GENERAL INTEREST — Quick Takes
Republicans introduce energy amendment to jobs bill
Three Republican members of the US Senate Energy and Natural Resources Committee introduced legislation that would approve the Keystone XL crude oil pipeline and expedite applications to export US LNG as an amendment to the Unemployment Insurance Extension Bill.
The actions outlined in their Energy Security Act could create nearly 100,000 jobs, boost the nation's economy, and aid US allies in Ukraine, the North Atlantic Treaty Organization, and Japan, Sens. John Hoeven (ND), John A. Barrasso (Wyo.), and Lisa Murkowski (Alas.), the committee's ranking minority member, jointly said on Apr. 1.
"As we consider an extension of unemployment insurance benefits, we should also be considering measures that will actually address the problem by creating jobs for the long-term unemployed," Hoeven said.
The amendment's Keystone XL provision approves the project's long-delayed cross-border permit application under Congress's authority enumerated in the US Constitution's Foreign Commerce Clause, which gives Congress the power to regulate commerce with foreign nations, he explained. The nonpartisan Congressional Research Service has confirmed Congress's constitutional authority to approve the project, Hoeven said.
He said the amendment also would require the US Department of Energy to automatically approve LNG export applications to Ukraine, NATO member nations, and Japan as being in the US's interest. Current federal law recognizes this automatically to countries that have a free trade agreement with the US.
Hoeven said DOE has approved seven applications to export US LNG to non-FTA nations, and spent an average of 697 days processing each of them. Twenty-four other projects are awaiting a decision, he indicated.
Energy imports in 2013 lowest in more than 2 decades
Total US net imports of energy, measured in terms of energy content, declined 19% from 2012 to 2013, hitting the lowest level in more than 20 years, according to the US Energy Information Administration.
"Growth in the production of oil and natural gas displaced imports and supported increased petroleum product exports, driving most of the decline," EIA said.
Virtually, the decline was a result of a large drop in energy imports together with a smaller increase in energy exports. Total energy imports declined 9% from 2012 to 2013, faster than in the previous year, while export growth slowed.
"Crude oil production grew 15%, about the same pace as in 2012, which led imports of crude oil to decrease by 12%, accounting for much of the overall decline in imports," EIA added.
According to preliminary 2013 data now available in the EIA's Monthly Energy Review, total US primary energy consumption increased 2.4% after declining in 2011 and 2012, with renewable energy providing the largest percentage increase. Primary energy consumption increased in all end-use sectors. Residential sector consumption rose the most, and transportation sector consumption increased the least.
TPG to buy Jonah assets from Encana for $1.8 billion
An affiliate of TPG Capital has agreed to acquire certain natural gas properties in Jonah field in Sublette County, Wyo., from Encana Oil & Gas Inc., a wholly owned subsidiary of Encana Corp., for $1.8 billion.
Jonah field encompasses a productive area of 24,000 acres containing more than 1,500 active wells, with yearend 2013 proved reserves totaling 1,493 bcfe. The transaction also includes more than 100,000 undeveloped acres adjacent to Jonah known as the Normally Pressured Lance (NPL) area.
TGP said it expects to retain employees working in connection with Jonah and plans to continue investment in the field and adjacent acreage. The company will maintain the Jonah office near Pinedale, Wyo., and open a Denver office as a result of the transaction.
Doug Suttles, Encana president and chief executive officer, said, "With the divestment of Jonah, we are unlocking value from a mature, high-quality asset and allowing our teams to focus on our five core growth areas and continue with execution of our new strategy."
Encana in December said it will focus 75% of its planned $2.4-2.5 billion capital for this year on liquids-rich assets in the Montney, Duvernay, DJ basin, San Juan basin, and the Tuscaloosa Marine shale, facilitating a 30% increase in year-over-year liquids production (OGJ Online, Dec. 12, 2013).
