OGJ Newsletter

April 6, 2015
International news for oil and gas professionals

GENERAL INTERESTQuick Takes

OPEC's 2014 net oil export revenues declined 11%

Members of the Organization of Petroleum Exporting Countries, excluding Iran, earned $730 billion in net oil export revenues during 2014, according to estimates from the US Energy Information Administration.

The total-the lowest earnings for the group since 2010-is an 11% decline from $824 billion in 2013, primarily due to the decline in average annual crude oil prices, and to a lesser extent from decreases in the amount of OPEC net oil exports, EIA says.

Saudi Arabia earned the largest share of the earnings-$246 billion in 2014-representing one third of total OPEC oil revenues.

Iran's revenues are excluded from the total because of difficulties associated with estimating that country's earnings, including its inability to receive payments and possible price discounts offered to existing customers.

OPEC net oil export revenues, excluding Iran, could fall further to $380 billion in 2015 as a result of the much lower annual oil prices, EIA projects.

OPEC's crude oil production and exports as a whole in 2015 will be unchanged from 2014 levels following OPEC's decision on Nov. 27 to not alter production targets from previous levels EIA, says.

Consistent with OPEC's announcement, Saudi Arabia has indicated its intention to maintain its export market share rather than cut production to keep prices higher. In the past, EIA explains, Saudi Arabia often played the role of the swing producer, temporarily cutting its production to offset supply growth elsewhere or weaker global demand, or increasing its output level to make up for a supply shortfall.

On a per capita basis, OPEC net oil export earnings, excluding Iran, are expected to decline by half from $2,186 in 2014 to $1,114 in 2015. OPEC net oil export revenues in 2015 are based on projections of global oil prices and OPEC production levels from EIA's March 2015 Short-Term Energy Outlook.

OPEC revenues in 2016 are projected to rebound to $515 billion with the expected rebound in oil prices.

Veresen completes acquisition of Montney assets

Veresen Midstream LP has completed its acquisition of certain natural gas gathering and compression assets supporting development in the Montney area of northeastern British Columbia from Encana Corp. and Cutbank Ridge Partnership for $461 million (Can.).

Veresen Midstream is a 50-50 partnership of Veresen Inc. and affiliates of Kohlberg Kravis Roberts & Co. LP. Cutbank Ridge Partnership (CRP) is a partnership of Encana and a subsidiary of Mitsubishi Corp.

The deal includes existing infrastructure comprised of gas gathering and compression facilities in the Dawson Creek area, consisting of 500 km of pipeline and 675 MMcfd of compression.

Under the terms of the agreement, Veresen Midstream will provide gathering and compression services to each of Encana and the CRP under separate fee-for-service arrangements in a dedicated area of mutual interest within the Montney resource play.

Veresen Midstream has agreed to undertake up to $5 billion (Can.) of midstream expansion to support development within the area of dedication. Encana will continue to operate the related facilities and lead future infrastructure construction on behalf of Veresen Midstream, which will oversee all commercial and other ownership activities.

"By unlocking value from these assets, we can redirect capital to strategic upstream opportunities, enhance our financial flexibility, and maintain involvement in facility construction and operatorship in one of our strategic growth areas," said Renee Zemljak, Encana executive vice-president, midstream, marketing, and fundamentals.

Maryland's AG opposes Mid-Atlantic OCS leasing

Maryland Atty. Gen. Martin E. Frosh (D) said he strongly opposes proposed oil and gas activity on the Mid-Atlantic US Outer Continental Shelf in comments submitted to the US Bureau of Ocean Energy Management.

"The idea of allowing oil exploration along the Atlantic Coast is beyond foolish," Frosh said. "Half of the water in the Chesapeake Bay comes from the Atlantic Ocean. Beaches like the Assateague Island National Seashore are some of the most unspoiled in the nation. We would be jeopardizing the very assets we are working so hard to preserve."

He said that each offshore oil and gas activity carries needless risks, from testing and drilling needed to locate deposits, to the damage done during extraction and transport of the fuels, to the inevitable spills that occur.

