OGJ Newsletter

May 16, 2016
International news for oil and gas professionals


EIA: Oil market share to slip but stay strong

Oil's share of the global energy market will decline but remain dominant through 2040 as natural gas becomes the fastest-growing fossil fuel, predicts the US Energy Information Administration. Among all sources, renewable energy will rise the fastest, EIA says in its International Energy Outlook 2016.

Global energy consumption will increase to 629 quadrillion btu (quads) in 2020 and 815 quads in 2040 from 549 quads in 2012. Oil's share will slip to 30% in 2040 from 33% in 2012, while coal's share falls to 22% from 28%. Over that period, EIA says, gas's share will rise to 26% from 23%, and renewable's share will jump to 16% from 12%.

Those projections don't account for the US Clean Power Plan, implementation of which would raise the renewable share of the 2040 energy market to 17% and slightly lower coal use but still leave its share at 22%.

By 2014, EIA says, coal, gas, and renewable energy sources will provide 28-29% each of world generation of electrical power. In 2012, coal provided 40% of all power generation.

Asian countries outside the industrialized members of the Organization for Economic Cooperation and Development, including China and India, account for more than half the expected growth in energy use.

While consumption of renewable energy will grow by 2.6%/year—vs. the 1.4%/year projected for all energy—fossil fuels still will supply more than three quarters of global energy in 2040, EIA notes.

Emissions of carbon dioxide related to energy use will increase to 36 billion tonnes in 2020 and 43 billion tonnes in 2040 from 32 billion tonnes in 2012, the forecast said.

Aramco chairman elevated to Saudi energy minister

Saudi Arabia has appointed Khalid al-Falih, chairman of state-owned Saudi Aramco, to head its new Ministry of Energy, Industry, and Mineral Resources. The agency replaces the Ministry of Petroleum and Mineral Resources as part of a recently reported economic and government restructuring initiative undertaken by the kingdom. Serving as Aramco CEO during 2009-15, al-Falih succeeds Ali al-Naimi, who held the post of Saudi Arabia's energy minister since 1995.

Newfield to acquire STACK acreage

Newfield Exploration Co., The Woodlands, Tex., has agreed to acquire 42,000 net acres in the Anadarko basin STACK play of Oklahoma from a subsidiary of Chesapeake Energy Corp., Oklahoma City, for $470 million. The deal is effective Apr. 1, and is expected to close during the second quarter.

The deal expands Newfield's STACK footprint to 265,000 net acres, overlapping with the firm's existing acreage in Kingfisher, Blaine, Dewey, and Canadian counties. More than 90% of the acreage to be acquired is held-by-production.

Of the total consideration, $50 million is associated with proved developed producing (PDP) reserves and reimbursement for recent STACK wells that are currently drilling or have been drilled and are planned for completion. Excluding PDP and reimbursement allocations, the undeveloped acreage value equates to $10,000/acre.

Current net production from the assets is 3,800 boe/d—of which 55% is liquids—and is expected to more than double by yearend as recently drilled wells are completed.

Including this deal, Newfield estimates that its cumulative investments in STACK acreage to date total less than $3,000/acre. Newfield's average working interest across the 265,000 net acres in STACK would be 50%.

Newfield says it sees future upside from multiple prospective horizons, improving efficiencies in drilling and completion optimization, and enhanced well performance. The firm has identified more than 1,000 potential drilling locations on this new acreage.

Chesapeake in 2016 has closed or has under signed sales agreements $1.2 billion in gross proceeds from divestitures.

Whitecap to buy certain Saskatchewan assets

Whitecap Resources Inc., Calgary, has agreed to acquire certain assets in southwestern Saskatchewan from Husky Energy Inc., Calgary, for $595 million (Can.). The sale is subject to regulatory approval. The assets produce about 11,600 boe/d.

