OGJ Newsletter

Aug. 22, 2005
Lack of refinery capacity may become a greater fuel supply problem than availability of crude oil over the next 5-10 years, said ICF Consulting Group Inc., Fairfax, Va.

General Interest - Quick Takes

ICF: Refining limits crimping fuel supply

Lack of refinery capacity may become a greater fuel supply problem than availability of crude oil over the next 5-10 years, said ICF Consulting Group Inc., Fairfax, Va.

“The crux of the problem is that new global refinery capacity investment is lagging behind demand,” said Zeta Rosenberg, an ICF Consulting senior vice-president and fuels expert. “Historically, the oil industry has been able to squeeze out some additional capacity, but the trend increases of the past may not be enough to keep up with forecasted demand.”

She said, “Since mid-2004, refinery margins have stayed very strong, and the outlook appears to be the same for the foreseeable future. If supply does not materialize to meet the demand forecast, however, there could be significant negative impacts on global economies and world demand.”

Global refinery capacity has decreased to 103% of total oil demand in 2004 from 109% in 1990 and 107% in 2000. “This situation has been overlooked due to the overall oil price explosion and world crude oil spare production capacity issues,” said ICF Consulting.

It noted that the International Energy Agency in Paris forecasts growth in oil demand of more than 5 million b/d by 2010. “Industry has typically expanded existing refineries only marginally every year through low cost expansions (referred to as ‘capacity creep’), but capacity creep may become tougher as the world moves to much lower sulfur levels in products in order to meet environmental regulations,” the report said.

Based on its analysis of the impact of the Energy Policy Act of 2005 on refiners, ICF Consulting said, “The implications are significant for both the United States and global economies.”

Tighter Pinedale Anticline spacing approved

The Wyoming Oil & Gas Conservation Commission has approved 10-acre spacing for drilling in the Lance and Mesaverde formations in parts of giant Pinedale Anticline gas field in the Green River basin.

Subsidiaries of Questar Corp., Salt Lake City, operate the affected acreage.

The newly approved 10-acre spacing locations join 10-acre pilot locations in other areas included in a pilot program that WOGCC approved on July 19, Ultra Petroleum Corp., Houston, said.

Operators have estimated that Pinedale Anticline field has more than 40 tcf of original gas in place (OGIP), according to WOGCC.

With the benefit of additional 10-acre pilot well results and additional data on older wells, Questar estimated that gross recoverable reserves for 10-acre density wells will be 2-7 bcfe/well.

In testimony before the WOGCC, Questar presented data indicating 20-acre density wells will recover about one quarter of OGIP, and that 10-acre-density wells will recover a little less than half of OGIP.

When developed on 10-acre density Questar expects to have an average 67% working interest in 932 wells. The WOGCC 10-acre approval covers 12,700 acres, which Questar currently believes to be the productive limits of its core acreage in Pinedale field.

Ultra has an average 28% working interest in Questar’s Stewart Point and Mesa areas of Pinedale Anticline in Sublette County, Wyo.

Since 2003, the WOGCC has approved 11 applications by six operators for increased density in the Pinedale Anticline. Seven applications included the drilling of 232 wells on 20-acre spacing and four contained 381 wells on 10-acre spacing.

Beside Questar and Ultra, the companies involved are Anschutz Corp. and Petrogulf Corp., which are both private Denver companies; Yates Petroleum Corp., Artesia, NM; and Shell Oil Co.

WOGCC Oil and Gas Supervisor Don Likwartz said, “Since there’s some overlap in a few of the dockets, the total area covered is 19,900 acres out of a total proven field area of 51,000 acres. Pinedale Anticline is on statewide 40-acre spacing, except for the referenced areas covered by the 11 dockets.”

Western Australia power station to use gas

Western Australia has chosen natural gas rather than coal for the state’s next baseload electric power station.

Wambo Power Ventures will build the $400 million (Aus.), combined-cycle gas-fired 320-Mw facility at Kwinana, just south of Perth.

