OGJ Newsletter

Aug. 28, 2023
A roundup of General Interest, Exploration & Development, Drilling & Production, Processing, and Transportation news from around the industry.


EIA: Public US oil companies’ capital spending up in first quarter, cash from operations down

Data compiled by the US Energy Information Administration (EIA) from the financial reports of 40 publicly traded US oil exploration and production (E&P) companies reveals that, despite a reduction in cash generated from their operations, these companies increased their capital expenditure in first- quarter 2023 compared with fourth-quarter 2022.

These companies account for 32% of all crude oil produced in the US in first-quarter 2023, or about 4 million b/d.

“Previously, rising crude oil prices in the first half of 2022 had driven increased production and had helped companies post multiyear highs for cash from operations. Capital expenditure growth had been much slower over the past two years,” EIA said.

In first-quarter 2023, lower crude oil prices reduced cash from operations for these companies, which declined 18% ($5.8 billion) compared with fourth-quarter 2022, to $26.2 billion. At the same time, capital expenditure in first-quarter 2023 was 12% ($1.8 billion) higher compared with the previous quarter, totaling $16.7 billion. As a result, the proportion of capital expenditure relative to cash from operations rose to 64%, marking the highest percentage since third-quarter 2020.

“Capital expenditure made by E&P companies represents spending on property, plant, and equipment used for producing crude oil. Historically, when crude oil prices increase, companies increase their capital expenditure to increase crude oil production by deploying more drilling rigs. Changes in the number of oil rigs typically follow changes in oil prices, lagging by about 4 months. Recent declines in crude oil prices and oil rig counts suggest that capital expenditure could decline in the coming quarters,” EIA said.

WTI crude oil prices, which reached an average of $108.45/bbl during second-quarter 2022, experienced a 31% decline, averaging $74.73/bbl in first-half 2023. The oil-directed rig count peaked at 627 rigs at the beginning of December 2022 and has since declined by 16% (98 rigs) through the end of July 2023.

Energy Transfer to acquire Crestwood for $7.1 billion equity deal

Energy Transfer LP has agreed to acquire Crestwood Equity Partners LP in an all-equity transaction valued at about $7.1 billion. If completed, the deal would extend Energy Transfer’s position in the Williston basin and Delaware basins, while also providing entry into the Powder River basin.

In addition, the deal, which includes the assumption of $3.3 billion of debt, is expected to complement Energy Transfer’s downstream fractionation capacity at Mont Belvieu, as well as its hydrocarbon export capabilities from both its Nederland Terminal in Texas and the Marcus Hook Terminal in Philadelphia, Pa., the companies said in a joint statement Aug. 16.

Crestwood’s system includes gathering and processing assets in the Williston, Delaware, and Powder River basins, including 1,270,000 dedicated acres across all basins, about 2 bcfd of gas gathering capacity, 1.4 bcfd of gas processing capacity, and 340,000 b/d of crude gathering capacity.

The deal is also expected to provide benefits to Energy Transfer’s NGL & Refined Products and Crude Oil businesses with the addition of storage and terminal assets, including about 10 million bbl of storage capacity, as well as 13 trucking and rail terminals. These systems are anchored by predominantly investment-grade producer customers with firm, long-term contracts, and significant acreage dedications, the companies said.

Energy Transfer said it expects to achieve at least $40 million of annual run-rate cost synergies before additional benefits of financial and commercial opportunities.

Under the terms of the agreement, Crestwood common unitholders will receive 2.07 Energy Transfer common units for each Crestwood common unit. The transaction is expected to close in fourth-quarter 2023, subject to the approval of Crestwood’s unitholders, regulatory approvals, and other customary closing conditions.

Upon closing, Crestwood common unitholders are expected to own about 6.5% of Energy Transfer’s outstanding common units.

