May 15, 2006
As the US House Energy and Commerce Committee prepared for 2 days of hearings on gasoline prices, supplies, and formulations, its chief minority member questioned the Environmental Protection Agency’s progress on studying so-called “boutique” fuels.

General Interest - Quick Takes


EPA’s progress questioned on ‘boutique’ fuels

As the US House Energy and Commerce Committee prepared for 2 days of hearings on gasoline prices, supplies, and formulations, its chief minority member questioned the Environmental Protection Agency’s progress on studying so-called “boutique” fuels.

EPA announced May 4 that a taskforce would study the proliferation of specialized motor fuel formulations nine months after a provision in the 2005 Energy Policy Act required it to take this step, Rep. John D. Dingell (D-Mich.) charged on May 8.

Noting in a letter to EPA Adm. Stephen L. Johnson that the agency’s press release said it was setting an ambitious schedule to provide President George W. Bush a final report in 6-8 weeks, Dingell said that the schedule may be ambitious because EPA waited so long to get started.

He said that EPA also apparently did not determine the total number of fuels that would be approved and to publish the list in the Federal Register within 90 days of the law’s passage last August.

Dingell also said that EPA apparently did meet the law’s deadline to promulgate regulations covering temporary fuel waivers within three months of enactment.

In announcing the taskforce’s formation in response to Bush’s directive a few days earlier, Johnson said that boutique fuels deliver substantial environmental benefits at relatively low costs but can pose challenges to regional fuel distribution systems.

He said that the taskforce would review overall progress, summarize EPA’s 2001 boutique fuel report and other actions to date, report on the current use and utility of boutique fuels, get stakeholders’ opinions and feedback, and examine possible fuel supply system changes.

Dingell said in his letter to Johnson that an expert from EPA was scheduled to testify before the Energy and Commerce Committee last week and submitted questions for the witness to consider in advance.

Iran seeks oil and investments in Indonesia

Iran President Mahmoud Ahmadinejad was expected to bring $600 million in investment with him when he visited Indonesia May 10-13, according to Indonesian officials.

Foreign Ministry spokesman Yuri Octavian Thamrin said Iran wants to invest $200 million to repair platforms off Indonesia and $400 million to build a natural gas pipeline from South Sumatra to Batam.

He said the plans would be on the agenda of a meeting between the Iranian president and Indonesia President Susilo Bambang Yudhoyono. Thamrin also said the countries will cooperate in a refinery but provided no details.

Petroleum’s share of Japanese energy to slip

Petroleum’s share of Japan’s primary energy requirements is expected to drop from 47% in 2004 to 37% by 2030, according to the Institute of Energy Economics, Japan (IEEJ).

In place of petroleum, the report said, use of low-carbon fuel will increase. Nuclear power’s share will increase to 20% from 11% in the forecast period, and the natural gas share will rise 18% from 14%.

By 2030, the IEEJ report said, carbon dioxide emissions will drop 14% from the 2004 peak. The emission level for 2030 will be lower than the 1990 level, while the level for 2010 is expected to be 8.5% higher than 1990.

Bill challenges Kerr-McGee deepwater lawsuit

A House subcommittee chairman introduced legislation May 1 aimed at heading off Kerr-McGee Corp.’s challenge of a US Minerals Management Service order for it to pay full royalties from deepwater leases.

Darrell Issa (R-Calif.), chairman of the House Committee on Governmental Reform Subcommittee on Energy and Resources, entitled his bill, HR 5231, the Deep Water Royalty Jurisdiction Act.

“If companies felt the DOI did not have authority to include royalty provisions, they should have said so before they signed the leases,” he said.

Kerr-McGee in March sued the MMS and the Department of Interior challenging an MMS claim for royalties on production from leases covered by the Deep Water Royalty Relief Act of 1995. The suit argues that the claim on eight leases covers production below volume thresholds that should be exempt from royalty. It says the exemption isn’t subject to price thresholds (OGJ, Mar. 27, 2006, Newsletter).

Issa said his bill is narrowly drawn to preclude any federal court’s hearing or deciding any question pertaining to the authority Congress granted the Interior secretary to impose price thresholds on leases issued from 1995.

