OGJ Newsletter

Nov. 13, 2006
General Interest - Quick Takes

California votes down state oil production tax

California voters rejected a state ballot measure that would have taxed state oil production at varying rates depending on the price of crude, and tax revenues would have financed the development of alternative energy (OGJ, Nov. 6, 2006, p. 76).

With 90% of the votes counted, returns indicated Proposition 87 was defeated 55% to 45%, officials said Nov. 7.

Oil companies, particularly Chevron Corp., opposed Proposition 87. If Proposition 87 had passed, the California government would have collected an estimated $200-380 million/year in new tax revenue, but opponents said it would have caused a reduction in state oil production and a need for increased imports.

Voters reject Alaska gas reserves tax proposal

Alaska voters overwhelmingly rejected Ballot Measure 2, a proposal to tax North Slope natural gas reserves until an Alaska gas pipeline is built to deliver gas to the Lower 48.

With votes from more than three fourths of the state’s precincts tallied late on Nov. 7, the measure was losing by a 2-1 margin, state officials reported.

Ballot Measure 2, also known as the Alaska Gasline Now initiative, sought to provide an incentive for gas production. Leaseholders on the North Slope would have had to pay an annual reserves tax of 3¢/Mcf for undeveloped gas reserves.

The payments would have been repealed upon pipeline construction. The proposal said leaseholders would get their money back as a deduction from other state gas taxes.

Supporters suggested that the tax would spur North Slope oil and gas producers ExxonMobil Corp., BP PLC, and ConocoPhillips to build a gas pipeline. The tax would have made it costly to not build a pipeline, tax proponents said.

The oil companies said the tax would delay rather than accelerate pipeline construction by adding cost and risk to the $20 billion pipeline project.

The pipeline remains uncertain because the Alaska Legislature in special sessions repeatedly refused to approve a pipeline contract that Gov. Frank Murkowski negotiated with North Slope producers.

Militant attack shuts Nigerian pumping station

Agip’s Tebidaba oil pumping station in Nigeria’s southern Bayelsa state has been overrun and shut down following an attack on Nov. 6 by armed militants, according to company and government officials.

The firm said 48 people, including workers and security guards, were at the pumping station when the attack occurred but it reported no deaths or injuries. It said oil production was suspended for security reasons.

A Nigerian national security official further confirmed the attack, saying militants shut down the place but that they have not yet issued any demands to be met.

A senior official from the state environment department, however, said the militants were demanding restitution for pollution caused by the company’s operations in the area as well as jobs for community members.

The attack follows a spate of recent actions against oil firms by militants in the region.

On Nov. 3, the US government issued a warning of probable militant attacks on oil facilities throughout the volatile Niger Delta region (OGJ Online, Nov. 3, 2006). A day earlier armed gunmen in Nigeria kidnapped two expatriate oil workers during a raid on an oil services ship operated by Norway-based Petroleum Geo-services in the Niger Delta (OGJ Online, Nov. 2, 2006).

Indonesia to reassign Natuna gas block

Indonesia’s Energy and Mineral Resources Minister Purnomo Yusgiantoro said a Cabinet session will be required to decide what to do with the giant Natuna gas block project. Last month it terminated the development contract awarded to ExxonMobil for failure to submit a plan for developing the block and selling the gas.

On Nov. 2, Indonesian Vice-President Jusuf Kalla defended the government’s decision, saying the company had not done much on the block since signing the contract in 1985.

Purnomo said three options have been prepared for the Cabinet’s consideration:

  • Handing over the project to state-owned oil company Pertamina.
  • Holding a new tender.
  • Renegotiating the contract with ExxonMobil under certain terms and conditions, especially on production split.

The government said it wants a share of the production if the ExxonMobil’s contract is renewed. Under the old deal, the project was 76% owned by ExxonMobil and 24% by Pertamina, with no separate share for the government.

