OGJ Newsletter

Nov. 17, 2014
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

IPAA: FWS's ESA prelisting proposal lacks assurances

A US Fish and Wildlife Service proposal on voluntary actions to manage species before they are listed under the federal Endangered Species Act falls significantly short, the Independent Petroleum Association of America said.

While the draft policy aims to provide incentives for landowners and others' voluntary conservation measures, it does not assure them that their efforts will help avoid a listing, Daniel T. Naatz, IPAA's vice-president of federal resources and political affairs, said as the organization submitted comments on Nov. 6.

"By providing no assurance that a federal listing will be avoided, the [FWS's] proposed policy fails to guarantee participating landowners that their conservation actions, and the expenses incurred to implement these plans, will not simply impose greater restrictions on them in years to come," Naatz maintained.

Naatz said the US Department of Interior agency's recent decision to list the lesser prairie chicken as threatened despite stakeholders' extensive voluntary efforts provides an example that such efforts may not be enough.

"Until the [FWS] can assure stakeholders that voluntary actions will mitigate the likelihood of federal listings, a draft policy to provide incentives for voluntary conservation measures will not hold weight," he warned.

IPAA also submitted the comments on behalf of the American Exploration & Production Council, Association of Energy Service Companies, American Association of Professional Landmen, International Association of Drilling Contractors, International Association of Geophysical Contractors, National Stripper Well Association, Public Lands Advocacy, US Oil & Gas Association, and 40 state and regional oil and gas associations.

BLM issues EA on Utah gas interconnect lines

The US Bureau of Land Management is seeking public comments on an environmental assessment analyzing two proposed Enduring Resources LLC Rockhouse-Anadarko interconnect pipelines in eastern Utah. Written or e-mailed comments will be accepted until Nov. 21, BLM's Vernal field office said.

The Denver independent producer has been active in the Uinta basin since acquiring its first federal lease there in 2004, and has assembled an acreage position around the Greater Natural Buttes natural gas field, according to information on its web site.

Both proposed pipelines are surface operations that would connect existing pipelines to move gas to market more efficiently, the US Department of the Interior agency's field office said.

The Lateral A pipeline would be 3,520 ft long on BLM-administered lands; the Lateral B pipeline would be 2,136 ft long on BLM-administered lands and 2,239 ft long on Utah School and Institutional Trust lands, it indicated.

TC PipeLines to acquire interest in GTN system

TC PipeLines LP (TCPL) will acquire the remaining 30% interest in Gas Transmission Northwest LLC (GTN) from TransCanada Corp., which, through its subsidiaries, currently holds 28% interest in TCPL. GTN is a 2,178-km pipeline that transports natural gas under long-term contracts from the Western Canada Sedimentary Basin and the Rocky Mountains to Washington, Oregon, and California. TransCanada's board has approved the sale, which is expected to close by the end of first-quarter 2015.

TransCanada purchased GTN in first-quarter 2004 for $1 billion (OGJ Online, Feb. 25, 2004). In 2013, TCPL agreed to acquire an additional 45% interest in each of GTN and Bison Pipeline LLC from TransCanada for $1.05 billion (OGJ Online, May 16, 2013).

The sale will contribute to funding the company's $46 billion in commercially secured projects, including $2.7 billion of NGTL system expansions and $475 million in pipeline and facility investments within the Eastern Triangle portion of the Canadian mainline.

"This transaction, along with the recent sale of our remaining 30% interest in the Bison Pipeline [LLC], further demonstrates our commitment to drop down all of our remaining US natural gas pipeline assets to the partnership on a more sizable and frequent basis," said Russ Girling, TransCanada's president and chief executive officer.

TCPL in October agreed to acquire the remaining 30% interest in Bison Pipeline from TransCanada for $215 million (OGJ Online, Oct. 1, 2014).

TransCanada also expects to drop down to TCPL its remaining 44.5% and 61.7% interest in Iroquois and Portland, respectively; and 100% and 53.6% interest in ANR and Great Lakes, respectively. The company believes TCPL has the capacity to complete drop downs of more than $1 billion/year going forward.

Exploration & DevelopmentQuick Takes

Group makes second oil find offshore Senegal

A group comprised of Cairn Energy, ConocoPhillips, and FAR Ltd. has made a second oil discovery offshore Senegal with the SNE-1 wildcat well.

FAR reported that the well encountered a 95-m gross oil-bearing column with a net pay thickness of 36 m in the Albian sandstone reservoir. High-quality oil of 32° gravity was recovered at the surface, but all further information has been withheld by operator Cairn, which has declared it a "tight" well.

SNE-1 was drilled in 1,100 m of water about 100 km offshore on the Sangomar block.

The find follows last month's oil discovery in the nearby FAN-1 well to the north that intersected a 500-m gross oil-bearing section in multiple stacked clastic reservoirs.