Exploration & Development - Quick Takes


Angola block has tenth oil discovery

Sonangol and BP Exploration (Angola) Ltd. have made a tenth oil discovery on ultradeepwater Block 31 off Angola.

The Urano well flowed on test a maximum 1,970 b/d of oil through an 86/64-in. choke.

The well reached a TD of 4,578 m below sea level. It is the first discovery on the block drilled through salt into the sandstone reservoir underneath.

The GlobalSantaFe Jack Ryan drillship drilled the Urano well in 1,938 m of water, 345 km northwest of Luanda.

Urano follows the Hebe oil find, which flowed a maximum 5,956 b/d of oil (OGJ, Nov. 7, 2005, p. 8).

Kerr-McGee finds gas with Claymore prospect

Kerr-McGee Corp. has made a natural gas discovery at its Claymore prospect on Atwater Valley Block 140 in the deepwater Gulf of Mexico about 150 miles southeast of New Orleans.

The Claymore-1 well, drilled to 25,000 ft TD in 3,700 ft of water, encountered more than 150 ft of net pay in multiple zones.

Kerr-McGee Chief Operating Officer David A. Hager said, “The initial data indicates this reservoir contains dry gas with very high rock quality.”

After well evaluation is complete, Kerr-McGee immediately will drill a 4,600 ft side-track appraisal well northeast of the discovery well to test the down-dip limit of the reservoir.

The Claymore appraisal will delay the planned spud of the Norman prospect on Garden Banks Block 434. Once the Claymore appraisal work is complete, the rig is expected to move to Norman, Kerr-McGee said.

Claymore-1 is the first well in the company’s 2006 subsalt program in the deepwater Gulf of Mexico, which includes four to five additional high-impact subsalt exploration targets this year.

Interests in the Claymore prospect include operator Kerr-McGee 33.5%, Dominion Exploration & Production Inc. 31.5%, Statoil Gulf of Mexico LLC 25%, and Woodside Energy (USA) Inc. 10%.

Total to appraise deepwater find off Texas

Total SA plans to drill an appraisal well after successfully testing Alaminos Canyon Block 856 No. 1 in deep water 140 miles off Texas.

The well, drilled to 14,600 TD in 7,600 ft of water, encountered 290 ft of oil pay in two zones.

Total didn’t report test results.

The well is west of Shell Offshore Inc.’s Great White discovery in 8,000 ft of water on Alaminos Canyon Block 857.

Total E&P USA Inc. is the operator of Block 856 with a 70% interest. Nexen Inc. holds the remaining 30%.

Company says field off Vietnam commercial

Hoan Vu Joint Operating Co., operator of Block 09-2 in the Cuu Long basin off Vietnam, reported that Ca Ngu Vang field is commercial.

SOCO International PLC, London, said, “There will be more [commercial fields] to follow in this oil-rich exploration province consisting of multiple, extensive, high-quality productive reservoirs.” Its subsidiary SOCO Vietnam Ltd. holds a 25% working interest in Block 9-2.

SOCO earlier reported that the CNV-4X appraisal well on Block 9-2 encountered “good oil and gas shows” in Oligocene “E sequence sandstones” (OGJ, Dec. 12, 2005, p. 43).

Jamaica courts Petronas for exploration, LNG

Jamaica will invite Malaysia’s state-run Petronas to conduct offshore exploration in the country, according to Jamaican Prime Minister Portia Simpson Miller.

After talks with the visiting Malaysian Prime Minister Ahmad Badawi, Miller said the governments also agreed to consider delivery of additional supplies of Malaysian LNG to Jamaica.

Agreement due for exploration off Cyprus

Egyptian President Hosni Mubarak said his country and neighboring Cyprus will sign an agreement for joint exploration and production of natural gas in the eastern Mediterranean Sea.

He said Cypriot President Tassos Papadopoulos would this week oversee the signing of an agreement with Egypt on drilling and production in Cypriot territorial waters up to the maritime border with Egypt.

Papadopoulos traveled May 3 to Egypt for a 3-day official visit, the first by a Cypriot head of state since 1966.

There is currently no exploration under way in Cyprus, but officials there are encouraged by gas discoveries offshore.

