OGJ Newsletter

GENERAL INTEREST Quick Takes

Southwestern Energy, Montage Resources combine  

Southwestern Energy Co. has agreed to acquire Montage Resources Corp. in an all-stock transaction to create the third largest producer in Appalachia with expected total equivalent production of 3 bcfed.

The deal, valued in an Aug. 12 investor note by Raymond James at $204 million ($857 million including debt), would add 50 bcfe (25% increase pro forma) and nearly 324,500 net acres (a 70% increase comprised of 34,900 net acres in northeast Appalachia and 289,600 net acres in southwest Appalachia) to Southwestern’s portfolio.

Southwestern expects $30 million in annual G&A synergies as well as operational synergies as certain acreage overlaps.

Montage Resources shareholders will receive 1.8656 shares of Southwestern for each Montage Resources share. The transaction is expected to close in this year’s fourth quarter, subject to customary closing conditions, including approval of Montage Resources shareholders. EnCap, a 39% owner, has agreed to vote in favor of the transaction, according to Raymond James.

Concurrently, Southwestern has commenced a registered underwritten public offering of 55,000,000 shares of its common stock, with proceeds expected to be used to retire a portion of Montage Resources’ 8.875% senior notes due 2023.

Montage Resources emerged in 2019 when the deal to combine Eclipse Resources and Blue Ridge Mountain Resources closed (OGJ Online, Mar. 1, 2019).

Canadian Natural Resources to acquire Painted Pony  

Canadian Natural Resources Ltd. has agreed to acquire Painted Pony Energy Ltd. for a cash consideration of $0.69 per share plus assumption of Painted Pony’s total debt of $350 million.

Current production, before royalties, acquired by Canadian Natural, is 270 MMcfd of natural gas and 4,600 b/d of NGLs. The assets include properties in the northeast British Columbia areas of Blair, Daiber, Kobes, and Townsend.

The deal strengthens Canadian Natural’s natural gas assets and production base in key operating areas and “allows us to further insulate against natural gas costs in our oils sands operations,” said Tim McKay, president, Canadian Natural Resources.

The transaction is targeted to close late in this year’s third quarter or early fourth quarter, subject to normal closing conditions, including court approval and approval by Painted Pony security holders at a meeting to be held in September.

Chaparral Energy files Chapter 11

Chaparral Energy Inc., Oklahoma City, voluntarily filed petitions for relief under Chapter 11 of the US Bankruptcy Code in the US Bankruptcy Court for the District of Delaware in accordance with a restructuring agreement.

The agreement, entered into with certain of its funded debtholders, plans a prepackaged reorganization. The company has commenced soliciting votes to approve the plan. Holders of 78% of the loans under Chaparral’s first lien revolving credit facility and holders of 78% of its 8.75% senior notes due 2023 have agreed to vote in favor of the prepackaged plan under the terms of the agreement.

As of Aug. 14th Chaparral had cash on hand of about $32 million, which, combined with its normal operating cash flow, is expected to be sufficient to allow the company to maintain normal operations and meet its other financial commitments throughout the Chapter 11 restructuring period.

ADNOC adds new Chinese partner to Lower Zakum, Umm Shaif, Nasr concessions  

The Abu Dhabi National Oil Co. (ADNOC) has agreed to the transfer of rights in its Lower Zakum and Umm Shaif and Nasr offshore concessions from China National Petroleum Corp. (CNPC) to China National Offshore Oil Corp. subsidiary CNOOC Ltd. (CNOOC). The transfer has been approved by Abu Dhabi’s Supreme Petroleum Council (SPC) and marks the first time that a dedicated Chinese offshore oil and gas company joins ADNOC’s concessions.

The transfer comprises of CNOOC acquiring (through its holding company, CNOOC Hong Kong Holding Ltd., a 40% interest in CNPC’s majority-owned subsidiary PetroChina Investment Overseas (Middle East) Ltd. (PetroChina).