The station will be underwritten by a 25-year electricity supply contract with state-owned utility Western Power. Wambo has negotiated supply agreements with the owners of the Dampier-Bunbury trunkline, which transports gas from offshore fields on the North West Shelf.

A coal-fired station was estimated to cost as much as $150 million (Aus.) more to build than a gas-fired facility. Wambo also will be able to complete its construction and bring the new facility on line a year earlier than the two coal-fired candidates.

Wambo also said that the gas-fired station will generate less than half the greenhouse emissions of a comparable coal-fired power station.

Exploration & Development - Quick Takes

OCS Sale 196 bid total tops $335 million

The US Minerals Management Service reported “a very strong sale” of crude oil and natural gas leases in the Western Gulf of Mexico on Aug. 17.

“We saw the highest dollar amount of high bids for a western gulf sale in 7 years,” said Chris Oynes, gulf regional director of the MMS.

Apparent high bids in OCS Sale 196 amounted to $285,192,865 out of a total of $335,628,130 offered by 56 companies in 422 bids on 346 tracts.

Of the tracts receiving bids, 25% are in ultradeep water of more than 1,600 m. The deepest tract to draw a bid was Sigsbee Escarpment 288 in 3,278 m.

The highest bid was $26.5 million, submitted by Amerada Hess Corp. subsidiary LLOG Exploration Offshore Inc. for High Island 156. The greatest number of bids per tract was four each for Garden Banks 379 and High Island Area, South Addition A 589.

“Many of the areas bid on at this sale represent rank wildcat areas where industry is taking great geologic and economic risk to search for more oil and gas supplies. We continued to see strong bidding activity in the deepwater gulf, particularly in the Alaminos Canyon and Keathley Canyon areas,” Oynes said. “This activity is due largely to the encouraging results of rank wildcat drilling activity in the Lower Tertiary-Wilcox Trend. It was also noteworthy that there was strong bidding interest in the shallow-water area for potential deep gas prospects.”

Of 224 deepwater tracts receiving bids, 37 are in water depths of 400-799 m, and 101 are in water depths of 800-1,599 m.

In the ultradeepwater categories of royalty relief, 26 tracts at depths of 1,600 to 2,000 m received bids, and 60 tracts deeper than 2,000 m received bids. The new 2,000 m category was established as a provision of the Energy Policy Act of 2005, signed into law Aug. 8.

MMS will evaluate bids to ensure the public receives market value before awarding leases.

BP reports eighth Block 31 strike off Angola

BP PLC and partners reported an oil discovery in the Astraea-1 well on Block 31 off Angola, the company’s eighth discovery on the block.

Astraea-1 was drilled to 12,598 ft TD in 4,908 ft of water 103 miles offshore. On test, the well flowed at a maximum rate of 6,513 b/d through a 4064-in. choke.

The latest discovery, along with three previous discoveries (Ceres, Palas, and Juno) in the southeastern part of Block 31, reinforce the likelihood of a second development area on the block, said Marathon Oil Corp., a partner.

The Astraea-1 is 36 miles southeast of the planned Northeast Development Area, comprising the Plutao, Saturno, Marte, and Venus discoveries. BP, operator of the block, is studying development concepts in southeastern Block 31.

McMoRan adds deep shelf gas-condensate finds

McMoRan Exploration Co., New Orleans, has gauged more deep shelf gas-condensate discoveries in the Gulf of Mexico as its production ramps up there.

The independent plans to start production in the fourth quarter from the King Kong discovery on Vermilion Blocks 16-17. The well, drilled to TD 18,918 ft in 12 ft of water, tested at 20.6 MMcfd of gas and 3,600 b/d of condensate, no water, from 34 net ft of perforations below 15,400 ft. Flowing tubing pressure was 7,400 psi at the end of the test on a 2864-in. choke, and shut-in tubing pressure was 10,115 psi.

Logs indicated the well cut 150 ft of net pay in 14 hydrocarbon-bearing sands.

McMoRan, operator with 40% working interest, is to spud the King Kong-2 development well updip. To be drilled to 13,750 ft, it will further evaluate sands seen in the discovery well.

