OGJ Newsletter

March 2, 2015
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

US product demand hits highest Jan. level since '08

US oil product demand rose 1.5% year-to-year to an average 19.2 million b/d in January, its highest level for the month since 2008, the American Petroleum Institute reported. Gasoline demand growth was strongest, reaching a 6-year January peak of 8.7 million b/d, 6.3% more than in January 2014, API said in its latest Monthly Statistical Report.

"Demand for crude and most refined products remained up from where it was a year ago," API Chief Economist John C. Felmy said. "We also saw continued strength in production of oil and natural gas. While rig counts have dropped, an impact on production was not felt."

Crude oil and condensate production climbed 15.4% year-to-year to an average 9.2 million b/d, while natural gas liquids production surged 18.7% to 3.1 million b/d during the same period, API said. Crude imports, excluding purchases for the US Strategic Petroleum Reserve, of nearly 7.5 million b/d were 1.5% lower than January 2014's average, although imports from Canada rose 0.1% year-to-year.

Downstream, input to refineries' crude oil and distillation units rose 1.9% from a year earlier to 15.9 million b/d as gasoline production rose 4.3%, jet kerosene production increased 5%, and distillate fuel production rose 5.3%. Operable capacity slipped 0.7% as utilization rates grew to 89.5% from 87.2%.

Product exports climbed 8.1% from a year earlier to an average 4.3 million b/d. Product imports rose 15.8% during the same period to 1.9 million b/d, with the strongest growth in gasoline and blending components which jumped 30.1% to 626,000 b/d.

Crude oil inventories, excluding SPR stocks, at the end of January totaled 412.6 million bbl, up 7.6% from Dec. 31, 2014, and 13.4% from a year earlier. Gasoline stocks totaled 233.6 million bbl, 2.1% more than at the end of December but 0.9% less than at the end of January 2014, API said. Month-end distillate inventories of 130.8 million b/d in January were 0.3% lower month-to-month and 14.2% higher year-to-year, it said.

Siting taskforce calls for more local consultation

Colorado Gov. John W. Hickenlooper's (D) oil and gas siting taskforce called for more consultation and greater involvement with local communities on Feb. 24, but stopped short of giving them more power as it forwarded 9 of 36 proposals to him, The Denver Post reported.

Hickenlooper formed the taskforce late last summer to formulate recommendations to reduce land-use conflicts arising from oil and gas activity near homes, schools, businesses, and recreation areas (OGJ Online, Aug. 5, 2014).

Food & Water Watch and other organizations immediately announced formation of Coloradans Against Fracking in response to what they said was the taskforce's failure to protect the state's residents from an oil and gas process the groups consider dangerous. They called on Hickenlooper to follow New York Gov. Andrew Cuomo's (D) example and ban hydraulic fracturing.

"The state is right back to where it started from because these extreme groups didn't operate in good faith," said another group, Protect Colorado, which supports responsible fracing. "Their only goal was-and still is-to ban [fracing] in Colorado, regardless of the devastating economic impacts and the threat to personal property rights."

An American Petroleum Institute official, meanwhile, urged Colorado policymakers to carefully review the taskforce's recommendations that he said were the result of a thoughtful dialogue about the state's future as an energy leader.

"But there is more to do," API Upstream Operations Director Erik Milito said. "State policymakers must avoid creating unnecessary or unintentional roadblocks to the responsible energy production that is driving Colorado's economic growth."

He said the US oil and gas industry has a long history of working collaboratively with state and local officials in Colorado to protect the environment and create jobs, and would continue to work with policymakers to ensure the state remains at the forefront of America's energy renaissance.

County decision stalls Shell's Bakken rail plans

A Skagit County Hearing Examiner in Mount Vernon, Wash., halted Royal Dutch Shell PLC's plans to move Bakken crude oil by rail to the company's Anacortes refinery in northwest Washington pending an environmental and public health risk review, which could take a year or more.

The ruling came days after oil train derailments caused fires in northern Ontario and Mount Carbon, W.Va. In Washington, oil trains for other companies already pass through the downtowns of Burlington and Mount Vernon.

But recent derailments elsewhere has raised public concern about moving crude oil by rail, particularly Bakken crude oil since a July 2013 derailment and explosion in Quebec killed 47 people.

"Catastrophes have occurred elsewhere. No one doubts that such a thing could occur here," Hearing Examiner Wick Dufford said in a Feb. 23 order.

Shell said it respected the decision and was "determined to stay the course." The company has been involved in obtaining necessary permits for 2 years already.

Exploration & DevelopmentQuick Takes

BP lets contract for Great Australian Bight program

BP Australia has let a contract to ASCO Group for the supply base management of its forthcoming exploration drilling program in the South Australian portion of the Great Australian Bight. The program will begin in 2016 and includes four wells about 300 km southwest of Ceduna.

