OGJ Newsletter

Sept. 12, 2016
International news for oil and gas professionals


Enbridge, Spectra to merge into $127-billion firm

Enbridge Inc. and Spectra Energy Corp. have entered into a definitive merger agreement under which the two firms will combine in a stock-for-stock merger transaction. The combination will create the largest energy infrastructure company in North America and one of the largest globally, the companies said, based on a pro-forma enterprise value of roughly $127 billion.

The merger, which valued Spectra common stock at $28 billion, is expected to close in first-quarter 2017, subject to shareholder and regulatory approvals.

Spectra shareholders will receive 0.984 a share of the combined company for each share of Spectra common stock held. The consideration to be received by Spectra shareholders is valued at $40.33/share of Spectra, based on the Sept. 2 closing price of Enbridge common shares. On completion of the merger, Enbridge shareholders are expected to own about 57% of the combined company and Spectra shareholders about 43%. The combined firm will be called Enbridge Inc.

Enbridge has a number of expansion projects currently under way, including a share of the Bakken Pipeline crude project (OGJ Online, Aug. 4, 2016). The company also recently resolved federal charges regarding 2010 leaks from its crude oil pipelines in Illinois and Michigan.

Spectra's current projects include its 2.5-bcfd Infraestructura Marina del Golfo gas pipeline joint venture with TransCanada to ship gas into Mexico (OGJ Online, June 14, 2016).

Westlake Chemical, Axiall complete merger

Westlake Chemical Corp., Houston, has completed its previously announced acquisition of Axiall Corp., Atlanta, to become the third-largest chloralkali producer and the second-largest polyvinyl chloride (PVC) producer in North America.

Westlake closed the deal on Aug. 31 with the purchase of all of Axiall's outstanding shares for $33/share in an all-cash deal, representing an enterprise value of about $3.8 billion, including debt and certain other Axiall liabilities, Westlake said.

Alongside becoming a leader in North American chloralkali and PVC production, the combined company also will become the largest low-density polyethylene (LDPE) producer in the Americas, with anticipated combined pro forma revenues of $7.4 billion and adjusted earnings before interest, taxes, depreciation, and amortization of $1.4 billion for the 12-month period ended June 30, Westlake said.

Part of Westlake's growth strategy, the acquisition creates a company with greater financial and operational flexibility that will be better able serve its customers with a more varied product slate, which in turn should create more value and growth opportunities for stockholders, said Albert Chao, Westlake's president and chief executive.

The completed merger follows the start of construction on a $3-billion grassroots petrochemical complex in southwest Louisiana by South Korea's Lotte Chemical Corp. and LACC LLC, a subsidiary of Axiall and Lotte Chemical USA Corp.'s 50-50 joint venture Eagle US 2 LLC, which broke ground in mid-June (OGJ Online, June 14, 2016).

Under construction on the same property in Lake Charles, La., near Axiall's existing manufacturing plants in Calcasieu Parish, LACC's proposed $1.9-billion ethane cracker complex and Lotte's associated $1.1 billion monoethylene glycol (MEG) plant intend to take advantage of access to competitive US shale feedstock resources as well as existing ethylene-distribution infrastructure (OGJ Online, June 9, 2016).

The 1-million tonne/year ethylene and 700,000-tpy MEG plants remain on schedule for startup in early 2019.

Fitch: Russian majors balance cash flows

Progressive taxation and a weak ruble helped major Russian oil and gas companies balance cash flows in the first half of this year, reports Fitch Ratings.

Although operating earnings denominated in dollars fell due to low oil prices and an October 2015 tax increase, local costs were down because of ruble weakness. And the tax structure allowed oil taxes to fall as a share of revenue as oil prices declined.

Fitch tracks Gazprom, Lukoil, Gazprom Neft, Novatek, Tatneft, and Bashneft.

For all those companies free cash flows (FCF) averaged $2/bbl before dividends and minus 50¢/bbl after dividends. FCF is cash generated by normal business operations less capital expenditures.

Helping FCF remain "decent," according to Fitch, were sharp decreases in dollar-denominated capital expenditures and dividends resulting from the weak ruble.

Tatneft performed best among the Fitch group, with FCF of $3.70/bbl before dividends and $1.90/bbl after.

Gazprom had negative FCF before dividend of $1.40/bbl because of heavy capital spending.

Major European oil majors had FCF of minus $5/bbl before dividend and minus $11/bbl after dividend, Fitch pointed out.

"Russian oil and gas producers should remain FCF-neutral provided taxation is unchanged and the ruble broadly follows oil prices," the credit-rating firm said.

