OGJ Newsletter

Jan. 14, 2008
General Interest - Quick Takes

Westwood sees jump in deepwater investment

Operators will make capital investments in deepwater exploration and production of nearly $25 billion/year by 2012, says John Westwood, managing director of the UK consultancy Douglas-Westwood Ltd.

Deep water, Westwood told the Society of Underwater Technology in Houston, represents “virtually the only place where giant oil fields will be found in future years.”

Major international oil companies, he stressed, need that kind of discovery.

“There are literally hundreds of small, undeveloped offshore fields worldwide, but ‘big oil’ needs big fields,” Westwood said. “The remaining ‘easy oil’ and indeed gas is in hard places and is being strongly competed for by countries such as China, India, and Russia. A recent example is Gazprom’s move to gain access to Nigerian gas reserves.”

The 2008-12 growth his firm projects for deepwater E&P expenditure represents growth over the prior 5 years of 30%. It will “drive demand for deepwater drilling rigs, floating production systems, subsea production hardware, and more,” Westwood said.

Major companies increasingly turn to deepwater operations as production declines in continental shelf areas such as the North Sea and Gulf of Mexico and as access shrinks to opportunities elsewhere.

Westwood noted that national oil companies control 80% of global oil reserves, the same share international oil companies controlled in the 1970s.

At the same time, international companies face rapidly rising costs.

For example, Westwood said, lifting costs in the UK North Sea increased from $15/bbl in 2005 to $25/bbl.

Westwood cited the Arctic as another potentially rich but difficult producing area, where Russia, Canada, and the US are competing in “a great subsea land claim.”

Iraq starts lease round prequalification process

Iraq’s Oil Ministry has invited international oil companies to submit applications for a prequalification process ahead of the country’s planned oil licensing round.

The ministry said the process would help to identify those companies that are qualified to work in the country, with only qualified and selected groups to be invited to participate in competitive bidding later.

The deadline for submissions is Jan. 31. Names of qualified companies will be published after this date.

The timing of the licensing round itself remains unclear, however, with the ministry only indicating that tenders for oil extraction and service contracts in southern, central, and northern Iraq would be issued “soon.”

Meanwhile, Iraqi Prime Minister Nuri al-Maliki and Nechirvan Barzani, the prime minister of the Kurdistan region, held a round of talks on Jan. 2 to discuss pending issues between the central government and the government of the Kurdistan region.

High on the agenda of their talks were the oil contracts that the Kurdistan region government has signed.

An Iraqi spokesman said President Jalal Talabani and al-Maliki signed an agreement specifying that all signed contracts should be subject to the provisions of the Iraqi Constitution and that the government of the Kurdistan region should delay signing anything related to oil contracts.

Concerning the signing of oil contracts, Mahmud Uthman, a member of the Kurdistan Alliance, told London’s Asharq al-Awsat newspaper that, “If the two sides do not agree on this issue, they will refer it to the Supreme (Federal) Court to look into it and decide whether these contracts are legal or illegal.”

Total to share CCS pilot results with Indonesia

Total SA signed an agreement to pass on to Indonesia the results of its carbon dioxide capture and storage (CCS) pilot project near Pau in southwestern France.

The agreement gives the Indonesian Agency for the Research and Development of Energy and Mining Resources access to the main results of Total’s pilot project in the Lacq basin.

This project involves extracting CO2 from gases emitted by a boiler at a Lacq factory and reinjecting it 4,500 m underground in an old gas field.

Total plans the first injection of CO2 in late 2008 and will inject a further 150,000 tonnes of CO2 over the following 2 years and measure the results.

The project, one of the first in the world to include the whole chain from combustion to CO2 geological storage, is primarily intended to prove the technical feasibility of an integrated carbon capture and storage scheme.

“It should enable Total to contribute to the fight against global warming and provide an efficient solution to help limiting the footprint of Total’s activities in exploration and production, refining, and chemicals,” Total said.

