OGJ Newsletter

Jan. 18, 2010

General InterestQuick Takes

US senators support Iraq as EITI candidate

US Sens. Benjamin L. Cardin (D-Md.) and Richard G. Lugar (R-Ind.) expressed their strong support for Iraq's commitment to make its oil and gas industry more transparent following Iraq's Jan. 11 announcement that it plans to become an Extractive Industries Transparency Initiative candidate country.

EITI is an international coalition of governments, companies, and others that promotes good governance through publication of oil, gas, and mining revenues, the two Senate Foreign Relations Committee members noted on Jan. 12.

"Corruption remains a significant problem in Iraq," said Lugar, the committee's ranking minority member. "As oil and gas is the single largest source of revenue [there], it is important that the revenue generated benefit the people of Iraq and not just a handful of businessmen and officials. By committing to implement EITI, Iraq is creating a foundation for good governance in a sector critical to Iraq's future stability."

Cardin said, "This is a significant step toward a greater future for Iraq." The senator also has promoted EITI as chairman of the Commission on Security and Cooperation in Europe, more commonly known as the US-Helsinki Commission.

"The EITI process has proven to strengthen civil society and increase revenue transparency. By joining this coalition, Iraq's leaders are committing to transparency that will empower citizens to hold their government accountable," Cardin maintained.

Iraqi Prime Minister Noori al Malaki announced Jan. 11 that Iraq plans to become an EITI candidate country in February and would implement the initiative in May. With 11% of the world's total reserves, Iraq would become the largest oil-producing nation to implement the standards, EITI officials said.

At a conference launching Iraq's effort in Baghdad, Jonas Moberg, who heads EITI's secretariat, said the country's implementation of EITI would be important in driving Iraq's recovery and ensuring that its oil and gas wealth was managed for its citizens' benefit.

Lugar and Cardin, along with eight other cosponsors, recently introduced S 1700, the Energy Security Through Transparency Act, which aims to increase transparency through public disclosure of oil, gas, and mining payments, and encourage US participation in EITI.

Jakarta delays reshuffle of Pertamina board

The Indonesian government has delayed its planned announcement of a reshuffle of the board of directors of state-owned PT Pertamina until all candidates can be screened by an evaluation team and approved by the company president.

According to Indonesia's current minister of state for state-owned enterprise Mustafa Abubakar, the evaluation of new candidates by a team comprised of himself, the energy minister, the finance minister, and the chief economics minister is still underway.

"We expect the process to finish in the third week of January or at the end of the month at the latest," said Mustafa, who confirmed that Jakarta would keep Pertamina Pres. Director Karen Agustiawan, while removing the position of vice-president director now held by Omar S. Anwar.

The change is significant. When Agustiawan and Anwar were appointed last year, Indonesia's former minister of state for state enterprises Sofyan Djalil said the appointments represented a combination of business and technical expertise.

"Karen has expertise in technical aspects of the oil and gas industry, while Pak Omar has experience in business and finance," said Djalil. "I believe they are going to make a good combination for Pertamina," Djalil said (OGJ Online, Feb. 13, 2009).

In announcing the coming change, which includes reshuffling all of Pertamina's directors, Mustafa said Jakarta expects that "the new directors of Pertamina will support the company in bringing in more profit" than in previous years.

Mustafa said the new directors are expected to help the company earn 20-25 trillion rupiah ($2.16 billion) in profit during 2010. In 2008, Pertamina earned 30.2 trillion rupiah, up 54.8% from 2007, while it is predicted to earn 17.7 trillion rupiah in net profit in 2009.

Industry Scoreboard

Exploration & DevelopmentQuick Takes

Davy Jones cited as large gulf shelf discovery

An ultradeep exploratory well on the Davy Jones prospect could be one of the largest discoveries in decades on the Gulf of Mexico shelf, said operator McMoRan Exploration Co., New Orleans.

