OGJ Newsletter

Nov. 21, 2011
International news for oil and gas professionals


Chevron says oil seep has decreased off Brazil

Chevron Corp. reported that successful well-control operations significantly reduced an oil seep believed to be coming from an appraisal well in Frade field offshore Brazil.

Upon receiving approval from the Brazilian National Agency of Petroleum (ANP) on Nov. 13, Chevron Brazil immediately commenced plugging and abandonment activities.

"The amount of oil observed coming from nearby seep lines on the ocean floor has decreased significantly," Chevron said, adding that it continues to monitor activities that will culminate in final cementing of the well.

Chevron estimates the sheen volume at 400-650 bbl. Six vessels are working in pairs to contain and recover the oil while two vessels are working on mechanical dispersion.

The sheen is 120 km offshore and moving southeasterly away from the Brazilian coast. The Frade project is in 3,800 ft of water some 370 km northeast of Rio de Janeiro.

Chevron, which has 51.74% interest, started production at Frade field in 2009 (OGJ Online, June 23, 2009).

Partners in the field are Petroleo Brasileiro SA 30%, and Frade Japao Petroleo Ltda., a joint venture of Inpex Corp., Sojitz Corp., and Japan Oil, Gas & Metals Corp. 18.26%.

USI acquires Bossier-Haynesville gas gathering

US Infrastructure Holdings LLC (USI) will acquire the Wildcat Sabine natural gas gathering system in the Bossier-Haynesville shale and expand it to nearby interstate carriers. The 28-mile pipeline lies along the Texas-Louisiana border in the northwest corner of Sabine Parish, La., and transports gas for producers such as Eagle Oil & Gas Co.

USI will build a 20-mile extension and expansion at its southern end, providing direct access to markets served by Gulf South Pipeline Co. LP and Tennessee Gas Pipeline. The expansion, expected to be complete by mid-2012, will bring Wildcat's takeaway capacity to 400 MMcfd.

Wildcat currently has takeaway capacity of 200 MMcfd and includes treating and compression facilities. The system already interconnects with four regional gathering systems: Enterprise Products' State Line Gathering System, KinderHawk's Gas Services, Producers Gas Transmission, and Tristate Sabine Gathering System.

Eagle Oil has dedicated production from its acreage in the Bossier-Haynesville shale North Toledo Bend Project for transport on Wildcat.

Nigeria moving to end fuel subsidies

The government of Nigeria, Africa's largest oil producer and a member of the Organization of Petroleum Exporting Countries, is taking the politically sensitive step of moving to end fuel subsidies.

President Goodluck Jonathan says the government will use money saved by ending subsidies, which otherwise would cost an estimated $7.5 billion next year, on infrastructure and social programs.

Nigeria recently has been producing about 2.3 million b/d of oil and consuming about 280,000 b/d. Its productive offshore continues to yield discoveries (OGJ Online, Nov. 7, 2011).

Because utilization is low at the country's four refineries, which have total capacity of 445,000 b/d, Nigeria imports oil products.

Subsidies keep domestic oil prices at about 40¢/l.

Trade unions have threatened to strike if subsidies end next year as proposed.

ConocoPhillips to name downstream firm Phillips 66

ConocoPhillips plans to name its emerging new independent downstream company Phillips 66, which will be based in Houston, ConocoPhillips said. The corporate repositioning remains subject to market conditions, regulatory approvals, and final corporate board approval.

In July ConocoPhillips announced plans to separate its upstream and downstream businesses into two stand-alone, publicly traded corporations via a tax-free spinoff of the refining and marketing business to ConocoPhillips shareholders (OGJ Online, July 14, 2011).

Phillips 66 will be involved in refining, marketing, midstream, and chemicals. Greg Garland, designated chairman and chief executive officer, noted the name has strong brand recognition and provides a link with corporate history.