This is Husky's third asset sale agreement in 2016. Husky agreed to sell 65% ownership interest in select midstream assets in April for $1.7 billion (Can.) while retaining 35% ownership in a newly formed limited partnership and remaining the operator (OGJ Online, Apr. 26, 2016). On May 2, Husky reported reaching an agreement to sell royalty interests in western Canada for $163 million in cash.

Husky said proceeds from the transactions will be used to strengthen its balance sheet, and that work continues on the planned sale of several others packages in western Canada.

Linn enters debt agreement, files Chapter 11

Linn Energy LLC, Houston, filed voluntary petitions on May 11 for restructuring under Chapter 11 of the bankruptcy code in the US Bankruptcy Court for the Southern District of Texas. The firm says it expects its operations to continue as usual throughout the process.

Linn and units LinnCo LLC and Berry Petroleum Co. LLC entered into a restructuring support agreement with holders of at least 66.67% by aggregate outstanding principal amounts of Linn's amended and restated credit agreement.

"We believe the restructuring support agreement reflects the confidence of our first lien lenders in the quality of our assets and represents an important step forward for the company," explained Linn Chairman, CEO, and Pres. Mark E. Ellis.

Exploration & DevelopmentQuick Takes

Kosmos finds more gas offshore Senegal

Kosmos Energy Ltd. encountered 31 m of net natural gas pay in its Teranga-1 well in the Cayar Offshore Profond block about 65 km northwest of Dakar, Senegal.

The well was drilled to 4,485 m TD and encountered good-quality reservoir in the Lower Cenomanian formation. Well results confirm that a prolific inboard gas fairway extends 200 km from the Marsouin-1 well in Mauritania through the Greater Tortue area on the maritime boundary to the Teranga-1 well in Senegal, Kosmos said. The Marsouin-1 was Kosmos' second Mauritanian discovery (OGJ Online, Nov. 12, 2015).

The firm has found gross P-mean resources of 25 tcf in the current fairway with five consecutively successful appraisal wells. Kosmos holds 60% interest in the Teranga-1 well, while Timis Corp. Ltd. holds 30% and Petrosen, 10%.

OMV signs MOU for fields in Iran

Austria's OMV AG signed a memorandum of understanding in Tehran with National Iranian Oil Co. for evaluation of various fields in the Zagros area of western Iran.

OMV entered Iran in 2001 as operator of the Mehr exploration block in the Zagros fold belt in Khuzestan province (OGJ Online, Apr. 25, 2001). That led to the Band-E-Karkheh oil discovery in 2005 (OGJ Online, Jan. 14, 2005).

OMV said the MOU includes enhanced oil recovery in the Band-E-Karkheh and Cheshmeh Khosh fields.

Rainer Seele, OMV chief executive officer, has named Iran, Russia, and the United Arab Emirates as three main development areas in OMV's upstream portfolio (OGJ Online, Feb. 18, 2016). Seele said the MOU "is an important first step in resuming OMV's activities in Iran."

The MOU also covers technology research and oil and products swaps. The firms also signed a 2-year study agreement for prospects in the Fars area in southern Iran.

Drilling & ProductionQuick Takes

Operators report no major damage from Alberta fires

Alberta's wildfires have created havoc, but Alberta Energy Regulator said on May 10 it had no reports of damage to energy facilities (See story, p. 19).

Shell Canada on May 9 said it restarted production at reduced rates at the Albian sands mining operation. That same day, ConocoPhillips Canada said it planned to restart its Surmont operations as soon as it is safe to do so. It said fire threat there has decreased substantially.

Also on May 9, Imperial Oil Ltd. confirmed it completed a shutdown of its Kearl operations.

Suncor Energy Inc. on May 8 shut its operations in the Regional Municipality of Wood Buffalo. Athabasca Oil Corp. shut its Hangingstone operations on May 5.

Canadian Natural Resources Ltd. on May 9 said the fires were moving away from the Horizon oil sands project and that more than 5,500 workers were on site. Sunshine Oilsands Ltd. said the fires were at least 50 km from the West Ells site.

Connacher Oil & Gas Ltd. had curtailed production at its Great Divide leases southwest of Fort McMurray, but on May 5 said access had improved and that it was bringing production back to normal levels.

