OGJ Newsletter

July 1, 2013
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

IEA: Slower natural gas growth over next 5 years

Natural gas will grow at 2.4% per year between now and 2018, the International Energy Administration said in its Medium-Term Gas market report. The growth estimate was revised downwards from 2.7% last year, due to continuous demand weakness in Europe as well as difficulties in upstream production growth in the Middle East and Africa.

Agency analysts expect gas will emerge as a transportation fuel, driven by a supply boom in North America and air pollution concerns, especially in China.

Amid more stringent environmental policies, China is expected to account for 30% of the global gas demand growth. In the next 5 years, China is expected to absorb the entire production increase from Central Asia as well as one-third of the global increase in LNG supply.

Russia, in the longer term, is expected to maintain its position in gas markets by developing the resources and infrastructure for large-scale Asia exports.

"Once the infrastructure barriers are tackled, natural gas has significant potential for clean-energy use in heavy-duty transport where electrification is not possible," said IEA Executive Director Maria van der Hoeven.

However, despite the growing role of gas in the global primary energy mix, gas face challenges in all the major geographic regions. In the US, gas is losing some of its share of the power market due to low coal prices and the absence of policy constraints on coal-fired plants. Gas demand in Europe is hindered by weak economic conditions and low carbon prices.

"The persistent tightness of LNG markets is a major concern as it limits the contribution of gas to sustainable energy security," Van der Hoeven said. "'It also highlights the need to tackle energy subsidies and improve energy efficiency in major producing countries as well as to adopt supportive policies for LNG investment."

Crestwood acquires Niobrara gas gathering interest

Crestwood Midstream Partners LP subsidiary Crestwood Niobrara LLC has entered into an agreement to acquire a 50% interest in Jackalope Gas Gathering Services LLC from RKI Exploration & Production LLC. The Jackalope gathering and processing system in Converse County, Wyo., provides Crestwood with early-stage access to the Powder River basin Niobrara shale play, the company said.

The other 50% interest in Jackalope is owned by Access Midstream Partners LP, which acquired its interest in Jackalope in December 2012 from Chesapeake Energy Corp. As a part of the current transaction, Access will continue to provide field operations and construction management for Jackalope and Crestwood will assume commercial development responsibilites for the joint venture.

Chesapeake and RKI have collectively accumulated the largest acreage block in the Powder River Basin play, spanning over 750,000 acres and are aggressively developing the acreage under a joint development agreement, according to Crestwood. Crestwood is developing the Jackalope System to gather and process rich natural gas produced from a 311,000-acre area in Converse County where RKI and Chesapeake have focused the majority of their drilling activity.

The Jackalope System consists of roughly 100 miles of gathering pipelines and 9,400 hp of compression, with near-term plans to install a new gas processing facility and continue to expand the gas gathering system. Existing assets and future development are supported by a 20-year gathering and processing agreement with Chesapeake and RKI, under which Jackalope receives cost-of-service based fees with annual redeterminations.

The purchase will cost Crestwood $108 million. RKI is a privately-owned, independent exploration and production company focused in the Powder River, Permian and Denver-Julesberg basins. First Reserve, which owns a minority stake in RKI, is also Crestwood's indirect general partner and largest common unit holder.

The acquisition is expected to close next quarter, subject to customary regulatory approvals. In connection with the acquisition and expected future infrastructure development, GE Energy Financial Services agreed to fund, subject to additional approvals, 75% of the acquisition and future capital contributions for Crestwood Niobrara's 50% interest in Jackalope, up to $150 million in preferred equity. The remaining contribution for Crestwood Niobrara's interest will be funded with available borrowing capacity under Crestwood's revolving credit facility.

Crestwood last year spent $90 million buying a Barnett shale gathering and processing system from Devon Energy Corp. The deal included 74 miles of low-pressure gas gathering and a 100-Mmcfd cryogenic processing plant (OGJ Online, July 24, 2012).

OVL, OIL to buy offshore Mozambique stake

ONGC Videsh Ltd. and Oil India Ltd. have signed definitive agreements to jointly acquire a 10% participating interest in the deepwater Rovuma basin Offshore Area 1 Block in Mozambique for $2.475 billion.

They will form a jointly owned special-purpose vehicle to buy 100% of Videocon Mozambique Rovuma 1 Ltd., a unit of the Videocon Group of Companies, Mumbai. OVL will own 60% of the joint vehicle, and OIL will own 40%.

A group led by Anadarko Petroleum Corp. has made large natural gas discoveries on the 2.6-million-acre block and plans a 20-million-tonne/year liquefaction plant in Cabo Delgado province (OGJ Online, Apr. 18, 2013).

