OGJ Newsletter

Oct. 4, 2010
International News for oil and gas professionals


CEOs see recovery in global E&P spending

A group of chief executives of oil and gas companies and service firms sees recovery in international exploration and production spending but remains cautious about the Gulf of Mexico, says Barclays Capital.

In a summary of its CEO Energy Conference this month in New York, Barclays said speakers confirmed its belief that "a multiyear upcycle in international E&P spending is taking hold."

Activity will remain weak during the third and possibly fourth quarters of this year in countries such as Mexico, Algeria, and Libya. But the weakness there won't last into 2011.

"We expect growth to be particularly pronounced in 2011 in Brazil, Iraq, and Russia," Barclays said in its summary.

Several speakers highlighted Brazil as "a key focus market," Barclays said, citing expectations that Petrobras will order at least 7 deepwater drilling rigs in the first quarter of 2011 and as many as 14.

"We continue to believe that Iraq has significant upside, assuming the region remains safe," Barclays said.

And Russia will "show strong growth in 2011," it said.

In the US, E&P spending will be flat, and the Gulf of Mexico will remain weak in the near term.

"Oil service presenters at our conference are expecting the US market to move sideways through 2011 as continued demand for services in liquid-rich plays is potentially offset by a decline in natural gas-directed activity," Barclays said.

Service providers at the conference were "generally negative" about the Gulf of Mexico.

"Most companies tend to believe that the moratorium will be lifted at the end of November," Barclays said. "However, permit approvals have been slow to materialize for jack ups. It could take some time until drilling activity returns to a more normalized rate."

European countries reject drilling ban proposal

A group of 15 environment ministers representing European countries with an interest in the northeast Atlantic Ocean opposed a proposal for a moratorium on deepwater oil drilling in the area.

Gard Nybro-Nielsen, spokesman for Norway's Environment Ministry, said the OSPAR Convention "decided it will wait for the American report on the Deepwater Horizon accident" before taking any decision.

The ban on offshore drilling was proposed by Germany at a meeting in the western Norwegian city of Bergen, but it was quickly withdrawn following pressure from the region's oil-producing countries: Norway, Denmark, and the UK.

"Another proposal was tabled instead," said Nybro-Nielsen, referring to a decision by the member states to create six marine protected areas in the northeast Atlantic, in a bid to protect the region's environment.

The commission said the six zones, which cover a total area of 185,000 sq km, comprise "a range of vulnerable deepsea habitats and species" and that the decision to protect them should create a worldwide precedent.

But environmental organization Greenpeace, which is seeking a ban on deepwater offshore oil drilling, was not mollified and said that the failed proposal represented a "total victory for the oil industry."

Truls Gulowsen of Greenpeace Norway said the environmental officials meeting in Bergen "did not have the political courage to protect us against another accident like Deepwater Horizon, while it was in their reach to do so."

The Ospar Convention is comprised of 15 European countries, including Belgium, Denmark, Finland, France, Germany, Iceland, Ireland, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the UK.

Petroplus to sell its share of PBF Energy

In a move with implications for refinery acquisitions in the US and Europe, Petroplus Holdings AG, Zug, Switzerland, has agreed to sell its 32.62% share of PBF Energy Co. LLC, Greenwich, Conn., for $91 million.

Petroplus Holdings has acquired six refineries in Europe since 2000. PBF Energy, formed by Petroplus Holdings in partnership with Blackstone Group and First Reserve in 2008, acquired one refinery in the US this year and has agreed to acquire a second.

Thomas D. O'Malley, former chairman of independent US refiners Premcor Inc. and Tosco Corp., is chairman of both Petroplus Holdings and PBF.

Blackstone and First Reserve are buying the Petroplus interest in PBF.

Petroplus operates a total of 752,000 b/d of crude capacity in refineries in or near Coryton, UK; Antwerp, Belgium; Paris and Strasbourg, France; Ingolstadt, Germany; and Neuchatel, Switzerland.

Last year it idled a 117,000-b/d refinery at Teesside, UK, and is operating it as a marketing and storage facility.

PBF in June completed the acquisition of an idle 190,000-b/d refinery at Delaware City, Del., from Valero Corp. for $220 million and plans to restart it next year (OGJ, June 7, 2010, Newsletter).

More recently a subsidiary, PBF Holding Co. LLC, agreed to buy Valero's 185,000-b/d Paulsboro, NJ, refinery for $360 million plus the value of working capital estimated to be worth $275 million (OGJ Online, Sept. 27, 2010).

Concerning the sale of the PBF Energy interest, Petroplus Chief Executive Officer Jean-Paul Vettier cited three "primary reasons."