ADNOC to acquire 30% stake in Absheron gas field

Abu Dhabi National Oil Co. (ADNOC) has acquired a 30% total equity stake in Absheron gas and condensate field, 15% from TotalEnergies and 15% from State Oil Co. of the Azerbaijan Republic (SOCAR). Financial details were not disclosed.

Absheron field lies in the Caspian Sea and is operated by JOCAP (Joint Operating Company of Absheron Petroleum). Production of the first phase began in early July (OGJ Online, July 10, 2023). The first phase connects a subsea production well to a new gas processing platform linked to SOCAR’s existing infrastructure in Oil Rocks field. It has production capacity of 4 MMcmd of gas and 12,000 b/d of condensate. Gas will be sold on the domestic market in Azerbaijan.

After completion of the transaction, which is subject to approval by relevant authorities, TotalEnergies will own a 35% interest in Absheron gas field, alongside SOCAR (35%) and ADNOC (30%).

Eco to purchase Tullow’s share in Orinduik block

Eco Guyana Oil and Gas (Barbados) Ltd. has agreed to acquire a 60% operated interest in Orinduik block, offshore Guyana, through the acquisition of Tullow Guyana BV (TGBV), a wholly owned subsidiary of Tullow Oil PLC, in exchange for a combination of upfront cash and contingent consideration.

Eco, via its wholly owned subsidiary Eco (Atlantic) Guyana Inc., currently holds a 15% working interest in the block. On completion of the deal, Eco, as operator and majority interest holder in Orinduik block, intends to begin exploration, obtain new partners, and engage in drilling.

Tullow Overseas Holdings BV, the parent of TGBV, will be paid $700,000 cash upon transfer of TGBV’s 60% participating interest and operatorship of the license. Contingent consideration payable to Tullow is linked to the success of potential future milestones which include $4 million in the event of a commercial discovery, $10 million upon the issuance of a production license from the Government of Guyana, and royalty payments on future production.

The transaction is expected to close in this year’s second half, at which time Eco will hold an aggregate 75% participating interest, and TOQAP Guyana BV will continue to hold 25% interest.

In 2019, Tullow drilled two exploration wells on Orinduik which yielded uncommercial oil discoveries.

Exploration & Development Quick Takes

Beach Energy discovers hydrocarbons in Perth basin

Beach Energy Ltd., Adelaide, discovered gas the Trigg Northwest 1 well in exploration license EP 320, onshore Perth basin, Australia. The well will be cased and completed for future testing of productivity, connected volumes, and commerciality.

The well, the fourth in the Perth basin gas exploration campaign and the second Beach-operated well, was drilled to a total depth of 5,000 m and intersected gas in the target Kingia Sandstone reservoir. It was drilled after Trigg 1 found no producible hydrocarbons in June (OGJ Online, June 7, 2023).

Logging acquired while drilling shows net gas pay of 6 m across a 49-m gross section in the Kingia sandstone reservoir. Gas was sampled from the Kingia reservoir using wireline tools and recovered to surface.

No gas pay was interpreted in the secondary High Cliff and Wagina reservoirs, the company said.

Following casing and completion, the rig will move to the Tarantula Deep 1 well location, about 16 km west of Trigg Northwest 1.

The 174,000-sq km Perth basin encompasses both onshore and offshore parts of southwestern Western Australia. The basin extends about 1,300 km from south of Perth to its northern tip offshore from Carnarvon.

Beach’s Perth basin operations consist of the Waitsia project (operated by Mitsui E&P Australia) and Beharra Springs projects (operated by Beach Energy).

Beach is operator of EP320 (50%) with partner Mitsui E&P Australia (50%).

Eni revokes force majeure status in Libya

Eni and Libya’s National Oil Corp. (NOC) revoked force majeure status on onshore natural gas exploration areas A and B, and offshore area C.

Force majeure, declared in 2014, was revoked following completion by Eni of a security risk assessment to evaluate security conditions in the areas where the oil and gas exploration program will be carried out, the company said in a release Aug. 3. Eni said the assessment “yielded positive results.”

