OGJ Newsletter

Jan. 19, 2015
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

Suncor cuts capex by $1 billion (Can.), jobs by 1,000

Suncor Energy Inc. is cutting $1 billion (Can.) from its 2015 capital spending program and reducing its workforce by 1,000 because of lower oil prices. The company also plans to trim $600-800 million in operating expenses in the next 2 years.

Suncor said the 1,000 job cuts will be "primarily through its contract workforce," but did not provide specifics on reductions in Suncor employee positions. The firm also reported a hiring freeze for roles "that are not critical to operations and safety."

Cost reduction targets include deferral of some capital projects that have not yet been sanctioned, such as MacKay River 2 and the White Rose Extension.

Major construction projects, including Fort Hills in northern Alberta and Hebron in the Atlantic off eastern Canada, will move forward as planned and "are expected to provide strong returns when they come online in late 2017."

The 2015 Suncor budget from November reached $7.8 billion (Can.), while the revised spending plan reached $6.8 billion (Can.).

Despite reduced spending and lower pricing assumptions in the company's updated guidance for 2015, production guidance remains at 540,000-585,000 boe/d.

Fitch: Regs limit demand response to price

Regulations meant to trim the use of oil products in the US will distort fuel-market adjustments to falling oil prices by putting the burden on supply, warns Fitch Ratings, New York.

The credit-rating and research firm cites growing requirements for renewable fuels, tighter corporate average fuel economy standards, and state and federal regulation of greenhouse gases.

The firm notes an Energy Information Administration report that weekly total gasoline consumption at the end of December rose to about 9.5 million b/d, 3.3% above its 5-year high and 3.7% above its year-earlier level.

Over time, however, regulations will restrain consumption regardless of price and raise costs for US refinery products, especially gasoline.

"The limited ability of the US to balance global oil markets through changes in demand suggests that the oil market will likely require a more significant adjustment on the supply side to recover from its recent lows," Fitch Ratings says. "This dovetails with Fitch's view that the recent drop in oil prices is mostly a supply-driven issue that will require a significant supply response to come back into balance."

Mazrouei: Oil-price slide will not impact UAE economy

The slump in oil prices will have no impact on the economy of the United Arab Emirates, says the UAE's energy minister.

Suhail Mohamed Faraj Al Mazrouei, speaking Jan. 13 at the Gulf Intelligence UAE Energy Forum in Abu Dhabi, said, "The UAE is not worried about its national economy due to the decline in the world oil prices," according to news agencies WAM and UAEinteract. "Its economy is strong and based on a policy through which the government seeks to reduce dependence on oil year after year. The UAE economy was not affected by previous instances of decline in oil prices and it will not, thanks to its economic well-being."

Mazrouei noted that lower oil prices provide an opportunity for investments and for reviewing contracts. He added that OPEC has no intention of holding an emergency meeting before its scheduled meeting in June.

The minister also said current oil prices were not sustainable and that he expects the world economy to grow at rates higher than those of today.

OGUK: Major tax changes urgently needed

Oil & Gas UK said falling oil prices are creating an urgent need for fundamental changes to the tax regime.

OGUK CEO Malcolm Webb called for abolition of the 30% supplementary charge on the corporation tax, which was introduced and then increased in direct response to rising oil prices, most recently in 2011 (OGJ Online, Dec. 3, 2014).

He said abolition would still leave oil and gas producers paying corporation tax at 30%, a tax rate 50% higher than the rest of British industry.

"We are encouraged to see a growing political and industry consensus around the now pressing need for more fundamental and urgent changes to the tax regime," Webb said.

With a significant amount of UK oil and gas production "not even covering costs" at $50/bbl, "the industry cannot carry the burden of a tax rate between 60 and 80%," he said.

Webb said the industry is resolutely focused on tackling the cost and efficiency challenges it faces to improve the competitiveness of North Sea operations.

"The Treasury's promise in last year's Autumn Statement of a simplified tax allowance to encourage new investment must be delivered by Budget 2015 if it is to have any impact," Webb said. "However, with the continually falling and potentially sustained low oil price, this is no longer enough."

Newfield Exploration to retain assets in China

Newfield Exploration Co., The Woodlands, Tex., has concluded its marketing process for its China business and now plans to retain the assets. The business will be reclassified for financial purposes as "continuing operations" in fourth-quarter 2014.

"The recent and significant pull back in global oil prices created headwinds for our China sales process," said Larry Massaro, Newfield executive vice-president and chief financial officer. "Our China oil fields are expected to generate significant free cash flows over the next several years."

Net liftings from China in the fourth quarter totaled 300,000 bbl of oil. The Pearl facility in the South China Sea is currently producing oil and development drilling is ongoing. Net capital investments in China this year are estimated at less than $50 million. Pearl is expected to reach a peak rate midyear.

