OGJ Newsletter

March 28, 2005
The US Minerals Management Services issued a final rule outlining changes to the 1988 Federal Gas Valuation Rule, used to determine royalty on production from federal leases.

General Interest—Quick Takes

MMS issues final modifications to federal gas valuation rule

The US Minerals Management Services issued a final rule outlining changes to the 1988 Federal Gas Valuation Rule, used to determine royalty on production from federal leases.

"These amendments provide greater certainty, clarity, and consistency and will result in more accurate royalty reporting," said MMS Director Johnnie Burton. The rule changes stemmed from a series of public workshops in 2003.

MMS said the final amendments added a provision allowing for future valuation agreements between MMS and a lessee. This provision is intended to provide flexibility.

The transportation-allowance definition was revised so that the gas rule conforms with similar definitions found in other rules. It provides allowances for reasonable, actual costs of moving gas to a delivery or sale point. The transportation allowance does not include gathering costs.

Allowances approved before 1988 no longer are valid, and the 1988 regulations are changed to allow the deduction of unused firm demand costs to make it consistent with a recent court decision, MMS said.

Other rule changes included the rate of return calculations, tariffs, and contract definitions.

Thailand eases concession terms to attract international operators

Thailand wants to make its participation terms more attractive to international producers and might cut royalty and income taxes in a bid to promote oil and gas production from marginal wells.

The proposal followed a recent finding by Chulalongkorn University (CU) that terms provided by the Thai Petroleum Act of 1971 and five amendments are not attractive enough to encourage new exploration and production.

The basic regime under Thailand's concession system, with 12.5% royalty and 50% income tax, was viewed as stringent compared with production-sharing terms offered by neighboring countries such as Viet Nam.

The Thai Energy Ministry commissioned CU, in collaboration with overseas legal experts, to study possible amendments and develop recommendations by yearend.

Ministry officials hope that the amended terms, expected to be in place next year, will improve the economics of several marginal fields, including Pearl Energy Pte.'s idle Busabong gas and condensate field in the Gulf of Thailand.

They said relaxed terms would raise recovery factors and reserves, estimated at yearend 2004 by the Department of Mineral Fuels at 14.754 tcf of natural gas, 319 million bbl of condensate, and 291 million bbl of crude oil. Average production last year rose to 509,402 boe/d from 471,790 boe/d in 2003.

As of last month, Thailand had issued 43 concession blocks, including 26 in the gulf and 17 onshore.

Yukos to drop US bankruptcy appeal, continue legal alternatives

OAO Yukos said it will drop the appeal of its bankruptcy case through the US courts and focus on other survival efforts.

Yukos is contesting the Russia government's claim that the company owes $27.5 billion in delinquent taxes. Yukos also has filed complaints against the Russian government at the European Court of Human Rights.

On Mar. 18 US District Judge Nancy Atlas of Houston denied a Yukos request for US court protection of the company's remaining assets pending appeal of its bankruptcy case dismissal by US Bankruptcy Judge Letitia Clark (OGJ Online, Feb. 25, 2005).

Yukos had filed for bankruptcy protection in Houston federal court during December in a failed attempt to prevent the auction of its key subsidiary, Yuganskneftegas (OGJ Online, Dec. 15, 2004).

Baikal Finance Group bought Yuganskneftegas at a Dec. 19 government auction in Moscow and sold it to OAO Rosneft, which is merging with OAO Gazprom (OGJ Online, Mar. 15, 2005).

In a Mar. 22 news release, Yukos CEO Steven Theede said he "continues to believe strongly in the merits of our legal case, and we have no choice but to aggressively pursue all the legal options available to us to right the wrongs that have been done."

Theede said the company will continue its legal efforts "to survive as a going concern and obtain compensation for assets that have been improperly expropriated from us."

Venezuela, Uruguay sign energy initiative agreements

Venezuela President Hugo Chávez and Uruguay President Tabare Vazquez signed various bilateral agreements, including one calling for Venezuela to sell oil to Uruguay and another for the countries to work cooperatively on energy initiatives.

Chávez earlier signed similar agreements with Argentina and Brazil toward the creation of a cooperative regional energy block, Petrosur (OGJ Online, Sept. 29, 2004).

Venezuela agreed to supply Uruguay with 43,600 b/d of oil.