Maman Budiman, ExxonMobil Oil Indonesia vice-president for planning, commercial and external relations, said the firm is ready to discuss the terms and conditions of developing Natuna, which has natural gas reserves of 222 tcf.

Kardaya Warnika, head of Indonesia’s oil and gas regulating body BP Migas, on Nov. 3 told local media that the negotiations will begin this month and will conclude in January 2007. The proportion of the production shares will be changed, he said.

Nigeria, South Korea ponder rail-for-oil trade

South Korean Commerce, Industry, and Energy Minister Chung Sye-kyun and Nigerian Oil Minister Edmund Daukoru signed a memorandum of understanding Nov. 6 that envisions upgrading the African country’s rail system in exchange for oil interests.

South Korea will provide Nigeria with long-term, low-interest commercial loans and have its companies take part in the second phase of Nigeria’s railway modernization program. In exchange, Nigeria will transfer shares in an operational oil field to South Korea.

POSCO Engineering & Construction Co. has already signed a separate agreement with Nigeria’s Transportation Ministry to build the railroad, while Korea National Oil Corp. will operate the oil field. Officials said details about the size of the loan and oil field operations would be discussed at a working level.

The $10 billion railroad project calls for 1,500 km of tracks linking oil capital Port Harcourt on the Gulf of Guinea to Maldugun in Nigeria’s northeastern region.

Nigeria made a similar deal with China in late October in an $8.3 billion contract to construct a railway line from the nation’s economic capital Lagos to Kano, the largest commercial city in the north.

The Chinese, hoping to secure oil interests in Nigeria, recently granted the African country a $2.5 billion loan facility, a substantial amount of which would be used on the rail project.

Industry Scoreboard
Click here to enlarge image


Click here to enlarge image


Click here to enlarge image


Exploration & Development - Quick Takes

Shell starts BC-10 development off Brazil

Shell Exploration & Production Co. and partners have let the first contracts for development, involving subsea liquids-gas separation and pumping, of three deepwater heavy-oil fields on Block BC-10 off Brazil.

One of the contracts is for leasing of a floating production, storage, and offloading vessel with 100,000 b/d of oil processing capacity from SBM Offshore NV. Another is for the drilling of 10 wells by the GlobalSantaFe Arctic 1 semisubmersible rig, now at work in the Gulf of Mexico.

The first phase of Block BC-10 development will involve Ostra, Abalone, and Argonauta fields. A fourth field, O-North near Argonauta, will be developed later. State-owned Petroleo Brasileiro SA (Petrobras), a partner, calls the area Parque das Conchas and estimates production will start in 2011.

Shell, the operator, will develop the fields with horizontal subsea wells and manifolds and tie each field back to the FPSO, which will be moored in 1,780 m of water. The longest tie-back will be 15 km for Abalone field.

A Shell statement called the project “the first full-field development based on subsea oil and gas separation and subsea pumping.” Liquids will be separated from gas in large-diameter caissons. Electric submersible pumps on the seafloor will pump the liquids through steel lazy-wave risers to the FPSO, where oil and water will be separated. Equipment on the FPSO will be able to inject 75,000 b/d of water in the fields.

Gas will move through a 40-km pipeline to Jubarte.

Shell declared Block BC-10 commercial at the end of last year after drilling 15 exploratory wells and discovering reserves estimated at 400 million bbl of 16-24º gravity oil (OGJ, Oct. 2, 2006, Newsletter). The block is 120 km southeast of Vitoria in Espirito Santo state.

Interests are Shell 50%, Petrobras 35%, and Oil & Natural Gas Corp. 15%.

Chevron broadens scope for Nigerian fields

Chevron Nigeria Ltd. (CNL), operator of National Engineering & Technical Co. Ltd. (NETCO)-a wholly owned subsidiary of Nigerian National Petroleum Corp. (NNPC)-has authorized two units of Foster Wheeler Ltd. to carry out further design engineering for the Tubu and Madu oil field developments in permit areas OML 52 and OML 85, respectively, off Nigeria.

