OGJ Newsletter

March 14, 2005
OAO Yukos is reviewing its options after a US judge dismissed a Chapter 11 bankruptcy case filed in Houston as part of an unsuccessful attempt to block the sale of Yukos unit Yuganskneftegas (OGJ Online, Dec. 15, 2004).

General Interest—Quick Takes

Yukos bankruptcy case dismissed by US judge

OAO Yukos is reviewing its options after a US judge dismissed a Chapter 11 bankruptcy case filed in Houston as part of an unsuccessful attempt to block the sale of Yukos unit Yuganskneftegas (OGJ Online, Dec. 15, 2004).

The Russian government claims that Yukos owes $27.5 billion in delinquent taxes. Yukos disputes the Russian tax claim, calling it a "politically motivated, unlawful action."

The company's problems began with the Oct. 25, 2003, arrest of Mikhail Khodorkovsky, former chief executive, on fraud and tax evasion charges. He has pleaded innocent to the charges and remains on trial in Moscow.

Yuganskneftegas was sold to Baikal Finance Group on Dec. 19. Russian authorities conducted the auction after the US Bankruptcy Court for the Southern District of Texas issued a temporary injunction applying primarily to a consortium of international banks arranging the multibillion-dollar financing (OGJ Online, Dec. 17, 2004).

OAO Rosneft later bought Baikal Finance Group, giving Rosneft control of Yugansknefegas.

On Feb. 24, Houston Bankruptcy Judge Letitia Z. Clark ruled there was no legal precedent for an international company so involved in its home country's economy to involve the US court system.

"The vast majority of the business and financial activities of Yukos continue to occur in Russia. Such activities require the continued participation of the Russian government," Clark wrote.

Yukos CEO Steven Theede said he believes Yukos "acted appropriately." The judge agreed with Yukos on four of five issues, he noted. Deutsche Bank AG filed the motion to dismiss the case.

"It is regrettable," Theede said of the dismissal. "We must now consider all the options available to us and determine what our next steps will beU. Our assets were illegally seized. We want them back and/or damages paid."

Alaskan governor lauds passage of ANWR resolution

Alaskan Gov. Frank H. Murkowski Mar. 3 applauded the passage of Senate Joint Resolution 2 urging the US Congress to pass legislation to open the coastal plain of the Arctic National Wildlife Refuge to oil and gas exploration, development, and production.

"ANWR can provide a secure, dependable supply of oil to our nation—and jobs for Alaskans. Through technology, we can diversify our energy supply and protect our environment. Development of ANWR is important to Alaskans—and critical for the nation," said Murkowski.

The resolution, sponsored by the Senate Resources Committee, is awaiting transmittal to the governor.

A congressional delegation was slated to visit the North Slope Mar. 5-6. The delegation, led by Sen. Pete Domenici (R-NM), included Republican Sens. Lisa Murkowski (Alas.), Jim Bunning (Ky.), Bob Bennett (Utah), and John Thune (SD), as well as Sec. of Energy Samuel Bodman and Sec. of the Interior Gail Norton.

The group will visit Prudhoe Bay and Alpine oil fields, ANWR's coastal plain, and the village of Kaktovik.

UK retail diesel fuel sales double in last 10 years

Retail gasoline sales in the UK have declined by 15% in the last 10 years while retail diesel fuel sales have more than doubled, said a Retail Marketing Survey from the Energy Institute, London.

The latest annual survey shows that UK motor fuel retail sales last year totaled 28.2 million tonnes, the largest volume ever sold.

Counting both UK retail and commercial customers, the survey noted that almost equal volumes of diesel and gasoline were sold last year, marking the first time that this has happened.

Another key finding was that 92 retail sites sold biodiesel fuel, and survey participants expect this figure to climb to 165 by 2008, EI said.

ONGC bids to acquire state-run refining firms

India has appointed a state panel to examine the restructuring of public energy enterprises after government-owned upstream company Oil & Natural Gas Corp. bid $5.9 billion to acquire state-run refiners Hindustan Petroleum Corp. Ltd. and Bharat Petroleum Corp. Ltd.

In a presentation to a government-appointed committee, ONGC Chairman Subir Raha recommended the formation of two large public conglomerates, one led by ONGC and the other led by Indian Oil Corp., with the latter to include upstream major Oil India Ltd.