Brazil warns against passage of Bolivian bill

Future investments by Brazil's state-owned Petroleo Brasileiro SA (Petrobras) in Bolivia's oil and gas industry will be jeopardized if the Bolivian Senate approves a proposed hydrocarbons bill, Brazil's Mines and Energy Ministry said in a news release. "We fear that in the future, Bolivia's exports of 21 million cu m/day of gas to Brazil may be interrupted," the ministry said. Petrobras is the largest investor in Bolivia (OGJ Online, Mar. 17, 2005).

The bill would add a 32% tax to the existing 18% royalty on hydrocarbons production by foreign companies.

The opposition Movement Toward Socialism (MAS) party, led by Evo Morales, wanted the government to charge a 50% flat royalty on all hydrocarbon production.

The newspaper La Razón quoted Julio Gavito, president of Repsol YPF SA's Bolivian subsidiary, as saying that if the bill becomes a law, "it would oblige us to abandon many of our projects, and everybody would lose, especially Bolivia. It would also be necessary to reconsider new investments that we have earmarked for the next few years."

Repsol YPF of Spain and Petrobras are partners in San Alberto and San Antonio gas fields, which supply 70% of the natural gas sold to Brazil.

Senate ratification of the hydrocarbons bill would make the political position of Bolivian President Carlos Mesa unsustainable, many analysts say. Mesa considers the bill unviable and isolationist, and he has offered his resignation, saying the bill will cause multinational oil companies to take Bolivia to court.

Congress rejected his resignation, but approval of the hydrocarbons bill in the Senate might pave the way for the election of congressman Morales as president in 2007.

Industry Scoreboard

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Exploration & Development—Quick Takes

Aramco signs contracts for megaprojects

Saudi Aramco has signed contracts for two major projects in Saudi Arabia to develop oil and gas fields in the Eastern Province and raise the kingdom's gas processing capacity.

The work includes development of oil and natural gas production facilities for the three-field Khursaniyah program and construction at Hawiyah of "the world's largest NGL [natural gas liquids] processing plant," which will recover ethane and NGL from 4 bscfd of sales gas.

Eni SPA subsidiary Snamprogetti SPA of Italy will construct a central gas-oil separation plant and wet crude handling facilities to process crude from onshore Abu Hadriya, Fadhili, and Khursaniyah oil fields near Jubail Industrial City. Snamprogetti also will install a cogeneration plant, compression facilities for the gas gathering system, and crude stabilization and water injection facilities. The fields are expected to produce a total of 500,000 b/d of crude oil by yearend 2007 (OGJ, Apr. 12, 2004, p. 18).

A consortium of Bechtel Overseas, London, and Technip Italy, Rome, will construct Khursaniyah gas plant facilities, including two trains having a total capacity of 1 bscfd of gas. The facilities will produce 550 million scfd of sales gas, 240,000 b/d of ethane and NGL, and 1,800 tonnes/day of sulfur.

The Hawiyah NGL recovery program will produce 310,000 b/d of ethane and NGL products through the proposed NGL plant near Ghawar oil field and expansion of the Ju'aymah gas fractionation plant near Ras Tanura when they are completed in early 2008.

Japan's JGC Corp. will construct the Hawiyah NGL plant, three NGL recovery trains, product surge and shipping facilities, utilities, and tank and process control systems.

Snamprogetti will carry out work related to gas treating and compression facilities that include inlet distribution, two gas treating trains, sales gas compression, and electrical system and support facilities.

Spain's Tecnicas Reunidas, under a separate contract, will expand the Ju'aymah gas fractionation plant by constructing a fourth train to fractionate 270,000 b/d of ethane and NGL and 100,000 b/d of propane and NGL.

Kingdom-based engineering firms will be employed in the design phase and Saudi employment requirements have been included as part of project requirements.

Kerr-McGee tests Schrader Bluff oil

Kerr-McGee Oil & Gas Corp. has tested as much as 1,200 b/d of 16-17° gravity oil from the Schrader Bluff reservoir in its Nikaitchuq-4 horizontal appraisal well on Alaska's North Slope.

Kerr-McGee operates the Nikaitchuq prospect and holds a 70% interest. Armstrong Alaska Inc. holds 30%.

Kerr-McGee encountered the same Schrader Bluff interval in its Tuvaaq exploration well, 3 miles west of Nikaitchuq-4. It is drilling the Kigun sidetrack to earn additional acreage. After completion, Kerr-McGee will operate that well with a 55% working interest.

Kerr-McGee also acquired from Pioneer Natural Resources an additional 40% working interest in Tuvaaq, increasing its stake to 82%. Kerr-McGee will be its operator.

