OGJ Newsletter

Aug. 20, 2019

GENERAL INTEREST Quick Takes

ExxonMobil reports 2Q earnings of $3.1 billion 

ExxonMobil Corp. reported estimated second-quarter earnings of $3.1 billion compared with $4 billion in second-quarter 2018. Earnings included a favorable identified item of $500 million, reflecting the impact of a tax rate change in Alberta.

Capital and exploration expenditures were $8.1 billion, up 22% from the prior year’s $6.6 billion, reflecting investments in the Permian basin. Net cash flow from operations was $5.9 billion. Earnings for the first half of the year were $5.5 billion, down from the $8.6 billion reported for the same period in 2018. Capital expenditures for the first half were $15 billion.

Production was 3.9 million boe/d, up 7% from the second quarter of 2018. Liquids production increased 8% driven by Permian basin growth and reduced downtime, with limited impact from entitlement effects and divestments. Permian unconventional development continued with production up over 20% from the first quarter and up nearly 90% from the second quarter of last year. Natural gas volumes increased 5%, excluding entitlement effects and divestments.

Marathon Petroleum reports 2Q results 

Marathon Petroleum Corp. reported net income of $1.1 billion for this year’s second quarter compared with $1.1 billion for second-quarter 2018.

MPC realized $270 million of synergies in the second quarter. Some examples of realized synergies include $60 million of turnaround savings related to lower spending and incremental earnings from completing maintenance under budget and ahead of schedule, $35 million from leveraging scale and logistics assets to optimize Canadian and Bakken supply sources, and $10 million from improved catcracker yields at the company’s Los Angeles refinery.

Total income from operations was $2 billion in this year’s second quarter compared with $1.7 billion second-quarter 2018. Midstream segment income from operations was $878 million in the second quarter compared with $617 million for second-quarter 2018.

Income from the company’s refining and marketing segment from operations was $906 million in the second quarter compared with $1 billion in the same quarter of 2018.

Refinery capacity utilization was 97% percent, the company said, resulting in total throughputs of 3.1 million b/d for the second quarter, which was 1.1 million b/d higher than the throughput for last year’s second quarter. The increase was primarily due to the addition of the Andeavor refineries.

EOG reports 2Q net income of $848 million 

EOG Resources Inc. reported second-quarter net income of $848 million compared with second-quarter 2018 net income of $697 million. Net cash provided by operating activities for the quarter was $2.7 billion.

Adjusted non-GAAP net income for this year’s second quarter was $762 million compared with adjusted non-GAAP net income of $795 million for the same prior-year period.

Second-quarter crude oil volumes increased 18% year-over-year to 455,700 boe/d. Compared with second-quarter 2018, natural gas liquids production increased 16%, while natural gas volumes rose 10%, contributing to total company production growth of 16%.

Cash operating costs declined 7% during the quarter on a per-unit basis compared with the same prior-year period. Lower transportation and lease and well costs contributed to the overall cost reduction.

Oxy reports 2Q net income of $635 million 

Occidental Petroleum Corp. reported net income of $635 million for this year’s second quarter, down from $848 million reported in the same quarter a year ago, yet up from the $631 million reported in this year’s first quarter. Second-quarter pretax noncore items of $107 million include Anadarko acquisition-related transaction and debt financing fees.

Oil and gas pretax income for the second quarter was $726 million compared with $484 million for the prior quarter, attributed to higher crude oil prices and sales volumes, partially offset by a negative noncash mark-to-market adjustment on carbon dioxide purchase contracts along with lower US gas prices.

Total average production volumes were 741,000 boe/d for the second quarter compared with 719,000 boe/d for the year’s first quarter. Permian Resources average production volumes hit 289,000 boe/d for the second quarter, an increase of 11% from the prior quarter due to improved well performance and development activity. Year-over-year, Permian Resources production for the second quarter increased by 44%.

International average production volumes were 295,000 boe/d for the second quarter compared with 298,000 boe/d for the first quarter. Production in the second quarter was lower due to production-sharing impacts in Oman.

Total cash operating costs of $10.97/boe for the second quarter decreased by 5% compared with the prior quarter. Compared to total year 2018, total cash operating costs decreased by more than 8% due to improved efficiencies in downhole maintenance and lower energy costs.

Continental adjusts STACK, SCOOP assets 

Continental Resources Inc., Oklahoma City, sold water properties in the STACK play of Oklahoma and expanded its leasehold in the neighboring SCOOP play.

The company sold its eastern STACK water gathering and recycling system in Blaine County to Lagoon Water Solutions for $85 million. It also entered a long-term arrangement with the buyer for water sourcing, gathering, and disposal for future development. Continental owns and operates three other water systems in Oklahoma and ten systems in the Bakken play of North Dakota and Montana.