He said the conglomerates should also be allowed to enter the power, petrochemicals, shipping, and related businesses.

"The two conglomerates should be allowed to 'chase the molecule to the end' to compete with the burgeoning private sector," Raha said.

Diversification into downstream activities is a point of contention between the oil companies and the Ministry of Petroleum and Natural Gas, which insists that the companies stick to their areas of core competence.

Raha said the proposed combination would reduce taxes and transaction costs, optimize the use of resources, and help Indian companies compete internationally.

Initial estimates have indicated that integration along the lines suggested could result in a 5-10% reduction in costs.

The proposed acquisitions would give the ONGC group refining capacity of 42 million tonnes/year.

Hindustan Petroleum is not anxious to merge with ONGC and would rather join Bharat Petroleum.The evaluating panel is expected to report to the government in mid-March.

Pipeline inspections ahead of schedule

Pipeline operators are ahead of schedule in conducting federally mandated pipeline integrity assessments, the Association of Oil Pipe Lines (AOPL) and the American Petroleum Institute told Congress in a joint letter.

Nearly 60% of the most sensitive oil pipelines were inspected by September 2004, exceeding the requirement that half be inspected by that time.

The integrity assessment regulation, issued in December 2001 by the US Department of Transportation's Office of Pipeline Safety, increases the types and frequency of testing and inspections the industry must perform to prevent incidents.

AOPL and API said their members "have met 100% of the rule deadlines."

Testing of high consequence lines—pipeline segments that could have an impact on populated areas, drinking water, habitats for endangered species, or commercial navigation—is required for all operators of crude oil and refined products pipelines, and it affects 40% of the 160,000-mile national pipeline network.

AOPL and API estimate that as much as 80% of the national network will be inspected by 2008 because of the configuration of many of their members' pipelines.

Industry Scoreboard

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Exploration & Development—Quick Takes

CNOOC OKs Bohai Bay fields development

China National Offshore Oil Corp. (CNOOC) has approved Kerr-McGee China Petroleum Ltd.'s development of the CFD 11-3 and CFD 11-5 discoveries on Block 04/36 in Bohai Bay, off China.

The fields, which cover three Guantao reservoir zones, will be developed with four horizontal wells and a single unmanned wellhead platform, tied back 3 miles to the CFD 11-1 gathering platform.

Fluids from CFD 11-3 and CFD 11-5 will be processed on the Hai Yang Shi You 112—Kerr-McGee's Global Producer VIII floating production, storage, and offloading vessel (FPSO). Production is expected in the second half of the year.

Kerr-McGee operates CFD 11-3 and CFD 11-5 with a 40.09% working interest. CNOOC has 51% and Ultra Petroleum Corp. 8.91%.

Wells CFD 11-1 and CFD 11-2 currently produce 40,000-45,000 bo/d, with 33 wells on line. CFD 11-6 on Block 04/36 and CFD 12-1 and CFD 12-1S on Block 05/36 are expected to be developed and tied back to the FPSO.

Kerr-McGee expects approval this year to develop CFD 11-6, CFD 12-1, and CFD 12-1S.

Kerr-McGee is continuing appraisal work at its CFD 14-5 discovery on Block 09/18.

ConocoPhillips inks Kebabangan field PSA

A joint venture of ConocoPhillips (East Malaysia) Ltd. 40% and Petronas Carigali Sdn. Bhd., the exploration and production arm of Malaysian national oil company Petronas, 60% has signed a production-sharing agreement with Petronas for development of Kebabangan oil field off Sabah, Malaysia.

Petronas said the JV would commit a minimum of $8.375 million to the block. A joint operating company will reprocess 300 sq km of 3D seismic data, drill an appraisal well with a minimum aggregate depth of 2,600 m, and develop the field if results prove it commercially viable. Kebabangan is believed to have reserves of 100-300 million bbl of oil.

Royal Dutch/Shell Group unit Sabah Shell Petroleum Co. Ltd. discovered Kebabangan field in 1994 on deepwater Block J about 94 km northwest of Kota Kinabalu in 120-295 m of water. Shell's contract entitled it to discover gas only, but the initial exploration well encountered both a thick gas column with a thin oil rim and oil, which was 300 m below the point where Shell had expected to find gas.

Shell's 1985 production-sharing contract mandated the cut-off point for Shell's production to be 2,438 m below the sea surface—a depth above the oil pay.

