OGJ Newsletter

Jan. 4, 2016
International news for oil and gas professionals


BP's US Lower 48 unit buys Devon's New Mexico assets

BP PLC's newly separated US Lower 48 onshore business has acquired all of the New Mexico assets belonging to Devon Energy Corp., Oklahoma City. A purchase price was not disclosed.

The move "significantly" expands BP's operations in the San Juan basin spanning northern New Mexico and southern Colorado, and marks the first major acquisition by its Lower 48 business in more than 7 years, the company reported.

The bulk of the acquired assets consist of Devon's operated interest in the Northeast Blanco unit, a section of federal lands in San Juan and Rio Arriba counties of New Mexico, where BP has had a presence since the 1920s.

The company anticipates taking over operations of the unit's 480 wells spread across 33,000 gross acres in first-quarter 2016 after receiving required government agency approvals. In the San Juan basin, the company holds more than 550,000 net acres and has net production of 100,000 boe/d.

In early 2015, BP began operating its Lower 48 onshore operations as a separate business (OGJ Online, Mar. 4, 2014), which is led by David Lawler (OGJ Online, Aug. 20, 2014).

BP says the unit has begun to demonstrate higher capital efficiency and lower operating costs. The unit has a material resource base of 7.5 billion bbl across 5.7 million net acres, with net production of 290,000 boe/d.

Devon this month agreed to acquire 80,000 net surface acres in the Anadarko basin STACK play from Felix Energy LLC, a Denver-based portfolio company of EnCap Investments, for $1.9 billion (OGJ Online, Dec. 7, 2015). In a second deal, Devon agreed to acquire 253,000 net acres in the Powder River basin for $600 million.

It said the deals will be funded with $1.35 billion of Devon equity issued to sellers and $1.15 billion of cash on hand and borrowings.

Israel approves development of giant offshore gas fields

Israel has greenlighted the respective development and expansion of Leviathan and Tamar natural gas fields in the Mediterranean Sea.

Noble Energy Inc., Houston, says it was notified by the Israeli government that it will implement a natural gas framework, resolving and providing exemption from claims of the antitrust authority with respect to the Leviathan partners' acquisition of petroleum rights in the underlying permits (OGJ Online, Sept. 4, 2015).

The framework also enables marketing of Leviathan gas to Israeli customers for the first time. The development of Leviathan will substantially expand Noble's capacity to deliver gas to Israel and the region, as well as provide a second source of domestic gas supply and redundancy of infrastructure for Israel.

Noble says it has taken steps to move forward with development of Leviathan and expansion of Tamar by advancing technical work and negotiating gas sales agreements. Noble is updating and finalizing capital investment requirements.

A final investment decision for each project is estimated to be taken before yearend. Noble operates Leviathan and Tamar with 36% and nearly 40% working interests, respectively.

DEA completes acquisition of E.On E&P Norge

DEA Deutsche Erdoel AG, Hamburg, reported completion of the acquisition of all the shares of E.On E&P Norge AS (OGJ Online, Oct. 14, 2015). E.On E&P Norge becomes a subsidiary of DEA Norge AS. The purchase more than doubles DEA's Norwegian production to 75,000 boe/d.

The deal includes 43 licenses in the North, Norwegian, and Barents seas. DEA Norge now holds 72 licenses.

DEA adds equity interests in producing oil and gas fields Skarv, Njord, and Hyme, and additional developments and discoveries including Snilehorn, Snadd, and Fogelberg.

The transaction was approved by the Norwegian Ministry of Petroleum and Energy, the Ministry of Finance, and the European Union competition authority, DEA said.

Wintershall to keep assets; Tellus deal won't close

Wintershall Holding GMBH said an agreement to sell certain North Sea assets to Tellus Petroleum AS will not be completed (OGJ Online, June 18, 2015).

Following a request from Tellus, Wintershall said it has consented to release Tellus from its obligations under the sales and purchase agreement. The deal involved interests in four nonoperated fields, a 15% interest in the Wintershall-operated Maria development, and seven exploration licenses.

Sequa Petroleum NV, 100% owner of Tellus, cited "the current market environment."

Sequa said the Gina Krog transaction with Total E&P Norge AS is expected to close in early 2016. Tellus would gain 15% in the Gina Krog unit (OGJ Online, Oct. 19, 2015).

Sequa said Tellus is evaluating a deal to acquire 0.554% interest in the Ivar Aasen field from OMV (Norge) AS in light of the decision not to proceed with the Wintershall transaction.

Exploration & DevelopmentQuick Takes

USGS: Barnett shale resources estimate doubled

The Barnett shale could contain 53 tcf of gas, according to the latest assessment from the US Geological Survey.

Updating from its 2003 assessment, USGS reported that undiscovered, technically recoverable resources could also include 172 million bbl of oil and 176 million bbl of natural gas liquids.

