OGJ Newsletter

April 11, 2016
International news for oil and gas professionals


Suit hits Halliburton-Baker Hughes merger

Halliburton Co. and Baker Hughes Inc. intend to "vigorously contest" a lawsuit filed Apr. 6 by the US Department of Justice that seeks to block their proposed merger (OGJ Online, July 13, 2015). In a joint statement, the companies said they'll show the department "underestimated the highly competitive nature of the oil-field services industry, the many benefits of the proposed combination, and the sufficiency of the divestitures" Halliburton has proposed to address questions about competitive effects.

DOJ said its lawsuit alleges Halliburton's proposed takeover of Baker Hughes, valued at $34 billion when announced in November 2014, "threatens to eliminate competition, raise prices, and reduce innovation in the oil-field services industry (OGJ Online, Nov. 17, 2014)."

The complaint, according to a department statement, says proposed divestitures "would not include full business units but rather would be limited to certain assets, with the merged firm holding onto important facilities, employees, contracts, intellectual property, and research and development resources that would put the buyer of those assets at a competitive disadvantage."

It says Halliburton would be able to retain valuable assets of both companies while selling "less significant assets." And it alleges "this divestiture would not replicate the substantial competition between the two rivals that exists today."

OGUK updates well integrity guidelines

Oil & Gas UK has published updated guidelines on well practices to improve safety and performance.

OGUK's Well Life Cycle Integrity Guidelines reflect recent changes in the regulatory environment, including the requirement that well operators and drilling contractors integrate the management of both safety and the environment.

"The aim is to help well operators and drilling contractors better understand how to select, install, verify, test, maintain, and repair suitable barriers to reduce the risk of uncontrolled release of fluids throughout the life cycle of a well," said Oonagh Werngren, OGUK's operations director (OGJ Online, Feb. 10, 2016).

Produced by OGUK's Wells Forum, the guidelines "provide further clarification on how best to design a well and plan operations to assure well integrity," Werngren said.

OGUK's Wells Forum, with representatives from more than 45 well operators, is responsible for reviews of documents related to issues including blowout preventers, relief wells, and well suspension and abandonment.

India, Saudi Arabia seek energy cooperation

Leaders of Saudi Arabia and India say they want to extend their countries' oil-trading relationship into joint investment in exploration and petrochemicals.

Energy was part of a joint statement on business and strategic cooperation issued Apr. 3 after a 2-day official visit by Indian Prime Minister Narendra Modi to Riyadh at the invitation of Saudi King Salman bin Abdulaziz Al Saud.

Saudi Arabia is the largest supplier of crude oil to India, where oil demand grew by 5.7% last year and is expected by the International Energy Agency to increase 6.3% this year.

According to some observers, India might replace China as the world's center of oil-demand growth (OGJ Online, Mar. 7, 2016). India's oil consumption in January averaged about 4.25 million b/d, up 12% from a year earlier, according to IEA. The country produces about 870,000 b/d of crude.

Salman and Modi agreed "to transform the buyer-seller relationship in the energy sector to one of deeper partnership focusing on investment and joint ventures in petrochemical complexes and cooperation in joint exploration in India, Saudi Arabia, and in third countries," according to the statement.

BP, CNPC ink Chinese shale gas PSC

BP PLC and China National Petroleum Corp. (CNPC) have signed a production-sharing contract for shale gas exploration, development, and production on Neijiang-Dazu block in China's Sichuan basin.

The deal, covering 1,500 sq km, is BP's first shale gas PSC in China, and is the first step in an expansive strategic cooperation pact signed by the two firms last October (OGJ Online, Oct. 21, 2015). CNPC will be operator for the project.

"We are looking forward to working together with CNPC on technology, operational, and subsurface techniques in unconventional resources," said Bob Dudley, BP Group chief executive officer.

BP's Energy Outlook for 2016 forecasts that by 2035 shale gas will account for a quarter of total gas produced globally and China will become the world's largest contributor to growth in shale gas production (OGJ Online, Feb. 10, 2016).

"As a new strategic industry for China, the exploration, development, and production of shale gas will significantly benefit China's energy mix in a long run," said Edward Yang, BP China president. The Chinese government previously set a shale gas production target of 1,060 bcf for 2020.

In its most recent report on shale oil and gas resources, the US Energy Information Administration estimates that China's technically recoverable shale gas reserves are 1,115 tcf, the largest in the world. Most of those resources are owned by state-owned CNPC and Sinopec Ltd.

CNPC and Royal Dutch Shell PLC in 2012 signed the first PSC for shale gas exploration, development, and production on the Fushun-Yongchuan block in Sichuan (OGJ Online Mar. 20, 2012).

