OGJ Newsletter

May 8, 2006
Bolivian President Evo Morales decreed the nationalization of gas and oil industries on May 1, dispatching troops to oil and gas fields, refineries, and strategic points along pipeline routes.

General Interest - Quick Takes


Bolivia nationalizes oil and gas industry

Bolivian President Evo Morales decreed the nationalization of gas and oil industries on May 1, dispatching troops to oil and gas fields, refineries, and strategic points along pipeline routes.

He made the announcement at San Alberto gas field, operated by Brazil’s state-owned Petroleo Brasileiro SA (Petrobras) in the southeast of the country.

All companies were told to turn production over to the state’s Yacimientos Petroliferos Fiscales Bolivianos (YPFB). Morales threatened to evict foreign companies unless they agreed to surrender ownership to the state within 6 months.

YPFB once produced the country’s natural gas but was reduced to an administrative capacity in a mid-1990s privatization of Bolivia’s gas exploration and production business.

Soldiers peacefully took control of the Palmasola refinery in the eastern city of Santa Cruz. Petrobras, the largest oil and gas investor in Bolivia, runs the refinery.

The government sent soldiers and engineers to 56 locations-including gas fields operated by foreign companies such as BG Group PLC, BP PLC, Petrobras, Repsol YPF SA, Total SA, and ExxonMobil Corp.

According to the new rules decreed by Morales, wellhead taxes will increase to 82% from 50%. YPFB will be restructured and get majority control of fields and refineries. The government will appoint top executives of non-Bolivian oil companies.

In addition, YPFB will make decisions about volumes, prices, and destinations of oil and gas products. “With this decree, the state now controls the administration, production, transport, warehousing, distribution, sale, and industrialization of hydrocarbons,” Morales said.

IOGCC examines oil price differential

The Interstate Oil & Gas Compact Commission has formed a task force to study why Rocky Mountain and Northern Plains oil producers receive $20-30/bbl less for their oil than the current world price.

Wyoming Gov. Dave Freudenthal, who chairs IOGCC, asked officials from five other states, Alberta, and the US government to help his state find the differential’s cause. The states uncovered the difference in preliminary analyses, he said Apr. 25.

The other states are Colorado, Montana, North Dakota, South Dakota, and Utah. Freudenthal also asked the US Department of Energy and Federal Energy Regulatory Commission to participate.

He hopes to report findings at an IOGCC issues meeting May 21-23 in Billings, Mont.

House kills refinery-permitting bill

The US House of Representatives has defeated a bill introduced by Rep. Charles F. Bass (R-NH) to facilitate construction of petroleum and biofuel refineries.

Among other measures, the bill would have set up a system for appointing federal coordinators to work with local, state, and federal permitting authorities for refineries.

The National Petrochemical and Refiners Association called defeat of the bill disappointing.

Exploration & Development - Quick Takes


Brazilian bidding round set for November

Brazil’s National Council for Energy Policy has approved 54 exploration areas for the country’s eighth bidding round, scheduled for launch in late November.

Separately, a second round of bids for inactive areas with marginal accumulations is scheduled for May 31. That round will offer 21 inactive areas, of which three are in the state of Maranhão, in the Barreirinhas basin; 10 in Rio Grande do Norte state, in the Potiguar basin; and eight in the Espírito Santo basin.

National Petroleum Agency (ANP) Director Newton Monteiro said these sales involve territory from a total of 62 mature, marginal areas that state-owned Petroleo Brasileiro SA relinquished in 1998.

ANP conducted the seventh round last year with 1,134 exploratory blocks covering 397,616 sq km offered along with 17 marginal accumulation areas covering 96 sq km (OGJ, Nov. 7, 2005, p. 20).

Coogee reports second Timor Sea oil find

Private Kwinana independent Coogee Resources Ltd., Perth, reported a second oil discovery at its Swallow-1 well in wholly owned Ashmore Cartier Permit AC/P34 in the Timor Sea.

The wildcat intersected a 25 m oil column in the primary Plover formation objective. The well also found a 3 m oil column in a secondary objective.

Coogee said Swallow could hold as much as 2 million bbl of recoverable oil and produce at rates in excess of 5,000 b/d.

