OGJ Newsletter

Sept. 25, 2017
International news for oil and gas professionals

UK group disputes gloomy oil and gas study

Oil & Gas UK is disputing a university study that predicts early exhaustion of UK oil and gas reserves and that calls for a prompt switch to renewable energy.

"There are up to 20 billion bbl of oil and gas resources still to be recovered on the UK Continental Shelf, based on production forecasts provided by the Oil and Gas Authority," said Oil & Gas UK Chief Executive Deirdre Michie in a statement.

The disputed study, by scientists at the University of Edinburgh, noted that the UK hydrocarbon discovery rate has lagged behind production since the late 1990s.

The research, published by the Edinburgh Geological Society, suggested UK oil and gas production might be in its last decade, according to a press release from the university.

Roy Thompson, a professor in the School of Geosciences, cited the findings as a reason to overhaul UK energy use.

"The UK energy needs a bold energy transition plan instead of trusting to dwindling fossil fuel reserves and possible fracing," he said. "We must act now and drive the necessary shift to a clean economy with integration between energy systems. There needs to be greater emphasis on renewables, energy storage, and improved insulation and energy efficiencies."

Michie countered by noting the government expects two thirds of the UK's energy to come from oil and gas in 2035. She said UK production has increased during the past 2 years and is expected to keep rising.

"Nine new fields began production in 2016, and a further seven started producing in the first half of this year, most of which will still be producing in 2030," she said. "A further 12 are due onstream by the end of next year. Some notably large developments will still be producing towards 2050. Advances in technologies are also presenting fresh opportunities and helping make discoveries commercially viable."

Origin unit buys Benaris' stake in Otway gas project

Origin Energy Ltd., Sydney, on behalf of its oil and gas subsidiary Lattice Energy, has acquired Benaris International's 28% interest in the Otway gas project offshore Tasmania and Victoria for $250 million (Aus.).

The deal has Origin paying Benaris $190 million (Aus.) for its Otway interests that include the producing Thylacine gas field in Tasmanian waters; Geographe gas field in Victorian waters; the onshore processing plant at Port Campbell in Victoria; and two nearby exploration permits. Origin also will pay Benaris $60 million (Aus.) to balance the share of gas taken by the joint venture partners from the project.

The deal comes just ahead of Origin's plans to sell off Lattice either as an initial public offering or a trade sale and is seen as way of improving the portfolio of Lattice as an attractive investment. The sale gives Lattice 95% interest in the Otway project and 100% in the two exploration permits. It also boosts Lattice's share of 2P gas reserves in the Otway to 237 petajoules from 156 petajoules.

It is likely that Lattice or its new owner will sell down its stake in the project prior to expected new capital expenditure in 2020-21. Final bids for Lattice from interested trade parties were due in mid-September, but the date is now expected to move out to the end of the month to give bidders more time to digest the Benaris transaction.

The acquisition is conditional on Origin proceeding with the sale of Lattice. The other interest holder in the Otway gas project is Japan's Toyota Tsusho Corp., which holds 5%.

NZOG receives rival bid against Zeta takeover offer

A rival bidder to Zeta Energy Pte. Ltd. for the takeover of New Zealand Oil & Gas Ltd. (NZOG) has emerged in the form of OG Oil & Gas Ltd. (OGOG), a subsidiary of the Monaco shipping company Ofer Global Group.

The indicative partial bid, expressed in a letter to NZOG Chairman Rodger Finlay, plans to offer 77¢ (NZ)/share for no more than 70% of NZOG and at least a controlling interest. OGOG already holds about 4.3% of the New Zealand explorer.

OGOG says it is making the rival offer because it believes NZOG has good acreage in New Zealand with potential for further discoveries and it was disappointed to see that Zeta was not interested in these assets. Zeta's bid, rather, was treating NZOG as a cash box.

