OGJ Newsletter

March 3, 2008
General Interest - Quick Takes

Ecuador hails ‘integration’ with Venezuela

Ecuadorian President Rafael Correa, while accepting drilling services offered by Venezuela at a discounted rate, has hailed his country’s oil and gas “integration” with its South American neighbor.

State-owned Petroecuador will use two Venezuelan rigs, one of which is drilling the Guanto Dureno well in the province of Lago Agrio. The other is to arrive next month.

Petroecuador and Petroleos de Venezuela SA also will establish a joint company for development of Sacha oil field and in June will begin construction of a 300,000-b/d refinery in the province of Manabi.

The Ecuadorian leader cited the support of Venezuelan President Hugo Chavez in offering the two oil rigs and accompanying technicians at a discounted rate, covering all expenses for maintenance, operations, and administration.

Correa said the rig’s rental came to $8,000/day, compared with what he called the international market rate of $30,000/day. He also pledged that Petroecuador’s crude oil production would eventually increase to 190,000 b/d from 173,000 b/d.

Taxes, mature fields vex Russia’s oil industry

High taxes are threatening the future development of Russia’s oil and gas industry as production growth stagnates from mature fields, speakers warned last month at International Petroleum Week in London.

“There is no clarity until the new government comes into power,” said Tony Considine, TNK-BP downstream executive vice-president.

Russia’s prospective fields in Siberia and offshore in the Arctic require huge investments and pose major development and financial risks.

Favorable tax rules make it attractive for companies to invest in refining rather than export the oil. Russia also has encouraged the creation of petroleum products because it adds value to oil. About 100 mini refineries have sprung up, but future growth is being jeopardized by a shortage of skilled personnel and a lack of financial investment, Considine said. “We are cautiously optimistic; we can be competitive with European refineries if oil prices are at $60/bbl.”

Refiners are under great pressure to change the specification of petroleum products in Russia, with different requirements set for 2009, 2010, and 2013, Considine said, criticizing the timetable as “aggressive.”

Mark Gyetvay, chief financial officer of Russian gas independent Novatek, told OGJ it does not expect the forthcoming government to severely increase mineral extraction taxes, as large investments are required for projects. None of the presidential candidates, who will finish their campaigns in March, has indicated that he would change the investment climate to benefit independents, which are expected to be important players in supplying oil and gas to the market in the midterm.

“Gazprom’s supply will be relatively flat because a lot of these projects won’t start until 2013, and they are capital intensive projects, so the growth in Russia will be driven by the independents,” he added.

Novatek represents 29% of non-Gazprom production, a volume expected to rise to 40% within the next 5 years. Novatek enjoys higher-than-average gas prices on the domestic market because it does not have to sell gas at fixed prices as Gazprom does.

Gyetvay said Gazprom has purchased gas from Central Asia to supply its customers, but these countries also are pursuing strategies to export gas to Asia and bypass Russia, leaving the market unclear about the level of Central Asian gas available.

NOCs, IOCs need to find new partnership models

National oil companies are delivering higher levels of growth in market capitalization compared with international oil companies, and new models of collaboration are necessary to deliver secure and sustainable energy supplies to the global market, speakers told delegates last month at International Petroleum Week in London.

In 2007 NOCs held 65% of the world’s reserves, offering limited equity access, according to Robin West, chairman of consultancy PFC Energy. Full IOC access to reserves was 7%. “It’s their oil,” West said, “and this is the new reality.”

By 2030, global energy demand is expected to increase by 40% compared with 2008—driven mainly by economic growth and population increases in developing countries, according to ExxonMobil Corp. figures. The growth of the transportation sector will account for the rise over the next 2 decades, with oil remaining a crucial part of the energy mix.

Because of high oil prices, producing countries are awash with cash and are confident about developing energy projects without the assistance of IOCs. However, they are seeking technology transfers, skills training, infrastructure support, and economic development.

