OGJ Newsletter

Nov. 26, 2007
General Interest - Quick Takes

WEC: TNK-BP calls on Russia to change tax regime

Russia will have to change its tax regime if it is to attract future investment from energy companies, a senior figure from TNK-BP said.

Speaking at the World Energy Congress in Rome, Lord George Robertson, TNK-BP deputy chairman, said the company has paid $50 billion in taxes to the Russian government over the last 4 years. “There are rising levels of taxation and cost, which means that margins are being squeezed, and so there is less cash to invest,” Robertson said. “Russia’s tax environment supports prices of under $25/bbl but when it’s beyond $27/bbl, the Russian government takes the bigger share.”

Russia is looking for investments in Siberia and offshore in the arctic, but Robertson said this would be difficult if costs remain high. TNK-BP, with production of 1.3 million boe/d, is one of Russia’s largest oil and gas producers.

“Diversity of supply will be key to the future so that we can find flexible ways of solving our problems,” Robertson said.

Forging closer ties with Asia also is a major priority for Russia, said Sergey Boydanchikov, Rosneft chairman and president. The company plans to more than triple to 18% its supplies to Asia by 2020, but Boydanchikov stressed that Europe would still remain an important market.

“Europe is our traditional partner and it won’t suffer because of our policy,” Boydanchikov said. “This will be in the interest of Russia to sell oil and continue to seek profit and higher added value.”

OPEC discusses carbon capture for reducing GHGs

Members of the Organization of Petroleum Exporting Countries discussed carbon capture and storage (CCS) during a Nov. 17-18 meeting in Riyahd.

Algeria’s Energy Minister Chakib Khelil discussed energy and the environment as it related to a draft declaration at the Third OPEC Summit on Nov. 18.

“Carbon storage could reduce the impact of fossil fuels on climate change, and developed countries have the technology on this,” Khelil said.

United Nations Framework Convention on Climate Change (UNFCCC) Executive Director Yvo de Boer addressed OPEC delegates and spoke with reporters during the Riyahd meeting.

“I think the debate here points to a constructive willingness to participate in international dialogue about climate change,” he said. The UNFCCC’s International Panel on Climate Change calls CCS the most promising technology for rapidly reducing global greenhouse gas emissions.

A UN climate change conference is scheduled for December in Bali. UN approval of CCS methodologies could promote CCS technology research and development efforts.

Separately, the European Commission is expected to approve CCS as an emissions reduction method, beginning in 2013. The third phase of the cap-and-trade European Trading Scheme (ETS) would make CCS projects eligible for ETS emissions-reduction credits.

Former executive pleads guilty in bribe plot

A former executive of a Willbros Group Inc. subsidiary pleaded guilty to conspiring to bribe Nigerian government officials with more than $6 million to secure a major natural gas pipeline construction contract in that country, the US Department of Justice announced on Nov. 5.

Jason Edward Steph of Sunset, Tex., pleaded guilty to violating the Foreign Corrupt Practices Act. He is cooperating with the government’s investigation and faces a sentence of up to 5 years in prison and a $250,000 fine. Sentencing was scheduled for Jan. 25, 2008.

Steph worked for Willbros’s overseas subsidiary Willbros International Inc. from 1998 to April 2005 and was general manager of its onshore operations in Nigeria from 2000 until April 2005, DOJ said.

As part of his guilty plea, he admitted that in late 2003 he, a senior executive in charge of Willbros Group’s international business, two purported consultants working for Willbros International, and certain Nigerian-based employees of a German engineering and construction company agreed to pay the millions in bribes. The money was to go to officials of Nigerian National Oil Corp. and its Nigerian Petroleum Investment Services subsidiary, a Nigerian political party, and a senior official in the Nigerian government’s executive branch.

Steph also admitted that he, former Willbros International executive Jim Bob Brown, and others arranged to pay about $1.8 million in cash to government officials in Nigeria to further the scheme. Brown pleaded guilty to a similar charge on Sept. 14, 2006, DOJ said.

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Exploration & Development - Quick Takes

WEC: Algeria to offer 10-15 blocks in next round

Algeria will offer 10-15 blocks in its next licensing round in January 2008, Chakib Khelil, Algeria’s energy minister, told OGJ in an exclusive interview during the World Energy Congress.