In the letter to NZOG, OGOG Chief Executive Alastair McGregor said Zeta's stated focus on reducing NZOG's financial resources and headcount is in direct conflict with enhancing shareholder value, puts the company at risk of losing its valuable foothold in New Zealand, and does little or nothing to increase private-sector investment in the New Zealand economy.

Zeta, a subsidiary of Singapore company Zeta Resources Ltd., lodged its bid of 72¢ (NZ)/share for 42% of NZOG's fully and partly paid shares it doesn't already own just over a month ago. The offer is conditional on it reaching at least 50% interest.

Zeta already has 21% of NZOG, lifted to 29% with conditional lock-up agreements with other shareholders, H&G, Bermuda Commercial Bank, Pan Pacific Petroleum, and UIL.

Zeta is advised by Duncan Saville's ICM unit, which also holds shares in NZOG. Saville also is a director of NZOG.

NZOG's independent directors say, however, that they are likely to recommend NZOG investors reject the Zeta offer because it undervalues the company. These directors are withholding judgement on the OGOG offer until a formal bid is made and accessed.

Elk to buy Resolute Energy's Greater Aneth EOR unit

Sydney-based Elk Petroleum Ltd. has agreed to acquire a subsidiary of Resolute Energy Corp., Denver, including its 63% interest in Greater Aneth oil field in the Paradox basin of southeastern Utah, for $160 million.

Aneth field, located on Navajo Nation lands and owned by Navajo Nation Oil & Gas Co., is one of the largest carbon dioxide enhanced oil recovery projects in the Rocky Mountains with a 30-year operating history and 450 million bbl of cumulative production to date.

The purchase for Elk comprises 2P oil reserves of 59 million bbl and oil production of 6,500 b/d effective Oct. 1. Elk will become operator and has the potential to retain Resolute's Aneth operating team.

Elk says the deal, which is expected to close in late October, achieves its growth plan to own and operate CO2 projects, Grieve and Aneth fields, as well as CO2 supply, Madden field, in the Northern Rockies.

For Resolute, the sale marks the final step in its transformation "into a pure-play Delaware basin company," said Rick Betz, Resolute chief executive officer.

Resolute's current 2017 production guidance is 24,000-28,000 boe/d. Assuming the deal closes by Nov. 1, the company's 2017 production will be reduced by 1,000 boe/d. Its July production was 29,500 boe/d companywide with 23,600 boe/d in the Permian.

Resolute has 21,000 net acres in Reeves County, Tex., where it targets the Wolfcamp A and B. The company says it has drilled more than 30 horizontal Wolfcamp wells, has 415 gross operated Wolfcamp locations, and has at least 10 years of drilling inventory.

Exploration & DevelopmentQuick Takes

Inpex to acquire 40% in Barents Sea license

Inpex Corp., Tokyo, said it will acquire a 40% interest in exploration license PL767 in the western Barents Sea offshore Norway from Bayerngas Norge AS. It will be Inpex's first project in Norway. The license covers 211 sq km and lies in 300-400 m of water. Operator Lundin Norway AS has 60%.

OMV's Wisting appraisal well finds 55-m oil column

An appraisal well drilled 2 km south of the Wisting oil discovery made in 2013 in the Barents Sea found a 55-m oil column, according to the Norwegian Petroleum Directorate (NPD).

The Island Drilling Co. ASA's Island Innovator semisubmersible drilling rig drilled the 7324/8-3 to a vertical depth of 775 m subsea in 396 m of water.

The oil column was in sandstones in the Sto and Fruholmen formations. NPD said the Sto formation has very good reservoir properties, while the Fruholmen formation has moderate-to-good reservoir properties.

The resource estimate on the Wisting discovery will be updated based on evaluation of the new well data, NPD said.

Operator OMV (Norge) AS has 25%. Statoil has 35%, Idemitsu Petroleum Norge AS 20%, and Petoro AS 20%.

Norwest Energy makes oil discovery at Xanadu

Norwest Energy Ltd., Perth, has made an oil discovery in its shallow-water Xanadu-1 wildcat drilled in the north Perth basin offshore Western Australia. The well, in onshore permit TP/15 about 40 km south of Dongara, has been drilled at an angle from an onshore coastal location.