Tighter fiscal regimes are making it more difficult for IOCs to propose economically attractive projects. West called on IOCs to find ways to align themselves with building the gross national products of their host governments in accessing new resources. He told OGJ that BP PLC has found ways to develop the infrastructure in Azerbaijan to help grow its economy.

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Exploration & Development - Quick Takes

Tullow gauges light oil discovery off Ghana

Tullow Oil PLC said it gauged light, 29º gravity oil in the Gulf of Guinea off Ghana in an exploratory well that opens a new play.

The Odum-1 discovery on the West Cape Three Points License is a stratigraphic trap in a Campanian age fan system and opens a second new play fairway in the Tano basin, the company said. The company has identified further prospectivity in the Campanian play on the West Cape Three Points and Deepwater Tano licenses.

Odum-1, drilled to 3,387 m in 955 m of water 13 km from Jubilee field, encountered 22 m of net pay in a 60-m gross oil column. It is suspended as a future development well.

The Songa Saturn drillship will move to drill Mahogany-2, the next appraisal well in Jubilee field.

“While appraisal of the upside of Jubilee is ongoing, the field partnership is also working on plans for a phased development of the field. The Eirik Raude fifth-generation semisubmersible has been contracted for a minimum of 3 years and is a critical element in our plan to target first oil in 2010,” Tullow said.

Meanwhile, Tullow plans to redrill its Ngassa-1 high-angle well on Block 2 in Uganda from an alternative location. TD is 1,635 m.

The well cut 6 m of net gas bearing sands, and thick claystone seals provided good encouragement about underlying oil prospectivity. However, the primary and secondary oil objectives weren’t reached due to persistent borehole instability.

Mariner starts gas field in Atwater Valley

Mariner Energy Inc., Houston, started gas production Feb. 15 from two-well Bass Lite field in the deepwater Gulf of Mexico.

The wells, in 6,750 ft of water on Atwater Valley Block 425, represent one of the gulf’s deepest deepwater developments. Initial production of 60 MMcfd of biogenic gas flows via a 56-mile subsea tieback to the Devil’s Tower spar on Mississippi Canyon Block 773.

Mariner, operator with 42.2% working interest, discovered the field in 2000 and estimated it will attain peak output of 125 MMcfd later in 2008. The initial rate is limited by the production system designed to achieve early production pending further topside upgrades. Eni SPA of Italy owns the other interest.

Mariner said Bass Lite “employs the second longest flowline for a subsea tieback and the longest umbilical utilizing fiber optics for primary control ever deployed in the Gulf of Mexico. Additionally, the steel catenary riser used to tie in to the Devil’s Tower production facility appears to be the first designed and approved in accordance with the new MMS storm criteria for the Gulf of Mexico.”

Continental touts Michigan TBR program

Continental Resources Inc., Enid, Okla., plans to drill five more wells in the second and third quarters in an Ordovician Trenton-Black River oil and gas play in Hillsdale County, Mich.

Continental said its McArthur 1-36 discovery well is flowing 260 b/d of oil and has been assigned gross proved reserves of 824,000 boe. A second well, Anspaugh 1-1, encountered similar type pay and is flow-testing 200 b/d.

A third well, Wessel 1-6, is flow-testing at rates as high as 100 bbl/hr during clean-up.

Continental has participated in two nonoperated TBR wells. Young 10-34 had encouraging shows and is awaiting completion, and Clark 1-36 is on test at low rates.

The company owns 29,200 net acres in the TBR play and has shot, processed, and interpreted 11 sq miles of 3D seismic. It plans to shoot 20 sq miles more in March and more later in 2008.

UK offers 2,297 blocks in licensing round

The UK government has launched its 25th licensing round where operators can bid for acreage in the North Sea. About 2,297 blocks will be available, and 72 blocks, originally classified as fallow, have been relinquished in time to be offered in this licensing round.

Alongside the traditional licenses, operators can apply for frontier licenses to develop difficult areas and promote licenses aimed at smaller companies to work up prospects.

Offshore trade association Oil & Gas UK welcomed the announcement, saying companies would ensure long-term development of the mature basin.

