OGJ Newsletter

Exploration & Development — Quick Takes

YPF, American Energy Partners agree to Vaca Muerta JV

YPF SA and American Energy Partners LP have signed a joint venture agreement to explore and develop unconventional oil and natural gas from Argentina's Vaca Muerta formation providing that financing can be arranged.

The companies plan to invest more than $447 million during an initial 3-year phase to develop a pilot project in a 200-sq km area called Bajada de Anelo in Neuquen, YPF said. Terms also call for the two companies to work with Pluspetrol SA and Gas y Petroleo del Neuquen SA in developing a second, smaller area within Vaca Muerta called Cerro Arena.

American Energy Partners was formed by Aubrey McClendon, former chief executive officer at Chesapeake Energy Corp., which has experience in various US unconventional plays.

"The execution of the projects will begin once definitive agreements have been signed, and certain conditions have been met," YPF said in a regulatory filing.

American Energy Partners would finance most of the initial investment, and it has 3 months to arrange private-equity financing before the joint venture is reaffirmed. No additional details were immediately available regarding the financing.

People familiar with the agreement told the Wall Street Journal that YPF and American Energy Partners plan to drill more than 20 wells and build gas processing plants.

Production from the giant Vaca Muerta shale play in Argentina is expected to double by 2018, according to a recent development study from research and consulting firm Wood Mackenzie Ltd.

WoodMac last year released a study showing Vaca Muerta oil and gas output in 2016 should be moderate with year-over-year production at 10%. WoodMac estimates total capital spending for 2016 to reach $1.2 billion as companies prepare for full development (OGJ Online, Nov. 19, 2015).

Horizontal wells will become the development of choice as operators are increasingly able to target the most productive intervals of the play, WoodMac said, adding that it anticipated 200 wells would be brought on stream in 2015 and fewer in 2016 as vertical wells are phased down. About 460 wells were producing in late 2015, WoodMac said when it released its study.

"YPF [SA] and its [joint venture] partners continue to decrease drilling and completion costs aiming to move into ramp-up and development phases," explained Horacio Cuenca, WoodMac research director for Latin America.

NPD urges companies to keep long-term perspective

Despite low oil prices, the director general of the Norwegian Petroleum Directorate is urging companies to keep a long-term perspective.

"We see a tendency for the companies to prioritize short-term earnings rather than long-term value creation," said Bente Nyland, during NPD's annual review on Jan. 14.

NPD said more than half of the resources on the Norwegian Continental Shelf have yet to be produced, and Nyland is concerned that sinking oil prices will mean that resources will be left in the ground.

Fifty-six exploration wells were spudded in 2015 compared with 58 in 2014 (OGJ Online, Jan. 15, 2015). NPD said 33 of the 56 were in the North Sea, 16 in the Norwegian Sea, and 7 in the Barents Sea. Eleven discoveries were made in the North Sea and six in the Norwegian Sea. NPD said most of the discoveries were minor.

Six fields are being developed in the North Sea, two in the Norwegian Sea, and one in the Barents Sea. Authorities in 2015 approved four plans for development and operation compared with one in 2014.

Four fields came on stream in 2015 and 82 were in operation at yearend compared with 51 some 10 years ago.

NPD said lower oil prices led to "a substantial drop in revenues, but the industry continues to make a strong contribution toward maintaining Norway's general welfare level."

Tap Oil settles dispute for Manora field in Thailand

Tap Oil Ltd., Perth, has reached an agreement with Mubadala Petroleum, the operator of Manora oil field offshore Thailand, regarding settlement of the final capital costs of the field's development facilities.

In March 2015 Tap Oil said there had been an unexpected capital expenditure increase of $28 million for field construction work because of delays in hook-up, commissioning, and claims from the construction contractor. Tap's share was $8.4 million.

The partners had curtailed drilling in April 2015, deciding to postpone indefinitely the drilling of two production wells and one injection well in the field (OGJ Online, Apr. 9, 2015).

This week's settlement sees Tap agreeing to pay $5 million of the final disputed amount of $9.1 million. This will be paid in two equal instalments on Sept. 30 and Dec. 31.

The settlement ensures Tap's exposure to any further related costs or claims is eliminated and provides the company with greater certainty around the value of the Manora development to the company that it has on its books (at June 30, 2015) as $105.7 million.

