OGJ Newsletter

Aug. 2, 2010
International news for oil and gas professionals


IEA's Tanaka: World will continue to depend on OPEC

The global economy's reliance on oil supplies from the Organization of Petroleum Exporting Countries, especially its Middle Eastern producers, will continue to rise over the medium to long term, according to the head of Paris-based International Energy Agency.

"It's inevitable," said IEA Executive Director Nobuo Tanaka, who also warned of an "unsustainable" future both economically and environmentally if more investment is not made in alternative energy resources. Tanaka's remarks came in an interview with Market News International (MNI), a publication of the Deutsche Borse Group. Asked about the risks from the exhaustion of non-OPEC fields, Tanaka told MNI it is "inevitable" that oil supply from non-OPEC countries will decline and that even the added injection of supplies from Canada's oil sands exploration will not be enough.

Tanaka's remarks underlined statements he made last month that cooperation between the IEA and OPEC was progressing. "There is a new cooperation with OPEC concerning the outlook, how we can calibrate our outlooks and compare notes on our assumptions," Tanaka said, adding, "This is very new…aiming at giving transparency, and certainly it is a very, very important and good way to further strengthen our cooperation."

At the time, Tanaka noted that OPEC and the IEA occasionally meet to compare notes on market conditions. "This type of communication is a very important one because the problem of the market is uncertainty, which we have with climate or the weather or long-term challenges from economic prospects or geopolitical uncertainty," Tanaka said. "We must try to avoid as much as possible these uncertainties and that is a common interest for us all, and we will continue to do this," he said.

Meanwhile, Tanaka painted a gloomy picture of current oil production, telling MNI that each year output from existing oil fields declines by 3 million bbl, while demand increases by 1 million bbl. To keep pace, the oil sector will require "massive" investment of some $5 trillion from now to 2030.

However, Tanaka said that even with a "radical revolution" in energy resources, the world's reliance on fossil fuel will remain at 46% by 2050, a fact that makes investment in both the conventional and non-conventional oil sector "very, very important" for future economic growth.

China gas study finds need to boost imports

China's unconventional gas production will climb sharply to 2030 to help meet the country's growing demand for gas, but China will have to boost its imports over the next decade, says a study by Wood Mackenzie.

Although conventional gas supply in China will continue to grow, it cannot keep pace with future demand during this decade, and China will need to secure additional volumes of imported gas in the form of both LNG and piped gas through 2020, the study says. WoodMac forecasts that China's demand for LNG in 2020 will be 46 million tonnes/year, up from its previous forecast of 31 million tpy.

Gavin Thompson, director of the study, noted that development of indigenous unconventional gas is currently slow, but large volumes of coalbed methane, coal-based synthetic gas, and shale gas will enter the market, reaching more than 11 bcfd by 2030, which will meet much of China's incremental demand.

With strongest growth occurring before 2020, China's gas demand is forecast to rise to 43 bcfd in 2030 from 9 bcfd in 2009, a compound growth rate of 7.5%/year.

Many factors are driving China's gas demand growth, Thompson notes, including policies to reduce the country's increasing reliance on oil imports. "This is important as the gas demand story is about displacing oil products, not coal, in the industrial and residential sectors. Coal continues to dominate in power, although gas will increase its market share in wealthier coastal provinces as local government supports a cleaner fuel mix. As such, we think that industry will remain the largest gas consumer in China through to 2030," Thompson said.

The study concludes that China's potential gas suppliers must engage with domestic buyers to secure contracts while the market is still available, because in the longer term, unconventional gas will constrain requirements for new LNG imports.

Tullow acquires Heritage assets in Uganda

Tullow Oil PLC, following approval by the Uganda government, completed its planned acquisition of 50% interest in Blocks 1 and 3A from Heritage Oil & Gas Ltd. for $1.35 billion, with a further contractual settlement amount of $100 million.

