OGJ Newsletter

Oct. 21, 2013

GENERAL INTERESTQuick Takes

API urges EPA to withdraw its Tier 3 regulations

The American Petroleum Institute urged the US Environmental Protection Agency to withdraw its Tier 3 gasoline regulations because they are too costly, provide scant environmental benefits, and don't allow enough time for them to be implemented reasonably.

"To date, EPA has failed to provide the evidence that this new standard would appreciably improve air quality," said Patrick Kelly, API's senior fuels policy advisor. "In fact, EPA's proposed 10 ppm standard is completely arbitrary, not at all supported by science."

The new standard could create $10 billion of capital expenses and $2.4 billion/year, or 6-8¢/gal, of annual compliance costs, according to a study by Baker & O'Brien, he said in an Oct. 10 teleconference with reporters.

The study also shows that the process of removing the last bits of sulfur from gasoline will actually increase carbon dioxide emissions at US refineries because of the energy-intensive hydrotreating equipment needed to meet the new standard, according to Kelly.

"EPA has proposed that refiners create this new fuel in less than 3 years," he said. "The rushed timeframe leaves little opportunity for refiners to design, engineer, permit, construct, start up, and integrate the new machinery required. This accelerated implementation only adds costs and potentially limits our industry's ability to supply gasoline to consumers."

Kelly said no one disputes the need for regulations that protect the public's health or the nation's environment. "But EPA should consider the negative economic impacts of this rule," he said, adding, "And due to the lack of sound science and economic analysis to support this new standard, we believe it should withdraw the rule entirely."

Appeal court sides with BP, halts some oil spill payments

BP PLC said it was "extremely pleased" by a federal appeals court in New Orleans that set aside the claims administrator's interpretation of the business economic loss framework in a settlement agreement reached last year.

The Fifth Circuit Court of Appeals Oct. 2 ordered US District Court Judge Carl Barbier to write a "narrowly tailored injunction" halting some payouts to businesses and individuals while the lower court continues to study questions raised by BP.

The ruling will at least temporarily slow the pace of payments worth hundreds of millions of dollars that BP was making under a class-action settlement related to the Gulf of Mexico oil spill from the deepwater Macondo well blowout in April 2010.

Geoff Morrell, BP senior vice-president of communications, said the ruling affirmed BP's stance regaining claims from the Macondo blowout and resulting explosion and fire on the Deepwater Horizon semisubmersible.

"Claimants should not be paid for fictitious or wholly nonexistent losses. We are gratified that the systematic payment of such claims by the claims administrator must now come to an end," Morrell said.

Last year, BP estimated it would have to pay out $7.8 billion but later the company it could not estimate costs because it claimed a court-appointed fund administrator improperly calculated claims.

Meanwhile, Judge Barbier has started the second phase of a three-phase civil trial to efforts to determine how much BP might have to pay in Clean Water Act fines for the oil spill (OGJ Online, Oct. 2, 2013).

Zichal resigns as chief energy and climate advisor

Heather Zichal has resigned as US President Barack Obama's deputy assistant for energy and climate change. Recently the White House's main public voice on such matters, she was a major architect of the climate change initiative Obama announced in June.

Zichal joined the Obama administration after serving as energy advisor in Obama's 2008 presidential campaign. She previously was then-US Sen. John F. Kerry's (D-Mass.) legislative director after managing energy and environmental issues in his 2004 presidential campaign.

A White House spokesman issued a statement on Oct. 7 saying her service and contributions had been valuable, and she will be missed. No replacement has been named.

Both oil and gas associations and environmental groups responded to the news. "Heather has been a tireless, effective, and honest broker on some of the more contentious energy issues before our nation," America's Natural Gas Alliance Pres. Martin J. Durbin said.

The climate-change strategy Zichal helped create include the first-ever proposal to limit carbon emissions from new power plants, Environmental Defense Fund Pres. Fred Krupp noted.

"During her 5-year tenure [at the White House]…the US also adopted rigorous limits on the toxic mercury emissions from power plants to protect our communities and families, and established historic cleaner car standards that will strengthen our national security, save Americans' money at the [gasoline] pump, and cut climate pollution," Krupp said.

Chevron Phillips Chemical reports management changes

Chevron Phillips Chemical Co. LLC reported several management appointments.

Rick Roberts, senior vice-president, manufacturing, will retire after 37 years with Chevron Phillips Chemical and Chevron, prompting changes that will take effect Dec. 1.

Dan Coombs, currently senior vice-president, specialties, aromatics, and styrenics, will become senior vice-president, manufacturing.