Exploration & DevelopmentQuick Takes

Chevron, Cimarex merge Delaware basin acreage

Chevron USA Inc. and Cimarex Energy Co. have merged acreage held by both the West Texas Delaware basin for an 8-year joint development program to be operated by Cimarex.

The agreement covers 104,000 acres of liquids-rich unconventional portfolio in Culberson County, Tex.

Chevron said its Mid-Continent business unit based in Houston will obtain infrastructure including a gathering system, roads, and utilities.

Alan Kleier, vice-president of the business unit, said, "Our complementary acreage positions in West Texas and New Mexico, along with our common development outlook, make Chevron and Cimarex natural partners, and the large contiguous lease position will enable the optimum development of these resources."

Tom Jorden, Cimarex chief executive officer, said, "Collaborative development of this 'checkerboard' acreage ownership makes perfect sense. Optimal well placement for both Second Bone Spring wells and longer-lateral Wolfcamp shale tests can now be achieved."

Chevron will contribute acreage and pay Cimarex $60 million for the 50% interest in the Cimarex-built Triple Crown gas gathering and processing system and wells drilled on the acreage in 2013.

Chevron said its land position exceeds 1 million gross acres in the Delaware basin, which contains several stacked oil and wet gas plays.

OMV, ADNOC to explore eastern Abu Dhabi

Abu Dhabi National Oil Co. and OMV East Abu Dhabi Exploration GMBH will explore for hydrocarbons onshore in eastern Abu Dhabi opposite northern Oman.

The 4-year pact, signed June 23, calls for seismic acquisition and the drilling of exploratory wells. If the campaign is successful, the two companies will jointly develop the potential discoveries in accordance with Abu Dhabi laws.

OMV said the undertaking is a strategic supplement to its participation in the Shuwaihat field appraisal project signed in 2012. Together, the projects should provide a shorter and longer term contribution to Abu Dhabi's plan to increase production and reserves, OMV added.

Discovery and development of oil and gas-condensate fields in Abu Dhabi's eastern region would "help to cover the increasing energy demand of the United Arab Emirates and the country's long-term export capability," OMV said.

OMV starts 3D seismic on Bulgarian Black Sea block

A group led by OMV AG has begun acquiring deepwater 3D seismic in the western Black Sea offshore Bulgaria.

The group consisting of OMV 30%, Total SA 40%, and Repsol SA 30% will gather 7,740 sq km of 3D seismic on the 14,220 sq km 1-21 Han-Asparuh exploratory block that lies in as much as 2,200 m of water.

OMV said the data acquired will be used to determine drilling locations for two exploratory wells.

Drilling & ProductionQuick Takes

Wood Mackenzie study sees deepwater surge

Spending on deepwater drilling will increase worldwide to $114 billion in 2022 from $43 billion in 2012, according to a study by Wood Mackenzie.

In a press statement about the analysis, the consultancy noted a 39% increase in deepwater and Arctic net acreage licensed by the 20 leading deepwater operators in 2012.

In the last decade, deep water has accounted for 41% of discovered volumes and $351 billion in value created, surpassing onshore and shallow water, Wood Mackenzie said.

Last year, global drilling returned to the high levels it had reached before the 2010 Macondo explosion in the Gulf of Mexico. The study projects an overall compound growth rate for deepwater drilling over the next decade of 9%/year. The number of exploration, appraisal, and development wells will increase to 1,250/year from 500/year, it said.

"To meet the forecast well demand the fleet will require 95 additional deepwater rigs to be constructed between 2016 and 2022, representing $65 billion of investment," said Malcom Forbes-Cable, senior Management consultant and author of the study. "This will require the longest period of deepwater rig construction to date, representing a change for the deepwater sector from cyclical to sustained growth."

API onshore drilling safety meeting gets under way

More than 600 engineers and scientists assembled for meetings to examine and update the American Petroleum Institute's onshore oil and gas drilling safety and reliability standards. Government regulators and congressional staff members joined them, API President Jack N. Gerard said in remarks on June 25.

"Safety is, and always has been, a top priority at API," he maintained. "Our standards and practices work because they are developed through engineering and operating experience. The US, state, and local governments don't adopt them as regulations out of convenience, but because they are proven and reliable."

Committee members have issued 5 new hydraulic fracturing standards in the last 5 years, and are working on cilica exposure issues, he told reporters following his address. Committees and the 70 API staff members who assist them also are addressing emerging community questions which have emerged as more unconventional US oil and gas resources are developed, relations issues, Gerard said.

"We welcome strong regulation. We resist duplicative, conflicting requirements," he said. "Our critics are welcome. We will not be content until we reach zero fatalities. In many ways, we're raising the bar on ourselves."

