OGJ Newsletter

Sept. 26, 2011
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

Apache to buy North Sea assets for $1.75 billion

Apache North Sea Ltd., a subsidiary of Houston independent Apache Corp., has agreed to acquire ExxonMobil Corp.'s Mobil North Sea LLC assets, which includes Beryl field and related properties, for $1.75 billion.

The fields have current net production of 19,000 bbl of oil and natural gas liquids and 58 MMcfd of natural gas. At yearend 2010, estimated proved reserves totaled 68 million boe.

The transaction, with a planned close at yearend, is expected to increase Apache's North Sea production by 54% and proved reserves by 44%, the company said.

The assets to be acquired include operated interests in the Beryl, Nevis, Ness, Nevis South, Skene, and Buckland fields; operated interest in the Beryl-Brae gas pipeline and the SAGE gas plant; nonoperated interests in Maclure, Scott, and Telford fields; and Benbecula (West of Shetlands) exploration acreage.

"These major legacy assets will expand Apache's presence in the North Sea. They bring us significant remaining life, high production efficiency and quality reservoirs—the best North Sea assets we've evaluated since acquiring the Forties field in 2003," said G. Steven Farris, Apache's chairman and chief executive officer. "There is a portfolio of low-risk exploitation projects, and we believe the complex structural setting holds reserve upside."

Since acquiring Forties field, Apache has drilled about 100 development wells, invested $3.2 billion, produced 161 million boe, and added an estimated 171 million boe in new reserves.

Second-quarter 2011 net production from Forties averaged 56,985 bo/d, up from 33,000 bo/d in second-quarter 2003, after Apache assumed operations.

Apache said it will take on the ExxonMobil employees currently supporting the former Mobil North Sea assets.

The transaction is subject to regulatory approvals and preferential rights. Apache intends to fund the acquisition with cash.

US House committee passes pipeline safety bill

The US House Energy and Commerce Committee on Sept. 21 unanimously approved a bill reauthorizing the federal Pipeline Safety Act. The measure, HR 2937, now has to be reconciled with HR 2845, which the Transportation and Infrastructure Committee passed on Sept. 9.

Pipeline associations applauded HR 2937's passage by the committee. Association of Oil Pipe Lines President Andrew J. Black said that its provisions prohibiting one-call exemptions for state and local governments, and requirements for studies of leak detection and one-call exemptions should help continue a downward trend in liquid pipeline accidents.

"The two House committees of jurisdiction on this issue have worked quickly to produce their own versions of pipeline safety legislation," noted Donald F. Santa, president of the Interstate Natural Gas Association of America. "INGAA believes that these two bills can be 'merged' into an achievable compromise and presented to the House in the next few weeks."

Black also called on the US Senate to approve S 275, a pipeline safety bill which the Commerce, Science, and Transportation Committee unanimously adopted on July 7.

In a separate statement, Carl Weimer, executive director of the Pipeline Safety Trust, said that HR 2937, while not perfect, was the strongest passed by Congress so far and would integrate easily with the Senate's bill.

OPEC recognizes Libya's opposition NTC

The Organization of Petroleum Exporting Countries has recognized the National Transitional Council as Libya's representative to the group, according to its Sec. Gen. Abdullah al-Badri.

"The UN tells us to recognize the [NTC]. So yes, OPEC will recognize it," said al-Badri, a Libyan national, following the United Nations decision on Sept. 16 to recognize the group.

UN members voted 114-17 to allow envoys of the opposition NTC to take Libya's seat at meetings of the world body this week, including the General Assembly. Venezuela and Cuba opposed the move, and another 15 nations abstained from the vote.

In addition to approving representation by the NTC, the UN also dropped sanctions against Libya's National Oil Corp. and Zueitina Oil Co., and eased restrictions on four banks in an effort to boost the nation's recovery from the war that toppled Gadhafi.

Meanwhile, al-Badri said Saudi Arabia and its gulf OPEC allies, which raised their oil production to offset lost production from the North African country, are certain to gradually decrease their output as Libya's own production recovers towards prewar levels.

Production in fields in central areas of Libya could be back to prewar levels of 1.6 million b/d in 15 months, while other areas might take longer, said al-Badri who served as Libya's energy minister in 1990-2000 and also headed its NOC until 2006.

Exploration & DevelopmentQuick Takes

Court ruling clouds ownership of Marcellus gas

A ruling by the Superior Court of Pennsylvania has introduced uncertainty into the ownership of natural gas in the Marcellus shale in the state.

In the Butler case, the court remanded a lower court ruling and held that plaintiffs should be given the right to develop a record to prove that Marcellus shale gas is not the type of gas contemplated in an earlier case known as Dunham and that shale may be more similar to coal than to conventional oil and gas reservoirs.