The prospect is not related to the deepwater King Kong-Yosemite gas-condensate field, which went on production in 3,700 ft of water in the Green Canyon area in February 2002.

Meanwhile, with remedial problems solved, production from the Hurricane Upthrown discovery well on South Marsh Island 217 climbed to 40 MMcfd of gas and 1,700 b/d of condensate after the operator removed scaling and residue from the pack assembly. The well is to be opened further to 50 MMcfd and 2,150 b/d.

The well, which began producing on Mar. 30, received royalty relief on the first 5 bcf of production and flowed at 20 MMcfd of gas equivalent in July. It produces through Tiger Shoal field facilities.

Hurricane-2, projected to 16,000 ft in 10 ft of water 3,000 ft northwest of the discovery well, is to spud in the second half of this year.

Thailand offers 82 blocks in licensing round

Eighty-two onshore and offshore blocks covering 440,407 sq km are up for bid in the 19th bidding round announced by Thailand’s Ministry of Energy.

Thai authorities will apply the current concession system, with a 12.5% royalty and 50% income tax, for the new round (OGJ Online, Mar. 15, 2005).

The Department of Mineral Fuels will accept bids through June 30, 2006.

Last year, Thailand produced 746 bcf of natural gas, 21.8 million bbl of condensate, and 31.1 million bbl of oil from 30 fields. At yearend 2004, concession-holders operating in Thailand reported proved reserves of 12.51 tcf of gas, 289.08 million bbl of condensate, and 238.22 million bbl of oil.

Indonesia awards nine blocks in bid round

Indonesia awarded nine oil and gas production-sharing contracts-eight for exploration and one for production-out of 13 blocks offered in the latest bidding round.

ConocoPhillips won the tender for the Amborip VI Block on the Arafura shelf off Papua New Guinea. The remaining concessions went to Indonesian firms.

Indonesia plans to offer 14 more oil and gas blocks with a bidding submission deadline in November.

Statoil to develop Tampen area discovery

An oil discovery by Statoil ASA and partners in the M5 structure in the Tampen area of the Norwegian North Sea will be produced through installations on the group’s Vigdis field just to the north.

Exploration well 34/7-D-4 H was drilled to a TMD of 4,572 m by Diamond Offshore Drilling Inc.’s Ocean Vanguard semisubmersible. To optimize production, a sidetrack was drilled from the discovery well as 34/7-D-4 AH to a TMD of 4,400 m.

The well is to be completed for production in October by the Borgland Dolphin semisubmersible rig operated by Dolphin AS, a unit of Fred Olsen Energy ASA.

The M5 structure lies in Production License 089 in 251 m of water. Operator Statoil has 28.22% of PL 089.

Separately, Statoil recently awarded contracts totaling 590 million kroner for development of its Skinfaks oil field and expansion of Rimfaks oil field in the Tampen area.

Engineering contractor Subsea 7 will lay pipelines to tie new subsea installations back to the nearby Gullfaks C platform under a contract worth just under 190 million kroner. Saipem SPA is to do all subsea connections under a contract valued at 230 million kroner. Fabricom Contracting Ltd. has a 170 million kroner contract for modifications on the Gullfaks C platform.

The two fields are being tied back to the C platform via existing infrastructure. The pipelaying involves two 10-in. lines, each about 12 km long, and an 8-in. line of 4.5 km. They will link new subsea templates being installed on the two fields to existing templates on Statoil’s Gullfaks satellites.

The Scandi Navica vessel will lay the pipe. Work is to start next spring and is scheduled for completion in July 2006, officials said.

Industry Scoreboard

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Drilling & Production - Quick Takes

Malaysia’s South Angsi oil field on stream

Talisman Malaysia Ltd., a wholly owned subsidiary of Talisman Energy Inc., Calgary, reported first oil production Aug. 14 from South Angsi field on Block PM-305 off Malaysia.

Talisman expects the field to produce at a plateau rate of about 12,000 b/d, net to Talisman. At yearend 2004, Talisman booked about 29 million bbl of reserves at South Angsi-20 million bbl proved, 9 million bbl probable. Development drilling, Talisman said, has confirmed this estimate.