Eni can now resume contracted exploration activity in the basins, two of which (A, B) lie near Wafa gas field infrastructure. 

Eni is operator of the blocks (42.5%) with partners bp (42.5%) and the Libyan Investment Authority (15%).

Cheiron discovers oil near GNN field in Gulf of Suez

Cheiron Petroleum Corp. has made a new oil discovery in the Geisum and Tawila West concession offshore Egypt in the Southern Gulf of Suez in 30-200 ft of water. The discovery confirms the exploration potential in the northern area of the concession, Cheiron said. The company plans to drill at least three additional exploration wells from the EPF in the concession area.

The discovery was made by the GNN-11 exploration well, which was drilled from the recently installed GNN early production facility (EPF) into a fault block east of GNN field. The well is the fourth to be completed from the EPF, which is in the central area of the field and includes a conductor support platform, a mobile offshore production unit, and a 10-in. oil export pipeline tied back to the existing Geisum Star production complex, the company said.

The well encountered 165 ft of good quality vertical net pay in the Pre-Miocene Nubia formation. This is the first time the Nubia has been found to be oil bearing in the GNN area of the concession, Cheiron said. The producing reservoir in the main GNN field is in the Nukhul formation.

The well produces over 2,500 bo/d. As result of the new well and the drilling campaign conducted to date on the field, gross oil production from the concession has reached 23,000 bo/d, compared with 4,000 bo/d before GNN field was developed.

Cheiron is operator of the concession (60%) through its PICO GOS Ltd. affiliate. Kuwait Foreign Petroleum Exploration Co. (Kufpec) holds the remaining 40%.

Drilling & Production Quick Takes

Petrobras starts production from Anita Garibaldi FPSO offshore Brazil

Petróleo Brasileiro SA (Petrobras) began recovery of mature assets offshore Brazil with the start of production from the Anita Garibaldi floating production, storage, and offloading (FPSO) vessel.

The MODEC-built FPSO is part of a project to revitalize Marlim and Voador oil and gas fields and will operate simultaneously in the post-salt and pre-salt, the company said in a release Aug. 16.

Production start on the vessel—which can produce up to 80,000 b/d of oil and process up to 7 million cu m/d of gas—follows the start of the Anna Nery FPSO earlier this year. Both vessels are intended to increase the longevity of the Campos basin and expand production (OGJ Online, May 8, 2023). The joint production capacity of the two units is up to 150,000 b/d of oil and processing capacity of up to 11 million cu m of gas.

The FPSOs are replacing nine platforms that operated in the basin that will be decommissioned. By reducing the number of platforms in operation in the two fields, greenhouse gas emissions will be reduced by more than 50%, Petrobras said.

The Marlim and Voador revitalization project, together with complementary development projects and revitalization projects of other fields, is expected to contribute to increasing production in the Campos basin to 920,000 boe/d in 2027 from the current 565,000 boe/d.

Ecopetrol to drill test well in Colombian Caribbean

Ecopetrol SA will drill the Orca Norte-1 delimiting well to verify hydrocarbons in an early discovery in the Orca-1 well on the Tayrona block at Guajira basin in the deepwater Caribbean Sea, 40 km offshore La Guajira, Colombia.

The well will be drilled by the Noble Discover semi-submersible mobile drilling rig in fourth-quarter 2023. It will be the first deepwater well operated directly by the company.

Development will occur only if the reservoir is confirmed. Due to high investment and long lead times for development, Eni has started planning for a gas pipeline from Orca to the Chuchupa B platform and further on to land. The company is currently finalizing details of the processes required to support these works, such as the onshore operating base, support vessels, and drilling services.

In 2014, a gas accumulation was confirmed at 3,600 m in Orca-1, marking the first discovery in the history of exploratory research in the Colombian Caribbean deep waters. Drilling concluded in September 2014, reaching a total depth of 4,240 m in 674 m of water (OGJ Online, Dec. 3, 2014).