State-owned Sonatrach will seek prequalified partners that can offer upstream asset swaps, he said. “I can’t say where the blocks will be offered. Some of those proposed are controlled by Sonatrach and others by the state, but the same process will apply to both.”

Khelil told OGJ that the government had introduced these terms because it needs technology and assistance to develop the blocks.

“Algeria and Sonatrach have money; we don’t need that. Sonatrach has the know-how. We want Sonatrach to become an important player in the international arena,” he said.

He denied accusations of resource nationalism, a major subject discussed during the World Energy Congress in Rome, saying that the phenomenon was not particular to Algeria.

Sonatrach will not seek other international partners to help it with Gassi Touil integrated production and LNG export project in the Berkine basin in the Sahara Desert after terminating the agreement with Gas Natural and Repsol (OGJ, Sept. 20, 2007, Newsletter).

“It poses too many problems to find other partners and start from scratch, so we have decided to do it alone,” Khelil said. Production will start in 2012, 3 years later than originally planned.

Khelil said Sonatrach ended the agreement because of delays and rising costs. The former partners are now in arbitration. “This is a commercial issue, not one of resource nationalism. Even the Spanish foreign minister has said that.”

He defended Algeria’s decision to impose tax on exceptional profits as one of “logic,” saying, “When oil was $15/bbl in the ‘80’s and the contracts were signed, there was no mechanism to have oil prices go that high. The state of Algeria said it would take a fair share, but a similar thing is happening in Alberta, the US, and the UK.”

BP reports deeper-pool Shah Deniz discovery

BP PLC has reported a deeper-pool discovery in Shah Deniz gas-condensate field off Azerbaijan in a well BP says justifies a second phase of development.

The SDX-04 appraisal and exploration well, 70 km southeast of Baku, discovered a high-pressure gas-condensate zone older than those now on production in the northern flank of the field.

BP said the well was drilled to a Caspian-record depth of more than 7,300 m in the southwestern part of Shah Deniz. It plans appraisal drilling in the next few years.

The well encountered gas and condensate in Pliocene Fasila and Balakhany VII zones, which are productive to the north.

On test, the well flowed at an equipment-restricted rate of 35 MMscfd.

BP said production from the second stage of development, plans for which depend on results of appraisal work, probably would be similar to or greater than first-phase output, which is to reach 8.6 billion cu m/year.

The field began intermittent production from the first of four predrilled wells last December and has been producing steadily since March.

Production flows from a 15-slot production, drilling, and quarters platform in 105 m of water through a 26-in. gas pipeline and 12-in. condensate pipeline to processing facilities in the Sangachal Terminal onshore. After processing, the gas enters the South Caucasus Pipeline between Azaerbaijan and Turkey, which was laid as part of the Shah Deniz development.

At midyear, Shah Deniz was producing more than 14.2 million cu m/day of gas and 30,000 b/d of condensate.

Partners in the Shah Deniz production sharing agreement are BP, operator, and StatoilHydro, 25.5% interest each; State Oil Company of Azerbaijan Republic, Lukoil, NICO, and Total, 10% each; and TPAO, 9%.

Total finds more oil off Congo (Brazzaville)

Total E&P Congo has found six oil reservoir levels in its ultradeepwater Persee Nord Est Marine-1 discovery well. The well, which targeted Miocene rock, was drilled on Mer Tres Profonde Sud (MTPS) block off Congo (Brazzaville).

The well, which reached 4,110 m TD, is 185 km offshore in 2,120 m of water.

Total will now start on field development studies to bring together its other previous oil discoveries after assessing the resources.

“Following Andromede in 2000, Pegase Nord in 2004, Aurige Nord in 2006, and Cassiopee Est in 2007, this new drilling success is the fifth oil discovery in the MTPS permit,” Total said.

MTPS block spans more than 5,000 sq km and lies in 1,300-3,000 m of water. Total is operator with a 40% interest. Partners include Eni Congo 30% and Esso E&P Congo (Mer Tres Profonde Sud) Ltd. 30%.

