OGJ Newsletter

Aug. 27, 2007
General Interest - Quick Takes

Industry seeks more time to meet fuel rules

The Western States Petroleum Association (WSPA) on Aug. 13 petitioned the California Air Resources Board (CARB) for a more reasonable timeframe for meeting new fuel rules approved by the board earlier this summer. CARB has 30 days to respond.

CARB on June 14 amended California’s reformulated gasoline rules to permit increased use of ethanol and lower-carbon fuels. The new rule gives refiners 2 years to comply or face punitive and costly penalties.

WSPA Chief Operating Officer Cathy Reheis-Boyd said, “We are not asking the board to change the new fuel specifications. We are simply asking the board to take into account that refiners also must comply with many other environmental regulations and construction realities when making major refinery changes; and that takes more time than the current rules provided.”

In addition, the California Energy Commission (CEC) testified that based on its detailed modeling and surveys, it could take more than 4 years to complete the modifications. In fact, other major changes in California fuel formulations have taken at least 4 years to implement: California’s cleaner-burning gasoline introduced in 1996 took 51 months, and California’s Phase 3 cleaner-burning gasoline introduced in 2000 took 4½ months.

Reheis-Boyd said, “Our industry is committed to meeting these new fuel rules and is already working towards meeting them. But our companies need a reasonable timeframe to build the required facilities, given the lengthy process required to comply with numerous state and local regulations.”

CEC also said a more reasonable timeframe “would minimize the risk of supply difficulties and associated price spikes for California consumers and businesses.”

Philippines to vary energy sources, use more gas

Recently appointed Philippines’ Energy Secretary Angelo T. Reyes has promised to make more use of natural gas to vary the country’s energy sources and lessen its dependence on imported oil, estimated at some 325,000 b/d during 2006.

“Natural gas is the fuel of the future. [It] provides energy independence, stable and secure energy supply, and clean and efficient fuel. We are currently using this for power alone, but we need to promote it in the transport, industrial, and commercial sectors,” Reyes said. He said several gas projects earmarked for construction will require $5 billion in investment during the next 7 years.

Among the projects Reyes said his department proposes is conversion of the Sucat, Limay, and Malaya coal-thermal power plants to gas-fired power facilities and construction of the 100-km Batangas-Manila I and 140-km Bataan-Manila II gas pipelines.

Plans also are under way for construction of new gas facilities in Central Luzon, Cebu, Agusan and Davao, and Palawan, while compressed natural gas facilities could be built in Luzon in areas such as Batangas, the Clark economic zone, and Cavite.

Reyes said gas constituted 29% of the country’s power generation mix in 2006, while coal and oil made up 27% and 8%, respectively.

Iran oil minister replaced, caretaker appointed

Iranian President Mahmoud Ahmadinejad has removed Kazem Vaziri Hamaneh as the country’s oil minister and appointed Gholamhossein Nozari as the caretaker until further notice. Analysts have interpreted the move as stamping his authority on one of the country’s major industries that generates lucrative revenues.

Ahmadinejad did not give a reason for replacing Hamaneh, but in a letter announcing his replacement, the head of state-owned National Iranian Oil Co., Ahmadinejad thanked Hamaneh for his efforts to date. A spokesman from the Iranian oil ministry told OGJ that Hamaneh would serve the president in an advisory role on oil and gas affairs. He had held the role of oil minister for the last 2 years.

Iranian press said that Ahmadinejad was unhappy with Hamaneh’s performance in attracting foreign investment and with the unrest in the country following gasoline rationing in June. Critics also said Iran had sold gas too cheaply to India and Pakistan via the proposed 2,300 km pipeline under development.

Ahmadinejad will need to introduce a candidate before Iran’s parliament for the appointment to become official, the ministry spokesman added. He was unable to give a timetable on when this would happen and if indeed Nozari would be presented.

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Exploration & Development - Quick Takes

Tullow makes deepwater oil find off Ghana

Tullow Oil PLC has discovered a light oil accumulation with its Hyedua-1 well on the deepwater Tano license in 1,530 m of water off Ghana.

