OGJ Newsletter

GENERAL INTEREST Quick Takes

Regulator denies transfer of Foothills assets to Pieridae Energy 

Shell’s Foothills assets will not be transferred to Pieridae Energy Ltd. as planned based on denial of application by the Alberta Energy Regulator (AER). Closure of the acquisition was announced in October 2019, but on May 14, 2020, the regulator refused to transfer licenses for 284 wells, 66 facilities, and 82 pipelines in the southern Alberta foothills, most involving sour gas, from Shell to Pieridae (OGJ Online, June 27, 2019).

Regulators cited environmental concerns for the rejection and specifically cited how transfer of the licenses would result in unclear split of liability for cleaning up the sites. This issue only applies to Waterton and Jumping Pound gas plants. The license transfer would make Shell responsible for historical Sulfinol™ and certain other substance contamination and Pieridae responsible for all other remediation and reclamation liability. AER stated that “it is unclear how Shell will be able to identify, and subsequently remediate only historic Sulfinol™, and how all other substances on the same site, including subsequent Sulfinol™ contamination, will be identified and remediated by Pieridae.”

There is no precedent for splitting a license and no ability under the current legislation to do so. Until the licenses are transferred, the liabilities remain with Shell.

The wholesale rejection of the transfers beyond the Waterston and Jumping Pound plant were because the applications were submitted as a bundle. Both companies are evaluating options on the transfer applications and will seek clarity from the regulator to define an appropriate path forward.

Qatar Petroleum to continue North Field Expansion project 

Qatar Petroleum’s North Field Expansion project will continue “full steam ahead,” said Saad Sherida Al-Kaabi, minister of state for energy affairs and president and chief executive officer of Qatar Petroleum, during a webinar organized by the US-Qatar Business Council as noted on the company website May 22.

The project is expected to raise Qatar’s LNG production capacity to 110 million tonnes/year form 77 million tpy 2025 and to 126 million tpy by 2027, he said, adding that the final onshore commercial bids will be received by September and that contracts will be awarded by the end of the year.

A number of milestones in the project have begun, including the start of a drilling campaign for 80 development wells, installation of offshore well head jackets, and the reservation of capacity to build LNG ships that would ensure meeting Qatar’s future LNG fleet requirements, Minister Al-Kaabi said.

The first of the development wells from eight wellhead platform locations was spudded Mar. 29.

Minister Al-Kaabi said Qatar Petroleum is planning greater international upstream expansion and will continue farming-in and acquiring promising exploration blocks around the world with major players.

Asked by webinar participants—representing council members and partners in the US and Qatar—if Qatar would be forced to reduce production due to the price drop, Minister Al-Kaabi said: “In such a scenario of forced production curtailment because of Price, many other producers will be forced to shut down before Qatar due to their high production cost, therefore there is absolutely no way that we would curtail production.”

Addressing a question about cost reduction, he said the company will reduce its capital and operating expenses by 30% in June.

Qatar Petroleum farms in to two Côte d’Ivoire blocks 

Qatar Petroleum has entered into a farm-in agreement with Total SA to acquire a 45% participating interest in Blocks CI-705 and CI-706 in the Ivorian-Tano basin, offshore the Republic of Côte d’Ivoire. Terms were not disclosed.

The two blocks cover 3,200 sq km, and present multi-target hydrocarbon prospects in water depths of 1,000-2,000 m, 35 km from shore and about 100 km from nearby Foxtrot, Espoir, and Baobab fields.

The agreement is subject to customary approvals by the Côte d’Ivoire Government.

Saudi Aramco reports Q1 net income of $16.7 billion  

Saudi Aramco reported net income of $16.7 billion for the first quarter of 2020. Cash flow from operating activities was $22.4 billion in the quarter compared to $24.5 billion in the same period of 2019. The impact of declining crude oil prices and refining and chemicals margins was partially offset by favorable movements in working capital.

First quarter capital expenditures were $7.4 billion compared to $7.2 billion for the same period in 2019. Due to market conditions and recent commodity price volatility, the company expect capital spending for 2020 to be $25-30 billion. Capital expenditures for 2021 and beyond remain under review.

Crude oil production for the quarter was 9.8 million b/d compared to 10.1 million b/d in the same period in 2019.

Gross refining capacity for the quarter was 6.4 million b/d compared to 4.9 million b/d in first-quarter 2019.

Exploration & Development Quick Takes 

Dorado JV awards three pre-FEED contracts 

A joint venture of Santos Ltd. and Carnarvon Petroleum Ltd. has awarded three competitive pre-FEED contracts for design of the floating production, storage and offtake (FPSO) vessel for the Dorado oil field development project in the Bedout subbasin offshore Western Australia.