PetroChina holds a 10% interest in the Lower Zakum concession and a 10% interest in the Umm Shaif and Nasr concession (OGJ Online, Mar. 22, 2018). As a result of the transfer, CNOOC will hold a 4% interest in the Lower Zakum concession and a 4% interest in the Umm Shaif and Nasr concession, while PetroChina will retain a 6% stake in the concessions.

The agreement follows the signing of a comprehensive framework agreement between ADNOC and CNOOC in July 2019 to explore new opportunities for collaboration in both the upstream and downstream sectors as well as in LNG.

CNOOC joins an ONGC Videsh-led consortium (10%), Inpex Corp. (10%), CNPC (6%), Eni (5%), and Total (5%) as participants in the Lower Zakum concession; and Eni (10%), Total (20%), and CNPC (6%) as participants in the Umm Shaif and Nasr concession. ADNOC retains a 60% majority ownership interest in both concessions.

Chinese energy companies have steadily increased their participation in ADNOC’s upstream and downstream operations.

Exploration & Development Quick Takes 

Rosneft discovers new oilfield in northern Siberia 

Novoognennoye field discovery on the border of the Krasnoyarsk territory and Yamalo-Nenets Autonomous District holds recoverable reserves of 20 million tonnes oil and about 1 billion cu m gas, Rosneft Oil Co. subsidiary RN-Vankor said in a release July 23.

The discovery was made as part of a comprehensive exploration program designed to increase the resource base of Vostok Oil which unites Rosneft’s projects in northern Russia, including three oilfields in the Vankor area.

RN-Vankor performs geological exploration at 38 licenses north of the Krasnoyarsk Territory and in the Yamalo-Nenets Autonomous District. The company’s exploration division carried out 600 linear km 2D seismic work and successfully fractured an appraisal well.

The Vankor project’s resource potential has more than doubled since the launch in 2009 due to the large-scale exploration works on the license areas, the company said. Crude reserves have increased by 20%, the gas reserves by 54%.

The improvement of reserve replacement efficiency is one of the key elements of the Rosneft-2022 Strategy. The company has committed to replenish at least 100% of the hydrocarbons produced.

SEB Upstream plans Kanga-1 wildcat on NW Shelf 

SEB Upstream Snd. Bhd., the combine of Sapura Energy Bhd. and OMV, submitted plans to Australia’s offshore environmental regulator NOPSEMA for the proposed drilling of Kanga-1 wildcat in North West Shelf permit WA-412-P (OGJ Online Nov. 12, 2018).

A semi-submersible drilling rig anchored to the seabed will drill the well in the Dampier subbasin about 160 km north of Karratha in water depth of 150 m. A spud date between second-half 2021 and first-half 2022 is dependent on rig availability, weather conditions, and required statutory approvals.

The Kanga prospect—in close proximity to North Rankin gas-condensate field and Wanaea, Lambert, Mutineer, and Exeter oil fields—has been defined as a horst feature with target reservoir in the Legendre formation. Initial work suggests potential to hold up to 70 million bbl of oil.

Sapura-OMV bought into the permit in 2018 by acquiring a 70% interest from Finder Energy, Perth. Finder retains a 30% interest.

Drilling & Production Quick Takes 

Drilling operations to commence on Kaieteur block, Guyana 

Drilling of Tanager-1 on the Kaieteur block offshore Guyana will commence imminently with the arrival of the Stena Carron drillship. Tanager-1 has a target total depth of 8,000 m and will take an estimated 90 days to drill. Tanager is a stacked prospect in the Maastrichtian to Turonian reservoir intervals with unrisked estimated gross (100%) Prospective Oil Resource of 256.2 million bbl. Low estimate is 135.6 million bbl and high estimate is 451.6 million bbl. Aggregate probability of geologic success is 72%.

The aggregate gross unrisked prospective resource best estimate for nine prospects in the southern part of the Kaieteur block, where the Tanager prospect lies, is 2.1 billion bbl (aggregate low to high estimates of 694 million bbl to 5.85 billion bbl). The 13,535-sq-km Kaieteur block lies 250 km offshore Guyana, adjacent to and in the same geological basin as the Stabroek block.