The two wells are the first to be drilled in deep water offshore Senegal in 20 years. Both have significant follow-up potential.

The results of both wells will be used to decide optimal follow-up drilling locations and determine the extent of the oil accumulations. Next round of activity is scheduled for 2015.

FAR has retained 15% working interest in the permits while Cairn, ConocoPhillips, and Petrosen hold 40%, 35%, and 10%, respectively.

UK reports 134 awards in 28th offshore licensing round

The UK's 28th offshore licensing round has resulted in the issuance of 134 licenses covering 252 blocks. The announcement was made by the UK Department of Energy and Climate Change.

"This successful licensing round, which is on track to be one of the biggest rounds ever in 5 decades, is a boost for the UK economy and shows that our long-term economic plan is working," said Matthew Hancock, UK business and energy minister.

"This news is a good sign that investors continue to show interest in the basin," said Oonagh Werngren, operations director for Oil & Gas UK.

Werngren said, "It is interesting to note more than 60 companies applied for licenses in the round and that the majority comprised smaller investors. Perhaps what is most telling is the nature of the work programs that the companies have committed to, with only five firm wells and four contingent wells being included. Most licenses have been awarded on the basis of obtaining or reprocessing 2D and 3D seismic data. The disappointingly low number of wells highlights the need to stimulate new plays through detailed technical work which requires measures to encourage more investment in the UKCS."

Statoil ASA said it was awarded interests in 12 licenses, nine as operator. The additional acreage covers almost 8,000 sq km.

Statoil said significant positions have been taken both in mature parts of the central North Sea, such as in the vicinity of the Mariner and Bressay projects, and in relation to plays largely untested in UK waters.

Maersk Oil said it was awarded five licenses, three of which will be operated by Maersk. Two of the licenses awarded, 15/18b and 15/20d, include the Yeoman and Tap o'Noth discoveries near Maersk's Quad 15 core producing assets. The awarded Glengorm and Sween licenses comprise high-pressure high-temperature prospects and discoveries, respectively.

Enquest was awarded eight operated licenses, and Nexen seven, according to the UK government's web site.

Touchstone signs license deal with Trinidad and Tobago

Touchstone Exploration Inc., Calgary, signed an onshore exploration and production license with Trinidad and Tobago's Ministry of Energy and Energy Affairs.

The license, which is on Ortoire block, lies east of Fyzabad in southern Trinidad and covers 44,731 gross acres.

The license includes a 6-year minimum work program with technical reviews, 85 km of 2D seismic, and four wells. Capital requirements are estimated at $11 million.

With a commercial discovery, the license can be extended 25 years.

Touchstone is operator and holds 80%. Petroleum Co. of Trinidad & Tobago holds the remaining 20% and will be carried for the minimum work obligations.

James Shipka, Touchstone's chief operating officer, said prospects are at depths shallower than 6,000 ft, "which is consistent with our current drilling programs."

Drilling & ProductionQuick Takes

Production starts from KBB gas field off Malaysia

ConocoPhillips reported the start of natural gas production from Kebabangan (KBB) gas field, 60 miles offshore Malaysia. Production will ramp-up as pipeline capacity becomes available, the company said.

KBB marks the third major project startup planned in Malaysia for ConocoPhillips this year, said Matt Fox, executive vice-president, exploration and production. Siakap North-Petai was brought on stream in the first quarter (OGJ, Feb. 10, 2014, p. 28), and the Gumusut-Kakap floating production facility starting up in October (OGJ Online, Oct. 8, 2014).

Project startups in Malaysia are expected to add 60,000 boe/d to the company's production volumes by 2017 and are part of the company's overall plan to deliver 3-5%/year growth.

The KBB integrated drilling and production platform is in 450 ft of water. Production from the field will initially utilize six wells with gas exported via pipeline to the Sabah Oil & Gas Terminal in Kimanis.

The field is operated by Kebabangan Production Oil Co., a joint operated company with ConocoPhillips Sabah Ltd. and Shell Energy Asia Ltd., each holding a 30% interest, and Petronas Carigali Sdn. Bhd. holding 40% interest.

Triple Crown advances Kansas drilling in 2015

Triple Crown Energy LLC, Tulsa, has closed on separate joint ventures with US Energy Development Corp. (USEDC) and Millennial Energy Partners LLC. Triple Crown plans to drill 24 vertical wells on its Kansas acreage holdings in 2015.

USEDC purchased 50% working interest on 2,500 net acres in Hodgeman and Ness counties, Kansas. Millennial secured 25% working interest on 10,000 net acres Hodgeman, Ness, and Gove counties, Kansas.

Each joint venture is a cash and carry agreement to launch Triple Crown's vertical drilling program in Kansas.

