OGJ Newsletter

Aug. 15, 2016
International news for oil and gas professionals


SM Energy to buy Midland basin firm for $980 million

SM Energy Co., Denver, has agreed to acquire 100% membership interest in Rock Oil Holdings LLC and its 24,783 net acres in Howard County, Tex., from private equity firm Riverstone Holdings LLC for $980 million.

The acquired acreage is largely contiguous and includes 4,900 boe/d net production in July, and 6 million boe of proved developed producing reserves as estimated by SM Energy. Two wells are slated to come online in August.

Effective Sept. 1 and expected to close Oct. 4, the deal expands SM Energy's Midland basin footprint to 46,750 net acres. Jay Ottoson, the firm's president and chief executive officer, noted that Howard County "is emerging as a top-tier area for well performance" within the basin."

Ottoson said, "We expect that the implementation of pad drilling, reservoir modeling, zipper fracs, and leading edge completion technologies will add value from the start."

The company expects to run one rig in the area in this year's fourth quarter, Ottoson said, and two rigs throughout 2017. As a result, he said, the firm is increasing its estimate of total capital spend for 2016 by $15-20 million.

In its second-quarter earnings report, the firm said it plans to focus its second-half Permian drilling activity on the Midland basin's Sweetie Peck area, while dropping its lone Eagle Ford rig in August (OGJ Online, Aug. 5, 2016).

Denver- and Houston-based Rock Oil was formed in March 2014.

Newfield further shifts focus to Oklahoma STACK play

Newfield Exploration Co., Houston, has agreed to divest all of its assets in Texas in separate deals with Protege LLC, Tulsa, and an undisclosed buyer for combined net aftertax proceeds of $390 million.

Protege is acquiring Newfield's Eagle Ford shale assets, while the undisclosed buyer is acquiring Newfield's conventional natural gas assets in South Texas. Current net production from the combined assets is 12,700 boe/d, of which 35% is oil.

"Proceeds from the sale of our Texas assets will replenish our cash balance and position us for the timely acceleration of our STACK development in the future," said Lee K. Boothby, Newfield chairman and chief executive officer.

In the its second-quarter earnings report, the firm said it has increased its 2016 capital budget to $700-750 million, reflecting $40 million for two STACK pilots, and $50 million for additional drilling on existing assets and assets associated with the recently closed acquisition of STACK properties from Chesapeake Energy Corp. (OGJ Online, May 6, 2016). The deal expanded Newfield's STACK footprint to 265,000 net acres.

Boothby noted that the firm has lifted its average type curve in STACK by 15% to 1.1 million boe after drilling more than 100 wells to date. "Our well results continue to improve as we optimize our completions and look for innovative ways to enhance returns in our upcoming full-field development campaign," Boothby said. "We recently closed on our previously announced STACK acquisition and have allocated additional capital to these assets in the second half of this year."

For the second quarter, Newfield recorded a net loss of $667 million primarily attributable to a full-cost ceiling test impairment of $522 million.

Backed financially by EnCap Investments LP, Protege has assets in South Texas, the Permian basin, the Midcontinent region, and the Appalachian basin.

Suncor to buy 30% of Rosebank from OMV

Suncor Energy Inc. is buying a 30% stake in the Rosebank project in the UK North Sea from OMV AG.

Upon completion of the transaction, OMV (UK) Ltd. will have 20% in Rosebank (OGJ Online, Aug. 19, 2013).

At closing, which is expected in the fourth quarter, Suncor will pay an initial $50 million. Suncor could pay up to an additional $165 million if project partners approve a final investment decision on Rosebank and Suncor elects to participate.

Rosebank was discovered in 2004, and is in the front-end engineering and design phase. It has a design capacity of 100,000 b/d of crude and 80 MMcfd of natural gas.

Rosebank is 130 km northwest of the Shetland Islands in 1,110 m of water.