"There is just no way to eliminate the risks of spills and blowouts," Frosh declared. "The cumulative effect of small leaks can be as damaging as huge disasters such as the BP Deepwater Horizon blowout. Maryland's tourism economy, fishing economy, and natural resources would all be at risk if this unnecessary plan moves forward."

He submitted his comments the same day that the American Petroleum Institute and seven other US oil and gas associations asked BOEM to not make what they consider an already overly restrictive 2017-22 draft proposed federal OCS oil and gas program more so (OGJ Online, Mar. 30, 2015).

Exploration & DevelopmentQuick Takes

Statoil makes eighth discovery off Tanzania

Statoil ASA has discovered an additional 1.0-1.8 tcf of natural gas in Block 2 off Tanzania bringing the total in-place volumes to about 22 tcf. The new Mdalasini discovery is in 2,296 m of water at the southernmost end of the block.

Statoil drilled the Mdalasini exploration well with 100% working interest. Previously, Statoil and partner ExxonMobil Corp. made seven discoveries on Block 2: Zafarani-1, Lavani-1, Lavani-2, Tangawizi-1, Mronge-1, Piri-1, and Gilligiliani-1(OGJ Online, Oct. 14, 2014).

The Mdalasini-1 discovery marks the completion of the first phase of Statoil's exploration program off Tanzania, said Nick Maden, senior vice-president of Staoil's western hemisphere exploration. While the company continues to see prospectivity in the area, there will be a pause in drilling to evaluate next steps, he added.

Statoil operates the license on Block 2 on behalf of Tanzania Petroleum Development Corp. and has 65% working interest. ExxonMobil and Tanzania Ltd. hold the remaining 35%.

Eni signs PSCs for two blocks offshore Myanmar

Eni SPA has signed production-sharing contracts for Blocks MD2 and MD4 offshore Myanmar following participation in the country's International Bid Round launched in 2013 (OGJ Online, Mar. 26, 2014).

Eni will operate the blocks through Eni Myanmar BV with 80% participating interest. Petrovietnam Exploration Production Corp. Ltd. will hold the remaining 20%.

MD2 is in the Rakhine basin in the southern portion of the Bay of Bengal, lying 135 km from the coast and west of Yadana field, the major offshore discovery in Myanmar. MD2 covers 10,330 sq km in 500-2,400 m of water.

MD4 is in the Moattama-South Andaman basin, lying 230 km from the coast and west of Yetagun gas field. MD4 covers 5,900 sq km in 1,500-2,200 m of water.

The PSCs foresee a study period of 2 years followed by an exploration period of 6 years, subdivided in 3 phases, Eni says.

"Today we become one of the largest operators in the exploration activities in Myanmar, taking a further step in our organic growth strategy in Southeast Asia where we are already present in China, Vietnam, and Indonesia," said Claudio Descalzi, Eni chief executive officer.

Eni entered Myanmar in July 2014 by signing PSCs for exploration of onshore Blocks RSF-5 and PSC-K respectively in the prolific Salin basin and unexplored Pegu Yoma-Sittaung basin (OGJ Online, July 31, 2014).

Also this month, Reliance Industries Ltd. took 96% interest in a PSC as operator of Blocks M17 and M18 (OGJ Online, Mar. 31, 2015); and Chevron Corp. subsidiary Unocal Myanmar Offshore Co. Ltd. took 99% interest in a PSC as operator of Block A5 (OGJ Online, Mar. 25, 2015). Those blocks were awarded in the same bid round as Eni's offshore blocks.

Reliance signs PSC for Myanmar blocks

Reliance Industries Ltd. (RIL) has taken on 96% interest in a production-sharing contract as operator of Blocks M17 and M18 off Myanmar. Both offshore blocks encompass 27,600 sq km in up to 3,000 ft of water in the Moattama basin. RIL won two out of three bids, the company said.

United National Resources Development Services Co. Ltd., a Myanmar company, will hold the remaining interest in the block.