Under Pennsylvania's nearly unique position that coalbed methane is owned by the owner of the coal, could cause some companies to defer drilling on parcels that rely on any application of the Dunham ruling, said Russell Schetroma of the energy team at Steptoe & Johnson PLLC, Canonsburg, Pa.

Schectoma called the ruling "unfortunate" and said it has "the potential for judicially-caused land title chaos affecting the Commonwealth's greatest potential driver of wealth and employment."

Apache has more drilling success in Egypt

Houston independent Apache Corp. reported continued oil and natural gas drilling successes in Egypt's Western Desert, saying the Tayim South 1-X well marked the company's highest oil rate completion there.

On test, the Tayim South 1-X well flowed 8,196 b/d of oil. The well is the latest in a series of discoveries in the Faghur basin.

Meanwhile, in the Lower Bahariya formation, the AG-90 development well in Abu Gharadig field flowed 7,614 b/d of oil and 1.5 MMcfd of gas during a completion test.

The Tayim South discovery is along a prominent east-west fault trend stretching about 25 miles, all within Apache-operated concession boundaries. It includes productive intervals in the Cretaceous Alam El Buieb, Safa, and Paleozoic formations.

Apache drilled 13 exploratory tests along this trend during 2011, 11 of which were discoveries.

In Abu Gharadig field, the AG-90 well was part of what Apache calls its aggressive oil campaign. The well encountered 189 ft of pay in six separate zones.

It was completed with 18 ft of perforations from a total 84 net ft of oil pay in the Lower Bahariya and is producing 5,200 b/d of oil and 5 MMcfd of gas.

Apache has drilled 11 successful wells in Abu Gharadig field.

Aldous Major North find warrants more drilling

A partnership led by Statoil Petroleum AS will consider further exploratory drilling to clarify the potential of the Aldous Major North structure in the North Sea off Norway.

Samples from Well 16/2-9S, 12 km northwest of the Aldous Major South 16/2-8 oil discovery, proved an oil column as thick as 8 m in Upper Jurassic, the same formation as at Aldous Major South. Well 16/2-9S went to 2,047 m true vertical depth subsea in 115 m of water.

The wells are on separate structures in the PL 265 license. The group will consider more drilling at Aldous Major North because the reservoir was thinner and of lesser quality than anticipated.

Statoil held firm to its previous estimate that the Aldous Major South and Avaldsnes discoveries may constitute an oil structure of 500 million-1.2 billion bbl of oil equivalent recoverable.

On completion of Well 16/2-9S, the Transocean Leader semisubmersible will drill the 16/2-10 appraisal well at Aldous Major South.

Statoil is operator of PL 265 with 40% interest, Petoro has 30%, Det norske oljeselskap 20%, and Lundin Petroleum AB 10%.

Solimoes wildcat cased to test oil, wet gas shows

HRT Participacoes em Petroleo SA, Rio de Janeiro, notified Brazil's ANP that its 1-HRT-3-AM wildcat on Solimoes basin Block SOL-T-168 in northwestern Brazil encountered shows of oil and wet gas and has been cased for formation tests.

The well went to a total depth of 2,680 m in crystalline basement about 7.5 km northwest of Carauari municipal district in Amazonas state.

No oil was observed in drill cuttings, HRT said, but gas chromatography-mass spectrometry identified the presence of liquid hydrocarbons in the Carboniferous Jurua formation and Devonian Uere formation. HRT also ran electric logs, wireline formation tests, and nuclear magnetic resonance and obtained sidewall cores.

HRT has 55% interest in 21 blocks in the western Solimoes basin and has mapped 52 prospects (see map, OGJ, Feb. 7, 2011, p. 54).

Drilling & ProductionQuick Takes

Statoil outlines offshore Troll redevelopment

Statoil and its partners plan to invest 11 billion kroner in two new compressors on Troll A platform in the North Sea to enable natural gas production with reduced wellhead pressure and to extend the life of the field.

The new compressors are expected to extend gas production from the field until 2063.

New compressors also pave the way for the tie-in of gas from Troll West once oil production ends. The two compressors are scheduled to come on stream in 2015, enabling Troll A to produce 120 million cu m/day until 2018 and 30 billion cu m/year until 2024.

Hans Jakob Hegge, Statoil senior vice-president for operations North Sea east, said Troll A accounts for one third of all gas capacity on the Norwegian Continental Shelf.

Statoil awarded Aibel a 2.7 billion kroner contract for modules and modifications for two new precompressors. Aibel will provide engineering, procurement, onshore construction, and integrated offshore construction and completion work to upgrade Troll A's precompression capacity.

The work was scheduled to start immediately, with offshore installation starting in 2012.