Operator Chevron North Sea Ltd. has 40% in Rosebank, and DONG E&P (UK) Ltd. 10% (OGJ Online, July 9, 2012).

Exploration & DevelopmentQuick Takes

Iran Petroleum Contract gets cabinet okay

Iranian cabinet ministers have approved a model contract under which non-Iranian companies might participate in oil and gas exploration and development (OGJ Online, Feb. 23, 2016).

If approved by the parliament, the new Iran Petroleum Contract would replace the buy-back contract Iran has offered with limited success since the early 1990s.

The Islamic Republic News Agency reported the approval of the IPC but offered no details about the structure.

The buy-back model is a risk-service contract that limits non-Iranian participation to 7 years and pays contractors a fixed fee unrelated to production rates.

At a meeting in Tehran last November, Iranian officials indicated the IPC would be a service contract under which non-Iranian companies would participate as minority partners in joint ventures with Iranian companies.

The IPC, according to officials at the meeting, would have a 25-year term and a fee structure more flexible than that of the buy-back model.

Bagpuss well taps hydrocarbons off Scotland

Premier Oil UK Ltd. and partners will assess commercial prospects of their Bagpuss prospect offshore Scotland after their 13/25-1 well cut 41 ft of hydrocarbon-bearing sands in a 68-ft hydrocarbon column (OGJ Online, Aug. 16, 2013). The sands have 25-33% porosity, and the oil is heavy, as expected.

The well, on Block 13/24c on the western margin of the Halibut horst in the Outer Moray Firth, reached 1,532 ft TD in granite basement. It has been plugged.

The well "has proven a significant volume of oil in place," said Robin Allan, Premier director of exploration and North Sea. An Amoco well drilled about 2 km away in 1981 encountered hydrocarbons on the same structure.

Premier is block operator with 40.1% working interest. Other partners include Maersk Oil UK 25%, North Sea Energy (UK NO2) Ltd. 15%, EnCounter Oil 13.27%, and Groliffe 6.63%.

Sound Energy hits 28-m gas column in Morocco

Sound Energy PLC reported the TE-6 well on the Tendrara license onshore Morocco drilled to a measured vertical depth of 2,665 m and encountered 28 m of net gas pay in the TAGI reservoir (OGJ Online, Apr. 22, 2016).

The well reached a stabilized gas flow rate, post stimulation, of 17 MMscfd, which is "significantly above initial expectations and represents a highly commercial rate," the firm says. Static pressure recorded in the well correlates in terms of gas gradient with all of the wells previously drilled in the license area.

"The combination of these factors together with the fact that none of the historically drilled wells on the license have identified a gas-water contact, suggests the possibility of a significant gas column within a continuous extended structure," the firm says.

"I believe Tendrara, Meridja, and the Eastern Morocco TAGI play have the potential to be a material hydrocarbon province on a regional scale," noted James Parsons, Sound Energy chief executive officer.

The structure may include and extend beyond the reservoir identified at TE-2, 30 km northeast. A third well, TE-8, will be required at the edge of the potential structure for confirmation. It's being planned for later this year.

Sound Energy and Schlumberger Ltd. are now preparing for the second well, TE-7, about 1.3 km from TE-6. It will use subhorizontal drilling techniques that are expected to increase the individual well flow rate in a success case. This will be followed by an extended well test. The rig-up process at TE-7 is already complete and drilling is expected to start this month.

TE-6 will be suspended until the results of TE-7 are confirmed, at which point the company expects to apply for a production concession and commence detailed engineering for construction of the necessary infrastructure, which Oil & Gas Investment Fund (OGIF), one of Sound Energy's partners, has already indicated an interest in funding, constructing, and operating.

Sound Energy has a net effective interest of 27.5% in the Tendrara license.

Drilling & ProductionQuick Takes

OPEC says Saudi production rose in July

Saudi Arabia reported its crude oil production increased 123,000 b/d in July over June to reach an average total for the month of 10.67 million b/d, the Organization of Petroleum Exporting Countries said in its Monthly Oil Report Aug. 10.