Foster Wheeler Energy Ltd. and Foster Wheeler (Nigeria) Ltd., through a joint venture agreement with NETCO, will evaluate the economics of the planned development and investigate possible configurations for surface facilities.

These two separate work programs will be carried out under an existing 3-year service contract between Foster Wheeler and NETCO via CNL.

The values of the two awards, which were announced at yearend 2005, were not disclosed.

Foster Wheeler (Nigeria) Ltd. is already working on the front-end design for the nonassociated gas wellhead platforms and pipelines portion of CNL’s Olokola Gas Supply Project in Nigeria, said Director Anita Omoile.

Heritage conducts Kingfisher well test

Heritage Oil Corp., London, has completed two drill stem tests of the upper zone of the Kingfisher-1 well on Block 3A in Uganda.

The first test did not flow hydrocarbons to surface. However, the second tested two zones totaling 10 m over the interval from 1,783 m to 1,795 m, which flowed at a stabilized rate of 4,120 b/d of oil through a fixed 1-in. choke at a flowing wellhead pressure of 221 psi. The oil was light (30° gravity) and sweet with a low gas-oil ratio and some associated wax.

The test flow data suggest that when equipped for production, the well could flow at stable rates of about 5,600 b/d. It also indicated an extremely high permeability of more than 2,000 md.

The tests represented a secondary exploration objective for the well, which will be sidetracked. Drilling will now continue to the deeper primary objectives. It is expected to take a further 45-60 days to reach TD of 3,000-4,000 m. Test equipment will remain on location to test the primary target (OGJ Online, Oct. 16, 2006, Newsletter).

White Nile completes first phase of Sudan survey

White Nile Ltd., London, said it has identified several structures, including one site for drilling, after completing phase one of its seismic survey of Block Ba in southern Sudan.

The company said several prospects have been identified in the 1,800 sq km project area, including one large structure of more than 50 sq km, which has been high-graded as an immediate drilling target. It said seismic data from the first phase of exploration have yielded a new understanding of the prospectivity of the Muglad basin’s Jonglei subbasin. The data show a sedimentary section as thick as 7 km and rift structures suitable for forming hydrocarbon traps, the company said.

White Nile said it will procure a drilling rig and plans to spud the first exploration well in first-half 2007, when it also expects to start a new 2D seismic survey in the Pibor Post basin.

The company’s Block Ba exploration and development program includes three exploration wells in 2007 along with further 2D seismic acquisition.

Medco to develop Gulf of Mexico well

Medco Energi US LLC plans in early 2007 to install a braced caisson or minimal structure on a well recently drilled on Mustang Island Block 758 in the western Gulf of Mexico.

The No. 1 well, drilled in 156 ft of water 50 miles east of Corpus Christi, Tex., encountered gas pay totaling 47 ft total vertical thickness in four horizons in the Miocene Marg A series between 8,200 ft and 8,900 ft. The well reached 9,200 ft TD.

The operator set 7 5/8-in. production casing at 9,155 ft and suspended the well at the mud line.

Drilling & Production - Quick Takes

Chevron brings on more production off Angola

Chevron Corp. subsidiary Cabinda Gulf Oil Co. Ltd. has begun oil production from the Landana North reservoir in the Tombua-Landana development area, Chevron’s third operated deepwater development off Angola.

The Landana North-1 well on deepwater Block 14 was the first of 46 wells planned in the project. The well is tied back to the Benguela Belize-Lobito Tomboco compliant piled tower, which allows for early production as well as the gathering of important reservoir information.

The project lies 50 miles offshore in more than 1,200 ft of water and will employ a compliant piled tower with one subsea center. The projected peak production from the completed development is about 100,000 b/d of oil by 2010.

Interests in the project are operator Cabinda Gulf 31%, Sonangol Pesquisa e Producao SARL 20%, Eni Angola Exploration BV 20%, Total E&P Angola 20%, and GALP-Exploracao e Producao 9%.

