OGJ Newsletter

Aug. 27, 2012
International news for oil and gas professionals


DEP lets Cabot resume work at Dimock wells

Pennsylvania’s Department of Environmental Protection gave Cabot Oil & Gas Corp. permission to resume activities at seven Dimock area wells it has drilled. The Aug. 21 action came after the Houston independent demonstrated that the wells fully complied with state laws, their mechanical integrity was sound, and the wells are not contributing to previously discovered methane migration, a DEP spokesman said.

The agency has not cleared Cabot to resume drilling new wells in the area, he added. If data indicate that the methane’s source has been eliminated or that methane in the aquifer has been returned to background levels, DEP’s consent order and agreement provides that Cabot could do so, the spokesman told OGJ by e-mail on Aug. 22.

Work had been suspended while the US Environmental Protection Agency investigated complaints from several Dimock homeowners that gas had migrated from Cabot’s wells into their private water systems. EPA’s Region 3 office in Philadelphia completed sampling of the wells on July 25 and found no significant levels of contaminants requiring further action.

A Cabot spokesman in Pennsylvania said the company was pleased with DEP’s decision. “After taking all the appropriate steps, Cabot will proceed with our operations to add these wells to the high-producing, clean energy output of Susquehanna County,” he said.

Kinder Morgan divests Rockies assets

Kinder Morgan Energy Partners LP (KMEP) has agreed to sell Kinder Morgan Interstate Gas Transmission (KMIGT), Trailblazer Pipeline Co., the Casper-Douglas natural gas processing and West Frenchie Draw treating facilities in Wyoming, and its 50% interest in the Rockies Express Pipeline (REP) to Tallgrass Energy Partners LP.

KMEP will receive $1.8 billion in cash from the transaction. Including the proportionate amount of REP debt, this amount is equivalent to a value of $3.3 billion. In March, parent Kinder Morgan Inc. reached agreement with the US Federal Trade Commission to divest certain KMEP assets in the Rockies to obtain regulatory approval of its acquisition of El Paso Corp., which closed in May (OGJ Online, June 20, 2012).

Tallgrass emphasized conversion of the Pony Express Pipeline portion of KMIGT into oil service, the transitioning of its gas customers, and placing it in service second-half 2014 as among its initial focuses. The company will also explore what it describes as promising growth projects on the east end of REP.

Effective Aug. 1, KMEP acquired 100% of Tennessee Gas Pipeline (TGP) and a 50% interest in El Paso Natural Gas (EPNG) from KMI to replace the cash flow from the KMEP assets being divested (OGJ Online, Aug. 14, 2012).

Tallgrass is owned by The Energy & Minerals Group, Kelso & Co., and the management team of Tallgrass, including Chief Executive Officer David G. Dehaemers, Jr.

KMEP intends to use the proceeds from the divestiture sales to repay a $2 billion credit facility issued when it acquired TGP and EPNG. KMEP expects the transaction to close in the fourth quarter, subject to FTC approval.

Lukoil buys ConocoPhillips share of Russian venture

OAO Lukoil has closed its acquisition of ConocoPhillips’s indirect 30% interest and certain related assets in NaryanmarNeftegas (NMNG), a joint venture of the two companies.

NMNG was established in 2005 with Lukoil owning 70% and ConocoPhillips owing the rest.

Financial terms of the transaction were not disclosed. ConocoPhillips said it expects a $400 million aftertax financial gain from the sale.

“The sale of this noncore quality asset is an important component of our divestiture program for 2012,” said Don Wallette, executive vice-president, commercial, business development, and corporate planning. Lukoil said it is strengthening its position in Timan Pechora oil and gas province, which the company calls its key upstream region.

Repsol, Alliance complete Russian JV phase

Repsol of Spain and Alliance Oil Co. Ltd. of Bermuda have completed the first phase in the formation of their Russian exploration and production joint venture with transfers of assets and shares (OGJ Online, Dec. 22, 2011).

Alliance has contributed its Saneco subsidiary to the joint venture. Repsol has acquired shares in the joint venture from Alliance for $36 million and subscribed $37 million in new shares.

Under an agreement signed last December, Alliance was to transfer Saneco, which has production interests in Russia’s Samara region, and another subsidiary, Tatnefteotdacha, to the joint venture. The units at yearend 2010 had interests in 14 oil fields in the Volga-Urals region with proved and probable reserves totaling 171.5 million bbl and production of about 20,500 b/d.

In addition to capital, Repsol will contribute Eurotek, which it bought last December for $230 million (OGJ Online, Dec. 30, 2011). Eurotek’s assets include two West Siberian gas fields, Syskonsyninskoye, which is under development, and Yuzhno-Khadyryakhinskoye, which is under appraisal.

