OGJ Newsletter

Dec. 6, 2010
International News for Oil and Gas professionals

Outlook finds OPEC production sufficient to 2020

Current production capacity among members of the Organization of Petroleum Exporting Countries appears sufficient to meet incremental demand through 2020, according to a new analyst forecast.

In its 2010 Global Crude Oil Market Outlook, released Nov. 30, Purvin & Gertz finds that under a base-case petroleum demand assumption, OPEC's spare production capacity is large enough to cover potential output shortfalls elsewhere.

The outlook also concludes that in the near term, oil-supply growth will come from both OPEC and non-OPEC producers.

"Robust supply increases from non-OPEC producers such as Russia, Kazakhstan, Canada, and Brazil will be mirrored by expected large production capacity increases from Angola, Nigeria, and Iraq," Purvin & Gertz said. This will result in no appreciable change in OPEC's market share until after 2015.

The new outlook addresses growth in heavy oil production and finds that global crude slates will trend toward being heavier and more sour and that Asia's heavy crude imports will increase markedly, especially in India and China. New developments in Brazil and Colombia, as well as increased output of heavy oil in Canada and the Middle East, will compensate for declines in Mexico and Venezuela, according to the report.

Price differentials between light and heavy crudes will remain near current levels until 2015, Purvin & Gertz forecasts, as current refining markets have surplus cracking and coking capacity, resulting in narrow price differentials.

BP to sell its Pan American Energy stake to Bridas

BP PLC agreed to sell its 60% interest in Pan American Energy for $7 billion to its joint venture partner Bridas Corp., which already owns 40% of the Argentina-based exploration company.

PAE explores, develops, and produces oil and gas in the Southern Cone region of South America. Its main holdings are in Argentina, where it is the second-largest producer. As of Dec. 31, 2009, proved reserves attributable to BP's 60% interest in PAE were 917 million boe. BP's net PAE production was 143,000 boe/d.

Under the agreement, Bridas is to pay BP a cash deposit of $3.53 billion in two payments this year with the balance of the proceeds due on completion of the sale. If any closing conditions are not met, BP is required to repay the deposit to Bridas. The transaction excludes the shares of PAE E&P Bolivia Ltd.

In July, BP announced plans to divest up to $30 billion of assets by yearend 2011. Before the Nov. 28 PAE announcement, BP already had sales agreements in place worth $14 billion. BP said it will use proceeds of the PAE sale to increase the cash available to the group.

Bob Dudley, BP group chief executive, said the PEA agreement is part of the BP's strategy to "meet our significant financial commitments arising from the Gulf of Mexico tragedy" in a reference to the Macondo well blowout and an explosion and fire on Transocean Ltd.'s Deepwater Horizon semisubmersible, killing 11 workers and resulting in a massive oil spill.

"We now have agreements in place that should secure the majority of our divestment target," Dudley said.

Husky to buy ExxonMobil Canada properties

Husky Energy Inc. agreed to buy oil and natural gas properties in Alberta and northeast British Columbia from ExxonMobil Canada Ltd. for $860 million (Can.).

The acquisition will add 21,900 boe/d of production and 113 million boe of proved and probable reserves, Husky estimates. The transaction involves 16,300 boe/d of gas production, 4,800 b/d of oil production, and 800 b/d of NGLs, Husky said.

Husky's reserve estimate is 104 million boe of proved and 9 million boe of probable reserves, based on an effective date of Dec. 1. The agreement is subject to regulatory approvals and final closing.

The company also raised its 2011 capital budget by more than 20% to $4.86 billion. "The increased capital expenditures in late 2010 and early 2011 will begin to contribute to production in late 2011," Husky said.

Exploration & DevelopmentQuick Takes

Anadarko sees LNG heft with third Mozambique find

Anadarko Petroleum Corp., having made a third large natural gas discovery in the Rovuma basin off Mozambique this year, said the three finds already exceed the resource size threshold necessary to support an LNG project.

The third discovery, Lagosta, is in 2.6 million acre Offshore Area 1 about 16 miles south of the Barquentine discovery and 14 miles southeast of the Windjammer discovery (see map, OGJ, May 17, 2010, p. 35).

Lagosta cut more than 550 net ft of gas pay in multiple, high-quality sands of Oligocene and Eocene age, Anadarko said. The company didn't give the threshold recovery estimate.

Bob Daniels, Anadarko senior vice-president, worldwide exploration, said, "The Lagosta discovery continues to validate our geophysical models, and we expect to keep the Belford Dolphin drillship in the basin for the foreseeable future to continue a very active exploration and appraisal program, including at least one planned drillstem test in 2011."

Daniels said, "We have assigned an integrated project team to begin advancing commercialization options. Given the global LNG trade and its indexing to the global crude market, this resource can provide tremendous economic value for the people of Mozambique, the government and the partnership."