ASCO will establish and manage a supply base at Flinders Port in Adelaide in partnership with Flinders Logistics.

The base activity will begin early next year and employ about 25 full-time employees at peak operation.

The facilities include 120 m of quayside and in excess of 20,000 sq m of laydown area. There will be a liquids mud plant, light and heavy vehicle parking areas, and an administration building with training room.

The base will provide a full range of stevedoring and materials management services that includes loading to trucks, ground transportation scheduling and coordination, warehouse and yard management and tank farm management.

ASCO also will be responsible for management of Australian Quarantine and Inspection Service compliant wash-down facilities.

BP's much-anticipated program is focused on the underexplored Southern Margin in the Bight and has a guaranteed work program expenditure of $605 million (Aus.) and a potential upside of more than $1 billion.

The wells will be drilled in 1,000-2,500 m of water in permits already covered by 3D seismic data acquired by BP in 2011-12.

The program will be BP's first Australian exploration operatorship in 25 years and it will also be the first wells in the Bight since Woodside Petroleum Ltd.'s Gnarlyknots-1 dry hole in 2003 (OGJ Online, Apr. 23, 2003).

Lime Petroleum farms into Gemini prospect

Lime Petroleum Norway AS, a wholly owned subsidiary of Lime Petroleum PLC, has agreed to take 30% interest in PL338C in the North Sea from Lundin Norway AS, a wholly owned subsidiary of Lundin Petroleum AB.

The license contains the Gemini prospect on the Utsira High offshore Norway currently being drilled with the Island Drilling Co. ASA's Island Innovator semisubmersible drilling rig. The prospect has Paleocene aged sandstones of the Ty formation as a reservoir target and gross unrisked exploration resources of 93 million bbl of oil, with 24% geological chance of success.

The license also holds the Rolvsnes oil discovery in weathered granitic basement scheduled for further appraisal.

Following the transaction, and subject to government approval, Lundin Norway will hold as operator 50% working interest in PL338C with Lime Petroleum 30% and OMV Norge AS 20%. Lime Petroleum is a jointly controlled entity by Rex International Holding with 65% and Hibiscus Petroleum Bhd. with 35%.

Santos-Inpex JV gains permits in Browse basin

A joint venture of Santos Ltd. and Inpex Corp. has been awarded two exploration permits in the Browse basin offshore Western Australia, about 500 km from Broome. Both blocks, WA-513-P and WA-514-P, are close to Inpex's Ichthys field and to Royal Dutch Shell PLC's Prelude and Concerto gas-condensate fields currently under development.

In August, Santos made another find, Lasseter-1, in neighboring WA-274-P. The new permits lie in 300-400 m of water.

Santos has 60% interest; Inpex has 40%. Both companies-in particular Inpex, with the Ichthys LNG project nearing completion-are keen to maximize the potential of their earlier discoveries.

Drilling & ProductionQuick Takes

Statoil starts production from Oseberg Delta 2

Statoil ASA reported the start of production from Oseberg Delta 2 in the North Sea. The field is tied back 14 km to Oseberg field's center by two subsea templates with total capacity for eight wells. The initial phase involves three oil producers and two gas injectors. Gas injection will provide "a substantially greater recovery rate," the company said.

"Delta 2 is an important element in extending the lifetime of Oseberg," said Arild Dybvig, vice-president for fast-track development projects. "It provides a good example of how we can make lesser discoveries profitable by using existing infrastructure while it is still available."

Total investment is slightly less than 7 billion kroner, Statoil said. The development plan was submitted to the Ministry of Petroleum and Energy in May 2013 and approved that October.

Recoverable reserves are estimated at 77 million boe during an estimated life of 20 years. Oil accounts for 32 million boe and gas 45 million boe. Production is from 3,100 m under the seafloor.

Operator Statoil has 49.3%, Petoro 33.6%, Total 14.7%, and ConocoPhillips 2.4% (OGJ Online, May 30, 2013).

Statoil said oil from two wells on the "Delta terrace" has been produced since 2008.

AER sets new seismic monitoring rules for Duvernay

The Alberta Energy Regulator (AER) announced seismic monitoring and reporting requirements for companies using hydraulic fracturing in the Duvernay zone of the Fox Creek area following some seismic events there in December 2014 and in January.

The subsurface order outlined stages at which operators need to take action when seismic activity is observed, including reporting activities to AER, implementing response plans, and, at certain levels, ceasing operations.

Several seismic events-possibly related to hydraulic fracturing-were recorded in the Fox Creek area. These events did not impact public safety, infrastructure, or the environment, AER said.