The remaining asset and cash transfers are expected to be complete by the fourth quarter this year. Alliance Oil will hold 51% and Repsol 49% of the joint venture, which will have an asset base estimated at $840 million.

Pioneer sells its South African interests

Pioneer Natural Resources Co., Dallas, has closed the sale of its South Africa interests to state-owned Petroleum Oil & Gas Corp. of South Africa for net consideration of $52 million.

PNRC held interests in Sable field and the South Coast Gas Project, both offshore. It reported South African yearend 2011 reserves of 231,000 bbl of oil and 12.67 bcf of natural gas.

Sable field produced oil until 2008 but has produced only gas since then. PNRC reported South African production for all of 2011 of 1.445 million boe.

The company’s international operations ended with the sale. It sold interests in Tunisia in February 2011.

Exploration & DevelopmentQuick Takes

Cairn India to invest $2 billion over 2 years

Cairn India Ltd. plans to invest $2 billion during the next 2 years, including $600 million for exploration in Rajasthan, India, where it has raised expectations for its block under development to 300,000 b/d.

Navin Agarwal, Cairn India chairman, reported at the company’s annual meeting an 11% increase in the resource estimate for the Rajasthan block to 7.3 billion boe in place.

Production from the block has reached the approved rate of 175,000 b/d, Agarwal said.

“This was made possible because we got requisite approval for higher crude offtake from the Mangala field and the commencement of production from the Bhagyam, Raageshwari, and Saraswati fields,” he said.

A pilot polymer flood of Mangala field was successful, he said, adding, “We have initiated the process to realize the full enhanced oil recovery potential.”

Engineers India Ltd., New Delhi, earlier this month said Cairn India had awarded it a front-end engineering and design contract for the Mangala polymer project. The contract covers additional surface facilities for 15 existing well pads with associated pipelines and infrastructure.

Oil from the block flows through a 366-mile, heated and insulated pipeline to Salaya, Gujarat.

Agarwal said Cairn India has identified more than 100 exploratory prospects and leads on the Rajasthan block. The company also has discovered natural gas and will “bring that into production as quickly as possible,” he said.

In addition to the Rajasthan project, Cairn India has interests in oil and gas production in India’s Krishna-Godavari and Cambay basins. It also has reported oil and gas finds off Sri Lanka and recently farmed in to a block off South Africa.

TNK-BP to spend $800 million in Uvat area

TNK-BP expects to invest up to $800 million this year in exploration and development in the Uvat area of the Tyumen region of West Siberia (OGJ Online, Feb. 18, 2009).

More than half the spending will be for drilling, TNK-BP says. Uvat production is expected to increase by 18.6% this year to a total of 7 million tonnes. The company says production from the area was up 22% in the first half of 2012 over the comparable period of 2011.

Next year, the production target is 8 million tonnes, according to Yuri Masalkin, general director of TNK-Uvat.

Work this year will include completion of a 39 km road linking Ust-Tegusskoye and Tailakovskoye fields. The road will slash the cost and speed of supply delivery.

Statoil, Petoro to further develop Gullfaks South

Statoil ASA and Petoro ASA will further develop Gullfaks South field in the North Sea offshore Norway to hike recovery by 65 million bbl of oil equivalent.

The work will be a fast-track project valued at 8.5 billion kroner. It will involve two new subsea templates and six more wells tied back to the Gullfaks A platform.

Production in parts of Gullfaks South was shut down in 2008 to maintain an acceptable pressure level in the reservoir for future drilling operations. Existing wells are now being returned to production, and new wells will be drilled from existing seabed templates on Gullfaks South.

Four oil producers and two gas injectors are planned for the oil production phase, expected to go on production in 2014.

Two available well slots will provide flexibility, and further reserves could be realized, Statoil said. The project will help make use of spare processing capacity and extend the lifetime of Gullfaks A beyond 2030.

The project will be the second fast-track development to be tied back to Gullfaks for processing after Visund South in 2011. Production from the Gullfaks South Statfjord reservoir started in 1999 as part of the Gullfaks satellite development.

Eni, Vitol to develop gas-condensate offshore Ghana

Eni and Vitol have signed a memorandum of understanding to develop and commercialize gas on the Offshore Cape Three Points block in the Tano basin offshore Ghana.

Eni said the Sankofa-2 appraisal well and the Gye Nyame discovery both contained gas-condensate. Sankofa is about 30 miles offshore in less than 1,000 m of water.

Eni operates the block with a 47.222% stake in partnership with Vitol 37.778% and Ghana National Petroleum Corp. 15%.

The agreement sets out the key principles for future development of the discoveries and commercialization of the gas in the contract area. It focuses particularly on the domestic gas market. Few other details were available.