The parties will work independently on FPSO designs and mature vessel construction plans and supply terms. One contractor will be selected to begin formal FEED work, the contract for which is scheduled for later in 2020.

In addition, the JV has received expressions of interest from companies for the fixed well-head platform that will support the production and ancillary wells and connect to the FPSO.

A short list of contractors will soon be invited to tender for the work, including engineering and design, fabrication of the jacket and topsides, as well as transport to and installation at the field.

Dorado was discovered in July 2018 in permit WA-437-P about 160 km north of Port Hedland. There have since been two successful appraisal wells confirming oil in three separate reservoirs in the field.

A final investment decision for development is scheduled for 2021, but subject to market conditions.

Santos is operator with 80%. Carnarvon holds 20% interest.

ReconAfrica begins Namibia exploration campaign 

Reconnaissance Energy Africa (ReconAfrica) has begun site preparation at two drilling locations in the Kavango sedimentary basin in northeast Namibia and plans to drill its first well in this year’s fourth quarter.

The main objectives of the wells are to confirm organic rich shales and conventional opportunities. Estimates for shales only is 12 billion bbl OOIP and 119 tcf OGIP. Recoverability is yet to be determined.

A three-well drilling campaign in exploration license 73 was planned for the year’s second half but was delayed due to restrictions around COVID-19. International travel and admission of foreign nationals remain restricted in Namibia, but the Namibian government guidance is that further easing of restrictions could come as soon as June 1.

ReconAfrica owns 90% interest in the license. State-owned NAMCOR holds 10%.

Equinor granted North Sea drilling permit  

Equinor Energy AS has been granted a drilling permit by the Norwegian Petroleum Directorate for a North Sea exploration well to be drilled about 17 km south of Kvitebjørn.

Well 30/2-5 S, to be drilled from the West Hercules drilling facility after concluding drilling of wildcat well 35/10-6 for Equinor in production license 827 S, is the first exploration well to be drilled in license 878.

The area in the license consists of parts of Blocks 30/2 and 30/3. Equinor is operator with 60%. Partners are Wellesley Petroleum AS, 20%, and Source Energy AS, 20%.

Equinor intends to continue to mature its portfolio of exploration assets and estimates a total exploration activity level of $1 billion for 2020, excluding signature bonuses and field development costs, the company said as part of its first quarter report May 7.

Drilling & Production Quick Takes 

DNO cuts production in Kurdistan and Norway 

DNO ASA has implemented a target 35% reduction across all spend categories to shrink its 2020 budget by $350 million to $640 million in response to turbulence and uncertainty in global oil and financial markets triggered by the coronavirus pandemic.

Cutbacks will reduce 2020 company working interest production (CWI) to a projected 88,000 boe/d, down from 104,800 boe/d last year. The Kurdistan region of Iraq will contribute 71,000 b/d and the North Sea will add 17,000 boe/d.

In Kurdistan, DNO has reduced the number of rigs deployed in drilling, testing, and workovers from five in 2019 and early 2020 to two, down from a total rig count approaching 20 last summer. One rig is drilling the Zartik-1 exploration well on the DNO-operated Baeshiqa license and the other is a Tawke license workover rig that will shortly be moved for scheduled maintenance. Two third-party rigs have been warm stacked at Tawke and Peshkabir and can quickly be mobilized if oil prices climb and export payments are regularized.

Gross production at the DNO-operated Tawke license containing Tawke and Peshkabir fields, absent drilling of new infill wells to arrest natural field decline, is expected to average 100,000 bo/d in 2020. This reflects a drop from 115,210 bo/d in first quarter 2020 to 100,000 bo/d in second quarter 2020 and 90,000 bo/d over the balance of the year. Tawke license exit rate at yearend 2020 is projected at 85,000 bo/d, absent new wells. Production split continues at 55/45 between Tawke and Peshkabir fields.

Budget cuts and the newly announced Norwegian production caps are not expected to make a material change to DNO’s 2020 North Sea projections. The majority of the company’s fields subject to the restrictions are not fully utilizing their previous higher production permits.

OMV granted approval for Hades prospect drilling

OMV Norge AS secured approval from Petroleum Safety Authority Norway to drill well 6506/11-12S and sidetrack 6506-11-12A in Block 6506 on the Hades prospect in Norwegian Sea license PL 644. The semisubmersible Island Innovator will drill both wells in a water depth of 433 m, with the program set to last up to 99 days for 6506/11-12S and 23 days for 6506/11-12A.

OMV first discovered gas-condensate on the Iris Hades structure in 2018 (OGJ Online, Apr. 6, 2018).

Hurricane suspends Lancaster EPS well, lowers production guidance 

Hurricane Energy PLC will shut in well 205/21a-7Z for an unspecified time and suspend its previous full year guidance after ongoing testing of two wells in the early production system on Lancaster field in the West of Shetland area offshore UK proved a combined production rate up to 20,000 bo/d (gross) was unsustainable.