Norwest reported that Xanadu-1 intersected hydrocarbon-bearing reservoirs highlighted by elevated gas readings, oil shows, and fluorescence during drilling. The company cautioned that the significance of the find won't be known until a suite of wireline logs are run that includes pressure testing and fluid sampling.

The company is encouraged enough to bring in a 7-in. casing string in preparation for a short well test if log results are positive. The well will then be cased and suspended pending an extended well test once approvals have been obtained.

The drilling data so far indicates similarities to those of the Cliff Head-1 oil discovery well further offshore. Norwest and its joint venture partners decided to extend drilling 300 m beyond the base of the High Cliff sandstone reservoir to include the deeper sandstones of the Holmwood shale and provide a complete geological picture down to basement.

The play type is the same as that of the offshore Cliff Head oil field as well as nearby onshore Hovea, Eremia, and Jingemia fields. The well is being evaluated with an unrisked, prospective recoverable resource of as much as 160 million bbl of oil.

Xanadu-1 is on the eastern part of the structure closest to shore. Future drilling in the large feature will move further west into deeper water farther offshore and will require a jack up rig. If the test program is successful, the Xanadu discovery will be fast-tracked into development through partner Triangle Energy's Arrowhead production facility.

Norwest has 25% interest and operatorship. Other partners include Triangle (Global) Energy Ltd. 30%, Whitebark Energy Ltd. 15%, and 3C Group IC Ltd. 30%.

Drilling & ProductionQuick Takes

BP partnership, Azerbaijan extend ACG PSA

The BP PLC-led production-sharing agreement (PSA) for the giant Azeri-Chirag-Gunashli (ACG) group of oil fields in the Caspian Sea will be extended through 2049.

The deal between the Azerbaijan government, State Oil Co. of the Republic of Azerbaijan (SOCAR), operator BP, Chevron Corp., INPEX Corp., Statoil ASA, ExxonMobil Corp., Turkish Petroleum Corp. (TPAO), Itochu Corp., and ONGC Videsh Ltd. targets Azeri and Chirag fields and the deepwater portion of Gunashli field. The contract is now subject to ratification by the Azerbaijan parliament, Milli Majlis.

As part of the deal, the international partners will pay a bonus of $3.6 billion to Azerbaijan's state oil fund and will each reduce interest in the PSA so that SOCAR's equity share will rise to 25% from 11.65%.

Interest held by BP, which will remain operator, will drop to 30.37% from 35.8%. Partners Chevron will hold 9.57%, Inpex 9.31%, Statoil 7.27%, ExxonMobil 6.79%, TPAO 5.73%, Itochu 3.65%, and ONGC Videsh 2.31%.

Some $40 billion in capital could be invested in ACG over the next 32 years, said the partners, which also have agreed to advance engineering development work to evaluate an additional production platform in the ACG contract area.

Production from ACG averaged 585,000 b/d in the first half. ACG currently has eight offshore platforms-six production platforms and two process, gas compression, water injection, and utilities platforms-that export oil and gas to the onshore Sangachal terminal near Baku.

"ACG production may now be below 600,000 b/d, but there are still billions of barrels to recover and billions of dollars to invest," commented Laura Bennie, research analyst with Wood Mackenzie Ltd.'s upstream Caspian team. "Attention will now turn to a brand-new production platform, Azeri Central East, which will be commissioned in the 2020s."

The existing PSA, signed in 1994, is set to expire in 2024. WoodMac noted the PSA extension is pivotal for the post-2024 outlook for Azerbaijan's oil sector as ACG currently produces 75% of the country's liquids production.

Armour brings Kincora gas project Phase 1 online

Armour Energy Ltd., Brisbane, has started up Phase 1 production from the Kincora project in the Surat-Bowen basins of southeast Queensland via the recommissioned dry gas circuit at the Kincora gas plant.

