gas-Flaring Reduction Partnership, a public-private partnership launched in 2002. Mexico also belongs to GGFR, which supports the efforts of oil-producing countries and companies to increase the use of associated gas and reduce flaring.

Step-out well cased at southern Egypt oil field

Dana Gas Egypt and Sea Dragon Energy Inc., Calgary, set pipe and plan to test a potential extension well 4 km southeast of the nearest well in Al Baraka field in southern Egypt's frontier Kom Ombo basin. Logs at the Al Baraka SE step-out well indicate 46 ft of gross pay in the Kom Ombo A and C formations. Total depth is 8,750 ft.

Meanwhile, Sea Dragon reported progress at other wells in Al Baraka field. Minor oil saturations were observed at the Al Baraka-9 well, which tested noncommercial quantities of oil from the Six Hills E sands. However, petrophysical analysis indicates 50 ft of potential oil pay in the shallower Abu Ballas and Sabaia formations.

The companies recompleted the Al Baraka-5 well to isolate a bottom set of perforations suspected of producing water, installed a bridge plug, and returned the well to production. They plan to rework Al Baraka-6 to isolate water production from the lower Six Hills F-2 sands and recomplete the well in the Six Hills F-1 sands.

Al Baraka field is producing 600-700 b/d of oil, and the completion, workover, and fracturing program now under way is expected to lift output towards an yearend target of 2,000 b/d. The two companies hold 50-50 interests in the field.

PROCESSINGQuick Takes

Petroplus shutting down Swiss refinery

Petroplus Holdings AG, Zug, Switzerland, has begun a safe shutdown of its 60,000-b/d Cressier refinery in Neuchatel, Switzerland.

The company attributed the action to the labor strike at the port of Fos Sur Mer, France, which it said is disrupting the supply of crude to the Cressier refinery.

Restart of the refinery is dependent on the outcome of the strike. Petroplus is taking steps to continue to supply oil products to its customers.

Petroplus, which operates six refineries in Europe with combined throughput capacity of 752,000 b/d, last week said it had taken the first step toward closing its 84,800-b/d refinery at Reichstett, France (OGJ Online, Oct. 21, 2010). The company's other refineries are in the UK, Belgium, Germany, and France.

Texas, Louisiana refineries start up ULSD projects

ExxonMobil Corp. has completed commissioning of new units to produce ultralow-sulfur diesel at its Baytown, Tex., and Baton Rouge, La., refineries.

The projects, said the company announcement, will enable it to increase supply of ULSD by more than 3 million gpd (about 71,500 b/d) from both refineries and permit "reduced emissions from diesel consumption when used in modern engines."

ExxonMobil spokesperson Kevin Allexon declined to specify how much of the total capacity increase applied to which refinery. OGJ figures at yearend 2009 showed catalytic hydrotreating capacity of 26,5000 b/d at the Baytown refinery; at Baton Rouge, 75,500 b/d catalytic hydrotreating capacity.

In December 2008, ExxonMobil announced plans to invest more than $1 billion in three refineries in the US and Belgium to increase ULSD supply. Allexon declined to specify how the total investment has been divided among the three refineries.

The projects required construction of hydrotreater units at each plant, as well as modification to existing units. The announcement said completion of commissioning in Antwerp will come later this year.

Total lets contract for Shetlands gas plant

Total E&P UK Ltd. has let a £500 million contract to Petrofac, London, to develop a gas processing plant on the Shetland Islands. Work is scheduled to begin this month with first gas expected from the project in second-quarter 2014.

Petrofac will develop the 500 MMcfd gas plant through its offshore engineering unit, supported by engineering and construction. The project consists of engineering and procurement, supply, construction, commissioning, and start-up.

The plant, which will be built at Sullom Voe on the island, will process gas from Total's Laggan and Tormore fields, 125 km northwest of the Shetlands, and send residue gas to the Total-operated St. Fergus gas terminal in Aberdeenshire.

TRANSPORTATIONQuick Takes

Genesis to buy Valero's share of oil line

Valero Energy Corp. has agreed to sell its 50% indirect interest in the 380-mile Cameron Highway oil pipeline in the Gulf of Mexico to Genesis Energy LP, Houston.

Valero Chairman and Chief Executive Officer Bill Klesse said the sale is part of the refining company's strategy to divest noncore assets.

Genesis is a midstream MLP with businesses in oil and carbon-dioxide pipelines, refinery services (mainly sulfur removal), supply and logistics, and industrial gases.

The pipeline, built in 2004 and owned by Cameron Highway Oil Pipeline Co., carries production from deepwater fields in the southern Green Canyon area off Louisiana to refineries in Texas City and Port Arthur, Tex. It originates at the Ship Shoal 332 A/B Hub as a 30-in. line and splits into two 24-in. lines. Its capacity is about 500,000 b/d of crude oil.

Enterprise Products Partners LP holds the other 50% interest in the holding company and operates the pipeline.

GNPC selects Technip for Jubilee gas project

Ghana National Petroleum Co. let a lump-sum contract to Technip for Phase 1 of GNPC's Natural Gas Transportation & Processing project, 60 km off Ghana. The contract covers engineering, welding, and installation of a 14-km rigid steel flowline, as well as engineering, fabrication, and installation of one pipeline end termination.

The flowline will be the deepwater section of a pipeline moving associated natural gas from the 1.8-billion bbl Jubilee oil field to an onshore processing plant.

Press reports from Ghana in May stated work was under way on first-phase construction of the gas processing plant (OGJ, June 7, 2010, p. 52).

Technip's operating center in Paris will execute the contract, with the flowline welded at the company's spoolbase in Mobile, Ala. Installation will begin at yearend, carried out by Apache II, Technip's new pipelay vessel.

Cooper basin gas to supply Gladstone LNG

Santos Ltd., Adelaide, signed a deal with the south Australian Cooper basin joint venture to supply 750 petajoules of gas from the Cooper basin fields to the proposed Santos-operated LNG project in Gladstone, Queensland.

Venture partners are Santos, 66.6%, Beach Energy, 20.21%, and Origin Energy, 13.19%.

The agreement is for supply of uncontracted gas in the south Australian fields under an oil-linked pricing structure via pipeline across Queensland to the existing Wallumbilla hub west of Brisbane and then up to the Gladstone plant beginning in 2014.

The gas would be supplied over a 15-year period and the agreement is conditional on a final investment decision for the second train in Santos' Gladstone plant.

Reg Nelson, Beach managing director, said if finalized, the deal will set the foundation for ongoing growth and optimization of Cooper basin for 20 years and more.

The agreement opens an export channel for Cooper gas and also provides the proposed Gladstone project with conventional gas as well as the planned supply from coal-seam gas fields in the Surat and Bowen basins.

The conventional gas will also boost the calorific value of the LNG produced at the plant as it is higher than LNG sourced from CSG.

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