Devon completes Canadian conventional assets sale
Devon Energy Corp., Oklahoma City, has completed the sale of its Canadian conventional assets to Canadian Natural Resources Ltd. for $3.125 billion (Can.) (OGJ Online, Feb. 19, 2014).
Devon's retained Canadian business will consist of its thermal heavy oil, Lloydminster, and Horn River assets.
The company plans to repatriate the proceeds to the US for use in the repayment of debt incurred to finance its Eagle Ford acquisition (OGJ Online, Nov. 20, 2013). The company expects net proceeds of $2.7 billion after adjusting for currency exchange and taxes associated with the sale and repatriation of the funds to the US.
Devon's divestiture process will continue as the company expects to open data rooms for these US assets in the second quarter and complete these divestitures by yearend.
Exploration & Development — Quick Takes
PGNiG, Chevron reach shale gas exploration agreement
Poland's PGNiG has entered into a collaboration agreement with Chevron Polska Energy Resources for the first stage of shale gas exploration in four licenses in southeastern Poland.
The agreement, involving Chevron-owned licenses Zwierzyniec and Grabowiec and PGNiG-owned licenses Tomaszow Lubelski and Wiszniow-Tarnoszyn, will enable the companies to commence with the drilling of an exploration well. Chevron in 2011 spudded its first exploration well in Poland to assess Grabowiec's shale gas potential (OGJ Online, Nov. 2, 2011).
A technical committee jointly appointed by the companies will determine the scope and schedule of exploration work. The companies will exchange geological data and experience gathered thus far in their exploration efforts, PGNiG said.
The companies will concurrently work on preparation of the second collaboration agreement, execution of which will be subject to positive evaluation of the first stage exploration program's results by the technical committee. A second stage entails further exploration work in relevant license areas.
PGNiG said the collaboration will enable the companies to reduce costs, share risks, and increase the pace of the exploration work. The PGNiG-operated Markowola-1 exploration well near Kozienice in Lublin Province was the site of Poland's first shale fracing operation in 2010 (OGJ Online, Aug. 13, 2010).
PGNiG since 2012 has worked jointly with four companies on shale gas exploration on the Wejherowo license in northern Poland (OGJ Online, July 5, 2012). ExxonMobil Corp. that year decided against proceeding with exploration of shale gas in Poland because two early wells had not demonstrated sustained commercial flows (OGJ, July 2, 2012, p. 44).
Lukoil completes well offshore Ivory Coast
Lukoil Overseas has completed drilling an exploration well on Block CI-101 offshore Ivory Coast.
The Capitaine East-1x well penetrated through 140 m of sandstone from a Turonian formation, Lukoil reported. The survey confirmed the presence of hydrocarbons, indicating the oil potential of the area.
The well target depth is more than 5,200 m, while the water depth at the well location is more than 2,000 m. Drilling was conducted using the Eirik Raude, a fifth generation self-propelled semisubmersible drilling rig.
Lukoil completed drilling an appraisal well during the end of 2013 at Independence field, which is northeast of Block CI-101. A survey is in progress to determine the block's resource potential. The company said a proposal to drill another appraisal well at the field will be considered soon.
Lukoil, the project's operator, entered a production-sharing agreement for the exploration, appraisal, development, and production of hydrocarbons on Blocks CI-101 and CI-401 in 2006 (OGJ Online, Oct. 15, 2010; Dec. 8, 2011). Lukoil holds 56.66% interest, PanAtlantic (formerly Vanco Energy Co.), 28.34%, and Petroci Holding, 15%.
New Zealand offers offshore tender
New Zealand's Petroleum & Minerals (NZPM) has announced a 2014 tender for petroleum exploration permits. The offer includes five offshore and three onshore blocks encompassing 405,000 sq km.
"The areas comprise well-explored through frontier regions where little to no exploration has taken place," said Kevin Rolens, NZPM national manager.