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Drilling & Production - Quick Takes


Petro-Canada shuts in Terra Nova production

Petro-Canada has shut in production at the Terra Nova oil field 350 km off Newfoundland and Labrador due to a mechanical failure of the gear box on the starboard main power generator.

The timing and scope of repairs are being assessed, and the field vessel is currently being powered from two standby generators, which do not support production, Petro-Canada said.

Petro-Canada, operator, said the field’s revised second-quarter production forecast is about 21,000 b/d (7,100 b/d net), compared with a Mar. 10 forecast of 83,000 b/d (28,000 b/d net). The output revision is due to continuing repairs to the port side gear box, which is to be completed in June.

With both power generators down, Terra Nova production is not expected to resume before the third quarter.

The early shutdown will permit Petro-Canada to advance preparations for the extended scheduled turnaround.

Shah Deniz platform installed in Caspian

BP PLC, operator of Shah Deniz natural gas and condensate field in the Caspian Sea off Azerbaijan, has completed first-phase field development-installation of the production platform and associated pipelines 100 km south of Baku (see map, OGJ, Oct. 18, 2004, p. 39). McDermott Caspian Contractors Inc. installed the fixed platform, from which 10 wells will be drilled, and 100 km of 26-in. gas line and 12-in. liquids line to new onshore gas processing and condensate stabilization facilities at Sangachal terminal south of Baku (OGJ, Apr. 24, 2006, Newsletter).

Shah Deniz, which has gas reserves estimated at 25-35 tcf, is expected to produce 8.5 billion cu m/year of gas and 37,000 b/d of condensate (OGJ Aug. 21, 2000, p. 68). First production is scheduled for Sept. 30.

Gas will be piped through the Georgian capital Tbilisi to Erzurum, Turkey, via the 690 km South Caucasus gas pipeline from the terminal, with some gas reserved for Azerbaijan and Georgia. Condensate will be piped to Ceyhan, Turkey.

BP is technical operator of the field and the terminal, and Statoil ASA is commercial operator, responsible for gas sales, contract administration, and business development.

In addition to BP and Statoil, which hold a 25.5% interest each, Shah Deniz consortium shareholders include State Oil Co. of the Azerbaijan Republic, Total SA, Naftiran Intertrade Co. Ltd., and LukAgip NV-each holding 10%-and Turkiye Petrolleri Anonim Ortakligi, 9% (OGJ, Mar. 17, 2003, Newsletter).

The consortium has budgeted $3.2 billion for upstream and midstream development.

Syncrude’s third-phase expansion on stream

Canadian Oil Sands Trust, which holds a 35.49% interest in Syncrude Joint Venture, said all third-phase expansion units came on stream at Syncrude Canada Ltd.’s oil sands plant in Fort McMurray, Alta., on May 6.

The project pushes capacity to 350,000 b/d of synthetic crude, gross to Syncrude, and yields an ultralow-sulfur product. The cost for the third-phase expansion start-up was estimated at $8.4 billion with additional, later costs of $150 million.

Previously, the trust cited plans, which remain unapproved by Syncrude owners, for two later expansions raising production capacity to more than 500,000 b/d (OGJ, Apr. 11, 2005, p. 22).

Imperial fracs three Block 77 wells in Siberia

Imperial Energy Corp. PLC, London, has fraced three of four wells on Block 77 in Snezhnaya oil field in the Tomsk region of Western Siberia.

Wells 136, 138, and 139 are all on stream. The 137 well is due to be fraced this month. The wells complement Block 77 wells 133, 135, and Dvoinoye 2, all of which were fraced in the first half of 2005.

The Dvoinoye 2 well reached a stable production of 400 b/d of oil after an electric submersible pump was installed. Imperial said it plans to install pumps at other wells in Snezhnaya field, and expects to achieve production of 1,500-2,000 b/d from the block by the end of May.

New flow starts from gas field off China

CNOOC Ltd. started second-phase production from Dong Fang (DF) 1-1 natural gas field in Bei Bu Gulf in the western South China Sea off China (see map, OGJ, Dec. 17, 2001, p. 60).