The find comes shortly following the company’s Swift North-1 discovery and greatly enhances its plans for development of surrounding fields based on the earlier Montara and Skua oil accumulations (OGJ Online, Mar. 29, 2006).

Coogee says combined total reserves around Montara are now about 38 million bbl of recoverable oil. All accumulations are within tieback range of the planned Montara floating production, storage, and offloading facility.

The project is on schedule for funding agreement in the third quarter and production start in mid-2008.

Coogee acquired its Timor Sea assets in 2003, including shares in production from Jabiru and Challis oil fields and the undeveloped Montara discovery. Later it added Permit AC/P34, which contains the shut-in Skua field and now the Swift North and Swallow discoveries.

Repsol YPF group to press Reggane gas search

A group led by Repsol YPF SA, which made two natural gas discoveries in central Algeria’s northern Reggane basin earlier this month, plans to drill at least eight more wells this year and in 2007.

The group said in early April that the Reggane-5 and Sali-1 wells on the Reggane North Permit 825 miles southwest of Algiers tested gas from the Lower Devonian formation.

Reggane-5 flowed gas at a maximum 24 MMcfd on a 32⁄64-in. choke with 4,238 psi wellhead pressure from two levels. Sali-1 flowed at as much as 3.8 MMcfd on a 1-in. choke with 122 psi wellhead pressure. Kahlouche-2, a third well, is drilling.

The group is collecting 550 line-km of 2D seismic data. It previously gathered 646 line-km of 2D seismic and 942 sq km of 3D seismic.

The Reggane North permit consists of Blocks 351c-352c, which cover 12,012 sq km. Interests are Repsol YPF 33.75%, Algeria’s Sonatrach 25%, RWE Dea AG 22.5%, and Edison Gas 18.75%. Algeria awarded the permit in the 2002 bidding round.

The same group holds the M’Sari-Akabil Permit just to the east.

Saskatchewan-Manitoba get Torquay oil play

Magnus Energy Inc., Calgary, lined up a rig and plans to drill 18 wells in 2006 near a light oil discovery in Devonian Torquay dolomite in the Williston basin near Antler, Sask.

Without giving figures, Magnus said it believes the greater development “has the potential to rank with the top conventional fields found in the Prairie provinces in terms of original oil in place and recoverable reserves.”

If, as Magnus management interprets, Antler field is part of a large regional stratigraphic trap, the seven wells Magnus has drilled could extend the productive Torquay trend by at least 10 miles from existing production at Sinclair, Man.

Further, the estimated overall size of the new field could be 250 sq miles. More than 280 wells have been drilled in the play to date, according to public information.

Magnus said the Torquay reservoir is 1,050-1,150 m deep and 2 to 5 m thick. The company has acquired more than 46,100 gross (24,700 net) acres of freehold and crown land near the Antler discovery.

Four Magnus wells were producing a combined 75 b/d before spring breakup, and the other three were in completion. The company estimated that production from its Antler lands will be 900 boe/d gross by yearend.

The company’s Antler wells are classified as vertical deep oil wells and qualify for royalty-tax incentive volumes that range from 50,000 to 100,000 bbl/well.

Companies to appraise Chinese CBM field

Fortune Oil PLC and Molopo Australia Ltd. have signed a conditional agreement to jointly develop coalbed methane (CBM) reserves in the Liulin Block, Hedong field, in Shanxi Province, China.

Fortune Oil will acquire a 60% interest in a new company, Fortune Liulin Gas Co. Ltd., while Molopo will hold 40%.

A Molopo subsidiary, Lowell Petroleum NL, began exploring the Liulin Block more than 10 years ago. It drilled four vertical exploration wells in 2000 under a production sharing contract (PSC) with China United Coal Bed Methane Co., a government entity.

Molopo’s rights in the PSC will be extended and transferred to the new company, subject to approval by the Ministry of Commerce.

Fortune Oil initially will commit $2.5 million for further field appraisal. If successful, commercial development of the block is expected after 2 years.

The Liulin Block covers 198 sq km with an in-place gas resource of about 800 bcf. Gas recovered to date is more than 95% methane. It occurs in three main coal seams at 400-700 m.