Malcolm Webb, Oil & Gas UK’s chief executive, said, “Nearly a third of all exploration and appraisal drilling over the last year was on acreage that had passed through the ‘fallow’ and ‘promote’ initiatives, which highlights the benefits to be gained from government working closely with industry in encouraging maximum recovery of the UK’s oil and gas reserves.”

The deadline for applications is May 19.

Drilling & Production - Quick Takes

Aramco lets contract for Tarzan-class rig

Saudi Aramco has let a 3-year drilling contract to Rowan Cos. Inc. for offshore work starting in the second quarter.

Bob Keller, a Tarzan-class jack up rig, is now en route to the Middle East. Rowan expects total revenues of $201 million from the contract, which has an option to be extended another year.

The contract expands Rowan’s presence in the Middle East to nine jack ups, Chairman and Chief Executive Officer Danny McNease said. “Our Tarzan-class rigs, in particular, have demonstrated drilling capabilities that are well-suited to this environment, and all three of these rigs will soon be working offshore Saudi Arabia.”

Africa Oil to use new rig for Puntland wells

Africa Oil Corp., Vancouver, BC, will use a new rig under contract from Energi Tata Persada Pte. Ltd. (ETP), Singapore, for its drilling program in the Puntland area of Somalia (OGJ, Sept. 3, 2007, p. 34).

ETP Rig. No. 3, under construction in the Shengli fabrication yard in Dongying, China, is scheduled for delivery in mid-May. It’s a 1,500-hp top-drive unit with three 1,600-hp pumps.

Africa Oil’s day-rate contract covers two wells with a two-well option. Under a farmout from Range Resources Ltd., Perth, it will earn an 80% participating interest by drilling two wells each in the Puntland area’s Nogal and Dharoor basins (OGJ, Mar. 26, 2007, p. 33).

It plans to spud the first Somali well in July.

ETP, a wholly owned subsidiary of Catur Khita Persada of Indonesia, owns four land rigs.

Neptune Marine to buy, reactivate semi

Neptune Marine Oil & Gas Ltd., Nicosia, has agreed to buy the Atlantic Venture semisubmersible drilling rig, former Sedco 708, and plans to reactivate it.

It signed a memorandum of agreement with Cypriot-based Zelie Industrial Ltd. to buy the rig, which was built in 1977, for $67 million. Transocean Inc. removed the Sedco 708 from its fleet in 2003.

Neptune Marine, a subsidiary of Jasper Investments Ltd., plans to refurbish the unit for work as a dynamically positioned semi able to drill to 25,000 ft in 5,000 ft of water.

The 345 ft by 245 ft vessel will have maximum displacement of 16,519 tonnes, displacement lightship of 9,307 tonnes, and variable load of 4,500 tonnes.

The agreement calls for Neptune Marine to take delivery of the semi in Cape Town, South Africa, by Apr. 7.

Previously, Neptune Marine acquired for upgrade two drillships, the Neptune Discoverer and Neptune Explorer (OGJ, May 8, 2006, p. 43).

US drilling activity dips

US drilling activity dipped lower during the week ending Feb. 22 with 1,771 rotary rigs working, 2 less than a week prior but up from 1,754 during the same period a year ago, said Baker Hughes Inc.

Land activity accounted for the loss, down 3 rigs to 1,694 units drilling. Inland water activity increased by 1 rig to 22 making hole. Offshore was unchanged at 55 rigs drilling, including 54 in the Gulf of Mexico.

In spite of the low net loss nationwide, Texas’ weekly rig count fell by 9 to 866 drilling. Colorado was down 6 to 112. New Mexico declined by 2 rigs to 65. However, that was partly offset in Oklahoma where the rig count increased by 6 units to 201. Alaska was up 2 to 11, while Wyoming and California gained 1 rig each to respective counts of 74 and 33. Louisiana was unchanged with 144 rigs working.

Processing - Quick Takes

Abu Dhabi to build 417,000 b/d refinery at Ruwais

Abu Dhabi will build a 417,000 b/d refinery, further boosting the emirate’s existing 485,000 b/d refining capacity, reported the Emirates News Agency.