Total said Indonesia will be able to develop its technical and economical understanding of such a CO2 storage scheme, especially concerning the geological aspects. That could assist the Indonesian government to establish an appropriate regulatory framework for similar projects in that country.

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Exploration & Development - Quick Takes

Partners make oil find with Julia in gulf

ExxonMobil Corp. and StatoilHydro AS have made an oil discovery 265 miles southwest of New Orleans in the Gulf of Mexico. Drilled to a total depth of 9,500 m, the Julia discovery well lies in 2,000 m of water.

Partner StatoilHydro said further appraisal drilling is planned this year to determine the extent of the discovery. “This is a promising oil discovery,” said Helen Butcher, StatoilHydro’s exploration manager for deepwater Gulf of Mexico. “StatoilHydro is a major lease holder in Walker Ridge. This discovery supports our firm belief in this area,” she added.

Julia is the first well drilled under a 2005 exploration agreement between StatoilHydro and ExxonMobil in deepwater gulf. StatoilHydro is participating in further developing two additional finds in the same area: Jack and St. Malo. Both are scheduled to come on stream after 2013.

Apache has drilling success with Argentine well

Houston independent Apache Corp. reported that its Seccion Banos-2004 well on the Argentine side of Tierra del Fuego island is producing 1,635 b/d of oil and 1.3 MMcfd of gas from the Lower Cretaceous Springhill sandstone. The well is the first large producer drilled following Apache’s 700 sq-mile (1,800 sq-km), 3D seismic survey in the area.

“Prior to Apache becoming operator of this 714,000-acre block...very little 3D seismic had been acquired,” said Apache Pres. and Chief Executive Steven Farris. “With 40% of the survey shot, and newly processed data arriving every day, we have identified more than 30 exploratory, field extension, and development locations.”

Apache said SB-2004 had the highest initial production rate of any well drilled in 40 years of oil and gas activity on the concession. Drilled to 5,544 ft, it confirms the productivity of a sparsely drilled 20 sq mile area between three 40-year-old fields—Canadon Piedras, Cabo Nombre, and Bajo Grande. Apache has begun drilling the first of six potential offsets it has identified.

Production from SB-2004 follows Apache’s development of the previously unexploited offshore discovery at Cabo Nombre Sur, 4.2 miles to the south. Two wells—CNS-2005 and CNS-2006—are producing a total of 11.5 MMcfd of gas and 53 b/d of oil.

Apache operates the Tierra del Fuego concession and holds a 70% working interest; Repsol-YPF SA holds 30%.

On Tierra del Fuego, Apache holds almost 2 million gross acres—714,000 acres on the Argentine side of the island and two recently awarded exploration blocks comprising 1.2 million acres on the Chilean side. Apache’s net production on the island is 5,226 b/d of liquids and 122 MMcf of gas.

Natuna D-Alpha gas field development pact nears

Indonesia and ExxonMobil Corp. are nearing an agreement to renew their contract for development of Natuna D-Alpha gas field in the Natuna Sea, about 140 miles east-northeast of Natuna Island.

The two sides are now finalizing the wording of the agreement under which the government is set to secure a production split, according to Energy and Mineral Resources Minister Purnomo Yusgiantoro.

Under the former contract, ExxonMobil had a 100% production split (OGJ, Nov. 21, 1994, p. 30). However Purnomo said the government will seek a greater share for state-owned PT Pertamina. He did not say how much the government is seeking.

According to Indonesian state media, the Natuna Block is believed to have reserves amounting to 46 tcf of recoverable gas.

ONGC Videsh, Hindujas Group sign E&P pact

Seeking to acquire more oil and gas assets abroad, the board of ONGC Videsh Ltd. (OVL) has agreed to sign a memorandum of understanding with Hinduja Group, London, to jointly explore acquisition of overseas acreages, particularly in Iran. OVL is the overseas arm of India’s state-run Oil & Natural Gas Corp.