ConocoPhillips, which will be a pure-play exploration and production company after the repositioning, will continue to be based in Houston. Bartlesville, Okla., will be the global center for the Phillips 66 technology organization. The ConocoPhillips exploration and production technology organization will be based in Houston. The repositioning of ConocoPhillips is expected to be completed in second-quarter 2012.

Exploration & DevelopmentQuick Takes

ExxonMobil eyes deepwater block off Liberia

ExxonMobil Corp. will acquire a 70% interest in the production-sharing contract governing Block LB-13 off Liberia following Canadian Overseas Petroleum Ltd.'s acquisition of a 100% interest from the current owner.

ExxonMobil will pay COPL's Bermuda unit $55 million plus the unit's portion of the first well to be drilled to a maximum of $36 million. If less than $36 million is spent on the unit's proportionate cost for the first well, the balance will be applied towards the unit's costs of a second well if drilled.

ExxonMobil also will pay the unit's share of joint venture costs of $6 million up to the completion of the first well. The unit's equity interest in the block will be 30% upon closing, and ExxonMobil will be the block's designated operator.

National Oil Co. of Liberia's approval is required for both transactions. COPL and its Bermuda unit have agreed with the current owner, subject to certain conditions being satisfied or waived, to pay $85 million for a 100% interest in LB-13, including $45-50 million in cash and the rest common shares.

The 2,400 sq km block has an 8-year term that began in May 2007, divided into three phases of 4, 2, and 2 years. The second phase commenced in May.

In 2010, 2,200 sq km of long-offset 3D seismic was shot to evaluate the oil potential of Cretaceous sands analogous to the recent deepwater oil discoveries off Ghana and Sierra Leone. Reviews of the seismic have identified the potential for a number of Cretaceous turbidite sand stratigraphic traps on the block that possess strong seismic AVO anomalies and other direct hydrocarbon indicators that possibly suggest the presence of hydrocarbons.

Noble sees East Mediterranean oil, gas potential

Noble Energy Inc. said it has identified 12 more prospects with more than 20 tcf of gross unrisked resource potential in the eastern Mediterranean that target sands equivalent to those it discovered at Tamar off Israel.

The company said its acreage also has total gross unrisked deep oil potential of 3.7 billion bbl, and it plans to reenter the Leviathan discovery well to test the concept by early 2012.

Noble is drilling the Cyprus A prospect, which has an estimated gross mean resource range of 3 to 9 tcf and a 60% probability of geologic success. It continues to appraise Leviathan with the drilling of the third well while evaluating field development concepts and commercialization options.

Noble-operated Mari-B field off Israel has achieved record levels of production this year and since 2004 has lowered Israel's energy costs by more than $7 billion and reduced carbon dioxide emissions by 17 million metric tons. At nearby Noa field, a recently sanctioned development project is expected to add 100 MMcfd of deliverability in mid 2012, partly offsetting anticipated depletion at Mari-B.

Meanwhile in deep water, appraisal work has increased the gross resource estimate of Noble's Tamar discovery to 9 tcf from 8.4 tcf. The Tamar development project is on schedule for commissioning in late 2012. The platform jacket, deck fabrication, and pipeline installation are 50% complete, and onshore facility expansion is under way.

Noble is in final stages of sales contract negotiations with Israel Electric Corp. and is in active discussions with existing and new customers. Israel gas demand remains robust, and anticipated base growth is 10%/year throughout the decade.

West Newfoundland onshore light oil deposit cored

Vulcan Minerals Inc., St. John's, Newf., said a core hole program has indicated that the Flat Bay shallow light oil deposit underlies an estimated 8-10 sq km in southwestern Newfoundland.

The dark brown, 34-36° gravity oil with less than 1% sulfur is primarily in low-permeability conglomerates and sandstones in the Ship Cove and Fischell's Brook formations. The oil has a pour point of 9°, which exceeds the reservoir temperature at the shallow depths currently intersected, so the oil does not flow.

A qualified reservoir engineering group will review results from the core drilling program in order to formulate a pilot project to extract the oil. A total of 14 core holes have been drilled in the general area south of the Port au Port peninsula.