Wireline log results indicate a combined 135 net ft of hydrocarbon-bearing sands in four zones in Eocene-Paleocene Wilcox. All four zones are full to base, and two contained a combined 90 net ft of sands. The Wilcox suite logged below 27,300 ft "appears to be of exceptional quality," McMoRan said.

The Davy Jones well went to 28,263 ft measured depth in 20 ft of water on South Marsh Island Block 230. Pipe-conveyed wireline logs went as deep as 28,134 ft. McMoRan will deepen the well to 29,000 ft to test other objectives.

McMoRan said flow tests are required to confirm the ultimate hydrocarbon flow rates from the four separate zones. The resistivity log obtained Jan. 10 was the last information needed to confirm hydrocarbons on the block.

James R. Moffett, McMoRan co-chairman, said: "Davy Jones log results confirm our geologic model and indicate that the previously identified sands in the Wilcox section on this large ultradeep structure encompassing four OCS lease blocks (20,000 acres) provides significant additional development potential which, upon confirmation development drilling, could make Davy Jones one of the largest discoveries on the shelf of the Gulf of Mexico in decades.

"The geologic results from this well are important and are redefining the subsurface geologic landscape below 20,000 ft on the shelf of the Gulf of Mexico. The results from this well will be incorporated into our models as we continue to define the potential of this promising new exploration frontier."

McMoRan operates the Davy Jones prospect and is funding 25.7% of the exploratory costs. It holds a 32.7% working interest and 25.9% net revenue interest.

Other working interests owners include Plains Exploration & Production Co. 27.7%, Energy XXI Bermuda Ltd. 15.8%, Nippon Oil Exploration USA Ltd. 12%, W.A. "Tex" Moncrief Jr. 8.8%, and a private investor 3%.

Energy XXI is funding 14.1% of the exploratory costs to earn its 12.6% net revenue interest in the prospect.

Apache tests another discovery in Faghur basin

Houston-based Apache Corp.'s WKAL-A-2X discovery tested 5,085 b/d of oil and 130 Mcfd of gas, marking the fourth successful exploration test in West Kalabsha concession and the company's sixth discovery in the Faghur basin play in Egypt's far Western Desert near the Libyan border.

The WKAL-A-2X discovery is a 0.5 miles north of the Apache WKAL-A-1X discovery and 5 miles west of Apache's Phiops field. "With this latest discovery and other recent wells, we anticipate production from the Phiops-West Kalabsha area will double to 20,000 b/d as additional infrastructure is brought on line in the third quarter," said Rod Eichler, Apache's co-chief operating officer and president of international operations. "We estimate the discovered resource potential in the Phiops and Kalabsha areas exceeds 50 million boe."

Apache has identified several additional prospects and is acquiring more 3D seismic in the Faghur basin in hopes of extending its string of successes to the northeast and southwest of this most recent discovery. Eichler said, "The thickness of the sands and the stacked pay zones make this a very attractive area for further exploration."

Apache plans to drill seven additional exploration wells in the Faghur basin play this year.

The latest well was designed to test Cretaceous-age Alam El Buieb (AEB) formations in a new fault block in a structurally higher position than the WKAL-A-1X well. The WKAL-A-2X logged a total of 198 ft of pay in four AEB intervals including the 3G interval that was highly productive in a test of the WKAL-A-1X well. The latest well was perforated over the top 10 ft of a 29-ft section of the AEB-3C10 sand.

Apache has applied for a development lease with the Egyptian General Petroleum Co. for both discoveries. Apache operates the West Kalabsha concession and has 100% contractor interest.

InterOil makes improved test of Antelope-2

InterOil Corp., Cairns, said the Antelope-2 well in Papua New Guinea flowed at a stabilized rate of 11 MMcfd through a 48/64-in. choke in the last 7 hr of a second drill stem test, and the condensate-to-gas ratio (CGR) averaged 20.7 bbl/MMcf of natural gas.

This represents a 15% increase in CGR from the first drill stem test at the top of the reservoir, officials said.