Exploration & DevelopmentQuick Takes

Denmark awards 16 exploration licenses

The Danish Energy Agency has awarded 16 oil and gas exploration licenses to 12 companies as part of the country's seventh licensing round.

Firms receiving licenses are the UK's Ardent Oil Ltd., Dana Petroleum PLC, and Hansa Hydrocarbons Ltd.; Denmark's DONG Energy AS, Danoil Exploration AS, and state-owned Nordsofonden; Germany's Wintershall Holding GMBH and DEA Deutsche Erdoel AG; The Netherlands' Dyas BV; Italy's Edison SPA; Hess Corp.; and Sweden's PA Resources AB.

Ardent Oil took four licenses: Block 10/16 covering 202 sq km below 1,700 m sub-seabed, Block 11/16 covering 426 sq km, Block 12/16 covering 461 sq km, and Block 13/16 covering 760 sq km.

All four licenses will be held by Ardent Oil as operator with 80% interest, with the remaining 20% held by Nordsofonden.

Arden Oil says an opportunity has arisen to commission a Geostreamer MC 3D broadband seismic survey by Petroleum Geo-Services (PGS) over Block 11/16, where the company has mapped the Jarnsaxa prospect.

PGS is operating an MC 3D Geostreamer broadband survey with the Ramform Vanguard in a nearby block for another operator, and those survey lines have now been extended over Block 11/16 with acquisition starting Mar. 19. A total of 323 sq km of full fold 3D broadband seismic will be acquired over the block.

DEA Deutsche Erdoel took 50% interest as operator of each of the 8/16 and 9/16 licenses. The 530-sq-km concession area is in the southern Central Graben in the western part of the Danish North Sea.

The main geological target in the concession area is Lower Cretaceous sandstones thought to hold oil, which will be verified in the next few years through seismic investigations and exploration drilling.

DEA Deutsche Erodoel's partners in the two licenses are Dyas and Nordsofonden. "Nordsofonden looks forward to work together with the license holders to investigate more of the Danish subsurface in order to increase the Danish reserves," said Peter Helmer Steen, director of Nordsofonden.

Western gulf lease sale to include all open acreage

The US government will offer about 23.5 million acres offshore Texas for oil and gas exploration and development in a lease sale that will include all available unleased areas in the western Gulf of Mexico Planning Area, the Bureau of Ocean Energy Management reported Apr. 5.

Proposed western gulf Lease Sale 248, slated for August in New Orleans, will be the 11th offshore sale under the Obama Administration's Outer Continental Shelf leasing program for 2012-17. This sale builds on ten sales already held in the current 5-year program that have netted more than $3 billion.

"The Gulf of Mexico remains a critical component of the administration's domestic energy strategy to create jobs, foster economic opportunities, and reduce America's dependence on foreign oil," said BOEM Director Abigail Ross Hopper.

Lease Sale 248 will include 4,343 blocks 9-250 miles offshore in 5-3,346 m of water.

"The decision to move forward with plans for this lease sale follows extensive environmental analysis, public comment, and consideration of the best scientific information available," Hopper said.

GAIL to drill exploratory wells in Cambay basin

GAIL (India) Ltd. is drilling the first of eight exploratory wells in the Cambay basin in western India in the initial exploration phase of a production sharing contract.

The well is targeting Cambay shale and Olpad formations on NELP-IX Block CB-ONN-2010/11.

Drilling began Mar. 27, and target depth of 2,500 m is expected to be reached by mid-May. GAIL anticipates subsequent testing will last 10-15 days.

The well is in the village of Dugari in the Anand district in the state of Gujarat (OGJ Online, June 4, 2012).

Operator GAIL holds 25%. Block partners include Bharat Petro Resources Ltd., Engineers India Ltd., Monnet Ispat Energy Ltd., and Bharat Forge Infrastructure Ltd.

The first phase is expected to continue into March 2017. Acquisition, processing, and interpretation of 2D and 3D seismic data preceded startup of drilling.

Drilling & ProductionQuick Takes

OMV reports on Barents Sea appraisal well success

A well test via the Wisting Central II horizontal appraisal well in the Barents Sea has recorded a flow rate of more than 5,000 boe/d and therefore proved the viability of shallow horizontal drilling needed to develop Wisting field, OMV AS reported.

The objectives of the well, drilled in Wisting field about 310 km north of Hammerfest, were to confirm the potential of the discovery by proving the presence of hydrocarbons in the undrilled Wisting Central South and Central West segments, and to prove the technical concept of long-reach horizontal wells in a shallow reservoir about 250 m below seabed.

OMV expects the well results to provide an increase of in-place volumes in the Central South and Central West segments, and further reduce the overall uncertainty of contingent resources in PL537. Wisting area potential has been reconfirmed at 200-500 million boe.