Since the oil-price slump started in late 2014, Saudi Arabia has resisted pressure from other producers to cut production.

OPEC reports crude production based on direct communication from its members and also reports crude production based on secondary sources such as shippers, analysts, and industry. Secondary sources told OPEC that Saudi production rose 30,100 b/d during July over June to a July total of 10.47 million b/d.

For all of OPEC, secondary sources indicated July crude oil production averaged 33.11 million b/d, an increase of 46,400 b/d over June.

Crude oil production from individual cartel members increased the most from Iraq.

Iraq reported July production was up 57,000 b/d to 4.6 million b/d, OPEC said. Secondary sources estimated Iraq's July production at 4.3 million b/d, OPEC said.

BHI: North American rebound lifts global rig count

The average global rig count for July was up 74 units compared with the June average, largely reflecting rises in the US and Canada, according to Baker Hughes Inc. data. The June average was up 2 units, ending 9 straight monthly declines (OGJ Online, July 8, 2016).

The worldwide tally of active rigs during the month averaged 1,481, a decline of 686 from the average in July 2015. The US gained 32 units to 449, down 417 year-over-year. Canada added 31 units to average 94, down 89 year-over-year.

Having borne the brunt of the global industry downturn, Latin America ended its 9-month slump in July with an 8-unit rise to 186, down 127 from its year-ago average. Argentina led the way with a 9-unit jump to 72, down 34 year-over-year. Mexico added 3 units to reach 23, down 22 from its July 2015 average. Venezuela, meanwhile, dropped 3 units to 50, down 20 year-over-year.

The Asia-Pacific region increased 4 units to 186 as well, representing a 26-unit decline from its total in July 2015. India gained 5 units to 113, down just 3 from its year-ago average. Europe rose 3 units to 94, down 14 year-over-year. Norway jumped 4 units to 20, even with its year-ago average.

The Middle East edged up a unit to 390, down 1 year-over-year. A 2-unit drop in Iraq to 38, down 5 from its average in July 2015, was more than offset by a 3-unit rise in Kuwait to 47, also up 3 year-over-year. Egypt recorded its first monthly rise since late last year, adding a unit to reach 27, down 15 from its July 2015 average. Saudi Arabia also added a single unit, posting an average of 125, up 2 year-over-year.

Statoil submits PDO for Utgard discovery in North Sea

Statoil ASA and its partners have submitted to Norwegian and UK authorities the plan for development and operation (PDO) and the field development plan (FDP) for the Utgard gas and condensate discovery in the North Sea.

Recoverable reserves from Utgard are estimated at 56.4 million boe, and capital expenditures are projected at about $415 million. Discovered in 1982, Utgard, formerly Alfa Sentral, is 21 km from Sleipner field, straddling the UK-Norway median line. The majority of reserves are on the Norwegian side.

The Utgard development will include two wells in a standard subsea concept, with one drilling target on each side of the median line. With all installations and infrastructure in the Norwegian part of the sea, the UK well will be drilled from the subsea template, 450 m from the median line on the Norwegian continental shelf.

Statoil in June agreed to acquire 45% interest in the UK portion of the license from JX Nippon Oil & Energy Corp. (OGJ Online, June 3, 2016). That deal followed the acquisitions of 31% equity share in the UK license for Utgard from Repsol SA, and 24% interest from First Oil Expro Ltd. (OGJ Online, Dec. 11, 2015).

Gas and condensate will be transported through a new pipeline for processing at Sleipner, where Utgard gas, high in carbon dioxide content, will undergo carbon cleaning and storage. Statoil notes the reuse of existing infrastructure is essential to the development of Utgard.

Utgard wells are scheduled to come on stream at yearend 2019. In the plateau phase, the field will produce 7,000 cu m/day of oil equivalent.


