May 22, 2006
Bolivian President Evo Morales said oil companies, including Brazil’s state-owned Petroleo Brasileiro (Petrobras) and Spain’s Repsol YPF SA, won’t be compensated after nationalization of their oil and gas reserves.

General Interest - Quick Takes

Bolivia won’t compensate nationalized firms
Bolivian President Evo Morales said oil companies, including Brazil’s state-owned Petroleo Brasileiro (Petrobras) and Spain’s Repsol YPF SA, won’t be compensated after nationalization of their oil and gas reserves.

“There is no reason to indemnify them,” Morales told reporters at a news conference in Vienna before a meeting of European Union and Latin American leaders. “What we are looking for are partners, not bosses that exploit our oil resources. We are not chasing out anyone. But they cannot have ownership.”

Bolivia took control May 1 of the country’s oil and gas fields and gave foreign energy companies operating in the country 180 days to agree to new contracts with the government (OGJ Online, May 2, 2006).

Morales also said Petrobras “operated with illegal and unconstitutional contracts,” evaded taxes, and with other foreign companies engaged in contraband of petroleum. Bolivia’s president told the Brazilian print and video media that about 70 contracts signed with oil companies in the past were illegal because they were not approved by the congress.

Andrés Soliz Rada, Bolivia’s hydrocarbons minister, said Venezuelan President Hugo Chávez is “fully cooperating with Bolivia’s government to reduce Bolivia’s dependence on Petrobras.”

The minister cited Chávez’s commitment to build a petrochemical complex in Villamontes, an asphalt plant in Cochabamba, and a gas liquefaction plant in Rio Grande. Chávez also promised to install service stations in Bolivia to compete with Petrobras stations.

Soliz called expansion of Petroleos de Venezuela SA in Bolivia “a path with no return.” He said 200 workers will be sent to Venezuela for training in exploration and production. In addition, Bolivia soon will import 200,000 bbl of diesel from Venezuela at low prices because of Chávez’s friendship with the new Bolivian government.

Survey sees higher North American spending

Most oil company financial executives in a recent survey plan to boost upstream capital spending, KPMG LLP reported. The firm surveyed 538 executives in April.

Results showed 69% of respondents believe their companies’ upstream capital spending in North America will increase by more than 10% this year.

Respondents expressed concern about volatile oil and gas prices, and 67% said volatility is bad for the industry. Declining reserves were listed as a growing concern by 88% of the respondents.

“Oil and gas executives are facing one of the most challenging environments they’ve seen in decades when releasing earnings,” said Bill Kimble of KPMG’s national industrial markets division. “The marketplace perceives that oil and gas companies have significant influence on the price of gas at the pump.”

NGSA chief cites US gas supply challenges

US gas producers are recovering from damage caused by last year’s hurricanes but still struggle to meet US demand, the Natural Gas Supply Association reports.

Citing a review the association commissioned by Energy and Environmental Inc., NGSA Pres. Chris Conway said the number of US producing gas wells increased to a record of more than 27,000 in 2005.

“Rig counts are also up for onshore areas,” said Conway, president of ConocoPhillips’s gas and power division. “However, several more years of market tightness appear likely as long as the most economical supply options continue to be kept out of our reach.”

Damage from Hurricanes Katrina and Rita disrupted an estimated 705 bcf of production from the Outer Continental Shelf and 89 bcf from onshore wells through the heating season, he told reporters at an early-May Washington briefing.

“Increasing investment, however, has meant consistently strong production elsewhere, including an expansion of unconventional natural gas resources such as shale gas, which appears to be a potentially giant resource,” Conway said.

Total US gas production investments increased by $11.7 billion, or 14%, in 2005 and are expected to grow by $11 billion during 2006, he indicated.

“If not for the hurricane disruption, 2005 production in the Lower 48 states would have been flat to slightly increasing,” he said, noting investments in LNG projects and progress in the proposed gas pipeline from Alaska.

DOE to assess energy savings at UOP plant

The US Department of Energy plans to conduct a 3-day industrial energy saving assessment at UOP LLC’s plant in Mobile, Ala. The free assessment is part of President George W. Bush’s national energy efficiency effort, Energy Sec. Samuel W. Bodman said May 9.