Myanmar's Ministry of Energy and state-owned Myanmar Oil & Gas Enterprise (MOGE) recently announced a complete list of awards from its 2013 bidding round (OGJ Online, Mar. 26, 2014). Myanmar's energy ministry awarded 10 shallow-water blocks and 10 deepwater blocks.

Myanmar resources are estimated at 50 million bbl of oil and 283.3 billion cu m of natural gas, and the country has seen very limited exploration.

Drilling & ProductionQuick Takes

ExxonMobil starts production from Hadrian South

ExxonMobil Corp. has started production in the deepwater Gulf of Mexico from Hadrian South field.

Gross production from the field-the company's deepest subsea tie-back in a mile and a half of water-is expected to reach 300 MMcfd of gas and 3,000 b/d of liquids from two wells.

Hadrian South is 230 miles offshore in the Keathley Canyon area in 7,650 ft of water. The Hadrian-2 discovery well was drilled in 2008 and the Hadrian-4 sidetrack was completed in 2009.

A subsea production system with flowlines is connected to the nearby Anadarko Petroleum Corp.-operated Lucius truss spar, reducing additional infrastructure requirements. Lucius, where ExxonMobil holds 23.3% interest, started production in January (OGJ Online, Jan. 19, 2015).

Net production from Hadrian South and Lucius will reach more than 45,000 boe/d. Gas transport from the fields is supported by a long-term agreement with Williams Partners, operator of the newly launched Keathley Canyon Connector (OGJ Online, Feb. 20, 2015).

"Cooperating closely with Lucius operator, Anadarko, has facilitated the development of a deepwater resource that may not have been possible using a standalone approach," commented Neil W. Duffin, president of ExxonMobil Development Co.

ExxonMobil operates Hadrian South with 46.7% interest. Partners are Eni SPA 30% and Petroleo Brasileiro SA (Petrobras) 23.3%.

Maersk starts production from Tyra Southeast-B

Maersk Oil has started oil and gas production from the Tyra Southeast-B unmanned platform, expected to add reserves of 50 million boe over the next 30 years.

The new platform, 220 km off Denmark's west coast, will produce 20 million bbl of oil and 170 bscf of gas, peaking at 20,000 boe/d in 2017.

The Ensco 72 drilling rig in December started drilling the first well, were production is expected to reach 2,600 boe/d. Maersk plans to drill 8-12 horizontal wells, each 6-km-long, during 2015-17.

"The initial planning began 4 years ago, culminating with the final construction and installation [in] mid-2014," said Martin Rune Pedersen, managing director of Maersk Oil's Danish business unit, which operates the Danish Underground Consortium.

DUC is a partnership between AP Moller-Maersk with 31.2% interest, Royal Dutch Shell PLC 36.8%, Nordsofonden 20%, and Chevron Corp. 12%.

Pedersen said DUC has invested a total of $650 million in the project, representing the largest investment made by the consortium since approval of Phase IV development of Halfdan in 2007.

The investment covers drilling, pipelines, and the 4,700-tonne platform-the latter installed by Technip SA in 38 m of water (OGJ Online, June 24, 2014). The jacket and topside were constructed by Bladt Industries AS, a Danish contractor in Northern Jutland.

NEB sees growth in bitumen production through 2018

Despite budget cuts for oil sands projects, Canada's National Energy Board reports the potential of an additional 1 million b/d in production through 2018. Current bitumen production is less than 2.5 million b/d.

Recently completed projects and those nearing completion "are expected to contribute to production increases in the coming years as they slowly grow their output towards planned capacities," NEB said.

Lower oil prices have already affected many projects that are not as far along in their development. Major projects that have been deferred since mid-2014 include those operated by Cenovus Energy Inc., Statoil ASA, Suncor Energy Inc., Husky Energy Inc., Royal Dutch Shell PLC, Pengrowth Energy Corp., and Canadian Natural Resources Ltd. Those deferred projects total 527,500 b/d, NEB said.