As part of the agreement, Tap also has been given extended time to pay $5 million worth of cash calls that will now be paid in two $2.5 million instalments on Mar. 31 and June 30.

Drilling & Production — Quick Takes

OGCD asks disposal well operators to reduce volumes

The Oklahoma Corporation Commission's Oil & Gas Conservation Division (OGCD) asked operators of 27 oil and natural gas wastewater disposal wells to reduce disposal volumes following recent earthquakes in the Fairview area.

The disposal wells span an area measuring 36 miles by 20 miles. Plans call for certain disposal well operators to reduce disposal volumes by 54,859 b/d, or about 18%.

OGCD Director Tim Baker said, "The data available indicates that a much larger approach to the earthquakes in that entire part of northwestern Oklahoma is needed, and we have been working on such a plan." He called the plan announced Jan. 13 "part of this ongoing process."

Baker also noted a concern exists about a higher potential risk of earthquakes resulting from numerous disposal wells stopping operation at once because of weather-related power failures. The concern is that all the disposal wells resume full operation at about the same time when power is restored.

Disposal well operators in the Fairview area were advised to gradually restore operations in case of a sudden shutdown due to power failures.

The latest action marks a continuation of OGCD's strategy of monitoring disposal well operations in the deep Arbuckle formation. Oklahoma had about 880 earthquakes greater than magnitude 3.0 in 2015, the Oklahoma Geological Survey said. That compares with 585 recorded for that magnitude range in 2014.

Oxy gets $1 billion from Ecuador after decade-long dispute

Occidental Petroleum Corp., Houston, will receive a $1-billion arbitration award from Ecuador to settle a dispute over the 2006 expropriation of its participation contract for Block 15.

Oxy filed a claim that year seeking reparation for losses following the country's abrupt termination of the company's exploration and development contract and the immediate confiscation of the company's Amazon oil field operations on Block 15 (OGJ Online, May 19, 2006).

The two parties reached an understanding in November 2015 through the International Centre for Settlement of Investment Disputes. Ecuador has made initial payments of $200 million to Oxy, with full payment expected this year.

Oxy ended 2015 with $4.4 billion of cash on hand.

Prior to the seizure by Petroecuador of Block 15 and Oxy's Eden-Yuturi, Limonchcha, Indillana, Paca Norte, Paca Sur, and Yanaquincha fields, Oxy had produced 100,000 b/d from the blocks, 42,000 b/d net to its interest.

Shell exits Bab sour gas reservoirs development project

Royal Dutch Shell PLC reported it has decided to exit the joint development of the Bab sour gas reservoirs with Abu Dhabi National Oil Co. (ADNOC) in Abu Dhabi, and to stop further joint work on the project. Shell's decision, it said, follows "a careful and thorough evaluation of technical challenges and costs." It added the evaluation concluded that the project's development "does not fit with the company's strategy, particularly in the economic climate prevailing in the energy industry."

ADNOC picked Shell in April 2013 as its partner to develop sour gas reservoirs in giant Bab gas-condensate field 150 km southwest of the city of Abu Dhabi (OGJ Online, Apr. 30, 2013).

ADNOC said at the time that the Bab megaproject would include the installation of a gas processing and treatment plant, including a gathering system and sulfur-recovery facilities, able to process 1 billion scfd of sour gas. It said the complex would yield 520 MMscfd of sales gas for delivery to the domestic distribution network by 2020. ADNOC holds 60% interest in the venture, while Shell held 40%.

PROCESSING — Quick Takes

Tesoro plans biocrude co-development, processing

Tesoro Corp., San Antonio, is launching a program with several renewable energy companies to advance biomass-to-fuels technology for development of biocrude feedstock that the independent refiner-marketer plans to co-process alongside traditional crude at its US refineries.

To be made using technologies that convert renewable biomass into a refinery-compatible feedstock that could be blended in with standard crude volumes, the biocrude will enable Tesoro's existing refining assets to produce less carbon-intensive fuels compatible with existing fuel infrastructure and current vehicle fleet warranties at lower capital and operating costs compared with competing technologies, the company said.