The Wisting Central II well is the first horizontal appraisal well in the Barents Sea and sets a drilling record as the shallowest horizontal offshore well drilled from a floating drilling facility, the firm says. Wisting lies in 402 m of water.

The well started vertically and was successfully steered into a horizontal orientation within a 250-m depth interval. The total well length is 2,354 m and the horizontal section measures 1,402 m. Advanced data collection and geo-steering was conducted through the entire horizontal phase.

The well was spudded on Jan. 15 by the Transocean Spitsbergen semisubmersible drilling rig. The well test was finalized end of March and the well will now be permanently plugged.

Wisting field contains the northernmost oil discovery in Norway (OGJ Online, Sept. 6, 2013). Wisting Central II is the fifth well in PL537 (OGJ Online, Oct. 29, 2013), awarded in the 20th licensing round in 2009.

LWI vessel en route to Oyo field offshore Nigeria

The Island Constructor light well intervention (LWI) vessel is en route to Oyo field offshore Nigeria for service on the Oyo-8 well's subsurface controlled subsurface safety valve (SCSSV), Erin Energy Corp. reported.

The SCSSV-a safety device installed in the upper wellbore to shut producing conduits in the event of an emergency-failed to open after a planned production curtailment. Several unsuccessful attempts were made to open the valve by normal methods prior to enlisting light well intervention services.

The vessel departed Skalevic, Norway, on Mar. 28 and is expected to arrive in mid-April at Oyo field, where it will immediately commence work on Oyo-8.

The firm expects the intervention to take a few days to complete and to subsequently reestablish production from the well. Intervention and reopening of the SCSSV is anticipated in April.

Erin Energy started oil production from the Oyo-8 and Oyo-7 wells in May and June 2015, respectively (OGJ Online, June 18, 2015). Total output from the two wells in 2015 was 1.6 million bbl of oil.

Second Shewashan well flows oil in Kurdistan

The second development well on the Khalakan production-sharing contract in the Kurdistan region of Iraq flowed as much as 4,400 b/d of oil with low drawdown and less than 1% basic sediment and water, reports Gas Plus Khalakan (GPK).

Drilled to 2,768 measured depth, the deviated Shewashan-2 well produced 47° gravity oil from fractured Cretaceous Shiranish, Kometan, and Qamchuga carbonates between 2,439 and TD.

In 2014, the Shewashan-1 well flowed as much as 2,850 b/d of similarly light oil from Cretaceous strata (OGJ Online, Oct. 17, 2014).

GPK has completed the Shewashan-2 well for production as part of first-phase development of Shewashan field targeting output of 10,000 b/d by yearend.

It is recompleting the Shewashan-1 well for production via an early-production facility with 30,000 bbl of storage and water-handling capacity of 3,000 b/d.

GPK is the sole Khalakan contractor. Range Energy Resources Inc. of Vancouver, BC, is a 24.95% indirect shareholder in GPK through its 49.9% interest in New Age Alzarooni 2 Ltd., which holds 50% of GPK's shares.


Voters voice concerns about RFS ethanol mandates

A survey of registered US voters found 77% of the respondents concerned that raising the allowable ethanol limit in gasoline beyond 10% could increase the retail price by up to 26¢/gal, reduce supplies, and create shortages, the American Petroleum Institute said.

Harris Poll conducted the telephone survey of 1,013 voters March 22-29 for API. The same percentage said they were concerned that a higher ethanol blend would not cover vehicle damage if the vehicle was not specifically designed for it.

"Across the political spectrum, voters are concerned about the significant damage the RFS mandate and higher ethanol blends could cause to automobiles, motorcycles, and almost every type of gasoline-powered engine." API Downstream Group Director Frank Macchiarola told reporters during an Apr. 6 conference call as the poll's results were released.

"Regardless of their party affiliation, voters are concerned with mandates that try to force too much ethanol into our fuel supply," Macchiarola said.

The 2005 Energy Policy Act established a federal Renewable Fuel Standard, and the 2007 Energy Independent and Security Act expanded those mandates. Macchiarola said that new energy realities have made the RFS obsolete.

He said API would use the survey and its results to remind candidates, members of Congress, and the Obama administration "that voters are very concerned about the costs and consequences of this unworkable and unnecessary mandate."

Marathon revising air-permit app for Detroit refinery

Marathon Petroleum Corp. is preparing an amended application to the Michigan Department of Environmental Quality for a new air-quality permit at its Detroit refinery after city officials and residents said the original plan would increase sulfur dioxide and other emissions.

Marathon originally sought the new permit so it could install equipment at the 132,000-b/d plant to comply with the US Environmental Protection Agency's Tier 3 requirement to begin producing lower-sulfur fuel there by January 2017, spokesman Jamal T. Kheiry said.