Continental Resources joins Marfa basin play

Continental Resources Inc., Enid, Okla., will purchase half interest from Exploration Co., San Antonio, and become operator of a play aimed at shale and conventional formations in the nonproducing Marfa basin in Southwest Texas. The purchase, for an undisclosed sum, is to close by Apr. 21.

Exploration Co. acquired 100% working interest in 140,000 gross (135,000 net) acres in Presidio and Brewster counties in late 2005 (see map, OGJ, Apr. 10, 2006, p. 33).

A reentry to test the Barnett and Woodford shales is expected to begin during the second half of this year with a second well planned for late 2006, said Exploration Co.

“Lightly explored, the Marfa basin is geologically similar to other gas-prone areas along the Ouachita Overthrust such as the Fort Worth and Arkoma basins,” the company said. “It has excellent geochemical characteristics; thick shales ranging from 400 ft to 1,200 ft thick; high gas-in-place potential; is organically rich with good total organic carbon; and a thermally mature gas window. It is prospective for the Barnett and Woodford shales and other plays.”

Petsec to develop Gulf of Mexico oil strike

Petsec Energy Inc., a US subsidiary of Australia’s Petsec Energy Ltd., has begun development planning for Main Pass Block 18 in the Gulf of Mexico after making what it calls a 1 million bbl oil discovery there.

Petsec said its Main Pass 18 G-6 well, drilled to 13,018 ft TD, discovered 7.5 bcf of gas net to Petsec in three sands and 1.1 million bbl of oil net in two sands. The well was the last of a four-well program drilled from its Main Pass 19 platform (OGJ Online, Mar. 9, 2006). Petsec has begun plans for a production and distribution facility on Block 18 and envisions the drilling of two or three development wells to produce oil discovered so far on the block.

Meanwhile, it is completing the G-6 well as a gas producer from the Main Pass 19 platform.

Petsec plans further drilling on Main Pass 18 and adjacent Block 103 in September.

Firm acquires additional acreage in Utah

Colorado Wyoming Reserve Co. (CWYR), Grand Junction, Colo., has acquired a 42.5% interest in 6,000 acres bordering a 16,640-acre area in which it holds varying interests and has acquired 3D seismic data in southeastern Utah.

It said Southwest Lisbon gas field is under development on the original acreage, 3.5 miles southwest of Lisbon gas field. At Southwest Lisbon, the Federal 1-31 and Evelyn Chambers wells each flowed about 2 MMcfd of gas from the same Mississippian formation that produces at Lisbon, CWYR said.

It said a 3D seismic survey is planned on the new acreage for later this year and expects drilling of three exploratory wells in the area in 2007.

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Drilling & Production - Quick Takes


Nexen presses Alberta Mannville CBM work

Nexen Inc. plans to boost coalbed methane production to more than 30 MMcfd by the end of 2006 in central Alberta at the first commercial CBM project in water-saturated Lower Cretaceous Upper Mannville coals.

Ultimate goal is 150 MMcfd by 2011 from development of only about half of the company’s CBM lands, compared with 4 MMcfd of present output.

Nexen is running eight rigs. It has completed two gas processing facilities and expects to complete two more in the third quarter, for a four-plant capacity of 94 MMcfd (38 MMcfd net to Nexen).

Nexen in 2005 approved commercial CBM developments at Corbett, Doris, and Thunder in the Fort Assiniboine area. It held more than 600 net sections of land with CBM potential in Alberta at yearend 2005.

The 2006 budget is $150 million to develop 115 gross (53 net) sections using single and multileg horizontal wells. Nexen spent $83 million in 2005 to begin the three commercial developments and build and evaluate the CBM acreage.

Mannville coals are generally deeper than the Upper Cretaceous Horseshoe Canyon dry coal play under commercial development in the province.

Oil field start makes Brazil self-sufficient

Brazilian President Luiz Inacio Lula da Silva declared his country self-sufficient in oil during start-up of the P-50 floating production, storage, and offloading vessel in Albacora Leste oil field in the Campos basin, 120 km off Rio de Janeiro state.