Tullow now plans to enter into transactions with China National Offshore Oil Corp. and Total SA to farmout two thirds of its interests in Blocks 1, 2, and 3A in the Lake Albert Rift basin in an accelerated basin-wide development plan that is expected to deliver production well in excess of 200,000 b/d from the basin.

Blocks 1, 2, and 3A are thought to contain combined reserves of more than 2 billion bbl of oil, and initial production from them is expected in late 2011. Tullow anticipates reaching peak output of more than 200,000 b/d in 2014-15.

The sale, however, has been dogged for months by a dispute between Uganda and Heritage over taxes. On July 7, Heritage said Kampala had approved the agreement, pending its "demonstrating to government that it will pay any taxes on demand, which may arise from the disposal of the assets."

At the time, though, Heritage was not expecting to pay any taxes on the sale as it had been advised by experts in the UK and North America that disposal of the assets is not taxable in Uganda.

The two sides continue to disagree on the tax issue, but the acquisition proceeded anyway following a compromise under which Heritage deposited $121.5 million with the Uganda Revenue Authority. The sum represents 30% of the disputed tax assessment of $404.9 million by the URA.

"Heritage continues to work with government to agree a way forward for the tax dispute to be resolved," the firm said, adding that the balance of $283.4 million on the assessment has been retained in escrow pending resolution of the dispute.

Exploration & DevelopmentQuick Takes

Range hikes spending for Marcellus activity

Range Resources Corp., Fort Worth, hiked its 2010 capital budget $215 million to $1.2 billion, all but $5 million of which is related to expanding activity in the Marcellus shale play in Pennsylvania.

The company plans to end 2010 producing a net 200-210 MMcfd of gas equivalent from the Marcellus, up from 180-200 MMcfed estimated earlier, and end 2011 at 400-420 MMcfed, up from 360-400 MMcfed. Current output is 160 MMcfed.

The other $5 million spending hike is related to acquired properties in western Virginia (OGJ Online, July 27, 2010).

Of the Marcellus spending hike, $65 million is to drill 18 wells in the southwest part of the play and to complete 15 of them by the end of 2010, and $73 million is for pre-winter construction of drilling locations, roads, and other facilities for wells to be drilled in 2011.

Range is combining 14,000 net acres in Bradford County, Pa., with Talisman Energy Inc., Calgary, in an industry joint venture in which Range will own 33% in the combined acreage position. Talisman, which has drilled several excellent wells in the area, will be operator for the joint venture, for which Range's share of costs is likely $25 million for the rest of 2010.

Another $40 million is for Marcellus shale leasehold, and $7 million is for seismic.

In the southwest part of the play, 30 MMcfed of pipeline capacity is to be complete in the fourth quarter and a further 150 MMcfed is set for first quarter 2011.

The first phase of the Lycoming County pipeline project in the northeast part of the play is scheduled to begin flowing gas by yearend 2010. Firm take away capacity has been contracted for both the southwest and northeast areas.

Range previously announced an encouraging test of its first Upper Devonian shale horizontal well. Given the Upper Devonian's prevalence across the company's acreage position, it is very encouraged regarding the increased unproved resource potential this well implies on the southwestern Pennsylvania acreage.

The company's Marcellus shale team plans to drill two more Upper Devonian test wells in 2010 and one Utica shale well early in the first quarter of 2011.

Tullow group has Ghana deepwater oil find

A group led by Tullow Oil PLC will sidetrack a two-zone deepwater discovery off Ghana to further define sand continuity and test a deeper and laterally offset part of the Owo channel system.

The Owo-1 discovery well went to 12,765 ft in 4,685 ft of water on the Deepwater Tano block west of the northern part of Tweneboa field. It cut 174 net ft of high-quality oil pay in two zones of stacked Turonian-age reservoir sands in a gross vertical reservoir interval of more than 500 ft.

Pressure data indicate the zones are part of the same accumulation. The oil appears to be light and 33-36° gravity.