As the initial exploration well on the license, Hyedua-1 targeted the equivalent Santonian turbidite sandstones found in the Mahogany-1 discovery well, drilled about 5.3 km to the northeast on the adjacent West Cape Three Points license.

Hyedua-1, drilled to 4,002 m TD by the Fred Olsen Energy ASA Belford Dolphin deepwater drillship, encountered a 202 m gross reservoir interval containing 108 m of high-quality stacked reservoir sandstones and net hydrocarbon-bearing pay of 41 m.

Logs and pressure tests indicate the strong likelihood that the reservoir sands are in communication with those at the Mahogany discovery. Well data results further suggest that the Hyedua-1 and Mahogany-1 wells could represent a continuous accumulation with combined hydrocarbon columns in excess of 361 m within a single continuous trap extending across the West Cape Three Points and Deepwater Tano blocks, the company said.

Hyedua-1 will be sidetracked, prior to casing, to acquire core data over the reservoir interval and suspended for potential use as a development well.

Tullow will now appraise the accumulation. Suitable vessels have been identified to carry out a 910 sq km 3D seismic survey, covering the combined feature on both blocks, and a program of up to three additional appraisal wells late this year.

Tullow operates the Tano license with a 49.95% interest and holds 22.9% interest in the West Cape Three Points license.

InterOil gauges gas at Elk-2 appraisal well

InterOil Corp., Toronto, said it has achieved positive results from its Elk-2 appraisal well on PPL 238 in Papua New Guinea.

“We are now confident that the Elk structure contains sufficient gas to underpin the first train of an LNG plant, which will be built by Liquid Niugini Gas Ltd. adjacent to our refinery [planned at Port Moresby], and sufficient oil shows to justify sidetracking to confirm an oil leg,” said InterOil Chairman and Chief Executive Phil Mulacek. The Elk-2 well was programmed to test the entire 2,000 ft Puri and Mendi limestone section in a downdip position of the discovery well 2.9 miles away (OGJ Online, Feb. 13, 2007).

Drilling and testing at Elk-2 confirmed 4,452 ft of indicated hydrocarbon column from the highest known gas in Elk-1 to the lowest indicated hydrocarbons in Elk-2, InterOil said. Mud logs indicated multiple gas zones, and there were multiple oil shows throughout a 594 ft column. In addition, the well had flowed gas and gas liquids during a drillstem test, the company said.

The target Puri and Mendi limestone reservoirs are much thicker than predrill estimates, it added.

The company intends to drill the Elk-2 well to total depth, log it, complete it, and test it.

“We will then sidetrack the well to intersect the potential oil leg structurally higher in the porous Mendi limestone section,” Mulacek said.

InterOil has been designated as the preferred natural gas supplier for the planned Port Moresby LNG project, which consists of a two-train, 9 million tonne/year liquefaction plant having a nominal processing capacity of 1.6 bcfd of condensate and gas liquids, handling and storage facilities, and a gas pipeline from supply sources.

InterOil’s Elk and Antelope structures are the key gas resources for the project (OGJ, Nov. 20, 2006, Newsletter).

LNG production is still on track to begin in 2012, InterOil said.

Total farms into offshore Vietnamese block

Total SA has received approval from the Vietnamese government to acquire a 35% interest in the production-sharing contract for offshore exploration Block 15-1/05. The French company will work alongside PetroVietnam Exploration & Production, which serves as block operator with 40%, and South Korea’s SK Corp., with 25%.

Block 15-1/05, which covers 3,840 sq km, is about 40 km off Vietnam in 40 m of water. It lies in Cuu Long basin near four recent discoveries-Su Tu Den, Su Tu Vang, Su Tu Trang, and Su Tu Nau. The partners have already shot 2D seismic surveys on the block.

Phase 1 exploration, which will be launched before yearend, will include 800 sq km of 3D seismic data acquisition and the drilling of two wells.

Total’s agreement with Vietnam also calls for stepped-up international cooperation between the French firm and PetroVietnam, particularly in the area of exploration. In 2006 the Asia-Pacific region accounted for about 253,000 boe/d, or 11%, of Total’s production. Total is mainly active in Indonesia, where it has operated Mahakam block with partner Inpex since 1970 and is one of the country’s leading producers of LNG. It also has gas production operations in Thailand and Myanmar as well as offshore operations in Brunei.

