OGJ Newsletter
GENERAL INTEREST Quick Takes
IEA forecasts second wave of US shale production
Oil production growth is expected in producing countries outside the Organization of Petroleum Exporting Countries through 2023, particularly US shale production, Fatih Birol, International Energy Agency executive director, said a news conference at CERAWeek by IHS Markit in Houston.
“A second major wave of US shale production is coming,” Birol said, which he attributed to higher oil prices.
He said robust oil demand growth is anticipated worldwide at $60/bbl for US light, sweet crude oil on the New York Mercantile Exchange.
IEA anticipates Venezuela’s production levels will continue falling, Birol said, adding IEA is closely monitoring oil output from Libya and Nigeria.
Investor interest is declining in Angola because of that’s nation’s aging field, Birol said.
Mexico’s production decline continues despite the nation’s ongoing energy reforms, but Birol said IEA expects Mexico’s production will start increasing by 2023-24.
“It will definitely happen,” Birol said of Mexico reversing its production decline.
Of oil demand growth, he said the main drivers will be China and India. The US will become the largest oil producer, but Saudi Arabia will remain the world’s largest oil exporter for years to come, he added.
He sees US and Australia natural gas as contributing to world LNG supplies.
Total buys Marathon Oil’s Libyan interest
Total has acquired a 16.33% interest in the Waha concessions in Libya’s Sirte basin with the purchase of Marathon Oil Libya Ltd. for $450 million.
Production of oil and gas from the concessions, now about 300,000 boe/d, is expected to exceed 400,000 boe/d by the end of the decade with the restart of installations and resumption of development drilling.
Libyan oil production, once more than 1.6 million b/d, has suffered since the start of civil war early in 2011. It recovered last year to an average 970,000 b/d from 620,000 b/d in 2016 and this year has reached 1 million b/d, according to the International Energy Agency.
Waha Oil Co., wholly owned by Libya’s National Oil Corp., operates the 53,000-sq-km Waha concessions with a 59.18% interest. Other interests are ConocoPhillips, 16.33%, and Hess, 8.16%.
Elsewhere in Libya, Total holds a 37.5% interest in Al Jurf field offshore and 15% of Block ex-NC 115 and 12% of Block ex-NC 186 onshore. The company’s Libyan production last year was 31,500 boe/d.
Marathon Oil has exited seven countries since 2013 as it focuses on US resource plays.
Po Valley, Saffron terminate asset sale agreement
Po Valley Energy Ltd., Perth, and Saffron Energy PLC have reached an agreement to not proceed with the sale of Po Valley Operations Pty. Ltd. (PVO) and its north Italian gas assets to Saffron for a consideration of 200 million Saffron shares.
The decision was mutual and follows recent discussions with Po Valley’s tax advisers and the Australian Taxation Office plus the receipt of an independent expert’s report.
Po Valley’s tax advisers judge that a favorable class ruling to grant demerger relief to Po Valley shareholders will be unlikely for the in-specie distribution of the 200 million Saffron shares.
The independent expert, BDO Corporate Finance (WA) Pty. Ltd., operating under the Australian Securities and Investment Commission (ASIC) guidelines, found that the transaction was “neither fair nor reasonable,” particularly as a result of its valuations of the Selva and Teodorico gas fields in northern Italy.
Po Valley said it is confident that its shareholders will benefit from less dilution of, and increased focus on PVO’s assets which include 63% interest in the Selva gas development, 100% of the offshore Teodorico gas field development, and 100% of the Torro del Morro oil and condensate exploration.
Kakkar becomes ONGC director (offshore)
Rajesh Kakkar has become director (offshore) of Oil & Natural Gas Corp. of India.
He has more than 35 years of industry experience, most recently as ONGC’s executive director—asset manager of Mumbai High.
