OGJ Newsletter

Sept. 12, 2005
General Interest - Quick Takes

US waives Jones Act in Katrina aftermath

The US Department of Homeland Security has waived the Jones Act, allowing foreign-flagged vessels to transport cargoes between US ports.

Homeland Security Sec. Michael Chertoff signed the waiver on Sept. 2. No details were provided on how long the waiver would be effective.

The waiver will add flexibility to an oil transportation system hobbled by storm-related impairment to the operation of several key pipelines.

The Jones Act also is known as the Merchant Marine Act of 1920.

Attorneys general target gasoline prices

Michigan Atty. Gen. Mike Cox said he joined more than 30 attorneys general across the US-including Alabama’s Troy King and Florida’s Charlie Crist, whose states were hit by Hurricane Katrina-in a multistate comprehensive investigation of gasoline prices.

“Today’s effort is the latest step my office has taken this week to prevent and investigate potential gas gouging as a result of Hurricane Katrina,” Cox said Sept. 2.

Cox said investigators planned to review gasoline pricing during a 30-day period ending Aug. 27. A team of lawyers from participating states will focus on common areas of interest, including pricing at crude oil points of entry and refining costs, he said.

In addition, individual states will gather and analyze information about events that occurred wholly within their state borders, particularly since Hurricane Katrina, Cox said.

His office had received more than 1,000 telephone calls and e-mails from Michigan consumers with concerns about gasoline prices as of Sept. 2, he said.

On Sept. 1, Cox was among five Midwest attorneys general who signed a letter calling for the US Federal Trade Commission to investigate high gasoline prices. Cox joined Lisa Madigan of Illinois, Tom Miller of Iowa, Jay Nixon of Missouri, and Peg Lautenschlager of Wisconsin.

“All of these efforts will ensure that if criminal activity took place at any point along the supply chain, we will find it,” Cox said.

MMS raises fees for seven offshore services

The US Minerals Management Service changed some fees and implemented others for services to the offshore oil and gas industry, effective Sept. 26. The $1.65 million in new and adjusted fees are necessary to recover costs, MMS said in a final rulemaking.

The most expensive new charge for offshore producers will be a $10,700 unitization proposal or expansion fee. Unitization revisions, which previously were free, will cost $760 each.

Five other MMS services will incur fees for the first time: $150 for a change in operator designation, $1,800 for suspensions of operations or production, $3,300 for unit line requests 500 ft from a lease, $4,200 for gas cap production requests, and $4,900 for downhole commingling.

A pipeline right-of-way assignment, which currently costs $60, will increase to $170 under the new schedule. Pipeline ROW grant applications will continue to cost $2,350 each, MMS said. It also kept its nonrequired document filing fee at $25.

MMS also reduced its charges for two other services. Record title and operation rights transfers will drop to $170 from $185 each, and a pipeline conversion of its lease term to ROW will fall from $300 to $200.

MMS said it updated its indirect cost rate to 21.5% from 15% since publishing proposed charges on Mar. 15 and calculated the higher indirect cost rate into its new offshore cost recovery fees.

Venezuela offers relief oil to Ecuador

Venezuelan President Hugo Chavez offered to provide Ecuador with oil after protestors recently disrupted operations by state-owned Petroecuador in the provinces of Orellana and Sucumbios.

Ecuador could repay the oil from its own supplies when production returns to normal, Chavez said.

Ecuador suspended exports on Aug. 18. Petroecuador has cut its production to 33,167 b/d from 201,000 b/d previously (OGJ Online, Aug. 22, 2005).

Protesters attacked pipelines and pumping machinery and blocked highways in the two provinces in an attempt to force the government to free other protesters held in custody. The dissidents are demanding more jobs and local investments.

Chavez made his offer during his weekly radio program, broadcast Aug. 21 in Cuba’s western province of Pinar del Rio, 200 km west of Havana, with Cuban President Fidel Castro.

Chavez said his government offered Ecuador its support to “overcome the difficult economic situation created by the drastic reduction of oil production.” Ecuadorian President Alfredo Palacio responded by declaring a state of emergency in the two oil-producing provinces.

With Chavez’s support, Ecuador could develop its supplementary imports program in order to cover the deficit resulting from Ecuadorian refineries’ operating at less than full capability.

