OGJ Newsletter

Oct. 17, 2011
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

Summit to buy Encana midstream gas assets

Summit Midstream Partners LLC has agreed to buy natural gas transportation facilities in the Piceance basin of the US from Encana Corp. for $590 million.

Summit will acquire 260 miles of pipeline and 90,000 hp of compression facilities transporting about 500 MMcfd of gas from Mamm Creek, Orchard, and South Parachute fields around Rifle, Colo. Summit also has committed to building midstream facilities supporting Encana's work in the Niobrara shale oil play in Colorado.

Encana is directing $1 billion of its 2011 budget toward increasing future liquids recovery in North America (OGJ Online, June 2, 2011).

Earlier this year, Encana sold a gathering system and processing plant near Fort Lupton, Colo., and more recently agreed to sell its interest in the Cabin Gas plant in the Horn River basin of northeast British Columbia (OGJ Online, Oct. 7, 2011).

HollyFrontier, Holly Energy okay logistics deal

Holly Energy Partners LP has agreed to acquire pipelines and other logistical properties at HollyFrontier Corp.'s El Dorado, Kan., and Cheyenne, Wyo., refineries for $340 million.

At closing, the companies will enter into 15-year throughput agreements with minimum annual revenue commitments by HollyFrontier, from which Holly Energy expects additional revenue of $47 million/year.

Holly Energy will pay in promissory notes with an aggregate original principal amount of $150 million and about 3.8 million common units valued at $190 million.

At HollyFrontier's 150,000-b/d El Dorado refinery, the transaction covers storage tanks with 3.7 million bbl of total capacity, a truck-loading rack for oil products and another rack for propane, and related product pipeline connections.

Properties covered by the deal at the 52,000-b/d Cheyenne refinery include 1.8 million bbl of storage tanks, a products-loading rack, two propane-loading spots, three oil lease automatic custody transfer units, and an oil receiving pipeline.

A subsidiary of HollyFrontier holds a 34% interest in Holly Energy, including a 2% general partner interest. Both companies are based in Dallas.

ONGC Videsh, Petrovietnam to cooperate

State-owned ONGC Videsh Ltd. (OVL) of India and Petrovietnam Oil & Gas Group have signed a 3-year agreement to cooperate on a range of oil and gas activities including exploration and production, refining, and transportation in India, Vietnam, and elsewhere.

In Vietnam, OVL, the international arm of Oil & Natural Gas Corp., has a 45% interest in Lan Tay gas field on offshore Block 0.61 operated by BP and a 100% interest in offshore Block 128, on which drilling is in early stages. Petrovietnam reports no interests in India. Last year BP agreed to sell its Vietnamese interests to TNK-BP of Russia (OGJ Online, Oct. 18, 2010). The sale awaits approval.

Breitburn Energy buys gas, oil assets in Wyoming

Breitburn Energy Partners LP acquired natural gas and oil producing assets in the Evanston and Green River basins, primarily in Wyoming, from Cabot Oil & Gas Corp. for $283 million.

The acquisition involves estimated proved reserves of 230 bcf of gas equivalent, including 136 bcf of proved developed reserves. Anticipated 2012 net production is more than 30 MMcfd.

Breitburn acquired 620 producing wells in 16 fields along with more than 90 proved, undeveloped drilling locations and more than 600 additional potential drilling sites.

Through the transaction, Breitburn acquired 255,000 gross acres (about 125,000 net) with 238,000 gross acres (111,500 net) in Wyoming, 15,000 gross acres (13,000 net) in Colorado, and 2,000 gross acres (500 net) in Utah.

The publicly traded partnership of Los Angeles has assets in northern Michigan, the Los Angeles basin in California, Wind River and Big Horn basins in central Wyoming, Green River and Evanston basins of eastern Wyoming, Sunniland trend in Florida, and New Albany shale in Indiana and Kentucky.