In the SCOOP play, the company added as many as 150 gross operated Early Mississippian-Late Devonian Woodford and Mississippian Sycamore locations in a $79.5 million acquisition from an undisclosed seller. Continental said drilling and completions associated with the acquisition will boost 2019 spending by an unbudgeted $20 million.

A further $35 million in unbudgeted 2019 spending will result from trades that have added 3,000 net acres to Continental’s leasehold in core operating areas.

Exploration & Development Quick Takes 

Shell to develop deepwater PowerNap field 

Shell Offshore Inc. expects production to begin in late 2021 from deepwater PowerNap oil and gas field in the Gulf of Mexico. It has made the final investment decision to develop the field with three subsea wells flowing into manifolds tied back to the Olympus production hub, which it operates.

PowerNap production is expected to reach 35,000 boe/d of oil and gas. Shell estimates the “forward-looking break-even price” at less than $35/bbl.

Discovered in 2014, the field is 4,200 ft of water in the south-central Mississippi Canyon area 150 miles from New Orleans.

Shell holds a 100% interest.

Aramco lets contract for Hasbah, Karan fields 

Saudi Aramco has let an engineering, procurement, construction, and installation contact to McDermott International Inc. for a production deck module (PDM) in Hasbah gas field with hook-up and modification works in Saudi Arabia’s Karan gas field in the Persian Gulf.

The scope of work includes EPCI of Wellhead PDM for four wells, 3¾ miles of 16-in. corrosion-resistant alloy cladded flowline, 4 miles of subsea umbilical cable, offshore tie-ins to existing facilities, and electrical modifications to existing PDMs.

Engineering will be performed in Saudi Arabia and fabrication will take place at McDermott’s Jebel Ali yard in the UAE. Fabrication is expected to begin in second-quarter 2020. The contract has been valued by McDermott at $50-250 million.

Kuwait, Iraq sign border-field contract 

The governments of Kuwait and Iraq have signed a contract for a technical study of oil fields straddling the countries’ shared border, the official Kuwait News Agency reported.

They commissioned ERC Equipoise Ltd., London, to assess development and investment strategies, KUNA said. The firm will focus on Ratqa-Rumaila and Safwan-Abadali fields.

Talal Nasser Al-Sabah, acting undersecretary of the Kuwaiti Ministry of Oil, told KUNA the agreement came at the behest of Amir Sabah Al-Ahmad Al-Jaber Al-Sabah, who has instructed officials to seek areas of cooperation with Iraq.

Oxy, Ecopetrol form Midland basin JV 

Occidental Petroleum Corp. and Ecopetrol SA have formed a joint venture to develop 97,000 net acres of Oxy’s Midland basin properties in the Texas counties of Midland, Martin, and Howard. Ecopetrol will pay $750 million cash plus $750 million of carried capital in exchange for 49% interest in the new venture. Oxy will operate the combine with 51%. During the carry period, Ecopetrol will pay 75% of Oxy’s share of capital expenditures. Oxy will retain production and cash flow from its existing operations in the Midland basin.

The joint venture allows Oxy to accelerate its development plans in the basin, where it currently has minimal activity. The deal enables Ecopetrol to book some 160 million boe of proved undeveloped reserves at closing while strengthening shale development capabilities that could be utilized in Colombia, said Felipe Bayon, Ecopetrol chief executive officer and president, in a press statement.

The combine will progressively increase production until 2027, Ecopetrol said. To develop the JV, Ecopetrol incorporated two new firms, Ecopetrol Permian and Ecopetrol USA, and converted Ecopetrol America into Ecopetrol America, which will continue to focus on US Gulf of Mexico operations.

Australia unveils offshore release areas 

The Australian government has unveiled 64 areas in its 2019 offshore petroleum acreage release. It is the largest release since 2000 and involves more than 120,000 sq km of acreage to be offered in a single round of work program bidding.

All areas in the release have been based on industry nominations and have been subject to a comprehensive public consultation process. The areas are spread throughout five sedimentary basins, with the heaviest concentration off the northwest of the country. However, there also is interest in the southeast, with nominations leading to seven areas being put up for bidding in that region.

In more detail off Western Australia, Ashmore Cartier, and the Northern Territory there are 15 blocks released in the Bonaparte basin, 39 in the North Carnarvon basin (including the Exmouth Plateau), and 3 in the Browse basin. Offshore Victoria there are 5 blocks on offer in the Gippsland basin and 2 blocks in the Otway basin.

Closing dates for the work program bids is Mar. 5, 2020.

