OGJ Newsletter

March 19, 2007
General Interest - Quick Takes

US, Brazil take steps toward ethanol partnership

During a recent visit to Brazil, US President George W. Bush announced a new energy partnership with Brazil to promote wider production of ethanol throughout the region as an alternative to oil.

The agreement was crafted to expand research, share technology, stimulate investment, and develop common international standards for biofuels. The US and Brazil, which together make 70% of the world’s ethanol, will team up to encourage other nations to produce and consume alternative fuels, starting in Central America and the Caribbean.

Bush and Brazilian President Luiz Inácio Lula da Silva said increasing alternative fuel use will lead to more jobs, a cleaner environment, and greater independence from the whims of the oil market. In Brazil, nearly eight in 10 new cars already run on fuel made from sugar cane.

Under a memorandum of understanding signed by US Sec. of State Condoleezza Rice and Brazil Foreign Minister Celso Amorim, the two nations pledged closer cooperation on researching alternative energy production, promoting alternative fuels in the region and developing industry-wide standards and codes that could lay the groundwork for a global biofuels market.

The agreement entails cooperation in research and development of next-generation biofuel technology, such as ethanol production from cellulose.

In January Bush called on Congress to require the use of 35 billion gal/year of ethanol and other alternative fuels such as biodiesel by 2017. To help meet the goal, the president also is pushing research to make ethanol from material such as wood chips and switchgrass.

WoodMac expects increasing non-OPEC oil supply

Last year’s fourth-quarter momentum for oil supply from outside the Organization of Petroleum Exporting Countries is expected to be maintained during 2007, said Edinburgh consultant Wood Mackenzie Ltd.

WoodMac’s forecast came in a report entitled “Outlook for Supply in 2007: Non-OPEC Increases to Continue,” in which analysts present a global project-by-project oil supply picture for 2007.

Total non-OPEC oil and natural gas liquids production, including Angola, is forecast to average 50.2 million b/d in 2007, up 1.5 million b/d from 2006, WoodMac said. Although Angola recently joined OPEC, WoodMac included Angola in the non-OPEC countries for the purposes of comparison with 2006.

Patrick Gibson, WoodMac principal oil supply analyst, said, “Our analysis shows that there will be significant increases in the [Former Soviet Union] states, North America, and Africa. The main areas that will experience decline are the North Sea and the Asia-Pacific region.”

Gibson said WoodMac identified seven projects, led by BP PLC’s Azeri Chirag Guneshli development in Azerbaijan, that will add an average of over 100,000 b/d each. Six of those projects already are on stream.

“With the top 25 projects adding an aggregate 2.1 million b/d of capacity, there is a broad base to the production growth expected,” Gibson said. “The bulk of the additional supply in 2007 will consist of light and medium-grade crudes.”

The forecast is based upon a risked approach that takes into account average levels of supply losses, Gibson said. Unexpected geopolitical events and technical failures could affect the forecast.

Ann-Louise Hittle, WoodMac head of oil market analysis, said there is little room in the market for OPEC member states to increase production.

“The non-OPEC supply serves to keep the pressure on OPEC to defend prices,” Hittle said. “This points towards more OPEC 10 production restraint during 2007, which serves to increase the group’s spare productive capacity. During 2007 this could be a source of downward price pressure, although the tension over Iran’s nuclear enrichment program is an offsetting factor.”

Iraq faces decisions about oil future, study says

Iraq’s decisions about the future organization of its oil sector will have major implications for future oil market trends and global oil prices, said a Rice University Baker Institute study on national oil companies.

In a case study entitled “Iraq’s Oil Sector: Past, Present, and Future,” Baker Institute researcher Amy Myers Jaffe said the manner of Iraq’s participation in oil markets will be a major factor of the next decade and beyond.

If Iraq reconstitutes its NOC under strategies similar to the manner it participated in international oil trade during the 1960-70s, it could become a leader working with other members of the Organization of Petroleum Exporting Countries to restrain future investment in oil resources and to limit output to achieve high oil prices, Jaffe said.

