OGJ Newsletter

GENERAL INTEREST Quick Takes

Cybersecurity directives being modified for oil, gas pipelines

The Transportation Security Administration (TSA) recently updated one of the two pipeline cybersecurity directives it issued after the 2021 ransomware attack on Colonial Pipeline, and the second directive will be updated later this month.

In late May, TSA updated the required reporting speed for oil and gas pipelines dealing with a cyberattack. The agency in 2021 had required reporting within 12 hours but in its update lengthened the time period to 24 hours.

The second directive required measures to reduce vulnerabilities and increase resilience for both information technology and operational technology. It also required development of contingency and recovery plans and annual third-party tests of the effectiveness of cybersecurity practices. It is to be updated before its July 26 expiration.

“We anticipate the reissued security directive to afford greater flexibility to industry in achieving critical cybersecurity outcomes,” a TSA spokesman said. The updated second directive “will transition to a performance-based model that will enhance security and provide the flexibility needed to ensure cybersecurity advances with improvements in technology.”

He added that TSA is consulting with industry stakeholders and federal partners while modifying the directive.

The update for the second directive was partly in response to what TSA called an “unprecedented” number of alternative measure requests—more than 280.

So far, according to TSA, the agency has not received any notification an operational disruption caused by a specific security requirement. And the agency said it has received fewer than 10 notifications indicating concern about a potential future disruption.

TSA also intends to issue a notice of proposed rulemaking within the next year with the goal of codifying, for the first time, a number of cybersecurity requirements for pipelines and surface transportation systems.

The ransomware attack on Colonial Pipeline in May 2021 revealed security vulnerabilities in the pipeline sector and triggered a 6-day shutdown of the pipeline that ended after Colonial paid a ransom to the DarkSide cybercriminal gang.

Shell to reverse up to $4.5 billion in write-downs

Oil major Shell PLC said July 7 that aggregate post-tax impairment reversals of $3.5-4.5 billion of previously impaired assets are expected in second-quarter 2022, primarily due to changes in commodity price outlook.

Shell raised its mid- and long-term oil and gas commodity prices outlook in the second quarter to reflect the current macroeconomic environment as well as updated energy market demand and supply fundamentals. This resulted in a review of Shell’s upstream and integrated gas previously impaired assets.

The following Brent outlook has been assumed for impairment reversal testing: $80/bbl (2023), $70/bbl (2024), $70/bbl (2025), and long-term $65/bbl (real terms 2022). Impairment reversals are reported as identified items and have no cash impact.

In this outlook update, the company said it expects its natural gas production to be 930,000-980,000 boe/d in second-quarter 2022. LNG liquefaction volumes are expected to be 7.4-8 million tonnes, reflecting the derecognition of Sakhalin related volumes.

Trading and optimization results for integrated gas are expected to be lower compared to first-quarter 2022, which had exceptional trading optimization opportunities. Shell also expects one-off charges of about $200 million in the second quarter, including well write-offs, provisions, and commercial settlements.

Upstream production is expected to be 1.85-1.95 million boe/d, reflecting higher scheduled maintenance.

Meantime, the indicative refining margin is $28.04/bbl for second-quarter 2022, compared to $10.23/bbl in first-quarter 2022. The increased margin is expected to have a positive impact between $800 million and $1.2 billion on second-quarter results of products compared to first-quarter 2022, Shell said.

Marketing results are expected to be higher than first-quarter 2022 and in line with second-quarter 2021.

Ascent enters bolt-on acquisition of Utica shale assets

Ascent Resources LLC, Oklahoma City, will acquire Utica shale assets from an undisclosed seller for $270 million.

The acquisition expands the private company’s asset base in the Ohio Utica shale by about 26,800 net acres and increases net production by about 60 MMcfed, the company said July 1. Ascent already holds working interests in a material portion of the acquired production, it continued.

The deal comes with an inventory of identified drilling locations in both the Utica and Marcellus, and requires no incremental overhead or external financing, the company said.

Ascent Resources currently holds a contiguous acreage position of about 337,000 net leasehold acres, including about 73,000 mineral acres, in the core of the southern Utica, primarily in Belmont, Jefferson, Guernsey, Harrison, and Noble counties, Ohio. The company also owns royalty interests in about 5,700 mineral acres being developed by third-party operators.