Ron Corn, currently vice-president, corporate planning and development, will become senior vice-president, specialties, aromatics, and styrenics.

Jim Telljohann, currently manager, global business development, will become vice-president, corporate planning and development.

Exploration & DevelopmentQuick Takes

PostRock to acquire central Oklahoma properties

PostRock Energy Corp., Oklahoma City, will acquire 22,000 net acres of leasehold in central Oklahoma that has current oil production and more than 10 million bbl of oil equivalent of potential in multiple reservoirs including the Woodford shale.

Consideration is $3 million cash and $7 million in PostRock common stock, giving the undisclosed sellers a large stake in PostRock Energy. Closing is expected within 30 days, retroactive to July 1.

About 9,000 of the 22,000 net acres in Pottawatomie, Cleveland, and McCain counties are held by production totaling 50 net boe/d from several formations at 3,000-6,000 ft. The acquisition will bring the company's lease position in the area to more than 34,000 net acres.

PostRock estimates that the net proved reserves being acquired total 574,000 boe, 95% oil and 60% developed.

The Woodford is believed to be 200-300 ft thick at 4,500-6,500 ft across the entirety of the acreage.

Terry W. Carter, president and chief executive officer, said, "With this acquisition, we believe we could have as many as 200 potential drilling locations with exposure to more than 10 million boe of recoverable reserves. Importantly, the sellers' willingness to become major stockholders…is a significant third party endorsement of how far the company has come."

Contact hails tight gas-liquids well results

Contact Exploration Inc., Calgary, said completion of its fourth operated horizontal Middle Montney formation tight gas-liquids well extends the scope and magnitude of the company's East Kakwa project in Alberta.

The horizontal 5-23-63-6w6 well averaged 3.7 MMscfd of gas and 815 b/d of condensate in the last 24 hr of a 170-hr flowback period against anticipated gathering system pressure of 2,000 kPa.

Contact said the 5-23 well continues to demonstrate a high ratio of condensate to natural gas production from the Kakwa Montney play, averaging condensate at 195 bbl/MMscf for the entire test. The well's total depth is 70-100 m vertically deeper and wellsite 2 miles farther west than any other Contact-operated Kakwa well.

Encouraged by the initial rates, the company cautioned that they are not necessarily indicative of long-term performance or of ultimate recovery.

Contact plans to release 30-day initial production rates from other Kakwa wells, the results of which are expected to be more reflective of longer-term performance.

Facilities and pipeline work are starting to provide for tie-in of production from the 5-23 well into company-operated infrastructure, including the 16-7-63-5w6 compressor station and condensate stabilization facility. Construction of the 16-7 facility with start-up set for December.

Contact continues to improve the design of its Kakwa operated wells. The company spudded its fifth operated Kakwa well at 16-25-63-5w6 on Sept. 10, 2013, and reached a total depth of 4,680 m after 33.5 days of drilling, a 25% reduction in drilling time from other Contact-operated Kakwa wells. Production casing is being run, and completion will start in November.

Contact signed a 1-year drilling contract that secures a rig for use at Kakwa. The rig will spud the next 25% working interest Montney well at the 16-8-63-5w6 surface location toward a bottomhole spot at 16-17-63-5w6 in November.

Moqueta field oil output buoys Gran Tierra

Gran Tierra Energy Inc. has added three appraisal wells to its fourth-quarter program in Moqueta field in Colombia's Putumayo basin after the Moqueta-11 well tested a combined rate of nearly 1,600 b/d of oil from two zones.

The company said its third quarter net production averaged 18,900 b/d, 97% oil, in Colombia, 2,800 b/d, 82% oil, in Argentina, and 800 b/d of oil in Brazil. Output was above expectations due to the continued strong reservoir performance by Costayaco field and successful execution of transportation strategies.

Moqueta-11 on the southern flank of the Moqueta structure encountered oil in the T-sandstone and Caballos formations. The well averaged 802 b/d of 27.2° gravity oil with a 0.3% water cut from T-sandstone perforations at 6,812-912 ft measured depth. The well also averaged 756 b/d of 27.4° gravity oil with a 0.3% water cut on a hydraulic jet pump from Caballos perforated at 7,043-7,333 ft MD.

The top of the Villeta T-sandstone is 290 ft lower at Moqueta-11 than the lowest known oil encountered in the field at Moqueta-7 well, suggesting the oil column is 290 ft thicker than previously defined. The gross oil columns are now understood to be 765 ft thick in the Villeta T-sandstone and 960 ft thick in the Caballos.