It called the risk of further tax hikes "the key challenge for the Russian oil and gas producers."

Fitch said it assumes Russian taxes will remain at the 2016 level but warned, "Further tax increases cannot be excluded."

Exploration & DevelopmentQuick Takes

Rosneft, BP sign seismic R&D agreements

OJSC Rosneft, BP PLC, and Schlumberger Ltd. have signed collaboration agreements on seismic research and development.

Rosneft will join as an equal partner in BP's ongoing project with Schlumberger's seismic business, WesternGeco, to develop technology for cableless onshore seismic acquisition.

The firms said the ability to deliver faster and better-quality seismic data acquisition at lower cost compared with conventional seismic would also bring environmental and safety benefits in extreme climates and in areas that are difficult to access.

A 2-year period is expected for development. Rosneft and BP will have preferential access to the technology "for an initial period," after which Schlumberger will have exclusive rights to market the system.

The signings took place in Vladivostok, Russia, at the Eastern Economic Forum. Rosneft also signed a cooperation agreement with PTT PCL (Thailand) for development in the areas of upstream, crude and oil product trading, refining, petrochemical projects, and LNG supplies.

Eni: Fifth well further confirms Zohr field's potential

Eni SPA reported that the Zohr 5x well, which was drilled to a TD of 4,350 m in 1,538 m of water offshore Egypt, has proved the presence of a carbonatic reservoir and natural gas accumulation in the southwestern portion of the Zohr megastructure.

The fifth well drilled on the Zohr structure on Shorouk block, Zohr 5x encountered a 180-m continuous hydrocarbon column in the carbonate sequence with excellent reservoir characteristics, the Italian firm says.

The results confirm that Zohr field could hold a potential 30 tcf original gas in place. Zohr 5x is 12 km southwest of the Zohr 1x discovery well (OGJ Online, Aug. 31, 2015).

Zohr 5x also was successfully tested by opening 90 m of reservoir section to production. Data collected during the test confirmed the deliverability of the Zohr reservoir, in line with the Zohr 2 well test, producing more than 50 MMscfd of gas limited only by the constraints of the production facilities.

In the production configuration, the well is estimated to deliver as much as 250 MMscfd.

The Zohr drilling campaign will continue this year with a sixth well to ensure the accelerated startup production rate of 1 bcfd. The project is slated to start production by yearend 2017.

Eni, through its subsidiary IEOC Production BV, holds 100% stake in Shorouk block. Belayim Petroleum Corp. (Petrobel) is operating on behalf of Petroshorouk, an equal joint venture of IEOC and Egyptian Natural Gas Holding Co.

Iran schedules primary oil tender for October

Iran will hold its first tender of an oil field for development under a new contract model on Oct. 21.

South Azadegan field is up for the first tender under the Iran Petroleum Contract (IPC), National Iranian Oil Co. Managing Director Ali Kardor said this week. "Next week, we will be sending invitations to foreign companies and ask them to announce if they are interested," he told reporters at a press conference in Tehran.

Iran has been developing the IPC over the past 2 years in an effort to lure investment to its oil and gas sector. Its ministry of petroleum has modified the contract several times amid criticism that it might pave the way for renewed squandering of national wealth similar to oil concessions to the UK under the 1901 D'Arcy Agreement.

Domestic companies will be offered small and medium-size fields with the goal of developing fields with a recovery rate of less than 20%. Confidentiality agreements signed with oil companies will be sent to the Supreme National Security Council.

Kardor said the final version maintains a 20-year contract period and includes a fee per barrel that is paid as profit to the company.

Unlike Iran's previous buyback deals, there will be no ceiling on capital expenditure. Oil companies would have a chance in the annual work program and budget to revise the scope of work and the cost according to changes.

About 50 projects, a combination of brown and green fields as well as exploration blocks, are being considered for development, but the current priority is to develop oil and gas fields owned jointly with neighboring countries.

Minister of Petroleum Bijan Zangeneh said this week that oil and gas fields shared with Iraq, including Yaran, Azadegan, and Yadavaran, will be the primary targets for tendering.

South and North Azadegan is the world's third-largest oil field with in-place reserves of 33.2 billion bbl and recoverable resources of 6 billion bbl, NIOC says.

Iran first awarded development of South Azadegan to Japan's Inpex Corp. in 2001, but later withdrew from the country. Iran also terminated a contract with China National Petroleum Corp. amid dissatisfaction with its development pace.

Company to assess Yamal-Nenets gas fields

Gazprom and RusGazDobycha, part of National Chemical Group, have signed an agreement that will guide formation of a joint company to assess development of three natural gas fields in the Yamal-Nenets Autonomous Area of Russia.