Total unit enters next phase at Joslyn project

Deer Creek Energy Ltd., a recent subsidiary of Total SA, has started the commercial production phase of the Joslyn project in the Athabasca region, 60 km northwest of Fort McMurray, Alta. Deer Creek is an 84% interest owner and operator of the Joslyn lease.

This will be the first commercial production from Joslyn, for which cumulative production is estimated at around 2 billion bbl of bitumen.

The lease will be produced using both steam-assisted gravity drainage (SAGD) and oil sands surface mining technologies. The Joslyn SAGD development will bring production to 10,000 b/d of bitumen at plateau. After dilution, the bitumen will be shipped to a terminal on the Athabasca Pipeline.

Mining developments are planned for the first part of the next decade. An application for the first 100,000 b/d of bitumen via surface mining was submitted to regulatory agencies in February and currently is undergoing review.

Total also has a 50% working interest in the Surmont SAGD project, which is expected to begin production from its first commercial phase in early 2007 and reach plateau production of 27,000 b/d. The potential production from Surmont is more than 200,000 b/d.

Total’s share of the aggregate production from Surmont and Joslyn should reach nearly 300,000 b/d in the next decade.

Dragon secures rig to drill off Turkmenistan

Dragon Oil PLC has signed a 2-year contract with Continental Industrial Supply Ltd. for use of the CIS-1 platform-based drilling rig.

Dragon said the rig will commence drilling a series of development wells in the Cheleken contract area off Turkmenistan in first-half 2007.

Dragon said the contract will enable it to operate several drilling rigs simultaneously in 2007.

Processing - Quick Takes

Marathon reports Garyville expansion details

Marathon Oil Corp. disclosed processing-unit capacities in a report that its board had approved expansion of its Garyville, La., refinery, which the company announced a year earlier.

Marathon will spend an estimated $3.2 billion to add 180,000 b/d of crude capacity to the 245,000 b/d refinery (OGJ, Nov. 7, 2005, Newsletter).

In addition to a new crude and vacuum distillation unit, the project will add a 44,000-b/d delayed coker, a 70,000-b/d heavy gas-oil hydrocracker, a 65,000-b/d reformer, and a 47,000-b/d kerosine hydrotreater.

Marathon recently completed front-end engineering and design cost estimation and is working on permits from the Louisiana Department of Environmental Quality. It expects construction to begin in mid-2007 and operations to start in fourth-quarter 2009.

The Garyville facility, completed in 1976, is the last grassroots refinery to have been built in the US. Its expansion will boost total capacity of Marathon’s seven refineries to 1.154 million b/d.

Separately, Marathon selected Dresser-Rand Co. for the supply of compression equipment for the planned expansion. The estimated total order value, including installation, commissioning, and start-up services, is expected to approach $68 million.

Dresser-Rand in October booked an order to supply critical compression equipment, including six DATUM turbo-compressor trains and eight reciprocating compressor units along with their drivers.

CEPSA awards FEED contract for Spanish refinery

Compania Espanola de Petroleos SA (CEPSA) has let a lump-sum contract for an undisclosed amount to Foster Wheeler Iberia SA for front-end engineering design and early procurement services for crude, vacuum, and gas concentration units at its 100,000 b/cd La Rabida Refinery at Huelva, Spain.

The new units will be based on a basic design package by UOP, a Honeywell company. The capacity for the crude distillation unit will be 90,000 b/sd; for the vacuum distillation unit, 30,500 b/sd; and the gas concentration unit, about 148 tons/hr.

OMV plans petrochemical expansion in Bavaria

OMV AG will boost petrochemicals capacity as part of a €1.1 billion investment program in Bavaria over the next 4 years.

It plans to expand ethylene capacity to 450,000 tonnes/year from 340,000 tonnes/year and propylene capacity to 560,000 tonnes/year from 245,000 tonnes/year at its complex in Burghausen.