The deal will enable Petroplus to focus on core European operations, he said. It also will allow Petroplus, which recently "has seen attractive opportunities emerge for growth in Europe" to "acquire more attractive assets by concentrating on European opportunities."

And it will relieve Petroplus of financial pressure related to PBF's plans in the US.

"PBF expects to expand at a rapid rate in the United States," Vettier said. "This would require large investments by Petroplus to maintain our position as the largest owner within the partnership. In view of the difficult financial environment, the board decided that raising further capital to support such an expansion would not be in the best interest of shareholders."

FWS to study ANWR areas for wilderness status

Reviews of the coastal plain and two other study areas within the Arctic National Wildlife Refuge for possible federal wilderness designation will begin now that initial public comments have been gathered for updating ANWR's 1988 comprehensive conservation plan, the US Fish and Wildlife Service said on Sept. 27.

The three areas comprise almost all of ANWR's acreage that is not already wilderness, according to FWS's Region 7 office in Anchorage. The coastal plain is believed to have substantial petroleum resources but is presently off-limits for leasing, development, or any other oil and gas activity. FWS expects to complete the reviews by February 2011.

US Sen. Lisa Murkowski (R-Alas.) criticized the move, warning the US Department of the Interior agency against trampling a "no more" promise made to the state under the Alaska National Interest Lands Conservation Act. "This is a blatant political move by the [Obama] administration and clearly violates the promise of no more administrative wilderness designations in Alaska," she said on Sept. 28.

Murkowski, who is ranking minority member of the Senate Energy and Natural Resources Committee and a member of the Appropriations Committee, said she would work to cut off funding for what she said was an unauthorized wilderness review.

Environmental and conservation organizations applauded the agency's announcement. "For decades, the oil industry has sought to destroy this unique wilderness refuge, despite the fact that it represents the only place on Alaska's North Slope that is legislatively closed to development," Alaska Wilderness League Executive Director Cindy Shogun said on Sept. 28.

FWS said its decision to review near all nonwilderness ANWR land, including the coastal plain, for possible inclusion in the federal wilderness system was a response to many public comments it received. Land found suitable for wilderness recommendation, if any, will be identified and vetted through extensive public consultation and review as part of the comprehensive conservation plan revision process, it said.

Exploration & DevelopmentQuick Takes

Development set for gas field off Australia

BHP Billiton, operator of a combine with Apache Corp., will develop offshore Macedon gas field in the Exmouth subbasin of Western Australia with four production wells tied to a new gas plant onshore.

The field is 60 miles west of Onslow on production license WA-42-L. First production is expected during 2013. The companies didn't report rates.

BHP, with a 71.43% interest, estimates reserves at 400-750 bcf of recoverable wet gas and a total project cost of $1.5 billion. Apache holds the remaining interest.

The gas plant will be built at Ashburton North, 11 miles southwest of Onslow. From the plant, gas will flow via a sales pipeline to a pipeline between Dampier and Bunbury.

Vertical wells to test Baltic basin shales

Lane Energy Poland Sp.z o.o., Warsaw, plans to stimulate two vertical wells to test shales in Paleozoic formations in the Baltic basin in north-central Poland.

The company has drilled Lebien LE1 and cored the target shales and is drilling Legowo LE1. The unconventional gas program targets shales as deep as 3,500 m.

The drillsites, 50 km east and 20 km south, respectively, of Gdansk, are within 15 km of the Polish gas pipeline network.

A limited number of frac stages is planned at each well, said Kamlesh Parmar, Lane Energy Poland country manager. The shales are of Silurian and Ordovician age.

Lane Energy Poland employed a mix of locally provided and Schlumberger-managed services at the wells.

ONGC hits land finds in east, west India

India's Oil & Natural Gas Corp. Ltd. has reported oil and gas discoveries onshore in the Krishna-Godavari and Cambay basins.

The company drilled the Vygreswaram Southwest-1 well to 4,600 m to explore a synrift Cretaceous sequence in the KG basin.

The well cut a 30-m gas column and flowed 2.6 MMcfd of gas and 19 b/d of condensate. ONGC said it further established the prospectivity of the Cretaceous Raghavapuram play towards the southwest of VG-1 in the north Pasarlapudi area.

ONGC noted that it has made deeper discoveries at Vygreswaram, South Mahadevpattanam, and Penugonda that have added 18.5 million tons of oil and gas in place in the KG onshore.

Similar efforts in the Assam and Assam-Arakan basins have resulted in discoveries at Disangmukh and Panidihing in the Paleocene to early Eocene Tura formation, and exploration continues over Lakwa field.

Meanwhile, ONGC said the Limbodra East-1 well in the Cambay basin is an oil discovery with 11 m of gross pay in the Eocene Tarapur formation but did not give a flow rate. It went to 680 m to explore Limbodra and Kalol potential.