The 2014 offshore blocks on offer include: Reinga-Northland basin (North Island), 75,190.50 sq km; New Caledonia basin (North Island), 49,051.79 sq km; Taranaki basin (North Island), 54,920.92 sq km; Pegasus-East Coast basin (North Island), 75,009.04 sq km; and Great South and Canterbury basin (South Island), 141,755.68 sq km.
The onshore blocks are: East Coast basin (North Island), 1,341.43 sq km; Taranaki basin (North Island), 1,159.03 sq km; and West Coast basin (South Island), 6,752.19 sq km.
The tender will close on Sep. 25. According to NZPM, this is the government's third annual competitive tender round. Ten awards were licensed in 2013 (OGJ Online, Dec. 5, 2013).
Drilling & Production — Quick Takes
Husky, CNOOC start production from Liwan 3-1
Husky Energy Inc., Calgary, and CNOOC Ltd. reported the start of production from Liwan 3-1 field in the South China Sea.
Husky said initial natural gas sales from Liwan 3-1 are expected at 250 MMcfd gross, increasing to 300 MMcfd in this year's second half. Initial sales of condensate and natural gas liquids are expected at 10,000-14,000 boe/d gross.
Husky previously said it could recover 4-6 tcf of gas from Liwan (OGJ Online, Feb. 24, 2009).
Liwan 3-1 is part of the Liwan gas project, 300 km southeast of the Hong Kong Special Administrative Region, that also includes Liuhua 34-2 and Liuhua 29-1 fields. All three fields share a subsea production system, subsea pipeline transportation, and onshore gas processing infrastructure.
Liuhua 34-2 will be tied into the Liwan systems in this year's second half. Production from Liwan 3-1 field is scheduled to go offline for 6-8 weeks to provide for the tie-in of the field.
Following the tie-in of Liuhua 34-2, combined gas sales are anticipated to increase to 340 MMcfd gross, Husky said. Gas from both fields will be processed at the onshore gas terminal at Gaolan and sold to the mainland China market, with initial production covered by fixed-price sales agreements.
Total gas sales are expected to rise toward 400-500 MMcfd gross with the planned tie-in of Liuhua 29-1 field in 2016-17.
Husky said it now expects to achieve the lower end of its Asia Pacific production guidance of 35,000-45,000 boe/d.
Husky holds 49% interest in the Liwan gas project's production-sharing contract and operates the deepwater infrastructure, while CNOOC, with 51%, operates the shallow-water facilities and onshore gas terminal.
Roc farms in to PSC offshore Malaysia
Fresh from its sale of the Basker-Manta-Gummy (BMG) fields in Bass Strait, Roc Oil Co. Ltd. has farmed in to a production-sharing contract offshore Malaysia.
The Malaysian fields, known as D35, D21, and J4, are producing a total of 10,000 bo/d and 17 MMcfd of gas. They lie in 50 m of water and are currently operated 100% by Petronas Carigali. Roc has farmed in for a 50% interest.
The three fields are the subject of a significant brownfield redevelopment. Phase 1, to begin shortly, is designed to increase oil production rate and enhance production potential via a series of intervention and debottlenecking projects.
Phase 2 enhanced oil recovery project is subject to a field development plan decision following completion of a series of studies designed to prove the reservoirs' responses to repressurisation and tertiary recovery techniques. The studies are being carried out this year with a development plan approval expected in 2015.
Phase 1 has a minimum work commitment of $70 million and an estimated total capital investment requirement of as much as $250 million. Phase 2 has a minimum work commitment of $50 million.
The terms of the farm-in are that Roc will pay $25 million plus a carry with a 50% participating interest of $80 million for the development spread over Phases 1 and 2.
Roc personnel will join Petronas personnel in the project team. Roc has been appointed project development manager responsible for subsurface management, well engineering, new facilities projects and project execution.