Santos enters FEED for Bayu-Undan CCS project in Timor Sea

Adelaide-based Santos Ltd., operator of Bayu-Undan gas production in the Timor Sea, entered the front-end engineering and design (FEED) phase of the field’s proposed carbon capture and storage (CCS) project, which has potential to store up to 10 million tonnes/year of carbon dioxide (CO2), the company said.

FEED work includes engineering and design for additional CO2 processing capacity at the Darwin LNG plant as well as repurposing offshore Bayu-Undan field for carbon sequestration once it’s depleted and gas production ceases. A final investment decision for Bayu-Undan CCS is targeted for 2023.

The project will have the potential to accept CO2 from nearby Australian gas projects (including Santos’ Barossa gas development) and other industries in the Northern Territory and hence could be the beginning of a new carbon services industry for East Timor, Santos managing director and chief executive officer Kevin Gallagher said.

A meeting in May of the East Timor and Australian Prime Ministers included a commitment by Australia to establish an LNG partnership fund to strengthen links between the two countries in gas development and trade, including the use of CCS.

Entry into FEED has the support of Santos’ five Bayu-Undan JV partners headquartered in Japan, Korea, and Italy.

Santos has a 43.4% operating interest in Bayu-Undan and Darwin LNG. SK E&S Co. Ltd. has 25%, Inpex Corp. 11.4%, ENI SPA 11%, JERA Co. Inc. 6.1% and Tokyo Gas Co. Ltd. 3.1%.

Exploration & Development Quick Takes

Aker BP receives Frosk field PDO approval

Aker BP ASA will proceed with North Sea Frosk field development with newly received approval of its plan for development and operation (PDO) from the Norwegian Ministry of Petroleum and Energy.

Aker BP and license partners Var Energi AS and Lundin Energy AS—now a fully owned subsidiary of Aker BP named ABP Norway AS—submitted the PDO for the Alvheim area field in September 2021.

Frosk field, about 25 km southwest of the Alvheim FPSO, will be tied back via existing Bøyla and Alvheim subsea infrastructure and use free capacity in processing facilities with only a marginal increase in power consumption and CO2 emissions, Aker BP said in a release July 8. The development concept is based on production experience from a test well. Two new production wells are to be drilled.

With fast-track development, first oil is expected in first-quarter 2023, 18 months after PDO submission.

Project investments are expected to total $230 million. Recoverable reserves in Frosk are estimated at around 10 MMboe.

Equinor signs letter of intent for Campos basin project

Equinor Energy do Brazil Ltda. has signed a letter of intent to TechnipFMC PLC for a front-end engineering and design (FEED) study on its BM-C-33 project offshore Brazil.

The study will finalize the technical solution for the proposed gas and condensate greenfield development in presalt Campos basin before Equinor makes its final investment decision (FID).

The study includes an option to proceed with a direct award to TechnipFMC for the integrated engineering, procurement, construction, and installation phase.

The contract would cover the entire subsea system, including subsea tree systems, manifolds, jumpers, rigid risers, and flowlines, umbilicals, pipeline end terminations, subsea distribution, and topside control equipment. TechnipFMC would also be responsible for life-of-field services.

Strike confirms extension of West Erregulla field

Strike Energy Ltd., Perth, confirmed a northern extension of West Erregulla gas field onshore North Perth basin permit EP469 with a strong result in the re-entered West Erregulla-3 (WE3) appraisal well.

The well was suspended in January 2021 after drilling encountered a significant over-pressured zone in the lower Carynginia formation. The well design was adapted and managed pressure drilling equipment was added to extend the well to its planned total depth.

The re-entered well encountered a gross gas column of 60 m in the main Kingia sandstone reservoir. About 38 m is regarded as net pay with an average porosity of 13.8% and a high of 19%.

The sands are consistent with other Kingia penetrations of the field. Petrophysical analysis indicates no gas-water contact observed in the logs while drilling.

So far, the well is the shallowest penetration of the four wells drilled in the field in the current program, Strike said. The Kingia sandstone reservoir was encountered 30 m shallower than the discovery well at West Erregulla-2.

Inclusion of WE3 results in the dataset will enhance resource modelling of the field and call for a resource classification review and as well as the overall mapping of the Kingia reservoir.

WE3 was drilled to a total depth of 4,890 m. The secondary objective, the High Cliff sandstones, had insufficient reservoir development to warrant further testing. The well will be completed across the Kingia sands in preparation for production testing in August.

