OGJ Newsletter

Oct. 3, 2011
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

EU steps up sanctions against Syria

The European Union, building on earlier restrictions, announced a widening of sanctions against Syria, banning investment in key areas of the country's oil and gas industry in addition to other measures.

"The restrictive measures are designed to have maximum impact on the Syrian regime, while minimizing any potential negative impacts on the Syrian population," said Catherine Ashton, EU foreign affairs chief.

"The EU will consider further measures in the light of developments," Ashton said, calling for an end to the "brutal campaign" by the Syrian regime against its own population."

Under the extended sanctions, EU-based oil companies will may not acquire stakes in or create joint ventures with Syrian oil companies. The measures prohibit investment in Syrian firms involved in the exploration, production, or refining of oil in Syria and abroad.

The new sanctions, which will be published on Sept. 24, also ban the delivery of Syrian-denominated bank notes and coinage produced in the EU to the Syrian Central Bank.

Non-EU member Switzerland, home to numerous oil-trading firms, also joined the EU oil ban, slapping an embargo on the import, sales, and transport of Syrian oil and products.

Earlier this month, the EU banned oil imports from Syria, saying, "The prohibition concerns purchase, import, and transport of oil and other petroleum products from Syria."

UK Macondo-response group completes work

A UK group formed to study the safety of offshore oil and gas work after the April 2010 Macondo blowout and spill in the Gulf of Mexico has completed its work and disbanded (OGJ Online, May 26, 2010).

The Oil Spill Prevention & Response Advisory Group (OSPRAG), established by Oil & Gas UK, issued a final report listing findings in the areas of well control, spill response, and indemnity and insurance issues.

The group oversaw development of a modular capping device able to stop flow of as much as 75,000 b/d from a well in water as deep as 5,500 ft within 20-30 days of an incident. Manufacturing of the apparatus began in March (OGJ Online, Mar. 15, 2011). The device is based in Northeast Scotland.

The group also called on Oil & Gas UK to create and oversee the Well Life Cycle Practices Forum and Oil Spill Response Forum as "permanent mechanisms" to continue work in its operational areas.

"OSPRAG is confident that the UK stands in good stead to ensure that high standards in well design, construction, and management will continue to be enforced on the UKCS and that, in the unlikely event that a major uncontrolled well incident occurs, the industry's strengthened contingency plans will allow an effective and robust response," the report said.

The final report is available at http://www.oilandgasuk.co.uk/cmsfiles/modules/publications/pdfs/EN022.pdf.

Petrus, Manitok acquire Alberta foothills assets

Calgary independents Manitok Energy Inc. and Petrus Resources Ltd. will acquire central Alberta foothills oil and gas assets from an undisclosed seller for $85 million.

The companies will participate 50-50 in the acquisition, which includes 2,600 b/d of oil equivalent production, 94% natural gas. Closing is set for Oct. 31 retroactive to July 1. Manitok and Petrus plan to jointly operate the assets and establish an area of mutual interest and are in discussions regarding a farmout of Manitok's upcoming drill program on part of its foothills lands.

The acquisition consists of nearly 10 million boe of proved reserves and 6.8 million boe of proved and probable reserves, 63,000 acres of land 50% developed, 2D seismic, Cardium oil and gas locations with further opportunities in Cretaceous reservoirs, and a working interest in a sweet gas processing plant.

Manitok is a public company, and Petrus is a private firm formed by a technical team formerly with Peyto Exploration & Development Corp. to capitalize on natural gas opportunities.

Exploration & DevelopmentQuick Takes

South Australia oil shale deposit indicated

Linc Energy Ltd., Brisbane, said it has discovered an oil shale deposit of more than 200 billion tonnes at 100 m thick in the Arckaringa basin in South Australia 450 miles northwest of Adelaide.

The company said the deposit lies in the Early Permian Stuart Range formation in PEL 122 and is projected to extend into PEL 121. The formation is 2,801 ft deep and covers 284,000 acres. Rock-Eval pyrolysis indicates potential oil yields of 25-45 l/tonne in upper and lower intervals, respectively.

The shale was intersected during completion of the company's Arck-1 stratigraphic exploratory well and is near the oil show at its Maglia-1 exploratory well.

Linc Energy said its current studies indicate that the Stuart Range formation shale is expected to be in the oil generation window at depths over 700 m. The company has identified a large section of the Boorthanna trough some 93 by 12 km where the formation lies at depths in the oil generation window. The trough also has coalbed methane potential (OGJ Online, Mar. 28, 2008).

The Arck-1 well found the formation to be 124 m thick at 854-978 m. The most prospective sequence of black shale is 70 m thick at 899-970 m. The entire section has been wireline cored and logged. Total organic carbon averages 5.4% in the upper sequence and 7.7% in the lower interval. TOC was 10.44% at 954.5 m.