ONGC noted that in the current year it drilled the GK-28-2 well offshore in the Kutch basin as that basin's first oil discovery from the deeper Mesozoic section. That well had oil in the Late Cretaceous Mundra formation

Drilling & ProductionQuick Takes

Total to install reelable flowline at Islay

Total E&P UK Ltd. awarded Technip a €70 million engineering, procurement, construction, and installation contract that includes a 6-km reelable, electrically trace heated pipe-in-pipe flowline for the Islay gas field on UK Block 3/15 and Norway Blocks 29/6a and 29/6c.

Technip said the flowline will be the world's first subsea implementation of this technology that aims to prevent flowlines from becoming blocked by the formation of hydrates or wax.

The Islay development, in 120 m of water, is a pilot project for the use of this technology, which is designed for both shallow and deep water, according to Technip.

The contract scope covers installation of the flowline, control umbilical, subsea structures, and seabed preparation, including detailed design, engineering, and project management.

Technip's operating center in Aberdeen will execute the contract, supported by the Evanton, Scotland spoolbase and the group's Genesis Oil and Gas Consultants and Duco units.

Scheduled offshore installation is set for mid-2011 and will be carried out by vessels from the Technip fleet, including the new pipelay vessel, Apache II, and diving support vessels Skandi Arctic and Skandi Achiever.

Total estimates Islay field, discovered in 2008, contains 17 million boe of gas and condensate. The company expects a peak gas production of 2.5 million cu m/day from the field, with first production starting in second-half 2011 (OGJ Online, July 15, 2010).

Total holds a 100% interest in Islay.

Suncor completes tailings pond reclamation

Suncor Energy has completed the reclamation of a tailings pond at its oil sands mining operation north of Fort McMurray, Alta., in what it says is the first such achievement in the oil sands industry.

Pond 1, covering 220 hectares, was the first tailings pond Suncor used when it began commercial operations at the mine in 1967. Suncor has renamed the area Wapisiw Lookout.

The company expects the land to become a productive forest and wetland. Plantings this year include 630,000 shrubs and trees.

Suncor decommissioned Pond 1 in 2006. It started reclamation by filling the pond with 30 million tonnes of reclaimed tailings sand. It then developed drainage systems and swales to manage water runoff. As part of subsequent landscaping, the company spread 1.2 million cu m of topsoil over the surface to a depth of 50 cm.

Suncor has received approval to use new technology that it says can cut reclamation time of tailings ponds by decades (OGJ Online, Oct. 23, 2009). It expects to spend more than $1 billion on the technology across its operations.

Weir horizontal multifrac oil, gas wells on test

NGAS Resources Inc., Lexington, Ky., is placing under test its first two horizontal wells in Mississippian Weir sandstone in Roaring Fork field in the Appalachian basin. The wells were drilled in Letcher County, Ky.

The first well, with a 10-stage water frac in a 2,040-ft lateral at 3,600 ft true vertical depth, is ready to be placed on pump and will be connected to the gas gathering system around Oct. 1. The second well is to receive a 12-stage foam frac Sept. 27 in a 2,500-ft lateral at 3,600 ft TVD.

The company expressed encouragement with initial oil and gas shows during clean-up at the first well. Drilling the Weir horizontally should contribute higher proportions of crude oil to the production mix, the company said.

Weir is the primary producing formation in Roaring Fork field on the Kentucky-Virginia line, where some 500 Weir wells are producing oil and gas. In Amvest field to the southwest, NGAS has 78 vertical Weir producing wells.

The Weir formation is 170-180 ft thick in the area. NGAS has more than 70,000 undeveloped acres in the two fields and plans to develop the Weir horizontally with 100-acre spacing upon successful completion of the second test well. The company is permitting four more horizontal Weir wells for drilling this winter.


Valero announces sale of Paulsboro refinery

Valero Energy Corp. has signed an agreement to sell its 185,000-b/d refinery at Paulsboro, NJ, to PBF Holding Co. LLC, a wholly owned subsidiary of PBF Energy Co. LLC, for $360 million plus the value of net working capital and inventories, currently estimated to be $275 million. The sale price consists of $180 million in cash at closing and a note in the amount $180 million with a term not to exceed 18 months, Valero reported.

San Antonio-based Valero, which owns 15 refineries in the US, Canada, and Aruba, decided to explore its strategic options for the Paulsboro refinery in third-quarter 2009 as part of its goal to exit refining operations on the US East Coast.

Algeria lets $908 million refinery contract

Algeria's state-owned Sonatrach said it awarded a $908 million contract to Technip to refurbish the 60,000-b/cd refinery at Algiers. Work on the refinery will take 38 months to complete at a cost of 67.8 billion dinars ($908.2 million), Sonatrach said.

