OGJ Newsletter

March 10, 2014
International News for old and gas professionals


Gazprom to discontinue gas price discount for Ukraine

OAO Gazprom plans to discontinue its natural gas price discount for Ukraine in April.

Russian Prime Minister Dmitry Medvedev discussed gas pricing with Alexey Miller, chairman of Gazprom's management committee, in a Mar. 4 meeting. According to a transcript of the meeting posted on Gazprom's web site, Miller said Ukraine has total gas indebtedness of $1.529 billion.

Miller said the discount price had been agreed upon in late 2013, "provided that Ukraine would ultimately clear the debts accumulated over the last year and would pay in full for current supplies."

Gazprom hasn't received any payments for gas supplied Ukraine in January "and our Ukrainian partners informed us yesterday that they would not be able to pay in full for the gas supplied in February," Miller said.

"Given that Ukraine is not fulfilling its obligations or complying with the agreements reached when signing the contractural addendum providing a gas discount, Gazprom resolved to remove the discount starting from this April," Miller said.

Miller said Ukraine has repaid $1.3 billion of 2013 debt. Medvedev said, "It's no secret that those 50% they paid came from the sovereign loan we had given them."

Miller said the "easiest" way to settle indebtedness and payments for current gas supplies would be for Gazprom to provide Ukraine with a loan of $2 billion or $3 billion.

Medvedev told Miller that "your decision to terminate the beneficial terms of supplies looks completely justified." He said he will entrust the Ministry of Finance to consider all "possibilities and obstacles."

US district court tosses out judgment against Chevron

The US District Court for the Southern District of New York has ruled that the $9.5 billion judgment against Chevron Corp. subsidiary Texaco Petroleum Co. in Ecuador was the product of fraud and racketeering and thus unenforceable.

The ruling comes nearly 6 months after an international tribunal determined that agreements signed by the Ecuadorian government in 1995 and 1998 released Texaco from environmental liability for land on which it once produced oil (OGJ Online, Sept. 18, 2013).

Ecuadorian villagers alleged that Texaco had polluted the Lago Agrio oil field in the northeastern part of the country during 1964-92. Chevron, which bought Texaco in 2001, said the company spent $40 million on environmental remediation and was released from further liability, and that the environmental damage occurred after Texaco relinquished control of the field.

BP to split off US onshore oil, gas business

BP PLC reported plans to establish a separate business to manage its onshore oil and gas assets in the US Lower 48. BP currently oversees its Lower 48 onshore assets through its Houston-based North America Gas group.

The new business will operate separately from the rest of BP, led by a separate management team in Houston apart from the company's Westlake campus.

BP said it will have separate governance, processes, and systems designed to address the unique competitive and operating environment in the Lower 48 onshore.

The company is expected to begin disclosing separate financials for the new business next year.

BP in recent years has reshaped its North American Gas portfolio by divesting noncore assets and focusing development in US unconventional plays such as the Eagle Ford shale in South Texas (OGJ Online, Apr. 4, 2013). Overall BP has invested $50 billion in the US over the past 5 years.

The company holds an unconventional resource base of 7.6 billion boe across 5.5 million acres and an interest in more than 21,000 wells. The company employs 20,000 people in 50 states.

ExxonMobil outlines 2014 production plans

ExxonMobil Corp. said it expects to start production at 10 major projects this year, adding 300,000 net boe/d of net capacity.

The increased activity will come at a lower cost than last year, as the company's capital spending will decline to $39.8 billion from a peak of $42.5 billion in 2013. Excluding potential acquisitions, capital expenditures are expected to average less than $37 billion/year during 2015-17.

ExxonMobil in 2013 replaced more than 100% of production while adding proved oil and gas reserves totaling 1.6 billion boe, including a 153% replacement ratio for crude oil and other liquids. At yearend, proved reserves totaled 25.2 billion boe, comprised of 53% liquids and 47% natural gas.

Major projects in 2014 involve the largest offshore oil and gas platform in Russia, heavy oil expansion in Canada, activity in deepwater Gulf of Mexico, and LNG in Papua New Guinea (OGJ Online, Mar. 13, 2013; May 8, 2013; May 24, 2013).

Over the next few years, ExxonMobil anticipates additional project startups in several countries, including Australia, Indonesia, Canada, Nigeria, and the US, adding a total of 1 million net boe/d by 2017. Overall the company said it's pursuing more than 120 projects to develop 24 billion boe.

Liquids production is expected to rise 2% this year and 4%/year during 2015-17, representing the majority of the company's total production increase. Liquids and liquids linked natural gas are projected to account for 69% of the company's total production by 2017.

Exploration & DevelopmentQuick Takes

Statoil, ExxonMobil test Tanzania Block 2 resource

Statoil ASA and ExxonMobil Corp. completed their first drillstem test in the Tanzania Block 2 resource. Two separate, equipment-constrained intervals flowed at a maximum of 66 MMcfd, confirming good reservoir quality and connectivity, according to Statoil.