According to the Ecuadorian government’s preliminary estimates, losses caused by the strike could amount to $443 million by October, when crude production might stabilize.

Chavez said he would like Ecuador to be a member of the Petroandina system, which Caracas is promoting as an energy alliance that will allow countries to deal with situations such as decreased production due to strikes or other events.

Heavy oil production technology awaits test

The US Department of Energy has reported a new method for producing stranded heavy oil that offers an alternative for inhibiting sand and fines production in oil wells and eliminates conventional perforating and gravel packing.

The Teleperfs technology was funded by a small business innovation research grant managed by DOE’s National Energy Technology Laboratory. It was developed as a joint industry venture with input from an industry group comprising BP PLC, Chevron Corp., ENI SPA, Baker Oil Tools, and Katy, Tex.-based Completion Concepts Inc., which is commercializing the technology.

A one-step well completion technology, Teleperfs uses a prefabricated, hydraulic telescope inserted around the wall of a well liner assembly. It uses drilling pressures to perforate the face of the formation and anchor the well liner in place. Cementing of the well allows entry ports for formation fluids. An organic acid, installed in manufacturing, is inserted into the sand surrounding the Teleperfs, dissolving residue around the device and resulting in a continuous fluid-producing formation.

A full-scale field test last year will be followed this year by a test in a Chevron injection well in Alaska.

Industry Scoreboard
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Due to the holiday in the US, data for this week's industry Scoreboard are not available.

Exploration & Development - Quick Takes

PDVSA, CNPC form drilling JV

Venezuela and China have signed a preliminary agreement for the creation of a joint venture to drill for light and heavy crude in eastern Venezuela, according to state-owned Petroleos de Venezuela SA (PDVSA).

The countries also signed an agreement to quantify and certify oil reserves in an area of the Orinoco Belt.

The deals were closed in Beijing by Ma Kai, the minister in charge of China’s State Development and Reform Commission, and Venezuelan Energy Minister Rafael Ramirez, who also heads PDVSA.

The mixed company formed by PDVSA and China National Petroleum Corp. (CNPC) will drill in oil fields in the area of Zumano, site of an estimated 400 million bbl of light and heavy crude oil and 4 tcf of natural gas.

The companies also agreed to conduct a study of area Junin 4, a 640-sq-km block in the Orinoco Belt, for the purpose of quantifying and certifying oil reserves, estimated at 20 billion bbl, PDVSA said.

After the preliminary study, “We will proceed to discuss a joint project for the production and upgrading of crude, combined with a project to refine in China,” said the official joint release.

Sudan awards offshore block to Petronas

Sudan awarded a unit of Malaysia’s state oil company Petronas its first offshore oil and gas project in the country.

Petronas Carigali Overseas will hold a 35% interest in Block 15, covering 28,655 sq km in the Red Sea, under an exploration and production-sharing agreement. About half the acreage is in 300-800 m of water.

Remaining interests are held by China’s CNPC 35%, Sudan’s national oil company Sudapet 15%, Express Petroleum of Nigeria 10%, and the Sudanese High Tech Group 5%.

Petronas and its partners will drill five wildcat wells with a total minimum expenditure of $58 million in three periods over 6 years.

“Block 15 is known to be gas-prone,” Petronas said in a statement. “With the award of the block, Sudan will realize its first integrated gas project.”

Toreador, partners find gas in Black Sea off Turkey

Toreador Resources Corp., Dallas, and partners reported successful tests from Ayazli-2 and Ayazli-3 natural gas wells in the Black Sea’s South Akcakoca subbasin off Turkey.

Toreador is operator with a 36.75% working interest in the permit area. Stratic Energy Corp., Calgary, holds 12.25%, and Turkish Petroleum Corp., 51%.

The Ayazli-2 well indicated 20 m of gas pay in two zones at 920.5-1,045 m. On test, it flowed at an aggregate 9 MMcfd of gas through a 4864-in. choke. Other productive intervals are present at 725-877 m.

Toreador expects to ultimately perforate and produce an additional 31 m of gas-bearing sands uphole after the deeper zones are fully depleted, Stratic said.

Previously, wireline logs indicated gas in six intervals in the Eocene-age Kusuri formation.