Shah Deniz partners let $1.5-billion subsea contract

BP PLC, on behalf of the Shah Deniz consortium, has let a $1.5-billion contract for the transport and installation of the deeper-water subsea production systems for Shah Deniz Stage 2 offshore Azerbaijan to the BOS Shelf LLC, Saipem Contracting Netherlands BV, and Star Gulf FZCO consortium.

The work's scope is for management and operation of the Khankendi newbuild subsea construction vessel for the transport and installation of the deeper-water subsea production systems and subsea structures at all five of the project's flanks.

"The new flagship vessel Khankendi, which is currently under construction by Baku shipyard, will provide essential support for the installation of the Stage 2 subsea structures—the biggest subsea production system ever built in the Caspian," said Frank Wilson, BP's vice-president for the Shah Deniz Stage 2 marine and subsea program. "The construction of the Khankendi is making excellent progress with the hull strips and bow block already integrated."

The contract scope is planned for completion by the middle of 2022, with a 5-year option to extend the contract to cover the installation of remaining trees, flying leads, and jumpers at the east-south, east-north, and west-south subsea flanks between 2022 and 2027.

The scope also includes the reactivation of the pipe-lay barge Israfil Huseinov and the second pipe-lay installation campaign of the deeper-water flow-lines in 2019.

Work on Shah Deniz Stage 2 and South Caucasus pipeline expansion (SCPX) projects continue to move forward with more than 70% of all first gas work across Azerbaijan and Georgia already complete in terms of engineering, procurement, and construction. The project remains on schedule to start gas production in 2018.

Production resumes from Jubilee field off Ghana

Oil production from the Tullow Oil PLC-operated Jubilee field offshore Ghana resumed on May 3 and is ramping up.

An earlier technical investigation of the Kwame Nkrumah FPSO vessel's turret bearing confirmed that it's no longer able to rotate as originally designed (OGJ Online, Apr. 8, 2016). Production had been shut since March.

New operating procedures include the FPSO being put on "heading control," which requires the use of tugs to minimize vessel rotation and revised offtake procedures, including the use of a dynamically positioned shuttle tanker and a storage tanker, partner Kosmos Energy Ltd. said in its earnings report.

A project team has been established to review the root cause analysis and determine the optimum permanent solution of the turret issue. A decision is expected in the next few months.

Gross sales volumes from Jubilee during the first quarter averaged 80,000 b/d of oil while gas exports averaged 72 MMcfd.

Gross production volumes from Jubilee averaged 106,000 bo/d during fourth-quarter 2015 and 102,500 bo/d for the full year. Gas exports during the quarter averaged 92 MMcfd, exiting the quarter at more than 110 MMcfd.

Contracts terminated for two gulf drillships

Freeport-McMoRan Oil & Gas LLC (FMOG) and its parent company Freeport-McMoRan Inc. have agreed with drilling contractor Noble Corp. PLC to cancel contracts for the Noble Sam Croft and Noble Tom Madden drillships.

Noble Sam Croft was scheduled to terminate in July 2017 and Noble Tom Madden in November 2017. The firms had been engaged in discussions since late last year about restructuring the contracts (OGJ Online, Dec. 18, 2015).

The rigs' Gulf of Mexico operations will cease "as soon as practicable," said Noble Corp., which will receive $540 million and potential further contingent payments from Freeport of $25 million and $50 million, respectively, depending upon the average price of oil over a 12-month period.

Noble Corp. said it also expects to realize more than $100 million in direct cost savings as a result of the contract terminations through crew reductions and stacking procedures.

Freeport recently announced a restructuring of its oil and gas business (OGJ Online, Apr. 6, 2016). As disclosed in Freeport's public filings, FMOG has substantial debt and has been negatively impacted by the crash in oil prices.

"Given the financial headwinds facing our client, we are pleased to have resolved this matter in this manner," said Noble Corp. Chairman, CEO, and Pres. David W. Williams.