The test was conducted in 2,400 m of water 80 km offshore the southern coast of Tanzania in the Zafarani reservoir. Statoil expects the production well rate to be higher than those obtained under the equipment constraints of the test. The company estimates the total Block 2 in-place volumes at 17-20 tcf (OGJ Online, Dec. 6, 2013).

Statoil operates the license on Block 2 on behalf of Tanzania Petroleum Development Corp. with 65% working interest. ExxonMobil owns the remaining 35% (OGJ Online, Mar. 31, 2010).

Lundin completes Balqis exploration well

Lundin Petroleum AB has completed exploration drilling of the Balqis prospect in the Baronang production-sharing contract (PSC) in the Natuna Sea off Indonesia.

Preliminary analysis of wireline logs indicates that the well encountered the targeted Oligocene Upper and Lower Gabus formation sandstone in well-developed reservoirs but no hydrocarbons were encountered. The Balqis-1 well reached basement at a total depth of 2,109 m below mean sea level.

The lower section of the Balqis-1 will now be plugged and abandoned and the drilling of the Boni-1 exploration side-track well will commence below the Balqis-1 9.625-in. casing shoe.

The Boni-1 side-track well will test the stratigraphic on-lap play of the Lower Gabus formation sandstones against the basement 800 m west of the vertical Balqis-1 well.

Lundin Petroleum estimates the Boni prospect to have the potential to contain unrisked, gross, prospective resources of 55 million boe. The planned total vertical depth is 2,300 m below mean sea level over a drilling period of 5 days.

Lundin's partner Nido Petroleum Ltd. previously exercised its option in accordance with the farm-in agreement to increase its participating interest from 10% to 15% in Baronang, subject to governmental approval.

Lundin Petroleum, through its wholly owned subsidiary Lundin Baronang BV, is Baronang's operator with 85% working interest. Lundin operates five PSCs in Indonesia—Baronang, Cakalang, Gurita, South Sokang, and Cendrawasih VII. Baronang and Cakalang were awarded to the company by Indonesia in 2008 (OGJ Online, Nov. 3, 2008).

WHL farms out Seychelles exploration project

WHL Energy Ltd., Perth, has farmed out a 75% interest in its Seychelles offshore exploration project to Ophir Energy PLC, London.

Under the agreement, Ophir will fully fund the acquisition of 1,500 sq km of 3D seismic up to a total of $17 million. Ophir also will pay WHL $4 million cash for partial recovery of back costs.

Following acquisition and evaluation of the data, Ophir may either withdraw from the farm-in or exercise two options.

The first is to fully fund the acquisition of a further 1,000 sq km of 3D seismic up to a total of $12 million. The second is to fund 90% of the cost of the first exploration well up to a total of $30 million.

Once these options have been exercised, Ophir will pay WHL another $2 million in cash to complete recovery of past expenses.

The initial seismic work is expected to begin this year and spill into 2015. WHL is applying to Seychelle authorities to extend the current exploration term till July 31, 2016.

The company initially acquired its interest offshore Seychelles in 2010. This consists of a 17,345 sq km exploration concession.

The company has identified 10 leads with potential to hold 200 million bbl of oil. Most are in less than 50 m of water with drilling targets at 2,000 m below the seafloor.

Ophir was formed in 2004 and has an extensive deepwater acreage position in west and east Africa with regional offices in Dar es Salaam and Mtwara, Tanzanier as well as in Kenya, Equatorial Guinea, Gabon, and Ghana.

Drilling & ProductionQuick Takes

Shell UK lets contract for Peterhead CCS project

Shell UK Ltd. has let a front-end engineering and design contract to Technip SA for the onshore elements of the Peterhead Gas Carbon Capture and Storage (CCS) demonstration project in Aberdeenshire, Scotland.

The project is designed to capture, compress, and transport by pipeline 1 million tonnes/year of carbon dioxide to an offshore gas reservoir for long-term storage beneath the North Sea.

The FEED scope includes a grassroots carbon capture and compression plant and modifications to an existing combined cycle gas turbine power plant.

The Peterhead CCS project was chosen in 2013 as one of two CCS demonstration projects to progress to the next stage of the UK government's Department of Energy and Climate Change CCS competition. Shell is developing the Peterhead CCS project with strategic support from SSE Generation Ltd., owner and operator of the Peterhead Power Station.

BP lets contract for Khazzan gas project in Oman

BP PLC let a contract to Jacobs Engineering Group Inc. for process and infrastructure work on the Khazzan gas project in Oman.

Jacobs will provide engineering, procurement, and construction management services for $2 billion of gas gathering and water pipelines, wellhead production facilities, and export pipelines for development of the southern sector of Block 61 (OGJ Online, June 20, 2011).