“President Bush has called on all Americans to be more energy efficient. Private industry is joining the federal government in taking a lead role in this effort,” Bodman said. “DOE’s energy saving teams will play a key role in assessing and recommending energy efficiency strategies for some of the largest industrial facilities across the nation.”

UOP, which has been a Honeywell Inc. subsidiary since Dec. 1, 2005, makes 15 different products for refining, petrochemical, and consumer products manufacturing customers at its Mobile plant, according to DOE.

It said that its energy saving teams have completed visits to 33 large federal facilities and are in the process of visiting 200 of the most energy-intensive privately owned US manufacturing plants as part of a national “Easy Ways to Save Energy” campaign Bodman launched on Oct. 3, 2005.

DOE said that its first 39 assessments of industrial facilities have identified, in aggregate, nearly $101 million/year in potential energy cost savings that could reduce natural gas consumption by more than 11.5 trillion btu/year.

Industry Scoreboard
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Exploration & Development - Quick Takes

Kerr-McGee reports Gulf of Mexico strike Kerr-McGee Corp. has made an oil discovery at its Caesar prospect on Gulf of Mexico Green Canyon Block 683 about 160 miles south of Houma, La.

The Caesar-1 well was drilled to 29,721 ft TD in 4,500 ft of water. The oil discovery follows Kerr-McGee’s recent announcement of a natural gas discovery at the deepwater Claymore prospect in Atwater Valley Block 140 (OGJ, May 15, 2006, Newsletter).

Kerr-McGee operates Caesar with a 20% working interest. Shell Exploration & Production Co. holds 62.5% interest, and Plains Exploration & Production Co. holds 17.5% interest.

After coring the productive interval, Kerr-McGee will drill a 4,000 ft sidetrack appraisal well north of the Caesar discovery. Development options include a subsea tieback to the Constitution spar 9 miles west.

Eastern Siberia oil field under development

Russian independent Urals Energy Public Co. Ltd., Nicosia, Cypress, assumed financial and operating control of Dulisminskoye oil and gas-condensate field in the East Siberian basin in mid-April and has a $26 million development budget for 2006.

Urals Energy plans to close the $148 million acquisition of the field and LTK pipeline facilities in June. The 230-km LTK pipeline to Ust-Kut is expected to provide 12,000 b/d of early oil capacity starting in the first quarter of 2007.

Consulting engineers estimate proved and probable reserves at 109 million bbl of 40° gravity oil and 1.9 tcf of gas in Lower Cambrian Yaraktin reservoirs at 1,950 ft and 2,000 ft. The goal is to boost output to 12,000 b/d of oil by the end of 2008 from less than 1,000 b/d in April.

Field life is estimated to extend until 2053, and the license is valid through 2019. Full development is believed to require 44 more wells. The field has produced 630,000 bbl of oil since activation in 2001.

A later connection is possible to Transneft’s proposed ESPO pipeline to an export terminal at Perevoznaya near Nakhodka on the Sea of Japan. Intended completion is in 2008-09.

An approved development plan calls for Dulisminskoye gas to be flared in 2006-10. Options after that are sales to Gazprom, construction of an electric generating plant, or reinjection for pressure maintenance.

Urals Energy subsidiaries plan to drill 3 development wells and re-enter 3 wells at Okruzhnoye oil field on the east coast of Sakhalin island and drill 4 development wells at the Chepetskoye group of oil fields in the northwestern Udmurtia Republic of Western Siberia.

Unconventional gas share growing in Canada

The Canadian Gas Potential Committee estimated total original gas in place in Canada at 652 tcf, 10% more than the committee’s 2001 estimate.

The committee increased its nominal marketable gas estimate 6% to 367 tcf.

Most of the increase is from established plays in the Western Canada Sedimentary Basin. Estimates for frontier basins are 188 tcf of OGIP and 88 tcf of nominal marketable gas. The frontier 188 tcf is composed of 63 tcf of discovered gas and 125 tcf of undiscovered gas.

The volunteer group put original coalbed methane in place at 528 tcf, and it set a first-time estimate of nominal marketable CBM for all areas at a most likely 26 tcf. The range is 11 to 45 tcf.

