GENERAL INTEREST — Quick Takes
ConocoPhillips sets up fund for Bohai Bay
ConocoPhillips plans to establish a fund related to June oil spills at Penglai 19-3 field in Bohai Bay, saying the fund will be designed to address ConocoPhillips's responsibilities in accordance with relevant laws of China and to benefit the general environment in Bohai Bay.
"ConocoPhillips deeply regrets these incidents and apologizes for the impact that the incidents have had on the Chinese people and the environment," said James J. Mulva, ConocoPhillips chairman and chief executive officer.
The company completed a temporary shutdown of oil and natural gas production at Penglai 19-3 field in Bohai Bay as ordered by China's State Oceanic Administration (SOA) while ConocoPhillips and its partner, China National Offshore Oil Corp., develop and submit a compliance plan to SOA (see related story, p. 22).
As operator, ConocoPhillips China responded to two spills on June 4 and June 17 that released an estimated 700 bbl of oil into Bohai Bay and 2,500 bbl of mineral oil-based drilling mud onto the seabed.
SOA ordered ConocoPhillips on Sept. 2 to suspend water injection, drilling, and production across the field. ConocoPhillips China is working with Chinese authorities and CNOOC regarding operation of the spill-related fund. No dollar amount was specified for the fund.
Halliburton sues BP over Macondo blowout
Halliburton Co. filed claims against BP PLC on Sept. 1 in Texas state court for negligent misrepresentation, business disparagement, and defamation related to the Apr. 20, 2010, Macondo well blowout. The company also moved to amend to include fraud its claims against BP in the multidistrict litigation in New Orleans.
Halliburton based its allegations on BP having provided Halliburton with inaccurate information prior to performing cementing services on Apr. 19, 2010, and BP's omission of that information in subsequent public statements, filings, and governmental investigations.
BP provided Halliburton inaccurate information about the hydrocarbon zone locations in the Macondo well, Halliburton said. The company noted that the locations were critical information required prior to performing cementing services and were necessary for placing the cement.
Halliburton said it is confident that all work it performed in the Macondo well was completed in accordance with BP's specifications in its well construction plan and instructions.
DNO International to buy units of RAK Petroleum
DNO International reported signing a definitive agreement to acquire RAK Petroleum's oil and gas operating companies.
Under the proposed transaction, RAK's Middle East and North African operations will be merged into a subsidiary of DNO in exchange for DNO shares to be issued to RAK Petroleum.
The merger is part of DNO International's strategy to expand its operations in the MENA region through acquisition of existing reserves and production as well as additional onshore and offshore exploration acreage.
DNO's current working interest production averages 45,000 boe/d. Following the merger, the production contribution from RAK Petroleum's MENA operating subsidiaries will be 7,500 boe/d.
That figure is expected to rise to 15,000 boe/d within a year with the successful implementation of the Saleh field redevelopment program offshore Ras Al Khaimah.
Exploration & Development — Quick Takes
Chevron group drills thick Lower Tertiary oil find
A group of companies—Chevron Corp., BP PLC, and Samson Offshore Co.—has encountered thick oil pay at a Lower Tertiary Trend discovery in the Gulf of Mexico.
The Keathley Canyon Block 736 Well No. 1 on the Mocassin prospect cut more than 380 ft of net pay in Lower Tertiary Wilcox sands. The well went to 31,545 ft in 6,759 ft of water 216 miles off Louisiana. More work is needed to determine the discovery's size, Chevron said.
Chevron and BP each hold 43.75% working interest in Mocassin, and Samson has 12.5%.
Chevron spudded the Moccasin well in March 2010 and halted activity in June 2010 due to the US government's deepwater drilling moratorium imposed after the Macondo incident (OGJ Online, June 1, 2010). Drilling resumed in March after the US Bureau of Ocean Energy Management, Regulation, and Enforcement approved Chevron's revised drilling permit application.