Initial production of 35 MMcfd of gas comes from three wells drilled in the new phase, boosting field production to 187 MMcfd.

Second-phase development is to include 16 wells, two unmanned wellhead platforms, two subsea pipelines, and 2 subsea cables. Design production capacity of the second phase is 111 MMcfd. Total DF 1-1 field production is expected to reach 98 bcf/year of gas.

Most gas produced from second-phase development will supply a methanol project in Hainan Province.

The Yinggehai basin field lies in 63-70 m of water about 110 km off Dong Fang City.

CNOOC Ltd. holds 100% interest in and operates the field.

Shortages delay start-up of Thai gas field

Shortages of materials and supplies will delay start-up of Arthit gas field in the Gulf of Thailand, says PTT Exploration & Production PLC (PTTEP), the operator.

Production will start 6-9 months after the scheduled April 2007 start up date, PTTEP said.

PTTEP Pres. Maroot Mrigadat attributed the shortages to a global increase in oil and gas construction and development.

The company expects initial production from Arthit, 230 km off the southern Thai province of Songkhla, of 330 MMcfd (OGJ, Oct. 17, 2005, Newsletter).

Reserves lifted for East African gas field

Wells in Songo Songo gas field off eastern Tanzania showed a pressure decline of less than 2% in 2005, and analysis permitted a reserves increase despite no new drilling, said operator EastCoast Energy Corp., Tortola, British Virgin Islands.

Consulting engineers, relying on 2005 pressure and production data and field remapping, hiked proved and probable reserves 14% to 560 bcf. This amounted to a 41% rise in proved reserves to 241 bcf and a 25% hike in proved and probable reserves to 320 bcf. Songo Songo’s five wells produced 14.7 bcf in 2005, bringing cumulative production to 19.3 bcf since the start of commercial operation in 2004. Production peaked at 72.8 MMcfd on Aug. 6, 2005.

Gas demand is steadily increasing around Dar es Salaam, and spare deliverability is ample to meet contract volumes.

EastCoast Energy let a contract to Petrofac Engineering Ltd. to identify the most efficient means of boosting capacity to 120 MMcfd within 18 months. If a third processing train were installed, capacity would then be limited by the 232-km, 105-110 MMcfd pipeline from the field to Dar es Salaam.

EastCoast Energy plans to drill one or two wells on the northern part of the Songo Songo West prospect 2 km west of the gas field in 2007. The prospect is a tilted fault trap at the same Neocomian reservoir level as the main field.

A small semisubmersible or jack up would drill the wells in 20 m of water. Gas in place is estimated at a most likely 600 bcf.

The company is interpreting 328 km of seismic data shot on the Nyuni license under a farmout from Aminex PLC, London (OGJ Online, Oct. 18, 2005).

Louisiana’s Delhi field due EOR project

Two independents estimate they might recover 39 to 54 million bbl of oil from Delhi field in northeastern Louisiana in a carbon dioxide enhanced oil recovery project that could cost $200 million or more.

Natural Gas Systems Inc., Houston, and Denbury Resources Inc., Dallas, did not specify a project start date but said they signed a definitive agreement for the project.

NGS operates the 13,636-acre, 12-mile long Holt Bryant Unit, which blankets Delhi field in Madison and Richland counties. NGS estimates the field’s 190 million bbl of cumulative recovery since 1945 to be less than half the original oil in place in the targeted reservoirs.

NGS will sell Denbury Resources its 100% interest in the field and receive $50 million at closing. It will retain a 4.8% royalty interest in the unit and a 25% working interest in other depths. After the project generates $200 million of net cash flows before capital expenditures, NGS will regain a 25% working interest in the unit.

Denbury will contribute all development capital, technical expertise, and required amounts of proved reserves of CO2 to be injected.

The companies estimate potential recoverable volumes at 30-40 million bbl net to Denbury and 9-14 million bbl net to NGS’s interest.

The main EOR target is Cretaceous Tuscaloosa less than 3,500 ft deep. Denbury owns substantial CO2 reserves on the Jackson Dome in south-central Mississippi. It operates and is expanding a network of CO2 pipelines in the region.