Enterprise, Oxy commission Delaware basin gas plant

Enterprise Products Partners LP (EPP) and an affiliate of Occidental Petroleum Corp., both of Houston, have commissioned a 150-MMcfd cryogenic natural gas processing plant in Reeves County, Tex., to handle growing rich-gas production from the Delaware basin (OGJ Online, Apr. 30, 2015).

The gas plant, which is supported by long-term, firm delivery contracts and also equipped to extract more than 22,000 b/d of NGLs, began operations on Aug. 3, said EPP, which operates the plant on behalf of Delaware Basin Gas Processing LLC (DBGP), a 50-50 joint venture of EPP and Oxy.

In conjunction with the DBGP plant, EPP said it also has completed construction of an 82-mile, 12-in. NGL pipeline that connects to its Chaparral pipeline to provide customers with access to EPP's fractionation and storage complex in Mont Belvieu, Tex.

The company's Texas intrastate pipeline system also will provide natural gas transportation services at the tailgate of the plant for access to multiple markets, EPP said.

Startup of the new plant follows EPP's May commissioning of its 200-MMcfd cryogenic gas processing plant in Eddy County, NM, both of which come as part of the company's overall strategy to double its capacity in the Delaware basin during 2016 (OGJ Online, May 20, 2016).

The company also recently announced plans to build and commission a 300-MMcfd cryogenic gas processing plant by mid-2018 to further expand its gas processing capacity in the Delaware basin of West Texas or southeastern New Mexico.

JV to expand gas processing in Delaware basin

A subsidiary of EnLink Midstream Partners LP and EnLink Midstream LLC and an affiliate of NGP Natural Resources XI LP have formed a strategic joint venture to operate and expand midstream assets for natural gas, NGLs, and crude oil in the liquids-rich Delaware basin.

Already anchored by long-term, fee-based commitments from major producers, the new Lobo II expansion include installation of a 120-MMcfd cryogenic natural gas processing plant, as well as associated natural gas and liquids-gathering pipeline infrastructure, in Loving County, Tex., and Eddy and Lea Counties, NM, EnLink said.

The expansion will build off EnLink's existing Lobo gathering and processing system, which it acquired from Matador Resources Co. in October 2015, the company said.

Upon completion of Lobo II, the Delaware basin facility will have a total processing capacity of about 155 MMcfd, according to EnLink, which will serve as the JV's managing member and handle day-to-day construction and operation of the assets.

The Lobo II expansion is due for startup by yearend. EnLink, which contributed about $230 million of its Delaware basin assets an additional $285 million to fund potential future development projects and potential acquisitions, will hold 50.1% interest in the JV, with NGP to hold the remaining 49.9% stake for its aggregate capital contribution of $400 million.

Canyon Midstream adds Permian line, compression

Canyon Midstream Partners LLC, Houston, has completed the addition of new pipeline and compression in Winkler County, Tex., as part of an ongoing expansion of its James Lake midstream system, which provides gas gathering, treating, and processing services to producers in the Permian basin (OGJ, June 2, 2014, p. 72).

Developed and executed in response to increased customer demand for sour gas processing capacity in Winkler County, the expansion added compression at Canyon's field facility in Kermit, Tex., as well as a 22-mile trunkline extension equipped to deliver as much as 60 MMcfd of gas to the James Lake plant for treating and processing, Canyon said.

With the expansion now completed, the James Lake system currently consists of a 110-MMcfd cryogenic gas processing plant in Ector County, Tex., about 90 miles of gathering trunklines, and eight field compressor stations located across the Texas counties of Ector, Andrews, and Winkler.

Officially commissioned in December 2014, the system delivers residue gas into the El Paso Natural Gas pipeline and NGLs to both the Sand Hills and Chaparral pipelines.

Canyon is currently finalizing a design to expand processing capacity at the James Lake plant to 150 MMcfd, according to the company's web site.