Talisman said that a recently completed seismic survey has identified further exploration potential close to the South Angsi field on Block PM-314.

Talisman Malaysia is operator and holds a 60% interest in Blocks PM-305 and PM-314.

Stena Drilling orders ultradeepwater drillship

Stena Drilling Ltd., Aberdeen, has placed an order with Samsung Heavy Industries Co. Ltd., South Korea, for the construction of a $600 million drillship. The dynamically positioned Stena Drill Max, which will have six propellers, will displace 105,822 tons.

Completion of the Stena Drill Max drillship, which will be used for ultradeepwater and harsh environment drilling, will bring Stena Drilling’s total fleet to six units.

Stena Drilling Ltd. placed an order with Samsung Heavy Industries Co. Ltd. for the construction of a $600 million dynamically positioned drillship. Artist rendition from Stena Drilling.
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The company’s existing fleet consists of five semisubmersibles, two of which are active off Norway, one off the UK, one off Mauritania, and one soon will drill off Australia.

Pearl to install two more Jasmine platforms

Pearl Energy Ltd., Singapore, plans to install two additional production platforms and associated pipelines for Jasmine oil field, on Block B 5/27, in the Gulf ofThailand.

Evaluation of delineation wells drilled in May showed sufficient oil reserves in the area to justify commercial development of two locations to complement the existing production platform A.

The company awarded a contract to CUEL Ltd., the largest operator of offshore fabrication in Thailand, to construct and install the platforms and pipelines.

Pearl intends by yearend to certify reserves of Jasmine, whose gross oil production at the end of July was 11,200 b/d.

The new platforms, B and C, are due to start operation in first quarter 2007.

Repsol YPF buys fields off Trinidad and Tobago

Repsol YPF SA has acquired Teak, Samaan, and Poui oil fields and the undeveloped Onyx gas-condensate discovery in shallow water off southeastern Trinidad for $229 million and will invest $500 million there through 2025.

Repsol YPF estimates the target as 174 million boe of proved, probable, and possible reserves. The seller is BP Trinidad and Tobago, in which Repsol YPF already has a 30% share. State-owned Petrotrin will purchase a 15% stake in the project.

BPTT had announced it was to sell the fields to other buyers, but Repsol YPF exercised a first right of refusal (OGJ Online, June 20, 2005). BPTT earlier this year said proved reserves were 40 million bbl of oil.

Now producing an average 20,500 boe/d, the three oil fields in the Columbus basin have three platforms, 10 drilling satellites, and one compression satellite.

Cumulative production exceeds 200 million bbl of oil from Samaan alone.

Development of the fields, at a cost of $275 million, will involve opening untapped pays and drilling horizontal and infill wells. It may also include acidizing and gas lift optimization.

Repsol YPF plans to start production in the third quarter of 2008 from Onyx, a 1971 discovery identified by the oil exploration wells Tourmaline-1A and 2A and Nariva-1. Gas formations were not tested.

Onyx is in 200 ft of water between Poui and Teak fields. Repsol YPF is considering a subsea development linked by pipeline to the Poui facilities.

Processing - Quick Takes

Syntroleum plans coal-to-liquids project in Australia

Syntroleum Corp. signed a memorandum of agreement (MOA) with Linc Energy Pty. Ltd., Brisbane, Australia, to jointly develop a coal-to-liquids (CTL) project in Queensland, Australia.

The agreement, which integrates Syntroleum’s gas-to-liquids technology with Linc Energy’s underground coal gasification (UCG) expertise, is part of Linc Energy’s ongoing Chinchilla Project, which includes early development of an integrated power plant.

Under terms of the MOA, Linc Energy and Syntroleum jointly will finance a series of technology demonstration programs in advance of developing engineering designs for CTL projects.

The process utilized at the Chinchilla facility is similar to commercial techniques used in Russia for more than 30 years. It involves injecting air and steam into an underground coal seam boreholes and igniting the coal in-situ.

The UCG syngas is similar to syngas obtained from conventional surface coal gasification systems, but UCG syngas production is less expensive, Syntroleum said.