An input of energy will be required to stimulate flow, said Vulcan, which shares interests in the project 50-50 with Investcan Energy Corp.

The most recent core drilling involved six holes with a combined 1,673 m, and the target reservoirs were oil bearing in three of the six. Rig capacity limited hole depth, and as a result it was not possible to penetrate the reservoirs completely.

The gross thickness of the oil-bearing Fischell's Brook formation in the Flat Bay-1 discovery well was 100 m.

The formations were deeper than expected and beyond the rig's depth capacity at core hole 5, but minor live oil shows were encountered in a sandy lense in an anhydrite that overlies the unpenetrated target formations.

Holes 4 and 9 were drilled updip of the find and encountered shallow basement without any oil-bearing target intervals, though both found live oil shows in basement fractures.

Cris-R hydrocarbons logged at ultradeep shelf well

McMoRan Exploration Co. will apply to deepen its Lafitte ultradeep prospect well on the Gulf of Mexico shelf to 32,000 ft to evaluate deeper Miocene and Oligocene objectives after wireline logs indicated 56 net ft of hydrocarbon-bearing sand with good porosity in a 58-ft gross Lower Miocene Cris-R section.

McMoRan has drilled the Lafitte well, in 140 ft of water on Eugene Island Block 223, to 29,756 ft and run wireline logs to 29,740 ft. Flow testing will be needed to confirm the flow capacity of the Cris-R section, which is full to base.

The Cris-R interval brings the well's total possible productive net sands to 171 ft when combined with the 115 ft of potential net pay encountered previously. New Orleans-based McMoRan controls 15,000 gross acres in the immediate area.

McMoRan said the Lafitte results enhance the potential of its other acreage in the area, including its Barataria and Captain Blood ultradeep prospects. Barataria covers 10,000 gross acres west-southwest of Lafitte, and Captain Blood takes in 10,000 gross acres just south of Lafitte.

McMoRan has a 72% working interest and a 58.3% net revenue interest in Lafitte. Other owners include Energy XXI (Bermuda) Ltd. 18% and Moncrief Offshore LLC 10%.

Drilling & ProductionQuick Takes

Nexen signs North Sea drilling contract

Nexen Petroleum signed a drilling contract with Ensco PLC to hire the Ensco 120, a harsh-environment jack up rig that Nexen will use on its Golden Eagle development in the central North Sea to drill at least 10 wells.

The estimated initial contract is $120 million. The contract is expected to start during fourth-quarter 2013 following systems integration testing and mobilization. Terms allow Nexen to extend the contract through 11 one-well options, potentially increasing the contract value by an estimated $140 million.

The Ensco 120, now under construction at Keppel FELS shipyard in Singapore, will be capable of operating in up to 400 ft of water. The jack up design enables large, multiwell platform programs, ultradeep gas programs, and up to 40,000 ft total drilling depth.

The rig will feature high-temperature, high-pressure equipment, a proprietary Ensco high-capacity design cantilever envelope, 2.5 million lb quad derrick, automated hands-free offline pipe handling systems, ultra-high capacity jacking and fixation systems, 150-person quarters, and strict noise and ergonomic standards.

The Ensco 120 is the first in a series of three such newbuild jack ups. The Ensco 121 and Ensco 122 are scheduled for delivery in fourth-quarter 2013 and third-quarter 2014, respectively.

Lundin lets contract for Brynhild development

A unit of Lundin Petroleum AB signed a 700 million kroner contract with Aker Solutions for the engineering, procurement, and construction of a subsea production system for the Brynhild project, offshore Norway.

Brynhild, discovered in 1992, is in about 80 m of water on Block 7/7 in production license 148, adjacent to the Norwegian-UK border. Lundin plans to develop the field with three subsea wells tied back to the Shell-operated Pierce floating, production, and offloading vessel on Blocks 23/22a and 23/27 in the UK North Sea.