IPAA, RegScan launch regulatory compliance system

The Independent Petroleum Association of America and RegScan Inc., a Williamsport, Pa.-based regulatory compliance service company, have launched a compliance system to help producers meet regulatory requirements in Pennsylvania. The IPAA Environmental Compliance System-PA is a timeline-driven system using RegScan's Socrates program to outline regulatory requirements throughout a well's life cycle, IPAA and RegScan said.

"Energy regulations grow more complex every single day, and IPAA has an obligation to help its members meet their compliance needs," IPAA Pres. Barry Russell said. "With expert tools like the IPAA Environmental Compliance System-PA, we can assist them with that daunting task."

The system covers four compliance periods: predrilling, drilling and completion, well production and operation, and plugging and abandonment, IPAA and RegScan said in their Oct. 5 joint announcement. They said it contains all the state's regulatory requirements, fully integrated with fillable forms, encrypted document storage, permit applications, guidance documents, and audit checklists. Managers can assign and monitor tasks from their desktops with the system's Socrates project management platform, they indicated.

IPAA and RegScan said they worked with two consulting engineers, Jim Collins and Jim Erb, to develop the new system.

Exploration & DevelopmentQuick Takes

South Iolotan gas field is world's second-largest

Gaffney, Cline & Associates (GCA) said Turkmenistan's South Iolotan natural gas field is the world's second-largest, with an estimated 21.2 trillion cu m (tcm) of gas reserves. Supergiant Iolotan field was discovered in the country's Amu Daria basin in late-2006 (OGJ Online, Nov. 22, 2006).

In a recent presentation, Jim Gillett, GCA business development manager, said South Iolotan's latest reserves estimate make it second only to giant South Pars gas field, shared by Turkmenistan and Qatar.

"Turkmenistan's gas reserves are more than enough for any potential demand over the foreseeable future, whether it be from China, Russia, Iran, or Europe," Gillett said.

However, Gillet said estimates of the central Asian nation's reserves could increase even more, noting that in addition to South Iolotan, the country's Yashlar field has substantial gas, too. "The current estimated data for both South Iolotan and Yashlar may well increase still further as additional data are acquired," Gillett said. Yashlar, a separate field, could contain 1.45-5 tcm, he said.

Under a previous estimate made by GCA, South Iolotan field was believed to hold as much as 14 tcm of gas.

Rockhopper takes N. Falkland farmout from Desire

Rockhopper Exploration PLC has taken a farmout from Desire Petroleum PLC on the northern part of Tranche D (PL004) license in the North Falkland basin, subject to government approval.

Farmout terms include drilling a well with the Ocean Guardian semisubmersible during the current drilling campaign.

The farmout area covers 23% of Tranche D and comprises part of the area on which a 3D seismic survey was completed earlier in 2011. Processing of the seismic data over the area farmed out has been fast-tracked and has recently been interpreted and evaluated.

The area farmed out has been divided into Areas 1 and 2. Area 1 includes a possible extension of Rockhopper's Sea Lion oil discovery, the recently delineated Shona West prospect, the Casper West prospect, and part of the Beverley prospect.

Rockhopper will pay 100% of the committed well in Area 1 to earn a 52.5% interest. With its existing 7.5% interest, this will bring Rockhopper's equity to 60% with Desire at 40%. Rockhopper becomes operator of Area 1.

By drilling the committed well in Area 1, Rockhopper will also earn a 17.5% interest in Area 2 which, including Rockhopper's existing 7.5% interest, will bring its equity to 25% in that area, with Desire retaining 75% equity as operator.

Area 2 includes the recently delineated Jayne, Shona East, Casper East, and Catriona prospects and part of the Beverley prospect.

Rockhopper, subject to technical approval, will support at its 25% equity a well drilled in Area 2 during the current Ocean Guardian drilling campaign should Desire decide to drill a further well. Drilling this well will depend on further technical work currently being undertaken by Desire and subject to Desire raising any necessary funds. The farmout is also conditional on Rockhopper raising more capital.