“If on the other hand, Iraq were to restructure its industry to allow foreign direct investment or to privatize its oil sector, fostering increased competition among domestic operations inside the country’s oil sector, the consequences are likely to lead to more competitive structures for global oil markets in general and thereby lower energy prices over time,” she said.

Iraq’s oil sector needs several billion dollars worth of investment just to restore oil production and more than an estimated $20 billion to raise output to 5 million b/d, she said.

“The question of how to raise such sums has to be addressed,” Jaffe said. “If it is decided that higher levels of production are desired, it is inevitable that the potential role of outside investors and lenders will loom large.”

Jaffe concluded, “Improved national oil company management will have to serve as a basis for any program to expand production. Issues related to the role of the existing oil company subsidiaries such as South Oil Co. and North Oil Co. will have to be tackled head on.”

ExxonMobil to start up 20 projects through 2009

ExxonMobil Corp. plans to start up more than 20 new global projects through 2009, said the company’s chairman and chief executive officer Rex Tillerson. At peak production, these projects are expected to add 1 million boe/d to the supermajor’s volumes.

The project inventory at yearend 2006 is expected to develop 24 billion boe net to ExxonMobil, Tillerson told analysts at the New York Stock Exchange on Mar. 7.

His 100-page presentation included maps showing 7 major project start-ups for 2006, 14 for 2007, 32 for 2008-09, and 63 for 2010 and beyond.

An ExxonMobil list naming the 20-plus projects to which Tillerson specifically referred was unavailable at presstime. Last year, OGJ listed ExxonMobil as operator of 27 major projects in an article on upstream megaprojects (OGJ, June 12, 2006, p. 41).

“Market and geopolitical forces continue to shape the environment in which we operate,” said Tillerson. “We continue to prudently invest more in technology than our competitors. In 2006 we spent more than $700 million and have invested more than $3 billion since 2002.”

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Exploration & Development - Quick Takes

Talisman makes gas find in British Columbia

Talisman Energy Inc. and Husky Oil Operations Ltd. have drilled a successful natural gas exploration well in the foothills area of northeastern British Columbia. The companies are equal partners in the discovery.

The well, designated Talisman Husky Federal d-28-H/94-B-7, tested at restricted rates of 21-25 MMcfd of gross raw gas. Its flowing wellhead pressure was 2,300 psi.

Production from the well is expected to start by November. It was drilled along a new exploration fairway, about 100 km north of Talisman’s Monkman area. Talisman holds rights to about 10,000 gross hectares in the region.

Talisman said it has identified two 100% opportunities on the structure, which it expects to drill during this year and in 2008.

Louisiana well tab $60 million to 30,000 ft

Meridian Resource Corp., Houston, and others are gearing up to drill an ultradeep wildcat near New Orleans for which the dry hole cost is an estimated $60 million.

The well is projected to 30,000 ft to test a Jurassic Cotton Valley four-way closure in the Biloxi Marshlands area. It is to spud in early second quarter 2008 on the Deep Archtop Prospect in St. Bernard Parish. Meridian generated the prospect and began marketing it in January.

The prospect, imaged by 3D seismic surveys, has more than 14,400 acres of closure and potential recovery of as much as 5 tcf of gas.

“The shallow marshlands water location provides the potential for significant savings in drilling the test well and post development infrastructure,” the company said.

Meridian said it will spend the coming year in predrill work, followed by 300-plus days to drill the well.

Offshore projects of similar size typically cost much more and require longer periods of time to construct the necessary pipelines and production facilities, the company noted. Meridian owns production facilities and pipelines in the immediate area.

Meridian intends to retain and pay its share of 20% working interest to casing point in this well. It did not disclose the other participants.

Well off Peru flows oil, gas at hefty rates

A well in Corvina field off northwestern Peru has flowed at rates of 40 MMcfd of gas and 3,150 b/d of crude oil from separate intervals, exceeding expectations, said BPZ Energy Inc., Houston.

BPZ ran four drillstem tests at the CX11-21XD well that covered a total of 413 ft in the Miocene Lower and Upper Zorritos formations.