The 180,000 b/d FPSO’s inauguration will allow Brazil to reach an average production level of 1.91 million b/d later this year, slightly above that of the country’s oil consumption, said Sergio Gabrielli, president of Petroleo Brasileiro SA (Petrobras).

The FPSO weighs 77,000 tons and can store 1.6 million bbl of oil. Production is expected to reach the capacity rate in about 6 months. Repsol YPF holds a 10% interest (OGJ, Apr. 3, 2006, Newsletter).

Gabrielli said Petrobras has a national production target of 2.3 million b/d of oil by 2010, when demand is expected to approach 2 million b/d.

The company plans to bring three other floating production facilities on stream during 2006: the P-34 FPSO, 60,000 b/d from Jubarte field off Espírito Santo; the Sevan Marine SSP-300 monocolumn FPSO, 20,000 b/d in Piranema field off Sergipe; and the Capixaba FPSO, 100,000 b/d in Golfinho field off Espírito Santo.

Erha oil and gas field on stream off Nigeria

ExxonMobil Corp. unit Esso Exploration & Production Nigeria Ltd. has started production from deepwater Erha oil and gas field off Nigeria.

The field lies in 1,200 m of water on Block 209, about 100 miles southeast of Lagos (OGJ, Nov. 4, 2002, Newsletter).

The development includes Erha and Erha North, a satellite development expected to come on stream in the third quarter. This is Esso’s first operated production from the block.

Erha production is to ramp up to 150,000 b/d by the third quarter, and Erha North is expected to produce 40,000 b/d by yearend. Associated gas production will be about 300 MMcfd, which will be reinjected.

The Erha and Erha North developments consist of 32 subsea wells tied to a floating, production, storage, and offloading vessel. Total cost, including facilities and drilling, is estimated at $3.5 billion.

Erha field may contain 1 billion bbl of reserves, ExxonMobil said when the September 1999 appraisal well, Erha-2, was spudded. Drilled to 12,287 ft TD, the well flowed 2,800 b/d of oil on test (OGJ, Jan. 3, 2000, p. 31).

Operator Esso holds a 56.25% interest in the block under a production sharing contract with Nigerian National Petroleum Corp. Shell Nigeria Exploration & Production Co. Ltd. holds 43.75%.

Processing - Quick Takes


Chinese petrochemical complex fully on stream

All production units of the $4.3 billion Daya Bay petrochemical complex in China’s Huizhou Guangdong Province are fully operational, said Foster Wheeler Ltd., whose subsidiary is the project management contractor.

The complex is a joint venture of China National Offshore Oil Corp., Shell Petrochemicals Co. Ltd., and Guangdong Guangye Investment Group Co. Ltd. (OGJ, Mar. 27, 2006, p. 44).

The project involved construction of a world-scale cracker (lower olefins plant) together with other process units, power generation, utilities, and infrastructure. The cracker produces 800,000 tonnes/year of ethylene and 430,000 tonnes/year of propylene. Construction was completed at yearend. On-specification ethylene and propylene production started on Jan. 29. The complex is expected to produce 2.3 million tonnes/year of total products to supply Guangdong primarily and also China’s southeast coast.

Alon to merge acquired California refineries

Alon USA Energy Inc. plans to combine two California heavy-crude refineries it is acquiring in separate transactions.

It has signed definitive agreements to buy most assets of Paramount Petroleum Corp., Paramount, Calif., and Edgington Oil Co., of nearby Long Beach.

Alon will pay $307 million and assume about $100 million in net debt to acquire Paramount’s refining assets, which include a 54,000 b/d refinery at Paramount and a 12,000 b/d heavy crude refinery in Portland, Ore. It also will acquire from Paramount seven asphalt terminals in the US West and a 50% interest in Wright Asphalt Products Co., Channelview, Tex.

Alon will pay $52 million plus inventory value for Edgington, which operates a topping refinery with nameplate capacity of 40,000 b/d that can process as much as 24,000 b/d of heavy crude.

Alon says it will run heavy crude in the Edgington facility and merge it with Paramount’s California unit into a 78,000-b/d refinery. The Paramount refinery recently was upgraded to produce gasoline blendstocks and diesel fuel meeting California air-quality specifications.