The Kincora restart program will now move on to the next stages, which involves recommissioning of the Kincora to Wallumbilla pipeline and commissioning of the end-of-the-line processing facility at Wallumbilla.

Armour says that completion of these activities will facilitate the sale of 2.5 petajoules of gas stored in the Newstead field, which should occur on schedule by the end of this month. The gas flow is expected to begin at a rate of 5 terajoules/day from the Newstead facility.

Gas to be produced from existing wells in the region will be treated by the Kincora gas plant wet gas circuit. Restart work on this circuit should be completed by December.

Once commissioning is completed, Armour intends to increase overall gas production to 9 terajoules/day.

Phase 2 of the project will involve the drilling of new wells, plus workovers and stimulations of some existing wells. This will enable production to be ramped up to 20 terajoules/day during the 12-18 months from start of production.

The Kincora gas field was originally discovered in the 1960s, but production from it and surrounding fields on the Roma Shelf like Newstead did not begin until the late 1970s and 80s.

Armour bought all the assets, including 15 production licences along with gas, LPG, and condensate processing, gas compression facilities, and the 7.5-petajoule capacity Newstead underground storage reservoir from Origin Energy Ltd. in September 2016 for $9 million (Aus.).

At that stage production had ceased and the facilities had been kept on a care and maintenance basis by Origin since 2012.

Tupi lets another contract for Brazil's P-68 FPSO

Tupi BV has let a $145-million contract to Estaleiro Jurong Aracruz (EJA) to handle hull work for the P-68 floating production, storage, and offloading vessel to be installed on Tupi field in the Santos basin offshore Sao Paulo, Brazil. EJA is the Brazilian subsidiary of Sembcorp Marine.

Tupi previously hired EJA to construction topside modules and oversee integration for the FPSO. The latest contract covers completion of full integration of the vessel.

A 2012 contract hired Sembcorp's shipyard in Brazil to handle module construction and integration for two FPSOs, P-68 and P-71, to be used on Petroleo Brasileiro SA's (Petrobras) Lula field, formerly known as Tupi.

The P-68 FPSO will have a processing capacity of 150,000 b/d of oil and 6 million cu m of gas. It will be able to store as much as 1.6 million b/d of oil.

EJA repairs, modifies, and upgrades offshore equipment as well as constructing drillships, semisubmersible, and jack up rigs, platforms, and supply vessels.


CPCC commissions Texas PE units

Chevron Phillips Chemical Co. LP (CPCC) has commissioned two 500,000-tonne/year polyethylene (PE) units at Old Ocean, Tex., completing the first phase of its $6-billion US Gulf Coast (USGC) petrochemical project.

Based on CPCC's proprietary MarTech process technology, the two PE units became operational as of Sept. 19.

Supplied with ethylene feedstock via CPCC's ethylene pipeline and storage system expanded as part of the project, the two units-which reached mechanical completion in June-will produce a combined 1 million tpy of Marlex PE resin for delivery to customers in North America as well as to strategic transloading facilities across the US for export to destinations around the world.

While startup of the Old Ocean PE units completes the first phase of the USGC petrochemical project, CPCC said the project's second phase-a 1.5 million-tpy ethane cracker currently under construction at the company's Cedar Bayou plant in Baytown, Tex.-will be delayed amid recent flooding at the site caused by Hurricane Harvey.

Initially planned for startup by yearend, CPCC said it now expects to complete construction and begin commissioning the Baytown ethane cracker in first-quarter 2018 to reach full production rates sometime during second-quarter 2018.

Niobrara basin due gas processing plant

Cureton Midstream LLC, Denver, has let a contract to a division of Honeywell UOP LLC to deliver a cryogenic natural gas processing plant and associated systems designed to extract 99% of ethane and 100% of propane from production in Weld County, Colo., in the Niobrara basin.

As part of the contract, UOP will provide its proprietary UOP Russell turnkey solution, which alongside supply and installation of a modular cryogenic, dehydration, acid-gas removal, and residue compression unit, includes delivery of control and flare systems as well as site electrical equipment, the service provider said.