DST-4 over 130 ft of pay in the top of Upper Zorritos flowed 40 MMcfd with 1,500 psia wellhead pressure. The nearly pure methane is ideal for the proposed 160-MW, 40 MMcfd power plant at Nueva Esperanza.

DST-3 of 45 ft in the middle of Upper Zorritos made 3,150 b/d of 22° gravity sweet crude, no water, with 1,000 psia wellhead pressure. BPZ may later test other intervals that appear to contain crude oil.

DST-2 on 138 ft of lowermost Upper Zorritos was inclusive due to mechanical problems and may be retested later as the company feels the zone may still contain commercial hydrocarbons.

DST-1 over 100 ft of Lower Zorritos produced gas and so much formation water that the zone is deemed noncommercial in this part of the field. BPZ is optimistic that this formerly untested formation contains commercial gas as evidenced on logs from three other Corvina field wells.

The well is strikingly similar to the 8X-2 well that the former Tenneco drilled decades ago in Albacora field, which BPZ plans to redevelop soon. The 8X-2 well tested 4,365 b/d of oil and 21 MMcfd of gas with 893 b/d of condensate.

BPZ plans to rework the shut-in CX-11-16X well that previously tested 16.6 MMcfd and then drill a second new well in Corvina field to prove up more gas reserves and appraise the oil discovery.

Toreador finds more gas off Turkey

Toreador Resources Corp. and partners have made two additional gas discoveries in the South Akcakoca subbasin in the Black Sea off Turkey.

The Atwood Oceanics Inc. Southern Cross semisubmersible drilled the Guluc-1 exploration well on a separate structure on the same geological trend as the recently announced Akcakoca and Akcakoca East discoveries (OGJ Online, Feb. 8, 2007).

Guluc-1 encountered gas-bearing sands in six zones between 1,226 m and 1,453 m TVD in the same Eocene-age Kusuri formation as in the other wells in the South Akcakoca subbasin. The well tested 17 MMcfd of gas from 37 m of perforations across all six zones on a 48/64-in. choke with flowing pressure of 1,180 psi.

The Alapli-1 exploration well, drilled using the Prometheus jack up, is on a separate structure to the northeast of Akkaya field currently under development. Alapli-1 encountered gas-bearing sands in three zones between 1,068 m and 1,242 m TVD. The two lower zones, with 12 m of net pay, tested 6.8 MMcfd of gas on a 32/64-in. choke with a flowing pressure of 1,064 psi. The upper zone at 1,239 to 1,242 m TVD will be tested soon.

The Atwood Southern Cross rig, having completed its initial three-well program in the South Akcakoca subbasin, will now be released to work for another operator off Bulgaria. And the Prometheus jack up will drill a well for one of the partners in another permit area before coming back to the South Akcakoca subbasin to set the Ayazli tripod and topsides in late April.

The topsides for the Akkaya production tripod already have been set and secured.

Drilling & Production - Quick Takes

Statoil to continue production from Norne field

The Norwegian Petroleum Safety Authority has granted Statoil ASA consent to employ Transocean Offshore’s Polar Pioneer semisubmersible drilling rig to continue oil production in Norne oil and gas field in the Norwegian Sea.

PSA said the Polar Pioneer would help Statoil, which operates the field, to drill an additional production well, complete two subsea wells on Block 6608/10, and sidetrack an injector well to improve pressure support on Svale.

Norne, which lies in 380 m of water, is part of Production License 128. Statoil said last year that it plans to improve recovery from Norne and reach a plateau of 1 million boe/d by 2015. It installed a subsea template to increase production by 10 million b/d of oil.

The other Norne licensees are Eni Norge AS, Norsk Hydro Produksjon AS, and Petoro AS.

BPTT expects Mango-Cashima fields output in fall

BP Trinidad & Tobago LLC is moving to bring online 800 MMcfd of natural gas from its Mango and Cashima fields off eastern Trinidad and Tobago this year.