Petrobras operates the Tayrona block, which is expected to deliver Colombia’s first gas production from deep water fields in 2026.

Equinor secures rig to drill offshore Canada

An Equinor Energy AS subsidiary signed a contract with SFL Corp. Ltd. for the harsh environment semi-submersible drilling rig Hercules for work offshore Canada. 

The estimated contract value is about $100 million, SFL said in a release Aug. 14.

The contract is for one well plus one optional well and is expected to begin in second-quarter 2024. The duration for the firm contract period is about 200 days including transit to and from Canada. Odfjell Drilling Ltd. will manage the rig on behalf of SFL under the contract.

Equinor is operator of oil discoveries in the Flemish Pass offshore Newfoundland, including the Bay du Nord discovery, and work is ongoing to assess options for developing the project. Equinor holds 65% working interest in the discovery.

Equinor earlier this year shelved its Bay du Nord deepwater oil project for 3 years “following changing market conditions and subsequent high cost-inflation.” At the time, the company said it would continue to assess exploration drilling around the field in 2024 (OGJ Online, June 15, 2023).

Hercules is currently drilling for ExxonMobil in Canada before it will transit to Namibia for a contract with Galp Energia.


Marathon’s Dickinson renewable fuels plant receives grant for potential CCUS project

The US Department of Energy (DOE) has awarded funding to support works that would advance implementation of a possible carbon capture, utilization, and storage (CCUS) project at Marathon Petroleum Corp.’s (MPC) renewable fuels production plant in Dickinson, ND.

Awarded on July 10 to the University of North Dakota’s (UND) Energy & Environment Research Center (EERC), the $2.5-million grant will enable UND, with direction from partners alongside partners MPC and TC Energy Corp., to provide technical assistance and engagement to a prospective large-scale carbon management storage hub at MPC’s Dickinson renewable diesel plant, according to a series of separate releases from DOE and US Senators Kevin Cramer (R-ND) and John Hoeven (R-ND).

The grant for MPC’s proposed Dickinson CCUS development comes as part of the agency’s focus on accelerating large-scale deployment of carbon management technologies to reduce emissions from hard-to-decarbonize industrial installations and power plants, DOE said.

While DOE confirmed the potential Dickinson project received a total of about $3.3 million—including nearly $784,000 in non-DOE funding—further details regarding the CCUS project have yet to be disclosed.

The grant award follows MPC’s confirmation in its latest annual report to investors that, by yearend 2022, the company had completed unidentified works that have enabled the Dickinson renewables plant to run more advantaged feedstocks that lower the carbon intensity of fuels produced at the site.

In late 2021, MPC (25%) and Archer-Daniels-Midland Co. (ADM; 75%) finalized formation of their Green Bison Soy Processing LLC joint venture, which will own and operate a soybean processing complex in Spiritwood, ND, for production of soybean oil to supply rapidly growing demand for renewable diesel fuel, the company said in its annual 2022 report.

When completes in 2023, the Spiritwood plant will produce about 600 million lbs/year of refined soybean oil—enough feedstock to produce about 75 million gal/year of renewable diesel—using soybeans sourced from local soybean growers. MPC said its Dickinson renewables plant will receive the entirety of Green Bison’s refined soybean oil as feedstock for renewable diesel production.

Initially commissioned in late 2020 and achieving full-design operating capacity during second-quarter 2021, MPC’s Dickinson plant is equipped to produce 184 million gal/year of renewable diesel from corn oil, soybean oil, fats, and greases, the operator said in its 2022 annual report.

SunGas Renewables weighs green methanol plant for central Louisiana

Houston-based SunGas Renewables Inc. (SGR) has selected Pineville, Rapides Parish, La., for potential construction of newly formed subsidiary Beaver Lake Renewable Energy LLC’s (BLRE) first plant for production of green methanol to help decarbonize the marine shipping industry.