Prior to the second test, casing was set to a depth of 7,290 ft, short of total depth of 7,415 ft due to an impassable ledge. The well subsequently was drilled an additional 213 ft, and the second test was made with a packer inside the casing shoe over the 338 ft open hole section from 7,290 ft.

Another drill stem test is planned in the lower section of the open hole. Workers will then drill and core to the targeted heavier condensate and potential oil zone where the company expects to perform additional tests and formation evaluation. Following testing and logging of the lower vertical section of the wellbore, InterOil plans to drill a horizontal lateral to explore a potential oil zone.

Phil Mulacek, InterOil chief executive officer, said, "We anticipate that the higher condensate ratio [in the second test] of the Antelope structure will improve the previously estimated economics of the stripping plant proposed to be constructed in the Gulf Province."

Algeria's Ain Tsila gas-condensate size grows

Well tests established a reservoir more than 22 km long at the Ain Tsila gas-condensate discovery on the Isarene permit in eastern Algeria's Illizi basin, said Petroceltic International PLC.

Tests at the AT-3 delineation well indicated that the gas column more than 80 m thick is in the same pressure regime as wells AT-1 and AT-2, "demonstrating that this gas-condensate discovery extends for a distance of over 22 km, from AT-1 to AT-3," Petroceltic said.

Petroceltic and Algeria's state owned Sonatrach could not frac the Ordovician reservoir at AT-3 because the pressures required exceeded the pressure rating of the wellhead equipment.

Local high in-situ stress caused by localized tectonic history is a known issue in other Illizi basin fields in Algeria. Petroceltic considers the pressure regime likely to be of limited extent rather than regionally extensive. The company filed a discovery declaration for Ain Tsila field.

Petroceltic suspended the well with a view to completing the fracture stimulation and testing as part of a future Ain Tsila appraisal campaign when wellhead equipment with a higher pressure rating can be deployed, possibly later in 2010, subject to government and partner approval.

Petroceltic said, "Data from the three wells drilled in the Ain Tsila discovery have demonstrated the presence of an extensive and probably continuous gas accumulation capable of flowing at rates exceeding 30 MMscfd following fracture stimulation."

The company is drilling the INW-2 well on the Issaouane Northwest prospect in the northwest part of the block. The rig has logged two gas-bearing intervals in the primary Devonian F2 objective and is drilling in the secondary Ordovician reservoir objective. The Devonian F2 gas intervals will be tested after drilling is finished.

Petroceltic said it is "working to interpret and integrate the large volume of data from these discoveries, with a view to making an application to the Algerian authorities for an appraisal period extension to the production-sharing contract in the near future.".

Drilling & ProductionQuick Takes

ExxonMobil plans injection for Hawkins field

ExxonMobil Production Co. plans to reinject nitrogen and other gases to produce an additional 40 million boe from mature Hawkins field in northeastern Texas.

Company officials plan to install equipment to recover the gases from the field's natural gas production and reinject them into the reservoir to increase production. They claim the project will reduce the plant's air emissions by almost one-third and extend the life of the field, discovered by the forerunner of ExxonMobil in 1940, for an additional 25 years.

Construction is expected to begin in the first quarter, employing a workforce of 300 at its peak. Start-up is anticipated in late 2011.

Hawkins field lies in Wood County about 100 miles east of Dallas and is one of the largest fields discovered in the state. Over the past 70 years, it has produced more than 800 million bbl of oil.

Exco ordered to stop Marcellus drilling

Exco Resources Inc., Dallas—the first company permitted in an eastern Pennsylvania county to drill for natural gas on the Marcellus shale formation—has been ordered to cease operations.

According to Greenfield Township in Lackawanna County, Exco violated a local zoning ordinance. State regulators last summer gave the company a permit to drill near the Skyline Public Golf Course, which is zoned for commercial recreation.

But Township supervisor Joseph Slebodnik has since said drilling for gas is not allowed in that area. Exco has 30 days to appeal the violation notice to the township's zoning hearing board.

Exco Chief Operating Officer Hal Hickey said the company will continue working with the township and will ensure the firm is in full compliance with "all governing jurisdictions."