Eni operates the Offshore Cape Three Points and Offshore Keta blocks off Ghana (see map, OGJ, Mar. 15, 2010, p. 34).

Drilling & ProductionQuick Takes

IADC criticizes BSEE’s compliance expansion

The International Association of Drilling Contractors expressed concern over the US Bureau of Safety and Environmental Enforcement’s interim policy under which inspectors can cite offshore contractors in addition to well operators for not complying with regulations.

The approach significantly departs from the global practice of holding operators ultimately responsible for wellsite accidents, IADC said on Aug. 17.

“Global government regimes have always held operators responsible,” said Brian T. Petty, IADC’s executive vice-president for government affairs. “This new guidance opens the door to unknown levels of liability for contractors and additional uncertainty for contractors. At a minimum it could increase contractors’ insurance premiums, but it also could potentially eliminate coverage for many companies in the US altogether.”

Under the standard IADC drilling contracts, drilling contractors are already liable to oil companies for any gross and willful negligence, he noted. Additional costs and risk exposure, combined with the possibility for civil penalties and fines, could drive drilling contractors out of the US Gulf of Mexico, he warned.

“Drilling activity is strong around the world, with significant rig demand in areas like Brazil, West Africa, and Asia Pacific,” Petty said. “Drilling contractors could well decide to leave the gulf for places where they won’t have to bear the same risks.”

TNK-BP extends use of enhanced frac method

TNK-BP is expanding the use of an enhanced multistage hydraulic fracturing to boost oil production from mature fields in West Siberia.

It reports good results in a pilot project run by TNK-BP unit Samotlorneftegaz and Trican Well Service of Houston testing the six-stage hydraulic fracturing method in 15 wells in supergiant Samotlor oil field.

TNK-BP said that in comparison with other multistage fracturing techniques the method reduced completion time by a factor of three and improved reservoir productivity.

“The key element of the new technology is the use of special equipment to clean the wellbore after each fracing stage and proceed to commercial production immediately after completion of the sixth stage,” it said.

TNK-BP plans to apply the technique in a further 25 wells in Samotlor field by the end of 2012 and, beginning next year, to use it to frac about 50 horizontal wells/year across West Siberia.

A TNK-BP study in 2009 found that Samotlor, discovered in 1965, held recoverable volumes of 7 billion bbl of crude oil and 3.53 tcf of natural gas. Since the start of in 1969, it had produced 19.2 billion bbl (OGJ Online, Apr. 3, 2009).

Samotlorneftegaz is developing the central and southwestern sectors of the field, covering 1,750 sq km.

Karakuduk field marks oil production milestone

Giant Karakuduk oil and gas field in western Kazakhstan’s Mangistau region produced 10.22 million bbl of oil and 5.3 bcf of gas in 2011 and produced its 10 millionth ton of oil in 2012, said Lukoil Overseas Holding Ltd.

Lukoil and Sinopec manage the field on a parity basis for the KarakudukMunai operating entity. Field employment is 520 people, 97% of whom are Kazakh citizens.

Discovered in 1972, Karakuduk’s commercial development started in 1998 under a 25-year subsoil use contract signed in 1995.

Karakuduk, in the North Caspian basin 365 km northeast of Aktau, produced its millionth ton of oil in 2003. Lukoil’s involvement dates to the end of 2005.

KarakudukMunai is applying numerous techniques in the field to maintain oil output at plateau level and increase the recovery factor. These include cluster and horizontal drilling, sidetracking, and hydraulic fracturing.

The field’s associated gas is gathered, processed, and used in the field or transported to industrial and residential customers, Lukoil said.


Sinclair settles pollution charges in Wyoming

Two Sinclair Oil Corp. refineries in Wyoming agreed to pay more than $3.8 million in fines and spend $10.5 million for additional equipment and other projects to resolve alleged violations of a 2008 consent decree at the facilities, the US Department of Justice and Environmental Protection Agency jointly announced on Aug. 20.

DOJ and EPA said the settlement will require the refineries at Sinclair and Casper, Wyo., to reduce emissions of nitrogen oxides by 24 tons/year, sulfur dioxide by 385 tons/year, and particulate matter by 59 tons/year.

The federal entities said the privately held company allegedly exceeded nitrogen oxide emissions at the plants and did not install, operate, and maintain a flare gas recovery system at the 80,000-b/d refinery at Sinclair. The settlement requires installation of a selective catalytic reduction system to address the first problem and upgrading the flare gas recovery system to address the second.

Sinclair Oil also will complete a project to provide road paving at the 24,500-b/d Casper refinery that will cut particulate matter emissions by another 59 tons/year and reduce fuel oil burned at the plant from the existing 188 tons/year limit to no more than 95 tons/year, they added.