"Although our intent was to monetize the asset, it was not a sale at any price," Massaro explained. "We will remain disciplined in our capital investments and intend to use the cash flows from our China business to manage short-term borrowing levels and ensure that we manage our overall debt and liquidity positions during a period of weak oil prices."

Newfield has monetized more than $2.6 billion in nonstrategic assets over the last 3 years and has used proceeds to fund its domestic businesses. The recent sale of the Granite Wash allowed for the repayment of $600 million in long-term debt (OGJ Online Sept. 22, 2014). The company in early 2014 closed on the sale of its business offshore Malaysia for $898 million (OGJ Online, Feb. 11, 2014).

Exploration & DevelopmentQuick Takes

Petrobras confirms light oil potential of Sergipe basin

Petroleo Brasileiro SA (Petrobras) has confirmed the continuation of the light oil accumulation in turbidite sandstone in the Muriu area of the ultradeepwater Sergipe basin.

Well 9-SES-187A reached the total depth of 5,521 m in 2,533 m of water, encountering a 56-m thick reservoir that presents good permeability and porosity features. Oil was of 38-40° gravity.

The well is being completed, and Petrobras says an injectivity test will follow to assess the reservoir's productivity. The well is 88 km offshore the city of Aracaju and 2.8 km from the discovery well (OGJ Online, Dec. 5, 2012), part of concession area BM-SEAL-10, Blocks SEAL-M-347 and SEAL-M-424.

The company in August confirmed the presence of 40-m thick reservoirs with good permeability and porosity conditions in Moita Bonita of BM-SEAL-10 (OGJ Online, Aug. 22, 2014).

The accumulation is part of the Sergipe-Alagoas basin deepwater exploration project in Petrobras´ business and management plan for 2014-18.

Petrobras, which holds 100% interest in concession BM-SEAL-10, will proceed with the discovery evaluation plan as approved by Brazil's Petroleum, Natural Gas, and Biofuels Agency.

E.On adds interest in N. Sea's Manhattan prospect

E.On E&P has acquired 22.5% interest in several licenses on Blocks 22/13b, 22/14d, 22/18b, and 22/19b covering the Manhattan prospect of the central UK North Sea.

The Manhattan prospect includes an exploration well to be drilled during this year's first half. The license is south of the Huntington field, operated by E.On E&P (OGJ Online, Apr. 15, 2013).

"As a committed partner, we will continue to provide our technical expertise and knowledge of this area to maximize the chance of a discovery," said Haakon Haaland, E.On E&P executive vice-president, exploration and business development.

Nexen Energy ULC operates Manhattan with 40.5% interest. GDF Suez holds 25% and Carrizo Oil & Gas Inc., 12%.

Gulfsands Petroleum completes Moroccan gas find

Gulfsands Petroleum PLC completed its Dardara Southeast 1 well (DRC-1) Rharb Centre Permit in northern Morocco.

Following an initial 3-hr cleanup, the well tested at an average rate of 7.1 MMcfd through a 32⁄64-in. choke with a stable wellhead pressure of 1,230 psi with no associated water or sand production.

Subject to approval with state-owned ONHYM, the company plans to tie the DRC-1 well into local systems in the coming months.

Drilling & ProductionQuick Takes

Second ExxonMobil crude tanker nears service

The second of two new US-flagged crude oil tankers belonging to SeaRiver Maritime Inc., the marine unit of ExxonMobil Corp., has been built and will begin transporting oil from Alaska's North Slope to US West Coast refineries later this year.

The double-hull, 820-ft Eagle Bay tanker can carry 800,000 bbl of oil and is equipped with the latest technology for essential systems, including main engine components and controls as well as fuel, lube oil, and electrical systems.

SeaRiver Maritime consulted with independent specialists to complete an evaluation of the vessel's design, adhering to the same methodology used by the aerospace industry and the US Department of Defense. The ship's main engine and auxiliary systems will be energy efficient and generate lower air emissions than required by regulatory standards, the company says.

SeaRiver signed a $400-million agreement with Aker Philadelphia Shipyard in 2011 to construct the two tankers (OGJ Online, Sept. 29, 2011). The Liberty Bay was completed in 2014. They will replace two existing double-hull tankers.

Statoil to extend Norne field production to 2030

Originally scheduled to be taken off stream during 2014, Statoil ASA's Norne field will remain in operation until 2030, the Norwegian company said. Statoil cited regular maintenance, improved recovery, and recent hydrocarbon discoveries for the field's extended life (OGJ Online, Sept. 16, 2013).

Located 85 km offshore Norway, Norne field was brought on stream in 1997 and has produced about 700 million boe to date (OGJ Online, Oct. 3, 1994).