Contract let for Yolla gas field rig
Origin Energy Ltd., Sydney, and partners in the BassGas joint venture have let a contract to Seadrill Australia Pte. Ltd. to provide the West Telesto drilling rig for the project's upcoming work program in Yolla gas field in the Bass Strait.
The three-leg jack up rig is expected to be mobilized during the 2014-15 Australian summer to drill the Yolla-5 and Yolla-6 wells as part of the Yolla Mid Life Enhancement project's second stage. The rig will cantilever over the Yolla platform during the drilling campaign.
The drilling of Yolla-5 and Yolla-6, along with the installation of associated flow lines and other works, will support the maintenance of gas production from Yolla field.
Origin Energy is operator of the BassGas joint venture with 42.5% interest.
PROCESSING — Quick Takes
BP Australasia to close Brisbane refinery
BP Australasia has announced the imminent closure of its Bulwer Island refinery at Brisbane. The 96,850-b/d facility will close by mid-2015 with the loss of more than 350 jobs, slicing another piece from Australia's diminishing local production of petrol, diesel, and other fuels. The company is investigating the option of turning the refinery into a fuel import terminal.
BP Australasia Pres. Andrew Holmes said the decision was taken because the refinery could no longer compete with the growing number of ultralarge refineries in Asia.
He said BP's best option for strengthening its long-term supply position in the Australian east coast retail and commercial markets is to buy in product from other refineries.
The move comes despite BP investing heavily in the Bulwer island plant over the last decade to maintain its viability.
At this stage BP's other Australian refinery—the 138,698-b/d facility at Kwinana, south of Perth, in Western Australia—will remain open. It has the advantage of being the only refinery in the western half of Australia and can count on crude supply from local oil fields.
BP's Brisbane closure announcements comes on the heels of Shell Australia's announcement in February of the sale of its 118,000-b/d Geelong refinery in Victoria and its network of 870 retail outlets across the country to Dutch group Vitol for $2.9 billion (Aus.).
Shell had already closed its Sydney refinery and Caltex Australia is getting ready to convert its Sydney refinery to an import terminal by yearend.
Caltex has another refinery—Lytton—at Brisbane that will remain open at this stage. BP says it has a long-term agreement with Caltex for road transport fuels from Lytton and it will import other fuels, including jet fuel from elsewhere.
The Bulwer Island refinery was built by Amoco PLC in 1965. It was taken over by BP in 1984.
Construction continues on Laffan Refinery 2
Qatar Petroleum (QP) has started additional construction work a 146,000-b/d condensate splitter at its Laffan refining complex in Ras Laffan Industrial City (OGJ Online, Aug. 19, 2011).
The foundation stone for Laffan Refinery 2 (LR 2) was formally laid on Apr. 1 at a ceremony in Doha, Qatargas Operating Co. Ltd. said.
The LR 2 project—a joint venture of QP 84%, Total SA 10%, Idemitsu 2%, Cosmo 2%, Marubeni 1%, and Mitsui 1%—will double Laffan Refinery 1's (LR 1) condensate refining capacity to 300,000 b/d, making it the largest condensate refinery in the world, according to Qatargas.
Like LR 1, LR 2 will be operated by Qatargas and will process untreated condensate from supergiant North gas field, producing as much as 60,000 b/d of naphtha, 53,000 b/d of jet fuel, 24,000 b/d of gas oil, and 9,000 b/d of LPG (OGJ Online, Apr. 22, 2013).
Construction of the $1.5 billion facility is scheduled to be completed by third-quarter 2016, Qatargas said.
QP previously announced a diesel hydrotreater already under construction was expected to be commissioned in the second quarter of 2014 and would have capacity to process all light gas oil from the LR 1 and LR 2 facilities, yielding ultralow-sulfur diesel (OGJ Online, Oct. 9, 2013; Apr. 22, 2013).
Crestwood to expand Permian Delaware basin processing
Crestwood Midstream Partners LP, Houston, will expand its Willow Lake project in the Permian Delaware basin, the company reported. Phase 2 includes converting a portion of its Las Animas gas-gathering system into rich-gas service and building cryogenic gas processing.