The order also includes delivery of site utility systems and buildings for office, control room, motor-control center, and compressor requirements.

Though pre-engineered, the processing plant will be customized to accommodate the unique, NGL-rich feed gas in Weld County, allowing Cureton to offer regional gas producers more favorable processing terms while positioning itself to recover very high levels of ethane and propane as prices for those NGLs continue to rise.

The modular plant, which will use an advanced-cycle recycle split vapor (RSV) process to recover NGLs from residue gas for use as petrochemical feedstocks, is scheduled for startup in about 12 months, UOP said.

Uzbekistan lets contract for refinery in Jizzakh region

Uzbekistan has let a contract to Enter Engineering Pte. Ltd. of Russia to build its previously announced 5 million-tonne/year grassroots refinery in the former Soviet state's eastern Jizzakh region. As general contractor, Enter Engineering will work alongside partners Amec Foster Wheeler PLC of the UK and South Korea's Hyundai Engineering Co. Ltd. on construction of the refinery, which will be operated by recently formed Jizzakh Petroleum JV LLC, National Holding Co. Uzbekneftegaz said.

The modern refining complex comes as part of Uzbekistan's 2017-21 Action Strategy development plan, the goals of which include achieving national fuel-energy independence as well as increasing the country's export potential.

Once completed, the refinery will produce 3.7 million tpy of motor fuel conforming to Euro 5-quality specifications, as well as 700,000 tpy of aviation fuel and 300,000 tpy of other finished products, NHC Uzbekneftegaz said.

As part of cooperative framework agreements in the oil and gas sector Uzbekistan previously entered with Russia and Kazakhstan, the refinery will receive feedstock from Russian and Kazakhstani fields via a proposed 100-km extension line that is to be added to the Omsk-Pavlodar-Shymkent pipeline system, NHC Uzbekneftegaz said.

Kazakhstan's state-owned JSC National Co. KazMunaiGas (KMG) also has pledged technical support to Uzbekneftegaz on modernization projects at subsidiary Uzneftmahsulot AK's existing refineries, as well as review an opportunity to render technical assistance in building the refinery.

NHC Uzbeknefegaz additionally has confirmed its Kazakhstani partners will reconstruct an unidentified 168-km pipeline-including new construction of pumping stations and associated technical installations-to accommodate the crude supply agreement for the Jizzakh refinery.

Uzbekistan has yet to disclose a definitive startup date for the planned $2.2-billion complex.


Rosneft seeking pact for Kurdish gas line

Rosneft PJSC expects to complete an agreement with the Kurdistan Regional Government (KRG) for construction of a natural gas pipeline able to supply electric power plants and factories in the Kurdish region of Iraq and to export as much as 30 billion cu m/year of gas to Turkey and Europe.

The company and the government are negotiating fast-track development targeting first domestic deliveries in 2019 with exports beginning in 2020. Rosneft also has completed due diligence for access to the KRC's crude oil export pipeline and expects to complete binding documents soon.

Access to the oil pipeline is covered in an investment agreement signed by Russian and KRG officials in June that also included cooperation in exploration and production as well as production-sharing deals for five blocks in Iraqi Kurdistan.

Nexen, Inpex cancel BC-based Aurora LNG project

Aurora LNG and its partners, Nexen Energy-a wholly owned subsidiary of China National Offshore Oil Corp. Ltd.-and INPEX Gas British Columbia, have ended the project's feasibility study and will cease all activity on the project. Aurora LNG would have liquefied Canadian natural gas for export to Asia from Digby Island on the northwest coast of British Columbia. The partners had been studying the project for 4 years.

The partners cited an adverse macroeconomic environment in announcing Aurora LNG's cancellation but said that upstream operations in the Horn River region of northeast British Columbia would continue. Malaysia's Petronas and its partners earlier this year opted not to proceed with the Pacific NorthWest LNG project at Port Edward, BC.