Mocassin is 75 miles west of Chevron's $7.5 billion Jack/St. Malo development in the Walker Ridge area. Chevron is also developing the $4.1 billion Big Foot project.
Hess, CONSOL ink Ohio Utica shale venture
CONSOL Energy Inc., Pittsburgh, will take Hess Corp., New York, as a partner in its eastern Ohio Utica shale land position for $593 million.
CONSOL, which controls nearly 200,000 acres, will receive $59 million at closing, expected by mid-October. Hess also agreed to pay $534 million to defray 50% of CONSOL's working interest drilling and completion costs as the acreage is developed. Drilling is to start within weeks.
The development plan calls for Hess to generally operate in the liquids window on 80,000 acres in Belmont, Harrison, Guernsey, and Jefferson counties and CONSOL to generally operate elsewhere in eastern Ohio, including Portage, Tuscarawas, and Mahoning counties in the oil window and in Noble County to the south.
The companies expect to average 2 rigs in 2012, 3.5 rigs in 2013, and 5 rigs in 2015. The carry is expected to be fully utilized by the end of 2016.
CONSOL reconfirmed a 2015 production target of 350 bcf net, to which any Utica volumes would be additive.
CONSOL has held 80,000 acres in Ohio for decades and acquired 120,000 acres in 2010 as part of the Dominion E&P acquisition. CONSOL said it will report a $59 million pretax gain on the Hess transaction.
Vinson & Elkins LLP, which represented CONSOL, said the deal excludes Consol's shallow rights in Ohio and its Utica shale acreage in Pennsylvania and West Virginia.
Lower Miocene sands seen in Lafitte shelf well
Lower Miocene sands that correlate to those onshore Louisiana and in the deepwater Gulf of Mexico have been logged in the Lafitte ultradeep exploratory well on Eugene Island Block 223, said McMoRan Exploration Co., New Orleans.
McMoRan is setting casing at 27,000 ft at the Lafitte well and plans to deepen it to 29,950 ft to evaluate deeper Miocene objectives and possibly the Oligocene section.
The company has drilled the well to 27,038 ft in 140 ft of water, and wireline logs indicate several Lower Miocene sands below 24,300 ft that appear to be hydrocarbon bearing, the company said.
The sands are of various thicknesses that aggregate 200 gross ft (95 ft net), some of which are contained within a thin-bedded, laminated sand-shale formation.
The company said the sands "provide additional confirmation of McMoRan's ultradeep geologic model. Lafitte is McMoRan's third ultradeep prospect to encounter Miocene age sands below the salt weld on the shelf."
McMoRan has 72% working interest in Lafitte. Energy XXI (Bermuda) Ltd. has 18%, and Moncrief Offshore LLC has 10%.
Quebec Macasty shale characteristics encouraging
Junex, Quebec City, Que., has completed an airborne gravity survey over Anticosti Island in the Gulf of St. Lawrence to identify major structural elements in connection with its exploratory play for oil in the Ordovician Macasty shale, stratigraphic equivalent of the Utica shale in the St. Lawrence Lowlands.
The gravity survey is to be followed by seismic surveys and reentry of an existing well and drilling of stratigraphic tests in 2012 and beyond, as well as further drilling.
The company is encouraged by positive lab results from a 1970 ARCO well that indicate large oil potential on its 233,275-acre holding on the island (OGJ Online, June 29, 2011). The ARCO well was drilled to a total depth of 3,850 m as the island's deepest hole and found the Macasty at 2,399-2,487 m.
Lab tests found the Macasty in the well to be 290 ft thick compared in the ARCO well with 131 ft in the Petrolia-Corridor Chaloupe-1 well on the island. The shale mineralogy appears favorable for fracture stimulation with 50% quartz and feldspar, 35% carbonate, and 15% clays.
The Macasty contains Type II kerogen with 1.2 to 3.7 wt % total organic carbon with 4 to 8.6% porosity averaging 6.3%. The Macasty is 800-2,200 m deep on most of Junex's acreage, probably in the oil window.