Providence sees more of larger Dragon off Ireland

Providence Resources PLC said a 3D seismic inversion study over the 1994 Dragon gas-liquids discovery in the St. George's Channel basin off eastern Ireland indicates the potential for 300 bscf of initial gas in place, triple the earlier estimate.

The Dragon discovery well is in UK Block 103/1, and the Dragon structure extends extends across the median line into Providence-operated SEL 1/07 about 40 km off Ireland. Providence has applied for Block 103/1 as part of a recent UK out-of-round process. Providence also sees increased resource potential in Providence-operated Block 51/1.

The remapping suggests that around 75% of the resource may lie under Irish waters, the reverse of earlier findings. The discovery well is roughly midway between Ireland and Wales.

Providence has begun further reprocessing the 3D seismic data as part of the planning of an appraisal well to be drilled in 2012. The discovery well in 318 ft of water flowed at 20 MMscfd of gas and 120 b/d of 42° gravity liquids from Upper Jurassic Callovian and Oxfordian sands below 7,500 ft (see map, OGJ, Nov. 7, 1994, p. 35).

Drilling & ProductionQuick Takes

US rig count jumps 22 units to 2,012

Baker Hughes Inc. reported the week ended Oct. 7 that US drilling rig activity jumped 22 units to reach a total of 2,012 rigs working—the first time the count was above 2,000 since the week ended Sept. 19, 2008, when the count was 2,018.

Much of this gain was in land rigs, which shot up 17 rigs to 1,961 units working. The total of offshore rigs was up 3 units to 34 working. Inland water rigs also gained, up 2 units to 17.

Of the US rigs working, 1,070 were drilling for oil, up 10 rigs compared with last week. Rigs drilling for natural gas for the week ended Oct. 7 gained 12 units, reaching 935 rigs working.

Among the top-producing US states, Texas was up 8 units to 912 rigs drilling. Oklahoma reached 202, up 6 units; Louisiana gained 4 rigs to 152. Three states gained 2 rigs: Wyoming, 57; Arkansas, 36; and Alaska, 8. Three states were up 1 unit each: North Dakota, 192; Pennsylvania, 110; and West Virginia, 28. New Mexico lost 1 rig to reach 80 and Colorado, at 77, was down 2 rigs. California had 49 rigs working, down 3 units from a week ago.

Chim Sao oil production starts off Vietnam

Premier Oil Vietnam Offshore BV has started production from Chim Sao oil field on Block 12W about 350 km offshore southern Vietnam (OGJ Online, Apr. 18, 2011).

Chim Sao is one of several fields for which state-owned Petrovietnam, a partner, expects production to begin in this year's second half (OGJ Online, July 12, 2011).

Premier said Chim Sao, which lies in 115 m of water, will produce at plateau rates of 25,000 b/d of oil and 25 MMcfd of natural gas.

The field produces through an unstaffed wellhead platform into the Lewek EMAS floating production, storage, and offloading vessel under charter from EOC Ltd., a 46.5%-owned affiliate of Ezra Holdings Ltd. of Singapore. Ezra, EOC, KSI Production Pte. Ltd., and Petrovietnam Transportation Corp. formed PV Keez Pte. Ltd. to supply the Lewek EMAS and related services under the contract with Premier. The contract has a 6-year primary term and can be extended in 1-year increments for up to 6 years.

The FPSO was converted at Keppel Shipyard in Singapore from a 168,000-dwt Suezmax oil tanker. It has storage capacity of 660,000 bbl of oil and can handle production as high as 50,000 b/d.

Chim Sao produces from the Middle Dua formation. Premier made the discovery with the Blackbird 2E-CS-1X well on a tilted fault block 21 km southwest of its Dua oil field.

Chim Sao interests are Premier 53.125%, Santos 31.875%, and Petrovietnam 15%.

Eni starts oil production from Kitan field

Eni Australia has started production from Kitan oil field in the Joint Petroleum Development Area permit JPDA 06-105 between Timor Leste and Australia. Kitan lies 240 km south of Timor Leste's capital of Dili and 550 km north of Darwin, Australia.