Drilling & Production Quick Takes 

Oil spill halts Hibernia field production 

Production by Hibernia oil field offshore Newfoundland and Labrador was shut in July 17 after workers noticed an oil slick.

Hibernia Management & Development Co. estimated the release at 75 bbl of crude oil. There were no injuries.

Efforts were under way to contain and collect the oil. Production, which can reach 220,000 b/d, remained shut in as OGJ went to press last week. The discharge occurred during water removal from a storage unit of the gravity-base Hibernia platform 315 km east-southeast of St. John’s.

HMDC partners are ExxonMobil Canada, 33.125%; Chevron Canada Resources, 26.875%; Suncor 20%; Canada Hibernia Holding Corp., 8.5%; Murphy Oil, 6.5%; and Equinor Canada Ltd., 5%.

Al Yasat lets contract for Belbazem block work 

Al Yasat Petroleum, an ADNOC Group company and joint venture with China National Petroleum Corp., has let a contract to National Petroleum Construction Co. and its JV partner Petrofac to provide front-end engineering design services for the Belbazem Block Development Project offshore Abu Dhabi.

The scope of work includes the submission of a FEED package and proposal for the engineering, procurement, construction, and installation of the facilities, with the execution of the EPCI work to be awarded on a design competition basis.

The Belbazem block consists of three oil-bearing structures—Belbazem, Umm Al Salsal, and Umm Al Dholou. Upon completion, the block is expected to produce 45,000 b/d of oil and 765,000 cu m/day of gas, while maintaining reservoir pressure support with water injection.

Together, NPCC and ADNOC have achieved a number of milestones, said Ahmed Al Dhaheri, chief executive officer of NPCC, “including the recent load-out of one of the world’s largest offshore oil platforms to mark the completion of phase two of Umm Lulu’s super complex development (OGJ Online, June 28, 2019).” ADNOC plans to increase its production capacity from 4 million b/d by the end of 2020 to 5 million b/d by 2030.

Gbetiokun oil field on stream off Nigeria 

Gbetiokun oil field off Nigeria has come on stream through an early production facility, reports Eland Oil & Gas, Aberdeen. Initial production will reach 12,000 b/d from the Gbetiokun-1 and Gbetiokun-3 wells in OML 40’s southwestern area.

The early production facility has nominal capacity of 22,000 b/d. Shuttle tankers carry the crude to the main OML export pipeline. Modularity of the early production system allows expansion of capacity in the next 12-18 months, Eland said.

The first development phase focuses on three of the deepest of 19 oil-bearing reservoirs in what Eland describes as a relatively simple dip-closed structure. Depths of all the reservoirs range from 5,000 ft to 10,000 ft. The second phase will target less well-defined shallower reservoirs.

Eland said as many as five more first-phase wells will be drilled this year and next. A dedicated pipeline linked to the Forcados export system is planned.

Eland holds a 45% interest in OML 40. Nigerian National Petroleum Corp., the operator, holds 55%. Also on OML 40, Opuama oil field, brought on stream in 2014, produces about 29,000 b/d (OGJ Online, Feb. 5, 2014).

Frontera resumes production from Peru Block 192 

Frontera Energy Corp. reported that repairs on the NorPeruano pipeline in Peru have been completed and the company has resumed normal operations, allowing a restart of production from Block 192.

Current production is 2,910 b/d and is expected to reach more than 9,000 b/d. The company expects the contract on the block will be extended to at least February 2020.

On June 18, the company was notified by Petroperu SA, the operator of the NorPeruano pipeline, of a force majeure event affecting a portion of the line as a result of an attack at Kilometer 237 near Pump Station 5 of the North Branch Pipeline in the Manseriche district.

The pipeline was repaired, but as part of an ongoing community dispute, residents were not permitting Petroperu to conduct activities necessary to resume pumping oil through the pipeline.

Starting July 1, Frontera shut down production from the block, 200 km from the site of the incident, while authorities worked to resolve the dispute and gain access to the line.

PROCESSING Quick Takes 

DCP Midstream enters DJ basin processing deal 

DCP Midstream LP, a Denver-based 50-50 joint venture of Phillips 66 and Enbridge Inc., has signed a deal with Western Midstream Partners LP to expand natural gas processing capacity in the DJ basin via a long-term offload agreement.

The agreement will provide DCP with as much as 225 MMcfd of incremental processing capacity at Western’s DJ basin gas processing complex, which includes the Latham II plant currently under construction, DCP said.

The complex will be well-integrated, with NGL takeaway via DCP’s DJ Southern Hills extension, as well as the Front Range pipeline, and residue gas takeaway via the Cheyenne Connector, according to DCP.