Esso Production & Exploration Guyana Ltd., an ExxonMobil subsidiary, is operator (35%) with partners Cataleya Energy Ltd. (25%), Ratio Guyana Ltd., (25%) and a subsidiary of Hess (15%) (OGJ Online, Apr. 26, 2018).

First oil at Wressle expected in second-half 2020 

Egdon Resources UK has mobilized development work at the Wressle discovery, Lincolnshire, to reconfigure the existing site for production. The works include the installation of a new high density polyethelene (HDPE) impermeable membrane, specialist drain system, approved surface water interceptor, construction of a purpose-built bund area for storage tanks, tanker loading plinth, and an internal roadway system. First oil is expected in second-half 2020 with initial expected constrained rate of 500 bo/d.

Key planning conditions have been discharged. Progress with detailed design tendering and procurement is proceeding as per the plan, and all HSE documentation and procedures are progressing as per expectation. Four groundwater monitoring boreholes have been installed and two rounds of sampling and analysis have been undertaken. Left to do before production can commence is installation and commissioning of surface facilities and sub-surface operations, and tie-in.

Union Jack Oil PLC acquired an additional 12.5% of PEDL180 and PEDL182 containing Wressle from Humber Oil & Gas Ltd. Union Jack is now majority shareholder in the license. The acquisition has an immediate positive impact on Union Jack by increasing its reserves and resources at Wressle by 45.5% to 1.24 MMboe.

Egdon Resources is operator at Wressle. Union Jack has 40% interest in PEDL180 and PEDL182 with partners Egdon (30%) and Europa Oil & Gas Ltd. (30%).

Petrobras to deactivate Merluza platform offshore Brazil 

Petróleo Brasileiro SA (Petrobras) will mothball its Merluza offshore platform (PMLZ-1) in the Santos basin, off Brazil. The platform’s production had been interrupted since March due to the abrupt drop in demand for natural gas.

Operating in 135 m of water since 1993, the platform is the oldest in operation in the basin. It was installed for natural gas and condensate production from Merluza field. Natural gas and condensate from Lagosta field was added in April 2009.

The deactivation will not impact the divestment process of the Merluza Cluster and the supply of natural gas to the Santos’ coastal area market, the operator said in a release Aug. 7.

The cluster is composed of the Merluza and Lagosta concessions, in which Petrobras holds 100% interest. In operation since 1993, average production totaled 3,600 boe/d of natural gas and condensate in 2019.

Merluza and Lagosta fields are currently in a binding phase for divestment, as noted Mar. 31.

Elixir confirms additional large coal seam in Mongolian CSG drilling 

Elixir Energy Ltd., Adelaide, has logged 91 m of net coal in its second Nomgon coal seam gas well in southern Mongolia, adding to the confirmed areal extent of its earlier discovery.

The Nomgon-2 reached 550 m TD and subsequent logging confirmed the find, with the main ‘100 series’ seam measured as having a net thickness of 51 m (OGJ Online, July 10, 2020).

The well lies on the southern limb of the Nomgon syncline.

In an on-sit laboratory, Elixir is analyzing the numerous cores taken for gas content. Preliminary results are consistent with Nomgon-1 reported in February as Mongolia’s first coal seam gas discovery.

Other tests under way at Nomgon-2 include permeability using an injectivity fall off test process. Six successful tests have been run so far.

Elixir plans to continue the appraisal program in the Nomgon subbasin with the drilling of further step out wells, the first of which will evaluate the northern limb of the syncline.

A 2D seismic program is being run over surrounding subbasins as a precursor to exploration further afield.

PROCESSING Quick Takes 

ADNOC progresses on Ruwais refinery’s crude flexibility project 

Abu Dhabi National Oil Co. (ADNOC) subsidiary ADNOC Refining is advancing work on its previously announced more than $3-billion project to increase crude processing flexibility and improve margins at the 417,000-b/d West plant of 840,000-b/d Ruwais refining complex in the UAE.