Jacobs' work also includes detailed design and program management for associated project infrastructure.

Oman and BP in December 2013 reported a gas sales agreement and an amended production-sharing agreement for development of the Khazzan field, with BP as operator.

The Khazzan project represents the first phase in development of one of the Middle East region's largest unconventional tight gas accumulations.

Innovator platform decommissioned in gulf

InterMoor, a subsidiary of Acteon Group Ltd., has completed decommissioning operations of the Innovator platform in Gomez field on Mississippi Canyon Block 711 in the Gulf of Mexico.

The project, conducted in 910 m of water, involved disconnecting 10 risers-umbilicals and 12 mooring lines, and towing the Innovator to Ingleside, Tex.

InterMoor's involvement with the Innovator platform dates back to 2006 when the structure was a mobile offshore drilling unit (MODU) known as the Rowan Midland.

Last year, US Department of Justice sued ATP Oil & Gas Corp. and ATP Infrastructure Partners LP for violating provisions of the federal Clean Water Act and Outer Continental Shelf Lands Act by allowing the discharges from the Innovator (OGJ Online, Feb. 12, 2013).

Loyz Energy to buy stake in Thai licenses

Loyz Energy Ltd., Singapore, has agreed to buy 20% interests in three onshore license areas under development in Thailand.

The seller is Carnarvon Thailand Ltd., a subsidiary of Carnarvon Petroleum Ltd., Perth, which now holds a 40% interest. Loyz Energy will pay $65 million.

The SW1, L44/43, and L33/43 production licenses, about 300 km north of Bangkok, produce 1,200-1,400 b/d of oil (OGJ Online, May 28, 2009). Loyz Energy said operator ECO Orient Energy (Thailand) and ECO Orient Resources (Thailand), plans to boost production to 3,000 b/d in June and 5,000 b/d by December.

Loyz Energy said ECO Orient has drilled three wells on the licenses so far this year in a 15-well program. All three wells had oil shows and await test results.

Proved and probable reserves, according to a December 2012 assessment by Chapman Petroleum Engineering Ltd. for the operator, are 29.3 million bbl of oil.

Carnarvon said activity last year included drilling of eight development wells across all the areas, the start of water injection on the L33/43 license, and the acquisition of 100 sq km of 3D seismic data.

ECO Orient bought its 60% interest in the concessions in 2012 from Pan Orient Energy Corp., Calgary.


Byco commissions Pakistan's largest refinery

Byco Oil Petroleum Ltd. (BOPL), a subsidiary of Byco Petroleum Pakistan Ltd., has commissioned its long-awaited 120,000-b/d refinery in Baluchistan Province, Pakistan (OGJ Online, Mar. 18, 2010).

The refinery, now Pakistan's largest, began operations in mid-February and currently is operating at its initial capacity of 50,000 b/d, according to a recent company release.

With start-up of the first phase now completed, the company is preparing for the next stage of the commissioning, which will increase the plant's processing capacity to 90,000 b/d and onwards to 120,000 b/d, said Derek Lawler, BOPL chief executive.

The refinery already has started to produce on-specification products, including gasoline, diesel, fuel oil, LPG, and naphtha.

Within the next 12 months, the refinery will be able to produce Euro 2-standard gasoline as well as high-speed diesels meeting international standards, Lawler added.

No timetable was disclosed for when the refinery would reach its full 120,000-b/d processing capacity.

New Zealand refinery advances expansion project

New Zealand Refining Co. Ltd. (NZRC) said the expansion of its 107,000-b/d Marsden Point refinery at Northland on the North Island's east coast remains on track.

Construction associated with the $365 million (NZ) Te Mahi Hou (TMH) expansion project at Marsden Point—New Zealand's only refinery—continues to progress as planned, according to the latest company presentation.

Engineering design for the project has been completed, and reviews conducted in December 2013 confirm the project is on time and budget for targeted commissioning in December 2015, NZRC said.

Fabrication and delivery of key units to the refinery also are well advanced, according to the company.

In addition to the pouring of the concrete foundation in November 2013, a new reactor, compressors, and furnace already have been delivered to the refinery, NZRC Chairman David Jackson said.

NZRC also confirmed it raised $48 million (NZ) in capital funding on Feb. 28 in a placement of new shares, which will provide additional funding flexibility for the project.

The TMH project, approved in February 2012 and initially named the Continuous Catalyst Regeneration Platformer project, is designed to increase high-quality fuel production by replacing the refinery's semiregeneration platformer and enabling it to process increased volumes of a wider range of crudes more effectively and efficiently, according to the company's web site.

The company also said work is under way to improve yields from the refinery's hydrocracker, which is scheduled for a maintenance shutdown beginning Mar. 14.

NZRC expects the expansion will increase the refinery's production output by 3 million bbl/year.