Alon USA, a subsidiary of Alon Israel Oil Co. Ltd., operates a 70,000 b/d sour crude refinery at Big Spring, Tex.

Texas olefins plant offline after fire

Huntsman Corp. said its Port Arthur, Tex., olefins plant might be offline for several months after sustaining what appeared to be “significant” damage in an Apr. 29 fire.

The facility can produce 1.4 billion lb/year of ethylene, 800 million lb/year of propylene, 680 million lb/year of cyclohexane, and 460 million lb/year of benzene.

Huntsman said the fire began in the propylene refrigeration unit. Employees and contractors were evacuated safely.

Burrup Peninsula ammonia production starts

Indian-owned Burrup Fertilisers Pty. Ltd. has started production from its $800 million (Aus.) ammonia plant on the Burrup Peninsula of northwest Western Australia, where an LNG plant is planned.

The new facility can produce as much as 760,000 tonnes/year of liquid ammonia using natural gas from fields on the North West Shelf under a 25 year take-or-pay contract.

Indian agriculture will use fertilizer made from the ammonia. The first shipment is scheduled for mid-May.

Woodside Energy Ltd. has chosen the Burrup Peninsula as the site for its Pluto field LNG plant, site work for which is to begin in December (OGJ Online, Mar. 22, 2006).

Pluto field lies about 190 km northwest of the peninsula. The development project is being hurried to take advantage of rising LNG demand.

A final investment decision is expected by mid-2007, with first LNG production timed for late 2010-11.

Transportation - Quick Takes


Explorer Pipeline plans capacity boosts

Explorer Pipeline, Tulsa, plans to increase capacity of its products pipeline to Dallas-Fort Worth by 20,000 b/d by modifying tanks at Greenville, Tex. The Dallas-Fort Worth spur is part of Explorer’s southern products system between the Gulf Coast and Tulsa, which has capacity of 660,000 b/d.

The company also has approved funding for the engineering and design of a mainline expansion from Houston through Dallas to Tulsa, to increase capacity by as much as 230,000 b/d, and a spur line expansion from the mainline to Dallas-Fort Worth for as much as 100,000 b/d of additional capacity. The company’s northern system linking Tulsa with St. Louis and Chicago has capacity of 450,000 b/d.

Japanese venture joins Olokola LNG project

Japan’s Sojitz Corp. and Sumitomo Corp. plan to participate in Nigeria’s Olokola LNG project, joining state-owned Nigerian National Petroleum Corp., Chevron Corp., Shell Gas & Power Developments BV, and BG Group.

A basic agreement has been reached for LNG Japan Corp., a joint venture of Sojitz and Sumitomo, to acquire 3% of the stock in the operating firm from NNPC. The first stage of the project is to build facilities capable of producing 11 million tonnes/year of LNG by 2010, with total costs expected to reach $7 billion.

LNG Japan, which plans to sell its 330,000-tonne/year share of LNG from the project in the US and Europe, will be responsible for about ¥25 billion of investment capital, equivalent to its interest in the operating company.

In early April, NNPC approved the award of a $14.5 million contract for the front-end engineering design of Olokola LNG to Delta Afrik Engineering Ltd., jointly owned by Deltatek Engineering Ltd. and Worley Parsons.

Delta Afrik also will construct major production platforms, living quarter platforms, and associated flares and bridges for Olokola LNG. In April 2005, Chevron Nigeria Ltd. signed a memorandum of understanding with NNPC, BG, and Shell Gas & Power to jointly conduct and evaluate a feasibility study of the potential Olokola LNG project.

Shell said the project is the outcome of two studies conducted by Chevron, BG, and Shell, which proposed to NNPC the development of their respective greenfield LNG projects in the Olokola area due to their natural deepwater berths and other technical reasons. It said the projects’ target shipment dates are 2009 and 2010 respectively. An integration model was selected to include a four-train, 20 million tonne/year project; joint ownership of all facilities, except for the individual trains; single technology and a single operator; a common engineering, procurement, and construction contracting strategy; and an agreement that individual train owners buy their own feed gas and sell their own LNG.

Shell said there will be a common facilities company to be known as OKLNG, as well as an operating company, OKLNG OpCo.