To involve the repurposing of an existing industrial site shuttered in 2009, the proposed $1.8-billion project would include construction of a plant designed to produce green methanol for marine fuel from a feedstock of regionally sourced biomass—including wood fiber collected from local timber thinning operations—and CO2 using SGR’s proprietary SGR System 1000 platform, SGR and the Louisiana Economic Development (LED) said in separate releases.

The project also would be equipped to sequester nearly 1 million tonnes/year (tpy) of CO2 from its operations using carbon solutions from Denbury Inc. to enable production of green methanol with a negative carbon intensity, SGR said.

Denbury, a soon-to-be-subsidiary of ExxonMobil Corp., recently signed agreements to expand its CO2-sequestration portfolio in Louisiana with two separate projects due online between 2026-27, in time to accommodate the BLRE project.

As currently planned, the proposed plant would produce 400,000 tpy of renewable, liquid green methanol fuel suitable for marine transportation in ocean-going container ships, all of which will be allocated to Denmark-based A.P. Møller–Mærsk AS to fuel is new and growing fleet of methanol-powered container vessels as part of a preexisting offtake agreement, SGR said.

With front-end engineering and design (FEED) of the BLRE plant scheduled for October 2023, LED said SGR plans to reach final investment decision (FID) on the project in August 2024. If approved, construction would begin in fourth-quarter 2024 for targeted start of commercial operations sometime in 2027, according to BLRE’s website.

SGR said its selection of central Louisiana for the BLRE project results from the state’s history of sustainably managed forests, existing infrastructure to support the plant, and strong local and state support.


Commonwealth LNG signs services deal with Baker Hughes

Commonwealth LNG LLC, Houston, let a contract to Baker Hughes to provide equipment for Commonwealth LNG’s liquified natural gas plant under development in Cameron Parish, La.

In conjunction with financial close of the project, anticipated in first-quarter 2024, Baker Hughes expects to be granted a supply order for gas turbine equipment, it said in a release Aug. 21.

The collaboration will feature other key Baker Hughes equipment, services, and software in support of the project, including compressor technology, spare parts, maintenance services, and services asset designed for performance management and process optimization.

Commonwealth LNG is a 9.3 million tonnes/year (tpy) LNG export terminal on the Calcasieu River at the Gulf of Mexico near Cameron, La. Production is expected to begin in early 2027.

Earlier in August, Commonwealth partnered with Kimmeridge Energy Management Co. LLC to advance development of the project though investment capital and a deal in principle for a 20-year, 2 million tpy LNG offtake commitment along with the associated gas supply (OGJ Online, Aug. 14, 2023).

Cheniere, BASF LNG deal expected to support Sabine Pass expansion project

Cheniere Marketing LLC, a Cheniere Energy Inc. subsidiary, agreed to a long-term liquefied natural gas deal with BASF.

Under the agreement, BASF will purchase up to about 0.8 million tonnes/year (tpy) of LNG on a free-on-board basis for a purchase price indexed to the Henry Hub price, plus a fixed liquefaction fee. Deliveries will begin in mid-2026 and, subject to a positive final investment decision on the first train (Train 7) of the Sabine Pass Liquefaction expansion project (SPL expansion project) in Cameron Parish, La., will increase to about 0.8 million tpy upon the start of commercial operations of Train 7. The agreement extends through 2043.

“By establishing our own dedicated LNG supply chain with Cheniere, we are diversifying our energy and raw materials portfolio at a time of critical changes in the European gas market, which is marked by increased demand and volatile prices for LNG,” said Dr. Dirk Elvermann, BASF’s chief financial officer.

The SPL expansion project is being developed for up to about 20 million tpy of total LNG capacity (OGJ Online, Feb. 23, 2023). In May 2023, certain subsidiaries of Cheniere Energy Partners LP entered the pre-filing review process with respect to the project with the Federal Energy Regulatory Commission.