Gazprom Dobycha Yamburg and RusGazDobycha will establish the project company, RusGazAlians, on equal terms.

The Gazprom unit holds development licenses for Parusovoye, Severo-Parusovoye, and Semakovskoye fields.

RusGazAlians is to conduct an investment feasibility study, perform design and survey work, and compile design documentation for predevelopment of the fields and for construction of links to Gazprom's transmission system.

Drilling & ProductionQuick Takes

Shell starts production from Stones field

Shell Offshore Inc. has reported the start of production from the company's wholly owned and operated Stones development in the Walker Ridge area of the deepwater Gulf of Mexico. Production from Stones field, 200 miles southwest of New Orleans, is expected to reach 50,000 boe/d when fully ramped up at yearend 2017. The host facility for what Shell is calling the world's deepest offshore oil and gas project is a floating production, storage, and offloading vessel that produces through subsea systems in 9,500 ft of water. It is Shell's 13th FPSO in its global deepwater portfolio. Stones is Shell's second producing field from the Lower Tertiary frontier in the gulf, following the start-up of Perdido in 2010 (OGJ Online, Mar. 31. 2010).

Production from Stones field, 200 miles southwest of New Orleans, is expected to reach 50,000 boe/d when fully ramped up at yearend 2017. Photo from Shell Offshore Inc.

Stones employs an innovative lazy-wave riser configuration, consisting of a steel catenary riser with buoyancy added with an arch bend to decouple the FPSO's dynamic motions and subsequently increase riser performance. An ultradeepwater mooring system maintains the vessel's location over the field.

The development will start with two subsea production wells tied back to the FPSO vessel, followed later by six additional production wells. Multiphase seafloor pumping is planned for a later phase to pump oil and gas from the seabed to the vessel.

Origin's Otway basin fields brought on stream

Sydney-based Origin Energy Ltd.'s wholly owned Halladale and Speculant natural gas fields in the offshore Otway basin of Victoria have been brought on stream.

The joint development is expected to increase production at the company's Otway gas plant near Port Campbell by as much as 80 terajoules/day.

The development involved directional drilling from land from a site about 30 km east of the town of Warrnambool to reach reservoirs 5 km offshore. A 33-km pipeline was laid from the wellhead to connect to the existing gas plant.

Speculant field was discovered in 2014; Halladale in 2006. The gas is being used for domestic supply.

Daman project starts production offshore India

Production of natural gas and condensate has begun from Oil & Natural Gas Corp.'s Daman project in the Arabian Sea offshore India (OGJ Online, Apr. 14, 2016).

The project's first well, C24-P4 No. 3, flowed 3.8 MMcfd of sweet gas and 176 b/d of condensate. ONGC said three more wells will begin producing within a month.

The first phase of the project includes installation of two wellhead platforms, C24-P3 and C24-P4, and a riser platform, C24-RP, and associated marine pipelines.

The full project will include seven wellhead platforms, the riser platform, and 28 wells.

It covers development of C-24 field and monetization of marginal fields designated B-12-11, B-12-13, and B-12-15, 90-100 km offshore Daman.

Gas and condensate flow through processing facilities on Tapti field to Hazira.

ONGC expects the project to produce 953 bcf of gas and 31.5 million bbl of condensate over 20 years.


Monroe Energy lets contract Trainer refinery revamp

Delta Air Lines Inc. unit Monroe Energy LLC, through a contractor, has let a contract to a unit of Matrix Service Co., Tulsa, for construction services related to the previously announced ultralow-sulfur gasoline (ULSG) project at its 185,000-b/d refinery in Trainer, Pa. (OGJ Online, June 23, 2016).

Matrix North American Construction (Matrix NAC), Chicago, will provide mechanical, electrical, and instrumentation construction services for the ULSG project, including deconstruction and reconstruction of an idled 60,000-b/d selective cat-naphtha hydrofining (SCANfining) unit from another plant that will be moved to the Trainer refinery, Matrix Service said.

Awarded directly by KBR Engineering Inc., which serves as Monroe Energy's primary engineering, procurement, and construction services contractor for the project, Matrix NAC's contract is valued at more than $70 million.

With site mobilization activities already under way on the project, the SCANfining unit remains on schedule for start-up in late 2017, the service provider said.

Approved by the Pennsylvania Department of Environmental Protection's Bureau of Air Quality earlier this year, the USLG project comes as part of the Monroe Energy's plan to reduce sulfur content of its gasoline production to comply with the US Environmental Protection Administration's Tier 3 gasoline standards, which take effect Jan. 1, 2017.