Exploration & DevelopmentQuick Takes
ExxonMobil, Hess mark seventh oil discovery off Guyana
ExxonMobil Corp. affiliate Esso Exploration & Production Guyana Ltd. encountered 65 ft of high-quality, oil-bearing sandstone following drilling at the Pacora-1 well offshore Guyana. The well was drilled to 18,363 ft in 6,781 ft of water. The oil discovery marks the seventh on the Stabroek block for the company. Drilling commenced on Jan. 29.
The Pacora-1 well is 4 miles west of the Payara-1 well, and follows previous discoveries on the Stabroek Block at Liza, Payara, Liza Deep, Snoek, Turbot, and Ranger.
“The giant Payara field, which is planned as the third development offshore Guyana, will now include Pacora resources—increasing the size of the [floating production, storage, and offloading vessel] and bringing expected gross production from the first three phases of development to more than 500,000 b/d of oil,” said Hess CEO John Hess. Hess Guyana Exploration Ltd. holds a 30% interest in the 6.6 million-acre block.
Following completion of the Pacora-1 well, the Stena Carron drillship will move to Liza field to drill the Liza-5 well and complete a well test to assess concepts for the Payara development. Project sanctioning for the Liza Phase 1 development was announced in June 2017 (OGJ Online, Jun. 16, 2017). After Liza-5, the Stena Carron will conduct additional exploration and appraisal drilling on the block.
Esso E&P Guyana is operator with 45% interest in the Stabroek block. Hess Guyana Exploration holds 30% interest and CNOOC Nexen Petroleum Guyana Ltd. holds 25% interest.
Questerre to drill in Quebec’s Kakwa acreage
Questerre Energy Corp. has joined with an undisclosed partner in its Kakwa North acreage’s Montney formation in Quebec. Questerre also will drill as many as six shallower horizontal wells on the acreage this year.
Questerre CEO Michael Binnion said the first Kakwa North well should spud next quarter, subject to rig availability.
Nearby wells have shown strong condensate production and low sour content. Questerre is waiting for final regulations for its Clean Gas pilot, which are planned for release this Spring.
The unnamed company has operating experience in Alberta’s Montney shale play. Subject to the terms of the agreement, Questerre’s partner has the right to drill, complete, equip and tie-in two horizontal wells targeting the Montney to earn a 50% interest in certain acreage held by Questerre at Kakwa North, and a similar arrangement exists for acreage at Kakwa South.
Questerre will hold a royalty interest in these initial wells and subsequent wells subject to standard payout provisions. Questerre currently holds a 100% operating interest in 4,480 acres at Kakwa North along with 3,840 acres at Kakwa South and a 25% interest in 10,240 acres on its joint venture block.
Questerre holds an overriding royalty interest in 4,160 acres of shallow rights at Kakwa North.
Contango updates Delaware basin drilling
Contango Oil & Gas Co. will invest $52 million to spud 8-9 wells in 2018, while completing an additional 8-9 wells in its southern Delaware basin acreage in Reeves and Pecos County in West Texas. The company said two wells have already reached TD in 2018, and the last three wells drilled had an average 27-day drilling window from spud to TD.
The company is testing multiple benches within 2,500 ft of an objective section in the Bone Springs and Wolfcamp. Completions include 10,000-ft laterals with 2,250-2,500 lb/lateral ft of proppant.
Of the eight wells spudding in 2018, four are planned for Wolfcamp A, two will target Wolfcamp B, and three will target Bone Springs.
Contango’s most recent well, Ragin Bull No. 2H, was the second Wolfcamp B test. Spudded in January, the well was drilled to 20,624 ft, including 10,344 ft lateral. The company has planned a 50-stage frac for mid-March. The rig will next move to the Gunner-Sidewinder location to drill two wells from a common pad. The Gunner well will be a Wolfcamp B test in the same unit as the Gunner No. 2H Wolfcamp A completion. That completion is Contango’s best well to date having produced approximately 130,000 boe in 6 months. The Sidewinder well will be a Wolfcamp A test just south of the Rude Ram No. 1H Wolfcamp A completion, which has produced 155,000 boe in 9 months. Both wells from this pad will have approximately 10,000 ft laterals and will be zipper fraced in June.