The expansion projects will absorb €640 million of the overall expansion budget while another €495 million will be committed to OMV’s share of the Bayneroil joint-venture refinery network and filling station business.

In the olefins expansion at Burghausen, OMV will build a metathesis plant, enlarge its ethylene plant, and construct a large cracking furnace. It will become sole supplier of propylene to the nearby plastics complex operated by its subsidiary Borealis. The Borealis complex will be expanded with construction of a €200 million, 330,000-tonne/year polypropylene plant. Total polyolefin capacity at the complex will rise to 740,000 tonnes/year. The new plant will use OMV’s Borstar technology.

OMV also plans to invest €150 million to lay a 360-km products pipeline between Munchmunster and Ludwigshafen, giving it access to the Western Europe ethylene network. The pipeline will have an initial capacity of 200,000 tonnes/year, expandable to 400,000 tonnes/year.

Other spending planned by OMV in Germany includes €315 million for its share of investment in the upgrade and restructuring of the Bayernoil joint-venture refinery network and €180 million for retail network expansion.

Transportation - Quick Takes

KMEP again to expand products pipeline

Kinder Morgan Energy Partners LP plans to invest $388 million to further expand the 550-mile CALNEV pipeline, which transports gasoline, diesel, and jet fuel from California to Nevada.

The proposed expansion, involving construction of a 16-in. pipeline from Colton, Calif., to Las Vegas, Nev., will increase the system’s capacity to 200,000 b/d. The company said a further capacity increase to more than 300,000 b/d is possible with the addition of pump stations.

The new pipeline will parallel existing utility corridors between Colton and Las Vegas to minimize environmental impacts. It will transport gasoline, diesel, and jet fuel for the military at Nellis Air Force Base.

Subsequently, the existing 14-in. line will be dedicated to commercial jet fuel service for McCarran International Airport and any future commercial airports planned in Las Vegas and the 8-in. pipeline that currently serves the airport would be purged and held for future service.

Construction of the 16-in. line is expected to be completed in 9 months, following environmental permitting and right-of-way acquisition, expected to take 24-30 months.

Pending Federal Energy Regulatory Commission approvals, startup of the line is scheduled for late 2009 or early 2010.

This major expansion project is in addition to three capital upgrades on the CALNEV system, announced earlier this year. Two of these projects, when completed, will increase the line’s capacity to 156,000 b/d. The third involves construction of additional tanks that will increase gasoline and diesel storage at Las Vegas by 26% and 20%, respectively. The expansion projects combined are valued at $413 million.

Tom Bannigan, president of KMEP’s products pipelines group, said the company is also gauging customer interest in construction of a new refined products distribution terminal south of Henderson, Nev.

CB&I lets contract for South Hook LNG terminal

CB&I John Brown Ltd., The Woodlands, Tex., has awarded the UK’s Cape PLC a contract on the South Hook LNG terminal construction project at Milford Haven, Wales, UK.

Cape said it will provide the “common user access service” for the main process unit on the terminal, which is due to be completed by winter 2007-08.

The South Hook terminal will be owned and operated by South Hook LNG Terminal Co., a joint venture of Qatar Terminal Co. Ltd. and ExxonMobil Qatargas (II) Terminal Co. Ltd.

In November 2004 CB&I was awarded a lump-sum turnkey contract with a value estimated between $725-750 million for Phase 1 of the South Hook grassroots LNG import terminal.

In March 2005 South Hook LNG awarded CB&I a lump-sum turnkey contract for Phase II of the LNG import terminal.

LNG for South Hook will be supplied from the Qatar Liquefied Gas Co. Ltd. (Qatargas II) LNG plant being built at Ras Laffan Industrial City in Qatar.

Qatargas II will supply 15.6 million tonnes/year of LNG to the UK for 25 years, with the first deliveries expected in winter 2007-08.

Gas for Qatargas II will come from Qatar’s North field, which has recoverable gas resources in excess of 900 tcf.