The Ayazli-3 well indicated 33 m of gas pay in five intervals at 747-1,067 m. On test, the well flowed at an aggregate 8.7 MMcfd of gas through a 4864-in. choke. Several additional zones remain to be tested.

The aggregate flow rate does not represent the full capacity of the intervals tested because higher pressure encountered in the lower zones caused the flow from the lower pressure upper zones to be severely limited, Stratic said.

Future wells will be designed for dual completion in order to maximize flow rates.

CNOOC, partners to survey Spratly Islands area

China National Offshore Oil Corp., Philippine National Oil Co., and Vietnam Oil & Gas Corp. have agreed to shoot marine seismic surveys around the disputed Spratly Islands in the South China Sea.

CNOOC announced Aug. 26 that its subsidiary, China Oilfield Services Ltd., won a 2D seismic contract in bidding organized by the three national oil companies Aug. 8-12.

The bidding came after Chinese Premier Wen Jiabao and his Vietnamese counterpart, Phan Van Khai, agreed on July 4 that their countries, together with the Philippines, should jointly explore several disputed areas of the South China Sea (OGJ Online, July 5, 2005).

The companies will acquire 2D and 3D seismic data in the 140,000 sq km area over a 3-year period.

Brunei, Malaysia, and Taiwan also have claims to the Spratly Islands. All claimants, except Brunei, station troops on parts of the archipelago.

Indonesia seeks Cepu field clarification

Indonesia’s Energy and Mineral Resources Minister Purnomo Yusgiantoro will ask state oil and gas company Pertamina and ExxonMobil Corp. to clarify their respective stakes in Cepu oil field of east-central Java.

“We are going to ask them [Pertamina and ExxonMobil] to clarify the matter because it is now becoming urgent,” Yusgiantoro told journalists Aug. 22. He said the issue had to be resolved before Sept. 25, when a new contract is slated to be signed.

Under the existing memorandum of understanding, Pertamina is to have a 45% share of the block, while ExxonMobil is to have 45% and the regional government 10%. But Yusgiantoro said Pertamina later claimed a 55% stake.

“We have asked Pertamina to settle the matter internally in the first instance,” he said, adding that the government also would meet with ExxonMobil managers to negotiate the share split with Pertamina.

Two years ago, ExxonMobil faced a large dilution of its interest in the Cepu block, where the company made two significant oil discoveries in 2001 (OGJ Online, Oct. 4, 2002).

UK approves Cavendish gas field development

The UK Department of Trade and Industry agreed to the development plan for Cavendish natural gas field in the UK North Sea’s Southern Gas basin.

RWE Dea UK Development Ltd. operates the field and holds 50% interest. Its partners are GDF Britain Ltd. and Dana Petroleum (E&P) Ltd., 25% each. First production is expected in fourth quarter 2006.

Cavendish field is on Block 43/19a in 18.5 m of water, 140 km northeast of Easington on the Lincolnshire coast and 180 km north of Bacton on the Norfolk coast.

Development will involve three production wells and a minimum facilities platform (MFP) tied back to ConocoPhillips (UK) Ltd.’s Caister Murdoch System (CMS). Gas production will be transported via the CMS pipeline to the Theddlethorpe Terminal and is estimated to continue until the end of 2016.

Total capital expenditure on the project will be around £124 million, with operating costs expected to be £2.8 million/year. Major contracts will be awarded to Heerema Vlissingen BV, for the MFP; Micoperi, platform and pipeline installation; and Noble Asset (UK) Ltd., drilling.

Drilling & Production - Quick Takes

Swift Energy testing New Zealand gas well

Swift Energy Co. said its Piakau North A-1 well in northern New Zealand’s Taranaki basin flowed on test and is producing up to 7 MMcfd of gas with 400 b/d of condensate through a 2864-in. choke at 1,420 psi.

The gas contains 13% carbon dioxide. Analysis indicated 72 net ft of Eocene sand pay in the well, drilled to a TVD of 9,623 ft. Swift is the operator and owns 100% interest.

Piakau North gas is being blended with TAWN-area production to meet pipeline specifications. The name TAWN is an acronym derived from the first letters of four field names-Tariki, Ahuroa, Waihapa, and Ngaere.