PentaNova spuds Colombia wildcat
PentaNova Energy Corp. is targeting Colombia’s Early Miocene Jimol formation on the Maria Conchita Block at an estimated TVD of 8,000 ft. The Istanbul-1 well was spudded on Feb. 27. The company expects the well to reach total depth within 20-25 days. PetroNova will run continuous logging during drilling.
The block contains previous discoveries. The Aruchara-1 drilled by Texaco in 1980 and the Tinka-1 drilled by Ecopetrol in 1988 were tested at rates of 18 MMcfd and 3 MMcfd, respectively. Both wells produced from Jimol.
The wildcat is 50 km southeast from Colombia’s Chuchapa field, one of the country’s largest with 6 tcf of natural gas. The field produces about 30% of the country’s daily output. In the event of a discovery, the Istanbul-1 is 22 km west of the Promigas trunk line, a major pipeline connecting the coastal cities of Barranquilla, Santa Marta, and Cartagena.
Drilling & ProductionQuick Takes
ExxonMobil pulling out of Arctic with Rosneft
ExxonMobil Corp. is pulling out of some of its joint ventures with Rosneft, a Feb. 28 filing with the US Securities & Exchange Commission confirmed. In 2013-14, ExxonMobil and Rosneft established various joint ventures for exploration and research activities. In 2014, the European Union and US imposed sanctions related to Russian energy, a Form 10-K said.
US officials late last year expanded sanctions against Russia. Consequently, ExxonMobil said that it has decided to withdraw from the joint ventures.
“The corporation expects it will formally initiate the withdrawal in 2018,” ExxonMobil said in its SEC filing, adding that the decision to withdraw results in a $200 million aftertax loss.
Separately, Wood Mackenzie Ltd. analyst Samual Lussac said, “This decision puts a formal end to ExxonMobil’s long-term strategy of exploring the Arctic, which led to the discovery of the giant Pobeda field in 2014. It also makes the progress at the Far East LNG project less likely.”
“This move is not a surprise in a time when US sanctions pressure keeps increasing,” Lussac said. “In practice, all Arctic offshore exploration and the Trizneft Pilot project (which focused on the Bazhenov shale oil development) were on hold since 2014. Rosneft loses a partner of choice, which could have brought financing and expertise for the development of the next wave of Russian oil supply. ExxonMobil will keep its 30% share in Sakhalin-1.”
Barclays optimistic about Nigeria’s oil production
Nigeria’s oil and condensate production for 2018 is expected to reach 2.2 million b/d, said a Barclays research note. Nigeria’s production recovered to 2 million b/d in 2017 after falling to 1.5 million b/d in August 2016.
Oil production disruptions during 2016 stemmed from militant insurgencies, but production levels have recovered since an August 2016 ceasefire agreement although the nation remains subject to near-term supply disruptions, said Rita Babihuga-Nsanze of Barclays in London.
Nigeria’s government envisions 2.3 million b/d production for 2018. Barclays noted the country is approaching a February 2019 general election, which means officials likely will “make every effort to meet the terms of the ceasefire agreement in order to protect the economic recovery.”
But Nigeria’s production remains vulnerable to near-term supply disruptions if militant sabotage activities were to resume, Babihuga-Nsanze said.
In November 2017 and January 2018, the Niger Delta Avengers threatened to resume attacks on international oil companies’ deepwater operations in the Niger Delta, accusing the government of delaying payments and the Nigerian military of targeting Delta communities.
But as of late February, militants had yet to act on these threats, Barclays said in a Blue Drum note.
“A resumption in hostilities would be highly detrimental to Nigeria’s economic recovery,” Babihuga-Nsanze noted.