In December 2014, a cluster of 18 seismic events was reported in the Fox Creek area, with magnitudes between 2.7 and 3.7 local magnitude (ML). In January 2015, several events were recorded between magnitudes of 2.4 and 4.4 ML.

"While these seismic events have not impacted public safety, it is our job to take this precautionary step to ensure energy resources in this area are developed in a safe and responsible manner," said AER Pres. and Chief Executive Officer Jim Ellis.

Earlier this month, AER released Bulletin 2015-03 to remind licensees of their responsibility to ensure well control and subsurface integrity at all stages of drilling, completion, and injection operations.

Hydraulic fracturing has been observed to induce subsurface seismic events since the 1960s. Most of these events have been too small to be felt or to cause surface impacts.

Waterflooding boosts oil production at Nimr-C

Waterflooding has increased oil production from Nimr-C field in southern Oman sixfold in 4 years, Petroleum Development Oman (PDO) reported.

The field produced 17,600 b/d in 2014 compared with 2,800 b/d in 2010. Peak production had been 13,800 b/d more than 20 years ago.

Nimr-C came onstream in 1987 but had suffered production declines because of falling reservoir pressure.

The turnaround was achieved by injecting large volumes of produced water through the field "to recover the highly viscous oil." Water injection has been accompanied by additional infill producer wells.

PDO said the $600 million project could result in production of 43 million bbl of incremental oil reserves.

"The Nimr-C team has realized millions of dollars for Oman by reviving a declining field and actively managing the project risks," said Raoul Restucci, PDO managing director.

Grizzly files OSCA application for Thickwood

Grizzly Oil Sands ULC, Calgary, has filed an Oil Sands Conservation Act application with Alberta Energy Regulator for the Thickwood project.

The application updates Grizzly's 2012 filing with the Alberta Energy Resources Conservation Board (OGJ Online, Dec. 18, 2012).

Grizzly seeks to produce as much as 12,000 b/d of bitumen from the Wabiskaw formation. The project would include as many as 48 steam-assisted gravity drainage well pairs from four surface pads and as many as 88 cyclic steam stimulation wells from eight surface pads, along with a central processing facility.

AER is reviewing the application along with environmental protection and water filings. Grizzly is planning to begin site work west of Fort McMurray in the fourth quarter.

PROCESSINGQuick Takes

PwC: Chemicals M&A activity reaches 10-year high

Mergers and acquisitions (M&A) activity in the global chemicals business ramped up substantially in 2014, recording the highest volume in a decade and reaching the highest deal value since 2007, according to a quarterly analysis of the global deal activity in the chemicals industry by PwC US.

During the year, 177 deals worth more than $50 million each took place, representing a combined value of $85 billion.

Megadeals, or transactions worth more than $1 billion, drove chemicals M&A activity, with 25 deals totaling $50 billion, substantially higher than the 10 deals and total value of $19 billion in 2013.

In the fourth quarter, 51 deals worth more than $50 million took place at a total value of $19 billion. Four megadeals took place with a total value of $9 billion.

"Improved economic conditions in 2014 made it more enticing for M&A activity to occur in the chemicals sector," said Pam Schlosser, US chemicals leader for PwC. "Specialty chemicals also played a part in driving M&A activity as almost half of the megadeals that took place in 2014 were in the specialty chemicals segment."

Asia and Oceania comprised the region most active in deal-making, seeing 111 deals worth more than $50 million, valued at just more than $35 billion, driven by strong activity in China.

"We're continuing to see local deals taking place in China as the government consolidates heavy industry together in an effort to drive increased efficiency and boost exports," Schlosser added.

North America led deal value with 60 deals worth more than $50 million totaling $41 billion, driven by 11 megadeals valued at $26 billion.

Those totals reflect the 10-year highs reached in M&A deal value and volume of all upstream, midstream, and downstream transactions in the US. A total of 252 oil and gas deals took place, reaching combined value of $321.5 billion (OGJ Online, Jan. 29, 2015).

Oneok halting construction at three gas plants

Oneok Partners LP, Tulsa, has suspended construction on 500 MMcfd of gas processing capacity at three plants in the Williston basin of North Dakota, Powder River basin in Wyoming, and Anadarko basin in Oklahoma. The actions are in response to lower commodity prices, especially for natural gas and NGLs, the company reported in its Feb. 24 earnings call.

Terry K. Spencer, Oneok Partners president and chief executive officer, said the company will spend no more on these projects "until market conditions improve" when it will "quickly reestablish completion dates."