Brazil official seeks nuclear sub for Tupi

Brazilian Defense Minster Nelson Jobim claims that a new oil discovery off Brazil underlines the need for his country to develop a nuclear submarine for protection.

“When you have a large natural source of wealth discovered in the Atlantic, it’s obvious you need the means to protect it,” Jobim told a defense conference in Rio de Janeiro.

Jobim’s statement followed a Nov. 8 announcement by the Brazilian government and Petroleo Brasileiro SA that 5-8 billion bbl of oil and associated gas had been found in the block containing offshore Tupi field in the Santos basin (OGJ Online, Nov. 16, 2007).

The discovery well is in 2,126 m of water.

Meanwhile, Petrobras said it will drill 32 wells to appraise the area around Tupi field, according to Hugo Repsold, general manager for exploration and production.

The field is in a presalt frontier extending through the Espirito Santo, Campos, and Santos basins

Drilling & Production - Quick Takes

Cantarell and Ku Maloob Zaap production falling

Production of crude oil in Mexico’s main oilfields—Cantarell and Ku Maloob Zaap, in the Gulf of Mexico Campeche Sound—is falling due to water and salt seepage into the reservoirs, official documents reveal.

According to documents of state oil firm Petroleos Mexicanos, the seepage is causing a reduction in production equivalent to 84,300 b/d of oil. Pemex said the loss of production due to water and salt dates back to 2004, and is a natural result of the maturing of these fields.

“As in all deposits, the problem of water production in mature fields is not something that can be reversed, but rather it is a situation that must be managed to continue producing crude oil, now with a percentage of water,” Pemex said.

In September, Pemex produced an average of 1.5 million b/d of oil from Cantarell, 15% less than in September 2006, the Pemex documents revealed. As recently as November 2006, output of 415,000 b/d at Ku Maloob Zaap field in the Gulf of Mexico had been expected to climb to 800,000 b/d by 2010, partly offsetting Cantarell’s decline (OGJ, Nov. 6, 2006, p. 33).

BP starts up gas field off Trinidad and Tobago

BP Trinidad & Tobago (BPTT) on Nov. 17 began natural gas production from its wholly owned and operated Mango field on Galeota block about 35 miles southeast of Galeota Point in 235 ft of water off Trinidad and Tobago.

The field is expected to add an incremental 750 MMscfd of gas deliverability plus some associated condensate.

Mango field, discovered in 1971 and further appraised in 2000, has been developed using a single unmanned platform with a capacity to produce from nine wells. Gas is transported through a 4-mile, 26-in. subsea pipeline tied into the current Cannonball pipeline and the Cassia B gas processing hub. Gas from Mango will supply Atlantic LNG’s liquefaction plant and the LNG will be used locally and will be exported to international markets.

The Mango platform was the second to be built to the same standardized design as the Cannonball platform, which is the first offshore platform to be designed in Trinidad. Cannonball was installed in 2005. The 860 tonne Mango jacket and the 890 tonne topsides were built at the Trinidad Offshore Fabricators yard in La Brea, Trinidad. Trinidad Offshore is a joint venture of Chet Morrison Contractors and Trinidad’s Weldfab. Mango platform was installed in February. It was built simultaneously with the Cashima platform, which also followed the Cannonball template.

Processing - Quick Takes

Chevron signs agreement for Piceance production

Chevron USA Inc. has entered into a long-term agreement with Enterprise Gas Processing LLC for the gathering and treatment of natural gas produced from Chevron’s Piceance basin operations in western Colorado.

Under the agreement, Enterprise will process all gas produced by Chevron from its Piceance program at its 750 MMcfd Meeker, Colo., gas processing facility, which lies 26 miles north of Chevron’s development. Gas production will be transported through Enterprise’s 48-mile, 36-in. Piceance Creek gathering system to the Meeker facility, which was placed into service in October.

The Meeker facility also has the capability to extract as much as 35,000 b/d of natural gas liquids. Phase II, which will double capacity of the facility to 1.5 bcfd of gas and 70,000 b/d of NGLs, is projected to begin operations in the summer of 2008.

Initial volumes from Chevron’s Piceance production are slated to be 50 MMcfd starting in 2008.