Production flows from 15 subsea templates tied back to a floating production, storage, and offloading vessel. Natural gas is piped to Karsto and from there, to Europe.

Statoil says it plans to increase the recovery factor of Norne to 60% from 56.5%, accessing the estimated 300 million boe of remaining resources.

Details for the life-extension project including scope, timeframe, and investment will be announced in 2017.

Statoil operates Norne field, holding 39.1% interest. Partners Petoro AS and Eni Norge AS hold 54% and 6.9%, respectively.

Statoil lets FSU contract for Mariner field

Statoil ASA has let a contract to OSM Offshore Aberdeen Ltd., a subsidiary of OSM Offshore AS, to operate the Mariner floating storage unit (FSU) in Mariner oil field, within part of Block 9/11a of the UK continental shelf (UKCS).

OSM will be responsible for building supervision in South Korea, preoperation activities, transit from South Korea to site, and full management services on site. The contract, which starts Feb. 1, is long-term with a fixed duration of 5 years, with additional option periods of 3 and 2 years.

OSM received the contract for Mariner's sister vessel Heidrun FSU in October 2013. The company previously operated via Rasmussen Maritime Services AS, acquired by OSM in 2003, several flotels on the UKCS from 1980 to the early 2000s.

Statoil in December let an integrated drilling and well services contract for Mariner to Schlumberger Oilfield UK PLC (OGJ Online, Dec. 19, 2014).

Production from the field is expected to start in 2017. Statoil holds 65.11% interest, JX Nippon Exploration & Production (UK) Ltd. 28.89%, and Dyas Mariner Ltd. 6%.

PROCESSINGQuick Takes

Shell mulls fate of Malaysian refinery

Shell Refining Co. (FOM) Bhd. (SRC), a holding of Royal Dutch Shell PLC, is evaluating either the potential divestiture or closure of its 125,000-b/d Port Dickson, Malaysia, refinery.

Following a structured review of SRC's resilience in a persisting poor-margin environment, the company's board is investigating long-term options which include, but are not limited to, the potential sale of the refinery or its conversion to a storage terminal, SRC said in a Jan. 9 filing with Bursa Malaysia.

Until a final option regarding the future of the refinery has been selected and gained necessary shareholder approval, SRC's near-term focus remains ensuring safe and reliable operations at the refining complex, according to the company.

SRC's decision to abandon its Malaysian refining business stems from a determination by its board in September 2014 that regional refining margins would remain depressed due to overcapacity in the global refining industry, the company said.

In an effort to improve refining margins at Port Dickson, SRC last year constructed and commissioned a 6,000-tonne/day diesel processing plant at the refinery, the company said in its 2013 annual report (OGJ Online, Sept. 29, 2010).

Known as Project Hijau, the undertaking included installation of a diesel hydrodesulfurization unit, amine regeneration unit, and sour water stripper unit, as well as a revamp of an existing sulfur recovery unit, according to an October 2014 investor presentation.

In addition to increasing diesel production at the refinery, the new unit equipped the complex to expand its feedstock options to include less expensive, more-difficult-to-process crudes, which contributed to an improved average refining margin in 2013 of $1.90/bbl compared with $1.25/bbl in 2012, the company said.

QP, Shell cancel plans for Al Karaana petchem plant

Qatar Petroleum and Royal Dutch Shell PLC have canceled plans to proceed with development of the proposed Al Karaana petrochemicals complex in Ras Laffan Industrial City, north of Qatar (OGJ Online, Dec. 5, 2011).

The companies made the decision to scrap the project after bids submitted by potential engineering, procurement, and construction firms showed capital costs for the development would be too high and commercially unfeasible given the energy industry's currently weak economic climate, Shell said.

Initiated with a heads of agreement between QP and Shell in late 2011 following the conclusion of a joint feasibility study by the two companies, the project was to include: a steam cracker, with feedstock from natural gas projects in Qatar; a monoethylene glycol plant with a capacity of up to 1.5 million tonnes/year that would use Shell's OMEGA technology; a 300,000-tpy linear alpha olefins plant using Shell's SHOP process; and a plant for production of another unidentified olefin derivative.

Production from the complex, which was to be jointly owned by QP 80% and Shell 20%, was planned to be marketed primarily into Asia-Pacific.

Gazprom Neft's moves ahead with Moscow refinery

Russia's JSC Gazprom Neft is moving forward with construction on the second phase of a biological wastewater treatment system at its 12.15 million tonne/year refinery in Moscow.

Project documentation for the proposed wastewater treatment installations was approved by Russia's federal building standards and quality-control agency Glavgosekspertiza in December 2014, Gazprom Neft said.

The two second-phase biological treatment plants, which are to be built on a former buffer zone decommissioned in 2012, will have a total capacity of 1,400 cu m/hr across two zones, with the plants to cover areas of 6,400 sq m and 18,000 sq m, respectively, the company said.