Also during the 2005 Alaskan drilling season, Kerr-McGee is drilling the Nikaitchuq-3 horizontal appraisal well to test the Sag River formation. In 2004, the Nikaitchuq-1 vertical well tested more than 960 b/d of 38° gravity oil from the Sag River, and Nikaitchuq-2, drilled 9,000 ft southeast of the discovery well, extended the discovery downdip (OGJ, Sept. 20, 2004, p. 34).

Earlier this year, Kerr-McGee acquired a 50% working interest and will operate the Ataruq prospect in Alaska, where it will drill an initial exploration well following the appraisal drilling at Nikaitchuq.

Pogo taps gas off Louisiana and in Texas

Pogo Producing Co. has reported gas discoveries off Louisiana and in South Texas.

Extensive sidewall coring and logging of its 948 Well 1 on Ewing Bank Block 948 in 725 ft of water confirmed 100 ft of net natural gas and condensate pay with average porosity calculated at more than 26% and permeability of roughly 500 md.

The Pleistocene Angulogenrina-B pay is in a laminated sand interval at 13,710-910 ft MD.

Pogo, which holds 100% of the block, is drilling a sidetrack and plans a subsea completion tied back to a nearby platform.

In South Texas, Pogo flow-tested the No. 1 Hoffman 116 exploratory well on a 3,000-acre prospect in Duval County. It operates the prospect and holds a 47% interest.

The 15,300-ft well encountered a Wilcox sandstone horizon near 13,800 ft. After perforation and fracturing across a 100-ft interval, the well flowed gas on test at 3.7 MMcfd with flowing tubing pressure of 8,400 psi.

A 50-ft Wilcox interval below 13,400 ft also was perforated and fractured. It flowed at a rate of 5.5 MMcfd with flowing pressure of 9,400 psi.

Pogo expects commingled production, starting within 90 days, to approach 10 MMcfd of gas. Pogo and its partners LMP Exploration Holdings LP, Corpus Christi, Tex., may spud a delineation well in the area during the second quarter.

Pakistan Rodho gas-condensate discovery proved

The Dewan Mushtaq Group of Pakistan tested a gas and condensate discovery at the Rodho-3 reentry on the 1,213-sq-km Safed Koh block in the Middle Indus basin.

The well, reentered and deepened to 2,758 m TD, flowed 5 MMcfd of gas and 22 b/d of 43° gravity condensate through a 1-in. choke on two cased-hole drillstem tests over four intervals in Cretaceous Lower Goru sandstones, said participant Rally Energy Corp., Calgary. Test data indicated major formation damage.

The discovery declaration said the test "has for the first time confirmed the presence of hydrocarbons in the deeper horizons of the Safed Koh Range." Rodho-3 is in Punjab Province 15 km southeast of and on trend with Dhodak, which has proved reserves of 620 bcf of gas and 30 million bbl of condensate.

Rodho-3 is on a 14-sq-km structure with more than 450 m of maximum vertical closure and, based on the lowest log indication, has a 170 m gross structural gas column. The results bode well for two other structures on the block, particularly Afiband, which covers 50 sq km with 300 m of vertical closure 4 km south of Rodho.

Next project is to deepen Rodho-2, about 1.3 km north of Rodho-3, to appraise the gas-bearing Lower Goru and possibly evaluate the Jurassic Chilton limestone. The owners will relinquish 30% of the Safed Koh block in April.

The Sui Northern gas pipeline, with spare capacity, passes within 12.5 km of Rodho-3, whose gas also could be delivered to Dhodak field facilities.

Dewan Mustaq Group holds a 57.5% interest and Mesa Petroleum (Pvt.) Ltd. 20%. Rally holds a 22.5% carried interest.

Vessel due Agbami field off Nigeria

ChevronTexaco Corp., operator of the 1998 Agbami discovery in deep water off Nigeria, let a contract to Daewoo Shipping and Maritime Engineering Corp. for a 7 billion kroner production and storage ship to be used in the field's development.

Production, scheduled to start in late 2007, is expected to peak at 250,000 b/d. The 45,000 acre Agbami field, which spans Blocks OPL 216 and OPL 217, has reserves of 800 million bbl.

Mad Dog appraisal well extends field

An appraisal well and three sidetracks that BP PLC drilled on the deepwater Mad Dog Southwest Ridge in the Gulf of Mexico encountered significant hydrocarbon pay.