The increasing rate resulted in unstable flow from 205/21a-7Z due to interference between the wells (OGJ Online, Apr. 20, 2020). Water production from 205/21a-7Z at the time of instability was in line with water production observed over previous weeks.

The company will continue maximum rate testing from 205/21a-6. The well is producing about 10,300 bo/d. Plans are to incrementally increase the rate to determine maximum sustainable level.

The shut in will result in a period of production well below the 18,000 bo/d net forward guidance. Full-year guidance of 17,000 bo/d (net) has been suspended. Year-to-date production has averaged 15,500 bo/d.

CNOOC advances 2020 strategy with Bohai Bay production 

CNOOC Ltd. has started production on Penglai 19-3 oil field block 4 adjustment/Penglai19-9 oil field phase II in the northern Bohai Bay. The project is expected to reach 15,681 b/d peak production in 2022.

The startup is part of the company’s plan to steadily increase its oil and gas reserves and production through 2022 (OGJ Online, Jan. 13, 2020).

The company has plans for 47 wells, including 30 production wells, 16 water injection wells, and 1 development and appraisal well. A newly built wellhead platform will use existing processing facilities in Penglai 19-3. Average water depth is 28 m.

Operator CNOOC has 51% and ConocoPhillips China Inc. has 49%.

Turkmengaz to increase Dovletabad field gas production 

Turkmengaz State Concern, the national gas company of Turkmenistan, has been authorized by President Gurbanguly Berdimuhamedov to let a contract to Turkmen Petroleum Products Trade DMCC (UAE) for services to increase natural gas production in 30 wells operating in Dovletabad field.

Dovletabad, in Mary province, was discovered in 1982 with initial gas reserves of 1.3 trillion cu m. Currently, natural gas produced at the field is sent both to domestic consumers and for export supplies.

Turkmenistan exports natural gas to China and the Russian Federation. Further diversification of gas exports will be ensured by the Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline, Turkmengas said as part of state news reporting (OGJ Online, Dec. 4, 2019). The raw material source for the route will be the 16-tcf Galkynysh gas field in eastern Mary province.

PROCESSING Quick Takes 

McDermott details award for Jubail PDH-PP complex 

McDermott International Inc. has confirmed details of its scope of work on an earlier awarded contract by Advanced Petrochemical Co. (APC) for subsidiary Advanced Global Investment Co.’s (AGIC) proposed propane dehydrogenation (PDH) and polypropylene (PP) complex at APC’s existing operations in Jubail Industrial City, on Saudi Arabia’s eastern coast (OGJ Online, May 15, 2020).

McDermott’s Lummus Technology—alongside catalyst partner Clariant International Ltd.—will license its proprietary CATOFIN PDH technology process as well as provide the basic engineering package for a C3 CATOFIN unit to be installed at the new complex, the service provider said on May 21.

Once in operation, the new unit will have a propylene production capacity of 843,000 tonnes/year.

McDermott, which reflected the order in its first-quarter 2020 backlog, valued the contract at $1-50 million.

This latest contract for the project follows AGIC’s contract award earlier this month to Fluor Corp. for delivery of project management consultancy (PMC) on the complex, which alongside propylene, also will produce 800,000 tpy of PP that will be used for production of specialty polymers by manufacturers in the face mask, automotive, pipes, food packaging, and textiles industries.

APC also previously confirmed AGIC has let a contract to LyondellBasell Industries NV subsidiary Basell Poliolefine Italia SRL to license its proprietary Spherizone and Spheripol technologies for the complex’s two PP plants, each of which will have a capacity of 400,000 tpy.

Award of the technology and PMC contracts follow AGIC’s Mar. 27 signing of a shareholders agreement with SK Gas Co. Ltd. subsidiary SK Gas Petrochemical Pte. Ltd. (SKGP) to establish a joint venture named Advanced Polyolefins Co. (APC JV) for construction and operation of the proposed PDH-PP complex.

At a total estimated cost of about $1.8 billion, the planned PDH-PP project will be financed 25% by equity of shareholders, while APC JV will finance the remaining 75% via borrowing from lenders, APC said. AGIC will hold 85% interest in APC JV, with SKGP to hold the remaining 15% stake.

APC said APC JV expects to begin construction in 2021 on the new PDH-PP complex—which will receive its main feedstock of propane from Saudi Aramco under a long-term contract—for a targeted start-up of operations by second-half 2024.

APC currently produces 455,000 tpy of propylene and 450,000 tpy of PP at its existing Jubail Industrial City plants, according to the company’s website.