Last July, Exco said it received the permit from state regulators to drill two sites near the Skyline Public Golf Course in Greenfield Township.

According to reports, the golf course was part of a collectively negotiated gas lease of 25,000 acres that Exco bought for $2,100/acre and an 18% production royalty.

The award came after Pennsylvania's Department of Environmental Protection issued a statement in April in support of drilling for gas in the Marcellus shale, noting that "the Commonwealth fully supports these activities and the development of the Marcellus play."

Since then, however, environmental activists have been stepping up pressure on Pennsylvania officials to discontinue drilling for gas in the state's Marcellus shale areas.

In December, the activist PennEnvironment organization pressured public officials with a report outlining what it called "the most urgent and widespread" environmental and public health concerns associated with Marcellus Shale gas drilling in the state.

"Our elected officials are going to have to make a decision: are they going to protect the public's health, or are they going to put polluter profits ahead of the health of the Commonwealth's citizens and environment?" said said Erika Staaf, Clean Water Advocate with PennEnvironment.

Processing Quick Takes

Partnership acquires Gulf brand from Chevron

Gulf Oil LP, Framingham, Mass., acquired all rights, title, and interest to the Gulf brand in the US from Chevron USA Inc. and plans to expand its use of the brand throughout the US.

Although the brand has been in existence nearly 110 years, for the last 20 years Gulf-branded gasoline in the Lower 48 has been available only in an 11-state region in the Northeast through a licensing agreement between Chevron and Gulf Oil's parent Cumberland Farms Inc. The limited partnership is one of the Northeast's largest wholesalers of petroleum products.

In 2005, Gulf Oil initiated an extensive overhaul of its marketing and business strategy to enhance the brand value of Gulf and to restore the image and perception of Gulf as a premium gasoline retailer.

The forerunner Gulf Oil Corp., formed in 1907, was a major international oil company that once ranked among the top "Seven Sisters." In the first decade of the 20th century, the company promoted the concept of branded products by selling gasoline in containers and from pumps marked with a distinctive orange disc logo. It is credited with establishing the first drive-in service station in 1911. Gulf Oil was merged into Chevron in 1984. To comply with federal antitrust provisions, Chevron sold some Gulf stations to Cumberland Farms in 1985.

Petrochemical complex advances in Qatar

Qatar Petroleum and ExxonMobil Chemical Qatar Ltd. have agreed to advance development of a petrochemical complex that would include the world's largest steam cracker at Ras Laffan, Qatar.

The complex, which the companies still label "proposed," would include a 1.6 million-tonne/year (tpy) steam cracker, two 650,000-tpy gas-phase polyethylene plants, and a 700,000-tpy ethylene glycol plant.

Feed will be natural gas from supergiant North field. The complex will use ExxonMobil steam cracking and polyethylene processes and product technologies.

The plant would start up in late 2015.

Contract let in Spanish refinery expansion

Repsol YPF SA has let contract to Foster Wheeler AG to design, supply, and erect a heat recovery steam generator to be integrated in a cogeneration plant under construction in the expansion of its Cartagena refinery in Murcia, Spain (OGJ, Apr. 7, 2008, p. 24).

The 40-Mw cogeneration plant is part of a project that will double distillation capacity to 220,000 b/d.

Other capacity additions include 50,000 b/d of hydrocracking, 60,000 b/d of coking, and 60,000 b/d of desulfurization.

More than 50% of the expanded complex's output will be middle distillates, mainly diesels.

Transportation Quick Takes

Uzbekistan cuts gas by 50% to Tajikistan

Uzbekistan's state-owned Uzbektransgaz has reduced its supplies of natural gas to neighboring Tajikistan by 50% due to a dispute over payment.

Shavkat Shoimov, deputy head of Tajikstan's state-owned Tajiktransgaz said Uzbektransgaz demanded prepayment for gas, but his country does not "have such means and there are no free resources."

Shoimov said, "We do not have funds to make prepayments now. Funds we have are enough for only 2 or 3-day gas shipments," he said.