Meanwhile future production could be affected by upcoming oil lease expirations. A total of 28 onshore oil leases are due to expire in 2019, which sets the stage for lease renewal negotiations.
“There is a risk that political change could disrupt the process,” Babihuga-Nsanze said.
Goodrich to start completions in Haynesville
Goodrich Petroleum Corp., Houston, expects to begin hydraulic fracturing on its next two Haynesville wells, the Cason-Dickson 14&23 Nos. 1 and 2 (92% WI) this month.
The sale of certain production, facilities, infrastructure and a portion of its acreage in the Angelina River Trend to BP America Production Co. has closed and a portion the proceeds will go to pay debt ahead of the company’s plans to accelerate development of its North Louisiana Haynesville asset in this year’s second half.
Goodrich spent the majority of its fourth quarter 2017 and full year 2017 capex, $16 million and $41.8 million, respectively, on drilling and completion of operated Haynesville wells.
With the completion of the Wurtsbaugh 25&24-14N-16W 2H (55% WI) and the Wurtsbaugh 25&24-14N-16W 3H (55% WI) wells, both in DeSoto Parish, La., Goodrich is producing 60 MMcfd of natural gas equivalent. The Wurtsbaugh 25&24-14N-16W 2H achieved a 24-hr peak rate to date of 25 MMcfed from a producing lateral length of 7,249 ft. The Wurtsbaugh 25&24-14N-16W 3H achieved a 24-hr peak rate to date of 30 MMcfed from a producing lateral length of 7,465 ft.
The company’s fourth-quarter 2017 production totaled 2.9 bcfe, with average production of 31.2 MMcfed (86% gas). Production for the year totaled 12.2 bcfe, with average production of 33.3 MMcfed (85% gas). Capital expenditure guidance for this year is $65–75 million.
Drillship en route to Morocco for Rabat Deep drilling
Chariot Oil & Gas Ltd. said the Saipem 12000 drillship is en route to Morocco for a drilling program in the Eni SPA-operated Rabat Deep permits. The drillship is under contract to spud the RD-1 well (OGJ Online, Sept. 1, 2017).
Eni took over operatorship and 40% interest in Rabat Deep permits I-VI in 2017 following approval from the Moroccan authorities. RD-1 will target the Jurassic carbonate JP-1 prospect.
Chariot has 10%, Woodside has 25%, and Office National des Hydrocarbures et des Mines has 25% carried interest.
PROCESSINGQuick Takes
IOC starts up new unit at Mathura refinery
Indian Oil Corp. Ltd. has commissioned a unit based on the company’s own Octamax technology for production of high-octane gasoline blending components from LPG streams at its 8 million-tonne/year refinery in Mathura, India.
Now in operation, the 55,000-tpy Octamax unit can convert C4 streams from catalytic cracking and naphtha cracking units into a high-octane blending stock for gasoline production that complies with Euro 5 and Euro 6-quality standards, IOC said.
The blending research octane number (RON) of a sample drawn from the newly commissioned unit in late January registered at 118, which was higher than the targeted 108 RON.
Started in March 2016, the project was completed ahead of schedule and without any cost overruns. The company, however, did not reveal a final cost of the unit.
The new Octamax unit comes as part of IOC’s efforts to ensure production of gasoline that meets the Indian government’s directive of 100% Bharat Stage 6-quality (equivalent to Euro 6 standards) auto fuels for the country from Apr. 1, 2020.
HPCL lets contract for Visakh refinery expansion
Hindustan Petroleum Corp. Ltd. (HPCL) let a contract to Bharat Heavy Electricals Ltd. (BHEL) to set up a gas turbine-based captive power plant (CPP) to be added as part of HPCL’s previously announced program to expand and modernize its 8.3 million-tonne/year Vishakhapatnam (Visakh) refinery in Andhra Pradesh on India’s southeastern coast.