An appraisal well drilled to 3,194 m in 2002 penetrated gas and an oil column in several reservoir intervals, encountering 300 m of oil pay below the expected gas pay zone in Upper Miocene turbidite sands. Well tests showed the oil to be light and of high quality, Shell said. Flow rates are thought to have been as much as 10,000 b/d of oil from two zones.

PetroKazakhstan posts reserves, output hikes

PetroKazakhstan Inc., Calgary, targeted a 12.5% increase in production to 170,000 b/d in Kazakhstan in 2005 assuming timely receipt of regulatory approvals and the absence of marketing constraints.

Exploration drilling extended Kyzylkiya field to the north and into the new Kolzhan license and found high-quality channel sands below the Aryskum field gas cap (see map, OGJ, Feb. 28, 2005, p. 36). PetroKazakhstan will pursue the channel sands trend with further seismic and appraisal wells.

The 2005 plan calls for drilling 17 exploration and appraisal wells and acquiring at least 400 line-km of 2D seismic surveys and 300 sq km of 3D surveys. The company has an exploration prospect inventory of 94 independent structures that could hold as much as 1.1 billion bbl of unrisked reserves.

Development drilling will focus on Kyzylkiya, Aryskum, Maibulak, Akshabulak, and Kumkol North fields.

New FPSO due in China's Peng Lai field

CNOOC Ltd. and ConocoPhillips China Inc. have signed a contract with Shanghai Waigaoqiao Shipbuilding, a subsidiary of China State Shipbuilding Corp., for a 280,000-dwt floating, production, storage, and offloading (FPSO) vessel hull for the Peng Lai complex of oil fields in China's Bohai Bay.

The $200 million contract covers the design, partial procurement, and construction of the 310-m long, 60-m wide, and 29-m deep FPSO hull, the biggest ever built in China.

The FPSO topside modules will be made in Singapore. The 35,000-tonne topsides will have a processing capacity of 190,000 bo/d and the ability to handle 510,000 b/d of total fluids.

The FPSO, with onboard storage capacity of 2 million bbl of crude oil, is scheduled for delivery in May 2007. It will go to Block 11/05 in Bohai Bay, where ConocoPhillips and CNOOC Ltd. are developing China's largest offshore oil field, PL 19-3.

In mid-January, the Chinese government approved the overall development program for PL 19-3 (Phase II) and PL 25-6. Detailed design engineering, procurement, and construction are under way on Phase II development, which in addition to the FPSO, will include five wellhead platforms and central processing facilities.

The first wellhead platform of Phase II will be used in production in the first half of 2007. Production through the new FPSO is expected late in 2008 (OGJ Online, Dec. 16, 2004).

Pakistan awards Eni PSAs in Indus Delta

Pakistan has executed production-sharing agreements with Eni Pakistan Ltd. for two offshore blocks in the Indus Delta: Block No. 2366-4 (Offshore Indus-M) and Block No. 2366-5 (Offshore Indus-N)—each covering 2,500 sq km.

Eni will operate the blocks with a 100% working interest and will invest at least $5 million during the first 2 years to identify drillable prospects, and an additional $11 million investment in succeeding phases during the following 3 years.

The company will start surveys by yearend and might drill next year. Government Holdings (Private) Ltd. is licensor.

More heavy oil found northwest of Edmonton

Calgary independents BlackRock Ventures Inc. and Talisman Energy Inc. are acquiring a $2.5 million 3D seismic survey over lands that contain a new heavy oil discovery in Alberta's Peace River area.

The companies will use the 3D data to expand exploration and development this year around the heavy oil find at Chipmunk, 15 miles southeast of BlackRock's Seal project (see map, OGJ, Jan. 24, 2005, p. 40).

BlackRock and Talisman have completed three successful vertical wells that have been producing a combined 960 b/d of 11° gravity oil from three Waulsortian mounds in the Mississippian Pekisko formation.

Consulting engineers assigned 655,000 bbl of reserves to the first two wells. The companies have worked the area for 5 years. The first well, drilled in December 2003, has intermittently produced more than 45,000 bbl.

The mounds occur along a linear southwest-northeast trend 6 miles wide and 50 miles long where BlackRock and Talisman have acquired 65,000 acres.