Kitan, which is expected to reach peak production of 40,000 bo/d, is being produced through three deepwater subsea completion wells connected to the Glas Dowr floating production, storage, and offloading vessel (OGJ Online, May 24, 2010).

The field was discovered in 2008 and holds an estimated 30-40 million bbl of oil.

Eni is Kitan's operator with a 40% interest; its partners are Inpex Timor Sea (35%) and Talisman Resources (25%).

PROCESSINGQuick Takes

Total restructuring downstream businesses

Total SA is restructuring its downstream business to separate manufacturing from supply and marketing while emphasizing that it remains committed to its integrated structure.

"We remain fully integrated, from oil and gas exploration to the manufacturing and sale of refined products and plastics," said Christophe de Margerie, chairman and chief executive officer.

Some oil and gas companies recently have abandoned integrated organization. Marathon Oil Corp. has spun off its downstream properties into a separate company (OGJ Online, July 1, 2011). And ConocoPhillips has disclosed plans to split into upstream and downstream entities (OGJ Online, July 25, 2011).

Under its new structure, a refining and chemicals division, based in Brussels and Paris with senior managers in Brussels, will operate all downstream production. The operations will include specialty chemicals and fertilizers.

The other new division will oversee global supply and marketing of petroleum products.

At yearend 2010, Total had 2.363 million b/d of refining capacity worldwide in the 24 refineries in which it held interests, operating 12 of them. The refineries are in Western Europe, the US, Africa, and China. In a joint venture with Saudi Aramco, it is building a 400,000 b/d high-conversion refinery at Jubail, Saudi Arabia (OGJ Online, Mar. 30, 2010).

Total's worldwide product sales in 2010 averaged 3.776 million b/d, including trading operations. Its global marketing network last year comprised 17,490 service stations.

Oil minister warns of Indian refining losses

Weakening of the Indian rupee against the US dollar is magnifying losses on product sales incurred by India's state-owned refiners and marketers under price controls.

Jaipal Reddy, minister for petroleum and natural gas, expressed concern for "oil marketing companies" (OMCs) in a government meeting in Mumbai Oct. 10.

India caps retail prices of diesel, "public distribution system" kerosine, and domestic LPG, creating what the government calls "under recoveries" by fuel manufacturers and suppliers.

Since the beginning of September, Reddy said, the rupee-dollar exchange rate has increased to 49:1 from 46:1.

"Weakening by every 1 rupee impacts the cost of diesel, PDS kerosine, and domestic LPG by 8,000 crore rupees [$1.6 billion] per annum," he said. In response to recent increases in prices of imported crude oil, the government eliminated the customs duty on crude oil and cut duties on products by 5%. It also trimmed the excise duty on diesel.

Still, oil marketing companies are sustaining "under recoveries" of $54 million/day on product sales, the minister said.

"OMCs are forced to borrow even for their working capital requirements," he said. "If their financial health deteriorates on account of under recoveries, their ability to discharge assigned task of supplying the entire country with petroleum products would suffer."

India has 21 refineries with capacity totaling 3.87 million b/d, 17 of them operated as public-sector enterprises.

NWRP lets FEED contract for Alberta refinery

North West Redwater Partnership let a contract to Fluor Corp. to provide front-end engineering and design services for a 50,000-b/d bitumen refinery project in Alberta. Project cost is $5 billion (Can.); completion is slated for 2014.

Fluor will be responsible for two sections of the refinery that will upgrade bitumen and will reevaluate the FEED deliverables based on a revised crude slate.

NWRP's bitumen refinery is the only project in the world to combine gasification technology with an integrated carbon dioxide management plan for economic carbon capture and storage through enhanced oil recovery.

NWRP's refinery, which will be north of Edmonton, Alta., will use oil sands bitumen to produce diesel, diluent, naphtha, and other related products.