“This production level will give BPTT the capacity to sustain its gas production at the level of 400,000 boe/d of oil,” BPTT Chairman and Chief Executive Robert Riley said. He said the production would go towards meeting the company’s commitments to Atlantic LNG and the National Gas Co. of Trinidad and Tobago LLC.

Reserves in Mango and Cashima are estimated at 2 tcf.

The first gas output from Mango is expected by September and from Cashima by October. The Constellation and Monitor contract rigs will drill six developmental wells in Mango and Cashima respectively. Gas from Cashima would be sent to a new hub at BPTT’s Amherstia field.

BPTT has had a single processing hub, but Riley said that had to change. “Centering gas production around a single processing hub has always had its risks,” he said. “With Amherstia joining the Cassia B as an additional 1 bcfd hub, we will now have much greater flexibility to manage any operational hiccups that may develop in the future.”

The platforms would have a combined processing capacity of 1.5 bscfd of gas.

Callon plans to produce Entrada by 2009

Callon Petroleum Co., Natchez, Miss., plans to take a development partner and has set a goal of starting production from Entrada field in the Gulf of Mexico by 2009.

The planned $190 million purchase of BP Exploration & Production Co.’s 80% interest, to close within 45 days, is the largest transaction in Callon’s history, said Fred Callon, chairman and chief executive officer (OGJ Online, Mar. 9, 2007).

Callon has been a partner in the field, a 2003 discovery in 4,690 ft of water on Garden Banks Block 782. The company has a good technical and operational understanding of the field, which has compelling economics, Callon said.

Callon, which at closing will own a 100% working interest and become operator, is well along in negotiations with ConocoPhillips, operator of the Magnolia tension leg platform on adjacent Block 783, to produce Entrada through the Magnolia facilities.

Callon’s initial development plan is to drill and equip two wells as subsea tiebacks to Magnolia and make provision for similar linkups of future wells. Expected capability is 15,000 b/d/well of oil and 50 MMcfd/well of gas, subject to capacity on Magnolia. Callon expects to have some level of firm capacity at Magnolia and anticipates some rate limitation initially.

The first two wells should begin producing in 2009.

Callon is seeking a deepwater rig to drill the wells in 2008. Despite rig market tightness, a rig could become available from another operator whose plans changed or from a potential Entrada partner that has a rig under contract, Callon said.

Total additional development cost is $200 million, bringing Entrada’s fully developed cost to $15.60/bbl, Callon said.

The company also intends to explore other potential it sees on the five blocks being acquired, he said.

Processing - Quick Takes

Japan to receive bulk of Brazil’s ethanol exports

The Japan Bank for International Cooperation (JBIC) has signed a memorandum of understanding to provide Brazil’s state-run Petroleo Brasileiro SA (Petrobras) with $8 billion to help it export ethanol to Japan.

As a result of the aid, annual shipments to Japan by Petrobras are expected to rocket to 3 billion l., with the Asian country taking nearly 90% of Brazil’s available exports. In 2006, Brazil exported 3.4 billion l. of ethanol, of which less than 7%, or 225.4 million l., went to Japan.

The JBIC assistance will help Petrobras expand output and sales to Japan, with financing to cover ethanol plants, storage tanks, pipelines, and ports, according to a Mar. 4 report in Brazil’s largest newspaper, Folha de S. Paulo, which quoted Petrobras executive Paulo Roberto Costa. Projects to be evaluated include the production and sale of ethanol and biodiesel, electric power plants using sugar cane bagasse as raw material, and carbon credit opportunities.

On Feb. 26, it was announced that Japan’s Marubeni Corp. and Dutch grain trader Agrenco Group in 2008 plan jointly to start producing biodiesel from Brazilian soybean oil (OGJ Online, Feb. 26, 2007).

And on Feb. 27 Petrobras announced an MOU with Japan’s Mitsui & Co. and Brazilian Construces e Comercio Camargo Correa SA to study the construction of pipelines for exporting ethanol (OGJ Online, Feb 28, 2007).

IOC’s Gujarat refinery due delayed coker

Indian Oil Corp. Ltd. (IOC) plans to add a 3.7 million tonne/year delayed coker at its 185,100 b/cd refinery in Gujarat, India, as part of a residue-upgrading project.