The biological treatment installations will consist of a processing chain that includes membrane bioreactor units, two-stage flotation, carbon filters, dehydration of activated sludge and oil sludge, and reverse osmosis.

Activated sludge, which contains various microorganisms that act together as a culture to absorb organic matter, nitrogen, and other petroleum products and pollutants, will be used in combination with mechanical filtration through a membrane bioreactor to remove nearly 100% of industrial effluents from the refinery's wastewater, Gazprom Neft said.

Once fully commissioned in 2017, the multistage biological wastewater treatment system will more than halve the refinery's current water consumption, allowing 75% of water to be returned to the plant's production cycle.

The new system additionally will improve the quality of water delivered from the refinery to the local sewage system to parity to water qualities found in regional fisheries to help reduce demand on municipal wastewater treatment plants by threefold, the company said.

These second-phase wastewater treatment plants are to form part of a single installation with an underground, mechanical treatment plant completed at the refinery in 2012 as part of the project's first phase, Gazprom Neft said.

Implementation of the wastewater treatment system, as well as other emission-reduction projects, comes as part of the company's renovation and modernization program at Moscow over 2013-20, said Arkadly Egizaryan, Gazprom Neft's CEO for the Moscow refinery (OGJ Online, Dec. 3, 2014). Once completed, the modernization program at Moscow will increase overall design capacity of the refinery to 18.15 million tpy (OGJ Online, May 7, 2013).

TRANSPORTATIONQuick Takes

Enbridge to build, operate lateral for Stampede

Enbridge Inc., Calgary, reported it will build, own, and operate a crude oil pipeline in the Gulf of Mexico to connect the planned Stampede development, operated by Hess Corp., to an existing third-party pipeline system. The lateral pipeline is expected to cost $130 million and be operational in 2018, Enbridge said.

The Stampede development was previously sanctioned by Hess and its project co-owners in October 2014 (OGJ Online, Oct. 29, 2014).

The 16-mile, 18-in. Stampede lateral will originate at Green Canyon Block 468 in 3,500 ft of water about 220 miles southwest of New Orleans.

Enbridge's offshore pipelines transport about 40% of the natural gas produced in the deepwater gulf and 45% of gas from the ultradeep water. The company's offshore assets include interests in 11 gas gathering and transmission pipelines and one crude oil pipeline in four major pipeline corridors offshore Louisiana and Mississippi.

First LNG carrier delivered for PNG LNG project

The first custom-built LNG carrier for the Papua New Guinea LNG project fleet has been named Papua in a ceremony in Hudong, China. The vessel was built by Hudong-Zhonghua Shipping Group and will be operated by Mitsui OSK Lines on behalf of ExxonMobil Corp. It is the largest vessel of its type built in China with a capacity for loading 172,000 cu m of LNG.

Papua will be delivered in the next month or so. Along with three other carriers-The Spirit of Helga, Gigira Laitebo, and another vessel under construction at Hudong-it will be dedicated to ship Papua New Guinea LNG to Asia.

EnLink buys Permian basin crude gathering operation

A unit of EnLink Midstream Partners LP has agreed to by LPC Crude Oil Marketing LLC, which has crude oil gathering, transportation, and marketing operations in the Permian basin. LPC purchases, transports, and sells about 60,000 b/d. The acquisition adds crude oil first purchasing and logistics to EnLink's existing Permian natural gas gathering and processing services.

LPC's assets include 13 pipeline and refinery injection stations, a fleet of about 43 tractor trailers, six crude oil gathering systems totaling 67 miles of pipeline, and a crude oil first purchasing operation. EnLink spent roughly $100 million on the purchase.

The company last year purchased 1,400 miles of Gulf Coast natural gas pipeline and 11 bcf of working natural gas storage in Southern Louisiana from Chevron Pipe Line Co. and Chevron Midstream Pipelines LLC (OGJ Online, Sept. 29, 2014).

API forms midstream department to address issues

The American Petroleum Institute has formed a midstream department to address issues related to energy systems and the transportation of crude oil and natural gas.

"In order for America's oil and gas renaissance to continue, we need a world-class infrastructure system to deliver that energy to consumers," API Pres. Jack N. Gerard said on Jan. 13.

Creating a division focused on midstream issues within API will enable the industry to address critical energy infrastructure issues, Gerard said.

API said the new department will encompass its policy work on the transportation of oil and gas by pipelines, rail, ship, and other methods. The areas were previously split between its upstream and downstream departments, API said.

Robin Rorick, who has been API's marine and security director for the last 5 years, will be the new group's director. Plains All American Pipeline LP Pres. Harry N. Pefanis will chair a committee of API member companies, which will oversee the department's work.