In addition to supporting lower compliance costs with the federal renewable fuel standard and California's low-carbon fuel standard by generating credits, biocrude processing would allow the firm to help meet demand for low-carbon, advanced biofuels at competitive prices, according to CJ Warner, Tesoro's executive vice-president, strategy and business development.

While it did not disclose a definitive timeframe for the project's implementation, Tesoro did confirm it already has formed the following collaborative relationships for the requisite biomass-to-fuels technologies:

• Fulcrum BioEnergy Inc., Pleasanton, Calif., which will supply 800 b/d of biocrude feedstock to Tesoro Refining & Marketing Co. LLC's (TRMC) 161,500-b/d Golden Eagle refinery in Martinez, Calif. Biocrude production will come from municipal solid waste processed at Fulcrum Sierra Biofuels LLC's proposed biofuels plant in Storey County, Nevada, about 20 miles east of Reno, which is due to enter commercial operation in early 2018.

• Virent Inc., Madison, Wis., with which Tesoro is working to develop and commercialize Virent's BioForming technology that can convert plant-based sugars into hydrocarbon products identical to those made from petroleum, including gasoline, diesel, jet fuel, and chemicals for plastics and fibers.

• Ensyn Corp., Wilmington, Del., which already has applied with the California Air Resources Board for a pathway to co-process its proprietary Renewable Fuel Oil-a biocrude produced from tree residue-in TRMC's California refineries, include Golden Eagle and the 363,850-b/d Los Angeles refining complex.

India approves HPCL's expansion plan for Visakh refinery

India has granted Hindustan Petroleum Corp. Ltd. (HPCL) environmental clearance to proceed with a project to expand and modernize its 8.3 million-tonne/year Vishakapatnam (Visakh) refinery in Andhra Pradesh, on the country's eastern coast.

Following a series of hearings on the proposal that date back to 2014, the Expert Appraisal Committee (EAC) of India's Ministry of Environment, Forest, and Climate Change (EFCC) approved HPCL's Visakh refinery modernization project (VRMP) at a Dec. 17, 2015, committee meeting in New Delhi, according to EAC documents recently posted to EFCC's web site.

A brownfield project, VRMP will include both installation of new units and revamps of existing units to expand the Visakh refinery's processing capacity by 6.7 million tpy to 15 million tpy, as well as boost its production of low-sulfur fuels that conform to Euro 4 and Euro 5 quality standards.

According to EFCC, HPCL will add the following units and capacities as part of the project: a 9 million-tpy crude distillation unit (CDU), which will replace one of Visakh's three existing CDU; a 3.3 million-tpy vacuum gas oil hydrocracker; a 290,000-tpy naphtha isomerization unit; a 3.1 million-tpy solvent deasphalting unit; a 2.5 million-tpy slurry hydrocracker; a 96-tonne/day propylene recovery unit; two 113,000-tpy hydrogen generation units (226,000 tpy total); two 360-tonne/day sulfur recovery units (720 tonnes/day total, including tail gas treatment); a 36,000-tpy fuel gas pressure-swing adsorption unit; 300-tonne/hr nonhydroprocessing sour-water stripper; a 185-tonne/hr hydroprocessing sour-water stripper; two 540-tonne/hr amine regeneration units (1,080 tonnes/hr total); a 112,000-tpy sulfur recovery LPG treating unit; and a 1,000 cu m/hr integrated effluent treatment plant (EFP), which will replace all existing EFPs at the site.

HPCL has yet to reveal definitive timelines for the start of expansion-related construction or possible commissioning of the completed project.

Rosneft, BP to restructure German refining JV

Russia's OJSC Rosneft has entered a deal with BP PLC to dissolve their Ruhr Oel GMBH (ROG) joint venture (OGJ Online, May 6, 2011) as part of a plan by the companies to restructure their refining and petrochemical businesses in Germany.

Now signed, the binding agreement for ROG's dissolution follows approvals by the companies' boards on Dec. 31, 2015, and Jan. 14, Rosneft and BP said.

As part of the restructuring deal, Rosneft will become a direct shareholder and increase its shareholding in three of ROG's four refineries as follows:

• To 25% from 12.5% in the 11 million-tonne/year multisite Bayernoil Raffineriegesellschaft GMBH refinery in Vohburg, Ingolstadt, and Neustadt.