Drilling & Production — Quick Takes
Shell to explore for unconventional gas in Ukraine
Royal Dutch Shell PLC plans to invest as much as $800 million in exploring for unconventional natural gas in Ukraine, according to government officials who signed a recent cooperative agreement with Shell.
Ukraine's Dnieper-Donets basin, which the government said Shell will explore, contains shale gas in the Famennian, Frasnian, and Visean intervals.
"This agreement will allow us to increase gas exploration in Ukraine in the near future," said Ukraine Energy Minister Yuri Boiko, who forecast that Ukraine might begin shale gas production around 2016-18.
Ukraine President Viktor Yanukovych met with Shell Chief Executive Officer Peter Voser in Ukraine on Sept. 1.
Voser said Shell will provide its experts and technology to intensify and expand energy production in Ukraine.
The agreement mentions six licenses: Shebelynsky, West Shebelynsky, Pavlovsk-Svitlovsky, Melekhivsky, Gersevanivsky, and Novo-Mechebylivsky, a government news release said.
The first stage of the project is estimated at $200 million with $600 million expected to follow.
BP proceeds with Kinnoull oil field development
BP PLC plans to invest as much as £700 million to further develop Kinnoull oil field on Block 16/23 in the central North Sea. The Kinnoull reservoir, which is estimated to contain 45 million bbl of oil equivalent, is considered the largest of three reservoirs being brought on as part of the Andrew Area developments project.
BP expects Kinnoull to reach a peak production of 45,000 boe/d after start up in 2013. The development plan calls for connecting three subsea completed wells in 110-120 m of water to BP's operated Andrew platform on Block 16/28, enabling Andrew to continue production beyond 2020, BP said.
The work will involve the installation of a subsea system and a 130-m riser on the Andrew platform. The subsea system includes four subsea bundles with a 28-km length, which will be the longest bundle system in the world, according to BP.
The bundle contains a 3-in. methanol line, a 6-in. gas lift line, and an insulated 14-in. production line. A tie-in structure lies midway along the bundle system to facilitate development of Arundel oil field, also on Block 16/23.
BP plans to install the pipeline in four separate 7-km sections.
The work also will include the installation of a 750-ton process module on Andrew to facilitate production from the Lower Cretaceous reservoir below the Andrew reservoir.
During the work, BP expects to shut down the Andrew platform for 18 months.
From Andrew, production will enter the existing Forties pipeline to Kinneil and the Central Area Transmission System (CATS) pipeline to Teesside.
BP has a 77.06% interest in the project. Partners are Eni UK Ltd. 16.67% and Summit Petroleum Ltd. 6.27%.
Noble Corp. orders ultradeepwater drillship
Noble Corp. has ordered an ultradeepwater drillship to be built by Hyundai Heavy Industries Co. Ltd., subject to finalization of a construction contract within the next several weeks.
The $630-million drillship, to be named at a later date and as yet uncontracted, is expected to be delivered during the second half of 2014 from a shipyard in Ulsan, South Korea.
It's the fourth such drillship Noble has ordered this year.
David W. Williams, Noble chairman, president, and chief executive officer, said he expects to see increased demand for deepwater drilling rigs.
"This view is bolstered not only by geologic successes in the traditional regions offshore the US Gulf of Mexico and Brazil, but also by emerging regions offshore West Africa, Indonesia, the Black Sea, India, and eastern Africa," Williams said.
The new drillship, based on a Hyundai Gusto P10000 hull design, is designed for operation in 12,000 ft of water, but will be delivered fully equipped to operate in 10,000 ft of water.
The drillship, which will have accommodations for 210 personnel, will have dynamic positioning and the ability to handle two complete blowout preventer systems.
It also will feature multiple parallel activity features that improve well construction and overall project efficiencies, including a heave-compensated construction crane to deploy subsea production equipment.