The original well was drilled to 22,890 ft measured TD on Green Canyon Block 826 to downdip targets in adjacent Green Canyon 825. The blocks are in 5,000 ft of water.

The well and sidetracks tested the field's previously undrilled southwest flank. Each intersected up to 300 ft of net oil pay in the early Miocene section and found hydrocarbons some 700 ft deeper on the west flank of the structure than previously encountered.

The hydrocarbons could be produced through spar development wells or future subsea tie-backs.

Mad Dog field, on the Atwater fold belt, began production in January from Green Canyon 782. Gross field production is currently about 30,000 bo/d from two wells. Capacity of the truss spar is 100,000 b/d of oil and 60 MMcfd of gas (OGJ Online, Jan. 19, 2005). BP is the operator with a 60.5% working interest. BHP Billiton Ltd. owns 23.9% and Unocal Corp. 15.6%. F

Drilling & Production—Quick Takes

Sanha condensate flow starts off Angola

ChevronTexaco Corp.'s Angolan subsidiary Cabinda Gulf Oil Co. Ltd. has started condensate production from Sanha field on the Block 0 concession off Malongo, Cabinda province, Angola.

The Sanha condensate complex, 23 miles offshore and directly above Sanha field, serves as a natural gas processing hub for surrounding production facilities. Sanha field wells, predrilled in early 2004 along with those from neighboring fields, are now producing 6,000 b/d of condensate.

Combined production from the Sanha project, which includes crude oil from nearby Bomboco field, is expected to reach its average annual peak of 100,000 b/d of oil, condensate, and liquefied petroleum gas by 2007.

LPG production is scheduled to commence early in the second quarter when a 32,000 b/d floating production, storage, and offloading vessel will be fully operational.

Cabinda, holding a 39.2% interest, is operator of Block 0 on behalf of partners Sonangol 41%; Total SA 10%, and Eni Angola Exploration BV 9.8%.

Rig to be built for North Slope JV

Pioneer Natural Resources Alaska Inc., Irving, Tex.; Doyon Drilling Inc., Anchorage; and Akita Drilling Ltd., Calgary, have signed a 4-year contract to build a rig for work on the North Slope of Alaska.

The rig will be built in Canada in midyear and used for exploratory drilling starting in 2006 by the new joint venture Doyon Akita JV.

Unocal starts Moulavi Bazar gas flow

Unocal Bangladesh Blocks 13 and 14 Ltd., operator, and Unocal Bangladesh Ltd. have begun production of 70 MMcfd of natural gas from two well completions in Moulavi Bazar gas field in Bangladesh. Unocal expects to complete two additional wells by May, increasing production capacity to 150 MMcfd.

Moulavi Bazar, which the company estimates has a gross resource potential exceeding 440 bcf of gas, is on Block 14 in the northeast district of Sylhet. Unocal built a 150 MMcfd gas processing plant and a 24-km pipeline to connect the field with the national grid for gas purchaser Petrobangla. Total development cost, including wells, is $42 million.

Together with 200 MMcfd of gas from Jalalabad field on Block 13, Unocal Bangladesh fields operated for Petrobangla currently produce 270 MMcfd of gas.

Unocal signed a production-sharing agreement to develop Bibiyana field on Block 12 in the Habiganj district, which is expected to add 200 MMcfd beginning in fourth quarter 2006 (OGJ Online, Nov. 10, 2004). With 15 wells, a 300 MMcfd gas processing plant to be expanded to 600 MMcfd, and a total expected investment of $230 million, Unocal estimates that Bibiyana field ultimately could produce 500 MMcfd by yearend 2009.

Processing—Quick Takes

BP Texas City refinery fire investigated

Officials are investigating the cause of a fire and explosion Mar. 23 at BP PLC's 446,500 b/cd Texas City, Tex., refinery. As of presstime last week, BP reported 14 contractors dead and about 100 injured. The blast was contained within the plant's 24,300 b/cd isomerization unit and the fire extinguished within 3 hr, said BP Site Director Don Parus. An adjacent Dow Chemical Co. plant sustained minor damage.

"Other units [of the 30-unit refinery] are in running position," said BP officials. The plant refines 3% of the total US refined products supply and 30% of BP's North American products output. Gasoline futures prices jumped to an all-time high but quickly receded.