Strike is operator in a 50-50 partnership with Warrego Energy Ltd.

Drilling & Production Quick Takes

LLOG begins production from GoM field

LLOG Exploration Co. LLC started production from Spruance field, Ewing Bank (EW) Blocks 877 and 921, in deepwater Gulf of Mexico.

A two-well subsea development is producing about 16,000 b/d and 13 MMcfd of gas via a 14-mile subsea tieback to the EnVen Energy Co.-operated Lobster platform in EW 873.

First production was achieved less than 3 years after the initial exploratory discovery well was drilled.

LLOG and partners discovered Spruance field in mid-2019 via subsalt exploratory well EW 877 #1, which was drilled in 1,570 ft of water to a total depth of 17,000 ft and logged about 150 net ft of oil pay in multiple high-quality Miocene sands.

A second well, EW 921 #1, was drilled from the same surface location to a total depth of 16,600 ft in October 2020. The well delineated main field pays and logged additional oil pay in the exploratory portion of the well, finding a total of over 200 net ft of oil.

LLOG operates Spruance field (22.64%). Parnters are Ridgewood Energy Corp. (23.89%), EnVen Energy (13.5%), Beacon Asset Holdings Ltd. (11.61%), Houston Energy LP (11.2%), Red Willow Production Co. (11.15%), and CL&F Operating LLC (6%).

TotalEnergies adds well to drillship work scope in Suriname

TotalEnergies E&P Suriname exercised an option to add one additional well in Block 58, offshore Suriname, to the work scope of the Maersk Valiant drillship.

The extension has an estimated duration of 100 days, with work expected to start in August-September 2022 in direct continuation of the rig’s current work scope.

The contract value of the extension is about $24.3 million, including integrated services provided and a fee for the use of managed pressure drilling. One one-well option remains on the contract.

Maersk Valiant is currently operating for TotalEnergies offshore Suriname and was utilized in the operator’s oil and associated gas discovery at Krabdagu-1 in February 2022.

TotalEnergies is operator (50%) with partner APA Corp. (50%).

Arrow to place Llanos basin well on production

Arrow Exploration Co. will place Llanos basin Rio Cravo Sur-1 (RCS-1) on production in Tapir block, Colombia, after a successful test of an isolated zone.

RCS-1 was spud May 23, 2022, and targeted a three-way fault bounded structure with multiple high-quality reservoir objectives. The well was drilled to a total measured depth of 8,656 ft (8,105 ft true vertical depth) and encountered six hydrocarbon bearing intervals totaling 55 net ft of oil pay.

The Carbonera C7B zone tested at 1,872 bo/d peak rate of 30° API crude. The deeper Ubaque zone tested at 184 bo/d peak rate of 12-13 API° crude.

Based on test results, the well will produce from zone C7B. Arrow decided not to test uphole C7 zones and Gacheta C as they had proved to be oil bearing in RCE-2. The test of Gacheta B zone was cut short due to formation water production.

Arrow is operator at Tapir block with 50% working interest.

PROCESSING Quick Takes

Vertex Energy advances Alabama refinery’s renewables project

Houston-based Vertex Energy Inc., a specialty refiner of alternative feedstocks, has secured a long-term supply of hydrogen from Nippon Sanso Holdings Corp. (NSHD) subsidiary Matheson Tri-Gas Inc. for Vertex’s recently acquired Saraland refining and petrochemical complex in Mobile, Ala.

As part of the July 7 contract, Matheson will build an installation equipped to produce 30 MMcfd of hydrogen from a range of feedstocks, including renewable naphtha and other co-products from Vertex’s renewable diesel production, as well as natural gas, as necessary, Matheson said in a release.

With conceptual design of the proposed hydrogen-carbon monoxide (HyCO) already completed and the engineering and procurement phase for critical equipment now under way, the proprietary Matheson HyCO plant, once operable, will have flexibility required to integrate with Vertex’s operations and supply considerations at the 75,000-b/d Mobile refinery, according to the service provider.

The new HyCO plant comes as part of broader strategies by NSHD-Matheson and Vertex to accelerate their individual corporate commitments to the energy transition and a carbon-neutral society via the Mobile refinery’s renewable diesel initiative, the companies said.