“Now we will talk to the Iranian authorities on the projects,” a senior OVL executive said. “Based on the opportunities, we will form a project-specific joint venture or an SPV.”

For developing assets in Iran, OVL and the Hindujas will adopt a collaborative approach. Indications are that they were exploring joint opportunities in Iran’s onshore Azadegan oil field and its offshore South Pars Phase 12 gas asset.

The equity structure and investment decision will be finalized once an equity stake in the two blocks is obtained. OVL and the Hindujas were understood to be in talks with a subsidiary of National Iranian Oil Co. for a presence in the two fields.

Azadegan, with reserves estimated at 33 billion bbl, is one of the largest oil fields to be discovered in the world during the past 30 years.

South Pars gas field contains about 50% of Iran’s gas resources. Together with its extension, Qatar’s North field, it is regarded as the largest offshore gas field in the world.

Iran awards Dayyer gulf block to Edison

Iran signed a contract with Edison of Italy for exploration rights to the 2.1 million acre Dayyer offshore block.

The block lies generally between Iran’s coastal towns of Kangan and Bushehr, north across the Persian Gulf from the Qatar peninsula.

Edison plans to shoot seismic and drill one exploration well in a 4-year exploration period, investing €30 million.

National Iranian Oil Co. offered the block for bids in 2004.

Drilling & Production - Quick Takes

Chesapeake growing Barnett shale production

Chesapeake Energy Corp. expects to complete, on average, a Barnett shale well about every 15 hr through at least 2010. The Oklahoma City company currently is using 38-40 operated rigs.

Aubrey McClendon, Cheasapeake’s chief executive officer, said the company plans to continue acquiring leaseholds in Tarrant, Johnson, and western Dallas counties in Texas. Additional acreage is being acquired by Chesapeake’s own landmen and lease brokers as well as through land services agreements with leasing teams of four smaller companies.

The 2007 gross production exit rate from the Barnett share was 600 MMcfd of gas equivalent (400 MMcfd net) compared with a 2006 gross production exit rate of 250 MMcfd.

“We now will focus on achieving our 2008 gross production exit rate target of 900-1,000 MMcfd,” McClendon said.

Petrobras lets contracts for Cascade, Chinook

Petrobras America has let a $50 million contract to Subsea 7 Inc. to design and install power cables, control umbilicals, and 16 jumpers for the deepwater Cascade and Chinook oil fields in the Gulf of Mexico. The fields are expected to start production in 2010.

Subsea 7 will handle 70 km of power cables, and it will use of its deepwater umbilical installation vessels in late 2009 and early 2010. “The final selection of vessel will be dependant on the size and weight of product to be installed following optimization by Petrobras and Subsea 7,” the company said.

A floating production, storage, and offloading vessel will be used for the first time in the gulf to bring Cascade and Chinook onstream. At least two subsea wells in Cascade and one subsea well in Chinook will each be drilled to 27,000 ft and tied back to the FPSO. Based on reservoir performance, the development plan could be expanded to include additional wells on each unit.

Both fields are in Block 425 of the Walter Ridge area in 2,300-3,000 m of water. Petrobras is operator with 50% of Cascade and 66.67% of Chinook. Devon Energy Corp. owns the remaining 50% of Cascade, and Total E&P USA Inc. owns 33.33% of Chinook.

Total lets N. Sea platforms construction contract

Total E&P Nederland has appointed Fabricom Oil & Gas to design and construct its 21 offshore production platforms in the Dutch sector of the North Sea. The value of the deal was not disclosed.

Under the 5-year framework agreement, work will be carried out on a lump-sum basis under the construction-driven engineering principle in which the construction experience acts as a guideline for the engineering, Fabricom said. This new style of working is expected to reduce lead times and costs, and improve quality of the work.

Fabricom will join Total in project management, detail engineering, work preparation, procurement, prefabrication, offshore installation, and precommissioning. “Total E&P Nederland retains the responsibility for the studies and basic engineering as well as the purchase of specific materials,” it added.