Eni advances plans for Zohr gas processing plant

Eni SPA is moving forward with plans to build the first of two natural gas plants in Egypt as part of its program to increase processing capacity for gas from its deepwater Zohr development in the Mediterranean offshore Shorouk concession (OGJ Online, Mar. 10, 2016; Feb. 26, 2016; Sept. 7, 2015).

Construction is already under way on the planned processing plant and associated gathering installations in Port Said, the Egyptian Ministry of Petroleum said.

The processing plant follows Eni's decision to accelerate production from Zohr field, the first two development phases of which previously were to use existing infrastructure and processing capacities.

With the Zohr development now on a fast track, however, the firm amended the project scope to add more onshore processing and pipeline capacities to accommodate the 2017-19 startup timeline, Eni's said in a Mar. 18 strategy update.

Contracts were signed and civil works already under way for the plant as of March, Claudio Descalzi, Eni's chief executive officer, said at the time. Expedited as part of an effort to reduce costs and financial exposure, Zohr's accelerated 1-bcfd startup phase is scheduled to begin production from six subsea wells connecting via a gas pipeline to the onshore plant at Port Said by yearend 2017 (OGJ Online, Feb. 22, 2016).

The project's second phase, or the accelerated ramp-up-to-plateau, will add another 14 wells to boost production to 2.7 bcfd from 2019. Second-phase plans also include another gas line as well as an additional onshore processing plant, according to a January presentation from Eni.

The two gas processing plants will each host four processing trains of 350 MMcfd each.

Eni said it expects a total capital investment of less than €12 billion for both phases of the Zohr development. Eni, through its IEOC Production BV unit, holds 100% share in the prospect.

EagleClaw commissions West Texas gas plant

EagleClaw Midstream Ventures LLC, a subsidiary of EagleClaw Midstream Services LLC, has commissioned its Toyah I natural gas processing plant in Reeves County, Tex. (OGJ, Dec. 19, 2014). With a gas processing capacity of 60 MMcfd, the cryogenic plant will serve producers in the Permian's Delaware basin, targeting stacked pay zones including the Upper and Middle Wolfcamp, Bone Spring, and Avalon shale formations.

The Toyah I plant is served by about 120 miles of gathering pipeline, four field compressor stations with a total of 11,000 hp of low-pressure compression, and an 18-mile NGL line that connects the plant to ETP LP-Regency Energy Partners LP joint venture Lone Star NGL LLC's West Texas Gateway Pipeline for transport of NGLs to the market center at Mont Belvieu, Tex.

Toyah I also is connected to Kinder Morgan Inc.'s El Paso 1600 pipeline, which has excess capacity available for residue gas, according to EagleClaw.

The company said it also expects to establish an additional connection into Oneok Partners LP's WestTex transmission system, an intrastate gas pipeline system that connects into the Roadrunner gas transmission pipeline project, Phase 1 of which now serves markets in El Paso and Mexico.

EagleClaw also has let a contract to Honeywell UOP LLC, a subsidiary of Honeywell International Inc., to provide technology for an additional gas plant at the Toyah gas processing complex. Honeywell will provide a 200-MMcfd Honeywell UOP Russell cryogenic gas processing plant (Toyah II) at the complex to meet rising customer demand for various NGL recoveries, according to EagleClaw and Honeywell.

Front-end engineering for the skid-mounted modular plant already is under way, and supporting infrastructure is in place to facilitate rapid installation of the Toyah II plant, EagleClaw said. The companies disclosed neither a value of the contract nor a timeframe for startup of the new plant.

Sinopec commissions processing unit

Sinopec Yangzi Petrochemical Co. Ltd., a wholly owned subsidiary of China Petroleum & Chemical Corp. (Sinopec), has commissioned a new processing unit to boost production of light olefins and aromatics at its integrated refining and petrochemical complex in Nanjing, Jiangsu Province, China.