The first commercial phase of the Chinchilla Project, planned for next year, involves installation of a 30-40 Mw electric power plant. The second commercial phase, to be developed over several years, calls for a 17,000 b/d Syntroleum CTL plant and power plant expansion.

Sabic unit lets contract for PP expansion

Saudi European Petrochemical Co. (SEPC), a unit of Saudi Basic Industries Corp., awarded a contract to Aker Kvaerner for Sabic’s Ibn Zahr Polypropylene (PP) III expansion project at Al-Jabail, Saudi Arabia.

The total contract value to Aker Kvaerner was not disclosed.

Aker Kvaerner will provide program management and basic engineering services for the PP expansion and the associated utilities and offsite facilities. A 500,000 tonne/year PP line will be built, nearly doubling current capacity.

The additional capacity is expected to come on stream in second quarter 2008, SEPC said.

Transportation - Quick Takes

Kinder Morgan, Sempra eye Rockies gas line

Kinder Morgan Energy Partners LP (KEMP), Houston, and Sempra Pipelines & Storage, a unit of Sempra Energy, San Diego, have proposed a $3 billion gas pipeline linking Rocky Mountain production with the US Midwest and East.

The companies signed a memorandum of understanding (MOU) outlining feasibility studies of the joint development of a 42-in. pipeline with capacity of as much as 2 bcfd. It would be staged into service, tentatively beginning in late 2008.

Subject to shipper interest, the 1,500-mile pipeline would originate at the Wamsutter Hub in Wyoming and extend to eastern Ohio. Initially, KMEP would own two thirds of the equity in the pipeline, and Sempra would own one-third.

Under the MOU, Sempra agreed to bid for 200 MMcfd of firm capacity from the pipeline during an upcoming open season. Sempra said it would use the capacity to serve East Coast customers.

KMEP expanding Texas intrastate gas pipeline

KMEP plans to expand its intrastate natural gas pipeline system into the Permian basin by converting 254 miles of previously acquired crude oil pipeline into natural gas transportation.

The $40 million project, slated to become operational in October, is in addition to an earlier conversion of a 130-mile segment of crude oil pipeline between Katy, Tex., and Austin. That conversion began gas service in July 2004.

KMEP said 95% of the 150 MMcfd of new capacity being created by the latest conversion project already is under contract.

Mexican gas storage facility permit sought

Terranova Energia S de RL de CV, the Mexican subsidiary of Tidelands Oil & Gas Corp., San Antonio, filed for a permit with Mexico’s Energy Regulatory Commission (CRE) for its proposed underground natural gas storage facility.

The facility is to be built and operated by Terranova Energia in Brasil field of the Burgos basin near Reynosa, Tamaulipas, Mexico. The sandstone reservoir will have working capacity of 50 bcf and provide peak deliverability of 500 MMcfd.

The facility is part of a planned hub of bidirectional gas transmission pipelines, including the Terranova Oriente pipeline, for which a permit was filed with the CRE on Mar. 18. The pipelines will be able to carry gas between Texas and Mexico. Additional plans include a Gulf of Mexico LNG regasification terminal for which Tidelands expects to file permit applications soon.

Japanese group gets Qatar-US LNG contract

Ras Laffan Natural Gas Co. (RasGas) awarded five Japanese firms a joint contract to ship LNG from Qatar to the US. The contract is the firms’ first for transport of LNG to North America.

Trading house Mitsui & Co., along with shippers Mitsui OSK, Nippon Yusen KK, Kawasaki Kisen Kaisha Ltd., and Iino Kaiun Kaisha Ltd., secured a 25-year contract to take effect in August 2008.

The contract covers about 5.2 million tonnes/year of LNG, or eight LNG tankers out of the 12 that Ras Laffan plans to use.

The Japanese firms plan to spend a total of 200 billion yen to build eight 210,000 sq m ships, which can carry about 45% more than conventional LNG carriers.

The ships will be built by South Korea’s Daewoo Shipbuilding & Marine Engineering Co. and Hyundai Heavy Industry Co.