Phase 1 of the Willow Lake project, in Eddy County, NM, began last year by converting an existing Crestwood gathering pipeline and installing NGL field separation. The initial project was to support drilling by Legend Natural Gas III LP, a subsidiary of Legend Production Holdings LLC, targeting the second Bone Spring formation along with other producers in the region.
Based on Legend's 2013 drilling program, Crestwood and Legend have signed a 10-year, fixed-fee gas gathering and processing agreement covering more than 107,000 acres in the Willow Lake area. In addition, Crestwood has purchased Legend's existing gas gathering system, which is being integrated into Crestwood's system.
Anchored by the Legend contract, Phase 2 of Crestwood's Willow Lake project will include construction of a 20-MMcfd cryogenic gas plant and additional gathering across the dedication area to handle production from Legend's 2014-15 drilling program, Crestwood reported.
Upon completion of the Willow Lake plant and "based on area drilling activity and discussions with current operators," Crestwood will further expand (Phase 3) the Willow Lake gathering system and move and install the Delaware Ranch plant with an expected capacity of 120 MMcfd.
This second plant is owned by Crestwood as a result of its 2012 acquisition of Devon Energy's West Johnson County, Tex., gathering system and processing plant in the Barnett shale.
Crestwood estimates Phase 2 of Willow Lake will cost $25-30 million and be completed in this year's third quarter. Phase 3 will begin, said Crestwood, when "additional producers drill sufficient wells to warrant the additional processing capacity."
In addition, Crestwood will be purchasing NGLs produced at the plants, which may include initial trucking, pipeline, and marketing services.
Crestwood said the Permian Delaware basin is an emerging oil and NGL-rich region currently producing about 200,000 boe/d. The company cited studies that have pegged production to producer economic returns of about 50% from the Bone Spring and 40% from the Wolfcamp formation.
TRANSPORTATION — Quick Takes
PG&E indicted for San Bruno explosion
A federal grand jury has indicted Pacific Gas & Electric Co. on twelve counts of violating the federal Natural Gas Pipeline Safety Act of 1968 in relation to the Sept. 9, 2010, explosion of a portion of its 30-in. OD Line 132 in San Bruno, Calif. The US District Court for Northern District of California noted violations of six particular sections of the pipeline safety law:
• Failure to gather and integrate relevant data to identify all potential threats to a gas transmission pipeline.
• Failure to maintain certain repair records for a gas transmission pipeline.
• Failure to identify and evaluate potential threats to a gas transmission pipeline.
• Failure to include all potential threats and to select a suitable threat assessment method for a gas transmission pipeline.
• Failure to prioritize a gas transmission pipeline with an unstable manufacturing threat.
• Failure to prioritize and assess a gas transmission pipeline with an unstable manufacturing threat.
The maximum penalty on each charge is $500,000 or an alternate fine based on gains PG&E made by violating the law or victims' losses. The explosion killed eight, injured 58 more, and destroyed numerous homes.
The California Department of Justice has been conducting its own criminal investigation in cooperation with other local authorities and federal agencies, including the Pipeline and Hazardous Material Safety Administration. State Attorney General Kamala Harris described the federal indictment as "an important step in providing justice for the individuals, families, and community devastated by" the explosion. The attorney general went on to say that her office would continue work on prosecuting the matter in federal court, noting that "when allegedly faced with evidence of transmission line problems, PG&E knowingly and willfully chose not to assess and remediate them."
PG&E has satisfied nine of the 12 National Transportation Safety Board recommendations made following the blast and expects to satisfy two more in the next few months, Nick Stavropoulos, the company's executive vice-president for gas operations, said in February (OGJ Online, Feb. 11, 2014). He also noted the success of the company's new nonpunitve self-reporting initiative in identifying potential problems.