NWRP is a joint venture of North West Upgrading Inc. and Canadian Natural Resources Ltd.

TRANSPORTATIONQuick Takes

Deliveries through Nabucco could be delayed

The first deliveries of natural gas from Central Asia to Europe via the proposed $10.6 billion Nabucco pipeline would begin in 2018 and not 2017 as planned, according to OMV Chief Executive Officer Gerhard Roiss.

"That's the information we have currently," said Roiss, now on tour in Central Asia this week to discuss possible supply agreements for Nabucco, which is meant to free Europe off its dependency on Russia for gas.

Construction of the 4,000-km Nabucco line is scheduled to start in 2013, with the aim of transporting gas from Caspian and Central Asia region to Austria via Turkey, Bulgaria, Romania, and Hungary.

OMV is one of six equal-share partners in Nabucco alongside Bulgaria's BEH, Hungary's MOL, Romanian Transgaz, Turkish BOTAS, and RWE from Germany.

Teekay LNG, Marubeni to buy Maersk LNG

Teekay LNG Operating LLC and Marubeni Corp. plan to acquire Maersk LNG for $1.4 billion, the parent conglomerate A.P. Moller-Maersk Group announced Oct. 12 in a news release from Copenhagen.

The transaction is expected to be completed by yearend, subject to customer consent and regulatory approval. On May 11, the parent firm announced intentions to sell the LNG business so it could reallocate resources to areas within the group.

"Maersk LNG does not in itself have the necessary scale to significantly influence the overall development of the industry," A.P. Moller-Maersk said. "The conclusion is that Maersk LNG would benefit from a different ownership."

Through its subsidiaries, Maersk LNG owns six LNG vessels and owns 26% interest in two vessels through limited partnerships. The sales agreement involves all eight vessels. Upon completion of the transaction, the A.P. Moller-Maersk Group will no longer own LNG vessels.

Chevron lets contract for Wheatstone LNG

Chevron Australia has awarded a $235 million (Aus.) construction management contract for the Wheatstone LNG project to WorleyParsons.

The work will be overseen by personnel in Perth, Houston, and onsite at the Ashburton North plant area as well as selected fabrication yards throughout Asia.

It is the first major contract for Wheatstone since Chevron made its final investment decision last month.

The 8.9 million tonne/year, 2-train LNG project plus domestic gas plant is expected to generate $20 billion (Aus.) in revenues for the government and provide an estimated $17 billion (Aus.) to Australian businesses and services over the project life. Gas feed will be from the Wheatstone, Iago, Julimar, and Brunello fields.

EPP starts open season on ethane pipeline

Enterprise Products Partners LP (EPP) started a binding open commitment period for capacity on its proposed 1,230-mile ethane pipeline between the Marcellus and Utica shale regions in Pennsylvania, West Virginia, and Ohio and the US Gulf Coast. The pipeline would have an initial capacity of 125,000 b/d, expandable to meet demand, delivering ethane to EPP's NGL storage complex at Mont Belvieu, Tex. EPP expects the line to begin commercial operations in first-quarter 2014.

The project will use a combination of new and existing systems. The northern portion of the proposed system involves building a line from Washington County, Pa., following existing pipeline corridors, to Cape Girardeau, Mo., where it will interconnect with EPP's existing 16-in. OD TE Products Pipeline.

EPP will reverse flow on TE Products to deliver ethane to the Gulf Coast. From TE's current terminus in Beaumont, Tex., EPP will build a 55-mile pipeline to its Mont Belvieu facility.

EPP has already met with interested shippers willing to execute long-term contracts to support the project, and expects sufficient market support during the open commitment period, Oct 11-Nov. 10, to move forward with the pipeline.

EPP is building a fifth 75,000 b/d NGL fractionation train at Mont Belvieu to be in service in early 2012, bringing nameplate capacity to 380,000 b/d (OGJ Online, Dec. 1, 2010). The company is also building a pipeline to move mixed NGLs from the Eagle Ford shale to Mont Belvieu.

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