Lundin estimates that Brynhild holds about 20 million boe and plans to produce the field at rates up to 12,000 boe/d.

The company submitted a development and operation plan for Brynhild field (formerly called Nemo) to the Norwegian Ministry of Petroleum and Energy in mid-2011 (OGJ, Aug. 8, 2011, Newsletter).

The scope of work under the contract with Aker Solutions includes the delivery of one template-manifold structure, one riser base, three subsea trees, three wellhead systems, control system, a tie-in system, 38 km of umbilicals, high-pressure riser, and rental tooling. The contract contains several options for additional equipment, including other field developments.

Aker Solutions will primarily perform the management, engineering, and procurement of the subsea production system from Oslo. It plans to fabricate the subsea trees in Tranby, Norway, the template-manifolds in Egersund, Norway, the umbilical in Moss, Norway, and deliver the wellhead systems from Aberdeen. Its service base in Aagotnes, Norway, will handle the installation and commissioning work. Aker Solutions expects to make final deliveries in second-quarter 2013.

Petronas, Shell plan EOR projects off Malaysia

Petronas Carigali Sdn. Bhd. and Shell Malaysia signed an agreement for two 30-year production-sharing contracts for enhanced oil recovery projects offshore Sarawak and Sabah.

Shell estimates the EOR projects will increase recovery factors to 50% from 36% in the Baram Delta (BDO) and North Sabah fields. It expects to produce an additional 90,000-100,000 boe/d from the projects and estimates that the projects will extend field life beyond 2040.

The technology planned for the North Sabah fields could potentially lead to the first field-scale offshore chemical EOR project in the world, according to Shell.

The new agreement builds on the existing BDO and North Sabah PSCs.

Petronas Carigali holds a 60% interest in the BDO production sharing contract (expiry 2018) and is operator while Shell holds the remaining 40%.

The North Sabah PSC (expiry 2019) is Shell operated with each company holding an equal 50% share.


IOC plans new refineries, major expansion

Indian Oil Corp. Ltd., India's largest refiner, plans to raise its total refining capacity to 2.46 million b/d by 2020-21 with two new refineries and a major expansion.

At a meeting in Vadodara, Gujarat, Rajkumar Ghosh, director (refineries), disclosed early plans for construction of a 300,000 b/d refinery in the western part of the country.

He also said the 274,000 b/d Gujarat Refinery at Koyali, Vadodara, would be expanded to 360,000 b/d by 2016-17 and 460,000 b/d by 2020-21.

Under construction by the state-owned company now is the 300,000 b/d Paradip Refinery in Orissa (OGJ, Nov. 22, 2010). The Ministry of Petroleum and Natural Gas estimates the refinery will start up in first-quarter 2013.

The company will have 10 refineries when the grassroots projects are complete.

CVR Energy plans to buy refinery in Oklahoma

CVR Energy Inc. plans to buy Gary-Williams Energy Corp. and its Wynnewood, Okla., refinery and related assets for $525 million in a transaction expected to close by yearend. Closing remains subject to regulatory approvals.

CVR Energy said acquisition of the 52,500-b/cd Wynnewood refinery will increase the scale and diversity of CVR Energy's refining operations.

Based in Sugar Land, Tex., CVR Energy already owns 120,000 b/cd refinery in Coffeyville, Kan. Gary-Williams Energy is based in Denver with marketing and operations in Oklahoma.


ConocoPhillips sells Seaway pipeline stake

ConocoPhillips has entered into agreements to sell its interests in two US pipeline companies for $2 billion. In its first sale, ConocoPhillips will divest its interest in Seaway Crude Pipeline Co. to Enbridge Holdings (Seaway) LLC, a subsidiary of Enbridge (US) Inc., which will reverse its flow to bring crude form Cushing, Okla., to the US Gulf Coast.