Cores are to be cut to provide more reservoir data needed for a potential development plan. After the sidetrack is complete, the rig will be moved to drill the Onyina prospect near the block's northeast corner.

Owo is the partnership's third substantial discovery after Jubilee and Tweneboa. The group plans to continue an active drilling program into 2011 with multiple appraisal wells at Tweneboa and the adjacent Owo discovery, said partner Anadarko Petroleum Corp.

The group will also resume westward expansion in the Cretaceous fan play, where it has identified more than 30 prospects and leads with size and geological characteristics similar to Jubilee across its 8 million gross acre position off Ghana, Ivory Coast, Liberia, and Sierra Leone.

Tullow operates Deepwater Tano with 49.95% working interest, and Anadarko has 18%. Other participants are Kosmos Energy 18%, Sabre Oil & Gas 4.05%, and Ghana National Petroleum Corp. 10% carried.

Wintershall has Norwegian Sea oil find

A group led by Wintershall Holding GMBH made a light oil discovery with 60-120 million bbl and 2-5 billion standard cu m of gas recoverable on the Maria prospect in the Norwegian Sea 200 km off Trondheim, Norway.

The Maria 6406/3-8T2 well went to 4,216 m below sea level in 303 m of water and is one of the largest finds registered in 2010, the company said. It is on the 475 BS production license on the Halten terrace near Tyrihans and Asgard fields.

The oil is in the Middle Jurassic Garn formation, productive at Trestakk, Smorbukk Sor, Tyrihans, and Tyrihans North, through which Maria could be developed.

Wintershall Norge's made its first operated Norwegian Continental Shelf discovery last July at Grosbeak. It also holds a stake in the large Catcher discovery made in late June in the UK North Sea.

Newfield eyes Montana, Panhandle, other plays

Newfield Exploration Co., anchored in oil resource plays in Utah's Monument Butte field and North Dakota's Middle Bakken play, is assessing several other onshore US plays including some it isn't ready to disclose, management said July 23.

The new plays include the Eagle Ford shale in South Texas, a multizone play in the southern Alberta basin in northern Montana, and a multizone play in the Pennsylvanian Marmaton formation on the company's Texas Panhandle Granite Wash acreage.

The company has adopted a stance that will allow it to deploy capital to natural gas plays once margins return, but that could be beyond 2011. Even so, Newfield saw record production of 370 MMcfd in May from its Arkoma basin Woodford shale asset, where it holds more than 172,000 net acres, 155,000 acres of which are held by production.

Lee K. Boothby, chairman, president, and chief executive officer, said, "The prolonged weakness in natural gas prices is being further exacerbated by a continually rising rig count. Apparently the need to hold acreage by production supersedes economics, and gas supply remains stubbornly high today."

Another factor that appears to be reining gas prices is the flood of non-US capital, a company official said.

Applying geological lessons learned the past few years, Newfield is assessing 230,000 net acres in northern Montana for potential in the Lodgepole, Middle Bakken, Sanish, and deeper Nisku formations. It is spudding its third well and expects to have drilled as many as eight vertical and horizontal wells by yearend.

The company is also assessing more than 300,000 net acres in the South Texas Maverick basin for Eagle Ford shale and Pearsall shale potential. Capital spending there is set at $100 million this year. The firm is running five operated rigs and will have drilled 15 wells in the balance of 2010.

Newfield expects an exclusive frac crew to arrive next week. It will begin by stimulating a 5,000-ft lateral in the Lower Eagle Ford oil window on northern acreage and a similar length lateral in the play's wet gas window on southern acreage. It expects to understand the play's potential late this year or in early 2011.

In the Texas Panhandle, Newfield is faced with evaluating as many as 30 horizons and intends to have tested 10 of them by yearend. It will operate four rigs and drill 26 wells, the longest with a nearly 6,300-ft leg, on 46,000 net acres in the year's last 6 months. Half of the wells will go to the Marmaton formation, which has high liquids yields.