In its May 10 announcement of first-quarter 2022 results to investors, Vertex confirmed the Mobile refinery executed a seamless transition of commercial operations from Shell PLC to Vertex on Apr. 1, with the former 90,000-b/d Saraland refinery continuing to operate on-plan at 90% capacity without any disruptions to production or delivery schedules to capitalize on strong conventional refining economics.

With the Mobile refinery is scheduled to operate at about 90% of operable capacity through second-quarter 2022 given current market conditions, Vertex said its $90-100 million capital project to modify the refinery’s existing hydrocracking unit to produce renewable diesel fuel on a standalone basis remains on pace for completion by yearend 2022.

Initial production of 8,000-10,000 b/d of renewable diesel from the revamped unit is scheduled to begin by first-quarter 2023, the operator said.

Shell advances Rosmari-Marjoram field gas development offshore Malaysia

Shell PLC subsidiary Sarawak Shell Bhd. (SSB) has let a contract to Samsung Engineering Co. Ltd. to build an onshore gas plant (OGP) in Bintulu, Sarawak, Malaysia, to process natural gas produced from the Rosmari-Marjoram project in Block SK318, about 200 km offshore Sarawak.

As part of the $680-million contract awarded July 12, Samsung Engineering will deliver engineering, procurement, construction, and commissioning (EPCC) for the proposed OGP, which will have a nameplate processing capacity of 800 MMcfd, the service provider said in a July 13 release.

Samsung Engineering—which participated in front-end engineering design (FEED) for the project—said it will complete the OGP in two phases, with a first phase of limited works to be carried out ahead of SSB reaching final investment decision (FID) on the project and second-phase works to follow after FID.

While SSB has yet to disclose a definitive timeframe for when it will take FID on the planned sour-gas processing plant, Samsung Engineering confirmed that, if approved, the OGP will be ready for startup by yearend 2025.

The proposed Rosmari-Marjoram development comes as the first phase of the Sarawak Integrated Sour Gas Evacuation System (SISGES) project, which will include an offshore platform as well as the OGP in Bintulu, Shell said in its latest annual report to investors.

With 75% equity in the SK318 production sharing contract (PSC), SSB serves as operator alongside partners PETRONAS Carigali Sdn Bhd (15%) and Brunei Energy Exploration (10%).

The partnership is also developing the Timi sweet gas project offshore Sarawak as part of the SK318 PSC (OGJ Online, Aug. 30, 2021).

TRANSPORTATION Quick Takes

Nigeria-Morocco natural gas pipeline awards contract to ILF, DORIS JV

Morocco’s Office National des Hydrocarbures et des Mines (ONHYM) and Nigerian National Petroleum Corp. (NNPC) are progressing work for the more than 6,000-km Nigeria-Morocco Gas Pipeline (NMGP) with the award of project management consultancy (PMC) services for front-end engineering and design (FEED Phase II) to ILF Consulting Engineers and joint venture partner DORIS Engineering.

The gas pipeline is expected to cross land and waters of 16 countries along the Atlantic coast to bring Nigerian gas to North Africa and extend to Spain for the European market. The pipeline also is expected to provide a new avenue for countries along the route to export/import gas to/from their neighboring countries and Europe, the service providers said in a release July 6.

PMC services provided by ILF and DORIS cover the onshore and offshore pipeline and compressor station engineering, the engineering surveys, the environmental and social impact assessment and land acquisition studies, plus the project implementation framework. The project explores the potential to use renewable energy resources to power the pipeline and reduce the project’s carbon footprint, the service providers said.

When completed, the gas pipeline will be the longest offshore pipeline in the world and the second longest pipeline overall, the service providers continued. It has a planned diameter of 48-in. offshore and 56-in. onshore, with an expected throughput of 30 billion cu m/year.

Nigeria has the largest gas reserves in Africa and the seventh largest in the world.

Cameron LNG awards engineering contract to Wood

Cameron LNG has awarded John Wood Group PLC an owner’s engineering services contract for its planned 6.75-million tonne/year (tpy) expansion project. The contract will cover development of a fourth LNG train and improved production from the first three trains which currently deliver 12 million tpy.

In 2016, Cameron LNG received authorization from the US Federal Energy Regulatory Commission (FERC) to site, construct, and operate Train 4. In January 2022, the company requested a revision to its existing authorized permit, proposing to modify the expansion project by adding the single 6.75-million tpy train instead of the previously authorized two 4.98-million tpy units. Design modifications include utilizing electric-drive compressor motors to replace gas-turbine drives, and tie-in of infrastructure to enable the sequestration of carbon dioxide from Train 4’s acid gas.