Swift Energy is determining what modifications are needed at the TAWN facilities to process greater amounts of Piakau North gas.

A delineation well, the Piakau North A-2, is expected to reach TD during the third quarter. Following that, the rig is to go to the Ahuroa South well to further delineate the structure.

Aramco awards contracts for Saudi oil fields

Saudi Aramco has awarded J. Ray McDermott SA subsidiaries contracts for fabrication and installation services associated with field development in Marjan, Zuluf, and Safaniya oil fields off Saudi Arabia.

J. Ray will commence work at its Jebel Ali fabrication facility in Dubai on construction engineering, partial procurement, and fabrication of five wellhead jackets, five drill decks, and three scrappers.

The work scope also includes installation of 13 miles of subsea pipelines, including one 24-in. and four 16-in. flowlines in 49-170 ft of water, with tie-in pools, anode sled assemblies, and associated cables; and risers and two subsea power cables totaling more than 4 miles in length.

All installation work will be executed using J. Ray’s DB27 derrick barge.

Processing - Quick Takes

Sudan, Petronas planning Red Sea refinery

Sudan awarded Malaysia’s Petronas a contract estimated at $1 billion to build a 100,000 b/d export refinery at Port Sudan on the Red Sea coast.

Petronas and Sudan’s Ministry of Energy and Mining will jointly invest, develop, and operate the facility, to be fully operational by early 2009. Petronas International Corp. Ltd. has 50% interest, and the ministry has 50%.

The refinery will be designed to process high-acid crude that will add value to the Dar Blend from Sudan’s Melut basin Blocks 3 and 7, said Petronas, which has 40% interest in those blocks.

The refinery is expected to help meet growing demand for products in Sudan and neighboring countries, Petronas said.

China bans new oil product export contracts

China has banned new export contracts for oil products and has canceled value-added tax rebates on gasoline and naphtha exports for 4 months.

Five central government departments jointly released a circular on Aug. 31 saying the move aimed at guaranteeing domestic refined petroleum supply through yearend.

“In principle, no more new crude oil refining export contracts will be approved,” the document said.

It granted some exceptions, including China Petroleum & Chemical Corp.’s jet fuel supply to Hong Kong and Macau, as well as its long-term contracts with Vietnam and Burma.

But the circular said their export volume “will be strictly controlled.”

Neste Oil, Bapco propose Bahrain lube plant

Finland’s Neste Oil Corp. and Bahrain Petroleum Co. (Bapco) signed an agreement covering commercial terms for a proposal to design, build, and operate a plant to produce high-quality lubricant base oil at Bapco’s Bahrain refinery.

Neste Jacobs Oy will complete the active design phase of the project within 6 months. The final decision on construction is expected during 2006. If built, the plant would come on stream during first half 2008. It will be capable of producing 400,000 tonnes/year of sulfur-free, very high viscosity index base oil.

Bapco’s low-sulfur diesel hydrocracker, due on stream in mid-2007, would provide feedstock. Neste Oil would market the lubricant base oil.

ExxonMobil refinery to add clean-fuels unit

Air Products & Chemicals Inc., Allentown, Pa., and Exxon- Mobil Corp. have signed an agreement for Air Products to build an 18 MMscfd hydrogen facility adjacent to ExxonMobil’s Joliet, Ill., refinery.

The integrated steam methane reformer and recovery system, which is expected to come on stream in May 2006, will process refinery offgas under a long-term contract, supplying hydrogen and steam to enable the refinery to produce lower-sulfur transportation fuels.

France’s Technip SA will design and construct the hydrogen generation unit, while Air Products will provide the gas-separation technology and will own and operate the hydrogen facility.

Transportation - Quick Takes

KOC signs letter for Mina Al Ahmadi terminal

State-owned Kuwait Oil Co. has signed a letter of intent with South Korea’s Hyundai Heavy Industries for construction of a $1.25 billion oil terminal at Mina Al Ahmadi.

Under the deal, HHI would build the facilities, which would include 19 oil storage tanks and offshore pipelines, by June 2008. The facilities will hold more than 11 million bbl of crude oil.

An HHI spokesman said export facilities now at the site handle 2 million b/d of oil. The new facilities would boost export capacity to 3 million b/d.