Permian coal intersected while drilling appears to be hosting fluorescence source oil in cleat and natural fractures similar to the results at Maglia-1.

After drilling Arck-1, the rig drilled the Wirrangulla Hill-1 well 10 km north. It encountered oil fluorescence in the upper geological sequences and Stuart Range formation shale thickness similar to Arck-1. Both well locations are in PEL 122 in the southern Boorthanna trough.

The company also drilled two dry holes and has completed shooting 1,153 line-km of 2D seismic in the basin in late August. Seismic interpretation is expected in the first quarter of 2012. Linc Energy said it is "piecing together the potential for a new hydrocarbon producing region."

Cuadrilla has large shale gas find in UK

Cuadrilla Resources estimates there is 200 tcf of natural gas in place at its exploration license area in the Bowland basin shale prospect in northwest England.

Cuadrilla Chief Executive Officer Mark Miller said the firm has as much gas per square mile in Bowland as the successful North American shale plays, adding that Cuadrilla found nearly four times more gas than it was expecting to discover.

However, the firm was also quick to state that the 200 tcf estimate, which it said has not been independently verified, is "preliminary" and "does not constitute certified reserves."

Cuadrilla said the estimate is based on its own assessment of its results from two wells drilled to date and historical data from three 10-15 year old wells drilled by British Gas. A third well is under way.

The company's estimate applies to its 437 sq mile license area located between Blackpool and Preston. The Bowland shale rock formation lies 10,000 ft beneath the surface. It said further exploration and investment is required to confirm the gas-in-place estimate and to assess the proportion that is likely to be recoverable.

"A further 5-7 exploration wells will be drilled by Cuadrilla over the next 18 months before a decision is made on whether or not to proceed with commercial development of the Bowland basin prospect," the firm said.

Analyst Claudia Mahn of IHS Global Insight, who called Cuadrilla's estimate "mind-blowing," said the firm's gas-in-place estimates exceed all prior expectations for shale gas resources in the UK.

"The UK Geological Services had pegged the country's potential unconventional gas reserves at only 5.3 tcf, and Cuadrilla's find could dwarf some of the North Sea's largest gas developments," Mahn said.

Cuadrilla's announcement has raised speculation that the UK could become self-sufficient in gas once more. The country lost its self-sufficiency in 2004, after North Sea gas production entered a steady decline.

Tim Yeo, chairman of Parliament's Energy Select Committee, hailed Cuadrilla's announcement as very good news and more significant than he had anticipated. Yeo saw no practical or regulatory reason to prevent development of shale gas in the UK.

The Bowland basin prospect is 75% owned by Cuadrilla, with AJ Lucas owning the remaining interest.

Poland Baltic shale gas evaluation advancing

3Legs Resources PLC completed tests at two shale gas wells, one of which encountered a new shale interval, in Poland's Baltic basin while Talisman Energy Poland has spudded its first well.

3Legs said the Lebien LE-2H well flowed gas on nitrogen lift at an unstabilized rate declining from 2.2 MMscfd on Sept. 8 to 500 Mscfd on Sept. 13. The company ran tubing and the well continued to flow on nitrogen lift to recover frac water with gas increasing from an initial 380 Mscfd to 450-520 Mscfd on Sept. 25, when 15% of the frac water had been recovered, before being shut-in for further analysis.

Interpretation of logs run after the multistage fracs indicates that the frac propagated to a portion of the reservoir in each of the 13 stages but not to all of the reservoir. The company plans to review frac designs with the intention of improving frac performance on future wells.

The well achieved its two key objectives of attaining a sustained gas production rate and providing critical data for drilling and stimulation design for future wells.

The 3Legs Warblino LE-1H well, 25 km west of Lebien LE-2H, went to a total depth of 3,222 m and encountered a separate deeper interval in addition to the intervals completed at Lebien LE-1 and Lebien LE-2H.

Warblino was sidetracked to drill a horizontal borehole in the deeper interval. After drilling a 1,246-m horizontal lateral of shale with strong gas shows, and just prior to reaching planned total depth, the well encountered hole stability issues and a sidetrack was kicked off to redrill the same section.

The new lateral was drilled to 3,844 m measured depth with a 500-m horizontal section, shorter than originally planned, so as to reduce the risk of encountering hole problems. A stimulation program is pending.

Meanwhile, Talisman has spudded the Lewino-1G2 well on the Gdansk-W concession, said partner San Leon Energy PLC. The Lewino well targets unconventional shale gas in the Lower Silurian, Ordovician, and Upper Cambrian and is the first of a three-well program. The other two wells will be on the Braniewo and Szczawno concessions.

