OGJ Newsletter

April 8, 2013
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

Lukoil to buy Samara-Nafta for $2.05 billion

OAO Lukoil signed an agreement with Hess Corp. to acquire 100% of Hess's Russian subsidiary Samara-Nafta for a total of $2.05 billion.

Hess had reported it was considering selling its Russian interests late in 2012 (OGJ Online, Nov. 12, 2012).

Based on its 90% interest in Samara-Nafta, total aftertax proceeds to Hess are expected to be $1.8 billion. Samara-Nafta is currently producing 50,000 boe/d in Russia's Volga-Urals region.

So far this year, Hess has reported or completed the sale of interests in Beryl field in the UK North Sea, the Eagle Ford play in Texas, and the Azeri, Chirag, and Guneshli fields in Azerbaijan and the associated pipeline. Including Samara-Nafta, the total aftertax proceeds from these sales will amount to about $3.4 billion.

John B. Hess, chairman and chief executive officer, said, "As the sale of Samara-Nafta indicates, we are making excellent progress in executing our asset sales program, which is a central component of our plan to transform Hess into a more focused, higher growth, lower risk pure play exploration and production company."

Closing of the sale of Samara-Nafta is subject to the customary approval process of the Federal Antimonopoly Service of the Russian Federation. Application for this approval process is expected to be filed within the next week.

Hess, ONGC Videsh complete Caspian deal

ONGC Videsh Ltd., New Delhi, has completed its acquisition of Hess Corp.'s 2.7213% interest in the Azeri, Chirag, and deepwater Guneshli fields in the Caspian Sea offshore Azerbaijan and a 2.36% interest in the Baku-Tbilisi-Ceyhan Pipeline.

The companies signed definitive agreements for the transaction last September (OGJ Online, Sept. 7, 2012).

House members file bill to curb settlement abuses

US Rep. Bill Flores (R-Tex.) introduced a bill that aims to curb costs and regulations resulting from federal Endangered Species Act closed-door litigation settlements between the US Fish and Wildlife Service and environmental organizations.

Four other House Republicans—John Carter, K. Michael Conaway, and Mac Thornberry of Texas; and Steve Pearce of New Mexico—are cosponsors.

"It is time that we stop these closed-door settlements that are abusing the [ESA] and costing American taxpayers millions of dollars, both of which are hurting the American economy," Flores, a House Natural Resources Committee member, said on Mar. 26. "We must ensure that all parties affected by the conservation process are able to be involved."

He said his bill, HR 1314, would give local government and stakeholders a say in ESA settlements which affect them. The measure also would limit use of federal money to fund ESA suits, and preserve the FWS's statutory regulatory authority, Flores indicated.

The measure has been referred to both the Natural Resources and Judiciary committees. It is a companion bill to S. 19, which Sen. John Cornyn (R-Tex.), introduced on Feb. 27 (OGJ Online, Mar. 1, 2013).

Chesapeake Energy establishes office of chairman

The board of Chesapeake Energy Corp. has established a three-member office of the chairman while continuing its previously announced chief executive officer search process.

Members of the office of chairman are Archie W. Dunham, nonexecutive chairman of the board; Steven C. Dixon, who has been named acting chief executive officer in addition to his continuing role as chief operating officer; and Domenic J. Dell'Osso Jr., chief financial officer.

Dixon has been executive vice-president and chief operating officer since 2006 and has held various senior operational positions since joining Chesapeake in 1991. Dell'Osso has served as executive vice-president and chief financial officer since 2010 after serving in various financial roles since 2008.

As part of Chesapeake's previously announced succession plan, the members of the office of chairman have been working closely to transition oversight of strategic, operational, and financial matters as well as certain day-to-day management responsibilities from Chief Executive Officer Aubrey McClendon, who has previously agreed with the board to retire on Apr. 1 (OGJ Online, Jan. 31, 2013).

Chesapeake said it would conduct a conference call early Apr. 1 to discuss establishment of the office of chairman and provide an operating update.

Shell seeks ventures with tech companies

Royal Dutch Shell PLC is willing to invest "several hundred million dollars" over 6-8 years in companies with emerging technologies that can help its operations.

Shell Technology Ventures will make the investments in promising technology companies, technology spin-outs, and externally managed venture capital funds.

Targeted technology areas include gas production and conversion, geophysical imaging, chemical manufacturing and conversion, novel materials, enhanced oil recovery, and water treatment.

Other possible areas include information technology, drilling and completion, subsurface sensing, production in challenging environments, operational efficiency, and future energy technologies.

"Ideas from outside the organization are critical to our open innovation approach to [research and development]," said Gerald Schotman, Shell chief technology officer. "We want to enable the brightest and the best to develop their ideas and benefit from Shell's expertise and global reach so that we can get these technologies up and running in our projects as fast as we can."