Total moves to develop Egina oil field

Total SA, operator of the OML 130 license, and its partners have obtained approvals from Nigerian National Petroleum Corp. (NNPC) to award contracts to develop offshore Egina oil field.

The field lies in 1,600 m of water 200 km offshore Port Harcourt and 20 km southwest of Akpo field on the same license.

Total said Egina development plans call for 44 wells connected to a floating production, storage, and offloading vessel with a storage capacity of 2.3 million bbl.

The FPSO design includes capacity for future developments of nearby discoveries. Egina production is expected by Dec. 31, 2017, with output reaching 200,000 b/d at plateau.

Total has a 24% interest alongside the OML 130 partners: NNPC, South Atlantic Petroleum, CNOOC Ltd., and Petroleo Brasileiro SA (Petrobras).

The Egina-1 discovery well, drilled in December 2003, and the Egina-2 well, drilled in October 2004, revealed the presence of a new structure (OGJ Online, Feb. 19, 2007).

Statoil, Aker Solutions cancel Cat B rig

Statoil and Aker Solutions are canceling their contract for development of a new type of well-intervention and drilling rig, called Category B, designed to boost oil and gas recovery in fields on the Norwegian continental shelf (OGJ Online, Apr. 17, 2012).

Statoil said "further technology qualification still remains" in development of the rig's subsea systems.

"Unfortunately, we have to declare that it is impossible to achieve this important, major industrial project within the scope of the current contract," said Jon Arnt Jacobsen, Statoil's chief procurement officer.

The rig was to have been able to perform different types of well intervention with cable and coiled-tubing operations and to conduct through-tubing rotary drilling.

Statoil said it will consider alternative approaches to the concept.

PROCESSINGQuick Takes

Rosneft eyes venture with petrochemical maker

Rosneft and the holding company SANORS have signed a heads of agreement to form a joint venture that would integrate their gas processing and petrochemical properties in the Orenburg and Samara regions of Russia.

Rosneft would hold no less than 50% of the venture, and SANORS would hold no more than 50%.

Rosneft owns two gas processing plants in the Samara region, Neftegorsky and Otradnensky, with combined capacity of 1.9 billion cu m/year of natural gas. Rosneft plans to modernize the plants, which operate below capacity.

SANORS, based in Novokuibyshevsk, Samara Oblast, was formed in April 2011 through the consolidation of three chemical companies in the region: Novokuibyshevskaya Petrochemical Co. (NPC), SamaraOrgSintez (SOS), and Neftekhimia.

The companies plants, built in the 1950s and 1960s, are to be upgraded.

At the SOS facility, which produced phenol and acetone at the time of the merger, plans call for installation of a propylene concentration unit to produce commercial propane, upgrade of the phenol production unit and installation of a commercial alpha-methylstyrene separation unit, and upgrade and restoration of phenol and acetone production facilities to improve efficiency.

The Neftekhimia plant produced synthetic ethanol when merged with the other enterprises. It is to be overhauled with reconstruction of an auxiliary synthetic ethanol production hydration system and upgrade of the hydrocarbon pyrolysis unit and ethylene, propylene, and butylene-divinyl production facilities.

The NPC plant also is to be modernized and equipped with new production facilities. A central gas fractionation unit out of service since August 2010 is to be refurbished and restarted. And an isoprene production facility out of service since November 2008 is to be upgraded to allow production of tertiary amyl methyl ether and processing of benzene-containing fractions.

In a statement, Rosneft said the agreement envisions "deep integration of Rosneft's oil and gas production and refining facilities with SANORS's existing and greenfield petrochemical-producing units."

Imperial Oil closing Nova Scotia refinery

Imperial Oil will cease operations of its 88,000-b/d Dartmouth refinery near Halifax, NS, and use the facility as a terminal.

The company said efforts begun last year to find a buyer were unsuccessful (OGJ Online, May 17, 2012).

"The results of the marketing effort illustrate the challenges of operating a refinery of Dartmouth's scale in the competitive conditions of the Atlantic Basin market," said Chairman and Chief Executive Officer Rich Kruger.

The refinery, which began operation in 1918, has 31,500 b/cd of fluid catalytic cracking capacity and 10,500 b/cd of semiregenerative catalytic reforming capacity.

Rosneft signs Tuapse automation agreement

Rosneft has signed an agreement making Honeywell the main automation contractor of a refinery expansion and upgrade in Tuapsinskiy NPZ on Russia's Black Sea Coast.

The project will boost distillation capacity of the Tuapse refinery, which was commissioned in 1929, to 240,000 b/d from 100,000 b/d.