The Canadian Association of Petroleum Producers estimated in January that oil sands capital budgets will fall to $25 billion in 2015, a decrease of $8 billion from 2014 (OGJ Online, Jan. 22, 2015).

Rex Energy enters Moraine East drilling JV

Rex Energy Corp., State College, Pa., has entered a joint venture agreement with an affiliate of ArcLight Capital Partners LLC for the joint development of 32 wells in western Pennsylvania.

The joint venture will enable Rex to cut its capital expenditures in 2015 by 30% from an earlier projection to $135-145 million while continuing hold-by-production drilling in liquids-rich prospects of the Moraine East part of its Butler Operated area.

ArcLight will fund 35% of the costs of designated wells in a program with total consideration of $65 million, $16.6 million at closing. When performances of specific well groups meet financial targets, ArcLight's working interest will revert to 17.5%.

The investment firm has the option to participate as a 20% working interest partner in 17 additional Moraine East wells in 2016.

Rex said it expects 2015 production to increase 23% from the 2014 rate to 185-195 MMcfd of gas-equivalent.

PROCESSINGQuick Takes

Motiva to integrate Norco, Convent refineries

Houston-based Motiva Enterprises LLC reported it will integrate the company's two Louisiana refineries-the 220,000-b/cd Norco facility and the 227,000-b/cd Convent facility-creating the Louisiana Refining System (LRS).

This multi-phased project, Motiva said, will increase access to light oil and optimize interplant intermediates and conversion units, thereby increasing distillates yield and reducing operating costs.

Motiva Pres. and Chief Executive Officer Dan Romasko noted that at 620,000 b/d, the company's Port Arthur, Tex., refinery is already the largest refinery in North America. With an integrated crude capacity approaching 450,000 b/cd, LRS our will rank among the top five North American refineries in terms of capacity.

The first phase of the project, the Maurepas crude pipeline system, will consist of three pipelines that will be built, owned, and operated by affiliates of SemGroup Corp. The Maurepas system will connect the existing LOCAP terminal in St. James, La., to the Norco refinery via a 34-mile pipeline. The Maurepas 35-mile and the 34-mile intermediates pipelines will then directly connect the Norco and Convent refineries "supporting optimization of both plants' conversion units while improving logistics efficiency, alleviating dock congestion, and allowing additional product exports," Motiva said.

When the pipelines are complete, Motiva plans to idle the fluid catalytic cracker (FCC) at its Convent refinery. Additionally, the company intends to reconfigure the existing hydrocracker unit at its Norco refinery to process 30,000 b/d of additional gas oil into diesel.

Motiva is owned equally by affiliates of Saudi Aramco and Shell Oil Co.

Iraq lets contract for Karbala refinery

Iraq, through a subcontractor, has let a contract to Copperchase Ltd., Cramlington, Northumberland, UK, to build security fencing at the country's long-planned, grassroots refinery in southern Karbala Province, 100 km south of Baghdad (OGJ Online, Aug. 1, 2011).

Copperchase used a £200,000 ($297,000) loan from Tees Valley Catalyst Fund (TVCF) to secure the performance bond it needed to win the $6-million fencing contract, which was awarded directly by Hyundai Engineering & Construction, according to FW Capital, TVCF's management company.

This latest contract for the Karbala refinery follows the Iraqi government's early-2014 award of a $6.04- billion engineering, procurement, and construction contract to a four-company consortium of South Korean companies led by Hyundai Engineering & Construction (OGJ Online, Jan. 9, 2014).

The 140,000-b/d Karbala refinery, on which construction began in February 2014, will produce liquefied gas, gasoline, gas oil, fuel oil, jet fuel, and asphalt meeting international standards equivalent to European production to help meet growing domestic Iraqi demand (OGJ Online, Feb. 26, 2014).

The new refinery is part of Iraq's longer-term plan to construct four refineries in an effort to add 750,000 b/d of refining capacity. Other planned projects include a 300,000-b/d Nassiriya refinery as well as two additional refineries in Maysan and Kirkuk, each with a capacity of 150,000 b/d (OGJ Online, June 4, 2013).