Development of the Cameron LNG expansion remains subject to definitive agreements, obtaining the necessary permits, and all partners reaching a final investment decision planned for 2023.

Cameron LNG is in Hackberry, La., 18 miles north of the Gulf of Mexico on the Calcasieu ship channel. Cameron LNG is jointly owned by Sempra Infrastructure (50.2%), TotalEnergies SE (16.6%), Mitsui & Co. Ltd. (16.6%), and Japan LNG Investment (16.6%).

Samsung Heavy Industries wins LNG carrier contract

A Bermuda-based shipowner has awarded Samsung Heavy Industries (SHI) a contract for twelve 174,000-cu m LNG carriers to be delivered by mid-July 2026. SHI will also supply two newbuild carriers to an African shipowner by end-2024.

The newest deals brought SHI’s 2022 order book to 33 vessels, 72% of its target for the year. Twenty-four of these vessels are LNG carriers.

The 12-vessel order is worth 3.33 trillion Korean won (about $2.5 billion). The two-ship order is worth 554 billion won.

Teekay LNG Partners LP, Golar LNG Partners LP, and GasLog LNG Services Ltd. are among the LNG-focused shipowners based in Bermuda.

Equitrans requests 4-year Mountain Valley pipeline extension

Equitrans Midstream Corp. has requested a 4-year extension from the US Federal Energy Regulatory Commission (FERC) to place its 303-milr Mountain Valley natural gas pipeline into service. Its current deadline is Oct. 13, 2022.

The project is 94% complete but has been delayed by multiple legal challenges and regulatory issues. Equitrans says it still plans to finish construction in second-half 2023. Mountain Valley would carry 2 bcfd of natural gas from production in northern West Virginia through Virginia to an interconnect near the North Carolina border.

Aboveground infrastructure has been completed and Mountain Valley says it has been actively addressing steps necessary to restore required permits from the US Army Corps of Engineers, Forest Service, and Bureau of Land Management. It plans to submit its species analysis to the Fish and Wildlife Service this month.

Earlier this year, FERC issued an order amending the project’s certificate to permit Mountain Valley to:

• Change the crossing for 183 waterbodies and wetlands at 120 locations from open-cut to trenchless.
• Slightly shift the permanent right-of-way at mileposts 0.70 and 230.8 to avoid one wetland and one waterbody, respectively.
• Conduct 24-hr construction activities at eight trenchless crossings.

FERC conditioned the amendment order on Mountain Valley completing construction by Oct. 13, 2022. Ongoing litigation and remand proceedings related to several permits and authorizations, however, prompted Mountain Valley to request an extension to Oct. 13, 2026, to place the pipeline into service. The project remains fully subscribed under binding long-term agreements.

Initial plans called for Mountain Valley’s completion in fourth-quarter 2018 at a cost of $3.7 billion. Its estimated cost has since grown to $6.6 billion. Equitrans owns 48% of the project. Partners include NextEra Energy Inc., Consolidated Edison Inc., AltaGas Ltd., and RGC Resources Inc.

NextDecade to sell Rio Grande LNG output to Guandong Energy

NextDecade Corp., Houston, executed a 20-year contract with Guandong Energy Group to supply liquefied natural gas (LNG) from its 27-million tonne/year (tpy) Rio Grande LNG liquefaction plant in Brownsville, Tex.

The agreement was completed pursuant to the binding heads of agreement noted in March 2022.

Under the agreement, Guandong Energy will purchase 1.0 million tpy of LNG indexed to Henry Hub and delivered on an ex-ship (DES) basis from NextDecade’s first train of Rio Grande LNG, which is expected to start commercial operations as early as 2026. Guangdong Energy Group has the right to purchase an additional 0.5 million tpy of LNG from the plant.

Assuming further sales agreements and financing and based on current expected demand for LNG, NextDecade anticipates making a positive final investment decision (FID) on up to three Rio Grande trains in second-half 2022, with FIDs of its remaining trains to follow.

The agreement comes on the heels of NextDecade’s 20-year LNG supply contract with China Gas Hongda Energy Trading Co. Ltd. Under that agreement, China Gas will purchase 1.0 million tpy of LNG indexed to Henry Hub on a free-on-board basis from the second train of Rio Grande LNG, which is expected to start commercial operations as early as 2027.