“Unconventional gas sources will provide important gas supplies in time,” the committee predicted. It declined to provide marketable gas estimates for shale gas or gas hydrates.

In 2001, the committee estimated that CBM constituted an in situ resource base of 190 to 568 tcf, but no commercial production existed at the time and so none of the resource was estimated to be marketable.

The latest report is based on yearend 2002-03 data, roughly 4 years newer than the data in the 2001 report.

Petronas lets Ethiopian seismic contract

Malaysia’s state-run Petronas has let contract to China’s Zhongyuan Petroleum Exploration Bureau (ZPEB) to begin seismic surveys of eastern Ethiopia’s Ogaden basin next month.

ZPEB will shoot seismic surveys in three blocks covering 93,000 sq km in the areas of Fer Fer, Warder, and Genale. ZPEB will begin the seismic survey in Genale, 1,200 km east of Addis Ababa near the border with Somalia.

Beaufort discovery short of Devon’s hopes

The Paktoa exploration well in the Canadian Beaufort Sea didn’t meet Devon Energy Corp.’s size expectations, company Pres. John Richels said earlier this month.

“The well encountered hydrocarbons but not the trillions of cubic feet of natural gas that we were looking for,” Richels said during Devon’s first-quarter conference call.

The company will file for a significant discovery license “so that we can hold the mineral rights in the area in perpetuity,” he said.

Richels gave no details.

Paktoa, in 40 ft of water on EL 411 west of Beluga Bay, was programmed to drill to 13,500 ft with geologic targets in the Kugmallit, Richards, and Taglu formations. It is the first well to be drilled in the area in more than 15 years.

Devon is sifting through the large amount of data obtained from the drilling to determine the future direction of its exploration program, Richels said. The drill site is almost directly north of the boundary between Yukon and the Northwest Territories.

Drilling & Production - Quick Takes

Ecuador terminates Oxy’s Block 15 contract

Ecuador’s minister of energy terminated Occidental Petroleum Corp.’s participation contract with state-owned Petroecuador for the operation of 494,000-acre Block 15. The Ecuadorian government claims the right to seize the assets, Occidental said May 15.

In the first quarter this year, Occidental produced 44,000 b/d of oil in Ecuador, where Block 15 is its only producing area. Occidental also holds a 14% interest in Ecuador’s Oleoductos de Crudos Pesados crude oil pipeline.

“Occidental remains committed to an amicable settlement of this dispute,” the company said, adding that Block 15 operations represent 7% of its first-quarter worldwide production and 2% of its total property plant and equipment as of Mar. 31.

Block 15 also represents 3% of Oxy’s pro-forma proved consolidated reserves counting its acquisition of Vintage Petroleum Inc., excluding 72 million boe of Vintage reserves held for sale (OGJ, Nov. 21, 2005, p. 35).

Ecuador Energy Minister Ivan Rodriguez told reporters, “We accept the demand and petition of Petroecuador and the country’s attorney general and declare the annulment of the contract.”

Occidental had offered Eucador as much as $1 billion in disputed taxes, investments, and extra revenues to end a legal dispute (OGJ, Nov. 21, 2005, p. 34). The dispute involved whether Oxy in 2000 properly transferred part interest in a field to Canada’s EnCana Corp.

Lawyers for Occidental are reviewing a 33-page document from the government and are evaluating the company’s legal options, which could include appealing the decision in Ecuadorian and international courts.

White Rose to produce 100,000 b/d at midyear

Husky Energy Inc., Calgary, on May 9-10 produced a gross 100,000 b/d of 31° gravity oil from White Rose oil field in the Jeanne d’Arc basin off Newfoundland, following the successful completion of a fourth production well. Husky restricted flow for pressure buildup and will keep gross production at 85,000 b/d until it completes a fifth production well in late June.

When the fifth well is on stream, White Rose capacity is expected to again exceed 100,000 b/d.

The company estimates the field’s probable reserves at 200-250 million bbl (OGJ Online, Aug. 12, 2004).

White Rose produces from the SeaRose floating production, storage, and offloading vessel 350 km southeast of St. John’s.