As of Aug. 17, the CFP was 73% completed, with major structural elements—notably two new fractionators and 24 atmospheric residue desulfurizer reactors—recently installed at the site over the past 2 months, ADNOC said.

Designed to separate component products within crude feedstock to enable further refining, each of the 317-tonne, 80-m high fractionators was transported to the UAE from South Korea, with installation taking place over a 3-week period during June-July 2020.

First announced in 2018, the now $3.5-billion CFP at Ruwais—a core driver of ADNOC Downstream’s 2030 smart growth strategy—will enable the site to process up to 420,000 b/d of Upper Zakum crude from Abu Dhabi’s offshore fields to be processed with more than 50 other types of similar medium-sour crude types from the market in lieu of fellow UAE-produced, light, sweet Murban crude from onshore fields, which the refinery has predominantly refined for more than 40 years.

Scheduled to be completed in mid-2022, the CFP will increase the value ADNOC derives from every barrel of oil, both by boosting refining margins and by leaving more high-value Murban crude available for export, according to ADNOC.

Since 2019, ADNOC Refining has been run as a joint-venture company between ADNOC, Eni SPA, and OMV AG.

Waitsia gas to be processed at NW Shelf facilities 

The Beach Energy Ltd.-Mitsui group has made a preliminary agreement with the Woodside Petroleum-led North West Shelf joint venture for the processing of onshore gas from Beach’s Waitsia field at the North West Shelf LNG plant on the Burrup Peninsula.

A similar non-binding agreement has been made for gas from Woodside’s offshore Pluto field to be treated at the North West Shelf plant.

The two arrangements have been born of the NW Shelf JV’s need to bring in third party gas to bolster supplies for its five trains at the Burrup plant, particularly since the plan to bring in supplies from Woodside’s proposed Browse development was put on hold in March due to the slump in oil prices.

Beach confirmed that gas from the second stage of its Waitsia gas development in the North Perth basin, involving 250 terajoules/day, will be processed at the Burrup plant beginning in 2023.

Gas from Pluto is expected to reach the NW Shelf plant in 2022 when the interconnector pipeline between the Pluto plant (also on the Burrup Peninsula) and the NW Shelf plant comes on line.

Referring to the Waitsia deal, the Western Australian government said it has given in-principle support enabling Waitsia gas to supply shortfall capacity at the NW Shelf plant and to export some of its gas as LNG for a short time.

The government added that this will ensure Waitsia Stage 2 development goes ahead and delivers large volumes of new gas to Western Australia.

The government has tightened its domestic gas reservation policy to ensure there are no exports to Australia’s eastern states, nor overseas, with the exception of Waitsia. The policy stipulates that the LNG industry in Western Australia must make the equivalent of 15% of exports available to the State grid. Gas sold to power ships will not be considered part of WA’s domestic supply.

The latest changes ensure none of that reserved gas can be onsold to the eastern states or overseas.

TRANSPORTATION Quick Takes 

Tellurian delays pipeline construction in Driftwood LNG cost cutting 

Tellurian Inc. will defer construction of three of the four pipelines proposed to supply its 27.6-million tonne/year (tpy) Driftwood LNG plant with natural gas as part of decision making regarding a Phase 1 final investment decision (FID). By doing so the company hopes to trim 30% off the project’s initial costs. Tellurian earlier this year delayed FID until 2021.

Pipelines deferred include the 2-bcfd Permian Global Access pipeline (625 miles, 42-in. OD, Waha, Tex., to Lake Charles, La.) and 2-bcfd Haynesville Global Access pipeline (160 miles, 42-in. OD, Haynesville-Bossier shales to Lake Charles), according to the company’s Aug. 12, 2020, investor presentation. Tellurian said the only pipeline proceeding will be the 4-bcfd Driftwood pipeline (74 miles, 48-in. OD, 11 miles, 42-in. OD, 11 miles, 36-in. OD), connecting the plant with gas from various transmission systems. It did not mention the status of its 2-bcfd Delhi Connector (180 miles, 42-in. OD).