Last year, UNOS Iraq Ltd., Najaf, a Copperchase company established to provide support services Iraq'a growing oil and gas operations, supplied five heavy-duty centrifugal pumps to state-owned South Refineries Co.'s 140,000-b/d Shuaiba refinery in Basra, UNOS Iraq said in a Sept. 9, 2014, release.

TRANSPORTATIONQuick Takes

KMI, Keyera to build storage terminal near Edmonton

Kinder Morgan Inc. (KMI) and Keyera Corp. have formed a 50-50 joint venture to build the 4.8-million-bbl Base Line above-ground crude oil storage terminal near Edmonton, Alta.

The terminal will be built on undeveloped land at Keyera's Alberta EnviroFuels site, and is expected to be commissioned in phases, with the first tanks slated for commissioning in second-half 2017.

Keyera says sufficient land remains to add up to 1.8 million bbl of incremental storage capacity subject to future demand. The project is underpinned by several take-or-pay agreements ranging to 10 years in length.

The terminal will be connected via pipeline to KMI's Edmonton terminals and capable of sourcing all crude streams handled by the company for delivery to multiple destinations, including-but not limited to-Kinder Morgan's Trans Mountain pipeline and two Edmonton rail terminals, and other major export pipelines (OGJ Online, Aug. 22, 2014).

The two companies previously formed a JV to build the Alberta rail terminal (OGJ Online, Aug. 2, 2013). KMI and Imperial Oil later teamed up to build the Edmonton rail terminal (OGJ Online, Dec. 26, 2013).

KMI will oversee construction of the project and operate the new terminal once it is in service.

KMI's investment in the terminal is $342 million (Can.), including capitalized interest, and the company will invest up to an additional $69 million outside the JV for connecting pipelines and related infrastructure for a total project investment of $411 million.

Keyera's share of costs to construct the terminal is estimated at $330 million (Can.), excluding capitalized interest.

"Edmonton is playing an increasingly important role as a North American crude oil hub, demonstrated by the growth of inbound and outbound pipeline capacity," explained John Schlosser, KMI terminals president. "As such, it needs additional crude storage capacity, and our customers' commitments affirm that growing need.

"When this initial project is completed, we will have grown our merchant storage, exclusive of our Trans Mountain regulated storage assets, from basically zero tankage to a 12-million-bbl position in roughly a 10-year period," Schlosser said.

Polarled pipeline installation under way

The Solitaire pipe-laying vessel has started Stage 1 of the Statoil ASA-operated Polarled installation project connecting Aasta Hansteen field in the Norwegian Sea to Nyhamna in western Norway.

The gas pipeline is now connected to the Nyhamna processing plant, which Royal Dutch Shell PLC will prepare for gas reception.

The 482-km, 70 million standard cu m/day pipeline will be laid in up to 1,265 m of water, marking the first time a 36-in. OD gas pipeline has been installed at such depths, Statoil says, adding that Polarled is the first pipeline to take Norwegian gas infrastructure across the Arctic Circle.

Once the pipeline is laid, Statoil will install an end manifold with connection for Aasta Hansteen and future fields. Polarled will feature six T-joints. Plans for the field and pipeline were submitted in January 2013 (OGJ Online, Jan. 8, 2013).

The Polarled pipe-laying operation is scheduled to be completed by the end of August. Nyhamna will be ready to receive Aasta Hansteen gas in 2017. When the pipeline comes on stream, Gassco will operate the pipeline and Nyhamna plant.

Statoil says Aasta Hansteen is one of the largest and most complex industrial projects in Europe, and the first deepwater project in the Norwegian Sea.

The Snefrid Nord discovery made by the company this month upped the field's resources base by 31-57 million boe recoverable (OGJ Online, Mar. 18, 2015). The discovery will be evaluated for future tie-in to Aasta Hansteen infrastructure.