"This is the reason for gas supply cuts from 480,000 cu m to 240,000 cu m/day," said Shoiumov, who added that his firm in turn has had to impose cuts on to Tajik factories.

According to analyst IHS Global Insight, Uzbekistan regularly halts or sharply reduces gas exports to Tajikistan, usually to enforce payment of debts accumulated for supplies already received.

"In an effort to end this cycle of debt and supply cut-offs, Uzbekistan last year began requiring its main gas debtor countries—Kyrgyzstan and Tajikistan—to make prepayments for gas supplies," the analyst said.

Last month, Tajiktransgaz and Uzbektransgaz signed an agreement on Uzbek gas shipments to Tajikistan in 2010. Under the agreement, Tajikistan is due to import 250 million cu m of gas from Uzbekistan next year.

At the time, Tjiktransgaz head Saidmamat Sharofiddinov said the gas price would vary quarterly depending on the on world market trends and that "The gas price for the first quarter of 2010 will become known only in early January."

Sharofiddinov also said that Tajikistan would buy Uzbek gas on a take-or-pay agreement and that under the contract "The conditions remain the same—we will make prepayments every 10 days."

PetroChina assumes Aramco lease at Statia terminal

PetroChina, eyeing shifts in world trading patterns, has taken over Saudi Aramco's lease on 5 million bbl of oil storage capacity at the NuStar Energy LP Statia terminal on the Dutch Caribbean island of St. Eustatius.

The facility, which was released after Aramco obtained free oil storage facilities in Okinawa, is a strategically located hub for oil tankers plying the waters between North, Central, and South America and the Caribbean.

It can handle the largest oil tankers, is close to major US refining and transport hubs on the Gulf Coast, and can eventually be used by China as part of a broader oil trading network within the region and beyond.

Analysts said PetroChina's lease of the facility anticipates the expansion of the Panama Canal now under way, which will allow passage of larger ships carrying greater amounts of oil, LNG, and other commodities.

Overall, Panama is spending $5.25 billion in the first major expansion of the canal since it was opened in 1914. Enlargement of the canal, which currently handles 5% of global trade, is to be completed in 2014.

The enlarged canal will allow passage of tankers capable of carrying 1 million bbl of oil, LNG carriers, and Capesize bulk cargo vessels that transport coal, metals, and other raw materials, taking weeks off transit times and shifting global trade patterns. Asian countries may find it cheaper to buy oil from traditional US suppliers such as Venezuela as shipping costs come down, and analysts say the amount of crude stored in the Caribbean will likely increase as improved logistics allow traders to take advantage of more arbitrage opportunities.

FERC issues final EIS for proposed Ruby gas line

Construction of a proposed natural gas pipeline from southwestern Wyoming to southern Oregon could create some adverse environmental impacts that could be mitigated, the US Federal Energy Regulatory Commission said on Jan. 8.

The $3 billion Ruby Pipeline Project would extend 675 miles from an interconnect with existing pipelines near Opal, Wyo., across northern Utah and Nevada to interconnects east of Malin, Ore., according to its sponsor, Ruby Pipeline LLC. It would include four compressor stations with 160,500 hp of total capacity in addition to the 42-in. line with an initial capacity of 1.5 bcfd of gas, the El Paso Corp. subsidiary said at its web site.

The project's adverse environmental impacts could be reduced to less than significant levels with implementation of the sponsor's proposed mitigation measures, additional mitigation measures which Ruby is discussing with other agencies, and additional FERC recommendations, the final EIS indicated.

FERC said its final EIS decision was based on factors including more than 44% of the project using existing right-of-way or land nearby, Ruby's commitment to design and operate the pipeline in accordance with US Department of Transportation regulations, and Ruby's plans to implement site-specific or activity-specific plans, procedures, and agreements to protect natural resources, avoid or limit environmental impacts, and promote restoration of disturbed areas.

The project's sponsor said that construction could begin later this year after all permits are obtained, with an estimated March 2011 in-service date.

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