Construction is occurring in two phases, the first involving a new atmospheric-vacuum distillation unit with a section for naphtha hydrotreatment. The second phase will include a vacuum gas oil hydrocracking unit with diesel hydrotreatment, a hydrogen unit, a naphtha isomerization and hydrotreatment unit, a catalytic reformer, a sulfur production unit, and a flexicoker.

Honeywell will provide a single integrated production control system and implement process simulation software to increase staff safety and minimize operator errors. It also will supply advance process control and manufacturing execution systems.

TRANSPORTATIONQuick Takes

Tesoro agrees to sell terminal to satisfy FTC

Tesoro Corp. and one of its subsidiaries agreed to sell a Boise, Ida., terminal so it can complete its planned acquisition of a Chevron Corp. regional products pipeline and terminal, the US Federal Trade Commission announced on June 17.

FTC said it raised antitrust concerns about the transaction shortly after Tesoro and Tesoro Logistics Operations LLC agreed on Dec. 6, 2012, to buy the Northwest Products Pipeline system and Chevron's associated terminals, including the one in Boise, for $355 million. The 760-mile pipeline carries petroleum products from Salt Lake City to terminals in Idaho and Washington.

Its complaint alleged that the proposed transaction would give Tesoro control over most of Boise's terminal, leading to substantially reduced local competition and higher terminal costs which would be passed on to consumers.

A proposed order settling the FTC's charges requires Tesoro to sell the Boise terminal it currently owns to a buyer approved by the commission within 6 months of the order's becoming final. Tesoro would be allowed to complete its acquisition of Chevron's Northwest Products Pipeline and associated terminals immediately after the order is issued.

The proposed consent order also contains a separate order to maintain assets, which is designed to preserve the Tesoro's Boise terminal as a viable, competitive, and ongoing business, FTC said. Comments on the proposed order will be accepted until July 19, it indicated.

Shah Deniz II selects TAP for European gas shipments

The Shah Deniz II consortium has selected the Trans Adriatic Pipeline (TAP) as the project's European transport option. The consortium informed OMV, as a shareholder of Nabucco Gas Pipeline International GMBH, of its decision on June 26.

TAP will transport as much as 20 billion cu m/year of natural gas from the Shah Deniz II field in Azerbaijan, through Greece and Albania to Italy, from where it can be shipped further into Western Europe.

TAP's shareholders are Switzerland's Axpo 42.5%, Norway's Statoil 42.5%, and Germany's E.On Ruhrgas 15%. Shah Deniz II consortium members BP PLC, State Oil Co. of Azerbaijan Republic, and Total SA have been funding TAP and can now join the project (OGJ Online, Apr. 11, 2013). TAP expects to enter service late-2018.

Shah Deniz II will add 16 billion cu m/year of gas production to the roughly 9 bcmy produced by Shah Deniz I. Development includes a 16-bcmy expansion and upgrade of the South Caucasus Pipeline (SCP) and Sangachal terminal. Sangachal's gas capacity at end-2010 was 14.4 bcmy, including all 9 bcmy of the Shah Deniz gas (OGJ Online, Dec. 13, 2010). SCP's current capacity is 7 bcmy.

OMV said the decision would not influence its strategy of growing upstream and integrated gas and that it intends to play a role in further securing and diversifying the gas supply to Europe, assessing alternatives to complement existing supply routes.

Crosstex completes Louisiana rail expansion

Crosstex Energy LP has completed Phase II expansion of its Riverside crude oil transloading site on the Mississippi River in southern Louisiana. Riverside can now transload 15,000 b/d of either sour or sweet crude from railcars to barges. Riverside previously only handled sweet crudes. Phase II additions include a 100,000-bbl above-ground crude oil storage tank, a rail spur with a 26-spot crude railcar unloading rack, and a crude offloading facility with pumps and metering as well as a truck unloading bay.

The company also re-activated its Black Run rail loading terminal in Frazeysburg, Ohio, on the Ohio Central Railroad (OHCR) to export Utica shale light oil condensate production.

Black Run includes a 20-car rail rack with tracking gangways designed to top load multiple products, including light oil condensate and various grades of crude oil, at a rate of 24,000 b/d. The terminal is adjacent to Crosstex's oil gathering pipeline and will use existing tanking and piping as well as the company's Ohio River Valley truck fleet.

Crosstex said the Black Run rail terminal will be the first to move light oil condensate out of the region to premium refining and petrochemical markets

OHCR is a 70-mile short line freight railroad that interchanges with the Columbus and Ohio River Railroad, CSX Transportation, Norfolk Southern, Ohio Southern Railroad, and Wheeling and Lake Erie Railway.