BG orders subsea equipment for Knarr, off Norway

BG Norge AS let a $135 million contract to FMC Technologies Inc. for the manufacture and supply of subsea production equipment for development of Knarr oil and gas field on Block 34/3 in the North Tapen area, offshore Norway. Knarr field, formerly known as Jordbaer, lies in 1,320 ft of water.

The contract includes the supply of three subsea production trees and three water injection trees. FMC also will provide six subsea control modules, five wellheads, two manifolds, and other related equipment and controls.

The subsea wells will produce to a leased floating production, storage, and offloading vessel. BG Norge expects first production in 2014.

According to Norwegian Petroleum Directorate records, the discovery well, 31/3-1S was drilled to 4,081 m true vertical depth (4,221 m measured depth) and completed in September 2008. The well encountered hydrocarbons in the Early Jurassic Cook formation.

The well on a drillstem test flowed from the Cook formation, at 3,750.2-3832.5 m TVD, 42,789 cu m/day of gas and 1,239 cu m/day of oil through a 24/64-in. choke. The oil had a 0.798 g/cc density and gas gravity was 0.795 (air=1) with 2 ppm hydrogen sulfide and 2% carbon dioxide.

BG competed an appraisal well, 34/3-1A, in October 2008. This well encountered the Cook formation at 3,833 m TVD. From the pressure gradient, the oil-water contact was estimated at about 3,886 m TVD.

The field's recoverable resources are 7.97 million cu m of oil, 240 million cu m of gas, and 0.56 million tonnes of NGL, according to NPD records.

Husky sanctions Liwan gas project offshore China

Husky Energy Inc. has sanctioned the development of the Liwan 3-1 and Liuhua 34-2 fields, the main two fields in the South China Sea Liwan gas project.

The project will bring onstream three gas discoveries on Block 29/26 about 300 km southeast of Hong Kong.

Husky has submitted the overall development plan for Liwan 3-1 to the Chinese government for regulatory approval and completed a gas sales agreement for Liwan 3-1 production with CNOOC Gas & Power Group, Guangdong branch. The production will supply the Guangdong Province natural gas grid from an onshore gas plant at Gaolan Island, Zhuahai.

Husky expects first gas deliveries in 2013-14, with production ramping up through 2014 towards 300 MMcfd. After development of the third field, Liuhua 29-1, Husky expects the project to produce about 500 MMcfd in 2015.

Husky operates the project and holds a 49% interest. China National Offshore Oil Corp. holds the remaining interest.

PROCESSINGQuick Takes

NPC to complete transportation fuels study next year

A National Petroleum Council committee looking at needs for future transportation fuel will require more time to complete its work, its chairman told council members during a recent meeting. At the same meeting, NPC members approved another study calling for prudent development of North American oil and gas resources.

"We said from the beginning that this is a complex and far-reaching issue," said Clarence P. Cazalot Jr., who also is Marathon Oil Corp.'s chief executive. "As a result, it will take a little longer than we expected to complete it, but we hope to have a final version by the spring of next year and June 1 at the latest."

Linda A. Capuano, Marathon's vice-president of technology who chairs the study's coordinating subcommittee, said US Sec. of Energy Steven Chu asked for an examination of future transportation fuel prospects through 2050 for auto, truck, air, rail, and waterborne transport that addresses fuel demand, supply, infrastructure, and technology.

"At its heart, this is a technology study," she said, adding, "It will advise on policy options and pathways for integrated new fuels and vehicles into the marketplace, including infrastructure development. It also will address the transition to an expanded suite of reliable, secure, and clean, low-carbon transportation fuels; and evaluate options, risks, and consequences."

Chu, who attended the NPC's Sept. 15 meeting, said he was looking forward to the report. Finding workable and economic alternatives to petroleum for transportation fuels is going to take decades, he observed. "If you look back, you'll find energy goals such as reducing oil imports transcend administrations and annual budgets," Chu said. "Your industry will have to be closely involved in this because it will do the actual implementation."

Jubail refinery to launch in 2013

Saudi Aramco Total Refinery & Petrochemicals Co. (Satorp) expects its $14 billion refinery at Jubail in Saudi Arabia to be fully operational by yearend 2013.

"Overall engineering, procurement, and construction work at the refinery is 68% complete," said Satorp Chief Executive Officer Fawwaz Nawwab, adding that Aramco expects to supply the facility with as much as 440,000 b/d of oil for 30 years.

The refinery will process Saudi heavy crude into a range of fuels for domestic consumption as well as for export, with diesel and jet fuel representing 54% of the project's output at 11.4 million tons/year.

Nawwab estimated that production of gasoline and petcoke will reach 2.8 million tpy and 2.1 million tpy, with the amount available for export dependant on depend on seasonal demand within the kingdom. "Demand fluctuates with the season how much of the production goes to local versus international market depends on demand," Nawwab said.

Although Saudi Arabia subsidizes fuel, Nawwab said Satorp will sell its products to Aramco at international prices, and that Aramco would then bear the costs of reselling to the domestic market at discounted rates.