This project will increase DCP’s total gas processing and bypass capacity in the DJ basin to about 1.5 bcfd.

With permits and land already secured, DCP preserves the optionality to build future capacity via the Bighorn facility, a DJ basin gas processing complex with a capacity of as much as 1 bcfd that will be placed into service in phases beginning in second-quarter 2020.

In its 2018 annual report to investors, Western said it was currently building the Latham I and II cryogenic processing trains—each with a capacity of 200 MMcfd—at its new processing plant in Weld County, Colo.

Once completed, the Latham Trains I and II will boost overall processing capacity of the DJ basin complex to 1.14 bcfd.

Latham Trains I and II are both scheduled for start-up during second-half 2019, Western said in its second-quarter earnings report.

IOCL lets contract for Haldia refinery 

Indian Oil Corp. Ltd. (IOCL) has let a contract to Chevron Lummus Global LLC (CLG)—a partnership of Chevron USA Inc. and McDermott International Inc.—to provide technology and engineering for a grassroots unit to be built at IOCL’s 164,100-b/d Haldia refinery in the district of Purba Medinipur, West Bengal, India.

As part of the contract, CLG will deliver technology licensing and engineering for a 270,000-tonne/year lubricants base oil plant, which will be equipped with CLG’s proprietary Isodewaxing and Isofinishing technologies, McDermott said.

Intended to help meet projected growth in India’s base oil market and reduce the country’s dependence on imported oils, the Haldia unit will be mainly designed to produce premium API Group III base oils by processing unconverted oil from an upstream hydrocracking unit at the refinery, the service provider said.

While it did not disclose a timeframe for its work on the project, McDermott did value the contract—signed in this year’s second quarter—at $1-50 million.

TRANSPORTATION Quick Takes 

NTSB probes Texas Eastern Kentucky blast 

The US National Transportation Safety Board is investigating an Aug. 1 explosion on the Texas Eastern natural gas pipeline system near Danville, Ky., that killed a woman and injured at least five other people while setting fire to several houses.

Enbridge, which owns the system, described the event as a rupture a 30-in. OD section now isolated.

The cause is unknown.

Work suspended on Coastal Gaslink gas line 

Early construction has been suspended on TC Energy’s 670-km Coastal GasLink natural gas pipeline that will serve the planned 14-million tonne/year LNG Canada liquefaction plant at Kitimat, BC (OGJ Online, Oct. 2, 2018).

Coastal GasLink took the action voluntarily after an internal audit showed two areas where approved archaeological impact assessments were not in place before construction started.

Clearing has been halted in the areas, one measuring 600 m by 50 m and the other 240 m by 10 m.

Coastal GasLink disclosed the incidents to the British Columbia Oil and Gas Commission and Environmental Assessment Office.

Agreement boosts oil terminal off Texas 

Chevron USA Inc. and Enterprise Products Partners LP signed long-term agreements that will support development of a crude oil terminal 30 nautical miles off Brazoria County, Tex., and expansion of crude oil logistics between the Permian basin and Houston.

Enterprise’s Sea Port Oil Terminal, in 115 ft of water, is designed to load very large crude carriers at 85,000 bbl/hr and includes a vapor control system.

The company said the agreements with Chevron support its final investment decision. Construction depends on approvals and licenses under consideration by the US Maritime Administration.

Enterprise said the added flexibility to load at multiple export facilities will enable it to “optimize its Houston Ship Channel facilities by creating additional capacity to load growing LPG, ethane, and petrochemical export volumes.”

Other long-term agreements with Chevron and other customers support expansion of the Enterprise crude oil system between the Permian basin and the company’s ECHO terminal in Houston, Enterprise said.

The Chevron agreement covers transportation, storage, and marine terminal services.

Total sells interest in Trapil pipeline network 

Total SA agreed to sell a 30% interest in Societe des Transports Petroliers par Pipelines (Trapil) to Pisto SAS for $290 million.

“Rather than own infrastructure assets, the group’s aim is to hold contracts to use such infrastructure when needed to manage its industrial assets. This sale will help us achieve our target of divesting $5 billion in assets over the period 2019-20,” said Total CFO Jean-Pierre Sbraire.

At close, which is subject to French regulatory approvals, Total will hold 5.55% and will continue to use Trapil infrastructure under the current terms and conditions to carry products from the Normandy and Grandpuits refineries.

Pisto—an independent crude oil and refined product storage operator—is the main shareholder of Trapil, holding a 44% stake before the transaction.

Trapil—created by the French government in 1950 to build and operate a pipeline and auxiliary installations to transport refined petroleum products between the Basse-Seine and Paris regions—comprises 1,375 km of pipe, 28 pumping stations, and 27 delivery terminals.