Under the terms of a separate transportation and fractionation exchange agreement, Enterprise will transport Chevron’s mixed NGLs extracted at Meeker through its Mid-America Pipeline (MAPL). In the third quarter, Enterprise completed an expansion of MAPL, adding 50,000 b/d of incremental capacity.

Chevron began its Piceance basin drilling program with a 13-well delineation program in 2005 on 33,000 acres that it owns on Colorado’s western slope. Two purpose-built rigs began drilling the first development wells this summer, using extended-reach directional drilling techniques that will allow Chevron to complete up to 22 wells from a single pad. The entire development program may involve more than 2,000 wells and could last from 10 to 15 years, with production operations continuing for several decades.

Enterprise has already executed agreements totaling more than 2 bcfd of gas with six of the 12 largest producers in the region.

Ivory Coast starts construction on second refinery

Ivory Coast has started construction on its second oil refinery, a 60,000 b/d facility on a 400-hectare site in the Vridi district of Abidjan.

The facility is being funded by US energy firms Energy Allied International and WCW International, together with Ivory Coast’s state-owned Petroci.

“The implementation of this new refinery is a much anticipated next step in our vision to make Abidjan and [Ivory Coast] a major center for refining and redistribution of high-end petroleum products along the West African Atlantic Basin,” said Petroci general manager Kassoum Fadika.

Fadika said Angolan, Nigerian, and possibly Congolese crude will be treated in the refinery, which will target US markets.

State-owned refining firm Societe Ivoirienne de Raffinage manages Ivory Coast’s other refinery, which is in the same industrial area of Vridi, and it can process 70,000 b/d.

The SIR facility is 47.21% owned by the Ivorian government, while Burkina Faso owns another 5.39%. Four international oil companies—Total SA 25.3%, Royal Dutch Shell PLC 10.3%, ExxonMobil Corp. 8.1%, and Chevron Corp. 3.7%—own the remainder.

French producers asked to lessen oil price impact

France’s Finance and Economy Minister Christine Lagarde urged all producers and distributors of fuel in that country to reduce the impact of high oil prices on consumers.

Oil majors Total SA, Royal Dutch Shell PLC, BP PLC, ExxonMobil Corp.’s Esso subsidiary, and Eni SPA unit Agip, as well as smaller distributors, all promised at the Nov. 10 meeting to continue the policy, started in 2005, of “smoothing out” price hikes and passing on price drops to consumers as quickly as possible. In this way, said Total Chief Executive Officer Christopher de Margerie, “No company can outrageously take advantage of market movements.”

Lagarde acknowledged that, as a result of that policy, pump prices in France are lower than average fuel prices in the European Union. She noted that a liter of premium gasoline was almost a third more expensive in Germany than in the competitive French market where large “hypermarket” outlets now account for 57% of motor fuel sales. She said she would encourage the opening of more super and hyper markets. The majors have developed different strategies to remain competitive in that market.

At that meeting, representatives of the major oil companies confirmed their commitments to invest 3.5 billion euros in 2006-10 to increase and upgrade refining capacities. Total’s share of that investment is 3 billion euros. In addition, Total will invest another 500 million euros in the same period to develop in new energy technologies.

Lagarde said she strongly backs the International Energy Agency’s plea for oil and gas producing countries to increase production. She said the matter would be taken up at the Euro group and European financial ministers meeting this week in Brussels, as well as at the Nov. 17 meeting in South Africa of the “Group of 20”—a bloc of developing nations established Aug. 20, 2003.

Lagarde advocated more transparency of oil inventory levels, which should be published weekly, “as in the US.”

Transportation - Quick Takes

Saudi gas pipeline fire kills at least 28

At least 28 people were killed and another 10 injured on Nov. 18 when a fire broke out after an explosion along the Haradh-’Uthmaniyah natural gas pipeline in Saudi Arabia’s Eastern province.

The explosion and blaze occurred when workers were welding a plate on the pipeline, one source said, adding that the gas plant was unaffected. “This is purely maintenance-related,” said an adviser to the Saudi oil ministry.