Lagosta has been drilled to 13,850 ft in 5,080 ft of water. The partnership plans to drill to 15,900 ft to evaluate a deeper zone. Next the rig will move 17.5 miles to the southwest to drill the Tubarao exploratory well on the block.

Anadarko is operator of Offshore Area 1 with 36.5% working interest. Partners are Mitsui E&P Mozambique Area 1 Ltd. 20%, BPRL Ventures Mozambique BV 10%, Videocon Mozambique Rovuma 1 Ltd. 10%, and Cove Energy Mozambique Rovuma Offshore Ltd. 8.5%. Mozambique's state Empresa Nacional de Hidrocarbonetos ep's 15% interest is carried through the exploration phase.

North Kutei discovery finds gas pay, oil play

Salamander Energy PLC said its Angklung-1 exploratory well off East Kalimantan, Indonesia, is a commercial gas discovery in Lower Pliocene sandstone and also discovered an Upper Miocene oil play.

The Hakuryu-5 semisubmersible drilled Angklung-1 to 2,850 m true vertical depth subsea in 290 m of water in the North Kutei basin on the 2,185 sq km Bontang PSC, which Salamander operates with 100% interest. The wellsite is 60 km north of giant Attaka oil and gas field.

The well logged 23-27 m of net gas pay in a high-quality Lower Pliocene sandstone unit at 1,850 m TVD subsea. Logs indicate porosity up to 30% and permeability of 50 md. A 10-m interval flowed at a surface equipment constrained rate of 24 MMscfd of dry gas with no carbon dioxide or hydrogen sulfide.

The well also found a gross 256-m section of interbedded sandstones and shales of Upper Miocene age. Following petrophysical evaluation of a full suite of wireline logs, this interval is interpreted to contain a net 120 m of oil-bearing sandstones.

A comprehensive sampling and pressure testing program recovered samples of light oil and gas, though the sandstones were proved to be of low permeability and are not considered net pay at this location. The well reached TD in a sequence of Upper Miocene carbonates with strong gas shows.

Salamander has shot more than 650 sq km of 3D seismic in the Bontang PSC over the Angklung structure and surrounding prospects. The Angklung trend extends into the neighboring SE Sangatta block, which Salamander operates with 75% interest, where a 475 sq km 3D seismic survey is being run.

The well has been plugged and abandoned as a discovery. Salamander will conduct further technical work to evaluate both the discovery's resource potentialand the large inventory of prospects on its acreage that exhibit similar seismic attributes to the pay section seen in Angklung-1 well. Work will also be undertaken to further understand the Upper Miocene oil play fairway.

Carrizo updates Eagle Ford, Niobrara activity

Carrizo Oil & Gas Inc., Houston, said its first two Eagle Ford shale wells drilled from a common surface location in central La Salle County, Tex., appear to have stabilized at a combined 1,125 b/d of oil and 2 MMcfd of 1,367-btu/Mcf of gas.

Mumme Ranch 10H has 15 frac stages in a 5,493-ft lateral, and Mumme Ranch 12H has 19 fracs in a 5,455-ft leg. Initial production rates were 1,011 b/d at Mumme 10H and 1,220 b/d at Mumme 12H. Carrizo is flaring the gas pending connection to a gathering system.

Carrizo has a 100% working interest and a 75% net revenue interest in the two wells. The next well, Pierce 10H southwest of the Mumme wells, has begun flowback after frac.

Carrizo owns 20,000 net acres in the Eagle Ford play, the majority in the condensate window of La Salle, Dimmit, and McMullen counties. The company has drilled two other Eagle Ford horizontal wells in La Salle County that are awaiting completion, expected in the first quarter of 2011.

In Weld County, Colo., where Carrizo owns 59,000 net acres in the Niobrara play, crews are preparing to frac the State 16-11-9-60H well on Dec. 1. The horizontal leg is being drilled at Bob White 36-44-8-62H, and next the rig will move to drill a third well in 36-9n-61w.

BP Egypt finds deepwater gas in Nile Delta

BP Egypt announced what it is calling a significant gas discovery, Hodoa, in the deepwater West Nile Delta. Further appraisal is under way.

BP drilled the WMDW-7 well on the Nile Delta concession some 80 km northwest of Alexandria to a depth of 6,350 m in 1,077 m of water.

It's the first Oligocene deepwater discovery in the West Nile Delta area, said BP, which operates the concession. RWE Dea holds 20% interest in the concession. BP, which has has operated in Egypt nearly 50 years, has invested more than $17 billion there.

Drilling & ProductionQuick Takes

Total receives approval for West Franklin Phase 2

Total E&P UK Ltd. received approval for the $1 billion Phase 2 development of the West Franklin field from the UK Department of Energy and Climate Change.