PROCESSING — Quick Takes
Sunoco exiting oil refining business
Sunoco Inc., Philadelphia, hopes to sell its remaining two refineries and plans to leave the oil refining business to complete what it calls "a fundamental shift away from manufacturing."
The company has retained Credit Suisse Securities (USA) LLC to help it review strategy.
It will try to sell its 330,000-b/cd refinery in Philadelphia and 175,000-b/cd facility at Marcus Hook, Pa. If unsuccessful, it will idle the main processing units in July 2012.
Key processing capacities at Philadelphia are 113,500 b/cd of fluid catalytic cracking, 68,000 b/d of catalytic reforming, 85,600 b/cd of catalytic hydrotreating for pretreatment of reformer feeds, and 78,000 b/cd of cat hydrotreating for diesel desulfurization. The Philadelphia refinery also has 16,700 b/d of alkylation (hydrofluoric acid) capacity.
The Marcus Hook refinery has capacities of 93,000 b/cd for FCC, 15,600 b/cd for cat reforming, 36,000 b/cd of cat hydrotreating for reformer feed, and 12,000 b/cd of posthydotreating for FCC naphtha. It has 10,000 b/d of alkylation (sulfuric acid) capacity.
Sunoco has been restructuring for several years. Earlier this year it completed the sale of its 170,000 b/d refinery in Toledo, Ohio, to Toledo Refining Co. LLC, a unit of PBF Holding Co. LLC (OGJ Online, Mar. 1, 2011).
In 2010 it shut a 150,000 b/d refinery at Eagle Point, NJ, and sold an 85,000-b/d refinery in Tulsa to Holly Corp. (OGJ Online, June 16, 2010).
It also sold its polypropylene business, Sunoco Chemicals Inc., to Braskem SA, and shut down a PP plant in Texas (OGJ Online, Apr. 6, 2010). And it is separating its metallurgical coke business through an initial public offering of shares in SunCoke Energy.
The company expects to incur pretax noncash charges of $1.9-2.2 billion in the third quarter as it exits refining. The charges relate to impairment of plant and equipment. If it must idle process units, it expects additional pretax charges of as much as $500 million related to contract terminations, staffing costs, and severance.
Sunoco has been expanding its remaining business units, retail marketing and logistics.
The company has more than 4,900 branded retail locations in 24 states, with APlus convenience stores operated by it or dealers in 600 of the retail outlets.
It also holds 35% interest in and is general partner of Sunoco Logistics Partners LP, a publicly traded master limited partnership that operates 3,350 miles of crude oil trunkline, 500 miles of crude oil gathering lines, and 2,500 miles of oil product pipelines.
Murphy to sell Meraux refinery to Valero
Murphy Oil Corp. has agreed to sell its 125,000 b/d refinery in Meraux, La., and related properties to Valero Energy Corp. for $625 million.
Murphy, which is withdrawing from the refining business, agreed in July to sell its 33,250 b/d refinery in Superior, Wisc., to Calumet Specialty Products Partners, Indianapolis (OGJ Online, July 26, 2011).
Of the purchase price, an estimated $300 million is for oil inventories at Meraux. The refinery has 37,000 b/d of fluid catalytic cracking capacity and extensive hydrotreating capacity.
The company announced last year that it would sell its three refineries in order to concentrate on exploration and production (OGJ Online, July 23, 2010). David M. Wood, Murphy president and chief executive officer, said the company now will focus on selling its 106,000 b/d refinery in Milford Haven, Wales.
Valero's agreement to purchase the Meraux facility follows the completion last month of its purchase of the 220,000 b/d refinery at Pembroke, Wales, from Chevron Corp., which it announced in March (OGJ Online, Mar. 11, 2011). Valero paid $730 million for the refinery plus marketing and logistical assets and expected to pay $1 billion for inventories.