Drilling & ProductionQuick Takes

Newfield sees Monument Butte, Bakken growth

Newfield Exploration Co., Houston, expects to exit 2010 producing at least 25,000 b/d of oil from Utah's giant Monument Butte oil field and 6,500 b/d from its Williston basin oil properties.

Late July volumes are 22,600 b/d for Monument Butte, up 5,600 b/d since the end of 2009, more than 4,000 b/d in the Bakken, more than double the end-2009 figure.

Newfield estimated it has 4,700 development drilling locations remaining in Monument Butte, where it plans to have drilled 375 wells this year with a five-rig program. The company set a recent record of 2.8 days from rig up to rig release on a 20-acre directional well.

Three rigs are drilling in the field's 63,000 net acres Monument Butte northern extension area, where Newfield has drilled 90 wells this year and 220 since stepping out that direction in 2007. One recent northern extension well produced 350 b/d of oil in its first 30 days on line.

Newfield, working with area refiners to assure their capacity keeps pace with the company's supply growth, said demand for the field's black wax crude is strong.

Meanwhile, the company added a fourth operated rig in mid-July at its North Dakota Bakken project, where it is developing 160,000 net acres along and west of the Nesson anticline.

More than half of the remaining 20 or so 2010 assessment wells in project areas west of the anticline where the company has larger contiguous acreage positions will have horizontal legs as long as 9,000 ft. The first is drilling. Most of the laterals Newfield has drilled thus far are around 4,000 ft.

Tuna gas output starts in Egypt Nile Delta

BP PLC and the Petrobel joint venture has started natural gas production from Tuna field in the Temsah concession in the Mediterranean off Egypt.

By September three wells are expected to produce a combined 4.5 million cu m/day from a four-leg platform in 80 m of water through 14 km of 24-in. pipeline. BP PLC and Eni SPA own 50% interest each. Eni owns its interest through International Egyptian Oil Co., which is equal owner of Petrobel with Egyptian General Petroleum Corp.

The concession is one of the most productive in the Nile Delta, Eni said. The companies are infill drilling in Temsah field and developing Denise B field, expected to begin producing in 2011. The concession has benefitted from improved contract terms since 2009.


Murphy Oil to exit refining, focus on E&P

Murphy Oil Corp. plans to sell its three refineries to exit the refining business and concentrate on exploration and production and US retailing.

In a press statement announcing it would offer the refineries for sale, the company said it "anticipates a transaction being completed in the first quarter of 2011."

Murphy's refinery locations and capacities are Meraux, La, 125,000 b/cd; Superior, Wisc., 33,250 b/cd; and Milford Haven, Wales, 106,000 b/cd.

The company also plans to sell its UK retail system.

Murphy has exploration and production operations in the US, Canada, Congo, Malaysia, and the UK.

ConocoPhillips cancels German refinery upgrade

ConocoPhillips reported the cancelation of plans to upgrade its 260,000 b/d refinery at Wilhelmshaven, Germany.

In November 2009, ConocoPhillips confirmed plans to delay an upgrade at the facility. The company had planned to add a coker, hydrocracker, and hydrogen units to the refinery (OGJ, Dec. 21, 2009, p. 46).

"This move is consistent with our stated strategy of maintaining capital discipline and reducing our downstream portfolio over time," said Willie Chiang, senior vice-president of refining, marketing, and transportation. Chiang added that the major will "explore other options" including "operating the facility as a terminal and pursuing the sale of the asset."

Due to cancelation of the upgrade project, the company expects to recognize a noncash asset impairment of $1.1 billion aftertax in its second quarter financial results.

In the first quarter this year it produced 139,000 b/d of crude, condensate, and gas liquids and 343 MMcfd of natural gas.

Murphy reported first-quarter net income of $148.9 million, compared with $171 million in the first quarter of 2009.