The fire broke out in the early morning hours about 30 km from the Hawiyah gas plant, where maintenance work for new tie-ins was being conducted, Saudi Aramco said in a statement.

“Emergency response teams were immediately mobilized; affected lines have been isolated and the fire has been brought under control,” Aramco said.

Saudi Oil Minister Ali Al-Naimi said the fire would have no impact on the company’s production capacity since it was a new pipeline, while a Saudi adviser to Saudi Arabia’s oil ministry said there was no question the fire was an accident. A technical committee will investigate its causes.

Oil output begins from Oyong oil field off Java

Santos-operated Oyong oil field off East Java has shipped its first cargo of oil from the field’s Shanghai floating production, storage, and offloading (FPSO) vessel.

The company said 250,000 bbl were loaded into the Emerald Queen export tanker the week of Nov. 12. Production is expected to stabilize at 8,000-10,000 b/d.

Field commissioning is virtually complete, Santos said, with gas injection operational and all production wells on line.

Oil is produced via a wellhead platform from oil wells and two gas wells. It is processed on the Sea Good 101 production barge and piped to the FPSO for storage and offloading.

Participants in the Sampang production-sharing contract are Santos, Adelaide, with 45%, Singapore Petroleum 40%, and Cue Energy Resources, Melbourne, 15%.

Controversy looms over Kerch Strait fuel oil cleanup

Russian officials and environmental experts are in disagreement over the short and long-term effects of 1,300 tonnes of heavy fuel oil spilled by the sunken tanker Volgoneft-139 in Kerch Strait (OGJ Online, Nov. 12, 2007).

Russian Prime Minister Viktor Zubkov said the majority of fuel oil will be removed from the shoreline within 3 weeks, while work to put things back in order in the aftermath of the disaster will be completed “within 40-45 days.”

On Nov. 13 Zubkov said, “Measures are being taken today, and we think the large volume of oil will be removed from the shoreline.” But Alexey Zimenko, an environmentalist with Russian Program Office World Wide Fund for Nature said the region’s ecological system will not recover soon from the consequences of the tanker’s sinking.

“The consequences [to the Krasnodar territory region] will persist for many years,” Zimenko told Interfax news agency.

“The environmental system of the region has sustained serious damage,” Zimenko said. “It is insufficient to collect the oil on the water’s surface and on the shoreline. A considerable part of the black oil will sink to settle on the bottom, and it will participate in the environmental cycle.” Russian federal weather forecasting service Rosgidromet warned Nov. 13 that oil products from the sunken tanker could spread beyond Kerch Strait to the Sea of Azov.

“In the current stormy situation the greatest danger lies in intensive pollution of the coastline in the shipwreck zone, including on Ukrainian territory with oil products,” Rosgidromet said.

Greece-Turkey gas pipeline link inaugurated

Greece and Turkey Nov. 18 took a major step in linking Caspian Sea producers with west European consumers as Greek Prime Minister Kostas Karamanlis and Turkish Prime Minister Recep Tayyip Erdogan inaugurated a 178-mile pipeline link that will transport natural gas from Shah Deniz field off Azerbaijan.

The new line initially will carry 250 million cu m/year of gas from Karacabey, in western Turkey, to Komotini, in northeastern Greece. The line’s capacity is expected to triple by 2012, when Poseidon, a 132-mile undersea pipeline between Italy and Greece begins operation (OGJ, Aug. 13, 2007, Newsletter).

US Energy Sec. Samuel Bodman, on hand for the inauguration ceremonies, welcomed the new line as an “extraordinary project” and a “critical new energy bridge” between the East and West.

“This Turkey-Greece Inter-Connector is a critical first step in a new energy supply chain, and it comes on line at a critically important time,” Bodman said, adding that the European Union is the world’s biggest gas import market and one of the world’s fastest-growing. “It is reasonable to expect that Europe’s dependence on energy imports will continue to grow over the next 25 years, meaning that Azerbaijan and the rest of Central Asia is poised to become Europe’s newest main source of supply, alongside the North Sea region, Russia, and North Africa,” Bodman said.

Azerbaijan’s President Ilkham Aliyev, also at the ceremonies, said his country is ready to implement projects aimed at expanding energy cooperation with the European Union.