Processing - Quick Takes


Motiva considers expanding Texas refinery

Motiva Enterprises LLC is considering more than doubling capacity of its 285,000-b/cd Port Arthur, Tex., refinery.

Motiva was known to be considering addition of a total of 100,000-325,000 b/d of capacity to its three US refineries (OGJ, Mar. 13, 2006, p. 52).At the end of April it said a 325,000-b/d expansion of the Port Arthur refinery appears to be “the best, most logical choice.” The project would make the refinery the largest in the US.Pending regulatory approvals, Motiva would start final engineering work later this year, begin construction in 2007, and start up the expanded capacity in 2010.

Tianjin ethylene plant work to start in June

Sinopec plans to start construction in June of a 1 million-tonne/year ethylene project in Tianjin that will serve as the core of the petrochemical industry in the Chinese port city.

The Tianjin Municipal Development and Reform Commission said construction of supporting projects is under way, including railway expansion, a 300,000 tonne/year crude oil dock, and a 100,000 tonne/day desalination plant.

The entire project will involve investment of 25 billion yuan ($3.1 billion), of which Sinopec will invest 7.5 billion yuan to build a crude oil storage center.

Transportation - Quick Takes


Gorgon LNG decision could be delayed

A final investment decision on the Gorgon LNG joint venture in Australia could be delayed until next year, ExxonMobil Australia Chairman Mark Nolan told reporters at an energy conference in Australia. “There needs to be certainty about the cost before a financial investment decision can be made,” Nolan told a news conference May 8 during the Australian Petroleum Production & Exploration Association at Gold Coast.

Gorgon is in the Carnavon basin off Western Australia. Nolan said he does not anticipate a delay in the start of LNG deliveries, slated for 2010. Chevron Corp. operates the JV with a 50% interest. ExxonMobil has 25% interest, and Royal Dutch Shell PLC has 25% interest.

Nolan refused to comment on remarks from analysts that estimated construction costs have escalated for the proposed plant that would be built on Barrow Island.

Three LNG projects move closer to final approval

US Federal Energy Regulatory Commission staffers gave favorable environmental reviews to three LNG projects, and final approval awaits a vote by the FERC commissioners.

In environmental reports issued Apr. 28, FERC staffers said that LNG projects proposed by subsidiaries of Dominion Resources Inc., BP PLC, and Sempra Energy would have little negative environmental impact if certain measures are followed during construction.

BP intends to build a terminal at Crown Landing in New Jersey, along the Delaware River. Its formalized risk assessment includes making the carrier berths deep enough for ships to land and unload safely at all tide levels. Dominion’s Cove Point LNG proposes expanding its existing LNG import terminal at Cove Point, Md.

Sempra Energy proposes to build a LNG terminal in Jefferson County, Tex., near the Texas-Louisiana border in two stages of 1.5 bcfd each (OGJ, Oct. 10, 2005, Newsletter).

FERC and the US Coast Guard are responsible for the permitting of the new terminals, with FERC having jurisdiction over onshore facilities and USCG having jurisdiction over offshore facilities.

All Sakhalin II LNG said to have buyers

Sakhalin Energy Investment Co., set up jointly by Royal Dutch Shell PLC, Mitsui & Co., and Mitsubishi Corp., is reported to have found buyers for all projected output of LNG from the Sakhalin II project off Russia’s east coast.

Sakhalin Energy in April briefed the Russian government about progress in finding buyers. After the meeting Russia’s Energy Ministry issued a statement saying “there are contracts for 98% of the output.” LNG will be supplied from Sakhalin Energy’s 9.6-million tonne/year LNG plant under construction at Prigorodnoye at Aniva Bay in the south of the island.

The plant, Russia’s first, will have two trains, each with a capacity of 4.8 million tonnes/year. First shipments will begin in summer 2008. Talks with Chubu Electric Power Co. and Osaka Gas Co. are said to be entering final stages.

The firms expect to have contracts in place for the nearly all the 9.6 million tonnes/year of capacity. Earlier, on Apr. 20, Hiroshima Gas signed a full sales and purchase agreement (SPA) to buy 210,000 tonnes/year for 20 years.

Hiroshima Gas will use a new ice-class LNG vessel to transport the LNG to its receiving terminal in Hatsu