The first commercial installation of its kind equipped with Honeywell International Inc. subsidiary Honeywell UOP LLC's new UOP MaxEne process technology, the unit improves naphtha feedstock for catalytic reforming and naphtha steam-cracking units to help increase production of petrochemicals used to make plastics, Honeywell and Sinopec said.

Implementation of Sinopec Yangzi Petrochemical's MaxEne unit comes as part of a previous agreement between Honeywell UOP and Sinopec to jointly commercialize the technology following its favorable performance during pilot-scale testing, the service provider said.

In addition to licensing, Honeywell UOP provided basic engineering, key equipment, adsorbents, and technical support for the Nanjing complex's unit, which has processed more than 2.5 million tonnes of naphtha feed since its initial startup in 2013. Neither Sinopec nor Honeywell UOP disclosed a precise capacity for the new unit.


Phillips 66 unit to buy Standish Pipeline, assets

Phillips 66 Partners LP has agreed with Phillips 66 to acquire the Standish Pipeline and remaining 75% interest in Phillips 66 Sweeny Frac LLC, which owns the newly constructed Sweeny Fractionator One and Clemens Caverns storage facility, for $775 million.

The partnership earlier this year acquired 25% interest in Sweeny Frac (OGJ Online, Feb. 18, 2016). Sweeny Fractionator One is a 100,000-b/d NGL fractionator within the Phillips 66 Sweeny refinery complex in Old Ocean, Tex.

The Clemens Caverns storage facility, 15 miles southeast of the Sweeny refinery, includes five newly developed caverns that will have storage capacity of 7.5 million bbl of Y-grade NGL, propane, and butane, with the capability for future expansion.

Standish Pipeline is a refined petroleum products pipeline system extending from Phillips 66's Ponca City refinery in Ponca City, Okla., to the partnership's North Wichita terminal.

"The addition of the Standish Pipeline is consistent with our plan to build out our current systems that are strategically integrated with Phillips 66 refineries," explained Greg Garland, Phillips 66 Partners chairman and chief executive officer.

Phillips 66 and the partnership are parties to fractionation and storage agreements, each with a 10-year term, that include a minimum fractionation volume commitment for Sweeny Fractionator One and minimum storage commitments at the Clemens Caverns storage facility.

Senate passes first responders training bill

The US Senate approved legislation to improve emergency first responders' capacity to act following accidents involving rail shipments of crude oil and other hazardous materials. S. 546, which US Sen. Heidi Heitkamp (D-ND) introduced in February 2015, was referred to the US House Transportation and Infrastructure Committee for further action on May 10.

Heitkamp introduced her bill after a train carrying oil derailed in Casselton, ND, in late 2013, which was followed by several more crude-by-rail derailments in the country. US Rep. Ron Kind (D-Wis.) introduced a similar bill in February 2015.

"First responders—the vast majority of whom are volunteers in North Dakota—selflessly put their lives on the line and run toward danger to protect our families," Heitkamp said following the Senate's approval of her bill. "To make sure they are protected and able to do their jobs to keep our communities strong and safe, it's absolutely critical for the federal government to show emergency response teams the same support."

The measure would amend the Homeland Security Act by directing the Federal Emergency Management Agency (FEMA) to establish the Railroad Emergency Services Preparedness, Operational Needs & Safety Evaluation (RESPONSE) subcommittee of the National Advisory Council.

Heitkamp said that this public-private council would bring emergency responders, federal agencies, and leading experts together to review training and best practices for first responders. The council, which would be co-chaired by FEMA and the US Pipeline & Hazardous Materials Safety Administration (PHMSA), would provide Congress with recommendations on how to address first responders' safety needs amid increased railway safety challenges so they can best protect communities, the senator indicated.

Sens. Angus King (I-Me.), Tammy Baldwin (D-Wis.), Charles E. Schumer (D-NY), Cory A. Booker (D-NJ), Claire McCaskill (D-Mo.), Robert P. Casey Jr. (D-Pa.), and Joni Ernst (R-Iowa) cosponsored Heitkamp's bill.