TRANSPORTATION — Quick Takes
Enterprise, Enbridge, Anadarko plan NGL pipeline
Enterprise Products Partners LP, Enbridge Energy Partners LP, and Anadarko Petroleum Corp. have agreed to design and build an 850-mile natural gas liquids pipeline that extends from Skellytown, Tex., to fractionation and storage facilities in Mont Belvieu, Tex.
The 280,000-b/d Texas Express Pipeline (TEP) will provide additional takeaway capacity to producers in West and Central Texas, the Rocky Mountains, Southern Oklahoma, and the Midcontinent, according to the joint venture, and additional supplies to Gulf Coast petrochemical facilities. TEP can expand to roughly 400,000 b/d given sufficient market interest.
The venture also will build two NGL gathering systems. The first will connect TEP to gas processing plants in the Anadarko-Granite Wash production area in the Texas Panhandle and western Oklahoma. The second will connect the pipeline to Barnett shale processing plants.
Volumes from outside these regions will arrive on the TEP system via Enterprise's Mid-America Pipeline assets between Conway hub and Enterprise's Hobbs NGL fractionation facility in Gaines County, Tex.
Enterprise will build and operate the pipeline, with Enbridge building and operating the gathering systems. The venture expects the pipeline and gathering systems to begin service in second-quarter 2013, subject to regulatory approvals.
Enterprise plans to complete a 75,000 b/d expansion to its Mont Belvieu fractionation facilities by early 2013, bringing total capacity at the site to 450,000 b/d (OGJ Online, June 27, 2010).
Williams gets FERC approval for pipeline expansion
Williams Partners LP received US Federal Energy Regulatory Commission approval for its proposal to expand its Transco natural gas pipeline by 225 MMcfd to serve the Southeast US. The Mid-South Expansion project will provide service on Transco to the City of LaGrange, Ga., Progress Energy Carolinas Inc., and Southern Company Services Inc.
The expansion will include 23 miles of new pipeline, a new compressor facility in Dallas County, Ala., and upgrades to existing compressor facilities in Alabama, Georgia, South Carolina, and North Carolina. Williams will complete the project in two phases: 95,000 MMcfd entering service in fourth-quarter 2012 and 130,000 MMcfd service second-quarter 2013.
Williams estimates the capital cost of the project at $217 million.
In February, Williams requested FERC initiate a pre-filing environmental review of its Northeast Supply Link Expansion, designed to provide 420 MMcfd firm transportation service on the Transco line from interconnections accessing Marcellus shale production along its Leidy line in Pennsylvania to its Station 210 pooling point and existing New York City delivery points. Subject to regulatory approval, Williams expects this expansion to be in full service by November 2013 (OGJ Online, Mar. 5, 2010).
Encana to sell Piceance basin midstream assets
Encana Corp. unit Encana Oil & Gas (USA) Inc. agreed to sell a portion of its Piceance natural gas midstream assets in Colorado to a private midstream company.
The assets included in the sale serve Encana's Mamm Creek, Orchard, and South Parachute production around Rifle, Colo., about 180 miles west of Denver. They gather and transport about 500 MMcfd, and include about 260 miles of pipeline and 90,000 hp of compression.
Encana expects the $590-million sale, subject to regulatory approvals and customary conditions, to close in the fourth quarter.
The company also is divesting its Cabin gas plant, 60 km west of Fort Nelson in British Columbia's Horn River basin, and its Cutbank Ridge midstream assets in northeast British Columbia and northwest Alberta.
Construction on the first of two 400 MMcfd processing trains at the Cabin plant is under way, with Encana stating earlier in the year that it hoped to begin operations in 2012 (OGJ Online, Jan. 18, 2011).
Encana produced 401 MMcfed at Cutbank Ridge in 2010, from the Montney, Cadomin, and Doig formations. The company called off joint-venture talks with PetroChina regarding Cutbank Ridge in June (OGJ Online, June 21, 2011).
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