The Barnett shale, which lies in Texas, was included in USGS's 2003 assessment of conventional and unconventional (continuous) reservoirs of the Bend Arch-Fort Worth basin province. At the time, the play was said to contain 26.2 tcf of undiscovered natural gas and 1 billion bbl of undiscovered natural gas liquids within the Barnett shale.

The revised assessment follows the successful introduction of horizontal drilling and hydraulic fracturing in the region. The 2003 assessment relied solely on vertical drilling, USGS said in a press release. Since that time, more than 16,000 horizontal wells have been drilled in the formation, producing more than 15 tcf of natural gas and 59 million bbl of oil.

Laramie Energy to buy Piceance basin assets

Piceance Energy LLC, doing business as Laramie Energy Co. and financially backed by Par Pacific Holdings Inc., has agreed to acquire certain properties in the Piceance basin of Colorado for $157.5 million. The assets comprise 89 MMcfed of existing production during November, 283 bcfe of proved developed producing reserves as of November, and more than 53,000 net operated acres and more than 18,000 net nonoperated acres.

Par Pacific says the assets' estimated proved reserves total 541 bcfe; 2P reserves total 1.2 tcfe; and 3P reserves total 5 tcfe each as of November.

The acreage has 5,000 drilling locations, with more than 90% of operated acreage held by production. Pro forma for the deal, Laramie will have 140 MMcfed of production for the month of November.

The deal also includes 195 miles of gas gathering lines with 21,000 hp of owned compressors. A significant portion of the operations acquired is directly adjacent to existing Laramie operations with the potential for meaningful cost savings upon consolidation, Par Pacific notes.

The deal is expected to close on or before Mar. 1, 2016. As part of the financing, Houston-based Par Pacific's ownership interest in Laramie is expected to increase from 32.4% to 42.3% as a result of its $55 million common equity investment.

Piceance Energy in September entered into a joint venture with Wexpro Co., a subsidiary of Questar Corp., to develop gas in the basin (OGJ Online, Sept. 23, 2015).

The Piceance currently produces gas both from the Mesaverde tight gas sand formation, developed vertically; and from the Mancos shale formation, which is being developed both vertically and horizontally.

Lundin finds oil south of Edvard Grieg field

The Rolvsnes exploration well 16/1-25 S, 6 km south of Edvard Grieg field, encountered a gross 30-m oil column in porous granitic basement in PL338C, which is operated by Lundin Petroleum AB's subsidiary Lundin Norway AS.

The new well is located in the central North Sea, 3 km south of Lundin's earlier Edvard Grieg South discovery made in 2009. The well lies on the southwestern flank of the Utsira High. Pressure data and oil type indicate that the petroleum system is in communication with the original discovery. Production tests achieved 265 bo/d through a 36⁄64-in. choke. The operator is planning further study to prove potential for an extended reach well from the Edvard Grieg platform.

Gross contingent resources for Rolvsnes, including the Edvard Grieg South discovery, is estimated at 3-16 million boe. Upside potential for prospect is 10-46 million boe, Lundin said in a press release.

Exploration well 16/1-25 S is the second well drilled in PL338C, which was carved out from PL338 in late 2014 (OGJ Online, Feb. 24, 2015). Well 16/1-25 S was drilled to a total depth of 2,096 m below mean sea level in 106 m of water. The Bredford Dolphin semisubmersible drilled the well, which will now be permanently plugged and abandoned.

Lundin Norway is operator of PL338C with 50% working interest. Partners include Lime Petroleum Norway and OMV (Norge) AS with 30% and 20% working interest, respectively.

Lundin started oil production on Nov. 28, 2015, from Edvard Grieg field in PL338 (OGJ Online, Nov. 30, 2015).

Drilling & ProductionQuick Takes

Shell terminates contract for second Arctic drilling unit

Royal Dutch Shell PLC has elected to cancel its contract with Transocean Ltd. for the harsh environment semisubmersible Polar Pioneer before its July 2017 expiration date.

Shell recently terminated its contract with Noble Corp. for the Noble Discoverer drillship (OGJ Online, Dec. 18, 2015). Both units were part of Shell's Chukchi Sea summer exploration drilling program (OGJ Online, Sept. 28, 2015).

Transocean says it will be compensated for the early termination of the Polar Pioneer contract through a lump-sum payment that includes adjustments for reduced operating costs and demobilization to Norway.

Statoil cancels Transocean drillship contract

Norway's Statoil ASA reported it will cancel its contract with Transocean Ltd. for the Discoverer Americas ultradeepwater drillship. The drillship has been on contract with Statoil since 2009, supporting Statoil's exploration activities in East and North Africa and in the Gulf of Mexico.

Statoil said it "was, in the current environment, unable to secure additional activity for the rig for the remainder of the contract period, ending in May 2016."