Drilling & ProductionQuick Takes

MWCC adds tanker to its containment system

Marine Well Containment Co. (MWCC) has taken delivery of a Aframax tanker, the Eagle Texas, to add to its expanded oil spill containment system that will be operational in 2012.

The tanker, to be operated by AET Tanker Holdings, soon will undergo extensive conversion and modification before taking up duties in the Gulf of Mexico.

A not-for-profit, stand-alone organization, MWCC is working to improve industry's capabilities to contain a potential underwater well control incident in the gulf.

MWCC has an interim containment system currently available for deployment. It consists of MWCC-owned equipment along with access to mutual aid vessels and equipment.

The expanded containment system will include the Eagle Texas tanker along with one other dedicated capture vessel.

Modular process equipment onboard the capture vessels will separate the oil and gas, store the oil, and flare the gas. Oil will be offloaded to shuttle tankers.

MWCC's expanded system is being built for use in 10,000 ft of water with the capacity to process as much as 100,000 b/d of liquids and as much as 200 MMscfd of gas.

More compression slated for Troll gas field

Statoil and its partners in Troll natural gas field offshore Norway will invest 11 billion kroner for two new compressors on the Troll A platform, which has a concrete gravity-based substructure in 300 m of water.

Statoil said the compressors, scheduled to come on stream in 2015, will enable Troll A to produce 120 million cu m/day until 2018 and ensure a 30 billion cu m/year production until 2024.

The compressors form the final phase of the planned capacity expansion on Troll and will enable gas production from the field until 2063, Statoil said.

First production from the field, discovered in 1983, started in 1996 and the field in 2010 produced about 31 billion cu m of gas and 1 million tonnes of NGL.

Troll currently has a third of all gas capacity from offshore Norway and contains 48% of the remaining gas reserves offshore Norway, according to Statoil.

The planned work will allow for a tie-in of gas from Troll West once oil production at Troll West ends. A new land-based power supply cable to Troll A also will be laid.

Gas from Troll goes onshore to the Kollsnes processing plant before it is delivered to the rest of Europe.

Troll partners are operator Statoil 30.58%, Petoro AS 56%, A/S Norske Shell 8.1%, Total E&P Norge AS 3.69%, and ConocoPhillips Skandinavia AS 1.62%.

PROCESSINGQuick Takes

ConocoPhillips to sell Trainer, Pa., refinery

ConocoPhillips plans to sell its 185,000-b/cd refinery in Trainer, Pa., and associated pipelines and terminals. The major plans to close the plant in 6 months unless a buyer is found.

Meanwhile, ConocoPhillips immediately will begin the process of idling the refinery.

Willie Chiang, ConocoPhillips senior vice-president of refining, said, "US East Coast refining has been under severe market pressure for several years." He attributed this to product imports, weakness in motor fuel demand, and what he called "costly regulatory requirements."

The company expects a noncash asset impairment of $300 million after tax in its third-quarter financial results.

ConocoPhillips will redeploy employees to other positions within the company where possible. Employees who are not redeployed will receive severance benefits and job placement services.

Axens to design units for Saudi refinery

Saudi Aramco has chosen Axens technologies for major processing units at the 400,000-b/d refinery it plans to build in the Jazan area of southern Saudi Arabia (OGJ Online, Feb. 9, 2011).

Axens will design integrated units for naphtha hydrotreating for feedstock purification, continuous catalytic reforming, C5/C6 isomerization, and production of high-purity paraxylene and benzene. It didn't specify capacities.

Axens also is designing the refinery's gas oil hydrotreater, which it describes as "one of the world's largest." The unit will produce diesel with less than 10 ppm sulfur.

KBR has a contract for front-end engineering and design and project management services.

King Abdullah bin Abdul Aziz al-Saudi approved the project in 2006 as part of a broader development program for the southern province (OGJ Online, Jan. 20, 2010).

EPP nears completion of Neptune projects

Enterprise Products Partners LP is nearing completion on a series of infrastructure projects designed to enhance operations at its Neptune cryogenic natural gas processing facility in St. Mary Parish, La. The projects include an 18,000 b/d condensate stabilizer facility at Neptune, pipelines and associated interconnects, additional compression, and installation of other related equipment, including dehydration units.

The company has completed installation of equipment to stabilize condensate developed in the Nautilus offshore pipeline during rich gas transport from the deepwater Gulf of Mexico. The stabilizer replaces a 5,000 b/d unit. In tandem with a 10,000 b/d slug catcher expansion added upstream of Neptune by Enbridge, the stabilizer will promote efficiency by reducing the need to divert off-spec natural gas production.

EPP owns a 26% equity interest in Neptune Pipeline Co. LLC, which owns the Enbridge-operated Nautilus and Manta Ray pipelines.