Licensed by ExxonMobil Corp., SCANfining hydroprocessing technology is a catalytic hydrodesulfurization process based on a proprietary catalyst system developed specifically for selective removal of sulfur from fluid catalytic cracking naphtha that limits olefins hydrogenation to preserve octane content.

Lucid Energy buys gas gatherer, processor

Subsidiaries of Lucid Energy Group II LLC, Dallas, have bought assets of Agave Energy Co., a natural gas gatherer and processor, and all outstanding stock of Agave Energy Holdings Inc.

Agave's high-growth properties are mainly in the Delaware basin, concentrated in Eddy and Lea counties, NM. They include 280 MMcfd of gas processing capacity, more than 1,300 miles of gathering pipeline, and more than 60,000 hp of compression. The company also has assets in the Powder River basin of eastern Wyoming.

In the Delaware basin, Lucid Energy plans to expand the Agave gathering system and is adding a 200-MMcfd cryogenic processing plant at the acquired company's Red Hills complex in Lea County.

At commissioning in mid-2017, total capacity at the complex will be 310 MMcfd.

The Agave purchase, terms of which weren't reported, boosts holdings of privately held Lucid companies to 660 MMcfd of gas processing capacity and more than 3,300 miles of pipeline.

Lucid I and Lucid II have equity capital commitments exceeding $850 million from EnCap Flatrock Midstream, San Antonio.

Nigerian topping refinery due 10,000-b/d expansion

Niger Delta Petroleum Resources Ltd. (NDPR), a subsidiary of Niger Delta Exploration & Production PLC (NDEP), has let a contract to Chemex Modular LLC, New Waverly, Tex., to provide equipment and technological services for the planned expansion of its 1,000-b/d topping refinery in Ogbele field in Rivers State, Nigeria, 45 km northwest of Port Harcourt.

Chemex will provide a series of units under the contract, including additional crude distillation units, a naphtha hydrotreater, a naphtha splitter, and a catalytic reforming unit for the production of gasoline, the modular refining and gas processing equipment supplier said.

Due to be commissioned in early 2018, the planned expansion will increase crude processing capacity at the refinery to 11,000 b/d, according to Chemex.

This latest contract follows NDPR's previous contract award Chemex for design and fabrication of the original Ogbele topping refinery, which upon its 2012 commissioning, became the first-and to date, remains the only-privately held crude processing plant in the country to operate under an official license issued by Nigeria's federal government.

The proposed expansion comes as part of NDPR's plan to boost company revenues by expanding its production and sales of diesel, jet fuel, gasoline, and marine diesel to local markets, NDEP said in its latest annual report.

While the Ogbele mini-refinery currently targets production of diesel mostly for internal consumption, NDPR's operating license allows the company to sell excess volumes into the immediate locality, according to Nigeria's Department of Petroleum Resources.

Approved in 2015, the refinery's original plan for expansion included only a 5,000-b/d increase in capacity to be commissioned no later than the end of first-quarter 2018, according to NDEP's annual report.


RIO Pipeline starts up in Delaware basin

Rangeland Energy, Sugar Land, Tex., has started commercial shipments on its RIO Pipeline in the Delaware basin and envisions expansion of the system as demand grows (OGJ Online, Apr. 14, 2016).

The 110-mile, 12-in. OD pipeline carries crude oil and condensate from Rangeland's RIO State Line Terminal in Loving County, Tex., to its Geneva and Zurich terminals, which are connected to pipelines in Midland. Capacity is 125,000 b/d.

The Zurich Terminal remains under construction, scheduled for completion in spring 2017. The other terminals are complete.

Rangeland expects to build a 10-in. bidirectional pipeline connecting the State Line Terminal with the RIO Hub near Loving, NM. The RIO Hub provides unit train service and storage for inbound frac sand and outbound crude and condensate.

Phillips 66 Partners to buy NGL logistics assets

Phillips 66 Partners LP has agreed to acquire a natural gas liquids logistics system in southeast Louisiana owned by Chevron Corp.

The system covers 500 miles of pipelines and a storage cavern connecting multiple fractionation facilities, refineries, and a petrochemical facility. The deal is expected to close in the fourth quarter.

The assets include:

• The TENDS pipeline system, a 300-mile, bidirectional NGL pipeline system connected to third-party fractionators, refineries, including the Phillips 66 Alliance refinery, and a petrochemical plant.

• The VP pipeline-EP pipeline, comprising 200 miles of regulated pipelines that carry raw NGLs from a third-party gas processing plant to pipeline and fractionation infrastructure.

• The Sorrento Cavern, a salt dome cavern with 1.5 million bbl of NGL storage capacity in Ascension Parish.