The work at the refinery is part of a modernization plan that will see construction of a new refinery southwest of Algiers at Tiaret. Algeria currently has four refineries with a combined capacity of about 450,000 b/cd.

Analyst IHS Global Insight saw the awarded contract as a significant development for the state-owned firm. "The fact that a contract has now been awarded signals that Sonatrach is coming out of its decision-making paralysis," the analyst said.

The Technip contract is the first major project awarded by Sonatrach since January, when the chief executive and several senior executives were removed from their posts as part of an investigation into corruption. As part of the fall-out, Nourredine Cherouati was named as Sonatrach's new chief executive, replacing the long-serving Energy minister Chakib Khelil.

In January, Khelil was quoted as saying Algeria's oil and gas production was unaffected by allegations of corruption among officials at Sonatrach. At the time, though, it was thought that Khelil himself could suffer political damage due to the arrest of one of his close confidants, Chief Executive Mohamed Meziane (OGJ Online, Jan. 20, 2010).

Turkish refinery to get Axens hydrotreaters

SOCAR & TURCAS Refinery AS, Istanbul, will use Axens hydrotreating technology in key units of the 214,000 b/d grassroots refinery under construction at Izmir, Aliaga Province, Turkey. The refinery will be integrated with a Petkim petrochemical complex at Izmir (OGJ, June 28, 2010, Newsletter). Along with petrochemical feedstocks, it will produce Euro V diesel for the local market.

The contract with Axens covers three units handling streams from a delayed coker: a 20,000 b/d naphtha hydrotreater, a 26,000 b/d unit using Axens Prime K technology for jet fuel, and a 68,000 b/d unit using Axens Prime D technology for 10 ppm diesel.

India beats deadline with clean-fuel step

India has completed its transition to Euro III-like gasoline and diesel specifications outside its 13 largest cities. Completion of the step occurred ahead of an Oct. 1 deadline, Jitin Prasada, minister of state for petroleum, said in New Delhi.

The country introduced fuels meeting tougher standards, called Bharat Stage IV, in the large cities last April. Among other requirements, India's Bharat Stage III standards, adapted from Euro III fuels, cap sulfur content at 150 ppm for gasoline and 350 ppm for diesel. Bharat Stage IV, corresponding to Euro IV fuels, caps sulfur at 50 ppm for both fuels.


Negotiations slated for Caribbean gas line

A government team from Barbados and representatives of various agencies and companies in Trinidad and Tobago are to begin negotiations in the fourth quarter for the export of natural gas to be to Barbados from the twin-island nation.

The government of Barbados has approved the Eastern Caribbean Gas Pipeline Project and an assurance. Barbados is to receive its first tranche of gas in January 2014.

Greg Rich, chief executive of Eastern Gas Pipeline Co., expects negotiations to be completed in 18-24 months. The proposed pipeline is to be laid from the Cove Industrial Estate in Tobago to Barbados.

The gas will be sold to the Barbados Light & Power Co. Ltd. for electric power generation. Rich said that will reduce the company's cost by 15-24% from the diesel fuel it now uses.

Barbados said the project reduce the uncertainty of changing oil prices its population now faces.

National Gas Co. Ltd. will provide the gas from Trinidad and Tobago's domestic grid but will likely purchase the gas from BHP Billiton's production in Block 2c.

Rich said the pipeline is to be constructed to transport gas as far north as the French departments of Martinique and Guadeloupe with spurs to other islands such as St. Lucia and Dominica. He estimated the project will cost $350 million and could stimulate higher prices for Trinidad and Tobago's gas than it gets from LNG at Henry Hub, La.

GDF Suez to sell LNG to Gazprom, Kogas

GDF Suez recently signed agreements to sell LNG to OAO Gazprom and Korea Gas Corp. (Kogas) over a 2½-year period.

The company announced Sept. 27 a "medium-term" agreement with South Korea's Kogas for delivery of 41 LNG cargoes starting in the fourth quarter and extending to 2013. Overall volumes will reach around 2.5 million tonnes of LNG.

On Sept. 22, GDF Suez revealed an agreement with London-based Gazprom Global LNG (GGLNG) to sell 15 fob cargoes of LNG (around 900,000 tons). The first one is planned for early 2011 and will extend over 2½ years.

The cargoes are sourced from GDF Suez's diversified LNG portfolio amounting to 16.5 million tonnes/year in Algeria, Egypt, Nigeria, Norway, Yemen, and Trinidad and Tobago. It's transported on 18 LNG tankers operated.

GGLNG spokeswoman Anastasia Ivanova said the marketing destination for LNG acquired by Gazprom would depend on global demand trends.

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