Quoting Jasem Ali Sayegh, general manager of Abu Dhabi Oil Refining Co. (Takreer), the agency said the facility will be completed by 2013. Sayegh was speaking at the Middle East Refining Conference in Abu Dhabi.

While still in the design phase, the new refinery will be built in Ruwais about 240 km from Abu Dhabi City, Sayegh was reported as saying. Abu Dhabi has two existing refineries: one at Ruwais with 400,000 b/d of refining capacity and a second at Um Al Nar with 85,000 b/d capacity.

An interrefinery pipeline will be built between the two Ruwais facilities, Sayegh said, “to eliminate the need for shipments as well as to connect Ruwais and Abu Dhabi.”

Abu Dhabi’s refining capabilities are run by Takreer, which took the responsibility of refining operations from Abu Dhabi National Oil Co.

Motor Oil (Hellas) expands Corinth refinery

Motor Oil (Hellas) Corinth SA, Maroussi, Greece, is expanding its 110,000 b/d refinery in Corinth about 70 km from Athens.

The company let contract to Technip for engineering, procurement, and construction management of a 60,000 b/d crude oil distillation unit to be operational early in 2010. It estimates the investment at €180 million.

The expansion follows an upgrade centered on the addition of a 37,000-b/d mild hydrocracker brought on stream in November 2005.

In that project Motor Oil also added a 32,000-b/d gas oil desulfurization unit and a 65,000-cu m/hr hydrogen production unit.

Transportation - Quick Takes

Excelerate commissioning LNG port off Boston

Excelerate Energy LLC has begun commissioning its Northeast Gateway deepwater port in Massachusetts Bay.

The work, which includes testing of port equipment and systems, began after the Excelerate regasification vessel arrived on site.

The port employs Excelerate’s Energy Bridge system for revaporizing LNG offshore and injecting it into a marine pipeline through a submerged turret loading buoy. The company is using the system at its Gulf Gateway deepwater port off Louisiana.

Northeast Gate, 18 miles east of Boston, will be able to handle peak deliveries of 800 MMcfd of gas through two turret buoys and under normal operations will deliver about 500 MMcfd (OGJ, June 4, 2007, Newsletter).

StatoilHydro ships first LNG cargo to US

StatoilHydro AS has delivered its first cargo of LNG from the Hammerfest liquefaction plant in Norway to Cove Point in the US.

The cargo arrived on Feb. 21 and marked the first export of European LNG to the US.

Cove Point is undergoing an expansion program and StatoilHydro has secured all of the new capacity. It will acquire 10 billion cu m/year of gas capacity from 2009.

Snohvit gas field is in the Norwegian Barents Sea. StatoilHydro will market a total of 4 billion cu m/year of gas at the field’s full capacity.

Rune Bjørnson, StatoilHydro’s executive vice president for the natural gas business area, said that he was confident that trading of LNG would become as flexible as oil–globalizing the market.

Snohvit field licencees are StatoilHydro (operator) 33.5%, Petoro 30%, Total E&P Norway 18.4%, Gaz de France 12%, Hess 3.3%, and RWE Dea Norway 2.8%.

PTT lets contract for Thailand’s first LNG terminal

PTT PLC has awarded a $600 million contract to South Korea’s GS Engineering & Construction Corp. to build Thailand’s first LNG receiving terminal on the eastern coast.

Construction of the 5 million tonnes/year facility in Rayong, about 200 km southeast of Bangkok, is due to start shortly for completion in mid-2011, PTT said.

PTT, through subsidiary PTT LNG Co., plans to double the terminal’s capacity to 10 million tpy in a later stage as it ramps up LNG purchases from several sources to meet the country’s rising gas demand.

PTT recently signed an agreement to import 1 million tpy of LNG from Qatargas Operating Co. for 10 years starting in early 2011 with an option to increase the volume to 2 million tpy (OGJ, Feb 11, 2008, Newsletter).