Geert van de Wouw, Shell Technology Ventures director, said the company wants to develop "long-term, mutually beneficial partnerships with emerging-technology companies, venture capital firms, and corporate venturing organizations."

Shell said it spent more than $1.3 billion on research and development last year.

Exploration & DevelopmentQuick Takes

PDO hits gas-condensate discovery near Saih Rawl

Petroleum Development Oman reported a giant gas-condensate discovery in the northern part of its concession area 40 km west of Saih Rawl field.

PDO estimated that the Mabrouk Deep discovery has 2.9 tcf of gas and 115 million bbl of condensate in place.

Exploratory drilling took place in 2012 at depths of up to 5,000 m, and the field's areal extent is about 60 sq km. The company disclosed no other details.

Meanwhile, PDO said it made five new oil discoveries in 2012 totaling 300 million st-tk bbl of initial oil in place in the Cretaceous Shuaiba and Permian Gharif reservoirs.

PDO also said its 2012 oil, gas, and condensate production was the highest in its history at 1.24 million b/d of oil equivalent, exceeding the previous 1.21 million boe/d mark set in 2001.

The company increased its oil production to an average 566,305 b/d. Also, daily production of nonassociated and associated gas stood at 582,500 boe/d with condensates at 92,500 b/d. PDO accounts for 70% of the country's oil production and nearly all of its gas output.

PDO's Exploration Directorate plans to drill 100 wells in the next 5 years and spend more than $800 million in its search for new reservoirs.

By 2022 sixteen megaprojects with a combined value of more than $11 billion are targeting the development of more than 1 billion bbl of oil.

New Zealand Energy swabs oil at Taranaki discovery

New Zealand Energy Corp., Vancouver, BC, will install artificial lift equipment at its sixth oil discovery in the Taranaki basin on New Zealand's North Island.

Now shut-in pending pump installation, the Arakamu-2 well on the northeastern part of the Eltham permit southwest of Waihapa/Ngaere field has recovered 407 bbl of 42° gravity oil since testing began in mid-March.

The company swab-tested two intervals for a total of 13 days. The well demonstrated strong inflow of oil, gas, and water with oil cut increasing, averaging more than 20% over the last 3 days of swab testing.

The well went to 2,380 m measured depth, 1,870 m true vertical depth, and found 18 m of net pay in the two Miocene Mount Messenger intervals.

Ecopetrol tests Meta Province heavy oil discovery

Colombia's state Ecopetrol SA disclosed that its Venus-2 exploratory well in San Martin municipality of Meta Province had proved the presence of crude oil.

The well, on the CPO-11 block 90 miles south-southeast of Bogota, produced 630 b/d of 17° gravity oil with a 39% water cut on an electric submersible pump.

Ecopetrol, which holds a 100% interest in the block, plans to continue its exploratory efforts there in coming weeks. The company acquired the block in December 2008.

Poland microseismic frac monitoring array in place

MicroSeismic Inc., Houston, said it has installed equipment to monitor, map, and analyze hydraulic fracturing of an undisclosed customer's exploration and field development program in Poland.

Geophones are spaced across 10-12 radial arms and can number in the thousands. Stations can be deployed using standard cabling technology or wirelessly to minimize field operation time and reduce cost. This enables the monitoring of primary, secondary, and tertiary recovery activity, in a variety of reservoir conditions.

Using real-time monitoring services, customers can adjust pumping rates and the type of proppant and fluids being used during a frac job to optimize well completion.

The installed array is able to cover a 12 to 40 sq km area, said Peter Duncan, founder and chief executive officer.

Drilling & ProductionQuick Takes

Judge favors CSB access to Transocean data

A federal judge in Houston has upheld the US Chemical Safety Board's legal authority to investigate the April 2010 deepwater Macondo well blowout and subsequent explosion and fire on the Deepwater Horizon semisubmersible in the Gulf of Mexico, which resulted in a massive oil spill.

US District Judge Lee Rosenthal issued an Apr. 1 order that denied a motion by Transocean Deepwater Drilling Inc. to block the CSB's access to information regarding the Deepwater Horizon. Transocean owned the semi that drilled the Macondo well for BP PLC and its partners.

CSB has shown its jurisdiction to investigate the Macondo incident, Rosenthal said, adding CSB was within its authority to issue five subpoenas to the drilling contractor in 2010-11.

An independent federal agency charged with investigating serious chemical accidents, CSB's makes safety recommendations to plants, industry organizations, labor groups, and regulatory agencies.

Contract let for Hejre work offshore Denmark

Heerema Fabrication Group has received a contract for procurement and fabrication of equipment for Hejre oil field under development by DONG Energy and Bayerngas in the Danish North Sea (OGJ Online, Feb. 27, 2012).