West Franklin is in Blocks 29/5b and 29/4d of the UK North Sea, about 240 km east of Aberdeen. Production of gas and condensate from the field, discovered in 2003, began in 2007. In 2008, Total said the drilling of an appraisal well more than doubled the field's estimated reserves and prompted the Phase 2 development.

Phase 2 involves the drilling of three wells and the installation of a new platform tied back to the Elgin-Franklin facilities. Total estimates that production from the phase will start by yearend 2013 and recover 85 million boe. It expects production to reach 40,000 boe/d.

Total operates Elgin-Franklin and West Franklin fields on behalf of Elgin Franklin Oil & Gas Ltd. (Total 77.5%, and GDF Suez, 22.5%). EFOG holds 46.17% interest in the fields.

Apache lets contract for Forties platform

Apache Corp. has let a contract worth more than $240 million to UK-based OGN Group to build a satellite production platform for Forties oil field in the central UK North Sea. The 18-slot platform, to be built at OGN Group's Hadrian yard in Newcastle, will be bridge-linked to the Forties Alpha platform.

James L. House, regional vice-president and managing director, North Sea, said Apache recently completed 4D seismic surveys at the field and accelerated data processing. He said the new geophysical data and well slots will enable Apache to sustain oil production at about 60,000 b/d "during the subsequent 3-plus years."

The satellite platform will expand utility services, including power generation, produced-fluid processing, high-pressure gas compression for artificial lift, and dehydration. Onshore construction is expected to be complete by mid-2012. Apache holds about 97% working interest in Forties field and is operator.

Eni, Ecuador extend Villano service contract

Eni SPA has signed an extension of its service contract with the government of Ecuador covering Villano oil field in the Oriente basin until 2023.

The extension applies to Block 10, about 260 km southeast of Quito. The agreement also expands the block to encompass an exploration area including the Oglan oil discovery about 7 km from the Villano processing facility. Eni estimates oil in place at 300 million bbl.

Villano field produces about 18,000 b/d of oil. Eni, which has operated the field through its Agip Oil Ecuador BV subsidiary under a service contract since 2000, estimates the field still holds 50 million bbl of recoverable oil.


Sunoco foresees higher US refining costs

US refiners are likely to keep plants running if they can maintain cash-positive operations despite a glut of US downstream capacity and weak margins, Sunoco Inc. Chairman, Chief Executive Officer, and Pres. Lynn Elsenhans told the Deloitte LLP oil and gas conference in Houston on Nov. 18.

"It's very hard to close a refinery, even in the United States," Elsenhans said. She envisions the federal government will impose stricter environmental regulations requiring refiners to invest in plant modifications, which will boost operating costs.

"That's going to be the catalyst to have refining capacity go down," she said. But at least for the near term, US refiners likely will face continued weak demand, abundant supply, and pressure margins, she said.

Meanwhile, some US refiners could export diesel, she said of business opportunities for 148 refineries in the US.

Since joining Sunoco in 2008, Elsenhans has worked to cut costs for her company, which is based in Philadelphia. Sunoco reported a third-quarter net income of $65 million compared with a net loss of $312 million for the third quarter of 2009.

"We were profitable on the strength of our retail, logistics, and coke operations—areas we have targeted for future growth," Elsenhans said.

She noted Sunoco's refining and supply segment posted a third-quarter loss but showed financial improvement from the previous third quarter, reflecting the company's "continued focus on the fundamentals: margin capture, sustainably lowering our breakeven cost per barrel, and running our facilities safely and reliably."

Sunoco plans to separate its coke business, SunCoke, from Sunoco in the first half of 2011 (OGJ Online, June 16, 2010). Sunoco has a refinery in Ohio and two more refineries in Pennsylvania. The company last year temporarily closed its 145,000-b/d refinery in Westville, NJ, and made the shutdown permanent in May.

EPA fines NM refiner for violating consent order

The US Environmental Protection Agency fined Western Refining Southwest Inc. (WRS) for violating an August 2009 consent agreement and final order. EPA said the refiner failed to adequately monitor benzene discharges and illegally disposed of hazardous waste at its 16,800-b/d plant 17 miles east of Gallup, NM.

WRS is part of Western Refining Inc. in El Paso, which operates a 125,000-b/d plant there and owns a small refinery in Yorktown, Va., which it shut down during this year's third quarter.

EPA's Region 6 office in Dallas said on Nov. 23 that it sent the company two noncompliance notices in the past 2 months after the federal environmental regulator and New Mexico's Environmental Department brought the violations to WRS's attention in 2009.

WRS agreed to pay $734,008, cease all benzene discharges, and close two aeration lagoons that received hazardous waste, according to EPA.

The company has 30 days to pay levied fines after receiving notification letters, it said.

Tesoro restarts Anacortes refinery

Tesoro Corp. is restarting its 120,000-b/d refinery at Anacortes, Wash., which it shut down in April after an explosion that killed seven workers, and appealing state citations of safety violations (OGJ, Apr. 19, 2010, Newsletter). The explosion occurred in a naphtha hydrotreater undergoing maintenance.