"For Satorp, we sell at international price both to Total and Aramco that is the case by the way for other joint venture refineries in Saudi Arabia," Nawwab said.

To help finance the refinery project, the venture partners are poised to issue up to $1 billion in Islamic bonds, or sukuk, with final pricing expected by the end of the month.

Final pricing for the sukuk, which will be calculated on the basis of 6-month Saudi interbank offered rate, is expected on Sept. 28 and final allocations are due for completion on Oct. 3, with settlement expected on Oct. 8.

Usman Sikandar, director and co-head of investment banking at Saudi Fransi Capital, said the sukuk would mature about 11 years after completion of the refinery in December 2013.

TRANSPORTATIONQuick Takes

KMEP to develop train-to-pipeline distribution

Kinder Morgan Energy Partners LP, the Tampa Port Authority (TPA) and CSX Corp. will bring ethanol into the Tampa Bay, Fla., market via a new ethanol unit train-to-pipeline distribution system.

The joint intermodal project involves TPA building rail track and support infrastructure to handle 100-car unit train deliveries and a multiproduct unit train offloading yard at Hooker's Point, in the Port of Tampa. The rail facilities will allow CSX to transport ethanol from Midwest producers to central Florida in 100-car unit trains. The ethanol will then be offloaded into KMEP's Tampa terminal for distribution to blend terminals and market via pipeline.

KMEP says the project will reduce ethanol delivery's carbon footprint through more efficient use of rail capacity and pipelines movement and is a safer than trucks for local deliveries. The rail project also will allow TPA to move containers and other general cargoes directly from dock to rail.

KMEP will expand its ethanol receipt and distribution system within its terminal at the Port of Tampa and modify its 2-mile, 8-in. OD Inter-Terminal Transfer (ITT) pipeline to move denatured ethanol from its terminal to all Hooker's Point terminals for blending and distribution to the market.

The companies expect the project to be operational by September 2012. TPA and CSX are investing more than $10.9 million to construct the project's rail facilities.

Enagas to buy share of Canary LNG terminal

Enagas has agreed to buy Regional Canaria de Energias SL from Canary Islands industrial shareholders in a transaction that gives the Spanish natural gas pipeline operator 41.94% in Compania Transportista de Gas Canarias SA (Gascan).

Gascan was incorporated for the purpose of building two LNG regasification plants: one on Tenerife and the other on Gran Canaria. The acquisition is subject to administrative and antitrust review, according to Enagas.

Upon completion, Gascan's shareholder base will consist of Enagas; Endesa, 47.18%; and Sodecan, a public company owned by the Canary government, 10.88%.

The regasification plant on Tenerife will be at Puerto de Granadilla and the plant on Gran Canaria will be built at Puerto de Arinaga. Each terminal will have a 150,000 cu m LNG storage tank, a sendout capacity of 150,000 cu m/hr, and a dock to receive LNG carriers with capacity of up to 145,000 cu m. The Tenerife project, which Enagas says is currently more advanced, has already obtained an environmental impact statement.

Acquisition of a stake in Gascan by Enagas represents a significant boost for both projects, said the announcement. "The regasification plants will allow the Canary Islands to diversify their energy sources and reduce their current dependency on oil, which will translate into greater supply security. These infrastructures will also contribute to reducing pollutant gas and greenhouse gas emissions," it said.

Petrobras begins Lula-Mexilhao pipeline operations

The consortium operating Block BM-S-11 offshore Brazil has opened the 10 million cu m/day Lula-Mexilhao natural gas pipeline. The consortium is comprised of operator Petroleo Brasileiro SA 65%, BG Group 25%, and Petrogal Brasil SA-Galp Energia 10%. The system connects the presalt Lula field to the Mexilhao platform in the Santos basin's shallow waters.

The 18-in. OD Lula-Mexilhao pipeline, operating at 250 bar, extends 216 km, starting 2,145 m below sea level at the Cidade de Angra dos Reis floating production, storage, and offloading vessel, and ending at the Mexilhao platform, at a depth of 172 m. Petrobras describes Mexilhao as the largest fixed production unit in Brazil and the new pipeline as the deepest and longest undersea pipeline ever laid in Brazil.

The new pipeline will also transport natural gas from other fields developed as part of Phase 1 of Santos basin presalt operations, with connections to the FPSOs developing each, two in the Tupi field, one in Guara (OGJ Online, Dec. 10, 2010).

The Lula-Mexilhao pipeline connects to other Petrobras facilities, including the pipeline connecting the Mexilhao field to the Monteiro Lobato Gas Treatment Unit in Caraguatatuba, Sao Paulo, and the Caraguatatuba-Taubate pipeline, which transports processed gas to the domestic market distribution network.

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