Husky Energy, the project operator, holds a 72.5% working interest in the field, and Petro-Canada holds 27.5% (OGJ Online, Aug. 28, 2005).

Processing - Quick Takes

Chevron joins Texas biodiesel project

Chevron Technology Ventures LLC (CTV) is participating in the construction of what it calls the first large-scale biodiesel plant in the US through a 22% equity interest in Galveston Bay Biodiesel LP (GBB), Houston.

GBB is building the biodiesel production and distribution facility in Galveston, Tex., with completion scheduled for yearend.

The facility will have an initial production capacity of 20 million gal/year and be expandable to 100 million gal/year. CTV said total US biodiesel production last year was 75 million gal.

GBB will produce biodiesel from soybeans and other renewable feedstocks. The company has the option to sell pure biodiesel or biodiesel blended with off-road or on-road diesel in Galveston and Houston.

GBB interest owners are CTV, Contango Capital Biofuels Partners LP, Galveston Bay Biodiesel Management LLC, Sultex LLC, Mobius Risk Group LLC, and Beaver Creek Fund Ltd.

Refining joint venture formed in Cambodia

Cambodian National Petroleum Authority and Japan’s Mitsui & Co. plan to establish a refinery-construction joint venture called Cambodia Project Planning Development Management.

Mitsui will take a 60% stake in the venture, with the rest held by CNPA.

Mitsui holds a 30% stake in Cambodia’s offshore Block A in conjunction with operator Chevron Overseas Petroleum (Cambodia) Ltd., which holds 70%.

PNG gas processing, LNG plants proposed

Natural Gas Development Co. (NGDC), a new entity owned by Canadian firm InterOil, Merrill Lynch Commodities, and Clarion Finanz AG, has signed a memorandum of understanding with the government of Papua New Guinea to pursue development of a gas processing plant and gas liquefaction facility.

The MOU will enable the company to assist in gas processing.

InterOil, which owns the 32,500-b/d Papua New Guinea refinery in Port Moresby and conducts onshore exploration in the country, has secured a $130 million nonconvertible credit facility, $30 million of which is for the gas projects.

The LNG proposal is for a plant capable of producing as much as 5 million tonnes/year. Project sponsors didn’t specify capacity of the proposed gas processing plant.

Lurgi to build CO, hydrogen, ethanol plants

Lurgi AG, Frankfurt, has been awarded separate contracts worth more than €260 million to build a carbon monoxide plant in Saudi Arabia, a hydrogen plant in Malaysia, and a bioethanol plant in the US. Lurgi also expects additional contracts worth about €80 million for two biodiesel plants in Europe before the end of May.

The Saudi contract let by Saudi International Petrochemicals Co. (Sipchem) commits Lurgi through a joint venture with Air Liquide of France to build a 345,000 tonne/year CO plant in Jubail Industrial City. The total value of the project is €157 million, of which Lurgi’s share is €137 million.

The CO plant, which Lurgi said will be the largest in the world, is scheduled to be commissioned in October 2008.

In Malaysia, Petronas Melaka let a €53 million contract to Lurgi for a 45,000-cu m/hr hydrogen plant. The plant is due to come on stream in the first half of 2008.

The US contract, worth €66 million, was let by Central Illinois Energy LLC. It involves a 100,000-tonne/year bioethanol plant in Canton, Ill.

The plant, which will use corn as feedstock, is due to come on stream in 2007.

Transportation - Quick Takes

North West Shelf LNG gets second renewal

The North West Shelf LNG Joint Venture has signed its second renewal contract with an original customer.

Toho Gas of Japan agreed to purchase 760,000 tonnes/year of LNG over 10 years from 2009. This will follow on from the company’s original 20-year deal to buy 230,000 tonnes/year from 1989.

In March, the joint venture completed a deal with Chugoku Electric Power to supply the Japanese company with up to 1.4 million tonnes/year of LNG for 12 years. Chugoku’s original deal is for 1.1 million tonnes/year between 1989 and 2009.

Enbridge to expand crude oil pipeline systems

Enbridge Energy Partners LP, Houston, has approved a 30,000 b/d expansion of its North Dakota crude oil pipeline system.