Development efforts could extend to all of Triple Crown's 40,000 net acres in the state. Triple Crown will operate the assets and drilling operations are already under way.

The vertical drilling program will target a variety of five productive zones including Mississippi Lime, Cherokee, Kansas City, Lansing, and Marmaton, all of which are shallow targets at a depth no greater than 4,500 ft.

"Completed vertical wells in western Kansas cost $500,000-600,000 compared to more expensive horizontal wells that have been drilled," Triple Crown managing principal Chase Williams told OGJ. "We've run models with $90/bbl oil and even at $50/bbl the economics for these wells still work," he said.

In western Kansas, the Mississippi Lime is relatively thin, which makes horizontal drilling less effective. "To date, the longest commercial horizontal wellbore drilled in this area is about a quarter-mile," Williams said. With that amount of reservoir contact, vertical wells make more sense. Ness County has about 1,400 vertical wells, with an average cumulative production of 96,000 bbl of oil.

Triple Crown's Kansas drilling operations are currently under way.

Manora oil field offshore Thailand comes on stream

Tap Oil Ltd. reported that production has started from Manora oil field offshore Thailand. The field is operated by Mubadala Petroleum; Tap Oil acquired interest in the field in late 2010.

The $300 million development will produce 15,000 b/d at peak production, which is expected to occur during first-quarter 2015.

The initial flow has been brought on line from two wells and is being progressively ramped up from an initial combined rate of 2,200 b/d.

Manora, which lies in 50 m of water in the Gulf of Thailand, was discovered in November 2009. The field is expected to have a minimum 11-year production life. 2P reserves have been estimated at 20 million bbl. A final investment decision for development was made in July 2012.

Four development wells have now been drilled with numbers one and two on stream and three and five handed over to the production department. An additional five surface holes have been batch drilled and cased while the intermediate phase of Manora-6 now in progress.

The program calls for the drilling and completion of as many as 15 wells-10 producers and 5 injectors; drilling will continue till the end of March 2015.

Operator Mubadala holds 60% of Manora. Tap Oil holds 30% and North Gulf Petroleum holds 10%.

Manora is Tap Oil's first production in 2 years since it sold its interest in Apache Energy-operated Harriet field offshore Western Australia.

PROCESSINGQuick Takes

Alon Partners to buy Krotz Springs refinery

Alon USA Partners LP has agreed to buy the 74,000-b/d Krotz Springs refinery from Alon USA Energy Inc., Dallas, for a total consideration of $437.5 million, which will be payable to Alon Energy in a combination of $100 million cash and $337.5 million in common units representing limited partner interests in Alon Partners, the companies jointly said.

As part of the deal, Alon Energy has agreed to reimburse anticipated capital expenditures related to a previously scheduled major maintenance turnaround at the Krotz Springs refinery in 2015, the companies said.

Alon Partners' acquisition of Krotz Springs is intended to provide the company an opportunity for diversification of its assets by allowing it to process a wider slate of crudes, increase its end-product slate, expand its customer base and geographic reach, and reduce dependence on the 73,000-b/d Big Spring, Tex., refinery, which currently is the partnership's sole asset.

The sale will also help to simplify Alon Energy's corporate and capital structure, the companies said.

"[The] Krotz Springs refinery is well positioned to generate significant free cash flow, and this transaction unlocks the value of that business," said Paul Eisman, president and chief executive officer of Alon Partners and Alon Energy, adding that the dropdown sale was an important step for the continued success of both Alon Partners and Alon Energy.

Alon Energy's board and the conflicts committee of Alon Partners' board already have approved the Krotz Springs sale, which is scheduled to close by Nov. 28, the companies said.

Alon Energy, which formed Alon Partners as a limited partnership in August 2012, purchased the Krotz Springs refinery from Valero Energy Corp., San Antonio, in 2008 for $333 million in cash plus about $140 million for working capital, including inventories (OGJ Online, July 8, 2008).

Chevron Phillips Chemical eyes Cedar Bayou expansion

Chevron Phillips Chemical Co. LP is considering a further capacity expansion at its Cedar Bayou petrochemical complex in Baytown, Tex.

The company has undertaken a study to boost the Cedar Bayou plant's production capacity of low-viscosity polyalphaolefins (PAO) capacity to 58,000 tonnes/year from its current capacity of 48,000 tpy, the company said.

In an effort to streamline the planned expansion, all necessary environmental notifications for the proposed project already have been filed with the Texas Commission on Environmental Quality, CPC added, saying it will seek final approval for the expansion during second-quarter 2015.

If approved, the expansion project is targeted for completion in 2016, the company said.

The proposed PAO expansion at Cedar Bayou follows ongoing capacity expansion projects at the complex, including the addition of a 1.5 million-tpy ethane cracker as well as a project to boost normal alpha olefins (NAO) production at the site by 100,000 tpy (OGJ Online, Apr. 8, 2014).