PTT also has been in talks with other LNG suppliers in Indonesia, Australia, and the Middle East, as price disputes have bogged down the finalization of the 20-year supply of 3 million tpy from Iran’s Pars LNG project.

US LNG imports in 2007 surpass 2006, review says

The US, listed as the world’s fourth-largest LNG importer in 2007, received much more LNG last year than it did in 2006 and paid less for it, reported Pan EurAsian Enterprises Inc. in its yearend review of US LNG imports.

US LNG imports were 770.8 bcf, not including 26.3 bcf imported into Puerto Rico, vs. 583.5 bcf in 2006, and the year weighted average cost in 2007 was $6.66/MMbtu vs. $6.82/MMbtu in 2006.

This 15% increase was achieved because of an import surge during March-September 2007, which offset the falloff of activity during the fourth quarter of 2007 when LNG imports were 79.3 bcf vs. 134.7 bcf the same quarter in 2006, Pan EurAsian said.

BG remained the largest importer of LNG into the US at the Trunkline LNG terminal at Lake Charles, La., with a 54.7% market share in 2007. BG controls 100% of the capacity and throughput rights at Lake Charles, but does not own the terminal. Suez Energy NA was the second-largest importer, with 23.8% of the imports at its Everett terminal in Boston.

Pan EurAsian reported that overall average capacity utilization of the US LNG import terminals in 2007 was about 39.7%, according to the North American Terminal Survey (NATS) regasification data. However, the daily rate for capacity utilization varies widely around that number.

Overall LNG imports in countries of the Atlantic Basin (except Italy and Portugal, which are not covered) were up 15% over 2006. The US imported 17.1% of the Atlantic Basin volume (OGJ Online, Feb. 11, 2008). Spain remains the largest LNG importer in the Atlantic Basin with 44.5% of all the imports.

Trinidad and Tobago, with 58.5% of market share, remain the largest single country of origin for US LNG imports. Egypt and Nigeria were close seconds. However Trinidad and Tobago was the most costly source of supply. The least costly LNG came from Equatorial Guinea, a new entrant into the LNG supply picture in 2007.

A major component of the LNG business in 2007 was the more aggressive use of gas storage, and NATS calculates that storage played a major role in the surge of imports at Lake Charles during March-September.

The outlook for 2008 LNG imports is not thought to be as robust as it was in 2007, according to Pan EurAsian. The price profiles are not as supportive now as last year at this time, it said. Japan’s need for LNG supplies to displace nuclear electricity generation capacity this year may keep LNG global prices far enough above US market prices to reduce the summer and storage replenishment surge that will occur.

TransCanada plans direct oil line to Gulf Coast

TransCanada Corp. said it is considering building an oil pipeline directly to the US Gulf Coast from Alberta’s oil sands, press reports said Feb. 21.

An alternative would be to connect Alberta oil sands with Gulf Coast refineries by converting underused natural gas pipelines for part of the route, Chief Executive Officer Hal Kvisle was reported as saying.

Nearly half of total US refining capacity is on the Gulf Coast, but the lack of pipeline connections from Canada results in most Canadian oil sands exports’ being sent to the US Midwest.

TransCanada and ConocoPhillips, in a 50-50 joint venture, already are planning the 590,000 b/d Keystone oil pipeline to the US Midwest from Alberta, and plan to extend Keystone to the Gulf Coast refining hub. The $5.2 billion Keystone line is expected to come into service in late 2009. TransCanada will convert existing gas pipelines in Canada to oil shipping for much of Keystone’s Canadian section.

“But if the demand for transportation materializes more quickly, we would look at building a direct line,” Kvisle was quoted as saying. “Either way, the discussions are well advanced, and this is one of the future projects that we will be bringing forward here in the months ahead.”

The proposed pipeline would be competing with others planned by Enbridge Inc., ExxonMobil Corp., Kinder Morgan Canada, and Altex Energy Ltd., each of which is proposing an oil pipeline from Alberta to the Gulf Coast.