Results indicate that additional oil potentially exists further down the flank of the Moqueta structure. Moqueta-12, first of the three added appraisal wells, was spudded Sept. 23 and targets a reservoir farther south in a previously untested block 270 ft downdip of the lowest known oil encountered at Moqueta-11.

By yearend, Gran Tierra expects to drill Corunta-1 northeasterly from the Costayaco-17 well pad targeting what is believed to be a downthrown fault block extension west of Moqueta field. Zapotero-1 will target the southeastern part of the Moqueta structure.

Meanwhile, Gran Tierra expects to spud the Miraflor West-1 exploratory well in November on the Guayuyaco block in the Putumayo basin targeting the same Cretaceous sandstone reservoirs encountered at Costayaco and Moqueta oil fields.

On the Llanos-22 block, CEPSA and Gran Tierra expect to reach total depth this month at the Mayalito-1 well that is exploring a shallow prospect and testing deeper hydrocarbon-bearing zones encountered but not tested by the successful Ramiriqui-1 oil discovery well.

Drilling & ProductionQuick Takes

RWE, Sterling start UK Breagh gas production

RWE Dea UK started gas production Oct. 12 at Breagh field, one of the largest discoveries under development in the UK North Sea Southern Gas basin.

Initial production was controlled to allow final plant proving and commissioning, before being ramped up to 97 MMscfd from the A01, A03, and A04 wells. As the A02 and A05 wells are brought fully onstream, gross production is expected to reach 135 MMscfd during November.

Sterling Resources Ltd., Calgary, was awarded the Breagh licenses as operator on a 100% basis in 2004. The company furthered appraisal of the field by drilling wells in 2007 and 2008 and undertook development scoping work.

RWE Dea UK acquired its current 70% interest and became operator in 2009, and Sterling retained 30%.

Breagh is in 62 m of water on UK Continental Shelf blocks 42/12a and 42/13a about 100 km east of Teesside. Gas is exported via a 20-in. pipeline from the Breagh Alpha platform to Coatham Sands, Redcar, on the UK mainland, and then to an 11-km onshore pipeline for processing at the Teesside gas processing plant owned by North Sea Midstream Partners at Seal Sands.

After processing, the gas will enter the UK National Transmission System. Sterling's equity share of the gas is being sold at UK spot market price.

Breagh is Sterling's first large-scale production, said John Rapach, Sterling's chief operating officer.

"We look forward to bringing further gas through this major new infrastructure in the Southern North Sea with our own equity gas in Breagh Phase 2 and Crosgan, and from other potential developments surrounding the Breagh field area."

Jake Ulrich, Sterling interim chief executive officer, said, "We are most appreciative of the patience of Sterling's shareholders over the past 15 months and are pleased to finally achieve this major milestone. This is a transformational event for the company and we now look forward to using Breagh's cash flow to accelerate value realization for shareholders."

CNOOC sees East China Sea gas flow within months

CNOOC Ltd. has completed about 95% of development work and plans to start gas production from Lishui 36-1 gas field on Block 25⁄34 in the East China Sea offshore China, said partner and block operator Primeline Energy Holdings Inc., London.

CNOOC, as development operator, will commission the facility, tie it into to the provincial gas grid, and initiate trial production, Primeline said.

Primeline, in view of the development progress and relatively short time to first gas, has decided not to proceed with the previously announced convertible bonds issue at this time. In the meantime, the company has secured an additional interest free working capital loan from its chairman who has also agreed to convert part of his existing loan into shares.

An undrawn facility of $2,146,000 is intended to give Primeline time to work with CNOOC to finish development and secure all regulatory approvals for development and production in order to supply gas to the Zhejiang provincial grid. At that time the board believes the company will be in much better position to raise equity or bond finance to fund further exploration.

Primeline has a 75% contractor's interest in and is the operator of the petroleum contract with CNOOC for 5,877 sq km Block 33/07 in the East China Sea and a 36.75% interest in the LS36-1 gas field in Block 25/34. The companies updated the contract on Block 25/34 last year (OGJ Online, June 18, 2012).

Petronas okays Bertam oil development

Petronas has approved the Bertam oil field development plan for Lundin Malaysia BV, the first Lundin-operated development project in Malaysia.

The development plan, which Lundin Malaysia submitted in July, looks toward drilling in 2014 and a production start in 2015. Proved and probable reserves total 17 million bbl of oil, and peak production is pegged at 15,000 b/d.