The proposed settlement is subject to a 30-day public comment period and final court approval, DOJ and EPA said.

API: RFS flaws need to be addressed soon

Problems in the federal Renewable Fuels Standard that have emerged over several months need to be addressed soon, an American Petroleum Institute official warned. But he added that the oil and gas industry’s largest association isn’t ready yet to join livestock producers in seeking an RFS waiver for 2013.

“We’re trying to educate policymakers. This obviously is a complex issue, but one which has real world implications,” API Downstream Director Bob Greco said. “We need a solution. In some cases, it will need to be legislative. Others, it will be regulatory. Congress is starting to get interested in this, and we could see something, possibly next year.”

Flaws that have emerged range from the so-called ethanol blend wall, which he said could arrive as soon as next year, to requirements for refiners to use cellulosic biofuels that don’t yet exist, he told reporters during an Aug. 8 teleconference.

Mandates under the 2007 Energy Independence and Security Act pose problems because biofuel requirements were based on projections of significantly higher gasoline demand than what has occurred; the commercial cellulosic biofuel production which was expected to materialize in a few years has not; and issues involving the 10% ethanol blend wall and possible impacts of using more in motor fuels were not fully comprehended, API said in a new analysis.

The US Environmental Protection Agency’s approach to implementing some of these mandates also has created problems, Greco said. “Some things are out of its control,” he said. “Others, such as cellulosic mandates, involve authority it already has. Since EPA has refused to recognize the reality of the cellulosic market, Congress may need to address it.”

Excelerate Energy contracts for eight more FSRU

Excelerate Energy, Houston, has signed a shipbuilding agreement with Daewoo Shipbuilding & Marine Engineering for delivery of as many as eight floating storage and regasification units (FSRU). The eight new vessels are to be delivered 2015-17.

Excelerate already operates a fleet of nine FSRU at various regasification terminals around the world.

The company has developed and commissioned six LNG import locations worldwide, with a seventh entering service off Israel in November, Excelerate spokesperson Denise Madera told OGJ. Italian marine contractor Micoperi is building the $140-million, 2.5 billion cu m/year LNG terminal about 6 miles off the Mediterranean city of Hadera.

An eighth FSRU is part of advanced development for a terminal in Puerto Rico.

Excelerate’s ninth FSRU is under construction at DSME’s Geoje Island shipyard in Okpo Bay on the southeastern tip of the Korean Peninsula and committed to the Petrobras VT3 regas project (OGJ Online, Aug. 29, 2011). The eight new FSRU will be modeled on this ninth vessel.

Initial options for each new vessel are for 173,400 cu m capacity, 294 m length, and 46 m width. It will be capable of a baseload sendout capacity of 800 MMcfd with peaking capacity of more than 950 MMcfd.

Under terms of the agreement with Daewoo, Excelerate has the option for smaller or larger capacity vessels, depending market demands. The new vessels will incorporate Excelerate Energy’s Energy Bridge regasification technologies.


CNPC reports successful LNG trial

China National Petroleum Corp. reported recent success in a natural gas liquefaction trial in Ansai County, Shaanxi Province. The province has seen extensive natural gas development in recent years, especially from shale and coalbed methane (OGJ Online, Mar. 20, 2012; OGJ Online, June 5, 2012).

The industrial application of a double mixed-refrigerant (DMR) process independently developed by CNPC’s China Huanqiu Contracting & Engineering Corp. (HQCEC) is the first of large-scale gas liquefaction in China, said CNPC.

Late in 2009, HQCEC received an engineering, procurement, and construction contract for the Ansai LNG project from CNPC’s affiliate Kunlun Energy Co. Ltd. During project implementation, HQCEC has formulated large and medium-sized gas liquefaction technical packages; obtained local sources for primary materials, part of the equipment, and the control system; and developed the proprietary DMR process.

In the recent announcement, CNPC said the successful debut of Ansai LNG project “not only indicates a major step forward of CNPC in relevant proprietary technology development,” it will also “facilitate the economic development of the local area.”

BLM releases EA for North Dakota pipeline

The US Bureau of Land Management has released an environmental assessment of Bakkenlink Production LLC’s proposed crude oil pipeline across North Dakota and will accept public comments on it through Sept. 15, the agency’s Dickinson, ND, field office said.

BLM said the proposed 12-in., 132-mile pipeline would extend from Beaver Lodge to Fryburg, and have a capacity of 65,000 b/d that could be expanded to 100,000 b/d. The line would follow existing pipeline and utility easements where possible, the field office’s notice said.

BLM was the designated federal lead in preparing the EA, with the US Forest Service and US Army Corps of Engineers as cooperating agencies, it noted. Bakkenlink Production is a subsidiary of Houston-based Great Northern Midstream LLC.