Tore Aarrebert, head of rig procurement, said, "Discoverer Americas has been a very good performer for Statoil, contributing to test deepwater and ultradeepwater prospectivity in Tanzania, Egypt, and the Gulf of Mexico and appraising the multiple high-impact discoveries in Tanzania."

Statoil, in fall 2014, used the drillship to make its seventh discovery on Block 2 offshore Tanzania with the Giligiliani-1 finding 1.2 tcf of gas in place (OGJ Online, Oct. 14, 2014). Afterwards, the drillship was to move to the Kungamanga prospect in the central part of the block.

Cairo driller buys Ben Loyal jack up

ADES Advanced Energy Systems, Cairo, has bought the Ben Loyal jack up drilling rig from KCA Deutag, Aberdeen, for an undisclosed price.

KCA Deutag acquired the rig, which was built in 1981, in 2005. The rig had been under contract in the Gulf of Mexico until last October.

The cantilever unit can drill to as deep as 25,000 ft in as much as 300 ft of water.

Cidade de Saquarema FPSO arrives in Brazil

The Cidade de Saquarema floating production, storage, and offloading vessel docked on Dec. 20 at the Brasa shipyard in Niteroi of Rio de Janeiro state, where lifting operations and integration of processing plant modules will be completed.

The 346.5-m-long, 32.6-m-high FPSO is slated to be anchored in 2,200 m of water in the central portion of Lula field in the Santos basin presalt. Operations from the unit will begin in the first half of 2016.

Converted from a very large crude carrier at CXG yard in China, the FPSO will have capacity to process up to 150,000 b/d of oil, compress 6 million cu m/d of gas, and store up to 1.6 million bbl of oil.

Lula field in Block BM-S-11 is operated by Petroleo Brasilierio SA (Petrobras) with 65% interest in partnership with BG E&P Brasil Ltda. 25% and Petrogal Brasil SA 10%.


Western Refining, Northern Tier to merge

Western Refining Inc., El Paso, and Northern Tier Energy LP have entered an agreement to merge Northern Tier into Western. Northern Tier owns a 97,800-b/sd, high-conversion refinery at St. Paul Park, Minn., operates 165 convenience stores under the SuperAmerica brand, and supports 89 franchised convenience stores under the same brand.

Western operates two refineries with combined capacity of 151,000 b/d, one in El Paso and the other in Gallup, NM.

Under a revised deal, Northern Tier unit holders are to receive $15 cash and 0.2986 of a Western share in exchange for each Northern Tier common unit (OGJ Online, Oct. 26, 2015). They have the option to select all-cash or all-stock consideration, subject to proration.

According to news reports, the transaction is worth about $2.4 billion.

Lotte Chemical lets contract for Louisiana MEG plant

Lotte Chemical Louisiana LLC, a subsidiary of South Korea's Lotte Chemical Corp., has let an additional contract to CB&I, Houston, for an associated monoethylene glycol (MEG) plant to be built next to its 1 million-tonne/year ethane cracker project with Axiall Corp., Atlanta, in Lake Charles, La. (OGJ Online, June 18, 2015).

As part of the contract, valued at more than $365 million, CB&I will provide construction services for the MEG plant, the service provider said on Dec. 21.

Lotte Chemical previously let a contract to CB&I to provide construction planning and reviews, as well as early works services, for the proposed MEG unit, which will sit adjacent to the planned cracker (OGJ Online, Oct. 30, 2015).

To be owned and operated by Lotte Chemical, the $1.1-billion MEG plant, once completed, will be the nation's largest and provide the company 600,000 tpy of MEG for export to Europe and Asia, said Soo Young Huh, Lotte Chemical's president and chief executive.

LACC LLC, a subsidiary of Axiall and Lotte Chemical USA Corp.'s 50-50 joint venture Eagle US 2 LLC, recently announced its final investment decision to build the steam cracker and MEG plant at a total cost of $3 billion nearby Axiall's Lake Charles chlor-alkali manufacturing plants to take advantage of existing infrastructure, competitive US shale feedstock resources, and ethylene distribution infrastructure (OGJ Online, Dec. 18, 2015).

Pemex lets contract for Salamanca refinery

Pemex Transformacion Industrial (formerly Pemex Refinacion), the newly created fuel processing subsidiary of Mexico's state-owned Petroleos Mexicanos (Pemex), has let a contract to Samsung Engineering Co. Ltd., Seoul, for work related to the second phase of the country's ultralow-sulfur diesel (ULSD) project at the Antonio M. Amor refinery in Salamanca, Guanajuato, about 250 km northwest of Mexico City.

As part of the $552-million contract, Samsung Engineering will deliver engineering, procurement, construction, and commissioning for a 38,000-b/sd hydrodesulfurization (HDS) unit, a 5,000-b/sd sour water stripper, and the revamp of three existing HDS units with a total capacity of 53,000 b/sd, the service provider said.