Kuwait produces about 2.7 million b/d of crude oil, most of which passes through Mina Al Ahmadi, where Kuwait National Petroleum Co. has a 442,700 b/cd refinery.

Kinder Morgan to appeal parts of DOT order

The US Department of Transportation ordered Kinder Morgan Energy Partners LP to address potential “integrity threats” along the Houston company’s Pacific system following a series of accidents.

KMEP Products Pipelines said it expects to appeal parts of the order and is cooperating with authorities to resolve concerns.

DOT’s Pipeline and Hazardous Materials Safety Administration (PHMSA) issued a corrective action order on Aug. 25, noting that KMEP’s Pacific pipeline system had 44 incidents since Jan. 1, 2003. The Pacific system involves more than 3,000 miles of pipelines and terminals in Arizona, California, Nevada, New Mexico, Oregon, and West Texas.

KMEP must have a revised integrity management plan approved by PHMSA within 120 days, the order said. Failure to comply may result in an assessment of civil penalties of as much as $100,000/day.

Of the 44 incidents, 14 involved the release of more than 5 bbl of petroleum products, some in or near environmentally sensitive areas or near transportation corridors, the PHMSA said.

The order focused primarily on eight pipeline incidents, of which seven were in California. PHMSA attributed five of the eight incidents to “outside force damage,” such as excavator damage or damage caused during pipeline construction.

The order required a thorough analysis of recent incidents, a third-party independent review of operations and procedures, and a restructuring of KMEP’s internal inspection program.

PHMSA Acting Chief Safety Officer Stacey Gerard said, “Our investigations into these incidents identified inadequacies in Kinder Morgan’s interpretation of in-line inspection information to evaluate and repair their pipeline systems.”

CNR taps Pembina for oil sands transport

Canadian Natural Resources Ltd. (CNR) let a contract to Pembina Pipeline Corp., a subsidiary of Pembina Pipeline Income Fund, to provide dedicated pipeline transportation service from CNR’s Horizon Oil Sands Project 70 km north of Fort McMurray to Edmonton, Alta.

The Horizon project is designed for phased development and includes open-pit mining of bitumen, combined with an onsite upgrader. Phase 1 production is planned to begin in second half 2008 at 110,000 b/d of 34º gravity, sweet synthetic crude oil. Phase 2 would increase production to 155,000 b/d. Phase 3 would further increase production to 232,000 b/d in 2012.

Pembina will complete the twinning of its Alberta Oil Sands Pipeline (AOSP) by constructing 129 km of 24-in. and 30-in. pipeline, resulting in two parallel commercially segregated and operationally distinct pipelines.

A new 48.2-km, 20-in. pipeline from the Horizon project to the AOSP terminal together with the existing AOSP 22-in. pipeline will provide dedicated transportation service to CNR’s Horizon project.

Total cost to complete the AOSP dual line and to construct the Northern Extension pipeline and related facilities is estimated at $290 million (Can.). Construction is expected to commence in early 2006, and the Horizon Pipeline will be fully operational and available for service by July 2008. The 24-30-in. pipeline will remain dedicated for service to Syncrude.

On completion of this project, Pembina will have committed capacity to transport 640,000 b/d of synthetic crude oil produced from oil sands.

Alert issued for commingling propane, butane

The Society of International Gas Tanker & Terminal Operators (SIGTTO) has issued a safety alert about the commingling of propane and butane on LPG tankers.

SIGTTO says the practice, often initiated at the instruction of charterers, raises a number of safety concerns, especially when the commingling is performed on fully refrigerated gas carriers.

Mixing refrigerated propane and butane can create large amounts of flash gas, which must be controlled by a ship’s reliquefaction plant. If uncontrolled, the gas can lift cargo tank relief valves and escape to form large clouds of heavier-than-air, flammable vapor.

RasGas III orders 12 LNG carriers

Ras Laffan Liquefied Natural Gas Co. Ltd. III ordered 12 LNG carriers worth $2.9 billion total, three South Korean shipbuilders reported.

Daewoo Shipbuilding & Marine Engineering Co. said it will build five vessels for RasGas, which also hired Samsung Heavy Industries to build four vessels and Hyundai Heavy Industries Co. Ltd. to build three vessels.

The size of the vessels was not disclosed.