The NAO expansion project, which is due to be completed in July 2015, will provide the NAO feedstock used for PAO production, CPC said.

These latest expansion plans for the company's US Gulf Coast operations come as part of CPC's strategy to capitalize on North American increased shale resource development (OGJ Online, June 18, 2014).

Gunvor secures financing for Antwerp refinery

Gunvor Group Ltd., Geneva, has renewed and increased a secured revolving borrowing base facility to $700 million to finance the growing needs of its 107,500-b/d Independent Belgian Refinery (IBR) in Antwerp, Belgium.

The facility, which was oversubscribed and scaled back, originally was launched in October 2012 at $625 million to provide working capital requirements for IBR, Gunvor said.

The facility increase resulted from ongoing and escalated participation levels from original lenders as well as the addition of a new lender, according to Gunvor.

IBR, which is situated north of the Port of Antwerp, consists of 12 processing installations, including units for atmospheric and vacuum distillation, visbreaking, naphtha desulfurization, catalytic reforming, isomerization, gas oil desulfurization, sulfur recovery, naphtha fractionation, and liquid gas separation, IBR said.

During 2013, the refinery processed crude throughputs totaled about 4.4 million tonnes, data from IBR showed.

TRANSPORTATIONQuick Takes

Sunoco Logistics to proceed with ME2 NGL pipeline

Sunoco Logistics Partners LP, Philadelphia, reported receiving sufficient binding commitments from shippers to move ahead with its Sunoco Pipeline LP subsidiary's $2.5-billion investment in the Mariner East 2 natural gas liquids pipeline project.

Mariner East 2 is the second phase of the company's broader plan to transport 275,000 b/d of various NGLs (propane, butane, and ethane) from processing and fractionation complexes in the Marcellus and Utica shale areas in western Pennsylvania, West Virginia, and eastern Ohio to Sunoco Logistics' 800-acre Marcus Hook Industrial Complex (MHIC) in southeastern Pennsylvania.

Combined with the 70,000-b/d Mariner East 1 project, Sunoco expects total NGL takeaway capacity from the shale regions via Mariner East to reach 345,000 b/d. Mariner East 1 is expected to begin propane service by yearend (OGJ, June 2, 2014, p. 82).

Mariner East 2, which will involve the construction of facilities at MHIC to store, chill, process, and distribute NGLs to local and international markets, is expected to be operational by yearend 2016, subject to regulatory and permit approvals, Sunoco Logistics said.

Sunoco Logistics also said it is actively developing an NGL processing complex, including a propane dehydrogenation plant, at Marcus Hook for the manufacture of propylene, which "furthers the revitalization plan for [MHIC]."

Mariner East would use primarily existing Sunoco pipeline. The project would also include new storage at Philadelphia and near Nederland, Tex., for waterborne transfers from the Atlantic Coast to the Gulf Coast (OGJ Online, Aug. 10, 2012).

Pembina to expand British Columbia pipeline system

Pembina Pipeline Corp. has entered into binding agreements to proceed with a $210-million expansion to Pembina's pipeline system in northeast British Columbia. The NEBC expansion will transport condensate and NGLs for producers in the liquids-rich Montney shale.

The project entails the construction of a 160 km, 12-in. pipeline with a base capacity of 75,000 b/d that will parallel the company's Blueberry pipeline system northwest of Taylor, BC, to the Highway-Blair Creek area of British Columbia. Pembina anticipates bringing the NEBC Expansion on stream sometime during the second-to-fourth quarter of 2017.

"Pembina has been actively engaging with producers regarding the development of the Montney play," said Jason Wiun, Pembina vice-president, conventional pipelines, adding that the expansion will provide access to Pembina's existing system at Taylor, BC, which feeds into Edmonton, Alta.

The project is underpinned by a long-term, cost-of-service agreement with an anchor tenant. Volumes aggregated by the expansion will feed into Pembina's Phase III pipeline expansion downstream of Taylor.

Gazprom, CNPC sign gas supply deal for Altai line

OAO Gazprom and China National Petroleum Corp. signed a framework agreement on gas supplies via the Altai pipeline, known as the "western route."

The document creates the prerequisites for signing a gas purchase and sale agreement (PSA), Gazprom said, including annual gas supply of 30 billion cu m from Western Siberia to China via Altai.

The agreement was signed Nov. 9 in Beijing by Alexey Miller, chairman of the Gazprom management committee, and Zhou Jiping, chairman of CNPC, in the presence of Russian President Vladimir Putin and Chinese President Xi Jinping.

Gazprom and CNPC in May signed a PSA for Russian gas supply via the Power of Siberia trunkline, known as the "eastern route" (OGJ Online, May 21, 2014). The 30-year contract provides for gas supply of 38 billion cu m/year.