"We projected in our original permit application that this equipment would result in additional emissions," he told OGJ. "Members of the community expressed particular concern about SO2 sulfur dioxide. We worked with Mayor Mike Duggan's administration to amend the application so our projected increase would be zero additional SO2."

More specific information was not available because Marathon has not submitted the amended application, Kheiry said. It is not expected to affect a class action lawsuit that two southwest Detroit residents filed in US District Court for Eastern Michigan on Mar. 8. They allege health, property, and other damages from the refinery's emissions and operations.

Originally built in 1930 by Aurora Gasoline Co., the 250-acre refinery was acquired by what was then Ohio Oil Co. in 1959. It processes sweet and sour crudes, including imports from Canada, to produce gasoline, distillates, asphalt, fuel-grade coke, chemical-grade propylene, propane, slurry, and sulfur.

In 2012, Marathon completed the Detroit Heavy Oil Upgrade Project, increasing the refinery's crude oil capacity by 14,000 b/d and its heavy crude oil processing capacity by 80,000 b/d.

Seven Generations commissions Alberta gas plant

Seven Generations Energy Ltd., Calgary, has completed construction and commissioning of the Cutbank gas processing plant at its Kakwa River project in northwest Alberta.

With a design capacity of 250 MMcfd of liquids-rich gas, the Cutbank plant came on stream about a week early and under its original budget of $233 million (Can.), Seven Generations said.

When combined with the expansion in late-2015 of the company's 260 MMcfd Lator gas processing complex, Cutbank takes total gas processing capacity at Seven Generations' Kakwa River project to about 510 MMcfd.

Startup of the Cutbank plant project included the construction of field gathering pipelines as well as a 29-km, 24-in. gas sales pipeline that connects the plant to Alliance Pipeline LP's mainline system for transport of gas to the higher-priced US Midwest market.

Seven Generations already has contracted about 350 MMcfd in firm transportation capacity on Alliance's pipeline, with that capacity due to step up incrementally to 500 MMcfd in late 2018, the company said.

With the addition of the Cutbank plant and existing plans to bring additional wells on stream, Seven Generations said it expects to boost Canadian production to 100,000-110,000 boe/d this year, which is an increase of 75% from its 2015 output of 60,000 boe/d.


DOE, PHMSA launch gas storage safety task force

The US Department of Energy and US Pipeline and Hazardous Materials Safety Administration jointly launched an interagency task force to examine natural gas storage safety, DOE Undersecretary Lynn Orr and PHMSA Administrator Marie Therese Dominguez jointly announced.

Their Apr. 1 move came after a leak from Southern California Gas Co.'s Aliso Canyon storage field near Los Angeles in late October took months to stop and forced the evacuation of residents from the nearby Porter Ranch subdivision. California's two US senators, Democrats Barbara Boxer and Dianne Feinstein, called for creation of such a federal task force a week earlier (OGJ Online, Mar. 24, 2016).

"We'll be joined on the task force by technical experts from the [US] Environmental Protection Agency, the Department of Health and Human Services, the Department of the Interior, the Federal Energy Regulatory Commission, and the National Oceanic and Atmospheric Administration," Orr and Dominguez said in an Apr. 1 blog.

"We will also continue to work closely with the State of California, Los Angeles County, and the City of Los Angeles to provide technical assistance and draw on their experience to improve US natural gas infrastructure," they indicated.

DOE will hold workshops with the US gas industry and its companies, state and local leaders, and other interested stakeholders to support development of best practices for ensuring well integrity and proper response plans, and safe operations of storage facilities. They also will examine and assess the potential vulnerabilities to energy reliability posed by the loss of use of storage facilities, Orr and Dominguez said.

Tallgrass to add interest in Rockies Express pipeline

Rockies Express Holdings LLC, a wholly owned subsidiary of Tallgrass Development LP, has agreed to acquire the 25% interest in the Rockies Express Pipeline LLC belonging to Sempra US Gas & Power, a unit of Sempra Energy, for $440 million.

As part of the deal, a subsidiary of Phillips 66 that holds 25% interest in REX has a right to purchase its proportionate share of Sempra's 25% interest being sold to Tallgrass, which could reduce the membership interest acquired by Tallgrass from Sempra to 16.6%.

Tallgrass, a private limited partnership organized in Delaware, expects the deal to close in the second quarter. The company already operates and owns 50% interest in REX, a 1,712-mile natural gas pipeline that that extends from Opal, Wyo., and Meeker, Colo., to Clarington, Ohio.

Sempra expects the deal to result in an aftertax loss of $27 million. Sempra US Gas & Power also intends to permanently release the remaining uncontracted capacity that it holds on REX that it had been releasing on an interim basis.