MarEn venture buys interest in Bakken Pipeline

MarEn Bakken Co. LLC-an entity jointly owned by Enbridge Energy Partners LP and Marathon Petroleum Corp.-has agreed to acquire from Energy Transfer Partners LP (ETP) and Sunoco Logistics Partners LP 36.75% interest in the Bakken Pipeline project for $2 billion. The Bakken system includes the Dakota Access pipeline and the Energy Transfer Crude Oil (ETCO) pipeline.

After closing, a Marathon subsidiary will participate in a Dakota Access-ETCO pipeline open season, and subject to its terms and conditions, make a long-term volume commitment on the Bakken project.

Bakken Holdings Co. LLC, a joint venture of ETP and Sunoco, owns 75% of both Dakota Access and ETCO. Bakken Pipeline will consist of 1,172 miles of new 30-in. OD crude oil pipeline extending from North Dakota to Patoka, Ill., and more than 700 miles of pipeline converted to crude service from Patoka to Nederland, Tex. Dakota Access will deliver more than 470,000 b/d of crude oil from the Bakken-Three Forks production area in North Dakota to the Midwest. ETCO will transport crude from the Midwest to Sunoco and Phillips 66 storage terminals in Nederland.

Bakken Holdings is selling 49% of its 75% interest (36.75%) in Dakota Access and ETCO. The remaining 25% of each is owned by wholly owned units of Phillips 66. ETP-Sunoco will retain 38.25% ownership. Sunoco will operate the line.

ETP and Sunoco will receive $1.2 billion and $800 million in cash at closing, respectively. The Bakken Pipeline partners have arranged $2.5 billion in project financing to complete the project.

PAA, Phillips 66 partner to expand STACK crude line

Plains All American Pipeline LP (PAA) and Phillips 66 Partners LP have formed the STACK Pipeline LLC joint venture to transport crude oil from the Sooner Trend, Anadarko basin, Canadian and Kingfisher counties (STACK) play in northwestern Oklahoma to Cushing. Plains contributed an existing terminal at Cashion, Okla., with about 200,000 bbl of crude storage and a 55-mile, 100,000-b/d crude oil pipeline (STACK Pipeline) to the joint venture, while Phillips 66 contributed $50 million cash in exchange for its 50% interest.

The JV plans to invest $15 million to expand the STACK pipeline by building a truck station at Highway 33, about 12 miles northwest of the Cashion terminal, a lateral pipeline to connect the Highway 33 station to the terminal, and 100,000 bbl of new storage at the terminal. PAA and Phillips are also considering both expanding STACK pipeline's capacity by looping it between Cashion and Cushing and adding gathering sources to the system.

The STACK pipeline and the initial expansion are supported by multiple long-term contracts as well as legacy production gathered by existing Plains crude pipelines in western Oklahoma. Phillips 66 noted that the system's connection to Cushing would also provide another source of advantaged crude to it Ponca City, Okla., refinery.

Williams gets FERC approval for eastern US expansions

Williams Partners LP has received approval from the US Federal Energy Regulatory Commission for its New York Bay expansion and Virginia Southside II expansion projects. The New York Bay expansion is designed to serve increasing local distribution demand in New York City while the Virginia Southside II expansion targets electric-power generation in Virginia.

Williams expects to begin construction on each project in the fourth quarter, with each entering service in fourth-quarter 2017. Both expansions are fully subscribed.

The New York Bay expansion will move 115 MMcfd into National Grid's distribution system to the Rockaway Delivery lateral and the Narrows meter station. The Virginia Southside II expansion will send 250 MMcfd to a delivery point on a new lateral off Transco's Brunswick lateral in Virginia for shipment to a 1,580-Mw combined-cycle power plant that Dominion Virginia Power is building in Greensville County, Va.

Williams held a binding open season in May for its Northeast Supply Enhancement project, a 400-MMcfd expansion of the Transco pipeline expected to enter service for the 2019-20 heating season (OGJ Online, May 17, 2016).