Lundin Malaysia will develop Bertam using a 20-slot wellhead platform in 76 m of water on the 6,126 sq km PM 307 block adjacent to a spread-moored floating production, storage, and offloading vessel. The subsurface development concept consists of 14 horizontal production wells completed with electric submersible pumps.

Gross capital investment associated with the development is $400 million excluding costs related to the FPSO. Working interests are Lundin Malaysia 75% and Petronas Carigali 25%.

PROCESSINGQuick Takes

AFPM seeks 2013 cellulosic ethanol quota waiver

The American Fuel & Petrochemical Manufacturers legally challenged the US Environmental Protection Agency's 2013 Renewable Fuel Standard with an Oct. 10 suit in federal appeals court for the District of Columbia.

Its Oct. 10 action, which also sought a waiver of EPA's 2013 cellulosic biofuels quota, followed a similar lawsuit the American Petroleum Institute filed 2 days earlier (OGJ Online, Oct. 8, 2013).

"The agency has repeatedly disregarded the timelines established in the Clean Air Act to finalize standards prior to the beginning of the compliance year," AFPM General Counsel Rich Moskowitz said. "This retroactive rulemaking harms refiners and must stop."

AFPM argued that EPA relied on data that was not available for comment, used methods for setting cellulosic biofuel requirements that were secret, and continued to overestimate the amount of cellulosic fuel that will be produced and available for compliance. It asked the court to order the agency to meet deadlines in issuing the standards.

Its petition for EPA to waive the 2013 cellulosic biofuel quotas, which were issued Aug. 19, said EPA relied on questionable data and assurances by suppliers that there would be enough cellulosic ethanol produced. The DC circuit court rejected EPA's 2012 biofuel quotas in January.

"EPA continues to ignore the admonition of the DC Circuit to establish realistic, not aspirational biofuel standards," Moskowitz continued. "The agency's reliance on statements made by biofuel producers with an interest in creating a large government mandate for their product has not worked and will not work."

He indicated the agency belatedly acknowledged the problem as it issued the 2013 quotas when it promised to investigate possible shortfalls as it prepares its 2014 quotas. AFPM is cautiously optimistic that EPA will exercise its waiver authority and establish more reasonable renewable requirements when it announces those quotas, Moskowitz said.

Sasol lets contract for ethane cracker

Sasol has let a contract to Technip to supply ethylene technology and front-end engineering design for a grassroots ethane cracker.

To be installed at Sasol's Lake Charles, La., site, the cracker will be able to produce 1.5 million tons/year of ethylene (OGJ Online, July 15, 2013).

Stan Knez, Technip's senior vice-president for process technology, said installation of the cracker is based current low US natural gas prices and abundance of ethane.

TRANSPORTATIONQuick Takes

GasLog takes delivery of recently acquired LNG carrier

International owner, operator, and LNG carrier managing firm GasLog Ltd. has taken delivery of the STX Frontier, a 2010-built, 153,600-cu m trifuel diesel electric LNG carrier from STX Pan Ocean LNG Pte. Ltd., Singapore.

The vessel, which will be renamed Gaslog Chelsea, was previously on a 3-year charter to Repsol Comercializadora de Gas SA.

GasLog's fleet comprises 15 wholly owned LNG carriers, including 2 ships delivered in 2010, 5 ships delivered this year, and 8 LNG carriers on order. GasLog also has 12 LNG carriers operating under its technical management for third parties.

Southcross' Eagle Ford lateral nears completion

Southcross Energy Partners LP reported that its 15-MMcfd rich-gas lateral pipeline extending its McMullen County, Tex., system further into the Eagle Ford shale will be completed this month. The line will carry gas to Southcross' processing and fractionation complex starting next month.

The STX Frontier was delivered in June 2010 from Hanjin Heavy Industries. The vessel, which will be renamed Gaslog Chelsea, was previously on a 3-year charter to Repsol Comercializadora de Gas SA. It is owned by STX Pan Ocean, managed and operated by Höegh LNG AS.

Southcross also reported its South Texas third-quarter processed gas volumes up 9% from second quarter, and NGL sales volumes are up 17% quarter-to-quarter. NET Midstream said earlier this year it plans to expand its gas gathering system in McMullen County (OGJ Online, May 3, 2013).

BlackBrush Oil & Gas LP and Terrace Energy Corp., Vancouver, BC, announced plans earlier this month to continue aggressive development of their Olmos sandstone oil and gas project in LaSalle and McMullen counties (OGJ Online, Oct. 2, 2013).