Fabricom signed a maintenance contract for the same platforms in July 2007.

Processing - Quick Takes

Iraq refinery fire kills one, injures 15

One worker was killed and 15 others injured when a fire broke out at Iraq’s largest refinery in Baiji, Salahudin province, just 200 km north of Baghdad.

A spokesman for the oil ministry could not say when the fire was likely to be extinguished or production expected to resume.

The fire was ignited by an explosion at the refinery’s cooking gas unit, but the spokesman said it was too soon to tell if the explosion was the result of an accident or not.

Baiji has been the focus in recent months of violent attacks by suspected fighters belonging to the al-Qaeda terrorist organization.

News of the fire coincided with claims by Iraq’s militant Ansar al-Islam Group that it was responsible for three attacks on US forces and an oil pipeline during Dec. 20 to Jan. 2.

The group, which has ties to al-Qaeda, said it blew up an oil pipeline in the Zammar area of north Mosul on Jan. 1.

Marathon lets contract for Detroit plant expansion

Marathon Oil Corp. has let an integrated engineering, procurement, and construction contract to Fluor Corp., Irving, Tex., for its projected $1.9 billion expansion and upgrade of the company’s Detroit, Mich., refinery.

The $1.6 billion EPC contract includes services, the value of procured materials, and the construction contracts under Fluor’s direct management. The full EPC contract value will be booked in the fourth quarter of 2007.

With completion of this project, Fluor will have assisted Marathon in increasing the Detroit refinery’s heavy oil processing capacity, including Canadian bitumen blends, by about 80,000 b/d. Total refining capacity will increase to 115,000 b/d from 100,000 b/d.

Construction is expected to begin within the next few months and the project is expected to reach completion in late 2010, adding more than 400,000 gpd of transportation fuels to market.

Star Petroleum lets contract for Thai jet fuel plant

Star Petroleum Refining Co. Ltd. let a $60 million contract to CB&I, The Woodlands, Tex., to build a jet fuel processing plant and related storage and shipping systems in Rayong Province, Thailand.

The scope of work includes engineering, procurement, fabrication, and construction of a Jet Merox plant to treat and sweeten jet fuel with a capacity of 20,000 b/d. Also included are associated process facilities, four 100,000-bbl jet fuel storage tanks, and pipeline sendout and marine facilities.

CB&I also is contracted to build an oil and diesel storage system, which includes a 160,000-bbl diesel storage tank, a 750,000-bbl oil storage tank, and all of the associated piping and mechanical work.

The full project is scheduled for completion by early 2009. Star Petroleum is a joint venture of Chevron Corp. and PTT PCL.

Transportation - Quick Takes

ExxonMobil planning a floating LNG terminal

ExxonMobil Corp. plans to seek regulatory approval for BlueOcean Energy, a floating LNG receiving terminal that will help boost natural gas supplies to New Jersey and New York.

The project, estimated to cost more than $1 billion, will have the capacity to supply 1.2 bcfd. The terminal is expected to be moored in 150 ft of water about 30 miles off Long Island. The terminal would be away from shipping lanes, ports, and recreational areas.

With several years required for permitting, engineering, and construction, BlueOcean Energy is expected to begin service around 2015.

Plans call for a subsea pipeline to deliver gas to New Jersey and New York markets. No pipeline route has been selected, although initial plans involve a crossing in New Jersey’s Raritan Bay.

The floating terminal is designed to receive LNG supplies from double-hulled LNG vessels about twice a week. The LNG will be stored inside insulated tanks within the terminal’s double hull.

BlueOcean Energy is at the start of a lengthy, rigorous permitting process involving state and federal agencies and the public. The US Maritime Administration and the US Coast Guard are the agencies that review terminal plans under the Deepwater Port Act.

In addition to BlueOcean Energy, ExxonMobil is involved in three other terminal projects. Receiving terminals are under construction near Sabine Pass, Tex.; in Wales; and in the Adriatic Sea off Italy.