Tellurian now expects Phase 1 (14.4 million tpy) to cost $1,042/tonne instead of $1,473/tonne. In its business model the company projects FOB US Gulf Coast LNG costs <$3.50/MMbtu and has invited partners to participate on a cost-plus basis. The figure combines gas sourcing costs of $2.00/MMbtu, plant and pipeline costs of $0.75/MMbtu, and debt servicing of $0.75/MMbtu.

The company described LNG demand from China and India as resilient, noting 8% and 21% increases, respectively, year-on-year through July 2020.

Sabine Pass LNG awards Great Lakes third-berth dredging contract 

Sabine Pass Liquefaction (SPL) project engineering, procurement, and construction (EPC) contractor Bechtel Oil, Gas and Chemicals Inc. subcontracted Great Lakes Dredge & Dock Corp. to dredge the plant’s third marine berth, starting third-quarter 2020. The third berth will be used to load 125,000-180,000-cu m LNG carriers.

Bechtel is EPC contractor for SPL’s Train 6 and third berth expansions at SPL for subsidiaries of Cheniere Energy Partners LP. Cheniere proposes to build and operate a 5-million tonne/year (tpy) expansion of its existing 25-million tpy Sabine Pass LNG plant, in Cameron Parish, La., on the Sabine Pass channel.

Cheniere on Mar. 31, described Train 6 as 50% complete. The company expects substantial completion of both the new train and third birth by first-quarter 2023. FID Cheniere made its final investment decision on Train 6 last year.

Great Lakes previously worked as a subcontractor to Bechtel on Chevron Australia Pty. Ltd.’s 9-million tpy Wheatstone LNG plant in Western Australia and also worked for Cheniere on its 15-million tpy Corpus Christi Liquefaction plant sited on the north shore of Corpus Christi Bay in Texas. 

Cyprus LNG names Hill International owner’s engineer 

Natural Gas Infrastructure Co. of Cyprus (ETYFA) selected Hill International as owner’s engineer and leader of the international consortium hired to build the 600,000-tonne/year Cyprus LNG import terminal project. ETYFA expects the project to be complete within 24 months.

ETYFA is building Cyprus LNG at Vasilikos Bay on the southern coast of Cyprus. The project’s main components include a former LNG carrier with a storage capacity of 136,000 cu m that will be converted to a floating storage and regasification unit (FSRU) in China; construction of a jetty and a jetty-borne gas pipeline; and construction of an onshore gas pipeline and associated infrastructure.

The completed terminal will be able to receive LNG from carriers ranging in size from 120,000 to 217,000 cu m.

Following an international tender, ETYFA entered into an agreement with the joint venture of China Petroleum Pipeline Engineering, Metron, Hudong-Zhonghua Shipbuilding, and Wilhelmsen Ship Management to engineer, procure, construct, manage, and operate the project (OGJ Online, June 8, 2020). Hill, as owner’s engineer, will oversee project implementation by carrying out design reviews and supervising the works at the shipyard in China and at the Vasilikos site in Cyprus. Given the technical and commercial requirements of the project, Hill is leading a team formed with Bureau Veritas Maritime & Offshore Solutions and engineering firms Tractebel and Gazocean.

The €289 million ($336 million) project is co-financed by the European Union through a Connecting Europe Facility grant, loan facilities from the European Investment Bank and European Bank for Reconstruction and Development, and equity participation by the Electricity Authority of Cyprus.

DTE starts Hayneville gas gathering system 

DTE Midstream, a non-utility business of DTE Energy has started operation of its Louisiana Energy Access Project (LEAP) natural gas gathering system, having introduced test gas the last week in July. The 150-mile, 36-in. OD gathering pipeline connects Louisiana’s Haynesville basin to the Gulf Coast for power generation, industrial use, and liquefaction for export.

The LEAP gathering system was part of DTE’s fourth-quarter 2019 acquisition of Momentum Midstream’s Louisiana assets (OGJ Online, Oct. 18, 2019).

LEAP is fully contracted under long-term, demand charge agreements. Current capacity is 1 bcfd but is expandable given market opportunities.