CNR to develop Horizon oil sands

Canadian Natural Resources Ltd. (CNR), Calgary, will commence the first phase of development of the Horizon oil sands leases near Fort McMurray, Alta., via mining and upgrading of bitumen.

Phase 1 production is planned to begin in the second half of 2008 with 110,000 b/d of 34° gravity synthetic crude oil. Phase 2 will increase production to 155,000 b/d in 2010, and Phase 3 would boost production to 232,000 b/d in 2012.

The first three phases, which encompass only a portion of CNR's oil sands leases, are expected to deliver more than 40 years of production without the declines normally associated with petroleum operations, the company said.

Drilling & Production—Quick Takes

P-48 begins production in Campos basin

State-run Petróleo Brasileiro SA (Petrobras) began production Feb. 28 from its P-48 platform in deepwater Caratinga field in the Campos basin off Rio de Janeiro state, Brazil.

The Caratinga P-48 floating production, storage, and offloading vessel (FPSO), is producing 21,700 b/d of 23° gravity oil from well CRT-21 in 1,000 m of water. Its production start closely follows initiation of production from platform P-43 in December 2004 from nearby Barracuda field (OGJ Online, Feb. 2, 2005).

The FPSOs each can produce as much as 150,000 b/d of oil and store 2 million bbl.

Petrobras plans to connect 32 production wells and 22 injection wells to the two platforms and expects peak production in July.

PTTEP develops Shams, sells gas to Oman

Thailand's state-owned PTT Exploration & Production PCL (PTTEP) plans to invest $50 million this year to further develop Shams field on Block 44 in Oman, including the drilling of two more development wells.

PTTEP has signed a heads of agreement (HOA) to sell Oman about 50 MMcfd of natural gas from the field beginning in the fourth quarter. The HOA is a prelude to a more detailed agreement expected soon. Shams, which also is capable of producing 3,000 b/d of condensate, is in what PTTEP described as a "high-potential area" on 1,162 sq km adjacent to Safah oil field.

PTTEP also is drilling an exploration well on the southern area of Block 44, targeting oil.

Olefins II construction begins in Kuwait

Kuwait Petroleum Corp.'s Petrochemical Industries Co. (PIC) and Dow Chemical Co. subsidiary Union Carbide Corp. began work Mar. 1 on the Olefins II ethylene and derivatives complex in Shuaiba, Kuwait.

The complex, planned for start-up in early 2008, will have an 850,000 tonne/year ethane cracker and a 600,000 tonne/year ethylene oxide-ethylene glycol plant using "Meteor" ethylene oxide technology. The existing 600,000 tonne/year polyethylene capacity will be expanded to use the additional ethylene.

PIC and Dow will add a 450,000 tonne/year ethylbenzene-styrene unit that will receive ethylene from Olefins II and benzene from the Aromatics Project, to be built simultaneously on the site adjacent to the Equate Petrochemical Co. facility.

Equate, a joint venture of PIC and Union Carbide, will manage, operate, and maintain the Olefins II facilities.

PetroChina planning hydrocracking unit

PetroChina Co. Ltd. will use proprietary technology developed by UOP LLC, Des Plaines, Ill., in a hydrocracking unit to be built as part of a refinery expansion project in Dushanzi, Xinjiang Province in northwestern China.

The hydrocracker will be commissioned in 2007. PetroChina is spending 27.2 billion yuan ($3.29 billion) to expand the refinery and petrochemical complex (OGJ Online, Feb. 23, 2005).

UOP said the unit would be configured as a single-stage unit to process 41,000 b/sd of a gas oil blend and produce diesel and ethylene feedstock.

South Hook lets contract for LNG terminal

South Hook LNG Terminal Co. let a turnkey engineering, procurement, and construction (EPC) contract to Chicago Bridge & Iron Co. NV (CB&I) for Phase II construction of an LNG import terminal near Milford Haven, Wales.

Under the lump-sum, $325 million Phase II project, CB&I is responsible for doubling the facility's regasification and sendout capacity, refurbishment of a second loading berth on the existing jetty, two additional 155,000 cu m full-containment LNG storage tanks, and expansion of the associated facilities.

Phase II, executed through the CB&I John Brown office in London, will run concurrently with Phase I, with construction beginning in mid-2005.