IOC has selected Foster Wheeler USA Corp. to provide a license and basic engineering package for the coker. Terms of the contract were not disclosed.

The coker will be based on Foster Wheeler’s selective yield delayed coking (Sydec) technology, which is a thermal process that converts heavy-residue feed into transportation fuels. The Sydec process achieves maximum clean-liquid yields and minimum fuel-coke yields from high-sulfur residues, Foster Wheeler said.

Hydrocracker to be installed at Holly refinery

Process Dynamics Inc. has been awarded a contract to provide licensing, a process design package, and reactor internals for a grassroots gas-oil mild hydrocracker at Holly Corp.’s 26,000 b/cd refinery in Woods Cross, Utah.

The unit can process as much as 15,000 b/d of mixed feed and will use Process Dynamic’s IsoTherming hydrocracking technology.

Mustang Engineers & Constructors Inc. assisted in the development of the process design package.

The unit is scheduled for startup in 2008.

Guangxi refinery due polypropylene plant

PetroChina has let a contract to Aker Kvaerner ASA and a subsidiary of China National Petroleum Corp. for basic engineering design and supply of certain equipment for a 200,000 tonne/year polypropylene plant to be installed at the Guangxi Petrochemical Co. complex in China.

The contract value was not disclosed.

The plant, which will use Dow Chemical Co.’s UNIPOL polypropylene technology, is expected to start operations in 2008.

Transportation - Quick Takes

Dolphin gets QP gas; prepares for UAE imports

Dolphin Energy Ltd., Abu Dhabi, has received its first supplies of natural gas through a pipeline from Qatar and is testing its import facilities ahead of the project’s planned commercial launch this summer.

“Gas is being received from Qatar Petroleum (QP) for Dolphin’s export pipeline connecting Qatar with the UAE,” Dolphin said without detailing the quantity of gas received.

The $3.5 billion pipeline initially is planned to carry 2 bcfd, but the pipeline has a design capacity of 3.5 bcfd to accommodate expected later demand. Qatar plans to export 200 MMcfd to Oman starting in 2008 (OGJ, Feb. 19, 2007, p. 48).

Two weeks after completion of testing, the Taweelah import and distribution terminal in Abu Dhabi will begin supplying up to 400 MMcfd to Dubai under a preliminary supply agreement with QP.

Once Dolphin’s own gas begins arriving from Qatar in midsummer for UAE customers, the arrangement for the early gas deliveries with QP will end. Full commercial operations will start in midsummer, when Dolphin will send as much as 3.5 bcfd of gas to the UAE.

Abu Dhabi government-run Mubadala Development Co. owns 51% of Dolphin, while the remaining 49% is shared 50:50 by Total SA and Occidental Petroleum Corp.

MacKenzie Valley line cost estimates updated

Mackenzie Valley Pipeline sponsors have updated the cost estimates for the Mackenzie natural gas transportation project to $16.2 billion (Can.) and delayed the expected completion date by 3 years, operator Imperial Oil Ltd. said.

The changes were outlined in updated information Imperial filed with Canada’s National Energy Board and Joint Review Panel, the Calgary-based firm said Mar. 12.

Project costs are now estimated at $7.8 billion for the Mackenzie Valley mainline and $3.5 billion for the gas gathering system. In addition, the estimated cost of anchor fields development is $4.9 billion.

The 1,200-km pipeline, previously pegged at $6.5 billion, would link Beaufort Sea fields to the Alberta border. Project timing is uncertain, but production start-up is expected no sooner than 2014, Imperial said. Previously, the anticipated construction completion was 2011(OGJ Online, Feb. 23, 2007).

The Mackenzie gas project would include development of 6 tcf of gas in three onshore fields in the Mackenzie Delta and construction of a gas and natural gas liquids gathering system, gas pipeline, and related facilities.

The Mackenzie Valley gas pipeline would have 1.2 bcfd of throughput capacity, and would be expandable to accommodate gas from other fields.