EPP has added pipe and compression facilities allowing Neptune to process gas from the South Marsh Island area of the gulf received via Columbia Gulf pipeline's East Lateral Efficiency Optimization Project (ELEOP) project. EPP also has added compression and a 500 MMcfd dehydration unit at Neptune to accommodate these additional volumes.

McMoRan Exploration Co., New Orleans, earlier this year cased and temporarily abandoned its Davy Jones-2 appraisal well on South Marsh Island Block 234 until testing can take place in 2012 (OGJ Online, June 29, 2011).

EPP recently completed a 46-mile reroute of its 20-in. OD Anaconda offshore pipeline, linking it to Neptune. EPP also is preceding with plans to add an interconnect to the Manta Ray pipeline at Ship Shoal 207, providing an outlet to ANR pipeline as well as Nautilus and enhancing flow assurance through the Anaconda system should Nautilus become unavailable.

Building a 9-mile pipeline and associated compression carrying offshore gas between the EPP-operated Calumet lean oil facility and Neptune is another component of the enhancement program. ANR and Trunkline production previously processed at Calumet will instead be processed at the Neptune cryogenic plant. The first volumes to Neptune from the Calumet plant, which will be taken out of service, are expected by yearend.

The improvement projects also prepare Neptune to accept incremental volumes from the Walker Ridge Gathering System, currently being built by Enbridge to handle production from discoveries in the ultradeepwater region of the gulf (OGJ Online, Aug. 1, 2009).

TRANSPORTATIONQuick Takes

Veresen, Enbridge to build Tioga pipeline

Veresen Inc. and Enbridge Inc., joint owners of Alliance Pipeline, will build a 120-MMcfd natural gas pipeline lateral and associated facilities to connect production from the Hess Tioga field processing plant in the Bakken region of North Dakota to the Alliance mainline near Sherwood, ND.

Alliance has executed a precedent agreement with Hess Corp. as an anchor shipper on the Tioga Lateral pipeline, including matching capacity on the Alliance mainline. Hess is expanding its Tioga plant to 250 MMcfd from 110 MMcfd, with engineering design to be completed second-quarter 2012 (OGJ Online, May 24, 2011).

The 77-mile Tioga Lateral will transport liquids-rich natural gas to NGL processing facilities owned by Aux Sable Liquids Products at the terminus of the Alliance mainline system. Through the agreement with Hess, Alliance has secured sufficient commitment to proceed with the Tioga Lateral and will hold an open season to solicit additional shipper interest. The pipeline can be expanded based on shipper demand.

Enbridge said the Tioga Lateral, in combination with the recently acquired Prairie Rose Pipeline and Palermo Condensate Recovery Plant (previously known as the Stanley Gas Plant), would allow it to attract additional gas volumes to Alliance and Aux Sable.

Aux Sable (owned by Veresen, Enbridge, and Williams Partners LP) and Hess have reached a concurrent agreement for the provision of NGL services. The partners expect the Tioga Lateral to enter service third-quarter 2013, subject to regulatory and other required approvals.

Enbridge announced plans last year to develop a pipeline delivering NGLs from the Marcellus shale to Aux Sable (OGJ Online, Mar. 24, 2010).

Gas pipeline to be extended to Thetford Mines

Gaz Metro, Montreal, hailed a decision to Quebec regulators to permit the company to extend its natural gas pipeline 80 km from Vallee-Jonction to Black Lake near Thetford Mines, Que., in the St. Lawrence Lowlands.

The extension, involving a $7.2 million investment by Gaz Metro and an $18.1 million federal contribution, also will serve Saint-Frederic, Tring-Jonction, Sacre-Coeur-de Jesus, East Broughton, Saint-Pierre-de-Broughton.

Gaz Metro said 21 customers have signed contracts to buy gas when the extension is completed in late 2012, and the company said 60 more customers are located near the network. Many commercial and industrial customers will convert from fuel oil, cutting greenhouse gas emissions by 31%.

The community has sought a secure gas supply in the Thetford Mines area for 15 years in order to expand its industrial potential, Gaz Metro noted.

Eni sells stakes in pipelines to Fluxys

Eni SPA said it agreed to sell its stakes in German and Swiss pipelines to Fluxys Europe for €850 million as part of a European Union antitrust ruling.

Eni said the sale is part of commitments it made to the European Commission on Sept. 29, 2010, and is subject to its approval. The Italian firms said the sale is expected to be completed by yearend.

Eni last year agreed to sell off three pipelines to settle without a fine an EC probe that concluded it had abused its dominant market position. Had Eni not sold the holdings, it could have faced a penalty of up to 10% of its annual earnings.

Eni sold its holdings in Transitgas for €798 million and its holdings in the Trans Europa Naturgas Pipeline in Germany for €60 million. In June, Eni sold its holding in the Trans Austria Gas pipeline to Italian state lender CDP for €483 million.

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