"Most of the refinery is operating, and we expect to be back to normal operations soon," said Greg Goff, president and chief executive officer. "In addition to completing repairs to the damaged units, extensive future inspections and maintenance work was accelerated to take advantage of the down time."

Tesoro has filed a notice of appeal against citations and penalties imposed last month by the state Department of Labor of Industries, which cited the company for 39 "willful violations" and five "serious violations" of safety and health rules.

The department fined Tesoro $2.39 million, which Michael Silverstein, assistant director of the Division of Occupational Safety and Health, said in a news conference was the highest penalty the agency ever had issued for workplace safety and health violations. He said a department investigation determined that a nearly 40-year-old heat exchanger in the hydrotreater burst after temperature and pressure surged while a nearby bank of heat exchangers was being restarted.

Silverstein said laboratory tests conducted after the explosion showed cracks along several welds in the heat exchanger. He said tests that would have revealed the cracks hadn't been conducted since 1998. And tests conducted then didn't examine the most vulnerable part of the unit, he said.

Silverstein also said investigators determined that the six heat exchangers in the hydrotreater had a history of leaking flammable fluids during start-up and that, because Tesoro's efforts to stop the leaks had failed, workers routinely dispersed leaks with steam lances.

The investigation found that workers had been accelerating increases in temperature and pressure during start-up of the unit, in violation of Tesoro policy, in an effort to reduce leaks, Silverstein said. The practice increased stress on the heat exchangers and forced some workers to enter the danger zone to turn valves, he said.


Enagas to acquire Iberdrola's transportation assets

Enagas will acquire all of Iberdrola's natural gas transportation assets for about €12.5 million ($16.7 million), pending regulatory approval. The transaction includes 100% of Iberdrola Infraestructuras Gasistas, owner and operator of the 1.1-km gas pipeline at the Escombreras Dock in Cartagena.

Enagas also acquired a 50% stake in Infraestructuras Gasistas de Navarra, owner and operator of the 13-km gas pipeline connecting to the Castejon combined-cycle thermal power plant, and the 6-km pipeline to the Arcos de la Frontera combined cycle thermal power plant.

The investment consolidates Enagas' role as sole transporter for Spain's primary gas transport trunk network, which went into effect Apr. 30 under Royal Decree-Law 6/2009.

France and Spain began coordinating gas allocations in late 2008 as part of integrating their gas markets (OGJ Online, Dec. 30, 2008).

NET Holdings, Murphy enter Eagle Ford agreement

A unit of NET Holdings Management LLC executed a long-term, fee-based natural gas transportation agreement with Murphy Exploration & Production Co. USA covering a 100,000-acre dedication in the dry gas portion of the Eagle Ford shale.

Eagle Ford Midstream LP, a wholly owned subsidiary of NET, will build a 110-mile gas pipeline initially delivering pipeline-quality gas to Tilden, Tex., in McMullen County, where it will interconnect with NET's LaSalle Pipeline and Transco Pipeline. LaSalle Pipeline is a 53-mile, 16-in. OD intrastate gas pipeline extending through McMullen, LaSalle, and Frio counties, providing full gas supply requirements to a 200-Mw power plant. A second phase of the Eagle Ford Midstream pipeline will add deliveries to interstate and intrastate pipelines at the Agua Dulce hub in South Texas.

Eagle Ford Midstream is holding an open season for additional transportation services on its pipeline system.

As of May, Murphy Oil Corp. had accumulated more than 200,000 net acres and was running two rigs on the play (OGJ Online, May 3, 2010).

BLM releases EA for Magnum gas storage project

The US Bureau of Land Management, as a cooperating agency with the US Federal Energy Regulatory Commission, released the environmental assessment (EA) for the proposed Magnum gas storage project and proposed Pony Express resource management plan amendment on Nov. 23.

The release of the two documents triggered a period during which protests of the proposed resource management plan amendment can be filed. It runs through Dec. 22, BLM's Utah state office said.

Salt Lake City-based Magnum Gas Storage LLC has proposed constructing a high-deliverability, multicycle salt cavern gas storage facility north of Delta, Utah. It plans to develop four high-deliverability salt caverns, each with 8 bcf of working capacity, at the 2,050-acre site, according to information at the project's web site. It said that it expects to have the first cavern available for storage in early 2012.

The sponsor said the proposed facility will connect with multiple Rocky Mountain pipelines, including a direct connection by a new header pipeline to the Kern River and Questar pipelines at Goshen, Utah, and indirect service to the Opal, Wyo., area market hub interconnections through backhaul and displacement.

BLM noted that after the protest period, it will issue a decision record addressing the amendment and whether to amend the plan and issue a right-of-way grant.

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