Enbridge Inc. and Enterprise Products Partners LP (EPP) agreed to reverse the direction of oil flows on Seaway with an initial capacity of 150,000 b/d in second-quarter 2012. Following pump station additions and modifications, anticipated to be completed by early 2013, the capacity of the reversed Seaway Pipeline will reach 400,000 b/d.

The companies expect the reversed Seaway to be fully contracted and will conduct an open season to validate shipper support for an expansion of Seaway, through looping or twinning. The 670-mile Seaway system includes the 500-mile, 30-in. OD Freeport, Tex., to Cushing, Okla., long-haul system, and the Texas City Terminal and Distribution System, serving refineries in the Houston and Texas City areas. SCPC also includes 6.8 million bbl of crude oil tankage on the Texas Gulf Coast and four import docks at two sites.

Enbridge and EPP also plan to build a 45-mile pipeline linking Seaway directly to EPP's ECHO crude oil storage terminal southeast of Houston. The joint-venture partners estimate costs to reverse the line and construct supporting lateral and related facilities at roughly $300 million.

Enbridge bought ConocoPhillips's 50% interest in Seaway for $1.15 billion. EPP will continue to operate the pipeline system and storage facilities. Enbridge and ConocoPhillips expect the transaction to close in December or early 2012, subject to customary approvals.

Separately, ConocoPhillips also will sell a 16.55% interest in Colonial Pipeline Co. and Colonial Ventures LLC to Caisse de depot et placement du Quebec. ConocoPhillips expects the transaction to close first-quarter 2012 following approval by shareholders in Colonial. ConocoPhillips described the sales as part of an ongoing effort to divest noncore assets.

ConocoPhillips sold the Seaway Products Pipeline Co. to DCP Midstream in June. DCP will convert the line to NGL service (OGJ Online, June 13, 2011).

FERC reports on Marcellus shale projects

Four projects to transport Marcellus shale gas went into service during October as two more were announced, the US Federal Energy Regulatory Commission said on Nov. 14 as its energy projects office released its latest monthly update.

It said National Fuel Gas Co.'s pipeline and storage division placed its Line N replacement and Lines R and I expansion projects into service on its Line N system in western Pennsylvania. The projects will provide 150 MMcfd of firm Marcellus shale gas transportation to Texas Eastern Transmission LP's pipeline in Greene County, Pa., FERC said.

Tennessee Gas Pipeline Co., meanwhile, placed its Line 300 expansion project into service, FERC said. The El Paso Corp. subsidiary's system will provide 360 MMcfd of firm transportation, include Marcellus shale gas, with increased reliability.

FERC said NFGC and TGP received approval to construct and operate their Northern Access and Station 230C projects, which will provide 320 MMcfd of transportation capacity for Marcellus shale gas in Pennsylvania and New York.

The report also mentioned two projects outside the US Northeast shale gas region. It said Northern Border Pipeline Co. placed into service its nearly 9-mile Princeton Lateral project in Illinois into service to provide 120 MMcfd of firm gas for Central Illinois Light Co.'s plant near Princeton, Ill. It also said El Paso Natural Gas Co. applied to construct and operate a project to increase capacity of Wilcox Lateral in Cochise County, Ariz., by 185 MMcfd.

Pembina to expand Montney shale line capacity

Pembina Pipeline Corp. will install five new pump stations and upgrade five existing pump stations to expand NGL throughput capacity on its Peace and Northern Pipelines (together the Northern NGL System) by 55,000 b/d to accommodate increased field liquids extraction by producers in the Western Canadian Sedimentary Basin.

Pembina expects to bring 20,000 b/d of the expansion into service by yearend 2012 and the remaining 35,000 b/d by yearend 2013, subject to commercial arrangements and regulatory approvals.

The WCSB includes the Deep basin, Montney, Cardium, and Duvernay shales. The Northern NGL System's current capacity is 115,000 b/d with average volumes of 88,000 b/d. Pembina expects this to rise to 100,000 b/d by yearend due to commissioning of its Edson pipeline expansion and the Musreau Deep Cut facility.

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