Ceyhan refinery management contract awarded

A Turkish concern has awarded a contract to Shaw Group Inc., Baton Rouge, to provide project management consultancy for a 212,000 b/cd grassroots refinery in Yumurtalik near Ceyhan on Turkey's eastern Mediterranean coast.

The contract let by Dogu Akdeniz Petrokimya ve Rafineri Sanayi ve Ticaret AS, a subsidiary of Calik Enerji, Istanbul, also calls for Shaw to conduct pre-front end engineering design development for 14 process units, utilities, offsites, and marine facilities. Contract value and a start-up date for the refinery weren't disclosed.

The refinery's crude supply will come from various sources, including Iraq, Russia, and the Caspian Sea areas and target the domestic and regional export markets.

Shaw's Energy & Chemicals Group noted that it provided proprietary technology and engineering for the first ethylene plant in Yarımca, Turkey, and has since completed more than 50 projects for the petrochemical, power, and refining industries in Turkey.

Turkey has six refineries with total crude distillation capacity of 714,275 b/d at the end of 2009. The largest are an 251,600 b/d refinery at Izmit and a 226,440 b/d plant at Aliaga-Izmir, both operated by Turkish Petroleum Refineries Corp.


Oneok to build Bakken NGL pipeline

Oneok Partners LP announced plans to build a 525-615-mile, 60,000 b/d NGL pipeline to move unfractionated NGLs from the Bakken shale in the Williston basin in North Dakota to the partnership's Overland Pass Pipeline, a 760-mile NGL pipeline extending from southern Wyoming to Conway, Kan. Additional pump facilities could increase the new pipeline's capacity to 110,000 b/d.

Oneok estimates the cost of the Bakken Pipeline at $450-550 million. An additional $35-40 million will be dedicated to related capacity expansions for the Overland Pass Pipeline to transport the new unfractionated NGL volumes from the Bakken Pipeline, with $110-140 million to expand the partnership's fractionation capacity at Bushton, Kan., by 60,000 b/d to 210,000 b/d, accommodating the additional NGL volumes.

Supply commitments for the Bakken Pipeline will be anchored by NGL production from Oneok's gas processing plants and from third-party processors in various stages of negotiation. Following receipt of necessary permits, construction of the 12-in. OD pipeline will begin in second-quarter 2012 for completion during first-half 2013.

Additional raw NGL volumes from the new Bakken Pipeline and other supply sources under development in the Rockies will require the estimated $35-40 million to cover additional pump stations and expansion of existing pump stations for Oneok's anticipated 50% interest in the Overland Pass Pipeline, increasing its capacity to the maximum of 255,000 b/d.

The Bakken Pipeline project and related expansions follow Oneok's April announcement of more than $400 million of new growth projects in the Bakken shale, including construction of a 100 MMcfd gas processing facility in eastern McKenzie County, ND—the Garden Creek Plant—that will double the partnership's processing capacity in the region (OGJ Online, Apr. 22, 2010).

Crosstex to expand Barnett gas line capacity

Crosstex Energy LP and Crosstex Energy Inc. announced plans to expand the natural gas gathering system serving the Barnett shale play in North Texas by building a $25 million, 15-mile pipeline.

The project, which is supported by volumetric commitments, includes a 7-mile low-pressure pipeline, an 8-mile high-pressure pipeline, and a compressor station in southwest Tarrant County.

The Crosstex companies expect peak flow of the new gathering system, to be operational first-quarter 2011, to reach 100 MMcfd in 2012.

Wood Mackenzie Ltd. recently voiced its expectation that low-cost unconventional gas plays such as Barnett will continue to grow for the time being, joined within a few years by more-expensive shale and tight-gas supplies as demand growth accelerates (OGJ Online, July 9, 2010).

More Oil & Gas Journal Current Issue Articles
More Oil & Gas Journal Archives Issue Articles
View Oil and Gas Articles on PennEnergy.com