Technip, which is building the production platform in a joint venture with Daewoo Shipbuilding & Marine Engineering of South Korea, let the contract to Heerema covering the jacket, piles, and predrilling wellhead deck.

The 8,000-tonne, eight-leg launch jacket, to be installed in 70 m of water, will have a length of 60 m, width of 35 m, and height of 85 m. The predrilling wellhead deck will weigh 500 tonnes.

Installation of the equipment covered by the Heerema contract is due in the first half of 2014, after which drilling will begin prior to topsides installation in 2015. DSME is building the topsides at its yard in Okpo, South Korea.

DONG is operator with a 60% interest. Bayerngas holds the rest.

US drilling rig count up 2 units to 1,748

The US drilling rig count made a slight gain of 2 units during the week ended Mar. 29 reaching a total 1,748 rotary rigs working, Baker Hughes Inc. reported. That compares with 1,979 rigs working in the comparable week last year.

Land-based drilling shot up by 9 units from a week before to 1,680 rigs working. Offshore drilling declined by 7 units to 45 rigs. Inland water drilling, at 23 rigs, was unchanged from the previous week. Of the rigs drilling offshore, 43 were in the Gulf of Mexico, a decline of 7 units from a week before.

Rigs targeting natural gas slumped by 29 units to 389 rigs working. Rigs targeting oil, meanwhile, increased by 30 to 1,354. There were 5 rigs considered unclassified, up 1 unit from the previous week.

Rigs drilling directionally were reported at 206, down 8 units from the previous week and 27 fewer than the comparable week last year. Those rigs drilling horizontally fell 1 to 1,099. This compared with 1,180 rigs working horizontally in the comparable week a year ago.

Of the major oil and gas producing states, Oklahoma was up 9 rigs to 192. Colorado, at 58 this week, was up 2 units. North Dakota and Pennsylvania, at 175 and 69, respectively, were up 1 rig each. Six states remained unchanged this week, namely New Mexico, 80; California, 39; Ohio, 28; West Virginia, 22; Arkansas, 15; and Alaska, 9. Wyoming was down 1 unit to 42; Texas was down 4 units to 823; and Louisiana was down 7 units to 102.

Canada's rig count decreased by 91 units to 246, which includes 147 rigs drilling for oil and 99 units drilling for gas. The total was down 10 units from last year's comparable week.

PROCESSINGQuick Takes

Phillips 66 plans fractionator near Sweeny refinery

Phillips 66 plans to develop a 100,000-b/d NGL fractionator at Old Ocean, Tex., near the company's Sweeny refinery, some 40 miles southwest of Houston. If all approvals are received on schedule, construction will begin in first-half 2014 with start-up by second-half 2015, the company said.

Several NGL pipelines near the proposed site will feed the new fractionator, the company said, thus avoiding the pipeline congestion near Mont Belvieu, Tex., fractionation, east of Houston.

Products from the fractionator would be marketed primarily to petrochemical customers in the region with access to Mont Belvieu. Phillips 66 recently sought expressions of interest from potential Y-grade suppliers, it said.

The project is in engineering design, and the company is filing for applicable permits.

It said its history in midstream includes NGL gathering, long-haul transportation, storage, and fractionation. It owns fractionation capacity at the Gulf Coast Fractionators (GCF) and Enterprise Products Partners LP fractionators in Mont Belvieu, as well as in the Conway, Kan., fractionator jointly owned by Williams Partners LP and Mid Continent Fractionation and Storage LLC, both based in Tulsa.

Phillips 66 owns 22.5% of GCF and operates it for the joint venture.

Sinopec, PetroSA in Mthombo refinery accord

China Petrochemical Corp. (Sinopec) said it has reached a cooperation framework agreement with Petroleum Oil & Gas Corp. of South Africa (PetroSA) "which enabled the companies to move forward the world-scale Mthombo crude oil refinery project in Port Elizabeth's Coega Industrial Development Zone."

Sinopec said the companies agreed to integrate Industrial Development Corp. of South Africa into the next phase of development.

PetroSA originally scheduled a final investment decision for the 400,000-b/d refinery it envisions for 2010 (OGJ Online, Dec. 8, 2008).

It signed a memorandum of understanding with Sinopec in September 2011 to study cooperating on development of the project.

Repsol starts up Petronor delayed coker

Repsol has started up a 40,000-b/d delayed coker at the Petronor refinery at Muskiz near Bilbao, Spain, in a project that expands crude capacity to 240,000 b/d from 220,000 b/d.

The company also started up a cogeneration unit that boosts electric-generation capacity to 100 Mw, making the refinery self-sufficient in power and able to distribute 15% of the output to the local grid.

Early last year Repsol idled a crude unit and related reformer at the Petronor facility due to low margins but restarted them in April (OGJ Online, Apr. 25, 2012).