Kurdish refinery launches expansion plans

Qaiwan Group, Dubai, has issued a call for bids related to the planned expansion of its 34,000-b/d Bazian refinery 25 km from Sulaymaniyah on the coastal belt of Iraq's Kurdistan region.

The company has invited bids for engineering, procurement, and construction for Phase 3 of its Bazian refinery expansion project (BREP3), Qaiwan said.

Launch of the tender follows completion of BREP3's front-end engineering design, currently in progress by France's Technip SA, which also completed conceptual design for the project in late 2012, according to Qaiwan.

The BREP3 project, designed to increase Bazian's refining capacity to 84,000 b/d, will add processing units at the refinery, including a 50,000-b/d crude distillation unit, a 33,500-b/d naphtha hydrotreating unit, a 22,500-b/d continuous catalytic reformer, a 10,500-b/d isomerization unit, and a 13,500-b/d kerosene kydrotreating unit, Qaiwan said.

An amine regeneration, sulfur recovery unit, and waste water treatment unit with supporting off-sites and utilities on a grassroots site adjacent to the existing refinery also will be added as part of the project, according to the company.

Qaiwan expects the addition of the distillation unit and supporting utilities to be completed by fourth-quarter 2016, with the remaining additions due for completion by fourth-quarter 2017, the company said.

The company plans to award the EPC contract during this year's third quarter.

In coordination with the BREP3 project and to maximize efficiency at the plant, the company also is in the design stage of a 110-km, 18-in., 125,000 b/d pipeline that will link the refinery to regional oil production fields. Basic design for the pipeline by Technip Germany will be completed at the end of March, Qaiwan said.

The Bazian refinery—which currently produces gasoline, kerosene, and diesel for the consumer market, and naphtha and fuel oil for the industrial market—was originally established in 2009 with two identical 10,000-b/d CDUs designed to process crudes with 32-36° API gravity.

Qaiwan unit Bezhan Pet Co. was commissioned in 2009 to complete, rehabilitate, construct, develop, finance, and operate the 20,000-b/d refinery, which at that time had an actual capacity of 12,000 b/d while processing 47° API gravity crude. The first phase of expansion at Bazian was completed in September 2010, which through a series of upgrades, BPC increased to a 34,000-b/d capacity in August 2012, according to Qaiwan.


Gazprom Neft connects Badra field to main system

JSC Gazprom Neft has completed laying, testing, and connecting a 165-km oil pipeline from Badra field in Iraq to Gharraf field.

With systems already in place at Gharraf, completion of the Badra pipeline means the field is connected to the main Iraqi pipeline system.

The new system has the capacity to transport 204,000 b/d of oil, and can now supply the export terminal at Basra.

Work is continuing to launch production by midyear: a 170,000-b/d central gathering station and a gas treatment plant with capacity of 1.5 billion cu m/year.

Gazprom Neft produced its first oil from Badra in December 2013 as part of operating tests on well BD4 (OGJ Online, Jan. 9, 2014).

Badra field is in Wasit Province in eastern Iraq. Oil reserves at Badra are estimated at 3 billion bbl. By 2017, Badra production is forecast to reach 170,000 b/d.

Gazprom Neft, the operator, has 30% interest. Partners include Iraqi Oil Exploration Co. 25%, South Korea's Kogas 22.5%, Malaysia's Petronas 15%, and Turkey's TPAO 7.5%.

KNPC lets contract for Kuwait LNG terminal

Kuwait National Petroleum Co. (KNPC) has let a prefrontend engineering design and frontend engineering design contract for an LNG import and regasification terminal in Kuwait to unit of Foster Wheeler AG's global engineering and construction group.

The terminal will have design sendout capacity of about 1.5 bcfd with four 180,000-cu m, full-containment LNG storage tanks. The design also will allow for future expansions of as much as 3 bcfd and installation of four more equally sized LNG storage tanks.

The terminal is scheduled for completion in October with commercial operations starting in 2020.

No contract value was disclosed in the Foster Wheeler announcement. The company has previously completed conceptual and detailed feasibility studies for the terminal, it said, to assist in "selection of the most suitable technology and location for the new terminal."

Woodside signs LNG supply deal with Korea Gas

Woodside Petroleum Ltd. has signed a sales and purchase agreement with Korea Gas Corp. for a maximum supply of 2.2 million tonnes of LNG during 3 years from its 4.3 million tonne/year Pluto LNG plant on the Burrup Peninsula near Karratha in Western Australia.

Gas will be sourced from previously uncommitted volumes.

Previous sales deals struck with foundation customers Kansai Electric Power Co. and Tokyo Gas Co. Ltd. in 2007 have been reduced from 3.75 million tpy to 3.2 million tpy.

Woodside holds 90% interest in the Pluto project with Kansai Electric and Tokyo Gas each holding 5%.