BlueOcean Energy has commissioned former New Jersey Atty. Gen. John Farmer, a security expert and senior counsel to the 911 Commission, to conduct a safety and security assessment of the proposed facility.

Pipeline outlet eyed for Rubiales heavy oil

Rubiales heavy oil field in Colombia’s Los Llanos Orientales area could have a 170,000 b/d pipeline outlet by late 2009.

Petro Rubiales Energy Corp., Vancouver, BC, signed a memorandum of understanding with Colombia’s state-owned Ecopetrol for construction of a 230-km, 24-in. pipeline costing more than $300 million that will transport oil from Rubiales and Piriri fields in the Meta Department to the Casanare station for transshipment to the Oleoducto Central SA (Ocensa) pipeline. Petro Rubiales will build another pipeline branch to the Cusiana station.

Interests in the project are to be Ecopetrol 65% and Petro Rubiales 35%. Capacity is expandable to 260,000 b/d to accomodate further developments and exploration in coming years, Petro Rubiales said.

Qatargas delivers first LNG via its Q-Flex vessels

Qatargas has delivered its first shipment of LNG using one of its chartered Q-Flex vessels.

The Al Gattara left Doha on Dec. 3 and arrived at Tohoku Electric Power Co.’s terminal in northern Japan, completing her maiden cargo voyage without incident, said Ahmed Al Khulaifi, chief operating officer for shipping.

The newly designed Q-Flex vessels have on-board liquefaction capacity and about 40% lower energy requirements and carbon emissions than conventional vessels due to the economies of scale created by their size and the efficiency of their engines.

Qatar Gas Transport Co. Ltd. and OSG International Inc. jointly own the Al Gattara, which Qatargas has chartered on a long-term basis.

Meanwhile, Qatargas has signed a supply contract for 700,000 tonnes/year of LNG from the Qatargas 2 venture to be shipped starting in 2009 to Mexican power company Total Gas & Power.

The LNG will be supplied from Qatargas 2’s Train 5, which is expected to come on stream in 2009, supplying Mexico’s Altamira terminal and opening a new market for Qatari LNG’s 31 million tonnes/year exports.

Nexus secures tanker, first loan for Crux

Nexus Energy Ltd., Melbourne, has secured a tanker to be converted into a floating production, storage, and offloading vessel and a $50 million (Aus.) bank loan to kick-start its proposed Crux liquids project in the Browse basin off Western Australia.

Vanguard Oil & Gas International is purchasing the MV Ishwari to convert into an FPSO for use at Crux, Nexus said.

This follows a July 2007 memorandum of understanding among Nexus, Vanguard, and Viking Shipping that established an engineering design and equipment procurement program leading to the expected sanction of the Crux project during third-quarter 2008 with a production start-up of mid-2010.

Design work includes a gas processing plant to be incorporated onto the topsides of the vessel and a weather-vaning turret and mooring system.

The vessel is described as a high quality, well-maintained Suezmax class oil tanker with a double hull that was built in South Korea in 1991.

Thome Offshore Management, Singapore, will manage the Ishwari during trading prior to conversion and will serve as subcontractor to Vanguard for the vessel’s life extension, conversion, operation, and maintenance in the field.

The Early Stage Project Finance Development Facility is being provided by the Bank of Scotland International (Australia). The funds will be applied to drilling costs for the current Crux-3 and Crux-4 wells.

Nexus says the Crux-3 well has intersected 150 m of high quality net pay over a 300 m gross vertical gas column that includes a fourth reservoir zone not previously confirmed in the field.

Pressure data in this and previous wells indicate the gas sands in each formation (Montara formation, Plover formation and Nome formation A & B sands) are in pressure communication across the field and form part of a single accumulation. This is expected to simplify the development plan.

Nexus has an 85% stake in AC/P23, which contains Crux, with Osaka Gas holding 15%. Nexus also holds a 50% interest in adjoining AC/P41, with Shell holding the other 50%, which contains similar exploration prospects.