Total diversified its assets with the recent acquisition of interests in a number of exploration projects in Australia, Indonesia, and Bangladesh. It also acquired a 24% stake in Australia’s Ichthys LNG project, in partnership with Inpex (OGJ Online, Feb. 2, 2007). It also has signed a contract with China National Petroleum Corp. to appraise, develop, and produce gas from China’s South Sulige block (OGJ, Dec. 11, 2006, p. 18).

Southern Michigan gets TBR oil discovery

Continental Resources Inc., Enid, Okla., plans to drill two offsets in November to an Ordovician Trenton-Black River discovery in Hillsdale County, Mich., 60 miles southwest of Detroit.

The McArthur 1-36 tested at a rate of 20 bbl/hr of oil with 240 psi flowing tubing pressure on a ¾-in. choke. The well cut 182 ft of potential pay at 3,400-4,020 ft.

Continental has 83% working interest in the discovery and has identified other opportunities modeled after Albion-Scipio field in the area, where it holds 13,280 net acres of leasehold. McArthur 1-36 is the company’s first well in Michigan.

Hillsdale County adjoins Indiana and Ohio.

Drilling & Production - Quick Takes

Oil production starts from Kikeh field off Malaysia

Murphy Oil Corp. has started oil production from Kikeh field, 5 years after making the discovery in 4,400 ft of water 110 km off Sabah, Malaysia.

Predrilled wells in the field will continue to be placed on stream during the remainder of 2007, Murphy Pres. and Chief Executive Officer Claiborne P. Deming said.

Meanwhile, Kikeh field development is continuing with additional wells expected to come on stream throughout 2008. Plateau production from the field is expected to reach 120,000 b/d of oil. Deming said.

Kikeh is being developed as a stand-alone facility with oil being produced from both subsea and dry tree wells on board a spar facility-the first application of its kind outside the Gulf of Mexico (OGJ Online, Jan. 30, 2007). The development also uses a floating production, storage, and offloading vessel.

Murphy also expects first sales of its associated natural gas via a dedicated pipeline to Labuan in the first part of 2008, Deming said.

Murphy is operator and holds 80% interest in Kikeh field. Petronas Carigali Sdn. Bhd. holds the remaining 20%.

Providence to start gas flow from High Island A2

Providence Resources PLC expects to start natural gas production from the lowest reservoir level in its A2 well at High Island A268 in the Gulf of Mexico by the end of August. The well was drilled to a deviated 6,863 ft TVD, targeting potential gas accumulations.

Predrill gross recoverable volumes from the block range 3.5-5.8 bcf of gas.

The well encountered two high-quality gas-bearing sands in A2, assessed in an analysis of the well log and sidewall core data. Providence said its predrill expectations were met in the combined net gas pay. The well was drilled from the newly installed High Island A268 “A” platform using the Todco 250 jack up. Providence said the A2 well TD bottomhole location is about 1 mile east of the A1 well discovery.

This production will compliment gas from A1, announced in January, from which production will start in mid-September. The A2 discovery further underpins the economic justification for the project, which had been sanctioned with gas from the A1 well alone. After completion of A2, the Todco 250 jack up will move back to the A1 well to complete operations.

The partners are completing operations on the production liner across the reservoir intervals.

A production platform, with the capability to process the gas and export it via nearby existing infrastructure, has been successfully installed on High Island A268 to process gas from the A1 well.

NAOSC to produce bitumen from Leismer project

Statoil ASA subsidiary North American Oil Sands Corp. (NAOSC) will produce 10,000 b/d of bitumen from its Leismer demonstration project in Canada by late 2009 or early 2010.

Bitumen production will come from 22 horizontal well pairs linked to four well pads and a processing facility will generate steam for underground injection to make the heavy oil less viscous.

The Alberta Energy and Utilities Board has already given the Leismer project the go ahead.