The $70 million expansion, currently supported by 75% of shippers on the system, addresses demand exceeding eastbound pipeline capacity and increased crude oil production, especially in Richland County, Mont., and western North Dakota oil fields.

Enbridge plans to upgrade and test transmission pipe sections to increase pipe pressure and will add or upgrade 10 pumping stations, a new 52-mile pipeline segment parallel to existing gathering pipe, and additional tankage on the western portion of the system. The expansion is expected to provide incremental capacity by October and full capacity by fourth-quarter 2007.

Enterprise Products to expand LPG terminal

Enterprise Products Partners LP plans a second phase of expansion of its LPG import-export terminal on the Houston Ship Channel. The work will double the import terminal’s maximum peak operating rate to 480,000 b/d and increase the export terminal’s maximum peak rate to 160,000 b/d from 140,000 b/d.

The terminal, at Oiltanking Houston LP, will be able to simultaneously unload two very large gas carriers, which carry as much as 550,000 bbl of LPG.

Enterprise also plans to increase pipeline capacity between the terminal and its fractionation and storage complex at Mont Belvieu, Tex., and to add 20,000 b/d of mixed-butane fractionation capacity there, raising the total to 300,000 b/d.

The project will bring the import terminal to its maximum design nominal capacity of 400,000 b/d of NGL and boost the export terminal’s capacity to 40% of its design maximum capacity.

Joint venture plans 750-mile NGL pipeline

Overland Pass Pipeline Co. LLC, Tulsa, plans to build a 750-mile NGL pipeline from gas processing facilities in the Rocky Mountains to a market hub in Central Kansas. The $450 million pipeline will extend from Opal, Wyo., to fractionation facilities at Bushton and the Conway-Midcontinent NGL market and storage hub.

The new company is a joint venture of a Williams Cos. Inc. subsidiary and Oneok Inc. affiliate Northern Border Partners LP. Williams initiated the project last year to relieve capacity restraints on the Mid-America pipeline and other systems in the Rockies. Northern Border, which holds a 99% interest in the pipeline, has agreed to reimburse Williams for development costs to date.

The pipeline will be designed with a 110,000 b/d capacity that can be increased to 150,000 b/d with added pumping facilities. Gravity is expected to minimize the number of pump stations required.

Northern Border subsidiaries will begin constructing the 14-in. and 16-in. pipeline in mid-2007 and will operate it upon completion in early 2008. However, Williams has an option to boost its initial 1% interest to 50% and become operator within 2 years of operations start-up.

Under a long-term shipping agreement, Williams will dedicate LNG to Overland Pass from its two natural gas processing plants near Opal and Wamsutter in southwestern Wyoming. The company also is expanding its Wyoming processing capabilities.

Northern Border said it would invest an additional $160 million to expand the capacity and fractionation capabilities of its existing NGL distribution system. Its subsidiaries will provide downstream fractionation and transportation services that ultimately will give shippers access to another major demand hub in Mont Belvieu, Tex., for finished NGL products.

McMoRan to seek changes to LNG permit

McMoRan Exploration Co. said it will initiate steps to obtain approval for a change to its Deepwater Port license permit of its proposed $400 million offshore LNG receiving terminal, which includes open rack vaporization (ORV) technology, at Main Pass Energy Hub (MPEH), about 37 miles east of Venice, La. (OGJ, Apr. 4, 2005, Newsletter).

The change was necessitated by concerns by state Gov. Kathleen Blanco, who said the use of a “closed loop” regasification system, which uses natural gas rather than seawater to warm the LNG, would be required until additional data are collected and evaluated. McMoRan said Blanco’s concern comes after the Environmental Protection Agency recently indicated the use of ORV could represent “best available technology” when considering specific project factors and on May 4, indicated approval of MPEH using ORV with recommended mitigation measures. The final environmental impact statement also supports the MPEH application with ORV technology.

McMoRan said the more-costly closed loop systems would use an incremental 3.5 bcf/year for MPEH alone, thus, only exacerbating the growing energy crisis in the US. The company said it will continue to address concerns about the more-efficient ORV technology.