• To 24% from 12% in the 14.9 million-tpy Mineraloelraffinerie Oberrhein GMBH (MiRO) refinery in Karlsruhe.

• To 54.17% from 35.42% in the 11 million-tpy PCK Raffinerie GMBH refinery in Schwedt.

In exchange, BP will take 100% ownership of the 12.8 million-tpy refinery in Gelsenkirchen, as well as the DHC Solvent Chemie GMBH solvent plant in Ruhr.

Already greenlighted by the Bundeskartellamt, Germany's antitrust authority, the agreement is expected to be approved by the European Commission during this year's first quarter, Rosneft said.

Pending final approval, the restructuring deal is scheduled to be completed by yearend, the companies said.

The EC has set a Feb. 10 deadline to make a preliminary ruling on the proposed transaction, according to the commission's web site.

TRANSPORTATION — Quick Takes

TransCanada, First Nations ink Coastal GasLink deals

TransCanada Corp. reported that its Coastal GasLink Pipeline Project has signed long-term agreements with Nadleh Whut'en First Nation and West Moberly First Nations. The Coastal GasLink project has now secured 11 project agreements and continues to make "good progress" toward concluding deals with other First Nations along the pipeline route, TransCanada said.

"Our early and consistent engagement with First Nations has helped establish trust and lays the groundwork for these project agreements," said Rick Gateman, Coastal GasLink president. "The deep familiarity and knowledge that First Nations have with their land is a tremendous benefit that TransCanada draws upon throughout its project planning process."

Coastal GasLink is proposing to construct and operate a 670-km natural gas pipeline from the Groundbirch area near Dawson Creek, BC, to the proposed LNG Canada LNG export facility near Kitimat, BC. The project is a key component of TransCanada's capital growth plan, which includes more than $13 billion in proposed gas pipeline projects.

Cheniere expects delay for first Sabine Pass LNG cargo

Cheniere Energy Partners LP reported that it expects to export the first LNG commissioning cargo from its Sabine Pass liquefaction project in Cameron Parish, La., in late February or March. The first commissioning cargo was initially expected to occur by late January (OGJ, Aug. 3, 2015, p. 62).

Construction for Train 1 was completed well-ahead of the guaranteed contractual schedule and within budget, Cheniere said. "However, instrumentation issues were discovered during the final phases of plant commissioning and cool down that will require some additional work over the next few weeks," it added.

Neal Shear, who was appointed interim president and chief executive officer at the end of last year (OGJ Online, Dec. 14, 2015), said, "With construction of Train 1 finished, we remain well-ahead of the guaranteed contractual schedule with Bechtel and anticipate no issues in meeting all contractual targets and guaranteed completion dates."

Shear added that construction for Trains 2-5 continues to be on an accelerated schedule and these trains are expected to come on line on a staggered basis. "Bechtel will hand over care, custody and control of each train as they complete its scope of work," he said.

Cheniere Partners owns 100% of the Sabine Pass LNG terminal on the Sabine-Neches Waterway less than 4 miles from the Gulf Coast. The Sabine Pass LNG terminal includes existing infrastructure of five LNG storage tanks with capacity of 16.9 bcf of gas equivalent, two docks that can accommodate vessels with nominal capacity of as much as 266,000 cu m, and vaporizers with regasification capacity of 4 bcfd.

Chevron to sell more Gorgon LNG to China

Chevron Australia Pty Ltd., operator of the Gorgon-Jansz LNG development off Western Australia, has signed a preliminary agreement with ENN LNG Trading Co. of China to supply LNG from the project beginning in 2018. Once finalized, the 10-year deal would mean that Chevron would supply ENN with as much as 500,000 tonnes/year of LNG.

ENN operates in 146 cities throughout China and has 11.3 million residential customers and 52,000 industrial and commercial customers. ENN is currently constructing an LNG receiving terminal that it expects to be operational in 2018.

The terms of the deal were not released, but pricing will be linked to oil contracts.

Chevron began to cool down the Gorgon-Jansz export system on Barrow Island after the arrival of a commissioning LNG cargo at the gas plant. At full production, the project's three trains will be able to produce 15.6 million tpy of LNG.