As part of the 10.34 billion-rupee, lump-sum turnkey contract, BHEL will deliver engineering, manufacturing, supply, transportation, construction, commissioning, and civil works on one gas turbine generator, one heat-recovery steam generator, one steam-turbine generator, as well as associated auxiliary installations for the project, the service provider said.
The addition of the CPP at Visakh will help meet power and steam requirements for HPCL’s Visakh refinery modernization project (VRMP), which proposes to expand refining capacity of the site to 15 million tpy, BHEL said.
Grassroots Vietnamese refinery nears full startup
Nghi Son Refinery & Petrochemical LLC (NSRP) is on schedule to fully commission its planned 200,000-b/d refinery and petrochemical complex in Vietnam’s Thanh Hoa Province in May.
The refinery achieved ready for startup (RFSU) status on Feb. 28, with construction completed and commissioning activities now under way, NSRP said.
“The project now is ready for performance tests and then the operational phase,” said Mr. Junzo Yamamoto, the refinery’s general manager.
“Following the RFSU, we will try our best to ensure that the start-up and operation of the refinery complex will be safe, smooth and efficient,” Yamamoto added.
The new refinery remains on track to produce first commercial product in May 2018, according to NSRP.
Designed to process Kuwaiti crude oil into finished products to help meet Vietnam’s growing domestic demand for transportation fuels and petrochemicals, the $9-billion Nghi Son refinery is a joint venture of PetroVietnam 25.1%, Idemitsu Kosan Co. Ltd. 35.1%, Kuwait Petroleum Europe BV 35.1%, and Mitsui Chemicals Inc. 4.7%.
TRANSPORTATIONQuick Takes
OVL reported to drop LNG from Farzad B plan
State-owned ONGC Videsh Ltd. of India is reported to have dropped plans for a gas-liquefaction project in Iran in an apparent effort to advance development of Farzad B gas field.
OVL operates a group that found the offshore field under an exploration service contract with National Iranian Oil Co. that expired in 2009, after the field was declared commercial.
The group, which also includes state-owned Indian Oil Corp. Ltd. and Oil India Ltd., has been unable to win development rights. Last year, it proposed investment of $11 billion to develop the field and related export facilities.
According to press reports in India and Iran, OVL has agreed to concentrate on field development and leave export planning to Iranian authorities.
OVL is reported to want to drill an appraisal well to reassess cost, one of the items of disagreement in negotiations.
Woodside exits Grassy Point LNG project in Canada
Woodside Petroleum Ltd., Perth, has withdrawn from its Grassy Point LNG project on the northwest coast of British Columbia.
The company said—as outlined in its annual report released in late February—that it had elected not to renew its sole proponent agreement for the Grassy Point site, which was proposed 30 km north of Prince Rupert.
Woodside began geotechnical surveys on the site in 2014.
In 2015, Canada’s National Energy Board gave the project a license to export 20 million tonnes/year of LNG for as long as 25 years, however little further progress was made.
Woodside is retaining its position in the Kitimat LNG project in Canada in which it holds equal interest with Chevron Canada Ltd.
Velocity to build Merge crude line extension
Velocity Midstream Partners LLC has started construction of a 22-mile, 12-in. crude oil pipeline extension linking the core of the Merge play to its South-Central Oklahoma Oil Province (SCOOP) pipeline assets. Velocity recently completed construction of a 45-mile, 12-in. crude oil pipeline loop of its existing condensate pipeline through the fairway of the SCOOP. The crude oil loop project is supported by expanded commitments from Continental Resources Inc., Oklahoma City, and CVR Refining LP.
The Merge pipeline will be placed into operation in April.
Velocity also completed a joint tariff agreement with Plains All American Pipeline LP providing storage and segregated, batched crude transportation to PAA’s Cushing terminal.
Velocity’s system is now comprised of 125 miles of pipeline capable of flowing 250,000 b/d, along with 395,000 bbl of storage and 26 truck unloading bays capable of unloading more than 100,000 b/d.