NAOSC operates 1,110 sq km of oil sands leases in the Athabasca region of Alberta, northeast of Edmonton, which is one of the largest heavy oil provinces in the world. Statoil acquired NAOSC earlier this year for $2 billion (OGJ Online, Apr. 27, 2007).

“The Leismer demonstration project is the first lease to be developed in the NAOSC portfolio. The NAOSC portfolio is expected to yield more than 200,000 b/d at the end of the next decade,” Statoil said.

Processing - Quick Takes

OMV to upgrade European refineries

OMV AG, Vienna, planning a program of upgrades in its European refineries, said it will shut down its 69,280 b/d Petrobrazi refinery in Romania for upgrades sooner than originally planned-in this year’s fourth quarter instead of first quarter 2008.

In Germany, it plans to install an expanded cracker and new metathesis plant at its 72,000 b/d Burghausen refinery, work that will take 6 weeks in the fourth quarter. “Additional propylene will be delivered to Borealis, feeding the new Borstar propylene plant coming on stream at the same time,” OMV said. In addition, the 262,300 b/d Bayernoil refinery in Germany will be restructured to improve plant configuration, OMV said.

In Austria the company will construct a thermal cracker in its 208,600 b/d Schwechat refinery in Vienna so it can process more heavy crude and reduce the amount of heavy fuel oil in the product slate.

A company spokeswoman told OGJ that OMV’s strategy is to build on two hubs: a Western hub comprised of Schwechat, Burghausen, and Bayernoil that would have a refining capacity of 18.4 million tonnes/year and an Eastern hub of Petrobrazi and Arpechim in Romania, with a capacity of 8 million tonnes/year (OGJ Online, Oct. 12, 2006). Arpechim is operated by OMV’s Romanian unit Petrom.

OMV said it also will begin preparations to construct a 360-km ethylene pipeline in southern Germany from Munchsmunster to Ludwigshafen that will connect the southeast Bavarian chemical triangle with the northwest European ethylene network at Ludwigshafen. The pipeline will be completed in third quarter 2008.

OMV upstream priorities for 2007 are to develop Strasshof gas field in Austria, Maari oil field in New Zealand, Komsomolskoe oil field in Kazakhstan, Block S2 in Yemen, and oil discoveries in Libya and to complete Pohokura gas field development in New Zealand, said OMV Chief Executive Wolfgang Ruttenst at a press conference Aug. 16.

In Romania, the company will continue its modernization of production facilities to enhance efficiency and reduce production costs.

Coffeyville Resources restarts flooded units

Coffeyville Resources Refining & Marketing LLC said it has restarted most of the operating units at its 100,000 b/cd refinery in Coffeyville, Kan., after a record flood of the Verdigris River caused the shutdown of the facility in early July.

Process operations that have been restarted include two crude units, two vacuum units, one naphtha hydrotreater, a catalytic reformer, two distillate hydrotreaters, a fluid catalytic cracking unit, the alkylation unit, the isomerization unit, the delayed coking unit, and sulfur recovery facilities. Remaining units are in varying stages of start-up.

The company also said the refinery would be fully restored ahead of its earlier mid-September projection. It cautioned, however, that mechanical challenges created by the flooding that reached more than 6 ft deep will require the company to carefully monitor all equipment as it increases throughput to full production after start-up. In addition, truck rack sales from the company-owned terminal in Coffeyville could resume as early as next week, Coffeyville Resources said. It has been shipping product via pipeline from preflood inventory.

The company’s adjacent nitrogen fertilizer plant, which was also flooded but sustained less damage than the refinery because it sets on higher ground, was restarted and began shipping product 2 weeks after the flood (OGJ Online, July 23, 2007).

Slavneft-Yanos eyes Russian refinery upgrade

Slavneft-Yanos, owned by TNK-BP and Gazpromneft, has let a consulting support contract to a unit of Jacobs Engineering Group Inc. for a planned upgrade of its 300,000 b/sd refinery in Yaroslavl, Russia.

The project involves converting refinery residue into high-value products that meet European specifications.

Jacobs Consultancy UK Ltd. will carry out the work from its Marble Arch, UK, office, supported by in-house process experts from Houston.

The contract’s value was not disclosed.