Qatar, Shell plan petrochemical complex

Qatar Petroleum Co. (QP) and Shell Chemicals Ltd. have signed a letter of intent in Doha for the development of a world-scale, ethane-based cracker and derivatives complex at Ras Laffan Industrial City, Qatar.

The complex, planned for start-up early in the next decade, will produce petrochemical products to be marketed primarily in Asia.

Through this agreement, QP and Shell will define the technical and commercial facets associated with constructing and operating the petrochemical complex and will determine the derivatives scope. The project builds on the QP-Shell partnership advanced with the planned 140,000 b/d "Pearl GTL" (gas-to-liquids) plant and condensate-liquefied petroleum gas project, which is planned to become operational in 2009, and the recently announced QatarGas 4 LNG project (OGJ Online, Mar. 4, 2005).

BP, Sinopec to build acetic acid plant

BP PLC and Sinopec Corp. have signed a joint venture contract to build a 500,000 tonne/year acetic acid plant in Nanjing, Jiangsu Province, China.

The plant, which will use BP's proprietary CATIVA technology, is expected to come on stream in second half 2007.

BP and Sinopec each holds a 50% equity interest in the plant. The Sinopec investment will take place through Yangtzi Petrochemical Co., a Sinopec subsidiary.

Transportation—Quick Takes

Gulf Coast LNG plans Matagorda terminal

A subsidiary of Gulf Coast LNG Partners LP, Houston, asked the US Federal Energy Regulatory Commission for authorization to build and operate an LNG receiving terminal on the Matagorda Ship Channel 100 miles southwest of Houston.

Calhoun LNG LP plans to build two 160,000 cu m storage tanks and 1 bcfd gas vaporization and liquid separation facility at the site. Pending FERC authorization for the terminal, Point Comfort Pipeline Co. LP plans to build a 12-mile pipeline linking the facility with existing pipelines.

Gulf Coast LNG is a partnership owned in part by Haddington Energy Partners II LP, a Houston private equity fund.

Mexico's Altamira LNG terminal progresses

Terminal de LNG de Altamira S de RL de CV—a joint venture of Royal Dutch/Shell Group and Total Group—awarded a contract to Gardner Denver affiliate Emco Wheaton of Kirchhain, Germany, to provide and install four marine loading arms at the JV's planned LNG regasification terminal at Altamira, Tamaulipas, on Mexico's gulf coast.

The terminal will include LNG unloading and ship berthing facilities, two 150,000 cu m double containment LNG storage tanks, regasification facilities, and related utilities. Emco Wheaton said B0300 series marine loading arms, each with a supporting structure to carry the cryogenic products pipe, will be installed for the unloading of ships with capacities of 70,000-200,000 cu m.

A consortium of Ishikawajima Harima Heavy Industries (IHI); Fluor Daniel Inc.; and ICA Mexico, which is jointly owned by Fluor and Empresas ICA Sociedad Controladora, earlier was awarded the contract to provide engineering, procurement, construction, and commissioning of the terminal (OGJ Online, Dec. 19, 2003). IHI is the consortium representative and technical leader, and ICA Fluor is overall project manager and is providing all local services. The terminal, slated for completion in 2006, will supply northeast Mexico with 5 billion cu m/year of natural gas for 15 years.

Tidelands unit plans Mexican gas pipeline

Terranova Energia S de RL de CV, the Mexican subsidiary of Tidelands Oil & Gas Corp., San Antonio, applied Mar. 18 to Mexico's Energy Regulatory Commission for authorization to construct the 160-mile Terranova Oriente natural gas pipeline system in Tamaulipas, Mexico.

The system will include a 30-in. line to connect to a border crossing between Progreso, Tex., and Nuevo Progreso, Mex.; a 36- in. line to connect to the Mission, Tex.-Arguelles, Mex., pipeline border crossing; and connection to a proposed underground gas storage facility at Rio Bravo (OGJ Online, Aug. 3, 2004).

The 1 bcfd system normally will supply gas to northern Mexico from Texas, but the lines will be reversible. The system is part of a project to deliver regasified LNG from the proposed Dorado HiLoad LNG regasification terminal to be built in 400 ft of water 35 miles off Tamaulipas state in the Gulf of Mexico.

Tidelands collaborator Remora Technology, Houston, in February finalized the LNG plant design, specifications, and adaptations based on process developed by ConocoPhillips whereby a HiLoad facility offshore attaches itself to an LNG tanker, vaporizes the LNG as it is offloaded, and injects it directly into pipelines, which Tidelands will lay.