This latest contract for the second phase of the Salamanca program follows Pemex's $80-million contract award last year to Samsung Engineering for detailed engineering and procurement of long-lead items for the project's first phase, which was completed during September (OGJ Online, Feb. 18, 2015).

Samsung Engineering said it expects to complete the Salamanca ULSD project in its entirety during third-quarter 2018.

Earlier in the month, Pemex said it would spend a total of $3.9 billion to build 19 plants and modernize 17 existing units at all six of its Mexican refineries as part of its nationwide ULSD program in an effort to help reduce the country's need for ULSD imports (OGJ Online, Dec. 9, 2015; Sept. 15, 2014).


Chevron signs HOA for Gorgon, Wheatstone LNG

Chevron Corp. has signed a nonbinding heads of agreement with China Huadian Green Energy Co. Ltd. for the supply of LNG from the Gorgon and Wheatstone projects off Western Australia.

When the deal is finalized, China Huadian will receive as much as 1 million tonnes/year of LNG for 10 years beginning in 2020.

China Huadian is a subsidiary of China Huadian Group, one of the largest state-owned electric power generation companies in China.

BG Group, ETP get FERC approval for Lake Charles LNG

BG Group's Lake Charles LNG export project has received approval from the US Federal Energy Regulatory Commission to construct and operate a natural gas liquefaction and export plant in Lake Charles, La.

BG Group is developing the project with Energy Transfer Equity LP and Energy Transfer Partners LP. Energy Transfer owns an existing LNG regasification terminal in Lake Charles, which will be converted to a liquefaction plant.

The project has conditional authorization from the US Department of Energy for the export of up to 2 bcfd of natural gas, roughly 15 million tonnes/year of LNG, to non-free trade agreement nations (OGJ Online, Aug. 8, 2013).

BG Group and Energy Transfer expect to make final investment decisions in 2016, with construction to start immediately following and first LNG exports anticipated about 4 years later.

BG believes the brownfield site and the ready supply of gas from the US grid will give the project a competitive advantage. Energy Transfer will own and finance the proposed plant while BG Group will be responsible for the offtake.

Energy Tranfer subsidiary Trunkline Gas will provide pipeline transportation services to supply the plant.

The companies filed with FERC in March 2014.

GLNG signs gas agreement with AGL

The Santos Ltd.-led Gladstone LNG (GLNG) group has executed an agreement with Australian Gas Light Co. (AGL) to buy 254 petajoules of gas as feedstock for the joint venture's LNG plant on Curtis Island near Gladstone in Queensland.

The gas will be delivered to the Wallumbilla hub east of Roma over 11 years starting in January 2017. Prices will be based on an oil-linked formula. The gas will be sourced from AGL's coal seam gas (CSG) fields in the Surat and Bowen basins in southeast Queensland.

The agreement gives added reserves to GLNG's diverse gas supply portfolio that already comprises supply from the group's own CSG fields plus gas from Santos' portfolio, underground storage gas and other third-party supplies.

GLNG shipped its first LNG cargo in October and since that time the plant's Train 1 has already produced above nameplate capacity. Six cargoes have now left the plant.

Commissioning work on Train 2 has begun and it is on schedule to come on stream in second-quarter 2016.

Santos has 30% interest in GLNG. Other interest holders are Petronas 27.5%, Total SA 27.5%, and Kogas 15%.

LNG offtake contracts have been signed with Petronas and Kogas.

DOE studies examine impacts of LNG exports

The US Department of Energy is making two studies available that examine cumulative impacts of LNG exports under 29 proceedings, DOE's Fossil Energy Office (FEO) said in a notice scheduled to appear in the Dec. 29 Federal Register. Comments will be accepted for 45 days thereafter, it said.

It said DOE commissioned the studies to inform its decisions on applications to export LNG to customers in countries that do not have a free-trade agreement with the US. Federal law requires DOE to determine whether such exports would be in the US national interest in each case.

FEO said that the first study, which the US Energy Information Administration published in October 2014, assessed how specific scenarios of increased LNG exports could affect domestic energy markets.

At DOE's request, EIA did the study to update a 2012 LNG export scenarios study using baseline cases from EIA 2014 Annual Energy Outlook, it said.

The Center for Energy Studies at Rice University's Baker Institute and Oxford Economics performed the second study.

FEO said it is a scenario-based assessment of the macroeconomic impact of levels of US LNG exports from sources in the Lower 48 US states in volumes of 12-20 bcfd under a range of assumptions, including US resource endowment, US gas demand, international LNG market dynamics, and other factors.

It issued the notice to enter the two studies in the administrative record of 29 non-FTA export proceedings, and invite comment on the studies as applied to each proceeding.

FEO noted that comments must be limited to the methodology, results, and conclusions of the studies on the factors evaluated.