Borealis, partner nix plans for Kazakh petrochemical complex 

Borealis AG and Kazakh state-owned partner United Chemical Co. LLP (UCC) have canceled plans for joint development of an integrated ethane cracker and polyethylene (PE) project in Kazakhstan.

The decision to discontinue the project is based on a thorough assessment of all aspects of the proposed venture, including near-term impacts of the coronavirus (COVID-19) health crisis as well as the pandemic’s role in increasing uncertainty of future market assumptions, Borealis said in a statement.

Cancellation of the project follows a 2018 joint development agreement signed by Borealis and UCC, under which the partners planned to build an ethane cracker and two PE units based on Borealis’ proprietary Borstar PE process at the proposed Kazakhstan complex, which would have an overall production capacity of 1.25 million tonnes/year, Borealis said in a Mar. 26, 2018, release.

The project—which, if approved, was scheduled for startup in 2025—was due for final investment decision this year, according to Borealis.

TRANSPORTATION Quick Takes 

NJ, NY reject Williams Northeast Supply Enhancement project 

The New York State Department of Environmental Conservation and New Jersey Department of Environmental Protection (NJDEP) have rejected Williams’ 400-MMcfd Transco Northeast Supply Enhancement (NESE) project. The project would have supplied natural gas to Queens, Brooklyn, and parts of Long Island, NY, and included a 23-mile subsea stretch across Raritan Bay.

NJDEP had denied the same wetland and water quality permits in 2019 (OGJ Online, Nov. 4, 2019), but Williams resubmitted.

NESE was a 26-in. OD, 37-mile pipeline project that would transport gas from Pennsylvania through New Jersey, traveling underwater in the Raritan Bay and Lower New York Bay to about 3 miles offshore the Rockaway Peninsula where it would have connected to the existing Rockaway Delivery Lateral.

Thai Gulf Energy gets 1.7-million tpy LNG import license 

Companies held by Thai Gulf Energy Development Public Co. Ltd. have received government licenses to import as much as 1.7 million tonnes/year (tpy) of LNG.

Thailand’s Energy Regulatory Commission (ERC) granted Hin Kong Power Holding Co. Ltd. (HKH) an LNG shipper license for 1.4 million tpy to be used as a fuel for electricity production for a 1,400-Mw power plant in Hin Kong subdistrict, Mueang district, Ratchaburi province expected to begin commercial operations in 2024-25. Thai Gulf holds 49% of HKH and Ratch Group Public Co. Ltd. holds 51%.

ERC granted Gulf Energy itself a 300,000-tpy LNG shipper license. Gulf Energy will supply the LNG to 19 of its small power producer projects, supplying electricity and steam to industrial customers.

Gulf Energy and state-owned PTT plan to build a 5-million tpy LNG terminal at Map Ta Phut, Rayong province. Commercial operations are expected in 2025. 

Shell takes NLNG Train 7 FID, EPC contracts signed 

Shell Gas BV, a subsidiary of Royal Dutch Shell PLC, took final investment decision (FID) on Nigeria LNG’s (NLNG) 8-million tonne/year (tpy) Train 7 expansion. Subsequent to the FID, NLNG awarded engineering, procurement, and construction (EPC) contracts to the SCD JV Consortium, comprising affiliates of Saipem, Chiyoda, and Daewoo.

Execution of the EPC contracts triggers the detail design and construction phase of the project, expected to increase the capacity of NLNG’s current six-train plant by 35% to 30 million tpy. The company expects construction to last 5 years, with first LNG slated for 2025.

Train 7 will support the Nigerian federal government’s drive to generate more revenue from Nigeria’s proven gas reserves of about 200 tcf and further reduce gas flaring in the country’s upstream oil and gas industry, NLNG said.

NLNG is an incorporated joint venture owned by the federal government of Nigeria, represented by Nigerian National Petroleum Corp. (NNPC, 49%), Shell Gas BV (25.6%), Total Gaz Electricite Holdings France (15%), and Eni International NA NV Sàrl (10.4%).

​ China building LNG terminal in Longkou 

China Oil & Gas Pipeline Network Corp. (PipeChina) has started building a new 20-million tonne/year (tpy) LNG terminal in Longkou, Shandong Province. The terminal, which includes 20 220,000-cu m storage tanks, will supply 28 billion cu m/year (bcmy) of natural gas to China’s markets.

PipeChina expects Phase 1 to enter service in 2023. The project is PipeChina’s first since forming in December 2019.

China National Offshore Oil Co. is expanding storage at its Shanghai LNG terminal and both expanding storage and building a 156 km gas pipeline as part of its Rudong LNG Phase 3 project. The pipeline will run to Anhui.

China Petroleum & Chemical Corp. and Zhejiang Energy Group Co. Ltd. are building a 3-million tpy terminal in Wenzhou, Zhejiang Province. The companies expect the terminal to enter service in 2021.