Transportation - Quick Takes

Hammerfest LNG plant processes first Snohvit gas

Statoil ASA said the gas processing facility at the Hammerfest LNG plant in northern Norway has received gas from Snohvit field on Aug. 21. The plant at Hammerfest is Europe’s first export facility of its kind.

Gas lifted from Snohvit field previously flowed as far as the slug catcher, but this is the first time gas has reached the processing facility, Statoil said.

The company is expected to begin sending LNG exports from the Snohvit LNG project in the fourth quarter (OGJ Online, May 17, 2007).

Interests in the project are operator Statoil with 33.53%, Petoro SA 30%, Total E&P Norge 18.4%, Gaz de France 12%, Amerada Hess Norge 3.26%, and RWE Dea Norge 2.81%.

New JV proposes Pacific Northwest pipeline

Palomar Gas Transmission LLC, a newly formed joint venture of TransCanada Corp. and Northwest Natural Gas Co. (NNG), propose to build and equally own a natural gas pipeline that would serve Oregon, the Pacific Northwest, and the western US. If approved, the transmission line could begin service in late 2011.

As proposed, the project would include 220 miles of 36-in. pipe extending from northwestern to north-central Oregon, connecting TransCanada’s existing Gas Transmission Northwest (GTN) system with NNG’s distribution system near Molalla, Ore., 30 miles southeast of Portland.

The project design includes an extension option that would serve the Bradwood Landing LNG terminal proposed by NorthernStar LLC on the Colombia River.

The main section of the project is a 110-mile eastern portion that accounts for $300-350 million of the total project cost estimated at $600-700 million.

NNG’s utility operation has agreed to contract for about 100 MMcfd of capacity on the pipeline. The company currently depends on a single interstate pipeline for its supply, two thirds of which comes through the Columbia Gorge.

TransCanada’s GTN system will operate the Palomar pipeline, and has yet to request preliminary environmental approval for the project from the Federal Energy Regulatory Commission. Even before that filing is made, Palomar will begin the public engagement process, the company said.

Proposed LNG terminals in France face problems

A local environmentalist group and a handful of residents near Antifer are opposing construction of the proposed 9 billion cu m/year Gaz de Normandie LNG terminal, regasification unit, and pipeline at Antifer near the Le Havre oil port in Normandy, France (OGJ Online, Oct. 10, 2006).

Another problem, which is the “Not in my backyard,” or Nimby, syndrome is threatening construction of a 6 billion cu m LNG receiving-regasification terminal that the Netherlands company 4 Gas plans at Verdon, 100 km south of Bordeaux at the mouth of the Gironde River (OGJ, Aug. 21, 2006, Newsletter).

Concerning the Gaz de Normandie LNG project, the environmental group, which reportedly has collected 7,500 signatures on an internet petition, wants the project scrapped, saying the project’s purpose is profit and not because France needs more gas-a “fossil fuel which produces carbon dioxide”-according to environmentalist leader Francois Auber.

GDN Pres. Jean-Luc Poyer, in charge of the project for the main shareholder Poweo, told OGJ that there also were supporters of the project and that public input is scheduled for Sept. 14 through Dec. 14. The National Commission for Debates had asked Poyer to avoid polemics until then, he said.

GDN is a €500 million LNG regasification terminal project led by energy supplier Poweo 34%, in joint venture with E.On AG of Germany 24.5%, Austrian utility Verbund 24.5%, and the oil storage and port firm CIM 17%.

Concerning the Verdon terminal, France’s State Secretary for Transport Dominique Bussereau wants the €400 million terminal transferred from its proposed location on a 700-ha industrial site to La Rochelle, north of Bordeaux beyond the mouth of La Gironde. His constituency faces Verdon on the other side of the Gironde River mouth, and he said the terminal will spoil a “tourist area.”

A public debate is scheduled to begin in mid-September and end in December on the terminal, after which acceptance or rejection of the site will be decided, said 4 Gas General Manager for France Henk Jonkmal.

The final decision will rest with State Minister for Ecology and Sustainable Development Jean-Louis Borloo, who also is responsible for Transport and Energy.