TRANSPORTATIONQuick Takes

Dominion Cove Point marks progress in LNG project

Dominion, Richmond, Va., has reached three milestones in its Dominion Cove Point LNG liquefaction project, the company said Apr. 1. The site for the export plant will be at Dominion's existing LNG import terminal in Maryland on Chesapeake Bay.

The company said it has fully subscribed the marketed capacity of the project with 20-year terminal service agreements with Pacific Summit Energy LLC, a US unit Sumitomo Corp., and with GAIL Global (USA) LNG LLC, a US unit of GAIL (India) Ltd. Each contracted for half the plant's marketed capacity of 5.25 million tonnes/year.

GAIL is the largest natural gas processing and distributing company in India, Dominion said. Sumitomo in turn announced agreements to serve Tokyo Gas Co. and Kansai Electric Power Co. Inc.

Dominion also has awarded an engineering, procurement, and construction contract for new liquefaction to IHI/Kiewit Cove Point, a joint venture of IHI E&C International Corp., Houston, and Kiewit Corp., Omaha, Neb., following completion of front-end engineering and design.

Finally, Dominion will apply to the US Federal Energy Regulatory Commission for approval to build the $3.4-3.8 billion project. Subject to regulatory approvals, Dominion plans to begin building the plant next year and start up production in 2017.

Dominion's customers also have signed precedent agreements for service on the 88-mile Cove Point pipeline, which connects the liquefaction site to interstate natural gas pipelines in northern Virginia. They will procure their own natural gas, said Dominion, and deliver it to the Cove Point pipeline.

Dominion will liquefy the gas, store it, and load it into ships brought to the facility on the Chesapeake Bay. Dominion will provide a tolling service and will not take possession of either the natural gas or the LNG.

ExxonMobil, BHP plan floating LNG scheme

ExxonMobil Corp. and BHP Billiton plan to develop the 1979 Scarborough natural gas field discovery on the Exmouth plateau off Western Australia using floating LNG (FLNG) technology, the companies said.

The companies could make a decision about the $10 billion-plus project early in 2014 after releasing plan documents Apr. 2.

The documents were submitted to the federal government's Department of Environment and provide details of what would be the largest FLNG vessel in the world with dimensions of 495 m long and 75 m wide. This is larger than Royal Dutch Shell PLC's Prelude FLNG vessel, which measures 488 m by 74 m and is now being built to develop the Prelude gas field off the Western Australian Kimberley coast.

The Scarborough FLNG plant would be capable of processing 6-7 million tonnes/year of LNG compared with Prelude's 3.6 million tpy.

The ExxonMobil-BHP joint venture says the vessel will be supplied with gas from 12 wells in the field to be drilled in two phases beginning in 2018.

Front-end engineering and design work could begin in 2014 leading to a final investment decision during the 2014-15 fiscal year. On that schedule, Scarborough could come on stream in 2020 or 2021 and operate for as long as 30 years. Some 500 people could be working onboard the vessel at any one time.

Scarborough field is thought to contain 8-10 tcf of gas.

Chevron, Chubu Electric sign LNG agreements

Chevron Corp. has signed a binding long-term sales and purchase agreement with Chubu Electric Power Co. for Chubu to take 1 million tonnes/year of LNG from the Wheatstone project off Western Australia. The uptake will be for 20 years.

Chubu is already a partner and customer for Chevron's Gorgon LNG project on Barrow Island.

The Wheatstone project is being built at Ashburton North, 12 km west of Onslow in Western Australia. It will comprise two LNG trains with a combine capacity of 8.9 million tpy as well as a gas plant.

More than 80% of Chevron's equity in Wheatstone LNG has now been contracted under long-term agreements with customers in Asia.

The project is a joint venture of Chevron 64.14%, Apache Energy 13%, Kuwait Foreign Petroleum Exploration Co. 7%, Royal Dutch Shell PLC 6.4%, Kyushu Electric Power Co. 1.46%, and Tokyo Electric Power Co. 8%.

The project is being supplied with gas from Wheatstone and Iago fields.

TransCanada starts open season for crude shipments

TransCanada Corp. will hold a binding open season to obtain firm commitments for a pipeline to transport crude oil from Western Canada to delivery points in the Montreal and Quebec City, Que., and Saint John, NB, areas. The Energy East Pipeline project involves converting roughly 3,000 km of TransCanada's Canadian Mainline natural gas pipeline to crude oil service building up to 1,400 km of new pipeline.

Subject to open season results Energy East will move as much as 850,000 b/d, enhancing producer access to markets in Eastern Canada. In 2012, Canada imported more than 600,000 b/d to supply its Eastern refineries, according to TransCanada.

TransCanada expects the pipeline to enter service late 2017, pending sufficient shipper interest and regulatory approvals. The company has begun aboriginal and stakeholder engagement and field work as part of initial design and planning.

The open season will close on June 17.