Details on the three plants are as follows:

• In mid-2014, Oneok announced plans for the 200-MMcfd Knox plant in Grady and Stephens counties, Okla. It was to spend $365-470 million by expected plant start-up in late 2016. The Knox plant was to increase Oneok's Oklahoma gas processing capacity to 900 MMcfd. Estimated costs included $175-240 million to build the plant and $190-230 million to build related systems, including gas gathering pipelines and compression (OGJ Online, July 24, 2014).

• The 100-MMcfd Bronco plant being built in southern Campbell County, Wyo., was to serve production from the NGL-rich Turner, Frontier, Sussex, and Niobrara shales. At its announcement in second-half 2014, Bronco was expected to cost $215-305 million to build towards a third-quarter 2016 completion. Oneok was spending $130-190 million to build the plant; $45-60 million to build a 65-mile, 10-in. NGL pipeline to connect it to Oneok's Bakken NGL pipeline lateral; and $40-55 million to build related gas systems.

• The 200-MMcfd Demicks Lake plant in McKenzie County, ND, is part of 500 MMcfd of processing under way in the county, including the 100-Garden Creek III plant that was to be completed at yearend 2014 and the 200-MMcfd Lonesome Creek plant scheduled for completion in fourth-quarter this year (OGJ Online, Sept. 22, 2014).

Expansion work progresses at Volgograd refinery

Contruction activities related to the expansion of OAO Lukoil's 11 million-tonne/year Volgograd refinery in southern Russia are proceeding as planned, with start-up of units at the plant still on schedule for 2015-16.

Lukoil intends to commission AVT-1, the plant's 6 million-tpy primary crude distillation unit this year, with a vacuum gas oil (VGO) deep conversion complex due for start-up in first-half 2016, the company said.

AVT-1, which will replace the refinery's aging crude distillation units, is designed to improve the refinery's operational efficiency by reducing energy consumption and improving the quality of fractionation products, according to Lukoil's Fact Book 2013.

The deep-processing complex, which will include a 3.5 million-tpy VGO hydrocracker, as well as units for hydrogen production and sulfur recovery, aims to increase the refinery's output of Euro 5 diesel by 1.8 million tpy, the company previously said (OGJ Online, Feb. 19, 2013).

TRANSPORTATIONQuick Takes

EPP, Anadarko, others form NGL pipeline JV

Enterprise Products Partners LP, Anadarko Petroleum Corp., DCP Midstream Partners LP, and MarkWest Energy Partners LP have formed a joint venture assigning 45% ownership interest in EPP's wholly owned Panola Pipeline Co. LLC in equal 15% shares to Anadarko's affiliate, WGR Asset Holding Co. LLC (WGR), DCP Midstream Partners, and MarkWest. EPP will continue to serve as operator of the Panola Pipeline and own the remaining 55% interest.

The Panola Pipeline ships NGL 181 miles from Carthage, Tex., to Mont Belvieu, Tex. EPP recently announced plans to install 60 miles of pipeline, as well as pumps and other associated equipment as part of a 50,000-b/d Panola expansion. The company expects the incremental capacity serving Hayneville and Cotton Valley producers (OGJ Online, Jan. 22, 2015) to be available first-quarter 2016.

First custom-built carrier for PNG LNG arrives

The first custom-built LNG carrier for the Papua New Guinea LNG project has docked at the Port Moresby LNG plant.

The vessel, MV Papua, has the capacity to hold 172,000 cu m of LNG has started loading its maiden cargo bound for Sinopoc in China. The vessel will be used to supply the project's customers in Asia.

Papua was built in Shanghai by Hudong-Zhongua Ship Building company and is said to be the largest carrier ever built in the country.

The vessel is owned by a joint venture of Aquarius LNG Shipping Ltd., Mitsui OSK Lines, China Shipping Group, and Sinopec. It is operated by Mitsui on behalf of the Papua New Guinea LNG joint venture participants at the direction of ExxonMobil Corp.

The project will have four dedicated carriers. Three of them-The Spirit of Helga, Gigira Laitebo, and now Papua-are in operation. The fourth vessel is still under construction.

NGL Energy expands DJ basin crude pipeline

NGL Energy Partners LP will increase the capacity of its Grand Mesa crude pipeline to at least 200,000 b/d by using 20-in. OD pipe. Volumes committed to Rimrock Midstream LLC's 150-mile Denver-Julesburg basin gathering system, currently under development and planned to tie into Grand Mesa at Lucerne, Colo., prompted the expansion decision.

Grand Mesa will include more than 550 miles of pipeline, multiple truck injection bays, more than 1 million bbl of storage, and at least two origination points near Lucerne and Kersey (Riverside Station) in Weld County, Colo. NGL expects the system to enter service fourth-quarter 2016. Rimrock will build and operate the pipeline system.