CB&I is also in charge of Phase I, valued at $725-750 million, which includes a ship-unloading system, three 155,000 cu m full-containment LNG storage tanks, and a regasification and sendout system. Marine works include major refurbishment of an existing jetty to allow berthing of LNG tankers. Completion of Phase I is expected late in 2007.

South Hook, a UK company owned by affiliates of Qatar Petroleum and ExxonMobil Corp., will own and operate the LNG facility (OGJ Online, July 11, 2003). LNG for South Hook will come from the Qatar Liquefied Gas Co. Ltd. (II) LNG plant, being built at Ras Laffan, Qatar.

Woodside selects JV for LNG Train 5 EPC

Woodside Energy Ltd., operator of Australia's North West Shelf LNG Venture, has issued a letter of intent to a joint venture of Foster Wheeler (WA) Pty. Ltd. and WorleyParsons Services Pty. Ltd. for the engineering, procurement, and construction management of a fifth LNG train to be added at the consortium's liquefaction complex at Karratha, 1,100 km north of Perth, Western Australia (OGJ, Jan. 24, 2005, Newsletter).

In the $1.58 billion Phase V expansion, the group will add the 4.2-million-tonne/year liquefaction train, an additional fractionation unit, acid gas recovery unit, boil-off gas compressor, two new gas turbine power generation units, a second loading berth, and a new fuel gas system compressor.

The facility is expected to start up in fourth quarter 2008. The addition would expand total capacity to 15.9 million tonnes/year

Zadco assesses pipeline off Abu Dhabi

Zakum Development Co. (Zadco) let a conceptual engineering contract to J P Kenny, a Wood Group affiliate, to assess the need to replace the 23-year-old Zakum Main Oil Line (MOL) off Abu Dhabi.

The 42-in, 60-km pipeline carries oil produced by Upper Zakum field from the Zakum Central Complex to Zirku Island.

The contract covers site surveys, safety and risk assessment, value engineering, and conceptual design. It includes an option for J P Kenny to provide front-end engineering services if Zadco decides to proceed with the project.

Abu Dhabi National Oil Co. and Japan Oil Development Co. are the major shareholders in Zadco.

Peru LNG signs deal for Camisea gas

Peru LNG SRL—owned by Hunt Oil Co., Dallas, and SK Corp. of South Korea—has signed agreements to purchase 620 MMcfd of natural gas over 18 years from the Greater Camisea fields consortium in Peru.

Peru LNG will use the gas in a planned $1 billion liquefaction plant it will build at Pampa Melchorita near Cañete, 169 km south of Lima on Peru's Pacific coast. The LNG plant will have an initial capacity of 4.4 million tonnes/year. Land for the plant has been purchased, Hunt said.

Peru LNG will spend $800 million for additional wells, pipelines, and other facilities associated with the project. Discussions are under way with Transportadora de Gas del Peru for pipeline transportation from the upstream license holders to the LNG plant. The Greater Camisea license holders are Pluspetrol Peru SA, Hunt Oil Co. of Peru, SK Corp., Sonatrach Peru Corp. SAC, and Tecpetrol del Peru SAC.

Panyu/Huizhou pipelay contract let

China National Offshore Oil Corp. (CNOOC) has let a $125 million contract to GIL Mauritius Holdings Ltd., a Global Industries Ltd. subsidiary, to install 338 km of 20-in. pipeline and 1.8 km of 12-in. pipeline for the Panyu/Huizhou Gas Development Project in the South China Sea.

CNOOC will use the Hercules pipelay/derrick barge to lay the gas lines by conventional pipelay during 2005 and 2006.

Williams seeks pipeline capacity growth

Williams Cos. Inc., Tulsa, is gauging market interest for an expansion of its 3.5 bcfd Northwest Pipeline system in Salt Lake City, Utah. The expansion would increase natural gas transportation capacity from supply basins in the Rocky Mountains to markets in the western US.

The company has begun an open season that will run through March. As proposed, the Basin Expansion Project would include expanded facilities between Muddy Creek, Wyo., and the Blanco Hub in New Mexico; laterals to attach additional gas supplies in the Piceance basin, Uinta basin, or other regional basins; and interconnecting facilities with gathering and transmission service providers.

After assessing the open season response, Williams will determine the cost, facilities, final capacity, and rates for the project.

Service could be available as early as November 2007, pending market support and US Federal Energy Regulatory Commission approval.